Exhibit 10.1

 

MERGER AGREEMENT AND PLAN OF REORGANIZATION

 

BY AND AMONG

 

PAINCARE HOLDINGS, INC.,

 

PAINCARE ACQUISITION COMPANY XI, INC.,

 

DYNAMIC REHABILITATION CENTERS, INC.

 

AND

 

JEFFREY M. WAYNE, INDIVIDUALLY AND AS

 

TRUSTEE OF THE JEFFREY M. WAYNE TRUST

 

AND

 

MICHAEL WAYNE, INDIVIDUALLY AND AS

 

TRUSTEE OF THE MICHAEL WAYNE TRUST

 

JUNE 1, 2004.

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1.   DEFINITIONS.    2 2.   TRANSACTION.    2     2.1   Transaction.    2    
2.2   Effect of the Merger.    2     2.3   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.    3     2.8  
Additional Actions.    3     2.9   No Dissenters’ Rights.    3     2.10  
Surrender of Certificates.    3        

(a)    Company’s Shares.

   3        

(b)    Dividends.

   3     2.11   Non-Transferred Assets.    4     2.12   Conversion of Shares.   
4     2.13   Shareholder Consent and Release.    4     2.14   Registration.    4
    2.15   Shareholders’ 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   Intentionally Omitted.    7     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

 

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(a)    General.

   8        

(b)    Installment Payment Discount.

   8        

(c)    Installment Payment Premium.

   9        

(d)    Manner of Payment.

   9        

(e)    Earnout Cap.

   10        

(f)     Definitions for Purposes of Section 3

   10 4.   REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.    11     4.1  
Organization, Qualification, and Corporate Power.    11     4.2  
Capitalization.    12     4.3   Authorization.    12     4.4   Noncontravention.
   12     4.5   Broker’s Fees.    13     4.6   Title to Assets.    13     4.7  
No Subsidiaries.    13     4.8   Financial Statements.    13     4.9   Events
Subsequent to Most Recent Year End.    13        

(a)    Sale or Lease of Assets.

   13        

(b)    Contracts.

   14        

(c)    Change in Contracts.

   14        

(d)    Security Interests.

   14        

(e)    Investments.

   14        

(f)     Debts.

   14        

(g)    Liabilities Unaffected.

   14        

(h)    Claims Unaffected.

   14        

(i)     Articles and Bylaws.

   14        

(j)     Changes in Equity.

   14        

(k)    Distribution.

   14        

(l)     Property Damage.

   14        

(m)   Transactions with Affiliates.

   15

 

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(n)    Collective Bargaining Agreements.

   15        

(o)    Compensation Changes.

   15        

(p)    Employee Benefit Plans.

   15        

(q)    Officers; Directors; Employees.

   15        

(r)     Charitable or Capital Contributions.

   15        

(s)    Ordinary Course of Business.

   15        

(t)     Accounting Practices.

   15        

(u)    Accounts Receivable.

   15        

(v)    In General.

   15     4.10   Undisclosed Liabilities.    15     4.11   Tax Matters.    16  
     

(a)    Tax Returns.

   16        

(b)    Withholding.

   16        

(c)    No Disputes of Claims.

   16        

(d)    No Waivers.

   16        

(e)    No Special Circumstances.

   16        

(f)     Subchapter “S”.

   16        

(g)    Audits of Tax Returns.

   17        

(h)    Tax Agreements.

   17        

(i)     Consents.

   17        

(j)     Personal Holding Company.

   17        

(k)    Consolidated Tax Returns.

   17     4.12   Real Property.    17        

(a)    Binding.

   17        

(b)    Continued Validity.

   17        

(c)    No Defaults.

   17        

(d)    Repudiation.

   17        

(e)    No Disputes.

   18        

(f)     Subleases.

   18

 

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(g)    Encumbrances.

   18        

(h)    Approvals.

   18        

(i)     Utilities.

   18     4.13   Intellectual Property.    18     4.14   Condition of Tangible
Assets.    18     4.15   Contracts.    18        

(a)    Personal Property Leases.

   18        

(b)    Services.

   18        

(c)    Partnership; Joint Venture.

   18        

(d)    Indebtedness.

   19        

(e)    Confidentiality; Non-Competition.

   19        

(f)     Shareholders’ Agreements.

   19        

(g)    Plans.

   19        

(h)    Employment or Consulting Agreements.

   19        

(i)     Advances; Loans.

   19        

(j)     Adverse Effects.

   19        

(k)    Other Agreements.

   19     4.16   Powers of Attorney.    19     4.17   Insurance; Malpractice.   
20     4.18   Litigation.    20     4.19   Health Care Compliance.    21    
4.20   Fraud and Abuse.    21     4.21   Legal Compliance.    21     4.22  
Rates and Reimbursement Policies.    22     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.

   23        

(e)    Qualified Plan.

   23        

(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.    24        

(a)    Licenses.

   24        

(b)    Controlled Substances.

   24        

(c)    Actions.

   24        

(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.    25     4.28   Environment, Health, and Safety.
   25        

(a)    Compliance.

   25        

(b)    Permits and Licenses.

   25        

(c)    Notices.

   25        

(d)    Hazardous Substances.

   25     4.29   Certain Business Relationships with the Company and its
Affiliates.    26     4.30   Third-party Payors.    26     4.31   Bank Accounts.
   26

 

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    4.32   Tax Status.    26     4.33   Binding Obligation.    26     4.34   No
Corporate Practice or Fee Splitting.    26     4.35   Intentions.    26     4.36
  Securities Representation.    27        

(a)    No Registration of PainCare Shares; Investment Intent.

   27        

(b)    Resale Restrictions.

   27        

(c)    Ability to Bear Economic Risk.

   27        

(d)    Accredited Investor.

   27        

(e)    Residency.

   27        

(f)     No Registration.

   27     4.37   HIPAA    28     4.38   Improper and Other Payments    28    
4.39   Accounts Receivable    28     4.40   Medical Waste    28     4.41   No
Untrue or Inaccurate Representation or Warranty    29 5.   REPRESENTATIONS AND
WARRANTIES OF THE ACQUIRING COMPANIES.    29     5.1   Organization of PainCare
and Subsidiary.    29     5.2   Authorization of Transaction.    29     5.3   No
Conflict or Violation.    29     5.4   Consents and Approvals.    29     5.5  
Disclosure Documents.    30     5.6   Capitalization.    30     5.7  
Litigation.    30     5.8   No Undisclosed Liabilities.    30     5.9   No
Brokers.    31     5.10   Material Misstatements or Omissions.    31 6.  
CLOSING; TERMINATION.    31 7.   CLOSING DELIVERIES.    31

 

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    7.1   Deliveries of the Company and the Shareholder.    31        

(a)    Consents and Approvals.

   31        

(b)    Termination of Agreements.

   31        

(c)    Certificate of Merger.

   31        

(d)    Corporate Authorization.

   31        

(e)    Payoffs.

   32        

(f)     Good Standing Certificate.

   32        

(g)    Secretary’s Certificate.

   32        

(h)    Medicare Provider Number.

   32        

(i)     Managed Care Agreement.

   32        

(j)     Other documents.

   32     7.2   Deliveries of PainCare.    32        

(a)    Transaction Consideration.

   32        

(b)    Resolutions.

   32        

(c)    Articles of Merger.

   32        

(d)    Management Services.

   32        

(e)    Secretary Certificate.

   32        

(f)     Permitted Indebtedness.

   32        

(g)    Other Documents.

   32 8.   CONDITIONS TO THE OBLIGATIONS OF THE PARTIES    33     8.1  
Conditions for the Benefit of PainCare and the Subsidiary.    33     8.2  
Conditions for the Benefit of the Shareholders.    33 9.   COVENANTS.    33    
9.1   Operations.    33     9.2   Deliveries.    33     9.3   Distribution of
Sub-Chapter S Income by the Company.    33     9.4   Post-Closing General
Covenants.    34     9.5   Tax Returns.    34     9.6   Transitions.    34

 

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    9.7   Litigation Support.    34     9.8   Consents.    34     9.9  
Operational Covenants.    35     9.10   Capital Adjustments.    36     9.11  
Shareholders’ Guarantee.    36 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    
10.3   Indemnification Provisions for the Benefit of the Shareholder.    37    
10.4   Matters Involving Third Parties.    37         10.4.1     Notification.
   37         10.4.2     Defense by Indemnifying Party.    37         10.4.3
    Satisfactory Defense.    38         10.4.4     Conditions.    38     10.5  
Right to Set-Off.    38     10.6   Limitation.    38     10.7   Post-Closing
Access to Records.    39 11.   RESTRICTIVE COVENANTS; CONFIDENTIALITY.    39    
11.1   Competitive Activities.    39     11.2   Termination of Right to Engage
in Competitive Business Opportunities.    39     11.3   Non-Competition.    40  
  11.4   Relief for Violations.    41     11.5   Severability.    41     11.6  
Confidentiality, Press Releases, and Public Announcements.    41     11.7  
Conduct of Business.    41     11.8   No Third-Party Beneficiaries.    43 12.  
MISCELLANEOUS    43     12.1   Entire Agreement.    43     12.2   Succession and
Assignment.    44

 

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    12.3   Counterparts.    44     12.4   Headings.    44     12.5   Notices.   
44     12.6   Governing Law; Jurisdiction; Attorney’s Fees.    45     12.7  
Amendments and Waivers.    45     12.8   Severability.    45     12.9  
Expenses.    45     12.10   Further Assurances.    46     12.11   Construction.
   46     12.12   Survival.    46     12.13   Incorporation of Exhibits and
Schedules.    46     12.14   Submission to Jurisdiction.    46     12.15  
Retention of Records.    46

 

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MERGER AGREEMENT AND PLAN OF REORGANIZATION

 

THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is made and
entered into effective the 1st day of June, 2004 (the “Execution Date”) by and
among PAINCARE HOLDINGS, INC., a Florida corporation (“PainCare”), PAINCARE
ACQUISITION COMPANY XI, INC., a Florida corporation (“Subsidiary”), in which
PainCare and the Subsidiary are sometimes referred to herein as the “Acquiring
Companies”, and DYNAMIC REHABILITATION CENTERS, INC., a Michigan corporation
(the “Company”), and JEFFREY M. WAYNE, INDIVIDUALLY AND AS TRUSTEE OF THE
JEFFREY M. WAYNE TRUST, AND MICHAEL WAYNE, INDIVIDUALLY AND AS TRUSTEE OF THE
MICHAEL WAYNE TRUST (each, a “Shareholder;” collectively, the “Shareholders”),
in which the Company and the Shareholders are sometimes referred to herein as
the “Sellers.” PainCare, Subsidiary, the Company and the Shareholders are
sometimes referred to herein individually as a “Party” and collectively as the
“Parties.”

 

RECITALS

 

A. The Company owns and operates a physical rehabilitation medical practice
(hereinafter sometimes called the “Business”) at the locations set forth on
Schedule “A” attached hereto (hereinafter sometimes collectively called the
“Center”) and the Shareholders own all of the issued and outstanding shares of
stock in the Company (the “Company Shares”);

 

B. PainCare is in the business of acquiring the certain assets of medical
practices and entering into management services agreements with practices
entities associated with the acquired practice;

 

C. PainCare desires to enter into this Agreement in order for the Subsidiary,
which is a wholly-owned subsidiary of PainCare, to acquire the Non-Transferred
Assets (as hereafter defined) of the Company;

 

D. Simultaneous with this transaction, Karazim Medical Consultants, PLC, a
Michigan professional limited liability company (hereinafter the “New PC”), will
be reorganized to operate the physical rehabilitation medical practice and in
connection with same will transfer all the Company’s Transferred Assets (as
hereafter defined) to the New PC.

 

E. In connection with this acquisition, PainCare desires to have Subsidiary
enter into a management services agreement with the New PC, in which the
management services agreement is the significant inducement for the Subsidiary
to acquire the Non-Transferred Assets of the Company;

 

F. 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

 

G. 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.

 

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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. Immediately prior to the Merger, the Company will transfer all
of its Transferred Assets to the New PC. Upon the terms and subject to the
conditions hereof and in accordance with the provisions of the Michigan Business
Corporation Act (the “Michigan 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 Statutory Merger Time, as defined in
Section 2.3 below, the effect of the Merger shall, in all legal respects, be as
provided in the Michigan Act and the Florida Act. From and after the Statutory
Merger Time, the Surviving Corporation shall continue to be a Florida
corporation.

 

2.3 Filing of Certificates of Merger. The Merger shall be legally 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 Michigan in accordance with the provisions of the
Florida Act and the Michigan Act, respectively (hereinafter the “Statutory
Merger Time”). 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 Statutory Merger Time, the articles of
incorporation of Subsidiary, as in effect immediately prior to the Statutory
Merger 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 Statutory Merger Time, the bylaws of Subsidiary, as in
effect immediately prior to the Statutory Merger 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 Statutory Merger Time, the directors and
officers of Subsidiary immediately prior to the Statutory Merger 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

 

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Corporation. 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
Shareholders 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 Shareholders and the Company to take any and all such
actions.

 

2.9 No Dissenters’ Rights. Comprising all of the Shareholders of the Company,
the Shareholders’ approval and execution of this Agreement constitutes unanimous
approval of the transactions contemplated herein; therefore, neither
Shareholder, nor any other party, is entitled to dissenters’ rights under the
laws of the State of Michigan.

 

2.10 Surrender of Certificates.

 

(a) Company’s Shares. At the Closing, the Shareholders shall be required to
surrender to Subsidiary the original stock certificate numbers 18 and 19
evidencing eighty-five (85) shares of stock issued and outstanding, which
immediately prior to the Closing Date represented all of the Company Shares (the
“Certificate”) (together with all stock powers duly endorsed to Subsidiary).
Until so surrendered, each Certificate which immediately prior to the Closing
Date represented the Company Shares (other than Company Shares held in the
Company treasury) shall upon and after the Closing Date 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.
As of the Closing Date, 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.

 

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2.11 Non-Transferred Assets. Simultaneous with the execution of this Agreement,
the Company will transfer to New PC the assets set forth in Schedule 2.11(a)
(the “Transferred Assets”) and all remaining assets of the Company including,
without limitation the assets set forth in Schedule 2.11(b) will be deemed
(“Non-Transferred Assets.”)

 

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 Shareholders the Company Shares shall be converted
into the Merger Consideration. The PainCare Shares to be received by the
Shareholders 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 Shareholders hereby consent to the
Transaction and approve the execution and delivery of this Agreement and the
transactions contemplated hereby. Effective on the Closing Date, each
Shareholder hereby releases the Company from any and all claims each may, could
or will have, whether arising before or after the Closing Date, against the
Company as a result of the Shareholders having served as a stockholder,
director, officer, employee, agent, or in any other capacity of the Company.

 

2.14 Registration.

 

(a) Saving any current or pending registration of any PainCare capital stock, if
within the three (3) year period commencing on the date any PainCare Shares are
issued to the Shareholders PainCare proposes for any reason to register the
PainCare Shares under the Securities Act [other than a registration in
connection with respect to 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 each Shareholder of its intention to so register the PainCare
Shares and, upon written request by either Shareholder, given within twenty (20)
days after delivery of any such notice by PainCare, to include in such
registration PainCare Shares held by such Shareholder (which request shall
specify the number of PainCare Shares proposed to be included in such
registration). PainCare shall use its reasonable best efforts 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; 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 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
Shareholders 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 Shareholders accept 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 Shareholders agree to promptly execute and/or deliver such documents in
connection with such registration as PainCare or the managing underwriter may
reasonably request.

 

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(b) Each Shareholder may exercise his rights under Section 2.14(b) 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 a Shareholder, the withdrawing 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 Shareholders 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 Shareholders may not participate in any registration under this Section
which is underwritten unless they agree 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 Shareholders 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 Shareholders’ Obligation to Furnish Information. PainCare may require the
Shareholders 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 Shareholders 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 Shareholders’ PainCare Shares from such
registration.

 

2.16 Suspension of Sales Pending Amendment to Prospectus.

 

(a) The Shareholders agree 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 Shareholders 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 Shareholders shall deliver to PainCare (at
PainCare’s expense, except as hereinafter provided) all copies, other than
permanent file copies, then in Shareholders possession of any prospectus
covering such PainCare Shares.

 

(b) Each 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 Shareholders for inclusion in such prospectus
included in such registration statement and,

 

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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
Shareholders 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 deliver to
the Shareholders in the amounts and denominations set forth in Section 3.1 of
the Disclosure Schedule upon the satisfaction of the Closing Conditions and the
Closing shall equal Four Million Five Hundred Thousand and 00/100 Dollars
($4,500,000), comprised of: (i) Two Million Two Hundred Fifty Thousand and
00/100 Dollars ($2,250,000) (the “Cash Due At Closing”) to be delivered via wire
transfer to bank account(s) designated by the Shareholders, plus (ii) Nine
Hundred Twenty Seven Thousand Four Hundred Fourteen shares (927,414) of PainCare
Shares, valued at Two Dollars and 42.61/100 Cents ($2.4261) per share and having
an aggregate value of Two Million Two Hundred Fifty Thousand and 00/100 Dollars
($2,250,000) (the “PainCare Shares Due At Closing”). At least one (1) day prior
to the Closing Date, the Shareholders shall notify PainCare in writing of the
bank account(s) to which the Cash Due At Closing shall be wired.

 

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3.2 Intentionally Omitted.

 

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 not be
reduced by the amount of any cash payments made by the Company with respect to
expenses paid on behalf of the Shareholders (rather than the Company) such as
legal, accounting and financial advisory fees or as otherwise specifically
allowed pursuant to this Agreement, subject to and conditioned upon the Company
satisfying the Required Cash and Agreed Upon Net Equity as set forth in Section
3.3(c) below.

 

(b) Financial Statements. The Company has prepared financial statements
consisting of (i) a balance sheet, statement of income and expenses statement in
accordance with GAAP as of and for the year ended December 31, 2003 (the “GAAP
Financial Statements”); and (ii) a balance sheet, a statement of income and
expenses as of and for the quarters ended March 31, 2003 and 2004; (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), saving with respect to the Interim Financial Statements any
applicable footnotes or ordinary year end adjustments that would otherwise be
required in annual GAAP statements .

 

(c) Closing Date Balance Sheet. Within forty-five (45) days after the Closing
Date, PainCare or its Affiliate will prepare and deliver to each 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
fourteen (14) days after PainCare’s delivery of the Closing Date Balance Sheet
to the Shareholders, the Shareholders shall, in a written notice to PainCare,
either accept or describe in reasonable detail any proposed adjustments to the
Closing Date Balance Sheet and the reasons therefore, and shall include
pertinent calculations. If the Shareholders fail to deliver notice of acceptance
or objection to the Closing Date Balance Sheet within such fourteen (14) day
period, the Shareholders 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 fifteen (15) days after delivery of the Closing Date
Balance Sheet (the “Adjustment Payment Date”), the Shareholders shall pay the
Other Net Equity Adjustment (as defined below), if any to PainCare. In the event
that PainCare and the Shareholders 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 BDO Seidman,
an independent certified public accountant, for computation or verification in
accordance with the provisions of this Agreement, and the Net Equity Adjustment,
if any, shall be paid by the Shareholders to PainCare within ten (10) 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.

 

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If the final Closing Date Balance Sheet reflects Cash of the Company that is
less than Fifty Thousand Dollars ($50,000.00) (the “Required Cash”) then the
Cash Due at Closing shall be reduced and the Shareholders shall be required to
immediately return to PainCare dollar for dollar by an Amount equal to the
Required Cash less Cash reflected on the Closing Date Balance Sheet. If the
final Closing Date Balance Sheet reflects Net Shareholders’ Equity (as defined
below) of the Company that is less than One Million and 00/100 Dollars
($1,000,000.00) (“Agreed Net Equity”) then the Closing Date Consideration shall
be reduced (50% in Cash Due at Closing and 50% in PainCare Shares Due At
Closing) and the Shareholders shall be required to immediately return to
PainCare dollar for dollar an amount equal to the difference between (x) the
Agreed Net Equity; and (y) the Net Shareholders’ Equity set forth in the Closing
Date Balance Sheet (the “Net Equity Adjustment”). “Net Shareholders’ Equity”
shall mean the book value of the Company’s tangible assets (plus accounts
receivable and less the Required Cash) net of all Liabilities as set forth in
the Closing Balance Sheet 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 Eight Hundred Thousand and 00/100 Dollars ($1,800,000) (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 Shareholders in the amounts and denominations set
forth in Section 3.4 of the Disclosure Schedules a total amount of additional
consideration of Four Million Five Hundred Thousand and 00/100 Dollars
($4,500,000) for the Formula Periods, payable in three equal annual installments
of One Million Five Hundred Thousand and no/100 Dollars ($1,500,000) (the
“Intended Installment Payment”) in the form of consideration and subject to
adjustment as provided in Section 3.4(b) below. Each Shareholder hereby
acknowledges and agrees that the Intended Installment Payments to be made by
PainCare, if earned, are expressly subordinate to the rights and obligations to
the Laurus Master Fund, Ltd. (“Laurus”) as provided in those certain Securities
Purchase Agreements, Security Agreements and Pledge Agreements between PainCare
and Laurus dated February 27, 2004 and March 22, 2004. Payment of the Intended
Installment Payment is secured by a pledge of Subsidiary’s stock pursuant to a
Stock Pledge Agreement (the “Stock pledge Agreement”).

 

(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 reflected below) (the
“Adjusted Installment Payment”). The “Adjusted Installment Payment” 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%) if the Formula Period Profits are $1,300,000 or more but less than
the Earnings Threshold; or (iii) seventy-five percent (75%) if the Formula
Period Profits are $900,000 or more but less than $1,300,000; or (iv) sixty
percent (60%) if the Formula Period Profits are less than $900,000.

 

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(c) Installment Payment Premium. Notwithstanding Section 3.4(b), if (i) the
Shareholders receive 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, in the case of the last
Formula Period the immediately succeeding twelve (12) month calendar period
following the last Formula Period [the, “Additional Formula Period”]), then
PainCare shall pay to the Shareholders 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)
ninety percent (90%). The Installment Payment Premium shall be paid to the
Shareholders in the same percentages, form and time as the Installment Payments
(as defined in Subsection (d) below) are due for the Formula Period for which
the Installment Payment Premium is calculated.

 

(d) Manner of Payment. Within sixty (60) days after the end of each Formula
Period, PainCare or its Affiliate shall prepare and deliver to the Shareholders
a financial statement prepared in accordance with the Company’s past practices
presenting the Formula Period Profits for the Surviving Corporation for the
applicable Formula Period (the “Formula Period Profits Statement”). Ten (10)
days after delivery of the Formula Period Profits Statement, the Shareholders
shall in a written notice to PainCare either accept or describe in reasonable
detail any proposed adjustments to the Formula Period Profits Statement and the
reasons therefore, and shall include pertinent calculations. If the Shareholders
fail to deliver notice of acceptance or objection to the Formula Period Profits
Statement within such ten (10) day period, the Shareholders shall be deemed to
have accepted the Formula Period Profits Statement. If the Shareholders accept
or fail to object to the Formula Period Profits Statement within the ten (10)
day period set forth above, then within ninety (90) days after the end of the
Formula Period, PainCare shall pay to the Shareholders 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 Shareholders at least five (5) days prior to
the end of the Formula Period; and (ii) fifty percent (50%) of the Installment
Payment shall be made in PainCare Shares priced at Fair Market Value (as defined
below) per one share of PainCare common stock for all Formula Periods. In the
event PainCare and the Shareholders 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 Shareholders shall
each have the right to require that such disputed determinations be submitted to
BDO Seidman, an independent certified public accounting firm, for computation or
verification in accordance with the provisions of this Agreement, and the
Installment Payment shall be paid by PainCare to the Shareholders 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.

 

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(e) Earnout Cap. Notwithstanding anything to the contrary in this Section 3, in
no event whatsoever shall the aggregate amount of the Installment Payments
(inclusive of Installment Payment Premiums) paid to the Shareholders from
PainCare in cash, in PainCare Shares or any other form of consideration exceed
Four Million Five Hundred Thousand and 00/100 Dollars ($4,500,000).

 

(f) Definitions for Purposes of Section 3. For purposes of Section 3 of this
Agreement:

 

(i) “Fair Market Value” shall mean the value of the PainCare Shares determined
as follows:

 

(1) if the principal market for the PainCare Shares is a national securities
exchange, then the “Fair Market Value” of the PainCare Shares shall equal the
thirty (30) day trailing average of the closing ask prices of the PainCare
Shares prior to the end of each Formula Period (or Additional Formula Period, as
the case may be) for which an Installment Payment (or Installment Payment
Premium, as the case may be) are calculated as reported by such exchange or on a
composite tape reflecting transactions on such exchange; or

 

(2) if the principal market for the PainCare Shares is not a national securities
exchange, but the price of the PainCare Shares is quoted on the National
Association of Securities Dealers Automated Quotation System (“NASDAQ”) Stock
Market, and (A) actual closing price information is available with respect to
the PainCare Shares, then the “Fair Market Value of the PainCare Shares shall
equal the thirty (30) day trailing average of the closing ask prices of such
stock on the NASDAQ Stock Market prior to the end of each Formula Period (or
Additional Formula Period, as the case may be) for which an Installment Payment
(or Installment Payment Premium, as the case may be) are calculated; or (B)
actual closing price information is not available with respect to the PainCare
Shares, then the “Fair Market Value” of the PainCare Shares shall equal the
thirty (30) day trailing average of the bid prices per share of such stock on
the NASDAQ Stock Market; or

 

(3) if the principal market for the PainCare Shares is neither a national
securities exchange and such stock is not quoted on NASDAQ, then the “Fair
Market Value” of the PainCare Shares shall equal the thirty (30) day trailing
average of the closing ask prices of the PainCare Shares as reported by the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated, or a
comparable service selected by PainCare; or

 

(4) if subsections (f)(i)(1)-(3) above are inapplicable or if no trades have
been made or no quotes are available for such day with respect to the PainCare
Shares, then the “Fair Market Value” of the PainCare Shares shall be determined
by an independent third party appraiser mutually agreed upon by the Parties.
Within ten (10) days after the effective date of the appraiser’s appointment,
the appraiser shall deliver an appraisal of the Fair Market Value of the
PainCare Shares, which shall be binding and conclusive on the Parties. The cost
of any appraisal hereunder shall be shared equally by the Parties, and each
Party shall be responsible and financially liable for its or his own attorneys’
fees; and

 

(5) with the understanding that notwithstanding the Fair Market Value ascribed
to the PainCare Shares pursuant to subsections 3.4(f)(1), (2), (3) or (4) above
in no event shall the Fair Market Value of the PainCare Shares ever be less than
Two and 50/00 Dollars ($2.50) per share.

 

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(ii) “Formula Period Profits” shall mean the Surviving Corporation’s earnings
before deductions for interest, taxes, depreciation and amortization (“EBITDA”)
as calculated utilizing GAAP by PainCare’s independent certified public
accountants for the applicable Formula Period where possible, and as calculated
by PainCare for quarterly and less than quarterly 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 reasonable charges for services
provided directly to and for the benefit of the Subsidiary (ii) salaries of
Jeffrey Wayne’s replacement, if Jeffrey Wayne’s employment contract is
terminated for reasons other than “For Cause” (as that term is defined in Mr.
Wayne’s employment agreement with the Surviving Corporation of even date
herewith); (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, or (iv) costs or expenses of the Surviving Corporation’s employee
benefits which exceed the costs or expenses of those same or similar benefits
currently being provided to the Company’s employees.

 

4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
represent and warrant to the Acquiring Companies that the statements contained
in this Section 4 are true, correct and complete in all material respects as of
the date of this Agreement, except as set forth in the Disclosure Schedule
accompanying this Agreement or any other separate writing referencing this
Agreement from the Shareholder or its legal counsel which specifically
references the applicable section and describes the excepted item with
reasonable particularity. 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 Michigan. Except as otherwise disclosed in writing to the
Acquiring Companies, 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), copies of 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 Statutory
Merger Time. The Company is not in default under or in violation of any
provision of its articles of incorporation or bylaws.

 

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4.2 Capitalization. The entire authorized capital stock of the Company consists
of sixty thousand (60,000) shares of common stock (the “Shares”), of which
eighty five (85) Shares 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 Shareholders. Each
Shareholder has good title to their respective Company Shares as set forth in
Section 4.2 of the Disclosure Statement 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 each 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 each
Shareholder any and all notice required to be given to each 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 Shareholders, nor the consummation of the transactions
contemplated hereby will result in: (a) to the best of Shareholders’ Knowledge a
violation any applicable statute, 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 Shareholders are subject,
or (b) a violation of 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 Shareholders are a party or by which either the Company or
the Shareholders 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 Shareholders
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 Date, 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 the Closing Date
which shall be obtained within a reasonable period of time after the Closing
Date.

 

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4.5 Broker’s Fees. Except as set forth in Section 4.5 of the Disclosure
Statement, neither the Shareholders nor the Company have entered into any broker
or finder’s agreement for which either Shareholder, the Company or PainCare is
required to pay any Liability or obligation to pay any fees, expenses, or
commissions to any consultant, broker, finder, or agent with respect to this
transaction.

 

4.6 Title to Assets. Section 4.6(a) 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 Closing Date Balance Sheet
or acquired after the date thereof, free and clear of all Security Interests
except as set forth in Section 4.6(b) of the Disclosure Statement which
includes, but is not limited to, the Permitted Indebtedness (described in
Section 4.6(b) of the Disclosure Schedule) in the amount not to exceed $100,000.
Except for the Transferred 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 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 material Liabilities or obligations (whether accrued, absolute, contingent,
whether due or to become due or otherwise i.e., accounts payable, accrued
expenses) which would be required by GAAP to be reported either in the
financials or footnotes as a charge (or, potential 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 and that except as may otherwise be
disclosed in Section 4.8 of the Disclosure Schedules, the revenues reflected in
both the GAAP Financial Statements and the Interim Financial Statements will, to
the best Knowledge and belief of the Shareholder, continue to approximate for at
least the next three (3) years the same or greater levels as reflected in such
Statements. Likewise, the Shareholders will use their best efforts to maintain
and grow such revenue streams for the benefit of the New PC, PainCare and the
Subsidiary and will take no action or omit to take any action that may otherwise
have a material adverse effect on such revenues or otherwise cause such revenue
streams to be diverted to any other entity or individual including the
Shareholders.

 

4.9 Events Subsequent to Most Recent Year End. Since December 31, 2003 (the
“Most Recent Year End”), there has not been any material adverse change in the
business, financial condition, operations, results of operations or to the
Knowledge of Shareholders any threatened adverse change which would affect
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;

 

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(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 Shareholders nor the
Company has any intent to do any of the foregoing or has received a written
indication of any third party’s intent to do any of the foregoing;

 

(d) Security Interests. Except as set forth in Section 4.9 of the Disclosure
Statement, the Company has not granted 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. Except as set forth in Section 4.9 of the Disclosure Statement, 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 except in the normal course of
business delayed or postponed the payment of accounts payable and other
Liabilities;

 

(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;

 

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(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 other than payment of normal consideration;

 

(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 increased 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 or officers, other than to terminate
such agreements as required herein;

 

(r) Charitable or Capital Contributions. The Company has not made or pledged to
make any charitable or other capital contribution;

 

(s) Ordinary Course of Business. There has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the ordinary course of
business involving the Company;

 

(t) Accounting Practices. There has not been any change in any method of
accounting or accounting principle, estimate or practice of the Company;

 

(u) Accounts Receivable. The Company has not accelerated the collection of any
Accounts Receivable, notes or any other amounts owed to it; and

 

(v) In General. Neither the Company nor the Shareholders have committed to do
any of the foregoing.

 

4.10 Undisclosed Liabilities. Except as otherwise disclosed in Section 4.10 or
separately to the Acquiring Companies, the Company has no Liability and to the
Shareholders’ Knowledge 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
Financial Statements 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

 

15

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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. Except as set forth in Disclosure Schedule 4.11, 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. 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 Shareholders, directors and officers (and
employees responsible for Tax matters) of the Company has Knowledge. 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, 2001, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Shareholders have 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, 2001.

 

(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).

 

(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
Shareholders that may result in the revocation of any such elections. 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.

 

16

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(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) 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.

 

(i) Consents. The Company has not filed a consent pursuant to or agreed to the
application of Code Section 341(f).

 

(j) 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.

 

(k) 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 Shareholders have 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 to Shareholders’ Knowledge 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;

 

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(e) No Disputes. There are no disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;

 

(f) Subleases. With respect to each sublease, the representations and warranties
set forth in subsections 4.12(a) through 4.12(e) above are true and correct with
respect to the underlying lease;

 

(g) Encumbrances. The Company has not 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 Shareholders’ 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 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.

 

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 and which the performance or rendering
of which involves consideration in excess of Twenty Five Thousand and No/100
Dollars ($25,000.00) (hereinafter the “Economic Threshold”):

 

(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;

 

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(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 without regard to the Economic Threshold;

 

(f) Shareholders’ Agreements. Any agreement by and between the Shareholders 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 written agreement for the
employment of any individual on a full-time or part-time basis 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 without regard to the Economic Threshold;

 

(j) Adverse Effects. Any agreement which in the opinion of the Shareholders
could under which the consequences of a default or termination 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 the
Economic Threshold.

 

The Shareholders have 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). 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 material 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.

 

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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 Shareholders 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 and the Company’s professional employees have 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, or the Company’s professional employees 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) 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 Shareholders
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.

 

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 Shareholders’ Knowledge, threatened, against the
Company, or the Shareholders at law or in equity, before any court, arbitration
tribunal or governmental agency. Each of the Shareholders 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 Shareholders’
Knowledge, threatened against the Company or the Shareholders in excess of the
deductible are covered under the Shareholders’ 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.

 

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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 Shareholders, or immediate family members of the Shareholders 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. § 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 Michigan Public Health Code 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
Michigan Public Health Code. Furthermore, the Company has filed all reports
required to be filed by the State of Michigan 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. Except as separately disclosed in a letter to the
Acquiring Companies, the Company has materially complied with all applicable
Laws (including 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
Shareholders and the Company, threatened against the Company alleging any

 

21

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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 material violation of any such permit or license. Except as
separately disclosed in a letter to the Acquiring Companies, 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. The 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. Except as set for in Section 4.22 of the
Disclosure Schedules, the Company does not have any rate appeal currently
pending before any governmental authority or any administrator of any
third-party payor program.

 

4.23 Medical Staff. Except as set forth on Section 4.23 of the Disclosure
Schedule, the Shareholders have 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. To the
Shareholders Knowledge, 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 has been made
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.

 

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(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 Shareholders have 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. To Shareholders’ Knowledge, 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 Shareholders and
the Company have no Knowledge of any basis for any such action, suit,
proceeding, hearing, or investigation.

 

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4.26 Physicians and Other Providers. During the five (5) years preceding the
Closing Date, each physician (but only with respect to the time period that such
physician was employed by the Company), and 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 Michigan 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 Michigan 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 with
respect to services rendered while an employee of the Company;

 

(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 proceeding or to Shareholders’ Knowledge, any
investigation, 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.

 

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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. The Company 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, the
Company 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. The Company has not 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. The Company has not 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, 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
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 Shareholders’ Knowledge, threatened against the Company, the
Business or the Center.

 

(f) There are no 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
Shareholders in connection with the Business or the Center.

 

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4.29 Certain Business Relationships with the Company and its Affiliates. Except
as contemplated hereby with respect to New PC and as disclosed in Disclosure
Statement, neither the Shareholders nor any of their Affiliates have been
involved in any business arrangement or relationship except as an director,
officer or employer with the Company and its Affiliates within the past twelve
(12) months, and except for leased real property none of the Shareholders and
their 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 4.19 of the Disclosure Schedule sets forth an
accurate, correct and complete list of the Company’s third-party payors. Neither
the Company nor the Shareholders have 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. Neither the Company nor the
Shareholders have any 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. Neither the Company nor the Shareholders 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. Neither Shareholder is 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. Except as disclosed in a separate
letter to the Acquiring Companies, 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
Shareholders 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 sue,
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 Intentions. Subject to the terms of an Employment Agreement, Jeffrey Wayne
intends to continue managing the business operations of the Surviving
Corporation on a full-time basis for the next five (5) years and does not know
of any fact or condition that adversely affects, or in the future may adversely
effect, his ability or intention to manage the business of the Surviving
Corporation on a full-time basis for the next five (5) years.

 

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4.36 Securities Representation.

 

(a) No Registration of PainCare Shares; Investment Intent. Each 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 each 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. Each Shareholder covenants, warrants and represents
that none of the PainCare Shares issued to Shareholder will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the Securities
Act and the rules of regulations of the Commission and applicable state
securities laws, and the applicable provisions of this Agreement. All
certificates evidencing PainCare Shares shall bear the legends contained in the
PainCare Stockholders’ Agreement.

 

(c) Ability to Bear Economic Risk. Each 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. Each
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. Each 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. Each Shareholder 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 2002 and 2003, or had a joint income with his
spouse in excess of Three Hundred Thousand and No/100 Dollars ($300,000.00) in
each of 2002 and 2003, and has a reasonable expectation of reaching the same
income level in 2004.

 

(e) Residency. Jeffrey Wayne is a resident of the State of Michigan, and Michael
Wayne is a resident of Florida. Each received this Agreement and first learned
of the transactions contemplated hereby in the State of Michigan. Each
Shareholder executed and will execute all documents contemplated hereby in the
State of Michigan, and intends that the laws of the State of Michigan govern
this transaction.

 

(f) No Registration. Each Shareholder acknowledges that the PainCare Shares have
not been registered under the Michigan Securities Act or the Securities Act in
reliance upon exemption provisions contained therein which PainCare believes are
available.

 

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4.37 HIPAA. Schedule 4.37 lists and describes all plans and other efforts of the
Shareholders 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, or any 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 are those of a privately held company and 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 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 are subject to no counterclaims, and have been
outstanding for the periods indicated in the aging analysis at Schedule 4.39.
The Shareholders 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.
§§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 §§2501 et
seq.; the Marine

 

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Protection, Research, and Sanctuaries Act of 1972, 33 USCA §§1401 et seq.; the
Occupational Safety and Health Act, 29 USCA §§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 Shareholders or the Company 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 Shareholders 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 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 material adverse effect on the
business or financial condition of PainCare or Subsidiary or their ability to
consummate the transactions contemplated hereby or (c) to the Knowledge of
PainCare result in a violation by PainCare or Subsidiary of any statute,
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 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, to
the Knowledge of PainCare 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 PainCare or Subsidiary in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.

 

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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, 2003 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 April
1, 2004, approximately 28,000,000 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 April 1, 2004. 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 PainCare, threatened against, relating to or affecting (i) PainCare or its
assets or the operation of the business of 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. 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 PainCare. Except as set forth in Disclosure Schedule
5.7, each Action pending or, to the Knowledge of 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, 2003 (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 would not have a material adverse effect on PainCare).

 

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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.

 

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
Shareholders 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
Transferred 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 (iii) 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 June 15,
2004, 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 June
30, 2004, this Agreement shall terminate unless the Parties otherwise agree in
writing.

 

7. CLOSING DELIVERIES.

 

7.1 Deliveries of the Company and the Shareholders. At or prior to the Closing
Date, the Company and the Shareholders 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 except to the extent waived in writing
by the Acquiring Companies;

 

(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) Certificate of Merger. Duly executed Certificate of Merger;

 

(d) Corporate Authorization. A certified copy of resolution(s) of the
Shareholders 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;

 

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(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 evidencing the good standing of the Company and the New
PC;

 

(g) Secretary’s Certificate. A certificate of the secretary of the Company
certifying that the copies of the articles of incorporation and bylaws of the
Company, attached as exhibits to such certificate, are true, correct, and
complete; and

 

(h) Medicare Provider Number. A copy of the completed application for New PC’s
Medicare provider number duly executed.

 

(i) Managed Care Agreements. An assignment(s) of all Managed Care Agreements to
which the Company is a party to the New PC.

 

(j) Other documents. Such other instruments or documents as may be necessary or
appropriate to carry out the Transactions.

 

7.2 Deliveries of PainCare. At or prior to the Closing Date, PainCare shall
deliver to Shareholders 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) Articles of Merger. Duly executed Articles of Merger.

 

(d) Management Services. Duly executed Management Services Agreement.

 

(e) Secretary’s Certificate. A certificate of the secretary of the Subsidiary
certifying that the Certificate of Incorporation and bylaws of the Subsidiary,
attached as exhibits to such Certificate, are true, correct and complete; and

 

(f) Permitted Indebtedness. Evidence that $100,000 of the Permitted Indebtedness
(i.e., the Fifth Third Bank Revolving Note [for line of credit] dated March 23,
2004 ) has been paid.

 

(g) Other Documents. Such other instruments or documents as may be necessary or
appropriate to carry out the Transactions, including (i) a mutually agreeable
and executed employment agreement for Jeffrey Wayne, (ii) Stock Pledge
Agreement, (iii) license agreement for use of the name “Dynamic Rehabilitation
Centers,” (iv) evidence of stock option grants, and (v) a duly executed
Management Services Agreement between New PC and Subsidiary.

 

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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
by the Closing Date 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 Shareholders 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
Shareholders or the Company shall be true and correct in all material respects
when made and on the Closing Date as though then made, except as expressly
provided for herein, and (b) both the Shareholders 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
filed an application for 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 Transferred 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 Shareholders. (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, (b) both PainCare
and the Subsidiary 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) PainCare stock value has not decreased below $2.25 per
share.

 

9. COVENANTS. The Parties covenant and agree as follows:

 

9.1 Operations. As of the Statutory Merger Time, the New PC and the Subsidiary
will execute and deliver to each other the Management Services Agreement and
Jeffrey Wayne and the Subsidiary will execute and deliver the Employment
Agreement.

 

9.2 Deliveries. 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
Statutory Merger Time, Shareholders may withdraw up to one hundred percent
(100%) of the taxable income (as determined by using the cash method of
accounting) allocated to Shareholders for the period beginning on January 1,
2004 and ending on the Closing Date 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 Shareholders shall not be
entitled to any additional distributions or payments with respect to taxable
income of the Company (i) for the period ending after the Closing Date, other
than as specifically set forth in this Agreement or pursuant to any separate
assignment executed by Subsidiary.

 

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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 Shareholders shall be borne by the Shareholder.

 

9.5 Tax Returns. The Shareholders 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
Shareholders access to all books and records of the Company necessary to the
preparation, audit or litigation of such Tax Returns and the Subsidiary, as the
successor to the Company will execute such Tax Returns. The Shareholders will
take no positions on the Tax Returns of the Company that relate to the tax
period prior to the Closing Date that could materially adversely affect the
Company or PainCare after the Closing. The Shareholders 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 Shareholders nor the Company will take any action
that is designed or with the intention 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 Shareholders hereby agree that they will use their reasonably
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 Shareholders against a third party thereto arising out of the
breach or cancellation by such third party or otherwise.

 

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9.9 Operational Covenants. Without the prior written consent of Shareholders,
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 Acquiring Companies will cooperate with Shareholders in implementing a
business plan and effecting transactions reasonably necessary to maintain or
improve Formula Period Profits.

 

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 (i)
the Formula Period Profits of the Surviving Corporation in any three (3)
consecutive Formula Period calendar quarters (taken in the aggregate) are less
than $1,200,000, or in any two (2) consecutive Formula Period calendar quarters
less than $300,000, or (ii) the Management Fee (as described in the Management
Agreement of even date herewith) is not paid within 30 days of its due date.

 

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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 Shareholders 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 Shareholders’
entitlement to same.

 

9.11 Shareholders’ Guarantee. The Shareholders hereby agree that if at anytime
during the first 120 days following the Closing the New PC does not generate a
sufficient amount of cash flow to pay its debts, bills and obligations
(collectively the “PC Obligations”) as such PC Obligations become due and the
Surviving Corporation has insufficient cash flow to loan any such deficit to the
PC to pay such PC Obligations then, in such event, the Shareholders agree to pay
to the Surviving Corporation an amount up to but not in excess of $50,000 to
cover such PC Obligations.

 

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 a period not to exceed four (4) years. 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 Shareholders’
or Company’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 Shareholders’ or Company’s

 

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covenants contained in this Agreement, or; (c) any Liability of the Company or
the Shareholders of any nature whatsoever accrued or existing as of the Closing
Date or related to actions or inactions of the Company or the Shareholders which
occurred prior to the Closing Date, unless such Liability is reflected on the
Financial Statements, the Closing Date Balance Sheet, or Section 10.2 of the
Disclosure Statement, the Subsidiary explicitly agrees to assume or take the
assets of the Company subject to the Liabilities set forth in Section 10.2 of
the Disclosure Statement, as the case may be, then the Shareholders agree 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 non-disclosed or non-assumed
Liability.

 

10.3 Indemnification Provisions for the Benefit of the Shareholder. In the event
of (a) a misrepresentation (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 and/or warranties contained in this Agreement, or
(b) any liability of the Acquiring Companies arising after the Closing Date or
which is set forth on Section 10.2 of the Disclosure Statement, or (c) a breach
(or in the event any third party alleges facts that, if true, would mean a
breach) of the Acquiring Company’s covenants contained in this Agreement, then
PainCare and Subsidiary agree to indemnify the Shareholders from and against any
Adverse Consequences the Shareholders 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.

 

10.4 Matters Involving Third Parties.

 

10.4.1 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.

 

10.4.2 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.

 

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10.4.3 Satisfactory Defense. So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 10.4.2 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.

 

10.4.4 Conditions. In the event any of the conditions in Section 10.4.2 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 as an
Indemnified Party, PainCare or Subsidiary shall have the right, after written
notice to the Shareholders but only after a factual determination of such
adverse consequences by a court of competent 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 Shareholders under this Agreement or any other agreement.

 

10.6 Limitation. The indemnification and related provisions set forth in this
entire 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 in excess of the Threshold.
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 $4,500,000 plus the amount of
any Earnout Installment Payments paid or due pursuant to Section 3.4 of this
Agreement; provided however that such cap shall not be applicable to with
respect to any indemnification matter which arise from or out of fraudulent
conduct or intention wrongful acts or omissions of any Shareholder or the
Company or with respect to Sections 4.1, 4.3, 4.11 and/or 4.36.

 

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10.7 Post-Closing Access to Records. The Acquiring Companies will provide the
Shareholders reasonable access to all records of the Business, which is
reasonably necessary to fulfill Shareholders’ obligations hereunder.

 

11. RESTRICTIVE COVENANTS; CONFIDENTIALITY.

 

11.1 Competitive Activities. Notwithstanding anything to the contrary in this
Agreement saving Section 11.2 below, the parties agree that, after the closing
of the transactions contemplated by this Agreement, the Shareholders will have
the right to engage in the following described activities which may be
competitive with the Subsidiary and PainCare: (a) opening rehabilitation clinics
of the same or similar type as those of the Company outside a 10 mile radius
from any of the Subsidiary’s or PainCare’s then existing rehabilitation offices
or operations, and (b) entering into agreements with hospitals or other heath
care providers to manage their rehabilitation facilities outside a 10 mile
radius from any of the Subsidiary’s or PainCare’s then existing offices and/or
operations (each a “Competitive Business Opportunity); provided that with
respect to each Competitive Business Opportunity: (i) such Opportunity shall not
unreasonably interfere with the services to be provided to the Subsidiary by
Jeffrey Wayne pursuant to his Employment Agreement, and (ii) PainCare shall have
the right of first refusal to purchase the Shareholders’ interest in each such
Competitive Business Opportunity based on a pricing formula and on such terms
substantially similar to the pricing formula and terms used by PainCare to
purchase the Company as provided herein, upon written notice from Shareholders
setting forth their desire to sell such Competitive Business Opportunities. If
within thirty (30) days after receipt of such notice, PainCare does not advise
the Shareholders in writing of its intent to enter into a definitive agreement
to purchase such Competitive Business Opportunity, then PainCare’s right of
first refusal will terminate and Shareholders shall be free to sell such
Competitive Business Opportunity to any third party for a period of one hundred
twenty (120) days. If the Shareholders and such third party are unable to
consummate a transaction during such one hundred twenty (120) day period then,
in such event, PainCare’s right of first refusal as provided herein shall
re-apply to such Competitive Business Opportunity. The Acquiring Companies
acknowledge and agree that Shareholders are permitted to use the Subsidiary’s
Confidential Information in connection with the Competitive Business
Opportunities and Subsidiary personnel with PainCare’s prior written approval
and the provision for reasonable reimbursement to the Subsidiary for the cost of
such personnel. PainCare’s right of first refusal as provided herein with
respect to any Competitive Business Opportunity will terminate on the fifth
anniversary date of the Closing of this transaction.

 

11.2 Termination of Right to Engage in Competitive Business Opportunities.
Notwithstanding Section 11.1 above if at anytime during the Formula Periods the
Formula Period Profits of the Surviving Corporation in any three (3) consecutive
Formula Period calendar quarters (taken in the aggregate) are less than
$1,200,000, or in any two (2) consecutive Formula Period calendar quarters less
than $300,000 then, in such event, PainCare by providing written notice to the
Shareholders shall have the right to terminate the Shareholders’ rights as
provided in Section 11.1 above to engage in Competitive Business Opportunities.
Upon the receipt of such termination notice the Shareholders will immediately
cease and desist from engaging, participating or otherwise involving themselves
in any further

 

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Competitive Business Opportunities without PainCare’s prior written consent
which may be withheld in its sole and absolute discretion with the understanding
that in the event of such termination, the Shareholders shall have the right to
continue to engage and operate any Competitive Business Opportunity which exists
as of the date of such termination.

 

11.3 Non-Competition. Other than with respect to Competitive Business
Opportunities, for a period of two years from the Closing Date (or such longer
period if required by an Employment Agreement)(the “Non-compete Period”),
Shareholders will not directly, or indirectly, within the Territory (as
hereinafter defined):

 

(a) Establish, operate or provide physical rehabilitation operational or
management 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 the New PC, PainCare or Subsidiary, or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by the new PC, PainCare or the
Surviving Corporation at such time;

 

(b) Request, induce or advise any patients, insurance companies, managed care
plans, suppliers, vendors, employers or other customers of the business
conducted by the New PC, PainCare, and/or its subsidiaries including the
Subsidiary or Affiliates to withdraw, curtail or cancel their business or other
relationships with the New PC, PainCare, and/or its subsidiaries including the
Subsidiary, or assist, induce, help or join any other person or entity in doing
any of the above activities; or

 

(c) Induce or attempt to influence any employee of the New PC, PainCare, and/or
its subsidiaries including the Subsidiary Company, to terminate his or her
employment with the New PC, PainCare, and/or its subsidiaries including the
Subsidiary, or to hire, recruit or solicit any such employee, whether or not so
induced or influenced without the prior written consent of PainCare;

 

provided, however, that the foregoing shall not prohibit the ownership of
securities of corporations which are listed on a national securities exchange or
traded in the national over-the-counter market in an amount which shall not
exceed 5% of the outstanding shares of any such corporation. The parties agree
that the geographic scope of this covenant not to compete shall be a ten (10)
mile radius originating from any office or operation of the Company, Subsidiary
or PainCare (the “Territory”). The parties agree that the Subsidiary or
PainCare, as the case may be, may sell, assign or otherwise transfer this
covenant not to compete, in whole or in part, to any person, corporation, firm
or entity that purchases all or part of the Subsidiary’s, or PainCare’s business
but such assignment may be made only if the assignee acknowledges, in writing,
Shareholder’s right to engage in Competitive Business Opportunities. In the
event a court of competent jurisdiction determines that the provisions of this
covenant not to compete are excessively broad as to duration, geographical scope
or activity, it is expressly agreed that this covenant not to compete shall be
construed so that the remaining provisions shall not be affected, but shall
remain in full force and effect, and any such over broad provisions shall be
deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction.

 

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11.4 Relief for Violations. Shareholders agree that the provisions and
restrictions contained in this Section are necessary to protect the legitimate
continuing interests of the Subsidiary and PainCare and that any violation or
breach of these provisions will result in irreparable injury to the Subsidiary
and PainCare for which a remedy at law would be inadequate

 

11.5 Severability. If any covenant or provision contained in Article XI is
determined to be void or unenforceable in whole or in part, it shall not be
deemed to affect or impair the validity of any other covenant or provision. If,
in any arbitral or judicial proceeding, a tribunal shall refuse to enforce all
of the separate covenants deemed included in this Article XI, then such
unenforceable covenants shall be deemed eliminated from the provisions hereof
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced in such proceedings.

 

11.6 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 11.6 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 11.6, 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.

 

11.7 Conduct of Business. From the date hereof through the Closing, the
Shareholders 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

 

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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
Shareholders 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) 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;

 

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(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 Shareholders 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

 

(s) fail to comply with all applicable filing, payment, withholding, collection
and record retention obligations under all applicable federal, state, local or
foreign Tax laws.

 

11.8 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.

 

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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.      37 North
Orange Avenue      Suite 500      Orlando, FL 32801      Attention: CEO
If to the Shareholders:    Jeffrey M. Wayne      4419 Coffey Court      Troy, MI
48098      Michael Wayne      260 Woodwind      Bloomfield Hills, MI 48034     
AND      2366 N. Gulf Shore Blvd.      Apt. 504      Naples, FL 34103

 

44

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If to the Company:

 

Dynamic Rehabilitation Centers, Inc.

   

1800 W. Big Beaver Rd., Ste. 150

   

Troy, MI 48084

With copy in each case to:

 

Linda Paullin-Hebden, Esq.

   

Raymond & Prokop, P.C.

   

26300 Northwestern Hwy., 4th Floor

   

P.O. Box 5058

   

Southfield, MI 48086-5058

 

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address or facsimile number set forth
above using any other means (including personal delivery, messenger service,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any party may change the
address or facsimile number to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.

 

12.6 Governing Law; Jurisdiction; Attorney’s Fees. This Agreement, and all
proceedings hereunder, shall be governed by and construed in accordance with the
domestic laws of the State of Florida without giving effect to any choice or
conflict of law provision or rule (either of the State of Michigan or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Florida. In the event of any suit under this Agreement
or otherwise between the parties hereto, the prevailing Party shall be entitled
to all reasonable attorney’s fees and costs, including allocated costs of
in-house counsel, to be included in any judgment recovered. In addition, the
prevailing Party shall be entitled to recover reasonable attorney’s fees and
costs, including allocated costs of in-house counsel, incurred in enforcing any
judgment arising from a suit under this Agreement. This post-judgment attorney’s
fees and costs provision shall be severable from the other provisions of this
Agreement and shall survive any judgment on such suit and is not to be deemed
merged into the judgment.

 

12.7 Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Parties. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence and all waivers must be in writing, signed
by the waiving Party, to be effective.

 

12.8 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.

 

12.9 Expenses. Except as set forth herein, 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 PC in connection with this Agreement and the transactions
contemplated hereby.

 

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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 Oakland County, Michigan.
With respect to any legal proceeding brought by the Shareholders 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, Florida.
Each party to this Agreement hereby irrevocably waives, to the fullest extent
permitted by law, any objections which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum.

 

12.15 Retention of Records. The Acquiring Companies and any permitted transferee
shall not destroy or otherwise dispose of any books or records acquired pursuant
to this Agreement for a period of seven (7) years from the date hereof, and
shall allow the Shareholders and their designated agents reasonable access to
such books and records upon reasonable prior written request and during normal
business hours.

 

[SIGNATURES APPEAR ON NEXT PAGE]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.

 

PAINCARE:

PAINCARE HOLDINGS, INC., a Florida

corporation

By:

 

/S/ RANDY LUBINSKY

--------------------------------------------------------------------------------

Print:

 

RANDY LUBINSKY

Its:

 

CEO

ACQUISITION:

PAINCARE ACQUISITION COMPANY XI,

INC., a Florida corporation

By:

 

/S/ RANDY LUBINSKY

--------------------------------------------------------------------------------

Print:

 

RANDY LUBINSKY

Its:

 

CEO

COMPANY:

DYNAMIC REHABILITATION CENTERS,

INC., a Michigan corporation

By:

 

/S/ JEFFREY M. WAYNE

--------------------------------------------------------------------------------

Print:

 

JEFFREY M. WAYNE

Its:

 

PRESIDENT

SHAREHOLDERS:

/S/ JEFFREY M. WAYNE

--------------------------------------------------------------------------------

Jeffrey M. Wayne, individually and as Trustee of

the Jeffrey M. Wayne Trust

/S/ MICHAEL WAYNE

--------------------------------------------------------------------------------

Michael Wayne, individually and as Trustee of the

Michael Wayne Trust

 

47

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EXHIBITS Exhibit 1   Definitions Exhibit 2.3   Articles of Merger DISCLOSURE
SCHEDULES 2.11(a)   Transferred Assets 2.11(b)   Non-Transferred Assets 3.3(b)  
Financial Statements 4.1   Officers and Directors 4.2   Capitalization 4.4(a)  
Consents to be Obtained Prior to Closing 4.4(b)   Consents to be Obtained After
Closing 4.6   Assets 4.8   Financial Statements 4.10   Liabilities 4.11   Tax
Returns 4.12   Real Property 4.15   Material Contracts 4.17   Insurance 4.18  
Litigation 4.19   Third Party Payor Agreements 4.22   Rate and Reimbursement
Policies 4.23   Medical Staff 4.24   Employment Matters 4.25   Employment
Benefits 4.26   Physician Matters 4.27   Guaranties 4.28   Environmental
Permits, Licenses and Approvals 4.30   Third Party Payors 4.31   Bank Accounts
4.37   HIPAA 4.39   Accounts Receivable 5.4   Consents and Approvals 5.6(a)  
Capitalization 5.6(b)   Financing proposed to be raised by PainCare in
connection with the transactions contemplated by this Agreement 5.7   Litigation
5.8   Undisclosed Liabilities of PainCare 7.1(e)   Payoffs 10.2  
Indemnification 11.7   Conduct of Business

 

48

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EXHIBIT 1

 

DEFINITIONS

 

For purposes of this Agreement, the following terms shall have the meanings set
forth below:

 

1. “Accounts Receivable” means the accounts receivable of the Company and the
New PC determined in accordance with GAAP with respect to the operations of the
Company prior to the Closing Date arising from the rendering of services to
patients through the Closing Date, including, without limitation, those from
private pay patients, private insurance payors, third party payors and
governmental programs.

 

a. “Adjustment Payment Date” has the meaning set forth in Section 3.3(c).

 

b. “Adverse Consequences” means all actions, suits, proceedings, hearings,
investigations, complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees,
including court costs and reasonable attorneys’ fees and expenses.

 

c. “Affiliate” shall mean, with respect to any Person: (a) any corporation,
proprietorship, partnership, limited liability company, or any other business
entity whatsoever that, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such Person; and
(b) if the Person is an individual, any other individual who is related to such
Person. For the purposes of this definition, the terms “controls,” “is
controlled by” and “is under common control with” shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise. Neither PainCare nor Subsidiary is an
Affiliate of the Company or the Shareholders for purposes of this Agreement and
neither the Shareholders nor the Company is an Affiliate of PainCare or
Subsidiary for purposes of this Agreement.

 

d. Intentionally Omitted.

 

e. “Agreement” has the meaning set forth in the Preamble.

 

f. “Articles of Merger” has the meaning set forth in Section 2.3.

 

g. “Cash Due at Closing” has the meaning set forth in Section 3.1.

 

h. “Certificate(s)” has the meaning set forth in Section 2.10.

 

i. “Closing” has the meaning set forth in Section 6.

 

49

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j. “Closing Date” has the meaning set forth in Section 6.

 

k. “Closing Date Balance Sheet” has the meaning set forth in Section 3.3.

 

l. “Code” means the Internal Revenue Code of 1986, as amended.

 

m. “Commission” means the U.S. Securities and Exchange Commission.

 

n. “Company” has the meaning set forth in the Preamble.

 

o. “Company Shares” means any share of common stock of the Company.

 

p. “Disclosure Schedule” has the meaning set forth in Section 4.

 

q. “ Earnings Threshold” has the meaning set forth in Section 3.4.

 

r. “EBITDA” has the meaning set forth in Section 3.4.

 

s. Intentionally Omitted.

 

t. “Employee Benefit Plan” means any: (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan; (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan; (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan); (d) Employee Welfare Benefit Plan; or (e) any bonus,
incentive, severance, stock option, stock purchase, short-term disability plan
or other material fringe benefit plan, program or arrangement, including
policies concerning holidays, vacations and salary continuation during short
absences for illness or otherwise.

 

u. “Employee Pension Benefit Plan” has the meaning set forth in ERISA Section
3(2).

 

v. “Employee Welfare Benefit Plan” has the meaning set forth in ERISA Section
3(1).

 

w. “Environmental, Health, and Safety Requirements” means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Clean Air Act, the Federal Water
Pollution Control Act, the Safe Drinking Water Act, the Toxic Substance Control
Act, the Emergency Planning and Community Right-to-Know Act of 1986, the
Hazardous Material Transportation Act, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, injunctions, judgments, orders, decrees, and rulings) of
federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials (including petroleum products and
asbestos) or

 

50

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wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.

 

x. “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.

 

y. “Fair Market Value” has the meaning set forth in Section 3.4.

 

z. “Fiduciary” has the meaning set forth in ERISA Section 3(21).

 

aa. “Financial Statements” has the meaning set forth in Section 4.8.

 

bb. “Florida Act” and “Michigan Act” have the meanings set forth in Section 2.1.

 

cc. “Formula Period” has the meaning set forth in Section 3.4.

 

dd. “Formula Period Profits Statement” has the meaning set forth in Section 3.4.

 

ee. “GAAP” means the United States generally accepted accounting principles in
effect from time to time.

 

ff. “HIPAA” has the meaning set forth in Section 4.37.

 

gg. “Indemnified Party” has the meaning set forth in Section 10.4.

 

hh. “Indemnifying Party” has the meaning set forth in Section 10.4.

 

ii. “Intended Installment Payment” has the meaning set forth in Section 3.4.

 

jj. “Installment Payment” has the meaning set forth in Section 3.4.

 

kk. “Installment Payment Discount” has the meaning set forth in Section 3.4.

 

ll. “Installment Payment Premium” has the meaning set forth in Section 3.4.

 

mm. “Intellectual Property” means: (a) all trade secrets and confidential
business information (including customer and supplier lists, ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
pricing and cost information, and business and marketing plans and proposals);
(b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith; (c) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications,

 

51

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and patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof; (d)
all copyrightable works, all copyrights, and all applications, registrations,
and renewals in connection therewith; (e) all computer software (including data
and related documentation); (f) all other proprietary rights; and (g) all copies
and tangible embodiments thereof (in whatever form or medium).

 

nn. “IRS” means the U.S. Internal Revenue Service.

 

oo. “Knowledge” An individual will be deemed to have “Knowledge of a particular
fact or other matter if:

 

(a) such individual is actually aware of such fact or other matter; or

 

(b) a prudent individual could be expected to discover or otherwise become aware
of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter.

 

A Person (other than an individual) will be deemed to have “Knowledge” of a
particular fact or other matter if Shareholders or any individual who is a
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.

 

pp. “Liability” or “Liabilities” means any liability, whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due, including, but not in any way limited to, any liability for Taxes.

 

qq. “Management Agreement” means that certain Management Services Agreement by
and among PainCare Acquisition Company XI, Inc., the New PC and Dr. Alo, dated
as of the Statutory Merger Time.

 

1.1 “Medical Waste” has the meaning set forth in Section 4.40

 

1.2 “Merger” has the meaning set forth in Section 2.1.

 

1.3 “Most Recent Year End” has the meaning set forth in Section 4.9.

 

1.4 “Multiemployer Plan” has the meaning set forth in ERISA Section 3(37).

 

1.5 “NASDAQ” has the meaning set forth in Section 3.4.

 

1.6 “New PC” has the meaning set forth in Paragraph D of the Recitals.

 

1.7 “Other Net Equity Adjustment” has the meaning set forth in Section 3.3.

 

1.8 “PainCare” has the meaning set forth in the Preamble.

 

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1.9 “PainCare Shares” means any share of common stock, $.0001 par value per
share, of PainCare.

 

1.10 “Party(ies)” has the meaning set forth in the Preamble.

 

1.11 “PBGC” means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

 

1.12 “Person” means an individual, a partnership, a corporation, an association,
a joint stock company, a limited liability company or partnership, a trust, a
joint venture, an unincorporated organization, any other form of entity
whatsoever, or a governmental entity (or any department, agency, or political
subdivision thereof).

 

1.13 “Prohibited Transaction” has the meaning set forth in ERISA Section 406 and
Code Section 4975.

 

1.14 “Reportable Event” has the meaning set forth in ERISA Section 4043.

 

1.15 “Securities Act” means the Securities Act of 1933, as amended.

 

1.16 “Securities Exchange Act” means the Securities Exchange Act of 1934, as
amended.

 

1.17 “Security Interest” means any lien, claim, encumbrance, mortgage,
hypothecation, pledge, or other security interest, excluding purchase money
security interests arising in the ordinary course of business and liens arising
by operation of law for Taxes not yet due and payable.

 

1.18 “Shareholder” and “Shareholders” has the meaning set forth in the Preamble,
and shall further include any individual who acquires shares of the Company
stock, New PC stock, or the PainCare Shares, pursuant to the terms of this
Agreement.

 

1.19 “Subsidiary” has the meaning set forth in the Preamble.

 

1.20 “Surviving Corporation” has the meaning set forth in Section 2.1.

 

1.21 “Tax” or “Taxes” means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, production, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including interest, penalty, or additions thereto, whether disputed or not, and
whether or not accrued on the Financial Statements.

 

1.22 “Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

 

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1.23 “Third Party Claim” has the meaning set forth in Section 10.4.

 

1.24 “Trade Secrets” has the meaning set forth in Section 11.5.

 

1.25 “Transaction” has the meaning set forth in Section 2.1.

 

1.26 “Transaction Consideration” has the meaning set forth in Section 3.1.

 

1.27 “Transferred Assets” has the meaning set forth in Section 2.11.

 

54