6. Mandatorily Redeemable Non-Controlling Interest

Prior to the October 2017, when the Company acquired a majority interest in a Therapy Practice, those Acquisitions occured in a series of steps as described in numbers 1 through 10 of Footnote 5 –Redeemable Non-Controlling Interests.

The Partnership Agreement contained provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Option”) or on a required basis (the “Required Redemption”):

Required Redemption

Once the Required Redemption is triggered, the Company was obligated to purchase from the Seller Entity and the Seller Entity was obligated to sell to the Company, the allocable portion of the Seller Entity Interest based on the terminated Selling Shareholder’s pro rata ownership interest in the Seller Entity (the “Allocable Portion”). Required Redemption was triggered when both of the following events have occurred:

Termination of an Employed Selling Shareholder’s employment with NewCo, regardless of the reason for such termination, and

The expiration of an agreed upon period of time, typically three to five years, as set forth in the relevant Partnership Agreement (the “Holding Period”).

ii.

In the event an Employed Selling Shareholder’s employment terminated prior to the expiration of the Holding Period, the Required Redemption would occur only upon expiration of the Holding Period.

Call Option

In the event that an Employed Selling Shareholder’s employment terminated prior to expiration of the Holding Period, the Company has the contractual right, but not the obligation, to acquire the Employed Selling Shareholder’s Allocable Portion of the Seller Entity Interest from the Seller Entity through exercise of the Call Option.

For the Required Redemption and the Call Option, the purchase price was derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Portion of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within NewCo; therefore the undistributed earnings amount is small, if any.

The Purchase Price for the initial equity interest purchased by the Company was also based on the same specified multiple of the trailing twelve-month earnings that is used in the Required Redemption noted above.

Although, the Required Redemption and the Call Option do not have an expiration date, the Seller Entity Interest eventually will be purchased by the Company.

The Required Redemption and the Call Option never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition.

An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.

As previously mentioned due to amended partnership agreements, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet.

	Year Ended December 31, 2018		Year Ended December 31, 2017

Contractual time period has lapsed but holder's employment has not been terminated	$	-	$	327
Contractual time period has not lapsed and holder's employment has not been terminated		-		-
Holder's employment has terminated and contractual time period has expired		-		-
Holder's employment has terminated and contractual time period has not expired		-		-
Redemption value prior to excess distribution earnings	$	-	$	327
Excess distributions over earnings and losses		-		-
	$	-	$	327