Exhibit 10.13
CONTRACT RIGHTS PURCHASE AGREEMENT
This Contract Rights Purchase Agreement is made as of August 1, 1997 by
and between Medical Billing Services of Arizona, Inc., a Delaware corporation
("Seller"), and National Medical Financial Services Corporation, a Nevada
corporation ("Purchaser").
WITNESSETH:
1. Sale of Contract Rights; Assumption of Certain Liabilities.
1.1 Sale of Contract Rights. On the terms and for the
consideration hereinafter stated, Seller hereby unconditionally and
irrevocably sells, conveys, transfers and assigns to Purchaser all of
Seller's rights (except Seller's rights to compensation with respect to
payments collected before October 1, 1997) pursuant to the contracts listed
on Exhibit A hereto (the "Contracts"). Such assigned rights are referred to
herein as the "Contract Rights".
1.2 Disclaimer. Purchaser acknowledges that it has been advised
that (a) Seller acquired its rights pursuant to the Contracts (the "Rights")
by assignment from Desert Health Resources, Inc., an Arizona corporation
("DHR"), and Seller has assumed all obligations of DHR expressly set forth in
writing in the Contracts with respect to billing or collecting fees for
medical services on or after August 1, 1997 (the "Assumption") other than
obligations which DHR was obliged to pay, perform or discharge prior to
August 1, 1997; (b) DHR did not obtain the consent of the other parties to
the Contracts to the Assumption or to DHR's assignment of the Rights to
Seller; and (c) Seller has not obtained the consent of any such other party
to Seller's assignment of the Contract Rights to Purchaser or Purchaser's
assumption of the Assumed Obligations (as defined in Section 1.3). Seller is
selling, conveying, transferring and assigning the Contract Rights to
Purchaser "as is", without any warranty of title express or implied.
1.3 Assumption of Liabilities. Purchaser hereby assumes the
obligations of DHR expressly set forth in writing in the Contracts (other
than obligations which DHR was obliged to perform, pay or discharge prior to
the date of this Agreement) with respect to billing or collecting fees for
medical services on or after the date of this Agreement (the "Assumed
Obligations"). Seller will not interfere with NMFSC's performance of the
Assumed Obligations. It is expressly acknowledged and agreed that Purchaser
is not assuming any obligation or liability of Seller or DHR other than the
Assumed Obligations.
1.4 Grant of Security Interest. To the extent that the Uniform
Commercial Code - Secured Transactions applies to Seller's sale of the
Contract Rights to Purchaser, Seller hereby grants a security interest in the
Contract Rights to Purchaser to secure the performance of all of Seller's
obligations under this Agreement.
2. Amount, Payment and Escrow of Consideration.
2.1 Amount and Payment. In full consideration of Seller's sale,
conveyance, transfer and assignment of the Contract Rights, Purchaser will
(a) pay to Seller on August 1, 1997 the sum of Six Hundred
Thousand Dollars (US$600,000) by check made payable to Seller or by wire
transfer to a bank account designed by Seller;
(b) issue and deliver to Seller, at the office of the Escrow
Agent (as defined in Section 2.2), on or before August 15, 1997 a stock
certificate representing 384,000 duly and validly issued, fully paid and
nonassessable shares of Purchaser's Common Stock, par value $.01 per share,
subject to equitable adjustment for any stock split, stock dividend, reverse
stock split or other capital reorganization with respect to Purchaser's
Common Stock between the date of this Agreement and the date on which such
shares are issued (the "Shares"), free and clear of all liens, encumbrances
and restrictions on transfer except restrictions on transfer under federal or
state securities laws;
(c) issue, execute and deliver to Seller on the date of this
Agreement a promissory note in the principal amount of Two Hundred Fifty
Thousand Dollars (US$250,000) in the form of Exhibit B hereto (the "First
Note");
(d) if the Annual Revenues (as defined in the Escrow Agreement
referred to in Section 2.2) exceed Eight Hundred Fifty Thousand Dollars
(US$850,000) issue, execute and deliver to Seller on or before December 1,
1998 a promissory note (the "Second Promissory Note") substantially in the
form of Exhibit C hereto in the principal amount (the "Principal Amount")
equal to 112.5 % of the remainder of (i) Three Hundred Fifty Thousand Dollars
(US$350,000) minus (ii) the amount, if any, of the Foregone Principal (as
determined pursuant to Section 2.3); and
(e) pay to Seller on or before October 31, 1998, by check made
payable to Seller or by wire transfer to a bank account designated by Seller,
the remainder of (i) the Annual Revenues (as defined in the Escrow Agreement
referred to in Section 2.2) minus (b) One Million Eight Hundred Thousand
Dollars (US$1,800,000).
The First Promissory Note and the Second Promissory Note are referred to
herein collectively as the "Notes".
2.2 Escrow. Simultaneously with the execution and delivery of this
Agreement, Purchaser and Seller are executing and delivering an Escrow
Agreement substantially in the form attached hereto as Exhibit D (the "Escrow
Agreement"). Upon delivery by Purchaser to Seller of a certificate or
certificates representing Shares pursuant
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to Section 2.1 of this Agreement, Seller will immediately deliver to the
escrow agent named in the Escrow Agreement (the "Escrow Agent") all stock
certificates representing Shares, duly indorsed in blank or with duly signed
blank stock transfer powers attached and in either case with such assurance
that Seller's indorsement is genuine and effective (including but not limited
to a guarantee of the signature of the person indorsing on behalf of Seller
and appropriate evidence of the authority of such person to sign on behalf of
Seller) as Purchaser may reasonably require, to be held by the Escrow Agent
in accordance with the Escrow Agreement, and will promptly provide notice to
Purchaser certifying such delivery.
2.3 Second Promissory Note. On or before October 31, 1998,
Purchaser will determine, and will give notice to Seller of its determination
of, the amount of the Annual Revenues. If Purchaser notifies Seller that the
Annual Revenues were more than $850,000, Seller will give notice to Purchaser
on or before November 20, 1998 of the amount of the Foregone Principal.
Seller may determine the amount of the Foregone Principal in its sole
discretion, provided that such amount must be (a) less than or equal to
$350,000 and greater than or equal to $0.00, (b) greater than or equal to the
remainder of $1,200,000 minus the amount of the Annual Revenues and (c) less
than or equal to the remainder of $1,800,000 minus the amount of the Annual
Revenues; and provided further that if the Annual Revenues were $1,800,000 or
more, the Foregone Principal shall be $0.00. Seller's determination in
accordance with this Section 2.3 of the amount of the Foregone Principal
shall be binding upon Purchaser. Purchaser's determination of the amount of
the Annual Revenues shall not be binding unless accepted by Seller. If
Purchaser fails to deliver a duly issued and executed Second Promissory Note
to Seller in accordance with Section 2.1(d) on or before December 1, 1998,
the Principal Amount shall automatically become due and payable in full by
Purchaser to Seller on December 1, 1998 and shall bear interest at the rate
of 1.5% per month and Seller may, in addition to any other remedy available
to Seller, (a) direct any party to any of the Contracts to pay to Seller any
amounts payable by such party pursuant to any Contract and (b) retain any
such payment received by Seller as a set-off against any unpaid portion of
the Principal Amount or interest accrued thereon.
2.4 Exclusive Services Provider Agreement. Simultaneously with the
execution and delivery of this Agreement, Purchaser and Seller are executing
and delivering an Exclusive Services Provider Agreement substantially in the
form attached hereto as Exhibit E (the "ESP Agreement").
2.5 Preservation of Annual Revenues. Purchaser will perform all of
the Assumed Obligations with utmost care and diligence and in utmost good
faith until October 1, 1998. Purchaser will not terminate any of the
Contracts prior to October 1, 1998 or amend or waive any provision of any of
the Contracts with respect to, or take any other action that would reasonably
be expected to reduce, the Annual Revenues without Seller's prior written
consent. Purchaser will use its best efforts to collect promptly all
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fees payable to Purchaser prior to October 1, 1998 pursuant to Seller's
assignment of the Contract Rights to Purchaser.
3. Representations and Warranties of Seller.
Seller hereby represents and warrants to Purchaser as follows:
3.1 Seller's Existence, Power and Authority. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Seller has the power to own its property and
to carry on its business as now being conducted. Seller has the power to
execute and deliver this Agreement, the ESP Agreement and the Escrow
Agreement and consummate the transactions contemplated hereby and thereby and
has taken all action required by law or otherwise to authorize such execution
and delivery and consummation of transactions.
3.2 Validity of Agreement. Each of this Agreement, the ESP
Agreement and the Escrow Agreement constitutes the valid and binding
obligation of Seller, enforceable in accordance with its respective terms
(except as enforceability may be restricted, limited, or delayed by
bankruptcy, insolvency, moratorium or similar laws affecting or relating to
the enforcement of creditors' rights in general and except as the
enforceability is subject to general principles of equity, regardless of
whether enforceability is considered in a proceeding at law or in equity).
Neither the execution and delivery by Seller of this Agreement, the ESP
Agreement or the Escrow Agreement nor the consummation by Seller of the
transactions contemplated hereby or thereby (a) violates or will violate any
provision of law or any rule, regulation or order of any court or
governmental agency, (b) violates or will violate, or conflicts with or will
conflict with, or constitutes a default under or will constitute a default
under, any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Seller is a party or by which Seller is
bound (except the Contracts, as to which no representation is made) or (c)
requires any filing by Seller with, or any approval, consent, authorization
or other action with respect to Seller by, any governmental body. This
Agreement, the ESP Agreement and the Escrow Agreement have been duly executed
and delivered by Seller.
3.3 The Contracts. Seller has delivered a true and correct copy of
each of the Contracts to Purchaser.
3.4 Compliance with Laws. Seller is in compliance in all material
respects with all laws, regulations, rules and decrees of all governmental
authorities applicable to Seller.
3.5 Litigation. There is no litigation, action, suit, proceeding
or governmental investigation pending or (to the best of Seller's knowledge)
threatened against Seller or affecting Seller or its business or any of its
assets, at law or in equity or
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before any federal, state, municipal, local or other governmental authority,
or before any arbitrator. Seller is not subject to any order, writ or decree
of any court or other governmental authority.
3.6 Solvency. Seller is not insolvent.
3.7 No Finders or Brokers. Seller has not engaged any finder or
broker in connection with the transactions contemplated hereby. Seller will
indemnify and hold Purchaser harmless against claims (and attorneys' fees and
expenses in the defense thereof) of any person or entity for finder's fees,
broker's fees, brokerage commissions, sales commissions or the like alleged
in connection with the transactions contemplated hereby due to acts of Seller.
3.8 Disclosure. No representation or warranty by Seller in this
Agreement, the ESP Agreement or the Escrow Agreement or any document
furnished or to be furnished to Purchaser pursuant to this Agreement contains
or will contain any materially untrue statement or omits or will omit to
state a fact necessary in order to make the statements contained herein or
therein not misleading.
3.9 Bulk Sales. Seller will hold Purchaser harmless from any and
all liability, damages or attorneys' fees suffered or incurred by Purchaser
resulting from any failure by Seller to comply with any applicable bulk sales
law relating to the transactions contemplated hereby.
3.10 Investment Representations.
(a) Seller will make no disposition of the Shares except as
provided in Sections 2.2 and 3.10(d) hereof.
(b) Seller is acquiring the Shares for itself for its own
account and not for any other person, without a view to the distribution of
all or any part of the Shares. Seller has been advised in writing by
Purchaser that the Shares have not been registered under the Securities Act
of 1933, as amended (the "Act"), and, therefore, cannot be resold unless they
are registered under the Act or unless an exemption from registration is
available.
(c) Seller is an entity in which all of the equity owners are
(i) a natural person whose individual net worth, or joint net worth with that
person's spouse, exceeds US$1,000,000 or (ii) a natural person who had an
individual income in excess of US$200,000 in each of the two most recent
years or joint income with that person's spouse in excess of US$300,000 in
each of those years and has a reasonable expectation of reaching the same
income level in the current year. Seller has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and
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risks of its purchase of the Shares. Seller acknowledges receipt of
Purchaser's definitive proxy statement filed with the Securities and Exchange
Commission in connection with Purchaser's 1997 annual meeting of
stockholders, Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-KSB for the fiscal year ended December 31,
1996 and Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-QSB for the quarter ended March 31, 1997.
(d) Except as provided in Section 2.2, Seller will not offer,
sell, pledge, transfer or otherwise dispose of all or any of the Shares, or
solicit any offer to buy, purchase or otherwise acquire or take a pledge of
any Shares, except in the manner and to the extent described (i) in a
registration statement in effect under the Act covering the Shares and as to
which a prospectus meeting the requirements of the Act is available for
delivery, (ii) in an opinion of counsel to Seller reasonably acceptable to
Purchaser, whose opinion is in form and substance satisfactory to counsel for
Purchaser, to the effect that the proposed offer, sale, pledge, transfer or
other disposition of the Shares may be made without registration and
availability of a prospectus meeting the requirements of the Act or (iii) in
a writing by Seller to the Securities and Exchange Commission, which writing
neither contains any untrue statement nor omits to state any facts necessary
to make the statements made not misleading and with respect to which writing
Seller has received a "no action letter" from the staff of the Securities and
Exchange Commission to the effect that the staff will not recommend that the
Securities and Exchange Commission take any action in connection with the
disposition, offer or solicitation described in such writing.
(e) The offer and sale of the Shares to Seller was made solely
in The Commonwealth of Massachusetts.
(f) All certificates representing the Shares will bear a
legend, in form and substance designated by counsel to the Purchaser,
referring to the investment commitment contained herein, to the effect that
the Shares have not been registered under the Act and stating that no
transfer of the Shares may be made unless the Shares are registered under the
Act or an exemption from such registration is available.
(g) Seller understands that the Shares will not become freely
transferable by reason of any "change of circumstances" whatever, such as
changes in Purchaser, general stock market or economic conditions, or
Seller's financial position. Accordingly, Seller understands that the Shares
will constitute an illiquid investment.
(h) Seller accepts the condition that Purchaser or its
transfer agent(s) will maintain "stop transfer orders" with respect to the
Shares.
4. Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller as follows:
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4.1 Organization and Standing of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has full corporate power and authority to
conduct its business as now being conducted.
4.2 Authority. Purchaser has corporate power to execute and
deliver this Agreement, the Escrow Agreement, the Notes and the ESP Agreement
and consummate the transactions contemplated hereby and thereby and has taken
all action required by law, its Articles of Incorporation, its By-Laws or
otherwise to authorize or ratify such execution and delivery and consummation
of transactions.
4.3 No Finders or Brokers. Purchaser has not engaged any finder or
broker in connection with the transactions contemplated hereby. Purchaser
will indemnify and hold Seller harmless against claims (and attorneys' fees
and expenses in the defense thereof) of any person or entity for finder's
fees, broker's fees, brokerage commissions, sales commissions or the like
alleged in connection with the transactions contemplated hereby due to acts
of Purchaser.
4.4 Validity of Agreements. Each of this Agreement, the Notes, the
ESP Agreement and the Escrow Agreement constitutes the valid and binding
obligation of Purchaser and is binding against Purchaser, enforceable in
accordance with its respective terms (except as enforceability may be
restricted, limited, or delayed by bankruptcy, insolvency, moratorium or
similar laws affecting or relating to the enforcement of creditors' rights in
general and except as the enforceability is subject to general principles of
equity, regardless of whether enforceability is considered in a proceeding at
law or in equity). Neither the execution and delivery by Purchaser of this
Agreement, the Escrow Agreement, the Notes or the ESP Agreement nor the
consummation by Purchaser of the transactions contemplated hereby or thereby
(a) violates or will violate any provision of law or any rule, regulation or
order of any court or governmental agency, (b) violates or will violate, or
conflicts with or will conflict with, or constitutes a default under or will
constitute a default under, any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which Purchaser is a
party or by which Purchaser is bound or (c) requires any filing by Purchaser
with, or any approval, consent, authorization or other actions with respect
to Purchaser by, any governmental body. This Agreement, the Escrow
Agreement, the Notes and the ESP Agreement have been duly executed and
delivered by Purchaser.
4.5 Compliance with Laws. Purchaser is in compliance in all
material respects with all laws, regulations, rules and decrees of all
governmental authorities applicable to Purchaser.
4.6 Litigation. There is no litigation, action, suit, proceeding
or governmental investigation pending or (to the best of Purchaser's
knowledge) threatened
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against Purchaser or affecting Purchaser or its business or any of its
assets, at law or in equity or before any federal, state, municipal, local or
other governmental authority, or before any arbitrator, nor does Purchaser
known of any reasonable basis for any such litigation, action, suit,
proceeding or investigation. Purchaser is not subject to any order, writ or
decree of any court or other governmental authority.
5. Covenants of Seller.
5.1 Revenue Warranty. Seller covenants that the Annual Revenues
will be not less than US$850,000.
5.2 Preservation of Contract Revenues. Seller will perform all
obligations (other than the Assumed Obligations) required by the Contracts to
be performed by Seller with utmost care and diligence and in utmost good
faith. Seller will not terminate or amend any of the Contracts, or waive any
term or condition of any of the Contracts, without the prior written consent
of Purchaser. Seller will not assign or delegate any of its obligations
pursuant to the Contracts (other than the delegation of the Assumed
Obligations pursuant to this Agreement) without the prior written consent of
Purchaser, and Seller will immediately terminate any such assignment or
delegation of obligations upon written notice by Purchaser revoking any
consent given by Purchaser pursuant to this Section 5.2.
5.3 Noncompetition. For a period of three years after the date of
this Agreement, neither Seller nor any person or entity directly or
indirectly controlling Seller as of the date of this Agreement nor any person
then directly or indirectly controlled by Seller will, without the consent of
Purchaser, directly or indirectly through any other person or entity furnish
any billing, collection or accounts receivable management services, or have
any interest in any entity that furnishes any of such services, to any party
(other than DHR or Seller) to any of the Contracts with respect to fees for
medical services performed on or after the date of this Agreement; provided,
however, that the foregoing covenant shall automatically terminate upon the
expiration or termination of the ESP Agreement.
5.4 Notice of Assignment. Upon request by Purchaser, Seller will
give written notice, in form and substance approved by Purchaser, to each
party to each of the Contracts of the assignment of the Contract Rights to
Purchaser and, except as otherwise authorized in Section 2.3, either of the
Notes or the ESP Agreement, directing such party to pay to Purchaser all
amounts payable by such party pursuant to such Contract with respect to
payments for medical services collected after September 30, 1997. In the
event that Seller receives any payment, the right to which was assigned to
Purchaser in this Agreement, Seller will, except as otherwise authorized in
Section 2.3, either of the Notes or the ESP Agreement, promptly deliver to
Purchaser such payment and all endorsements or instruments of transfer
necessary or appropriate to transfer such payment to Purchaser.
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6. Indemnification. Seller will indemnify, defend and hold harmless
Purchaser from and against:
(a) all liabilities of Seller (other than the Assumed
Obligations) and all liabilities arising out of any act
or omission of Seller;
(b) any and all losses, damages, costs or deficiencies
resulting from any and all misrepresentations or
breaches of warranty or failures to perform agreements
or undertakings by Seller contained in or made pursuant
to this Agreement or the Escrow Agreement or in other
documents executed by Seller in connection with this
Agreement; and
(c) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
(including, without limitation, attorneys' fees,
interest, penalties and amounts paid in settlement of
any such claim) relating to any of the foregoing.
Seller shall pay to Purchaser all amounts owed to Purchaser pursuant to this
Section 6 within thirty (30) days after written demand therefor. In the event
that any third person shall assert any claim or action in excess of $1,000
against Purchaser which, if successful, might result in a claim for indemnity
hereunder, Purchaser shall notify Seller, in writing, of such claim or
action, and Seller may, at its sole expense, assume control over the defense
of such claim or action, but in any event Purchaser shall have the right to
participate in the defense of any such claim or action. If, after notice
thereof, Seller shall not assume the defense of, or if after so assuming such
defense it shall fail to continue to defend, any such claim or action,
Purchaser may defend any such claim or action and Purchaser may then settle
or compromise such claim or action on terms it deems reasonable. Seller
shall promptly satisfy and pay any final judgment rendered with respect to
any such claim or action or any compromise or settlement thereof and shall
pay the reasonable expenses, legal or otherwise, of Purchaser in the defense
of any such claim or action.
7. Miscellaneous.
7.1 Notices. All notices, demands and other communications
hereunder ("Notices") shall be written and shall be deemed to have been duly
given if delivered in person, mailed in the country in which the addressee is
located (registered or certified mail, postage prepaid, return receipt
requested), sent via an internationally recognized courier service or sent by
cable, telex, facsimile transmission or other electronic means of written
communication and confirmed in a writing sent by the close of business on the
next following business day via an internationally recognized courier service
as follows:
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To Purchaser: National Medical Financial
Services Corporation
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxx 00000
Attention: President
To Seller: Medical Billing Services of Arizona, Inc.
000 Xxxx Xxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxxx, President
with a copy to: Xxx X. Xxxxx, Esquire
Xxx Xxxxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
or to such other address as Purchaser or Seller may designate by notice to
the other, except that Notices of change of address shall only be effective
upon receipt.
7.2 Entire Agreement. This Agreement and the other agreements,
instruments and documents delivered pursuant hereto constitute the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersede all prior and contemporaneous agreements, understandings,
letters of intent, negotiations and discussions, whether written or oral, of
the parties, and there are no representations, warranties or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be
bound thereby.
7.3 Governing Law; Jurisdiction. This Agreement shall be governed
by, and construed and enforced in accordance with, the law of the State of
Nevada, without regard to its conflicts-of-law rules. Service of process by
Purchaser in connection with any action brought to enforce this Agreement
shall be binding on Seller if sent to Seller in accordance with the notice
provisions contained in this Agreement.
7.4 Section Headings. The section headings herein are for
reference only and shall not limit or control the meaning of any provision of
this Agreement.
7.5 Waiver. No delay or omission on the part of either party
hereto in exercising any right hereunder shall operate as a waiver of such
right or any other right under this Agreement.
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7.6 Assignment. Purchaser shall not assign any of Purchaser' s
obligations under this Agreement without the prior written consent of Seller.
7.7 Binding on Successors and Assigns. Subject to Section 7.6,
this Agreement shall inure to the benefit of and bind the respective
successors and assigns of the parties hereto.
7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
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In witness whereof, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MEDICAL BILLING SERVICES OF ARIZONA, INC.
By: /s/ Xxxxxxxxxxx X. Xxxxxxxx
--------------------------------------
President:
NATIONAL MEDICAL FINANCIAL SERVICES
CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx, M.D.
--------------------------------------
President:
