Exhibit 10.2

 

MERGER AGREEMENT AND PLAN OF REORGANIZATION

 

BY AND AMONG

 

PAINCARE HOLDINGS, INC.,

 

PAINCARE ACQUISITION COMPANY XII, INC.,

 

GEORGIA SURGERY CENTERS, INC.

 

AND

 

ROBERT E. WINDSOR, M.D.

 

EXECUTION DATE: MAY 25th , 2004.

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1.   DEFINITIONS.    1 2.   TRANSACTION.    1     2.1   Transaction.    1    
2.2   Effect of the Merger.    2     2.3   Filing of Articles of Merger.    2  
  2.4   Articles of Incorporation.    2     2.5   Bylaws.    2     2.6  
Directors and Officers.    2     2.7   Tax Consequences.    2     2.8  
Additional Actions.    2     2.9   No Dissenters’ Rights.    3     2.10  
Surrender of Certificates.    3        

(a)    Company’s Shares.

   3        

(b)    Dividends.

   3     2.11   Intentionally Omitted.    3     2.12   Conversion of Shares.   
3     2.13   Shareholder Consent and Release.    3     2.14   Registration.    4
    2.15   Shareholder’s Obligation to Furnish Information.    5     2.16  
Suspension of Sales Pending Amendment to Prospectus.    5     2.17  
Registration Expenses.    5 3.   TRANSACTION CONSIDERATION.    6     3.1  
Merger Consideration.    6     3.2   Payment of Closing Date Consideration.    6
    3.3   Closing Date Adjustments    6        

(a)    Transaction Related Adjustment.

   6        

(b)    Financial Statements.

   6        

(c)    Closing Date Balance Sheet.

   7     3.4   Earnout Payment.    8        

(a)    General.

   8

 

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(b)    Installment Payment Discount.

   8        

(c)    Installment Payment Premium.

   8        

(d)    Manner of Payment.

   8        

(e)    Earnout Cap.

   9        

(f)     Definitions for Purposes of Section 3.

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

(a)    Sale or Lease of Assets.

   13        

(b)    Contracts.

   13        

(c)    Change in Contracts.

   13        

(d)    Security Interests.

   13        

(e)    Investments.

   13        

(f)     Debts.

   13        

(g)    Liabilities Unaffected.

   13        

(h)    Claims Unaffected.

   13        

(i)     Articles and Bylaws.

   13        

(j)     Changes in Equity.

   13        

(k)    Distribution.

   13        

(l)     Property Damage.

   13        

(m)   Transactions with Affiliates.

   13        

(n)    Collective Bargaining Agreements.

   14        

(o)    Compensation Changes.

   14

 

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(p)    Employee Benefit Plans.

   14        

(q)    Officers; Directors; Employees.

   14        

(r)     Charitable or Capital Contributions.

   14        

(s)    Ordinary Course of Business.

   14        

(t)     Accounting Practices.

   14        

(u)    Accounts Receivable.

   14        

(v)    In General.

   14     4.10   Undisclosed Liabilities.    14     4.11   Tax Matters.    14  
     

(a)    Tax Returns.

   15        

(b)    Withholding.

   15        

(c)    No Disputes of Claims.

   15        

(d)    No Waivers.

   15        

(e)    No Special Circumstances.

   15        

(f)     Intentionally Omitted.

   15        

(g)    Audits of Tax Returns.

   15        

(h)    Period of Assessment.

   16        

(i)     Tax Agreements.

   16        

(j)     Inclusions in Taxable Periods.

   16        

(k)    Consents.

   16        

(l)     Personal Holding Company

   16        

(m)   Consolidated Tax Returns.

   16     4.12   Real Property.    16        

(a)    Binding.

   16        

(b)    Continued Validity.

   16        

(c)    No Defaults.

   16        

(d)    Repudiation.

   17        

(e)    No Disputes.

   17        

(f)     Subleases.

   17        

(g)    Encumbrances.

   17

 

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(h)    Approvals.

  17        

(i)     Utilities.

  17     4.13   Intellectual Property.   17     4.14   Condition of Tangible
Assets.   17     4.15   Contracts.   17        

(a)    Personal Property Leases.

  17        

(b)    Services.

  18        

(c)    Partnership; Joint Venture.

  18        

(d)    Indebtedness.

  18        

(e)    Confidentiality; Non-Competition.

  18        

(f)     Shareholders’ Agreements.

  18        

(g)    Plans.

  18        

(h)    Employment or Consulting Agreements.

  18        

(i)     Advances; Loans.

  18        

(j)     Adverse Effects.

  18        

(k)    Other Agreements.

  18     4.16   Powers of Attorney.   19     4.17   Insurance; Malpractice.   19
    4.18   Litigation.   20     4.19   Health Care Compliance.   20     4.20  
Fraud and Abuse.   20     4.21   Legal Compliance.   21     4.22   Rates and
Reimbursement Policies.   21     4.23   Medical Staff.   21     4.24  
Employees.   22     4.25   Employee Benefits.   22        

(a)    Plans.

  22        

(b)    Compliance.

  22        

(c)    Reports and Descriptions.

  22        

(d)    Contributions.

  22

 

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(e)    Qualified Plan.

  22        

(f)     Market Value.

  22        

(g)    Copies.

  22        

(h)    Maintenance of Plans.

  23        

(i)     Reportable Events.

  23        

(ii)    Prohibited Transactions.

  23     4.26   Physicians and Other Providers.   23        

(a)    Licenses.

  23        

(b)    Controlled Substances.

  23        

(c)    Actions.

  23        

(i)        Malpractice Actions.

  23        

(ii)       Disciplinary Proceedings.

  23        

(iii)      Criminal Proceedings.

  23        

(iv)      Investigation.

  24        

(v)       Mental Illnesses.

  24        

(vi)      Substance Abuse.

  24        

(vii)     Professional Ethics.

  24        

(viii)   Application for Licensure.

  24     4.27   Guaranties.   24     4.28   Environment, Health, and Safety.  
24        

(a)    Compliance.

  24        

(b)    Permits and Licenses.

  24        

(c)    Notices.

  24        

(d)    Hazardous Substances.

  24     4.29   Certain Business Relationships with the Company and its
Affiliates.   25     4.30   Third-party Payors.   25     4.31   Bank Accounts.  
25     4.32   Tax Status.   25     4.33   Binding Obligation.   25     4.34   No
Corporate Practice or Fee Splitting.   26

 

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    4.35   Intentions.   26     4.36   Securities Representation.   26        

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

  26        

(b)    Resale Restrictions.

  26        

(c)    Ability to Bear Economic Risk.

  26        

(d)    Accredited Investor.

  27        

(e)    No Registration.

  27     4.37   HIPAA   27     4.38   Improper and Other Payments   27     4.39
  Accounts Receivable   27     4.40   Medical Waste   27     4.41   No Untrue or
Inaccurate Representation or Warranty   28 5.   REPRESENTATIONS AND WARRANTIES
OF THE ACQUIRING COMPANIES.   28     5.1   Organization of PainCare and
Subsidiary.   28     5.2   Authorization of Transaction.   28     5.3   No
Conflict or Violation.   28     5.4   Consents and Approvals.   29     5.5  
Disclosure Documents.   29     5.6   Capitalization.   29     5.7   Litigation.
  29     5.8   No Undisclosed Liabilities.   30     5.9   No Brokers.   30    
5.10   Material Misstatements or Omissions.   30 6.   CLOSING; TERMINATION.   30
7.   CLOSING DELIVERIES.   30     7.1   Deliveries of the Company and the
Shareholder.   30        

(a)    Consents and Approvals.

  30        

(b)    Termination of Agreements.

  30        

(c)    Company Stock.

  31

 

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(d)    Corporate Authorization.

  31        

(e)    Secretary’s Certificate.

  31        

(f)     Other documents.

  31     7.2   Deliveries of PainCare.   31        

(a)    Consideration.

  31        

(b)    Resolutions.

  31        

(c)    Other Documents.

  31 8.   CONDITIONS TO THE OBLIGATIONS OF THE PARTIES   31     8.1   Conditions
for the Benefit of PainCare and the Subsidiary.   31     8.2   Conditions for
the Benefit of the Shareholder.   31 9.   COVENANTS.   32     9.1   Deliveries.
  32     9.2   Post-Closing General Covenants.   32     9.3   Tax Returns.   32
    9.4   Transition.   32     9.5   Litigation Support.   32     9.6  
Consents.   33     9.7   Capital Adjustments.   33 10.   SURVIVAL AND
INDEMNIFICATION.   33     10.1   Survival of Representations and Warranties.  
33     10.2   Indemnification Provisions for the Benefit of PainCare and
Subsidiary.   34     10.3   Indemnification Provisions for the Benefit of the
Shareholder.   34     10.4   Matters Involving Third Parties.   34        

(a)    Notification.

  34        

(b)    Defense by Indemnifying Party.

  34        

(c)    Satisfactory Defense.

  35        

(d)    Conditions.

  35     10.5   Right to Set-Off.   35     10.6   Materiality.   35     10.7  
Limitation.   36

 

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11.   RESTRICTIVE COVENANTS; CONFIDENTIALITY.   36     11.1   Restrictive
Covenants.   36        

(a)    Restricted Period.

  36        

(b)    Consideration.

  37        

(c)    Third-Party Beneficiaries.

  37     11.2   Defenses.   37     11.3   No Running of Covenant During Breach.
  37     11.4   Blue Pencil Doctrine.   38     11.5   Confidentiality, Press
Releases, and Public Announcements.   38     11.6   Conduct of Business.   38  
  11.7   No Third-Party Beneficiaries.   40 12.   MISCELLANEOUS   40     12.1  
Entire Agreement.   40     12.2   Succession and Assignment.   41     12.3  
Counterparts.   41     12.4   Headings.   41     12.5   Notices.   41     12.6  
Governing Law; Jurisdiction; Attorney’s Fees.   42     12.7   Amendments and
Waivers.   42     12.8   Severability.   42     12.9   Expenses.   42     12.10
  Further Assurances.   42     12.11   Construction.   42     12.12   Survival.
  43     12.13   Incorporation of Exhibits and Schedules.   43     12.14  
Submission to Jurisdiction.   43

 

 

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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 25th day of May, 2004 (the “Execution Date”) by and
among PAINCARE HOLDINGS, INC., a Florida corporation (“PainCare”), PAINCARE
ACQUISITION COMPANY XII, INC., a Florida corporation (“Subsidiary”), in which
PainCare and the Subsidiary are sometimes referred to herein as the “Acquiring
Companies”, and GEORGIA SURGERY CENTERS, INC., a Georgia corporation (the
“Company”), and ROBERT E. WINDSOR, M.D., an individual (“Dr. Windsor” or
sometimes “Shareholder”).

 

RECITALS

 

A. The Company owns and operates an ambulatory surgery center (hereinafter
sometimes called the “ASC”) at the following locations: (1) Marietta Surgical
Center: Georgia Surgical Center, North – 2550 Windy Hill Rd, #215, Marietta, GA
30067; (2) Forest Park Surgical Center: Georgia Surgical Center, South – 541
Forest Parkway, #14, Forest Park, GA 30297; (3) Calhoun Surgical Center: Georgia
Surgical Centers of North Georgia – 1089 Redbud Rd, Calhoun, GA 30701
(hereinafter collectively sometimes called the “Center”) and Dr. Windsor is a
licensed medical provider in the State of Georgia and owns all of the issued and
outstanding shares of stock in the Company (the “Company Shares”);

 

B. PainCare is in the business of acquiring ASC’s;

 

C. PainCare desires to enter into this Agreement in order to acquire the
Company;

 

D. Immediately prior to closing, Dr. Windsor will (i) sell seventy percent (70%)
of his company shares to the “Windsor Nongrantor Trust (U/D/T 2004”, an
Irrevocable Nongrantor Trust (the “Windsor Trust), and (ii) assign his remaining
Company shares to “Windsor Family Limited Partnership,” a Georgia Family Limited
Partnership (the “Windsor Partnership”);

 

E. Hereinafter, Dr. Windsor, the Windsor Trust, and the Windsor Partnership,
will collectively sometimes be referred to herein as the “Shareholder”; and
sometimes Dr. Windsor, the Windsor Trust, the Windsor Partnership, and the
Company will sometimes be referred to collectively as the “Shareholder” or
sometimes the “Sellers.” PainCare, the Subsidiary, and the Sellers are sometimes
referred to herein individually as a “Party” and collectively as the “Parties;”

 

F. All of the Parties hereto desire to enter into this Agreement to effectuate
the Merger, as hereinafter defined, of the Subsidiary with and into the Company
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

 

2. 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.

 

3. TRANSACTION.

 

3.1 Transaction. Upon the terms and subject to the conditions hereof and in
accordance with the provisions of the [Georgia Business Corporation Act] (the
“Georgia Act”) and the Florida Business Corporation Act (the “Florida Act”), the
Subsidiary shall be merged with and into the Company (the “Merger”) and the
separate existence of the Subsidiary shall thereupon cease, and Company, as the
surviving corporation (the “Surviving Corporation”), shall continue to exist
under and be governed by the Georgia Act (the “Transaction”).

 

3.2 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 Georgia Act and the Florida Act. From and after the Statutory
Merger Time, the Surviving Corporation shall continue to be a Georgia
corporation.

 

3.3 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 Georgia in accordance with the provisions of the
Florida Act and the Georgia 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.

 

3.4 Articles of Incorporation. As of the Statutory Merger Time, the articles of
incorporation of the Company, 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.

 

3.5 Bylaws. As of the Statutory Merger Time, the bylaws of the Company, 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.

 

3.6 Directors and Officers. As of the Statutory Merger Time, the directors and
officers of Subsidiary immediately prior to the Statutory Merger Time shall be
elected the directors and officers of the Surviving Corporation. Each director
and officer of the Surviving Corporation shall hold office in accordance with
the articles of incorporation and bylaws of the Surviving Corporation. The
Company shall cause to be delivered to PainCare 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).

 

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3.7 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.

 

3.8 Additional Actions. If, at any time after the Closing, PainCare 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 by reason of, or
as a result of, the Merger; or (b) otherwise to carry out the purposes of this
Agreement, then the Shareholder shall be deemed to have granted to PainCare an
irrevocable power of attorney to execute and deliver all such deeds, assignments
and assurances in law and to do all other acts necessary or proper to vest,
perfect or confirm title to and possession of such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement;
and the officers and directors of the Surviving Corporation are fully authorized
in the name of the Shareholder and the Company to take any and all such actions.

 

3.9 No Dissenters’ Rights. As a result of the unanimous approval of the
transactions contemplated herein by the Shareholder; neither the Shareholder,
nor any other party, is entitled to dissenters’ rights under the laws of the
State of Georgia or the State of Florida.

 

3.10 Surrender of Certificates.

 

(a) Company’s Shares. At the Closing, the Shareholder shall be required to
surrender to PainCare the original stock certificates evidencing one hundred
(100) 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 PainCare). 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.

 

(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.

 

3.11 Intentionally Omitted.

 

3.12 Conversion of Shares. Each share of capital stock of Company issued and
outstanding immediately prior to the Closing shall continue to represent one (1)
validly issued, fully paid and non-assessable share of capital stock of the
Surviving Corporation after the Merger. By virtue of the Merger and without any
action on the part of the Shareholder the Company Shares shall be converted into
the Merger Consideration. The PainCare Shares to be received by the Shareholder
as the Merger Consideration shall be subject to restrictions of the sale,
transfer or distribution thereof as set forth in Section 4.36.

 

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3.13 Shareholder Consent and Release. The Shareholder hereby consents to the
Transaction and approves the execution and delivery of this Agreement and the
transactions contemplated hereby. Effective on the Closing Date, the Shareholder
hereby releases PainCare, the Company and the Surviving Corporation from any and
all claims he may, could or will have, whether arising before or after the
Closing Date, against the Company or the Surviving Corporation as a result of
the Shareholder having served as a stockholder, director, officer, employee,
agent, or in any other capacity of the Company; provided, however, such release
shall not operate to release the Company (or the Surviving Corporation as
successor to the Company) from (i) Shareholder’s rights (whether arising under
the Company’s By-Laws or by statute) to indemnification, or (ii) the obligation
to make the distributions of pre-Closing Date income as permitted under this
Agreement, or (iii) claims, if any, arising from Shareholder serving as a
guarantor or joint-obligor with respect to those certain obligations of the
Company as identified in Section 2.13 of the Disclosure Schedule.

 

3.14 Registration.

 

(a) If within the three (3) year period commencing on the Execution Date
PainCare proposes for any reason to register the PainCare Shares under the
Securities Act [other than a registration in connection with an exchange offer
(Form S-4) or filed in connection with an employee stock option or other benefit
plan (Form S-8, or any substitute form that may be adopted by the Commission)],
PainCare shall promptly give written notice to the Shareholder of its intention
to so register the PainCare Shares and, upon written request by the Shareholder,
given within twenty (20) days after delivery of any such notice by PainCare, to
include in such registration PainCare Shares held by the Shareholder (which
request shall specify the number of PainCare Shares proposed to be included in
such registration), PainCare shall attempt to cause all such PainCare Shares to
be included in such registration on the same terms and conditions as the
securities otherwise being included in such registration; provided however, that
if the managing underwriters advise PainCare that the inclusion of the PainCare
Shares proposed to be included in such registration would interfere with the
successful marketing (including pricing) of the PainCare Shares proposed to be
registered by PainCare, then if such registration is in part an underwritten
primary or secondary registration on behalf of PainCare, PainCare shall include
in such registration the PainCare Shares requested to be included in such
registration, pro rata from among the holders of any and all PainCare shares to
be registered pursuant to such registration according to the number of shares
proposed by each holder to be included. In the event PainCare determines not to
pursue, or to withdraw, a registration as to which it has given notice pursuant
to this section, the Shareholder shall have no further rights hereunder with
respect to such proposed registration. Notwithstanding any other provision of
this Section to the contrary, PainCare shall not be required to include any of
the PainCare Shares in a registration statement relating to an underwritten
offering of PainCare’s securities unless the Shareholder accepts the terms of
the underwriting as agreed upon between PainCare and the underwriters selected
by it, including, without limitation, any Underwriter’s Cutback and/or Lockup,
and the Shareholder agrees to promptly execute and/or deliver such documents in
connection with such registration as PainCare or the managing underwriter may
reasonably request.

 

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(b) The Shareholder may exercise his rights under Section 2.14(a) above on an
unlimited number of occasions. PainCare shall pay all Registration Expenses (as
defined below) of any registration effected under this Section, except that in
the event of withdrawal by the Shareholder, the Shareholder shall pay (or
reimburse PainCare for) the amount of registration, filing or listing fees
relating to his PainCare Shares included in the registration and shall pay the
fees of PainCare’s counsel associated with such withdrawal, unless such
withdrawal is due to the Shareholder obtaining material adverse information that
was not known by him at the time he requested inclusion of his PainCare Shares
in the registration.

 

(c) The Shareholder may not participate in any registration under this Section
which is underwritten unless he agrees to sell such PainCare Shares on the basis
provided in any underwriting agreement (with terms not inconsistent herewith and
customary in underwriting agreements for secondary distributions) approved by
PainCare, provided that the Shareholder shall not be required to make any
representations or warranties to PainCare or the underwriters (other than
representations and warranties regarding such Shareholder and such Shareholder’s
intended method of distribution).

 

3.15 Shareholder’s Obligation to Furnish Information. PainCare may require
Shareholder to furnish PainCare such information regarding the distribution of
such securities as PainCare may from time to time reasonably request. If the
failure by the Shareholder to furnish such information as expeditiously as
possible would prevent (i) the registration statement relating to such
registration from being declared effective by the Securities Exchange
Commission, or (ii) members of the National Association of Securities Dealers,
Inc. from participating in the distribution of the PainCare Shares proposed to
be registered, PainCare may exclude the Shareholder’s PainCare Shares from such
registration.

 

3.16 Suspension of Sales Pending Amendment to Prospectus.

 

(a) The Shareholder agrees that, upon receipt of any notice from PainCare of the
happening of any event of that requires PainCare not to proceed with the
registration, or if PainCare has decided not to proceed with the registration
for any reason, the Shareholder shall forego the disposition of any PainCare
Shares covered by the registration statement or prospectus until he is advised
in writing by PainCare that the use of the applicable prospectus may be resumed
and, if so directed by PainCare, the Shareholder shall deliver to PainCare (at
PainCare’s expense, except as hereinafter provided) all copies, other than
permanent file copies, then in Shareholder’s possession of any prospectus
covering such PainCare Shares.

 

(b) The Shareholder agrees that he shall, as expeditiously as possible, notify
PainCare at any time when a prospectus relating to a registration statement
covering such Shareholder’s PainCare Shares is required to be delivered under
the Securities Act, of the happening of any event which requires changes to be
made in the registration statement or any related prospectus so that such
registration statement or prospectus shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading as a result of any
information provided by the Shareholder for inclusion in such prospectus
included in such registration statement and, at the request of PainCare, as
expeditiously as possible prepare and furnish to it such information as may be
necessary so that, after incorporation into a supplement or amendment of such
prospectus as thereafter delivered to the purchasers of such PainCare Shares,
the information

 

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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.

 

3.17 Registration Expenses.

 

(a) All expenses incident to PainCare’s performance of or compliance with its
obligations under this Section 2, including without limitation all (i)
registration and filing fees, (ii) fees and expenses of compliance with
securities laws, (iii) printing expenses, (iv) messenger and delivery expenses,
(v) internal expenses, (vi) reasonable fees and disbursements of its counsel and
its independent certified public accountants (including “comfort” letters),
(vii) securities act liability insurance, (viii) reasonable fees and expenses of
any special experts retained by PainCare in connection with the registration
hereunder, and (ix) reasonable fees and expenses of other persons retained by
PainCare (all such expenses being referred to herein as “Registration Expenses”)
shall be borne by PainCare.

 

(b) Notwithstanding the foregoing, the following costs and expenses shall be
excluded from the term “Registration Expenses”: (i) all underwriting discounts
and commissions, (ii) all applicable transfer taxes, (iii) the fees and
disbursements of any counsel retained by the Shareholder, and (iv) except as
provided in Section 2.17(a), all other costs, fees, and expenses incurred by the
Shareholder in connection with the exercise of his registration rights
hereunder.

 

4. TRANSACTION CONSIDERATION.

 

4.1 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 Contingent
Installment Payments as determined under Section 3.4 below. Subject to the
provisions set forth in Section 3.2 below and to the adjustment provisions as
provided in Section 3.3 below, the Closing Date Consideration that PainCare
shall deliver to the Shareholder upon the satisfaction of the Closing Conditions
One Million One Hundred Twenty Five Thousand and 00/100 Dollars ($1,125,000)
which shall be comprised of Four Hundred Sixty Two Thousand One Hundred Sixty
Four (462,164) PainCare common shares (the “PainCare Shares”). At least one (1)
day prior to the Closing Date, the Shareholder shall notify PainCare in writing
as to the location the Closing Date Consideration is to be sent.

 

4.2 Payment of Closing Date Consideration.

 

The Closing Date Consideration shall be payable as follows:

 

(a) With respect to One Hundred Fifty Thousand (150,000) shares of the PainCare
Shares due at Closing, such Shares shall be delivered to Arthur A. Graves, III
(the “Escrow Agent”) to be held in escrow pursuant to the terms and conditions
of that certain Escrow and Security Agreement in the form attached hereto as
Exhibit 3.2(a); and

 

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(b) With respect to the remainder of the PainCare Shares due at Closing, such
shares shall be delivered to the Sellers.

 

4.3 Closing Date Adjustments. The Closing Date Consideration shall be subject to
adjustment as follows:

 

(a) Transaction Related Adjustments. The Closing Date Consideration shall be
reduced by the amount of any cash payments made by the Company or the Acquiring
Companies with respect to any expenses paid on behalf of the Shareholder (rather
than the Company) expect as otherwise specifically allowed pursuant to this
Agreement.

 

(b) Financial Statements. Except as set forth on Section 3.3(b) of the
Disclosure Schedules, the Company has prepared financial statements consisting
of (i) a balance sheet, statement of operations and cash flow statement in
accordance with GAAP as of and for the year ended December 31, 2003 (the “GAAP
Financial Statements”); and (ii) a balance sheet, statement of operations and
cash flow statement as of and for the quarters ended March 31, 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).

 

(c) Closing Date Balance Sheet. Within forty-five (45) days after the Closing
Date, PainCare or its Affiliate will prepare and deliver to Dr. Windsor 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 ten
(10) business days after PainCare’s delivery of the Closing Date Balance Sheet
to Dr. Windsor, Dr. Windsor 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 Dr. Windsor fails to deliver notice of acceptance or objection
to the Closing Date Balance Sheet within such ten (10) business day period, the
Shareholder shall be deemed to have accepted the Closing Date Balance Sheet.
Except in the case of a dispute with respect to the Closing Date Balance Sheet,
within ten (10) business days after delivery of the Closing Date Balance Sheet
(the “Adjustment Payment Date”), the Shareholder shall pay the Other Net Equity
Adjustment (as defined below) to PainCare. In the event that PainCare and Dr.
Windsor 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 Dr.
Windsor, then either Party shall each have the right to require that such
disputed determinations be submitted to an independent certified public
accountant or accounting firm that PainCare shall select, for computation or
verification in accordance with the provisions of this Agreement, and the Net
Equity Adjustment shall be paid by the Shareholder to PainCare within ten (10)
business days after receipt of the accountant’s computation or verification. The
foregoing provisions for certified public accounting firm review shall be final
and binding upon the Parties and there shall be no right of appeal from such
decision. Such accounting firm’s fees and expenses for such disputed
determination shall be borne by the Party whose determination has been modified
by such accounting firm’s report or by all Parties in proportion to the relative
amount each Party’s determination has been modified. Any payments due under this
Section 3.3 shall bear interest at eight percent (8%) per annum from the
Adjustment Payment Date.

 

7

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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) (the “Required Cash”), or Net
Shareholder’s Equity (as defined below) of the Company that is less than Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000)(“Agreed Net Equity”), then
the Closing Date Consideration shall be reduced and the Shareholder shall be
required to immediately return to PainCare dollar for dollar (the “Net Equity
Adjustment”) by (i) an Amount equal to the Required Cash less Cash reflected on
the Closing Date Balance Sheet, and (ii) the difference between (x) the Agreed
Net Equity; and (y) the Net Shareholder’s Equity set forth in the Closing Date
Balance Sheet. “Net Shareholder’s Equity” shall mean the book value of the
Company’s tangible non-medical assets plus its accounts receivable (less the
Required Cash) net of all liabilities of the Company.

 

4.4 Earnout Payment.

 

(a) General. On the last day of each of the three (3) successive twelve (12)
month periods (hereinafter at times referred to as the “First Twelve Month
Period”, the “Second Twelve Month Period” and “Third Twelve Month Period,”
respectively) which immediately follow the Closing Date, PainCare shall deliver
to the Shareholder PainCare stock with a Fair Market Value (as hereinafter
defined) of $375,000 (each a “Contingent Installment Payment”) if, and only if,
all of the following conditions are satisfied (each a “Condition” and
collectively, the “Conditions”) throughout the First Twelve Month Period, the
Second Twelve Month Period and the Third Twelve Month Period: (I) Shareholder
and Practice Operator (as defined in that certain Management Services Agreement
dated May 25, 2004 (the “Management Services Agreement”) by and among PainCare
Acquisition Company XII, Inc. Georgia Pain Physicians, P.C., and Robert E.
Windsor, M.D.) are in compliance with all of the terms and conditions applicable
to Shareholder and Practice Operator in the Management Services Agreement,
including by in no way limited to, timely payment in full of the Management Fee
(as defined in the Management Services Agreement) and compliance with the
restrictive covenant provisions set forth in Section 10 of the Management
Services Agreement); (ii) Shareholder is in compliance with the restrictive
covenant provisions of Section 12 of the Agreement of Purchase and Sale dated
May 25, 2004 (“Purchase Agreement) among PainCare Holdings, Inc., Georgia Pain
Physicians, P.C. and Shareholder. To the extent that each of the Conditions are
satisfied throughout the First Twelve Month Period, Second Twelve Month Period
and Third Twelve Month Period, then PainCare shall pay to the Shareholder
PainCare stock with a Fair Market Value of $375,000 within thirty (30) days of
the end of each of the First Twelve Month Period, Second Twelve Month Period and
Third Twelve Month Period. To the extent that any of the Conditions are not
satisfied during any of the First Twelve Month Period, Second Twelve Month
Period and Third Twelve Month Period, then for the applicable Twelve Month
Period where any of the Conditions are not satisfied, and each subsequent Twelve
Month Period, PainCare shall not pay, and shall have no duty or obligation to
ever pay, and Shareholder shall not receive, and shall have not right to ever
receive, any Contingent Installment Payment. For example, by the way of
illustration only, assume that throughout the First Twelve Month Period the
Conditions are satisfied and in the middle of the Second Twelve Month Period the
Conditions are no longer satisfied, then, in this example, PainCare shall pay
the PainCare stock with a Fair Market Value of $375,000

 

8

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Contingent Installment Payment within thirty (30) days of the First Twelve Month
Period; however, PainCare shall not pay, and shall have no duty or obligation to
ever pay, and Shareholder shall not receive, and shall have not right to ever
receive, any Contingent Installment Payment with respect to the Second Twelve
Month Period and Third Twelve Month Period.

 

(b) 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 ending on the last day of the First Twelve
Month Period, Second Twelve Month Period or Third Twelve Month Period, as
applicable, of the closing ask prices of the PainCare Shares as reported by such
exchange or on a composite tape reflecting transactions on such exchange; or

 

(2) if the principal market for the PainCare Shares is not a national securities
exchange, but the price of the PainCare Shares is quoted on the National
Association of Securities Dealers Automated Quotation System (“NASDAQ”) Stock
Market, and (A) actual closing price information is available with respect to
the PainCare Shares, then the “Fair Market Value of the PainCare Shares shall
equal the thirty (30) day trailing average ending on the last day of the First
Twelve Month Period, Second Twelve Month Period or Third Twelve Month Period, as
applicable, of the closing ask prices of such stock on the NASDAQ Stock Market;
or (B) actual closing price information is not available with respect to the
PainCare Shares, then the “Fair Market Value” of the PainCare Shares shall equal
the thirty (30) day trailing average ending on the last day of the First Twelve
Month Period, Second Twelve Month Period or Third Twelve Month Period, as
applicable, 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 ending on the last day of the First Twelve Month Period, Second Twelve
Month Period or Third Twelve Month Period, as applicable, 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 (b)(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 on the last day of
the First Twelve Month Period, Second Twelve Month Period and Third Twelve Month
Period, as applicable, shall be determined by an independent third party
appraiser selected by PainCare. Within ten (10) days after the effective date of
the appraiser’s appointment, the appraiser shall deliver an appraisal of the
Fair Market Value of the PainCare Shares, on the last day of the First Twelve
Month Period, Second Twelve Month Period or Third Twelve Month Period, as
applicable, 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

 

9

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(5) with the understanding that notwithstanding the Fair Market Value ascribed
to the PainCare Shares pursuant to subsections 3.4(b)(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.

 

5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder represents
and warrants to the Acquiring Companies that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement, except as
set forth in the disclosure schedule accompanying this Agreement (the
“Disclosure Schedule”). The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered paragraphs contained in this Section 4 to the
Agreement.

 

5.1 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 Georgia. The Company has full power and authority and all
licenses, permits and authorizations necessary to carry on the businesses in
which it is currently engaged and to own and use the properties owned and used
by it. Section 4.1 of the Disclosure Schedule lists all of the officers and
members of the Board of Directors of the Company, as of the date immediately
preceding the Closing Date. The Company has made available to the Acquiring
Companies correct and complete copies of the minute book, articles of
incorporation and bylaws of the Company, as amended to date. Copies of the
minute book (containing the records of meetings of the stockholders, the board
of directors and any committees of the board of directors), the stock
certificate books and stock record books of the Company are correct and complete
in all material respects and will have been delivered to PainCare prior to or at
the Statutory Merger Time. The Company is not in default under or in violation
of any provision of its articles of incorporation or bylaws.

 

5.2 Capitalization. The entire authorized capital stock of the Company consists
of One Thousand (1,000) shares of common stock (the “Shares”), of which one
thousand (1,000) 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 Shareholder. The
Shareholder has good title to the Company Shares free and clear of any and all
liens, claims, security interests or other encumbrances of any Person. There are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, redemption rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
stockholders’ agreements, voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.

 

5.3 Authorization. The Company has full power and authority (including full
corporate power and authority) and Dr Windsor has all necessary authority to
execute, bind the Company and deliver this Agreement and to perform its
obligations hereunder. The execution,

 

10

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delivery and performance of this Agreement by the Company has been duly
authorized and approved by its board of directors and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the transactions contemplated hereby. The Company has given the Shareholder
any and all notice required to be given to the Shareholder under applicable law.
This Agreement constitutes the valid and legally binding obligation of the
Company and the Shareholder, enforceable in accordance with its terms and
conditions.

 

5.4 Noncontravention. Except as set forth in Section 4.4 of the Disclosure
Schedule, neither the execution and the delivery of this Agreement by the
Company or the Shareholder, nor the consummation of the transactions
contemplated hereby will: (a) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, or other restriction of any
government, governmental agency or any other third party whatsoever, or court to
which the Company or the Shareholder are subject, or any provision of the
articles of incorporation or bylaws of the Company; or (b) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument or
other arrangement to which the Company or the Shareholder are a party or by
which either the Company or the Shareholder is bound or to which any of the
Company’s assets are subject (or result in the imposition of any Security
Interest upon any of its assets). Except as set forth in Section 4.4 of the
Disclosure Schedule, the Shareholder and the Company need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency or any other third party whatsoever in
order for the Parties to consummate the transactions contemplated by this
Agreement.

 

5.5 Broker’s Fees. Except as set forth in the Section 4.5 of the Disclosure
Schedules, neither the Shareholder nor the Company has not entered into any
broker or finder’s agreement for which he, the Company or the Acquiring
Companies is required to pay any Liability or obligation to pay any fees,
expenses, or commissions to any consultant, broker, finder, or agent.

 

5.6 Title to Assets. Section 4.6 of the Disclosure Schedule contains a complete,
true and correct list of all of the assets of the Company. Except as to assets
disposed of in the ordinary course of business subsequent to the date hereof and
as otherwise contemplated by this Agreement, the Company has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Closing Date Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests. The
assets set forth in Section 4.6, in conjunction with any assets which the
Company leases, constitute all of the assets used by the Company in connection
with its business as presently conducted and all assets necessary or appropriate
for the continued operation of the Company’s business.

 

5.7 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.

 

5.8 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 Liabilities or obligations (whether accrued,

 

11

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absolute, contingent, whether due or to become due or otherwise i.e., accounts
payable, accrued expenses) which might be or become a charge against the Company
since the date of the Interim Financial Statements. The Shareholder acknowledges
and agrees that PainCare and Subsidiary relied upon the financial information
set forth in the Financial Statements in order to determine the Transaction
Consideration 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,
Dr. Windsor will use his best efforts to maintain and grow such revenue streams
for the benefit of the Acquiring Companies 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 Shareholder.

 

5.9 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 future
prospects of the Company. Without limiting the generality of the foregoing,
since the Most Recent Year End:

 

(a) Sale or Lease of Assets. The Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for fair market
value in the ordinary course of its business;

 

(b) Contracts. The Company has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses)
outside the ordinary course of business;

 

(c) Change in Contracts. No third party (or the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) to which the
Company is a party or by which it is bound and neither the Shareholder nor the
Company has any intent to do any of the foregoing or has received a verbal or
written indication of any third party’s intent to do any of the foregoing;

 

(d) Security Interests. The Company has not had imposed any Security Interest
upon any of its assets, tangible or intangible;

 

(e) Investments. The Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions);

 

(f) Debts. The Company has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation;

 

(g) Liabilities Unaffected. The Company has not delayed or postponed the payment
of accounts payable and other Liabilities or accelerated the collection of
accounts, notes or other receivables;

 

12

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(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. The Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital stock;

 

(l) Property Damage. The Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property or assets;

 

(m) Transactions with Affiliates. The Company has not made any loan to, or
entered into any other transaction with, any of its directors, officers and
employees;

 

(n) Collective Bargaining Agreements. The Company has not entered into any
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;

 

(o) Compensation Changes. The Company has not granted any increase in the base
compensation of any of its directors, officers, and employees;

 

(p) Employee Benefit Plans. The Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);

 

(q) Officers; Directors; Employees. The Company has not made any change in the
employment terms for any of its directors, officers and employees, other than to
terminate such agreements as required herein;

 

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

 

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

 

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

 

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

 

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

 

5.10 Undisclosed Liabilities. The Company has no Liability and there is no basis
for any present or future action, suit, proceeding, hearing, investigation,
complaint, claim, or demand against it giving rise to any Liability, except for:
(a) Liabilities disclosed in the Disclosures Schedule; (b) contractual
obligations incurred in the ordinary course of business; and (d) Liabilities
which have arisen after the Interim Balance Sheet in the ordinary course of
business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law). As of the Closing, other than the current
trade accounts payable, leasehold obligations and accrued payroll and benefit
obligations, the Company shall not have any unpaid liabilities, other than those
listed in the Section 4.10 Disclosure Schedule, including, but not limited to,
any bank debt, capital leases or any general or professional liability claims,
or be obliged in any other way to provide funds in respect of, or to guarantee
or assume, any debt, obligation or dividend of any person, except endorsements
in the ordinary course of business in connection with the deposit, in banks or
other financial institutions, of items for collection.

 

5.11 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. No Shareholder or director or officer (or employee
responsible for Tax matters) of the Company expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax Liability of the Company either: (a)
claimed or raised by any authority in writing; or (b) as to which any
Shareholder, directors and officers (and employees responsible for Tax matters)
of the Company has Knowledge based upon personal contact with any agent of such
authority. Section 4.11 of the Disclosure Schedule lists all federal, state,
local, and foreign income Tax Returns filed with respect to the Company for
taxable periods ended on or after December 31, 2003, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Shareholder has made available to PainCare correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the Company
and its Affiliates since December 31, 2000.

 

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(d) No Waivers. The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.

 

(e) No Special Circumstances. The Company has not made any payments, is not
obligated to make any payments, nor is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662.

 

(f) Intentionally Omitted.

 

(g) Audits of Tax Returns. No Tax Return of the Company is currently under audit
or examination by any taxing authority, and the Company has not received a
written notice stating the intention of any taxing authority to conduct such an
audit or examination. Each deficiency resulting from any audit or examination
relating to Taxes by any taxing authority has been paid, except for deficiencies
being contested in good faith. The revenue agents’ reports related to any prior
audits and examinations are attached as part of Section 4.11 of the Disclosure
Schedule.

 

(h) Period of Assessment. There is no agreement or other document extending, or
having the effect of extending, the period of assessment or collection of any
Taxes.

 

(i) Tax Agreements. The Company is not a party to or bound by any tax sharing
agreement, tax indemnity obligation or similar agreement with respect to Taxes,
including any advance pricing agreement, closing agreement or other agreement
relating to Taxes with any taxing authority.

 

(j) Inclusions in Taxable Periods. The Company will be required to include in a
taxable period ending after the Closing Date taxable income attributable to
income that accrued in a prior taxable period but was not recognized in any
prior taxable period as a result of the installment method of accounting, the
completed contract method of accounting, the long-term contract method of
accounting, the cash method of accounting or Code Section 481 with respect to a
change in method of accounting occurring before the Closing Date or comparable
provisions of state, local or foreign tax law. The Shareholder agrees to pay all
such tax as they become due.

 

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

 

(l) Personal Holding Company. The Company has not, during the five (5) year
period ending on the Closing Date, been a personal holding company within the
meaning of Code Section 541.

 

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(m) Consolidated Tax Returns. The Company has never filed or been included in
any combined or consolidated Tax Return with any other person or been a member
of an Affiliated Group filing a consolidated federal income Tax Return.

 

5.12 Real Property. The Company does not own any real property. Section 4.12 of
the Disclosure Schedule lists and describes briefly all real property leased or
subleased by the Company. The Shareholder has made available to PainCare and
Subsidiary correct and complete copies of the leases and subleases listed in
Section 4.12 of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4.12 of the Disclosure Schedule:

 

(a) Binding. The lease or sublease is legal, valid, binding, enforceable, and in
full force and effect;

 

(b) Continued Validity. The lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby;

 

(c) No Defaults. The Company is not in breach or default under the lease or
sublease and no third party is in breach or default under the lease or sublease,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification or acceleration
thereunder;

 

(d) Repudiation. Neither the Company nor any other party to the lease has
repudiated any provision of the lease or sublease;

 

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

 

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

 

(g) Encumbrances. None of the Company or its Affiliates has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;

 

(h) Approvals. All facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits) required
in connection with the operation thereof and have been operated and maintained
in accordance with applicable laws, rules, and regulations; and

 

(i) Utilities. All facilities leased or subleased thereunder are supplied with
utilities and other services reasonably necessary for the operation of said
facilities.

 

5.13 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

 

16

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there any proceeding that is pending, or to the Shareholder’s Knowledge,
threatened, which challenges the rights of the Company with respect to any
Intellectual Property or asserts that the Company is infringing or otherwise in
conflict with or is required to pay any royalty or license fee with respect to
any Intellectual Property.

 

5.14 Condition of Tangible Assets. Each tangible asset of the Company is free
from defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable, designed and intended for the purposes for
which it presently is used by Dr. Windsor and the Company and is not outdated in
comparison with the assets used for similar purposes by similar businesses.

 

5.15 Contracts. Section 4.15 of the Disclosure Schedule lists the following
contracts and other agreements, written or oral, to which the Company was a
party immediately preceding the Closing:

 

(a) Personal Property Leases. Any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for lease
payments;

 

(b) Services. Any agreement (or group of related agreements) for the furnishing
or receipt of services, the performance of which will extend over a period of
more than one (1) year;

 

(c) Partnership; Joint Venture. Any agreement constituting a partnership or
joint venture;

 

(d) Indebtedness. Any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation;

 

(e) Confidentiality; Non-Competition. Any agreement concerning confidentiality
or non-competition;

 

(f) Shareholders’ Agreements. Any agreement by and between the Shareholder and
any Affiliate of the Company;

 

(g) Plans. Any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other plan or arrangement for the benefit
of its current or former directors, officers, and employees;

 

(h) Employment or Consulting Agreements. Any agreement for the employment of any
individual on a full-time or part-time or the engagement of any individual as a
consultant or independent contractor, or otherwise compensating an individual
for services rendered or to be rendered to the Company;

 

(i) Advances; Loans. Any agreement under which the Company has advanced or
loaned any amount to any of its directors, officers and employees outside the
ordinary course of business;

 

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(j) Adverse Effects. Except as set forth in Section 4.15(j) of the Disclosure
Schedule, any agreement under which the consequences of a default or termination
could have a material adverse effect on the business, financial condition,
operations, results of operations or future prospects of the Company; and

 

(k) Other Agreements. Any other agreement (or group of related agreements) the
performance or rendering of which involves consideration in excess of Five
Thousand and No/100 Dollars ($5,000.00).

 

The Shareholder has made available to PainCare and Subsidiary a correct and
complete copy of each written agreement listed in Section 4.15 of the Disclosure
Schedule (as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 4.15 of the Disclosure
Schedule. With respect to each such agreement: (i) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (ii) there shall be
no breach or other violation resulting from the consummation of the transactions
contemplated hereby; (iii) the Company is not in default or breach and no other
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (iv) neither the Company
nor any other party has repudiated any provision of the agreement. None of the
agreements listed in Section 4.15 of the Disclosure Schedule requires the
consent or approval of any Person, or any compensation or payment to be made to
any such Person by reason of the transactions contemplated by this Agreement, or
the merger of the Company with and into another Person.

 

5.16 Powers of Attorney. Except as set forth in Section 4.16 of the Disclosure
Schedule, there are no outstanding powers of attorney executed on behalf of the
Company.

 

5.17 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 Dr. Windsor, 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 Dr. Windsor has, during the five
(5) years immediately preceding the Closing Date, filed a written application
for any insurance coverage relating to the Company’s business or property which
has been denied by an insurance agency or carrier; and (b) the Company, the
Company’s professional employees and Dr. Windsor has been continuously insured
for professional malpractice claims during the same period. Section 4.17 of the
Disclosure Schedule also sets forth a list of all claims for any insured loss in
excess of Five Thousand and 00/100 Dollars ($5,000) per occurrence filed by the
Company, the Company’s professional employees or Dr. Windsor during the five (5)
years immediately preceding the Closing Date, including workers compensation,
general liability, environmental liability and professional malpractice
liability claims. With respect to each insurance policy listed in Section 4.17
of the Disclosure Schedule: (i) the policy is legal, valid, binding,
enforceable, and in full force and effect; (ii) the policy will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the

 

18

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consummation of the transactions contemplated hereby; (iii) neither the Company,
Dr. Windsor, 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 Dr. Windsor nor
the Company has received any written notice from or on behalf of any insurance
carrier issuing such policies, that there will hereafter be a cancellation, or
an increase in a deductible or non-renewal of existing policies. The Company has
been covered during the past five (5) years by insurance in scope and amount
customary and reasonable for the business in which it has engaged during the
aforementioned period.

 

5.18 Litigation. Except as noted in Section 4.18 of the Disclosure Schedule,
there is no litigation, arbitration, governmental claim, investigation or
proceeding, pending or, to Shareholder’s Knowledge, threatened, against the
Company, or Dr. Windsor, at law or in equity, before any court, arbitration
tribunal or governmental agency. Each of the Sellers has no knowledge of any
facts on which claims may hereafter be made against the Company that will have a
Material Adverse Effect on the Company. All medical malpractice claims, general
liability incidents and incident reports relating to the ASC have been submitted
to Company’s insurer. All claims made or, to Shareholder’s Knowledge, threatened
against the Company or Dr. Windsor in excess of the deductible are covered under
Dr. Windsor’s or Company’s current insurance policies. Section 4.18 of the
Disclosure Schedule provides a complete list of all general liability incidents,
incident reports and malpractice claims relating to the ASC or the Center that
have for the five (5) year period prior to the date hereof.

 

5.19 Health Care Compliance. The Company is participating or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements set forth in Section 4.19 of the Disclosure
Schedule. All necessary certifications and contracts required for participation
in such programs are in full force and effect and have not been amended or
otherwise modified, rescinded, revoked or assigned, and no condition exists or
event has occurred which in itself or with the giving of notice or the lapse of
time or both would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such third-party payor program. The Company is in
compliance in all material respects with the requirements of all such
third-party payors applicable thereto. None of the Company, its physician
employees, the Shareholder, or immediate family members of the Shareholder or
other physician employees, have any financial relationship (whether investment
interest, compensation interest, or otherwise) with any entity to which any of
the foregoing refer patients, except for such financial relationships that
qualify for exceptions to state and federal laws restricting physician referrals
to entities in which they have a financial interest.

 

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5.20 Fraud and Abuse. The Company, Dr. Windsor, 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 Georgia Statutes which prohibit physicians who have an
ownership, investment or beneficial interest in certain health care facilities
from referring patients to such facilities for the provisions of designated and
other health services, and has at all times complied with the Georgia Statutes.
Furthermore, the Company has filed all reports required to be filed by the State
of Georgia and federal law regarding compensation arrangements and financial
relationships between a physician and an entity to which the physician refers
patients.

 

5.21 Legal Compliance. The Company and its predecessors and Affiliates have
complied with all applicable Laws (including rules, regulations, codes,
injunctions, judgments, orders, decrees, and rulings of federal, state, local,
and foreign governments (and all agencies thereof)), and no action, suit,
proceeding, hearing, complaint, claim, demand, notice or investigation has been
filed or commenced, or to the Knowledge of the Shareholder and the Company,
threatened against the Company alleging any failure so to comply. The Company
and all physicians and other health care professionals engaged or employed by
the Company have all permits and licenses required by applicable Law, have made
all required regulatory filings and are not in violation of any such permit or
license. The Company is lawfully operated in accordance with the requirements of
all applicable Laws and has in full force and effect all authorizations and
permits necessary to operate its business. 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.

 

5.22 Rates and Reimbursement Policies. The jurisdiction in which the Company is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by the
Company except for restrictions promulgated by Georgia law and regulation on
charging of excessive fees and limitations on

 

20

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charges for and profits from the sale of medications, goods and devices and free
samples. The Company does not have any rate appeal currently pending before any
governmental authority or any administrator of any third-party payor program.
The Company and the Shareholder have no Knowledge of any applicable Law, which
affects rates or reimbursement procedures which has been enacted, promulgated or
issued within the eighteen (18) months preceding the date of this Agreement or
any such legal requirement proposed or currently pending in the State of Georgia
which could have a Material Adverse Effect on the Company, its business or
operations, or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at the Company or require the Company to obtain any necessary authorization
which the Company does not currently possess. Neither the Company nor the
Shareholder have Knowledge of any impending proposed reduction in reimbursement
from third party or other payors nor Knowledge of any threatened termination of
payor contracts.

 

5.23 Medical Staff. Except as set forth on Section 4.23 of the Disclosure
Schedule, the Shareholder has no Knowledge of a physician who is providing
services on behalf of the Company who plans, or has threatened to terminate his
or her employment or other relationship with the Company. None of the physicians
providing services on behalf of the Company currently has plans to retire from
the practice of medicine in the next three (3) years.

 

5.24 Employees. Except as set forth on Section 4.24 of the Disclosure Schedule:
(a) there is no unfair labor practice charge or complaint pending or threatened
relating to the business of the Company; and (b) payment in full to all of the
employees of the Company of all wages, salaries, commissions, bonuses, benefits,
and other compensation lawfully due and owing to such employees or otherwise
arising under any policy, practice, agreement, plan, program, statute, or other
law as of the Closing Date has been made.

 

5.25 Employee Benefits.

 

(a) Plans. Section 4.25 of the Disclosure Schedule lists each Employee Benefit
or health and welfare plan that the Company maintains or to which the Company
contributes.

 

(b) Compliance. Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all material
respects with its terms and with the applicable requirements of ERISA, the Code
and other applicable laws.

 

(c) Reports and Descriptions. All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1’s, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.

 

(d) Contributions. All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any pay period ending on or before the Closing Date which are
not yet due have been paid to each such Employee Pension Benefit Plan or accrued
in accordance with the past custom and practice

 

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of the Company. All premiums or other payments due for all periods ending on or
before the Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.

 

(e) Qualified Plan. Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and is intended to meet the requirements of a “qualified plan”
under Code Section 401(a) meets such requirements and has received, within the
last two (2) years, a favorable determination letter from the IRS.

 

(f) Market Value. The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
Liabilities thereunder determined in accordance with PBGC methods, factors, and
assumptions applicable to an Employee Pension Benefit Plan terminating on the
date for determination.

 

(g) Copies. The Shareholder has delivered to PainCare and Subsidiary correct and
complete copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the IRS, the most recent Form 5500
Annual Report, and all related trust agreements, insurance contracts, and other
funding agreements which implement each such Employee Benefit Plan.

 

(h) Maintenance of Plans. With respect to each Employee Benefit Plan that the
Company maintains, ever has maintained, or to which it contributes, ever has
contributed, or ever has been required to contribute:

 

(i) Reportable Events. No such Employee Benefit Plan which is an Employee
Pension Benefit Plan has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan has been instituted or threatened; and

 

(ii) Prohibited Transactions. There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than any Multiemployer Plan), other than routine claims for benefits, is
pending or threatened. The Shareholder and the Company have no Knowledge of any
basis for any such action, suit, proceeding, hearing, or investigation.

 

5.26 Physicians and Other Providers. During the five (5) years preceding the
Closing Date, each physician, and other health care provider who is or was
employed by, or who renders or has rendered services on behalf of, the Company:

 

(a) Licenses. Has been duly licensed and registered, and in good standing by the
State of Georgia to engage in the practice of medicine, and said license and
registration have not been suspended, revoked or restricted in any manner;

 

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(b) Controlled Substances. Has current controlled substances registrations
issued by the State of Georgia and the U.S. Drug Enforcement Administration,
which registrations have not been surrendered, suspended, revoked or restricted
in any manner;

 

(c) Actions. Except as set forth on Section 4.26 of the Disclosure Schedule, has
not been a party or subject to:

 

(i) Malpractice Actions. Any malpractice suit, claim (whether or not filed in
court), settlement, settlement allocation, judgment, verdict or decree;

 

(ii) Disciplinary Proceedings. Any disciplinary, peer review or professional
review investigation, proceeding or action instituted by any licensure board,
hospital, medical school, physical therapy school, health care facility or
entity, professional society or association, third party payor, peer review or
professional review committee or body, or governmental agency;

 

(iii) Criminal Proceedings. Any criminal complaint, indictment or criminal
proceedings;

 

(iv) Investigation. Any investigation or proceedings, whether administrative,
civil or criminal, relating to an allegation of filing false health care claims,
violating anti-kickback or fee-splitting laws, or engaging in other billing
improprieties;

 

(v) Mental Illnesses. Any organic or mental illness or condition that impairs or
may impair such physician’s ability to practice;

 

(vi) Substance Abuse. Any dependency on, habitual use or episodic abuse of
alcohol or controlled substances, or any participation in any alcohol or
controlled substance detoxification, treatment, recovery, rehabilitation,
counseling, screening or monitoring program;

 

(vii) Professional Ethics. Any allegation, or any investigation or proceeding
based on any allegation of violating professional ethics or standards, or
engaging in illegal, immoral or other misconduct (of any nature or degree),
relating to his or her practice; or

 

(viii) Application for Licensure. Any denial or withdrawal of an application in
any state for licensure as a physician or physical therapist, for medical staff
privileges at any hospital or other health care entity, for board certification
or recertification, for participation in any third party payment program, for
state or federal controlled substances registration, or for malpractice
insurance.

 

5.27 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.

 

23

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5.28 Environment, Health, and Safety.

 

(a) Compliance. Each of the Company and its predecessors and Affiliates has
complied and is in material compliance with all Environmental, Health, and
Safety Requirements.

 

(b) Permits and Licenses. Without limiting the generality of the foregoing, each
of the Company and its Affiliates has obtained and complied in all material
respects with, and is in compliance in all material respects with, all permits,
licenses and other authorizations that are required pursuant to Environmental,
Health, and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and other
authorizations is set forth on Section 4.28 of the Disclosure Schedule.

 

(c) Notices. None of the Company nor its predecessors or Affiliates has received
any written or oral notice, report or other information regarding any actual or
alleged violation of Environmental, Health, and Safety Requirements, or any
Liabilities or potential Liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.

 

(d) Hazardous Substances. None of the Company or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to liabilities, including any Liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Solid Waste Disposal Act, as amended or any other Environmental, Health, and
Safety Requirements.

 

(e) The Company has not received any communication (written or oral), whether
from a governmental authority, citizens’ group, employee or otherwise, that
alleges that the ASC or the Company is not in full compliance with Environmental
Laws, or that the Company is otherwise subject to liability under Environmental
Laws, and to the Shareholder’s Knowledge, there are no circumstances that may
prevent or interfere with such full compliance in the future. There is no
Environmental Claim (as defined below) pending or, to the Shareholder’s
Knowledge, threatened against the Company, the ASC or the Center.

 

(f) The Shareholder has no Knowledge of any actions, activities, circumstances,
conditions, events or incidents, including, but not limited to, the release,
emission, discharge, presence or disposal of any Hazardous Substances that could
form the basis of any Environmental Claim against the Company, the ASC or the
Center, or Sellers in connection with the ASC or the Center.

 

5.29 Certain Business Relationships with the Company and its Affiliates. Except
as contemplated hereby with respect to the Company, neither the Shareholder nor
any of his Affiliates have been involved in any business arrangement or
relationship with the Company and its Affiliates within the past twelve (12)
months, and none of the Shareholder and his Affiliates owns any asset, tangible
or intangible, which is material to the business of any of the Company and its
Affiliates.

 

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5.30 Third-party Payors. Section 4.30 of the Disclosure Schedule sets forth an
accurate, correct and complete list of the Company’s third-party payors. Neither
the Company nor the Shareholder has received any notice nor has any Knowledge
that any third-party payor intends to terminate or materially reduce its
business with, or reimbursement to, the Company. The Company has no reason to
believe that any third-party payor will cease to do business with the Company
after, or as a result of, the consummation of any transactions contemplated
hereby. The Company does not know of any fact, condition or event which would
adversely affect its relationship with any third-party payor.

 

5.31 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.

 

5.32 Tax Status. The Shareholder is not a “nonresident alien individual” or
“foreign corporation” for purposes of Code Section 897(a)(1).

 

5.33 Binding Obligation. This Agreement constitutes the valid and legally
binding obligation of the Shareholder, enforceable in accordance with its terms
and conditions.

 

5.34 No Corporate Practice or Fee Splitting. The Shareholder does not have any
Knowledge that the actions, transactions or relationships arising from, and
contemplated by, the Transaction violate any law, rule or regulation relating to
the corporate practice of medicine or fee splitting. The Shareholder accordingly
agrees that he will not and will not cause any other Party, in an attempt to
void or nullify this Agreement or any document related to the Transaction or any
relationship involving PainCare or the Company 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.

 

5.35 Intentions. Dr. Windsor intends to continue managing the business
operations of the Surviving Corporation on an as needed 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 an as needed basis for the next five
(5) years.

 

5.36 Securities Representation.

 

(a) No Registration of PainCare Shares; Investment Intent. The Shareholder
acknowledges that the PainCare Shares to be delivered pursuant to this Agreement
have not been and will not be registered under the Securities Act and may not be
resold without compliance with the Securities Act. The PainCare Shares to be
acquired by the Shareholder pursuant to this Agreement are being acquired solely
for his own account, for investment purposes only and with no present intention
of distributing, selling or otherwise disposing of them in connection with a
distribution other than in compliance with the Securities Act.

 

(b) Resale Restrictions. The Shareholder covenants, warrants and represents that
none of the PainCare Shares issued to Shareholder will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the

 

25

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applicable provisions of the Securities Act and the rules of regulations of the
Commission and applicable state securities laws, and the applicable provisions
of any PainCare Stockholders’ Agreement and this Agreement. All certificates
evidencing PainCare Shares shall bear the legends contained in the PainCare
Stockholders’ Agreement.

 

(c) Ability to Bear Economic Risk. The Shareholder covenants, warrants and
represents that he is able to bear the economic risk of an investment in
PainCare Shares acquired pursuant to this Agreement and can afford to sustain a
total loss of such investment and has such Knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the proposed investment and therefore has the capacity to protect his own
interests in connection with the acquisition of the PainCare Shares. The
Shareholder, and the Shareholder’s purchaser representative, if any, have
received copies of PainCare’s most recent 10-K, 10-Q and 8-K filings and have
had an adequate opportunity to ask questions and receive answers from the
officers of PainCare concerning any and all matters relating to the background
and experience of the officers and directors of PainCare, the plans for the
operations of the business of PainCare, and any plans for additional
acquisitions and the like. The Shareholder, and the Shareholder’s purchaser
representative, if any, have asked any and all questions in the nature described
in the preceding sentence and all questions have been answered to such
individual’s satisfaction.

 

(d) Accredited Investor. The Shareholder covenants, represents and warrants that
he is an: (a) individual with a net worth (either individually or jointly with
his respective spouse) in excess of One Million and No/100 Dollars
($1,000,000.00); or (b) individual who had an income in excess of Two Hundred
Thousand and No/100 Dollars ($200,000.00) in each of 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) No Registration. The Shareholder understands, agrees and acknowledges that
the PainCare Shares have not been registered under the Georgia Securities Act or
the Securities Act in reliance upon exemption provisions contained therein which
PainCare believes are available.

 

5.37 HIPAA. Schedule 4.37 lists and describes all plans and other efforts of Dr.
Windsor 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.

 

5.38 Improper and Other Payments. (a) Neither the Company, any director,
officer, employee thereof, nor any agent or representative of the Company nor
any person acting on behalf of any of them, has made, paid or received any
unlawful bribes, kickbacks or other similar payments to or from any person or
authority, (b) no contributions have been made, directly or indirectly, by the
Company to a domestic or foreign political party or candidate; and (c) the
internal accounting controls of the Company are believed by the Company’s
management to be adequate to detect any of the foregoing under current
circumstances.

 

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5.39 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 to the best of Shareholder’s knowledge are subject
to no counterclaims, and have been outstanding for the periods indicated in the
aging analysis at Schedule 4.39. The Shareholder know of no reason why such
accounts receivable would not be collectible by the Company according to
approximately the same ratios as accounts receivable have been historically
collectible by the Company. All outstanding accounts and notes receivable
included on Schedule 4.39 arose in the ordinary course of business. The Company
has not incurred any liabilities to customers for discounts, returns,
promotional allowances or otherwise, except as provided in the Financial
Statements

 

5.40 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 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.

 

5.41 No Untrue or Inaccurate Representation or Warranty. No representation or
warranty by Sellers contains or will contain any untrue statement of fact, or
omits or will omit to state a fact necessary to make the statements and
information contained in this Section 4 not misleading.

 

27

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5.42 Certain Representations with Respect to the ASC.

 

(a) Complete and accurate copies of the Company’s existing provider contracts
for the ASC have been furnished to Purchasers. The Company is presently in
compliance with all of the terms, conditions and provisions of such contracts
the noncompliance with which would have a material adverse effect on any such
contract.

 

(b) The Company is qualified for participation in the Medicare program. Complete
and accurate copies of the Company’s existing Medicare contracts for ASC have
been furnished to Acquiring Companies. The Company is presently in compliance
with all of the terms, conditions and provisions of such contracts the
noncompliance with which would have a material adverse effect on any such
contract.

 

(c) The Company is qualified for participation in the Medicaid program. Complete
and accurate copies of the Company’s existing Medicaid contracts for ASC have
been furnished to Acquiring Companies. The Company is presently in compliance
with all of the terms, conditions and provisions of such contracts the
noncompliance with which would have a material adverse effect on any such
contract.

 

(d) The Company participates in the CHAMPUS program. The Company is presently in
compliance with all of the terms and conditions of such participations the
noncompliance with which would have a material adverse effect on any such
participation.

 

(e) The ASC is licensed by the State of Georgia Department of Health as a
ambulatory surgery center. The Company is presently in compliance in all
respects with all the terms, conditions and provisions of such licenses for the
ASC. The facilities, equipment, and operations of the ASC satisfy, without
exception, the applicable ambulatory surgery center licensing requirements of
the State of Georgia.

 

6. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING COMPANIES. The Acquiring
Companies represent and warrant to the Shareholder that the statements contained
in this Section 5 are correct and complete as of the Closing Date.

 

6.1 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.

 

6.2 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.

 

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6.3 No Conflict or Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Certificate
or Articles of Incorporation or bylaws of the PainCare or Subsidiary, (b) a
breach of, or a default under, any term or provision of any contract, agreement,
indebtedness, lease, commitment, license, franchise, permit, authorization or
concession to which the PainCare or Subsidiary is a party, which breach or
default could reasonably be expected to have a Company material adverse effect
on the business or financial condition of the PainCare or Subsidiary or its
ability to consummate the transactions contemplated hereby or (c) a violation by
the PainCare or Subsidiary of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation could
reasonably be expected to have a material adverse effect on the business or
financial condition of the PainCare or Subsidiary, or their ability to
consummate the transactions contemplated hereby.

 

6.4 Consents and Approvals. Except as set forth on Disclosure Schedule 5.4, no
notice to, declaration, filing or registration with, or authorization, consent
or approval of, or permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is required to be
made or obtained by the PainCare or Subsidiary in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.

 

6.5 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, Form 10-QSB for the quarter ending March 31, 2003, Recent
Forms S-3 and S-3/A 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.

 

6.6 Capitalization. The authorized capital stock of PainCare consists of
75,000,000 shares of Common Stock, $.0001 par value per share, which as of May
1, 2004, approximately 29,000,000 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 May 1, 2004.

 

6.7 Litigation. Except as set forth in Disclosure Schedule 5.7, there is no
charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitrable
action or investigation (collectively, “Actions”) pending or, to the knowledge
of the PainCare, threatened against, relating to or affecting (i) the PainCare
or its assets or the operation of the business of the PainCare as currently
operated and as proposed to be operated, (ii) any Employee Plan of PainCare or
any trust or other funding instrument, fiduciary or administrator thereof or
(iii) the transactions contemplated by this

 

29

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Agreement, before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, any of which is reasonably expected to result in a loss not covered by
insurance in excess of $100,000 or reasonably expected to have a material
adverse effect on PainCare. To the knowledge of the PainCare, the PainCare is
not in default with respect to any judgment, order, writ, injunction or decree
of any court or governmental agency, and there are no unsatisfied judgments
against the PainCare or the business of the PainCare. Except as set forth in
Disclosure Schedule 5.7, each Action pending or, to the knowledge of the
PainCare, threatened (whether or not disclosed in Disclosure Schedule 5.7), is
covered by insurance of reputable and solvent insurance companies.

 

6.8 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 could not have a material adverse effect on PainCare).

 

6.9 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.

 

6.10 Material Misstatements Or Omissions. To the knowledge of PainCare, no
representations or warranties by PainCare in this Agreement, nor any document,
exhibit, statement, certificate or schedule furnished or to be furnished to the
Shareholder pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading.

 

7. CLOSING; TERMINATION. The closing of the Transaction (the “Closing”) shall be
effective between the Parties as of 12:00 p.m. Eastern Daylight Time on May 25,
2004 (the “Closing Date”). However, in the event that the Parties have not
satisfied all of the conditions necessary to Close by the Closing Date
including, without limitation, the completion, review and approval of all the
disclosure schedules (hereinafter the “Closing Conditions”) then, in such event,
either Party may extend the time period for satisfying such Closing Conditions
until 4:00 p.m. Pacific Time, Friday, May 28, 2004. In the event that the
Closing Conditions have not been completed to the mutual satisfaction of the
parties by the Closing Date, this Agreement may be terminated by either Party.

 

8. CLOSING DELIVERIES.

 

8.1 Deliveries of the Company and the Shareholder. At or prior to the Closing
Date, the Company and the Shareholder shall deliver to the Acquiring Companies
the following:

 

(a) Consents and Approvals. Copies of all authorizations, consents, and
approvals of governments, governmental agencies and third parties referred to in
Section 4.4(a) of the Disclosure Schedule;

 

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(b) Termination of Agreements. Copies of documents effectuating the termination
of any and all written employment and independent contractor agreements,
compensation agreements, buy-sell agreements and other similar agreements
entered into by the Company and which are in effect immediately preceding the
Closing, which terminations shall each include a complete release of the Company
from all known or unknown obligations or liabilities;

 

(c) Company Stock. The Certificates and stock powers, duly endorsed,
transferring the Company Stock to PainCare and the officer and director
resignations required in Section 4.6;

 

(d) Corporate Authorization. A certified copy of resolution(s) of the
Shareholder and board of directors of the Company which authorizes the
Transaction in accordance with: (a) applicable law; (b) the Company’s articles
of incorporation and bylaws; and (c) all other requirements for proper corporate
authorization;

 

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

 

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

 

8.2 Deliveries of PainCare. At or prior to the Closing Date, PainCare shall
deliver to the Shareholder or the Escrow Agent, as the case may be, the
following:

 

(a) Consideration. The Closing Date 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; and

 

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

 

9. 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.

 

9.1 Conditions for the Benefit of PainCare and the Subsidiary. (a) The
representations and warranties of the Shareholder and the Company in this
Agreement and all information contained in any exhibit, certificate, schedule or
attachment hereto or in any writing delivered by, or on behalf of the
Shareholder or the Company shall be true and correct when made and shall be true
and correct in all material respects on the Closing Date as though then made,
except as expressly provided for herein, and (b) both the Shareholder and the
Company

 

31

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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) that
certain Agreement of Purchase and Sale of even date herewith, by and between
Georgia Pain Physicians, P.C., a Georgia professional corporation and Robert E.
Windsor, M.D., and PainCare Holdings, Inc., a Florida corporation, shall have
closed.

 

9.2 Conditions for the Benefit of the Shareholder. (a) The representations and
warranties of PainCare in this Agreement and all information contained in any
exhibit, certificate, schedule or attachment hereto or in any writing delivered
by, or on behalf of PainCare or the Subsidiary shall be true and correct when
made and shall be true and correct in all material respects on the Closing Date
as though then made, except as expressly provided for herein, and (b) both the
Shareholder and the Company shall have performed and complied with all
agreements, covenants and conditions and shall have made all deliveries required
by this Agreement to be performed, delivered and complied with by them prior to
the Closing Date.

 

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

 

10.1 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.

 

10.2 Post-Closing General Covenant. In the event that at any time after the
Closing any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party may reasonably request, all at the sole cost and expense of the requesting
Party; provided, however, that the costs and expenses associated with the taking
of any action necessary to execute or deliver to PainCare any stock powers and
such other instruments of transfer as may be necessary to transfer ownership of
the Company’s Shares by the Shareholder shall be borne by the Shareholder.

 

10.3 Tax Returns. Dr. Windsor 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 Dr. Windsor
access to all books and records of the Company necessary to the preparation of
such Tax Returns and the Surviving Corporation, as the successor to the Company
will execute such Tax Returns. The Shareholder will take no positions on the Tax
Returns of the Company that relate to the tax period prior to the Closing Date
that could adversely affect the Company or PainCare after the Closing. The
Shareholder will provide PainCare with an opportunity to review and comment on
such Tax Returns (including any amended returns). PainCare will be responsible
for preparing and filing all income and franchise Tax Returns of the Surviving
Corporation 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.

 

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10.4 Transition. Neither the Shareholder nor the Company will take any action
that is designed, intended or likely to have the effect of discouraging any
lessor, licensor, customer, supplier or other business associate of the Company
from maintaining the same business relationships with the Surviving Corporation
after the Closing as he, she or it maintained with the Company prior to the
Closing.

 

10.5 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.

 

10.6 Consents. The Shareholder hereby covenants and agrees that he will use his
best efforts to obtain all authorizations, consents, and approvals set forth in
Section 4.4(b) of the Disclosure Schedule. If such consent, approval or
agreement is not obtained, or if an attempted assignment thereof would affect
the rights of the parties thereunder so that such parties would not in fact
receive all such rights, the Parties will cooperate in any arrangement designed
to provide for the Parties to receive the benefits under any such contract,
including enforcement for the benefit of PainCare and Surviving Corporation of
any and all rights of the Shareholder against a third party thereto arising out
of the breach or cancellation by such third party or otherwise.

 

10.7 Capital Adjustments. In the event of a stock dividend, recapitalization, or
merger in which PainCare is the surviving corporation, split-up, combination or
exchange of shares or the like which results in a change in the number or kind
of shares of common stock which is outstanding immediately prior to such event,
the rights of the Shareholder to receive PainCare Shares in respect of this
Agreement and the price thereof, shall be appropriately adjusted in the same
manner as the number and kind of shares a shareholder of PainCare who owned the
same number and kind of shares immediately prior to such event. Such adjustments
shall be made in good faith by the Board of Directors of PainCare, whose
determination shall be conclusive and binding on all parties, subject to
manifest error.

 

In case of any consolidation or merger of PainCare with or into another party or
parties or the conveyance of all or substantially all of the assets of PainCare
to another party or parties or a share exchange transaction involving more than
50% of the issued and outstanding common stock of PainCare, the PainCare Shares
and right to receive PainCare Shares shall thereafter be convertible into the
number of shares of stock, options or other securities or property to which a
shareholder of the PainCare who owned the same number and kind of shares prior
to such event would have been entitled upon such consolidation, merger,
conveyance, conversion or exchange; and, in any such case, appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the Shareholder’s right to
receive PainCare Shares, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably possible, in relation to any
shares of stock or other property thereafter deliverable upon the Shareholder’s
entitlement to same.

 

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11. SURVIVAL AND INDEMNIFICATION.

 

11.1 Survival of Representations and Warranties. All of the representations,
warranties, covenants, and agreements including but not limited to the
restrictive covenants and the indemnification provisions contained in this
Agreement are material and have been relied upon by the Parties hereto and shall
survive the Closing for their applicable statute of limitations. The
representations and warranties contained herein shall not be affected by any
investigation, verification or examination by any Party or by anyone on behalf
of such Party.

 

11.2 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 Company’s or
the Shareholder’s representations and/or warranties contained in this Agreement;
(b) a breach (or in the event any third party alleges facts that, if true, would
mean a breach) of any of the Company’s or the Shareholder’s covenants contained
in this Agreement, or; (c) any Liability of the Company of any nature whatsoever
accrued or existing as of the Closing Date or related to actions of the Company
or the Shareholder which occurred prior to the Closing Date, which is not
reflected on the Financial Statements, the Closing Date Balance Sheet, or
Section 10.2 of the Disclosure Schedule and which PainCare explicitly agrees as
documented in Section 10.2 of the Disclosure Schedule to assume or take the
assets of the Company subject to, as the case may be, then the Shareholder
agrees to indemnify PainCare and Surviving Corporation from and against any
Adverse Consequences PainCare and Subsidiary may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the misrepresentation or breach (or alleged
breach) or non-disclosed Liability. No provision of this Agreement, including
but not in any way limited to, any “Knowledge” qualifiers or materiality
standards in the representations and warranties of the Shareholder, shall have
any effect on the Shareholder’s obligation to provide indemnity of any Liability
arising prior to the Closing Date which was required but omitted from the
Disclosure Schedule.

 

11.3 Indemnification Provisions for the Benefit of the Shareholder. In the event
of a misrepresentation or breach (or in the event any third party alleges facts
that, if true, would mean a misrepresentation or breach) of any of PainCare’s or
Subsidiary’s representations, warranties, and covenants contained in this
Agreement, then PainCare and Subsidiary agree to indemnify the Shareholder from
and against any Adverse Consequences the Shareholder may suffer through and
after the date of the claim for indemnification resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).

 

11.4 Matters Involving Third Parties.

 

(a) Notification. If any third party shall notify any Party (the “Indemnified
Party”) with respect to any matter (a “Third Party Claim”) which may give rise
to a claim for indemnification against the other Party (the “Indemnifying
Party”) pursuant to this Section 10, then the Indemnified Party shall promptly
notify the Indemnifying Party thereof in writing; provided, however, that no
delay on the part of the Indemnified Party in notifying the Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless the
Indemnifying Party thereby is prejudiced and then only to the extent that the
Indemnifying Party is actually prejudiced.

 

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(b) Defense by Indemnifying Party. The Indemnifying Party shall have the right
to defend the Indemnified Party against the Third Party Claim with counsel of
its choice satisfactory to the Indemnified Party so long as: (i) the
Indemnifying Party notifies the Indemnified Party in writing within ten (10)
business days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party from and
against any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim; (ii) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill the Indemnifying Party’s indemnification obligations hereunder;
(iii) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief; (iv) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice adverse
to the continuing business interests of the Indemnified Party; and (e) the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.

 

(c) Satisfactory Defense. So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 10.4(b) above: (i)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim; (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld or delayed unreasonably);
and (iii) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld or delayed
unreasonably) and any such settlement must include a complete release of the
Indemnified Party.

 

(d) Conditions. In the event any of the conditions in Section 10.4(b) above is
or becomes unsatisfied, however: (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, the Indemnifying Party in connection therewith); (ii) the
Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys’ fees and expenses); and (iii) the Indemnifying Party will
remain responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 10.

 

11.5 Right to Set-Off. If any such cost, loss, damage, expense, liability,
claim, or obligation occurs or is incurred by PainCare or the Surviving
Corporation, PainCare shall have the right, after written notice to the
Shareholder, at PainCare’s option and in addition to any other actions permitted
by law, to offset the amount of any such cost, loss, damage, expense, liability,
obligation or claim against amounts due from PainCare or Subsidiary to the
Shareholder, including the right to offset any post-closing payment due from
PainCare or Subsidiary to the Shareholder under this Agreement or any other
agreement.

 

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11.6 Materiality. Notwithstanding any provision in this Agreement to the
contrary, the indemnifying Party’s obligation to indemnify the Indemnified Party
in connection with a breach of any representation, warranty, covenant or other
agreement included in this Agreement, and the amount of damages to be
indemnified, shall be determined without regard to any “material”, “materiality”
(or correlative meanings”) or “Material Adverse Effect” qualifications,
provisions or exceptions set forth in such representation, warranty, covenant or
other agreement, each of which shall be deemed to be given for the purposes of
this Section 10 as though there were no such qualifications, provisions or
exceptions.

 

11.7 Limitation. The indemnification provisions set forth in this Section 10
shall be limited to all claims in excess of Twenty Five Thousand and 00/100
Dollars ($25,000) (the “Threshold”). Once a claim exceeds the Threshold, if a
Party is entitled to indemnification under this Section 10, such party shall
recover all appropriate funds from the first dollar of damages. Further, the
indemnitors shall not be liable for any liabilities resulting from claims that
are covered by any insurance policy or other indemnity or contribution agreement
unless, and only to the extent that, the full limit of such insurance policy,
indemnity or contribution agreement has been exceeded. The Party entitled to
indemnification shall have a duty to mitigate its damages. Notwithstanding the
foregoing, a Party’s obligation to indemnify under this Article 10 shall be
limited to an amount equal to $1,125,000 plus the amount of any Contingent
Installment Payments paid or due pursuant to Section 3.4 of this Agreement prior
to any reduction of such Installment Payments permitted under Section 3.4(g);
provided however that such cap shall not be applicable to Sections 4.1, 4.2,
4.3, 4.8, 4.10, 4.11, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22, 4.25, 4.26, 4.27,
4.36, 4.37 and 4.38.

 

12. RESTRICTIVE COVENANTS; CONFIDENTIALITY.

 

12.1 Restrictive Covenants.

 

(a) Restricted Period. Dr Windsor hereby agrees that during the time period
commencing as of the Closing Date and continuing for a period of three (3) years
thereafter (the “Restricted Period”), neither Dr. Windsor nor any of his
Affiliates, shall, other than on behalf of PainCare or the Surviving
Corporation, directly or indirectly, for himself, or on behalf of any other
corporation, person, firm, partnership, association, or any other entity
whatsoever (whether as an individual, agent, servant, employee, employer,
officer, director, shareholder, investor, principal, consultant or in any other
capacity whatsoever) take any action or undertake any matter set forth in
11.1(a)(i)-(ii) below; provided, however, that the Restricted Period shall
terminate upon the earlier to occur of (i) any bankruptcy, liquidation or
assignment for the benefit of creditors applicable to PainCare, or (ii) upon a
default by PainCare in any material covenant or term of this Agreement to be
performed after the Closing if Dr. Windsor shall have given written notice of
such default to PainCare and such default shall not have been cured within 30
business days after the giving of such notice.

 

(i) Own, manage, operate, control or participate in any manner in the ownership,
management, operation or control of, or serve as a partner, employee, principal,
agent, consultant or otherwise with, or have any financial interest in, or aid
or assist any other

 

36

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person or entity in the conduct of any ambulatory surgery center or any medical
practice that provides any physician-office surgery services or procedures at
such practice’s facilities that could be performed at the ASC, where such
ambulatory surgery center or medical practice performs services within a one
hundred (100) mile radius of any office of the Surviving Corporation or
PainCare; provided, however, this prohibition does not prevent Shareholder from
performing professional medical services only at any ambulatory surgery center
or hospital.

 

(ii) Solicit or engage in the solicitation of, or serve or accept any business
from patients, insurance companies, managed care plans, employers or other
customers of the business conducted by the Surviving Corporation for services
competitive with those of the Surviving Corporation, and their successors and
assigns;

 

(iii) Request, induce or advise any patients, insurance companies, managed care
plans, suppliers, vendors, employers or other customers of the business
conducted by the Surviving Corporation to withdraw, curtail or cancel their
business or other relationships with the Surviving Corporation, or assist,
induce, help or join any other person or entity in doing any of the above
activities; or

 

(iv) Induce or attempt to influence any employee of the Surviving Corporation,
PainCare, and/or its subsidiaries to terminate his or her employment with the
Surviving Corporation, PainCare, and/or its subsidiaries, or to hire, recruit or
solicit any such employee, whether or not so induced or influenced.

 

(b) Consideration. PainCare, the Subsidiary and Dr. Windsor have carefully
considered the nature and extent of the restrictions imposed by this Section
11.1 and the rights and remedies conferred upon PainCare and Subsidiary
hereunder and hereby expressly acknowledge and agree that: (i) the restricted
territory, period, and activities are reasonable and are necessary and fully
required to protect the legitimate business interests of PainCare and
Subsidiary; (ii) any violation of the terms of these restrictive covenants would
have a substantial detrimental effect on PainCare’s and Surviving Corporation’s
businesses; (iii) the restrictive covenants do not stifle Dr. Windsor’s inherent
skill and experience; and (iv) would not operate as a bar to any of Dr.
Windsor’s means of support. Because of the difficulty of measuring economic
losses to PainCare and the Surviving Corporation as a result of the breach of
the foregoing covenants, and because of the immediate and irreparable damage
that would be caused to PainCare and the Surviving Corporation for which it
would have no other adequate remedy, Dr. Windsor agrees that, in the event of a
breach by him of the foregoing covenants, the covenants set forth in this
Section 11.1 may be enforced by PainCare and the Surviving Corporation by
injunctions and restraining orders, in addition to all other available legal
remedies.

 

(c) Third-Party Beneficiaries. All successors and assigns of PainCare,
Subsidiary, all Affiliates of PainCare and Subsidiary, and all successors and
assigns of such Affiliates are third-party beneficiaries of the restrictive
covenants contained in this Section 11.1 and the provisions of this Section 11.1
are intended for the benefit of, and may be enforced by, PainCare’s and
Subsidiary’s successors and assigns and PainCare’s and Subsidiary’s Affiliates
and such Affiliates’ successors and assigns.

 

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12.2 Defenses. The existence of any claim or cause of action by the Shareholder
against PainCare or Subsidiary, whether predicated upon this Agreement or
otherwise, shall not constitute a defense to the enforcement by PainCare,
Subsidiary, or any of PainCare’s or Subsidiary’s successors and assigns or
Affiliates and such Affiliates’ successors and assigns, but shall be litigated
separately. The provisions of this Section 11 shall survive the termination of
this Agreement.

 

12.3 No Running of Covenant During Breach. The covenants set forth in this
Section 11 shall apply for the applicable periods as set forth above. If Dr.
Windsor violates such covenants, and PainCare, the Surviving Corporation or any
of their successors and assigns or Affiliates bring a legal action for
injunctive or other relief, such party bringing the action shall not, as a
result of the time involved in obtaining the relief, be deprived of the benefit
of the full period of the covenant period, unless a court of competent
jurisdiction holds that the covenant is not enforceable in whole or in part.
Accordingly, for any time period that Dr. Windsor is in violation of the
covenant, such time period shall not be included in calculating the applicable
time period of the covenant.

 

12.4 Blue Pencil Doctrine. The covenants set forth in this Section 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.

 

12.5 Confidentiality, Press Releases, and Public Announcements.

 

(a) No Party shall issue any press release or make any public announcement
relating to the subject matter of this Agreement without the prior written
approval of the other Parties.

 

(b) The Parties covenant and agree that from and after the Execution Date,
neither of the Parties nor their Affiliates (to the extent any such Affiliate
has received Confidential Information as defined below or Trade Secrets, as
defined below) shall disclose, divulge, furnish or make accessible to anyone any
Confidential Information or Trade Secrets, or in any way use any Confidential
Information or Trade Secrets in the conduct of any business; provided, however,
that nothing in this Section 11.5 will prohibit the disclosure of any
Confidential Information or Trade Secrets which is required to be disclosed by a
Party or any of its or his Affiliates in connection with any court action or any
proceeding before any authority. Notwithstanding the foregoing, in the case of a
disclosure contemplated by this Section 11.5, no disclosure shall be made until
the disclosing Party shall give notice to the non-disclosing Party of the
intention to disclose such Confidential Information or Trade Secrets so that the
non-disclosing Party may contest the need for disclosure, and the disclosing
Party will cooperate (and will cause its or his Affiliates and their respective
representatives to cooperate) with the non-disclosing in connection with any
such proceeding. Notwithstanding any provision of this Agreement which may be to
the contrary, the foregoing provisions restricting the use of Confidential
Information and Trade Secrets shall survive the Closing for the time period
equal to five (5) years from the Execution Date. For the purpose of this
Agreement, the term “Confidential Information” shall mean all records, files,
reports, protocols, policies, manuals,

 

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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.

 

12.6 Conduct of Business. From the date hereof through the Closing, the
Shareholder shall, except as contemplated by this Agreement, or as consented to
by PainCare in writing, cause the Company to be operated in the ordinary course
and in accordance with past practice and will not take any action inconsistent
with this Agreement or with the consummation of the Closing. Without limiting
the generality of the foregoing, the Company shall not, and, with respect to the
Company, the Shareholder shall not, except as specifically contemplated by this
Agreement, as set forth in Section 11.6 of the Disclosure Schedule, or as
consented to by PainCare in writing:

 

(a) change or amend the organizational documents of the Company;

 

(b) enter into, extend, materially modify, terminate or renew any lease or any
contract, except modifications, extensions or renewals of contracts in the
ordinary course of business or as contemplated by this Agreement;

 

(c) sell, assign, transfer, convey, lease, mortgage, pledge or otherwise dispose
of or encumber any of the assets or any interests therein of the Company except
in the ordinary course of business and, without limiting the generality of the
foregoing, the Company will maintain, dispose of, and sell inventory consistent
with past practices;

 

(d) incur any liability for indebtedness for borrowed money, guarantee the
obligations of others, indemnify or agree to indemnify others or, except in the
ordinary course of business, incur any other liability;

 

(e) take any action with respect to the grant of any bonus, severance or
termination pay (otherwise than pursuant to policies or agreements of the
Company in effect on the date hereof that are described in the Disclosure
Schedule) or with respect to any increase of benefits payable under its
severance or termination pay policies or agreements in effect on the date hereof
or increase in any manner the compensation or fringe benefits of any employee of
the Company or pay, any benefit not required by any existing Employee Plan or
policy;

 

(f) make any change in the key management structure of the Company, including,
without limitation, the hiring of additional officers or the termination of
existing officers;

 

(g) adopt, enter into or amend any Employee Plan, agreement (including, without
limitation, any collective bargaining or employment agreement), trust, fund or
other arrangement for the benefit or welfare of any employee, except for any
such amendment as may be required to comply with applicable regulations;

 

39

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(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 Dr. Windsor may be suspended, impaired or canceled;

 

(k) enter into, renew, modify or revise any agreement or transaction relating to
the Company with any of its or their Affiliates except as contemplated by this
Agreement;

 

(l) fail to maintain the assets of the Company in substantially their current
state of repair, excepting normal wear and tear, or fail to replace (consistent
with the Company’s past practice) inoperable, worn-out or obsolete or destroyed
assets;

 

(m) make any loans or advances relating to the Company to any partnership, firm,
individual, or corporation, except for expenses incurred in the ordinary course
of business consistent with past practice;

 

(n) fail to comply in all material respects with all laws and regulations
applicable to the Company;

 

(o) intentionally do any other act which would cause any representation or
warranty of the Company or the Shareholder in this Agreement to be or become
untrue, or any covenant in this Agreement to be breached, in any material
respect;

 

(p) fail to use reasonable efforts consistent with past business practice to (i)
maintain the Company so that the services of its officers, employees,
consultants and agents will remain available to it on and after the Closing
Date, (ii) maintain existing relationships with suppliers, patients, customers
and others having business dealings with the Company and (iii) otherwise
preserve the goodwill of the business of the Company so that such relationships
and goodwill will be preserved on and after the Closing Date;

 

(q) enter into any agreement, or otherwise become obligated, to do any action
prohibited hereunder;

 

(r) except as provided herein, declare, set aside for payment, or pay any
dividend or distribution in respect of any capital stock of the Company, redeem,
purchase or otherwise acquire any of the Company’s equity securities; or
otherwise transfer any of the assets of the Company to or on behalf of any
Shareholder of the Company or any Affiliate of the Company, including, without
limitation, any payment of principal of or interest on any debt owed to any of
the foregoing or any payment of a bonus, fee or other payment to any of the
foregoing as an employee of the Company; or

 

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

 

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12.7 No Third-Party Beneficiaries. Other than with respect to the restrictive
covenants set forth in Section 11, this Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors
and permitted assigns.

 

13. MISCELLANEOUS.

 

13.1 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.

 

13.2 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.

 

13.3 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.

 

13.4 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.

 

13.5 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, Florida 32801

   

Attention: President

If to the Shareholder:

 

Robert E. Windsor, M.D.

   

8195 Grogan’s Ferry Rd.

   

Dunwoody, GA 30350

 

41

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If to the Company:

 

Georgia Surgery Centers, Inc.

   

8195 Grogan’s Ferry Rd.

   

Dunwoody, GA 30350

With a copy in each case to:

 

Arthur A. Graves, III, Esq.

   

The Oxford Law Firm

   

P.O. Box 8708 – Dept. #621

   

Newport Beach, CA 92660

 

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.

 

13.6 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 Georgia 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.

 

13.7 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.

 

13.8 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.

 

13.9 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 and the
Company in connection with this Agreement and the transactions contemplated
hereby.

 

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13.10 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.

 

13.11 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.

 

13.12 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.

 

13.13 Incorporation of Exhibits and Schedules. The following are incorporated
herein by reference and made a part hereof: (i) all exhibits and schedules
(including the Disclosure Schedules) identified in this Agreement; (ii) the
recitals first set forth above; and (iii) any other document, memorandum and/or
letter signed by the Parties or their legal counsel with instructions to
incorporate such document, memorandum and/or letter into to this Section.

 

13.14 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 Cobb County, GA. With
respect to any legal proceeding brought by the Shareholder or the Company which
arises out of or relates to this Agreement or the transactions contemplated
hereby, exclusive jurisdiction and venue with respect to such matter shall lie
in any state or federal court within Orange County, FL. Each party to this
Agreement hereby irrevocably waives, to the fullest extent permitted by law, any
objections which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.

 

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[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 XII, INC.,

a Florida corporation

By:

 

/s/ Randy Lubinsky

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

Print:

 

Randy Lubinsky

Its:

 

CEO

COMPANY: GEORGIA SURGERY CENTERS, INC.

By:

 

/s/ Robert E. Windsor

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

   

Robert E. Windsor, M.D.

   

President and Secretary

SHAREHOLDERS:    

/s/ Robert E. Windsor

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

   

Robert E. Windsor, M.D.

 

The Windsor Family Limited Partnership   Windsor Nongrantor Trust (U/D/T 2004)

By:

 

/s/ Robert E. Windsor

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

 

By:

 

/s/ Arthur A. Graves, III

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

   

Robert E. Windsor, M.D.,

     

Arthur A. Graves, III, President

   

Manager Of R.E. Windsor, LLC, as General Partner

     

First Trustee Fiduciary Services, Inc. As Trustee

 

45

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EXHIBITS Exhibit 1   Definitions Exhibit 2.3   Articles of Merger DISCLOSURE
SCHEDULES 2.13   Shareholder Consent and Release 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 4.23   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 11.1   Restricted Period 11.6   Conduct of Business

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

EXHIBIT 1

 

DEFINITIONS

 

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

 

14. “Accounts Receivable” means the accounts receivable of the Company
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.

 

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

 

14.2 “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.

 

14.3 “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 Shareholder for purposes of this Agreement and
neither the Shareholder nor the Company is an Affiliate of PainCare or
Subsidiary for purposes of this Agreement.

 

14.4 Intentionally Omitted.

 

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

 

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

 

14.7 “Closing Date Consideration” has the meaning set forth in Section 3.1.

 

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

 

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

 

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

 

2

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14.19 Intentionally Omitted.

 

14.20 “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.

 

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

 

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

 

14.23 “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 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.

 

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

 

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

 

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

 

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

 

14.28 “Florida Act” and “Georgia Act” have the meanings set forth in Section
2.1.

 

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

 

14.30 Intentionally Omitted.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14.39 “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, 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).

 

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

 

14.41 “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 the Shareholder 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.

 

14.42 “Liability” 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.

 

14.43 Intentionally Omitted.

 

14.44 “Medical Assets” has the meaning set forth in Section 2.11.

 

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

 

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

 

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

 

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

 

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

 

14.50 Intentionally Omitted.

 

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

 

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

 

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

 

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

 

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

 

14.56 “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).

 

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

 

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

 

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

 

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

 

14.61 “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.

 

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

 

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

 

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

 

14.65 “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.

 

14.66 “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.

 

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

 

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

 

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

 

14.70 “Closing Date Consideration” has the meaning set forth in Section 3.1.

 

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