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EXHIBIT 99.4
SETTLEMENT AND RESCISSION AGREEMENT AND MUTUAL
RELEASE
This Settlement and Rescission
Agreement and Mutual Release ("Settlement Agreement") is entered
into as of December 11, 2006, by and between PainCare Holdings,
Inc. ("PainCare") and PainCare Neuromonitoring I, Inc. ("PainCare
Sub" and together with PainCare, the "PainCare Parties") on one
hand, and Bruce Lockwood, M.D. ("Lockwood"), John D. Bender, D.O.
("Bender"), and Richard A. Flores ("Flores"). Collectively,
Lockwood, Bender and Flores will be referred to as the "PhysIOM
Parties" and the PainCare Parties and the PhysIOM Parties will be
referred to as the "Parties").
RECITALS
A. On February 1, 2006, the Parties effected a transaction
("Original Transaction") by which the PainCare Parties acquired a
sixty percent (60%) interest in Amphora LLC ("Amphora") from
Lockwood, Bender and Flores ("PainCare Amphora Interest"). The
terms of this transaction were embodied in a Membership Interest
Purchase Agreement between and among Amphora LLC and the Parties
dated February 1, 2006 ("Purchase Agreement").
B. Subsequent to February 1, 2006, Amphora’s name was
changed to PhysIOM, LLC ("PhysIOM").
C. Under the Purchase Agreement, PainCare Sub acquired separate
twenty percent (20%) memberships interests in Amphora from each of
Lockwood, Bender and Flores. In return, the PainCare Parties made
an immediate payment in the form of cash and PainCare stock
separately to each of Lockwood, Bender and Flores. The Purchase
Agreement further provided for four additional installment payments
to Lockwood, Bender and Flores over a period of approximately five
years (5) years following closing of the Original Transaction. Such
installment payments were dependent upon the financial performance
of Amphora and Associates in Rehabilitative Medicine, PLLC ("ARM"),
and were to made in the form of both cash and additional stock in
PainCare. No installment payments are yet due, and none have been
made.
D. As of February 1, 2006, ARM was a Professional Limited
Liability Company owned equally by Lockwood and Bender. At that
time, Flores was the designated Manager of ARM. ARM was and remains
engaged in the business of neuromonitoring. Subsequent to February
1, 2006, ARM’s name was changed to PhysIOM Associates, LLC
("PhysIOM Associates").
E. As of February 1, 2006, Flores owned and operated
Neuromonitoring Consultants of Colorado, Inc. ("Neuromonitoring
Consultants"). Neuromonitoring Consultants was at that time engaged
in the business of neuromonitoring. One purpose of the Original
Transaction was to bring the operations of Neuromonitoring
Consultants under the operating umbrella of Amphora and ARM.
F. By the terms of the Purchase Agreement,
ARM was required to enter into a Management Agreement with Amphora
("Management Agreement"), under which Amphora served as Manager of
ARM and was paid for those services in accordance with a formula by
which essentially all profits earned by ARM were paid to Amphora in
the form of management fees.
G. The essential business purpose of the Original Transaction
was to develop and expand the neuromonitoring business being
conducted at that time by Amphora, ARM and Neuromonitoring
Consultants, for the benefit of the Parties.
H. The Parties have become dissatisfied with the operation of
Amphora and the conduct of the business in the form created by the
Original Transaction. In addition, the PhysIOM Parties, on the one
hand, and the PainCare Parties, on the other, have made legal
claims against each other that, were they valid, would permit the
prevailing party to obtain rescission of the Original Transaction.
Each side of this dispute denies that it has engaged in any
misconduct or legally actionable conduct of any kind, but each side
continues to insist that that the other side has engaged in legally
actionable wrongful conduct.
I. The PainCare Parties, on the one hand, and the PhysIOM
Parties, on the other, have accordingly concluded that it is their
mutual best interest to rescind the Original Transaction, as of
February 1, 2006 (the "Rescission Date"), and settle all claims
they may have against each other. The Parties are entering into
this Settlement Agreement in order to effect that result. By this
Settlement Agreement, it is the Parties intent to sever completely
the relationship between the PainCare Parties and PhysIOM Parties
created by the Original Transaction, which will include the
termination of all agreements linking those parties together in the
neuromonitoring business, which the PhysIOM Parties will hereby
retain.
J. The Bill of Sale and Assignment to be delivered under Section
3(b), the Membership Interest Powers to be delivered under Section
4, the original stock certificates to be delivered under Section 5,
and the Noncompetition Agreement to be delivered under Section 7
are to achieve the Parties purposes as defined in paragraph I. They
are collectively referred to in this Settlement Agreement as the
"Settlement Documents."
AGREEMENT
NOW THEREFORE in consideration of
the foregoing Recitals and the mutual covenants and representations
contained herein, the parties to this Settlement Agreement agree as
follows:
1. Purpose of Settlement
Agreement and Absence of Liability . This Settlement Agreement
and the Settlement Documents are being executed for the sole
purposes of (a) rescinding the Original Transaction, (b) providing
for an orderly and amicable separation of the Parties, and (c)
compromising and settling all disputes between them. It is
expressly understood and agreed, as a condition hereof, that any
payment or agreement associated with this Settlement Agreement will
not constitute or be construed as an admission of liability on the
part of any of the parties to this Settlement Agreement.
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2.
Payment by the PhysIOM Parties . Each of the PhysIOM Parties
agrees to pay to the PainCare Parties the sum of $466,667, in cash.
Such payment will be made, and all of the Settlement Documents will
be delivered, by electronic and overnight delivery on December 20,
2006. Such delivery will be referred in this Settlement Agreement
as the "Closing," and the actual date of Closing will be referred
in this Settlement Agreement as the "Closing Date." The PhysIOM
Parties reserve the right to accelerate the Closing to a date
reasonably acceptable to PainCare. Payments to PainCare pursuant to
this Section 2 will be made by wire transfer as set forth below,
or, by cashier’s check delivered at the Closing:
The Parties agree that the payments required to be made by the
PhysIOM Parties under this Section 2 represent a reasonable
estimate of the net amount of the cash purchase price paid by the
PainCare Parties to the PhysIOM Parties upon the consummation of
the Original Transaction, and all distributions and other benefits
received by the Parties as a result of their respective ownership
interests in PhysIOM and PainCare since the Rescission Date, all of
which amounts are hereby returned, net of losses, costs, and
expenses incurred by the Parties as a result of the Original
Transaction. For tax and accounting purposes, PainCare Sub shall be
deemed not to have held any capital interest in PhysIOM at any
time.
3. Resignation by PainCare Sub
as the Managing Member of PhysIOM; Delivery of Books,
Records, and Intangible Property; Termination of Related
Agreement .
a. PainCare Sub hereby resigns as
the Managing Member and as the Tax Matters Member of PhysIOM (each
as defined in the PhysIOM Operating Agreement), effective
immediately. Each of Lockwood, Bender, and Flores are hereby
elected as successor Managing Members and, unless and until
otherwise agreed, may exercise the powers of the Managing Member by
majority vote among them.
b. At the Closing, the PainCare
Parties shall deliver to the PhysIOM Parties (i) all books and
records of PhysIOM that are in the possession of the PainCare
Parties, including all corporate, financial, tax and employment
records, and originals of all agreements that are binding upon
PhysIOM, (ii) all tangible property held by the PainCare Parties
for use in PhysIOM’s business, and (c) a Bill of Sale and
Assignment in the form attached hereto as Exhibit A
transferring to PhysIOM all such tangible property and all
intangible property held by the PainCare Parties for use in PhysIOM
business, including the unregistered mark "PHYSIOM." At the
Closing, the PhysIOM Parties shall deliver to the PainCare Parties
any and all proprietary or confidential information and/or
documents of the PainCare Parties that are in the possession of the
PhysIOM parties. Each of the PhysIOM Parties and the PainCare
Parties may keep copies of the following information and documents
required to be delivered by them under this Section 3(b), subject
to the restrictions set forth in Section 16: tax records that may
be necessary or useful to establish or defend any position taken by
such party with respect to state
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or federal income taxes; any agreement
under which such party may have any legal obligations or
liabilities; and any other information or document, to the extent
necessary in connection with any purpose permitted pursuant to this
Settlement Agreement or as otherwise necessary to effectuate the
rescission of the Original Transaction.
c. That Right of First Refusal
Agreement effective as of the Rescission Date by and among the
PainCare Parties and the PhysIOM Parties is hereby terminated and
of no force or effect as of the Rescission Date.
4. Return of Ownership Interest
by PainCare Sub . PainCare Sub will assign the ownership
interest it holds in PhysIOM (the "LLC Interests") at Closing and
as of the Rescission Date in accordance with the terms of a
Membership Interest Power, which is attached hereto as Exhibit
B , as follows:
a. PainCare Sub will assign to
Lockwood the 20% LLC Interest it received in the Original
Transaction from Lockwood;
b. PainCare Sub will assign to
Bender the 20% LLC Interest it received in the Original Transaction
from Bender;
c. PainCare Sub will assign to
Flores the 20% LLC Interest it received in the Original Transaction
from Flores;
d. As a result of the foregoing,
each of Lockwood, Bender, and Flores will hold 333.33 Units of
PhysIOM, representing one-third of the economic and voting rights
of PhysIOM, and 0.01 Units will be deemed to be cancelled;
e. Each of Lockwood, Bender and
Flores hereby waives, solely for the purpose of consummating the
transactions contemplated by this Settlement Agreement, any
restriction contained in the PhysIOM Operating Agreement that would
otherwise prohibit the assignments of LLC Interests as described in
this Section 4; and
f. That Membership Unit Pledge
Agreement effective as of the Rescission Date by and among PainCare
Sub and the PhysIOM Parties is hereby terminated and of no force or
effect as of the Rescission Date.
5. Return of Stock by the
PhysIOM Parties . The PhysIOM Parties will surrender and assign
the shares of PainCare stock (the "Shares") received in the
Original Transaction at Closing by returning to PainCare the
originally issued stock certificates, properly endorsed for
surrender as of the Rescission Date, as follows:
a. Lockwood will surrender to
PainCare the 297,572 Shares he received in the Original Transaction
from PainCare, which Lockwood represents and warrants is all of the
issued and outstanding Shares received by Lockwood pursuant to the
Original Transaction;
b. Bender will surrender to
PainCare the 297,572 Shares he received in the Original Transaction
from PainCare, which Bender represents and warrants is all of the
issued and outstanding Shares received by Bender pursuant to the
Original Transaction; and
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c. Flores
will surrender to PainCare the 439,888 Shares he received in the
Original Transaction from PainCare, which Flores represents and
warrants is all of the issued and outstanding Shares received by
Flores pursuant to the Original Transaction; and
d. That Registration Rights
Agreement effective as of the Rescission Date by and among PainCare
and the PhysIOM Parties is hereby terminated and of no force or
effect as of the Rescission Date.
6. Nature of Transactions .
The Parties hereby agree that the assignments described in Sections
3, 4 and 5 are intended to effect a rescission of the Original
Transaction as of the Rescission Date, and not a present assignment
of any rights.
7. Noncompetition Agreement
. At the Closing, PainCare will deliver to the PhysIOM Parties a
Noncompetition Agreement in the form attached as Exhibit C
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8. Standstill Obligations .
The PainCare Parties hereby agree that through and including the
Closing Date, PainCare Sub (a) waives its rights to receive
distributions, exercise any rights of first refusal, or participate
in any sale under the PhysIOM Operating Agreement; (b) waives its
right to receive notice of any such events described in this
Section 8; (c) will not sell or convey the LLC Interests, or any
rights or options therein, and will not suffer any lien or
encumbrance thereon, and (d) grants to each of the PhysIOM Parties
with respect to the LLC Interests described in Sections 4(a), 4(b),
and 4(c), respectively, a power of attorney to vote such LLC
Interests on any matter properly coming before the members of
PhysIOM, which power is coupled with an interest and
irrevocable.
9. Representations by the
PhysIOM Parties . Each of the PhysIOM Parties represents and
warrants to PainCare as follows:
a. The statements made by such
PhysIOM Party in this Section 9 are and will be correct and
complete as of the date of this Settlement Agreement and as of the
Closing Date.
b. Such PhysIOM Party has the full
power and authority to execute, deliver and perform this Settlement
Agreement and the documents to be delivered by him under this
Settlement Agreement.
c. This Settlement Agreement and
the Settlement Documents to be executed and delivered by such
PhysIOM Party constitutes the legal, valid and binding obligations
of such PhysIOM Party, and will be enforceable in accordance with
their respective terms against such PhysIOM Party, subject to
bankruptcy, insolvency, moratorium, reorganization and similar laws
of general applicability affecting the rights and remedies of
creditors and to general principles of equity, regardless of
whether enforcement is sought in proceedings in equity or at
law.
d. Such PhysIOM Party has not
assigned, and has the full right to surrender and assign the Shares
as described in Section 5, free and clear of any claim, lien,
encumbrance, option to purchase by, or other rights of any third
person arising by, through, or under such PhysIOM Party.
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10.
Representations and Disclosures by PainCare . PainCare
represents and warrants to the PhysIOM Parties as follows:
a. The statements made by PainCare
in this Section 10 are and will be correct and complete as of the
date of this Settlement Agreement and as of the Closing Date.
b. Each of the PainCare Parties is
a corporation, validly existing and in good standing under the laws
of the State of Forida.
c. This Settlement Agreement and
the Settlement Documents to be executed and delivered by each
PainCare Party have been duly approved by all requisite action of
such PainCare Party, and such PainCare Party has full power and
authority to execute, deliver and perform this Settlement
Agreement, together with all of the Settlement Documents to be
executed and delivered by it.
d. This Settlement Agreement and
the Settlement Documents to be executed and delivered by each
PainCare Party constitutes the legal, valid and binding obligations
of such PainCare Party, and will be enforceable in accordance with
their respective terms against such PainCare Party, subject to
bankruptcy, insolvency, moratorium, reorganization and similar laws
of general applicability affecting the rights and remedies of
creditors and to general principles of equity, regardless of
whether enforcement is sought in proceedings in equity or at
law.
e. PainCare Sub owns, has not
assigned, and has the full right to assign the LLC Inter
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