2. Acquisitions

On July 26, 2010, the Company entered into an Asset Purchase Agreement (the "Purchase Agreement"), pursuant to which the Company acquired certain assets of Advantage Health Systems, Inc., a South Carolina corporation ("Advantage"). The total consideration payable pursuant to the Purchase Agreement was $8,380, comprised of $5,140 in cash, common stock consideration with a deemed value of $1,240 resulting in the issuance of 248 common shares, and a maximum of $2,000 in future cash consideration subject to the achievement of certain performance targets set forth in an earn-out agreement and the assumption of certain specified liabilities.

On July 26, 2010, the Company entered into an amendment (the "Second Amendment") to its credit facility. The Second Amendment provides for a new term loan component of the credit facility in the aggregate principal amount of $5,000 with a maturity date of January 5, 2013. The requisite lenders also consented to the acquisition, effective July 25, 2010, of certain assets of Advantage, by the Company, pursuant to the Purchase Agreement. The new term loan will be repaid in 24 equal monthly installments which began in February 2011. Interest on the new term loan under the credit facility is payable either at a floating rate equal to the 30-day LIBOR, plus an applicable margin of 4.6% or the LIBOR rate for term periods of one, two, three or six months plus a margin of 4.6%. Interest will be paid monthly or at the end of the relevant interest period.

The Company's acquisition of Advantage has been accounted for in accordance with ASC Topic 805, "Business Combinations" and the resultant goodwill and other intangible assets will be accounted for under ASC Topic 350 "Goodwill and Other Intangible Assets". Assets acquired and liabilities assumed were recorded at their fair values. The total purchase price is $7,980 and is comprised of:


		Total
Cash	$	5,140
Issuance of 248 Addus shares at $5.00 per share (valued at a price per share equal to the average
closing price of the Company's stock for the three most recent trading days preceding the
closing, subject to a floor of $5.00 per share)		1,240
Contingent earn-out obligation (net of $92 discount)		1,600
Total purchase price	$	7,980

The contingent earn-out obligation was initially recorded at its fair value of $1,600, which is the present value of the Company's obligation based on probability-weighted estimates of the achievement of certain performance targets, as defined in the Purchase Agreement. In April 2011, the Company paid the first earn-out

payment of $500 to the sellers of Advantage. The second earn-out payment obligation was reviewed during the fourth quarter of 2011 and it was revalued at approximately $683 as of December 31, 2011 which resulted in a $469 gain on revaluation of the contingent consideration. The final payment is expected to be made during the second quarter of 2012.

Under business combination accounting, the total purchase price was allocated to Advantage's net tangible and identifiable intangible assets based on their estimated fair values. Based upon our management's valuation, the total purchase price has been allocated as follows:


		Total
Goodwill	$	4,272
Identifiable intangible assets		3,631
Property and equipment		77
Total purchase price allocation	$	7,980

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired. Goodwill amounts are not amortized, but rather are tested for impairment at least annually. In the event that we determine that the value of goodwill has become impaired, we will record an impairment charge for the amount during the fiscal quarter in which such determination is made.

Identifiable intangible assets acquired consist of trade names and trademarks, certificates of need and state licenses, customer relationships, and non-compete agreements. The estimated fair value of identifiable intangible assets was determined by our management.

As part of its annual review of goodwill and intangible assets, the Company determined that all of its home health reportable unit was impaired (see Note 4). As part of this impairment in 2011 the Company recorded a charge that included $544 of goodwill and $272 of intangible assets associated with the purchase of Advantage.

The following table contains unaudited pro forma consolidated income statement information assuming the Advantage acquisition closed on January 1, 2010 and 2009.


		For the Year Ended
		December 31,
		2010			2009
Net service revenues	$	279,133	$	272,494
Operating income		12,440			12,633
Net income	$	6,172		$	3,974
Less: Preferred stock dividends, undeclared subject to payment on
conversion; declared and converted November 2009		—			(5,387	)
Net income (loss) attributable to common shareholders	$	6,172		$	(1,413	)
Basic income (loss) per share	$	0.57		$	(0.48	)
Diluted income (loss) per share	$	0.57		$	(0.48	)

The pro forma disclosures in the table above include adjustments for interest expense, amortization of intangible assets and tax expense to reflect results that are more representative of the combined results of the transactions as if they had occurred on January 1, 2010 and 2009. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operation that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information.