Asset Exchange Agreement

ASSET EXCHANGE AGREEMENT


BY AND BETWEEN


MEADOW PINES HOSPITAL, INC.


AND


CCS/GULF PINES, INC.


Dated: February 23, 1998


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TABLE OF CONTENTS


ARTICLE 1


DEFINITIONS..............................................................................................1
Section 1.1 Certain Defined Terms..................................................................1
Section 1.2 Index of Other Defined Terms...........................................................4


ARTICLE 2


TRANSFER OF GULF PINES HOSPITAL TO MPH...................................................................6
Section 2.1 Assets Transferred to MPH..............................................................6
Section 2.2 Assets Excluded by CCS.................................................................8
Section 2.3 Liabilities Assumed by MPH.............................................................9
Section 2.4 Liabilities Excluded from MPH.........................................................10


ARTICLE 3


TRANSFER OF MEADOW PINES HOSPITAL TO CCS................................................................11
Section 3.1 Assets Transferred to CCS.............................................................11
Section 3.2 Assets Excluded by MPH................................................................13
Section 3.3 Liabilities Assumed by CCS............................................................14
Section 3.4 Liabilities Excluded from CCS.........................................................14


ARTICLE 4
TERMS OF THE EXCHANGE...................................................................................16
Section 4.1 Transfer of MPH Assets and Assumption of Certain CCS Liabilities in
Exchange for Transfer of CCS Assets and Assumption of Certain MPH Liabilities.......16
Section 4.2 Working Capital Adjustment............................................................16
Section 4.3 Allocation of Exchange Price..........................................................18
Section 4.4 Remittances and Receivables...........................................................18
Section 4.5 Employee Matters......................................................................20
Section 4.6 Manuals...............................................................................21
Section 4.7 No Assignment If Breach; Discharge of Assumed Liabilities.............................22
Section 4.8 Closing...............................................................................22
Section 4.9 Management Agreement..................................................................23
Section 4.10 Office Space..........................................................................24


ARTICLE 5


REPRESENTATIONS AND WARRANTEES OF MPH AND CCS...........................................................24
Section 5.1 Organization and Corporate Power......................................................24


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Section 5.2 Authority Relative to this Agreement..................................................24
Section 5.3 Absence of Breach.....................................................................25
Section 5.4 Brokers...............................................................................25
Section 5.5 Title to Personal Property............................................................25
Section 5.6 Contracts Assumed by MPH and CCS......................................................25
Section 5.7 Compliance with Laws..................................................................26
Section 5.8 U.S. Person...........................................................................27
Section 5.9 Employee Relations....................................................................27
Section 5.10 Employee Plans........................................................................28
Section 5.11 Litigation............................................................................30
Section 5.12 Hazardous Substances..................................................................30
Section 5.13 Financial Information.................................................................31
Section 5.14 Changes Since Balance Sheet...........................................................31
Section 5.15 Taxes.................................................................................33
Section 5.16 Representations Not Affected By Due Diligence.........................................33
Section 5.17 Lists of Other Data...................................................................33
Section 5.18 Absence of Undisclosed Liability......................................................34
Section 5.19 Real Property. Schedules 2.1(a) and 3.1(a)............................................34
Section 5.21 Insurance.............................................................................36
Section 5.22 Pending Transactions..................................................................36
Section 5.23 Operations............................................................................37


ARTICLE 6


COVENANTS OF MPH AND CCS................................................................................37
Section 6.1 Efforts to Consummate Transaction.....................................................37
Section 6.2 Cooperation...........................................................................37
Section 6.3 Further Assistance....................................................................37
Section 6.4 Cooperation Respecting Proceedings....................................................37
Section 6.5 Expenses..............................................................................38
Section 6.6 Announcements; Confidentiality; Non-Solicitation......................................38
Section 6.7 Preservation of and Access to Certain Hospital Records................................39


ARTICLE 7


ADDITIONAL COVENANTS OF MPH AND CCS.....................................................................39
Section 7.1 Conduct Pending Closing...............................................................40
Section 7.2 Access and Information, Environmental Survey; Remediation or
Adjustment..........................................................................41
Section 7.3 Updating..............................................................................43
Section 7.4 Exclusivity...........................................................................43
Section 7.5 Cost Reports..........................................................................43
Section 7.6 Tax Matters...........................................................................44


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Section 7.7 Risk of Loss..........................................................................44
Section 7.8 Post-Closing Insurance................................................................45
Section 7.9 Consents..............................................................................45
Section 7.10 Relationship with Employees, Suppliers and Patients...................................45
Section 7.11 Amendment to Certificate of Incorporation or Bylaws...................................46
Section 7.12 Other Actions.........................................................................46
Section 7.13 Non-Facility Records..................................................................46
Section 7.14 Reliance on Environmental Survey......................................................46


ARTICLE 8


CONDITIONS TO CLOSING...................................................................................46
Section 8.1 Performance of Agreement..............................................................46
Section 8.2 Accuracy of Representations and Warranties............................................46
Section 8.3 Officer's Certificate.................................................................47
Section 8.4 Consents..............................................................................47
Section 8.5 Absence of Injunctions................................................................47
Section 8.6 Title to Real Property................................................................47
Section 8.7 Environmental Survey and Engineer Survey..............................................48
Section 8.8 Receipt of Other Documents............................................................48
Section 8.9 CCS Payor Contracts...................................................................49


ARTICLE 9


TERMINATION.............................................................................................49
Section 9.1 Termination...........................................................................49
Section 9.2 Effect of Termination.................................................................50


ARTICLE 10


SURVIVAL AND REMEDIES; INDEMNIFICATION..................................................................50
Section 10.1 Survival..............................................................................50
Section 10.2 Exclusive Remedy......................................................................50
Section 10.3 Mutual Indemnity......................................................................50
Section 10.4 Further Qualifications Respecting Indemnification.....................................52
Section 10.5 Procedures Respecting Third Party Claims..............................................53


ARTICLE 11


NONCOMPETITION..........................................................................................54
Section 11.1 Noncompetition........................................................................54
Section 11.2 Remedies for Breach...................................................................54
Section 11.3 Severability and Substitution of Valid Provisions.....................................55


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Section 11.4 Extension of Periods..................................................................55


ARTICLE 12


GENERAL PROVISIONS......................................................................................55
Section 12.1 Notices...............................................................................55
Section 12.2 Attorneys' Fees.......................................................................56
Section 12.3 Successors and Assigns................................................................56
Section 12.4 Counterparts..........................................................................56
Section 12.5 Captions and Paragraph Headings.......................................................56
Section 12.6 Entirety of Agreement, Amendments.....................................................56
Section 12.7 Waiver................................................................................57
Section 12.8 Governing Law.........................................................................57
Section 12.9 Severabilily..........................................................................57


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EXHIBITS


1 Form Bill of Sale B. Form of Warranty Deed C. Form of Assignment and Assumption of Liabilities Agreement D. Management Agreement


LIST OF SCHEDULES


2.1(a) CCS Owned Real Property 2.1(e) Contracts Assumed by MPH 2.1(f) Business Names Transferred to MPH 2.1(m) CCS Intellectual Property 2.2(a) Non-Current Assets Excluded by CCS 2.2(c) CCS Non-Public Day School 2.2(d) Other Entities 2.3(a) Contracts Assumed by MPH 2.4(j) Other Liabilities Excluded from MPH 3.1(a) MPH Owned Real Property 3.1(e) Contracts Assumed by CCS 3.1(f) Business Names Transferred to CCS 3.1(m) MPH Intellectual Property 3.2(a) Non-Current Assets Excluded by MPH 3.2(c) Other Entities 3.3(a) Contracts Assumed by CCS 3.4(j) Other Liabilities Excluded from CCS 4.2 Gulf Pines and Meadow Pines Working Capital 4.3 Allocation Schedule 4.5(a) ERISA Plans 4.5(b) Employee List 5.7(a) Compliance Exceptions 5.7(c) False Claims 5.7(d) Termination of rights under Medicare or Medicaid 5.9 Employee Exceptions 5.10(a) Benefit Plans 5.10(c) Benefit Plan Compliance 5.10(g) Benefit Plan Requirements 5.10(h) Effect of this Transaction on Benefit Plans 5.11 Litigation 5.13(a) Financial Statements 5.14 Changes Since Balance Sheet 5.15 Contested Tax Liability 5.17(a) Leases


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5.17(b) Accrued Paid Time Off 5.17(c) Material Licenses 5.18 Undisclosed Liabilities 5.19(a) Real Property Maintenance 5.19(c) Zoning Compliance 5.19(d) Leases 5.21 Insurance Policies 7.1 Conduct Pending Closing 8.4 Consents to be Obtained


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ASSET EXCHANGE AGREEMENT


This ASSET EXCHANGE AGREEMENT (the "Agreement") is made and entered into on the 23rd day of February, 1998 by and between MEADOW PINES HOSPITAL, INC. a Delaware corporation ("MPH"), and CCS/GULF PINES, INC., a Texas corporation ("CCS"), and, for purposes of Sections 6.6 and 7.5(c) and Articles 10 and 11 only, joined by The BROWN SCHOOLS, INC., a Delaware corporation ("Brown Schools"), and CHILDREN'S COMPREHENSIVE SERVICES, INC., a Tennessee corporation ("CCS Parent"), with reference to the following facts:


A. MPH and CCS are engaged in the business of delivering behavioral treatment services to youth.


B. MPH desires to acquire from CCS Gulf Pines Hospital located in Houston, Texas and CCS desires to acquire from MPH Meadow Pines Hospital located in Longview, Texas, in each case together with related assets (the exchanges and other transactions which are the subject of this Agreement are herein referred to as the "Transaction").


C. Brown Schools is the parent corporation of MPH, and CCS Parent is the parent corporation of CCS.


NOW, THEREFORE, in consideration of the foregoing recitals and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:


ARTICLE 2


DEFINITIONS


Section 2.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the following meanings:


"Affiliate" of a specified person shall mean any corporation, partnership, sole proprietorship or other person or entity which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the person specified. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity.


"Benefit Plans" means all Employee Benefit Plans, all Employee Pension Benefit Plans, all Employee Welfare Benefit Plans, all plans established pursuant to Section 125, 127, 129 or 132 of the Code and all stock bonus, stock ownership, stock option, stock purchase, stock appreciation rights, phantom stock and other stock plans (whether qualified or nonqualified) and all other pension, welfare, severance, retirement, bonus, deferred compensation, incentive compensation, insurance (whether life, accident and health or other and whether key man, group or other), profit sharing, disability, thrift, dependent care, legal services, adoption, assistance, leave of absence, layoff,


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vacation and supplemental or excess benefit plans and all other benefit contracts, arrangements or procedures having the effect of a plan, in each case existing on or before the Closing Date under which a person or any of its subsidiaries is or may hereafter become obligated in any manner (including, without limitation, obligations to make contributions or other payments) and which cover or have covered some or all of the present or former officers, directors, employees, agents, consultants or other similar representatives providing services to or for CCS or MPH; provided, however, that such term shall not include (a) workers' compensation insurance, (b) MPH's Texas employee injury plan, and (c) directors and officers' liability insurance.


"Cost Report" means the cost report required to be filed, as of the end of a provider cost year or for any other required period, with cost-based Payors with respect to cost reimbursement.


"Employee Benefit Plan" means each employee benefit plan (whether or not insured), as defined in Section 3(3) of the Employee Retirement of Income Security Act of 1974, as amended ("ERISA"), which is or was in existence on or before the Closing Date, under which CCS or MPH is or may hereafter become obligated in any manner (including, without limitation, obligations to make contributions or other payments) and which cover or have covered some or all of the present or former officers, directors, employees, agents, consultants or other similar representatives providing services to or for CCS or MPH.


"Employee Pension Benefit Plan" means each employee pension benefit plan (whether or not insured), as defined in Section 3(2) of ERISA, which is or was in existence on or before the Closing Date, under which CCS or MPH is or may hereafter become obligated in any manner (including, without limitation, obligations to make contributions or other payments) and which cover or have covered some or all of the present or former officers, directors, employees, agents, consultants or other similar representatives providing services to or for CCS or MPH.


"Employee Welfare Benefit Plan" means each employee welfare benefit plan (whether or not insured), as defined in Section 3(l) of ERISA, which is or was in existence on or before the Closing Date, under which CCS or MPH is or may hereafter become obligated in any manner (including, without limitation, obligations to make contributions or other payments) and which cover or have covered some or all of the present or former officers, directors, employees, agents, consultants or other similar representatives providing services to or for CCS or MPH.


"Environmental Laws" means the Laws of any governmental or regulatory authority (including, without limitation, any state wherein CCS or MPH conducts business) relating to the use, refinement, recycling, handling, treatment, removal, storage, production, manufacture, transportation, disposal, emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to protection of the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), as the same may be amended or modified until the Closing Date, including, without limitation, the following statutes: Federal Resources Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901, et seq.; Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss. 9601, et seq.; Federal Clean Air


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Act, 42 U.S.C. ss. 7401, et seq.; Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33 U.S.C. ss. 1251, et seq.; Federal Insecticide, Fungicide, and Rodentcide Act, Federal Pesticide Act of 1978, 7 U.S.C. ss. 136, et seq.; Federal Hazardous Materials Transportation Act, 48 U.S.C. ss. 1801, et seq.; Federal Toxic Substances Control Act, 15 U.S.C. ss. 2601, et seq.; and Federal Safe Drinking Water Act, 42 U.S.C. ss. 300f, et seq.


"ERISA Plan" means any Employee Pension Benefit Plan or Employee Welfare Benefit Plan.


"Facility" shall mean either Gulf Pines Hospital or Meadow Pines Hospital as applicable in the context in which the reference appears.


"GAAP" shall mean at any particular time generally accepted accounting principles as in effect at such time. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method of valuation as used in the preparation of MPH's and CCS's financial statements.


"Knowledge" "has no knowledge" or "do not know of" or similar phrases, shall mean (1) in the case of an entity, the particular fact was known or not known as the context requires to the corporate officer or hospital administrator of such entity after reasonable inquiry by the principal executive officer of such entity, and (2) in the case of an individual, the particular fact was known or not known as the context requires after reasonable inquiry by such person.


"Laws" shall mean all statutes, rules, regulations, ordinances, orders, codes, permits, licenses and agreements with or of federal, state, local and foreign governmental and regulatory authorities and any order, writ, injunction or decree issued by any court, arbitrator or governmental agency or in connection with a judicial, administrative or other non-judicial proceeding (including, without limitation, arbitration or reference).


"Licenses" shall mean certificates of need, accreditations, registrations, licenses, permits and other consents or approvals of governmental agencies or accreditation organizations.


"Medical Waste" means any substance, pollutant, materials or containment listed or regulated under either the Medical Waste Tracking Act of 1988, 42 U.S.C. ss. 6992, et seq. ("MWTA"), 42 Part 72 and 49 CFR ss. 173, 386 or the Medical Waste Laws.


"Medical Waste Laws" means the following, including, without limitation, regulations promulgated and orders issued thereunder, to the extent such Medical Waste Laws regulate Medical Waste, all as may be amended or modified until the Closing Date,: the MWTA, the Resource Conservation and Recovery Act, 42 USCA ss. 6901 et seq.; the Air Pollution Prevention and Control Act, 42 USCA ss. 7401 et seq.; the Federal Water Pollution Control Act, 33 USCA ss.ss. 1251 et seq.; the Marine Protection, Research and Sanctuaries Act of 1972, 33 USCA ss.ss. 1401 et seq.; Nuclear


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Regulatory Commission regulations contained in 10 CFR Part 20; and 10 CFR Part 61, Occupational Health Act, 29 USCA 651 et seq.; Public Health Service regulations contained in 42 CFR Part 72; Food and Drug Administration regulations contained in 21 CFR Parts 58 and 211; U.S. Department of Transportation regulations contained in 49 CFR Parts 171-179; the Act to Prevent Pollution from Ships, 33 U.S.C.A. ss. 1901 et seq.; United States Department of Agriculture regulations contained in 9 CFR Parts 50 through 56; United States Postal Service regulations contained in 39 CFR Part 111; and local environmental and safety laws, rules, regulations, and other legally binding requirements, 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.


"Payor" shall mean Medicare, Medicaid, CHAMPUS and Medically Indigent Assistance programs, Blue Cross and Blue Shield of Texas, Inc. or any other third party payor (including an insurance company), or any health care provider (such as a health maintenance organization, preferred provider organization, peer review organization, or any other managed care program).


"Purchasing Party" shall mean such party which is receiving a Facility pursuant to the Agreement.


"Red River Receivables" means accounts receivable of CCS or its Affiliates that arose solely from billing or invoicing by CCS or its Affiliates for services rendered at Red River Hospital, Wichita Falls, Texas.


"Taxes" shall mean (i) all federal, state, county and local sales, use, property, payroll, recordation and transfer taxes, (ii) all state, county and local taxes, levies, fees, assessments or surcharges (however designated, including privilege taxes, room or bed taxes and user fees) which are based on the gross receipts, net operating revenues or patient days of a Facility for a period ending on, before or including the Closing Date (as defined in Section 4.8) or a formula taking any one of the foregoing into account, and (iii) any interest, penalties and additions to tax attributable to any of the foregoing, but shall not include income and other taxes described in Sections 2.4(a) and (b) and Sections 3.4(a) and (b).


"Transferring Party" shall mean such party which is transferring a Facility pursuant to the Agreement.


Section 2.2 Index of Other Defined Terms. In addition to those terms defined above, the following terms shall have the respective meanings given thereto in the sections indicated below:


Defined Term Section
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Agreement.........................................................................................Preamble
Allocation Schedule....................................................................................4.3
Assets Excluded by CCS.................................................................................2.2


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