January 30, 2003
Xxxxxx X. Xxxxxxxxxxxx, M.D.
Mission Viejo Radiation Oncology Medical Group, Inc.
00000 Xxxxxxx Xxxxxx Xxxx Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Dear Xx. Xxxxxxxxxxxx:
We are pleased to provide you with this letter (this "Agreement"),
which will confirm our proposal to acquire Mission Viejo Radiation Oncology
Medical Group, Inc., a California corporation ("Mission"). Mission operates two
cancer centers, the Mission Viejo Radiation Center located at 00000 Xxxxxxx
Xxxxxx Xxxx, Xxxxx 000, Xxxxxxx Xxxxx, XX, 00000 (the "Mission Viejo Center"),
and San Clemente Radiation Oncology Center located at 0000 Xxxxxx Xxxxxxxxxx,
Xxx Xxxxxxxx, XX 00000 (the "San Clemente Center" and, together with the Mission
Viejo Center, the "Business").
1. ACQUISITION. OnCure Technologies Corp., or a wholly-owned subsidiary
thereof ("OnCure"), will acquire Mission (the "Acquisition") pursuant
to a transaction whereby Mission will merge with and into OnCure.
Pursuant to the Acquisition, OnCure will acquire: (i) all of the
assets of Mission (except for those certain assets discussed in
Section 3 below), including, without limitation, all of the existing
accounts receivable (but excluding cash on hand, which will remain
with the New Practice (as defined below)), Certificates of Need (if
applicable), equipment, land, real-estate (acknowledged to consist of
certain leasehold interests only), inventory, customer lists,
furniture, fixtures, patient files (if permitted by law), computers,
computer software, and deposits pursuant to any contract and (ii) all
of the Indebtedness (as defined below).
2. PURCHASE PRICE. Based upon due diligence materials previously provided
by Mission, the aggregate purchase price for the Acquisition will be
$6,000,000 (1) (the "Purchase Price"), as adjusted below. The Purchase
Price consideration is calculated as follows:
Cash $ 4,600,000
Assumed Debt $ 1,400,000
---------------------
(1) The Purchase Price is based upon a formula of 5.8 times earnings before
interest, taxes, depreciation and amortization ("EBITDA"). Based upon the
financial information provided by Mission, the adjusted EBITDA of Mission
is approximately $1 million.
Preferred Stock $ 400,000
Assumed A/R $(400,000)
--------------------------------
TOTAL $ 6,000,000
The Purchase Price payable at closing (the "Closing"), which is
anticipated to occur on March 31, 2003 (the "Closing Date"), by OnCure to the
shareholders of Mission will be payable as follows: (i) $4,600,000 in cash (the
"Cash Consideration"), and (ii) shares of Series A Preferred Stock (the
"Preferred Stock") having an aggregate liquidation preference of $400,000.
Indebtedness. At the time of the Closing, the aggregate amount
of all indebtedness of Mission, including, without limitation, all accounts
payable of Mission and the Indebtedness (as defined below) (the "Total
Indebtedness"), will not exceed $1,400,000. At the Closing, the indebtedness of
Mission will consist solely of indebtedness in the amount of: (i) approximately
$500,000 owed by Mission to Santa Xxxxxxx Bank (the "Santa Xxxxxxx Bank Loan")
and (ii) approximately $900,000 owed by Mission to GE Capital and Varian (the
"Equipment Leases" and, together with the Santa Xxxxxxx Loan, the
"Indebtedness"). OnCure will pay the full amount of the Indebtedness at the
Closing or will remove any and all shareholders of Mission from any guarantees
issued in connection with such Indebtedness. Except as provided herein, OnCure
will not acquire or assume any inter-company or related party debt (including,
but not limited to, any distributions owed by Mission to its shareholders) of
Mission.(the " Excluded Liabilities"). The shareholders of Mission will assume
the Excluded Liabilities.
Purchase Price Adjustment. The Purchase Price is subject to
the following adjustments:
o In the event that the aggregate amount of the Total Indebtedness
exceeds $1,400,000, the Purchase Price will be reduced
dollar-for-dollar by the amount of such excess indebtedness.
o In the event that the aggregate amount of the Santa Xxxxxxx Bank Loan
is less than $500,000 (the "Maximum Amount"), the Purchase Price will
be increased dollar-for-dollar by an amount equal to the lesser of:
(i) the Maximum Amount and (ii) the amount by which $1,400,000 exceeds
the aggregate amount of the Total Indebtedness (the "Santa Xxxxxxx
Amount"). The Cash Consideration will be increased by the Santa
Xxxxxxx Amount.
o In the event that the aggregate amount of all net collectable (net of
all contractual allowances, third party payor adjustments and credits)
accounts receivable of Mission is less than $400,000, the Purchase
Price will be decreased dollar-for-dollar by such amount.
3. EXCLUDED ASSETS. The parties anticipate that prior to the consummation
of the Acquisition, the Professional Assets (as defined below) and the
Practice (as defined below) will be transferred to the New Practice.
The Professional Assets transferred by Mission to the New Practice
prior to the Closing will consist of only those licenses, patient
files and certain other assets (e.g. goodwill) required by appropriate
law and third party payors to be owned by a licensed physicians group,
and no others. These professional assets and practice will go into a
new physician entity formed by those Mission doctors who will continue
to be actively involved in the practice of medicine or the
administration of the Mission Viejo practice (the "Practice") after
the Closing ("New Practice"). Counsel for OnCure and Mission will
agree upon the assets (the "Professional Assets") required to be
transferred to New Practice, which will not include any equipment,
furniture, fixtures or leasehold imporvements.
4. NON-COMPETE. At the Closing, OnCure and each of the physician
shareholders of Mission will enter into a non-competition agreement
(the "Non-Competition Agreement"). Pursuant to the Non-Competition
Agreement, each of the physician shareholders of Mission shall agree
not to compete, directly or indirectly, with the New Practice or the
Business for a period of three (3) years. Notwithstanding the
foregoing, none of the physician shareholders shall be prohibited from
providing services to any of the current or future facilities owned by
Coastal Radiation Oncology Medical Group.
5. ACCESS TO INFORMATION. Mission maintains its books on an accrual
basis, and will provide OnCure access to its books, records, referring
physicians, payors, properties, etc., in order that OnCure and its
agents may have the opportunity to make such investigation, as it
reasonably desires to make. Mission's financial statements for the one
year period ended December 31, 2002 may be required to be audited. If
necessary, OnCure will have such audit performed by an accounting firm
of its choice and cost. OnCure, a public company, shall provide
Mission with all publicly disclosed information, and other materials,
necessary for Mission to evaluate OnCure. This will be subject to the
parties' previously executed Confidentiality Agreement, and new
Confidential Agreements executed by both parties simultaneously with
this Agreement.
6. MEDICAL SERVICES AGREEMENT. OnCure and the New Practice shall enter
into a mutually acceptable ten (10) year Medical Services Agreement
("MSA"), which MSA fee will be based upon a monthly calculation of 40%
of Pre-MSA earnings before interest, taxes, depreciation, and
amortization ("EBITDA"), (EBITDA based upon a modified cash basis
accounting of cash collections and accrued expenses, using a formula
to be agreed upon by the parties) of the Business, but guaranteeing to
New Practice a minimum fee per physician of: (i) $375,000 per
physician in years one and two (ii) $400,000 per physician in years
three through five and (iii) $425,000 per physician in years six
through ten (the "Minimum Fee"). The Minimum Fee is not subject to
offset or reduction, except if the net revenues ("Net Revenues") of
Mission are less than $3 million in any year. In such a case, the
Minimum Fee payable in the immediately following year only shall be
reduced by as follows:
--The Minimum Fee Payable in Year Two shall be reduced by the following amount:
25,000 X 3,000,000 - Net Revenues = the amount of the reduction
------------------------
$1,000,000
--The Minimum Fee Payable in Years Three through Five shall be reduced by the
following
amount:
50,000 X 3,000,000 - Net Revenues = the amount of the reduction
------------------------
$1,000,000
--The Minimum Fee Payable in Years Six through Ten shall be reduced by the
following amount:
75,000 X 3,000,000 - Net Revenues = the amount of the reduction
------------------------
$1,000,000
It is agreed that the number of physicians at the New Practice shall
not be less than 2.4 for the term of the MSA. The MSA would be between
the parties, with New Practice as an independent contractor. New
Practice would continue to operate its group, and be responsible for
all medical decisions. The cost of malpractice insurance for the
physicians would be paid for by OnCure on behalf of New Practice, and
out of the pre-MSA EBITDA from the Business. Exhibit __ is attached
as an illustration of the MSA compensation.
o New Practice and OnCure will agree upon an annual budget,
which will include sufficient working capital to pay its
current bills, without limitation these include rent and
physician compensation, before "profit" is divided. No
penalty will apply if a physician leaves, in that case New
Practice (i.e. the professional group) must hire a locums,
until a permanent replacement is found. This cost shall be
paid from the applicable Minimum Fee.
7. BOARD OF DIRECTORS. Xx. Xxxxxxxxxxxx will be added to the slate for
the election as a Board of Director of OnCure. In addition, each
active physician in the New Practice group would be welcomed to join
the OnCure Medical Advisory Board.
8. AUTHORITY. MISSION hereby represents that Xx. Xxxxxxxxxxxx is
authorized to execute this Agreement, and further, that a majority of
the shareholders and board of directors of MISSION have approved of
the terms and conditions of this Agreement. ONCURE hereby represents
that Xxxxxxx X. Xxxxxxx is authorized to execute this Agreement, and
further, that the executive committee of the board of directors of
ONCURE have approved of the terms and conditions of this Agreement.
9. RIGHT TO PROVIDE FUTURE PROFESSIONAL SERVICES. In the event that
OnCure wishes to add new facilities within 20 miles of the Mission
Viejo Facility, the New Practice shall have the first right of refusal
and option to provide the professional services at such new locations
on terms consistent with the MSA.
10. COOPERATION. OnCure agrees to work with Mission towards the structure
of a transaction that would result in a beneficial or preferred tax
status for Mission and its shareholders. OnCure is responsible for
ensuring that the proposed MSA complies with all federal, state and
private payor regulations relating to the corporate practice of
medicine arrangement as contemplated by the parties, both now and
during the
term of the MSA, and Mission and its shareholders will cooperate with
OnCure with respect to such compliance.
11. RIGHT TO ACQUIRE THE BUSINESS. New Practice would retain the
contractual first right to re-acquire the Business if OnCure was the
subject of a voluntary or involuntary bankruptcy.
12. CERTAIN CONDITIONS. This Agreement is contingent upon the receipt of
the necessary financing to consummate such transaction. Although
OnCure has obtained written commitment from MedEquity Investors, LLC
and DVI, Inc., it is subject to changes in market conditions. Mission
Hospital leases the Mission Viejo facility to Mission, and their
consent to any change in the use of the office is required. It is
anticipated that Mission Hospital will agree that the current lease
may remain with the New Practice, subject to the use of the office
space by OnCure. This Agreement is contingent upon the approval by
Mission Hospital, as landlord, of the assignment of the current lease
or the execution of a new lease with terms satisfactory to OnCure.
This Agreement is subject to further detailed negotiation of all of
the terms of a definitive purchase agreement and MSA, and other
agreements, which may contain additional and potentially different
material terms and conditions.
13. CERTAIN OTHER AGREEMENTS.
o OnCure and Mission have agreed that Mission and its
shareholders will only be required to indemnify OnCure for
the breach of any warranty for one (1) year after closing,
and further that no indemnity shall be required until the
aggregation of all breaches of representations exceeds
$50,000. New Practice shall not be liable for the
representations of Mission or its shareholders. Further, the
shareholders of Mission shall only be liable for a breach of
any representation from Mission up to their percentage
interest in Mission that they are selling. Subject to the
foregoing, the total liabilities for which Mission or its
shareholders may be collectively held liable shall not
exceed $4.6 million for all the shareholders. (MedEquity
will not allow us to acquire any entity without an
indemnification equal to the cash portion of the purchase
price. The owners are not responsible jointly & severally,
so there should be no issue)
o Pursuant to a lease agreement by and between Mission and San
Clemente Radiation LLC (the "Lease"), Mission leases the San
Clemente Center from San Clemente Radiation LLC, a
California limited liability company ("SCR"). SCR hereby
agrees that OnCure may terminate the Lease, at any time
after the sixth month anniversary of the Closing Date, by
providing SCR with written notice (the "Termination Notice")
of its intent to terminate the Lease. The termination date
of the Lease shall be six months from the day on which SCR
receives the Termination Notice. Notwithstanding the
foregoing, if OnCure does not provide SCR with the
Termination Notice on or before the first anniversary of the
Closing Date, OnCure and SCR shall use their best efforts to
enter into a new lease agreement (the "New Lease") with
respect to the San Clemente Center which will (x) have a
term of five years and (y) fair market terms. If necessary,
OnCure and SCR will engage an independent appraiser,
mutually acceptable to each of them, to determine the fair
market terms of the New Lease.
14. REPRESENTATIONS. This Agreement, as well as the promise of
confidentiality in Section 17 below, are a binding obligation of
the parties, subject only to the conditions precedent and
subsequent expressed in this Agreement.
15. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not
constitute a part of and shall not be utilized in interpreting
this Agreement.
16. PUBLICITY. The parties agree not to disclose this letter or the
terms of this Agreement to any other party for a period of one
hundred twenty (120) days except as required by governmental
agencies or by law; provided, however, that ONCURE will provide
MISSION with no less than five (5) days prior written notice of
such required disclosure, and seek MISSION's input with respect
to any public announcement. MISSION further agrees not to
solicit, directly or indirectly, discuss or provide information
regarding a potential sale, merger, or affiliation of MISSION
with any other party for this one hundred twenty-day period.
17. CONFIDENTIALITY. Each party acknowledges that during the course
of due diligence and negotiations, each party may have access to
various items and information of a proprietary and confidential
nature. The parties agree that any such confidential information
received shall be kept confidential. If the transaction fails to
close for whatever reason, each party agrees to return to the
other party any and all copies of books, records, and other
materials containing proprietary and confidential information.
If the foregoing accurately describes our discussions to date, please
confirm your approval by signing below and returning to me a copy of this
letter at your earliest convenience. Each of the undersigned represents that
their board of directors or other governing body have authorized the execution
of this letter.
Sincerely,
Xxxxxxx X. Xxxxxxx
President & Chief Executive Officer
OnCure Technologies Corp.
MISSION VIEJO RADIATION ONCOLOGY
MEDICAL GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxxxxxx, M.D.
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Xxxxxx X. Xxxxxxxxxxxx, M.D.
Chairman, Mission Viejo
Date:
SAN CLEMENTE RADIATION LLC
By: /s/ Xxxxx X. Xxxxxxxxxxxx, M.D.
----------------------------------
Xxxxxx X. Xxxxxxxxxxxx, M.D.
Manager
Date:
cc: Xxxxx Xxxxxxx, MD, Chairman of the Board
Xxxx Xxxxx, CFO
Xxxxxxx Xxxx, MedEquity Investors, Inc.
Xxxxx Xxxxxxxxx, Counsel
