Exhibit 10.1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PAINCARE HOLDINGS, INC.,
PAINCARE ACQUISITION COMPANY IV, INC.,
MEDICAL REHABILITATION SPECIALISTS II, P.A.,
AND
XXXX XXXXX, M.D.
EXECUTION DATE: APRIL 17, 2003.
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TABLE OF CONTENTS
1 DEFINITIONS ................................................. 5
2 TRANSACTION ................................................. 5
2.1 Transaction ................................................. 5
2.2 Effect of the Merger ........................................ 5
2.3 Effective Time; Filing of Certificates of Merger ............ 5
2.4 Articles of Incorporation ................................... 6
2.5 Bylaws ...................................................... 6
2.6 Directors and Officers ...................................... 6
2.7 Tax Consequences ............................................ 6
2.8 Additional Actions .......................................... 6
2.9 No Dissenters' Rights ....................................... 6
2.10 Surrender of Certificates ................................... 6
2.11 Conversion of Shares ........................................ 7
2.12 Shareholder Consent and Release ............................. 7
2.13 Piggyback Registration ...................................... 7
3 TRANSACTION CONSIDERATION ................................... 7
3.1 Transaction Consideration ................................... 7
3.1 Transaction Consideration ................................... 7
3.2 Potential Post Closing Adjustments .......................... 7
3.3 Earn-out Payment ............................................ 8
3.4 Pledge Agreement ............................................ 10
4 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER ........... 10
4.1 Organization, Qualification, and Corporate Power ............ 10
4.2 Capitalization .............................................. 11
4.3 Authorization ............................................... 11
4.4 Noncontravention ............................................ 11
4.5 Broker's Fees ............................................... 11
4.6 Title to Assets ............................................. 11
4.7 No Subsidiaries ............................................. 12
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4.8 Financial Statements ........................................ 12
4.9 Events Subsequent to Most Recent Year End ................... 12
4.10 Undisclosed Liabilities...................................... 13
4.11 Tax Matters ................................................. 14
4.12 Real Property ............................................... 15
4.13 Intellectual Property ....................................... 16
4.14 Condition of Tangible Assets ................................ 16
4.15 Contracts ................................................... 16
4.16 Powers of Attorney .......................................... 17
4.17 Insurance; Malpractice ...................................... 17
4.18 Litigation .................................................. 17
4.19 Health Care Compliance ...................................... 18
4.20 Fraud and Abuse ............................................. 18
4.21 Legal Compliance ............................................ 18
4.22 Rates and Reimbursement Policies ............................ 19
4.23 Medical Staff ............................................... 19
4.24 Employees ................................................... 19
4.25 Employee Benefits ........................................... 19
4.26 Physicians and Other Providers .............................. 20
4.27 Guaranties .................................................. 21
4.28 Environment, Health, and Safety ............................. 21
4.29 Certain Business Relationships with the Company and its
Affiliates .................................................. 22
4.30 Third-party Payors .......................................... 22
4.31 Bank Accounts ............................................... 22
4.32 Tax Status .................................................. 22
4.33 Binding Obligation .......................................... 22
4.34 No Corporate Practice or Fee Splitting ...................... 22
4.35 Staff Privileges ............................................ 22
4.36 Intentions .................................................. 22
4.37 Securities Representation ................................... 22
4.38 HIPAA ....................................................... 24
4.39 Improper and Other Payments ................................. 24
4.40 Accounts Receivable ......................................... 24
4.41 Medical Waste ............................................... 24
4.42 No Untrue or Inaccurate Representation or Warranty .......... 25
5 REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING COMPANIES ... 25
5.1 Organization of PainCare and Subsidiary ..................... 25
5.2 Authorization of Transaction ................................ 25
6 CLOSING ..................................................... 25
7 CLOSING DELIVERIES .......................................... 25
7.1 Deliveries of the Company and the Shareholder ............... 25
7.2 Deliveries of PainCare ...................................... 26
8 CONDITIONS TO THE OBLIGATIONS OF PAINCARE AND SUBSIDIARY .... 26
8.1 Representations and Warranties; Covenants and Agreements .... 26
8.2 Due Diligence ............................................... 26
9 POST-CLOSING COVENANTS ...................................... 26
9.1 General ..................................................... 26
9.2 Tax Returns ................................................. 27
9.3 Transition .................................................. 27
9.4 Litigation Support .......................................... 27
9.5 Consents .................................................... 27
9.6 Operational Covenants ....................................... 27
10 SURVIVAL AND INDEMNIFICATION ................................ 28
10.1 Survival of Representations and Warranties .................. 28
10.2 Indemnification Provisions for the Benefit of PainCare and
Subsidiary .................................................. 28
10.3 Indemnification Provisions for the Benefit of the
Shareholder ................................................. 28
10.4 Matters Involving Third Parties ............................. 28
11 RESTRICTIVE COVENANTS; CONFIDENTIALITY ...................... 30
11.1 Shareholder Restrictive Covenants ........................... 30
11.2 Defenses .................................................... 31
11.3 No Running of Covenant During Breach ........................ 31
11.4 Blue Pencil Doctrine ........................................ 31
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11.5 Confidentiality, Press Releases, and Public Announcements.... 31
11.6 Conduct of Business ......................................... 32
11.7 No Third-Party Beneficiaries ................................ 33
12 MISCELLANEOUS................................................ 33
12.1 Entire Agreement ............................................ 33
12.2 Succession and Assignment ................................... 33
12.3 Counterparts ................................................ 33
12.4 Headings .................................................... 33
12.5 Notices ..................................................... 33
12.6 Governing Law; Jurisdiction; Attorney's Fees ................ 34
12.7 Amendments and Waivers ...................................... 34
12.8 Severability ................................................ 34
12.9 Expenses .................................................... 34
12.10 Further Assurances .......................................... 34
12.11 Construction ................................................ 34
12.12 Survival .................................................... 35
12.13 Incorporation of Exhibits and Schedules ..................... 35
12.14 Submission to Jurisdiction .................................. 35
12.15 Notification of Certain Matters ............................. 35
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MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of this 17/th/ day of April, 2003 (the "Execution Date") by
and among PAINCARE HOLDINGS, INC., a Florida corporation ("PainCare"), PAINCARE
ACQUISITION COMPANY IV, INC., a Florida corporation ("Subsidiary", and together
with PainCare, the "Acquiring Companies"), MEDICAL REHABILITATION SPECIALISTS
II, P.A., a Florida professional association (the "Company"), and XXXX XXXXX,
M.D., an individual (the "Shareholder"). PainCare, Subsidiary, the Company and
the Shareholder are sometimes referred to herein individually as a "Party" and
collectively as the "Parties."
RECITALS
A. The Company operates a medical practice and the Shareholder is a
licensed medical provider in the State of Florida and owns all of the issued and
outstanding shares of the Company stock;
B. PainCare desires to enter into this Agreement in order for the
Subsidiary, which is a wholly-owned subsidiary of PainCare, to acquire the
business and assets of the Company;
C. All of the Parties hereto desire to enter into this Agreement to
effectuate the Merger, as hereinafter defined, of the Company with and into
Subsidiary pursuant to the terms and conditions of this Agreement; and
F. It is the intention of the Parties for the Merger contemplated herein to
qualify as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
NOW, THEREFORE, in consideration of the premises and the actual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the receipt and adequacy of which are hereby
conclusively acknowledged, the Parties, intending to become legally bound,
hereby agree as follows:
TERMS AND CONDITIONS
1. DEFINITIONS. All capitalized words that are not capitalized for purposes of
grammar and which are not defined in the text of this Agreement are defined
terms with their definitions set forth on Exhibit 1.
2. TRANSACTION.
2.1 Transaction. Upon the terms and subject to the conditions hereof and in
accordance with the provisions of the Florida Business Corporation Act (the
"Florida Act"), the Company shall be merged with and into Subsidiary (the
"Merger") and the separate existence of the Company shall thereupon cease, and
Subsidiary, as the surviving corporation (the "Surviving Corporation"), shall
continue to exist under and be governed by the Florida Act (the "Transaction").
2.2 Effect of the Merger. At and after the Effective Time, as defined in
Section 2.3 below, the effect of the Merger shall, in all respects, be as
provided in the Florida Act. From and after the Effective Time, the Surviving
Corporation shall continue to be a Florida corporation.
2.3 Effective Time; Filing of Certificates of Merger. The Merger shall be
effected by the filing at the time of the Closing or as soon as practicable
thereafter, of the Articles of Merger (the "Articles of Merger"), substantially
in the form of Exhibit 2.3 attached hereto, with the Secretary of the State of
Florida in accordance with the provisions of the Florida Act. The Merger shall
become effective as of 11:59 p.m. on the date of such filing (the
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"Effective Time") and the Parties shall take any and all other lawful actions
and do any and all other lawful things necessary to cause the Merger to become
effective.
2.4 Articles of Incorporation. As of the Effective Time, the articles of
incorporation of Subsidiary, as in effect immediately prior to the Effective
Time, shall be the articles of incorporation of the Surviving Corporation saving
the change of the Subsidiary's name to Medical Rehabilitation Specialists II,
Inc. until thereafter amended in accordance with applicable law.
2.5 Bylaws. As of the Effective Time, the bylaws of Subsidiary, as in
effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation until thereafter amended in accordance with its terms and
applicable law.
2.6 Directors and Officers. As of the Effective Time, the directors and
officers of Subsidiary immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation. Each director and officer
of the Surviving Corporation shall hold office in accordance with the articles
of incorporation and bylaws of the Surviving Corporation. At the Closing, the
Company shall cause to be delivered to Subsidiary the written resignations of
all of the directors and officers of the Company, which resignations shall be
unconditional and effective as of the Closing Date (as defined in Section 6
below).
2.7 Tax Consequences. It is intended by the Parties hereto that the Merger
shall constitute a tax-free reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code.
2.8 Additional Actions. If, at any time after the Closing, the Surviving
Corporation shall consider or be advised that any further acts are necessary or
desirable: (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, title to and possession of any property or right of the
Company acquired or to be acquired by reason of, or as a result of, the Merger;
or (b) otherwise to carry out the purposes of this Agreement, then the
Shareholder shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such deeds, assignments
and assurances in law and to do all other acts necessary or proper to vest,
perfect or confirm title to and possession of such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement;
and the officers and directors of the Surviving Corporation are fully authorized
in the name of the Shareholder and the Company to take any and all such actions.
2.9 No Dissenters' Rights Comprising the sole shareholder of the Company,
the Shareholder's approval and execution of this Agreement constitutes unanimous
approval of the transactions contemplated herein; therefore, neither the
Shareholder, nor any other party, is entitled to dissenters' rights under the
laws of the State of Florida.
2.10 Surrender of Certificates.
(a) Company's Shares. At the Closing, the Shareholder shall be
required to surrender to Subsidiary the original stock certificate(s) which
immediately prior to the Effective Time represented all of the Company Shares
(the "Certificate") (together with all stock powers duly endorsed to
Subsidiary). Until so surrendered, each Certificate which immediately prior to
the Effective Time represented the Company Shares (other than Company Shares
held in the Company treasury) shall upon and after the Effective Time by virtue
of the Merger be deemed for all purposes to represent and evidence only the
right to receive the PainCare Shares determined in accordance with Section 3 and
the other consideration set forth in Section 3, as provided in this Agreement.
At the Effective Time, the stock transfer books of the Company shall be closed
and no transfer of the Company Shares shall be made at any time thereafter.
(b) Dividends. No dividends or other distributions declared or made
with respect to the PainCare Shares with a record date after the Closing will be
paid to the holder of any unsurrendered Certificate with respect to the PainCare
Shares represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
Certificate representing whole PainCare Shares issued in exchange therefore,
without interest, at the time of such
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surrender, the amount of dividends or other distributions with a record date
after the Closing payable with respect to such whole PainCare Shares.
2.11 Conversion of Shares. Each share of capital stock of Subsidiary issued
and outstanding immediately prior to the Closing shall continue to represent one
(1) validly issued, fully paid and non-assessable share of capital stock of the
Surviving Corporation after the Merger. By virtue of the Merger and without any
action on the part of the Shareholder the Company Shares shall be converted into
One Million One Hundred Thousand (1,100,000) PainCare Shares having an aggregate
value of One Million Three Hundred Seventy Five Thousand and 00/100 Dollars
($1,375,000). The PainCare Shares received by the Shareholder shall not be
transferable by the Shareholder other than: (a) by will or the laws of intestate
succession; (b) in accordance with applicable state and federal securities laws
including without limitation Rule 144 of the Securities Act; and (c) subject to
the term and conditions of any applicable lock-up letter.
2.12 Shareholder Consent and Release. The Shareholder hereby consents to
the Transaction and approves the execution and delivery of this Agreement and
the transactions contemplated hereby. Effective on the Effective Time, the
Shareholder hereby releases the Company from any and all claims he may, could or
will have, whether arising before or after the Effective Time, against the
Company as a result of the Shareholder having served as a stockholder, director,
officer, employee, agent, lender, or in any other capacity of or for the
Company.
2.13 Piggyback Registration. At Closing, the parties shall enter into a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit 2.13.
3. TRANSACTION CONSIDERATION.
3.1 Deposit and Transaction Consideration.
(a) Deposit. Within twenty-four (24) hours of the execution of this
Agreement by the last of the Parties, PainCare will wire to a bank account
designated by Shareholder the sum of Three Hundred Seventy-Five Thousand Dollars
($375,000.00) as a deposit against the cash portion of the Transaction
Consideration due at Closing (the "Deposit"). In the event that the transactions
contemplated by this Agreement fail to close by June 1, 2003, the Shareholder
will return the Deposit, without offset or reduction, to PainCare within three
(3) business days of receiving written demand for same.
(b) Transaction Consideration. The initial aggregate transaction
consideration that PainCare shall transfer to the Shareholder shall equal Two
Million Seven Hundred Fifty Thousand and 00/100 Dollars ($2,750,000), comprised
of: (i) the Deposit which shall be applied against the purchase price at
Closing; (ii) One Million and 00/100 Dollars ($1,000,000) (the "Cash Due At
Closing") which shall be delivered via wire transfer on the Closing Date to a
bank account designated by the Shareholder; plus (iii) One Million One Hundred
Thousand (1,100,000) PainCare Shares valued at One Million Three Hundred Seventy
Five Thousand and 00/100 Dollars ($1,375,000 or $1.25 per share) (collectively,
the "Transaction Consideration"). In addition to the Transaction Consideration,
the Shareholder shall be entitled to the Earn-out Payment (if any) subject to
the adjustments set forth in Section 3.3 below. At least five (5) days prior to
the Closing Date, the Shareholder shall notify PainCare in writing of the bank
account to which the Cash Due At Closing shall be wired.
3.2 Potential Post Closing Adjustments.
(a) Accounts Receivable Adjustment. If the Surviving Corporation,
within the six (6) month calendar period immediately following the Closing Date,
does not collect a total of One Hundred Fifty Thousand and 00/100 Dollars
($150,000.00) in accounts receivable, then the Transaction Consideration shall
be reduced dollar for dollar by the A/R Adjustment. The "A/R Adjustment" shall
equal the difference between the amount of accounts receivable collected by the
Surviving Corporation during such time period and One Hundred Fifty Thousand and
00/100 Dollars ($150,000.00). PainCare shall receive payment for the A/R
Adjustment through a lump sum cash payment from the Shareholder within seven (7)
days after the end of the six (6) month period.
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(b) Other Net Equity Adjustments. If the Closing Date Balance Sheet
(as defined in subsection (c) below) reflects Other Net Equity (as defined
below) that is less than One Hundred Fifty Thousand and 00/100 Dollars
($150,000.00) ("Agreed Other Net Equity"), then the cash portion of the initial
Transaction Consideration shall be reduced dollar for dollar (the "Other Net
Equity Adjustment") by the difference between (i) the Agreed Other Net Equity;
and (ii) the Other Net Equity set forth in the Closing Date Balance Sheet.
"Other Net Equity" shall mean the book value of the Company's tangible assets
plus accounts receivable, net all liabilities of the Company.
(c) Closing Date Balance Sheet. Within ninety (90) days after the
Closing Date, PainCare or its Affiliate will prepare and deliver to the
Shareholder a balance sheet of the Company as of the close of business on the
Closing Date prepared in accordance with GAAP (the "Closing Date Balance
Sheet"). Within six (6) days after PainCare's delivery of the Closing Date
Balance Sheet to the Shareholder, the Shareholder shall, in a written notice to
PainCare, either accept or describe in reasonable detail any proposed
adjustments to the Closing Date Balance Sheet and the reasons therefore, and
shall include pertinent calculations. If the Shareholder fails to deliver notice
of acceptance or objection to the Closing Date Balance Sheet within such six (6)
day period, the Shareholder shall be deemed to have accepted the Closing Date
Balance Sheet. Except in the case of a dispute with respect to the Closing Date
Balance Sheet, within seven (7) days after delivery of the Closing Date Balance
Sheet (the "Adjustment Payment Date"), the Shareholder shall pay the Other Net
Equity Adjustment to PainCare in cash. In the event that PainCare and the
Shareholder are not able to agree on the Closing Date Balance Sheet within
thirty (30) days from and after the receipt by PainCare of any objections raised
by the Shareholder, then either Party shall each have the right to require that
such disputed determinations be submitted to an independent certified public
accountant or accounting firm that PainCare shall select, for computation or
verification in accordance with the provisions of this Agreement, and the Other
Net Equity Adjustment shall be paid by the Shareholder to PainCare within five
(5) days after receipt of the accountant's computation or verification. The
foregoing provisions for certified public accounting firm review shall be final
and binding upon the Parties and there shall be no right of appeal from such
decision. Such accounting firm's fees and expenses for such disputed
determination shall be borne by the Party whose determination has been modified
by such accounting firm's report or by all Parties in proportion to the relative
amount each Party's determination has been modified. Any payments due under this
Section 3.3 shall bear interest at [eight percent (8%)] per annum from the
Adjustment Payment Date.
3.3 Earn-out Payment.
(a) General. Subject to the condition that the Surviving Corporation
achieves Formula Period Profits (as defined in Subsection (f) below) of at least
One Million One Hundred Thousand and 00/100 Dollars ($1,100,000) (the "Earnings
Threshold") in each of the three (3) successive twelve (12) month calendar
periods beginning on the day immediately following the Closing Date (each such
twelve (12) month calendar period shall be referred to herein as a "Formula
Period"), then PainCare shall pay to the Shareholder a total amount of
additional consideration of Two Million Seven Hundred Fifty Thousand and 00/100
Dollars ($2,750,000) for the Formula Periods, payable in three equal annual
installments of Nine Hundred Sixteen Thousand Six Hundred Sixty Six and 66/100
Dollars ($916,666.66) (the "Intended Installment Payment") in the form of
consideration and subject to adjustment as provided in Section 3.3(d) below.
(b) Installment Payment Discount. Notwithstanding Section 3.3(a)
above, if the Surviving Corporation fails to achieve the Earnings Threshold in a
Formula Period, the amount of the Intended Installment Payment for such Formula
Period shall be recalculated to equal the product of the Intended Installment
Payment, multiplied by the Installment Payment Discount (as defined below) (the
"Adjusted Installment Payment"). The "Installment Payment Discount" shall equal
(i) the Formula Period Profits (as defined in Subsection (f) below) for such
Formula Period divided by the Earnings Threshold; multiplied by (ii) ninety
percent (90%).
(c) Installment Payment Premium. Notwithstanding Section 3.3(b), if
(i) the Shareholder receives the Adjusted Installment Payment from PainCare in a
Formula Period (saving the last Formula Period) rather than the Intended
Installment Payment as a result of the Formula Period Profits equaling less than
the Earnings Threshold for such Formula Period, and (ii) the Surviving
Corporation's Formula Period Profits exceed the Earnings Threshold in the
Formula Period immediately subsequent to the Formula Period for which the
Installment Payment Discount
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corresponded, then PainCare shall pay to the Shareholder the Installment Payment
Premium (as defined below). The "Installment Payment Premium" shall equal the
product of (A) the Formula Period Profits for the Formula Period in which the
Installment Payment Premium is calculated less the Earnings Threshold,
multiplied by (B) Seventy-five percent (75%). The Installment Payment Premium
shall be paid to the Shareholder in the same percentages, form and time as the
Installment Payments (as defined in Subsection (d) below) are due for the
Formula Period for which the Installment Payment Premium is calculated.
(d) Manner of Payment. Within sixty (60) days after the end of each
Formula Period, PainCare or its Affiliate shall prepare and deliver to the
Shareholder a financial statement presenting the Formula Period Profits for the
Surviving Corporation for the applicable Formula Period (the "Formula Period
Profits Statement"). Five (5) days after delivery of the Formula Period Profits
Statement, the Shareholder shall in a written notice to PainCare either accept
or describe in reasonable detail any proposed adjustments to the Formula Period
Profits Statement and the reasons therefore, and shall include pertinent
calculations. If the Shareholder fails to deliver notice of acceptance or
objection to the Formula Period Profits Statement within such five (5) day
period, the Shareholder shall be deemed to have accepted the Formula Period
Profits Statement. If the Shareholder accepts or fails to object to the Formula
Period Profits Statement within the five (5) day period set forth above, then
within ninety (90) days after the end of the Formula Period, PainCare shall pay
to the Shareholder the Intended Installment Payment or the Adjusted Installment
Payment (each an "Installment Payment", and collectively, the "Installment
Payments") along with any Installment Payment Premium owed in accordance with
Subsection (c) above as follows: (i) fifty percent (50%) of the Installment
Payment shall be made in cash via wire transfer to a bank account designated by
the Shareholder at least five (5) days prior to the end of the Formula Period;
and (ii) fifty percent (50%) of the Installment Payment shall be made in
PainCare Shares priced at Fair Market Value (as defined in Subsection (f)
below). In the event PainCare and the Shareholder are not able to agree on the
Formula Period Profits Statement within thirty (30) days from and after the
receipt by PainCare of any objections raised by the Shareholder, PainCare and
the Shareholder shall each have the right to require that such disputed
determinations be submitted to an independent certified public accountant or
accounting firm that PainCare shall select, for computation or verification in
accordance with the provisions of this Agreement, and the Installment Payment
shall be paid by PainCare to the Shareholder within fifteen (15) days after
receipt of the accountant's computation or verification. The foregoing
provisions for certified public accounting firm review shall be final and
binding upon the Parties and there shall be no right of appeal from such
decision.
(e) Earn-out Cap. Notwithstanding anything to the contrary in this
Section 3, in no event whatsoever shall the aggregate amount of the Installment
Payments paid to the Shareholder from PainCare in cash, in the PainCare Shares
or any other form of consideration exceed Two Million Seven Hundred Fifty
Thousand and 00/100 Dollars ($2,750,000).
(f) Definitions for Purposes of Section 3.4. For purposes of Section
3.4 of this Agreement, the following terms shall have the meanings set forth
below:
(i) "Fair Market Value" shall mean the value of the PainCare
Shares determined as follows:
(1) if the principal market for the PainCare Shares is a
national securities exchange, then the "Fair Market Value" of the PainCare
Shares shall equal the sixty (60) day trailing average of the closing ask prices
of the PainCare Shares as reported by such exchange or on a composite tape
reflecting transactions on such exchange; or
(2) if the principal market for the PainCare Shares is not a
national securities exchange, but the price of the PainCare Shares is quoted on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") Stock Market, and (A) actual closing price information is available
with respect to the PainCare Shares, then the "Fair Market Value of the PainCare
Shares shall equal the sixty (60) day trailing average of the closing ask prices
of such stock on the NASDAQ Stock Market; or (B) actual closing price
information is not available with respect to the PainCare Shares, then the "Fair
Market Value" of the PainCare Shares shall equal the sixty (60) day trailing
average of the bid prices per share of such stock on the NASDAQ Stock Market; or
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(3) if the principal market for the PainCare Shares is
neither a national securities exchange and such stock is not quoted on NASDAQ,
then the "Fair Market Value" of the PainCare Shares shall equal the sixty (60)
day trailing average of the closing ask prices of the PainCare Shares as
reported by the OTC Bulletin Board Service or by National Quotation Bureau,
Incorporated, or a comparable service selected by PainCare; or
(4) if subsections (f)(i)(1)-(4) above are inapplicable or if
no trades have been made or no quotes are available for such day with respect to
the PainCare Shares, then the "Fair Market Value" of the PainCare Shares shall
be determined by an independent third party appraiser selected by PainCare.
Within ten (10) days after the effective date of the appraiser's appointment,
the appraiser shall deliver an appraisal of the Fair Market Value of the
PainCare Shares, which shall be binding and conclusive on the Parties. The cost
of any appraisal hereunder shall be shared equally by the Parties, and each
Party shall be responsible and financially liable for its or his own attorneys'
fees.
(ii) "Formula Period Profits" shall mean the Surviving
Corporation's earnings before deductions for interest, taxes, depreciation and
amortization ("EBITDA") as calculated utilizing GAAP by PainCare's independent
certified public accountants for the applicable Formula Period where possible,
and as calculated by PainCare for quarterly and less than quarterly periods for
such Formula Period. Notwithstanding the foregoing, the calculation of the
Formula Period Profits shall not include any costs or expenses related to: (i)
the corporate overhead of PainCare or other administrative or similar charges
that PainCare might impose upon the Surviving Corporation, except those charges
for services provided directly to and for the benefit of the Surviving
Corporation; (ii) any non-recurring charges, losses, profits, gains, or non-cash
adjustments not related to the ongoing operations of the Surviving Corporation's
business, including but not limited to discontinued operations, extraordinary
items, acquisition costs and goodwill charges incurred in connection with the
transactions contemplated hereby (excluding the write-off of any goodwill with
respect to the Surviving Corporation in accordance with FASA 142), or unusual or
infrequent items as such terms are defined pursuant to generally accepted
accounting principles, or (iii) any charge related to grants or exercises of
options of employees of the Surviving Corporation. The Formula Period Profits
shall specifically include without limitation revenues and expenses associated
with PainCare's MedX Rehabilitation Program which may be implemented by the
Surviving Corporation subsequent to the Closing unless the Parties otherwise
mutually agree in writing.
3.4 Pledge Agreement. Contemporaneous with the Closing, PainCare agrees to
execute a pledge agreement in the form attached hereto as Exhibit 3.4 (the
"Pledge Agreement") to secure the payment of the Intended Installment Payments.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder
represents and warrants to the Acquiring Companies that the statements contained
in this Section 4 are correct and complete as of the Closing Date, except as set
forth in the disclosure schedule accompanying this Agreement (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered paragraphs contained in this Section 4 to the Agreement.
4.1 Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida. The Company has full power and authority and all
licenses, permits and authorizations necessary to carry on the businesses in
which it is currently engaged and to own and use the properties owned and used
by it. Section 4.1 of the Disclosure Schedule lists all of the officers and
members of the Board of Directors of the Company, as of the date immediately
preceding the Closing Date. The Company has made available to the Acquiring
Companies correct and complete copies of the minute book, articles of
incorporation and bylaws of the Company, as amended to date. Copies of the
minute book (containing the records of meetings of the stockholders, the board
of directors and any committees of the board of directors), the stock
certificate books and stock record books of the Company are correct and complete
in all material respects and will have been delivered to PainCare prior to or at
the Closing. The Company is not in default under or in violation of any
provision of its articles of incorporation or bylaws.
10
4.2 Capitalization. The entire authorized capital stock of the Company
consists of one thousand (1,000) shares of common stock, no par value, of which
one (1) share of common stock is issued and outstanding (the "Company Shares").
All of the issued and outstanding Company Shares have been duly authorized, are
validly issued, fully paid, and nonassessable and are held of record by the
Shareholder as set forth in Section 4.2 of the Disclosure Schedule. The
Shareholder has good title to the Company Shares free and clear of any and all
liens, claims, security interests or other encumbrances of any Person. There are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, redemption rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
stockholders' agreements, voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
4.3 Authorization. The Company has full power and authority (including full
corporate power and authority) and the Shareholder has all necessary authority
to execute and deliver this Agreement and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement by the Company has
been duly authorized and approved by its board of directors and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby. The Company has given the
Shareholder any and all notice required to be given to the Shareholder under
applicable law. This Agreement constitutes the valid and legally binding
obligation of the Company and the Shareholder, enforceable in accordance with
its terms and conditions.
4.4 Noncontravention. Except as set forth in Section 4.4 of the Disclosure
Schedule, neither the execution and the delivery of this Agreement by the
Company or the Shareholder, nor the consummation of the transactions
contemplated hereby will: (a) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, or other restriction of any
government, governmental agency or any other third party whatsoever, or court to
which the Company or the Shareholder are subject, or any provision of the
articles of incorporation or bylaws of the Company; or (b) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument or
other arrangement to which the Company or the Shareholder are a party or by
which either the Company or the Shareholder is bound or to which any of the
Company's assets are subject (or result in the imposition of any Security
Interest upon any of its assets). Except as set forth in Section 4.4 of the
Disclosure Schedule, the Shareholder and the Company need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency or any other third party whatsoever in
order for the Parties to consummate the transactions contemplated by this
Agreement. The Parties agree that Section 4.4 of the Disclosure Schedule shall
be divided into two (2) sections, consisting of: (i) Section 4.4(a) which shall
list all such authorizations, consents and approvals which must be obtained
prior to the Closing, as a condition to Closing; and (ii) Section 4.4(b) which
shall list all such authorizations, consents and approvals which will not be
obtained prior to Closing which shall be obtained within a reasonable period of
time after Closing.
4.5 Broker's Fees. Neither the Company nor the Shareholder has any
Liability or obligation to pay any fees, expenses, or commissions to any
consultant, broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
4.6 Title to Assets. Section 4.6 of the Disclosure Schedule contains a
complete, true and correct list of all of the assets of the Company. The Company
has good and marketable title to, or a valid leasehold interest in, the
properties and assets used by it, located on its premises, or shown on the Most
Recent Financial Statement, as defined in Section 4.8 below, or acquired after
the date thereof, free and clear of all Security Interests. The assets set forth
in Section 4.6, in conjunction with any assets which the Company leases,
constitute all of the assets used by the Company in connection with its business
as presently conducted and all assets necessary or appropriate for the continued
operation of the Company's business.
11
4.7 No Subsidiaries. The Company has no Subsidiaries and does not control,
directly or indirectly, or have any direct or indirect equity participation in
any corporation, partnership, limited liability company, trust or other business
association.
4.8 Financial Statements. Attached as Section 4.8 of the Disclosure
Schedule are true and complete copies of the following Company financial
statements (collectively, the "Financial Statements"): (a) audited balance
sheets, statements of operation and retained earnings, and cash flow for the
year ended December 31, 2002 (the "Most Recent Year End") for the Company; and
(ii) interim statements of operation and retained earnings and cash flow (the
"Most Recent Financial Statements") for the month ended March 31, 2003 (the
"Most Recent Month End") for the Company. The Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and are
consistent with the books and records of the Company (which books and records
are correct and complete); provided, however, that the Most Recent Financial
Statements are subject to normal year-end adjustments which will not be
material. Except as provided in the Most Recent Financial Statements, or as
fully disclosed in Section 4.8 of the Disclosure Schedule, the Company does not
have any Liabilities or obligations (whether accrued, absolute, contingent,
whether due or to become due or otherwise) which might be or become a charge
against the Company since the date of the Most Recent Financial Statements. The
Shareholder acknowledges and agrees that PainCare and Subsidiary relied upon the
financial information set forth in the Financial Statements in order to
determine the Transaction Consideration.
4.9 Events Subsequent to Most Recent Year End. Since the Most Recent Year
End, there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. Without limiting the generality of the foregoing, since the Most Recent
Year End:
(a) Sale or Lease of Assets. The Company has not sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other than
for fair market value in the ordinary course of its business;
(b) Contracts. The Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) outside the ordinary course of business;
(c) Change in Contracts. No third party (or the Company) has
accelerated, terminated, modified, or canceled any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses) to
which the Company is a party or by which it is bound and neither the Shareholder
nor the Company has any intent to do any of the foregoing or has received a
verbal or written indication of any third party's intent to do any of the
foregoing;
(d) Security Interests. The Company has not imposed any Security
Interest upon any of its assets, tangible or intangible;
(e) Investments. The Company has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans, and acquisitions);
(f) Debts. The Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
(g) Liabilities Unaffected. The Company has not delayed or postponed
the payment of accounts payable and other Liabilities or accelerated the
collection of accounts, notes or other receivables;
(h) Claims Unaffected. The Company has not canceled, compromised,
waived, or released any right or claim (or series of related rights and claims)
outside the ordinary course of its business;
12
(i) Articles and Bylaws. There has been no change made or authorized
in the articles of incorporation or bylaws of the Company;
(j) Changes in Equity. The Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or exercise)
any of its capital stock;
(k) Distribution. The Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(l) Property Damage. The Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property or
assets;
(m) Transactions with Affiliates. The Company has not made any loan
to, or entered into any other transaction with, any of its directors, officers
and employees;
(n) Collective Bargaining Agreements. The Company has not entered into
any collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(o) Compensation Changes. The Company has not granted any increase in
the base compensation of any of its directors, officers, and employees;
(p) Employee Benefit Plans. The Company has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(q) Officers; Directors; Employees. The Company has not made any
change in the employment terms for any of its directors, officers and employees,
other than to terminate such agreements as required herein;
(r) Charitable or Capital Contributions. The Company has not made or
pledged to make any charitable or other capital contribution;
(s) Ordinary Course of Business. There has not been any other
occurrence, event, incident, action, failure to act, or transaction outside the
ordinary course of business involving the Company;
(t) Accounting Practices. There has not been any change in any method
of accounting or accounting principle, estimate or practice of the Company;
(u) Accounts Receivable. The Company has not accelerated the
collection of any Accounts Receivable or any other amounts owed to it; and
(v) In General. Neither the Company nor the Shareholder has committed
to do any of the foregoing.
4.10 Undisclosed Liabilities. The Company has no Liability and there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, complaint, claim, or demand against it giving rise to any
Liability, except for: (a) Liabilities set forth on the Most Recent Financial
Statements; (b) Liabilities disclosed in the Disclosures Schedule; and (c)
Liabilities which have arisen after the Most Recent Month End in the ordinary
course of business (none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law). As of the Closing, other than the
current trade accounts payable, the Company shall not have any unpaid
liabilities, including, but not limited to, any bank debt, capital leases or any
general or professional liability claims, or be obliged in any other way to
provide funds in respect of, or to guarantee or assume, any debt, obligation or
dividend of any person, except endorsements in the ordinary course of business
in
13
connection with the deposit, in banks or other financial institutions, of items
for collection. Except as provided in the Most Recent Financial Statements, or
as disclosed in detail in Section 4.8 of the Disclosure Schedule, the Company
does not have any Liabilities or obligations which might be or become a charge
against the Company.
4.11 Tax Matters.
(a) Tax Returns. The Company has filed all Tax Returns it was required
to file. All such Tax Returns were correct and complete in all respects and were
filed on a timely basis. All Taxes owed by the Company (whether or not shown on
any Tax Return) have been paid. The Company currently is not the beneficiary of
any extension of time within which to file any Tax Return. No claim is currently
pending by an authority in a jurisdiction where the Company is or may be subject
to taxation by that jurisdiction. There are no Security Interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) Withholding. The Company 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, stockholder, or other third party.
(c) No Disputes of Claims. No Shareholder or director or officer (or
employee responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the Company
either: (a) claimed or raised by any authority in writing; or (b) as to which
any of the Shareholder, directors and officers (and employees responsible for
Tax matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. Section 4.11 of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 2002, indicates those
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Shareholder has made available to
PainCare correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by any of the Company and its Affiliates since December 31, 2002.
(d) No Waivers. The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) No Special Circumstances. The Company has not made any payments,
is not obligated to make any payments, nor is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662.
(f) Subchapter "S". The Company has elected, by the unanimous consent
of its shareholders and in compliance with all applicable legal requirements, to
be taxed under Subchapter "S" of the Code and corresponding provisions under any
applicable state and local laws, and such elections are currently in full force
and effect for the Company. No action has been taken by the Company or the
Shareholder that may result in the revocation of any such elections. The Company
has no "Subchapter C earnings and profits," as defined in Code Section 1362(d).
The Company has no "net unrealized built-in gain," as such term is defined in
Code Sections 1374(d)(1) and 1374(d)(8). The Company has no Liability, absolute
or contingent, for the payment of any income Taxes under the Code or under
Subchapter "S" of the Code.
(g) Audits of Tax Returns. No Tax Return of the Company is currently
under audit or examination by any taxing authority, and the Company has not
received a written notice stating the intention of any taxing authority to
conduct such an audit or examination. Each deficiency resulting from any audit
or examination relating to Taxes by any taxing authority has been paid, except
for deficiencies being contested in good faith. The revenue agents' reports
related to any prior audits and examinations are attached as part of Section
4.11 of the Disclosure Schedule.
14
(h) Period of Assessment. There is no agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any Taxes.
(i) Tax Agreements. The Company is not a party to or bound by any tax
sharing agreement, tax indemnity obligation or similar agreement with respect to
Taxes, including any advance pricing agreement, closing agreement or other
agreement relating to Taxes with any taxing authority.
(j) Inclusions in Taxable Periods. The Company will be required to
include in a taxable period ending after the Closing Date taxable income
attributable to income that accrued in a prior taxable period but was not
recognized in any prior taxable period as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting, the cash method of accounting or Code Section 481 with
respect to a change in method of accounting occurring before the Closing Date or
comparable provisions of state, local or foreign tax law. As of the Closing
Date, the Shareholder will place funds in a separate bank account in the name of
the Company in an amount sufficient to pay all such liabilities and such funds
shall be used to pay such liabilities as they become due.
(k) Consents. The Company has not filed a consent pursuant to or
agreed to the application of Code Section 341(f).
(l) Personal Holding. The Company has not, during the five (5) year
period ending on the Closing Date, been a personal holding company within the
meaning of Code Section 541.
(m) Consolidated Tax Returns. The Company has never filed or been
included in any combined or consolidated Tax Return with any other person or
been a member of an Affiliated Group filing a consolidated federal income Tax
Return.
4.12 Real Property. The Company does not own any real property. Section
4.12 of the Disclosure Schedule lists and describes briefly all real property
leased or subleased by the Company. The Shareholder has made available to
PainCare and Subsidiary correct and complete copies of the leases and subleases
listed in Section 4.12 of the Disclosure Schedule (as amended to date). With
respect to each lease and sublease listed in Section 4.12 of the Disclosure
Schedule:
(a) Binding. The lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(b) Continued Validity. The lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby;
(c) No Defaults. The Company is not in breach or default under the
lease or sublease and no third party is in breach or default under the lease or
sublease, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification or
acceleration thereunder;
(d) Repudiation. Neither the Company nor any other party to the lease
has repudiated any provision of the lease or sublease;
(e) No Disputes. There are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(f) Subleases. With respect to each sublease, the representations and
warranties set forth in subsections 4.12(a) through 4.12(e) above are true and
correct with respect to the underlying lease;
(g) Encumbrances. None of the Company or its Affiliates has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;
15
(h) Approvals. All facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations; and
(i) Utilities. All facilities leased or subleased thereunder are
supplied with utilities and other services reasonably necessary for the
operation of said facilities.
4.13 Intellectual Property. The Company owns or has the right to use
pursuant to a valid license, sublicense, agreement, or permission all
Intellectual Property necessary or desirable for the operation of the businesses
of the Company as presently conducted and as presently proposed to be conducted.
No claim or demand of any Person has been made, nor is there any proceeding that
is pending, or to the Shareholder's Knowledge, threatened, which challenges the
rights of the Company with respect to any Intellectual Property or asserts that
the Company is infringing or otherwise in conflict with or is required to pay
any royalty or license fee with respect to any Intellectual Property.
4.14 Condition of Tangible Assets. Each tangible asset of the Company is
free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable, designed and intended for the purposes
for which it presently is used by the Shareholder and the Company and is not
outdated in comparison with the assets used for similar purposes by similar
businesses.
4.15 Contracts. Section 4.15 of the Disclosure Schedule lists the following
contracts and other agreements, written or oral, to which the Company was a
party immediately preceding the Closing:
(a) Personal Property Leases. Any agreement (or group of related
agreements) for the lease of personal property to or from any Person providing
for lease payments;
(b) Services. Any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend over a
period of more than one (1) year;
(c) Partnership; Joint Venture. Any agreement constituting a
partnership or joint venture;
(d) Indebtedness. Any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation;
(e) Confidentiality; Non-Competition. Any agreement concerning
confidentiality or non-competition;
(f) Shareholders' Agreements. Any agreement by and between the
Shareholder and any Affiliate of the Company;
(g) Plans. Any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
(h) Employment or Consulting Agreements. Any agreement for the
employment of any individual on a full-time or part-time or the engagement of
any individual as a consultant or independent contractor, or otherwise
compensating an individual for services rendered or to be rendered to the
Company;
(i) Advances; Loans. Any agreement under which the Company has
advanced or loaned any amount to any of its directors, officers and employees
outside the ordinary course of business;
(j) Adverse Effects. Any agreement under which the consequences of a
default or termination could have a material adverse effect on the business,
financial condition, operations, results of operations or future prospects of
the Company; and
16
(k) Other Agreements. Any other agreement (or group of related
agreements) the performance or rendering of which involves consideration in
excess of Five Thousand and No/100 Dollars ($5,000.00).
The Shareholder has made available to PainCare and Subsidiary a
correct and complete copy of each written agreement listed in Section 4.15 of
the Disclosure Schedule (as amended to date) and a written summary setting forth
the terms and conditions of each oral agreement referred to in Section 4.15 of
the Disclosure Schedule. With respect to each such agreement: (i) the agreement
is legal, valid, binding, enforceable, and in full force and effect; (ii) there
shall be no breach or other violation resulting from the consummation of the
transactions contemplated hereby; (iii) the Company is not in default or breach
and no other party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (iv)
neither the Company nor any other party has repudiated any provision of the
agreement. None of the agreements listed in Section 4.15 of the Disclosure
Schedule requires the consent or approval of any Person, or any compensation or
payment to be made to any such Person by reason of the transactions contemplated
by this Agreement, or the merger of the Company with and into another Person.
4.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
4.17 Insurance; Malpractice. Section 4.17 of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks to which
the Company has been a party, a named insured or otherwise the beneficiary of
coverage at any time during the five (5) years immediately preceding the Closing
Date. Section 4.17 of the Disclosure Schedule contains a description of all
current malpractice liability insurance policies of the Shareholder, the Company
and the Company's professional employees and all predecessor policies in effect.
Except as set forth on Section 4.17 of the Disclosure Schedule: (a) neither the
Company, nor its professional employees, nor the Shareholder has, during the
five (5) years immediately preceding the Closing Date, filed a written
application for any insurance coverage relating to the Company's business or
property which has been denied by an insurance agency or carrier; and (b) the
Company, the Company's professional employees and the Shareholder has been
continuously insured for professional malpractice claims during the same period.
Section 4.17 of the Disclosure Schedule also sets forth a list of all claims for
any insured loss in excess of Five Thousand and 00/100 Dollars ($5,000) per
occurrence filed by the Company, the Company's professional employees or the
Shareholder during the five (5) years immediately preceding the Closing Date,
including workers compensation, general liability, environmental liability and
professional malpractice liability claims. With respect to each insurance policy
listed in Section 4.17 of the Disclosure Schedule: (i) the policy is legal,
valid, binding, enforceable, and in full force and effect; (ii) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (iii) neither the Company, the Shareholder, other health care
professionals nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; (iv) the Company has not repudiated any
provision thereof and no other party to the policy has repudiated any provision
thereof; (v) there is no claim pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriter(s) of such
policies or any notice that a defense will be afforded with reservation of
rights; (vi) the Company has not received: (A) any notice that any issuer of any
such policy has filed for protection under applicable bankruptcy laws or is
otherwise in the process of liquidating or has been liquidated; or (B) any other
indication that such policies are no longer in full force and effect or that the
issuer of any such policy is no longer willing or able to perform its
obligations thereunder; and (vii) neither the Shareholder nor the Company has
received any written notice from or on behalf of any insurance carrier issuing
such policies, that there will hereafter be a cancellation, or an increase in a
deductible or non-renewal of existing policies. The Company has been covered
during the past five (5) years by insurance in scope and amount customary and
reasonable for the business in which it has engaged during the aforementioned
period.
4.18 Litigation. Except as noted in Section 4.18 of the Disclosure
Schedule, there is no litigation, arbitration, governmental claim, investigation
or proceeding, pending or, to each of the Seller's knowledge, threatened,
17
against the Company, or the Sellers at law or in equity, before any court,
arbitration tribunal or governmental agency. Each of the Sellers has no
knowledge of any facts on which claims may hereafter be made against the Company
that will have a Material Adverse Effect on the Company. All medical malpractice
claims, general liability incidents and incident reports relating to the
Business have been submitted to the Sellers' or Company's insurer. All claims
made or, to each of the Sellers' knowledge, threatened against the Company or
the Sellers in excess of the deductible are covered under Sellers' or Company's
current insurance policies. Sellers have provided Purchasers with a complete
list of all general liability incidents, incident reports and malpractice claims
relating to the Business or the Center that have for the five (5) year period
prior to the Closing Date.
4.19 Health Care Compliance. The Company is participating or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements set forth in Section 4.19 of the Disclosure
Schedule. All necessary certifications and contracts required for participation
in such programs are in full force and effect and have not been amended or
otherwise modified, rescinded, revoked or assigned, and no condition exists or
event has occurred which in itself or with the giving of notice or the lapse of
time or both would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such third-party payor program. The Company is in
compliance in all material respects with the requirements of all such
third-party payors applicable thereto. None of the Company, its physician
employees, the Shareholder, or immediate family members of the Shareholder or
other physician employees, have any financial relationship (whether investment
interest, compensation interest, or otherwise) with any entity to which any of
the foregoing refer patients, except for such financial relationships that
qualify for exceptions to state and federal laws restricting physician referrals
to entities in which they have a financial interest.
4.20 Fraud and Abuse. The Company, the Shareholder, and all persons and
entities providing professional services for the Company have not engaged in any
activities which are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations
promulgated thereunder pursuant to such statutes, or related state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (c) failing to disclose
Knowledge by a claimant of the occurrence of any event affecting the initial or
continued right to any benefit or payment on its own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; and (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration: (A) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid; or (B) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid. The Company has at all times complied with the
requirements of Florida Statutes which prohibit physicians who have an
ownership, investment or beneficial interest in certain health care facilities
from referring patients to such facilities for the provisions of designated and
other health services, and has at all times complied with the Florida Statutes.
Furthermore, the Company has filed all reports required to be filed by the State
of Florida and federal law regarding compensation arrangements and financial
relationships between a physician and an entity to which the physician refers
patients.
4.21 Legal Compliance. The Company and its predecessors and Affiliates have
complied with all applicable Laws (including rules, regulations, codes,
injunctions, judgments, orders, decrees, and rulings of federal, state, local,
and foreign governments (and all agencies thereof)), and no action, suit,
proceeding, hearing, complaint, claim, demand, notice or investigation has been
filed or commenced, or to the Knowledge of the Shareholder and the Company,
threatened against the Company alleging any failure so to comply. The Company
and all physicians and other health care professionals engaged or employed by
the Company have all permits and licenses required by applicable Law, have made
all required regulatory filings and are not in violation of any such permit or
license. The Company is lawfully operated in accordance with the requirements of
all applicable Laws and has in full force and effect all authorizations and
permits necessary to operate a medical practice. There are no outstanding
notices of
18
deficiencies relating to the Company issued by any governmental authority or
third-party payor requiring conformity or compliance with any applicable law or
condition for participation with such governmental authority or third-party
condition for participation with such governmental authority or third-party
payor. The Company has not received notice and the Company and Shareholder has
no Knowledge or reason to believe that, such necessary authorizations may be
revoked or not renewed in the ordinary course of business.
4.22 Rates and Reimbursement Policies. The jurisdiction in which the
Company is located does not currently impose any restrictions or limitations on
rates which may be charged to private pay patients receiving services provided
by the Company except for restrictions promulgated by Florida law and regulation
on charging of excessive fees and limitations on charges for and profits from
the sale of medications, goods and devices and free samples. The Company does
not have any rate appeal currently pending before any governmental authority or
any administrator of any third-party payor program. The Company and the
Shareholder have no Knowledge of any applicable Law, which affects rates or
reimbursement procedures which has been enacted, promulgated or issued within
the eighteen (18) months preceding the date of this Agreement or any such legal
requirement proposed or currently pending in the State of Florida which could
have a Material Adverse Effect on the Company, its business or operations, or
may result in the imposition of additional Medicaid, Medicare, charity, free
care, welfare, or other discounted or government assisted patients at the
Company or require the Company to obtain any necessary authorization which the
Company does not currently possess. Neither the Company nor the Shareholder have
Knowledge of any impending proposed reduction in reimbursement from third party
or other payors nor Knowledge of any threatened termination of payor contracts.
4.23 Medical Staff. Except as set forth on Section 4.23 of the Disclosure
Schedule, the Shareholder has no Knowledge of a physician who is providing
services on behalf of the Company who plans, or has threatened to terminate his
or her employment or other relationship with the Company. None of the physicians
providing services on behalf of the Company currently has plans to retire from
the practice of medicine in the next three (3) years.
4.24 Employees. Except as set forth on Section 4.24 of the Disclosure
Schedule: (a) there is no unfair labor practice charge or complaint pending or
threatened relating to the business of the Company; and (b) payment in full to
all of the employees of the Company of all wages, salaries, commissions,
bonuses, benefits, and other compensation lawfully due and owing to such
employees or otherwise arising under any policy, practice, agreement, plan,
program, statute, or other law as of the Closing Date has been made.
4.25 Employee Benefits.
(a) Plans. Section 4.25 of the Disclosure Schedule lists each Employee
Benefit or health and welfare plan that the Company maintains or to which the
Company contributes.
(b) Compliance. Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
material respects with its terms and with the applicable requirements of ERISA,
the Code and other applicable laws.
(c) Reports and Descriptions. All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(d) Contributions. All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any pay period ending on or before the
Closing Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments due for all periods ending on or before
the Closing Date have been paid with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
19
(e) Qualified Plan. Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and is intended to meet the requirements of a
"qualified plan" under Code Section 401(a) meets such requirements and has
received, within the last two (2) years, a favorable determination letter from
the IR.
(f) Market Value. The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(g) Copies. The Shareholder has delivered to PainCare and Subsidiary
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the IRS, the most recent Form
5500 Annual Report, and all related trust agreements, insurance contracts, and
other funding agreements which implement each such Employee Benefit Plan.
(h) Maintenance of Plans. With respect to each Employee Benefit Plan
that the Company maintains, ever has maintained, or to which it contributes,
ever has contributed, or ever has been required to contribute:
(i) Reportable Events. No such Employee Benefit Plan which is an
Employee Pension Benefit Plan has been completely or partially terminated or
been the subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee
Pension Benefit Plan has been instituted or threatened; and
(ii) Prohibited Transactions. There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than any Multiemployer Plan), other than routine
claims for benefits, is pending or threatened. The Shareholder and the Company
have no Knowledge of any basis for any such action, suit, proceeding, hearing,
or investigation.
4.26 Physicians and Other Providers. During the five (5) years preceding
the Closing Date, each physician, and other health care provider who is or was
employed by, or who renders or has rendered services on behalf of, the Company:
(a) Licenses. Has been duly licensed and registered, and in good
standing by the State of Florida to engage in the practice of medicine, and said
license and registration have not been suspended, revoked or restricted in any
manner;
(b) Controlled Substances. Has current controlled substances
registrations issued by the State of Florida and the U.S. Drug Enforcement
Administration, which registrations have not been surrendered, suspended,
revoked or restricted in any manner;
(c) Actions. Except as set forth on Section 4.26 of the Disclosure
Schedule, has not been a party or subject to:
(i) Malpractice Actions. Any malpractice suit, claim (whether or
not filed in court), settlement, settlement allocation, judgment, verdict or
decree;
(ii) Disciplinary Proceedings. Any disciplinary, peer review or
professional review investigation, proceeding or action instituted by any
licensure board, hospital, medical school, physical therapy school, health care
facility or entity, professional society or association, third party payor, peer
review or professional review committee or body, or governmental agency;
20
(iii) Criminal Proceedings. Any criminal complaint, indictment or
criminal proceedings;
(iv) Investigation. Any investigation or proceedings, whether
administrative, civil or criminal, relating to an allegation of filing false
health care claims, violating anti-kickback or fee-splitting laws, or engaging
in other billing improprieties;
(v) Mental Illnesses. Any organic or mental illness or
condition that impairs or may impair such physician's ability to practice;
(vi) Substance Abuse. Any dependency on, habitual use or
episodic abuse of alcohol or controlled substances, or any participation in any
alcohol or controlled substance detoxification, treatment, recovery,
rehabilitation, counseling, screening or monitoring program;
(vii) Professional Ethics. Any allegation, or any investigation
or proceeding based on any allegation of violating professional ethics or
standards, or engaging in illegal, immoral or other misconduct (of any nature or
degree), relating to his or her practice; or
(viii) Application for Licensure. Any denial or withdrawal of an
application in any state for licensure as a physician or physical therapist, for
medical staff privileges at any hospital or other health care entity, for board
certification or recertification, for participation in any third party payment
program, for state or federal controlled substances registration, or for
malpractice insurance.
4.27 Guaranties. The Company is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
4.28 Environment, Health, and Safety.
(a) Compliance. Each of the Company and its predecessors and
Affiliates has complied and is in compliance with all Environmental, Health, and
Safety Requirements.
(b) Permits and Licenses. Without limiting the generality of the
foregoing, each of the Company and its Affiliates has obtained and complied
with, and is in compliance with, all permits, licenses and other authorizations
that are required pursuant to Environmental, Health, and Safety Requirements for
the occupation of its facilities and the operation of its business; a list of
all such permits, licenses and other authorizations is set forth on Section 4.28
of the Disclosure Schedule.
(c) Notices. None of the Company nor its predecessors or Affiliates
has received any written or oral notice, report or other information regarding
any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any Liabilities or potential Liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(d) Hazardous Substances. None of the Company or its predecessors or
Affiliates has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Solid Waste Disposal Act, as amended or any other
Environmental, Health, and Safety Requirements.
(e) Neither the Company nor Sellers have received any communication
(written or oral), whether from a governmental authority, citizens' group,
employee or otherwise, that alleges that the Business or the Company is not in
full compliance with Environmental Laws, or that the Company, the Business or
Sellers are otherwise subject to
21
liability under Environmental Laws, and to the best each of Sellers' knowledge,
there are no circumstances that may prevent or interfere with such full
compliance in the future. There is no Environmental Claim (as defined below)
pending or, to the best knowledge of each of the Sellers, threatened against the
Company, the Business or the Center.
(f) Sellers have no knowledge of any actions, activities,
circumstances, conditions, events or incidents, including, but not limited to,
the release, emission, discharge, presence or disposal of any Hazardous
Substances that could form the basis of any Environmental Claim against the
Company, the Business or the Center, or Sellers in connection with the Business
or the Center.
4.29 Certain Business Relationships with the Company and its Affiliates.
Neither the Shareholder nor any of his Affiliates have been involved in any
business arrangement or relationship with the Company and its Affiliates within
the past twelve (12) months, and none of the Shareholder and his Affiliates owns
any asset, tangible or intangible, which is material to the business of any of
the Company and its Affiliates.
4.30 Third-party Payors. Section 4.30 of the Disclosure Schedule sets forth
an accurate, correct and complete list of the Company's third-party payors.
Neither the Company nor the Shareholder has received any notice nor has any
Knowledge that any third-party payor intends to terminate or materially reduce
its business with, or reimbursement to, the Company. The Company has no reason
to believe that any third-party payor will cease to do business with the Company
after, or as a result of, the consummation of any transactions contemplated
hereby. The Company does not know of any fact, condition or event which would
adversely affect its relationship with any third-party payor.
4.31 Bank Accounts. Section 4.31 of the Disclosure Schedule sets forth all
of the bank and security accounts and all safe deposit boxes maintained by the
Company and all lines of credit owned or used by the Company, and the names of
all persons with authority to withdraw funds from, or execute drafts or checks
on, each such account.
4.32 Tax Status. The Shareholder is not a "nonresident alien individual" or
"foreign corporation" for purposes of Code Section 897(a)(1).
4.33 Binding Obligation. This Agreement constitutes the valid and legally
binding obligation of the Shareholder, enforceable in accordance with its terms
and conditions.
4.34 No Corporate Practice or Fee Splitting. The Shareholder does not have
any Knowledge that the actions, transactions or relationships arising from, and
contemplated by, the Transaction violate any law, rule or regulation relating to
the corporate practice of medicine or fee splitting. The Shareholder accordingly
agrees that he will not and will not cause any other Party, in an attempt to
void or nullify this Agreement or any document related to the Transaction or any
relationship involving PainCare or Subsidiary to xxx, claim, aver, allege or
assert that any such document or any such relationship violates any law, rule or
regulation relating to the corporate practice of medicine or fee splitting.
4.35 Staff Privileges. Schedule 4.35 lists all hospitals at which the
Shareholder has full staff privileges. Such staff privileges have not ever been
revoked, surrendered, suspended or terminated, and to the best of the
Shareholder's Knowledge, there are no, and have not been any, facts, conditions
or incidents that may result in any such revocation, surrender, suspension or
termination.
4.36 Intentions. The Shareholder intends to continue practicing medicine on
a full-time basis for the next three (3) years with the Company or the Surviving
Corporation and does not know of any fact or condition that adversely affects,
or in the future may adversely affect, his ability or intention to practice
medicine on a full-time basis for the next three (3) years with the Company or
the Surviving Corporation.
4.37 Securities Representation.
22
(a) No Registration of the PainCare Shares; Investment Intent. The
Shareholder acknowledges that the PainCare Shares to be delivered pursuant to
this Agreement have not been and will not be registered under the Securities Act
and may not be resold without compliance with the Securities Act. The PainCare
Shares to be acquired by the Shareholder pursuant to this Agreement are being
acquired solely for his own account, for investment purposes only and with no
present intention of distributing, selling or otherwise disposing of them in
connection with a distribution other than in compliance with the Securities Act.
(b) Resale Restrictions. The Shareholder covenants, warrants and
represents that none of the PainCare Shares issued to Shareholder will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act and the rules of regulations of the Commission and
applicable state securities laws, and the applicable provisions of this
Agreement. All certificates evidencing the PainCare Shares shall bear
appropriate legends.
(c) Ability to Bear Economic Risk. The Shareholder covenants, warrants
and represents that he is able to bear the economic risk of an investment in the
PainCare Shares acquired pursuant to this Agreement and can afford to sustain a
total loss of such investment and has such Knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the proposed investment and therefore has the capacity to protect his own
interests in connection with the acquisition of the PainCare Shares. The
Shareholder, and the Shareholder's purchaser representative, if any, have
received copies of PainCare's most recent 10-KSB, 10-QSB AND 8-K filings and
have had an adequate opportunity to ask questions and receive answers from the
officers of PainCare concerning any and all matters relating to the background
and experience of the officers and directors of PainCare, the plans for the
operations of the business of PainCare, and any plans for additional
acquisitions and the like. The Shareholder, and the Shareholder's purchaser
representative, if any, have asked any and all questions in the nature described
in the preceding sentence and all questions have been answered to such
individual's satisfaction.
(d) Accredited Investor. The Shareholder covenants, represents and
warrants that he is an: (a) individual with a net worth (either individually or
jointly with his respective spouse) in excess of One Million and No/100 Dollars
($1,000,000.00); or (b) individual who had an income in excess of Two Hundred
Thousand and No/100 Dollars ($200,000.00) in each of 2001 and 2002, or had a
joint income with his spouse in excess of Three Hundred Thousand and No/100
Dollars ($300,000.00) in each of 2001 and 2002, and has a reasonable expectation
of reaching the same income level in 2003.
(e) Residency. The Shareholder covenants, warrants and represents that
he is a resident of the State of Florida, and received this Agreement and first
learned of the transactions contemplated hereby in the State of Florida. He
executed and will execute all documents contemplated hereby in the State of
Florida, and intends that the laws of the State of Florida govern this
transaction.
(f) No Registration. The Shareholder understands, agrees and
acknowledges that the PainCare Shares have not been registered under the Florida
Securities Act or the Securities Act in reliance upon exemption provisions
contained therein which PainCare believes are available.
(g) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(h) IT IS ACKNOWLEDGED BY THE STOCKHOLDER THAT:
THE STOCKHOLDER HAS GIVEN AND HIS REPRESENTATIVE(S) HAVE BEEN GIVEN THE
OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE BUYER OR
PERSON(S) ACTING ON ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS
TRANSACTION, AND TO OBTAIN ANY ADDITIONAL INFORMATION WHICH THE BUYER POSSESSES
OR CAN ACQUIRE WITHOUT UNREASONABLE EFFORT OR EXPENSE THAT IS NECESSARY FOR THE
STOCKHOLDER TO MAKE AN INVESTMENT DECISION WITH RESPECT TO THE BUYER.
23
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON
THE MERITS OF OR GIVEN ITS APPROVAL TO THIS TRANSACTION OR THE BUYER'S SHARES.
THE PAINCARE SHARES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION.
4.38 HIPAA. Schedule 4.38 lists and describes all plans and other efforts
of the Shareholder with respect to the practice locations to comply with the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), including
the final regulations promulgated thereunder, whether such plans and efforts
have been put in place or are in process. Schedule 4.38 includes but is not
limited in any manner whatsoever to any privacy compliance plan of the Company
in place or in development, and any plans, analyses or budgets relating to
information systems including but not limited to necessary purchases, upgrades
or modifications to effect HIPAA compliance.
4.39 Improper and Other Payments. (a) Neither the Company, any director,
officer, employee thereof, nor any agent or representative of the Company nor
any person acting on behalf of any of them, has made, paid or received any
unlawful bribes, kickbacks or other similar payments to or from any person or
authority, (b) no contributions have been made, directly or indirectly, by the
Company to a domestic or foreign political party or candidate; and (c) the
internal accounting controls of the Company are believed by the Company's
management to be adequate to detect any of the foregoing under current
circumstances.
4.40 Accounts Receivable. Schedule 4.40 sets forth a list, accurate,
correct and complete in all respects, of all outstanding accounts and notes
receivable of the Company as of the Closing Date. All outstanding accounts and
notes receivable reflected on Schedule 4.40 are due and valid claims against
account debtors for services rendered in accordance with the usual business
practices and historical collection experience of the Company and are subject to
no counterclaims, and have been outstanding for the periods indicated in the
aging analysis at Schedule 4.40. The Shareholder know of no reason why such
accounts receivable would not be collectible by the Company according to
approximately the same ratios as accounts receivable have been historically
collectible by the Company. All outstanding accounts and notes receivable
included on Schedule 4.40 and generated through the Closing arose in the
ordinary course of business. The Company has not incurred any liabilities to
customers for discounts, returns, promotional allowances or otherwise, except as
provided in the Financial Statements.
4.41 Medical Waste. With respect to the generation, transportation,
treatment, storage, and disposal, or other handling of Medical Waste, the
Company, with respect to the business, has complied with all Medical Waste Laws
(as hereinafter defined).
"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. ss.ss.6992, et seq. ("MWTA").
"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 ss.ss.2501 et seq.; the Marine Protection, Research, and Sanctuaries Act
of 1972, 33 USCA ss.ss.1401 et seq.; the Occupational Safety and Health Act, 29
USCA ss.ss.651 et seq.; the United States Department of Health and Human
Services, National Institute for Occupational 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.
24
4.42 No Untrue or Inaccurate Representation or Warranty. No representation
or warranty by Sellers contains or will contain any untrue statement of fact, or
omits or will omit to state a fact necessary to make the statements therein not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING COMPANIES. The Acquiring
Companies represent and warrant to the Shareholder that the statements contained
in this Section 5 are correct and complete as of the Closing Date.
5.1 Organization of PainCare and Subsidiary. PainCare is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Florida. Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida.
5.2 Authorization of Transaction. PainCare and Subsidiary have full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of PainCare, enforceable in
accordance with its terms and conditions.
6. CLOSING. The closing of the Transaction (the "Closing") shall take place at
the offices of PainCare, or via remote location as coordinated by the Parties'
respective counsel within three (3) days of the closing of that certain
financing arrangement which PainCare is undertaking for the purpose of funding
the Cash Due At Closing but in no event shall the Closing take place later than
May 16, 2003, or such other date as the Parties may mutually agree (the "Closing
Date").
7. CLOSING DELIVERIES.
7.1 Deliveries of the Company and the Shareholder. At or prior to the
Closing, the Company and the Shareholder shall deliver to the Acquiring
Companies the following:
(a) Consents and Approvals. Copies of all authorizations, consents,
and approvals of governments, governmental agencies and third parties referred
to in Section 4.4(a) of the Disclosure Schedule;
(b) Termination of Agreements. Copies of documents effectuating the
termination of any and all written employment and independent contractor
agreements, compensation agreements, buy-sell agreements and other similar
agreements entered into by the Company and which are in effect immediately
preceding the Closing, which terminations shall each include a complete release
of the Company from all known or unknown obligations or liabilities;
(c) Company Stock. The Certificates and stock powers, duly endorsed,
transferring the Company Stock to Subsidiary and the officer and director
resignations required in Section 4.6;
(d) Corporate Authorization. A resolution of the Shareholder and board
of directors of the Company which authorizes the Transaction in accordance with:
(a) applicable law; (b) the Company's articles of incorporation and bylaws; and
(c) all other requirements for proper corporate authorization;
(e) Employment Agreement. A duly executed signature page to the
Employment Agreement, in the form attached hereto as Exhibit 7.1(e), dated as of
the Closing date, by and between the Surviving Corporation and the Shareholder;
(f) Proper Certification. A copy of documents evidencing that the
Company may operate its business for any lawful purposes, and to allow Persons
other than those licensed to practice medicine in the State of Florida to own
shares of the Company's Stock, which documents shall be in form and substance
reasonably satisfactory to PainCare and Subsidiary;
25
(g) Payoffs. Payoff letters from those creditors of the Company listed
in Section 7.1(g) of the Disclosure Schedule;
(h) Good Standing Certificate. A certificate issued by the appropriate
state governmental authority no more than ten (10) days prior to the Closing
Date evidencing the good standing of the Company;
(i) Secretary's Certificate. A certificate of the secretary of the
Company certifying that the minute books, articles of incorporation and bylaws
of the Company, attached as exhibits to such certificate, are true, correct, and
complete; and
(j) Other documents. Such other instruments or documents as may be
necessary or appropriate to carry out the Transactions.
7.2 Deliveries of PainCare. At the Closing, PainCare shall deliver to the
Shareholder the following:
(a) Transaction Consideration. The Transaction Consideration (less the
Deposit which has been delivered to the Shareholder in accordance with Section
3.1(a) above);
(b) Resolutions. A resolution of the board of directors of PainCare,
and the sole shareholder and members of the board of directors of Subsidiary,
authorizing the Transaction;
(c) Pledge Agreement. A duly executed signature page to the Pledge
Agreement, in the form attached hereto as Exhibit 3.4, dated as of the Closing
date;
(d) Registration Rights Agreement. A duly executed signature page to
the Registration Rights Agreement, in the form attached hereto as Exhibit 2.13,
dated as of the Closing date; and
(e) Other documents. Such other instruments or documents as may be
necessary or appropriate to carry out the Transactions.
8. CONDITIONS TO THE OBLIGATIONS OF PAINCARE AND SUBSIDIARY. Each and every
obligation of PainCare and Subsidiary under this Agreement shall be subject to
the satisfaction on or before the Closing Date of each of the following
conditions, unless waived in writing by PainCare and Subsidiary:
8.1 Representations and Warranties; Covenants and Agreements. The
representations and warranties of the Shareholder in this Agreement and all
information contained in any exhibit, certificate, schedule or attachment hereto
or in any writing delivered by, or on behalf of the Shareholder or the Company
shall be true and correct when made and shall be true and correct in all
material respects on the Closing Date as though then made, except as expressly
provided for herein. Both the Shareholder and the Company shall have performed
and complied with all agreements, covenants and conditions and shall have made
all deliveries required by this Agreement to be performed, delivered and
complied with by them prior to the Closing Date; and
8.2 Due Diligence. The Acquiring Companies shall be satisfied, in their
sole discretion, with the results of their due diligence examination of the
Company and, if the Acquiring Companies so choose, the completion of a
satisfactory audit of the Company by the Acquiring Companies' certified public
accountants and the rendering by such accountants of an unqualified opinion
letter.
9. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Execution Date:
9.1 General. In the event that at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party may reasonably
request, all at the sole cost and expense of the requesting Party; provided,
however, that the costs and expenses associated with the taking of any action
necessary
26
to execute or deliver to PainCare any stock powers and such other instruments of
transfer as may be necessary to transfer ownership of the Company's Shares by
the Shareholder shall be borne by the Shareholder.
9.2 Tax Returns. The Shareholder shall be responsible for preparing and
filing all income or franchise Tax Returns of the Company relating to periods of
time prior to the Closing Date. The Subsidiary will be responsible for preparing
and filing all income and franchise Tax Returns of the Company relating to
periods after the Closing. The Shareholder will provide the Subsidiary with an
opportunity to review and comment on such Tax Returns (including any amended
returns). The Shareholder will take no positions on the Tax Returns of the
Company that relate to the tax period prior to the Closing Date that could
adversely affect the Company after the Closing. The income of the Company will
be apportioned to the period up to the Closing Date and the period from and
after the Closing Date in accordance with the provisions of Code Section
1362(e)(6)(D) by closing the books of the Company as of the close of business on
the last calendar day immediately preceding the Closing Date.
9.3 Transition. Neither the Shareholder nor the Company will take any
action that is designed, intended or likely to have the effect of discouraging
any lessor, licensor, customer, supplier or other business associate of the
Company from maintaining the same business relationships with the Company after
the Closing as he, she or it maintained with the Company prior to the Closing.
9.4 Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with: (a) any
transaction contemplated under this Agreement; or (b) any fact, situation,
circumstances, status, condition, activity, practice, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the Parties will cooperate with the contesting or
defending Party and its or his counsel in the contest or defense, at the sole
cost and expense of the contesting or defending Party except to the extent that
the contesting or defending party is entitled to indemnification therefore under
this Agreement.
9.5 Consents. The Shareholder hereby covenants and agrees that, after the
Execution Date, he will use his best efforts to obtain all authorizations,
consents, and approvals set forth in Section 4.4(b) of the Disclosure Schedule.
If such consent, approval or agreement is not obtained, or if an attempted
assignment thereof would affect the rights of the parties thereunder so that
such parties would not in fact receive all such rights, the Parties will
cooperate in any arrangement designed to provide for the Parties to receive the
benefits under any such contract, including enforcement for the benefit of
PainCare and Subsidiary of any and all rights of the Shareholder against a third
party thereto arising out of the breach or cancellation by such third party or
otherwise.
9.6 Operational Covenants. Without the prior written consent of the
Shareholder, which shall not be unreasonably withheld, PainCare shall not, prior
to the conclusion of the third Formula Period:
(a) reorganize the Surviving Corporation, whether by integrating or
consolidating the business of the Surviving Corporation with other operating
units of PainCare or its subsidiaries or affiliates, except in the case that at
the time of such integration or consolidation such transaction could not
reasonably be expected to have a Material Adverse Effect on the Formula
Revenues;
(b) effect any reassignment, reprioritization, reallocation,
restructuring, or reduction of the Surviving Corporation's human or other
resources, their research and development initiatives, or their marketing
programs, except in a manner that at the time of such event could not reasonably
be expected to have a Material Adverse Effect on the Formula Revenues or that
are reasonably necessary in light of the Surviving Corporation's results of
operation;
(c) amend the articles of incorporation or bylaws of the Surviving
Corporation in any manner that at the time of such amendment could reasonably be
expected to have a Material Adverse Effect on the Formula Revenues;
(d) cause the Surviving Corporation to become a party to or terminate
any agreement which at the time such agreement is entered into or terminated
could reasonably be expected to have a Material Adverse Effect on the Formula
Revenues or that is reasonably necessary in light of the Surviving Corporation's
results of operation;
27
(e) cause the Surviving Corporation to undertake actions outside the
ordinary course of its business which at the time of such undertaking could
reasonably be expected to have a Material Adverse Effect on the Formula
Revenues;
(f) sell a material portion of the Surviving Corporation or its
assets, merge the Surviving Corporation with any other entity, sell a
controlling interest in the Surviving Corporation, or make any fundamental
change in the business of the Surviving Corporation unless such action(s) at the
time of such undertaking could not reasonably be expected to have a Material
Adverse Effect on the Formula Revenues or that is reasonably necessary in light
of the Surviving Corporation's results of operation;
The parties hereby acknowledge and agree that the foregoing conditions
shall become null and void and of no further force or effect if the Formula
Profits of the Surviving Corporation in each of any two (2) consecutive calendar
quarters are less than $175,000, or if the Formula Profits of the Surviving
Corporation in one (1) calendar quarter is less than $80,000.
In the event that PainCare defaults in its performance of any of its
obligations under this Section and fails to cure such default within thirty (30)
days (or such other reasonable period if 30 days is not a sufficient amount of
time to cure such default, provided that PainCare shall have commenced in good
faith and is diligently pursuing its efforts to cure such default during such
30-day period) of receiving a written notice of default from the Shareholder,
PainCare shall be deemed to be in breach of this Agreement.
10. SURVIVAL AND INDEMNIFICATION.
10.1 Survival of Representations and Warranties. All of the
representations, warranties, covenants, and agreements including but not limited
to the restrictive covenants and the indemnification provisions contained in
this Agreement are material and have been relied upon by the Parties hereto and
shall survive the Closing for their applicable statute of limitations saving the
covenants set forth in Section 9.6 which shall expire and terminate as of the
end of the last Formula Period, or as otherwise provided in Section 9.6. The
representations and warranties contained herein shall not be affected by any
investigation, verification or examination by any Party or by anyone on behalf
of such Party.
10.2 Indemnification Provisions for the Benefit of PainCare and Subsidiary.
In the event of: (a) a misrepresentation (or in the event any third party
alleges facts that, if true, would mean a misrepresentation) of any of the
Shareholder's representations and/or warranties contained in this Agreement; (b)
a breach (or in the event any third party alleges facts that, if true, would
mean a breach) of any of the Shareholder' covenants contained in this Agreement;
or (c) any Liability of the Company of any nature whatsoever accrued or existing
as of the Closing Date or related to actions of the Company which occurred prior
to the Closing Date, which is not reflected on the Financial Statements or the
Closing Date Balance Sheet, then the Shareholder agrees to indemnify PainCare
and Subsidiary from and against any Adverse Consequences PainCare and Subsidiary
may suffer through and after the date of the claim for indemnification resulting
from, arising out of, relating to, in the nature of, or caused by the
misrepresentation or breach (or alleged breach) or non-disclosed Liability. No
provision of this Agreement, including but not in any way limited to, any
"Knowledge" qualifiers or materiality standards in the representations and
warranties of the Shareholder, shall have any effect on the Shareholders'
indemnity for any Liability arising prior to the Closing Date.
10.3 Indemnification Provisions for the Benefit of the Shareholder. In the
event of a misrepresentation or breach (or in the event any third party alleges
facts that, if true, would mean a misrepresentation or breach) of any of
PainCare's or Subsidiary's representations, warranties, and covenants contained
in this Agreement, then PainCare and Subsidiary agree to indemnify the
Shareholder from and against any Adverse Consequences the Shareholder may suffer
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or the
alleged breach).
10.4 Matters Involving Third Parties.
28
(a) Notification. If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the other Party (the
"Indemnifying Party") pursuant to this Section 10, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless the Indemnifying Party thereby is prejudiced and then only to
the extent that the Indemnifying Party is actually prejudiced.
(b) Defense by Indemnifying Party. The Indemnifying Party shall have
the right to defend the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long as: (i) the
Indemnifying Party notifies the Indemnified Party in writing within ten (10)
business days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party from and
against any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim; (ii) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill the Indemnifying Party's indemnification obligations hereunder;
(iii) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief; (iv) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice adverse
to the continuing business interests of the Indemnified Party; and (e) the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.
(c) Satisfactory Defense. So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
10.4(b) above: (i) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party Claim;
(ii) the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld or delayed
unreasonably); and (iii) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
or delayed unreasonably) and any such settlement must include a complete release
of the Indemnified Party.
(d) Conditions. In the event any of the conditions in Section 10.4(b)
above is or becomes unsatisfied, however: (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, the Indemnifying Party in connection therewith); (ii) the
Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses); and (iii) the Indemnifying Party will
remain responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 10.
(e) Right to Set-Off. If any such cost, loss, damage, expense,
liability, claim, or obligation occurs or is incurred by PainCare or Subsidiary,
PainCare or Subsidiary shall have the right, after written notice to the
Shareholder, at PainCare's or Subsidiary's option and in addition to any other
actions permitted by law, to offset the amount of any such cost, loss, damage,
expense, liability, obligation or claim against amounts due from PainCare or
Subsidiary to the Shareholder, including the right to offset any post-closing
payment due from PainCare or Subsidiary to the Shareholder under this Agreement
or any other agreement.
(f) Materiality. Notwithstanding any provision in this Agreement to
the contrary, the indemnifying Party's obligation to indemnify the Indemnified
Party in connection with a breach of any representation, warranty, covenant or
other agreement included in this Agreement, and the amount of damages to be
indemnified, shall be determined without regard to any "material", "materiality"
(or correlative meanings") or "Material Adverse Effect" qualifications,
provisions or exceptions set forth in such representation, warranty, covenant or
other agreement, each of which shall be deemed to be given for the purposes of
this Section 10 as though there were no such qualifications, provisions or
exceptions.
29
(g) Limitation. The indemnification provisions set forth in this
Section 10 shall be limited to all claims in excess of Twenty Five Thousand and
00/100 Dollars ($25,000) (the "Threshold"). Once a claim exceeds the Threshold,
if a Party is entitled to indemnification under this Section 10, such party
shall recover all appropriate funds from the first dollar of damages. Further,
the indemnitors shall not be liable for any liabilities resulting from claims
that are covered by any insurance policy or other indemnity or contribution
agreement unless, and only to the extent that, the full limit of such insurance
policy, indemnity or contribution agreement has been exceeded. The Party
entitled to indemnification shall have a duty to mitigate its damages.
Notwithstanding the foregoing, a Party's obligation to indemnify under this
Section 10 shall be limited to Five Million Five Hundred Thousand and 00/100
Dollars ($5,500,000), provided however that such cap shall not be applicable to
Sections 4.2, 4.10, 4.11, 4.25, 4.28 and 4.41.
11. RESTRICTIVE COVENANTS; CONFIDENTIALITY.
11.1 Shareholder Restrictive Covenants.
(a) Restricted Period. The Shareholder hereby agrees that during the
time period commencing as of the Execution Date and continuing for a period of
two (2) years thereafter, neither the Shareholder nor any of his Affiliates,
shall, other than on behalf of PainCare or Subsidiary, directly or indirectly,
for himself, or on behalf of any other corporation, person, firm, partnership,
association, or any other entity whatsoever (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity whatsoever):
(i) Establish, operate or provide physician services at any
medical office, hospital, clinic or out-patient and/or ambulatory treatment or
diagnostic facility or become employed by, or serve as a health care consultant
or medical director to any health care provider providing services similar to
those provided by PainCare or Subsidiary, or engage or participate in or finance
any business which engages in direct competition with the business being
conducted by PainCare or Subsidiary at the Effective Time of the Merger,
anywhere within a fifty (50) mile radius of the office of the Company or the
Surviving Corporation;
(ii) Solicit or engage in the solicitation of, or serve or accept
any business from patients, insurance companies, managed care plans, employers
or other customers of the business conducted by PainCare or Subsidiary for
services competitive with those of PainCare or Subsidiary, PainCare's and
Subsidiary's successors and assigns, or PainCare's and Subsidiary's Affiliates;
(iii) Request, induce or advise any patients, insurance companies,
managed care plans, suppliers, vendors, employers or other customers of the
business conducted by PainCare or Subsidiary, or PainCare's or Subsidiary's
Affiliates to withdraw, curtail or cancel their business or other relationships
with PainCare or Subsidiary, or assist, induce, help or join any other person or
entity in doing any of the above activities; or
(iv) Induce or attempt to influence any employee of the Company,
the Surviving Corporation, PainCare or Subsidiary, to terminate his or her
employment with the Company, the Surviving Corporation, PainCare or Subsidiary,
or to hire, recruit or solicit any such employee, whether or not so induced or
influenced.
(b) Consideration. PainCare, Subsidiary and the Shareholder has
carefully considered the nature and extent of the restrictions imposed by this
Section 11.1 and the rights and remedies conferred upon PainCare and Subsidiary
hereunder and hereby expressly acknowledge and agree that: (i) the restricted
territory, period, and activities are reasonable and are necessary and fully
required to protect the legitimate business interests of PainCare and
Subsidiary; (ii) any violation of the terms of these restrictive covenants would
have a substantial detrimental effect on PainCare's and Subsidiary's businesses;
(iii) the restrictive covenants do not stifle the Shareholder's inherent skill
and experience; and (iv) would not operate as a bar to any of the Shareholder's
means of support. Because of the difficulty of measuring economic losses to
PainCare and Subsidiary as a result of the breach of the foregoing covenants,
and because of the immediate and irreparable damage that would be caused to
PainCare and Subsidiary for which it would have no other adequate remedy, the
Shareholder agrees that, in the event of a breach by him of the foregoing
covenants,
30
the covenants set forth in this Section 11.1 may be enforced by PainCare and
Subsidiary by injunctions and restraining orders, in addition to all other
available legal remedies.
(c) Third-Party Beneficiaries. All successors and assigns of PainCare,
Subsidiary, all Affiliates of PainCare and Subsidiary, and all successors and
assigns of such Affiliates are third-party beneficiaries of the restrictive
covenants contained in this Section 11.1 and the provisions of this Section 11.1
are intended for the benefit of, and may be enforced by, PainCare's and
Subsidiary's successors and assigns and PainCare's and Subsidiary's Affiliates
and such Affiliates' successors and assigns.
11.2 Defenses. The existence of any claim or cause of action by the
Shareholder against PainCare or Subsidiary, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the enforcement by
PainCare, Subsidiary, or any of PainCare's or Subsidiary's successors and
assigns or Affiliates and such Affiliates' successors and assigns, but shall be
litigated separately. The provisions of this Section 11 shall survive the
termination of this Agreement. 11.3 No Running of Covenant During Breach. The
covenants set forth in this Section 11 shall apply for the applicable periods as
set forth above. If the Shareholder violates such covenants, and PainCare,
Subsidiary or any of their successors and assigns or Affiliates bring a legal
action for injunctive or other relief, such party bringing the action shall not,
as a result of the time involved in obtaining the relief, be deprived of the
benefit of the full period of the covenant period, unless a court of competent
jurisdiction holds that the covenant is not enforceable in whole or in part.
Accordingly, for any time period that the Shareholder is in violation of the
covenant, such time period shall not be included in calculating the applicable
time period of the covenant.
11.4 Blue Pencil Doctrine. The covenants set forth in this Section 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.5 Confidentiality, Press Releases, and Public Announcements.
(a) No Party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of the other Parties.
(b) The Parties covenant and agree that from and after the Execution
Date, neither of the Parties nor their Affiliates (to the extent any such
Affiliate has received Confidential Information as defined below or Trade
Secrets, as defined below) shall disclose, divulge, furnish or make accessible
to anyone any Confidential Information or Trade Secrets, or in any way use any
Confidential Information or Trade Secrets in the conduct of any business;
provided, however, that nothing in this Section 11.5 will prohibit the
disclosure of any Confidential Information or Trade Secrets which is required to
be disclosed by a Party or any of its or his Affiliates in connection with any
public company laws or regulations, court action or any proceeding before any
authority. Notwithstanding the foregoing, in the case of a disclosure
contemplated by this Section 11.5, no disclosure shall be made until the
disclosing Party shall give notice to the non-disclosing Party of the intention
to disclose such Confidential Information or Trade Secrets so that the
non-disclosing Party may contest the need for disclosure, and the disclosing
Party will cooperate (and will cause its or his Affiliates and their respective
representatives to cooperate) with the non-disclosing in connection with any
such proceeding. Notwithstanding any provision of this Agreement which may be to
the contrary, the foregoing provisions restricting the use of Confidential
Information and Trade Secrets shall survive the Closing for the time period
equal to five (5) years from the Execution Date. For the purpose of this
Agreement, the term "Confidential Information" shall mean all records, files,
reports, protocols, policies, manuals, databases, processes, procedures,
computer systems, materials and other documents pertaining to the operations of
a Party and the term "Trade Secrets" shall mean information, including a
formula, pattern, compilation, program, device, method, technique, or process
that: (i) derives independent economic value, actual or potential, from not
being generally known to, and not being readily
31
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
11.6 Conduct of Business. From the date hereof through the Closing, the
Shareholder shall, except as contemplated by this Agreement, or as consented to
by PainCare in writing, cause the Company to be operated in the ordinary course
and in accordance with past practice and will not take any action inconsistent
with this Agreement or with the consummation of the Closing. Without limiting
the generality of the foregoing, the Company shall not, and, with respect to the
Company, the Shareholder shall not, except as specifically contemplated by this
Agreement, as set forth in Section 11.6 of the Disclosure Schedule, or as
consented to by PainCare in writing:
(a) change or amend the organizational documents of the Company;
(b) enter into, extend, materially modify, terminate or renew any
lease or any contract, except modifications, extensions or renewals of contracts
in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the assets or any interests therein of
the Company except in the ordinary course of business and, without limiting the
generality of the foregoing, the Company will maintain, dispose of, and sell
inventory consistent with past practices;
(d) incur any liability for indebtedness for borrowed money, guarantee
the obligations of others, indemnify or agree to indemnify others or, except in
the ordinary course of business, incur any other liability;
(e) take any action with respect to the grant of any bonus, severance
or termination pay (otherwise than pursuant to policies or agreements of the
Company in effect on the date hereof that are described in the Disclosure
Schedule) or with respect to any increase of benefits payable under its
severance or termination pay policies or agreements in effect on the date hereof
or increase in any manner the compensation or fringe benefits of any employee of
the Company or pay, any benefit not required by any existing Employee Plan or
policy;
(f) make any change in the key management structure of the Company,
including, without limitation, the hiring of additional officers or the
termination of existing officers;
(g) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of any
employee, except for any such amendment as may be required to comply with
applicable regulations;
(h) fail to maintain all Employee Plans in accordance with applicable
Regulations;
(i) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of, any corporation, partnership, association or
other business organization or division thereof or acquire any subsidiary;
(j) willingly allow or permit to be done any act by which any of the
insurance policies of the Company or Shareholder may be suspended, impaired or
canceled;
(k) enter into, renew, modify or revise any agreement or transaction
relating to the Company with any of its or their Affiliates;
(l) fail to maintain the assets of the Company in substantially their
current state of repair, excepting normal wear and tear, or fail to replace
(consistent with the Company's past practice) inoperable, worn-out or obsolete
or destroyed assets;
(m) make any loans or advances relating to the Company to any
partnership, firm, individual, or corporation, except for expenses incurred in
the ordinary course of business consistent with past practice;
32
(n) fail to comply in all material respects with all laws and
regulations applicable to the Company;
(o) change any of the accounting methods or practices of the Company
as historically applied or make any new elections or change any existing
elections with respect to Taxes;
(p) intentionally do any other act which would cause any
representation or warranty of the Company or the Shareholder in this Agreement
to be or become untrue, or any covenant in this Agreement to be breached, in any
material respect;
(q) fail to use reasonable efforts consistent with past business
practice to (i) maintain the Company so that the services of its officers,
employees, consultants and agents will remain available to it on and after the
Closing Date, (ii) maintain existing relationships with suppliers, patients,
customers and others having business dealings with the Company and (iii)
otherwise preserve the goodwill of the business of the Company so that such
relationships and goodwill will be preserved on and after the Closing Date;
(r) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder;
(s) declare, set aside for payment, or pay any dividend or
distribution in respect of any capital stock of the Company, redeem, purchase or
otherwise acquire any of the Company's equity securities; or otherwise transfer
any of the assets of the Company to or on behalf of any Shareholder of the
Company or any Affiliate of the Company, including, without limitation, any
payment of principal of or interest on any debt owed to any of the foregoing or
any payment of a bonus, fee or other payment to any of the foregoing as an
employee of the Company; or
(t) fail to comply with all applicable filing, payment, withholding,
collection and record retention obligations under all applicable federal, state,
local or foreign Tax laws.
11.7 No Third-Party Beneficiaries. Other than with respect to the
restrictive covenants set forth in Section 11, this Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
12. MISCELLANEOUS.
12.1 Entire Agreement This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
12.2 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors, assigns, distributees, heirs, and grantors of any revocable trusts
of a Party hereto. No Party may assign either this Agreement or any of its or
his rights, interests, or obligations hereunder without the prior written
approval of the other Parties; provided, however, PainCare and Subsidiary, may,
without the prior consent of the other Party, assign this Agreement to their
Affiliates.
12.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.4 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.5 Notices All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given: (a) upon receipt if
it is sent by facsimile, (b) the next business day if sent by reputable
overnight courier, or (c) five (5) days after mailing if by certified mail
return receipt requested, postage prepaid, and addressed or otherwise sent to
the intended recipient as set forth below:
33
If to PainCare
or Subsidiary: PainCare Holdings, Inc.
00 Xxxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: President
If to the Shareholder: Xxxx Xxxxx, M.D.
000 Xxxxxxxx Xxxxx, Xxxxx
Xxxxxxxxxxx, XX 00000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address or facsimile number set forth
above using any other means (including personal delivery, messenger service,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any party may change the
address or facsimile number to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
12.6 Governing Law; Jurisdiction; Attorney's Fees. This Agreement, and all
proceedings hereunder, shall be governed by and construed in accordance with the
domestic laws of the State of Florida without giving effect to any choice or
conflict of law provision or rule (either of the State of Florida or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Florida. In the event of any suit under this Agreement
or otherwise between the parties hereto, the prevailing Party shall be entitled
to all reasonable attorney's fees and costs, including allocated costs of
in-house counsel, to be included in any judgment recovered. In addition, the
prevailing Party shall be entitled to recover reasonable attorney's fees and
costs, including allocated costs of in-house counsel, incurred in enforcing any
judgment arising from a suit under this Agreement. This post-judgment attorney's
fees and costs provision shall be severable from the other provisions of this
Agreement and shall survive any judgment on such suit and is not to be deemed
merged into the judgment.
12.7 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence and all waivers must be in writing,
signed by the waiving Party, to be effective.
12.8 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.9 Expenses. Except as set forth herein, each of the Parties will bear
its or his own costs and expenses (including, but not limited to, legal and
accounting fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
12.10 Further Assurances. Each Party shall, at the reasonable request of
any other Party hereto, execute and deliver to such other Party all such further
instruments, assignments, assurances and other documents, and take such actions
as such other Party may reasonably request in connection with the carrying out
the terms and provisions of this Agreement.
12.11 Construction. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
34
"including" shall mean including without limitation. Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, unless the Disclosure Schedule identifies the exception
with reasonable particularity. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from nor mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
12.12 Survival. All of the representations, warranties, covenants and
agreements including but not limited to Articles VI and VII made by the Parties
in this Agreement or pursuant hereto in any certificate, instrument or document
shall survive the consummation of the transactions described herein shall
survive for all applicable statute of limitations, and may be fully and
completely relied upon by Sellers and Purchasers, as the case may be,
notwithstanding any investigation heretofore or hereafter made by any of them or
on behalf of any of them, and shall not be deemed merged into any instruments or
agreements delivered at Closing or thereafter.
12.13 Incorporation of Exhibits and Schedules. The exhibits and schedules
(including the Disclosure Schedule) identified in this Agreement and the
recitals first set forth above are incorporated herein by reference and made a
part hereof.
12.14 Submission to Jurisdiction. Each party to this Agreement hereby
submits to exclusive jurisdiction of any state or federal court within Orange
County, Florida for purposes of all legal proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby. Each party to this
Agreement hereby irrevocably waives, to the fullest extent permitted by law, any
objections which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
12.15 Notification of Certain Matters. Between the date of this Agreement
and the Closing, the Company and/or the Shareholder, as applicable, shall give
prompt notice to PainCare of (i) the occurrence, or failure to occur, of any
event which occurrence or failure would cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
any time from the date hereof to the Closing Date and (ii) any material failure
of the Company or any Affiliate, officer, director, employee, agent or
Shareholder of the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. During the same
period, the Shareholder and/or the Company shall promptly notify PainCare of the
occurrence of any breach by the Shareholder or the Company of any covenant in
this or of the occurrence of any event that may make the satisfaction of the
conditions to Closing impossible or unlikely, and PainCare shall promptly notify
the Shareholder or the Company of the occurrence of any such breach or event
that comes to its attention. Should any such fact or condition require any
change in any Disclosure Schedule if the Disclosure Schedule were dated the date
of the occurrence or discovery of any such fact or condition, the Shareholder
will promptly deliver to PainCare a supplement to the Disclosure Schedule
specifying such change. PainCare shall not be required to Close if any such
supplement to the Disclosure Schedules or failure to satisfy a covenant,
condition or agreement constitutes a material adverse effect.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
PAINCARE:
PAINCARE HOLDINGS, INC., a Florida corporation
By: /s/ Xxxxx Xxxxxxxx
-----------------------
Print: Xxxxx Xxxxxxxx
Its: CEO
SUBSIDIARY:
PAINCARE ACQUISITION COMPANY IV, INC.,
a Florida corporation
By: /s/ Xxxxx Xxxxxxxx
-------------------------
Print:Xxxxx Xxxxxxxx
Its: CEO
COMPANY:
MEDICAL REHABILITATION SPECIALISTS II, P.A.,
a Florida professional association
By: /s/ Xxxx Xxxxx, M.D.
-------------------------
Print: Xxxx X. Xxxxx, M.D.
Its: President
SHAREHOLDER:
/s/ Xxxx Xxxxx, M.D.
-----------------------------
Xxxx Xxxxx, M.D.
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