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EXHIBIT 99.1
AGREEMENT BY AND AMONG SECURED
CREDITORS
This Agreement By and Among Secured
Creditors (“Agreement”) is made effective as of May 21,
2007 (the “Effective Date”), by and among PainCare
Holdings, Inc. (“PainCare”), PainCare Acquisition
Company XV, Inc. (“PainCare Sub”) and PainCare Surgery
Centers III, Inc. (“PainCare Surgery
Centers”)(PainCare, PainCare Sub and PainCare Surgery Centers
are hereinafter sometimes referred to as the “Sellers”)
on the one hand, The Center for Pain Management, LLC (the
“Original Practice”), The Center for Pain Management
ASC, LLC (the “Original Surgery Center”) and the
undersigned member physicians of the Original Practice
(collectively, the “Members” together with the Original
Practice and the Original Surgery Center are hereinafter sometimes
referred to as the “Purchasers”), and HBK Investments
L.P., a Delaware limited partnership (“HBK”), as the
arranger and administrative agent for all the lenders to PainCare
and certain of its subsidiaries under the Loan Documents (as
defined below). Each of the Sellers, Purchasers, and HBK may be
referred to herein as a “Party” or collectively, as the
“Parties.”
RECITALS
A. On December 1, 2004, PainCare and
PainCare Sub (collectively, the “Practice Sellers”) and
the Original Practice and the Members (collectively, the
“Practice Buyers”) effected a transaction (the
“Practice Purchase Transaction”) by which (i) the
Practice Sellers acquired substantially all of the non-medical
assets of the Original Practice pursuant to that certain Asset
Purchase Agreement, dated December 1, 2004, as amended by that
certain Amendment To Asset Purchase Agreement dated February __,
2005 (the “Original Practice Purchase Agreement”); and
(ii) Original Practice and the PainCare Sub entered into that
certain Management Services Agreement, dated as of December 1,
2004, as amended by that certain Amendment to the Management
Services Agreement dated February 21, 2005 (the “Management
Agreement”) pursuant to which the PainCare Sub would manage
the business operations of Original Practice. The Practice
Sellers’ obligations to the Practice Buyers under the
Practice Purchase Transaction are secured by all of the stock of
the PainCare Sub and guaranteed by PainCare and non-circumvention
agreements. The Original Practice’s obligations to the
PainCare Sub under the Management Agreement are secured by the
assets of the Original Practice.
B. On September 26, 2005, PainCare
and PainCare Surgery Centers (collectively, the “Surgery
Center Sellers”) and the Original Surgery Center and certain
of the Members (collectively, the “Surgery Center
Buyers”) effected a transaction (the “Surgery Center
Purchase Transaction”) by which the Surgery Center Sellers
acquired substantially all of the assets of the Original Surgery
Center pursuant to that certain Asset Purchase Agreement dated
September 26, 2005 (the “Original Surgery Centers Purchase
Agreement”). The Surgery Center Sellers’ obligations to
the Surgery Center Buyers under the Surgery Center Purchase
Transaction are secured by all of the stock of the PainCare Surgery
Centers and guaranteed by PainCare and non-circumvention
agreements.
C. The Practice Buyers allege that
certain of the Practice Sellers’ obligations under the
Practice Purchase Transaction are in default, as set forth in the
March 15, 2007 notice from the Practice Buyers and the Members to
the Practice Sellers.
D. The Surgery Center Buyers allege
that certain of the Surgery Center Sellers’ obligations under
the Surgery Center Purchase Transaction are in default.
E. PainCare and certain of its
subsidiaries entered into the Loan and Security Agreement dated May
10, 2005 with HBK as arranger and administrative agent for all the
lenders thereto (such Loan and Security Agreement together with the
other documents relating thereto, the "HBK Loan Documents").
PainCare’s obligations to HBK under the HBK Loan Documents
are secured by the assets of PainCare and certain of its
subsidiaries. HBK alleges that certain of PainCare’s
obligations under the HBK Loan Documents are in default, as set
forth in the March 21, 2007 notice from HBK, on behalf of itself
and the lenders it represents, to PainCare.
F. The Sellers and Purchasers have
become dissatisfied with the arrangement contemplated by the
Practice
Purchase Transaction and the Surgery
Center Purchase Transaction (collectively, the “Purchase
Transactions”) and the conduct of the business in the form
created by the Purchase Transactions. The Sellers, on the one hand,
and the Purchasers, on the other, have accordingly concluded that
it is in their mutual best interest to settle all claims they may
have against each other and sever completely the relationship
between the Sellers and the Purchasers created by the Purchase
Transactions, which will include the termination of all agreements
linking the Sellers and the Purchasers together. Therefore, (i)
PainCare Surgery Centers desires to sell, and the Original Surgery
Center desires to purchase, all of the Surgery Center Assets (as
defined in Section 3.a hereof) for cancellation of the portion of
the unpaid amounts owing under that certain purchase money
promissory note issued by PainCare Surgery Centers to the Original
Surgery Center in the original principal amount of Seven Million
Five Hundred Thousand and 00/100 Dollars ($7,500,000) plus all
accrued interest thereon (the “Surgery Center Note”)
equal to the Total Consideration amount set forth on
Exhibit 3(b) attached
hereto; and (ii) PainCare Sub desires to sell, and the Original
Practice desires to purchase, all of the Practice Assets (as
defined in Section 2.a hereof) and, in connection therewith,
PainCare Sub and the Original Practice desire to terminate the
Management Agreement and any and all other agreements between the
Sellers and the Purchasers, all pursuant to the terms and
conditions of, and as more fully described in, this Agreement, for
a purchase price of Five Million and 00/100 Dollars ($5,000,000.00)
.
F. Purchasers and HBK desire to
enter into this Agreement in lieu of foreclosure on their
respective security interests. Purchasers and Sellers and desire to
release and terminate any and all security interests each has in
the stock and/or assets of the other. HBK desires to consent to
such lien releases, release and terminate any and all security
interest it has in the Practice Assets and Surgery Center Assets,
and agree to the transactions described herein.
NOW THEREFORE, in consideration of
the foregoing recitals and the mutual covenants and representations
contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Parties to this Agreement agree as follows:
TERMS AND
CONDITIONS
1. Purpose of
Agreement . a. This Agreement and any and
all schedules, exhibits and ancillary documents hereto
(collectively, the “Documents”)
are being executed for the purposes of (a) selling the Surgery
Center Assets to the Original Surgery Center and selling the
Practice Assets to the Original Practice; (b) providing for an
orderly and amicable separation of the Sellers and the Purchasers,
and (c) compromising and settling all disputes between them, which
shall be accomplished generally as follows:
i. The
Original Practice will purchase and the PainCare Sub will sell to
the Original Practice the Practice Assets and terminate the
Management Agreement for the sum of Five Million and 00/100 Dollars
($5,000,000.00) which amount will be paid to HBK (less the
deductions reflected on the Business Transfer Cash Adjustment
Statement) for the benefit of Seller and applied against
Sellers’ obligation to HBK under the HBK Loan Documents as
hereinafter provided. The Parties hereto agree that the
consideration being given in exchange for the Practice Assets is
fair and reasonable.
ii.
The Original Surgery Center will purchase the Surgery Center Assets
from the PainCare Surgery Centers for cancellation of the portion
of the unpaid amounts owing under the Surgery Center Note equal to
the Total Consideration amount set forth on Exhibit 3(b) attached hereto, the
agreed upon fair value, in exchange for the Surgery Center Assets.
The Parties hereto agree that the consideration being given in
exchange for the Surgery Center Assets is fair and
reasonable.
2. Transfer of
Practice Assets . a.
Sale of Practice Assets to Original
Practice . Subject to the terms and
conditions of this Agreement, effective as of
the Effective Date (as defined in Section 9 below), the Original
Practice shall purchase, and the PainCare Sub shall sell, transfer,
convey, assign and deliver to the Original Practice all of the
assets of the Original Practice (of every kind, nature, character,
and description, whether real, personal or mixed, tangible or
intangible, accrued, contingent or otherwise) including, without
limitation, the assets located at the offices of the Original
Practice and used in the operation of the business of the Original
Practice wherever situated, the cash, cash
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equivalents, and accounts receivable
of Original Practice, goodwill, and any other assets which are
used, held for use or acquired or developed for use by the PainCare
Sub in connection with its management of Original Practice
(collectively, the “Practice Assets”). The Practice
Assets expressly exclude the Practice Excluded Assets described in
Section 2.c below. The PainCare Sub and the Original Practice shall
enter into that certain Bill of Sale in substantially the same form
as attached hereto as Exhibit
2(a) , which is incorporated herein by
reference, for the purpose of effectuating the transfer of the
Practice Assets to the Original Practice. The Practice Sellers
hereby further agree that they shall execute such further
instruments as customary and reasonable to transfer ownership of
the Practice Assets to the Original Practice, and to take such
other actions as may be reasonably require to effect the ownership
transfers contemplated in this Agreement.
b. Purchase Price and
Covenants . The Original Practice
covenants and agrees to pay at Closing by wire transfer, in
accordance with wire instructions to be given by the Practice
Sellers and HBK, HBK for the benefit of Sellers, to be credited to
Practice Sellers’ loan obligation to HBK as provided in the
HBK Loan Documents, the sum of Five Million and 00/100 Dollars
($5,000,000.00) (the “Practice Purchase Price”) (less
the deductions reflected on the Business Transfer Cash Adjustment
Statement).
From
and after the Closing, each Purchaser and Seller shall allocate the
consideration paid for the Practice Assets as set forth on Exhibit
2(b) attached hereto and incorporated by reference herein and shall
make consistent use of such allocation and fair market value for
all tax purposes and in all filings, declarations and reports with
the IRS and other tax authorities.
c. Excluded Assets
. Section 2.a notwithstanding, the PainCare Sub
shall not sell, transfer, assign, convey or deliver to the Original
Practice, and the Original Practice is not acquiring any of the
following assets of the PainCare Sub (collectively, the
“Practice Excluded Assets”):
i. Tax Credits and Records
. Federal, state and local income and other tax
credits and tax refund claims and associated returns and records
relating to periods prior to Closing, provided the Original
Practice shall have reasonable access to such records to the extent
reasonably necessary for the Purchasers’ own tax planning or
returns.
ii. Business Documents
. The organizational documents of the Practice
Sellers, including without limitation its minute books, general
accounting records, correspondence, policies, procedures, reports,
data, the financial statements and records of the Practice Sellers
and any other documents not deemed part of the Practice Assets,
provided the Original Practice shall have reasonable access to such
documents to the extent reasonably necessary for the
Purchasers.
iii. Leased Equipment
. The equipment leased to the PainCare Sub by EDX as
set forth on Exhibit 2(c)(iii)
attached hereto and incorporated by reference
herein, which equipment may be removed by Sellers.
d. Liabilities . The Original Practice shall assume the accrued payroll,
accrued paid time off, and unpaid accounts payable of the PainCare
Sub which arose in the ordinary course of operations of the
Original Practice before the Effective Date and are owed to usual
and customary vendors supplying goods and services to the Original
Practice. Attached at Exhibit
2(d) is a list of estimated liabilities
that Purchasers and Sellers expect to be assumed by the Original
Practice hereunder. The Original Practice shall not assume any
liability owed to the Maryland Department of the Environment in
connection with excessive radiation exposure at the Hagerstown
facility in November 2006 which the PainCare Sub shall pay when
due. Notwithstanding anything to the contrary herein, the Original
Practice shall not assume any contracts or obligations to which
PainCare or the PainCare Sub is a party including, without
limitation, any EDX lease or other equipment lease.
3. Transfer of
Surgery Center Assets . a.
Sale of Surgery Center Assets to Original Surgery
Center . Subject to the terms and
conditions of this Agreement, effective as of
the Effective Date (as defined in Section 10 below), the Original
Surgery Center shall purchase, and the PainCare Surgery Centers
shall sell, transfer, convey, assign and deliver to the Original
Surgery Center all of the assets of the Original Surgery Center (of
every kind, nature, character, and description, whether real,
personal or mixed, tangible or intangible, accrued, contingent or
otherwise) including, without limitation, the assets located at the
offices of the Original Surgery Center and used in the operation of
the business of
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the Original Surgery Center wherever
situated, including without limitation, the cash, cash equivalents,
and accounts receivable of Original Surgery Center, goodwill, and
any other assets which are used, held for use or acquired or
developed for use by the PainCare Surgery Centers in connection
with the operation of the Original Surgery Center (collectively,
the “Surgery Center Assets”). The Surgery Center Assets
expressly exclude the Surgery Centers Excluded Assets described in
Section 3.c below. The PainCare Surgery Centers and the Original
Surgery Center shall enter into that certain Bill of Sale in
substantially the same form as attached hereto as
Exhibit 3(a) , which is
incorporated herein by reference, for the purpose of effectuating
the transfer of the Surgery Center Assets to the Original Surgery
Center. The Surgery Center Sellers hereby further agree that they
shall execute such further instruments as customary and reasonable
to transfer ownership of the Surgery Center Assets to the Original
Surgery Center, and to take such other actions as may be reasonably
require to effect the ownership transfers contemplated in this
Agreement.
b. Purchase Price and
Covenants . The Original Surgery Center
covenants and agrees that in exchange for the Surgery Center Assets
that it will, as of the Closing, cancel the portion of the unpaid
amounts owing under the Surgery Center Note equal to the Total
Consideration amount set forth on Exhibit
3(b) attached hereto (hereinafter the
“Surgery Center Purchase Price”).
From
and after the Closing, each Purchaser and Seller shall allocate the
consideration paid for the Surgery Center Assets as set forth on
Exhibit 3(b) attached hereto and incorporated by reference and
shall make consistent use of such allocation and fair market value
for all tax purposes and in all filings, declarations and reports
with the IRS and other tax authorities
c. Excluded Assets
. Section 3.a notwithstanding, the PainCare Surgery
Centers shall not sell, transfer, assign, convey or deliver to the
Original Surgery Center, and the Original Surgery Center is not
acquiring any of the following assets of the PainCare Surgery
Centers (collectively, the “Surgery Centers Excluded
Assets”):
i. Tax Credits and Records
. Federal, state and local income and other tax
credits and tax refund claims and associated returns and records
relating to the periods prior to Closing, provided the Original
Surgery Center shall have reasonable access to such records to the
extent reasonably necessary for the Purchasers’ own tax
planning or returns.
ii. Business Documents
. The organizational documents of the Surgery Center
Sellers, including without limitation its minute books, general
accounting records, correspondence, policies, procedures, reports,
data, the financial statements and records of the Surgery Center
Sellers and any other documents not deemed part of the Surgery
Center Assets, provided the Original Surgery Center shall have
reasonable access to such documents to the extent reasonably
necessary for the Purchasers.
iii. Leased Equipment
. The equipment leased to the PainCare Surgery
Centers by EDX as set forth on Exhibit
3(c)(iii) attached hereto and
incorporated by reference herein, which equipment may be removed by
Sellers.
d. Liabilities . The Original Surgery Center shall assume the unpaid accounts
payable of the PainCare Surgery Centers which arose in the ordinary
course of operations of the Original Surgery Center before the
Effective Date and are owed to usual and customary vendors
supplying goods and services to the Original Surgery Center.
Attached at Exhibit 2(d) is a list of estimated liabilities that
Purchasers and Sellers expect to be assumed by the Original Surgery
Center hereunder. The Original Surgery Center shall not assume any
liability owed to the Maryland Department of the Environment in
connection with excessive radiation exposure at the Hagerstown
facility in November 2006 which the PainCare Sub shall pay when
due. Notwithstanding anything to the contrary herein, the Original
Surgery Center shall not assume any contracts or obligations to
which PainCare or the PainCare Surgery Centers is a party
including, without limitation, any EDX lease or other equipment
lease.
4. Consensual Enforcement and Lien Releases . The Purchasers and HBK hereby acknowledge and agree that they
are entering into this Agreement in lieu of foreclosure on their
respective security interests and in lieu of exercising their
related legal rights and remedies. The Practice Buyers hereby
release and terminate its security interest in the stock of the
PainCare Sub. The PainCare Sub hereby releases and terminates its
security interest in the assets of the Original Practice. The
Surgery Center Buyers hereby release and terminate its security
interest in the stock of the PainCare Surgery Centers. Sellers and
Purchasers hereby release and terminate all other
security
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interests each has in the stock
and/or assets of the other and agree to take all further action to
file the related UCC-3 termination statements. HBK hereby consents
and agrees to such lien releases. In addition, HBK hereby releases
and terminates any and all security interest it has or may have in
the Practice Assets and the Surgery Center Assets and agrees to
take all further action to file the related UCC-3 termination
statements. HBK consents and agrees to all the transactions
described herein. The Practice Assets and the Surgery Center Assets
are sold free and clear of all claims, liens, encumbrances, options
to purchase by, or other rights of any third person arising by,
through or under, any Seller including, without limitation, any
lien or encumbrance of HBK, Midsummer Investments Ltd. or Laurus
Master Fund Ltd.
5. Termination of
the Management Services Agreement and Other Agreements
. a. PainCare Sub and Original Practice shall
terminate the Management Agreement as of the Effective
Date pursuant to that certain Management Services
Termination Agreement attached hereto as Exhibit 5(a) (the “Management
Services Termination Agreement”). As a result of the
termination of the Management Agreement, no party to the Management
Agreement shall have any further or continuing obligation or
responsibility to the other Party pursuant to such agreement,
including the payment of any amounts or performance of any
obligations under the terms of the Management Agreement on or after
the Effective Date. The PainCare Sub shall not be entitled to
receive any payments pursuant to the Management Agreement after the
Effective Date.
b. In
addition to the termination of the Management Agreement, all other
agreements, written or oral, among the Sellers and Purchasers
(other than this Agreement) shall be terminated as of the Effective
Date pursuant to the Termination Agreement attached hereto
as Exhibit 5(b) , and no party thereto shall have obligation or responsibility
to any other party thereto under the terms of any such agreements
on or after the Effective Date.
c. In
connection with the termination of the foregoing agreements, the
parties are hereby deemed to have waived any applicable termination
provisions contained in such agreements or any and all other
conditions (including, but not limited to, any conditions precedent
or conditions subsequent) to the termination thereof.
d.
Sellers acknowledge and agree that any and all rights they have
with respect to the real estate leases identified on
Exhibit 5(d) hereto
shall be terminated, as set forth by the Acknowledgement and
Agreement to Termination of Rights Under the Leases attached hereto
as Exhibit 5(d) .
e.
Sellers acknowledge and agree that any and all rights they have
with respect to the Amended and Restated Operating Agreement for
The Center for Pain Management, LLC dated February 17, 2005, the
Employment Agreements between The Center for Pain Management, LLC
and the Members dated February 21, 2005, and other leases, services
agreements, and equipment agreements identified on
Exhibit 5(e) hereto,
shall be terminated, as set forth by the Acknowledgement and
Agreement to Termination of Rights Under the Agreements attached
hereto as Exhibit 5(e)
.
f.
Upon Sellers’ acceptance of Purchasers’ cancellation of
the portion of the unpaid amounts owing under the Surgery Center
Note equal to the Total Consideration amount set forth on
Exhibit 3(b) attached
hereto as payment for the Surgery Center Assets, Purchasers will
cancel and forgive for no consideration any other amounts unpaid or
otherwise owing under the Surgery Center Note. Purchasers will also
cancel and forgive for no consideration the obligation of PainCare
to pay the (a) accrued and unpaid past due second Intended
Installment Payment (as defined in the Original Practice Purchase
Agreement) of cash and PainCare stock and (b) the third Intended
Installment Payment (as defined in the Original Practice Purchase
Agreement) of cash and PainCare stock. Sellers acknowledge and
agree that the obligations forgiven pursuant to this Section 5.f
have no value and that Purchasers’ discharge is set forth to
facilitate Sellers’ resolution of matters involving other
creditors.
6. Purchase
Transactions . a. Notwithstanding
anything to the contrary contained herein or in any exhibit hereto,
all consideration paid by a Purchaser or
Seller to another prior to the Effective Date pursuant to the
Pur
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