Exhibit 10.1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PAINCARE HOLDINGS, INC.,
PAINCARE ACQUISITION COMPANY V, INC.,
INDUSTRIAL & SPORT REHABILITATION, LTD.,
D/B/A ASSOCIATED PHYSICIANS GROUP
AND
XXXX XXXX
EXECUTION DATE: APRIL 25, 2003.
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1. DEFINITIONS ....................................................................... 1
2. TRANSACTION ....................................................................... 2
2.1 Transaction ................................................................. 2
2.2 Effect of the Merger ........................................................ 2
2.3 Effective Time; Filing of Certificates of Merger ............................ 2
2.4 Articles of Incorporation ................................................... 2
2.5 Bylaws ...................................................................... 2
2.6 Directors and Officers ...................................................... 2
2.7 Tax Consequences ............................................................ 2
2.8 Additional Actions .......................................................... 2
2.9 No Dissenters' Rights ....................................................... 3
2.10 Surrender of Certificates ................................................... 3
(a) Company's Shares ....................................................... 3
(b) Dividends .............................................................. 3
2.11 Medical Assets .............................................................. 3
2.12 Conversion of Shares ........................................................ 3
2.13 Shareholder Consent and Release ............................................. 4
2.14 Piggyback Registration ...................................................... 4
2.15 Shareholder's Obligation to Furnish Information ............................. 5
2.16 Suspension of Sales Pending Amendment to Prospectus ......................... 5
2.17 Registration Expenses ....................................................... 6
3. TRANSACTION CONSIDERATION ......................................................... 6
3.1 Merger Consideration ........................................................ 6
3.2 Bridge Deposit .............................................................. 6
3.3 Closing Date Adjustments .................................................... 7
(a) Transaction Related Adjustment ......................................... 7
(b) Financial Statements ................................................... 7
(c) Closing Date Balance Sheet ............................................. 7
3.4 Earnout Payment ............................................................. 8
(a) General ................................................................ 8
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(b) Installment Payment Discount ........................................... 8
(c) Installment Payment Premium ............................................ 9
(d) Manner of Payment ...................................................... 8
(e) Earnout Cap ............................................................ 9
(f) Definitions for Purposes of Section 3.4 ................................ 10
(g) Adjustments to Installment Payments .................................... 10
3.5 Security and Pledge Agreements .............................................. 10
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER ................................. 11
4.1 Organization, Qualification, and Corporate Power ............................ 11
4.2 Capitalization .............................................................. 11
4.3 Authorization ............................................................... 11
4.4 Noncontravention ............................................................ 11
4.5 Broker's Fees ............................................................... 12
4.6 Title to Assets ............................................................. 12
4.7 No Subsidiaries ............................................................. 12
4.8 Financial Statements ........................................................ 12
4.9 Events Subsequent to Most Recent Year End ................................... 12
(a) Sale or Lease of Assets ................................................ 13
(b) Contracts .............................................................. 13
(c) Change in Contracts .................................................... 13
(d) Security Interests ..................................................... 13
(e) Investments ............................................................ 13
(f) Debts .................................................................. 13
(g) Liabilities Unaffected ................................................. 13
(h) Claims Unaffected ...................................................... 13
(i) Articles and Bylaws .................................................... 13
(j) Changes in Equity ...................................................... 13
(k) Distribution ........................................................... 13
(l) Property Damage ........................................................ 13
(m) Transactions with Affiliates ........................................... 14
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(n) Collective Bargaining Agreements .................................... 14
(o) Compensation Changes ................................................ 14
(p) Employee Benefit Plans .............................................. 14
(q) Officers; Directors; Employees ...................................... 14
(r) Charitable or Capital Contributions ................................. 14
(s) Ordinary Course of Business ......................................... 14
(t) Accounting Practices ................................................ 14
(u) Accounts Receivable ................................................. 14
(v) In General .......................................................... 14
4.10 Undisclosed Liabilities ................................................... 14
4.11 Tax Matters ............................................................... 15
(a) Tax Returns ......................................................... 15
(b) Withholding ......................................................... 15
(c) No Disputes of Claims ............................................... 15
(d) No Waivers .......................................................... 15
(e) No Special Circumstances ............................................ 15
(f) Subchapter "S" ...................................................... 15
(g) Audits of Tax Returns ............................................... 16
(h) Period of Assessment ................................................ 16
(i) Tax Agreements ...................................................... 16
(j) Inclusions in Taxable Periods ....................................... 16
(k) Consents ............................................................ 16
(l) Personal Holding Company ............................................ 16
(m) Consolidated Tax Returns ............................................ 16
4.12 Real Property ............................................................. 16
(a) Binding ............................................................. 17
(b) Continued Validity .................................................. 17
(c) No Defaults ......................................................... 17
(d) Repudiation ......................................................... 17
(e) No Disputes ......................................................... 17
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(f) Subleases ............................................................ 17
(g) Encumbrances ......................................................... 17
(h) Approvals ............................................................ 17
(i) Utilities ............................................................ 17
4.13 Intellectual Property ..................................................... 17
4.14 Condition of Tangible Assets .............................................. 17
4.15 Contracts ................................................................. 18
(a) Personal Property Leases ............................................. 18
(b) Services ............................................................. 18
(c) Partnership; Joint Venture ........................................... 18
(d) Indebtedness ......................................................... 18
(e) Confidentiality; Non-Competition ..................................... 18
(f) Shareholders' Agreements ............................................. 18
(g) Plans ................................................................ 18
(h) Employment or Consulting Agreements .................................. 18
(i) Advances; Loans ...................................................... 18
(j) Adverse Effects ...................................................... 18
(k) Other Agreements ..................................................... 18
4.16 Powers of Attorney ........................................................ 19
4.17 Insurance; Malpractice .................................................... 19
4.18 Litigation ................................................................ 20
4.19 Health Care Compliance .................................................... 20
4.20 Fraud and Abuse ........................................................... 20
4.21 Legal Compliance .......................................................... 21
4.22 Rates and Reimbursement Policies .......................................... 21
4.23 Medical Staff ............................................................. 22
4.24 Employees ................................................................. 22
4.25 Employee Benefits ......................................................... 22
(a) Plans ................................................................ 22
(b) Compliance ........................................................... 22
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(c) Reports and Descriptions ............................................. 22
(d) Contributions ........................................................ 22
(e) Qualified Plan ....................................................... 22
(f) Market Value ......................................................... 23
(g) Copies ............................................................... 23
(h) Maintenance of Plans ................................................. 23
(i) Reportable Events ............................................. 23
(ii) Prohibited Transactions ....................................... 23
4.26 Physicians and Other Providers ............................................ 23
(a) Licenses ............................................................. 23
(b) Controlled Substances ................................................ 23
(c) Actions .............................................................. 23
(i) Malpractice Actions ........................................... 24
(ii) Disciplinary Proceedings ...................................... 24
(iii) Criminal Proceedings .......................................... 24
(iv) Investigation ................................................. 24
(v) Mental Illnesses .............................................. 24
(vi) Substance Abuse ............................................... 24
(vii) Professional Ethics ........................................... 24
(viii) Application for Licensure ..................................... 24
4.27 Guaranties ................................................................ 24
4.28 Environment, Health, and Safety ........................................... 24
(a) Compliance ........................................................... 24
(b) Permits and Licenses ................................................. 24
(c) Notices .............................................................. 25
(d) Hazardous Substances ................................................. 25
4.29 Certain Business Relationships with the Company and its Affiliates ........ 25
4.30 Third-party Payors ........................................................ 25
4.31 Bank Accounts ............................................................. 26
4.32 Tax Status ................................................................ 26
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4.33 Binding Obligation ................................................. 26
4.34 No Corporate Practice or Fee Splitting ............................. 26
4.35 Intentionally Omitted .............................................. 26
4.36 Securities Representation .......................................... 26
(a) No Registration of PainCare Shares; Investment Intent .......... 26
(b) Resale Restrictions ............................................ 26
(c) Ability to Bear Economic Risk .................................. 26
(d) Accredited Investor ............................................ 27
(e) Residency ...................................................... 27
(f) No Registration ................................................ 27
4.37 HIPAA .............................................................. 27
4.38 Improper and Other Payments ........................................ 27
4.39 Accounts Receivable ................................................ 27
4.40 Medical Waste ...................................................... 28
4.41 No Untrue or Inaccurate Representation or Warranty ................. 28
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING COMPANIES ................. 28
5.1 Organization of PainCare and Subsidiary ............................ 28
5.2 Authorization of Transaction ....................................... 29
5.3 No Conflict or Violation ........................................... 29
5.4 Consents and Approvals ............................................. 29
5.5 Disclosure Documents ............................................... 29
5.6 Capitalization ..................................................... 29
5.7 Litigation ......................................................... 30
5.8 No Undisclosed Liabilities ......................................... 30
5.9 No Brokers ......................................................... 30
5.10 Material Misstatements or Omissions ................................ 30
6. CLOSING; TERMINATION ........................................................ 30
7. CLOSING DELIVERIES .......................................................... 31
7.1 Deliveries of the Company and the Shareholder ...................... 31
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(a) Consents and Approvals ........................................... 31
(b) Termination of Agreements ........................................ 31
(c) Company Stock .................................................... 31
(d) Corporate Authorization .......................................... 31
(e) Payoffs .......................................................... 31
(f) Good Standing Certificate ........................................ 31
(g) Secretary's Certificate .......................................... 31
(h) Other documents .................................................. 31
7.2 Deliveries of PainCare ............................................... 32
(a) Transaction Consideration ........................................ 32
(b) Resolutions ...................................................... 32
(c) Security Agreement ............................................... 32
(d) Counsel's Opinion ................................................ 32
8. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES ................................ 32
8.1 Conditions for the Benefit of PainCare and the Subsidiary ............ 32
8.2 Conditions for the Benefit of the Shareholder ........................ 32
9. COVENANTS ................................................................... 33
9.1 Operations Pending Closing ........................................... 33
9.2 Deliveries Pending Closings .......................................... 33
9.3 Distribution of Sub-Chapter S Income by the Company .................. 33
9.4 Post-Closing General Covenants ....................................... 33
9.5 Tax Returns .......................................................... 33
9.6 Transitions .......................................................... 34
9.7 Litigation Support ................................................... 34
9.8 Consents ............................................................. 34
9.9 Operational Covenants ................................................ 34
9.10 Capital Adjustments .................................................. 35
10. SURVIVAL AND INDEMNIFICATION ................................................ 36
10.1 Survival of Representations and Warranties ........................... 36
10.2 Indemnification Provisions for the Benefit of PainCare
and Subsidiary ....................................................... 36
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10.3 Indemnification Provisions for the Benefit of the Shareholder ........... 36
10.4 Matters Involving Third Parties ......................................... 36
(a) Notification ........................................................ 36
(b) Defense by Indemnifying Party ....................................... 37
(c) Satisfactory Defense ................................................ 37
(d) Conditions .......................................................... 37
10.5 Right to Set-Off ........................................................ 37
10.6 Materiality ............................................................. 38
10.7 Limitation .............................................................. 38
11. RESTRICTIVE COVENANTS; CONFIDENTIALITY ......................................... 38
11.1 Shareholder Restrictive Covenants ....................................... 38
(a) Restricted Period ................................................... 38
(b) Consideration ....................................................... 39
(c) Third-Party Beneficiaries ........................................... 40
11.2 Defenses ................................................................ 40
11.3 No Running of Covenant During Breach .................................... 40
11.4 Blue Pencil Doctrine .................................................... 40
11.5 Confidentiality, Press Releases, and Public Announcements ............... 40
11.6 Conduct of Business ..................................................... 41
11.7 No Third-Party Beneficiaries ............................................ 43
12. MISCELLANEOUS .................................................................. 43
12.1 Entire Agreement ........................................................ 38
12.2 Succession and Assignment ............................................... 38
12.3 Counterparts ............................................................ 38
12.4 Headings ................................................................ 38
12.5 Notices ................................................................. 43
12.6 Governing Law; Jurisdiction; Attorney's Fees ............................ 44
12.7 Amendments and Waivers .................................................. 44
12.8 Severability ............................................................ 45
12.9 Expenses ................................................................ 45
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12.10 Further Assurances. ................................................ 45
12.11 Construction. ...................................................... 45
12.12 Survival. .......................................................... 45
12.13 Incorporation of Exhibits and Schedules. ........................... 45
12.14 Submission to Jurisdiction. ........................................ 46
ix
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of this 25/th/ day of April, 2003 (the "Execution Date") by
and among PAINCARE HOLDINGS, INC., a Florida corporation ("PainCare"), PAINCARE
ACQUISITION COMPANY V, INC., a Florida corporation ("Subsidiary", and together
with PainCare, the "Acquiring Companies"), INDUSTRIAL & SPORT REHABILITATION,
LTD., an Illinois business corporation, d/b/a ASSOCIATED PHYSICIANS GROUP (the
"Company"), and XXXX XXXX, an individual (the "Shareholder"). The Company and
the Shareholder are sometimes referred to herein as the "Sellers." PainCare,
Subsidiary, the Company and the Shareholder are sometimes referred to herein
individually as a "Party" and collectively as the "Parties."
RECITALS
A. PainCare is in the business of acquiring the non-medical assets of
medical practices and entering into management services agreements with
practices entities associated with the acquired practice;
B. PainCare desires to enter into this Agreement in order for the
Subsidiary, which is a wholly-owned subsidiary of PainCare, to acquire the
non-medical assets of the Company;
C. In connection with this acquisition, PainCare desires to have Subsidiary
enter into a management services agreement with the Company, which management
services agreement is the significant inducement for the Subsidiary to acquire
the non-medical assets of the Company;
D. The Company owns and operates a medical practice (hereinafter sometimes
called the "Business") at 000 Xxxxx Xxxxx, X'Xxxxxx, Xxxxxxxx 00000 (hereinafter
sometimes called the "Center") and the Shareholder is a licensed medical
provider in the State of Illinois and owns all of the issued and outstanding
shares of the Company stock;
E. 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 Illinois Business Corporation Act (the
"Illinois Act") and 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 Illinois Act and 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 and the Secretary of the State of Illinois in accordance with the
provisions of the Florida Act and the Illinois Act, respectively. The Merger
shall become effective as of 11:59 p.m. on the date of such filing (the
"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 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 Illinois or 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
"Certificates") (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 Merger Consideration, as hereinafter defined, 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 therefor,
without interest, at the time of such 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 Medical Assets. Those assets (the "Medical Assets") of the Company which
require a medical license to own or utilize, such as medical records and any
pharmaceutical supplies, shall not become the possession of Subsidiary pursuant
to the Merger. The Company shall convey all such Medical Assets, which have
nominal value, to Associated Physician Group, LTD, an Illinois professional
corporation (the "New PC") as of the Effective Time for no required
consideration.
2.12 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
the Merger Consideration. The PainCare Shares to be received by the Shareholder
as part of the Merger Consideration shall be subject to restrictions of the
sale, transfer or distribution thereof as set forth in Section 4.36.
2.13 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, or in any other capacity of the Company; provided,
however, such release shall not operate to release the Company (or the Surviving
Corporation as successor to the Company) from (i) Shareholder's rights (whether
arising under the Company's By-Laws or by statute) to indemnification, or (ii)
the obligation to make the distributions of pre-Closing Date income as permitted
under this Agreement, or (iii) claims, if any, arising from Shareholder serving
as a guarantor or joint-obligor with respect to those certain obligations of the
Company as identified in Section 2.13 of the Disclosure Schedule.
2.14 Piggyback Registration.
(a) If within the three (3) year period commencing on the Execution
Date PainCare proposes for any reason to register the PainCare Shares under the
Securities Act [other than a registration in connection with an exchange offer
(Form S-4) or filed in connection with an employee stock option or other benefit
plan (Form S-8, or any substitute form that may be adopted by the Commission)],
PainCare shall promptly
give written notice to the Shareholder of its intention to so
register the PainCare Shares and, upon written request by the Shareholder, given
within twenty (20) days after delivery of any such notice by PainCare, to
include in such registration PainCare Shares held by the Shareholder (which
request shall specify the number of PainCare Shares proposed to be included in
such registration), PainCare shall attempt to cause all such PainCare Shares to
be included in such registration on the same terms and conditions as the
securities otherwise being included in such registration; provided however, that
if the managing underwriters advise PainCare that the inclusion of the PainCare
Shares proposed to be included in such registration would interfere with the
successful marketing (including pricing) of the PainCare Shares proposed to be
registered by PainCare, then if such registration is in part an underwritten
primary or secondary registration on behalf of PainCare, PainCare shall include
in such registration the PainCare Shares requested to be included in such
registration, pro rata from among the holders of any and all PainCare shares to
be registered pursuant to such registration according to the number of shares
proposed by each holder to be included. In the event PainCare determines not to
pursue, or to withdraw, a registration as to which it has given notice pursuant
to this section, the Shareholder shall have no further rights hereunder with
respect to such proposed registration. Notwithstanding any other provision of
this Section to the contrary, PainCare shall not be required to include any of
the PainCare Shares in a registration statement relating to an underwritten
offering of PainCare's securities unless the Shareholder accepts the terms of
the underwriting as agreed upon between PainCare and the underwriters selected
by it, including, without limitation, any Underwriter's Cutback and/or Lockup,
and the Shareholder agrees to promptly execute and/or deliver such documents in
connection with such registration as PainCare or the managing underwriter may
reasonably request.
(b) The Shareholder may exercise his rights under Section 2.14(a) above on an
unlimited number of occasions. PainCare shall pay all Registration Expenses (as
defined below) of any registration effected under this Section, except that in
the event of withdrawal by the Shareholder, the Shareholder shall pay (or
reimburse PainCare for) the amount of registration, filing or listing fees
relating to his PainCare Shares included in the registration and shall pay the
fees of PainCare's counsel associated with such withdrawal, unless such
withdrawal is due to the Shareholder obtaining material adverse information that
was not known by him at the time he requested inclusion of his PainCare Shares
in the registration.
(c) The Shareholder may not participate in any registration under this
Section which is underwritten unless he agrees to sell such PainCare Shares on
the basis provided in any underwriting agreement (with terms not inconsistent
herewith and customary in underwriting agreements for secondary distributions)
approved by PainCare, provided that the Shareholder shall not be required to
make any representations or warranties to PainCare or the underwriters (other
than representations and warranties regarding such Shareholder and such
Shareholder's intended method of distribution).
2.15 Shareholder's Obligation to Furnish Information. PainCare may require
Shareholder to furnish PainCare such information regarding the distribution of
such securities as PainCare may from time to time reasonably request. If the
failure by the Shareholder to furnish such information as expeditiously as
possible would prevent (i) the registration statement relating to such
registration from being declared effective by the Securities Exchange
Commission, or (ii) members of the National Association of Securities Dealers,
Inc. from participating in the distribution of the PainCare Shares proposed to
be registered, PainCare may exclude the Shareholder's PainCare Shares from such
registration.
2.16 Suspension of Sales Pending Amendment to Prospectus.
(a) The Shareholder agrees that, upon receipt of any notice from
PainCare of the happening of any event of that requires PainCare not to proceed
with the registration, or if PainCare has decided not to proceed with the
registration for any reason, the Shareholder shall forego the disposition of any
PainCare Shares covered by the registration statement or prospectus until he is
advised in writing by PainCare that the use of the applicable prospectus may be
resumed and, if so directed by PainCare, the Shareholder shall deliver to
PainCare (at PainCare's expense, except as hereinafter provided) all copies,
other than permanent file copies, then in Shareholder's possession of any
prospectus covering such PainCare Shares.
(b) The Shareholder agrees that he shall, as expeditiously as
possible, notify PainCare at any time when a prospectus relating to a
registration statement covering such Shareholder's PainCare Shares is required
to be delivered under the Securities Act, of the happening of any event which
requires changes to be made in the registration statement or any related
prospectus so that such registration statement or prospectus shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading as a result of any information provided by the Shareholder for
inclusion in such prospectus included in such registration statement and, at the
request of PainCare, as expeditiously as possible prepare and furnish to it such
information as may be necessary so that, after incorporation into a supplement
or amendment of such prospectus as thereafter delivered to the purchasers of
such PainCare Shares, the information provided by such Shareholder shall not
include an untrue statement of a material fact or a misstatement of a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
and, in such event the expenses of delivery to PainCare of copies of any
prospectus in the Shareholder's possession shall be at the expense of the
Shareholder.
2.17 Registration Expenses.
(A) All expenses incident to PainCare's performance of or compliance
with its obligations under this Section 2, including without limitation all (i)
registration and filing fees, (ii) fees and expenses of compliance with
securities laws, (iii) printing
expenses, (iv) messenger and delivery expenses, (v) internal expenses, (vi)
reasonable fees and disbursements of its counsel and its independent certified
public accountants (including "comfort" letters), (vii) securities act liability
insurance, (viii) reasonable fees and expenses of any special experts retained
by PainCare in connection with the registration hereunder, and (ix) reasonable
fees and expenses of other persons retained by PainCare (all such expenses being
referred to herein as "Registration Expenses") shall be borne by PainCare.
(b) Notwithstanding the foregoing, the following costs and expenses
shall be excluded from the term "Registration Expenses": (i) all underwriting
discounts and commissions, (ii) all applicable transfer taxes, (iii) the fees
and disbursements of any counsel retained by the Shareholder, and (iv) except as
provided in Section 2.17(a), all other costs, fees, and expenses incurred by the
Shareholder in connection with the exercise of his registration rights
hereunder.
3. TRANSACTION CONSIDERATION.
3.1 Merger Consideration. The aggregate merger consideration (the "Merger
Consideration") shall consist of (i) the Closing Date Consideration (the
"Closing Date Consideration") as hereafter defined, and (ii) the Earnout Payment
as determined under Section 3.4 below. Subject to adjustment as provided in
Section 3.3 below, the Closing Date 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) One Million Three Hundred Seventy
Five Thousand and 00/100 Dollars ($1,375,000) (the "Cash Due At Closing") to be
delivered via wire transfer on the Closing Date to a bank account designated by
the Shareholder, plus (ii) One Million Three Hundred Seventy Five Thousand
(1,375,000) PainCare Shares, valued at One Dollar ($1.00) per share and having
an aggregate value of One Million Three Hundred Seventy Five Thousand and 00/100
Dollars ($1,375,000). 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 Bridge Deposit. On the Execution Date, PainCare agrees to provide
Shareholder a bridge loan in accordance with the Bridge Deposit Agreement
executed contemporaneously herewith in the amount of Six Hundred Eighty Seven
Thousand Five Hundred and 00/100 Dollars ($687,500) (the "Bridge Deposit"), by
wire transfer. The Bridge Deposit shall be applied (i) to reduce the Cash Due at
Closing as provided in Section 3.3 below or (ii) if the Closing does not occur
on or before August 15, 2003 and either PainCare or the Shareholder then elects
to terminate its obligations under this Agreement, upon which the principal
balance plus accrued interest on the Bridge Deposit shall be immediately payable
to PainCare. As provided in the Bridge Deposit Agreement, any net repayment by
Subsidiary or Shareholder in the event of a termination of this Agreement shall
bear interest on such amount.
3.3 Closing Date Adjustments. The Closing Date Consideration shall be
subject to adjustment as follows:
(a) Transaction Related Adjustments. The Cash Due At Closing shall be
reduced by the amount of the Bridge Deposit. The Cash Due At Closing shall
further be reduced by the amount of any cash payments made by the Company or the
Acquiring Companies (i) in satisfaction of the joint obligation of the Company
and the Shareholder to pay the broker named in Section 4.5 below, (ii) other
expenses paid on behalf of the Shareholder (rather than the Company) in
connection with this Agreement and the transactions contemplated hereby, and
(iii) the cash portion of any bonus or incentive compensation directed by
Shareholder to be paid to employees of the Company at Closing. Similarly, to the
extent that any portion of the obligation of the Company and the Shareholder to
the broker under Section 4.5 below is to be satisfied in shares of PainCare
Shares (or to the extent that any bonus or incentive compensation directed by
Shareholder to be paid to employees of the Company at Closing is to be satisfied
in PainCare Shares), the number of PainCare Shares comprising a portion of the
Closing Date Consideration shall be reduced by the aggregate number of shares so
issued. Shareholder and the Company acknowledge that the obligation of PainCare
to issue shares to others in accordance with the previous sentence is
conditioned upon the availability of exemption(s) from the registration
requirements under the Securities Act and any applicable state securities law
for such transaction(s) and the agreement(s) of the recipients thereof to
restrictions on the transfer, sale or distribution thereof.
(b) Financial Statements. The Company has prepared financial
statements consisting of (i) a balance sheet, statement of operations and cash
flow statement in accordance with GAAP as of and for the year ended December 31,
2002 (the "GAAP Financial Statements"); and (ii) a balance sheet, statement of
operations and cash flow statement as of and for the quarters ended March 31,
2002 and 2003; (the "Interim Financial Statements") all of which are included in
Section 3.3(b) of the Disclosure Schedule. The GAAP Financial Statements have
been certified by an independent auditor and have been prepared using accounting
principles consistent with the accounting principles utilized by PainCare. The
Interim Financial Statements have been prepared in accordance with the cash
method of accounting. The GAAP Financial Statements and the Interim Financial
Statements (collectively, the "Financial Statements") present fairly the
financial condition of the Company as of such dates and the results of the
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).
(c) Closing Date Balance Sheet. Within forty-five (45) 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 therefor, 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 (as defined below) to
PainCare. 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 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.
If the final Closing Date Balance Sheet reflects Cash of the Company
that is less than Fifty Thousand Dollars ($50,000) (the "Required Cash"), or Net
Shareholder's Equity (as defined below) of the Company that is less than Two
Hundred Thousand and 00/100 Dollars ($200,000)("Agreed Net Equity"), then the
Cash Due at Closing shall be reduced and the Shareholder shall be required to
immediately return to PainCare dollar for dollar (the "Net Equity Adjustment")
by (i) an Amount equal to the Required Cash less Cash reflected on the Closing
Date Balance Sheet, and (ii) the difference between (x) the Agreed Net Equity;
and (y) the Net Shareholder's Equity set forth in the Closing Date Balance
Sheet. "Net Shareholder's Equity" shall mean the book value of the Company's
tangible assets (less the Required Cash) net of all liabilities of the Company.
3.4 Earnout 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 first of the first month immediately following the
Closing Date unless the Closing occurs on the first day of a month in which case
the first 12 month period shall begin on 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 70/100 Dollars ($916,666.70) (the "Intended Installment Payment")
in the form of consideration and subject to adjustment as provided in Section
3.4(d) below.
(b) Installment Payment Discount. Notwithstanding Section 3.4(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 3.4(b), if (i)
the Shareholder receives the Adjusted Installment Payment from PainCare in a
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 Subsidiary's Formula Period Profits exceed the
Earnings Threshold in the Formula Period immediately subsequent to the Formula
Period for which the Installment Payment Discount corresponded (or the twelve
(12) month calendar period immediately following the third and final Formula
Period solely with respect to the third and final Formula Period), 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 thirty (30) 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 therefor, 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 forty-five (45) 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 One Dollar and 00/100 ($1.00)
per one share of PainCare common stock for all Formula Periods. 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) Earnout 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 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, "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 data 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 Subsidiary, except those charges for services
provided directly to and for the benefit of the Subsidiary; (ii) any
non-recurring charges, losses, profits, gains, or non-cash adjustments not
related to the ongoing operations of the Subsidiary'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, (iii)
any charge related to grants or exercises of options pursuant to the Independent
Contractor Agreement, or (iv) any charge or expense related to any direct
reduction in payments or distributions due the Shareholder under this Agreement.
(g) Adjustments to Installment Payments. The amount of the cash portion
of any Installment Payment due Shareholder hereunder shall be reduced by the
amount of any cash payments made by the Acquiring Companies in satisfaction of
the joint obligation of the Company and the Shareholder to pay the broker named
in Section 4.5 below. Similarly, to the extent that any portion of the
obligation of the Company and the Shareholder to the broker under Section 4.5
below is to be satisfied in shares of PainCare Common Stock, the number of
shares of PainCare Common Stock comprising a portion of any Installment Payment
shall be reduced by the aggregate number of shares so issued. Shareholder and
the Company acknowledge that the obligation of PainCare to issue shares to
others in accordance with the previous sentence is conditioned upon the
availability of exemption(s) from the registration requirements under the
Securities Act and any applicable state securities law for such transaction(s)
and the agreement(s) of the recipients thereof to restrictions on the transfer,
sale or distribution thereof.
3.5 Security and Pledge Agreements. Payment of the Installment Payments
will be secured by certain assets and all of the issued and outstanding capital
stock of the Surviving Corporation. To that end, the Surviving Corporation will
enter into with the Shareholder a security agreement and pledge agreement in the
form attached hereto as Composite Exhibit 3.5 (hereinafter, collectively the
"Security Agreements").
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 date of this Agreement,
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 Illinois. 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.
4.2 Capitalization. The entire authorized capital stock of the Company
consists of thirty thousand (30,000) shares of common stock, of which two
hundred (200) shares of common stock are issued and outstanding. 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. The Company and the Shareholder have entered into a
Broker's Agreement dated January __, 2003 with KBL Investments, Inc, ("KBL") for
which the Shareholder agrees to pay any and all Liabilities or obligations to
pay any fees, expenses, or commissions to KBL and any other consultant, broker,
finder, or agent retained by the Company or the Shareholder 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. Except as
to assets disposed of in the ordinary course of business subsequent to the date
hereof and as otherwise contemplated by this Agreement, 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 Effective Date Balance
Sheet or acquired after the date thereof, free and clear of all Security
Interests. Except for the Medical Assets which are to be transferred to New PC,
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.
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 3.3(b) of the Disclosure
Schedule are true and complete copies of the GAAP Financial Statements and the
Interim Financial Statements. Except as provided in the Interim 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 Interim 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 December 31, 2002 (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 had 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;
(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. Except for distributions of subchapter S income as
permitted by Section 9.3 below, 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. Saving the changes associated with the
change to GAAP with respect to the GAAP Financial Statements, 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 disclosed in the Disclosures Schedule;
(b) contractual obligations incurred in the ordinary course of business; and (d)
Liabilities which have arisen after the Interim Balance Sheet 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, leasehold obligations and accrued payroll and benefit
obligations, the Company shall not have any unpaid liabilities, other than those
listed in the Section 4.10 Disclosure Schedule, 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 connection with the deposit, in banks or
other financial institutions, of items for collection.
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 remitted when due, all
Taxes required to have been withheld or 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.
(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 Company. 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 to
Shareholder's Knowledge 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;
(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
(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 Shareholder's Knowledge, threatened, against the Company, or the
Shareholder 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
Company's insurer. All claims made or, to Shareholder's Knowledge, threatened
against the Company or the Shareholder in excess of the deductible are covered
under the Shareholder's or Company's current insurance policies. Section 4.18 of
the Disclosure Schedule provides 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 date hereof.
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. (S) 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 Illinois 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 Illinois Statutes.
Furthermore, the Company has filed all reports required to be filed by the State
of Illinois 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 (or associated with the Company as a result of being engaged or
employed by New PC) 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 saving those
that have been assigned or transferred to the New PC in accordance with this
Agreement. There are no outstanding notices of 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 Illinois 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 Illinois 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 or New PC 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.
(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 IRS.
(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
or New PC:
(a) Licenses. Has been duly licensed and registered, and in good
standing by the State of Illinois 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 Illinois 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;
(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. Saving the guaranties listed in Section 4.27 of the
Disclosure Schedule, 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 material 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 in
all material respects with, and is in compliance in all material respects 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) The Company has not 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 is otherwise subject to liability under
Environmental Laws, and to the Shareholder's 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 Shareholder's
Knowledge, threatened against the Company, the Business or the Center.
(f) The Shareholder has 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.
Except as contemplated hereby with respect to New PC, 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 Intentionally Omitted.
4.36 Securities Representation.
(a) No Registration of 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 any PainCare
Stockholders' Agreement and this Agreement. All certificates evidencing PainCare
Shares shall bear the legends contained in the PainCare Stockholders' Agreement.
(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 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-K, 10-Q 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 Illinois, and received this Agreement and first
learned of the transactions contemplated hereby in the State of Illinois. He
executed and will execute all documents contemplated hereby in the State of
Illinois, and intends that the laws of the State of Illinois govern this
transaction.
(f) No Registration. The Shareholder understands, agrees and
acknowledges that the PainCare Shares have not been registered under the
Illinois Securities Act or the Securities Act in reliance upon exemption
provisions contained therein which PainCare believes are available.
4.37 HIPAA. Schedule 4.37 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 4.37 includes but is not
limited in any manner whatsoever to any privacy compliance plan of Sellers 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.
4.38 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.
4.39 Accounts Receivable. Schedule 4.39 sets forth a list, accurate,
correct and complete in all respects, of all outstanding accounts and notes
receivable of the Company as of the last day of the month immediately preceding
the Execution Date (which will be updated as of the Closing to the last day of
the month immediately preceding the Closing Date). All outstanding accounts and
notes receivable reflected on Schedule 4.39 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 to the best of
Shareholder's knowledge are subject to no counterclaims, and have been
outstanding for the periods indicated in the aging analysis at Schedule 4.39.
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 4.39 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
4.40 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. (S)(S)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 (S)(S)2501 et seq.; the Marine Protection, Research, and Sanctuaries Act
of 1972, 33 USCA (S)(S)1401 et seq.; the Occupational Safety and Health Act, 29
USCA (S)(S)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.
4.41 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 and
information contained in this Section 4 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. The execution and delivery of this
Agreement has been approved and authorized by the Board of Directors of
PainCare.
5.3 No Conflict or Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Certificate
or Articles of Incorporation or bylaws of the PainCare or Subsidiary, (b) a
breach of, or a default under, any term or provision of any contract, agreement,
indebtedness, lease, commitment, license, franchise, permit, authorization or
concession to which the PainCare or Subsidiary is a party, which breach or
default could reasonably be expected to have a Company material adverse effect
on the business or financial condition of the PainCare or Subsidiary or its
ability to consummate the transactions contemplated hereby or (c) a violation by
the PainCare or Subsidiary of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation could
reasonably be expected to have a material adverse effect on the business or
financial condition of the PainCare or Subsidiary, or their ability to
consummate the transactions contemplated hereby.
5.4 Consents and Approvals. Except as set forth on Disclosure Schedule 5.4,
no notice to, declaration, filing or registration with, or authorization,
consent or approval of, or permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is required to be
made or obtained by the PainCare or Subsidiary in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
5.5 Disclosure Documents. PainCare has delivered or Stockholder has had the
opportunity to obtain and review PainCare's Form 10-KSB for the year ending
December 31, 2002, Form S-4/A filed with the SEC on July 11, 2002, Form 10-QSB
for the period ending September 30, 2002, Form 14A (Definitive Proxy) filed with
the SEC on September 17, 2002 and current Forms 8-K (the "PainCare Disclosure
Documents"). The PainCare Disclosure Documents are true and correct in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading. To the knowledge of PainCare nothing has occurred after the date
of the documents contained in the Disclosure Documents that would individually
or in the aggregate have a material adverse effect on PainCare.
5.6 Capitalization. The authorized capital stock of PainCare consists of
75,000,000 shares of Common Stock, $.0001 par value per share, which as of March
31, 2002, approximately 18,813,961 shares are issued and outstanding, 10,000,000
shares of "blank check" preferred none of which have been issued or are
outstanding. All of the
PainCare Shares are, and all shares of PainCare Shares to be issued pursuant to
this Agreement will be, validly issued, fully paid and non-assessable.
Disclosure Schedule 5.6(a) hereto sets forth a listing of all options, warrants
and outstanding PainCare securities which are convertible (with or without the
payment of consideration) into shares of the Common Stock of PainCare, including
all contingently issuable shares of such Common Stock issuable pursuant to
agreements outstanding as of March 31, 2003. Disclosure Schedule 5.6(b) also
sets forth the terms of any financing proposed to be raised by PainCare in
connection with the transactions contemplated by this Agreement.
5.7 Litigation. Except as set forth in Disclosure Schedule 5.7, there is no
charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitrable
action or investigation (collectively, "Actions") pending or, to the knowledge
of the PainCare, threatened against, relating to or affecting (i) the PainCare
or its assets or the operation of the business of the PainCare as currently
operated and as proposed to be operated, (ii) any Employee Plan of PainCare or
any trust or other funding instrument, fiduciary or administrator thereof or
(iii) the transactions contemplated by this Agreement, before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, any of which is reasonably
expected to result in a loss not covered by insurance in excess of $100,000 or
reasonably expected to have a material adverse effect on PainCare. To the
knowledge of the PainCare, the PainCare is not in default with respect to any
judgment, order, writ, injunction or decree of any court or governmental agency,
and there are no unsatisfied judgments against the PainCare or the business of
the PainCare. Except as set forth in Disclosure Schedule 5.7, each Action
pending or, to the knowledge of the PainCare, threatened (whether or not
disclosed in Disclosure Schedule 5.7), is covered by insurance of reputable and
solvent insurance companies.
5.8 No Undisclosed Liabilities. Except as set forth in Disclosure Schedule
5.8, to the knowledge of PainCare, PainCare has no liabilities or obligations
(absolute, accrued, contingent or otherwise) except (i) liabilities that are
reflected and reserved against on PainCare's audited balance sheet dated
December 31, 2002 (the "PainCare Balance Sheet Date") that have not been paid or
discharged since the date thereof and (ii) liabilities incurred by PainCare
since the PainCare Balance Sheet Date in the ordinary course of business
consistent with past practice (none of which relates to any breach of contract,
breach of warranty, tort, infringement or violation of law or arose out of any
complaint, action, suit or proceeding except those which individually or in the
aggregate could not have a material adverse effect on PainCare).
5.9 No Brokers. There is no obligation on the part of PainCare to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby other than Dr. Xxxx Xxx (KBL Investments) for
which it will be responsible.
5.10 Material Misstatements Or Omissions. To the knowledge of PainCare, no
representations or warranties by PainCare in this Agreement, nor any document,
exhibit, statement, certificate or schedule furnished or to be furnished to the
Shareholder pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading.
6. CLOSING; TERMINATION. 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 commencing at 10:00 a.m. Eastern Daylight Time
on the later of (i) the third business date following the date on which the New
PC obtains its Medicare provider number and the Company effectively assigns all
Medical Assets and managed care contracts to the New PC, (ii) the date upon
which all other conditions to the Parties obligations have been met or waived,
or such other date or time as the Parties may mutually agree (the "Closing
Date"). In the event that the Closing has not occurred on or before July 31,
2003, this Agreement may be terminated by either Party provided such Party has,
as of the date of such election to terminate, fulfilled all conditions to the
obligations of the other Party. In the event that Closing does not occur by
August 15, 2003, this Agreement shall terminate unless the Parties otherwise
agree in writing.
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 certified copy of resolution(s) 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) Payoffs. Payoff letters from those creditors listed in Section
7.1(e) of the Disclosure Schedules;
(f) 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;
(g) 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
(h) 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;
(b) Resolutions. A certified copy of the 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) Security Agreements. A duly executed signature page to the
Security Agreements;
(d) Counsel's Opinion. An opinion from PainCare's legal counsel in the
form attached hereto as Schedule 7.2(d); 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 THE PARTIES. The obligations of the
Parties to Close are subject to the satisfaction of the following respective
conditions unless waived by the Party for whose benefit the condition applies.
8.1 Conditions for the Benefit of PainCare and the Subsidiary. (a) The
representations and warranties of the Shareholder and the Company 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, and (b) 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
(c) New PC shall have received a Medicare provider number to obtain payment
or reimbursement for its services, and (d) the Company shall have assigned to
the New PC any and all Medical Assets and payor contracts of the Company, and
such payors have provided written consent to such assignment or otherwise were
properly notified of such assignment pursuant to the terms of such payor
contracts.
8.2 Conditions for the Benefit of the Shareholder. (a) The representations
and warranties of PainCare 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 PainCare or the Subsidiary 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, and
(b) 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 (c) New PC shall have received a Medicare
provider number to obtain payment and reimbursement for its services.
9. COVENANTS. The Parties covenant and agree as follows with respect to the
period following the Execution Date:
9.1 Operations Pending Closing. Simultaneously with the execution of this
Agreement, the Company, New PC and the Subsidiary are executing and delivering
the Management Services Agreement and the Shareholder and the Subsidiary are
executing and delivering the Independent Contractor Agreement. Pending the
Effective Date, the Shareholder shall be designated by the Subsidiary as the
Medical Group Administrator under the Management Services Agreement.
9.2 Deliveries Pending Closing. PainCare will promptly deliver and make
available to Shareholder copies of any filings made by it under the Securities
Act or the Securities Exchange Act, including the exhibits thereto and any
correspondence with the Securities Exchange Commission or its staff.
9.3 Distributions of Sub-Chapter S Income by the Company. Not later than
the Closing Date, one hundred percent (100%) of the taxable income (as
determined by using the cash method of accounting) allocated to Shareholder for
the period beginning on January 1, 2003 and ending on the Execution Date shall
have been distributed to the Shareholder subject to the requirement that
Shareholder shall insure that as of the Closing Date that the Company will have
a minimum cash balance of Fifty Thousand Dollars ($50,000). The Shareholder
shall not be entitled to any additional distributions or payments with respect
to taxable income of the Company (i) for the period ending December 31, 2002;
(ii) for the period beginning on the Execution Date and ending on the Closing
Date; or (iii) after the Closing Date for any reasons whatsoever, other than as
specifically set forth in this Agreement.
9.4 Post-Closing General Covenant. 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 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.
9.5 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. PainCare and the Subsidiary will provide to the
Shareholder access to all books and records of the Company necessary to the
preparation of such Tax Returns and the Subsidiary, as the successor to the
Company will execute such Tax 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 or PainCare after the
Closing. The Shareholder will provide PainCare with an opportunity to review and
comment on such Tax Returns (including any amended returns). PainCare will be
responsible for preparing and filing all income and franchise Tax Returns of the
Company relating to periods 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, with recognition that the
Company files on that basis of a cash rather than accrual method. The Acquiring
Companies shall be solely responsible for any taxes due arising from conversion
to the accrual method.
9.6 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.
9.7 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 therefor under
this Agreement.
9.8 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.
9.9 Operational Covenants. Without the prior written consent of
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 Period
Profits;
(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 Period Profits 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 Period Profits;
(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 Period Profits or that is reasonably necessary in light of the Surviving
Corporation's results of operation;
(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 Period
Profits;
(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 Period Profits or that is reasonably necessary in
light of the Surviving Corporation's results of operation;
The parties hereby acknowledge and agree that the foregoing covenants
in this Section 9.9 shall become null and void and of no further force or effect
if the Formula Period Profits of the Surviving Corporation in each of any two
(2) consecutive calendar quarters are less than $175,000, or if the Formula
Period Profits of the Surviving Corporation in one (1) calendar quarter is less
than $80,000.
9.10 Capital Adjustments. In the event of a stock dividend,
recapitalization, or merger in which PainCare is the surviving corporation,
split-up, combination or exchange of shares or the like which results in a
change in the number or kind of shares of common stock which is outstanding
immediately prior to such event, the rights of the Shareholder to receive
PainCare Shares in respect of this Agreement and the price thereof, shall be
appropriately adjusted in the same manner as the number and kind of shares a
shareholder of PainCare who owned the same number and kind of shares immediately
prior to such event. Such adjustments shall be made in good faith by the Board
of Directors of PainCare, whose determination shall be conclusive and binding on
all parties, subject to manifest error.
In case of any consolidation or merger of PainCare with or into
another party or parties or the conveyance of all or substantially all of the
assets of PainCare to another party or parties or a share exchange transaction
involving more than 50% of the issued and outstanding common stock of PainCare,
the PainCare Shares and right to receive PainCare Shares shall thereafter be
convertible into the number of shares of stock, options or other securities or
property to which a shareholder of the PainCare who owned the same number and
kind of shares prior to such event would have been entitled upon such
consolidation, merger, conveyance, conversion or exchange; and, in any such
case, appropriate adjustment shall be made in the application of the provisions
herein set forth with respect to the rights and interest thereafter of the
Shareholder' rights to receive PainCare Shares, to the end that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably
possible, in relation to any shares of stock or other property thereafter
deliverable upon the Shareholder's entitlement to same.
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. 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's 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, the Closing
Date Balance Sheet, or Section 10.2 of the Disclosure Schedule 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 Shareholder's obligation to provide indemnity of any Liability
arising prior to the Closing Date which was required but omitted from the
Disclosure Schedule unless such Liability was incurred on behalf of the Company
by Subsidiary under the Management Agreement..
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.
(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.
10.5 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 and
subject to a final decision by a court of requisite jurisdiction, 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.
10.6 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.
10.7 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 Article 10 shall be
limited to an amount equal to $2,750,000 plus the amount of any Earnout
Installment Payments paid or due pursuant to Section 3.4 of this Agreement prior
to any reduction of such Installment Payments permitted under Section 3.4(g);
provided however that such cap shall not be applicable to Sections 4.2, 4.10,
4.11, 4.19, 4.20, 4.22, 4.25, 4.27, 4.36 and 4.37.
11. RESTRICTIVE COVENANTS; CONFIDENTIALITY.
11.1 Shareholder Restrictive Covenants.
(a) Restricted Period. Except with respect to the specific carve-outs
set forth in Schedule 11.1 attached hereto, 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 (the "Restricted Period"), 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) take any action or undertake any matter set forth in
11.1(a)(i)-(ii) below; provided, however, that the Restricted Period shall
terminate upon the earlier to occur of (i) any bankruptcy, liquidation or
assignment for the benefit of creditors applicable to either PainCare or
Subsidiary, or (ii) upon a default by PainCare or Subsidiary in any covenant or
term of this Agreement to be performed after the Closing or any covenant or term
of the Management Services Agreement if Shareholder shall have given written
notice of such default to PainCare and such default shall not have been cured
within 30 business days after the giving of such notice and provided further,
however, that the prohibitions contained in clauses (i) and (ii) above shall not
prohibit Shareholder from continuing active participation in his separate
businesses conducted
under the names "AC Diagnostics" and "Integrated Concepts" so long as (x) any
consulting and related activities associated with such businesses to not relate
to the business practice areas of the Company involving pain management,
physical medicine and rehabilitation, physical therapy and chiropractic
medicine, (y) does not interfere with Shareholder's obligations under this
Agreement and his Independent Contractor's Agreement of even date herewith, and
(z) Shareholder is not in breach of this Agreement or such Independent
Contractor's Agreement.
(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 the Surviving Corporation at such time, anywhere within
a fifty (50) mile radius of any office of the Company or the New PC;
(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 the
Surviving Corporation 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 New PC, PainCare or Subsidiary, to terminate his or her employment with the
Company, the New PC, 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 the Surviving Corporation 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 the Surviving Corporation 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, the covenants set forth in this
Section 11.1 may be enforced by PainCare and the Surviving Corporation 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, the Surviving Corporation 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
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 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 or as contemplated by this Agreement;
(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 except as
contemplated by this Agreement;
(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;
(n) fail to comply in all material respects with all laws and
regulations applicable to the Company;
(o) 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;
(p) 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;
(q) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder;
(r) except as provided herein, 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:
If to PainCare
or Subsidiary: PainCare Holdings, Inc.
00 Xxxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: President
If to the Shareholder: Xxxx Xxxx
000 Xxxxx Xxxxx
X'Xxxxxx, Xxxxxxxx 00000
If to the Company: Associated Physicians Group
000 Xxxxx Xxxxx
X'Xxxxxx, Xxxxxxxx 00000
With a copy in each case to: Xxxxxxxxxxxx, Xxxxxx & Xxxx, P.C.
2000 Equitable Building
00 Xxxxx Xxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. X. Xxxxxx
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 Illinois without giving effect to any choice or
conflict of law provision or rule (either of the State of Illinois or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Illinois. 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, Shareholder shall bear and be
responsible and shall pay for all costs and expenses (including, but not limited
to, legal and accounting fees and expenses) incurred by Shareholder, the Company
and the New
P.C. in connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, PainCare will reimburse the Shareholder up to
$20,000 with respect to legal fees incurred by the Shareholder (or the Company
and the New P.C. which he shall be responsible for pursuit to this section) and
the Company shall be solely responsible for the cost of the GAAP Financial
Statements prepared 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
"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 the Acquiring Companies, 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. With respect to any legal proceeding
brought by PainCare which arises out of or relates to this Agreement or the
transactions contemplated hereby, exclusive jurisdiction and venue with respect
to such matter shall lie in any state or federal court within St. Clair County,
IL. With respect to any legal proceeding brought by the Shareholder or the
Company which arises out of or relates to this Agreement or the transactions
contemplated hereby, exclusive jurisdiction and venue
with respect to such matter shall lie in any state or federal court within
Orange County, FL. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
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/ Xxxx Xxxxxxx
------------------------------
Print: Xxxx Xxxxxxx
---------------------------
Its: CFO
-----------------------------
ACQUISITION:
PAINCARE ACQUISITION COMPANY V, INC.,
a Florida corporation
By: /s/ Xxxx Xxxxxxx
----------------------------------
Print: Xxxx Xxxxxxx
-------------------------------
Its: CFO
--------------------------------
COMPANY:
INDUSTRIAL & SPORT REHABILITATION,
LTD., an Illinois corporation, d/b/a
ASSOCIATED PHYSICIANS GROUP
By: /s/ Xxxx Xxxx
----------------------------------
Print: Xxxx Xxxx
------------------------------
Its: President
--------------------------------
SHAREHOLDER:
/s/ Xxxx Xxxx
---------------------------------
Xxxx Xxxx
