EXHIBIT 10.1
PARTNERSHIP INTEREST PURCHASE AGREEMENT
THIS PARTNERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement") is
effective as of September 30, 2001 at 11:59 pm CST (the "Closing Date") and is
among U.S. Physical Therapy, Inc., a Nevada corporation ("USPT"); U.S. Physical
Therapy, Ltd., a Texas limited partnership and wholly-owned subsidiary of USPT
("Purchaser"); Rehab Partners #1, Inc., a Texas corporation (the "General
Partner"); and Xxxx Xxxxxxxx, an individual resident of Dearborn, Michigan
("Seller").
RECITALS
WHEREAS, Seller owns a 35% interest, as a Class A limited partner, in
Dearborn Physical Therapy, Ltd. dba Advanced Physical Therapy, a Texas limited
partnership (the "Partnership") and wishes to sell all of his partnership
interest; and
WHEREAS, Purchaser wishes to purchase such partnership interest;
NOW, THEREFORE, in consideration of the recitals and of the agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE
Section 1.1. Purchase of Partnership Interest. Subject to and upon the
terms and conditions set forth in this Agreement, Seller hereby sells,
transfers, and delivers to Purchaser, and Purchaser hereby purchases and
acquires from Seller, all of Seller's right, title and interest in the
Partnership ("Partnership Interest").
Section 1.2. Consent of the Partners. The General Partner, in its
capacity as general partner of the Partnership, and Purchaser, in its capacity
as a Class B limited partner of the Partnership, hereby acknowledge and consent
to the transfer of the Partnership Interest from Seller to Purchaser.
Section 1.3. Closing. The date on which all transactions contemplated
by this Agreement are completed, such date to be mutually agreeable to the
parties, shall be the "Closing Date." The completion of such transactions may
occur at a mutually acceptable location or remotely by exchange of facsimile
signature pages and subsequent post-closing exchange of original signature
pages.
ARTICLE II.
CONSIDERATION
Section 2.1. Definitions. For purposes of this Article II, the
following terms shall have the meanings set forth below:
(a) Base Earnings. Net income, before federal income taxes, of
the Partnership calculated in accordance with generally accepted
accounting principles consistently applied and specifically after
deducting any compensation and bonus payments to any employees of the
Partnership, including Seller, for the twelve-month period ending on
the last day of the calendar month preceding the Closing Date.
(b) Seller's Base Earnings. Thirty-five percent (35%) of Base
Earnings.
(c) Future Earnings Period. Each twelve-month period ending on
the last day of the calendar month preceding each of the first, second,
third, fourth and fifth anniversaries of the Closing Date.
(d) Future Annual Earnings. With respect to any Future
Earnings Period, the net income, before federal income taxes, of the
Partnership calculated in accordance with generally accepted accounting
principles consistently applied and specifically after deducting any
compensation and bonus payments to any employees of the Partnership,
including Seller, excluding from such calculations any revenues and
expenses of the Partnership attributable to clinics or other operations
opened or acquired after the Closing Date.
(e) Future Average Earnings. With respect to any Future
Earnings Period, the average Future Annual Earnings per twelve-month
period based on (a) cumulative Future Annual Earnings from the last day
of the calendar month preceding the Closing Date through the last day
of the applicable Future Earnings Period (b) divided by the number of
complete Future Earnings Periods that have elapsed up to and including
the applicable Future Earnings Period.
(f) Market Price. The market price per share of USPT Common
Stock determined in the following manner: (i) the closing price (which
shall be the last reported sales price, or, in case no such sales take
place on such day, the average of the closing bid and the asked prices)
per share of the USPT Common Stock on the principal national securities
exchange on which the USPT Common Stock is then listed or admitted to
trading; (ii) if the USPT Common Stock is not then so listed on a
national securities exchange, the closing price of the USPT Common
Stock in the over-the-counter market as reported by National Market of
The National Association of Securities Dealers Automated Quotation
System ("Nasdaq"); (iii) if the USPT Common Stock is not then quoted by
Nasdaq, as furnished by any member of The National Association of
Securities Dealers, Inc. ("NASD") selected by USPT for that purpose; or
(iv) if no member of NASD furnishes quotes with respect to the USPT
Common Stock, an amount determined in good faith by the board of
directors of USPT.
Section 2.2. Purchase Price. The total purchase price shall equal
$2,624,944.00 ("Purchase Price"), which the Parties agree is equal to 5.2 times
Seller's Base Earnings, consisting of the following:
(a) Closing Consideration. Within 30 days of closing,
Purchaser shall deliver to Seller $629,987.00 in cash [representing 30%
of 80% of the Purchase Price] and
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95,205 shares of USPT common stock at the Market Price determined
pursuant to Section 2.7 [representing 70% of 80% of the Purchase
Price]. USPT has contributed to Purchaser the USPT common stock to be
issued hereunder.
(b) Holdback. Purchaser shall retain $524,989.00 [representing
20% of the Purchase Price] from the amounts Seller is entitled to
receive upon the sale of the Partnership Interest (the "Holdback"). One
fifth of the Holdback shall be scheduled to be paid (30% in cash and
70% in USPT common stock) in each year that Future Annual Earnings are
at least equal to Base Earnings (each a "Holdback Payment"). In the
event that Future Annual Earnings for a Future Earnings Period equal or
exceed Base Earnings, Purchaser shall pay to Seller the scheduled
Holdback Payment. In the event that Future Annual Earnings for any
Future Earnings Period are less than the Base Earnings but the Future
Average Earnings up to and including such Future Earnings Period are
equal to or greater than the Base Earnings, the scheduled Holdback
Payment with respect to such Future Earnings Period and any previous
Future Earnings Periods for which Seller did not receive a Holdback
Payment shall be made. In the event that both the Future Annual
Earnings and the Future Average Earnings in any Future Earnings Period
are less than Base Earnings, then no Holdback Payment shall be made
with respect to such Future Earnings Period or any previous Future
Earnings Period until such time that Future Average Earnings equal or
exceed Base Earnings.
(c) Distribution. Within 30 days after the Closing Date, the
General Partner shall cause the Partnership to make a distribution to
Seller equal to Seller's undistributed profits as of the Closing Date.
Section 2.3. Incentive Earnout. In the event that the average of the
Future Annual Earnings for the fourth and fifth Future Earnings Periods is
greater than Base Earnings, Purchaser shall pay to Seller, an amount equal to
(A) the average Future Annual Earnings during the fourth and fifth Future
Earnings Periods, (B) minus the Base Earnings, (C) multiplied by 5.2 and (D)
multiplied by 35% (the "Incentive Earnout Payment"); provided, however, that in
no event shall the amount of the Incentive Earnout Payment exceed $500,000 under
the foregoing calculation. Notwithstanding the foregoing, in the event that the
average of the Future Annual Earnings for the fourth and fifth Earnings Periods,
when multiplied by 35%, is at least $750,000 but not greater than $1,100,000,
the Incentive Earnout Payment shall equal $700,000 and if such number is greater
than $1,100,000, the Incentive Earnout Payment shall equal $900,000. The
Incentive Earnout Payment shall be made 30% in cash and 70% in USPT common
stock.
Section 2.4. Calculation of Earnings.
(a) Within forty-five (45) days following the end of each
Future Earnings Period, the General Partner shall prepare and deliver
to Seller a statement of Future Annual Earnings with respect to such
Future Earnings Period (the "Earnings Statement"). During the 30 days
immediately following receipt of the Earnings Statement by Seller, the
Seller and his accountants shall be entitled to review the Earnings
Statement and any working papers, trial balances and similar materials
relating to the Earnings Statement prepared by the General Partner or
its accountants, and the General Partner shall provide Seller and his
accountants with reasonable access, during the General Partner's normal
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business hours, to the Partnership's personnel, properties, books and
records for the sole purpose of verifying the Earnings Statement.
(b) The Earnings Statement shall become final and binding upon
the Seller on the day the Purchaser receives written notice from the
Seller that the Earnings Statement is agreed to, or in the absence of
such notice, on the 31st day following delivery of such Earnings
Statement, unless the Seller gives written notice to the Purchaser of
its disagreement with the Earnings Statement (a "Notice of
Disagreement") prior to such date. Any Notice of Disagreement shall
specify in reasonable detail the nature of any disagreement so
asserted.
(c) If a timely Notice of Disagreement is received by the
Purchaser with respect to the Earnings Statement, then the Earnings
Statement shall become final and binding upon the parties on the
earlier of (A) the date the Purchaser and the Seller resolve in writing
all differences they have with respect to the matters specified in a
Notice of Disagreement, or (B) the date the matters in dispute are
finally resolved in writing by the Arbitrator in the manner described
below.
(d) During the 30 days immediately following the delivery of
any Notice of Disagreement, the Purchaser and the Seller shall seek in
good faith to resolve in writing any differences which they may have
with respect to the matters specified in such Notice of Disagreement.
During such period, the Seller and his accountants shall each have
reasonable access to the Partnership's records and books of account and
may, at Seller's expense, examine, inspect, make copies and audit the
Partnership's books and records. If such differences have not been
resolved by the end of such 30-day period, Purchaser and Seller shall
submit any and all matters which remain in dispute and which were
included in any Notice of Disagreement to binding arbitration pursuant
to Article VII hereof (it being understood that the Arbitrator shall
act as an arbitrator to determine only those matters which remain in
dispute).
(e) If a Holdback Payment or Incentive Earnout Payment is
payable with respect to any Future Earnings Period as determined in
accordance with this Section, such payment(s) shall be paid by the
Purchaser to the Seller within ten (10) days following the Seller's
agreement to or final resolution of the applicable Earnings Statement.
Section 2.5. Conduct of Business. Until the end of the last Future
Earnings Period, (a) the General Partner shall, and shall cause the Partnership
to, maintain separate books of account for the earnings of the Partnership, for
the purposes of determining whether the Partnership has achieved the earnings
set forth in this Section; (b) the General Partner shall not, and shall not
permit the Partnership to, sell or dispose of any substantial part of the
business or the assets thereof in a manner that would otherwise materially
impair the earnings of the Partnership; and (c) the General Partner shall
continue to pay out the expenses of the Partnership, including any intracompany
payables, in accordance with past practice and policies, including those
policies relating to intracompany charges.
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Section 2.6. Delivery of Cash in Lieu of Common Stock. Notwithstanding
anything herein to the contrary, any payment, or any portion thereof, specified
herein to be paid in USPT common stock, may, in Purchaser's sole discretion, be
paid to Seller in cash.
Section 2.7. Issuance of Common Stock. For purposes of determining the
number of shares to be issued hereunder, shares of common stock shall be valued
at the average Market Price for the 30-day period prior to the Closing Date.
Section 2.8. Change of Control of USPT. In the event of a merger,
consolidation or a sale of substantially all of the assets of USPT in which USPT
is not the surviving company, the surviving company shall have the option,
within 60 days from the change of ownership, to either:
(a) Assume the Purchaser's and USPT's obligations under this
Agreement; or
(b) Discharge such obligations by:
(i) Paying the remaining Holdback Payments;
(ii) Paying the Incentive Earnout (capped at
$900,000) calculated as the greater of (1) the Incentive
Earnout under Section 2.3 above (using Future Annual Earnings
for the most recent 12 months in place of the average of the
Future Annual Earnings for the fourth and fifth Earnings
Periods in the calculation of the Incentive Earnout) minus the
Base Earnings multiplied by 5.2 multiplied by 35%; or (2)
$175,000; and
(iii) Waiving the restrictions on transfer in Section
3.9(a) hereof.
Should the surviving company not give notice of its decision to either assume or
discharge Purchaser's and USPT's obligations under this agreement within 60 days
from the change of ownership, then it shall be construed that the surviving
company has assumed such obligations.
In the event that the surviving company assumes the Purchaser's and USPT's
obligation under this agreement, Seller shall have a 90 day option commencing on
the date of the change of ownership to choose to terminate his Employment
Agreement and receive the benefits as set forth under 2.8(b) of this Section.
Section 2.9. Nature of Holdback and Earnout Payments. It is expressly
understood between Purchaser and Seller that payments out of the Holdback and
the Earnout Payments contemplated herein are included as part of the
consideration paid for the Partnership Interest pursuant to this Section. The
payments out of the Holdback and the Earnout Payments described in this Section
are contractual rights only and shall not constitute any ownership interest in
the Partnership.
Section 2.10. Amendment to Employment Agreement. General Partner (on
behalf of the Partnership) and Seller shall execute a Fifth Amendment to
Employment Agreement effective as of the Closing Date which shall provide for an
additional incentive bonus calculated
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as 1% of the monthly net revenue and 10% of the annual net income attributable
to any new clinics opened by the Partnership after the Closing Date.
Section 2.11 Use of Name. Purchaser agrees that it will not operate any
physical therapy clinics under the name "Advanced Physical Therapy" in the State
of Michigan, other than the existing clinics that operate under such name or new
satellite clinics of such existing clinics, without obtaining consent from
Seller, which consent shall not be unreasonably withheld.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants that the following representations and
warranties are true and correct as of the date hereof:
Section 3.1. Ownership; No Liens. Seller is the sole and lawful owner
of all right, title and interest in and to the Partnership Interest, which
consists of a 35% ownership interest in the Partnership, free and clear of all
liens, encumbrances, pledges and claims whatsoever.
Section 3.2. Authority and Validity. Seller has the full power,
capacity and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and all other documents
contemplated hereby have been duly executed and delivered by Seller and
constitute the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their terms, subject only to (a) general
principles of equity and (b) bankruptcy and other laws of general applicability
relating to creditors' rights.
Section 3.3. No Violation. Neither the execution, delivery or
performance by Seller of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with, or result in a violation or breach of
the terms, conditions or provisions of, or constitute a default under or require
any authorizations, consent, approval or notice to a third party under any
agreement, indenture or other instrument under which Seller is bound or to which
the Partnership Interest is subject, or result in the creation or imposition of
any security interest, lien, charge or encumbrance upon any of the Partnership
Interest, or, to the best knowledge of Seller, violate or conflict with any
judgment, decree, order, statute, law, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over
Seller or the Partnership Interest.
Section 3.4. Consents. No consent, authorization, approval, permit or
license of, or filing with, any governmental or public body or authority, any
lender or lessor or any other person or entity is required to authorize the
execution, delivery and performance of this Agreement on the part of Seller
except for (a) any filings and approvals required under the rules and
regulations of the Securities and Exchange Commission and (b) any filings and
approvals required by the Blue Sky laws of the various states.
Section 3.5. No Undisclosed Liabilities. Seller has not entered into
any transactions or otherwise incurred any obligations or liabilities in respect
of the Partnership or the Partnership Interest that have not been disclosed to
Purchaser. Seller is not aware of any material adverse condition in the
Partnership.
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Section 3.6. Contracts. Other than as permitted under the Partnership's
Agreement of Limited Partnership or the Employment Agreement between Seller and
the Partnership, Seller has not entered into whether or not in writing, any (a)
debt instrument, loan agreement or other obligation relating to indebtedness for
borrowed money or money lent or to be lent to another relating to the
Partnership or the Partnership Interest; (b) contracts containing noncompetition
covenants; or (c) any other agreement or commitment relating to the Partnership
not made in the ordinary course of business.
Section 3.7. Employees. No employee has stated to or notified Seller
that he or she does not intend to remain employed by the Partnership after the
Closing Date.
Section 3.8. Litigation. To the Seller's knowledge, there are no legal
actions or administrative proceedings or investigations pending or threatened
against Seller or the Partnership, including, without limitation, any tort
claims, employee claims, customer complaints or workers' compensation claims. To
the Seller's knowledge, neither Seller nor the Partnership is subject to any
continuing court or administrative order, writ, injunction or decree applicable
specifically to the Partnership, the Partnership Interest, or operations or
employees related thereto.
Section 3.9. Investment Representations and Covenants of Seller.
(a) In addition to restrictions on transfer contained in
applicable securities laws and in this Section 3.9, the sale of all
shares of common stock of USPT issued under this Agreement, other than
those shares issued as part of the Holdback or the Incentive Earnout,
may only be sold in annual increments of 20% of the aggregate number of
shares beginning one year from the date such shares were issuable
pursuant to this Agreement, and the sale of all shares issued in
connection with the Holdback or the Incentive Earnout shall be
prohibited for 12 months from the date such shares were issuable.
(b) Seller understands that the shares of common stock of USPT
to be issued pursuant to this Agreement (the "Securities") will not be
registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws on the grounds that the
issuance of the Securities is exempt from registration pursuant to
Section 4(2) of the Securities Act or Regulation D promulgated under
the Securities Act and pursuant to similar provisions of applicable
state securities laws, and that the reliance of USPT on such exemptions
is predicated in part on Seller's representations, warranties,
covenants and acknowledgements set forth in this Section.
(c) Seller represents and warrants that he is an "accredited
investor" as defined in Rule 501 promulgated under the Securities Act.
(d) Seller represents and warrants that the Securities to be
acquired by Seller upon consummation of the transactions described in
this Agreement will be acquired by him for his own account, not as a
nominee or agent, and without a view to resale or other distribution
within the meaning of the Securities Act and the rules and regulations
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thereunder and that Seller will not distribute any of the Securities in
violation of the Securities Act.
(e) Seller represents and warrants that the address set forth
below is his principal residence:
00000 Xxxxxxxxx
Xxxxxxxx, XX 00000
(f) Seller (i) acknowledges that the Securities issued to
Seller must be held indefinitely by him unless subsequently registered
under the Securities Act or an exemption from registration is
available, (ii) is aware that any routine sales of Securities made
pursuant to Rule 144 under the Securities Act may be made only in
limited amounts and in accordance with the terms and conditions of that
Rule and that in such cases where the Rule is not applicable,
compliance with some other registration exemption will be required, and
(iii) is aware that Rule 144 is not currently available for use by
Seller for resale of any of the Securities to be acquired by Seller
upon consummation of the transactions described herein.
(g) Seller represents and warrants to USPT that Seller has
such knowledge and experience in financial and business matters such
that he is capable of evaluating the merits and risks of his investment
in any of the Securities to be acquired by him upon consummation of the
transactions described herein.
(h) Seller confirms that he has received and read (i) USPT's
Form 10-K for 2000, (ii) USPT's Proxy Statement and Prospectus for
USPT's 2001 Annual Meeting of Shareholders and (iii) USPT's Form 10-Q
for the first quarter of 2001. Seller also confirms that USPT has made
available to Seller the opportunity to ask questions of and receive
answers from it concerning the terms and conditions of such Seller's
investment in the Securities, and the Seller has received to such
Seller's satisfaction, such additional information, in addition to that
set forth herein, about USPT's operations and the terms and conditions
of the offering as Seller has requested.
(i) In order to ensure compliance with the provisions of
paragraph (d) hereof, Seller agrees that Seller will not sell or
otherwise transfer or dispose of Securities or any interest therein
(unless such shares have been registered under the Securities Act)
without first complying with either of the following conditions, the
expenses and costs of satisfaction of which shall be fully borne and
paid for by Seller:
(i) USPT shall have received a written legal opinion
from Seller's legal counsel, which opinion and counsel shall
be satisfactory to USPT in the exercise of its reasonable
judgment, or a copy of a "no-action" or interpretive letter of
the Securities and Exchange Commission specifying the nature
and circumstances of the proposed transfer and indicating that
the proposed transfer will not be in violation of any of the
registration provisions of the Securities Act and the rules
and regulations promulgated thereunder; or
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(ii) USPT shall have received an opinion from its own
counsel, to the effect that the proposed transfer will not be
in violation of any of the registration provisions of the
Securities Act and the rules and regulations promulgated
thereunder, provided that if Seller has complied with the
holding period and other requirements of Rule 144 under the
Securities Act in connection with such sale or transfer as
well as the restrictions on transfer set forth in paragraph
(a) above (except to the extent such restrictions have been
waived under Section 2.8 above), such opinion shall be
furnished at USPT's expense.
The Seller also agrees that the certificates or instruments
representing the Securities to be issued to Seller pursuant to this
Agreement may contain a restrictive legend noting the restrictions on
transfer described in this Section and required by federal and
applicable state securities laws, and that appropriate "stop-transfer"
instructions will be given to USPT's transfer agent, if any, provided
that this paragraph (i) shall no longer be applicable to any Securities
following their transfer pursuant to a registration statement effective
under the Securities Act or if one of the opinions of counsel referred
to above is to the further effect that transfer restrictions and the
legend referred to herein are no longer required in order to establish
compliance with any provisions of the Securities Act.
Section 3.10. Disclosure. No statement, document, representation or
warranty made or delivered by Seller in connection with the transactions
contemplated hereby contained or contains any untrue statement of material fact
or omits to state any material fact necessary to have made or make the
statement, in light of the circumstances in which made, not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND USPT
Purchaser and USPT jointly and severally represent and warrant that the
following are true and correct as of the date hereof:
Section 4.1. Organization and Good Standing. Purchaser is a limited
partnership validly existing and in good standing under the laws of the State of
Texas, with all requisite power and authority to carry on the business in which
it is engaged, to own the properties it owns, to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. USPT is a
corporation validly existing and in good standing under the laws of the State of
Nevada, with all requisite power and authority to carry on the business in which
it is engaged, to own the properties it owns, to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
Section 4.2. Authorization and Validity. The execution, delivery and
performance of this Agreement by Purchaser and USPT, and the consummation by
Purchaser and USPT of the transactions contemplated hereby have been duly
authorized by Purchaser and USPT. This Agreement has been duly executed and
delivered by Purchaser and USPT and constitutes the legal, valid and binding
obligations of Purchaser and USPT, enforceable against Purchaser and USPT in
accordance with its terms, subject only to (a) general principles of equity and
(b) bankruptcy and other laws of general applicability relating to creditors'
rights.
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Section 4.3. No Violation. Neither the execution, delivery or
performance by Purchaser or USPT of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, or result in a violation or
breach of the terms, conditions and provisions of, or constitute a default
under, the organizational documents of Purchaser or USPT or any agreement,
indenture or other instrument under which Purchaser or USPT is bound or violate
or conflict with any judgment, decree, order, statute, law, rule or regulation
of any court or any public, governmental or regulatory agency or body having
jurisdiction over Purchaser or USPT or the properties or assets of either of
them.
Section 4.4. Consents. No consent, authorization, approval, permit or
license of, or filing with, any governmental or public body or authority, any
lender or lessor or any other person or entity is required to authorize the
execution, delivery and performance of this Agreement on the part of Purchaser
or USPT except for (a) any filings and approvals required under the rules and
regulations of the Securities and Exchange Commission and (b) filings and
approvals required by the Blue Sky laws of the various states.
Section 4.5. SEC Reports. USPT has filed in a timely manner with the
Securities and Exchange Commission all forms, financial statements, documents
and reports (collectively, the "SEC Reports") required to be filed by USPT
pursuant to the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"). Such SEC Reports were prepared in all material respects in accordance
with the Exchange Act and do not contain any untrue statement of material fact
or facts or omit to state a material fact or facts necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Since USPT's Quarterly Report on Form 10-Q for the three
months ended March 31, 2001, USPT has not suffered any change, event, or
condition that alone or together with other changes, events or conditions could
have a material adverse effect.
Section 4.6. Capitalization. The capitalization of USPT stated in the
SEC Reports (as defined in Section 4.5 above) were true and correct as of the
dates specified therein. All of the issued and outstanding shares of USPT Common
Stock are, and all shares of USPT Common Stock to be issued pursuant to the
transactions described in this Agreement will be, validly issued, fully paid and
non-assessable.
Section 4.7. Litigation. Except as disclosed in the SEC Reports (as
defined in Section 4.5 above), there are no material claims, actions, suits,
proceedings (arbitration or otherwise) or investigations pending or, to
Purchaser's or USPT's knowledge, threatened against either Purchaser or USPT at
law or in equity in any court or before or by any Governmental Authority, and,
to Purchaser's or USPT's knowledge, there are no, and have not been any,
conditions or incidents that may result in any such actions, suits, proceedings
(arbitration or otherwise) or investigations. Neither Purchaser or USPT is in
default in respect of any judgment, order, writ, injunction or decree of any
court or other Governmental Authority.
Section 4.8. Disclosure. To Purchaser's or USPT's knowledge, no
statement, document, representation or warranty made or delivered by Purchaser
or USPT in connection with the transactions contemplated hereby contained or
contains any untrue statement of material fact or omits to state any material
fact necessary to have made or make the statement, in light of the circumstances
in which made, not misleading.
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ARTICLE V.
COVENANTS
Section 5.1. Non-Competition. For a five (5) year period following the
Closing Date, Seller shall not, directly or indirectly, either as an employee,
employer, consultant, agent, lender, principal, partner, stockholder, corporate
officer, director, or in any other individual or representative capacity, engage
or participate in the physical therapy business within a ten (10) mile radius of
any facility owned or operated by the Partnership, USPT or any affiliate of
USPT. Notwithstanding the foregoing this Section 5.1 shall not prevent Seller
from owning no more than five percent (5%) of issued and outstanding shares of
common stock of a company whose common stock is listed on a national stock
exchange or is qualified to be traded on the NASDAQ National Market System.
Section 5.2. Solicitation.
(a) Non-Solicitation of Customers. During Seller's employment
with the Partnership and for a period of five (5) years after the
termination of employment, Seller agrees not to, directly or
indirectly, call on, service, solicit or be employed by any person,
firm, corporation or other entity who or which, at any time during
which Seller was an employee of the Partnership, was or had been a
customer, patient referral source or employee of the Partnership or any
of its affiliates, including, without limitation, any physician who had
referred any patients to any facility owned or operated by the
Partnership.
(b) Non-Solicitation of Employees. During Seller's employment,
and for a period of one (1) year following the termination of
employment, Seller will not, either directly or indirectly, call on,
solicit, or induce any other employee or officer of USPT or any
affiliate of USPT, including Purchaser and the Partnership, to leave
such employ, and will not assist any other person or entity in such a
solicitation.
Section 5.3. Confidential Information.
(a) Definition of Confidential Information. "Confidential
Information" means and includes any confidential or proprietary
information and trade secrets, and shall also include the terms and
provisions of this Agreement and any transaction or document executed
by the parties pursuant to this Agreement. Confidential Information
includes, by way of example and without limitation, the following:
information not generally known to the public regarding current and
prospective customers, suppliers, employees, contracting parties,
investors and business affiliates; all notes, studies, customer lists,
information, forms, business or management methods, marketing data, fee
schedules, strategies, methods, books, records, and documents;
research; financial and sales data; investment analyses; evaluations,
opinions, and interpretations of information and data; computer
programs and other stored electronic data; technologies and methods;
training methods and training processes; organizational structure;
personnel information, including salaries of personnel. Seller may also
have had access to, or knowledge of, confidential information of third
parties, including but not limited to actual and potential
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customers, suppliers, partners, joint venturers, investors, and
financing sources, which shall likewise be considered Confidential
Information.
(b) Non-Disclosure of Confidential Information. Seller agrees
that Seller will not, at any time make any unauthorized disclosure of
any Confidential Information (as defined above) of USPT, Purchaser or
the Partnership, or make any use thereof, except in the carrying out of
his employment responsibilities under his employment agreement with the
Partnership. Seller acknowledges that this Confidential Information
constitutes a valuable, special, and unique asset used by USPT,
Purchaser or the Partnership, as applicable, in their respective
businesses to obtain a competitive advantage. Seller further
acknowledges that protection of such Confidential Information against
unauthorized disclosure and use is of critical importance in
maintaining the competitive position of USPT, Purchaser and the
Partnership. Seller shall not be prohibited from disclosing
Confidential Information pursuant to, and to the extent required to
comply with, a court order, a valid administrative agency subpoena, or
a lawful request for information by an administrative agency; provided,
however, that Seller shall give Purchaser prompt notice of any such
court order, subpoena, or request for information.
(c) Property of Purchaser. All written or electronic
materials, records, data, and other documents prepared or possessed by
Seller during and in the course of Seller's ownership of the
Partnership Interest or Seller's employment with the Partnership are
the property of USPT, Purchaser or the Partnership. All information,
ideas, concepts, improvements, discoveries, and inventions that are
conceived, made, developed, or acquired by Seller individually or in
conjunction with others during Seller's ownership of the Partnership
Interest or Seller's employment with the Partnership (whether during
business hours and whether on the Partnership's premises or otherwise)
are the sole and exclusive property of Purchaser. All memoranda, notes,
records, files, correspondence, drawings, manuals, models,
specifications, computer programs, maps, and all other documents, data,
or materials of any type embodying such information, ideas, concepts,
improvements, discoveries, and inventions are the property of USPT,
Purchaser or the Purchaser, as applicable.
Section 5.4. Reasonableness of Restrictions. Seller agrees that (a) the
covenants contained in Sections 5.1, 5.2 and 5.3 hereof are necessary for the
protection of the business, goodwill and trade secrets of USPT and its
subsidiaries, including Purchaser and the Partnership, (b) a portion of the
consideration paid to Seller under this Agreement is paid in consideration of
the covenants herein contained, the sufficiency of which consideration is hereby
acknowledged, and (c) if the scope of any restriction contained in Sections 5.1,
5.2, or 5.3 is too broad to permit enforcement of such restriction to its full
extent, then such restriction shall be enforced to the maximum permitted by law,
and the Parties hereby consent that such scope may be judicially modified
accordingly in any proceeding brought to enforce such restriction. The existence
of any claim or cause of action of Seller against the Partnership, Purchaser or
USPT, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Purchaser or USPT of these covenants.
Section 5.5. Enforcement. Seller acknowledges that the restrictions
contained in Sections 5.1, 5.2, and 5.3 hereof are reasonable and necessary to
protect the legitimate interests
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of USPT and its subsidiaries, including Purchaser and the Partnership, that
Purchaser and USPT would not have entered into this Agreement in the absence of
such restrictions, and that any violation of any provision of those Sections
will result in irreparable injury to Purchaser and USPT. Seller further
expressly acknowledges that the damages that would result from a violation of a
covenant contained in Sections 5.1, 5.2 or 5.3 would at a minimum be not less
than $25,000 for each month that Seller is in violation of such covenant. Seller
shall pay to Purchaser liquidated damages in the amount of $25,000 in cash per
month within thirty (30) days after Purchaser notifies Seller that Seller has
breached a covenant contained in Section 5.1, 5.2 or 5.3 as determined solely by
Purchaser in the reasonable exercise of its discretion. If Seller fails to make
payment as contemplated by this Section, Purchaser shall be entitled to, in
addition to any other remedies, (i) withhold from delivery under Section 2.2 or
2.3 the number of shares of USPT Common Stock entitled to be received by Seller,
valued at the Market Price per share in accordance with Section 2.7,
representing $25,000 per month or (ii) set off all or any of such liquidated
damages against any cash amounts payable by Purchaser to Seller pursuant to this
Agreement, or each of the foregoing. The Parties acknowledge and agree that the
actual damages resulting from a breach of a covenant contained in Section 5.1,
5.2 or 5.3 would be difficult or impracticable to calculate and that, in light
of the circumstances, the foregoing are not penalties but represent a reasonable
approximation of such damages. If and to the extent that Seller pays damages to
the Purchaser under this Section, Seller shall not be required to pay damages
under Article VI hereof.
Section 5.6. Current Public Information. USPT shall use commercially
reasonable efforts to comply with the requirements of Rule 144 under the
Securities Act, as such Rule may be amended from time to time (or any similar
rule or regulation hereafter adopted by the SEC) regarding the availability of
current public information to the extent required to enable Seller to sell the
shares of USPT Common Stock issued pursuant to this Agreement without
registration under the Securities Act pursuant to Rule 144 (or any similar rule
or regulation). Upon the request of Seller, USPT will deliver to Seller a
written statement as to whether USPT has complied with such requirements.
ARTICLE VI.
INDEMNIFICATION
Section 6.1. Indemnification by Seller. Subject to the terms and
conditions of this Article and the other provisions of this Agreement, Seller
agrees to indemnify, defend and hold USPT and Purchaser and their directors,
officers, agents, and attorneys harmless from and against all losses, claims,
obligations, demands, assessments, penalties, liabilities, costs, damages,
actions, suits, proceedings, hearings, investigations, charges, complaints,
injunctions, judgments, orders, decrees, rulings, dues, fines, amounts paid in
settlement, taxes, liens, expenses and fees including attorneys' fees and
expenses (collectively, "Damages"), asserted against or incurred by such
indemnitees by reason of or resulting from a breach of any representation,
warranty or covenant of Seller contained herein. Seller specifically agrees to
indemnify USPT and Purchaser for actual (calculated in a multiple of 5.2)
Damages if any such breach of a representation, warranty or covenant of Seller
causes restatement of Base Earnings. The provisions of this Article VI shall not
apply to breaches of covenants in Sections 5.1, 5.2 and
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5.3 if and to the extent that the liquidated damages provided for in Section 5.5
are paid as set forth therein.
Section 6.2. Indemnification by USPT and Purchaser. Subject to the
terms and conditions of this Article, and the other provisions of this
Agreement, USPT and Purchaser hereby agree to indemnify, defend and hold Seller
and his agents and attorneys harmless from and against all Damages asserted
against or incurred by any of such indemnitees by reason of or resulting from a
breach of any representation, warranty or covenant of USPT or Purchaser
contained herein.
Section 6.3. Conditions of Indemnification. The obligations and
liabilities of the indemnifying party to the party to be indemnified under
Sections 6.1 and 6.2 with respect to claims resulting from the assertion of
liability by third parties shall be subject to the following terms and
conditions:
(a) Within 20 days (or such earlier time as might be required
to avoid prejudicing the indemnifying party's position) after receipt
of notice of commencement of any action evidenced by service of process
or other legal pleading, the party to be indemnified shall give the
indemnifying party written notice thereof together with a copy of such
claim, process or other legal pleading, and the indemnifying party
shall have the right to undertake the defense thereof by
representatives of its own choosing and at its own expense; provided
that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall
be paid by the party to be indemnified unless (i) the indemnifying
party has agreed to pay such fees and expenses, (ii) the indemnifying
party has failed to assume the defense of such action or (iii) the
named parties to any such action (including any impleaded parties)
include both the indemnifying party and the party to be indemnified and
the party to be indemnified has been advised by counsel that there may
be one or more legal defenses available to it that are different from
or additional to those available to the indemnifying party, in which
case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of the party to be
indemnified.
(b) In the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the 10th
day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person
asserting such claim), does not elect to defend against such claim, the
party to be indemnified will (upon notice to the indemnifying party)
have the right to undertake the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the
indemnifying party and at the indemnifying party's expense, subject to
the right of the indemnifying party to assume the defense of such
claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party
shall not settle any claim without the prior written consent of the
party to be indemnified, such consent not to be unreasonably withheld.
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(d) The party to be indemnified and the indemnifying party
will each cooperate with all reasonable requests of the other.
Section 6.4. Set-off. If Seller fails to make payment as contemplated
by this Article VI, Purchaser shall be entitled to (i) withhold from delivery
under Section 2.2 or 2.3 the number of shares of USPT Common Stock entitled to
be received by Seller, valued at the Market Price per share, representing an
amount equal to Damages or (ii) set off all or any of Damages against any cash
amounts payable by USPT to Seller pursuant to this Agreement, or each of the
foregoing.
Section 6.5. Remedies Not Exclusive. The remedies provided in this
Article and in Article V shall not be exclusive of any other rights or remedies
available to one party against the other.
ARTICLE VII.
ARBITRATION
Section 7.1. Notice of Demand. Any controversy or claim arising out of
or relating to this Agreement or the breach thereof, except for injunctive
relief which may be obtained to enforce the provisions of Sections 5.1, 5.2 and
5.3 of this Agreement, shall be resolved by binding arbitration which shall be
commenced by the delivery by a Party to the opposing party of a notice of demand
for arbitration sufficient to explain the claim made and the remedy requested.
The notice of any demand for arbitration shall be sent to the opposing party,
with a copy also delivered to the Houston, Texas office of the American
Arbitration Association ("AAA").
Section 7.2. Selection of Arbitrator. The arbitration shall be
conducted by a single arbitrator mutually agreed to by the parties to this
Agreement. If the parties are unable to reach agreement as to an arbitrator, the
Parties shall request the AAA to appoint an arbitrator.
Section 7.3. Hearing. The arbitration hearing shall be held in Houston,
Texas (the place in which the books and records of USPT, Purchaser and the
Partnership are located) and shall be conducted in accordance with the
Commercial Arbitration Rules of the AAA to the extent such rules do not conflict
with the terms hereof. The decision of the arbitrator shall be reduced to
writing and shall be binding on the parties. Judgment upon the award(s) rendered
by the arbitrator may be entered and execution had in any court of competent
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement.
Section 7.4. Expenses. Each party shall pay its own costs and expenses
incurred in connection with such arbitration, provided that the fees and
expenses of the arbitrator shall be borne 50% by the Purchaser and 50% by the
Seller.
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ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Costs, Expenses and Legal Fees. Each party hereto shall
bear its own costs and expenses (including attorneys' fees and expenses) except
as otherwise provided herein.
Section 8.2. Waiver. No waiver by any party of any default or breach by
another party of any representation, warranty, covenant or condition contained
in this Agreement shall be deemed to be a waiver of any prior or subsequent
default or breach by such party of the same or any other representation,
warranty, covenant or condition. No act, delay, omission or course of dealing on
the part of any party in exercising any right, power or remedy under this
Agreement or at law or in equity shall operate as a waiver thereof or otherwise
prejudice any of such party's rights, powers and remedies. All remedies, whether
at law or in equity, shall be cumulative and the election of any one or more
shall not constitute a waiver of the right to pursue other available remedies.
Section 8.3. Amendment. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
Section 8.4. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. Subject to Section 2.5, USPT, Purchaser and
their respective subsidiaries (including, without limitation, the Partnership)
shall be entitled to merge or consolidate with or into any person or entity,
sell or transfer shares of its common stock or any other securities to any
person or entity and sell, transfer, assign or otherwise dispose of assets or
liabilities (including this Agreement) to any person or entity, provided that
its obligations under this Agreement are assumed if so required under Section
2.8. This Agreement shall not be assigned by Seller without the written consent
of Purchaser and USPT, and any attempted assignment without such consent shall
be void.
Section 8.5. Parties In Interest: No Third Party Beneficiaries. This
Agreement shall not be deemed to confer upon any person not a party hereto any
obligations, rights or remedies hereunder.
Section 8.6. Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties hereto
regarding the subject matter hereof, and supersedes all prior agreements and
understandings, both written and oral, among the parties hereto, or any of them,
with respect to the subject matter hereof.
Section 8.7. Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this
16
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
Section 8.8. Governing Law. This Agreement and the rights and
obligations of the parties hereto shall be governed by, construed and enforced
in accordance with the substantive laws of the State of Texas.
Section 8.9. Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
Section 8.10. Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person.
Such notice shall be deemed received on the date on which it is hand-delivered
or on the third business day following the date on which it is so mailed. For
purposes of notice, the addresses of the parties shall be:
If to USPT, Purchaser or General Partner:
c/o U.S. Physical Therapy, Inc.
0000 Xxxx Xxx Xxxx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention:
---------------------
with a copy to:
Mayor, Day, Xxxxxxxx & Xxxxxx, L.L.P.
000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxx
If to Seller:
Xxxx Xxxxxxxx
00000 Xxxxxxxxx
Xxxxxxxx, XX 00000
with a copy to:
Xxx Xxxxxx
000 X Xxxx Xxxx X000
Xxxxxxxxxx Xxxxx, XX 00000
Any party may change its address for notice by written notice given to the other
parties in accordance with this Section.
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Section 8.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
[signature page follows]
18
Executed as of the day first set forth above.
U.S. PHYSICAL THERAPY, INC.
By: /s/ Xxx Xxxxxxxx
---------------------------------------
Name: Xxx Xxxxxxxx
-------------------------------------
Title: President and CEO
------------------------------------
REHAB PARTNERS #1, INC.
By: /s/ Xxx Xxxxxxxx
---------------------------------------
Name: Xxx Xxxxxxxx
-------------------------------------
Title: President
------------------------------------
U.S. PT, LTD.
By: /s/ Xxx Xxxxxxxx
---------------------------------------
Name: Xxx Xxxxxxxx
-------------------------------------
Title: President
------------------------------------
/s/ Xxxx Xxxxxxxx
------------------------------------------
Xxxx Xxxxxxxx
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