We entered into the Purchase Agreement among Foundation Healthcare Inc (OTCMKTS:FDNH), Foundation Surgery Affiliates LLC, Foundation Surgery Management, LLC and Healthcrest Surgical Partners, LLC (“Healthcrest”). Pursuant to the Purchase Agreement we agreed to, and on October 12, 2016, we sold the membership interests in our wholly-owned subsidiarr Foundation Surgery Holdings, LLC (“FSH”) and all of the capital stock in our wholly-owned subsidiary somniTech, Inc. along with substantially all of the assets of Foundation Surgery Management, LLC (“FSM”) (collectively referred to as the “ASC Entities”) to Healthcrest Surgical Partners, LLC for $2.5 million in cash and a $2.75million subordinated promissory note. The purchase price is subject to adjustment by the amount that the working capital of the ASC entities as of October 12, 2016 is less than $100,000. Through FSH and FSM, we owned noncontrolling interests in seven ambulatory surgery centers or ASCs and provided management services to those ASCs along with two other ASCs that we did not maintain any ownership. The principals of Healthcrest were the management of the Company’s ASC division prior to the transaction.
At closing, we received $2.5 million in cash and a subordinated promissory note for $2.75 million. The note provides that we will receive interest at a rate of prime plus 2.5% per year, with a floor of 6%, payable monthly. Beginning on November 1, 2017, Healthcrest will make monthly principal and interest payments based on a seven year amortization with a final payment of all principal and interest on October 1, 2019. The promissory note is secured by the personal property of Healthcrest, but our security interest and our right to be repaid on the note is subordinated in all respects to the senior lenders of Healthcrest.
We will use the $2.5 million from the proceeds from the transaction to pay down our line of credit with our senior lender.