Exhibit 10.1

REORGANIZATION AND PURCHASE AGREEMENT

By and Among

ARC REHABILITATION SERVICES, LLC,

ATHLETIC & REHABILITATION CENTER, LLC,

MATTHEW J. CONDON,

KEVIN O’ROURKE

AND

U.S. PHYSICAL THERAPY, LTD.

(THE PURCHASER)

Dated as of December 13, 2013

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Table of Contents

 

          Page  

ARTICLE I DEFINITIONS

     2   

Section 1.1

  

Definitions

     2   

Section 1.2

  

Certain Interpretive Matters

     9   

ARTICLE II PRE-CLOSING REORGANIZATION, SALE AND PURCHASE

     10   

Section 2.1

  

Pre-Closing Reorganization

     10   

Section 2.2

  

Purchase and Sale of Purchased Interests

     11   

ARTICLE III PURCHASE PRICE AND CLOSING PAYMENTS

     11   

Section 3.1

  

Closing Purchase Price

     11   

ARTICLE IV CLOSING AND CLOSING DELIVERIES

     12   

Section 4.1

  

The Closing

     12   

Section 4.2

  

Deliveries of Seller and the Shareholders

     12   

Section 4.3

  

Deliveries by Purchaser

     13   

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE OWNERS

     14   

Section 5.1

  

Corporate Existence and Power

     14   

Section 5.2

  

Authorization; Enforceability

     14   

Section 5.3

  

Governmental Authorization

     14   

Section 5.4

  

Non-Contravention; Consents

     14   

Section 5.5

  

Capitalization

     15   

Section 5.6

  

Subsidiaries

     16   

Section 5.7

  

Financial Statements

     16   

Section 5.8

  

No Undisclosed Liabilities

     16   

Section 5.9

  

Tax Matters

     16   

Section 5.10

  

Absence of Certain Changes

     17   

Section 5.11

  

Contracts

     17   

Section 5.12

  

Insurance Coverage

     17   

Section 5.13

  

Litigation

     18   

Section 5.14

  

Compliance with Laws; Permits

     18   

Section 5.15

  

Assets; Properties; Sufficiency of Assets

     19   

Section 5.16

  

Intellectual Property

     19   

Section 5.17

  

Environmental Matters

     20   

Section 5.18

  

Benefit Plans and Material Documents

     20   

Section 5.19

  

Affiliate Transactions

     21   

Section 5.20

  

Referral Relationships

     21   

Section 5.21

  

Other Employment Matters

     22   

Section 5.22

  

Credentialing

     22   

Section 5.23

  

Exclusion

     23   

Section 5.24

  

Federal Health Care Programs

     23   

Section 5.25

  

Billing; Gratuitous Payments

     23   

Section 5.26

  

Reimbursement Matters

     24   

Section 5.27

  

Finders’ Fees

     24   

Section 5.28

  

Accounts Receivable

     24   

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER

     24   

 

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Section 6.1

  

Existence and Power

     24   

Section 6.2

  

Authorization; Enforceability

     24   

Section 6.3

  

Governmental Authorization

     25   

Section 6.4

  

Non-Contravention

     25   

Section 6.5

  

Pending Claims, Litigation, or Bankruptcy

     25   

ARTICLE VII ADDITIONAL AGREEMENTS

     26   

Section 7.1

  

Employees and Benefits

     26   

Section 7.2

  

Seller Retained Assets; Partnership Assumed Liabilities

     26   

Section 7.3

  

Misdirected Payments

     27   

Section 7.4

  

Nonassignable Contracts, Leases and Permits.

     27   

Section 7.5

  

Further Assurances

     28   

Section 7.6

  

Immigration

     28   

Section 7.7

  

Real Property Leases

     28   

Section 7.8

  

Insurance

     28   

Section 7.9

  

Minimum Cash Balance

     28   

Section 7.10

  

Bardavon

     28   

Section 7.11

  

General

     29   

ARTICLE VIII CERTAIN TAX MATTERS

     29   

Section 8.1

  

Transfer Taxes

     29   

Section 8.2

  

Partnership Status

     29   

Section 8.3

  

Section 754 Election

     29   

Section 8.4

  

Pre-Closing Tax Periods

     29   

Section 8.5

  

Tax Cooperation

     29   

ARTICLE IX SURVIVAL; INDEMNIFICATION

     29   

Section 9.1

  

Survival

     29   

Section 9.2

  

Indemnification

     30   

Section 9.3

  

Procedures

     31   

Section 9.4

  

Offset

     32   

Section 9.5

  

Payment of Indemnification Payments

     33   

ARTICLE X MISCELLANEOUS

     33   

Section 10.1

  

Notices

     33   

Section 10.2

  

Amendments and Waivers

     34   

Section 10.3

  

Expenses

     34   

Section 10.4

  

Successors and Assigns

     34   

Section 10.5

  

No Third-Party Beneficiaries

     34   

Section 10.6

  

Governing Law

     34   

Section 10.7

  

Jurisdiction

     34   

Section 10.8

  

Counterparts

     35   

Section 10.9

  

Table of Contents; Headings

     35   

Section 10.10

  

Entire Agreement

     35   

Section 10.11

  

Severability; Injunctive Relief

     35   

Section 10.12

  

Arbitration

     36   

 

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EXHIBITS

Re-number Exhibits

 

Exhibit A    Certificate of Formation of the General Partner Exhibit B   
Limited Liability Company Agreement of the General Partner Exhibit C    Seller
Contribution Agreement Exhibit D    Certificate of Formation of Limited
Partnership Exhibit E    Assignment of Purchased Interests Exhibit F    Amended
and Restated Agreement of Limited Partnership Exhibit G    Note Exhibit H   
Guaranty Exhibit I    Locations Exhibit J    Employment Agreements Exhibit K   
Management Agreement Exhibit L    Non-Competition Agreements Exhibit M   
Director Employment Agreement Form Exhibit N    Leases Exhibit O    Seller
Counsel Legal Opinion

 

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REORGANIZATION AND PURCHASE AGREEMENT

This REORGANIZATION AND PURCHASE AGREEMENT is dated as of December 13, 2013, by
and among ARC Rehabilitation Services, LLC, a Missouri limited liability company
(“ARC Services”), Athletic & Rehabilitation Center, LLC, a Missouri limited
liability company (“ARC Center”), Matthew J. Condon (“Condon”), Kevin O’Rourke
(“O’Rourke”) and U.S. Physical Therapy, Ltd., a Texas limited partnership (the
“Purchaser”). (ARC Services and ARC Center are sometimes collectively referred
to as the “Sellers” or individually as a “Seller”); Condon and O’Rourke are
sometimes collectively referred to as the “Owners” or individually as an
“Owner”)

RECITALS

A. Condon and his spouse own all of the issued and outstanding stock of Condon
Management Services, Inc. (“Condon Management”) and O’Rourke and his spouse own
all of the issued and outstanding stock of O’Rourke Management Services, Inc.
(“O’Rourke Management”); Condon Management and O’Rourke Management own, in equal
shares, all of the issued and outstanding Capital Stock of ARC Investment
Services, LLC, which in turn owns all of the issued and outstanding Capital
Stock of the Sellers, each of which has been, and will continue to be until
immediately prior to the Pre-Closing Reorganization, engaged in the Business.

B. The Sellers and Purchaser, formed or caused to be formed ARC Physical Therapy
Plus, Limited Partnership, a Texas limited partnership (“Partnership”), and ARC
PT Management GP, LLC, a Texas limited liability company and sole general
partner of Partnership (the “General Partner”), to succeed to the Business of
the Sellers and caused Partnership to be qualified to do business in Kansas and
Missouri in accordance with applicable law (collectively the “Pre-Closing
Reorganization”), all as provided in this Agreement;

C. Immediately subsequent to the Pre-Closing Reorganization, and on the terms
and subject to the conditions of this Agreement, at the Closing, the Purchaser
shall, in consideration of the Closing Purchase Price, purchase (or cause one or
more of its Affiliates to purchase) from the Sellers (A) one hundred percent
(100%) of the membership interests in the General Partner (the General Partner
holds a 1% interest in the Partnership) and (B) 89% of the LP Interests. In
connection with these transactions, the Sellers shall assign their remaining LP
Interests to certain individuals who shall in turn contribute those LP Interests
to ARC Equity Partners.

D. As a result of the consummation of the Pre-Closing Reorganization and the
Closing, all on and subject to the terms and conditions herein set forth, at the
Effective Time: (i) ARC Equity Partners shall own 10% of the Partnership
Interests, all of which shall be LP Interests; (ii) the Purchaser shall own or,
as the sole owner of the General Partner, control, ninety percent (90%) of the
Partnership Interests, including (A) all of the GP Interests and (B) eighty-nine
percent (89%) of the LP Interests; and (iii) Partnership shall engage in the
Business.

 

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NOW, THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth, the Purchaser, the Owners and the Sellers
hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. In addition to the terms defined elsewhere herein, the
terms below are defined as follows:

“Accounts Receivable” means all accounts and notes receivable relating to the
Business.

“Affected Employees” has the meaning set forth in Section 7.1(a).

“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with the first
Person and, if such first Person is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and any trust
whose principal beneficiary is such individual or one or more members of such
individual’s immediate family, and any Person who is controlled by any such
member or trust. For the purposes of this Agreement, “control,” when used with
respect to any Person, means the possession, directly or indirectly, of the
power to (a) vote 10% or more of the securities having ordinary voting power for
the election of directors (or comparable positions) of such Person or (b) direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement” means this Reorganization and Purchase Agreement, as the same may be
amended from time to time in accordance with the terms hereof.

“Agreement of Limited Partnership” means the agreement of limited partnership of
Partnership in the form of Exhibit F, to be executed and delivered by ARC Equity
Partners and the Purchaser at Closing.

“Ancillary Agreements” means the Assignment, the Agreement of Limited
Partnership, the Employment Agreements, the Management Agreement, the
Non-Competition Agreement, the Pre-Closing Reorganization Documents, Management
Services Agreement, Employment Agreement, Director Employment Agreements and all
other instruments, certificates and other agreements entered into by the Sellers
and/or Owners in connection with the consummation of the transactions
contemplated by this Agreement.

“ARC Equity Partners” means ARC Equity Partners, LLC, a Missouri limited
liability company owned by Condon, Weeks and Stewart.

“Assignment” means the assignment of purchased interests in the form of Exhibit
E to be executed and delivered by the Seller at Closing.

“Balance Sheet Date” means October 31, 2013.

“Benefit Plan” means any employee benefit plan within the meaning of
Section 3(3) of ERISA, and any other plan, program, agreement, arrangement,
policy, contract, commitment or scheme, written or oral, statutory or
contractual, that provides for compensation or benefits, including any deferred
compensation, executive compensation, bonus or incentive plan, any cafeteria
plan or any holiday or vacation plan or practice.

 

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“Business” means the business of Partnership as now conducted (and the business
of the Sellers as conducted prior to the consummation of the Pre-Closing
Reorganization), including the business of providing outpatient physical and
occupational therapy services, including pre- and post-operative care and
treatment for orthopedic-related disorders, sport related injuries, preventative
care, rehabilitation of injured workers and neurological-related injuries from
the locations and in the areas identified on the attached Exhibit I.

“Business Day” means a day that is not a Saturday, Sunday or a day on which
commercial banking institutions located in Houston, Texas are authorized or
required to close.

“Capitalized Lease Obligations” means the obligations of a Person that are
required to be classified and accounted for as capital lease obligations under
GAAP, together with all obligations to make termination payments under such
capitalized lease obligations.

“Capital Stock” means (a) with respect to any Person that is a corporation, any
and all shares, interests, participation or other equivalents (however
designated and whether or not voting) of corporate stock, including the common
stock of such Person, and (b) with respect to any Person that is not a
corporation, any and all partnership, limited liability or membership interests
or other equity interests of such Person.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, 42 U.S.C. §§ 9601, et seq., as amended.

“Closing” has the meaning set forth in Section 4.1.

“Closing Date Indebtedness” means the Indebtedness of the Sellers as of the
Closing Date.

“Closing Cash Consideration” has the meaning set forth in Section 3.1(c).

“Closing Date” has the meaning set forth in Section 4.1.

“Closing Date Transaction Expenses” has the meaning set forth in Section 3.1(b).

“Closing Purchase Price” has the meaning set forth in Section 3.1.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.

“Condon” has the meaning set forth in the introductory paragraph of this
Agreement.

“Constituent of Concern” means any substance defined as a hazardous substance,
hazardous waste, hazardous material, pollutant or contaminant by any
Environmental Law, any petroleum hydrocarbon and any degradation product of a
petroleum hydrocarbon, asbestos, PCB or similar substance, the generation,
recycling, use, treatment, storage, transportation, Release, disposal or
exposure of or to which is subject to regulation under any Environmental Law.

 

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“Contracts” has the meaning set forth in Section 5.11.

“Damages” has the meaning set forth in Section 9.2(a).

“Direct Claim” has the meaning set forth in Section 9.3(c).

“Effective Time” has the meaning set forth in Section 4.1.

“Employment Agreements” means the employment agreements with Condon, Brian
Stewart and Jeff Weeks, in the form of Exhibit J hereto.

“Environmental Claims” means administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, citations, summonses, notices of
non-compliance or violation, requests for information, investigations or
proceedings relating in any way to the Release of Constituents of Concern or any
Environmental Law, including (a) Environmental Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and
(b) Environmental Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Constituents of Concern or arising from an alleged injury or threat of injury to
human health and safety or the environment.

“Environmental Condition” means a condition with respect to the environment,
which has resulted or could reasonably be expected to result in a material loss,
liability, cost or expense to the Business or the Sellers.

“Environmental Law” means any Law, administrative interpretation, administrative
order, consent decree or judgment, or common law relating to the environment,
human health and safety, including CERCLA, and any state and local counterparts
or equivalents.

“Environmental Permits” mean all Permits, licenses, authorizations, certificates
and approvals of Governmental Authorities relating to or required by
Environmental Laws.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor thereto.

“ERISA Affiliate” means any Person that, together with the Seller, would be
considered a single employer within the meaning of Section 4001 of ERISA or
Section 414 of the Code.

“Estimated Dispute Amount” has the meaning set forth in Section 9.4.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“General Partner” has the meaning set forth in Recital B to this Agreement.

 

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“General Partner Formation” has the meaning set forth in Section 2.1(i).

“Governmental Authority” means any domestic or foreign governmental or
regulatory agency, authority, bureau, commission, department, official or
similar body or instrumentality thereof, or any governmental court, arbitral
tribunal or other body administering alternative dispute resolution.

“GP Formation Documents” has the meaning set forth in Section 4.2(i).

“GP Interests” has the meaning set forth in Section 2.1(ii).

“Guaranty” has the meaning set forth in Section 3.1.

“Immediate Family Relationship” means husband or wife; birth or adoptive parent,
child or sibling; stepparent; stepchild; stepbrother or stepsister;
father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law; grandparent or grandchild; and spouse of a grandparent or
grandchild.

“Indebtedness” means with respect to any Seller, at any date, without
duplication, (a) all obligations of such Seller for borrowed money, including
all principal, interest, premiums, fees, expenses, overdrafts and penalties with
respect thereto, (b) all obligations of such Seller evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Seller to pay the deferred purchase price of the property or services, except
trade payables incurred in the Ordinary Course of Business, (d) all obligations
of such Seller to reimburse any bank or other Seller in respect of amounts paid
under a letter of credit or similar instrument, and (e) all indebtedness of any
other Person of the type referred to in clauses (a) to (d) above directly or
indirectly guaranteed by such Seller or secured by any assets of such Seller,
whether or not such Indebtedness has been assumed by such Seller.

“Indemnified Party” has the meaning set forth in Section 9.3(a).

“Indemnifying Party” has the meaning set forth in Section 9.3(a).

“Intellectual Property Right” means any trademark, service mark, trade name,
product designation, logo, slogan, invention, patent, trade secret, copyright,
know-how, proprietary design or process, computer software and database,
Internet address or domain name (including any registrations or applications for
registration or renewal of any of the foregoing), research in progress, or any
other similar type of proprietary intellectual property right, in each case
which is used or held for use or otherwise necessary in connection with the
conduct of the Business.

“IRS” means the Internal Revenue Service.

“Law” means any federal, foreign, state or local statute, law, including common
law, rule, regulation, ordinance, code, permit or license.

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest, encumbrance or other adverse claim of any kind in
respect of such property or asset. For the purposes of this Agreement, a Seller
will be deemed to own, subject to a Lien, any

 

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property or asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such property or asset.

“LP Interests” has the meaning set forth in Section 2.1(ii).

“Management Agreement” means that certain Management Agreement dated the date
hereof between U.S. PT Management, Ltd., an Affiliate of the General Partner,
and Partnership, in the form of Exhibit K hereto.

“Material Adverse Effect” means (i) with respect to the Sellers, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), or results of operations of the Sellers and Partnership taken as a
whole and (ii) with respect to the Purchaser, a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise) or results of
operations of the Purchaser and its Subsidiaries, taken as a whole; provided,
however, that none of the following shall be deemed to constitute, and none of
the following shall be taken into account in determining whether there has been
a Material Adverse Effect: any adverse change, event, development, or effect
arising from or relating to (a) general business or economic conditions,
(b) national or international political or social conditions, including the
engagement by the United States in hostilities, whether or not pursuant to the
declaration of a national emergency or war, or the occurrence of any military or
terrorist attack upon the United States, or any of its territories, possessions,
or diplomatic or consular offices or upon any military installation, equipment
or personnel of the United States, (c) financial, banking, or securities markets
(including any disruption thereof and any decline in the price of any security
or any market index), (d) changes in United States generally accepted accounting
principles, (e) changes in law, rules, regulations, orders, or other binding
directives issued by any governmental entity or any interpretation thereof if
promulgated by a governmental agency or court of competent jurisdiction, or
(f) the taking of any action contemplated by this Agreement and the other
agreements contemplated hereby, except, in the case of clauses (a), (b), (c) and
(e), to the extent the effect on the Sellers and Partnership taken as a whole,
is disproportionate to the effect on other participants engaged in a business
that (i) is substantially similar to the Business operated by the Sellers
immediately prior to the Pre-Closing Reorganization or (ii) otherwise involves
the physician or other healthcare provider market for whose benefit the Business
relates.

“Minimum Cash Balance” has the meaning set forth in Section 7.9.

“Non-Competition Agreements” means the non-competition agreements among the
Owners, the Sellers and the Purchaser in substantially the form of Exhibit L
hereto.

“Note” has the meaning set forth in Section 3.1(d).

“Order” means any judgment, injunction, judicial or administrative order or
decree.

“Ordinary Course of Business” means, with respect to either Seller, the ordinary
course of business of such Seller, consistent with such Seller’s past practice
and custom, including, with respect to any category, quantity or dollar amount,
term and frequency of payment, delivery, accrual, expense or any other
accounting entry, and in the case of accounts payable and accounts receivables,
with respect to the timing, posting, payment and collection thereof.

 

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“Owners” has the meaning set forth in the introductory paragraph of this
Agreement.

“Parent” means U.S. Physical Therapy, Inc., a Nevada corporation and ultimate
parent corporation of Purchaser.

“Partnership” has the meaning set forth in Recital B to this Agreement.

“Partnership Assumed Liabilities” has the meaning set forth in Section 7.2(b).

“Partnership Formation” has the meaning set forth in Section 2.1(ii).

“Partnership Formation Documents” has the meaning set forth in Section 4.2(i).

“Partnership Interests” has the meaning set forth in Section 2.1(ii).

“Permit” has the meaning set forth in Section 5.14(b).

“Permitted Lien” means (a) mechanics’ Liens, workmen’s Liens, carriers’ Liens,
repairmen’s Liens, landlord’s Liens, and (b) statutory Liens for Taxes,
assessments and other similar governmental charges that are not overdue.

“Person” means an individual, corporation, partnership, limited liability
company, joint venture, association, trust or other entity or organization or
Governmental Authority.

“Pre-Closing Reorganization” has the meaning specified in Recital B to this
Agreement and in Section 2.1(ii) of this Agreement.

“Pre-Closing Reorganization Documents” has the meaning set forth in
Section 4.2(i).

“Pre-Closing Tax Period” means any Tax period (or portion thereof) that ends on
or before the Closing Date.

“Prime Rate” means a per annum rate of interest equal to the rate of interest
published as of the specified date by The Wall Street Journal as the “prime
rate” at large U.S. money center banks.

“Property” means any real property and improvements at any time owned, leased,
used, operated or occupied (whether for storage, disposal or otherwise) by the
Seller.

“Purchased Interests” means (i) 100% of all of the issued and outstanding
Capital Stock of the General Partner (with the General Partner holding a 1%
interest in the Partnership) and (ii) 89% of the LP Interests of Partnership, to
be purchased by the Purchaser on the Closing Date immediately after consummation
of the Pre-Closing Reorganization, subject to the terms and conditions of this
Agreement.

“Purchaser” has the meaning set forth in the introductory paragraph of this
Agreement.

“Qualifications” has the meaning set forth in Section 2.1(ii).

 

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“Real Property” has the meaning set forth in Section 5.15(b).

“Reference Financial Statements” means the statements of income for the twelve
months ended October 31, 2013, along with internally prepared balances as of
October 31, 2013 for accounts receivable, accounts payable, cash, fixed assets,
all of which are attached hereto as Schedule 5.7.

“Release” means any release, spill, emission, discharge, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment (including ambient air, surface water, groundwater and surface
or subsurface strata) or into or out of any Property, including the movement of
Constituents of Concern through or in the air, soil, surface water, groundwater
or property.

“Retained Liabilities” has the meaning set forth in Section 7.2(b).

“Returns” means returns, declarations, reports, claims for refund, information
returns or other documents (including any related or supporting schedules,
statements or information) and including any amendment thereof filed or required
to be filed in connection with the determination, assessment or collection of
Taxes of any party or the administration of any Laws relating to any Taxes.

“Selected Representations and Warranties” means the representations and
warranties contained in Sections 5.2 (Authorization; Enforceability), 5.3
(Governmental Authorization), 5.9 (Tax Matters), 5.14 (Compliance with Laws;
Permits), 5.17 (Environmental Matters), 5.22 (Credentialing), 5.24 (Federal
Health Care Programs), 5.25 (Billing; Gratuitous Payments), 5.26 (Reimbursement
Matters).

“Sellers” has the meaning set forth in the introductory paragraph of this
Agreement.

“Seller Benefit Plans” has the meaning set forth in Section 5.18(a).

“Seller Retained Assets” has the meaning set forth in Section 7.2(a).

“Seller Shares” means 100% of the issued and outstanding shares of Capital Stock
of the Sellers.

“Stewart” means Brian Stewart.

“Subsidiary” means, with respect to any Seller, (a) any corporation 50% or more
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Seller, directly or indirectly
through Subsidiaries, and (b) any partnership, limited liability company,
association, joint venture, trust or other entity in which such Seller, directly
or indirectly through Subsidiaries, is either a general partner, has a 50% or
greater equity interest at the time or otherwise owns a controlling interest.

 

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“Tax” means (a) any net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, value added, transfer, franchise,
profits, license, withholding on amounts paid by either of the Sellers, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest, penalty, addition to tax or additional amount imposed by any Taxing
Authority, (b) any liability of either of the Sellers for the payment of any
amounts of any of the foregoing types as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability of the Sellers for payment of such
amounts was determined or taken into account with reference to the liability of
any other Person, and (c) any liability of either of the Sellers for the payment
of any amounts as a result of being a party to any Tax-Sharing Agreement or with
respect to the payment of any amounts of any of the foregoing types as a result
of any express or implied obligation to indemnify any other Person.

“Tax-Sharing Agreements” means all existing Tax-sharing agreements or
arrangements (whether or not written) that are binding on either of the Sellers.

“Taxing Authority” means any Governmental Authority having jurisdiction over the
assessment, determination, collection or other imposition of any Tax.

“Third-Party Claim” means any claim, demand, action, suit or proceeding made or
brought by any Person who or which is not a party to this Agreement or who or
which is not an Affiliate of any party to this Agreement.

“Transaction Expenses” means the aggregate amount of all out-of-pocket fees and
expenses, liabilities or obligations of Owners or Sellers or any of their
respective Affiliates, relating to the negotiation, preparation or execution of
this Agreement or any documents or agreements contemplated hereby or the
performance or consummation of the transactions contemplated hereby incurred
outside the Ordinary Course of Business, including (a) any fees and expenses
associated with obtaining necessary or appropriate waivers, consents or
approvals of any Governmental Authority or third parties on behalf of Sellers or
Partnership, (b) any fees or expenses associated with obtaining the release and
termination of any Liens or Indebtedness, (c) all brokers’ or finders’ fees, and
(d) fees and expenses of counsel, advisors, consultants, investment bankers,
accountants, auditors and experts, and (e) any awarded discretionary bonuses,
sale, change of control, “stay-around,” retention, success or similar bonuses,
severance or other payments to any Person in connection with or upon the
consummation of the transactions contemplated hereby, in all cases, whether
payable prior or on the Closing Date or thereafter.

“Weeks” means Jeff Weeks.

Section 1.2 Certain Interpretive Matters When a reference is made in this
Agreement to an Article, Section, Exhibit or Schedule, such reference will be to
an Article or Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. Whenever the words, “include,” “includes” or “including”
are used in this Agreement, they will be deemed to be followed by the words
“without limitation.” The words “hereof,” “herein” and “hereunder” and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not

 

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to any particular provision of this Agreement. All terms defined in this
Agreement have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. All references to “$” or dollar
amounts will be to lawful currency of the United States of America. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns. Each of
the Schedules will apply only to its corresponding Section or subsection of this
Agreement. To the extent the term “day” or “days” is used, it will mean calendar
days unless referred to as a “Business Day.”

(b) No provision of this Agreement will be interpreted in favor of, or against,
any of the parties hereto by reason of the extent to which any such party or its
counsel participated in the drafting thereof or by reason of the extent to which
any such provision is inconsistent with any prior draft hereof or thereof.

(c) All references to the “knowledge of Seller” or to words of similar import
will be deemed to be references to the actual knowledge of at least one of the
Owners, and will include such knowledge as an Owner would have had after
reasonable inquiry of the managers of the respective clinics owned and operated
by the Sellers.

ARTICLE II

PRE-CLOSING REORGANIZATION, SALE AND PURCHASE

Section 2.1 Pre-Closing Reorganization On the Closing Date but at or prior to
the Closing, the Sellers and the Owners shall have consummated, or cause to have
been consummated, the following transactions to effect a reorganization of the
Business conducted by Sellers:

(i) Sellers have formed the General Partner, and transferred and conveyed a one
percent (1%) undivided interest in all of the assets of Sellers (other than the
Seller Retained Assets) to the General Partner in exchange for one hundred
percent (100%) of the membership interests in the General Partner (the “General
Partner Formation”); and

(ii) Immediately following the General Partner Formation and immediately prior
to the Closing (the following paragraphs (A) through (E), collectively, the
“Partnership Formation”): (A) Sellers and the General Partner have formed
Partnership; (B) Sellers have transferred and conveyed to Partnership a
ninety-nine percent (99%) undivided interest in all of the assets of Sellers
(other than the Seller Retained Assets) in exchange for a limited partnership
interest in Partnership (the “LP Interests”), which LP Interests will constitute
ninety-nine percent (99%) of the total ownership interests in Partnership, and
Partnership has assumed those liabilities of Sellers set forth on Schedule
7.2(b)(i); (C) the General Partner has transferred and conveyed to Partnership
the one

 

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percent (1%) undivided interest of the assets in Sellers (other than the Seller
Retained Assets) received as part of the General Partner Formation in exchange
for all of the general partnership interests in Partnership (the “GP
Interests”), which GP Interests constitutes one percent (1%) of the total
ownership interests in Partnership (the LP Interests and the GP Interests,
collectively the “Partnership Interests”); and (D) each of Partnership and the
General Partner has qualified to do business in Kansas and Missouri in
accordance with applicable law (collectively, the “Qualifications”) (the
transactions described in clauses (i) and (ii) of this Section 2.1, collectively
the “Pre-Closing Reorganization”); and

(iii) Immediately following the Pre-Closing Reorganization and prior to the
Closing, ARC Services shall assign a one percent (1%) LP Interest to each of
Weeks and Stewart.

(iv) Simultaneously with the Closing, (A) the Sellers shall assign their LP
Interests not included in the Purchased Interests to Condon and (B) Condon,
Weeks and Stewart shall contribute all of their LP Interests to ARC Equity
Partners.

Section 2.2 Purchase and Sale of Purchased Interests. Immediately following the
Pre-Closing Reorganization and the transactions contemplated by
Section 2.1(iii), and simultaneously with the transactions contemplated by
Section 2.1(iv), and upon the terms and subject to the conditions of this
Agreement, at the Closing, the Sellers agree to sell to the Purchaser, and the
Purchaser shall purchase (or Purchaser shall cause one or more of its Affiliates
to purchase) from the Sellers, the Purchased Interests, free and clear of all
Liens. The Sellers shall pay any Taxes payable with respect to the transfer of
Purchased Interests to the Purchaser.

ARTICLE III

PURCHASE PRICE AND CLOSING PAYMENTS

Section 3.1 Closing Purchase Price In consideration for the conveyance by the
Sellers to the Purchaser of the Purchased Interests, at the Closing, the
Purchaser will pay, or cause to be paid, the amount of Thirty Five Million Nine
Hundred Fifty Five Thousand Dollars ($35,955,000) (the “Closing Purchase
Price”), payable as follows:

(a) an amount of cash by wire transfer of immediately available funds sufficient
to satisfy in full the Closing Date Indebtedness, to the applicable lender(s) or
other payee(s) and in the amounts set forth on Schedule 3.1(a), to the bank
account(s) designated in writing by such lenders or other payee(s) no later than
the second Business Day prior to Closing;

(b) an amount of cash by wire transfer of immediately available funds sufficient
to satisfy in full all of the Transaction Expenses not paid by Sellers prior to
Closing, to the payees and in the amounts set forth on Schedule 3.1(b) (the
“Closing Date Transaction Expenses”), to a bank account(s) designated in writing
by such payees no later than the second Business Day prior to Closing;

 

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(c) Thirty Five Million Four Hundred Fifty Five Thousand Dollars ($35,455,000),
less an amount equal to the sum of the Closing Date Indebtedness and the Closing
Date Transaction Expenses, in cash to Sellers by wire transfer of immediately
available funds to the account or accounts designated in writing by the Sellers,
such designation to occur no later than the second Business Day prior to Closing
(such amount, together with the amounts payable under clauses (a) and (b) above,
collectively, the “Closing Cash Consideration”); and

(d) Five Hundred Thousand Dollars ($500,000) by the issuance by the Purchaser to
Sellers’ designee(s) of a two-year promissory note payable to the Seller in the
aggregate original principal amount of Five Hundred Thousand Dollars ($500,000),
in the form attached hereto as Exhibit G (the “Note”). The Note shall (i) bear
interest at the annual rate equal to Prime Rate (which shall be re-set, as
applicable, on the one-year anniversary of the Closing Date) payable in two
(2) equal installments of principal (plus accrued and unpaid interest) on the
first and second anniversary of the Closing Date, (ii) provide for prepayments,
without penalty, at any time by the Purchaser and (iii) be unconditionally
guaranteed by the Parent (the “Guaranty”).

ARTICLE IV

CLOSING AND CLOSING DELIVERIES

Section 4.1 The Closing. The Pre-Closing Reorganization, the other transactions
contemplated by Section 2.1 and the closing of the sale and purchase of the
Purchased Interests (the “Closing”) is taking place on December 13, 2013, by
Federal Express or by the exchange of all applicable signature pages via
facsimile or other electronic transmission. The date upon which the Closing
occurs is herein referred to as the “Closing Date.” The Closing shall be
effective as of 11:59:59 p.m. on the Closing Date. The time at which the Closing
of the purchase and sale of the Purchased Interests becomes effective is herein
called the “Effective Time.”

Section 4.2 Deliveries of Sellers and the Owners At the Closing, the Sellers and
the Owners will deliver, or cause to be delivered, to the Purchaser:

(i) all documents necessary to evidence consummation of the Pre-Closing
Reorganization (collectively, the “Pre-Closing Reorganization Documents”) duly
executed by the Sellers, Owners, the General Partner or Partnership, as
applicable, including: (A) the Certificate of Formation of the General Partner
and the Limited Liability Company Agreement of the General Partner, true and
correct copies of which are attached hereto as Exhibit A and Exhibit B,
respectively; (C) the Sellers’ Contribution Agreements to effect the GP
Formation, a true and correct copy of which is attached hereto as Exhibit C
(such Exhibit A, Exhibit B and Exhibit C, collectively, the “GP Formation
Documents”); (D) the Certificate of Formation of Partnership, a true and correct
copy of which is attached hereto as Exhibit D, (E) the Sellers’ Contribution
Agreements to effect the Partnership Formation, a true and correct copy of which
is attached hereto as Exhibit E (such Exhibit D and Exhibit E, collectively, the
“Partnership Formation Documents”); (F) the foreign qualification applications
to qualify each of the General Partner and Partnership to do business in Kansas
and Missouri, to effect the Qualifications; and (G) such other documents as may
be reasonably necessary to consummate the Pre-Closing Reorganization (the items
in clauses (A) through (G) collectively, the “Pre-Closing Reorganization
Documents”), as well as all documents reasonably necessary to effect the other
transactions contemplated by Section 2.1;

 

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(ii) a certificate of the secretary of each of the Sellers certifying as to the
Sellers’ respective operating agreements and each of the Pre-Closing
Reorganization Documents;

(iii) evidence or copies of the consents, approvals, orders, qualifications or
waivers required by any third party or Governmental Authority to consummate the
transactions contemplated by this Agreement that are listed in Schedule 5.4;

(iv) each Ancillary Agreement (other than those provided under clause (i) above)
required to be executed and delivered by parties other than the Purchaser or its
Affiliates;

(v) pay-off letters executed and delivered from all holders of the Closing Date
Indebtedness, which pay-off letters set forth the term and conditions of payment
and satisfaction in full of all such Closing Date Indebtedness and release of
all Liens, if any, granted by Sellers or Owners and existing as of the Closing
Date;

(vi) resignations of the managers and officers, if any, of the General Partner
and the officers of Partnership;

(vii) the opinion of Seigfreid Bingham, in substantially the form of Exhibit O;
and

(viii) executed employment agreements (along with noncompetition and
non-solicitation agreements) in the form of Exhibit M between the Partnership
and each of the directors (“Director Employment Agreements”); and

(ix) such other documents and instruments as may be reasonably required to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements and to comply with the terms hereof and thereof.

Section 4.3 Deliveries by Purchaser At the Closing, the Purchaser will deliver,
or cause to be delivered, to the Sellers (and Owners in the case of item (i)):

(i) the Closing Cash Consideration to the payees, Sellers and Owners, as
applicable by wire transfer of immediately available funds to the accounts
specified pursuant to Section 3.1;

(ii) the Note in the form of Exhibit G executed by the Purchaser;

(iii) the Guaranty in the form of Exhibit H executed by the Parent;

(iv) each Ancillary Agreement required to be duly authorized and delivered by
the Purchaser or its Affiliates; and

 

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(v) such other documents and instruments as may be reasonably required to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements and to comply with the terms hereof and thereof.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF THE SELLERS AND THE OWNERS

The Sellers and the Owners jointly and severally represent and warrant to the
Purchaser as of the time immediately prior to the consummation of the
Pre-Closing Reorganization, except if expressly provided as of another time, as
follows:

Section 5.1 Corporate Existence and Power Each of the Sellers (i) is a limited
liability company duly organized and validly existing in good standing under the
laws of the State of Missouri, (ii) has the corporate power required to carry on
the Business as now conducted and (iii) is duly qualified to conduct business as
a foreign entity and is in good standing in the State of Kansas.

Section 5.2 Authorization; Enforceability As of Closing, the execution, delivery
and performance of this Agreement by the Sellers and the Owners and of each of
the Ancillary Agreements by the Sellers or the Owners (to the extent it will be
a party thereto at the Closing) are within each such party’s powers and have
been duly authorized by all necessary actions, and no other action on the part
of any such party is necessary to authorize this Agreement or any of the
Ancillary Agreements to which any such party is a party at the Closing. As of
Closing, this Agreement has been, and each of the Ancillary Agreements to which
the Sellers or the Owners is a party at the Closing, have been duly executed and
delivered by such party, as applicable. Assuming the due execution by the
Purchaser, as applicable, this Agreement constitutes, and each Ancillary
Agreement to which the Sellers or the Owners is a party at the Closing,
constitutes as of the Effective Time, valid and binding agreements of each such
party, enforceable against each such party in accordance with their terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement of
creditors’ rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).

Section 5.3 Governmental Authorization Except as disclosed in Schedule 5.3, as
of Closing, the execution, delivery and performance by the Sellers and the
Owners of this Agreement and each Ancillary Agreement to which the Sellers or
the Owners is a party at the Closing require no consent, approval, order,
authorization or action by or in respect of, or filing with, any Governmental
Authority.

Section 5.4 Non-Contravention; Consents Except as disclosed in Schedule 5.4, as
of Closing, the execution, delivery and performance by the Sellers and the
Owners of this Agreement and each Ancillary Agreement to which the Sellers or
the Owners is a party at the Closing, and the consummation of the transactions
contemplated hereby and thereby do not (a) violate the Sellers’ respective
limited liability company operating agreements as in effect either before or
after the Pre-Closing Reorganization, (b) to the knowledge of Sellers or Owners,
violate any applicable Law or Order, (c) to the knowledge of Sellers or Owners,
require any

 

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filing with or Permit, consent or approval of, or the giving of any notice to,
any Person (including filings, consents or approvals required under any Permits
of either Seller or Partnership or any licenses to which either Seller or
Partnership is a party), (d) result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of either of the Sellers or, to the knowledge of Sellers
or Owners, Partnership or to a material loss of any benefit to which either of
the Sellers or, to the knowledge of Sellers or Owners, Partnership is entitled
under, any Contract, agreement or other instrument binding upon either of the
Sellers or any license, franchise, Permit or other similar authorization held by
the Sellers, or (e) result in the creation or imposition of any Lien (other than
Permitted Liens) on any asset of either of the Sellers, or, to the knowledge of
Sellers or Owners, the General Partner or Partnership.

Section 5.5 Capitalization At Closing, (i) all shares of the outstanding Capital
Stock of the Sellers are owned of record and beneficially by the Owners as
described in the Recitals to this Agreement, and (ii) all such shares of Capital
Stock of the Sellers are duly authorized, validly issued and outstanding, fully
paid and nonassessable, and free of preemptive rights and other Liens and were
issued in compliance with applicable corporate and securities laws.

(b) Immediately after the consummation of the Pre-Closing Reorganization and
immediately prior to the Closing of the purchase and sale of the Purchased
Interests, (i) the total outstanding Capital Stock of Partnership are owned of
record and beneficially (A) 1% by the General Partner, (B) 97% by the Sellers,
and (C) 1% by each of Stewart and Weeks, and (ii) the total outstanding Capital
Stock of the General Partner is owned of record and beneficially by the Sellers,
in each case, free of preemptive rights and other Liens and were issued in
compliance with applicable limited partnership or limited liability company
laws, as applicable. Immediately after the consummation of the Pre-Closing
Reorganization, and prior to the Closing, the General Partner is the sole
general partner of Partnership and the General Partner, Sellers, Weeks and
Stewart together own of record and beneficially 100% of the Capital Stock of
Partnership, free and clear of all Liens and preemptive rights. Upon
consummation of the transactions contemplated by this Agreement, at the
Effective Time (x) the Purchaser will acquire good, valid and indefeasible title
to all of the Purchased Interests, free and clear of all Liens, and which
interests will represent as of the Effective Time (A) 100% of the issued and
outstanding Capital Stock of the General Partner, which General Partner in turn
owns 1% of the issued and outstanding Capital Stock of Partnership and (B) 89%
of the issued and outstanding Capital Stock of Partnership, and (y) ARC Equity
Partners will hold 10% of the issued and outstanding Capital Stock of
Partnership.

(c) Except as set forth on Schedule 5.5, immediately before and after the
consummation of the Pre-Closing Reorganization and as of the Effective Time,
(i) there were no options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, convertible securities or other rights,
agreement, arrangements or commitments of any character relating to the shares
of Capital Stock of the Sellers or obligating Sellers to issue, sell or
otherwise cause to become outstanding any shares of its Capital Stock and
(ii) there were no outstanding contractual obligations of the Sellers to
repurchase, redeem or otherwise acquire any shares of Capital Stock of the
Sellers or interests in the Sellers or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person.

 

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Immediately before and after the Pre-Closing Reorganization and as of the
Effective Time, (x) there are no voting trusts, agreements, proxies or other
understandings in effect with respect to the voting or transfer of any of the
shares of Capital Stock of a Seller and (y) there are no outstanding or
authorized stock or other equity appreciation, phantom stock participation or
similar rights with respect to the Sellers.

Section 5.6 Subsidiaries. Except as set forth in Schedule 5.6 and the Sellers’
interest in each of the General Partner and Partnership, neither of the Sellers
owns any Capital Stock or other equity or ownership or proprietary interest in
any Person.

Section 5.7 Financial Statements The Sellers heretofore furnished the Purchaser
with a true and complete copy of the Reference Financial Statements which are
attached hereto as Schedule 5.7. The Reference Financial Statements have been
derived from the books and records of the Sellers, are true and correct in all
material respects, and fairly and accurately present in all material respects
the financial position of the Sellers at the respective dates thereof and the
results of the operations of the Sellers for the periods indicated.

(b) The books of account, minute books, stock record books and other records of
the Sellers, all of which have been made available to the Purchaser, are
complete and correct in all material respects.

Section 5.8 No Undisclosed Liabilities There are no liabilities, whether
accrued, contingent, absolute, determined, determinable or otherwise, of either
of the Sellers other than (a) liabilities fully provided for in the Reference
Financial Statements, (b) liabilities specifically disclosed in Schedule 5.8,
and (c) other undisclosed liabilities incurred since the Balance Sheet Date in
the Ordinary Course of Business that would have a Material Adverse Effect on the
Purchaser. Except as disclosed on Schedule 5.8, none of the Sellers or the
Owners has any such liability to any former member of either of the Sellers with
respect to the purchase of their membership interests of either of the Sellers
or otherwise and the consummation of the transaction contemplated by this
Agreement will not otherwise give rise to any such liability.

Section 5.9 Tax Matters Except as disclosed in Schedule 5.9:

(i) Neither of the Sellers currently has any liability for U.S. federal income
Taxes other than for the 2013 income tax year, the Taxes related to which will
be paid when due by the Sellers;

(ii) all Tax Returns required to be filed with any Governmental Authority on or
before the Closing by or on behalf of the Sellers have been duly filed on a
timely basis in accordance with all applicable Laws;

(iii) at the time of their filings all such Tax Returns were complete and
correct in all material respects;

(iv) there are no known Liens for Taxes upon any assets of the Sellers, except
Liens for Taxes not yet due for current Tax periods ending after the date of
this Agreement;

 

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(v) there are no outstanding deficiencies, assessments or written proposals for
the assessment of Taxes proposed, asserted or assessed against the Sellers, and,
to the knowledge of the Sellers, no grounds exist for any such assessment of
Taxes;

(vi) no extension or waiver of the statute of limitations on the assessment of
any Taxes has been granted to or applied for by either of the Sellers;

(vii) none of the Tax Returns of the Sellers are the subject of an action, suit,
proceeding, audit or examination by a Governmental Authority; and

(viii) each of the Sellers has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, or other party.

(b) In connection with the Pre-Closing Reorganization, no election was filed by
Sellers to cause the General Partner or Partnership to be treated as an
association taxable as a corporation for U.S. federal income tax purposes for
any period commencing with the consummation of the Pre-Closing Reorganization.

Section 5.10 Absence of Certain Changes Except as disclosed in Schedule 5.10 or
as expressly contemplated by this Agreement, since the Balance Sheet Date to the
time immediately prior to the consummation of the Pre-Closing Reorganization,
each of the Sellers has conducted the Business in the Ordinary Course of
Business and, to the knowledge of Sellers, there has not been any event,
occurrence, development or circumstances which has had or which would reasonably
be expected to have a Material Adverse Effect.

Section 5.11 Contracts Except as specifically disclosed in Schedule 5.11,
neither of the Sellers is a party to or bound by any lease, agreement, contract,
commitment or other legally binding contractual right or obligation (whether
written or oral) (collectively, “Contracts”).

(b) Each Contract disclosed in or required to be disclosed in Schedule 5.11 is a
valid and binding agreement of a Seller and, to the knowledge of Sellers, each
other party thereto, enforceable in accordance with its respective terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting enforcement of creditors’ rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity). Neither a Seller nor, to the knowledge of Sellers, any
other party to any such Contract is in default or breach (with or without due
notice or lapse of time or both) in any material respect under the terms of any
such Contract. The Sellers have delivered or made available to the Purchaser
true and complete originals or copies of all Contracts disclosed in or required
to be disclosed in Schedule 5.11.

Section 5.12 Insurance Coverage Schedule 5.12 contains a list of all of the
insurance policies and fidelity bonds covering the assets, Business, operations,
employees, officers and directors of Sellers and a list of all claims pending as
of the Balance Sheet Date and the Closing Date under any such policies or bonds,
including a description of the background and status of such claims. There is no
claim by a Seller pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and each

 

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of the Sellers has complied with the terms and conditions of all such policies
and bonds. Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) are in full force and effect
and, to the knowledge of Sellers, are issued by a duly licensed insurance
carrier authorized to conduct the business of insurance in the States of
Missouri and Kansas. Neither of the Sellers has knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies or bonds. Since the last renewal date of any insurance policy, to the
knowledge of Sellers, there has not been any adverse change in the relationship
of either of the Sellers with their respective insurers or the premiums payable
pursuant to such policies.

Section 5.13 Litigation Except as disclosed in Schedule 5.13, there is no
action, suit, investigation, arbitration or administrative or other proceeding
pending or, to the knowledge of Sellers, threatened, against or affecting a
Seller before any court or arbitrator or any Governmental Authority or which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement and any Ancillary Agreements to
which either of the Sellers or the Owners is a party at Closing. Neither of the
Sellers has knowledge of any valid basis for any such action, suit,
investigation, arbitration or proceeding against or affecting a Seller or the
Business. To the knowledge of Sellers or Owners, there are no outstanding
judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court, administrative agency, arbitral body or Governmental
Authority) against either of the Sellers or the Owners.

Section 5.14 Compliance with Laws; Permits Except as described in Schedule
5.14(a), each Seller has complied in all material respects with all Laws with
respect to the Business. To the knowledge of Sellers, no event has occurred or
circumstance exists which, after notice or lapse of time or both, would
constitute noncompliance in any material respect by a Seller or give rise to any
future liability of a Seller with respect to any Law heretofore or currently in
effect. To the knowledge of Sellers, neither of the Sellers nor Owners has
received notice from any Governmental Authority of any such event or
circumstance, or of any violation by a Seller of any Law. Neither the use,
condition nor other aspect of any of the assets of the Business or other right,
property or asset used in or associated with the Business, to the knowledge of
Sellers, is or has been in violation of any applicable Law. Except as set forth
in Schedule 5.14(a), neither Seller has received written notice of any material
violation of any Law, or any potential liability under any Law, relating to the
operation of the Business or to any of its assets, operations, processes,
results or products, nor is either Seller aware of any such violation or
potential liability.

(b) Schedule 5.14(b) sets forth a list of each government or regulatory license,
authorization, permit, franchise, consent and approval (the “Permits”) issued
and held by or on behalf of either of the Sellers to carry on the Business as
currently conducted by a Seller. Except as disclosed in Schedule 5.14(b), each
of the Sellers is the authorized legal holder of the Permits, and each Permit is
valid and in full force and effect. Neither of the Sellers is in default under,
and, to the knowledge of Sellers, no condition exists that with notice or lapse
of time or both would constitute a default or could give rise to a right of
termination, cancellation or acceleration under, any Permit held by a Seller.

 

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Section 5.15 Assets; Properties; Sufficiency of Assets Neither of the Sellers
owns any Real Property assets as of the Effective Time. Schedule 5.15 sets forth
a list of all real property assets leased by a Seller (the “Real Property”). The
Sellers collectively are, to their knowledge, tenants in good standing
thereunder (with a right of quiet enjoyment therein) and all rents due under
such leases have been paid. Neither of the Sellers nor, to the knowledge of
Sellers, any other party to any such lease is in default or breach in any
material respect (with or without due notice or lapse of time or both) under the
terms of any such lease. Sellers are in peaceful and undisturbed possession of
the space and/or estate under each lease of which it is a tenant. Neither of the
Sellers has received any written notice of any appropriation, condemnation or
like proceeding, or of any violation of any applicable zoning Law or Order
relating to or affecting the Real Property, and to the knowledge of Sellers, no
such proceeding has been threatened or commenced. To the knowledge of Sellers,
each item of Real Property has adequate Utilities (as hereinafter defined) of a
capacity and condition to serve adequately such Real Property (with due regard
for the use to which such Real Property is presently being put). For purposes of
this Agreement, the term “Utilities” means all of the following: water
distribution and service facilities; sanitary sewers and associated
installations; storm sewers; storm retention ponds and other drainage
facilities; electrical distribution and service facilities; telephone, and
similar communication facilities; heating, ventilating, cooling and air
conditioning systems and facilities; natural gas distribution and service
facilities; fire protection facilities; garbage compaction and collection
facilities; and all other utility lines, conduit, pipes, ducts, shafts,
equipment, apparatus and facilities.

(a) All tangible personal property of the Sellers that is materially used in the
Business is in all material respects in good repair and operating condition
(subject to normal maintenance requirements and normal wear and tear excepted).

(b) The property and assets of Partnership constitute all of the properties and
assets used in the Business (and of the Sellers prior to the Pre-Closing
Reorganization), other than the Seller Retained Assets, and such property and
assets (together with the Employment Agreement), are sufficient to conduct the
Business as currently conducted by Partnership (and previously conducted by
Sellers prior to the Pre-Closing Reorganization).

Section 5.16 Intellectual Property Schedule 5.16 sets forth a list of all
Intellectual Property Rights which are owned by either of the Sellers or which
either of the Sellers is a licensor or licensee for use in the Business.

(b) Except as disclosed in Schedule 5.16:

(i) All of the Intellectual Property Rights used in the conduct of the Business
as currently conducted are set forth in Schedule 5.16;

(ii) To the knowledge of Sellers, the conduct of the Business by Sellers as
currently conducted does not infringe upon any Intellectual Property Right of
any third party. There is no claim, suit, action or proceeding that is either
pending or, to the knowledge of Sellers, threatened, that, in either case,
involves a claim of infringement by a Seller of any Intellectual Property Right
of any third party, or challenging a Seller’s ownership, right to use, or the
validity of any Intellectual Property Right listed or

 

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required to be listed in Schedule 5.16. Neither of the Sellers has any knowledge
of any basis for any such claim of infringement and no knowledge of any
continuing infringement by any other Person of any of the Intellectual Property
Rights listed or required to be listed in Schedule 5.16;

(iii) To the knowledge of Sellers, no Intellectual Property Right listed or
required to be listed in Schedule 5.16 is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof by Seller
or restricting the licensing thereof by Sellers to any Person, other than with
respect to standard and customary restrictions associated with commercially
available third party software to which Sellers have a valid right to use in
connection with the Business; and

(iv) Neither of the Sellers has entered into any agreement to indemnify any
other Person against any charge of infringement of any Intellectual Property
Right.

Section 5.17 Environmental Matters Except as disclosed in Schedule 5.17:

(i) Neither of the Sellers has, and to the knowledge of Sellers no other Person
has, generated, recycled, used, treated or stored on, transported to or from, or
Released or disposed on, the Property any Constituents of Concern or, to the
knowledge of the Sellers, on any property adjoining or adjacent to any Property,
except in compliance in all material respects with Environmental Laws;

(ii) There are no pending Environmental Claims against either of the Sellers or,
to the knowledge of Sellers, threatened Environmental Claims against a Seller or
to the knowledge of Sellers, pending or threatened Environmental Claims against
any Property;

(iii) To the knowledge of Sellers, neither of the Sellers has any liability
under any Environmental Law (including an obligation to remediate any
Environmental Condition whether caused by a Seller or any other Person).

Section 5.18 Benefit Plans and Material Documents Schedule 5.18(a) sets forth a
list of all Benefit Plans with respect to which either of the Sellers or any
ERISA Affiliate has or has had prior to the date hereof any material obligation
or material liability or which are or were prior to the date hereof maintained,
contributed to or sponsored by a Seller or any ERISA Affiliate for the benefit
of any current or former employee, officer, director or manager of Seller or any
ERISA Affiliate (collectively “Seller Benefit Plans”). With respect to each
Seller Benefit Plan, Sellers have delivered or made available to the Purchaser a
true and complete copy of each such Seller Benefit Plan (including all
amendments thereto) and a true and complete copy of each material document
(including all amendments thereto) prepared in connection with each such Seller
Benefit Plan including (i) a copy of each trust or other funding arrangement,
(ii) each summary plan description and summary of material modifications,
(iii) the most recently filed IRS Form 5500 for each such Seller Benefit Plan,
if any, and (iv) the most recent determination letter referred to in
Section 5.18(d).

(b) Except as disclosed in Schedule 5.18(b), none of the Seller Benefit Plans is
a plan that is or has ever been subject to Title IV of ERISA, Section 302 of
ERISA or Section 412 of

 

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the Code. None of the Seller Benefit Plans is a “multiemployer plan” as defined
in Section 3(37) of ERISA. Except as disclosed in Schedule 5.18(b), none of the
Seller Benefit Plans provides for the payment of separation, severance,
termination or similar-type benefits to any person or provides for or, except to
the extent required by Law, promises retiree medical or life insurance benefits
to any current or former employee, officer, director or manager of either of the
Sellers or any ERISA Affiliate.

(c) No legal action, suit or claim is pending or, to the knowledge of Sellers,
threatened with respect to any Seller Benefit Plan (other than claims for
benefits in the ordinary course).

(d) Except as disclosed in Schedule 5.18(d), each Seller Benefit Plan or trust
which is intended to be qualified or exempt from taxation under Section 401(a),
401(k) or 501(a) of the Code has received a favorable determination letter from
the IRS that it is so qualified or exempt under the currently applicable
requirements of the Code, and, to the knowledge of Sellers, nothing has occurred
since the date of such determination letter that would adversely affect the
qualified or exempt status of any Seller Benefit Plan or related trust.

(e) All contributions, premiums or payments required to be made with respect to
any Seller Benefit Plan have been made on or before their due dates.

(f) There has been no amendment to, written interpretation of or announcement
(whether or not written) by Seller relating to, or change in employee
participation or coverage under, any Seller Benefit Plan that would increase
materially the expense of maintaining such Seller Benefit Plan above the level
of the expense incurred in respect thereto for the most recent fiscal year ended
prior to the date hereof.

(g) Except as disclosed in Schedule 5.18(g), no employee or former employee of
either of the Sellers will become entitled to any bonus, retirement, severance,
job security or similar benefit or enhanced such benefit (including acceleration
of vesting or exercise of an incentive award) as a result of the transactions
contemplated by this Agreement.

Section 5.19 Affiliate Transactions (a) Except as disclosed in Schedule 5.19,
there are no outstanding payables, receivables, loans, advances and other
similar accounts between either of the Sellers or the Owners on the one hand,
and any of its Affiliates, on the other hand.

(b) Except as disclosed in Schedule 5.19, no director, manager, officer or, to
the knowledge of Sellers, any other employee of a Seller, possesses, directly or
indirectly, any ownership interest in, or is a director, officer or employee of,
any Person which is a supplier, customer, lessor, lessee, licensor, or
competitor of Seller. Ownership of 1% or less of any class of securities of a
Person whose securities are registered under the Exchange Act will not be deemed
to be an ownership interest for purposes of this Section 5.19.

Section 5.20 Referral Relationships To the knowledge of Sellers, Sellers
generally have good commercial working relationships with its physician referral
source, suppliers and employees. Except as otherwise listed on Schedule 5.20,
neither of the Owners nor any clinic director of either of the Sellers has an
“Immediate Family Relationship” (as defined herein) with any physician who has,
or who based on the nature of their practice may, refer patients to a Seller for
the provision of rehabilitation services.

 

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Section 5.21 Other Employment Matters

(a) Neither of the Sellers are a party to any labor or collective bargaining
agreement.

(b) No labor organization or group of either of the Sellers’ employees has made
a pending demand for recognition, there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
knowledge of Sellers, threatened to be brought or filed with the National Labor
Relations Board or other labor relations tribunal, and there is no organizing
activity involving a Seller pending or, to the knowledge of Sellers, threatened
by any labor organization or group of employees.

(c) There are no (i) strikes, work stoppages, slow-downs, lockouts or
arbitrations or (ii) grievances or other labor disputes pending or, to the
knowledge of Sellers, threatened against or involving either of the Sellers.

(d) There are no complaints, charges or claims against a Seller pending or, to
the knowledge of the Sellers, threatened to be brought or filed with any
Governmental Authority based on, arising out of, in connection with, or
otherwise relating to the employment by a Seller, of any Person, including any
claim for workers’ compensation.

(e) Each of the Sellers is in compliance in all material respects with all Laws
and Orders in respect of employment and employment practices (including relating
to employment or engagement of aliens or similar immigration matters) and the
terms and conditions of employment and wages and hours, and has not, and is not,
engaged in any unfair labor practice.

(f) Schedule 5.21(f) contains a complete and accurate list of the following
information for each employee, officer or director of either of the Sellers,
including each employee on leave of absence or layoff status: employer; name;
job title; current compensation paid or payable and any change in compensation
since the Balance Sheet Date; vacation accrued but unused as of a recent date;
and service credited as of a recent date for purposes of vesting and eligibility
to participate under any pension, retirement, profit-sharing, thrift-savings,
deferred compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership), severance
pay, insurance, medical, welfare, or vacation plan or other Seller Benefit Plan;
and all bonuses and any other amounts to be paid by a Seller at or in connection
with the Closing.

(g) Except as set forth in Schedule 5.21(g), no officer or director of either of
the Sellers and, to the knowledge of Sellers, no other employee of a Seller, is
a party to, or is otherwise bound by, any confidentiality, non-competition,
proprietary rights agreement or similar agreement that would affect (i) the
performance of his or her duties as an employee, officer or director or (ii) the
ability of the Purchaser to conduct the Business after the Effective Time.

Section 5.22 Credentialing Schedule 5.22 sets forth for Seller and its employees
all of their respective provider numbers and a list of the licensed providers,
outpatient clinics, hospitals or contractors that Sellers have authorized to
bill for services utilizing such provider numbers and the type of designation of
such facility or service billed.

 

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(b) Neither of the Sellers nor Owners has received notice of any pending or
threatened investigation or inquiry (other than routine surveys and audits that
have not resulted in an investigation or inquiry) from any Governmental
Authority, fiscal intermediary, carrier or similar entity that enforces or
administers the statutory or regulatory provisions in respect of any
governmental health care program. There are no outstanding judgments orders,
writs, injunctions or decrees of any Governmental Authority in respect of any
governmental health care program against either of the Sellers or Owners which
would result in liability to a Seller in excess of $10,000 (whether or not
covered by insurance).

(c) To the knowledge of the Sellers, there is no basis for any material claims
against a Seller or an Owner by any third-party payors other than routine
audit/claim adjustments. Neither of the Sellers nor Owners has received any
written notice that a payor has any claims against it which could result in
offsets against future reimbursement other than routine audit/claim adjustments.

Section 5.23 Exclusion Neither of the Owners nor, to the knowledge of Sellers,
any other Person with whom a Seller employs or otherwise contracts in any
capacity whatsoever, has been excluded from participation in a federal health
care program (as defined in 42 U.S.C. Section 1320a-7b(f)) where such action
could reasonably serve as a basis for the Seller’s suspension or exclusion from
the Medicare or any state Medicaid program.

Section 5.24 Federal Health Care Programs Neither of Sellers, their respective
Affiliates (including the Owners) or any Person who has a direct or indirect
ownership interest (as those terms are defined in 42 C.F.R.
Section 1001.1001(a)(2)) in a Seller of 5% or more, or who has an ownership or
control interest (as defined in Section 1124(a)(3) of the Social Security Act or
any regulations promulgated thereunder) in a Seller, or who is an officer,
director, manager, agent or managing employee (as defined in 42 C.F.R.
Section 1001.1001(a)(i)) of Seller: (i) except as set forth in Schedule 5.24,
has had a civil monetary penalty assessed against it under Section 1128A of the
Social Security Act or any regulations promulgated thereunder; (ii) has been
excluded from participation under any federal health care program; or (iii) has
been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of
the categories of offenses as described in the Social Security Act
Section 1128(a) and (b)(1), (2), (3) or any regulations promulgated thereunder.

(b) Except as set forth on Schedule 5.24, neither of the Sellers nor Owners has
received notice that a third party private payor intends to terminate or fail to
renew any contractual arrangement with a Seller or an Owner (or adversely amend
or modify any right of reimbursement thereunder) from which a Seller or an Owner
derived more than $25,000 in revenue from the Business during 2013.

Section 5.25 Billing; Gratuitous Payments Except as set forth in Schedule 5.25
and except for routine audit/claim adjustments, all billing by, or on behalf of,
either of the Sellers or the Owners to third-party payors, including to worker’s
compensation and private insurance companies, has been true and complete in all
material respects. Neither of the Sellers nor an

 

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Owner has received any notice from any third-party payor that indicates that the
Purchaser could not continue to bill in substantially the same manner and
structure as such Seller or Owner is billing on the date hereof with respect to
the Business.

Section 5.26 Reimbursement Matters Except as disclosed on Schedule 5.26 and
except for routine audit/claim adjustments, for the previous three years,
neither of the Sellers nor an Owner has received any written notice of denial of
payment or overpayment of a material nature from a third party reimbursement
source (inclusive of managed care organizations) with respect to items or
services provided by such Seller or Owner, other than those which have been
finally resolved in any settlement for an amount less than $10,000. Neither of
the Sellers nor an Owner is subject to (i) a “focused review” or “probe review”
of claims, payments or practices by Medicare, or any applicable carrier, fiscal
intermediary or delegated agent of CMS, (ii) a “Corporate Integrity Agreement”
or similar government – mandated compliance program, (iii) decertification
action or assertion or (iv) written demand for repayment or overpayment or
offset by Medicare or Medicaid.

Section 5.27 Finders’ Fees Except as set forth on Schedule 5.27, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of either of the Sellers or the Owners who
is, or who to the knowledge of Sellers may claim to be, entitled to any fee or
other commission from either the Sellers or the Owners in connection with the
transactions contemplated by this Agreement or any of the Ancillary Agreements.

Section 5.28 Accounts Receivable All of the Accounts Receivable reflected on
Schedule 5.28 (net of any discount to adjust such balances to allowable
reimbursement amounts and net of applicable reserves for doubtful accounts and
client refunds as set forth on such Schedule 5.28) are valid and enforceable
claims, and services sold and delivered which gave rise to such Accounts
Receivable were sold and delivered in the Ordinary Course of Business. Except as
set forth in Schedule 5.28, such Accounts Receivable are subject to no known
defenses, offsets or recovery in whole or in part by the Persons whose purchase
gave rise to such Accounts Receivable or by any third parties.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER

The Purchaser represents and warrants to the Sellers and Owners as follows:

Section 6.1 Existence and Power The Purchaser is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
Texas. The Purchaser has the limited partnership power required to carry on its
business as now conducted. The Purchaser is duly qualified to conduct business
as a foreign limited partnership and is in good standing in each jurisdiction
where such qualification is necessary.

Section 6.2 Authorization; Enforceability The execution, delivery and
performance by the Purchaser of this Agreement and each of the Ancillary
Agreements to which it is a party at the Closing are within the Purchaser’s
limited partnership power and have been duly authorized by the partners of the
Purchaser and no other limited partnership action on the part of the

 

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Purchaser or any of its partners is necessary to authorize this Agreement or any
of the Ancillary Agreements to which the Purchaser is a party at the Closing.
Each person executing and delivering this Agreement and all documents to be
executed and delivered by Purchaser at Closing has or will have due and proper
authority to execute and deliver the same. This Agreement has been, and each of
the Ancillary Agreements to which the Purchaser is a party at the Closing has
been, duly executed and delivered by the Purchaser. Assuming the due execution
and delivery by the Seller and Owner of this Agreement and each of the Ancillary
Agreements to which the Purchaser is a party at the Closing, this Agreement
constitutes, and each Ancillary Agreement to which the Purchaser is a party at
the Closing constitutes at the Effective Time, valid and binding agreements of
the Purchaser, enforceable against the Purchaser in accordance with their terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement of
creditors’ rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).

Section 6.3 Governmental Authorization Except as disclosed in Schedule 6.3, the
execution, delivery and performance by the Purchaser of this Agreement and each
Ancillary Agreement to which the Purchaser is a party at the Closing require no
consent, approval, order, authorization or action by or in respect of, or filing
with, any Governmental Authority.

Section 6.4 Non-Contravention Except as set forth on Schedule 6.4, the
execution, delivery and performance by the Purchaser of this Agreement and each
Ancillary Agreement to which the Purchaser is a party at the Closing, and the
consummation of the transactions contemplated hereby and thereby, do not
(a) violate the certificate of limited partnership or agreement of limited
partnership or other similar constituent documents of the Purchaser, (b) violate
any applicable Law or Order, (c) require any filing with or Permit, consent or
approval of, or the giving of any notice to, any Person (including filings,
consents or approvals required under any Permits of the Purchaser or any
licenses to which the Purchaser is a party), or (d) result in a violation of or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Purchaser or to a
loss of any benefit to which the Purchaser is entitled under, any Contract,
agreement or other instrument binding upon the Purchaser or any license,
franchise, Permit or other similar authorization held by the Purchaser.

Section 6.5 Pending Claims, Litigation, or Bankruptcy Purchaser is not the
subject of any existing, pending, threatened or contemplated (A) Bankruptcy,
solvency or other debtor’s relief proceeding, or (B) litigation or other
judicial or administrative proceeding, which challenges or could adversely
affect Purchaser’s right or ability to enter into this Agreement or to
consummate the transactions herein contemplated.

 

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ARTICLE VII

ADDITIONAL AGREEMENTS

Section 7.1 Employees and Benefits The Purchaser agrees that, except for the
Owners, individuals who are employed by the Seller immediately prior to the
Closing Date and set forth on Schedule 5.21(f) (“Affected Employees”) shall
become employees of Partnership as of the date to be determined by Purchaser
following the Closing Date, provided that such date is on or before the
termination date under the Management Services Agreement; provided further, that
nothing contained herein shall confer upon any Affected Employee the right to
continued employment by Partnership for any period of time which is not
otherwise required by law or contract.

(b) Seller shall retain all liabilities and responsibilities to all Seller
Benefit Plans (the “Seller Retained Employee Benefit Plans”) arising prior to
the Closing Date. Purchaser shall indemnify Seller for the costs, arising on or
after the Closing Date, of the continued participation by Affected Employees and
Owner in all Seller Retained Employee Benefit Plans, including accrued and
unpaid sick pay and vacation set forth on Schedule 5.21(f) (for which Seller
shall provide the cash to cover as part of the Minimum Cash Balance).

(c) Unless and until the date the Purchaser determines in its sole and absolute
discretion to move Affected Employees to the Parent’s group employee health and
welfare benefit plans or other Benefit Plans, the Purchaser shall cause
Partnership to maintain for the benefit of the Affected Employees the Seller
Benefit Plans.

(d) Sellers shall pay, from its own funds, the payroll due to Affected Employees
for the period ended December 13, 2013 (which is due to be paid on December 20,
2013).

Section 7.2 Seller Retained Assets; Partnership Assumed Liabilities In
connection with the consummation of the Pre-Closing Reorganization, Sellers
shall transfer and convey all of its assets to the General Partner and
Partnership other than (i) the cash, if any, then owned and held by the Seller
in excess of the Minimum Cash Balance; (ii) all rights of Seller under this
Agreement, the Note, the Guaranty or any of the Ancillary Agreements to which it
is a party; (iii) corporate minute books and stock records of Sellers and copies
of books and records required to be retained by Sellers in accordance with
applicable Law; (iv) tax returns and records of Sellers and any rights to
refunds and records in respect of Taxes paid or otherwise owed by Sellers, and
(v) all rights, claims, proceeds and causes of action under policies of
insurance (such assets listed in items (i) through (v), collectively the “Seller
Retained Assets”).

(b) Partnership will assume and accept and thereafter shall pay, perform or
discharge: (i) subject to the provisions of Section 7.4, the obligations and
liabilities of the Sellers under each of the Contracts set forth on Schedule
5.11 to the extent they arise on or after the Effective Time (the “Assumed
Contracts”), except for any Capitalized Lease Obligations, if any; (ii) the
accrued and unpaid sick leave and vacation of the employees of the Sellers set
forth on Schedule 5.21(f); and (iii) accounts payable and other liabilities
arising in the ordinary course of business since the Balance Sheet Date and
consistent with historical levels, none of which in any case relates to any
breach of contract, breach of warranty, tort, infringement or violation of Law
(such liabilities and obligations listed in items (i) through (iv), collectively
the “Partnership Assumed Liabilities”).

 

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Sellers shall be responsible for the payment, performance or discharge of all
liabilities and obligations of Sellers other than the Partnership Assumed
Liabilities, including any Transaction Expenses not satisfied pursuant to
Section 3.1(a) or Section 3.1(b) (the “Retained Liabilities”).

Section 7.3 Misdirected Payments

Following the Effective Time, (i) each of the Sellers and Owners will promptly,
and in any event, not later than ten Business Days following receipt, forward to
Partnership any payments received by either of the Sellers or Owners with
respect to any of the Accounts Receivables or with respect to any other assets
of Partnership, and any checks, drafts or other instruments payable to either of
the Sellers or Owners will, when so delivered, bear all endorsements required to
effectuate the transfer of the same to Partnership, (ii) Partnership will
promptly forward to Sellers any payments received by Partnership with respect to
any Seller Retained Assets, and any checks, drafts or other instruments payable
to Sellers shall, when so delivered, bear all endorsements required to effect
the transfer of the same to Sellers.

Section 7.4 Nonassignable Contracts, Leases and Permits. In the case of any
assets transferred by the Sellers and the General Partner to Partnership in
connection with the Partnership Formation which constitute Contracts, leases or
Permits that are not by their terms assignable or that require the consent of a
third party in connection with such transfer by the Sellers or the General
Partner to Partnership, such Contracts, leases or Permits will be deemed not to
have been transferred as of the Effective Time unless the consent of such third
party has been obtained prior to the Effective Time. If the consent of any third
party is not obtained prior to the Effective Time and the Closing occurs
notwithstanding the failure to obtain such consent, the Sellers will use
commercially reasonable efforts to assist Partnership and the General Partner in
such manner as may reasonably be requested by Partnership or the General Partner
for the purpose of obtaining such consent promptly. During such period in which
the applicable Contract, lease or Permit is not capable of being assigned to
Partnership due to the failure to obtain any required consent, the Sellers will
make such arrangements as may be necessary to enable Purchaser to receive all
the economic benefits under such Contract, lease or Permit accruing on and after
the Effective Time (including, to the extent permissible, through a
sub-contracting, sub-licensing, sub-participation or sub-leasing arrangement, or
an arrangement under which the Sellers would enforce such Contract, lease or
Permit for the benefit of Partnership, with Partnership, to the extent
permissible, assuming a Seller’s executory obligations and any and all rights of
the Seller against the other party thereto). If the approval of the other party
to such Contract, lease or Permit is obtained, such approval will, as between
the Sellers and Partnership, constitute a confirmation (automatically and
without further action of the parties) that such Contract, lease or Permit is
assigned to Partnership as of the Effective Time, and (automatically and without
further action of the parties) that the liabilities with respect to such
Contract, lease or Permit are, subject to the terms of the Seller Contribution
Agreement dated the date hereof to be executed by the Sellers and Partnership in
connection with the Partnership Formation, assumed as of the Effective Time.
After the Effective Time, Partnership and the General Partner shall indemnify
Sellers for any liabilities arising after the Effective Time under such
non-assignable Contracts, leases or Permits, but only to the extent Partnership
received the economic benefits under such Contracts, leases or Permits.

 

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Section 7.5 Further Assurances From time to time, as and when requested by any
party hereto, the other parties will execute and deliver, or cause to be
executed and delivered, all such documents and instruments and will take, or
cause to be taken, all such further actions, as the requesting party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement or to vest Partnership with full title to all
properties, assets, rights, approvals, immunities and franchises of Seller as of
the time immediately prior to the Effective Time (other than the Seller Retained
Assets).

Section 7.6 Immigration Effective on an after the Closing Date, with respect to
employees of a Seller that are offered and accept employment with Partnership in
connection with Closing, (a) such Seller shall cease to serve and Purchaser
shall commence to serve as the sponsoring and petitioning employer for
petitions, applications and other filings with the U.S. Citizenship and
Immigration Services, the U.S. Department of Labor, or the U.S. Department of
State (including any U.S. embassy or consular post) (collectively, the
“Immigration Documents”) requesting employment based nonimmigrant visa benefits
on behalf of or with respect to such employees, and (b) Purchaser shall assume
all immigration related interests and obligations that have arisen or will arise
on or after the Closing Date for such employees in connection with the
Immigration Documents. By Sellers and Purchaser closing this transaction and
Partnership’s hiring of certain of the employees of Sellers, Sellers and
Purchaser intend for Partnership to be deemed such Sellers’ successor in
interest for purposes of U.S. immigration law with respect to such employees.

Section 7.7 Real Property Leases Attached hereto as Exhibit N copies of the
lease agreements and/or assignments with respect to the Clinic locations.

Section 7.8 Insurance Sellers shall purchase (and at Closing provide to
Purchaser a certificate of coverage to evidence) “tail” or extended reporting
professional liability insurance coverage, having limits reasonably acceptable
to Purchaser, insuring Sellers against professional liability claims noticed or
filed during the two (2) year period after the Closing Date that arise from acts
or omissions alleged to have occurred on or prior to the Closing Date. Purchaser
shall be named as an additional insured on the foregoing policy.

Section 7.9 Minimum Cash Balance. At and immediately following Closing, the
Sellers’ bank account used in the Business which will become an asset of (and be
controlled by) the Partnership, shall have a cash balance of at least $1,117,500
(the “Minimum Cash Balance”).

Section 7.10 Bardavon. The parties acknowledge and agree that (a) Bardavon
Health Innovations, LLC (“Bardavon”) and the Partnership shall enter into that
certain sublease, attached hereto to Schedule 7.10, pursuant to which Bardovan
shall lease the use of certain office space; (b) the individuals identified in
Scheule 5.21(f) as “Bardavon Health Innovations, LLC employees as of the
Closing” are and shall be employees of Bardovan (and not the Partnership) and
the Partnership shall have no financial obligation to such Bardovan employees
whatsoever; and (c) Bardovan and the Partnership shall enter into that certain
“Bardovan Provider License Agreement” attached hereto to Schedule 7.10.

 

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Section 7.11 General. Each party hereto shall use its or his commercially
reasonable efforts to take all actions and to do all things necessary, proper or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement.

ARTICLE VIII

CERTAIN TAX MATTERS

Section 8.1 Transfer Taxes Any sales, use, transfer, vehicle transfer, stamp,
conveyance, value added or other similar Taxes that may be imposed by any
Governmental Authority, in connection with this transaction, will be borne by
Sellers.

Section 8.2 Partnership Status The parties hereto intend that Partnership will
constitute a partnership for U.S. federal income tax purposes both (i) following
the consummation of the Pre-Closing Reorganization and before the Closing and
(ii) immediately following the Closing. No party hereto shall take any action to
cause Partnership not to be treated as a partnership for U.S. federal income tax
purposes as of any period after the Closing.

Section 8.3 Section 754 Election The parties hereto agree that Partnership will
file with the IRS, and the parties hereto hereby request and consent to the
filing of, an election under Section 754 of the Code.

Section 8.4 Pre-Closing Tax Periods Sellers will cause to be included in their
respective income Tax Returns for all Pre-Closing Tax Periods, all revenue and
expense relating to the operations of the Business during such periods or
portions thereof. Owners will prepare and timely file or cause to be prepared
and timely filed all such Tax Returns with the appropriate Governmental
Authority. The Sellers and Owners hereby agree that they shall pay or cause to
be paid all payments of Tax shown to be due and owing on such Tax Returns.

Section 8.5 Tax Cooperation Sellers, Owners and Purchaser will (i) each provide
the other with such assistance as may reasonably be requested by any of them in
connection with the preparation of any Tax Return, audit or other examination by
any Authority or judicial or administrative proceedings relating to liability
for Taxes, (ii) each retain for at least eight years and provide the other with
any records or other information that may be relevant to such Tax Return, audit
or examination, proceeding or determination, and (iii) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax Return of
the other for any period. In addition, Sellers will retain until the applicable
statutes of limitations (including any extensions) have expired copies of all
Tax Returns, supporting work schedules, and other records or information that
may be relevant to such Tax Returns for all Pre-Closing Tax Periods and will not
destroy or otherwise dispose of any such records without first providing
Purchaser with a reasonable opportunity to review and copy the same.

ARTICLE IX

SURVIVAL; INDEMNIFICATION

Section 9.1 Survival The representations and warranties of the parties contained
in this Agreement or in any certificate or other writing delivered pursuant
hereto or in connection herewith shall survive the Closing for two (2) years;
provided, however, that the Selected

 

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Representations and Warranties shall survive the Closing for four (4) years.
Notwithstanding the immediately preceding sentence, any representation or
warranty in respect of which indemnity may be sought under this Agreement will
survive the time at which it would otherwise terminate pursuant to the
immediately preceding sentence if written notice of the inaccuracy or breach
thereof giving rise to such right of indemnity shall have been given to the
party against whom such indemnity may be sought prior to such time; provided,
however, that the applicable representation or warranty will survive only with
respect to the particular inaccuracy or breach specified in such written notice.
All covenants and agreements of the parties contained in this Agreement
(including the obligations of indemnification contemplated by this Article IX)
will survive the Closing indefinitely.

Section 9.2 Indemnification (a) Each of the Sellers and each of the Owners (in
their respective individual capacity) hereby, jointly and severally, indemnify,
defend and hold harmless the Purchaser and its partners, officers, directors,
employees, affiliates, stockholders representatives and agents, and the
successors or assigns to the foregoing (and their respective officers,
directors, employees, affiliates, stockholders and agents) against any and all
liabilities, damages and losses, and all reasonable costs or expenses, including
reasonable attorneys’ fees and expenses incurred in respect of Third-Party
Claims or claims between the parties hereto (“Damages”), if and to the extent
such Damages are incurred or suffered as a result of or arising out of (i) the
failure of any representation or warranty made by the Sellers and/or Owners in
Article V to be true and correct as of the Closing Date, (ii) the breach of any
covenant or agreement made or to be performed by either of the Sellers or Owners
pursuant to this Agreement, (iii) the failure of either of the Sellers to pay,
satisfy or otherwise discharge any Retained Liability, including any liability
for Taxes of a Seller, (iv) any Damages arising from the operation of the
Business prior to the Closing Date, including, without limitation, acts or
omissions relating to patient care services and any overpayment, recoupment,
fine or penalty with respect to any payor (federal, commercial or otherwise)
relating to or arising from services performed by a Seller prior to the Closing
Date, or (v) any Damages arising from the Seller Retained Employee Benefit Plans
that relate to periods prior to the Closing (except with respect to the dollar
value of such accrued and unpaid sick pay and vacation, which is being sassumed
by the Partnership), provided, however, that the Sellers and Owners will not be
liable under this Section 9.2(a) (other than 9.2(a)(iii)) unless, and then only
to the extent, the aggregate amount of Damages exceeds $100,000, in which case
the Sellers and Owners shall only be responsible for Damages in excess of such
amount, and provided further, however, that in no event shall Sellers and
Owners, in the aggregate, be obligated for any Damages in excess of $10,000,000.

(b) The Purchaser will indemnify, defend and hold harmless the Sellers, and
their respective officers, directors, employees, affiliates, successors,
assigns, representatives and agents, against Damages incurred or suffered as a
result of or arising out of (i) the failure of any representation or warranty
made by the Purchaser in Article VI to be true and correct as of the Closing
Date (ii) the breach of any covenant or agreement made or to be performed by the
Purchaser pursuant to this Agreement, or (iii) the failure of Partnership to
pay, satisfy or otherwise discharge any Partnership Assumed Liabilities,
including Taxes of Purchaser or Partnership, or (iv) any Damages arising from
the operation of the Business after the Closing Date, including, without
limitation, acts or omissions relating to patient care services and any
overpayment, recoupment, fine or penalty with respect to any payor (federal,
commercial or otherwise) relating to or arising from services performed by
Partnership after the Closing Date that are not directly related to the wrongful
act or negligence of Condon.

 

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Section 9.3 Procedures If any Person who or which is entitled to seek
indemnification under Section 9.2 (an “Indemnified Party”) receives notice of
the assertion or commencement of any Third-Party Claim against such Indemnified
Party with respect to which the Person against whom or which such
indemnification is being sought (an “Indemnifying Party”) is obligated to
provide indemnification under this Agreement, the Indemnified Party will give
such Indemnifying Party reasonably prompt written notice thereof, but in any
event not later than 20 days after receipt of such written notice of such
Third-Party Claim. Such notice by the Indemnified Party will describe the
Third-Party Claim in reasonable detail, will include copies of all available
material written evidence thereof and will indicate the estimated amount, if
reasonably estimable, of the Damages that have been or may be sustained by the
Indemnified Party. The Indemnifying Party will have the right to participate in,
or, by giving written notice to the Indemnified Party, to assume, the defense of
any Third-Party Claim at such Indemnifying Party’s own expense and by such
Indemnifying Party’s own counsel (which will be reasonably satisfactory to the
Indemnified Party), and the Indemnified Party will cooperate in good faith in
such defense.

(b) If, within 20 days after giving notice of a Third-Party Claim to an
Indemnifying Party pursuant to Section 9.3(a), an Indemnified Party receives
written notice from the Indemnifying Party that the Indemnifying Party has
elected to assume the defense of such Third-Party Claim as provided in the last
sentence of Section 9.3(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third-Party Claim
within twenty (20) days after receiving written notice from the Indemnified
Party or if the Indemnified Party reasonably believes the Indemnifying Party has
failed to take such steps or if the Indemnifying Party has not undertaken fully
to indemnify the Indemnified Party in respect of all Damages relating to the
matter in accordance with the terms of this Agreement, the Indemnified Party may
assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs and expenses paid or incurred in connection therewith;
provided, however, that the Indemnifying Party shall not be liable for the costs
and expenses of more than one counsel for all Indemnified Parties in any one
jurisdiction. If the Indemnifying Party disputes the right to indemnity, the
Indemnified Party may also defend such claim or demand or settle or pay any such
claim or demand, but any right to recover from the Indemnifying Party shall
depend on the resolution of the dispute as to the right of indemnity. Without
the prior written consent of the Indemnified Party, the Indemnifying Party will
not enter into any settlement of any Third-Party Claim which would lead to
liability or create any financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder, or which provides for injunctive or other
non-monetary relief applicable to the Indemnified Party, or does not include an
unconditional release of all Indemnified Parties. If a firm offer is made to
settle a Third-Party Claim without leading to liability or the creation of a
financial or other obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party will give written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within ten days after its
receipt of such notice, the Indemnified

 

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Party may continue to contest or defend such Third-Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such Third-Party
Claim will not exceed the amount of such settlement offer. The Indemnified Party
will provide the Indemnifying Party with reasonable access during normal
business hours to books, records and employees of the Indemnified Party
necessary in connection with the Indemnifying Party’s defense of any Third-Party
Claim which is the subject of a claim for indemnification by an Indemnified
Party hereunder.

(c) Any claim by an Indemnified Party on account of Damages which does not
result from a Third-Party Claim (a “Direct Claim”) will be asserted by giving
the Indemnifying Party reasonably prompt written notice thereof. Such notice by
the Indemnified Party will describe the Direct Claim in reasonable detail, will
include copies of all available material written evidence thereof and will
indicate the estimated amount, if reasonably practicable, of Damages that has
been or may be sustained by the Indemnified Party. The Indemnifying Party will
have a period of thirty (30) calendar days within which to respond in writing to
such Direct Claim. If the Indemnifying Party does not so respond within such
thirty (30) day period, the Indemnifying Party will be deemed to have rejected
such claim, in which event the Indemnified Party will be free to pursue such
remedies as may be available to the Indemnified Party on the terms and subject
to the provisions of this Agreement.

(d) A failure to give timely notice or to include any specified information in
any notice as provided in Section 9.3(a), 9.3(b) or 9.3(c) will not affect the
rights or obligations of any party hereunder, except and only to the extent
that, as a result of such failure, any party which was entitled to receive such
notice was deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise materially prejudiced as a result of such
failure.

Section 9.4 Offset If the Purchaser incurs any Damages for which it is entitled
to indemnification by the Sellers or Owners under this Article IX, then pursuant
to (i) a written agreement for offset among the Purchaser and the Sellers or
(ii) either (x) a decision by an arbitrator in accordance with Section 10.12 or
(y) a judgment entered by a court of competent jurisdiction, the Purchaser shall
have the right to offset any payments of principal and/or interest due or to be
due under the Note by the amount of the Damages. Such right of offset shall not
be considered an exclusive remedy, it being agreed that the Purchaser shall also
be entitled to exercise any other remedies available to it at law or equity,
including the indemnification rights set forth in this Article IX.

In addition, if a dispute arises or exists concerning a claim as to whether the
Sellers or Owners are obligated to indemnify the Purchaser pursuant to this
Article IX, the Purchaser shall make a good faith estimate of the amount of such
indemnification liability (the “Estimated Dispute Amount”) and shall have the
right (but not the obligation), if any payment(s) under the Note become due
prior to the final resolution of such dispute consistent with the immediately
preceding paragraph, to place such amounts in an escrow account pursuant to
terms reasonably satisfactory to Owners and the Purchaser until such time as the
dispute is finally resolved in a manner consistent with the immediately
preceding paragraph.

 

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Section 9.5 Payment of Indemnification Payments All indemnifiable Damages
payable by the Sellers or Owners under this Article IX shall, subject to
Section 9.4, be paid in cash in immediately available funds. All indemnifiable
Damages payable by the Sellers or Owners under this Article IX shall be net of
amounts actually recovered by the Purchaser under any insurance policy. If,
following the receipt by an Indemnified Party under Section 9.2(a) of any
indemnity payment hereunder, such Indemnified Party shall receive any insurance
recovery or indemnity payment from a third party in respect of the same
underlying claim, such Indemnified Party shall reimburse the Sellers or the
Owners, as applicable, to the extent of such insurance recovery or third party
indemnity payment. All indemnifiable Damages payable by the Purchaser under this
Article IX shall be paid in cash in immediately available funds. Notwithstanding
anything to the contrary contained herein, the Purchaser shall set off
indemnifiable Damages to which it is entitled hereunder against any payments of
principal and/or interest due or to be due under the Note prior to the exercise
by the Purchaser of additional rights under this Article IX.

ARTICLE X

MISCELLANEOUS

Section 10.1 Notices All notices and other communications required or permitted
hereunder will be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been duly given when delivered in person or when
dispatched by electronic facsimile transfer (receipt confirmed) or one business
day after having been dispatched by a nationally recognized overnight courier
service to the appropriate party at the address specified below:

(a) If to the Purchaser to:

U.S. Physical Therapy, Ltd.

1300 West Sam Houston Parkway South

Suite 300

Houston, Texas 77042

Facsimile No.: (713) 266-0558

Attention: General Counsel

(b) If to the Seller or Owner to:

Athletic & Rehabilitation Center, LLC

O’Rourke Management Services, Inc.

c/o Kevin O’Rourke

7130 N. National Drive

Parkville, MO 64152

And

Athletic & Rehabilitation Center, LLC

Condon Management Services, Inc.

c/o Matthew Condon

6222 Glenfield

Fairway, KS 66205

 

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or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.

Section 10.2 Amendments and Waivers Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by the party against whom the waiver is to be effective.

(b) No failure or delay by any party in exercising any right, power or privilege
hereunder will operate as a waiver thereof nor will any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
will be cumulative and not exclusive of any rights or remedies provided by Law.

Section 10.3 Expenses Subject to Section 3.1, whether or not the transactions
contemplated by this Agreement are consummated, except as otherwise expressly
provided for herein, the parties will pay or cause to be paid all of their own
fees and expenses incident to this Agreement and in preparing to consummate and
in consummating the transactions contemplated hereby, including the fees and
expenses of any broker, finder, financial advisor, investment banker, legal
advisor or similar person engaged by such party.

Section 10.4 Successors and Assigns The provisions of this Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement (including any transfer by way
of merger or operation of law) without the consent of each other party hereto;
provided, however, that Purchaser may assign all or any portion of its rights
and/or obligations hereunder to an Affiliate of Purchaser or the Parent;
provided, further, that no such assignment shall relieve Purchaser from its
obligations hereunder. Any assignment in violation of the preceding sentence
will be void ab initio.

Section 10.5 No Third-Party Beneficiaries This Agreement is for the sole benefit
of the parties hereto and their permitted successors and assigns, and nothing
herein expressed or implied will give or be construed to give to any Person,
other than the parties hereto and such permitted successors and assigns, any
legal or equitable rights hereunder.

Section 10.6 Governing Law This Agreement will be governed by, and construed in
accordance with, the laws of the State of Texas, regardless of the Laws that
might otherwise govern under principles of conflict of laws thereof.

Section 10.7 Jurisdiction Except as otherwise provided in Section 10.12 or to
otherwise enforce an arbitrator’s award or decision pursuant to Section 10.12,
any suit, action or proceeding seeking to enforce any provision of, or based on
any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby may be brought in the

 

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courts of the State of Texas, in Harris County, and the federal courts in the
Southern District of Texas. Each of the parties (i) consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding, (ii) irrevocably waives, to the fullest
extent permitted by Law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum, (iii) will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court, and (iv) will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any other court. Process in
any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such party
as provided in Section 10.1 will be deemed effective service of process on such
party.

Section 10.8 Counterparts This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.

Section 10.9 Table of Contents; Headings The table of contents and headings in
this Agreement are for convenience of reference only and will not control or
affect the meaning or construction of any provisions hereof.

Section 10.10 Entire Agreement This Agreement (including the Schedules and
Exhibits hereto) and the Ancillary Agreements constitute the entire agreement
among the parties with respect to the subject matter of this Agreement. This
Agreement (including the Schedules and Exhibits hereto) and the Ancillary
Agreements supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof of this
Agreement.

Section 10.11 Severability; Injunctive Relief If any provision of this Agreement
or the application of any such provision to any Person or circumstance is held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, the remainder of the provisions of this Agreement (or the
application of such provision in other jurisdictions or to Persons or
circumstances other than those to which it was held invalid, illegal or
unenforceable) will in no way be affected, impaired or invalidated, and to the
extent permitted by applicable Law, any such provision will be restricted in
applicability or reformed to the minimum extent required for such provision to
be enforceable. This provision will be interpreted and enforced to give effect
to the original written intent of the parties prior to the determination of such
invalidity or unenforceability.

 

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Section 10.12 Arbitration Any dispute between the parties hereto with respect to
any claim for indemnification or otherwise arising under this Agreement shall be
resolved by binding arbitration in accordance with the following provisions,
provided, however, that any party may seek injunctive relief or other equitable
relief to preserve the status quo pending arbitration.

(b) Any party to this Agreement may submit any dispute that is subject to
arbitration by giving written notice to the other parties hereto. Within 30 days
after receipt of such notice by such other party, the parties hereto shall
mutually select an arbitrator. If the parties are unable to agree upon such
selection within such 30 days, then either party may, upon at least five days
prior written notice to the other party, request the American Arbitration
Association to appoint the arbitrator. The American Arbitration Association may
thereupon appoint the arbitrator. The arbitrator shall be impartial and
unrelated, directly or indirectly, so far as rendering of services is concerned
to either of the parties or any of their respective Affiliates. The arbitration
shall be conducted in Houston, Texas in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as then in effect,
except as otherwise provided in this Section 10.12, and the arbitrator shall be
paid on an hourly basis, except as otherwise mutually agreed; provided, however,
the parties hereto agree and affirm that any such arbitration as contemplated
hereunder shall permit full and complete discovery hereunder.

(c) The arbitrator shall investigate the facts and may, in his or her
discretion, hold hearings, at which the parties hereto may present evidence and
arguments, be represented by counsel and conduct cross-examination. The
arbitrator shall render a written decision on the matter presented as soon as
practicable after his or her appointment and in any event not more than 90 days
after such appointment. The decision of the arbitrator, which may include
equitable relief, shall be final and binding on the parties hereto, and judgment
upon the decision may be entered in any court having jurisdiction thereof. If
the arbitrator shall fail to render a decision within such 90 day period, either
party may institute such action or proceeding in such court as shall be
appropriate in the circumstances and upon the institution of such action, the
arbitration proceeding shall be terminated and shall be of no further force and
effect. Each party shall bear their own costs and expenses in any such
proceeding. In resolving any dispute, the arbitrator shall apply the provisions
of this Agreement and applicable law, without varying therefrom in any respect.
The arbitrator shall not have the power to add to, modify or change any of the
provisions of this Agreement.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

 

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The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.

 

PURCHASER: U.S. PHYSICAL THERAPY, LTD. By:   National Rehab Management GP, Inc.,
  its general partner By:  

/s/ Chris Reading

  Chris Reading, President SELLERS: ARC REHABILITATION SERVICES, LLC, By:  

/s/ Matthew J. Condon

  Matthew J. Condon, President/CEO ATHLETIC & REHABILITATION CENTER, LLC, By:  

/s/ Matthew J. Condon

  Matthew J. Condon, President/CEO OWNERS:

/s/ Matthew J. Condon

Matthew J. Condon

/s/ Kevin O’Rourke

Kevin O’Rourke

 

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