Exhibit 10.1

 

MERGER AGREEMENT AND PLAN OF REORGANIZATION

 

BY AND AMONG

 

PAINCARE HOLDINGS, INC.,

 

PAINCARE ACQUISITION COMPANY XIV, INC.,

 

BEN ZOLPER, M.D., L.L.C.

 

AND

 

BEN ZOLPER, M.D.

 

EFFECIVE DATE: JULY 1, 2004.

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TABLE OF CONTENTS

 

DEFINITIONS    1 TRANSACTION    1     2.1   Transaction    1     2.2   Effect of
the Merger    2     2.3   Effective Time; Filing of Certificates of Merger    2
    2.4   Articles of Incorporation    2     2.5   Bylaws    2     2.6  
Managers, Directors and Officers    2     2.7   Tax Consequences    2     2.8  
Additional Actions    2     2.9   No Dissenters’ Rights    3     2.10  
Intentionally Omitted    3     2.11   Conversion of Membership Interest    3    
2.12   Member Consent and Release    3     2.13   Piggyback Registration    3
TRANSACTION CONSIDERATION    3     3.1   Initial Transaction Consideration    3
    3.2   Potential Post Closing Adjustments    4     3.3   Earn-out Payment   
5     3.4   Pledge Agreement    8 REPRESENTATIONS AND WARRANTIES OF THE MEMBER
   8     4.1   Organization, Qualification, and Company Power    8     4.2  
Capitalization    9     4.3   Authorization    9     4.4   Noncontravention    9
    4.5   Broker’s Fees    10     4.6   Title to Assets    10     4.7   No
Subsidiaries    10     4.8   Financial Statements    10

 

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    4.9   Events Subsequent to Most Recent Year End    10     4.10   Undisclosed
Liabilities    12     4.11   Tax Matters    13     4.12   Real Property    14  
  4.13   Intellectual Property    15     4.14   Condition of Tangible Assets   
15     4.15   Contracts    15     4.16   Powers of Attorney    17     4.17  
Insurance; Malpractice    17     4.18   Litigation    18     4.19   Health Care
Compliance    18     4.20   Fraud and Abuse    18     4.21   Legal Compliance   
19     4.22   Rates and Reimbursement Policies    19     4.23   Medical Staff   
20     4.24   Employees    20     4.25   Employee Benefits    20     4.26  
Physicians and Other Providers    21     4.27   Guaranties    22     4.28  
Environment, Health, and Safety    22     4.29   Certain Business Relationships
with the Company and its Affiliates    23     4.30   Third-party Payors    23  
  4.31   Bank Accounts    24     4.32   Tax Status    24     4.33   Binding
Obligation    24     4.34   No Corporate Practice or Fee Splitting    24    
4.35   Staff Privileges    24     4.36   Intentions    24     4.37   Securities
Representation    24     4.38   HIPAA    26     4.39   Improper and Other
Payments    26     4.40   Accounts Receivable    26

 

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    4.41   Medical Waste    27     4.42   No Untrue or Inaccurate Representation
or Warranty    27 REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING COMPANIES   
27     5.1   Organization of PainCare and Subsidiary    27     5.2  
Authorization of Transaction    27 CLOSING    27 CLOSING DELIVERIES    28    
7.1   Deliveries of the Company and the Shareholder    28     7.2   Deliveries
of PainCare    28 CONDITIONS TO THE OBLIGATIONS OF PAINCARE AND SUBSIDIARY    29
    8.1   Representations and Warranties; Covenants and Agreements    29     8.2
  Due Diligence    29 POST-CLOSING COVENANTS    29     9.1   General    29    
9.2   Tax Returns    29     9.3   Transition    30     9.4   Litigation Support
   30     9.5   Consents    30     9.6   Operational Covenants    30 SURVIVAL
AND INDEMNIFICATION    31     10.1   Survival of Representations and Warranties
   31     10.2   Indemnification Provisions for the Benefit of PainCare and
Subsidiary    32     10.3   Indemnification Provisions for the Benefit of the
Shareholder    32     10.4   Matters Involving Third Parties    32 RESTRICTIVE
COVENANTS; CONFIDENTIALITY    34     11.1   Member Restrictive Covenants    34  
  11.2   Defenses    35     11.3   No Running of Covenant During Breach    36  
  11.4   Blue Pencil Doctrine    36     11.5   Confidentiality, Press Releases,
and Public Announcements    36     11.6   Conduct of Business    37

 

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    11.7    No Third-Party Beneficiaries    39 MISCELLANEOUS.    39     12.1   
Entire Agreement    39     12.2    Succession and Assignment    39     12.3   
Counterparts    39     12.4    Headings    39     12.5    Notices    39     12.6
   Governing Law; Jurisdiction; Attorney’s Fees    40     12.7    Amendments and
Waivers    40     12.8    Severability    40     12.9    Expenses    40    
12.10    Further Assurances    41     12.11    Construction    41     12.12   
Survival    41     12.13    Incorporation of Exhibits and Schedules    41    
12.14    Submission to Jurisdiction    41     12.15    Notification of Certain
Matters    41

 

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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 as of the 1st day of July, 2004 (the “Effective Date”) by
and among PAINCARE HOLDINGS, INC., a Florida corporation (“PainCare”), PAINCARE
ACQUISITION COMPANY XIV, INC., a Florida corporation (“Subsidiary”, and together
with PainCare, the “Acquiring Companies”), BEN ZOLPER, M.D., L.L.C. a Maine
limited liability company (the “Company”), and BEN ZOLPER, M.D., an individual
(the “Member”). PainCare, Subsidiary, the Company and the Member are sometimes
referred to herein individually as a “Party” and collectively as the “Parties.”

 

RECITALS

 

A. The Company operates a medical practice and the Member is a licensed medical
provider in the State of Maine and owns all of the issued and outstanding shares
of the Company stock;

 

B. PainCare desires to enter into this Agreement in order for the Subsidiary,
which is a wholly-owned subsidiary of PainCare, to acquire the business and
assets of the Company;

 

C. All of the Parties hereto desire to enter into this Agreement to effectuate
the Merger, as hereinafter defined, of the Company with and into Subsidiary
pursuant to the terms and conditions of this Agreement; and

 

F. It is the intention of the Parties for the Merger contemplated herein to
qualify as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.

 

NOW, THEREFORE, in consideration of the premises and the actual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the receipt and adequacy of which are hereby conclusively
acknowledged, the Parties, intending to become legally bound, hereby agree as
follows:

 

TERMS AND CONDITIONS

 

1. DEFINITIONS. All capitalized words that are not capitalized for purposes of
grammar and which are not defined in the text of this Agreement are defined
terms with their definitions set forth on Exhibit 1.

 

2. TRANSACTION.

 

2.1 Transaction. Upon the terms and subject to the conditions hereof and in
accordance with the provisions of the Florida Business Corporation Act (the
“Florida Act”) and

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the Maine Limited Liability Company Act (the “Maine Act”)], the Company shall be
merged with and into Subsidiary (the “Merger”) and the separate existence of the
Company shall thereupon cease, and Subsidiary, as the surviving corporation (the
“Surviving Corporation”), shall continue to exist under and be governed by the
Florida Act (the “Transaction”).

 

2.2 Effect of the Merger. At and after the Effective Time, as defined in Section
2.3 below, the effect of the Merger shall, in all respects, be as provided in
the Florida Act and the Maine Act. From and after the Effective Time, the
Surviving Corporation shall continue to be a Florida corporation authorized to
do business in the State of Maine.

 

2.3 Effective Time; Filing of Certificates of Merger. The Merger shall be
effected by the filing at the time of the Closing or as soon as practicable
thereafter, of the Articles of Merger (the “Articles of Merger”), substantially
in the form of Exhibit 2.3 attached hereto, with the Secretary of the State of
Florida in accordance with the provisions of the Florida Act and with the
Secretary of the State of Maine in accordance with the provisions of the Maine
Act. The Merger shall become effective as of 11:59 p.m. on the date of the last
of such filings (the “Effective Time”) and the Parties shall take any and all
other lawful actions and do any and all other lawful things necessary to cause
the Merger to become effective.

 

2.4 Articles of Incorporation. As of the Effective Time, the articles of
incorporation of Subsidiary, as in effect immediately prior to the Effective
Time, shall be the articles of incorporation of the Surviving Corporation saving
the change of the Subsidiary’s name to Ben Zolper Pain Management Center, Inc.
until thereafter amended in accordance with applicable law.

 

2.5 Bylaws. As of the Effective Time, the bylaws of Subsidiary, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation until thereafter amended in accordance with its terms and applicable
law.

 

2.6 Managers, Directors and Officers. As of the Effective Time, the directors
and officers of Subsidiary immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation. Each director and officer
of the Surviving Corporation shall hold office in accordance with the articles
of incorporation and bylaws of the Surviving Corporation. At the Closing, the
Company shall cause to be delivered to Subsidiary the written resignations of
all of the managers and officers of the Company, which resignations shall be
unconditional and effective as of the Closing Date (as defined in Section 6
below).

 

2.7 Tax Consequences. It is intended by the Parties hereto that the Merger shall
constitute a tax-free reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Code.

 

2.8 Additional Actions. If, at any time after the Closing, the Surviving
Corporation shall consider or be advised that any further acts are necessary or
desirable: (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, title to and possession of any property or right of the
Company acquired or to be acquired by reason of, or as a result of, the Merger;
or (b) otherwise to carry out the purposes of this Agreement, then the Member
shall be

 

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deemed to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, assignments and assurances in
law and to do all other acts necessary or proper to vest, perfect or confirm
title to and possession of such property or rights in the Surviving Corporation
and otherwise to carry out the purposes of this Agreement; and the officers and
directors of the Surviving Corporation are fully authorized in the name of the
Member and the Company to take any and all such actions.

 

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

 

2.10 Intentionally Omitted.

 

2.11 Conversion of Membership Interest. Each share of capital stock of
Subsidiary issued and outstanding immediately prior to the Closing shall
continue to represent one (1) validly issued, fully paid and non-assessable
share of capital stock of the Surviving Corporation after the Merger. By virtue
of the Merger and without any action on the part of the Member the Membership
Interest owned by the Member in the Company shall be converted into the Initial
PainCare Shares described in Section 3.1. The PainCare Shares received by the
Member shall not be transferable by the Member other than: (a) by will or the
laws of intestate succession; (b) in accordance with applicable state and
federal securities laws including without limitation Rule 144 of the Securities
Act; and (c) subject to the term and conditions of any applicable lock-up
letter.

 

2.12 Member Consent and Release. The Member hereby consents to the Transaction
and approves the execution and delivery of this Agreement and the transactions
contemplated hereby. Effective on the Effective Time, the Member hereby releases
the Company from any and all claims he may, could or will have, whether arising
before or after the Effective Time, against the Company as a result of the
Member having served as a member, manager, officer, employee, agent, lender, or
in any other capacity of or for the Company.

 

2.13 Piggyback Registration. At Closing, the parties shall enter into a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit 2.13.

 

3. TRANSACTION CONSIDERATION.

 

3.1 Initial Transaction Consideration. (a) Subject to the adjustments set forth
in Section 3.2 below, the initial aggregate transaction consideration that
PainCare shall deliver at Closing as provided herein will shall equal One
Million Seven Hundred Fifty Thousand and 00/100 Dollars ($1,750,000) comprised
of: (i) Eight Hundred Seventy Five Thousand Five Hundred and 00/100 Dollars
($875,000) (the “Cash Due At Closing”); plus (ii) a number of PainCare Shares
(the “Initial PainCare Shares”) which will be determined by dividing Eight
Hundred Seventy Five Thousand Five Hundred and 00/100 Dollars ($875,000) by
ninety percent (90%) of Fair Market Value [as defined in 3.3(f) below] of one
share of PainCare common as determined as of the date immediately preceding the
Closing Date. The parties agree that no

 

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fractional shares will be issued to the Member and if the above described
formula results in a fractional share that the number of Initial PainCare Shares
will be reduced to the next lowest whole number. The Cash Due At Closing and the
Initial PainCare Shares shall hereinafter collectively be known as the “Initial
Transaction Consideration.”

 

(b) The Closing Date Consideration shall be payable as follows:

 

(i) With respect to Forty Thousand and no/100 ($40,000) of the Cash Due At
Closing, such cash shall be delivered to Cloverleaf Capital Advisors, Inc. (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 3.1(b); and

 

(b) With respect to the remainder of the Cash Due At Closing and the Initial
PainCare Shares, such consideration shall be delivered to the Member, as
instructed in writing.

 

3.2 Potential Post Closing Adjustments.

 

(a) Accounts Receivable Adjustment. If the Surviving Corporation, within the six
(6) month calendar period immediately following the Closing Date, does not
collect a total of Four Hundred Thousand and 00/100 Dollars ($400,000.00) from
the Closing Date Accounts Receivable, then the Cash Due At Closing shall be
reduced dollar for dollar by the A/R Adjustment. The “A/R Adjustment” shall
equal the difference between the amount of Closing Date Accounts Receivable
Accounts Receivable collected by the Surviving Corporation during such time
period and Four Hundred Thousand and 00/100 Dollars ($400,000.00). PainCare
shall receive payment for the A/R Adjustment through a lump sum cash payment
from the Member within seven (7) days after the end of the six (6) month period.

 

(b) Other Net Equity Adjustments. If the Closing Date Balance Sheet (as defined
in subsection (c) below) reflects Other Net Equity (as defined below) that is
less than Fifty Thousand and 00/100 Dollars ($50,000.00) (“Agreed Other Net
Equity”), then the Cash Due At Closing shall be reduced dollar for dollar (the
“Other Net Equity Adjustment”) by the difference between (i) the Agreed Other
Net Equity; and (ii) the Other Net Equity set forth in the Closing Date Balance
Sheet. “Other Net Equity” shall mean the cash in the bank accounts of the
Company’s immediately following the Closing, net of all liabilities of the
Company.

 

(c) Closing Date Balance Sheet. Within ninety (90) days after the Closing Date,
PainCare or its Affiliate will prepare and deliver to the Member a balance sheet
of the Company as of the close of business on the Closing Date prepared in
accordance with GAAP (the “Closing Date Balance Sheet”). Within six (6) days
after PainCare’s delivery of the Closing Date Balance Sheet to the Member, the
Member shall, in a written notice to PainCare, either accept or describe in
reasonable detail any proposed adjustments to the Closing Date Balance Sheet and
the reasons therefore, and shall include pertinent calculations. If the Member
fails to deliver notice of acceptance or objection to the Closing Date Balance
Sheet within such six (6) day period, the Member shall be deemed to have
accepted the Closing Date Balance Sheet. Except in the case of a dispute with
respect to the Closing Date Balance Sheet, within seven (7) days after delivery
of the Closing Date Balance Sheet (the “Adjustment Payment Date”), the

 

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Member shall pay the Other Net Equity Adjustment to PainCare in cash. In the
event that PainCare and the Member are not able to agree on the Closing Date
Balance Sheet within thirty (30) days from and after the receipt by PainCare of
any objections raised by the Member, then either Party shall each have the right
to require that such disputed determinations be submitted to an independent
certified public accountant or accounting firm that PainCare shall select, for
computation or verification in accordance with the provisions of this Agreement,
and the Other Net Equity Adjustment shall be paid by the Member to PainCare
within five (5) days after receipt of the accountant’s computation or
verification. The foregoing provisions for certified public accounting firm
review shall be final and binding upon the Parties and there shall be no right
of appeal from such decision. Such accounting firm’s fees and expenses for such
disputed determination shall be borne by the Party whose determination has been
modified by such accounting firm’s report or by all Parties in proportion to the
relative amount each Party’s determination has been modified. Any payments due
under this Section 3.3 shall bear interest at eight percent (8%) per annum from
the Adjustment Payment Date.

 

3.3 Earn-out Payment.

 

(a) General. Subject to 3.3(b) below and the condition that the Surviving
Corporation achieves Formula Period Profits (as defined in Subsection (f) below)
of at least Seven Hundred Thousand and 00/100 Dollars ($700,000) (the “Earnings
Threshold”) in each of the three (3) successive twelve (12) month calendar
periods beginning on the first day of the first month immediately following the
Closing Date or if the Closing Date is the first day of the month then on the
Closing Date (each such twelve (12) month calendar period shall be referred to
herein as a “Formula Period”), then PainCare shall pay to the Member a total
amount of additional consideration of One Million Seven Hundred Fifty Thousand
and 00/100 Dollars ($1,750,000) for the Formula Periods, payable in three equal
annual installments of Five Hundred Eighty Three Thousand Three Hundred Thirty
Three and 33/100 Dollars ($583,333.33) (the “Intended Installment Payment”) in
the form of consideration provided in Section 3.3(e) below and subject to
adjustment as provided in Section 3.3(c) and (d) below. The Member hereby
acknowledges and agrees that the Intended Installment Payments to be made by
PainCare, if earned, are expressly subordinate to the rights and obligations to
the Laurus Master Fund, Ltd. (“Laurus”) as provided in those certain Securities
Purchase Agreements, Security Agreements and Pledge Agreements between PainCare
and Laurus dated February 27, 2004, March 22, 2004 and June 30, 2004.

 

(b) Pain Care agrees to deliver to the Member the Intended Installment Payment
as described herein if, and only if, all of the following conditions are
satisfied (each a “Condition” and collectively, the “Conditions”) throughout the
Formula Periods: (i) Member is in compliance with this Agreement and (iii)
Member’s Employment Agreement with the Surviving Corporation has not been
terminated by the Surviving Corporation “for Cause.” To the extent that any of
the Conditions are not satisfied during any of the Formula Periods, then for the
applicable Formula Period where any of the Conditions are not satisfied, and
each subsequent Formula Period, PainCare shall not pay, and shall have no duty
or obligation to ever pay, and Member shall not receive, and shall have no right
to ever receive, any Intended Installment Payment.

 

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(c) Installment Payment Discount. Notwithstanding Section 3.3(a) above, if the
Surviving Corporation fails to achieve the Earnings Threshold in a Formula
Period, the amount of the Intended Installment Payment for such Formula Period
shall be recalculated to equal the product of the Intended Installment Payment,
multiplied by the Installment Payment Discount (as defined below) (the “Adjusted
Installment Payment”). The “Adjusted Installment Payment” shall equal (i) the
Formula Period Profits (as defined in Subsection (f) below) for such Formula
Period divided by the Earnings Threshold; multiplied by (ii) ninety percent
(90%) (“Installment Payment Discount”).

 

(d) Installment Payment Premium. Notwithstanding Section 3.3(c), if (i) the
Member receives the Adjusted Installment Payment from PainCare in a Formula
Period (saving the last Formula Period) rather than the Intended Installment
Payment as a result of the Formula Period Profits equaling less than the
Earnings Threshold for such Formula Period, and (ii) the Surviving Corporation’s
Formula Period Profits exceed the Earnings Threshold in the Formula Period
immediately subsequent to the Formula Period for which the Installment Payment
Discount corresponded, then PainCare shall pay to the Member the Installment
Payment Premium (as defined below). The “Installment Payment Premium” shall
equal the product of (A) the Formula Period Profits for the Formula Period in
which the Installment Payment Premium is calculated less the Earnings Threshold,
multiplied by (B) Seventy-five percent (75%). The Installment Payment Premium
shall be paid to the Member in the same percentages, form and time as the
Installment Payments (as defined in Subsection (e) below) are due for the
Formula Period for which the Installment Payment Premium is calculated.

 

(e) Manner of Payment. Within sixty (60) days after the end of each Formula
Period, PainCare or its Affiliate shall prepare and deliver to the Member a
financial statement presenting the Formula Period Profits for the Surviving
Corporation for the applicable Formula Period (the “Formula Period Profits
Statement”). Five (5) days after delivery of the Formula Period Profits
Statement, the Member shall in a written notice to PainCare either accept or
describe in reasonable detail any proposed adjustments to the Formula Period
Profits Statement and the reasons therefore, and shall include pertinent
calculations. If the Member fails to deliver notice of acceptance or objection
to the Formula Period Profits Statement within such five (5) day period, the
Member shall be deemed to have accepted the Formula Period Profits Statement. If
the Member accepts or fails to object to the Formula Period Profits Statement
within the five (5) day period set forth above, then within ninety (90) days
after the end of the Formula Period, PainCare shall pay to the Member the
Intended Installment Payment or the Adjusted Installment Payment (each an
“Installment Payment”, and collectively, the “Installment Payments”) along with
any Installment Payment Premium owed in accordance with Subsection (c) above as
follows: (i) fifty percent (50%) of the Installment Payment shall be made in
cash via wire transfer to a bank account designated by the Member at least five
(5) days prior to the end of the Formula Period; and (ii) fifty percent (50%) of
the Installment Payment shall be made in PainCare Shares priced at Fair Market
Value (as defined in Subsection (g) below). In the event PainCare and the Member
are not able to agree on the Formula Period Profits Statement within thirty (30)
days from and after the receipt by PainCare of any objections raised by the
Member, PainCare and the Member 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

 

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this Agreement, and the Installment Payment shall be paid by PainCare to the
Member within fifteen (15) days after receipt of the accountant’s computation or
verification. The foregoing provisions for certified public accounting firm
review shall be final and binding upon the Parties and there shall be no right
of appeal from such decision.

 

(f) Earn-out Cap. Notwithstanding anything to the contrary in this Section 3, in
no event whatsoever shall the aggregate amount of the Installment Payments paid
to the Member from PainCare in cash, in the PainCare Shares or any other form of
consideration exceed One Million Seven Hundred Fifty Thousand and 00/100 Dollars
($1,750,000).

 

(g) Definitions for Purposes of Section 3.3. For purposes of Section 3.3 of this
Agreement, the following terms shall have the meanings set forth below:

 

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

 

(1) if the principal market for the PainCare Shares is a national securities
exchange, then the “Fair Market Value” of the PainCare Shares shall equal the
thirty (30) day trailing average of the closing ask prices of the PainCare
Shares as reported by such exchange or on a composite tape reflecting
transactions on such exchange; or

 

(2) if the principal market for the PainCare Shares is not a national securities
exchange, but the price of the PainCare Shares is quoted on the National
Association of Securities Dealers Automated Quotation System (“NASDAQ”) Stock
Market, and (A) actual closing price information is available with respect to
the PainCare Shares, then the “Fair Market Value of the PainCare Shares shall
equal the thirty (30) day trailing average of the closing ask prices of such
stock on the NASDAQ Stock Market; or (B) actual closing price information is not
available with respect to the PainCare Shares, then the “Fair Market Value” of
the PainCare Shares shall equal the thirty (30) day trailing average of the bid
prices per share of such stock on the NASDAQ Stock Market; or

 

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

 

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

 

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(5) with the understanding that notwithstanding the Fair Market Value ascribed
to the PainCare Shares pursuant to subsections 3.3(g)(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.

 

(ii) “Formula Period Profits” shall mean the Surviving Corporation’s earnings
before deductions for interest, taxes, depreciation and amortization (“EBITDA”)
as calculated utilizing GAAP by PainCare’s independent certified public
accountants for the applicable Formula Period where possible, and as calculated
by PainCare for quarterly and less than quarterly periods for such Formula
Period. Notwithstanding the foregoing, the calculation of the Formula Period
Profits shall not include any costs or expenses related to: (i) the corporate
overhead of PainCare or other administrative or similar charges that PainCare
might impose upon the Surviving Corporation, except those charges for services
provided directly to and for the benefit of the Surviving Corporation; (ii) any
non-recurring charges, losses, profits, gains, or non-cash adjustments not
related to the ongoing operations of the Surviving Corporation’s business,
including but not limited to discontinued operations, extraordinary items,
acquisition costs and goodwill charges incurred in connection with the
transactions contemplated hereby (excluding the write-off of any goodwill with
respect to the Surviving Corporation in accordance with FASA 142), or unusual or
infrequent items as such terms are defined pursuant to generally accepted
accounting principles, or (iii) any charge related to grants or exercises of
options of employees of the Surviving Corporation. The Formula Period Profits
shall specifically include without limitation revenues and expenses associated
with PainCare’s MedX Rehabilitation Program which may be implemented by the
Surviving Corporation subsequent to the Closing unless the Parties otherwise
mutually agree in writing.

 

3.4 Pledge Agreement. Contemporaneous with the Closing, PainCare agrees to
execute a pledge agreement in the form attached hereto as Exhibit 3.4 (the
“Pledge Agreement”) to secure the payment of the Intended Installment Payments.

 

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

 

4.1 Organization, Qualification, and Company Power. The Company is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Maine. 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 managers,
officers and members 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 organization and the
operating agreement of the Company, as amended to date. Copies of the minute
book (containing the records of meetings of the members, managers and any
committees) of the Company are correct and complete in all

 

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material respects and will have been delivered to PainCare prior to or at the
Closing. The Company is not in default under or in violation of any provision of
its articles of organization or operating agreement.

 

4.2 Capitalization. The Member owns all of the membership interests in the
Company (the “Membership Interest”). The Membership Interest has been duly
authorized, is fully paid and nonassessable. The Member has good title to the
Membership Interest 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 membership interests. There are no outstanding or
authorized membership appreciation, profit participation, or similar rights with
respect to the Company. There are no member agreements, voting trusts, proxies,
or other agreements or understandings with respect to the voting of the
membership interests of the Company.

 

4.3 Authorization. The Company has full power and authority (including full
corporate power and authority) and the Member has all necessary authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by the Company has been
duly authorized and approved by the Member and no other corporate proceeding on
the part of the Company is necessary to authorize this Agreement and the
transactions contemplated hereby. The Company has given the Member any and all
notice required to be given to the Member under applicable law. This Agreement
constitutes the valid and legally binding obligation of the Company and the
Member, enforceable in accordance with its terms and conditions.

 

4.4 Noncontravention. Except as set forth in Section 4.4 of the Disclosure
Schedule, neither the execution and the delivery of this Agreement by the
Company or the Member, 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 Member are subject, or any provision of the articles of
organization or operating agreement 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 Member are a party or by which
either the Company or the Member 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 Member and the Company need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency or any other third party whatsoever in order for the
Parties to consummate the transactions contemplated by this Agreement. The
Parties agree that Section 4.4 of the Disclosure Schedule shall be divided into
two (2) sections, consisting of: (i) Section 4.4(a) which shall list all such
authorizations, consents and approvals which must be obtained prior to the
Closing, as a condition to Closing; and (ii) Section 4.4(b) which shall list all
such authorizations, consents and approvals which will not be obtained prior to
Closing which shall be obtained within a reasonable period of time after
Closing.

 

9

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4.5 Broker’s Fees. Neither the Company nor the Member has any Liability or
obligation to pay any fees, expenses, or commissions to any consultant, broker,
finder, or agent with respect to the transactions contemplated by this
Agreement.

 

4.6 Title to Assets. Section 4.6 of the Disclosure Schedule contains a complete,
true and correct list of all of the assets of the Company. The Company has good
and marketable title to, or a valid leasehold interest in, the properties and
assets used by it, located on its premises, or shown on the Most Recent
Financial Statement, as defined in Section 4.8 below, or acquired after the date
thereof, free and clear of all Security Interests. The assets set forth in
Section 4.6, in conjunction with any assets which the Company leases, constitute
all of the assets used by the Company in connection with its business as
presently conducted and all assets necessary or appropriate for the continued
operation of the Company’s business.

 

4.7 No Subsidiaries. The Company has no Subsidiaries and does not control,
directly or indirectly, or have any direct or indirect equity participation in
any corporation, partnership, limited liability company, trust or other business
association.

 

4.8 Financial Statements. Attached as Section 4.8 of the Disclosure Schedule are
true and complete copies of the following Company financial statements
(collectively, the “Financial Statements”): (a) audited balance sheets,
statements of operation and retained earnings, and cash flow for the year ended
December 31, 2003 (the “Most Recent Year End”) for the Company; and (ii) interim
statements of operation and retained earnings and cash flow (the “Most Recent
Financial Statements”) for the month ended May 31, 2004 (the “Most Recent Month
End”) for the Company. The Financial Statements (including the notes thereto)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial condition
of the Company as of such dates and the results of operations of the Company for
such periods, are correct and complete, and are consistent with the books and
records of the Company (which books and records are correct and complete);
provided, however, that the Most Recent Financial Statements are subject to
normal year-end adjustments which will not be material. Except as provided in
the Most Recent Financial Statements, or as fully disclosed in Section 4.8 of
the Disclosure Schedule, the Company does not have any Liabilities or
obligations (whether accrued, absolute, contingent, whether due or to become due
or otherwise) which might be or become a charge against the Company since the
date of the Most Recent Financial Statements. The Member acknowledges and agrees
that PainCare and Subsidiary relied upon the financial information set forth in
the Financial Statements in order to determine the Transaction Consideration.

 

4.9 Events Subsequent to Most Recent Year End. Since the Most Recent Year End,
there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. Without limiting the generality of the foregoing, since the Most Recent
Year End:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(h) Claims Unaffected. The Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) outside the
ordinary course of its business;

 

(i) Articles and Operating Agreement. There has been no change made or
authorized in the articles of organization or operating agreement of the
Company;

 

(j) Changes in Equity. The Company has not issued, sold, or otherwise disposed
of any of its membership interests, equity or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its membership interests;

 

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

 

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

 

11

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(m) Transactions with Affiliates. The Company has not made any loan to, or
entered into any other transaction with, any of its managers, 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 managers, 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 managers, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);

 

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

 

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

 

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

 

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

 

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

 

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

 

4.10 Undisclosed Liabilities. The Company has no Liability and there is no basis
for any present or future action, suit, proceeding, hearing, investigation,
complaint, claim, or demand against it giving rise to any Liability, except for:
(a) Liabilities set forth on the Most Recent Financial Statements; (b)
Liabilities disclosed in the Disclosures Schedule; and (c) Liabilities which
have arisen after the Most Recent Month End in the ordinary course of business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law). As of the Closing, other than the current trade accounts
payable, the Company shall not have any unpaid liabilities, including, but not
limited to, any bank debt, capital leases or any general or professional
liability claims, or be obliged in any other way to provide funds in respect of,
or to guarantee or assume, any debt, obligation or dividend of any person,
except endorsements in the ordinary course of business in connection with the
deposit, in banks or other financial

 

12

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institutions, of items for collection. Except as provided in the Most Recent
Financial Statements, or as disclosed in detail in Section 4.8 of the Disclosure
Schedule, the Company does not have any Liabilities or obligations which might
be or become a charge against the Company.

 

4.11 Tax Matters.

 

(a) Tax Returns. The Company has filed all Tax Returns it was required to file.
All such Tax Returns were correct and complete in all respects and were filed on
a timely basis. All Taxes owed by the Company (whether or not shown on any Tax
Return) have been paid. The Company currently is not the beneficiary of any
extension of time within which to file any Tax Return. No claim is currently
pending by an authority in a jurisdiction where the Company is or may be subject
to taxation by that jurisdiction. There are no Security Interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.

 

(b) Withholding. The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, member, or other third party.

 

(c) No Disputes of Claims. No member or manager or officer (or employee
responsible for Tax matters) of the Company expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax Liability of the Company either: (a)
claimed or raised by any authority in writing; or (b) as to which any of the
members, managers 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, 2001, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Member 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, 2001.

 

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

 

(e) No Special Circumstances. The Company has not made any payments, is not
obligated to make any payments, nor is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). 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.

 

13

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(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. As of the Closing Date, the
Member will place funds in a separate bank account in the name of the Company in
an amount sufficient to pay all such liabilities and such funds shall be used to
pay such liabilities as they become due.

 

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

 

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

 

4.12 Real Property. The Company does not own any real property. Section 4.12 of
the Disclosure Schedule lists and describes briefly all real property leased or
subleased by the Company. The Member 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;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4.13 Intellectual Property. The Company owns or has the right to use pursuant to
a valid license, sublicense, agreement, or permission all Intellectual Property
necessary or desirable for the operation of the businesses of the Company as
presently conducted and as presently proposed to be conducted. No claim or
demand of any Person has been made, nor is there any proceeding that is pending,
or to the Member’s Knowledge, threatened, which challenges the rights of the
Company with respect to any Intellectual Property or asserts that the Company is
infringing or otherwise in conflict with or is required to pay any royalty or
license fee with respect to any Intellectual Property.

 

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

 

15

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

 

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

 

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

 

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

 

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

 

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

 

(f) Members’ Agreements. Any agreement by and between the Member 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 managers, 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 members, managers, officers and employees
outside the ordinary course of business;

 

(j) Adverse Effects. Any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations or future prospects of the Company;
and

 

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

 

16

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

 

4.16 Powers of Attorney. There are no outstanding powers of attorney executed on
behalf of the Company.

 

4.17 Insurance; Malpractice. Section 4.17 of the Disclosure Schedule contains a
list and brief description of all policies or binders of fire, liability,
product liability, workers compensation, health and other forms of insurance
policies or binders currently in force insuring against risks to which the
Company has been a party, a named insured or otherwise the beneficiary of
coverage at any time during the five (5) years immediately preceding the Closing
Date. Section 4.17 of the Disclosure Schedule contains a description of all
current malpractice liability insurance policies of the Member, the Company and
the Company’s professional employees and all predecessor policies in effect.
Except as set forth on Section 4.17 of the Disclosure Schedule: (a) neither the
Company, nor its professional employees, nor the Member has, during the five (5)
years immediately preceding the Closing Date, filed a written application for
any insurance coverage relating to the Company’s business or property which has
been denied by an insurance agency or carrier; and (b) the Company, the
Company’s professional employees and the Member has been continuously insured
for professional malpractice claims during the same period. Section 4.17 of the
Disclosure Schedule also sets forth a list of all claims for any insured loss in
excess of Five Thousand and 00/100 Dollars ($5,000) per occurrence filed by the
Company, the Company’s professional employees or the Member during the five (5)
years immediately preceding the Closing Date, including workers compensation,
general liability, environmental liability and professional malpractice
liability claims. With respect to each insurance policy listed in Section 4.17
of the Disclosure Schedule: (i) the policy is legal, valid, binding,
enforceable, and in full force and effect; (ii) the policy will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (iii)
neither the Company, the Member, 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,

 

17

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denied or disputed by the underwriter(s) of such policies or any notice that a
defense will be afforded with reservation of rights; (vi) the Company has not
received: (A) any notice that any issuer of any such policy has filed for
protection under applicable bankruptcy laws or is otherwise in the process of
liquidating or has been liquidated; or (B) any other indication that such
policies are no longer in full force and effect or that the issuer of any such
policy is no longer willing or able to perform its obligations thereunder; and
(vii) neither the Member nor the Company has received any written notice from or
on behalf of any insurance carrier issuing such policies, that there will
hereafter be a cancellation, or an increase in a deductible or non-renewal of
existing policies. The Company has been covered during the past five (5) years
by insurance in scope and amount customary and reasonable for the business in
which it has engaged during the aforementioned period.

 

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

 

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

 

4.20 Fraud and Abuse. The Company, the Member, 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

 

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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 Maine 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 Maine Statutes. Furthermore, the Company has
filed all reports required to be filed by the State of Maine and federal law
regarding compensation arrangements and financial relationships between a
physician and an entity to which the physician refers patients.

 

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

 

4.22 Rates and Reimbursement Policies. The jurisdiction in which the Company is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by the
Company except for restrictions promulgated by Maine law and regulation on
charging of excessive fees and limitations on charges for and profits from the
sale of medications, goods and devices and free samples. The Company does not
have any rate appeal currently pending before any governmental authority or any
administrator of any third-party payor program. The Company and the Member 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

 

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Agreement or any such legal requirement proposed or currently pending in the
State of Maine 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 Member have Knowledge of any impending proposed reduction in
reimbursement from third party or other payors nor Knowledge of any threatened
termination of payor contracts.

 

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

 

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

 

4.25 Employee Benefits.

 

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

 

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

 

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

 

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

 

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

 

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

 

(g) Copies. The Member 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 Member and the Company have no Knowledge of any basis
for any such action, suit, proceeding, hearing, or investigation.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4.27 Guaranties. The Company is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.

 

4.28 Environment, Health, and Safety.

 

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

 

(b) Permits and Licenses. Without limiting the generality of the foregoing, each
of the Company and its Affiliates has obtained and complied with, and is in
compliance

 

22

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with, all permits, licenses and other authorizations that are required pursuant
to Environmental, Health, and Safety Requirements for the occupation of its
facilities and the operation of its business; a list of all such permits,
licenses and other authorizations is set forth on Section 4.28 of the Disclosure
Schedule.

 

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

 

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

 

(e) Neither the Company nor Sellers have received any communication (written or
oral), whether from a governmental authority, citizens’ group, employee or
otherwise, that alleges that the Business or the Company is not in full
compliance with Environmental Laws, or that the Company, the Business or Sellers
are otherwise subject to liability under Environmental Laws, and to the best
each of Sellers’ knowledge, there are no circumstances that may prevent or
interfere with such full compliance in the future. There is no Environmental
Claim (as defined below) pending or, to the best knowledge of each of the
Sellers, threatened against the Company, the Business or the Center.

 

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

 

4.29 Certain Business Relationships with the Company and its Affiliates. Neither
the Member 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 Member and his Affiliates owns any asset,
tangible or intangible, which is material to the business of any of the Company
and its Affiliates.

 

4.30 Third-party Payors. Section 4.30 of the Disclosure Schedule sets forth an
accurate, correct and complete list of the Company’s third-party payors. Neither
the Company nor the Member has received any notice nor has any Knowledge that
any third-party payor

 

23

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intends to terminate or materially reduce its business with, or reimbursement
to, the Company. The Company has no reason to believe that any third-party payor
will cease to do business with the Company after, or as a result of, the
consummation of any transactions contemplated hereby. The Company does not know
of any fact, condition or event which would adversely affect its relationship
with any third-party payor.

 

4.31 Bank Accounts. Section 4.31 of the Disclosure Schedule sets forth all of
the bank and security accounts and all safe deposit boxes maintained by the
Company and all lines of credit owned or used by the Company, and the names of
all persons with authority to withdraw funds from, or execute drafts or checks
on, each such account.

 

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

 

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

 

4.34 No Corporate Practice or Fee Splitting. The Member 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 Member accordingly
agrees that he will not and will not cause any other Party, in an attempt to
void or nullify this Agreement or any document related to the Transaction or any
relationship involving PainCare or Subsidiary to sue, claim, aver, allege or
assert that any such document or any such relationship violates any law, rule or
regulation relating to the corporate practice of medicine or fee splitting.

 

4.35 Staff Privileges. Schedule 4.35 lists all hospitals at which the Member has
full staff privileges. Such staff privileges have not ever been revoked,
surrendered, suspended or terminated, and to the best of the Member’s Knowledge,
there are no, and have not been any, facts, conditions or incidents that may
result in any such revocation, surrender, suspension or termination.

 

4.36 Intentions. The Member intends to continue practicing medicine on a
full-time basis for the next three (3) years with the Company or the Surviving
Corporation and does not know of any fact or condition that adversely affects,
or in the future may adversely affect, his ability or intention to practice
medicine on a full-time basis for the next three (3) years with the Company or
the Surviving Corporation.

 

4.37 Securities Representation.

 

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

 

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(b) Resale Restrictions. The Member covenants, warrants and represents that none
of the PainCare Shares issued to Member will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the Securities Act and the
rules of regulations of the Commission and applicable state securities laws, and
the applicable provisions of this Agreement. All certificates evidencing the
PainCare Shares shall bear appropriate legends.

 

(c) Ability to Bear Economic Risk. The Member covenants, warrants and represents
that he is able to bear the economic risk of an investment in the PainCare
Shares acquired pursuant to this Agreement and can afford to sustain a total
loss of such investment and has such Knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
proposed investment and therefore has the capacity to protect his own interests
in connection with the acquisition of the PainCare Shares. The Member, and the
Member’s purchaser representative, if any, have received copies of PainCare’s
most recent 10-KSB, 10-QSB AND 8-K filings and have had an adequate opportunity
to ask questions and receive answers from the officers of PainCare concerning
any and all matters relating to the background and experience of the officers
and directors of PainCare, the plans for the operations of the business of
PainCare, and any plans for additional acquisitions and the like. The Member,
and the Member’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 Member 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) Residency. The Member covenants, warrants and represents that he is a
resident of the State of Maine, and received this Agreement and first learned of
the transactions contemplated hereby in the State of Maine. He executed and will
execute all documents contemplated hereby in the State of Maine, and intends
that the laws of the State of Maine govern this transaction.

 

(f) No Registration. The Member understands, agrees and acknowledges that the
PainCare Shares have not been registered under the Maine Securities Act or the
Securities Act in reliance upon exemption provisions contained therein which
PainCare believes are available.

 

(g) Disclosure. The representations and warranties contained in this Section 4
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 4 not misleading.

 

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(h) IT IS ACKNOWLEDGED BY THE MEMBER THAT:

 

THE MEMBER HAS GIVEN AND HIS REPRESENTATIVE(S) HAVE BEEN GIVEN THE OPPORTUNITY
TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, PAINCARE OR PERSON(S) ACTING ON
ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS TRANSACTION, AND TO
OBTAIN ANY ADDITIONAL INFORMATION WHICH PAINCARE POSSESSES OR CAN ACQUIRE
WITHOUT UNREASONABLE EFFORT OR EXPENSE THAT IS NECESSARY FOR THE MEMBER TO MAKE
AN INVESTMENT DECISION WITH RESPECT TO PAINCARE.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE
MERITS OF OR GIVEN ITS APPROVAL TO THIS TRANSACTION OR PAINCARE’S SHARES. THE
PAINCARE SHARES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION.

 

4.38 HIPAA. Schedule 4.38 lists and describes all plans and other efforts of the
Member with respect to the practice locations to comply with the Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”), including the
final regulations promulgated thereunder, whether such plans and efforts have
been put in place or are in process. Schedule 4.38 includes but is not limited
in any manner whatsoever to any privacy compliance plan of the Company in place
or in development, and any plans, analyses or budgets relating to information
systems including but not limited to necessary purchases, upgrades or
modifications to effect HIPAA compliance.

 

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

 

4.40 Accounts Receivable. Schedule 4.40 sets forth a list, accurate, correct and
complete in all respects, of all outstanding accounts and notes receivable of
the Company as of the Closing Date. All outstanding accounts and notes
receivable reflected on Schedule 4.40 are due and valid claims against account
debtors for services rendered in accordance with the usual business practices
and historical collection experience of the Company and are subject to no
counterclaims, and have been outstanding for the periods indicated in the aging
analysis at Schedule 4.40. The Member know of no reason why such accounts
receivable would not be collectible by the Company according to approximately
the same ratios as accounts receivable have been historically collectible by the
Company. All outstanding accounts and notes receivable included on Schedule 4.40
and generated through the Closing arose in the ordinary course of business. The
Company has not incurred any liabilities to customers for discounts, returns,
promotional allowances or otherwise, except as provided in the Financial
Statements.

 

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4.41 Medical Waste. With respect to the generation, transportation, treatment,
storage, and disposal, or other handling of Medical Waste, the Company, with
respect to the business, has complied with all Medical Waste Laws (as
hereinafter defined).

 

“Medical Waste” includes, but is not limited to, (a) pathological waste, (b)
blood, (c) sharps, (d) wastes from surgery or autopsy, (e) dialysis waste,
including contaminated disposable equipment and supplies, (f) cultures and
stocks of infectious agents and associated biological agents, (g) contaminated
animals, (h) isolation wastes, (i) contaminated equipment, (j) laboratory waste,
and (k) various other biological waste and discarded materials contaminated with
or exposed to blood, excretion, or secretions from human beings or animals.
“Medical Waste” also includes any substance, pollutant, material, or contaminant
listed or regulated under the Medical Waste Tracking Act of 1988, 42 U.S.C.
§§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.

 

4.42 No Untrue or Inaccurate Representation or Warranty. No representation or
warranty by Sellers contains or will contain any untrue statement of fact, or
omits or will omit to state a fact necessary to make the statements therein not
misleading.

 

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

 

5.1 Organization of PainCare and Subsidiary. PainCare is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Florida. Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida.

 

5.2 Authorization of Transaction. PainCare and Subsidiary have full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of PainCare, enforceable in
accordance with its terms and conditions.

 

6. CLOSING. The closing of the Transaction (the “Closing”) shall take place at
the offices of PainCare, or via remote location as coordinated by the Parties’
respective counsel on July     , 2004, or such other date as the Parties may
mutually agree (the “Closing Date”).

 

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7. CLOSING DELIVERIES.

 

7.1 Deliveries of the Company and the Member. At or prior to the Closing, the
Company and the Member shall deliver to the Acquiring Companies the following:

 

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

 

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

 

(c) Company Authorization. A resolution of the Member which authorizes the
Transaction in accordance with: (a) applicable law; (b) the Company’s articles
of organization and operating agreement; and (c) all other requirements for
proper corporate authorization;

 

(d) Employment Agreement. A duly executed signature page to the Employment
Agreement, in the form attached hereto as Exhibit 7.1(e), dated as of the
Closing date, by and between the Surviving Corporation and the Member;

 

(e) Payoffs. Payoff letters from those creditors of the Company listed in
Section 7.1(e) of the Disclosure Schedule;

 

(f) Good Standing Certificate. A certificate issued by the appropriate state
governmental authority no more than ten (10) days prior to the Closing Date
evidencing the good standing of the Company;

 

(g) Secretary’s Certificate. A certificate of the Member certifying that the
minute books, articles of organization and operating agreement of the Company,
attached as exhibits to such certificate, are true, correct, and complete; and

 

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

 

7.2 Deliveries of PainCare. At the Closing, PainCare shall deliver to the Member
the following:

 

(a) Transaction Consideration. The Initial Transaction Consideration;

 

(b) Resolutions. A resolution of the board of directors of PainCare, and the
sole shareholder and members of the board of directors of Subsidiary,
authorizing the Transaction;

 

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(c) Pledge Agreement. A duly executed signature page to the Pledge Agreement, in
the form attached hereto as Exhibit 3.4, dated as of the Closing date;

 

(d) Registration Rights Agreement. A duly executed signature page to the
Registration Rights Agreement, in the form attached hereto as Exhibit 2.13,
dated as of the Closing date;

 

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

 

8. CONDITIONS TO THE OBLIGATIONS OF PAINCARE AND SUBSIDIARY. Each and every
obligation of PainCare and Subsidiary under this Agreement shall be subject to
the satisfaction on or before the Closing Date of each of the following
conditions, unless waived in writing by PainCare and Subsidiary:

 

8.1 Representations and Warranties; Covenants and Agreements. The
representations and warranties of the Member 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 Member or the Company shall
be true and correct when made and shall be true and correct in all material
respects on the Closing Date as though then made, except as expressly provided
for herein. Both the Member and the Company shall have performed and complied
with all agreements, covenants and conditions and shall have made all deliveries
required by this Agreement to be performed, delivered and complied with by them
prior to the Closing Date; and

 

8.2 Due Diligence. The Acquiring Companies shall be satisfied, in their sole
discretion, with the results of their due diligence examination of the Company
and, if the Acquiring Companies so choose, the completion of a satisfactory
audit of the Company by the Acquiring Companies’ certified public accountants
and the rendering by such accountants of an unqualified opinion letter.

 

9. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Effective Date:

 

9.1 General. In the event that at any time after the Closing any further action
is necessary to carry out the purposes of this Agreement, each of the Parties
will take such further action (including the execution and delivery of such
further instruments and documents) as any other Party may reasonably request,
all at the sole cost and expense of the requesting Party; provided, however,
that the costs and expenses associated with the taking of any action necessary
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 Member shall be borne by the Member.

 

9.2 Tax Returns. The Member shall be responsible for preparing and filing all
income or franchise Tax Returns of the Company relating to periods of time prior
to the Closing Date. The Subsidiary will be responsible for preparing and filing
all income and franchise Tax Returns of the Company relating to periods after
the Closing. The Member will provide the Subsidiary with an opportunity to
review and comment on such Tax Returns (including any

 

29

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amended returns). The Member will take no positions on the Tax Returns of the
Company that relate to the tax period prior to the Closing Date that could
adversely affect the Company after the Closing. The income of the Company will
be apportioned to the period up to the Closing Date and the period from and
after the Closing Date in accordance with the provisions of Code Section
1362(e)(6)(D) by closing the books of the Company as of the close of business on
the last calendar day immediately preceding the Closing Date.

 

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

 

9.4 Litigation Support. In the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with: (a) any
transaction contemplated under this Agreement; or (b) any fact, situation,
circumstances, status, condition, activity, practice, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the Parties will cooperate with the contesting or
defending Party and its or his counsel in the contest or defense, at the sole
cost and expense of the contesting or defending Party except to the extent that
the contesting or defending party is entitled to indemnification therefore under
this Agreement.

 

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

 

9.6 Operational Covenants. Without the prior written consent of the Member,
which shall not be unreasonably withheld, PainCare shall not, prior to the
conclusion of the third Formula Period:

 

(a) reorganize the Surviving Corporation, whether by integrating or
consolidating the business of the Surviving Corporation with other operating
units of PainCare or its subsidiaries or affiliates, except in the case that at
the time of such integration or consolidation such transaction could not
reasonably be expected to have a Material Adverse Effect on the Formula
Revenues;

 

(b) effect any reassignment, reprioritization, reallocation, restructuring, or
reduction of the Surviving Corporation’s human or other resources, their
research and development initiatives, or their marketing programs, except in a
manner that at the time of such

 

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event could not reasonably be expected to have a Material Adverse Effect on the
Formula Revenues or that are reasonably necessary in light of the Surviving
Corporation’s results of operation;

 

(c) amend the articles of incorporation or bylaws of the Surviving Corporation
in any manner that at the time of such amendment could reasonably be expected to
have a Material Adverse Effect on the Formula Revenues;

 

(d) cause the Surviving Corporation to become a party to or terminate any
agreement which at the time such agreement is entered into or terminated could
reasonably be expected to have a Material Adverse Effect on the Formula Revenues
or that is reasonably necessary in light of the Surviving Corporation’s results
of operation;

 

(e) cause the Surviving Corporation to undertake actions outside the ordinary
course of its business which at the time of such undertaking could reasonably be
expected to have a Material Adverse Effect on the Formula Revenues;

 

(f) sell a material portion of the Surviving Corporation or its assets, merge
the Surviving Corporation with any other entity, sell a controlling interest in
the Surviving Corporation, or make any fundamental change in the business of the
Surviving Corporation unless such action(s) at the time of such undertaking
could not reasonably be expected to have a Material Adverse Effect on the
Formula Revenues or that is reasonably necessary in light of the Surviving
Corporation’s results of operation;

 

The parties hereby acknowledge and agree that the foregoing conditions shall
become null and void and of no further force or effect if the Formula Profits of
the Surviving Corporation in each of any two (2) consecutive calendar quarters
are less than $250,000, or if the Formula Profits of the Surviving Corporation
in one (1) calendar quarter is less than $100,000.

 

In the event that PainCare defaults in its performance of any of its obligations
under this Section and fails to cure such default within thirty (30) days (or
such other reasonable period if 30 days is not a sufficient amount of time to
cure such default, provided that PainCare shall have commenced in good faith and
is diligently pursuing its efforts to cure such default during such 30-day
period) of receiving a written notice of default from the Member, PainCare shall
be deemed to be in breach of this Agreement.

 

10. SURVIVAL AND INDEMNIFICATION.

 

10.1 Survival of Representations and Warranties. All of the representations,
warranties, covenants, and agreements including but not limited to the
restrictive covenants and the indemnification provisions contained in this
Agreement are material and have been relied upon by the Parties hereto and shall
survive the Closing for their applicable statute of limitations saving the
covenants set forth in Section 9.6 which shall expire and terminate as of the
end of the last Formula Period, or as otherwise provided in Section 9.6. The
representations and warranties contained herein shall not be affected by any
investigation, verification or examination by any Party or by anyone on behalf
of such Party.

 

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10.2 Indemnification Provisions for the Benefit of PainCare and Subsidiary. In
the event of: (a) a misrepresentation (or in the event any third party alleges
facts that, if true, would mean a misrepresentation) of any of the Member’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 Member’ covenants contained in this Agreement or any other
agreement executed in connection herewith; or (c) any Liability of the Company
of any nature whatsoever accrued or existing as of the Closing Date or related
to actions of the Company which occurred prior to the Closing Date, which is not
reflected on the Financial Statements or the Closing Date Balance Sheet and
which the Surviving Corporation expressly agrees to assume, then the Member
agrees to indemnify PainCare and Subsidiary from and against any Adverse
Consequences PainCare and Subsidiary may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating to, in
the nature of, or caused by the misrepresentation or breach (or alleged breach)
or non-disclosed Liability. No provision of this Agreement, including but not in
any way limited to, any “Knowledge” qualifiers or materiality standards in the
representations and warranties of the Member, shall have any effect on the
Members’ indemnity for any Liability arising prior to the Closing Date.

 

10.3 Indemnification Provisions for the Benefit of the Member. 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 Member from and
against any Adverse Consequences the Member may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).

 

10.4 Matters Involving Third Parties.

 

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

 

(b) Defense by Indemnifying Party. The Indemnifying Party shall have the right
to defend the Indemnified Party against the Third Party Claim with counsel of
its choice satisfactory to the Indemnified Party so long as: (i) the
Indemnifying Party notifies the Indemnified Party in writing within ten (10)
business days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party from and
against any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim; (ii) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill the Indemnifying Party’s indemnification obligations

 

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hereunder; (iii) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief; (iv) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential custom or
practice adverse to the continuing business interests of the Indemnified Party;
and (e) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.

 

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

 

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

 

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

 

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

 

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(g) Limitation. The indemnification provisions set forth in this Section 10
shall be limited to all claims in excess of Twenty Five Thousand and 00/100
Dollars ($25,000) (the “Threshold”). Once a claim exceeds the Threshold, if a
Party is entitled to indemnification under this Section 10, such party shall
recover all appropriate funds from the first dollar of damages. Further, the
indemnitors shall not be liable for any liabilities resulting from claims that
are covered by any insurance policy or other indemnity or contribution agreement
unless, and only to the extent that, the full limit of such insurance policy,
indemnity or contribution agreement has been exceeded. The Party entitled to
indemnification shall have a duty to mitigate its damages.

 

11. RESTRICTIVE COVENANTS; CONFIDENTIALITY.

 

11.1 Member Restrictive Covenants. As an inducement to the Company to execute
this Agreement and in order to preserve the goodwill associated with the
business of the Surviving Company and in addition to and not in limitation of
any covenants contained in any agreement executed and delivered herewith, Member
hereby covenants and agrees as follows:

 

(a) Covenant Not to Compete. During the Term of the Employment Agreement entered
into with the Member as of the Closing date and for a period of two (2) years
after its termination “For Cause”, Member will not directly or indirectly,
within the Territory (as hereinafter defined):

 

(i) be employed by, act as an agent, consultant or contractor of, engage in,
continue in or carry on any business which provides pain care medicine, pain
management and/or musculoskeletal rehabilitative (but not including any
anesthesiology) services in competition with the business of the Surviving
Company or any business of PainCare or any of its subsidiaries that is
substantially similar to such business, including owning or controlling any
financial interest in any corporation, partnership, firm or other form of
business organization which is so engaged;

 

(ii) be employed by, consult with, advise or assist in any way, whether or not
for consideration, any corporation, partnership, firm or other business
organization which is now or becomes a competitor of the Surviving Company or
PainCare and its subsidiaries in any aspect with respect to the Business of the
Surviving Company, including, but not limited to, advertising or otherwise
endorsing the products of any such competitor; soliciting patients and customers
or otherwise serving as an intermediary for any such competitor; loaning money
or rendering any other form of financial assistance to or engaging in any form
of business transaction on other than on an arm’s length basis with any such
competitor;

 

(iii) offer employment to an employee of the Surviving Company, PainCare or any
of its subsidiaries, without the prior written consent of the Surviving Company;
or

 

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(iv) engage in any practice the purpose of which is to evade the provisions of
this covenant not to compete or to commit any act which adversely affects the
Surviving Company, the PainCare or its subsidiaries or their businesses;

 

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

 

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

 

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

 

11.2 Defenses. The existence of any claim or cause of action by the Member
against PainCare or Subsidiary, whether predicated upon this Agreement or
otherwise, shall not

 

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constitute a defense to the enforcement by PainCare, Subsidiary, or any of
PainCare’s or Subsidiary’s successors and assigns or Affiliates and such
Affiliates’ successors and assigns, but shall be litigated separately. The
provisions of this Section 11 shall survive the termination of this Agreement.

 

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

 

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

 

11.5 Confidentiality, Press Releases, and Public Announcements.

 

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

 

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

 

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protocols, policies, manuals, databases, processes, procedures, computer
systems, materials and other documents pertaining to the operations of a Party
and the term “Trade Secrets” shall mean information, including a formula,
pattern, compilation, program, device, method, technique, or process that: (i)
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and (ii)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.

 

11.6 Conduct of Business. From the date hereof through the Closing, the Member
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 Member shall not, except as specifically contemplated by this
Agreement, as set forth in Section 11.6 of the Disclosure Schedule, or as
consented to by PainCare in writing:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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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 Member may be suspended, impaired or canceled;

 

(k) enter into, renew, modify or revise any agreement or transaction relating to
the Company with any of its or their Affiliates;

 

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

 

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

 

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

 

(o) change any of the accounting methods or practices of the Company as
historically applied or make any new elections or change any existing elections
with respect to Taxes;

 

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

 

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

 

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

 

(s) declare, set aside for payment, or pay any dividend or distribution in
respect of any membership interest in 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 Member of the Company or any
Affiliate of the Company, including, without

 

38

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limitation, any payment of principal of or interest on any debt owed to any of
the foregoing or any payment of a bonus, fee or other payment to any of the
foregoing as an employee of the Company; or

 

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

 

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

 

12. MISCELLANEOUS.

 

12.1 Entire Agreement This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.

 

12.2 Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors,
assigns, distributees, heirs, and grantors of any revocable trusts of a Party
hereto. No Party may assign either this Agreement or any of its or his rights,
interests, or obligations hereunder without the prior written approval of the
other Parties; provided, however, PainCare and Subsidiary, may, without the
prior consent of the other Party, assign this Agreement to their Affiliates.

 

12.3 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.

 

12.4 Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.

 

12.5 Notices All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given: (a) upon receipt if it is
sent by facsimile, (b) the next business day if sent by reputable overnight
courier, or (c) five (5) days after mailing if by certified mail return receipt
requested, postage prepaid, and addressed or otherwise sent to the intended
recipient as set forth below:

 

If to PainCare

or Subsidiary:

 

PainCare Holdings, Inc.

   

37 North Orange Avenue

   

Suite 500

   

Orlando, Florida 32801

   

Attention: CEO

 

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If to the Member:

  

Ben Zolper, M.D.

    

63 Woodland Drive

    

Bangor, ME 04401

 

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

 

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

 

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

 

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

 

12.9 Expenses. Except as set forth herein, each of the Parties will bear its or
his own costs and expenses (including, but not limited to, legal and accounting
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.

 

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12.10 Further Assurances. Each Party shall, at the reasonable request of any
other Party hereto, execute and deliver to such other Party all such further
instruments, assignments, assurances and other documents, and take such actions
as such other Party may reasonably request in connection with the carrying out
the terms and provisions of this Agreement.

 

12.11 Construction. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
“including” shall mean including without limitation. Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, unless the Disclosure Schedule identifies the exception
with reasonable particularity. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from nor mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.

 

12.12 Survival. All of the representations, warranties, covenants and agreements
including but not limited to Articles VI and VII made by the Parties in this
Agreement or pursuant hereto in any certificate, instrument or document shall
survive the consummation of the transactions described herein shall survive for
all applicable statute of limitations, and may be fully and completely relied
upon by Sellers and Purchasers, as the case may be, notwithstanding any
investigation heretofore or hereafter made by any of them or on behalf of any of
them, and shall not be deemed merged into any instruments or agreements
delivered at Closing or thereafter.

 

12.13 Incorporation of Exhibits and Schedules. The exhibits and schedules
(including the Disclosure Schedule) identified in this Agreement and the
recitals first set forth above are incorporated herein by reference and made a
part hereof.

 

12.14 Submission to Jurisdiction. Each party to this Agreement hereby submits to
exclusive jurisdiction of any state or federal court within Orange County,
Florida for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each party to this Agreement
hereby irrevocably waives, to the fullest extent permitted by law, any
objections which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.

 

12.15 Notification of Certain Matters. Between the date of this Agreement and
the Closing, the Company and/or the Member, as applicable, shall give prompt
notice to PainCare of (i) the occurrence, or failure to occur, of any event
which occurrence or failure would cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect any time
from the date hereof to the Closing Date and (ii) any material failure of the
Company or any Affiliate, manager, officer, employee, agent or Member of the
Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. During the same period, the Member
and/or the Company shall promptly notify

 

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PainCare of the occurrence of any breach by the Member or the Company of any
covenant in this or of the occurrence of any event that may make the
satisfaction of the conditions to Closing impossible or unlikely, and PainCare
shall promptly notify the Member or the Company of the occurrence of any such
breach or event that comes to its attention. Should any such fact or condition
require any change in any Disclosure Schedule if the Disclosure Schedule were
dated the date of the occurrence or discovery of any such fact or condition, the
Member will promptly deliver to PainCare a supplement to the Disclosure Schedule
specifying such change. PainCare shall not be required to Close if any such
supplement to the Disclosure Schedules or failure to satisfy a covenant,
condition or agreement constitutes a material adverse effect.

 

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

 

PAINCARE:

PAINCARE HOLDINGS, INC., a Florida

corporation

By:  

/S/  RANDY LUBINSKY

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

Print:  

Randy Lubinsky

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

Its:  

CEO

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

SUBSIDIARY:

PAINCARE ACQUISITION COMPANY XIV,

INC., a Florida corporation

By:  

/S/  RANDY LUBINSKY

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

Print:  

Randy Lubinsky

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

Its:  

CEO

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

COMPANY:

BEN ZOLPER, M.D., L.L.C. a Maine limited

liability company

By:  

/S/  BEN ZOLPER

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

Print:  

Ben Zolper

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

Its:  

Managing Director

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

MEMBER:

/S/  BEN ZOLPER

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

Ben Zolper, M.D.

 

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EXHIBITS

 

Exhibit 1

  Definitions

Exhibit 2.3

  Articles of Merger

Exhibit 2.13

  Registration Rights Agreement

Exhibit 3.4

  Pledge Agreement

Exhibit 7.1(e)

  Employment Agreement

 

DISCLOSURE SCHEDULES

 

4.1

   Managers

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

4.11

   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 Relations

4.24

   Employee Relations

4.25

   Employment Benefits

4.26(c)

   Physician Matters

4.28(b)

   Permits, Licenses and Authorizations

4.30

   Third Party Payors

4.31

   Bank Accounts

4.35

   Staff Privileges

4.38

   HIPPA

4.40

   Accounts Receivable

7.1(g)

   Payoffs

11.6

   Conduct of Business

 

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EXHIBIT 1

 

DEFINITIONS

 

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

 

1.1 “Accounts Receivable” means the accounts receivable of the Company and the
Surviving Corporation 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.

 

1.2 “Adjustment Payment Date” has the meaning set forth in Section 3.4(c).

 

1.3 “A/R Adjustment” has the meaning set forth in Section 3.3(a).

 

1.4 “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.

 

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

 

1.6 “Agreed Other Net Equity” has the meaning set forth in Section 3.3(b).

 

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

 

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

 

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

 

1.10 “Closing” has the meaning set forth in Section 3.3.

 

1.11 “Closing Date” has the meaning set forth in Section 3.3.

 

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1.12 “Closing Date Accounts Receivable” shall mean the accounts receivable of
the Company as set forth on the Closing Date Balance Sheet.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.19 “Effective Time” has the meaning set forth in Section 2.3.

 

1.20 “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.

 

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

 

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

 

1.23 “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,

 

46

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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.

 

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

 

1.25 “Fair Market Value” has the meaning set forth in Section 3.3(f).

 

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

 

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

 

1.28 “Florida Act” has the meanings set forth in Section 2.1.

 

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

 

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

 

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

 

1.32 “HIPAA” has the meaning set forth in Section 4.38.

 

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

 

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

 

1.35 “Intended Installment Payment” has the meaning set forth in Section 3.3.

 

1.36 “Installment Payment” has the meaning set forth in Section 3.3.

 

1.37 “Installment Payment Discount” has the meaning set forth in Section 3.3.

 

1.38 “Installment Payment Premium” has the meaning set forth in Section 3.3.

 

1.39 “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

 

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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).

 

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

 

1.41 “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 any individual who is a serving, or who has
at any time served, as a manager, 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.

 

1.42 “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.

 

1.43 “Medical Waste” has the meaning set forth in Section 4.41

 

1.44 “Membership Interest” means any ownership interest in the Company.

 

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

 

1.46 “Most Recent Financial Statements” has the meaning set forth in Section
4.8.

 

1.47 “Most Recent Month End” has the meaning set forth in Section 4.8.

 

1.48 “Most Recent Year End” has the meaning set forth in Section 4.8.

 

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

 

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

 

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1.51 “Surviving Corporation” has the meaning set forth in Section 2.11.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.63 “Member” has the meaning set forth in the Preamble.

 

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

 

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

 

1.66 “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.

 

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1.67 “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.

 

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

 

1.69 “Trade Secrets” has the meaning set forth in Section 11.6.

 

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

 

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

 

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