Document:

Asset Purchase Agreement

 

EXHIBIT 10.28

ASSET PURCHASE AGREEMENT

by

and

between

GEO CARE, INC.

AND

ATLANTIC SHORES HOSPITAL, LLC

Dated as of December 9, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	1. DEFINITIONS
	 	 	1	 
	1.1 Definitions.
	 	 	1	 
	1.2 Interpretation.
	 	 	6	 
	 
	 	 	 	 
	2. SALE OF ASSETS AND CERTAIN RELATED MATTERS
	 	 	7	 
	2.1 Sale and Transfer of the Assets.
	 	 	7	 
	2.2 Excluded Assets.
	 	 	7	 
	2.3 Title to Property.
	 	 	8	 
	2.4 Disclaimer of Warranties.
	 	 	8	 
	 
	 	 	 	 
	3. FINANCIAL ARRANGEMENTS
	 	 	9	 
	3.1 Purchase Price.
	 	 	9	 
	3.2 Assumed Liabilities.
	 	 	9	 
	3.3 Excluded Liabilities.
	 	 	9	 
	3.4 Collection Procedure for Government Patient Receivables.
	 	 	11	 
	3.5 Allocation of Purchase Price.
	 	 	11	 
	3.6
Prorations and Utilities.
	 	 	11	 
	3.7 Tax
Proration.
	 	 	11	 
	3.8 Interest.
	 	 	12	 
	 
	 	 	 	 
	4. CLOSING
	 	 	12	 
	4.1 Closing.
	 	 	12	 
	4.2 Action of Seller at Closing.
	 	 	12	 
	4.3 Action of Buyer at Closing.
	 	 	13	 
	4.4 Additional Acts.
	 	 	14	 
	 
	 	 	 	 
	5. REPRESENTATIONS AND WARRANTIES OF SELLER
	 	 	14	 
	5.1 Capacity of Seller.
	 	 	14	 
	5.2 Powers; Consents; Absence of Conflicts With Other Agreements, Etc.
	 	 	14	 
	5.3 Binding Agreement.
	 	 	14	 
	5.4
Organizational Structure.
	 	 	15	 
	5.5 Financial Statements; Internal Controls.
	 	 	15	 
	5.6 Assumed Contracts; No Defaults.
	 	 	15	 
	5.7 Real Property.
	 	 	16	 
	5.8 Title.
	 	 	16	 
	5.9 Defects in Property; Utilities and Easements.
	 	 	17	 
	5.10 Zoning.
	 	 	17	 
	5.11 Intellectual Property.
	 	 	17	 
	5.12 Insurance.
	 	 	17	 
	5.13 Litigation or Proceedings.
	 	 	18	 
	5.14 Governmental Authorizations; Compliance.
	 	 	18	 
	5.15 Regulatory Compliance; Improper Payments.
	 	 	18	 
	5.16 HIPAA Matters.
	 	 	19	 
	5.17 Compliance Program.
	 	 	20	 
	5.18 Medicare Participation; Accreditation; No Medicaid Participation.
	 	 	21	 
	5.19 Third-Party Payor Cost Reports.
	 	 	21	 
	5.20 Reimbursement.
	 	 	22	 
	5.21 Medical Staff Matters.
	 	 	22	 
	5.22 Statutory Funds.
	 	 	22	 
	5.23 Controlled Substances.
	 	 	23	 
	5.24 Reserved.
	 	 	23	 

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	5.25 Tax Liabilities.
	 	 	23	 
	5.26 ERISA Compliance.
	 	 	23	 
	5.27 Employees and Employee Relations.
	 	 	25	 
	5.28 Environmental Matters.
	 	 	25	 
	5.29 Medical Waste.
	 	 	26	 
	5.30 Brokers.
	 	 	26	 
	5.31 Absence of Certain Changes.
	 	 	26	 
	5.32
Accounts Receivable.
	 	 	27	 
	 
	 	 	 	 
	6. REPRESENTATIONS AND WARRANTIES OF BUYER
	 	 	27	 
	6.1 Capacity.
	 	 	27	 
	6.2 Powers; Consents; Absence of Conflicts With Other Agreements, Etc.
	 	 	27	 
	6.3 Binding Agreement.
	 	 	27	 
	6.4 Litigation.
	 	 	27	 
	6.5 Brokers.
	 	 	28	 
	6.6 Availability of Funds.
	 	 	28	 
	 
	 	 	 	 
	7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
	 	 	28	 
	7.1 Seller’s Deliverables.
	 	 	28	 
	7.2 Compliance with Agreement.
	 	 	28	 
	7.3 Representations and Warranties.
	 	 	28	 
	7.5 Action/Proceeding.
	 	 	28	 
	7.6 Confirmations.
	 	 	28	 
	7.8 Absence of Certain Changes.
	 	 	28	 
	7.9 Releases.
	 	 	28	 
	7.10 Closing Documents.
	 	 	29	 
	 
	 	 	 	 
	8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
	 	 	29	 
	8.1 Buyer’ s Deliverables.
	 	 	29	 
	8.2 Compliance with Agreement.
	 	 	29	 
	8.3 Action/Proceeding.
	 	 	29	 
	8.4 Representations and Warranties.
	 	 	29	 
	8.5 Purchase Price/Closing Documents.
	 	 	29	 
	 
	 	 	 	 
	9. ADDITIONAL AGREEMENTS AND COVENANTS
	 	 	29	 
	9.1 Post-Closing Access to Information.
	 	 	29	 
	9.2 Employee Matters.
	 	 	29	 
	9.3 Seller’s Benefit Plans.
	 	 	30	 
	9.4 Notices
and Consents.
	 	 	30	 
	9.5 Notice
of Developments and Consents.
	 	 	31	 
	9.6
Affirmative Covenants of Seller.
	 	 	31	 
	9.7 Negative Covenants of Seller.
	 	 	31	 
	9.8 Noncompete Agreement.
	 	 	32	 
	9.9 No-Shop Agreement.
	 	 	33	 
	9.10 Cost Reports.
	 	 	33	 
	9.11 Misdirected Payments.
	 	 	33	 
	9.12 Use of Controlled Substance Permit.
	 	 	34	 
	 
	 	 	 	 
	10. INDEMNIFICATION
	 	 	34	 
	10.1 Indemnification by Seller and GEO.
	 	 	34	 
	10.2 Indemnification by Buyer and PSI.
	 	 	34	 
	10.3 Survival/Indemnity Period.
	 	 	35	 
	10.4 Limitations.
	 	 	35	 
	10.5 Notice and Procedure.
	 	 	36	 
	10.6 Right of Set-Off.
	 	 	37	 
	10.7 Disregarding Materiality Exceptions.
	 	 	37	 

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	10.8 Consequential Damages.
	 	 	37	 
	 
	 	 	 	 
	11. TERMINATION
	 	 	37	 
	11.1 Termination Events.
	 	 	37	 
	11.2 Effect
of Termination.
	 	 	38	 
	11.3
Remedies in the Event of Termination.
	 	 	38	 
	 
	 	 	 	 
	12. GENERAL
	 	 	38	 
	12.1 Notice.
	 	 	38	 
	12.2 Confidentiality; Public Announcement.
	 	 	39	 
	12.3 Cost of Transaction.
	 	 	39	 
	12.4 Consents, Approvals and Discretion.
	 	 	40	 
	12.5 Choice of Law; Waiver of Jury Trial.
	 	 	40	 
	12.6 Benefit/Assignment.
	 	 	40	 
	12.7 Waiver of Breach.
	 	 	40	 
	12.8 Severability.
	 	 	40	 
	12.9 Entire Agreement/Amendment.
	 	 	40	 
	12.10 Further Assurances.
	 	 	41	 
	12.11 No Third Party Beneficiaries.
	 	 	41	 
	12.12 Gender and Number.
	 	 	41	 
	12.13 Divisions and Headings.
	 	 	41	 
	12.14 No Inferences.
	 	 	41	 

iii

 

ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT (“Agreement”) is made and entered into as of December 9,
2005, by and among GEO Care, Inc., a Florida corporation (“Seller”), and Atlantic Shores
Hospital, LLC, a Delaware limited liability company (“Buyer”). Psychiatric Solutions, Inc.
(“PSI”) and The GEO Group, Inc. (“GEO”) are also parties to this Agreement for the
purpose of being subject to the indemnity obligations set forth in Article 10.

W I T N E S S E T H:

     WHEREAS, Seller owns and operates Atlantic Shores Hospital, a psychiatric inpatient facility
(the “Facility” and together with Seller’s business and operations conducted solely at the
Facility and not elsewhere, the “Business”), located at 4545 North Federal Highway, Fort
Lauderdale, FL 33308; and

     WHEREAS, Buyer desires to acquire substantially all of the assets of Seller associated with
the Business, and Seller desires to sell such assets to Buyer, all as more fully set forth below.

     NOW, THEREFORE, for and in consideration of the premises, and the agreements, covenants,
representations and warranties hereinafter set forth, and other good and valuable consideration,
the receipt and adequacy all of which are forever acknowledged and confessed, the parties hereto
hereby agree as follows:

     1. DEFINITIONS AND INTERPRETATION

     1.1 Definitions. Capitalized terms used in this Agreement shall have the following meanings:

     “Affiliate” means as to the Person in question, any Person that directly or indirectly
controls, is controlled by, or is under common control with, the Person in question and any
successors or assigns of such Persons; and the term “control” means possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of a
Person whether through ownership of voting securities, by contract or otherwise ; provided
that, with respect to Seller, “Affiliate” shall not include officers or directors of Seller.

     “Agency Settlements” means rights to settlements and retroactive adjustments, if any,
arising under the terms of the Medicare program or the TRICARE program and against any third party
payor programs which settle upon a basis other than an individual claim basis.

     “Agreement” has the meaning set forth in the Preamble.

     “Assets” has the meaning set forth in Section 2.1.

     “Assignment and Assumption Agreement” has the meaning set forth in Section
4.2.

     “Assumed Contracts” has the meaning set forth in Section 2.1.

     “Assumed Liabilities” has the meaning set forth in Section 3.2.

     “Balance Sheet Date” has the meaning set forth in Section 5.5.

 

 

     “Benefit Plans” means all “employee benefit plans,” as defined in Section 3(3) of
ERISA, all benefit plans as defined in Section 6039D of the Code, and all other bonus, incentive
compensation, deferred compensation, profit sharing, severance, supplemental unemployment, layoff,
salary continuation, retirement, pension, health, life insurance, disability, group insurance,
vacation, holiday, sick leave, equity-based, fringe benefit or welfare and other employee benefit
plans (whether oral or written, qualified or non-qualified) and employment agreements and any
trust, escrow or other funding arrangement related thereto relating to the Facility and the
Business.

     “Bill of Sale” has the meaning set forth in Section 4.2.

     “Business” has the meaning set forth in the Recitals.

     “Business Associate Agreements” has the meaning set forth in Section 5.16 (f).

     “Buyer” has the meaning set forth in the Preamble.

     “Buyer Indemnified Parties” has the meaning set forth in Section 10.1.

     “Claims” has the meaning set forth in Section 10.5.

     “Closing” has the meaning set forth in Section 4.1.

     “Closing Date” has the meaning set forth in Section 4.1.

     “CMS” means the Centers for Medicare and Medicaid Services.

     “COBRA” means Title I, Part 6, of ERISA.

     “Code” means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.

     “Competing Business” has the meaning set forth in Section 9.8(a).

     “Confidential Information” has the meaning set forth in Section 12.2.

     “Cost Reports” has the meaning set forth in Section 5.19.

     “Covered Entities” has the meaning set forth in Section 5.16(a).

     “Effective Time” has the meaning set forth in Section 4.1.

     “Employment Agreement” has the meaning set forth in Section 4.2.

     “Encumbrances” means mortgages, liens, restrictions, agreements, claims, easements,
encroachments, rights of way, building use, exceptions, variances, reservations, pledges, security
interests, conditional sales agreements, rights of first refusal, options, obligations,
restrictions, liabilities, charges or limitations of any nature.

     “Environmental Claim” means any claim, action, cause of action, investigation or
notice (in each case in writing or, if not in writing, to the knowledge of Seller) by any person
alleging potential liability (including potential liability for investigatory costs, cleanup costs,

2

 

governmental response costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from the presence, or release or threat of
release into the environment, of any Materials of Environmental Concern at any location, whether or
not owned or operated by Seller.

     “Environmental Laws” means, as they exist on the date hereof, all applicable United
States federal, state, and local laws, regulations, codes and ordinances relating to pollution or
protection of human health (as relating to the environment or the workplace) and the environment
(including ambient air, surface water, ground water, land surface or sub-surface strata), including
laws and regulations relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern, including, but not limited to
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C.
§ 9601 et seq., Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq.,
Toxic Substances Control Act (“TSCA”), 15 U.S.C. § 2601 et seq., Occupational Safety and
Health Act (“OSHA”), 29 U.S.C. § 651 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq.,
the Clean Water Act, 33 U.S.C. § 1251 et seq., each as may have been amended or supplemented, and
any applicable environmental transfer statutes or laws.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended and the
rules and regulations promulgated thereunder.

     “ERISA Affiliate” means (A) any related company or trade or business that is required
to be aggregated with Seller under Code Sections 414(b), (c), (m) or (o); (B) any other company,
entity or trade or business that has adopted or has ever participated in any Benefit Plan; and (C)
any predecessor or successor company or trade or business of Seller.

     “Excluded Assets” has the meaning set forth in Section 2.2.

     “Excluded Contracts” means those contracts, agreements, leases and commitments to
which Seller or its Affiliates are a party that (i) are insurance contracts, (ii) relate to
Seller’s Benefit Plans, (iii) primarily relate to facilities, businesses and operations of Seller
other than the Facility and Business (including, without limitation, group purchasing agreements),
(iv) evidence intercompany transactions between or among Seller and its Affiliates or their
respective directors, officers and employees, (v) are employment or severance agreements, or (vi)
are listed on Schedule 1.1(vi) hereto.

     “Excluded Liabilities” has the meaning set forth in Section 3.3.

     “Facility” has the meaning set forth in the Recitals.

     “Federal Healthcare Programs” means the Medicare and TRICARE programs.

     “Federal Privacy Regulations” means the regulations contained in 45 C.F.R. Parts 160
and 164, as amended.

     “Federal Transaction Regulations” means the regulations contained in 45 C.F.R. Parts
160 and 162, as amended.

     “Financial Statements” has the meaning set forth in Section 4.6(a).

     “GAAP” means generally accepted accounting principals.

     “GAAP Exceptions” means unaudited financial statements not prepared in accordance with
GAAP to the extent that such financial statements (a) are subject to cost report and other year-end
audit

3

 

adjustments, (b) do not contain footnotes, (c) were prepared without physical inventories,
(d) are not restated for subsequent events, (e) may not contain a statement of construction in
process, and (f) as set forth on Schedule 1.1(f) attached hereto.

     “GEO” has the meaning set forth in the Preamble.

     “Governmental Authority” means any nation or government, any state or other political
subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including any governmental authority,
bureau, agency, department, board, commission or instrumentality of the United States, any State of
the United States or any political subdivision thereof, any contractor contracted by such
governmental or quasi-governmental entity to carry out a portion of its functions, and any tribunal
or arbitrator(s) of competent jurisdiction.

     “Governmental Authorization” means any approval, certificate of authority, certificate
of need, accreditation, license, registration, permit, franchise, right, or other authorization
issued, granted, given or otherwise made available by or under the authority of any Governmental
Authority or pursuant to any law.

     “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as
codified at 42 U.S.C. Sections 1320d through d-8.

     “Indemnitee” has the meaning set forth in Section 10.5.

     “Indemnitor” has the meaning set forth in Section 10.5.

     “Purchase Price” has the meaning set forth in Section 3.1.

     “Intellectual Property Assets” means all intellectual property rights (common law,
statutory or otherwise), including patents (including all reissues, divisions, continuations and
extensions), trademarks, service marks, trade names, copyrights, and registrations and applications
for any and all of the foregoing, internet domain names, formulae, algorithms, designs, inventions,
methodologies, specifications, know-how, trade secrets, computer software programs and code (both
object and source), development tools and proprietary information, technologies and processes, and
all documentation and media describing or relating to the above, in any format, whether hard copy
or machine-readable only, but specifically excludes the name GEO Care, all abbreviations and
variations thereof and service marks, symbols and logos and any other intellectual property related
thereto.

     “Interest Commencement Date” has the meaning set forth in Section 3.8.

     “JCAHO” means the Joint Commission on Accreditation of Healthcare Organizations.

     “Losses” has the meaning set forth in Section 10.1.

     “Material Adverse Effect” means any event, occurrence, fact, condition, change or
effect that (i) is, or is reasonably likely in the future to be, individually or in the aggregate,
materially adverse to the business, operations, results of operations, condition (financial or
otherwise), properties, rights, obligations or assets of the Facility or the Business or (ii) materially
impairs or delays, or is reasonably likely to materially impair or delay, the ability of Seller to
consummate the transactions contemplated by this Agreement or to perform its obligations under this
Agreement.

     “Materials of Environmental Concern” means chemicals, pollutants, contaminants,
hazardous materials, hazardous substances and hazardous wastes, medical waste, toxic substances,
petroleum and

4

 

petroleum products and by-products, asbestos-containing materials, PCBs, and any
other chemicals, pollutants, substances or wastes, in each case regulated under any Environmental
Law.

     “Medical Waste” includes, but is not limited to, (a) pathological waste, (b) blood,
(c) sharps, (d) wastes from surgery or autopsy, (e) dialysis waste, including contaminated
disposable equipment and supplies, (f) cultures and stocks of infectious agents and associated
biological agents, (g) contaminated animals, (h) isolation wastes, (i) contaminated equipment, (j)
laboratory waste and (k) various other biological waste and discarded materials contaminated with
or exposed to blood, excretion, or secretions from human beings or animals. “Medical Waste” also
includes any substance, pollutant, material, or contaminant listed or regulated under the Medical
Waste Tracking Act of 1988, 42 U.S.C. § 6992, et seq. (“MWTA”), and applicable state law.

     “Medical Waste Law” means the following, including regulations promulgated and orders
issued thereunder, all as may be amended from time to time: the MWTA, the U.S. Public Vessel
Medical Waste Anti-Dumping Act of 1988, 33 USCA § 2501 et seq., the Marine Protection, Research,
and Sanctuaries Act of 1972, 33 USCA § 1401 et seq., The Occupational Safety and Health Act, 29
USCA § 651 et seq., the United States Department of Health and Human Services, National Institute
for Occupations Self-Safety and Health Infectious Waste Disposal Guidelines, Publication No.
88-119, and any other federal, state, regional, county, municipal, or other local laws,
regulations, and ordinances insofar as they purport to regulate Medical Waste, or impose
requirements relating to Medical Waste.

     “Permitted Encumbrances” has the meaning set forth in Section 5.8.

     “Person” means any individual, corporation, company, body corporate, association,
partnership, limited liability company, firm, joint venture, trust or Governmental Authority

     “Prohibited Activities” has the meaning set forth in Section 9.8(a).

     “Provider Agreements” has the meaning set forth in Section 5.18.

     “Provider Numbers” has the meaning set forth in Section 5.18.

     “PSI” has the meaning set forth in the Preamble.

     “Purchase Price” has the meaning set forth in Section 3.1.

     “Real Estate Laws” means all applicable zoning and other land use and similar laws,
codes, ordinances, rules, regulations and orders, including the Americans With Disabilities Act
(other than Environmental Laws).

     “Real Property” means all of the real property described in Schedule 5.7(a)(i)
hereto, including easements appurtenant benefiting Seller or the Facility, together with all
buildings,
improvements and fixtures thereon, all easements and other appurtenances and rights thereto
and together with any rights or interests of Seller in any adjacent streets, rights of way or
drainage areas serving the Facility.

     “Real Property Deed” has the meaning set forth in Section 4.2.

     “Restricted Territory” means the Miami-Dade and Broward Counties in the State of
Florida.

     “Seller” has the meaning set forth in the Preamble.

5

 

     “Seller Indemnified Parties” has the meaning set forth in Section 10.2.

     “Seller Intellectual Property Assets” means the Intellectual Property Assets used or
owned by Seller and its Affiliates in connection with the Facility and the Business as currently
conducted, but excluding the name “GEO Care,” all abbreviations and variations thereof and service
marks, symbols and logos and any other intellectual property related thereto.

     “Tax Allocation” has the meaning set forth in Section 3.5.

     “Taxes” means all applicable taxes, charges, duties, fees, levies or other
assessments, including income, excise, property, sales, use, gross receipts, recording, insurance,
value added, profits, license, withholding, payroll, employment, net worth, capital gains,
transfer, stamp, social security, environmental, occupation and franchise taxes, imposed by any
Governmental Authority, and including any interest, penalties and additions attributable thereto.

     “Tax Returns” means any federal, state, local and foreign returns, reports,
information returns, declarations, statements and other documents relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.

     “Third Party Intellectual Property Assets” has the meaning set forth in Section
5.11(b).

     “WARN Act” means the Worker Adjustment and Retraining Notification Act, as amended,
and the regulations promulgated thereunder.

     “Workforce” has the meaning set forth in Section 5.16(c).

     1.2 Interpretation. In this Agreement, unless the context otherwise requires:

          (a) References to this Agreement are references to this Asset Purchase Agreement and to the
Schedules and Exhibits hereto;

          (b) References to Articles and Sections are references to articles and sections of this
Agreement;

          (c) References to any party to this Agreement shall include references to its respective
successors and permitted assigns;

          (d) References to a judgment shall include references to any order, writ, injunction, decree,
determination or award of any court or tribunal;

          (e) The terms “hereof,” “herein,” “hereby,” and any derivative or similar words will refer to
this entire Agreement;

          (f) References to any document (including this Agreement) are references to that document as
amended, consolidated, supplemented, novated or replaced by the parties from time to time;

          (g) References to any law are references to that law as of the date hereof and the Closing
Date, and all rules and regulations promulgated thereunder;

          (h) The word “including” shall mean including, without limitation;

6

 

          (i) References to the “knowledge” of Seller and similar variations thereof, shall mean
matters, events and occurrences that are known or should reasonably have been known, as of the
relevant date, by Jeff Byrd, Susan Francis or Scott Segal, given the respective capacities in which
such persons are employed at the Facility as of the date hereof; and

          (j) References to time are references to Eastern Standard or Daylight Time (as in effect on
the applicable day) unless otherwise specified herein.

     2. SALE OF ASSETS AND CERTAIN RELATED MATTERS

          2.1 Sale and Transfer of the Assets. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, transfer, assign, convey and deliver to Buyer and Buyer agrees to
purchase and acquire at Closing all assets, tangible and intangible, real, personal or mixed, other
than the Excluded Assets, owned or leased by Seller or any Affiliate of Seller and used in the
operations of the Business, including, without limitation, the following items (collectively, the
“Assets”): (i) fee simple title to the Real Property and buildings described in
Schedule 5.7(a)(i) hereto, together with all improvements and fixtures located thereon or
therein; (ii) all equipment, whether movable or attached to the Real Property, vehicles, furniture
and furnishings; (iii) all supplies and inventory; (iv) prepaid expenses that are transferable to
and useable by Buyer; (v) accounts receivable and the right to receive, consistent with Section
3.4, an amount equal to the Government Patient Receivables; (vi) subject to applicable law, all
current financial, patient, medical staff and personnel records; (vii) all right, title and
interest of Seller in, to or under all commitments, contracts, leases, purchase orders and
agreements outstanding that relate primarily to the Facility and the Business or that otherwise
relate primarily to the Assets (other than the Excluded Contracts) (collectively, the “Assumed
Contracts”); (viii) to the extent assignable, all Governmental Authorizations, Medicare
provider numbers and permits held by Seller relating to the ownership, development and operations
of the Business; (ix) all claims, causes of action and judgments relating to the Assets arising
from acts, omissions, facts or circumstances occurring at or after the Effective Time; (x) Seller’s
goodwill in respect of the Business; (xi) rights to any Agency Settlements arising at or after the
Effective Time; and (xii) Seller’s right to use the name “Atlantic Shores Hospital” and all
variations thereof, all patents, patent applications, trade names, trademarks, service marks, trade
secrets, copyrights and other intellectual property owned by Seller, and all of Seller’s rights to
use all patents, patent applications, trade names, trademarks, service marks, trade secrets,
copyrights and other intellectual property of other Persons.

          2.2 Excluded Assets. Notwithstanding anything herein to the contrary, the following
assets that are associated with Seller’s operations of the Business are not intended by the parties
to be a part of the Assets and shall be excluded from such purchase and the definition of the
Assets (collectively, the “Excluded Assets”): (i) rights to Agency Settlements arising
prior to the Effective Time, (ii) any and all cash and cash equivalents owned or held by Seller
(including certificates of deposit and checking and money market accounts); (iii) Seller’s records,
books, minute books, tax records, and any records that by law Seller is required to retain in its
possession and all books and records relating to the Excluded Assets and the Excluded Liabilities;
(iv) all assets, rights and funds in connection with any Benefit Plan described in Section
5.26(a); (v) all of Seller’s insurance proceeds arising in connection with the Business prior
to the Closing; (vi) except as provided in Section 3.4, the Government Patient Receivables;
(vii) other assets of the Seller not specifically used in connection with or operation of the
Facility or Business (including all assets used in connection with Seller’s other healthcare
operations and business not relating to the Facility and Business); (viii) the Excluded Contracts;
(ix) any reserves or prepaid expenses to the extent related to Excluded Assets and Excluded
Liabilities and, with respect to the

7

 

prepaid expenses, to the extent not transferable to and
useable by Buyer; (x) all rights of Seller under or pursuant to this Agreement; (xi) all
intercompany receivables of Seller with any of its Affiliates; (xii) computer software, programs
and hardware, data processing system manuals and licensed software materials owned or leased by or
licensed to The GEO Group, Inc., as more particularly described in Schedule 2.2; (xiii) any
asset which would revert to the employer upon the termination of any Seller Benefit Plan, including
assets representing a surplus or overfunding of any Seller Benefit Plan; (xiv) the name GEO Care,
all abbreviations and variations thereof and service marks, symbols and logos and any other
intellectual property related thereto, together with any names, symbols or abbreviations used by
Seller for operations other than the Facility; (xv) the portions of inventory, prepaids and other
Assets disposed of, expended or canceled, as the case may be, by Seller after the date hereof and
prior to the Effective Time in the ordinary course of business; (xvi) assets owned and provided by
vendors of services or goods to the Facility; (xvii) all claims, rights, interests and proceeds
with respect to federal, state or local tax refunds (including but not limited to property tax)
resulting from periods ending on or before the Effective Time, and the right to pursue appeals of
same; (xviii) all claims, causes of action and judgments in favor of Seller arising from acts,
omissions, facts or circumstances occurring prior to the Effective Time, whether or not relating to
the Assets; and (xix) those assets set forth on Schedule 2.2.

          2.3 Title to Property. In connection with the sale of the Real Property hereunder,
Buyer shall obtain a title commitment, at Buyer’s expense, from a title insurance company selected
by Buyer, disclosing all matters of record which relate to the title to the Real Property and the
requirements for both closing the purchase and issuing a standard owner’s ATLA coverage title
policy. Buyer shall also obtain, at Buyer’s expense, an ALTA survey of the Real Property. Buyer
shall notify Seller and the title company’s agent in writing within 10 days of receipt of the title
commitment and survey of any unacceptable conditions of title that do not conform to Seller’s
representations in Sections 5.7 and 5.8 below (“Title Defect”). Seller shall have the right, at
its sole option, within 20 days following receipt of such notice in which to (i) attempt to cure
any such Title Defect or make arrangements satisfactory to the Title Company for the cure
(including affirmative insurance over) or removal of record of any such Title Defect, or (ii) elect
not to cure such Title Defects. If any such Title Defect is not cured or otherwise provided for as
required in this Section prior to the expiration of Seller’s 20-day cure period, Buyer may elect
within 10 days thereafter by written notice to Seller to either: (i) terminate this Agreement, in
which event the parties shall have no further obligation or liability to each other under this
Agreement or (ii) accept the Real Property as is with the Title Defect(s). Title Defects which are
so accepted will be deemed to be Permitted Encumbrances hereunder. If Buyer fails to timely notify
Seller within said
10-day period of Buyer’s election pursuant to this Section, Buyer will be deemed to have
elected accept with Real Property with the Title Defect(s).

          2.4 Disclaimer of Warranties. . Except as otherwise set forth in Article 5 hereof,
the Assets transferred to Buyer will be sold by Seller and purchased by Buyer in their physical
condition on the Closing Date, “WHERE IS, AS IS,” and WITH NO WARRANTY OF HABITABILITY
OR FITNESS FOR HABITATION, with respect to the Real Property, land, buildings and improvements,
and WITH NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, with respect to the physical condition of
all other Assets, any and all of which warranties (both express and implied) Seller hereby
disclaims. All of the Assets shall be further subject to normal wear and tear on the land,
buildings, improvements and equipment and normal and customary use of the inventory and supplies in
the ordinary course of business up to the Closing.

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     3. FINANCIAL ARRANGEMENTS

     3.1 Purchase Price. Subject to the terms and conditions hereof, in reliance upon the
representations, warranties, covenants and agreements of Seller herein set forth and as
consideration for the sale and purchase of the Assets as herein contemplated, Buyer shall pay to
Seller a purchase price (the “Purchase Price”) equal to $11,500,000. The Purchase Price
shall be paid to Seller at Closing by check dated the date of the Effective Time (or upon the
consent of Seller and Buyer, by wire transfer of immediately available funds) in the amount of
$11,500,000, and if the Purchase Price is paid by check, such check shall be dated no later than
the date of the Effective Time and shall be accompanied by a letter of credit (in a form reasonably
acceptable to Buyer and Seller) that may be drawn on Bank of America in the event such check is
returned for insufficient funds. Seller shall pay Buyer immediately on demand, as a reimbursement
for all costs, fees and expenses incurred as a result of preparing and providing the letter of
credit, an amount equal to the greater of $25,000 or the actual documented costs, fees, and
expenses incurred by Buyer in connection with the preparation and provision of the letter of credit
(but in an aggregate amount not to exceed $40,000).

     3.2 Assumed Liabilities. As of the Effective Time, Buyer shall assume and agree to
pay, perform and discharge (i) obligations under the Assumed Contracts arising out of and relating
to the period after the Effective Time and all other liabilities and other obligations relating to
the Facility or the Business (including, without limitation, the ownership and/or operation
thereof) arising out of and relating to the period after the Effective Time; (ii) liabilities for
Seller’s accounts payable and other current liabilities; (iii) employee payroll accrual of the
Seller in respect of the Business, together with associated payroll taxes and contributions; (iv)
accrued vacation and sick days of the Employees (as defined in Section 5.27(b) hereof) of
Seller in respect of the Business who commence employment with Buyer, together with associated
payroll taxes and contributions; and (v) any Taxes resulting from the ownership and/or operation of
the Business and the Assets after the Effective Time, including, but not limited to, any
post-Effective Time portion of any taxable periods beginning before but ending after the Effective
Time (collectively, the “Assumed Liabilities”). Notwithstanding anything above to the
contrary, Buyer shall not be liable for (x) uncured defaults in performance of the Assumed
Liabilities for periods prior to the Effective Time and (y) unpaid amounts in respect of the
Assumed Liabilities that are past due as of the Effective Time in accordance with the terms of the
obligation and not accrued on the books of Seller.

     3.3 Excluded Liabilities. Except as expressly provided to the contrary in this
Agreement (including, but not limited to, Section 3.2 above), under no circumstance shall
Buyer be obligated to pay or assume, and none of the Assets shall be or become liable for or
subject to, any liability of Seller or its Affiliates, including the following, whether fixed or
contingent, recorded or unrecorded, known or unknown, and whether or not set forth on the Schedules
hereto (collectively, the “Excluded Liabilities”):

          (a) any obligation or liability accruing, arising out of, or relating to acts or omissions of
any Person in connection with the Assets or the operation of the Business prior to the Effective
Time;

          (b) any obligation or liability accruing, arising out of, or relating to any act or omission
by Seller, any of its Affiliates, or any of their respective medical staff, employees, agents,
vendors or representatives before or after the Effective Time (it being understood that any act or
omission by the medical staff, employees, agents, vendors and representatives of the Facility and
Business as of and after the Effective Time will not be the responsibility of Seller and its
Affiliates);

          (c) any obligation or liability accruing, arising out of, or relating to any breach of any
Assumed Contract by Seller or any of its Affiliates prior to the Effective Time;

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          (d) any obligation or liability accruing, arising out of, or relating to any Excluded
Contract;

          (e) any long-term indebtedness (including the current portion thereof);

          (f) any indebtedness for borrowed money, including indebtedness owed to a bank or other
similar financial institution;

          (g) any intercompany or related-party indebtedness;

          (h) any liability or obligation for severance with respect to employees of Seller or its
Affiliates;

          (i) any obligation or liability accruing, arising out of, or relating to any federal, state or
local investigations, claims or actions with respect to acts or omissions (or suspected or alleged
acts or omissions) of Seller, any of its Affiliates or any of their respective employees, medical
staff, agents, vendors prior to the Effective Time;

          (j) any civil or criminal obligation or liability accruing, arising out of, or relating to any
acts or omissions of Seller, any of its Affiliates or any of their respective directors, officers,
employees and agents claimed to violate any laws;

          (k) Reserved.

          (l) any liabilities or obligations of Seller or any of its Affiliates of every kind and
nature, known and unknown, arising under the terms of the Medicare, TRICARE or any other
third-party payor programs or health insurers, in respect of, arising out of or as a result of (i)
periods prior to and up to the Effective Time, or (ii) the consummation of the transactions
contemplated hereby, including claims for overpayments or other excessive reimbursement or
non-covered services or any penalties or sanctions relating thereto; and (iii) any liability of
Seller under, arising prior to or relating to any period prior to the Effective Time from any risk
pools and other risk sharing agreements established in connection with any managed care contract
assumed by Buyer hereunder;

          (m) any Taxes resulting from the ownership and/or operation of the Business and the Assets
prior to the Effective Time, including, but not limited to, any pre-Effective Time portion of any
taxable periods beginning before but ending after the Effective Time;

          (n) (i) except to the extent such liabilities are expressly assumed by Buyer in accordance
with Section 3.2, any liability with respect to Seller’s employees relating to periods
prior to the Effective Time, including liability for (A) any compensation, Benefit Plan (as defined
in Section 5.25(a)) benefits, pension, profit sharing, deferred compensation, or any other
employee health and welfare benefit plans, paid time off, liability for any EEOC claim, wage and
hour claim, unemployment compensation claim or workers’ compensation claim or personnel policy,
including those relating to any termination of employment, and all employee wages and benefits, or
(B) any payroll taxes; or (ii) any liability arising under the WARN Act with respect to a “covered
employment loss” (as defined in the Warn Act) occurring prior to the Effective Time;

          (o) except as expressly provided to the contrary in this Agreement, liabilities for expenses
incurred by Seller incidental to the preparation of this Agreement, the preparation or delivery of
materials or information requested by Buyer, or the consummation of the transactions contemplated
hereby, including all broker, counsel and accounting fees or any account payable which is
attributable to

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legal and accounting fees and similar costs incurred by Seller which are directly
related to the sale of any of the Assets;

          (p) liabilities arising from or in connection with (i) any order of any Governmental
Authority, (ii) the violation of any law, (iii) the violation of any Medicare or TRICARE program
integrity or compliance agreement, each of the foregoing involving Seller or relating to or arising
in connection with the use, operation, ownership or possession of the Assets prior to the
Effective Time;

          (q) liabilities attributable to any of the Excluded Assets; and

          (r) except as expressly provided to the contrary in this Agreement, any other liability, fixed
or contingent, known or unknown, relating to or arising out of the ownership, operation or use of
the Business or the Assets prior to the Effective Time.

     3.4 Collection Procedure for Government Patient Receivables. Seller hereby appoints
Buyer, and Buyer agrees to act, as Seller’s collection agent with respect to the Government Patient
Receivables. In connection therewith, on or before the Effective Time Buyer shall establish a
“lock box” standing in Seller’s name and under Seller’s control at a financial institution selected
by Seller and reasonably acceptable to Buyer. After the Effective Time, Buyer shall deposit all
cash, checks, drafts or other similar items of payment with respect to all of the Government
Patient Receivables in such lock box. On or before the Effective Time, Seller shall take
commercially reasonable action to cause Governmental Patient Receivables to be deposited directly
into such lock box. Seller shall have the exclusive authority to withdraw funds from such lock
box. Seller hereby assigns all amounts deposited by Buyer, as collection agent, into the lock box
to Buyer in satisfaction of Seller’s obligation pursuant to Section 2.1(v) hereof to
transfer to Buyer an amount equal to the value of Seller’s Government Patient Receivables.
“Government Patient Receivables” means accounts receivable existing at the Effective Time arising
from the rendering of services and the provision of medicines, drugs and supplies to
patients and customers of the Business relating to Medicare, TRICARE and other third-party
patient claims of Seller due from beneficiaries or governmental third-party payors.

     3.5 Allocation of Purchase Price. The Purchase Price for the Facility will be
allocated among the Purchased Assets in the manner required by Section 1060 of the Code. In making
such allocation, the fair market values will be agreed to by Buyer and Seller prior to the
Effective Time and will be listed on Schedule 3.5 to be attached hereto prior to or at
Closing. If the parties are unable to resolve any material differences with regard to the
allocation of the Purchase Price among the Assets, then the real property (inclusive of buildings
and improvements) will be valued at the assessed value (as reflected in the records of the Broward
County Property Appraiser’s Office) plus 15% (or the net book value of such real property, if
greater) and the remainder of the Purchase Price shall be allocated among the balance of the
Assets. If the parties agree on the Purchase Price allocation, then to the extent required, all tax
returns or other tax information they may file or cause to be filed with any Governmental Entity
shall be prepared and filed consistently with such allocation.

     3.6 Prorations and Utilities. To the extent not otherwise prorated pursuant to this
Agreement, Buyer and Seller shall prorate as of the Effective Time, any and all current real estate
and personal property lease payments, charges against the real estate, power and utility charges
and all other income and expenses that are normally prorated upon the sale of a going concern.

     3.7 Tax Proration. Buyer and Seller shall prorate as of the Effective Time any
amounts with respect to (i) ad valorem and non-ad valorem taxes on the Assets and (ii) personal
property taxes and real property taxes on the Assets. Payments for ad valorem and non-ad valorem,
personal property and

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real property taxes shall initially be determined based on the previous year’s taxes with
respect to such property, after application of all discounts, if any.

     3.8 Interest. Unless otherwise provided herein to the contrary, any payment required
to be made by any party pursuant to this Agreement, if not paid before five business days after the
date such payment is required to be made hereunder (the “Interest Commencement Date”),
shall include interest from the Interest Commencement Date to the day such payment is made,
computed at a rate equal to the prime rate as published in The Wall Street Journal plus two
percent. All requests for payment pursuant to this Section 3.8 shall be accompanied by a
certificate of an officer of the party entitled to receive such payment setting forth the amount of
the payment due pursuant to this Agreement (without regard to any amounts payable through operation
of this Section 3.8) and the applicable Interest Commencement Date.

     4. CLOSING

     4.1 Closing. As soon as practicable following the satisfaction or waiver by the
appropriate party of all the conditions precedent to Closing specified in Articles 7 and 8 hereof,
the consummation of the sale and purchase of the Assets and the other transactions contemplated by
and described in this Agreement (“Closing”) shall take place at 10:00 a.m. Eastern Daylight
Time on the date on which all conditions precedent and other matters required to be completed as of
the Closing Date have been completed or on such other date, time and place as the Parties shall
mutually agree (the “Closing Date”); provided, however, that subject to Section
11.1(c) hereof, the Closing shall be effective as of 12:00 noon on January 1, 2006 (the
“Effective Time”) unless the Closing shall not occur on January 1, 2006, in which case the
Effective Time shall be 12:01 a.m. on the day following the Closing Date.

     4.2 Action of Seller at Closing. At Closing and unless otherwise waived in writing by
Buyer, Seller shall deliver to Buyer the following:

          (a) a special warranty deed, fully executed by Seller, transferring good title to the
Real Property, the form of which is attached hereto as Exhibit 4.2(b) (the
“Real Property Deed”);

          (b) a Bill of Sale and Assignment (the “Bill of Sale”), fully executed by
Seller, transferring to Buyer good title to all tangible and intangible assets comprising
the Assets (other than the Real Property), the form of which is attached hereto as
Exhibit 4.2(c);

          (c) an Assignment and Assumption Agreement (the “Assignment and Assumption
Agreement”), fully executed by Seller, pursuant to which Seller assigns and Buyer
assumes all right, title and interest of Seller in, to and under the Assumed Contracts,
the form of which is attached hereto as Exhibit 4.2(d);

          (d) a copy of resolutions duly adopted by the board of directors, board of trustees
or other authorized governing body of Seller authorizing and approving the transactions
contemplated hereby, Seller’s performance of the transactions contemplated hereby and the
execution, delivery and performance of this Agreement and the documents described herein
to which Seller is a party, certified as true and of full force as of Closing by an
appropriate officer of Seller;

          (e) the signature and incumbency of the officers of Seller authorized to execute and
deliver this Agreement and the other agreements and documents that Seller is required to
deliver on or before the Closing Date pursuant to this Agreement, certified as true and
accurate as of Closing by an appropriate officer of Seller;

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          (f) a certificate of an officer of Seller certifying that each covenant and agreement
of Seller to be performed prior to or as of Closing pursuant to this Agreement has been
performed in all material respects and that each of the representations and warranties of
Seller set forth herein is true and correct in all material respects as of the Closing
Date;

          (g) a certificate of existence and good standing (or its functional equivalent) of
Seller from the Florida Secretary of State and any foreign qualifications of Seller, dated
the most recent practical date prior to Closing; and

          (h) Seller shall supply an “owner’s affidavit” reasonably acceptable to the title
company to cause the Schedule B-II “preprinted” exceptions (except for matters shown on
the survey) to be deleted from the final title policy, together with such other
certificates or matters as the title company shall reasonably require to satisfy Seller’s
requirement to issue a valid Owner’s Title Policy, insuring Buyer’s interest in the Real
Property in an amount equal to the value allocable to the same, and any endorsements to
the policy reasonably requested by and available in the State of Florida.

     4.3 Action of Buyer at Closing. At Closing and unless otherwise waived in writing by
Seller, Buyer shall deliver to Seller the following:

          (a) the Purchase Price;

          (b) the Bill of Sale and Assignment, fully executed by Buyer, pursuant to which Buyer
will take assignment and assume title to the Assets;

          (c) the Assignment and Assumption Agreement, fully executed by Buyer, pursuant to
which Buyer shall assume the Assumed Liabilities and the Assumed Contracts;

          (d) a copy of resolutions duly adopted by the board of directors of Buyer authorizing
and approving the transactions contemplated hereby, Buyer’s performance of the
transactions contemplated hereby and the execution, delivery and performance of this
Agreement and the documents described herein to which it is a party, certified as true and
of full force as of Closing by an appropriate officer of Buyer;

          (e) the signature and incumbency of the officers of Buyer authorized to execute and
deliver this Agreement and the other agreements and documents that Buyer is required to
deliver on or before the Closing Date pursuant to this Agreement, certified as true and
accurate as of Closing by an appropriate officer of Buyer;

          (f) a certificate of an authorized officer of Buyer certifying that each covenant and
agreement of Buyer to be performed prior to or as of Closing pursuant to this Agreement
has been performed in all material respects and that each of the representations and
warranties of Buyer set forth herein is true and correct in all material respects as of
the Closing Date;

          (g) a certificate of existence and good standing of Buyer from the Delaware Secretary
of State, dated the most recent practical date prior to Closing; and

          (h) a certificate of authority and active status of Buyer from the Florida Secretary
of State, dated the most recent practical date prior to Closing.

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     4.4 Additional Acts. From time to time after Closing, Seller shall execute and
deliver such other instruments of conveyance and transfer, and take such other actions as Buyer may
reasonably request, to convey and transfer more effectively full right, title and interest to, to
vest in, and to place Buyer in legal and actual possession of any and all of the Assets as
contemplated by and in accordance with the terms of this Agreement, and (b) Buyer shall execute and
deliver such other instruments and take such other actions as Seller may reasonably request to
effectuate the transactions contemplated by this Agreement.

     5. REPRESENTATIONS AND WARRANTIES OF SELLER

     As of the date hereof, Seller represents and warrants to Buyer the following:

     5.1 Capacity of Seller. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida. Seller is duly qualified or licensed to
transact business and is in good standing in all jurisdictions in which it conducts business except
where he failure to be so qualified or licensed would not have a material adverse effect on the
Facility or the Business . Seller has the requisite power and authority to enter into this
Agreement, perform its obligations hereunder and to conduct its businesses as now being conducted.
The execution and delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part of Seller.

     5.2 Powers; Consents; Absence of Conflicts With Other Agreements, Etc. The execution,
delivery and performance of this Agreement and all other agreements referenced in or ancillary
hereto by Seller, and the consummation of the transactions contemplated herein by Seller:

          (a) are within Seller’s powers and are not in contravention of the terms of any of its
governing documents or any amendments thereto;

          (b) except as set forth on Schedule 5.2(b), will neither constitute a violation of or
a default under, or conflict with, any term or provision of any contract, commitment, indenture,
lease or other agreement, or any other restriction of any kind to which Seller is a party or by
which Seller is bound, nor permit the acceleration of the maturity of the Assumed Liabilities, or
the creation of any lien, charge or encumbrance affecting any Assets;

          (c) except as set forth on Schedule 5.2(c), do not require Seller to obtain any
approval or consent of, or give notice to or make any filing with, any Governmental Authority
bearing on the validity of this Agreement that is required by law or the regulations of any such
Governmental Authority;

          (d) will not violate any statute, law, rule or regulation of any Governmental Authority to
which Seller or the Assets may be subject; and

          (e) will not violate any judgment of any court or Governmental Authority to which Seller or
the Assets may be subject.

     5.3 Binding Agreement. This Agreement and all agreements contemplated by this
Agreement to which Seller is or shall become a party are and will constitute the valid and legally
binding obligation of Seller and will be enforceable against Seller in accordance with the
respective terms hereof or thereof, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditor
rights generally and (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

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     5.4 Organizational Structure. The GEO Group, Inc., a Florida corporation, owns
100% of the issued and outstanding capital stock of Seller. There are no outstanding securities,
options, warrants, calls, rights or agreements to which Seller is a party obligating it to issue,
deliver, sell or cause to be issued, delivered or sold capital stock or other voting securities.
There are no outstanding contractual obligations of Seller to repurchase, redeem or otherwise
acquire any shares of capital stock of Seller.

     5.5 Financial Statements; Internal Controls.

          (a) Schedule 5.5 hereto contains copies of the following financial statements of
Seller in respect of the Business (the “Financial Statements”): (i) audited balance sheets
dated as of December 28, 2003 and January 2, 2005 and the unaudited balance sheet as of October 2,
2005 (the “Balance Sheet Date”); and (ii) audited income statements for the fiscal years ended
January 1, 2004 and January 1, 2005 and the unaudited income statement for the period ended October
2, 2005. Such Financial Statements have been prepared in accordance with GAAP, applied on a
consistent basis throughout the periods indicated; provided, however, that unaudited Financial
Statements are subject to the GAAP Exceptions. Such balance sheets present fairly in all material
respects the financial condition of Seller in respect of the Business as of the dates indicated
thereon, and such income statements present fairly in all material respects the results of Seller’s
operations in respect of the Business for the periods indicated thereon.

          (b) With the exception of the liabilities set forth on the Financial Statements, the
liabilities set forth on Schedule 5.5, and the liabilities incurred in the ordinary course
of the business of Seller since the Balance Sheet Date, Seller does not have any liabilities with
respect to the Business of any nature, whether absolute, accrued, contingent or otherwise or
whether due or to become due. There is no prepaid or deferred revenue associated with or in
connection with the Business.

          (c) Seller maintains disclosure controls and procedures designed to ensure that material
information relating to the Business is made known to Seller’s Chief Executive Officer and Chief
Financial Officer. Seller maintains internal control over financial reporting designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with GAAP.

     5.6 Assumed Contracts; No Defaults. Attached hereto as Schedule 5.6 is a list
of the Material Assumed Contracts. Seller has made available to Buyer copies of the Material
Assumed Contracts. The foregoing notwithstanding, the availability to Buyer of the Business’
managed care contracts containing rates shall be delayed until such time as the respective counsel
for Seller and Buyer mutually determine in order to comply with applicable federal antitrust
considerations. There is not, under any of the Material Assumed Contracts, any existing default,
event of default or other event which, with or without due notice or lapse of time or both, would
constitute a default or event of default on the part of Seller, except such defaults, events of
default and other events as to which requisite waivers or consents have been obtained. All of the
Material Assumed Contracts are valid and binding obligations of the parties thereto, are in full
force and effect and are enforceable against the parties thereto in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditor rights generally and (ii) as limited
by laws relating to the availability of specific performance, injunctive relief or other equitable
remedies. “Material Assumed Contract” means any Assumed Contract that (a) obligates Seller to pay
an amount of Twenty-Five Thousand dollars ($25,000) or more in any twelve month period or obligates
Seller to pay an aggregate amount of Fifty Thousand Dollars ($50,000) or more, (b) has an unexpired
term as of the Balance Sheet Date in excess of six (6) months that is not terminable upon sixty
(60) days or less notice by Seller at any time during the term, without penalty, (c) contains a
covenant not to compete or otherwise significantly restricts business activities, (d) limits the
ability of Seller to conduct its business,

15

 

including as to manner or place, (e) contains a right of first refusal, (f) constitutes a
collective bargaining agreement, (g) represents a contract upon which the business of the Hospital
is substantially dependent or a contract which is otherwise material to the business of the
Hospital, (h) represents a contract with a physician or any other referral source, or to the
knowledge of Seller, an immediate family member of a physician (as that term is defined in 42
C.F.R. § 411.351) or any other referral source, including any contract with a pharmacy or any other
supplier of medical products to patients of the Facility, (k) to the knowledge of Seller,
represents a contract with an entity in which a referring physician or any other referral source
(as that term is defined in 42 U.S.C. § 1395m(h)(7)) or a referring physician’s immediate family
member has an ownership or investment interest, or (l) represents a third party payor, managed care
or preferred provider organization contract.

     5.7 Real Property.

          (a) Seller owns good and marketable title in fee simple to the Real Property, which is
described in Schedule 5.7(a)(i) hereto (which Schedule includes a legal description of all
of the Real Property). The Real Property constitutes all of the owned real property used by Seller
in the operation of the Business. There are no leases by Seller as landlord to third parties
relating to the Business. A list and general description of the use of all real property leased by
Seller as lessee from any third parties under any oral or written lease or license (each, a
“Lease”), together with the relevant address, term, rental rate, area leased and whether such
leased property is subject to Seller’s option to renew is contained on Schedule 5.7 (a)(ii)
hereto (the “Leased Real Property” and, together with the Real Property, the “Real Estate”).
Seller has a good and valid leasehold interest in all of the Leased Real Property. There are no
agreements or amendments, oral or written, pertaining to the Leased Real Property other than as set
forth in the Leases referenced on Schedule 5.7(a)(ii). The Real Estate constitutes all of
the real property used by Seller in the operation of the Facility.

          (b) The Real Property is in compliance with all Real Estate Laws, and Seller has not received
any written notice of violation from any Governmental Authority of any Real Estate Law on the use
or occupancy of the Real Property. Seller has all easements, servitudes, and rights-of-way
necessary for access to the Real Property. All utilities serving the Real Property are adequate,
in Seller’s reasonable opinion, to operate the Business in the manner it is currently operating.
Except as may be indicated on the survey prepared by Robert M. Jones of MACTEC Engineering and
Consulting, dated December 5, 2005, no improvements encroach onto adjacent property, (ii) violate
setback, building or side lines or (iii) encroach onto any easements or servitudes located on the
Real Property. No portion of the Real Property is located within a flood plain or constitutes an
area classified as a protected wetland. Seller has received no written notice of any action to
alter the zoning or zoning classification or to condemn, requisition or otherwise take all or any
portion of the Real Property.

     5.8 Title. Except for the Permitted Encumbrances, there exist no Encumbrances
affecting the Real Property, and Seller is in actual possession of the Real Property. At Closing,
Seller will convey to Buyer good and valid marketable title to the Real Property and good and valid
title to the personal property, tangible and intangible, constituting the remainder of the Assets,
free and clear of any Encumbrance except (i) current taxes and assessments not yet due and payable
or being contested in good faith, (ii) any applicable Assumed Liabilities, (iii) utility easements
providing service to the Real Property, (iv) access easements and rights of way providing vehicular
and pedestrian access to the Real Property, (v) such other easements and rights of way as are
common to the lots in the vicinity and do not impair or diminish the value or use of the Facility
as currently used, and (vi) other matters, Encumbrances and defects approved by Buyer in writing,
if any, or as deemed accepted by Buyer pursuant to Section 2.3 hereof (the foregoing items
(i) through (vi) being referred to herein as the “Permitted Encumbrances”). Except for the
Excluded Assets, the Assets constitute in all material respects all tangible and intangible assets
necessary for the operation of Seller’s Business in accordance with past practice.

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     5.9 Defects in Property; Utilities and Easements. There are no defects to the
knowledge of Seller in the condition of the Real Property or the Assets that will impair the
condition of the Assets or the operation of the Business as operated by Seller on the date hereof.
There is no material defect in the Real Property, the structural elements thereof, the mechanical
systems (including without limitation all heating, ventilating, air conditioning, plumbing,
electrical, elevator, security, utility and sprinkler systems) therein, or the parking and loading
areas other than ordinary wear and tear, and all such systems are adequate for their present uses.
To Seller’s knowledge, all Assets are in a condition adequate for their current uses, ordinary wear
and tear excepted. There are no material defects or deficiencies in any necessary utility services
and easements for such services including, without limitation, electrical, gas, water, sewer and
telephone.

     5.10 Zoning. The present use of the Real Property is permitted, and it is a
conforming structure under applicable zoning and building laws and ordinances. There are no
pending or, to Seller’s knowledge, threatened requests, applications or proceedings to alter or
restrict the zoning or other use restrictions applicable to the Business.

     5.11 Intellectual Property.

          (a) Seller owns, is licensed or otherwise possesses legally enforceable rights to use in the
manner and to the extent currently being used by Seller all the Seller Intellectual Property
Assets, without (i) infringing or violating the valid and enforceable rights of others, (ii)
constituting a breach of any agreement, obligation, promise or commitment by which Seller and its
Affiliates may be bound or (iii) violating any laws in any applicable jurisdiction.

          (b) No actions or proceedings (i) have been made or are currently pending or, to Seller’s
knowledge, threatened by any person with respect to the Seller Intellectual Property Assets,
including any actions or proceedings challenging the right of Seller to use, possess, transfer,
convey or otherwise dispose of any Seller Intellectual Property Assets, or (ii) have been made or
are currently pending or, to Seller’s knowledge, threatened by any person with respect to the
Intellectual Property Assets of any third party (the “Third Party Intellectual Property
Assets”) to the extent arising out of any use, possession, transfer, reproduction, conveyance,
distribution or other disposition of, or of products or methods covered by or otherwise relating
to, such Third Party Intellectual Property Assets by or through Seller.

          (c) To the knowledge of Seller, there is no unauthorized use, infringement, misappropriation
or other violation of any of Seller’s Intellectual Property Assets by any third party, including
any employee, former employee, independent contractor or consultant of Seller or any of its
subsidiaries.

          (d) The Seller Intellectual Property Assets include all intellectual property rights and
interests necessary to conduct the Business of Seller as it is currently conducted, and assuming
any contractually required consents are obtained, such rights will not be adversely affected by
Seller or any other person claiming under or through Seller or otherwise in connection with or
arising from the execution and delivery of this Agreement or the consummation of any of the
transactions contemplated hereby, except where such adverse affect would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on Seller.

     5.12 Insurance. Seller maintains in full force and effect, with no premium
arrearages, insurance policies bearing the numbers, for the terms, with the companies, in the
amounts and providing the coverage set forth in Schedule 5.12. Seller has not been refused
any insurance with respect to the Assets or the operations of the Business by any insurance carrier
to which it has applied for any such

17

 

insurance or with which it has carried insurance during the last three years. True and
correct copies of all such policies, and all endorsements thereto, have been delivered to Buyer.

     5.13 Litigation or Proceedings. Seller has delivered to Buyer an accurate list and
summary description of all pending litigation or proceedings with respect to the Business and the
Assets to which Seller is a party. Except to the extent set forth on Schedule 5.13, there
are no claims, actions, suits, proceedings or investigations pending or, to Seller’s knowledge,
threatened against or affecting Seller with respect to the Business, at law or in equity, before or
by any Governmental Authority wherever located and, to the knowledge of Seller, no basis for any
such action exists.

     5.14 Governmental Authorizations; Compliance. Seller possesses all Governmental
Authorizations that are required for the current conduct of the Business and the use of the
Facility. Seller is in compliance in all material respects with all requirements of federal, state
and local law, all applicable terms and requirements of each Governmental Authorization, and all
requirements of all Governmental Authorities having jurisdiction over the Seller, the conduct of
the Business, the use of its properties and assets and all premises occupied by it at the Facility.
Seller has not received any notice, not heretofore complied with, from any Governmental Authority
having jurisdiction over its properties or activities, or any insurance or inspection body, that
its operations, facilities, equipment, or business procedures or practices at the Facility fail to
comply with any applicable law, ordinance, regulation, building or zoning law, or requirement of
any Governmental Authority. Attached hereto as Schedule 5.14 is a correct and complete
list of all Governmental Authorizations. Except as disclosed in Schedule 5.14, Seller
validly holds all such Governmental Authorizations, each such Governmental Authorization is valid,
binding, in good standing and in full force and effect, and Seller is not in default (or with the
giving of notice or lapse of time or both, would be in default) under any such Governmental
Authorization.

     5.15 Regulatory Compliance; Improper Payments.

          (a) Except as set forth in Schedule 5.15 hereto, Seller has not received any written
notice from any Governmental Authority, whether federal, state or local, that any of the Business’
operations are not in compliance in all material respects with all applicable laws and regulations.
Seller has timely filed all reports, data and other information required to be filed under
applicable laws and regulations. Seller and the Business have been and are in compliance in all
material respects with all laws and regulations required to carry on the Business as currently
conducted.

          (b) Except to the extent permitted by applicable law, neither Seller, nor to Seller’s
knowledge, any director, officer or employee of Seller, nor any agent acting on behalf of or for
the benefit of any of the foregoing, has directly or indirectly: (i) offered, paid or received any
remuneration, in cash or in kind, to, or made any financial arrangements, with any past, present or
potential customers, past or present suppliers, patients, medical staff members, contractors or
third-party payors of Seller in exchange for business or payments from such persons; (ii) given or
agreed to give, received or agreed to receive, or is aware that there has been made or that there
is any agreement to make, any gift or gratuitous payment of any kind, nature or description
(whether in money, property or services) to any customer or potential customer, supplier or
potential supplier, contractor, third-party payor or any other person in exchange for business or
payments; (iii) made or agreed to make, or is aware that there has been made or that there is any
agreement to make, any contribution, payment or gift of funds or property to, or for the private
use of, any governmental official, employee or agent where either the contribution, payment or gift
or the purpose of such contribution, payment or gift is or was illegal under any law or regulation
of the United States or under the laws of any Governmental Authority having jurisdiction over such
payment, contribution or gift; (iv) established or maintained any unrecorded fund or asset for any
improper purpose or made any misleading, false, or artificial entries on any of its books or
records for any reason; (v) made, or agreed to make, or is aware that there has been made or that
there is any agreement to make, any

18

 

improper payment to any person; (vi) made any payment for or agreed to make any payment for
any goods, services, or property in excess of fair market value; or (vii) committed a violation of
any law or regulation, specifically including, but not limited to, Medicare and Medicaid fraud and
abuse provisions of the Social Security Act, including any activity which is prohibited under (i)
the Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b et seq.); (ii) the physician self-referral
provisions of the Stark Law (42 U.S.C. § 1395nn) or the regulations thereunder; (iii) the False
Claims Act (31 U.S.C. § 3729); (iv) the Civil Monetary Penalties Law (42 U.S.C. §§ 1320a-7a); (v)
Mail and Wire Fraud (18 U.S.C. §§ 1341-1343); (vi) False Statements Relating to Health Care Matters
(18 U.S.C. § 1035); and (vii) Health Care Fraud (18 U.S.C. § 1347) or regulations related to any of
the above (or related state and local fraud and abuse statutes or regulations).

          (c) Except as permitted by applicable law or regulation, neither Seller nor to Seller’s
knowledge any of its directors, officers or employees is a party to any contract, lease agreement
or other arrangement (including but not limited to any joint venture or consulting agreement)
related to Seller, the Business or the Assets with any physician, physical or occupation therapist,
health care facility, hospital, nursing facility, home health agency or other person who is in a
position to make or influence referrals to or otherwise generate business for Seller with respect
to any of the Business or the Assets, to provide services, lease space, lease equipment or engage
in any other venture or activity.

          (d) Except as set forth in Schedule 5.15, no Affiliate of Seller directly or
indirectly with respect to the Facility and Business: (i) provides any services to Seller, or is a
lessor, lessee or supplier to Seller; (ii) has any cause of action or other claim whatsoever
against or owes any amount to, or is owed any amount by, Seller or the Business, except for claims
and amounts owed in the ordinary course of business, such as for expense advances or unreimbursed
expenses, accrued vacation pay and accrued benefits under Benefit Plans; (iii) has any interest in
or owns property or rights used in the operation of the Business; (iv) is a party to any contract,
lease or other agreement, arrangement, understanding or commitment relating to the Assets or the
operation of the Business (other than compensation and/or employee benefits payable in the ordinary
course of business); or (v) received from or furnished to Seller any goods or services without
adequate consideration.

          (e) Schedule 5.15(e) lists all financial relationships (whether or not memorialized in
writing) that Seller has had with any individual known by Seller to be a physician or an immediate
family member of a physician since August 1, 1999, in connection with the Business. For purposes
of this Section 5.16(e), the term “financial relationship” has the meaning set forth in 42 U.S.C.
§1395nn and the regulations promulgated thereunder.

     5.16 HIPAA Matters.

          (a) Each business, entity or component of any entity owned or controlled by Seller that is a
health plan, healthcare clearinghouse or healthcare provider, as such terms are defined in the
Federal Privacy Regulations (collectively, the “Covered Entities”) is in compliance with
and has not violated the administrative simplification section of HIPAA, the Federal Privacy
Regulations, the Federal Transaction Regulations or applicable state privacy laws.

          (b) To the extent a Covered Entity directly or indirectly conducts a Transaction (as defined
in the Federal Transaction Regulations) using Electronic Media (as defined in the Federal
Transaction Regulations) with another covered entity, such Transactions use and will use the
standards mandated by the Federal Transaction Standards (as defined in the Federal Transaction
Regulations).

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          (c) A complete and accurate list of all Covered Entities and each Organized Health Care
Arrangement (as defined in the Federal Privacy Regulations) in which a Covered Entity participates
is attached hereto as Schedule 5.16(A). Complete and accurate copies of each Covered
Entity’s policies relating to the privacy of its patients’ Protected Health Information (as defined
in the Federal Privacy Regulations) are attached hereto as Schedule 5.16(B). Each such
policy relating to the privacy of patient’s Protected Health Information complies with the Federal
Privacy Regulations and applicable state privacy laws. Each Covered Entity has provided its
patients with a privacy notice that contains all of the requirements of 45 C.F.R. Section
164.520(b) at the times required by 45 C.F.R. Section 164.520(c) and has documented compliance with
the foregoing requirements. An accurate copy of each Covered Entity’s privacy notice and any
policy relating thereto, or the most recent draft thereof, has been furnished to Buyer. Each
Covered Entity and its employees, volunteers, trainees, and other persons whose conduct, in the
performance of work for a Covered Entity, is under the direct control of such entity (collectively,
the “Workforce”) has only Used (as defined in the Federal Privacy Regulations) or Disclosed
(as defined in the Federal Privacy Regulations) Protected Health Information in accordance with its
privacy notices, the Covered Entity’s privacy policies relating to Protected Health Information and
the Federal Privacy Regulations.

          (d) To the extent either Seller or any Covered Entity maintains Group Health Plans (as defined
in Federal Privacy Regulations) for its employees and the dependents thereof, the Group Health Plan
(i) has implemented policies to establish the permitted and required Uses and Disclosures of
Protected Health Information to the plan sponsor, provided that such policies are not inconsistent
with the Federal Privacy Regulations; (ii) has received certification from the plan sponsor that
the Group Health Plan documents have been amended to incorporate the provisions set forth in 45
C.F.R. Sections 164.504(f)(2)(ii) and (f)(iii); (iii) provided its employees and their dependents
covered by such Group Health Plan the applicable notices regarding the amendments of such Group
Health Plan; and (iv) has provided Buyer with the telephone number of, and the name of a contact
person at, each such Group Health Plan.

          (e) Each Covered Entity has provided its patients the right to inspect, obtain a copy of,
amend, receive an accounting of the disclosures, request an alternative means of disclosure and
alternative locations for disclosure of Protected Health Information in accordance with the Federal
Privacy Regulations. To the extent that a Covered Entity has agreed to additional restrictions on
the use or disclosure of Protected Health Information requested by a patient, the Covered Entity
has complied with such requests.

          (f) Complete and accurate copies of all agreements (collectively, “Business Associate
Agreements”) between a Covered Entity and a Business Associate (as defined in the Federal
Privacy Regulations), together with a complete and accurate summary of the terms and conditions of
any oral arrangements with Business Associates, have been made available to Buyer. Neither Seller
nor any Covered Entity is aware of any breach by a Business Associate of any Business Associate
Agreement or any violation by a Business Associate of HIPAA, the Federal Transaction Regulations,
the Federal Privacy Regulations, or the Federal Security Regulations.

          (g) To Seller’s knowledge, no patient has filed a HIPAA related complaint with Seller, the
Business or any Governmental Authority.

     5.17 Compliance Program. Seller has provided to Buyer a copy of its current
compliance program materials. Except as set forth on Schedule 5.17, Seller (a) is not a
party to a Corporate Integrity Agreement with the Office of Inspector General of the Department of
Health and Human Services, (b) has no reporting obligations pursuant to any settlement agreement
entered into with any Governmental Authority, (c) has not been the subject of any government payor
program investigation conducted by any

20

 

federal or state enforcement agency, (d) [to the knowledge of Seller,]has not been a defendant
in any qui tam/False Claims Act or similar litigation, (e) has not been served with or received any
search warrant, subpoena, civil investigative demand, contact letter, or telephone or personal
contact by or from any federal or state enforcement agency (except in connection with medical
services provided to third-parties who may be defendants or the subject of investigation into
conduct unrelated to the operation of the Business or any other health care businesses conducted by
Seller), and (f) has not received any written complaints or complaints through their telephonic
hotlines from employees, independent contractors, vendors, physicians, or any other person that
would indicate that Seller has in the past violated, or is currently in violation of, any law or
regulation. Buyer has been provided with a description of each audit and investigation conducted
by Seller pursuant to its compliance program with respect to the Business during the last three
years. For purposes of this Agreement, the term “compliance program” refers to provider programs
of the type described in the Compliance Program Guidance published by the Office of Inspector
General of the Department of Health and Human Services.

     5.18 Medicare Participation; Accreditation; No Medicaid Participation. (a) The
Business is certified for participation in the Federal Healthcare Programs and Seller has a
provider agreement with each such Federal Healthcare Program (the “Provider Agreements”).
The Business is in compliance with the conditions of participation of the Federal Healthcare
Programs and with the terms, conditions and provisions of the Provider Agreements. The Provider
Agreements are each in full force and effect, and Seller has no knowledge of any fact or
circumstance that would cause any such Provider Agreement not to remain in force or be renewed on
and after Closing. Attached hereto as Schedule 5.18 is a complete list of all Medicare
provider numbers (the “Provider Numbers”) in the name of Seller, the Business or as
otherwise specified, which Seller is currently using in its operations (excluding any Medicare
provider numbers for facilities that were sold or closed by Seller prior to the date of this
Agreement). The Provider Numbers are active with CMS. The Business is duly accredited, with all
Type I recommendations removed, by JCAHO for the three (3) year period set forth on Schedule
5.18. Copies of the two most recent accreditation survey reports from JCAHO pertaining to the
Business have been made available to Buyer. Except as set forth in Schedule 5.18, since
the date of its most recent JCAHO survey, Seller or the Business has not made any changes in policy
or operations that it believes would cause the Business to be denied participation in the Federal
Healthcare Programs. To Seller’s knowledge, there is no proceeding, investigation or survey
pending or threatened, involving any of the Federal Healthcare Programs or any other third-party
payor programs, with respect to the Business, and Seller has no reason to believe that any such
investigations or surveys are pending, threatened, or imminent.

          (b) The Business and the Seller do not currently participate and have not in the past
participated in the Medicaid program. Neither the Business nor the Seller is a party to a provider
agreement with the Medicaid program. Neither the Business nor the Seller owes any funds or has any
outstanding obligation to the Medicaid program, nor does the Medicaid program owe funds or have any
outstanding obligation to Business or Seller.

     5.19 Third-Party Payor Cost Reports. Seller duly filed all required cost reports for
all the fiscal years through and including the fiscal year ended January 2, 2005 (the “Cost
Reports”). Except as set forth on Schedule 5.19 and except for immaterial adjustments
to the Cost Reports, all of the Cost Reports filed by Seller accurately reflect the information
required to be included thereon and do not claim, and Seller has not received reimbursement in any
amount in excess of, the amounts allowed by applicable law or any applicable agreement.
Schedule 5.19 attached hereto accurately indicates which Cost Reports have not been audited
and finally settled and a brief description of any and all notices of program reimbursement,
proposed or pending audit adjustments, disallowances, and any and all other unresolved claims or
disputes in respect of the Cost Reports.

21

 

     5.20 Reimbursement. Except as set forth on Schedule 5.20, all billing
practices of Seller with respect to all third-party payors of the Business, including the Federal
Healthcare Programs and private insurance companies, have been in compliance with all applicable
laws, regulations and policies of such third-party payors, private insurance companies and the
Federal Healthcare Programs. To Seller’s knowledge, all claims, returns, invoices and other forms
made by the Business to the Federal Healthcare Programs or any other third-party payor are true,
complete, correct and accurate in all material respects. No deficiency in any such claims, returns
or other filings relating to the Business, including claims for overpayments, setoff or
recoupments, or deficiencies for late filings, has been asserted or, to the knowledge of Seller,
threatened by any Governmental Authority or any other third-party payor and, to the knowledge of
Seller, there is no basis for any such claims or deficiencies. Seller or the Business has not
within the prior five years been subject to any audit relating to fraudulent Medicare procedures or
practices. Seller or the Business has not billed or received any payment or reimbursement in
excess of amounts allowed by law. There is no proceeding, investigation (except for medical
reviews or claim reviews in the ordinary course of business), pending or threatened against Seller
or the Business, involving any of the Federal Healthcare Programs, or any other third-party payor
programs. Attached as Schedule 5.20 are copies of all written reports, surveys, deficiency
notices, complaints, plans of correction, inquiries or notices of investigation received by Seller
or the Business within the past two years from any intermediary or other payor, Governmental
Authority or accrediting body. Seller or the Business is not currently under focused medical
review or the subject of any probe edits by the CMS or the Business’s Medicare fiscal intermediary
and, to the knowledge of Seller, no such actions have been threatened by CMS or the Business’s
Medicare fiscal intermediary.

     5.21 Medical Staff Matters. Schedule 5.21 includes true, correct, and
complete copies of the bylaws and rules and regulations of the medical staff of the Business. With
regard to the medical staff of the Business and except as set forth on Schedule 5.21
hereto, there are no pending or, to Seller’s knowledge, threatened disputes with applicants, staff
members or health professional Affiliates and all appeal periods in respect of any medical staff
member or applicant against whom an adverse action has been taken have expired. Seller has
delivered to Buyer a written disclosure containing a brief general description of all adverse
actions taken in the six months prior to the date hereof against medical staff members or
applicants which could result in claims or actions against Seller. Schedule 5.21 includes a
list of the members of the Business’ medical staff. Except as listed on Schedule 5.21, to
Seller’s knowledge, there are no claims, actions, suits, proceedings or investigations pending or
threatened against or affecting any member of the medical staff at law or in equity, or before or
by any Governmental Authority wherever located. Except as listed on Schedule 5.21, no
member of the Business’s medical staff has resigned or had his or her privileges revoked or
suspended during the past year. Except as set forth on Schedule 5.21, (i) no employee or
independent contractor of Seller (whether an individual or entity), or any member of Business’s
medical staff has been excluded from participating in any federal health care program (as defined
in 42 U.S.C. § 1320a-7b(f)) during the last five years, nor is any such exclusion threatened or
pending and (ii) none of the officers, directors, agents or managing employees (as such term is
defined in 42 U.S.C. § 1320a-5(b)) of Seller, has been excluded from Medicare or any federal health
care program (as defined in 42 U.S.C. § 1320a-7b(f)) or been subject to sanction pursuant to 42
U.S.C. § 1320a-7a or 1320a-8 or been convicted of a crime described at 42 U.S.C. § 1320a-7b, nor is
any such exclusion, sanction or conviction threatened or pending. Neither Seller has been
excluded from participating in any federal health care program (as defined in 42 U.S.C. §
1320a-7b(f)), nor is any such exclusion threatened or pending. Seller has not been convicted of a
criminal offense related to the provision of health care services.

     5.22 Statutory Funds. None of the Assets are subject to any liability to which Buyer
may become obligated in respect of amounts received by Seller for the purchase or improvements of
the Assets or any part thereof under restricted or conditioned grants or donations, including
monies received under the Public Health Service Act (42 U.S.C. § 291 et seq.).

22

 

     5.23 Controlled Substances. To Seller’s knowledge, none of Seller’s employees, or
persons who provide professional services under agreements with Seller at the Facility or with
respect to the Business, has engaged in any activities which are prohibited under the federal
Controlled Substances Act (21 U.S.C. § 801 et seq.) or the regulations promulgated pursuant to such
statute or any related state or local statutes or regulations concerning the dispensing and sale of
controlled substances.

     5.24 Reserved.

     5.25 Tax Liabilities.

          (a) Seller has duly filed or caused to be filed, or shall duly file or cause to be filed, in a
timely manner (taking into account all extensions of due dates) with the appropriate Governmental
Authorities all Tax Returns (including information returns) which are required to be filed on or
before the Closing Date by or on behalf of Seller with respect to the Assets or the Business. All
such Tax Returns are correct and complete in all material respects. All Taxes due and payable
prior to the date hereof (or, as of the Closing Date, due and payable prior to the Closing Date)
relating to the Assets or the Business for periods ending on or before the Closing Date, whether or
not shown on any Tax Return filed or due prior to the Closing Date, have been paid in full, and all
Taxes relating to the Assets or the Business for periods ending on or before the Closing Date,
whether or not shown on Seller’s Tax Returns filed after the Closing Date for a period that begins
before the Closing Date, will be paid in full within the time permitted under the Code or
applicable laws. There are no liens on any of the Assets with respect to Taxes, other than liens,
if any, for Taxes not yet due and payable.

          (b) (i) No deficiencies for Taxes with respect to the Business, Facility or the Assets have
been claimed, proposed or assessed in writing by any Governmental Authority which, if not paid on a
timely basis, would result on or after the Closing Date, in a lien for Taxes on any of the Assets,
(ii) there are no pending or threatened audits, suits, proceedings, actions, investigations or
claims for or relating to any liability in respect of Taxes with respect to the Business, Facility
or the Assets for which Buyer could become liable, the adverse determination of which could result,
on or after the Closing Date, in a lien for Taxes on any of the Assets, and (iii) there are no
matters under discussion by Seller with any Governmental Authorities with respect to Taxes that may
result in an additional amount of Taxes for which Buyer may have any liability or which may attach
to the Assets.

          (c) Seller has not made any payments, is not obligated to make any payments and is not a party
to any agreement that under certain circumstances could obligate it to make any payments with
respect to the Business that will not be deductible under Section 280G of the Code. Seller has
withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, or other third party in connection with
the Business, and all Forms W-2 and 1099 required with respect thereto have been properly completed
and timely filed.

     5.26 ERISA Compliance.

          (a) Seller has provided Buyer a complete and correct list of all Benefit Plans affecting the
Employees.

          (b) Neither Seller nor any ERISA Affiliate has been liable at any time for (i) contributions
to a plan that is or has been at any time subject to Section 412 of the Code, Section 302 of

23

 

ERISA and/or Title IV of ERISA or (ii) any multi-employer plan (as defined in Section 3(37) of
ERISA) or any multiple employer welfare arrangement (as defined in Section 3(40) of ERISA).

          (c) Seller has heretofore made available to Buyer, with respect to each of the Benefit Plans,
true, accurate and complete copies of the following documents as applicable: (i) the Benefit Plan
document and all amendments, and (ii) all personnel, payroll and employment manuals and policies.

          (d) There have been no prohibited transactions, breaches of fiduciary duty or other breaches
or violations of any law applicable to the Benefit Plans and related funding arrangements that
could subject Buyer to any liability. Except as disclosed in Schedule 5.26, each Benefit
Plan intended to be qualified under Section 401(a) of the Code has a current favorable
determination letter (or, in the case of a standardized form or paired plan, a favorable opinion or
notification letter), and no event has occurred which could cause any Benefit Plan to become
disqualified for purposes of Section 401(a) of the Code. Each Benefit Plan is fully funded and has
been operated in material compliance with applicable law, including Section 401(a) of the Code and
ERISA, as applicable, and in accordance with its terms.

          (e) All required reports, tax returns, documents and plan descriptions of the Benefit Plans
have been timely filed with the Internal Revenue Service and the U.S. Department of Labor and/or,
as appropriate, provided to participants in the Benefit Plans.

          (f) There are no pending claims, lawsuits or actions relating to any Benefit Plan (other than
ordinary course claims for benefits) and, to the knowledge of Seller, none are threatened.

          (g) The consummation of the transactions contemplated by this Agreement will not accelerate
the time of vesting or payment, or increase the amount, of compensation to any employee, or former
employee of the Business. No Benefit Plans or other contracts or arrangements provide for payments
that would be triggered by the consummation of the transactions contemplated by this Agreement that
would subject any current or former employee of the Business to excise tax under Section 4999 of
the Code.

          (h) No Benefit Plans provide for, and no written or oral agreements have been entered into
promising or guaranteeing the continuation of medical, dental, vision, life or disability insurance
coverage for any current or former employee of the Business or their beneficiaries for any period
of time beyond the earlier of (i) termination of employment or (ii) the end of the current plan
year (except to the extent of coverage required under COBRA).

          (i) All contributions to the Benefit Plans, including salary deferrals, which have been
required to be made in accordance with the terms of the Benefit Plans and applicable law have been
duly and timely made. Further, as of the Closing Date, Seller will have paid in full all
liabilities or accrued on their books the appropriate outstanding liability with respect to each
employee or former employee of the Business in each Benefit Plan in accordance with GAAP.

          (j) Seller and its ERISA Affiliates have complied in all respects with the continuation
coverage provisions of COBRA with respect to all current employees and former employees. Seller has
made available to the Buyer a list of all current and former employees of the Business who are
eligible for and/or have elected continuation coverage under COBRA.

          (k) To Seller’s knowledge, no lien, security interests or other encumbrances exist with
respect to any of the assets of the Business, which were imposed pursuant to the terms of the Code
or ERISA.

24

 

          (l) To the extent that Seller maintains a Group Health Plan (as defined in the Federal Privacy
Regulations) for its employees and the dependents thereof, each such Group Health Plan (i) has
implemented policies to establish the permitted and required Uses and Disclosures of Protected
Health Information to the plan sponsor, provided that such policies are not inconsistent with the
Federal Privacy Regulations; (ii) has received certification from the plan sponsor that the Group
Health Plan documents have been amended to incorporate the provisions set forth in 45 C.F.R.
Sections 164.504(f)(2)(ii) and (f)(iii); and (iii) provided its employees and their dependents
covered by such Group Health Plan the applicable notices regarding the amendments of such Group
Health Plan.

     5.27 Employees and Employee Relations.

          (a) Except as set forth on Schedule 5.27(a), as of the date hereof, (i) there is no
pending or, to Seller’s knowledge, threatened employee strike, work stoppage or labor dispute, (ii)
to Seller’s knowledge, no union representation question exists respecting any employees of Seller,
no demand has been made for recognition by a labor organization by or with respect to any employees
of Seller, no union organizing activities by or with respect to any employees of Seller are taking
place, and none of the employees of Seller are represented by any labor union or organization,
(iii) no collective bargaining agreement exists or is currently being negotiated by Seller, (iv)
there is no unfair practice claim against Seller before the National Labor Relations Board, or any
strike, dispute, slowdown, or stoppage pending or, to Seller’s knowledge, threatened against or
involving the Business and none has occurred and (v) there are no pending or, to Seller’s
knowledge, threatened complaints or charges before any Governmental Authority regarding employment
discrimination, safety or other employment-related charges or complaints, wage and hour claims,
unemployment compensation claims, workers’ compensation claims or the like.

          (b) Schedule 5.27(b) contains a list of all of the employees of Seller (the
“Employees”) at the Business, their current salary or wage rates, bonus and other
compensation, benefit arrangements and period of service, department and a job title or other
summary of the responsibilities of such Employees. Schedule 5.27(b) also indicates whether
such Employees are part-time, full-time or on a leave of absence and the type of leave. Seller and
each Benefit Plan have properly classified individuals providing services to Seller as independent
contractors or Employees, as the case may be. The foregoing notwithstanding, the delivery of
Schedule 5.27(b) to Buyer shall be delayed until such time as the respective counsel for
Seller and Buyer mutually determine in order to comply with applicable federal antitrust
considerations.

     5.28 Environmental Matters.(a) Except as disclosed on Schedule 5.28, the Real
Property and Business are and at all times during Seller’s ownership have been in material
compliance with the Environmental Laws, which compliance includes but is not limited to the
possession by Seller of all permits and governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof.

          (b) Except as disclosed on Schedule 5.28, Seller has not treated, stored, managed,
disposed of, transported, handled, released, or used any Material of Environmental Concern except
in the ordinary course of its business and in compliance with all Environmental Laws; and, to the
knowledge of Seller, no third party has treated, stored, managed, disposed of, transported,
handled, released, or used any Material of Environmental Concern at the Real Property.

          (c) Except as disclosed on Schedule 5.28, there are no Environmental Claims pending
or, to the knowledge of Seller, threatened against Seller, and to the knowledge of Seller, no
circumstances exist which could reasonably be expected to lead to the assertion of an Environmental
Claim against Seller.

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          (d) Schedule 5.28 lists any off-site locations or haulers where Seller has stored or
disposed or with whom Seller has arranged for the disposal of Materials of Environmental Concern,
and Seller has not been notified in writing that it is a potentially responsible party at any such
location under any Environmental Laws.

          (e) Except as disclosed on Schedule 5.28, Seller has not assumed or undertaken or
otherwise become subject to any liability or corrective, investigatory or remedial obligation of
any other person relating to any Environmental Law.

          (f) Except as disclosed on Schedule 5.28, (i) there are no underground storage tanks
located on the Real Property, and any tanks identified on Schedule 5.28 have passed
tightness testing when and as required by applicable law; (ii) there is no friable asbestos (as
defined under Environmental Laws) contained in or forming part of any building, building component,
structure or office space owned, leased or operated by Seller, and (iv) there are no
polychlorinated biphenyls (“PCBs”) or PCB-containing items contained in or forming part of any
building, building component, structure or office space owned, leased or operated by Seller.

     5.29 Medical Waste. Except as disclosed on Schedule 5.29, the operations and
properties of Seller are and at all times have been in compliance with the Medical Waste Laws.

     5.30 Brokers. Seller has not engaged any broker, investment banker, financial advisor
or other similar person entitled to any broker’s, finder’s, financial advisor’s or other similar
fee or commission in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Seller.

     5.31 Absence of Certain Changes. Between the Balance Sheet Date and the date hereof,
except as set forth on Schedule 5.31, there has not been any transaction or occurrence in
which Seller or any of its Affiliates, in connection with the Facility, has:

          (a) suffered any Material Adverse Effect or any material damage, destruction or loss with
respect to the Facility (other than minor damage caused by Hurricane Katrina or Hurricane Wilma,
which will be repaired at Seller’s expense);

          (b) sold, transferred or otherwise disposed of any of the Assets except in the ordinary course
of business;

          (c) granted or incurred any obligation for any increase in the compensation of any employee
who is employed at the Facility (including any increase pursuant to any bonus, pension,
profit-sharing, retirement, or other plan or commitment) except in the ordinary course of business;

          (d) made any change in any method of accounting or accounting principle, practice, or policy;

          (e) failed to pay accounts payable and other obligations of Seller or the Business when they
become due and payable in Seller’s ordinary course of business consistent with past practice; or

          (g) agreed, so as to legally bind Buyer or affect the Assets, whether in writing or otherwise,
to take any of the actions set forth in this Section 5.31 and not otherwise permitted by this
Agreement.

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     5.32 Accounts Receivable. The accounts receivable that are reflected on the balance
sheet as of the Balance Sheet Date and all accounts receivable of the Business arising thereafter
and prior to the Closing Date arose and will arise from bona fide transactions in the ordinary
course of business in arm’s length transactions and are carried at values, net of reserves,
determined (in each case) in accordance with GAAP, consistently applied in accordance with past
practice; provided, however that this Section 5.32 shall not be construed as a guaranty of
collection of such accounts receivable.

     6. REPRESENTATIONS AND WARRANTIES OF BUYER

     As of the date hereof, except as disclosed in the Schedules, Buyer represents and warrants to
Seller as follows:

     6.1 Capacity. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has the requisite corporate power and
authority to enter into this Agreement, perform its obligations hereunder and to conduct its
businesses as now being conducted. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer.

     6.2 Powers; Consents; Absence of Conflicts With Other Agreements, Etc. The execution,
delivery and performance of this Agreement and all other agreements referenced in or ancillary
hereto by Buyer and the consummation of the transactions contemplated herein by Buyer:

          (a) are within Buyer’s corporate powers and are not in contravention of law or of the terms of
its Certificate of Incorporation, Bylaws or any amendments thereto;

          (c) will neither conflict with nor result in a breach or contravention of, or the creation of
any lien under any indenture, agreement, lease, instrument or understanding to which Buyer is a
party or by which Buyer is bound;

          (b) except as set forth on Schedule 6.2, do not require any approval or consent of,
notice to or filing with, any Governmental Authority bearing on the validity of this Agreement that
is required by law or the regulations of any such Governmental Authority;

          (d) will not violate any statute, law, rule or regulation of any Governmental Authority to
which Buyer may be subject and which would affect Buyer’s ability to consummate the transaction
described herein; and

          (e) will not violate any judgment of any court or Governmental Authority to which Buyer may be
subject and which would affect Buyer’s ability to consummate the transaction described herein.

     6.3 Binding Agreement. This Agreement and the other agreements contemplated by this
Agreement to which Buyer is a party are and will constitute the valid and legally binding
obligation of Buyer, and are and will be enforceable against it in accordance with the respective
terms hereof or thereof, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditor
rights generally and (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

     6.4 Litigation. There is no claim, action, suit, proceeding or investigation pending
or, to the knowledge of Buyer, threatened against or affecting Buyer that has or would reasonably
be expected to

27

 

have a material adverse effect on Buyer’s ability to perform this Agreement or any aspect of
the transactions contemplated hereby.

     6.5 Brokers. Buyer has not engaged any broker, investment banker, financial advisor
or other similar person entitled to any broker’s, finder’s, financial advisor’s or other similar
fee or commission in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Buyer.

     6.6 Availability of Funds. Buyer has the ability to obtain funds in cash in amounts
equal to the Purchase Price by means of credit facilities or otherwise and will at the Closing have
immediately available funds in cash to satisfy the payment of the Purchase Price in accordance with
Section 3.1.

     7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

     The obligations of Buyer hereunder are subject to the satisfaction, fulfillment or performance
on or prior to the Closing Date of the following conditions unless waived in writing by Buyer:

     7.1 Seller’s Deliverables. Seller shall have delivered to Buyer the agreements,
documents and other items described in Section 4.2(a)-(h), the due execution of each of
which shall be reasonably satisfactory to Buyer.

     7.2 Compliance with Agreement. Each and all of the terms, covenants, agreements and
conditions of this Agreement to be complied with or performed by Seller on or before the Closing
Date pursuant to the terms hereof shall have been duly complied with and performed in all material
respects.

     7.3 Representations and Warranties. Each of the representations and warranties by
Seller set forth in Article 5 hereof shall be true and correct in all material respects on
the Closing Date.

     7.4 Action/Proceeding. No action or proceeding before a court or any other
Governmental Authority shall have been instituted or threatened to restrain or prohibit the
transactions herein contemplated, and no Governmental Authority shall have taken any other action
or made any request of Buyer or Seller as a result of which Buyer reasonably and in good faith
deems it inadvisable to proceed with the transactions hereunder.

     7.5 Confirmations. Buyer shall have received (a) confirmation in the form of a
certificate from a duly authorized officer of Seller that the Facility’s certification for
reimbursement by Medicare is in full force and effect on the date thereof, (b) confirmation in the
form of a license from ACHA that the Facility will be, immediately after the Effective Time,
licensed by the State of Florida as a 72-bed Class 3 Hospital and confirmation in the form of a
Class II Institutional Pharmacy License from the Florida Department of Health, and (c) consents
substantially in the form of Exhibit 7.5 to the assignment of the Material Assumed
Contracts marked with an asterisk on Schedule 5.6 from the counterparties thereto.

     7.6 Absence of Certain Changes. There shall be no material adverse change in the
business, operations, financial condition, accounting treatments, methods or policies for the
recording of expenses and allowances related to bad debts, policy adjustments, charity discounts,
or Medicare or TRICARE accounts receivable, or personnel of Seller with respect to the Business
from the date hereof to the Closing Date.

     7.8 Releases. All Encumbrances currently encumbering the Assets, other than Permitted
Encumbrances, shall have been duly released by the secured parties and other lien holders, and
UCC-3

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releases or termination statements and other lien discharging documents shall have been
properly recorded or the recording thereof shall have been duly arranged.

     7.9 Closing Documents. Seller shall have executed and delivered to Buyer all other
documents, agreements and certificates required to be executed or delivered by each of them
pursuant to any term or provision of this Agreement.

     8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

     The obligations of Seller hereunder are, at the option of Seller, subject to the satisfaction,
on or prior to the Closing Date, of the following conditions unless waived in writing by Seller:

     8.1 Buyer’s Deliverables. Buyer shall have delivered to Seller the agreements,
documents and other items described in Section 4.3(a)-(h), the due execution of each of
which shall be reasonably satisfactory to Seller.

     8.2 Compliance with Agreement. Each and all of the terms, covenants, agreements and
conditions of this Agreement to be complied with or performed by Buyer on or before the Closing
Date pursuant to the terms hereof shall have been duly complied with and performed in all material
respects.

     8.3 Action/Proceeding. No action or proceeding before a court or any other
Governmental Authority shall have been instituted or threatened to restrain or prohibit the
transactions herein contemplated, and no Governmental Authority shall have taken any other action
or made any request of Buyer or Seller as a result of which Seller reasonably and in good faith
deems it inadvisable to proceed with the transactions hereunder.

     8.4 Representations and Warranties. Buyer’s representations and warranties set forth
in Article 6 hereof shall be true and correct in all material respects on the Closing Date.

     8.5 Purchase Price/Closing Documents. Buyer shall have tendered the Purchase Price to
Seller and shall have executed and delivered to Seller all other documents, agreements and
certificates required to be executed or delivered by Buyer pursuant to any term or provision of
this Agreement.

     9. ADDITIONAL AGREEMENTS AND COVENANTS

     9.1 Post-Closing Access to Information. For a period of five years after Closing, the
parties will make available to one another upon written request such documents and information as
may be available relating to the Assets, the Business, the Facility, the Assumed Contracts and the
Assumed Liabilities for periods prior and subsequent to Closing to the extent reasonably necessary
to facilitate concluding the transactions herein contemplated, audits, compliance with governmental
requirements and regulations and the prosecution or defense of claims.

     9.2 Employee Matters.

          (a) Prior to Closing, Buyer shall offer employment as of the Effective Time to substantially
all active employees of Seller listed on Schedule 5.27(b) at wages no less favorable than
those currently enjoyed by such employees and at benefit levels equivalent to those
provided to similarly-situated employees of Buyer and shall not terminate 50 or more of those
employees who accept such offers until at least 90 days after the Effective Time; subject, however,
to the pre-employment screening requirements of Buyer. Buyer shall provide such hired employees
with the same customary employee benefits as Buyer provides its existing employees. The terms of
all such hired employees’ employment

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with Buyer shall (i) be in accordance with Buyer’s usual and customary practices for its own
employees and (ii) include recognition of the existing seniority of all such Employees for employee
benefits purposes. Buyer shall not be required to hire any member of senior management of
the Facility. No obligations of Seller to or with respect to any of its employees,
including, but not limited to, obligations under employment contracts, Benefit Plans, collective
bargaining agreements, and applicable laws (including, except as provided in Section 3.2 of this
Agreement, liability for payroll Taxes and other proper deductions and withholdings) are being
assumed by Buyer, and except as may be specifically required by applicable law, Buyer shall not be
obligated to continue any employment relationship with any employee for any specific period of
time.

          (b) Buyer shall be solely responsible for, and shall indemnify and hold Seller harmless from,
any and all liability arising directly or indirectly under the WARN Act, as a result of the
transactions contemplated by this Agreement. Seller acknowledges and agrees that Buyer does not
assume or agree to discharge any liability under COBRA with respect to any current or former
employees of Seller. Seller agrees that it will not take any voluntary action, including the
termination of its Benefit Plans, the effect of which would be, or might reasonably be expected to
be, the imposition upon Buyer of COBRA liability for current or former employees of Seller not
hired by Buyer. Additionally, Seller shall retain any and all liabilities under Section 4980B of
the Code and Sections 601 through 608 of ERISA with respect to all current and former employees of
the Business. Seller shall indemnify, defend, and hold harmless Buyer from and against any and all
liabilities, damages, costs, and expenses with respect to any liability assessed upon or incurred
by Buyer that is the responsibility of Seller under this Section 9.2.

     9.3 Seller’s Benefit Plans. Notwithstanding anything herein to the contrary, as of
the Effective Time and at its expense or the expense of the applicable Benefit Plan, Seller hereby
covenants and agrees to, with respect to all employees of Seller listed on Schedule
5.27(b), (i) terminate the active participation of such employees from all Benefit Plans that
are intended to be qualified under Section 401(a) of the Code; (ii) to the extent permitted by
applicable law, take such actions as are necessary, or cause applicable employee retirement plans
to take such actions as are necessary, to accelerate the vesting of all such employees under such
plans to become effective on or before the Effective Time and permit appropriate distributions to
such employees. As of the Effective Time, Seller and the Benefit Plans shall remain responsible
for benefits under the Benefit Plans, and Buyer shall not become responsible for maintaining the
Benefit Plans.

     9.4 Notices and Consents. Seller and Buyer shall cooperate and use their respective
commercially reasonable efforts to give or make the appropriate notices to or filings with any
applicable Governmental Authority required for the consummation of the transactions herein
contemplated and for the Facility, as owned by Buyer, to be appropriately licensed as a Class 3
Hospital and certified for Medicare participation. Seller and Buyer shall use their commercially
reasonable efforts and cooperate to obtain any required third-party consents; provided, however,
that neither Seller nor Buyer shall have any liability for any failure to obtain any required third
party consents. Except as otherwise expressly provided herein, with respect to any third party
consents required in connection with the assignment of the Assumed Contracts that are not obtained
prior to the Closing, Buyer and Seller agree that, following the Closing, notwithstanding the
failure to obtain any such consents, all benefits derived from such Assumed Contracts and all
liabilities arising out of such Assumed Contracts, in each case following the Closing, shall inure
to and be the responsibility of Buyer. Buyer shall give any required notices to, make any required
filings with, and use its commercially reasonable efforts to obtain the required Governmental
Authorizations; provided, however, that Seller shall not have any liability for any failure to
obtain any required Governmental Authorizations. Seller will endeavor to reasonably assure that
the information to be provided by the Seller and the Facility to Buyer for inclusion in Buyer’s CMS
855 application, including the attachments and exhibits thereto, will be true and correct in all
material respects and will not omit any material fact or statement. Each party shall use reasonable
commercial efforts to promptly

30

 

advise the other party of the status and progress of such party in obtaining any consents or
approvals of third parties or Governmental Authorities which are conditions to the consummation of
the transactions contemplated by this Agreement.

     9.5 Notice of Developments and Consents. Each party hereto shall give prompt written
notice to the other party of any material adverse development that, were it to have been known at
or before the date of this Agreement, would constitute a breach of any of its own representations
or warranties in Article 5 or Article 6. No disclosure by any party under this
Section 9.5 shall be deemed to amend or to supplement the Schedules to this Agreement or to
prevent or cure any misrepresentation, breach of warranty, breach of covenant, or any failure to
satisfy a closing condition.

     9.6 Affirmative Covenants of Seller. From the date hereof to the Closing Date, except
as expressly permitted or required by this Agreement or as otherwise consented to by Buyer in
writing, Seller will:

          (a) carry on the Business in, and only in, the ordinary course of business consistent with
past practice, and use all commercially reasonable efforts to preserve intact the Business,
maintain its properties in all material respects in the same operating condition and repair as they
exist as of the date of this Agreement, keep available the services of its present officers and
significant employees and preserve its relationship with customers, suppliers and others having
business dealings with it, such that there shall be no Material Adverse Effect after the date of
this Agreement;

          (b) pay accounts payable and other obligations of Seller or the Business when they become due
and payable in Seller’s ordinary course of business consistent with past practice;

          (c) perform in all material respects all of its obligations under all Contracts and other
agreements and instruments relating to or affecting the Business or the Assets, and comply in all
material respects with all laws, rules and regulations affecting the Business or the Assets as
necessary so as not to cause Seller to be in breach of its representations and warranties under
this Agreement;

          (d) keep in force all license, permits and approvals necessary to the operation of the
business as now conducted and consistent with past practice; and

          (e) maintain in effect adequate casualty, public liability, professional malpractice and
workers’ compensation insurance coverage.

     9.7 Negative Covenants of Seller. From the date hereof to the Closing Date, except as
expressly permitted or required by this Agreement or as otherwise consented to by Buyer in writing,
Seller will not:

          (a) except as may relate to trade payables of Seller or the Business incurred in the ordinary
course of business and the renewal of any malpractice insurance coverage of Seller, enter into,
renew, amend, breach or terminate any contract or agreement to which it is a party other than in
the ordinary course of business and consistent with past practices;

          (b) impose or suffer the imposition on any Asset of any lien or permit any such lien to exist,
other than Permitted Encumbrances;

          (c) sell or dispose of any Assets, whether real or personal, tangible or intangible, except in
the ordinary course of business and consistent with past practices;

31

 

          (d) engage in any transaction other than in the ordinary course of business and consistent
with past practices;

          (e) other than in the ordinary course of business consistent with past practices, grant (or
commit to grant) any increase in the compensation (including incentive or bonus compensation) of
any employee or service provider of Seller or institute, adopt or amend (or commit to institute,
adopt or amend) any compensation or Benefit Plan, policy, program or arrangement or collective
bargaining agreement applicable to any such employee or service provider; and

          (f) intentionally not take any action or omit to take any action, which action or omission
would result in a breach of any of the representations and warranties set forth in Article
5 of this Agreement.

     9.8 Noncompete Agreement.

          (a) In consideration for the benefits Seller and its Affiliates will receive in connection
with the transactions contemplated herein, which benefits Seller hereby acknowledges, and as
further consideration for, and as a condition to, the transactions contemplated hereby, and in
order that Buyer and its Affiliates shall receive and be able to maintain the benefit of the
goodwill, trade secrets and confidential information which Seller enjoys and has enjoyed in
connection with its operation of the Business, and recognizing that the covenants contained herein
are not severable from such goodwill and are granted to Buyer in order to protect the same, and in
order to otherwise protect the legitimate business interests of Buyer, Seller covenants and agrees
that for a period commencing as of the Closing Date and continuing thereafter for a period of three
years, Seller will not anywhere within the Restricted Territory, directly or indirectly (i)
operate, develop or own any interest (other than the ownership of less than 5% of the equity
securities of a publicly traded company) in any business which has activities relating to ownership
of, the management or operation of, or consultation regarding a behavioral health hospital,
residential treatment center, therapeutic group home, or other facility providing behavioral health
inpatient, outpatient or residential treatment services or other services that in any event involve
behavioral health or chemical and drug dependency-related consulting and healthcare services (a
“Competing Business”); (ii) consult with any business which owns, manages or operates a
Competing Business; (iii) interfere with, solicit, disrupt or attempt to disrupt any past, present
or prospective relationship, contractual or otherwise, between Buyer or its Affiliates, on one
hand, and any patient, supplier or employee of Buyer or its Affiliates (except as otherwise
provided by applicable law), on the other hand; or (iv) solicit any past, present or prospective
employee (including all officers and managers, all regional managers and all general managers) of
Buyer or its Affiliates to leave his or her employment with Buyer or its Affiliates ((i)-(iv) above
being collectively the “Prohibited Activities”), such Restricted Territory and Prohibited
Activities substantially covering the geography and activities that comprise the market in which
the Business conducts its operations and affairs. Notwithstanding the foregoing or anything else
in this Agreement to the contrary, nothing in this Agreement shall prevent or prohibit Seller from
owning, leasing, developing, managing, operating, consulting with, providing services to or
otherwise directly or indirectly engaging in the Competing Businesses or in the Prohibited
Activities within the Restricted Territory during said three-year period, on behalf of, or under a
contract, subcontract, lease or other arrangement with (1) a Governmental Authority, except CMS for
acute in-patient psychiatric services at a private free-standing psychiatric facility, or (2) any
other entity who is either engaged on behalf of a Governmental Authority or has contracted or
subcontracted with a party whereby the engagement is ultimately derived from a Governmental
Authority (including, without limitation, Seller’s facilities at South Florida State Hospital and
South Florida Evaluation Treatment Center).

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          (b) Seller hereby acknowledges that its agreement not to engage in the activities prohibited
herein for the period of time provided herein are manifestly reasonable upon their face and that
they are reasonable as to time and no greater than is required for the reasonable protection of
Buyer in light of the substantial harm that Buyer will suffer should Seller breach any of the
provisions of this Section 9.8. Seller further agrees that the nature, kind and character
of the activities prohibited herein are reasonably necessary to protect the interests of Buyer.

          (c) If a judicial determination is made that any of the provisions of this Section 9.8
constitute an unreasonable or otherwise unenforceable restriction against Seller, the provisions of
this Section 9.8 shall be rendered void only to the extent that such judicial determination
finds such provisions to be unreasonable or otherwise unenforceable. Any judicial authority
construing this Section 9.8 shall be empowered to sever any portion of the Restricted
Territory or Prohibited Activities from the coverage of this agreement and to apply the provisions
of this Section 9.8 to the remaining portion of the territory or the remaining activities
not so severed by such judicial authority.

          (d) Seller agrees that any violation of this Section 9.8 by Seller will result in
irreparable injury to Buyer, that a remedy at law for any breach or threatened breach of the
covenants contained herein will be inadequate and that in the event of any such breach, Buyer, in
addition to any other remedies or damages available to Buyer at law or in equity, shall be entitled
to temporary injunctive relief before trial from any court of competent jurisdiction as a matter of
course and to permanent injunctive relief without the necessity of proving actual damages or
securing or posting any bond. In the event of any breach of this Section 9.8 by Seller and
in addition to an injunction, Buyer shall also be entitled to recover the amount of fees and other
compensation earned by Seller as a result of any such breach, plus any other damages a court of
competent jurisdiction may find appropriate. The time period set forth in this Section 9.8
shall be tolled and suspended for a period of time equal to the aggregate quantity of time during
which Seller violates such prohibitions in any respect.

     9.9 No-Shop Agreement. In consideration of the mutual covenants set forth herein and
Buyer’s willingness to pursue this transaction, neither Seller nor any of Seller’s officers,
directors or Affiliates shall, except as expressly contemplated herein, directly or indirectly,
without Buyer’s prior written consent, initiate or hold discussions with, or provide any
information to, any corporation, partnership, Person or other entity (other than Buyer) concerning
a purchase, affiliation, joint venture or lease of all or a material part of or an investment in
the Facility or Business, directly or indirectly, whether by sale of capital stock, merger,
consolidation, sale of assets, lease, affiliation, joint venture or other transaction. Seller will
within 2 days notify Buyer by telephone and thereafter confirm in writing if any such discussions
or negotiations are sought to be initiated with, or any such proposal or possible proposal is
received by Seller or its officers, directors, advisors or Affiliates and shall indicate in
reasonable detail the identity of the person and the terms and conditions of such proposal, inquiry
or contact. In the event Seller or its officers, directors or Affiliates receives an unsolicited
offer relating to a type of transaction described above, Seller shall promptly inform the person
making such unsolicited offer of the existence of this provision, and Seller shall decline to
entertain such offer.

     9.10 Cost Reports. Seller, at its expense, shall prepare and timely file all
termination and other cost reports required or permitted by law to filed under the Medicare or
other third party payor programs for all periods ending at or prior to the Effective Time, or as a
result of the consummation of the transaction described herein.

     9.11 Misdirected Payments. Seller and Buyer covenant and agree to remit, with
reasonable promptness, to the other any payments received, which payments are on or in respect of
accounts or notes receivable owned by, or otherwise payable to, the other. In addition, and
without limitation, in the event of a determination by any Governmental Authority or third party
payor that payments to Seller or the Facility

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resulted in an overpayment or other determination that funds previously paid by any program or
plan to Seller or the Facility must be repaid, Seller shall be responsible for repayment of said
monies (or defense of such actions) if such overpayment or other repayment determination was for
services rendered prior to the Closing and Buyer shall be responsible for such repayment of said
monies (or defense of such actions) if such overpayment or other repayment determination was for
services rendered after the Closing. In the event that, following the Closing, Buyer suffers any
offsets against reimbursement against any third party payor or reimbursement programs due to Buyer,
relating to amounts owed under any such programs by Seller or the Facility, Seller shall
immediately upon written demand from Buyer pay to Buyer the amounts so billed or offset. These
obligations shall be in addition to any other remedies available herein.

     9.12 Use of Controlled Substance Permit. To the extent permitted by applicable law,
the Buyer shall have the right, for a period not to exceed one hundred and twenty (120) days
following the Closing, to operate under the licenses and registrations of Seller and the Facility
relating to controlled substances (“Controlled Substances Licenses”), until the Seller is able to
obtain its own Controlled Substances Licenses. In furtherance thereof, Seller and the Facility
shall execute and deliver to Buyer at or prior to Closing limited powers of attorney to facilitate
such use. Seller does not, and shall not, make any representation regarding the lawfulness or
validity of any such limited power of attorney, and Buyer shall indemnify and hold Seller harmless
from and against Buyer’s use of any such limited power of attorney or use of Seller’s Controlled
Substances Licenses.

     10. INDEMNIFICATION

     10.1 Indemnification by Seller and GEO. Subject to and to the extent provided in this
Article 10, Seller and GEO shall indemnify and hold harmless Buyer and its officers, directors,
stockholders, employees, agents and Affiliates (the “Buyer Indemnified Parties”) from and
against any and all damages, claims, losses, costs, liabilities, expenses or obligations
(including, without limitation, reasonable attorneys’ fees and associated expenses) (collectively,
“Losses”) incurred or suffered by any of the Buyer Indemnified Parties as a result of,
arising from or relating to:

          (a) any breach of, misrepresentation associated with or failure to perform fully any covenant,
representation, warranty or agreement made in this Agreement on the part of Seller;

          (b) the Business and/or the Facility (including, but not limited to, the ownership and
operation thereof), prior to the Effective Time (including, but not limited to, the Excluded
Liabilities, but excluding the Assumed Liabilities);

          (c) the acts or omissions of Seller and its officers, directors, Affiliates, employees, agents
or independent contractors occurring prior to the Effective Time;

          (d) any fraud, willful misconduct or criminal acts of Seller (including any Affiliate,
officer, employee or agent thereof); and

          (e) any and all liabilities or obligations of any nature whatsoever of or relating to claims
for (i) Taxes of Seller, or (ii) Taxes assessed against Buyer, the Business or the Assets that
arise out of or are related to Seller’s operation or conduct of the Business prior to and including
the Closing Date.

     10.2 Indemnification by Buyer and PSI. Subject to and to the extent provided in this
Article 10, Buyer and PSI shall indemnify and hold harmless Seller and its respective officers,
directors, shareholders, employees, agents and Affiliates (the “Seller Indemnified
Parties”) from and against any Losses incurred or suffered by any of the Seller Indemnified
Parties as a result of or arising from:

34

 

          (a) any breach of, misrepresentation associated with or failure to perform fully any covenant,
representation, warranty or agreement made in this Agreement on the part of Buyer;

          (b) any fraud, willful misconduct or criminal act of Buyer (including any Affiliate,
officer, employee or agent thereof);

          (c) Taxes (i) assessed against Seller, the Business or the Assets that arise out of or
are related to Buyer’s operation or conduct of the Business from and after the Closing
Date, or (ii) incurred in connection with the sale of the Assets and the consummation of
the transactions contemplated by this Agreement and which are assessed by a Governmental
Authority against Seller or an Affiliate of Seller, but which under the terms of this
Agreement are the responsibility of Buyer;

          (d) the acts or omissions of Buyer and its officers, directors, Affiliates, employees, agents
or independent contractors occurring after the Effective Time;

          (e) the Business and/or the Facility (including, but not limited to, the ownership and
operation thereof) on or after the Effective Time (including, but not limited to, the Assumed
Liabilities, but excluding the Excluded Liabilities); and

          (f) the failure of any third party to consent to the assignment of any Assumed Contract.

     10.3 Survival/Indemnity Period. Except for the representations and warranties of
Seller set forth in 5.15, 5.16, 5.19, 5.20, 5.23,
5.25, 5.26, 5.28 and 5.29 hereof (which shall survive for the
applicable statute of limitations) and except for the representations and warranties of Seller set
forth in 5.7(a), 5.8 (which shall survive for four years after the Effective Time),
the representations and warranties of Seller set forth herein shall survive Closing for a period of
18 months after the Closing Date and any claim by Buyer against Seller in respect of such
representations and warranties must be brought, if at all, during such 18 month period. The
representations and warranties of Buyer set forth herein shall survive Closing for a period of 18
months after the Closing Date and any claim by Seller in respect of such representations and
warranties must be brought, if at all, during such 18 month period.

     10.4 Limitations. Notwithstanding Sections 10.1 and 10.2 hereof, the
rights of the parties to be indemnified and held harmless under this Agreement shall be limited as
follows: (a) No claim for indemnity by a Buyer Indemnified Party pursuant to Section
10.1(a) hereof shall be made unless and until, and only to the extent that, the aggregate
dollar amount of all such claims shall have exceeded $110,000, and after such amount has been
exceeded the Buyer Indemnified Party shall be indemnified for all such Losses back to the first
dollar; (b) No claim for indemnity by a Seller Indemnified Party pursuant to Section
10.2(a) hereof shall be made unless and until the aggregate dollar amount of all such claims
shall have exceeded $110,000, and after such amount has been exceeded the Seller Indemnified Party
shall be indemnified for all such Losses back to the first dollar; (c) The maximum aggregate
liability of any party for indemnification claims made pursuant to Section 10.1(a) or
Section 10.2(a) hereof shall be limited to the Purchase Price. No claim pursuant to
Section 10.1(a) and Section 10.2(a) may be asserted under this Agreement unless
either (i) the party making the claim gives the party against whom the claim is to be made notice
of such claim before the end of the applicable survival period or (ii) the party against whom the
claim would be made has actual knowledge of the facts which are the basis of the claim. The
liability of a party with respect to any claim pursuant to Section 10.1 or Section
10.2 hereof shall be offset dollar for dollar by (i) any insurance proceeds received by the
Indemnitee after the Effective Time in respect of the Losses involved, and (ii) any other recovery
made by the Indemnitee from any third party on account of the Losses involved. Buyer agrees that
before any indemnity obligations can be sought

35

 

against Seller or GEO for a breach of the representations and warranties set forth in
Section 5.7(a) or Section 5.8 of this Agreement Buyer must make a claim under its
title insurance policy and only pursue Seller or GEO for damages in excess of the amounts recovered
under such title insurance policy. Nothwithstanding the foregoing sentence, the survival period
for indemnity for a breach of Section 5.7(a) or Section 5.8 shall be tolled while
Buyer pursues claims under its title insurance policy.

     10.5 Notice and Procedure.

          (a) Any person seeking indemnity under any provision of this Agreement (the
“Indemnitee”) shall promptly notify the party from whom indemnity is sought (the
“Indemnitor”) as to (i) the nature of any claims, damages, losses or liabilities asserted
by or against the Indemnitee for which the Indemnitee intends to seek indemnity hereunder
(“Claims”) and (ii) the commencement of any suit or proceeding brought to enforce any
Claims. The Indemnitor shall assume the defense of any such suit or other proceeding and the
Indemnitee shall cooperate fully, at the Indemnitor’s sole cost and expense, and shall be entitled
reasonably to consult with the Indemnitor with respect to such defense; provided however, that if
the defendants in any such action include both the Indemnitor and the Indemnitee and the Indemnitee
reasonably shall have concluded that there may be a conflict between the positions of the
Indemnitor and the Indemnitee in conducting the defense of any such action or that there may be
legal defenses available to it that are different from or additional to those available to the
Indemnitor, the Indemnitee shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of such Indemnitee,
in which case the reasonable fees and expenses of such counsel shall be at the expense of the
Indemnitor.

          (b) The Indemnitee, at the sole cost and expense of the Indemnitor, shall assist and cooperate
with the Indemnitor in the conduct of litigation, the making of settlements and the enforcement of
any right of contribution to which the Indemnitee may be entitled from any person or entity in
connection with the subject matter of any litigation subject to indemnification hereunder. In
addition, the Indemnitee shall, upon request by the Indemnitor or counsel selected by the
Indemnitor and at the sole cost and expense of the Indemnitor, attend hearings and trials, assist
in the securing and giving of evidence, assist in obtaining the presence or cooperation of
witnesses, make available its own personnel, and effect settlements; and shall do whatever else is
reasonably necessary and appropriate in connection with such litigation. The Indemnitee shall not
make any demand upon the Indemnitor or counsel for the Indemnitor in connection with any litigation
subject to indemnification hereunder, except a general demand for indemnification as provided
hereunder. The Indemnitee shall not, except at its own cost, voluntarily make any payment, assume
any obligation, incur any expense, or settle or compromise any claim without the express approval
of the Indemnitor. Notwithstanding the foregoing, the Indemnitee shall have the right to join in
the defense of any litigation or claim at such Indemnitee’s own cost and expense, and, if the
Indemnitee agrees in writing to be bound by and promptly to pay the full amount of any final
judgment from which no further appeal may be taken and if the Indemnitor is reasonably assured of
the Indemnitee’s ability to satisfy such agreement, then, at the option of the Indemnitee, such
Indemnitee may take over the defense of such litigation or claim.

          (c) If the Indemnitee shall fail to notify promptly the Indemnitor as to (i) the nature of any
Claims or (ii) the commencement of any suit or proceeding brought to enforce any Claims, or if the
Indemnitee shall fail to perform its obligations as the Indemnitee hereunder or to cooperate fully
with the Indemnitor in the Indemnitor’s defense of any suit or proceeding, then the indemnity with
respect to the subject matter of such Claim shall continue, but shall be limited to the damages
that would have nonetheless resulted absent the Indemnitee’s failure to notify the Indemnitor in
the time required above

36

 

after taking into account such actions as could have been taken by the Indemnitor had it
received timely notice from the Indemnitee.

     10.6 Right of Set-Off. Upon the agreement of the parties or a final nonappealable
decision of a court of competent jurisdiction, any amounts owed among the parties arising from
obligations of indemnity pursuant to this Article 10 may be set-off against amounts
otherwise owed from one party to the other.

     10.7 Disregarding Materiality Exceptions. For purposes of the calculating the amount
of Losses to which an Indemnitee is entitled under this Article 10 (but not for purposes of
determining whether a representation or warranty has been breached), the terms “material,”
“materiality,” “Material Adverse Effect” and other qualifiers, modifiers or limitations (including
monetary values and qualifiers as to “knowledge”) shall be disregarded.

     10.8 Remedies. Except as provided in Section 11.3, the indemnification rights
provided in Article X shall be the sole and exclusive remedy of the parties hereto arising
out of or relating to this Agreement, and the transactions contemplated hereby; provided, however,
that the foregoing shall not prohibit either party from seeking specific performance with respect
to its rights under this Agreement.

     10.9 No Consequential Damages. In no event shall any party hereto be liable hereunder
for any special, incidental, punitive, exemplary or consequential damages (including, but not
limited to, any claim by Buyer based upon a multiple of earnings with respect to any unaudited
financial statements or information provided by Seller).

     11. TERMINATION

     11.1 Termination Events. This Agreement may be terminated at any time prior to
Closing upon prior written notice given by (or on behalf of) the party electing to terminate this
Agreement to the other party:

          (a) by mutual agreement of the Buyer and the Seller (expressed in writing);

          (b) by either Buyer or Seller if any permanent injunction, court order or other order, decree
or ruling of any court or other Governmental Authority of competent jurisdiction or new law or
change to existing law permanently restraining, enjoining or otherwise preventing the consummation
of the transactions contemplated hereby shall have been issued and become final and non-appealable;

          (c) by either the Buyer or the Seller if the Closing shall not have occurred by January 1,
2006; provided, however, that the right to terminate this Agreement under this
Section 11.1(c) shall not be available to (i) any party whose breach of its representations
and warranties in this Agreement or whose failure to perform any of its covenants and agreements
under this Agreement shall have been a contributing cause of, or resulted in, the failure of the
Closing to occur on or before such date, or (ii) any party whose failure to fulfill any material
obligation under this Agreement or whose failure to use all good faith efforts to promptly cause
the satisfaction of the conditions under Article 7 or Article 8, as applicable, has
been the cause of, or resulted in, the failure of the Closing to occur by such date;
provided, further, if the Closing shall not have occurred by January 1, 2006 solely
as a result of the parties’ failure to obtain or receive the items set forth on Schedule
11.1(c), this Agreement shall not be terminable pursuant to this Section 11.1 until
February 28, 2006;

          (d) by Buyer, if a Material Adverse Effect shall have occurred since the Balance Sheet Date.

37

 

          (e) by the Buyer upon a breach in any material respect of any covenant or agreement on the
part of the Seller set forth in this Agreement, or if any representation or warranty of the Seller
shall have been materially breached or shall have been or become materially untrue, in any such
case that the conditions set forth in Article 7 would be incapable of being satisfied by January 1,
2006 (or any later date as such date may be otherwise extended by mutual agreement of the parties);

          (f) by Buyer pursuant to Section 2.3; or

          (g) by the Seller upon a breach in any material respect of any covenant or agreement on the
part of the Buyer set forth in this Agreement, or if any representation or warranty of the Buyer
shall have been materially breached or shall have been or become materially untrue in any such case
such that the conditions set forth in Article 8 would be incapable of being satisfied by January 1,
2006 (or any later date as such date may be otherwise extended by mutual agreement of the parties).

     11.2 Effect of Termination. In the event of termination of this Agreement pursuant to
Section 11.1, all obligations of the parties hereto shall terminate other than the
obligations of a party set forth in Section 11.3 and 12.2 hereof. Termination of this Agreement by
a party shall not preclude the terminating party from seeking remedies related to the breach of a
representation, warranty or covenant contained in this Agreement.

     11.3 Remedies in the Event of Termination. If this Agreement is terminated by Buyer
or Seller pursuant to Section 11.1(e) or Section 11.1(g), respectively, the
terminating party shall have the right, in its sole discretion, to elect to either (i) collect a
termination fee in the amount of $1,000,000 from the breaching party payable by wire transfer
within two (2) business days after the date of such termination, or (ii) in the event the
terminating party does not pursue the remedy in clause (i), subject to Section 10.9, pursue
any available remedy at law or in equity against the breaching party.

     12. GENERAL

     12.1 Notice. Any notice, demand or communication required, permitted, or desired to
be given hereunder shall be deemed effectively given when personally delivered, when received by
telegraphic or other electronic means (including telecopy and telex) or overnight courier, or five
(5) days after being deposited in the United States mail, with postage prepaid thereon, certified
or registered mail, return receipt requested, addressed as follows:

	 	 	 
	 Seller:

	 	GEO CARE, INC.
	 	 	One Park Place, Suite 700
	 	 
	 	 	621 Northwest 53rd Street
	 	 
	 	 	Boca Raton, Florida 33487
	 	 
	 	 	Attention: John J. Bulfin, Esq
	 	 
	 
	 	 
	With a copy to:

	 	Akerman Senterfitt
	 

	 	One Southeast Third Avenue
	 

	 	Suite 2800
	 

	 	Miami, Florida 33131
	 

	 	Attention: Jose Gordo, Esq
	 

	 	Fax: (305) 374-5095

38

 

	 	 	 
	Buyer:

	 	Atlantic Shores Hospital, LLC
	 

	 	c/o Psychiatric Solutions, Inc.
	 

	 	840 Crescent Centre Drive, Suite 460
	 

	 	Franklin, Tennessee 37067
	 

	 	Attn: Christopher L. Howard, Esq.
	 
	 	 
	With a copy to:

	 	Waller Lansden Dortch & Davis, PLLC
	 

	 	511 Union Street, Suite 2700
	 

	 	Post Office Box 198966
	 

	 	Nashville, Tennessee 37219
	 

	 	Attn: E. Brent Hill, Esq.
	 

	 	Fax No.: (615) 244-6804

or to such other address, and to the attention of such other person or officer as any party may
designate in writing.

     12.2 Confidentiality; Public Announcement.

          (a) It is understood by the parties hereto that the information, documents and instruments
delivered to Seller by Buyer or any Affiliate of Buyer or their agents and the information,
documents and instruments delivered to Buyer or any Affiliate of Buyer or their agents including,
without limitation, this Agreement and all documents delivered hereunder, are of a confidential and
proprietary nature (“Confidential Information”). Each of the parties hereto agrees that
prior to and subsequent to Closing it will maintain the confidentiality of all such Confidential
Information delivered to it by each of the other parties hereto or their agents in connection with
the negotiation of this Agreement or in compliance with the terms, conditions and covenants hereof
and only disclose such Confidential Information, documents and instruments to its duly authorized
officers, directors, representatives and agents unless (i) compelled to disclose by judicial or
administrative process (including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby) or by other requirements of
law or (ii) disclosed in an action or proceeding brought by a party hereto in pursuit of its rights
or in the exercise of its remedies hereunder; provided, however, that the parties hereto shall not
disclose any Confidential Information not required to be disclosed as part of such permitted
disclosure. Each of the parties hereto recognizes that any breach of this Section would result in
irreparable harm to the other parties to this Agreement and their Affiliates and that therefore
either Buyer or Seller shall be entitled to an injunction to prohibit any such breach or
anticipated breach, without the necessity of posting a bond, cash or otherwise, in addition to all
of their other legal and equitable remedies.

          (b) Prior to the Closing Date, either party may issue a press release or other public
announcement concerning this Agreement or the transactions contemplated by this Agreement without
the prior approval of the other party, provided, however, that the parties shall give each other a
reasonable opportunity to review such communications prior to their dissemination. Notwithstanding
the foregoing, either party may issue a press release or other public announcement concerning the
transactions contemplated by this Agreement to the extent required by law, or to comply with
accounting or other disclosure obligations.

     12.3 Cost of Transaction. Except as otherwise provided herein: (i) Buyer shall pay
all costs and premiums associated with the title policy described in Section 2.3 hereof,
(ii) Buyer shall pay the fees, expenses and disbursements of Buyer and its agents, representatives,
accountants and counsel incurred in connection with Buyer’s due diligence investigations and the
subject matter hereof and any

39

 

amendments hereto, (iii) Buyer shall be responsible for paying all transfer, documentary,
sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in connection with the
sale of the Assets and the consummation of the transactions contemplated by this Agreement, (iv)
Seller shall pay the costs of the Real Property survey, and (v) Seller pay the fees, expenses and
disbursements of Seller and its agents, representatives, accountants and counsel incurred in
connection with the subject matter hereof and any amendments hereto.

     12.4 Consents, Approvals and Discretion. Except as herein expressly provided to the
contrary, whenever this Agreement requires any consent or approval to be given by either party or
either party must or may exercise discretion, the parties agree that such consent or approval shall
not be unreasonably withheld or delayed and such discretion shall be reasonably exercised.

     12.5 Choice of Law; Waiver of Jury Trial. The parties agree that this Agreement shall
be governed by and interpreted, construed and enforced in accordance with the laws of the State of
Florida, excluding any conflict-of-laws rule or principle that might refer the governance or the
interpretation, construction or enforcement of this Agreement to the laws of another jurisdiction.
BUYER AND SELLER HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY, FROM WHATEVER SOURCE ARISING, IN
CONNECTION WITH ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

     12.6 Benefit/Assignment. Subject to provisions herein to the contrary, this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns and no others; provided, however, that no party may assign
this Agreement without the prior written consent of the other party, which consent shall not be
unreasonably withheld. The foregoing notwithstanding, Buyer may, without the prior written consent
of Seller, assign its rights and delegate its duties hereunder to any entity that is controlled by
Buyer; provided, however, that Buyer shall not be relieved from any liability or obligation
hereunder as a result of such assignment.

     12.7 Waiver of Breach. The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as, or be construed to constitute, a waiver of any
subsequent breach of the same or another provision hereof.

     12.8 Severability. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under any present or future law, and if the rights or obligations of Buyer or
Seller under this Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof; (c) the remaining
provisions of this Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom; and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically as a part of this
agreement a legal, valid and enforceable provision as similar in terms (including duration, area or
amount) to such illegal, invalid or unenforceable provision as may be possible.

     12.9 Entire Agreement/Amendment. This Agreement supersedes all previous agreements,
contracts and understandings and constitutes the entire agreement of whatsoever kind or nature
existing between or among the parties in respect of the within subject matter and no party shall be
entitled to benefits other than those specified herein. As among the parties, no oral statements
or prior written material not specifically incorporated herein shall be of any force and effect.
Each party hereto acknowledges that in entering into and executing this Agreement, such party
relied solely upon the representations, warranties and agreements contained in this Agreement and
no others. All prior

40

 

representations, warranties or agreements, whether written or oral, not expressly incorporated
herein are hereby superseded and no amendments, modifications or changes in or to this Agreement
shall be effective unless and until made in writing and signed by all parties hereto. This
Agreement may be executed in two or more counterparts, each of which shall be deemed an original
and all of which together shall constitute but one and the same instrument.

     12.10 Further Assurances. To the extent not already provided herein, on and after the
Closing Date, Buyer and Seller will take all appropriate action and execute all documents,
instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out
any of the provisions hereof, including putting Buyer in possession and operation control of the
Business and the Assets or to convey title to the Assets to Buyer.

     12.11 No Third Party Beneficiaries. The terms and provisions of this Agreement are
intended solely for the benefit of the parties hereto and their respective successors or permitted
assigns, and this Agreement does not, and shall not be construed to, confer third-party beneficiary
rights upon any other Person.

     12.12 Gender and Number. Whenever the context of this Agreement requires, the gender
of all words herein shall include the masculine, feminine and neuter, and the number of all words
herein shall include the singular and plural.

     12.13 Divisions and Headings. The division of this Agreement into sections and
subsections and the use of captions and headings in connection therewith are solely for convenience
and shall have no legal effect in construing the provisions of this Agreement.

     12.14 No Inferences. Inasmuch as this Agreement is the result of negotiations between
sophisticated parties of equal bargaining power represented by counsel, no inference in favor of,
or against, either party shall be drawn from the fact that any portion of this Agreement has been
drafted by or on behalf of such party.

[Signature page follows.]

41

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in multiple originals by their authorized
officers, all as of the date and year first above written.

	 	 	 	 	 
	 	SELLER:

GEO CARE, INC.

 	 
	 	By:  	/s/
 	 
	 	 	Its: 	 
	 	 	 	 
	 
	 	BUYER: 

ATLANTIC SHORES HOSPITAL, LLC

 	 
	 	By:  	
/s/
 	 
	 	 	Its: 	 
	 	 	 	 
	 

Each
of GEO and PSI hereby execute this Agreement for the
purpose of becoming subject to
the covenants, agreements and
obligations set forth in
Article 10 to this Agreement:

	 	 	 	 	 
	 	THE GEO GROUP, INC.

 	 
	 	By:  	/s/
 	 
	 	 	Its: 	 
	 	 	 	 
	 
	 	

PSYCHIATRIC SOLUTIONS, INC.

 	 
	 	By:  	/s/
 	 
	 	 	Its: 	 
	 	 	 	 
	 

42<PAGE>

                        WINDROSE MEDICAL PROPERTIES TRUST
                           DEFERRED COMPENSATION PLAN

                            EFFECTIVE JANUARY 1, 2006

<PAGE>
                                                                               .
                                                                               .
                                                                               .

                        WINDROSE MEDICAL PROPERTIES TRUST
                           DEFERRED COMPENSATION PLAN

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                                                                         Page
-------                                                                         ----
<S>                                                                             <C>
PURPOSE............................................................................1

ARTICLE I DEFINITIONS..............................................................2

         1.01.       Account.......................................................2
         1.02.       Affiliate.....................................................2
         1.03.       Beneficiary or Beneficiaries..................................2
         1.04.       Beneficiary Designation Form..................................2
         1.05.       Board.........................................................2
         1.06.       Cash Bonus....................................................2
         1.07.       Change of Control.............................................3
         1.08.       Code..........................................................3
         1.09.       Committee.....................................................3
         1.10.       Company.......................................................3
         1.11.       Compensation..................................................3
         1.12.       Control Change Date...........................................3
         1.13.       Deferral Election Form........................................3
         1.14.       Deferral Year.................................................3
         1.15.       Deferred Benefit..............................................3
         1.16.       Director......................................................4
         1.17.       Distribution Election Form....................................4
         1.18.       Election Date.................................................4
         1.19.       Eligible Employee.............................................4
         1.20.       Investment Options............................................4
         1.21.       Meeting Fee...................................................4
         1.22.       Participant...................................................4
         1.23.       Plan..........................................................5
         1.24.       Retainer Fee..................................................5
         1.25.       Salary........................................................5
         1.26.       Terminate, Terminating, or Termination........................5

ARTICLE II PARTICIPATION...........................................................6

ARTICLE III DEFERRAL ELECTIONS.....................................................7

         3.01.       Eligibility To Make Deferral Election.........................7
         3.02.       Effectiveness of Deferral Election............................7
         3.03.       Compensation That May Be Deferred.............................7
         3.04.       Deferral Election Irrevocable.................................7
         3.05.       Rejection of Deferral Election................................8
         3.06.       Effect of No Election.........................................8

ARTICLE IV CREDITING DEFERRALS TO ACCOUNTS.........................................9

ARTICLE V INVESTMENT MEASURES.....................................................10
</TABLE>

                                       i

<PAGE>
<TABLE>
<CAPTION>
Section                                                                         Page
-------                                                                         ----
<S>                                                                             <C>
         5.01.       Investment Subaccounts.......................................10
         5.02.       Investment Options...........................................10
         5.03.       Investment Direction.........................................10
         5.04.       New Investment Directions....................................10
         5.05.       Investment Transfers.........................................10
         5.06.       Crediting Earnings & Losses..................................11

ARTICLE VI VESTING................................................................12

ARTICLE VII DISTRIBUTIONS.........................................................13

         7.01.       Distribution Elections.......................................13
         7.02.       Commencement of Distributions................................13
         7.03.       Medium of Payment............................................13
         7.04.       Form of Payment..............................................13
         7.05.       Changing Distribution Election...............................14

ARTICLE VIII COMPANY'S OBLIGATION.................................................15

ARTICLE IX CONTROL BY PARTICIPANT.................................................16

ARTICLE X AMENDMENT OR TERMINATION................................................17

ARTICLE XI ADMINISTRATION.........................................................18

         11.01.      Committee....................................................18
         11.02.      Indemnification..............................................18
         11.03.      Eligibility Determinations...................................18
         11.04.      Information to Committee.....................................18
         11.05.      Notices......................................................18
         11.06.      Waiver.......................................................18
         11.07.      Binding Nature of Plan.......................................19
         11.08.      Construction.................................................19

EXHIBIT I         INVESTMENT OPTIONS
</TABLE>

                                       ii
<PAGE>

                        WINDROSE MEDICAL PROPERTIES TRUST
                           DEFERRED COMPENSATION PLAN

                                     PURPOSE

         The Windrose Medical Properties Trust Deferred Compensation Plan (the
"Plan") is intended to constitute a deferred compensation plan for a select
group of management and highly compensated employees of the Company and its
Affiliates and directors of the Company as those terms are used in the Employee
Retirement Income Security Act of 1974. The Plan will be administered and
interpreted in a manner that is consistent with that intent.

         The Plan also will be administered and interpreted in a manner that is
consistent with the requirements of Section 409A of the Internal Revenue Code of
1986, as amended.

                                       1
<PAGE>

                                    ARTICLE I
                                   DEFINITIONS

         The following definitions apply to this Plan and to the Deferral
Election Forms and Beneficiary Designation Forms.

1.01.    ACCOUNT

         Account means an unfunded deferred compensation account established to
record a Participant's interest in the Plan. The term Account encompasses the
subaccounts established for each Investment Option. The Account shall be
maintained on a basis that distinguishes the Deferred Benefit for each Deferral
Year from the Deferred Benefit for all other Deferral Years.

1.02.    AFFILIATE

         Affiliate means

         (a) any entity that is a member of a controlled group of corporations
as defined in Code section 1563(a), determined without regard to Code sections
1563(a)(4) and 1563(e)(3)(c), of which the Company is a member according to Code
section 414(b); or

         (b) an unincorporated trade or business that is under common control
with the Company as determined according to Code section 414(c).

1.03.    BENEFICIARY OR BENEFICIARIES

         Beneficiary or Beneficiaries means a person or persons or other entity
designated on a Beneficiary Designation Form by a Participant as allowed in
Article VII of this Plan to receive a Deferred Benefit payment. If there is no
valid designation by the Participant, or if the designated Beneficiary or
Beneficiaries fail to survive the Participant or otherwise fail to take the
Deferred Benefit, the Participant's Beneficiary is the first of the following
who survives the Participant: a Participant's spouse (the person legally married
to the Participant when the Participant dies); the Participant's children in
equal shares; and the Participant's estate.

1.04.    BENEFICIARY DESIGNATION FORM

         Beneficiary Designation Form means a form acceptable to the Committee
used by a Participant according to this Plan to name his Beneficiary or
Beneficiaries who will receive all Deferred Benefit and payments under this Plan
if he dies.

1.05.    BOARD

         Board means the Board of Trustees of the Company.

1.06.    CASH BONUS

         Cash Bonus, with respect to a Deferral Year, means any bonus or other
similar payment from the Company or an Affiliate that is (i) paid to an Eligible
Employee in cash, and (ii) is

                                       2

<PAGE>

based on the performance of the Company, an Affiliate, the Eligible Employee, or
any of them, during the Deferral Year, even if paid after the close of the
Deferral Year.

1.07.    CHANGE OF CONTROL

         Change of Control has the same meaning as set forth in the Company's
2002 Stock Incentive Plan as in effect from time to time or any successor plan.

1.08.    CODE

         Code means the Internal Revenue Code of 1986, as amended.

1.09.    COMMITTEE

         Committee means the Compensation Committee of the Board.

1.10.    COMPANY

         Company means Windrose Medical Properties Trust, a Maryland real estate
investment trust.

1.11.    COMPENSATION

         Compensation means an Eligible Employee's aggregate combined Salary and
Cash Bonus for a Deferral Year or the sum of a Director's Retainer Fee and
Meeting Fee.

1.12.    CONTROL CHANGE DATE

         Control Change Date means the date on which a Change of Control occurs.
If a Change of Control occurs on account of a series of transactions, the
"Control Change Date" is the date of the last of such transactions.

1.13.    DEFERRAL ELECTION FORM

         Deferral Election Form means a document governed by the provisions of
Articles III, V and, VII of this Plan, including (i) the portion that is the
Distribution Election Form and (ii) the related Beneficiary Designation Form
that applies to all of that Participant's Deferred Benefits and under the Plan.

1.14.    DEFERRAL YEAR

         Deferral Year means a calendar year for which a Participant has an
operative Deferral Election Form.

1.15.    DEFERRED BENEFIT

         Deferred Benefit means the benefit payable under the Plan.

                                       3

<PAGE>

1.16.    DIRECTOR

         Director means a member of the Board who is not an employee of the
Company or an Affiliate.

1.17.    DISTRIBUTION ELECTION FORM

         Distribution Election Form means that part of a Deferral Election Form
used by a Participant according to this Plan to establish the duration of
deferral and the frequency of payments of a Deferred Benefit. If a Deferred
Benefit has no Distribution Election Form that is operative according to Article
III, distribution of that Deferred Benefit is governed by Article VII.

1.18.    ELECTION DATE

         Election Date means the date established by this Plan as the date on or
before which an Eligible Employee must submit a valid Deferral Election Form to
the Committee. For each Deferral Year, (i) the Election Date for the deferral of
Salary, Retainer Fee and Meeting Fee is December 31 of the preceding calendar
year and (ii) the Election Date for the deferral of Cash Bonus is December 31 of
the calendar year preceding the year in which the Cash Bonus is earned unless
the Cash Bonus qualifies as "performance based compensation" under Code section
409A in which case the Election Date is the date prescribed under Code section
409A(a)(4). However, for an individual who becomes an Eligible Employee or
Director during a Deferral Year, the Election Date is the thirtieth day
following the date that he becomes an Eligible Employee or Director; provided,
however, that the election may apply only to Compensation that is earned after
the Election Date and a pro rata amount of a Cash Bonus (based on the period
remaining in the performance period) may be deferred under such initial Deferred
Election Form.

1.19.    ELIGIBLE EMPLOYEE

         Eligible Employee means an employee of the Company or an Affiliate who
is a Senior Vice President of the Company or more senior officer of the Company.

1.20.    INVESTMENT OPTIONS

         Investment Options shall mean the investment options shown on Exhibit
I, or otherwise announced by the Committee from time to time.

1.21.    MEETING FEE

         Meeting Fee means the cash fee payable to a Director for attending a
meeting of the Board or a committee of the Board.

1.22.    PARTICIPANT

         Participant, with respect to any Deferral Year, means an Eligible
Employee or Director whose Deferral Election Form is operative for that Deferral
Year according to Article III of this Plan.

                                       4
<PAGE>

1.23.    PLAN

         Plan means the Windrose Medical Properties Trust Deferred Compensation
Plan.

1.24.    RETAINER FEE

         Retainer Fee means the cash fee payable to a Director for a Director's
service on the board without regard to the attendance at meetings of the Board
or a committee of the Board.

1.25.    SALARY

         Salary means an Eligible Employee's base salary and does not include
bonuses or other payments from the Company or an Affiliate that are not made on
a regular basis.

1.26.    TERMINATE, TERMINATING, OR TERMINATION

         Terminate, Terminating, or Termination, with respect to a Participant,
mean cessation of an employment relationship with the Company or an Affiliate or
cessation of a Director's service on the Board whether by death, disability,
retirement or severance for any other reason. The terms Terminate, Terminating
or Termination shall be interpreted and applied consistent with the definition
of "separation from service" under Code section 409A.

                                       5

<PAGE>

                                   ARTICLE II
                                  PARTICIPATION

         An Eligible Employee or Director becomes a Participant for any Deferral
Year by filing a valid Deferral Election Form according to Article III on or
before the applicable Election Date but only if his Deferral Election Form is
operative according to Article III. An Eligible Employee or Director who becomes
a Participant will continue to be a Participant as long as an Account is being
maintained (or is required to be maintained under the terms of the Plan) for him
or her.

                                       6
<PAGE>

                                  ARTICLE III
                               DEFERRAL ELECTIONS

3.01.    ELIGIBILITY TO MAKE DEFERRAL ELECTION

         An individual may elect a Deferred Benefit for any Deferral Year if he
is an Eligible Employee or Director at the beginning of that Deferral Year or
becomes an Eligible Employee or Director during that Deferral Year. Each
Eligible Employee and Director will be provided a Deferral Election Form by the
Committee before the first day of a Deferral Year and each individual who
becomes an Eligible Employee or Director will be provided a Deferral Election
Form by the Committee within thirty days after becoming an Eligible Employee or
Director.

3.02.    EFFECTIVENESS OF DEFERRAL ELECTION

         A Deferral Election Form is effective when it is completed, signed by
the electing Eligible Employee or Director and received by the Committee. A
single Deferral Election Form may apply to each element of an Eligible
Employee's Compensation (e.g., Salary and Cash Bonus) for a Deferral Year or to
each element of a Director's Compensation (e.g., Retainer Fee and Meeting Fee)
for a Deferral Year. Alternatively, an Eligible Employee or Director may have
more than one Deferral Election Form for a Deferral Year; provided, however,
that only one Deferral Election Form will be effective with respect to a
particular element of the Eligible Employee's or Director's Compensation.

3.03.    COMPENSATION THAT MAY BE DEFERRED

         (a) A Deferral Election Form is operative, i.e., it may result in the
deferral of Compensation, only with respect to Compensation with an Election
Date that will occur on or after the date that the Deferral Election Form is
effective under Section 3.02.

         (b) Subject to the requirements of Section 3.03(a), an Eligible
Employee may elect to defer:

                  (1) Up to 100% of Salary (in multiples of 10%); and

                  (2) Up to 100% of Cash Bonus (in multiples of 10%).

         (c) Subject to the requirements of Section 3.03(a), a Director may
elect to defer:

                  (1) Up to 100% of Retainer Fee (in multiples of 10%); and

                  (2) Up to 100% of Meeting Fee (in multiples of 10%).

3.04.    DEFERRAL ELECTION IRREVOCABLE

         An Eligible Employee or Director may not revoke a Deferral Election
Form as to an element of Compensation after the applicable Election Date. Any
revocation before the applicable Election Date is the same as a failure to
submit a Deferral Election Form or a Distribution Election Form as to the
particular element or elements of Compensation covered by

                                       7
<PAGE>

the revocation. Any writing signed by an Eligible Employee or Director
expressing an intention to revoke his or her Deferral Election Form, in whole or
in part, and delivered to the Committee before the close of business on the
applicable Election Date is a revocation.

3.05.    REJECTION OF DEFERRAL ELECTION

         If it does so before the applicable Election Date, the Committee may
reject any Deferral Election Form, in whole or in part, and the Committee is not
required to state a reason for any rejection. The Committee's rejections must be
made on a uniform basis with respect to similarly situated Participants. If the
Committee rejects a Deferral Election Form, the Participant must be paid the
Compensation he or she would then have been entitled to receive if he or she had
not submitted the rejected Deferral Election Form.

3.06.    EFFECT OF NO ELECTION

         An Eligible Employee or Director who has not submitted a valid Deferral
Election Form to the Committee on or before the applicable Election Date may not
defer any Compensation for the Deferral Year under this Plan.

                                       8
<PAGE>

                                   ARTICLE IV
                         CREDITING DEFERRALS TO ACCOUNTS

         Compensation that is deferred under this Plan shall be credited to the
Participant's Account as follows:

                  (1) Salary deferrals shall be credited to the Participant's
         Account as of the last day of the payroll period in which the deferred
         Salary would have been paid to the Participant; and

                  (2) Cash Bonus deferrals shall be credited to the
         Participant's Account as of the date such amount would have been paid
         to the Participant.

                  (3) Retainer Fee deferrals shall be credited to the
         Participant's Account as of the date such amount would have been paid
         to the Participant.

                  (4) Meeting Fee deferrals shall be credited to the
         Participant's Account as of the date such amount would have been paid
         to the Participant.

                                       9

<PAGE>

                                   ARTICLE V
                               INVESTMENT MEASURES

5.01.    INVESTMENT SUBACCOUNTS

         The Committee shall establish investment subaccounts for each Deferral
Year within the Account of each Participant. The investment subaccounts shall be
established only for bookkeeping purposes. An investment subaccount shall be
established for each Investment Option.

5.02.    INVESTMENT OPTIONS

         The Investment Options shall be selected by the Committee and
identified on Exhibit I to the Plan. The Committee may change, delete or modify
any of the Investment Options without the necessity of amending the Plan.

5.03.    INVESTMENT DIRECTION

         At the time an Eligible Employee or Director first becomes a
Participant, the Participant shall choose one or more of the Investment Options
in integral multiples of 10%. Such Investment Options will be used as a measure
of the investment performance of the Participant's Account. An investment
direction shall remain in effect with respect to all future deferrals until a
new investment direction is made by the Participant in accordance with Section
5.04. To the extent a Participant fails to select an Investment Option, he shall
be deemed to have elected the Investment Option designated as the default
investment measure on Exhibit I.

5.04.    NEW INVESTMENT DIRECTIONS

         Once each calendar quarter a Participant may change the Investment
Options for future deferrals credited to his Account in accordance with
procedures established by the Committee. An election to change an Investment
Option shall be made on forms designated for this purpose by the Committee and
shall specify the Investment Options that will be used to measure the investment
performance of future deferrals in integral multiples of 10%. Until a
Participant delivers a new election form to the Committee, his prior Investment
Option selection shall control the measure of investment performance of his
Account.

5.05.    INVESTMENT TRANSFERS

         A Participant or a Beneficiary (after the death of the Participant),
may transfer to one or more different Investment Options all or a part (in
integral multiples of 10%), of the amount credited to the Participant under an
Investment Option up to two times each calendar year. The transfer election
shall be made on forms designated for this purpose by the Committee. A
Participant may transfer among Investment Options in accordance with procedures
established by the Committee; provided, however, that a Participant may not
reallocate his Account among the Investment Options more than once each calendar
quarter and provided further that a transfer into or out of an Investment Option
based on Company stock may not be effected within six months after the
Participant's most recent opposite way "discretionary transaction" (as defined
in Rule 16b-3 under the Securities Exchange Act of 1934).

                                       10
<PAGE>

5.06.    CREDITING EARNINGS & LOSSES

         Earnings and losses will be credited to, or debited from, a
Participant's Account as if such account balances were invested and the earnings
reinvested in the Investment Options selected by the Participant (or if no
Investment Options were selected for a portion of the Participant's accounts, as
if such account balances were invested according to the last sentence of Section
0) in the manner set forth in the following sentence. As of the last business
day of each month in which any amount remains credited to the Account of a
Participant, each portion of such Account deemed invested in a particular
Investment Option shall either be credited or debited with an amount equal to
the amount determined by multiplying the balance of such portion of such account
as of the last day of the preceding month by the return rate for that month for
the applicable Investment Option. As to any amount distributed or transferred
from an Investment Option since the last day of the preceding month, the Company
shall cease crediting and debiting the Participant's subaccount for that
Investment Option with earnings and losses on the last day of the month
preceding the date of distribution.

                                       11

<PAGE>

                                   ARTICLE VI
                                     VESTING

         A Participant's interest in his or her Account is always vested and
nonforfeitable.

                                       12

<PAGE>

                                   ARTICLE VII
                                  DISTRIBUTIONS

7.01.    DISTRIBUTION ELECTIONS

         Each Distribution Election Form is part of the Deferral Election on
which it appears or to which it states it is related. The Committee may allow a
Participant to file one Distribution Election Form for all of his Deferred
Benefits.

7.02.    COMMENCEMENT OF DISTRIBUTIONS

         (a) Except as provided in the following subsections (b) and (c),
payments to a Participant shall begin on the date he or she elects on the
Distribution Election Form or in accordance with the last sentence of this
Section 7.02(a). A Participant may elect on the Distribution Election Form that
payments will begin on:

                  (1) on the fourth January 1 after the last day of the Deferral
         Year (i.e., a three year deferral); or

                  (2) on the sixth January 1 after the last day of the Deferral
         Year (i.e., a five year deferral).

         Any Deferred Benefits for which a Participant has not filed a valid
Distribution Election Form shall be paid to the Participant commencing on the
fourth January 1 after the last day of the Deferral Year.

         (b) If a Participant Terminates before a distribution is payable under
Section 7.02(a), his or her Deferred Benefits will be paid to the Participant in
a single payment commencing on the date of Termination; provided, however, that
the payment will be made on the first day of the sixth month beginning after
Termination if the Participant is a "specified employee" (as defined in Code
section 409A) and the Termination is not on account of death or because the
Participant is disabled (as defined in Code section 409A).

         (c) The balance of the Participant's Account shall be paid to the
Participant (or his Beneficiary) in a lump sum within thirty days after a
Control Change Date if the Change of Control is a "change in control" for
purposes of Section 409A.

7.03.    MEDIUM OF PAYMENT

         All distributions from the Plan shall be paid in cash except that in
the discretion of the Committee, distributions from an Investment Option based
on Company Stock may be paid in whole shares and cash representing the value of
a fractional share. Shares of Company stock paid pursuant to the preceding
sentence shall be issued under a shareholder approved plan.

7.04.    FORM OF PAYMENT

         Payments triggered under Section 7.02(a) shall be paid in a lump sum
unless the Participant's Distribution Election Form specifies annual
installments over a period of three

                                       13

<PAGE>

years. All other Deferred Benefits shall be paid in a lump sum. Installment
payments shall reduce the Participant's interest under each Investment Option
pro rata.

7.05.    CHANGING DISTRIBUTION ELECTION

         A Participant may not amend his Distribution Election Form with respect
to the commencement of distributions under Section 7.02(a) or the form of
distribution.

                                       14

<PAGE>

                                  ARTICLE VIII
                              COMPANY'S OBLIGATION

         The Plan is unfunded. A Deferred Benefit is at all times a mere
contractual obligation of the Company. A Participant and his Beneficiaries have
no right, title, or interest in the Deferred Benefits or any claim against them.
All Deferred Benefits will be satisfied solely out of the general corporate
assets of the Company, which shall remain subject to the claims of its creditors
and the creditors of any Affiliate that is an employer of a Participant. The
Company may establish one or more trusts under which payments may be made that
will satisfy the Company's obligations under this Plan to the extent of such
payments. The assets of any such trusts will remain subject to the claims of the
creditors of the Company and any Affiliate that is an employer of a Participant.

                                       15

<PAGE>

                                   ARTICLE IX
                             CONTROL BY PARTICIPANT

         A Participant has no control over Deferred Benefits except according to
his or her Deferral Election Forms, his or her Distribution Election Forms, his
or her Beneficiary Designation Form, and any Investment Options elected on the
form specified by the Committee. A Participant may not transfer or assign any
rights that he or she has under the Plan other than by will or the laws of
descent and distribution or by the designation of a Beneficiary. No right or
interest of any Participant or Beneficiary under the Plan shall be liable for,
or subject to, any lien, obligation or liability of such Participant or
Beneficiary.

                                       16

<PAGE>

                                    ARTICLE X
                            AMENDMENT OR TERMINATION

         Except as otherwise provided in this Article X, this Plan may be
altered, amended, suspended, or terminated at any time by the Board; provided,
however, that an amendment or termination may not accelerate the payment of
Deferred Benefits except as permitted under Code section 409A.

                                       17

<PAGE>

                                   ARTICLE XI
                                 ADMINISTRATION

11.01.   COMMITTEE

         The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee may adopt such rules and regulations as
may be necessary to carry out the purposes hereof. The Committee's
interpretation and construction of any provision of the Plan shall be final and
conclusive.

11.02.   INDEMNIFICATION

         The Company shall indemnify and save harmless each member of the
Committee against any and all expenses and liabilities arising out of membership
on the Committee relating to administration of the Plan, excepting only expenses
and liabilities arising out of a member's own willful misconduct. Expenses
against which a member of the Committee shall be indemnified hereunder shall
include without limitation, the amount of any settlement or judgment, costs,
counsel fees, and related charges reasonably incurred in connection with a claim
asserted, or a proceeding brought or settlement thereof. The foregoing right of
indemnification shall be in addition to any other rights to which any such
member may be entitled.

11.03.   ELIGIBILITY DETERMINATIONS

         In addition to the powers hereinabove specified, the Committee shall
have the power to determine an individual's eligibility to participate in the
Plan, to compute and certify the amount and kind of benefits from time to time
payable to Participants and their Beneficiaries under the Plan, to authorize all
disbursements for such purposes, and to determine whether a Participant is
entitled to a benefit under the Plan.

11.04.   INFORMATION TO COMMITTEE

         To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the compensation of all Participants, their retirement, death or other cause for
termination of employment, and such other pertinent facts as the Committee may
require.

11.05.   NOTICES

         Notices and elections under this Plan must be in writing. A notice or
election is deemed delivered if it is delivered personally or if it is mailed by
registered or certified mail to the person or business at its last known
business address.

11.06.   WAIVER

         The waiver of a breach of any provision in this Plan does not operate
as and may not be construed as a waiver of any later breach.

                                       18

<PAGE>

11.07.   BINDING NATURE OF PLAN

         The Plan shall be binding upon the Company, its Affiliates and the
successors and assigns of the Company and its Affiliates, subject to the
provisions set forth in Article X, and upon a Participant, his or her
Beneficiary, and either of their assigns, heirs, executors or committees.

11.08.   CONSTRUCTION

         This Plan is created, adopted, and maintained according to the laws of
the State of Maryland (except its choice-of-law rules). It is governed by those
laws in all respects. Headings and captions are only for convenience; they do
not have substantive meaning. If a provision of this Plan is not valid or not
enforceable, that fact in no way affects the validity or enforceability of any
other provision. Use of one gender includes all, and the singular and plural
include each other.

                                       19

<PAGE>

                        WINDROSE MEDICAL PROPERTIES TRUST
                           DEFERRED COMPENSATION PLAN

                                    EXHIBIT I

                               INVESTMENT OPTIONS

         1. Treasury Notes. A fund that credits interest based on the effective
yield of three year Treasury notes. This is the "default" fund or investment
option.

         2. Company Stock. A fund that measures the value of the Account based
on the value of the Company's common stock. This fund or investment option shall
be recorded as notional shares of Company common stock. This fund or investment
option shall be credited with dividend equivalents (which shall be deemed to be
invested in notional shares) based on the actual dividends paid on Company
common stock.

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