Document:

Membership Interest Purchase Agreement

 Exhibit 10.2 
  
 EXECUTION VERSION 
  
 MEMBERSHIP INTEREST PURCHASE AGREEMENT 
  
 by and among 
  
 HORIZON HEALTH HOSPITAL SERVICES, INC. 
  
 as Purchaser, 
  
 JERRY G. BROWDER 
  
 as
Seller 
  
 and 
  
 KINGWOOD PINES HOSPITAL, LLC 
  
  
  
 Dated as of January 17, 2006 

 TABLE OF CONTENTS 
  

					
	 	 	 	  	Page No.

	 ARTICLE 1    DEFINITIONS; SALE AND TRANSFER OF MEMBERSHIP INTEREST; CONSIDERATION;
                         CLOSING
	  	2
	    1.1	 	Definitions	  	2
	    1.2	 	Agreement to Sell and Purchase	  	3
	    1.3	 	Purchase Price	  	3
	    1.4	 	Closing Date	  	3
	    1.5	 	Items to be Delivered by Seller at Closing	  	3
	    1.6	 	Items to be Delivered by Purchaser at Closing	  	4
		
	ARTICLE 2    REPRESENTATIONS AND WARRANTIES OF SELLER	  	5
	    2.1	 	Authority.	  	5
	    2.2	 	Authorization/Execution	  	6
	    2.3	 	Organization; No Subsidiaries; No Conflicts.	  	6
	    2.4	 	Title to Membership Interest; General Partner.	  	7
	    2.5	 	Financial Statements; Changes.	  	8
	    2.6	 	Tax and Other Returns and Reports	  	8
	    2.7	 	Contracts	  	11
	    2.8	 	Real and Personal Property; Title to Property; Leases.	  	11
	    2.9	 	Assets	  	12
	    2.10	 	Membership Interest.	  	14
	    2.11	 	Intangible Property	  	15
	    2.12	 	Legal Proceedings	  	15
	    2.13	 	Accounting Records; Internal Controls.	  	15
	    2.14	 	Insurance	  	15
	    2.15	 	Employees.	  	16
	    2.16	 	Employee Benefits.	  	16
	    2.17	 	Certain Interests	  	17
	    2.18	 	Intercompany Transactions	  	18
	    2.19	 	Inventory	  	18
	    2.20	 	Receivables	  	18
	    2.21	 	Third Party Payors and Suppliers	  	18
	    2.22	 	Environmental Compliance	  	18
	    2.23	 	Powers of Attorney	  	20
	    2.24	 	Medicare and Medicaid; Third-Party Payors; Compliance with Health Care Laws.	  	20
	    2.25	 	Compliance Program	  	22
	    2.26	 	HIPAA	  	22
	    2.27	 	Restricted Grant and Loan Programs	  	23
	    2.28	 	Experimental Procedures	  	23
	    2.29	 	Medical Staff; Physician Relations	  	23
	    2.30	 	No Brokers or Finders	  	23
	    2.31	 	Improper Payments	  	23
	    2.32	 	No Misrepresentations	  	23

  

 - i - 

					
	    2.33	 	Liabilities	  	24
	    2.34	 	Conduct of Business	  	24
	    2.35	 	Negative Assurances	  	24
		
	ARTICLE 3    REPRESENTATIONS AND WARRANTIES OF PURCHASER	  	25
	    3.1	 	Authority	  	25
	    3.2	 	Authorization/Execution	  	25
	    3.3	 	Organization and Good Standing; No Violation.	  	26
	    3.4	 	Brokers and Finders	  	26
		
	ARTICLE 4    COVENANTS OF SELLER	  	26
	    4.1	 	Access and Information; Inspection Period, Preparation of Exhibits and Schedules	  	26
	    4.2	 	Conduct of Business	  	27
	    4.3	 	Negative Covenants	  	27
	    4.4	 	Consents	  	28
	    4.5	 	Additional Financial Information	  	28
	    4.6	 	Seller’s Efforts to Close	  	28
	    4.7	 	Updating of Disclosure Schedules.	  	28
		
	ARTICLE 5    COVENANTS OF PURCHASER	  	29
	    5.1	 	Purchaser’s Efforts to Close	  	29
	    5.2	 	Required Governmental Approvals	  	29
		
	ARTICLE 6    CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER	  	30
	    6.1	 	Accuracy of Representations and Warranties and Compliance with Obligations	  	30
	    6.2	 	Governmental Authorizations	  	30
	    6.3	 	Signing and Delivery of Instruments	  	30
	    6.4	 	Unfavorable Action or Proceeding	  	30
	    6.5	 	No Material Adverse Change	  	30
	    6.6	 	Required Consents	  	30
	    6.7	 	Disclosure Schedules	  	30
	    6.8	 	Real Property Title Matters	  	31
	    6.9	 	Lock Boxes	  	31
		
	ARTICLE 7    POST-CLOSING MATTERS	  	31
	    7.1	 	Preservation and Access to Records After the Closing.	  	31
	    7.2	 	Provision of Benefits of Certain Contracts	  	32
	    7.3	 	Misdirected Payments, Etc	  	32
	    7.4	 	Insurance	  	32
		
	ARTICLE 8    SURVIVAL AND INDEMNIFICATION	  	32
	    8.1	 	Survival	  	32
	    8.2	 	Indemnification of Purchaser by Seller.	  	33
	    8.3	 	Indemnification of Seller by Purchaser.	  	34
	    8.4	 	Method of Asserting Claims	  	34

  

 - ii - 

					
	ARTICLE 9    TAX AND COST REPORT MATTERS	  	37
	    9.1	 	Tax Matters.	  	37
		
	ARTICLE 10    MISCELLANEOUS PROVISIONS	  	38
	    10.1	 	Entire Agreement	  	38
	    10.2	 	Further Assurances and Cooperation	  	38
	    10.3	 	Successors and Assigns	  	38
	    10.4	 	Governing Law	  	38
	    10.5	 	Amendments	  	39
	    10.6	 	Notices	  	39
	    10.7	 	Headings	  	39
	    10.8	 	Confidentiality and Publicity	  	39
	    10.9	 	Third Party Beneficiary	  	40
	    10.10	 	Expenses and Attorneys’ Fees	  	40
	    10.11	 	No Waiver	  	40
	    10.12	 	Severability	  	40
	    10.13	 	Counterparts	  	41

  

 - iii - 

 LIST OF EXHIBITS 
  

			
	EXHIBIT

	  	 DESCRIPTION

	A	  	Assignment of Membership Interest
	B	  	Permitted Encumbrances

  

 - iv - 

 LIST OF SCHEDULES 
  

			
	 SCHEDULE

	  	 DESCRIPTION

	 2.3(e)
	  	 Consents/Conflicts

	 2.3(f)
	  	 Regulations

	 2.3(g)
	  	 Limited Partnership Agreement

	 2.5
	  	 Financial Statement Matters

	 2.7
	  	 Contracts

	 2.8
	  	 Property/Encumbrances

	 2.9
	  	 State of Assets

	 2.9(a)
	  	 Real Property

	 2.9(b)
	  	 Personal Property

	 2.9(d)
	  	 Leases

	 2.9(o)
	  	 Lock Boxes and Accounts

	 2.11
	  	 Intangible Property

	 2.12
	  	 Litigation

	 2.14
	  	 Insurance/Claims

	 2.15
	  	 Employees

	 2.16
	  	 Employee Benefits

	 2.17
	  	 Certain Interests

	 2.18
	  	 Intercompany Transaction

	 2.21
	  	 Payor Contracts

	 2.24
	  	 Medicare/Medicare Compliance

	 2.29
	  	 Medical Staff/Physician Relations

	 2.34
	  	 Conduct of Business

	 2.35
	  	 Negative Assurances

  

 - v - 

 TABLE OF DEFINED TERMS 
  

			
	 Term

	  	Page

	Accounts Receivable	  	13
	Affiliate	  	2
	Agreement	  	1
	Balance Sheet Date	  	8
	Claim Notice	  	35
	Closing	  	3
	Closing Date	  	3
	Code	  	9
	Commonly Controlled Entity	  	17
	Company	  	1
	Contract	  	11
	Contract and Lease Consents	  	4
	Control	  	3
	Damages	  	33
	Declaration	  	12
	Disclosure Schedules	  	2
	Document Retention Period	  	31
	Effective Time	  	3
	Encumbrances	  	3
	Environmental Laws	  	18
	ERISA	  	16
	Execution Date	  	1
	GAAP	  	2
	Government Programs	  	21
	Governmental Approvals	  	4
	HIPAA	  	22
	Hospital	  	1
	Indemnified Party	  	34
	Indemnifying Party	  	35
	Indemnity Notice	  	36
	Intangible Property	  	15
	Interest Assignment	  	3
	Inventory	  	13
	JCAHO	  	20
	Knowledge of Purchaser	  	2
	Knowledge of Seller	  	2
	Leases	  	13
	Licenses	  	13
	Limited Partnership Agreement	  	7
	Lock Boxes	  	14

  

 - vi - 

			
	Management Agreement	  	1
	Material Adverse Change	  	2
	Material Adverse Effect	  	2
	MCC	  	1
	Membership Interest	  	1
	Notice Period	  	35
	Option	  	1
	Other Assets	  	1
	Partnership	  	1
	Partnership Agreement Amendment	  	3
	Party	  	1
	Permitted Encumbrances	  	11
	Person	  	3
	Personal Property	  	13
	Plan	  	16
	Prepaids	  	13
	Purchase Price	  	3
	Purchaser	  	1
	Real Property	  	13
	Real Property Purchase Contract	  	1
	Regulations	  	7
	Relevant Claim	  	34
	Seller	  	1
	Superseded Agreements	  	38
	Tax	  	10
	Texas Agency	  	20
	Third Party Claim	  	35

  

 - vii - 

 MEMBERSHIP INTEREST PURCHASE AGREEMENT 
  
 This MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”) is
made and entered into as of the 17th day of January, 2006 (the “Execution Date”), by and among JERRY G. BROWDER, an individual resident of Denton, Denton County, Texas (“Seller”), HORIZON HEALTH HOSPITAL SERVICES,
INC., a Delaware corporation (“Purchaser”), and KINGWOOD PINES HOSPITAL, LLC, a Texas limited liability company (the “Company”). Seller, Purchaser and the Company 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.
Seller owns a 100% Membership Interest in the Company (the “Membership Interest”), and the Membership Interest constitutes all the issued and outstanding membership interests of the Company; and 
  
 B. Purchaser desires to purchase the Membership Interest from Seller, and
Seller desires to sell the Membership Interest to Purchaser for the consideration and upon the terms and conditions contained in this Agreement; and 
  
 C. The Company owns a 0.1% general partner interest in and acts as the sole general partner of SHC-KPH, LP, a Texas limited partnership (the
“Partnership”); and 
  
 D. The Partnership exclusively
operates and manages Kingwood Pines Hospital, a 78-bed private psychiatric hospital located at 2001 Ladbrook, Kingwood, Texas 77339 (the “Hospital“) under that certain Management Agreement dated January 31, 2005, between Medical
Capital Corporation (“MCC”) and the Partnership, as amended by that certain Amendment to Management Agreement dated June 3, 2005 (as amended, the “Management Agreement”); and 
  
 E. The Partnership has exercised its option contained in the Management
Agreement to purchase the real property on which the Hospital is located along with all other assets constituting or relating to the Hospital from MCC (the “Option”) and is a party to an Improved Property Commercial Contract, dated
effective December 22, 2005, with MCC relating to the purchase of the Real Property (the “Real Property Purchase Contract”) and has concurrently purchased the Real Property and related assets constituting or relating to the Hospital
subject to the Option, as described in the Management Agreement (the “Other Assets”). 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 1 

 A G R E E M E N T: 
  
 NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained in this
Agreement, the Parties hereto agree as follows: 
  
 ARTICLE 1

 DEFINITIONS; SALE AND TRANSFER OF MEMBERSHIP INTEREST; 
 CONSIDERATION; CLOSING 
  
 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, 
  
 (a) The defined terms used in this Agreement shall include the plural as well as the singular. 
  
 (b) All accounting terms not otherwise defined herein have the meanings
determined in accordance with generally accepted accounting principles (“GAAP”). 
  
 (c) All references in this Agreement to designated “Articles,” “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of the body of this Agreement.

  
 (d) Pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms. 
  
 (e) The words
“including” and “include” shall be deemed to mean in each instance “including, without limitation,” except as stated otherwise herein. 
  
 (f) The words “herein,” “hereof” and “hereunder” and other words of similar import refer to
this Agreement as a whole, including the Exhibits and Schedules attached hereto, and not to any particular Article, Section or other subdivision. 
  
 (g) “Disclosure Schedules” shall mean the schedules attached to and constituting a part of this Agreement. 
  
 (h) “Knowledge of Purchaser,” and similar variations thereof, shall
mean the actual knowledge, as of the relevant date, of Purchaser after reasonable inquiry of employees or agents of Purchaser that were involved in its due diligence review of the Partnership and the Company. 
  
 (i) “Knowledge of Seller,” and similar variations thereof, shall
mean the actual knowledge, as of the relevant date, of Seller after reasonable inquiry of all appropriate employees of the Partnership, the Company or the Hospital having primary responsibility for the relevant matters. 
  
 (j) “Material Adverse Change” or “Material Adverse
Effect”, when used with respect to the Partnership, the Company or the Hospital, shall mean any material adverse change in or effect on the Partnership, the Company or the Hospital, as the context requires, other than changes or effects that
are or result from occurrences relating to the United States economy generally or the United States health care industry generally. 
  
 (k) Any reference in this Agreement to an “Affiliate” shall mean any Person directly or indirectly controlling, controlled by or under common
control with a second Person. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 2 

 The term “Control” (including the terms “controlled by” and “under common control with”)
means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. A “Person” shall mean any
natural person, partnership, corporation, limited liability company, association, trust or other legal entity. 
  
 Capitalized terms used in this Agreement shall have the definitions assigned to such terms elsewhere in this Agreement. For ease of reference, the section
containing the definition of each such capitalized term is set forth in the table of defined terms included elsewhere as a part of this Agreement. 
  
 1.2 Agreement to Sell and Purchase. Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and
covenants herein set forth, at the Closing Seller shall sell to Purchaser, and Purchaser shall purchase from Seller, the Membership Interest, free and clear of any and all liens, claims, options, charges, pledges, security interests, voting
agreements or trusts, proxies, preemptive rights, rights of first refusal, encumbrances or other restrictions or interests of any kind or nature whatsoever (collectively, “Encumbrances”). 
  
 1.3 Purchase Price. Subject to the terms and conditions of this
Agreement, the aggregate purchase price to be paid by Purchaser to Seller for the purchase of the Membership Interest (the “Purchase Price”) shall be Eight Hundred Thousand and 00/100 Dollars ($800,000.00) which shall be payable in cash at
the Closing. 
  
 1.4 Closing Date. The consummation of the
transactions contemplated by this Agreement (the “Closing”) shall be deemed to take place at 10:00 a.m. at the offices of Strasburger & Price, L.L.P., 901 Main Street, Suite 4400, Dallas, Texas 75202 on January 31, 2006,
assuming all conditions precedent and other matters required to be completed as of the Closing Date have been or will be completed on such date or such later date, time and place as Purchaser may select (the “Closing Date”). The Closing
with respect to the transfer of the Membership Interest, shall be deemed to have occurred and to be effective as between the Parties as of 12:01 a.m., Central Standard Time, on the Closing Date (the “Effective Time”). 
  
 1.5 Items to be Delivered by Seller at Closing. At or before the
Closing, Seller shall deliver to Purchaser the following, duly executed by Seller (and/or the Partnership or the Company) where appropriate and in the form provided for below or otherwise satisfactory to Purchaser: 
  
 (a) an Assignment of Membership Interest in the form of Exhibit A
attached hereto (the “Interest Assignment”); 
  
 (b) an
Amendment of the Limited Partnership Agreement of the Partnership duly executed by all Partners of the Partnership in a form satisfactory to Purchaser in its sole and absolute discretion and which reflects the respective ownership interests of the
partners as of the Effective Time (the “Partnership Agreement Amendment”); 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 3 

 (c) original certificates of existence and good standing, or comparable status, of the Partnership and
the Company, issued by the State of Texas, dated no earlier than a date which is thirty (30) calendar days prior to the Closing Date; 
  
 (d) a certificate of Seller, executed by Seller, certifying to Purchaser (i) that all the representations and warranties of Seller and the Company
contained herein are true as of the Closing Date with the same effect as though made at such time, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties are
true on and as of such earlier date, and (ii) that Seller and the Company have in all material respects performed or complied with the covenants and agreements required of Seller and the Company set forth in this Agreement to be satisfied by
the Closing Date; 
  
 (e) certificates of Seller and the Secretary
of the Company certifying to Purchaser (i) the incumbency of Seller and the appropriate officers or members of the Company on the Closing Date and bearing the authentic signatures of all such Persons who shall execute this Agreement and any
additional documents contemplated by this Agreement and (ii) the due adoption and text of the resolutions of the sole member of the Company, authorizing the execution, delivery and performance of this Agreement and all ancillary documents and
instruments by the Company, and that such resolutions have not been amended or rescinded and remain in full force and effect on the Closing Date; 
  
 (f) a complete release of liens and mortgages and UCC termination statements for any and all liens, mortgages, security interests, restrictions and
financing statements with respect to any of the assets of the Partnership or the Company; 
  
 (g) all consents to the transfer of the Contracts and Leases or the change in control of the Partnership or the Company from the third parties listed in Schedule 2.7 and Schedule 2.8 required to
transfer the Contracts and Leases to the Partnership or the Company or otherwise to approve the change in control of the Partnership or the Company (the “Contract and Lease Consents”); 
  
 (h) all governmental approvals and authorizations that are required for the
consummation of the transactions contemplated by this Agreement and the continued operation of the Hospital as currently operated by the Partnership thereafter (the “Governmental Approvals”); and 
  
 (i) such other instruments, certificates, consents, affidavits (including a
no-change survey affidavit) or other documents which are reasonably necessary to carry out the transactions contemplated by this Agreement and to comply with the terms hereof. 
  
 1.6 Items to be Delivered by Purchaser at Closing. At or before the Closing, Purchaser shall execute and deliver or
cause to be delivered to Seller the following, duly executed by Purchaser where appropriate: 
  
 (a) payment of the Purchase Price on the Closing Date by wire transfer of immediately available funds to Seller to the account specified by Seller, which account Seller shall specify to Purchaser not less than three
(3) business days prior to the Closing Date in writing; 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 4 

 (b) a certificate of Purchaser, executed by the President or any Vice President of Purchaser, certifying
to Seller (i) that all the representations and warranties of Purchaser contained herein are true as of the Closing Date with the same effect as though made at such time, except to the extent such representations and warranties expressly relate
to an earlier date, in which case such representations and warranties are true on and as of such earlier date, (ii) that Purchaser has in all material respects performed or complied with the covenants and agreements required of Purchaser set
forth in this Agreement required to be satisfied by the Closing Date and (iii) that all of the conditions contained in Article 6 have been satisfied except those, if any, waived in writing by Purchaser; 
  
 (c) a certificate of the corporate Secretary of Purchaser certifying to
Seller (i) the incumbency of the officers of Purchaser on the Closing Date and bearing the authentic signatures of all such officers who shall execute this Agreement and any additional documents contemplated by this Agreement and (ii) the
due adoption and text of the resolutions of the directors of Purchaser authorizing the execution, delivery and performance of this Agreement and all ancillary documents and instruments by Purchaser, and that such resolutions have not been amended or
rescinded and remain in full force and effect on the Closing Date; 
  
 (d) original certificate of good standing, or comparable status, of Purchaser, issued by the Delaware Secretary of State dated no earlier than a date which is thirty (30) calendar days prior to the Closing Date; 
  
 (e) the Interest Assignment; 
  
 (f) the Partnership Agreement Amendment; and 
  
 (g) such other instruments, certificates, consents or other documents which
are reasonably necessary to carry out the transactions contemplated by this Agreement and to comply with the terms hereof. 
  
 ARTICLE 2 
 REPRESENTATIONS AND
WARRANTIES OF SELLER 
  
 Except as otherwise indicated on the
applicable Disclosure Schedules expressly related to the particular representation, warranty or covenant stated below in this Article 2, Seller hereby represents, warrants and covenants to Purchaser as to the following matters as of the Execution
Date, and except as otherwise provided herein, Seller shall be deemed to remake all of the following representations, warranties and covenants as of the Closing Date and the Effective Time: 
  
 2.1 Authority. 
  
 (a) Seller has full power and authority to enter into this Agreement and all
documents required to be delivered hereunder and full power and authority to carry out and perform the transactions contemplated herein. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 5 

 (b) The Company has full limited liability company power and authority to enter into this Agreement and
all documents required to be delivered hereunder and full limited liability company power and authority to carry out and perform the transactions contemplated herein. 
  
 2.2 Authorization/Execution. All limited liability company and other actions required to be taken by Seller and the
Company to authorize the execution, delivery and performance of this Agreement, all agreements to be executed and delivered by Seller and/or the Company pursuant to this Agreement, all documents executed by Seller and the Company which are necessary
to give effect to this Agreement, and all transactions contemplated hereby have been duly and properly taken or obtained by Seller and the Company. No other limited liability company or other action on the part of Seller or the Company is necessary
to authorize the execution, delivery and performance of this Agreement, all agreements to be executed and delivered by Seller and/or the Company pursuant to this Agreement, all documents necessary to give effect to this Agreement and all
transactions contemplated herein. This Agreement and all documents delivered hereunder have been duly and validly executed and delivered by Seller and the Company and, assuming due and valid execution by, and enforceability against, Purchaser, this
Agreement and all documents delivered hereunder constitute valid and binding obligations of Seller and the Company, as applicable, enforceable in accordance with their respective terms subject to (a) applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect and (b) limitations on the enforcement of equitable remedies. 
  
 2.3 Organization; No Subsidiaries; No Conflicts. 
  
 (a) The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the
State of Texas. The Company has full power and authority to own, operate and lease its properties and to carry on its business as now conducted. Seller is a corporation duly organized, validly existing and in good standing under the laws of the
State of Texas. 
  
 (b) The Partnership is a limited partnership
duly organized, validly existing and in good standing under the laws of the State of Texas. The Partnership has full power and authority to own, operate and lease its properties and to carry on its business as now conducted. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the State of Texas. 
  
 (c) The Company has no subsidiaries, whether direct or indirect. The Company has no equity interest or investment in, and does not have any other right or obligation to purchase any equity interest or other investment
in, and is not a partner of or joint venturer with, any other person or entity except for its general partner interest in the Partnership. 
  
 (d) The Partnership has no subsidiaries, whether direct or indirect. The Partnership has no equity interest or investment in, and does not have any other
right or obligation to purchase any equity interest or other investment in, and is not a partner of or joint venturer with, any other person or entity. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 6 

 (e) Except as provided in Schedule 2.3(e), the execution and delivery of this Agreement and
the performance of the transactions contemplated by this Agreement and all other instruments, agreements, and certificates referenced herein to which Seller, the Company and/or the Partnership are or will be a Party do not (i) violate any
decree or judgment of any court or governmental authority which is applicable to or binding upon Seller, the Company or the Partnership; (ii) violate any law, rule or regulation applicable to Seller, the Company or the Partnership;
(iii) violate or conflict with, or result in a breach of, or constitute a default (or an event which, with or without notice or lapse of time or both, would constitute a default) under, or permit cancellation of, or result in the creation of
any encumbrance upon any of the Membership Interest, the assets of the Company or the assets of the Partnership under, any contract, lease, sales order, purchase order, indenture, mortgage, note, bond, instrument, license or other agreement to which
the Partnership, the Company or Seller is a Party, or by which the Partnership, the Company or Seller is bound; (iv) require the consent of any third party under any Contract or Lease; (v) permit the acceleration of the maturity of any
indebtedness of the Partnership, the Company or Seller; or (vi) violate or conflict with any provision of the Certificate of Limited Partnership or Limited Partnership Agreement of the Partnership or the Articles of Organization or Regulations
of the Company. 
  
 (f) A true, correct and complete copy of the
Company’s Regulations is attached as Schedule 2.3(f) (the “Regulations”). 
  
 (g) A true, correct and complete copy of the Partnership’s Limited Partnership Agreement is attached as Schedule 2.3(g) (the “Limited
Partnership Agreement”). 
  
 2.4 Title to Membership
Interest; General Partner. 
  
 (a) Seller is the unconditional
sole legal, beneficial, record and equitable owner of the Membership Interest, free and clear of any and all Encumbrances. Seller has not granted and is not a party to any agreement granting preemptive rights, rights of first refusal or any similar
or comparable rights with respect to the Membership Interest. At the Closing, Seller will convey to Purchaser good and valid title to the Membership Interest, free and clear of any and all Encumbrances. The Membership Interest is not certificated.

  
 (b) The Company is and has always been the sole general
partner of the Partnership. The Company owns a 0.1% general partner interest in the Partnership and is the sole legal, beneficial, record and equitable owner of such general partner interest, free and clear of any and all Encumbrances. As of the
Execution Date, Signet Health Corporation owns a 99.9% limited partner interest in the Partnership and is the sole legal, beneficial, record and equitable owner of such limited partner interest, free and clear of any and all Encumbrances. Neither
the Company nor Seller has granted or is a party to any agreement granting preemptive rights, rights of first refusal or any similar or comparable rights with respect to such general partner interest. Seller is and always has been the sole member of
the Company. The Company is and always has been a member-managed limited liability company. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 7 

 2.5 Financial Statements; Changes. 
  
 (a) The Company has no financial statements. Seller has delivered to Purchaser an unaudited balance sheet for each of the
Partnership at November 30, 2005 (the “Balance Sheet Date”) and the related statements of income for the period from February 8, 2005 to November 30, 2005. Such financial statements have been prepared in conformity with
GAAP. The statements of operations present fairly in all material respects the results of the operations of the Partnership for the period covered, and the balance sheet presents fairly in all material respects the financial condition of the
Partnership at the Balance Sheet Date. Such financial statements reflect all adjustments necessary for a fair presentation of the financial information contained therein other than normal year-end adjustments which are not material in amount in the
aggregate. At the Balance Sheet Date, the Partnership had no material liability (actual, contingent or accrued) that, in accordance with GAAP applied on a consistent basis, should have been shown or reflected on the balance sheet but was not.

  
 (b) Except as set forth in Schedule 2.5, since the
Balance Sheet Date, whether or not in the ordinary course of business, there has not been, occurred or arisen: 
  
 (i) any change in or event affecting the Partnership, the Company or Seller, that has had or would reasonably be expected to have a Material Adverse
Effect; or 
  
 (ii) any strike or other labor dispute;

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

  
 (c) Since February 8, 2005, the Partnership has had no
business operations other than acting as the manager of the Hospital pursuant to the Management Agreement. Since its inception, the Company (i) has had no business operations other than acting as the general partner of the Partnership,
(ii) has no contractual relations or obligations, and (iii) has no assets other than the general partner interest in the Partnership. 
  
 2.6 Tax and Other Returns and Reports. Except as set forth in Schedule 2.6: 
  
 (a) For purposes of this Agreement, “Tax” or “Taxes”
shall be defined as set forth below in Section 2.6(c) and shall include (i) any obligations under any agreements or arrangements with any other Person with respect to such amounts and including any liability for Taxes of any predecessor or
previously owned entity and (ii) any liability for any Taxes as a result of being a member of an affiliated, consolidated, combined or unitary group. For purposes of this Section 2.6, with respect to matters pertaining to this
Section 2.6, the term “Partnership” shall include the Company, the Partnership and all entities currently or previously owned, directly or indirectly, by the Company or the Partnership. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 8 

 (b) Tax Returns and Audits. 
  
 (i) The Partnership has timely filed (taking into account valid extensions of the time for filing) all Tax returns required
to have been filed and all such Tax returns were true, correct and complete in all material respects. All Taxes owed by the Partnership (whether or not shown on any Tax return) that have become due and payable have been paid. The Partnership is not
currently the beneficiary of any extension of time within which to file any Tax return. No claim has ever been made by an authority in a jurisdiction where the Partnership does not file Tax returns that it is or may be subject to taxation by that
jurisdiction. 
  
 (ii) The Partnership has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, member, or other third party. 
  
 (iii) The Partnership and Seller have made available to Purchaser (i) correct and complete copies of all Tax returns
of the Partnership and (ii) any examination reports, statements of deficiencies and assessments by any governmental authority against or agreed to by the Partnership since the Partnership’s formation. The Partnership does not expect any
authority to assess additional Taxes for any period for which Tax returns have been filed. There is no dispute or claim concerning any Tax liability of the Partnership claimed, threatened or otherwise raised by any authority. The Partnership has not
waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. 
  
 (iv) All material liabilities of the Partnership for any unpaid Taxes (whether or not shown to be due on any Tax return) have either (A) been
accrued for or reserved on the Partnership financial statements in accordance with GAAP or (B) with respect to material unpaid Taxes that may have accrued since the Balance Sheet Date in connection with the operation of the business of the
Partnership have been recorded on the books of the Partnership in the ordinary course. 
  
 (v) There are no liens or security interests on any of the assets of the Partnership, the Membership Interest or any partnership interests in the Partnership that arose in connection with any failure (or alleged
failure) to pay any Tax. 
  
 (vi) The Partnership has not filed
any consent agreement under Section 341(f) of the Internal Revenue Code of 1986 (the “Code”) or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(2) of the Code) owned by the Partnership. No property of the Partnership is “tax-exempt use property” within the meaning of Section 168(h) of the Code. The Partnership is not a party to any lease made pursuant to
former Section 168(f)(8) of the Internal Revenue Code of 1954. 
  
 (vii) The Partnership is not under any obligation to make a payment that will not be deductible because of the application of Sections 280G, 404, 162(m) and/or 4999 of the Code. The Partnership has disclosed on its Tax returns all positions
taken therein that could give rise to a substantial understatement (i) of federal income tax under Code Section 6662 or (ii) of any Tax under a similar provision of state, local or foreign Tax law. The Partnership has not 

 

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 9 

 engaged in any transaction which would be treated as a “reportable transaction” within the meaning of Treasury
Regulations Section 1.6011-4 or otherwise been involved in a transaction which would require it to disclose a “reportable transaction.” The Partnership has not been a member of an affiliated group filing a consolidated federal income
Tax return and does not have any liability for the Taxes of any Person (other than the Partnership) under Treasury Regulations Section 1.1502-6, or any similar provision of state, local or foreign law, as a transferee or successor, by contract,
or otherwise. The Partnership has not been a party to any Tax allocation or sharing agreement. The Partnership is not currently and has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. 
  
 (viii) The Partnership is and has been in full compliance with all terms and conditions of any Tax exemptions, Tax holidays or other Tax reduction agreements. The consummation of the transactions contemplated herein
will not have any material adverse effect on the continued validity and effectiveness of any such Tax exemption, Tax holiday or other Tax reduction agreement or order. 
  
 (ix) Neither the Partnership nor any of its Subsidiaries has constituted either a “distribution corporation” or a
“controlled corporation” in a distribution of stock qualifying for tax-free treatment under Code Section 355 (a) in the two year prior to the date of this Agreement or (b) in a distribution which could otherwise constitute
part of a “plan” or “series of related transactions” (within the meaning of Code Section 355(c)). 
  
 (x) The Partnership has not, with respect to any open taxable period, applied for and been granted permission to adopt a change in its method of
accounting requiring adjustments under Section 481 of the Code or comparable state or foreign law. 
  
 (xi) The Partnership is not a partner in any entity classified as a partnership for federal income Tax purposes. 
  
 (xii) The Partnership has not made an election under Treasury Regulations
Section 301.7701-3 with respect to any entity. 
  
 (xiii)
The Partnership will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending prior to, on, or after the Closing Date as a result of any deferred
intercompany gain or any excess loss account described in Treasury Regulations under Code Section 1502 (or any corresponding or similar provision of federal state, local or foreign income Tax law). 
  
 (c) “Tax” means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 10 

 2.7 Contracts. The Company is not a party to any contract or agreement other than the Limited
Partnership Agreement. Schedule 2.7 lists each formal and informal contract, agreement or arrangement to which the Partnership is a party or to which any of its properties are subject or by which any thereof is bound and/or which
otherwise relate to the business of the Hospital (each a “Contract” and collectively, the “Contracts”). Unless otherwise so noted in Schedule 2.7, each such Contract was entered into in the ordinary course of
business. True, correct and complete copies of the Contracts and any other contracts of the Partnership or the Hospital, including all amendments and supplements, have been made available to Purchaser. Each Contract is valid and subsisting; except
as set forth in Schedule 2.7, the Partnership or the Hospital has duly performed in all material respects all its obligations thereunder to the extent that such obligations to perform have accrued; and, except as set forth in
Schedule 2.7, no breach or default, alleged breach or default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by the Partnership or the Hospital (or any other party or obligor with
respect thereto), has occurred or as a result of the execution of this Agreement or its performance will occur. The Partnership has not received any notices of termination of any Contract. None of the Partnership, the Company or Seller has been
advised or has Knowledge that any party to any of the Contracts intends to terminate or amend any Contract at any time in the future. 
  
 2.8 Real and Personal Property; Title to Property; Leases. 
  

(a) To the Knowledge of Seller, the Partnership has valid title, free of encumbrances in and to the Real Property and Other Property, except for those
exceptions and other matters set forth in Exhibit B. Such exceptions and other matters shall be referred to herein as the “Permitted Encumbrances”. The Company neither owns nor leases any Real Property. The Company has good and
valid title, free of encumbrances, in and to its Personal Property and the other assets of the Company. Except as shown in Schedule 2.8, to the Knowledge of Seller, all material tangible properties of the Partnership and the Company are
in a good state of maintenance and repair (except for ordinary wear and tear) and in operating condition. 
  
 (b) The Real Property listed in Schedule 2.9(a) consists of all real property owned used in the conduct of the business of the Hospital.

  
 (c) Seller has heretofore made available to Purchaser a true,
correct and complete copy of all of the Leases. Except as shown in Schedule 2.8, no consents are required of third parties to the change of control of the Leases arising from the transactions contemplated hereby. 
  
 (d) To the Knowledge of Seller, the Partnership holds good and indefeasible
title to the Real Property and all its other assets and a valid leasehold interest in all of the Partnership’s leased property, subject to no mortgage, lien, pledge, security interest, conditional sales agreement, right of first refusal, option
or encumbrance, except for Permitted Encumbrances and the rights of any lessor or licensor of leased or licensed Personal Property. The Company holds good and indefeasible title to all its assets and a valid leasehold interest in all of the
Partnership’s leased property, subject to no mortgage, lien, pledge, security interest, conditional sales agreement, right of first refusal, option or encumbrance and the rights of any lessor or licensor of leased or licensed Personal Property.

  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 11 

 (e) To the Knowledge of Seller, the Leases constitute all of the agreements to which the Partnership
and/or the Company is a Party with respect to the properties which are demised pursuant thereto and pertain to all real and personal property leased by the Partnership and/or the Company or otherwise used in the conduct of the business of the
Hospital. 
  
 (f) As of the date hereof, to the Knowledge of
Seller all conditions precedent to the enforceability of each Lease have been satisfied and there exists no breach or default, nor state of facts which, with the passage of time, notice, or both, would result in a breach or default on the part of
the Company, the Partnership or, to the Knowledge of Seller, the other Party thereunder. 
  
 (g) Seller has no Knowledge of, and neither the Partnership nor the Company has received any written notice of, non-compliance with law, zoning ordinance or other restriction with respect to any Real Property.

  
 (h) There is no pending or, to the Knowledge of Seller,
threatened action that would materially interfere with the ownership, use or quiet enjoyment of any Real Property by the Partnership or the Company . 
  
 (i) Seller has no Knowledge of, and neither the Partnership nor the Company has received any notice of, any proposed special assessments, threatened
condemnation or any proposed material changes in property tax or land use laws affecting the Real Property. 
  
 (j) The assets described in Section 2.9 constitute all of the property necessary for the Company and the Partnership to operate the Hospital after
the Effective Time in the same manner as the Company and the Partnership operate the Hospital as of the date hereof. 
  
 (k) To the Knowledge of Seller, all assessments and dues required under that certain Declaration of Covenants, Conditions and Restrictions affecting the
Real Property recorded for record under Harris County Clerk’s File Number E702128 of the Official Public Records of Harris County, Texas (the “Declaration”) are paid. 
  
 (l) To the Knowledge of Seller, the plans and specifications for the improvements (including curb cuts and driveways) on the
Real Property comply with the Declaration and were approved in writing by the Kingwood Place Community Association, Inc. 
  
 (m) To the Knowledge of Seller, there are no outstanding maintenance deficiencies per Section 10.01 of the Declaration. 
  
 2.9 Assets. The Company owns no assets other than a 0.1% general
partner interest in the Partnership. On the Closing Date, to the Knowledge of Seller, the Partnership owns the assets listed in this Section 2.9 free and clear of all liens, such assets constitute all of the assets owned by the Partnership as
of the Effective Time, and all of such assets shall remain assets of the Partnership free and clear of all liens after the Effective Time. Except as described in Schedule 2.9, to the Knowledge of Seller, the Hospital and its contents are in
operating condition and in a good state of repair. To the Knowledge of Seller, the Partnership’s assets as of the Effective Time include: 
  
 (a) all of the real property owned by the Partnership or otherwise used in connection with the business of the Hospital, including the real property
described in Schedule 2.9(a) (such description to include a legal description and address), together with all buildings, improvements and fixtures located thereupon and all construction in progress thereon (collectively, the “Real
Property”); 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 12 

 (b) all of the tangible personal property owned by the Partnership, the Company or otherwise used in
connection with the business of the Hospital, including all equipment, furniture, fixtures, machinery, vehicles, office furnishings, and leasehold improvements, including the items listed in Schedule 2.9(b) (the “Personal
Property”); 
  
 (c) all of the Partnership’s and/or the
Company’s rights, to the extent assignable or transferable, to all licenses, permits, approvals, certificates of need, certificates of exemption, franchises, accreditations and registrations and other governmental licenses, permits or approvals
issued to the Partnership, the Company or any other Person with respect to the operation of the Hospital (the “Licenses”); 
  
 (d) all of the Partnership’s, the Company’s or the Hospital’s interest in and to all real property leases and personal property leases
listed in Schedule 2.9(d) (collectively, the “Leases”); 
  
 (e) all cash and cash equivalents of the Partnership, the Company and the Hospital; 
  
 (f) all of the Partnership’s and the Company’s interests in the Contracts and all of the interests of each other Person contracting on behalf of
the Hospital in the Contracts; 
  
 (g) all accounts, notes,
interest and other receivables of the Partnership, the Company or otherwise related to the Hospital, and all claims, rights, interests and proceeds related thereto, including all accounts and other receivables arising from the rendering of services
to patients at the Hospital, billed and unbilled, recorded and unrecorded, for services provided by the Partnership (the “Accounts Receivable”); 
  
 (h) all advance payments, prepayments, prepaid expenses, deposits and the like which exist as of the Closing Date (the “Prepaids”); 

 
 (i) all inventories of supplies, drugs, food, janitorial and office
supplies and other disposables and consumables located or held for use at the Hospital (the “Inventory”); 
  
 (j) all documents, records, policy and procedure manuals, compliance programs, staff bylaws, operating manuals, files and computer software owned or used
by the Company, the Hospital and/or the Partnership, including all patient records, medical records, employee records, financial records, equipment records, construction plans and specifications, and medical and administrative libraries; 

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

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 13 

 (l) all goodwill and other intangible assets used or useful in connection with the business of the
Hospital; 
  
 (m) the name, symbols, telephone numbers, facsimile
numbers, domain names, trademarks, trade names, service marks and copyrights used with respect to the operation of the Hospital, including the names “Kingwood Pines Hospital” and all variants thereof and all common law trademark rights
associated therewith and “Kingwood Pines Hospital, LLC”; 
  
 (n) all of the Company’s and the Partnership’s rights with respect to their respective Medicare, Medicaid and other third-party provider numbers and all other Medicare, Medicaid and other third-party provider numbers used by any
Person in connection with the business of the Hospital; and 
  
 (o) the exclusive ownership and control of the bank accounts and lock boxes listed in Schedule 2.9(o) (collectively, the “Lock Boxes”) and the exclusive ownership and control of all amounts received and deposited into the
Lock Boxes after the Effective Time. 
  
 2.10 Membership
Interest. 
  
 (a) The Membership Interest is validly issued
and outstanding. The Membership Interest is fully paid and nonassessable. All of the issued and outstanding membership interests of the Company are owned of record and beneficially by Seller. The Company has provided to Purchaser a correct and
complete copy of the ownership and interest records of the Company listing all members of the Company and the outstanding total amount of membership interest issued to each member of the Company since its inception. There are no outstanding options,
warrants, convertible instruments, or other rights, agreements, or commitments to issue or acquire any membership interest of the Company or any other security constituting, or convertible or exchangeable into, interests of the Company. The Company
has not granted and is not a party to any agreement granting preemptive rights, rights of first refusal, or registration rights with respect to its outstanding or authorized membership interests or any membership interests of the Company to be
issued in the future. 
  
 (b) The Limited Partner Interest is
validly issued and outstanding. The Limited Partner Interest is fully paid and nonassessable. All of the issued and outstanding limited partner interests of the Partnership are owned of record and beneficially by Signet Health Corporation. The
Partnership has provided to Purchaser a correct and complete copy of the ownership and interest records of the Partnership listing all partners of the Partnership and the outstanding total amount of limited partner interest issued to each general
partner and limited partner of the Partnership since its inception. There are no outstanding options, warrants, convertible instruments, or other rights, agreements, or commitments to issue or acquire any general partner interest or limited partner
interest of the Partnership or any other security constituting, or convertible or exchangeable into, interests of the Partnership. The Partnership has not granted and is not a party to any agreement granting preemptive rights, rights of first
refusal, or registration rights with respect to its outstanding or authorized partnership interests or any partnership interests of the Partnership to be issued in the future. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 14 

 2.11 Intangible Property. Schedule 2.11 lists any and all computer software programs
and licenses, all other licenses and sublicenses, all intellectual property, all marks and other material items of intangible property in which the Partnership or the Hospital has an interest and the nature of such interest (the “Intangible
Property”). The Company owns no Intangible Property. Except as shown in Schedule 2.11, the Partnership owns all right, title and interest in and to, or has valid and enforceable licenses to use, all the Intangible Property owned,
used or held by the Partnership or the Hospital in connection with the business of the Hospital as now conducted. The Intangible Property represents all intellectual property rights necessary for the operation of the business of the Hospital as now
conducted. Except as disclosed in Schedule 2.11, the Hospital does not use any Intangible Property by consent of any other person and is not required to and does not make any payments to others with respect thereto. Except as shown in
Schedule 2.11, the Intangible Property is fully assignable free and clear of any encumbrances. The Partnership has in all material respects performed all obligations required to be performed by, and neither the Partnership nor any other
Person is in default in any material respect under, any contract relating to any of the foregoing. Neither the Partnership nor any other Person has received any notice to the effect that such intangible property or any use thereof by the Hospital
conflicts with or infringes (or allegedly conflicts with or infringes upon) the rights of any Person. To the Knowledge of Seller, the Partnership currently holds the proper number and types of valid computer software licenses for each of the
Hospital’s users and other locations which are required under the Contracts covering such licenses. 
  
 2.12 Legal Proceedings. Except as set forth in Schedule 2.12, there is no order or action or claim pending, or, to the Knowledge of
Seller, threatened, against or affecting the Partnership, the Company or the Hospital, or any of their respective properties or assets. Schedule 2.12 lists each order and each action or claim against, or that enjoins or seeks to enjoin
or excludes or seeks to exclude the conduct of any activity by, the Partnership or the Company. 
  
 2.13 Accounting Records; Internal Controls. 
  
 (a) Accounting Records. Each of the Partnership and the Company has records that accurately and validly reflect its respective transactions, and
accounting controls sufficient to insure that such transactions are (i) executed in accordance with management’s general or specific authorization and (ii) recorded in conformity with GAAP so as to maintain accountability for assets.

  
 (b) Data Processing; Access. Such records, to the
extent they contain important information that is not easily and readily available elsewhere, have been duplicated, and such duplicates are stored safely and securely pursuant to procedures and techniques utilized by companies of comparable size in
similar lines of business. 
  
 2.14 Insurance.
Schedule 2.14 lists all insurance policies and bonds that are maintained by the Company or the Partnership and indicates the type of insurance, policy number, term, identity of insurer, premiums and coverage amounts for the previous four
(4) years and basic coverages (including applicable deductibles) for each such insurance policy and bond. Neither the Company nor the Partnership is in default under any insurance policy or bond. Each of the Partnership and the Company has
timely filed claims with its respective insurers with respect to all matters and occurrences for which it believes it has coverage. Schedule 2.14 lists 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 15 

 all claims in excess of $10,000 which have been made by the Partnership or the Company in the last two (2) years
under any insurance policy and bond. Except as set forth in Schedule 2.14, all insurance policies and bonds are in full force and effect. Except as shown in Schedule 2.14, neither the Company nor the Partnership has received
notice from any insurer or agent of any intent to cancel or not to renew any of such insurance policies and bonds. There are no outstanding requirements or recommendations by any insurance company that issued a policy with respect to any of the
properties and assets of the Partnership or the Company or by any Board of Fire Underwriters or other body exercising similar functions or by any governmental entity requiring or recommending any action which has not been taken. 
  
 2.15 Employees. 
  
 (a) The Company has no employees and has never had any employees.
Schedule 2.15 sets forth a complete list (as of the date set forth therein) of names, positions and current annual salaries or wage rates, bonus and other compensation and/or benefit arrangements, accrued vacation, accrued paid time off
and sick leave, the paid time off pay and period of service credited for vesting as of the date thereof of all full-time and part-time employees of the Partnership and/or the Hospital and indicating whether such employee is a part-time or full-time
employee. Except as shown in Schedule 2.15, there are no employment agreements or severance agreements with employees of the Partnership or the Hospital. There are no agreements or arrangements with any employee of the Partnership or the
Hospital requiring the payment of a bonus or other compensation as a result of the consummation of the transaction contemplated by this Agreement. 
  
 (b) There are no labor union or collective bargaining agreements in effect with respect to the employees of the Partnership or the Hospital. There is no
unfair labor practice complaint against the Partnership or the Hospital pending, or to the Knowledge of Seller threatened, before the National Labor Relations Board. There is no labor strike, arbitration, dispute, slowdown or stoppage, and no union
organizing campaign, pending, or to the Knowledge of Seller threatened by or involving the employees of the Partnership or the Hospital. 
  
 2.16 Employee Benefits. 
  
 (a) Schedule 2.16 contains a list of each pension, retirement, savings, deferred compensation, and profit-sharing plan and each bonus or other
incentive plan, severance plan, health, group insurance or other welfare plan, or other similar plan and any “employee plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), under which any employee, former employee or independent contractor (or beneficiary of any employee, former employee or independent contractor) of the Partnership or the Hospital has or may have any current or future right to
benefits (the term “plan” shall include any contract, agreement, policy or understanding, each such plan being hereinafter referred to in this Agreement individually as a “Plan”). The Company has no Plan. Seller, the Company and
the Partnership have made available to Purchaser true and complete copies of (i) each Plan and (ii) the summary plan description, if any, for each Plan. To the Knowledge of Seller, each Plan intended to be tax qualified under
Sections 401(a) and 501(a) of the Code either has received a favorable determination letter from the IRS or is a prototype or volume submitter plan as to which the prototype sponsor has received a favorable GUST opinion or advisory letter as

  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 16 

 described in IRS Announcement 2001-6 on which the Partnership is entitled to reliance on all qualification issues under
IRS Announcement 2001-77, and no amendment to or failure to amend any such Plan and, to Seller’s, the Company’s or the Partnership’s Knowledge, no other event or circumstance has occurred that would reasonably be expected to
materially and adversely affect its tax qualified status. To Seller’s, the Company’s or the Partnership’s Knowledge, there has been no prohibited transaction within the meaning of Section 4975 of the Code and Section 406 of
Title I of ERISA with respect to any Plan as to which there is no statutory or administrative exemption. Each Plan is in full compliance with all requirements of ERISA and the Code. 
  
 (b) To the Knowledge of Seller, there are no actions pending, threatened, with respect to any Plan or the assets of any
Plan, other than claims for benefits in the ordinary course. Each Plan has been administered in all material respects in accordance with its terms and with all applicable laws (including ERISA). Neither the Partnership nor any of its employees has
committed or participated in any breach of any fiduciary duty under ERISA that could result in material liability to the Partnership. 
  
 (c) None of Seller, the Partnership, the Company or any Commonly Controlled Entity contributes to or has an obligation to contribute to, nor has Seller,
the Partnership, the Company or any Commonly Controlled Entity at any time within six (6) years prior to the Closing contributed to or had an obligation to contribute to, either (i) a multiemployer plan within the meaning of
Section 3(37) of ERISA, or (ii) any plan subject to Title IV of ERISA. Seller, the Company and the Partnership have performed timely and shall timely perform all obligations of Seller, the Company and the Partnership and each Commonly
Controlled Entity, whether arising by operation of law or by contract, required to be performed under Section 4980B of the Code (or similar state law), including, but not limited to, such obligations that may arise by virtue of the transactions
contemplated by this Agreement. For the purposes of this Section 2.13, “Commonly Controlled Entity”) means any corporation, trade, business, or entity under common control with Seller or the Partnership within the meaning of
Section 414(b), (c), (m), or (o) of the Code or Section 4001 of ERISA. 
  
 (d) To the Knowledge of Seller, each employee, former employee and independent contractor of the Partnership has been properly classified as such for all
purposes under the Code and ERISA. All employees that work at the Hospital are employees of the Partnership. 
  
 (e) The Partnership’s ceasing as of the Closing to be a member of a controlled group of corporations and entities with Seller and his Affiliates
under Section 414(b) of the Code shall constitute a “severance from employment” of the employees of the Partnership within the meaning of Section 401(k)(2)(B)(i)(I) of the Code with respect to any Plan that is a 401(k) or
other retirement plan qualified under Section 401(a) of the Code in which the employees of the Partnership participate, and such severance from employment shall under the terms of any such Plan entitle the employees of the Partnership to an
immediate distribution of all of their accounts or other benefits under the Plan. 
  
 2.17 Certain Interests. Except as shown on Schedule 2.17, no Affiliate of the Company, the Partnership, nor any officer or director of any thereof, nor any associate of any such individual, has any
material interest in any property used in or pertaining to the business of 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 17 

 the Partnership; no such Person is indebted or otherwise obligated to the Company or the Partnership; and neither the
Company nor the Partnership is indebted or otherwise obligated to any such Person, except for amounts due under normal arrangements applicable to all employees generally as to salary, or reimbursement of ordinary business expenses not unusual in
amount or significance. The consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any benefit or payment (severance or other)
arising or becoming due from the Partnership, the Company or the successor or assign of any thereof to any Person. 
  
 2.18 Intercompany Transactions. Schedule 2.18 contains a complete and accurate listing of all business functions and activities of the
Hospital which are performed, in whole or in part, by any Affiliate of the Partnership or the Company. Except as shown in Schedule 2.18, neither the Partnership nor the Company has engaged in any transaction with any Affiliate of the
Partnership or the Company. Except as shown in Schedule 2.18, neither the Partnership nor the Company has any liabilities or obligations to any Affiliate of the Partnership or the Company and no Affiliate of the Partnership or the
Company has any liabilities or obligations to the Partnership or the Company. 
  
 2.19 Inventory. The Company has no inventory. All Inventory of the Hospital is exclusively owned by the Partnership. The Inventory is being transferred “as is” without any warranty of fitness for
intended purpose, merchantability or other warranty whatsoever. 
  
 2.20 Receivables. The Company has no accounts receivable. The Accounts Receivable arose from bona fide commercial transactions, and, to the Knowledge of Seller, the financial statements of the Partnership referred to in
Section 2.5 include all material refunds, discounts or setoffs payable or assessable with respect to such Accounts Receivable, taken as a whole. To the Knowledge of Seller, the Partnership adequately records on its financial statements in
accordance with GAAP all estimates for future Cost Report settlements for all years open to settlement. The Partnership records Government Program recoupments on its financial statements as they occur in accordance with GAAP. 
  
 2.21 Third Party Payors and Suppliers. Schedule 2.21 lists
the names of and describes all Contracts with and the respective percentage of the revenues of the business of the Hospital for the year ended December 31, 2005, attributable to the ten largest third party payors and any sole-source suppliers
of significant goods or services (other than electricity, gas, telephone or water) to the business of the Hospital with respect to which alternative sources of supply are not readily available on comparable terms and conditions. 
  
 2.22 Environmental Compliance. Except as disclosed in that certain
Environmental Site Assessment dated August 7, 2002, on the Real Property prepared by Comprehensive Building Analysis, Inc. which was provided to Purchaser and to the Knowledge of Seller: 
  
 (a) The Partnership, the Company and the Hospital are each in full
compliance with all applicable Environmental Laws. As used herein, “Environmental Laws” shall mean all applicable federal, state or local laws relating to pollution or protection of the environment (including, without limitation, ambient
air, surface water, ground water, land or surface or subsurface strata), including all federal, state or local laws relating to emissions, 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 18 

 discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes into the environment and all federal, state or local laws relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any of the foregoing, including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et. seq., and the rules and regulations promulgated thereunder. 
  
 (b) Each of the Partnership and the Company has obtained all permits required
under applicable Environmental Laws for the use, operation or ownership of the Real Property and business of the Hospital, the Company and the Partnership. Each of the Hospital, the Company and the Partnership is in full compliance with each such
applicable permit. No federal, state or local governmental entity has notified the Hospital, the Company or the Partnership that any such permits may or will be suspended, cancelled, revoked or materially modified, or cannot be renewed in the
ordinary course of business. 
  
 (c) None of the Partnership, the
Company or the Hospital has received from any federal, state or local governmental entity or other Person any order, directive, information request, notice of violation, notice of alleged violation, notice of noncompliance, notice of liability or
potential liability, regarding compliance with, or liability or potential liability under, applicable Environmental Laws concerning any of the Real Property or the business of the Partnership, the Company or the Hospital or any off-site disposal of
a hazardous substance (including any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9604) or any comparable state law). 
  
 (d) No judicial proceeding, action, claim, suit, or governmental or
administrative action is pending or, to the Knowledge of Seller, threatened, under any applicable Environmental Law pursuant to which the Partnership, the Company or the Hospital is or to the Knowledge of Seller could be reasonably expected to be
named as a party with respect to the Real Property or the business operations of the Partnership, the Company or the Hospital. 
  
 (e) Neither the Partnership nor the Company has entered into any agreement with any federal, state or local governmental entity or any other Person
pursuant to which the Partnership or the Company assumed responsibility for the investigation or remediation of any condition resulting from the release, treatment, storage or disposal of hazardous substances. 
  
 (f) Seller has disclosed and made available to Purchaser all relevant
information, including all studies, site assessments, compliance audits and similar environmental reports, analyses, and test results that are in the Partnership’s or the Company’s possession, custody or control, relating to any past and
present (i) environmental conditions concerning the business of the Hospital or on, under or about the Real Property, (ii) use or operation of the Real Property used in or held for use in connection with the business of the Hospital, and
(iii) activities relating to hazardous substances on, or any off-site disposal of a hazardous substance from, the Real Property or used in connection with the business of the Hospital. Seller has disclosed and made available to Purchaser any
and all documents that are in the Partnership’s or the Company’s possession, custody or control relating to projected environmental expenditures for the business of the Hospital and the Real Property, including capital and 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 19 

 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) There is no soil or groundwater contamination on, under, or about any Real Property. 
  
 (h) Neither the Partnership nor the Company 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.). 
  
 2.23 Powers of Attorney. Neither the Partnership nor the Company has given any power of attorney (irrevocable or otherwise) to any Person for any
purpose, other than powers of attorney given to regulatory authorities in connection with routine qualifications to do business. 
  
 2.24 Medicare and Medicaid; Third-Party Payors; Compliance with Health Care Laws. 
  
 (a) The Hospital is duly accredited by the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO“)
as evidenced by the Hospital’s most recent JCAHO accreditation survey reports and is duly and unconditionally licensed by the State of Texas Department of State Health Services (“Texas Agency“) as a Private Mental Hospital and a
Private Psychiatric Hospital. To the Knowledge of Seller, except as described in Schedule 2.24, each of the Company and the Partnership has the lawful authority and all federal, state or local governmental authorizations, certificates of
authority, certificates of need, licenses or permits necessary for or required to conduct the Hospital’s business as such are being conducted. Each of the Company and the Partnership is not required to hold any licenses, permits and other
governmental approvals or authorizations except for the licenses currently held by the Partnership or the Company as set forth in Schedule 2.24 to run their respective business operations. The Licenses listed in Schedule 2.24
are in full force and effect, and each of the Company, the Partnership and the Hospital is in full compliance in all material respects with all requirements of each license. Each of the Company and the Partnership has made all material filings with
governmental agencies required for the conduct of their respective business operations. There are no judgments, consent decrees or injunctions of any court or any governmental department, commission, agency or instrumentality by which the
Partnership or the Company is bound or to which the Partnership or the Company is subject. Neither the Partnership nor the Company has received nor, to the Knowledge of Seller, is the Partnership or the Company subject to any notice, subpoena,
demand letter, administrative inquiry or formal or informal complaint or claim from any governmental department, commission, agency or instrumentality. 
  
 (b) Without limiting the generality of the foregoing, to the Knowledge of Seller, the applicable facilities, equipment, staffing and operations of the
business of the Hospital satisfy in all material respects the accreditation standards of JCAHO, and Seller has previously delivered to Purchaser true, correct and complete copies of (i) the Hospital’s most recent JCAHO accreditation survey
report, a list of deficiencies, if any, and, if applicable, a plan of correction; (ii) the Hospital’s most recent Texas Agency surveys, lists of deficiencies, if any, and, if applicable, plans of correction; (iii) the Hospital’s
fire marshal’s surveys for the past two (2)
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 20 

 years and lists of deficiencies, if any; and (iv) the Hospital’s boiler inspection reports for the past two
(2) years and lists of deficiencies, if any. Each of the Company and the Partnership has taken all reasonable steps to correct all such deficiencies and a description of any uncorrected deficiency is set forth in Schedule 2.24.

  
 (c) The Partnership receives payment without restriction under
Medicare and Medicaid and has a valid and current provider agreement and one or more properly issued provider numbers with each service relating to any Federal Health Care Program as such term is defined in 42 U.S.C. § 1320a-7b(f) (the
“Government Programs”). The Company does not receive any payments from any Government Programs or any third party payors. All such provider numbers of the Partnership and the Hospital are listed in Schedule 2.24. Except as set
forth in Schedule 2.24, the Partnership and the Hospital are each in compliance in all material respects with the conditions of participation for the Government Programs. 
  
 (d) The Partnership has timely filed in accordance with instructions from the Centers for Medicare & Medicaid
Services or the applicable payor or shall cause to be timely filed in accordance with instructions from the Centers for Medicare & Medicaid Services or the applicable payor all cost reports and other reports that are required by third-party
payors to have been filed or made on or before the Closing Date, including Government Programs and other insurance carriers, and, except as disclosed in Schedule 2.24, all such reports are or when filed shall be complete and accurate in
all material respects. Except as disclosed in Schedule 2.24, the Partnership is and has been in material compliance with filing requirements with respect to cost reports of the Partnership, and such reports do not claim, and the
Partnership has not received, payment or reimbursement in excess of the amount provided or allowed by applicable law or any applicable agreement, except where excess reimbursement was noted on the cost report. True and correct copies in electronic
format of all such reports for the three (3) most recent fiscal years for which cost reports have been filed by the Partnership, and any other cost report for which a final settlement has not been issued, have been made available to Purchaser.
Except as disclosed in Schedule 2.24 and except for claims, actions and appeals in the ordinary course of business, the Partnership has neither initiated nor received written notice of any material claims, actions or appeals pending
before any commission, board or agency, including any fiscal intermediary or carrier, governmental entity, or the Administrator of the Center for Medicare & Medicaid Services, with respect to any Government Program cost reports or claims
filed with any Government Program on behalf of the Partnership, on or before the date of this Agreement. Schedule 2.24 indicates which of such cost reports have been audited by the fiscal intermediary and finally settled. 
  
 (e) To the Knowledge of Seller, no validation review or program integrity
review related to the Partnership, or the consummation of the transactions contemplated by this Agreement, has been conducted by any commission, board, agency or government entity in connection with the Government Programs, and to the best Knowledge
of Seller, no such reviews are scheduled, pending or threatened against or affecting the Partnership or the consummation of the transactions contemplated by this Agreement. 
  
 (f) To the Knowledge of Seller, all billing practices of the Partnership, the Company and the Hospital to all third-party
payors, including the Government Programs and private insurance companies, are and have been in compliance with all applicable laws and 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 21 

 policies of such third-party payors and Government Programs in all material respects, and none of the Partnership, the
Company or the Hospital has billed or received any payment or reimbursement in excess of amounts allowed by law. 
  
 (g) The Partnership has performed through third party contractors a review of the website of the Office of Inspector General of the United States
Department of Health and Human Services and based upon such review and except as listed in Schedule 2.24, to the Knowledge of Seller, (i) no employee or independent contractor of the Partnership or any physician currently on the
medical staff at the Hospital is listed as having been, and to the Knowledge of the Partnership is not, excluded from participating in Medicare or any other federal health care program (as that term is defined in 42 U.S.C.
§ 1320a-7b(f)), and (ii) none of the business of the Hospital, or the Company or the Partnership or the Partnership’s or the Company’s officers, directors, agents or management employees (as that term is defined in
42 U.S.C. § 1320a-5(b)), has been excluded from participating in Medicare or any other federal health care program (as that term is defined in 42 U.S.C. § 1320a-7b(f) or has been subject to sanction pursuant to
42 U.S.C. § 1320a-7a or 1320a-8 or has been convicted of a criminal offense under the Anti-Kickback Laws. 
  
 (h) Since February 8, 2005, none of Seller, the Partnership, the Company, or to the Knowledge of Seller, any of their respective employees have
committed a violation of federal or state laws regulating health care fraud, including the Anti-Kickback Laws, the Stark Laws and the False Claims Act which violation relates in any respect. 
  
 2.25 Compliance Program. Seller has made available to Purchaser
(i) a copy of the Hospital’s current compliance program materials, including all program descriptions, compliance officer and committee descriptions, ethics and risk area policy materials, training and education materials, auditing and
monitoring-protocols, reporting mechanisms, and disciplinary policies and (ii) copies of any written complaints received in the previous five (5) years from the date hereof from employees, independent contractors, vendors, physicians or
any other Person asserting that the Hospital, the Company or the Partnership have violated any health care fraud law or regulation, including the Anti-Kickback Laws and the Stark Laws. Each of the Company and the Partnership (a) is not a party
to a Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services, (b) has no reporting obligations pursuant to any settlement agreement entered into with any Governmental
Program, (c) to the Knowledge of Seller, has not been the subject of any Government Program investigation conducted by any federal or state enforcement agency during the past five (5) years, (d) has not been a defendant in any qui
tam/False Claims Act litigation during the past five (5) years, or (e) has not been served with or received any written search warrant, subpoena, civil investigative demand or contact letter from any federal or state enforcement agency
(except in connection with medical services provided to, or medical supplies purchased from, third parties who may be defendants or the subject of investigation into conduct unrelated to the operation of the health care businesses conducted by the
Partnership or the Company). 
  
 2.26 HIPAA. To the
Knowledge of Seller, the Partnership, the Company and the Hospital are each in compliance in all material respects with the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”), and 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 22 

 the rules and regulations promulgated thereunder as of the applicable effective dates for such requirements. 

 
 2.27 Restricted Grant and Loan Programs. The transactions
contemplated by this Agreement will not result in any obligation on the Partnership, the Company or, to the Knowledge of Seller, the Hospital to repay any loans, grants or loan guarantees or provide uncompensated care in consideration thereof
pursuant to the Hill Burton Program or any similar statute or program with respect to the ownership or operation of the business of the Partnership, the Company or the Hospital. 
  
 2.28 Experimental Procedures. None of the Partnership, the Company or, to the Knowledge of Seller, the Hospital has
performed or authorized the performance of any experimental or research procedures or studies involving patients of the Hospital that require the prior approval of any governmental entity that has not been obtained. 
  
 2.29 Medical Staff; Physician Relations. Seller has delivered to
Purchaser complete and genuine copies of the bylaws and rules and regulations of the medical staff and medical executive committees of the Hospital. Schedule 2.29 sets forth (a) the name, age and status on the medical staff of each
member of the medical staff of the Hospital and (b) the degree (e.g., M.D., D.O.), title specialty and board certification, if any, of each such medical staff member. Except as set forth in Schedule 2.29, there are no pending or, to
Seller’s Knowledge, threatened disputes with the Hospital medical staff members or applicants or allied health professionals, and all appeal periods in respect of any medical staff member or applicant against whom an adverse action has been
taken have expired. 
  
 2.30 No Brokers or Finders. Except
for Marilyn Cochran’s fees under the Real Property Purchase Contract, no agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Seller, the Company or the Partnership, or any of
their respective Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any brokerage or finder’s or similar fee or other
commission as a result of this Agreement or such transactions; except for such fees or other commissions as to which Seller shall have full responsibility and, with respect to such fees or commissions, Purchaser shall not have any liability.

  
 2.31 Improper Payments. None of the Partnership,
Seller, the Company, or to the Knowledge of Seller, any of their respective directors, officers, employees, agents or partners have made any bribes, kickbacks or other illegal payments to, or received any such illegal payments from, customers,
vendors, suppliers or other persons contracting with the Partnership, the Company or the Hospital and has not proposed or offered to make or receive any such illegal payments. 
  
 2.32 No Misrepresentations. The representations, warranties and statements made by the Company and Seller in this
Agreement (including any Schedule, Exhibit or certificate furnished by Seller or the Company in accordance with the terms of this Agreement) are true, complete and correct in all material respects and do not contain any untrue statement of a

  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 23 

 material fact or omit to state any material fact necessary to make any such representation, warranty or statement, under
the circumstances in which it is made, not misleading. 
  
 2.33
Liabilities. True and correct copies of all notes, agreements or other documents evidencing outstanding liabilities of the Company and the Partnership have been delivered or made available to Purchaser by Seller. 
  
 2.34 Conduct of Business. Except as stated in Schedule 2.34,
Seller represents and warrants that since November 30, 2005, each of the Company and the Partnership has: 
  
 (a) carried on its business in substantially the same manner as conducted before such date and has not made any material change in personnel, operations,
finance, accounting policies, Tax elections or Tax returns or Real Property or Personal Property; 
  
 (b) maintained its assets in operating condition in a manner consistent with past practices, ordinary wear and tear excepted; 
  
 (c) performed all of its material obligations under the Contracts, Leases and
all other agreements; 
  
 (d) kept in full force and effect all of
its insurance policies or other comparable self-insurance; and 
  
 (e) used commercially reasonable efforts to maintain and preserve all of the Partnership’s, the Company’s and the Hospital’s business organizations intact, retained all of the Partnership’s and the Hospital’s
employees and maintained their respective relationships with physicians, suppliers, customers and others having business relationships with the Partnership, the Company or the Hospital. 
  
 2.35 Negative Assurances. Except as stated in Schedule 2.35, Seller represents and warrants that since
November 30, 2005, each of the Partnership and the Company has not: 
  
 (a) amended or terminated any of the Contracts or Leases, entered into any new contract or commitment, or incurred or agreed to incur any liability (other than the Promissory Note and Deed of Trust entered into by the
Partnership with Purchaser in order to enable the Partnership to acquire the Real Property and Other Assets); 
  
 (b) increased compensation payable or to become payable or made any bonus payment to or otherwise entered into one or more bonus agreements with any
employee of the Partnership or the Hospital; 
  
 (c) created,
assumed or permitted to exist any new debt, mortgage, deed of trust, pledge or other lien or encumbrance upon any of the assets of the Partnership, the Company or the Hospital (other than the Promissory Note and Deed of Trust entered into by the
Partnership with Purchaser in order to enable the Partnership to acquire the Real Property and Other Assets); 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 24 

 (d) except for the Partnership’s acquisition of the Real Property and other related assets on the
Execution Date under the Real Property Purchase Contract, acquired (whether by purchase or lease) or sold, assigned, leased, or otherwise transferred or disposed of any property, plant or equipment, except in the ordinary course of business with
comparable replacement thereof; 
  
 (e) purchased capital assets
or incurred costs in respect of construction in progress; 
  
 (f)
taken any action outside the ordinary course of business; 
  
 (g)
reduced Inventory except in the ordinary course of business; 
  
 (h) made any distribution of any of its assets to any partner, owner or any of their respective Affiliates; 
  
 (i) except for the Partnership Agreement Amendment, amended the Limited Partnership Agreement or Regulations in any manner; or 
  
 (j) had any material change in working capital of the Partnership or the
Company. 
  
 ARTICLE 3 
 REPRESENTATIONS AND WARRANTIES OF PURCHASER 
  
 As an inducement to Seller to enter into this Agreement and to consummate the transactions contemplated by this Agreement, Purchaser hereby represents,
warrants and covenants to Seller as to the following matters as of the Execution Date, and except as otherwise provided herein, Seller shall be deemed to remake all of the following representations, warranties and covenants as of the Closing Date
and the Effective Time: 
  
 3.1 Authority. Purchaser has
full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. 
  
 3.2 Authorization/Execution. All corporate and other actions required to be taken by Purchaser to authorize the execution, delivery and performance
of this Agreement, all documents executed by Purchaser which are necessary to give effect to this Agreement, and all transactions contemplated hereby, have been duly and properly taken or obtained by Purchaser. No other corporate or other action on
the part of Purchaser is necessary to authorize the execution, delivery and performance of this Agreement, all documents necessary to give effect to this Agreement and all transactions contemplated hereby. This Agreement and all documents delivered
hereunder have been duly and validly executed and delivered by Purchaser and, assuming due and valid execution by, and enforceability against, the Company and Seller, this Agreement and all documents delivered hereunder constitute the valid and
binding obligations of Purchaser enforceable in accordance with their respective terms subject to (a) applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in
effect and (b) limitations on the enforcement of equitable remedies. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 25 

 3.3 Organization and Good Standing; No Violation. 
  
 (a) Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full power and authority to own, operate and lease its properties and to carry on its business as now conducted. 
  
 (b) The execution and delivery of this Agreement and the performance of the transactions contemplated by this Agreement and
all other instruments, agreements, certificates and documents contemplated hereby to which Purchaser is or will be a party do not (i) violate any decree or judgment of any court or governmental authority which may be applicable to or bind
Purchaser; (ii) violate any law, rule or regulation applicable to Purchaser which would have a material adverse effect on Purchaser; (iii) violate or conflict with, or result in a breach of, or constitute a default (or an event which, with
or without notice or lapse of time or both, would constitute a default) under, or permit cancellation of, any material contract, lease, sales order, purchase order, indenture, mortgage, note, bond, instrument, license or other agreement to which
Purchaser is a party, or by which Purchaser is bound; (iv) permit the acceleration of the maturity of any indebtedness of Purchaser; or (v) violate or conflict with any provision of the Certificate of Incorporation or Bylaws of Purchaser.

  
 (c) Purchaser and its Affiliates (a) are not a party to a
Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services, (b) have no reporting obligations pursuant to any settlement agreement entered into with any Governmental Program,
(c) to the Knowledge of Purchaser are not the subject of any Government Program investigation presently being conducted by any federal or state enforcement agency, or (d) have not been a defendant in any qui tam/False Claims Act
litigation during the past five (5) years except as disclosed in Horizon Health Corporation’s Annual Report on Form 10-K filed with the SEC for the year ended August 31, 2005. 
  
 3.4 Brokers and Finders. No agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of Purchaser, or any of their respective Affiliates in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder’s or similar fee or other commission as a result of this Agreement or such transactions; except for such fees and other commissions as to which Purchaser shall have full
responsibility and, with respect to such fees or commissions, Seller shall not have any liability. 
  
 ARTICLE 4 
 COVENANTS OF SELLER 
  
 4.1 Access and Information; Inspection Period, Preparation of Exhibits and
Schedules. From the Execution Date through the Closing, Seller shall afford to the officers and agents of Purchaser (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 Company. From the Execution Date
through the Closing, Seller shall furnish Purchaser with such additional financial and operating data and other information as to businesses and properties of the Company as 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 26 

 Purchaser or its representatives may from time to time reasonably request, without regard to where such information may
be located. Purchaser’s right of access and inspection shall be exercised in such a manner as not to interfere unreasonably with the operations of the Company, the Partnership and the Hospital. Such access may include consultations with the
personnel of the Company, the Partnership and the Hospital. 
  
 4.2 Conduct of Business. Except as restricted in Section 4.3, on and after the Execution Date and prior to the Closing, and except as otherwise consented to or approved by an authorized officer of Purchaser or required by this
Agreement, Seller and the Company shall, with respect to the operation of the Company: 
  
 (a) carry on the Company’s, the Partnership’s and the Hospital’s businesses in substantially the same manner as presently conducted and not make any material change in personnel, operations, finance,
accounting policies (unless the Company or the Partnership is required to adopt such changes under GAAP), Tax elections or Tax returns or real or personal property; 
  
 (b) maintain the assets of the Company, the Partnership and the Hospital in operating condition in a manner consistent with
past practices, ordinary wear and tear excepted; 
  
 (c) perform
all of their respective material obligations under agreements relating to or affecting the Company, the Partnership and the Hospital and their operations or assets; 
  
 (d) keep in full force and effect present insurance policies or other comparable self-insurance; and 
  
 (e) use commercially reasonable efforts to maintain and preserve the
Company’s, the Partnership’s and the Hospital’s business organizations intact, retain their present employees and maintain their relationships with suppliers, customers and others having business relationships with the Company, the
Partnership and/or the Hospital. 
  
 4.3 Negative
Covenants. From the Execution Date until the Closing, with respect to the operation of the Company, Seller and the Company shall not, without the prior written consent of Purchaser or except as may be required by law: 
  
 (a) take any action or exercise any power as general partner of the
Partnership, including any powers given to the general partner under the Limited Partnership Agreement or the Texas Revised Limited Partnership Act; 
  
 (b) amend or terminate any of the Contracts, enter into any new contract or commitment, or incur or agree to incur any liability; 
  
 (c) increase compensation payable or to become payable or make any bonus
payment to or otherwise enter into one or more bonus agreements with any employee of the Partnership or the Hospital; 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 27 

 (d) create, assume or permit to exist any new debt, mortgage, deed of trust, pledge or other lien or
encumbrance upon any of the assets of the Company, the Partnership or the Hospital; 
  
 (e) 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;

  
 (f) except with respect to previously budgeted expenditures,
purchase capital assets or incur costs in respect of construction in progress; 
  
 (g) take any action outside the ordinary course of business; 
  
 (h) reduce inventory except in the ordinary course of business; or 
  
 (i) make or cause any distributions of the Partnership’s assets or the Company’s assets to any Person. 
  
 4.4 Consents. Seller and the Company shall use commercially reasonable
efforts to obtain all Contract 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 (including, without limitation, 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. Notwithstanding any provision to the contrary contained in this Agreement,
to the extent Seller and the Company are unable to obtain any of the Contract Consents and Purchaser agrees to proceed to Closing without such Consents, Seller and the Company shall cooperate with Purchaser to ensure that Purchaser obtains the
benefits of each such Contract and shall indemnify and hold harmless Purchaser and its affiliates for and against any and all damages as a result, directly or indirectly, of the failure to obtain any such approval or consent if any such Contract
states that it is not transferable without such party’s consent. 
  
 4.5 Additional Financial Information. Within fifteen (15) calendar days following the end of each calendar month after the Execution Date and prior to Closing, Seller shall deliver to Purchaser complete copies of the unaudited
balance sheet and related unaudited statements of income prepared in accordance with GAAP with respect to the operations of the Company and the Partnership for each month then ended, together with corresponding year-to-date amounts. 
  
 4.6 Seller’s Efforts to Close. Seller shall use his commercially
reasonable efforts to satisfy all of the conditions precedent set forth in Article 6 to Purchaser’s obligations under this Agreement to the extent that Seller’s actions or inaction can control or influence the satisfaction of such
conditions. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 28 

 4.7 Updating of Disclosure Schedules. 
  
 (a) Seller shall notify Purchaser of any changes, additions, or events which
may cause any change in or addition to the Disclosure Schedules delivered by Seller under this Agreement promptly after the occurrence of the same and again at the Closing by delivery of appropriate updates to all such Schedules. No notification of
a change or addition to a Schedule made pursuant to this Section 4.7 shall be deemed to cure any breach of any representation or warranty resulting from such change or addition 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, unless in any such case Purchaser specifically agrees thereto in writing. 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 Seller or the Company herein. 
  
 (b) Certain Disclosure Schedules to the Agreement set forth exceptions to the
representations, warranties and other agreements made by Seller and the Company in the Agreement and are intended to qualify such representations, warranties and agreements. The information expressly set forth in a Disclosure Schedule with respect
to any section of the Agreement shall also be deemed to qualify each other section of the Agreement to which such information is applicable (regardless of whether or not such other section is qualified by reference to a schedule), so long as
application to such section is reasonably discernible from such disclosure. Notwithstanding the foregoing, the representations, warranties and other agreements of a party set forth in the Agreement shall not be affected, modified, waived or limited
in any respect by the information contained in any agreement or document listed or referenced in a Disclosure Schedule unless the reference on the face of the schedule expressly indicates how such agreement or document limits the scope of a
representation, warranty or other agreement of the party set forth in the Agreement. 
  
 ARTICLE 5 
 COVENANTS OF PURCHASER 
  
 5.1 Purchaser’s Efforts to Close. Purchaser shall use its commercially reasonable efforts to satisfy all of the
conditions precedent set forth in Article 6 to its obligations under this Agreement to the extent that Purchaser’s actions or inaction can control or influence the satisfaction of such conditions. 
  
 5.2 Required Governmental Approvals. Purchaser (a) shall use
commercially reasonable efforts to secure, as promptly as practicable before the Closing Date, all consents, approvals, authorizations, clearances, certificates of need, licenses and permits required to be obtained from governmental and regulatory
authorities necessary for Purchaser to perform its obligations under this Agreement, cause all of its covenants and agreements to be performed, satisfied and fulfilled and operate the Company after the Closing; and (b) will provide such other
information and communications to governmental and regulatory authorities as Seller or such authorities may reasonably request. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 29 

 ARTICLE 6 
 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER 
  
 Purchaser’s obligation to purchase the Membership Interest and to close the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the following conditions on or prior to the
Closing Date unless specifically waived in writing by Purchaser in whole or in part at or prior to the Closing. 
  
 6.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of Seller and the Company in
this Agreement shall have been true and correct on the date of this Agreement, and they shall be true and correct as of the Closing with the same force and effect as though made at and as of the Closing. Seller and the Company shall have performed
and complied with all of their respective obligations required by this Agreement to be performed or complied with at or prior to the Closing. 
  
 6.2 Governmental Authorizations. Purchaser, Seller, the Company and the Partnership shall have obtained all material licenses, permits, approvals,
certificates of need and authorizations from governmental agencies or governmental bodies that are necessary or required for Purchaser to complete the transactions contemplated by this Agreement and the operation of the Hospital by Purchaser after
the Closing. Purchaser, Seller, the Company and the Partnership shall have obtained all material licenses, permits, approvals and authorizations from governmental agencies or governmental bodies that are necessary or required for completion of the
transactions contemplated by this Agreement. All consents, waivers and estoppels of third parties which are reasonably necessary, in the opinion of Purchaser, to complete effectively the transactions herein contemplated shall have been obtained in
form and substance reasonably satisfactory to Purchaser. 
  
 6.3
Signing and Delivery of Instruments. Seller and the Company shall have executed and delivered all documents, instruments and certificates required to be executed and delivered pursuant to all of the provisions of this Agreement. 

 
 6.4 Unfavorable Action or Proceeding. On the Closing Date, no
orders, decrees, judgments or injunctions of any court or governmental body shall be in effect, and no claims, actions, suits, proceedings, arbitrations or investigations shall be pending or threatened, which challenge or seek to challenge, or which
could reasonably be expected to prevent or cause the rescission of the consummation of the transactions contemplated in this Agreement. 
  
 6.5 No Material Adverse Change. There shall not have been any Material Adverse Change in or affecting the Membership Interest or the business of
the Partnership since October 31, 2005. 
  
 6.6 Required
Consents. The Contract and Lease Consents shall have been received or obtained on or prior to the Closing Date without the imposition of any burdens or conditions materially adverse to the Party or Parties entitled to the benefit thereof.

  
 6.7 Disclosure Schedules. Seller and the Company shall
have promptly and fully completed the Disclosure Schedules hereto. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 30 

 6.8 Real Property Title Matters. The Partnership shall have received an Owner’s Title Policy
with respect to each parcel of the Real Property issued to the Partnership covering the Real Property in the amount of the full insurable value of such parcel of the Real Property, and which contains such endorsements as are customary in the
counties where such parcel of the Real Property is located and no exceptions other than the Permitted Encumbrances, and which is reasonably satisfactory to Purchaser in all respects. 
  
 6.9 Lock Boxes. Seller has taken all actions necessary for Purchaser and the Partnership to obtain full and exclusive
access and ownership to all funds relating to and the Lock Boxes used in the business of the Hospital, and Seller shall deliver to Purchaser all necessary executed documents and consents to accomplish and evidence such exclusive ownership and
access. 
  
 ARTICLE 7 
 POST-CLOSING MATTERS 
  
 7.1 Preservation and Access to Records After the Closing. 
  

(a) From the Closing Date until seven (7) years after the Closing Date or such longer period as required by law (the “Document Retention
Period”), Purchaser shall cause the Partnership to keep and preserve all medical records, patient records, medical staff records and other required books and records which are among the assets of the Partnership as of the Effective Time. The
Partnership will afford to the representatives of Seller, including their counsel and accountants, full and complete access to, and copies (including, without limitation, color laser copies) of, such records with respect to time periods prior to the
Effective Time during normal business hours after the Effective Time, to the extent reasonably needed by Seller for business purposes. Purchaser acknowledges that, as a result of entering into this Agreement and owning the Membership Interest, it
will gain access to patient records and other information which are subject to rules and regulations concerning confidentiality. Purchaser shall abide by any such rules and regulations relating to the confidential information it acquires. After the
expiration of the Document Retention Period, if the Partnership intends to destroy or otherwise dispose of any of the documents described in this Section 7.1(a), the Partnership shall provide written notice to Seller of the Partnership’s
intention no later than forty-five (45) calendar days prior to the date of such intended destruction or disposal. Seller shall have the right, at their sole cost, to take possession of such documents during such forty-five (45) calendar
day period. If Seller does not take possession of such documents during such forty-five (45) calendar day period, the Partnership shall be free to destroy or otherwise dispose of such documentation upon the expiration of such forty-five
(45) calendar day period. 
  
 (b) Purchaser, the Company, the
Partnership and their respective representatives shall be given access by Seller during normal business hours to the extent reasonably needed by Purchaser, the Company or the Partnership for business purposes to all documents, records,
correspondence, work papers and other documents retained by Seller pertaining to any of the Membership Interest or with respect to the operation of the Company prior to the Effective Time. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 31 

 7.2 Provision of Benefits of Certain Contracts. If, as of the Effective Time, Seller has not
obtained a required consent to the change of control and transfer of a Contract or Lease, or the Partnership or the Company is unable to enter into a new third party contract with respect to such Contract or Lease, until such consent is obtained or
a new third party contract is obtained, Seller shall provide the Partnership or the Company, as applicable, the benefits of such Contract or Lease and cooperate in any reasonable and lawful arrangement designed to provide such benefits to the
Partnership or the Company and shall indemnify and hold harmless Purchaser and its Affiliates for and against any and all damages as a result, directly or indirectly, of the failure to obtain any such approval or consent if any such Contract or
Lease states that it is not transferable without such Party’s consent. Purchaser agrees to cause the Partnership and the Company to use reasonable commercial efforts to perform, on behalf of Seller, the obligations of the Partnership or the
Company under such Contract or Lease or in connection therewith, but only to the extent that such action would not result in a material default under the applicable Contract or Lease and such obligation would have been an obligation of the
Partnership or the Company had it received consent to the transfer of such Contract or Lease or had entered into a new third party contract on substantially similar terms as the applicable Contract or Lease. 
  
 7.3 Misdirected Payments, Etc. Seller covenants and agrees to remit,
with reasonable promptness, to the Partnership or the Company, as appropriate, any payments received by Seller or one of his Affiliates, which payments are on or in respect of accounts or notes receivable owned by (or are otherwise payable to) the
Company, the Partnership or the Hospital. In the event of a determination by any governmental or third-party payor that payments to Seller, the Hospital, the Company or the Partnership resulted in an overpayment or other determination that funds
previously paid by any program or plan to Seller, the Hospital, the Company or the Partnership must be repaid, Seller shall not be responsible for repayment of said monies (or defense of such actions) even if such overpayment or other repayment
determination was for services rendered prior to the Effective Time and the Partnership or the Company shall be responsible for repayment of said monies (or defense of such actions) if such overpayment or other repayment determination was for
services rendered after the Effective Time. 
  
 7.4
Insurance. Purchaser shall, for a period of two (2) years after the Execution Date, maintain insurance coverage with Purchaser’s current insurers or a financially sound and reputable insurance company selected by Purchaser naming
Seller and Signet Health Corporation as additional insureds and covering the health care services general and professional liability risks arising out of the Partnership’s operation of the Hospital from February 8, 2005 until the Effective
Time. This insurance coverage shall cover the Company in its capacity as general partner of the Partnership as an insured. 
  
 ARTICLE 8 
 SURVIVAL AND
INDEMNIFICATION 
  
 8.1 Survival. Except as expressly
set forth in this Agreement to the contrary, all representations, warranties, covenants, agreements and indemnifications of Purchaser, Seller and the Company, respectively, contained in this Agreement or in any document delivered pursuant hereto
shall be deemed to be material and to have been relied upon by Purchaser and Seller, respectively. All representations and warranties of Purchaser, Seller and the Company shall continue to be fully effective and enforceable following the Effective
Time for two (2) years and 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 32 

 shall thereafter be of no further force and effect; provided, however, that, if there is at the end of such two
(2) year period an outstanding notice of a claim made in compliance with the terms of Section 8.4, such applicable period shall not end in respect of such claim until such claim is resolved. Notwithstanding the above, the representations
and warranties contained in Sections 2.1, 2.2, 2.3, and 2.4, and the rights to indemnity set forth in Section 8.2 hereof with respect to such representations and warranties shall continue to be fully effective and enforceable indefinitely.

  
 8.2 Indemnification of Purchaser by Seller. 

 
 (a) Indemnification. Seller shall keep and save Purchaser and
Purchaser’s officers, directors, employees, agents and other representatives, the Company, and the Partnership and the Partnership’s partners (other than the Company before the Closing), officers, directors, employees, agents and other
representatives forever harmless from and shall indemnify and defend Purchaser, the Company and the Partnership against any and all obligations, judgments, liabilities, penalties, violations, fees, fines, claims, losses, costs, demands, damages,
liens, encumbrances and expenses including reasonable attorneys’ fees (collectively, “Damages”), to the extent arising or resulting from (i) any breach of any representation or warranty of Seller or the Company under this
Agreement or any documents delivered pursuant hereto, and (ii) any breach or default by Seller or the Company of any covenant or agreement of Seller or the Company under this Agreement or any documents delivered pursuant hereto. No provision in
this Agreement shall prevent Seller from pursuing any of its legal rights or remedies that may be granted to Seller by law against any Person other than Purchaser. 
  
 (b) Indemnification Limitations. Notwithstanding any provision to the contrary contained in this Agreement, Seller
shall be under no liability to indemnify Purchaser, the Company or the Partnership under Sections 8.2(a)(i) and 8.2(a)(ii) and no claim under Sections 8.2(a)(i) and 8.2(a)(ii) shall be made: 
  
 (i) unless notice thereof shall have been given by or on behalf of Purchaser
to Seller in the manner provided in Section 8.4, unless failure to provide such notice in a timely manner does not materially impair Seller’s ability to defend their respective rights, mitigate damages, seek indemnification from a third
party or otherwise protect its interests; 
  
 (ii) to the extent
that any loss may be recovered under a policy of insurance in force on the date of loss; provided, however, that this Section 8.2(b)(ii) shall not apply to the extent that coverage under the applicable policy of insurance is denied by
the applicable insurance carrier; 
  
 (iii) to the extent such
claim relates to an obligation or liability for which Purchaser has agreed to indemnify Seller pursuant to Section 8.3; or 
  
 (iv) to the extent related to a claim under Section 8.2(a)(i) or a claim under Section 8.2(a)(ii) for Seller’s or the Company’s
breach of any covenant required to be performed or satisfied at or prior to Closing, or accrue to Purchaser unless the liability of Seller or the Company in respect of any single claim or multiple claims in the aggregate exceeds Ten Thousand Dollars
($10,000) (a “Relevant Claim”) in which event Purchaser shall be entitled to seek indemnification for the total amount of the Relevant Claim(s). 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 33 

 (c) Damages Cap. The maximum aggregate liability of Seller to Purchaser under
Section 8.2(a)(i) of this Agreement shall not exceed the Purchase Price. 
  
 8.3 Indemnification of Seller by Purchaser. 
  
 (a) Indemnification. Purchaser shall keep and save Seller forever harmless from and shall indemnify and defend Seller against any and all Damages, to the extent arising or resulting from (i) any breach of
any representation or warranty of Purchaser under this Agreement, (ii) any breach or default by Purchaser under any covenant or agreement of Purchaser under this Agreement, (iii) any liability of the Partnership, the Company or the
Hospital accruing after the Effective Time except for liabilities for which Purchaser, the Company and/or the Partnership are indemnified under this Agreement, and (iv) any liability claims arising out of acts or omissions of the Partnership
from and after February 8, 2005, except for liabilities for which Purchaser, the Company and/or the Partnership are indemnified under this Agreement. No provision in this Agreement shall prevent Purchaser from pursuing any of its legal rights
or remedies that may be granted to Purchaser by law against any person or legal entity other than Seller. 
  
 (b) Indemnification Limitations. Notwithstanding any provision to the contrary contained in this Agreement, Purchaser shall be under no liability
to indemnify Seller under Section 8.3(a)(i) or Section 8.3(a)(ii) and no claim under Section 8.3(a)(i) or Section 8.3(a)(ii) shall be made: 
  

(i) unless notice thereof shall have been given by or on behalf of Seller to Purchaser in the manner provided in Section 8.4, unless failure to
provide such notice in a timely manner does not materially impair Purchaser’s ability to defend its rights, mitigate damages, seek indemnification from a third party or otherwise protect its interests; 
  
 (ii) to the extent that any Damages may be recovered under a policy of
insurance in force on the date of loss; provided, however, that this Section 8.3(b)(ii) shall not apply to the extent that coverage under the applicable policy of insurance is denied by the applicable insurance carrier; or 
  
 (iii) to the extent related to a claim under Section 8.3(a)(i) or a
claim under Section 8.3(a)(ii) for Purchaser’s breach of any covenant required to be performed or satisfied at or prior to Closing, or accrue to Seller unless and only to the extent that the actual liability of Purchaser in respect of any
single claim or multiple claims in the aggregate exceeds the Relevant Claim amount in which event Seller shall be entitled to seek indemnification for the total amount of the Relevant Claim(s). 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 34 

 8.4 Method of Asserting Claims. All claims for indemnification under this Article 7 by any Person
entitled to indemnification (an “Indemnified Party”) under this Article 8 will be asserted and resolved as follows: 
  
 (a) In the event any claim or demand, for which a Party hereto (an “Indemnifying Party”) would be liable for the Damages to an Indemnified
Party, is asserted against or sought to be collected from an Indemnified Party by a Person other than Seller, Purchaser or their Affiliates (a “Third Party Claim”), the Indemnified Party shall give a notice of its claim (a “Claim
Notice”) to the Indemnifying Party within thirty (30) calendar days after the Indemnified Party receives written notice of such Third Party Claim; provided, however, that notice shall be given by the Indemnified Party to the
Indemnifying Party within fifteen (15) calendar days after receipt of a complaint, petition or institution of other formal legal action against the Indemnified Party. If the Indemnified Party fails to provide the Claim Notice within such
applicable time period after the Indemnified Party receives written notice of such Third Party Claim and thereby materially impairs the Indemnifying Party’s ability to protect its interests, the Indemnifying Party will not be obligated to
indemnify the Indemnified Party with respect to such Third Party Claim. The Indemnifying Party will notify the Indemnified Party within thirty (30) calendar days after receipt of the Claim Notice (the “Notice Period”) whether the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Third Party Claim. 
  
 (i) If the Indemnifying Party notifies the Indemnified Party within the Notice Period that the Indemnifying Party desires to defend the Indemnified Party
with respect to the Third Party Claim pursuant to this Section 8.4(a), then the Indemnifying Party will have the right to defend, at its sole cost and expense, such Third Party Claim by all appropriate proceedings, which proceedings will be
prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party. The Indemnifying Party will have full control of such defense and proceedings, including any compromise or settlement thereof.
Notwithstanding the foregoing, the Indemnified Party may, at its sole cost and expense, file during the Notice Period any motion, answer or other pleadings that the Indemnified Party may deem necessary or appropriate to protect its interests or
those of the Indemnifying Party and which is not prejudicial, in the reasonable judgment of the Indemnifying Party, to the Indemnifying Party. Except as provided in Section 8.4(a)(ii) hereof, if an Indemnified Party takes any such action that
is prejudicial and causes a final adjudication that is adverse to the Indemnifying Party, the Indemnifying Party will be relieved of its obligations hereunder with respect to the portion of such Third Party Claim prejudiced by the Indemnified
Party’s action. If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party, to cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the
Indemnifying Party elects to contest, or, if appropriate and related to the Third Party Claim in question, in making any counterclaim against the Person asserting the Third Party Claim, or any cross-complaint against any Person (other than the
Indemnified Party or any of its Affiliates). The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 8.4(a)(i), and except as
specifically provided in this Section 8.4(a)(i), the Indemnified Party will bear its own costs and expenses with respect to such participation. 
  
 (ii) If the Indemnifying Party fails to notify the Indemnified Party within the Notice Period that the Indemnifying Party desires to defend the
Indemnified Party pursuant to this Section 8.4(a), or if the Indemnifying Party gives such notice but fails to prosecute diligently or settle the Third Party Claim, or if the Indemnifying Party fails to give any 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 35 

 notice whatsoever within the Notice Period, then the Indemnified Party will have the right to defend, at the sole cost
and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings will be promptly and reasonably prosecuted by the Indemnified Party to a final conclusion or will be settled at the discretion of the
Indemnified Party. The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party agrees, at
the sole cost and expense of the Indemnifying Party, to cooperate with the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting, or, if appropriate and related to the Third Party Claim in
question, in making any counterclaim against the Person asserting the Third Party Claim, or any cross-complaint against any Person (other than the Indemnifying Party or any of its Affiliates). Notwithstanding the foregoing provisions of this
Section 8.4(a)(ii), if the Indemnifying Party has notified the Indemnified Party with reasonable promptness that the Indemnifying Party disputes its liability to the Indemnified Party with respect to such Third Party Claim and if such dispute
is resolved in favor of the Indemnifying Party, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party’s defense pursuant to this Section 8.4(a)(ii). Subject to the above terms of this
Section 8.4(a)(ii), the Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section 8.4(a)(ii), and the Indemnifying Party will bear its own costs and
expenses with respect to such participation. The Indemnified Party shall give sufficient prior notice to the Indemnifying Party of the initiation of any discussions relating to the settlement of a Third Party Claim to allow the Indemnifying Party to
participate therein. 
  
 (b) In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder that does not involve a Third Party Claim being asserted against or sought to be collected from the Indemnified Party, the Indemnified Party shall deliver an Indemnity Notice to the
Indemnifying Party. (The term “Indemnity Notice” shall mean written notification of a claim for indemnity under Article 8 hereof (which claim does not involve a Third Party Claim or Tax Claim) by an Indemnified Party to an Indemnifying
Party pursuant to this Section 8.4, specifying the nature of and specific basis for such claim and the amount or the estimated amount of such claim.) The failure by any Indemnified Party to give the Indemnity Notice shall not impair such
Party’s rights hereunder except to the extent that an Indemnifying Party demonstrates that it has been prejudiced thereby. 
  
 (c) If the Indemnifying Party does not notify the Indemnified Party within thirty (30) calendar days following its receipt of a Claim Notice or an
Indemnity Notice that the Indemnifying Party disputes its liability to the Indemnified Party hereunder, such claim specified by the Indemnified Party will be conclusively deemed a liability of the Indemnifying Party hereunder and the Indemnifying
Party shall pay the amount of such liability to the Indemnified Party on demand, or on such later date (i) in the case of a Third Party Claim, as the Indemnified Party suffers the Damages in respect of such Third Party Claim, or (ii) in
the case of an Indemnity Notice in which the amount of the claim is estimated, when the amount of such claim becomes finally determined. If the Indemnifying Party has timely disputed its liability with respect to such claim, as provided above, the
Indemnifying Party and the Indemnified Party agree to proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations, such dispute will be resolved by adjudication by a court or similar tribunal.

  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 36 

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

  
 (e) The Indemnified Party shall assist and cooperate with the
Indemnifying Party in the conduct of litigation, the making of settlements and the enforcement of any right of contribution to which the Indemnified Party may be entitled from any Person in connection with the subject matter of any litigation
subject to indemnification hereunder. In addition, the Indemnified Party shall, upon request by the Indemnifying Party or counsel selected by the Indemnifying Party (without payment of any fees or expenses to the Indemnified Party or an employee
thereof), attend hearings and trials, assist in the securing and giving of evidence, assist in obtaining the presence or cooperation of witnesses, and make available its own personnel; and shall do whatever else is necessary and appropriate in
connection with such litigation. The Indemnified Party shall not make any demand upon the Indemnifying Party or counsel for the Indemnifying Party in connection with any litigation subject to indemnification hereunder, except a general demand for
indemnification as provided hereunder. If the Indemnified Party shall fail to perform such obligations as Indemnified Party hereunder or to cooperate fully with the Indemnifying Party in Indemnifying Party’s defense of any suit or proceeding,
such cooperation to include, without limitation, attendance at all depositions and the provision of all documents relevant to the defense of any claim, then, except where such failure does not have an adverse effect on the Indemnifying Party’s
defense of such claims, the Indemnifying Party shall be released from all of its obligations under this Agreement with respect to that suit or proceeding and any other claims which had been raised in such suit or proceeding. 
  
 (f) Following indemnification as provided for hereunder, the Indemnifying
Party shall be subrogated to all rights of the Indemnified Party with respect to all persons or entities relating to the matter for which indemnification has been made. 
  
 ARTICLE 9 
 TAX AND COST REPORT MATTERS 
  
 9.1 Tax
Matters. 
  
 (a) After the Closing Date, the Parties shall
cooperate fully with each other and shall make available to each other, as reasonably requested, all information, records or documents relating to Tax liabilities or potential Tax liabilities attributable to the Partnership or the Company for all
periods prior to the Effective Time and shall preserve all such information, records and documents at least until the expiration of any applicable statute of limitations (including extensions thereof). The Parties shall also make available to each
other as reasonably required, and at the reasonable cost of the requesting Party (for out-of-pocket costs and expenses only), personnel responsible for preparing or maintaining information, records and documents in connection with Tax matters.

  
 (b) Seller shall prepare or cause to be prepared and file or
cause to be filed all Tax returns for the Partnership and the Company for all periods ending on or prior to the Closing Date that are filed after the Closing Date. Seller shall permit Purchaser to review and comment 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 37 

 on each such Tax return described in the preceding sentence prior to filing. To the extent permitted by applicable law,
Seller shall include any income, gain, loss, deduction or other tax items for such periods on their Tax returns in a manner consistent with the tax information furnished by the Partnership or the Company to Seller for such periods. 
  
 (c) The Parties agree that (A) all federal and state income and
franchise Taxes attributable to any Tax period (or portion thereof) ending on or prior to the Effective Time and any federal and state income and franchise Taxes attributable to the sale of the Membership Interest pursuant to this Agreement shall be
borne by, shall be the responsibility of and shall be paid by Seller and (B) all other Taxes with respect to the Partnership or the Company shall be borne by, shall be the responsibility of and shall be paid by the Partnership or the Company as
required by applicable law. 
  
 ARTICLE 10 
 MISCELLANEOUS PROVISIONS 
  
 10.1 Entire Agreement. This Agreement, the Disclosure Schedules, the Exhibits and the documents referred to in this Agreement contain the entire
understanding between the Parties with respect to the transactions contemplated hereby and supersede all prior or contemporaneous agreements, understandings, representations and statements, oral or written, between the Parties on the subject matter
hereof (the “Superseded Agreements”), which Superseded Agreements shall be of no further force or effect. 
  
 10.2 Further Assurances and Cooperation. Seller shall execute, acknowledge and deliver to Purchaser any and all other assignments, consents,
approvals, conveyances, assurances, documents and instruments reasonably requested by Purchaser at any time and shall take any and all other actions reasonably requested by Purchaser at any time for the purpose of more effectively assigning,
transferring, granting, conveying and confirming to Purchaser, the assets of the Company. After consummation of the transactions contemplated in this Agreement, the Parties agree to cooperate with each other and take such further actions as may be
necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement, the documents referred to in this Agreement and the transactions contemplated hereby. 
  
 10.3 Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the respective successors and assigns of the Parties hereto; provided, however, that no Party hereto may assign any of its rights or delegate any of its duties under this Agreement without the prior
written consent of the other Parties, except that Purchaser may assign any of its rights or delegate any of its duties under this Agreement to any Affiliate. 
  
 10.4 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas as applied to
contracts made and to be performed entirely within the State of Texas. The Parties hereby waive their right to assert in any proceeding involving this Agreement that the law of any other jurisdiction shall apply to such dispute; and the Parties
hereby covenant that they shall assert no such claim in any dispute arising under this Agreement. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 38 

 10.5 Amendments. This Agreement may not be amended other than by a written instrument signed by
the Parties hereto. 
  
 10.6 Notices. Any notice, demand or
communication required, permitted, or desired to be given hereunder shall be deemed effectively given when personally delivered, when received by facsimile or overnight courier, or five (5) calendar days after being deposited in the United
States mail, with postage prepaid thereon, certified or registered mail, return receipt requested, addressed as follows: 
  

			
	If to Seller:	  	    Jerry G. Browder
	 	  	    504 Seville Road, Suite 201
	 	  	    Denton, Texas 76205
	 	  	    Facsimile No.: (940) 380-0697
		
	If to Purchaser	  	    Horizon Health Hospital Services, Inc.
	or the Company:	  	    c/o Horizon Health Corporation
	 	  	    1500 Waters Ridge Drive
	 	  	    Lewisville, Texas 75057
	 	  	    Attention: President
	 	  	    Facsimile No.: (972) 420-4087
		
	With copies to:	  	    Horizon Health Corporation
	 	  	    1500 Waters Ridge Drive
	 	  	    Lewisville, Texas 75057
	 	  	    Attention: General Counsel
	 	  	    Facsimile No.: (972) 219-1710
		
	 	  	    Strasburger & Price, L.L.P.
	 	  	    901 Main Street, Suite 4300
	 	  	    Dallas, Texas 75202
	 	  	    Attention: Thomas W. Burton, Esq.
	 	  	    Facsimile No.: (214) 651-4330

  
 or at such other address for a Party
as such Party may designate by notice hereunder to the other Parties. 
  
 10.7 Headings. The section and other headings contained in this Agreement, the Disclosure Schedules, and the Exhibits to this Agreement are included for the purpose of convenient reference only and shall not restrict, amplify, modify
or otherwise affect in any way the meaning or interpretation of this Agreement, the Disclosure Schedules and Exhibits hereto. 
  
 10.8 Confidentiality and Publicity. The Parties hereto shall hold in confidence the information contained in this Agreement, and all information
related to this Agreement, which is not otherwise known to the public, shall be held by each Party hereto as confidential and proprietary information and shall not be disclosed without the prior written consent of the other Parties; provided,
however, each Party shall be permitted to provide a copy of this Agreement to any applicable governmental or administrative authorities as reasonably required or necessary. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 39 

 Accordingly, Purchaser and Seller shall not discuss with, or provide nonpublic information to, any third party (except
for such party’s attorneys, accountants, directors, officers and employees, the directors, officers and employees of any Affiliate of any Party hereto will agree to be bound by the confidentiality provisions of this Agreement, and other
consultants and professional advisors) concerning this transaction prior to the Effective Time, except: (a) as required in governmental filings or judicial, administrative or arbitration proceedings; (b) pursuant to public announcements
made with the prior written approval of Seller and Purchaser; or (c) as otherwise required by applicable law. 
  
 10.9 Third Party Beneficiary. None of the provisions contained in this Agreement are intended by the Parties, nor shall they be deemed, to confer
any benefit on any person not a Party to this Agreement. 
  
 10.10
Expenses and Attorneys’ Fees. Upon the occurrence of the Closing, Purchaser shall (i) bear all reasonable fees and expenses of Seller up to a cumulative maximum of $45,000 relating to the preparation of this Agreement, the Limited
Partner Interest Purchase Agreement and the Real Property Purchase Contract and to the transactions contemplated thereby, and the performance of or compliance with any condition or covenant set forth in, this Agreement, the Limited Partner Interest
Purchase Agreement and/or the Real Property Purchase Contract; and (ii) pay or cause the Partnership to pay all fees and expenses of MCC required to be paid or borne by the Partnership pursuant to the Option and the Real Property Purchase
Contract. In the event the Closing does not occur, each Party shall bear and pay its own costs and expenses. Seller shall bear and indemnify Purchaser against and hold Purchaser harmless from all sales or transfer Taxes and recording charges in
connection with the conveyance of the Membership Interest to Purchaser. If any action is brought by any Party to enforce any provision of this Agreement, the prevailing Party shall be entitled to recover its court costs and reasonable
attorneys’ fees. 
  
 10.11 No Waiver. Any term,
covenant or condition of this Agreement may be waived at any time by the Party which is entitled to the benefit thereof but only by a written notice signed by the Party expressly waiving such term, covenant or condition. The subsequent acceptance of
performance hereunder by a Party shall not be deemed to be a waiver of any preceding breach by any other Party of any term, covenant or condition of this Agreement, other than the failure of such other Party to perform the particular duties so
accepted, regardless of the accepting Party’s knowledge of such preceding breach at the time of acceptance of such performance. The waiver of any term, covenant or condition shall not be construed as a waiver of any other term, covenant or
condition of this Agreement. 
  
 10.12 Severability. If any
term, provision, condition or covenant of this Agreement or the application thereof to any Party or circumstance shall be held to be invalid or unenforceable to any extent in any jurisdiction, then the remainder of this Agreement and the application
of such term, provision, condition or covenant in any other jurisdiction or to persons or circumstances other than those as to whom or which it is held to be invalid or unenforceable, shall not be affected thereby, and each term, provision,
condition and covenant of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 
  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 40 

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

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 41 

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

			
	PURCHASER:
	
	 HORIZON HEALTH HOSPITAL SERVICES, INC.,
 a Delaware corporation

		
	 By:
	 	 /s/ Frank J. Baumann

	 	 	 Frank J. Baumann, President

	
	SELLER:
	
	 /s/ Jerry G. Browder

	 JERRY G. BROWDER,

	 an individual resident of Denton, Denton County, Texas

	
	THE COMPANY:
	
	 KINGWOOD PINES HOSPITAL, LLC, 
 a
Texas limited liability company

		
	 By:
	 	 /s/ Jerry G. Browder

	 	 	 Jerry G. Browder, President

  

 MEMBERSHIP INTEREST PURCHASE AGREEMENT – Page 42Exhibit 10.1

LOGICVISION, INC.

CHANGE OF CONTROL SEVERANCE AGREEMENT

          This Change of Control Severance Agreement (this “Agreement”) is made and entered into effective as of February 15, 2006 (the “Effective Date”), by and between [NAME OF INDIVIDUAL] (the “Executive”) and LogicVision, Inc., a Delaware corporation (the “Company”).  Certain capitalized terms used in this Agreement are defined in Section 1 below.

RECITALS

          A.          It is expected that the Company from time to time will consider the possibility of a Change of Control.  The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Executive and can cause the Executive to consider alternative employment opportunities.

          B.          The Board believes that it is in the best interests of the Company and its shareholders to provide the Executive with an incentive to continue his employment and to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.

          C.          In recognition of Executive’s service with the Company during which time Executive’s leadership has been fundamental to the Company’s development and in order to provide the Executive with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change of Control, the Board believes that it is imperative to provide the Executive with certain severance benefits upon the Executive’s termination of employment in connection with a Change of Control.

AGREEMENT

          In consideration of the mutual covenants herein contained and the continued employment of the Executive by the Company, the parties agree as follows:

          1.          Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:

                       (a)          Cause.  “Cause” shall mean (i) commission of a felony, an act involving moral turpitude, or an act constituting common law fraud, and which has a material adverse effect on the business or affairs of the Company or its affiliates or stockholders; (ii) intentional or willful misconduct or refusal to follow the lawful instructions of the Board; or (iii) intentional breach of Company confidential information obligations which has an adverse effect on the Company or its affiliates or stockholders.  For these purposes, no act or failure to act shall be considered “intentional or willful” unless it is done, or omitted to be done, in bad faith without a reasonable belief that the action or omission is in the best interests of the
Company.

                       (b)          Change of Control.  “Change of Control” shall mean the occurrence of any of the following events:

                                      (i)          the approval by the shareholders of the Company of a plan of complete liquidation or dissolution of the Company or the closing of a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition to a subsidiary of the Company or to an entity, the voting securities of which are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company’s voting securities immediately prior to such sale or disposition;

                                      (ii)          a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent directly or indirectly (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

                                      (iii)          any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities.

          Notwithstanding the foregoing, the term “Change of Control” shall not be deemed to have occurred if the Company files for bankruptcy protection, or if a petition for involuntary relief is filed against the Company.

                       (c)          Involuntary Termination.  “Involuntary Termination” shall mean:

                                      (i)          without the Executive’s express written consent, a material reduction in the Executive’s title, authority, duties, position or responsibilities relative to the Executive’s title, authority, duties, position or responsibilities in effect immediately prior to the Change of Control provided that no such material reduction shall be deemed to occur solely by reason of the Company becoming a subsidiary or division of an acquiring entity;

                                      (ii)          without the Executive’s express written consent, a reduction by the Company of the Executive’s base salary or target bonus as in effect immediately prior to the Change of Control;

                                      (iii)          without the Executive’s express written consent, the relocation of the Executive’s principal place of employment to a facility or a location more than fifty (50) miles from his current location;

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                                      (iv)          any termination of the Executive by the Company which is not effected for Cause; or

                                      (v)          the failure of the Company to obtain the assumption of this Agreement or any other agreement between the Company and Executive by any successors contemplated in Section 7 below.

                       (d)          Termination Date.  “Termination Date” shall mean the effective date of any notice of termination delivered by one party to the other hereunder.

          2.          Term of Agreement.  This Agreement shall terminate upon the date that all obligations of the parties hereto under this Agreement have been satisfied.

          3.          At-Will Employment.  The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law.

          4.          Severance Benefits.

                       (a)          Involuntary Termination in Connection with a Change of Control.  Subject to Section 4(b), if the Executive’s employment with the Company terminates as a result of an Involuntary Termination on or at any time within three (3) months before or twelve months (12) months after a Change of Control, and the Executive signs and does not revoke a standard release of claims with the Company in a form acceptable to the Company, then the Executive shall be entitled to the following severance benefits (it being understood that no such benefits shall accrue and be payable (or take effect, as the case may be) unless and until a Change in Control occurs):

                                      (i)          150% of the Executive’s annual base salary as in effect as of the Termination Date, less applicable withholding, payable in a lump sum within thirty (30) days of the Involuntary Termination or, if later, the Change in Control;

                                      (ii)          150% of the Executive’s target bonus plus target commission for the fiscal year in which the Termination Date occurs, less applicable withholding, payable in a lump sum within thirty (30) days of the Involuntary Termination or, if later, the Change in Control;

                                      (iii)          acceleration of the vesting and exercisability of all of the Executive’s options to acquire common stock of the Company or its successor, or the parent of either, to the extent outstanding, or of any deferred compensation into which the Executive’s stock options were converted upon the Change of Control; and

                                      (iv)          reimbursement by the Company of the group health continuation coverage premiums for the Executive and the Executive’s eligible dependents under Title X of the Consolidated Budget Reconciliation Act of 1985, as amended (“COBRA”) as in effect through the lesser of (x) twelve (12) months from the date of such termination, (y) the date upon which the Executive and the Executive’s eligible dependents become covered under similar plans or (z) the date the Executive no longer constitutes a “Qualified Beneficiary” (as such term is

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defined in Section 4980B(g) of the Code); provided, however, that the Executive will be solely responsible for electing such coverage within the required time period; and provided further,  however, that payment of the reimbursement shall not be made prior to the Change in Control.

                       (b)          Limitation on Benefits Following Certain Changes of Control.  If (i) with respect a Change of Control described in Section 1(c)(i) involving a plan of liquidation or dissolution of the Company, the amount (as projected in good faith by the Company’s Board of Directors) to be distributed in respect of one share of the Company’s common stock (“Common Stock”) is less than the closing price per share of the Common Stock on the Nasdaq National Market on the date of this Agreement, (ii) with respect to a Change in Control described in Section 1(c)(i) involving the sale of all or substantially all of the Company’s assets, the aggregate consideration to be received by the Company in such sale is less than the aggregate market value of the
fully diluted outstanding Common Stock as of the date of this Agreement (based on the closing price per share of the Common Stock on the Nasdaq National Market on the date of this Agreement and using the treasury stock method), or (iii) with respect to a Change in Control described in Section 1(c)(ii), the consideration per share of Common Stock is less than the closing price per share of the Common Stock on the Nasdaq National Market on the date of this Agreement, then the percentages set forth in subsections 4(a)(i) and (ii) shall be 50% rather than 150% and the number of months after the date of termination set forth in Section 9 shall be six (6) rather than eighteen (18).  In valuing consideration per share and aggregate consideration, (x) the value of any securities delivered as consideration, for which there are quotations available in the public markets, shall be the closing market price on the last trading day prior to the closing of the Transaction, (y) the value of securities or other
non-cash consideration for which there are not quotations available in the public markets shall be the fair market value thereof as determined in good faith by the Company’s Board of Directors upon such closing, and (z) the value of any contingent future payment obligations, such as earn-outs, shall be the expected present value of such obligations, as determined in good faith by the Company’s Board of Directors.

                       (c)          Termination Apart from a Change of Control.  If the Executive’s employment with the Company terminates other than as a result of an Involuntary Termination on or within three (3) months before or twelve (12) months after a Change of Control then the Executive shall not be entitled to receive severance or other benefits hereunder.

                       (d)          Accrued Wages and Vacation; Expenses.  Without regard to the reason for, or the timing of, the Executive’s termination of employment: (i) the Company shall pay the Executive any unpaid wages due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; and (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date.  These payments shall be made promptly upon termination and within the period of time mandated by
law.

          5.          Limitation on Payments.  In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute

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payments” within the meaning of Section 280G of the Code and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Executive’s benefits under this Agreement shall be either:

                       (a)          delivered in full or

                       (b)          delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code.

          Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 5 shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes.  For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 5.  The Company shall bear all costs the Accountants may reasonably incur in
connection with any calculations contemplated by this Section 5.

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          6.          Delayed Commencement of Benefits.  Notwithstanding any provision to the contrary in this Agreement, no cash severance and no Company-paid health care coverage to which the Executive otherwise becomes entitled under this Agreement shall be made or provided to the Executive prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service” with the Company (as such term is defined in Treasury Regulations issued under Code Section 409A) or (ii) the date of the Executive’s death, if the Executive is deemed at the time of such separation from service to be a “key employee” within the meaning of that term under Code Section 416(i) and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code
Section 409A(a)(2).  Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section 6 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal  payment dates specified for them herein.  The Executive shall be entitled to interest on the deferred benefits and payments for the period the commencement of those benefits and payments is delayed by reason of Code Section 409A(a)(2), with such interest to accrue at the prime rate in effect from time to time during that period and to be paid in a lump sum upon the expiration of the deferral period.

          7.          Successors.

                       (a)          Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or
which becomes bound by the terms of this Agreement by operation of law.

                       (b)          Executive’s Successors.  Without the written consent of the Company, the Executive shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity.  Notwithstanding the foregoing, the terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

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          8.          Notices.

                       (a)          General.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S.  registered or certified mail, return receipt requested and postage prepaid.  In the case of the Executive, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

                       (b)          Notice of Termination.  Any termination by the Company for Cause or by the Executive as a result of an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with this Section 8.  Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the Termination Date (which shall be not more than thirty (30) days after the giving of such notice).  The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder.

          9.          Non-Solicitation and Non-Competition.

                       (a)          Non-Solicitation.  Subject to Section 4(b), until the date that is eighteen (18) months from the date of termination of the Executive’s employment with the Company, the Executive agrees and acknowledges that the Executive shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause an employee to leave his or her employment either for the Executive or for any other entity or person.  Upon any breach of this Section 9, all severance payments pursuant to this Agreement shall immediately cease.

                       (b)          Non-Competition.  Until the date Executive ceases to provide services to the Company (or any parent or subsidiary of the Company) or, if later, the date through which severance is payable pursuant to Section 4, Executive agrees to not, directly or indirectly, engage in (whether as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate officer, director or otherwise), nor have any ownership interest in or participate in the financing, operation, management or control of, any person, firm, corporation or business that competes with Company (or any parent or subsidiary of the Company); provided, however, that Executive shall not be prohibited from owning, solely as an investment, up to 1% of the stock of a publicly traded
corporation or up to 5% of the equity of a non-publicly traded company.

          10.          Arbitration.

                         Any controversy involving the construction or application of any terms, covenants or conditions of this Agreement, or any claims arising out of any alleged breach of this Agreement, will be governed by the rules of the American Arbitration Association and submitted

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to and settled by final and binding arbitration in Santa Clara County, California, except that any alleged breach of the Executive’s confidential information obligations shall not be submitted to arbitration and instead the Company may seek all legal and equitable remedies, including without limitation, injunctive relief. 

          11.         Miscellaneous Provisions.

                        (a)          No Duty to Mitigate.  The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

                        (b)          Waiver.  No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

                        (c)          Integration.  This Agreement represents the entire agreement and understanding between the parties with respect to the payment of severance or other benefits if the Executive’s employment with the Company terminates as a result of an Involuntary Termination within twelve (12) months following a Change of Control, and supersedes all prior or contemporaneous agreements, whether written or oral, with respect thereto; provided, however, that this Agreement does not supersede any agreement in respect of the payment of severance or other benefits in circumstances pursuant to which benefits would not be payable hereunder.

                        (d)          Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of California.

                        (e)          Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

                        (f)          Employment Taxes.  All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes.

                        (g)          Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

* * *

[Remainder of this page intentionally left blank.]

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          IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

	
  
COMPANY:
  	
  
 LOGICVISION, INC.

  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
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