<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN SHARED HOSPITAL SERVICES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 8099 94-2918118
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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FOUR EMBARCADERO CENTER, SUITE 3620
SAN FRANCISCO, CALIFORNIA 94111-4115
(415) 788-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERNEST A. BATES, M.D.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
AMERICAN SHARED HOSPITAL SERVICES
FOUR EMBARCADERO CENTER, SUITE 3620
SAN FRANCISCO, CALIFORNIA 94111-4115
(415) 788-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
DANIEL G. KELLY, JR.
SIDLEY & AUSTIN
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1)(2) PRICE(1)(2) FEE(2)
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Common Shares No Par Value....... 1,193,000 shares $1.56 $1,861,080.00 $641.75
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Warrants to purchase Common
Shares......................... 539,000 Warrants -- -- $0
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Common Shares Underlying
Warrants....................... 539,000 shares $1.56 $840,840.00 $289.95
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Total Registration Fee........... $931.70
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on the
basis of average high and low prices of the Common Shares on the American
Stock Exchange on October 20, 1995. The maximum offering price of the Common
Shares is deemed to be the aggregate of their market value.
(2) Pursuant to Rule 457(g) under the Securities Act of 1933, as amended, no
separate registration fee is being paid in respect of the Warrants because a
full registration fee is being paid for the Common Shares underlying such
Warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
AMERICAN SHARED HOSPITAL SERVICES
------------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
LOCATION IN REGISTRATION STATEMENT OR
FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS
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<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Front Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page and Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Determination of Offering Price
6. Dilution................................... *
7. Selling Security Holders................... Selling Securityholders
8. Plan of Distribution....................... Plan of Distribution
9. Description of Securities to be
Registered................................. Description of Securities
10. Interests of Named Experts and Counsel..... Experts
11. Information with Respect to the Registrant:
(a) Description of Business............... Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
(b) Description of Property............... Properties
(c) Legal Proceedings..................... Legal Proceedings
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters................... Market Price of and Dividends on the Common
Shares
(e) Financial Statements.................. Index to Consolidated Financial Statements;
Consolidated Financial Statements
(f) Selected Financial Data............... Selected Consolidated Financial Data
(g) Supplementary Financial Information... Consolidated Financial Statements
(h) Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................. *
(j) Directors and Executive Officers..... Management
(k) Executive Compensation................ Management
</TABLE>
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* Not Applicable
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION IN REGISTRATION STATEMENT OR
FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS
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<S> <C>
(l) Security Ownership of Certain
Beneficial Owners and Management........... Principal Shareholders
(m) Certain Relationships and Related
Transactions......................... Management
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Part II, Indemnification of Directors and
Officers; Undertakings
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, OCTOBER 26, 1995
PROSPECTUS
1,732,000 COMMON SHARES
(INCLUDING 539,000 COMMON SHARES ISSUABLE
UPON THE EXERCISE OF WARRANTS)
AND
WARRANTS TO PURCHASE 539,000 COMMON SHARES
AMERICAN SHARED HOSPITAL SERVICES
The common shares, no par value ("Common Shares"), of American Shared
Hospital Services, a California corporation ("ASHS" and together with its
subsidiaries, the "Company"), warrants to purchase Common Shares ("Warrants")
and the Common Shares issuable upon exercise of such Warrants (collectively, the
"Securities") covered by this Prospectus may be sold from time to time by the
securityholders specified in this Prospectus or their successors in interest
(the "Selling Securityholders"). See "Selling Securityholders."
On May 17, 1995, the Company repurchased $17,694,000 principal amount of
its senior subordinated notes from certain of the Selling Securityholders for
consideration comprised of cash, 819,000 Common Shares and 216,000 Warrants.
Pursuant to the terms of the Note Purchase Agreement dated as of May 12, 1995,
upon the occurrence of certain subsequent events the Company issued to such
Selling Securityholders an additional 374,000 Common Shares and 98,000 Warrants.
The repurchase of the senior subordinated notes was part of an overall financial
restructuring in which the Company also restructured most of its medical
equipment leases and issued its primary equipment lessor 225,000 Warrants. The
1,193,000 Common Shares, 539,000 Warrants issued in these transactions and
539,000 Common Shares underlying such Warrants are the Securities to which this
Prospectus relates. Such Securities are being registered by the Company under
the Securities Act of 1933, as amended (the "Act") pursuant to the terms of a
Registration Rights Agreement dated as of May 17, 1995 among the Company and the
Selling Securityholders (the "Registration Rights Agreement").
The Common Shares are listed on the American Stock Exchange ("AMEX") under
the trading symbol "AMS." The Common Shares are also listed on The Pacific Stock
Exchange ("PSE"). Each such exchange has commenced a review procedure to
determine whether the Common Shares will remain listed. See "Risk
Factors -- Trading of Common Shares; Possible Delisting of Common Shares." On
October 20, 1995 the last reported sale price of the Common Shares on the AMEX
was $1.50 per share.
The Company will not receive any of the proceeds from the sale of the
Securities being offered by the Selling Securityholders. The Selling
Securityholders may, from time to time, sell the Securities at market prices
prevailing on the AMEX or PSE, respectively, at the time of sale or sell the
Securities under certain other terms. See "Plan of Distribution."
THE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THE PROSPECTUS IS OCTOBER , 1995
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
New York, New York 10007 and Northwestern Atrium Center, 500 Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained upon written request addressed to the Commission, Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois, at prescribed rates. The Company's Common Shares are listed on the
American Stock Exchange and The Pacific Stock Exchange, and such reports, proxy
statements, and other information concerning the Company can also be inspected
at the offices of the American Stock Exchange, 86 Trinity Place, New York, New
York 10006 and at the offices of The Pacific Stock Exchange, 301 Pine Street,
San Francisco, California 94104. Statements contained in this Prospectus as to
the contents of any agreement or other document are not necessarily complete,
and in each instance reference is made to the copy of such agreement or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon oral or written
request, a copy of any or all of the documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Written or telephone inquiries
should be directed to American Shared Hospital Services, Four Embarcadero
Center, Suite 3620, San Francisco, California 94111, Attention: Richard Magary
(telephone: (415) 788-5300).
Additional information regarding the Company and the Securities offered
hereby is contained in the Registration Statement on Form S-1 and the exhibits
(the "Registration Statement") filed with the Commission under the Act. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to the
Registration Statement which may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the Commission at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with the offer and sale
of the Securities other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the Securities offered hereby
by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date of
this Prospectus.
2
<PAGE> 6
RISK FACTORS
In addition to the other information and financial data set forth elsewhere
in this Prospectus, the following specific factors should be considered
carefully by prospective investors in evaluating the Company, its businesses and
an investment in the Securities.
DEFAULTS, POTENTIAL BANKRUPTCY AND RESTRUCTURING
As a result of a serious cash shortage during the second half of 1992, the
Company failed to make the required semi-annual interest payments under its
14 3/4% Senior Subordinated Notes Due 1996 (the "14 3/4% Notes") and Senior
Subordinated Exchangeable Reset Notes Due 1996 (the "16 1/2% Notes") (the
14 3/4% Notes and the 16 1/2% Notes, collectively, are referred to as the
"Subordinated Notes") that were due beginning on October 15, 1992. In addition,
the Company suspended lease payments on a significant portion of its equipment
leases beginning on December 1, 1992.
The non-payment of interest and the suspension of lease payments caused
defaults under the Company's Subordinated Notes and equipment leases and gave
the holders of such obligations as well as the lender under the Company's senior
secured working capital facility the right to declare all amounts immediately
due and payable and to reclaim substantially all of the Company's diagnostic
imaging equipment and other assets. The Company stated that if any of such
creditors or lessors had exercised their rights, the Company would have been
forced to seek a liquidation under Chapter 7 or a reorganization under Chapter
11 of the United States Bankruptcy Code.
Following lengthy negotiations, the Company restructured its debt and most
of its lease obligations. See "The Company -- Financial Restructuring." The
restructuring had the effect of curing all defaults under the indentures
governing the Subordinated Notes and the equipment leases. The Company
nevertheless remains highly leveraged and has substantial fixed payment
obligations. If defaults occur in the future, the Company's creditors and
lessors would have the ability to accelerate the Company's obligations and seize
substantially all of its medical imaging equipment and other assets. There can
be no assurance that the Company will be able to avoid such defaults in the
future.
RECENT LOSSES; FINANCIAL CONDITION OF THE COMPANY
The Company has reported significant operating losses in each of the last
three fiscal years. The net loss of the Company (after extraordinary items) was
$9,515,000, $15,644,000 and $5,175,000 for the years ended December 31, 1992,
1993 and 1994, respectively. The Company also reported a loss (before
extraordinary gain on early extinguishment of debt and a charge to reflect the
adoption of a new accounting standard) of $3,628,000 for the six month period
ended June 30, 1995. The Company had a net capital deficiency of $22,341,000 at
December 31, 1994 and $8,584,000 at June 30, 1995. The reduction in the net
capital deficiency at June 30, 1995 was due to an extraordinary gain of
$20,378,000 from the early extinguishment of debt at a discount. Unless the
Company is able to increase its revenues and/or increase its operating margins
through a reduction in its cost of operations, it will be unable to achieve
profitability. There can be no assurance that the Company will be profitable in
the future.
HIGH DEBT LEVEL
Even following the restructuring, in which the Company was able to
repurchase at a significant discount and retire $17,694,000 principal amount of
Subordinated Notes, the Company remains highly leveraged. At June 30, 1995, the
Company had approximately $8,530,000 of long-term debt, $773,000 of Subordinated
Notes and approximately $25,800,000 of obligations under capital leases
($8,512,000 of which is due within one year). Scheduled payments under debt
obligations and capital leases are $6,031,000 during the last six months of 1995
and $12,501,000 during 1996. The Company's available cash flow during the first
six months of 1995 would have been insufficient to meet this level of cash
requirements. Accordingly, the Company during the next 18 months must increase
its revenues and reduce its cost structure in order to meet its obligations as
they become due. There can be no assurance that the Company will be able to meet
its scheduled obligations as they become due in the next 12 to 18 months.
Further, the high debt level may
3
<PAGE> 7
adversely affect the Company's ability to offer technologically advanced
equipment in the future to customers, which may adversely affect the Company's
ability to secure or retain profitable contracts.
ACCESS TO CAPITAL AND FINANCING
The Company is severely limited by covenants in its credit agreements from
incurring additional indebtedness without the consent of its lenders. In
addition, the Company has pledged substantially all of its liquid assets and
substantially all of its tangible personal property and real property to secure
its existing debt. As a result, the Company has very little financial
flexibility to address unforeseen cash needs, to fund future growth or to
finance necessary equipment purchases and upgrades.
NECESSITY TO REFINANCE MATURING INDEBTEDNESS
A substantial portion of the Company's funded debt, including the
Subordinated Notes which mature in October 1996, will mature in 24 to 48 months.
During the last six months of 1995, and during 1996 and 1997, $4,377,000,
$10,411,000 and $8,655,000 plus the then outstanding balance (currently
approximately $3,200,000) of the New Revolver (as defined below) will come due.
The Company will not have sufficient cash resources to pay these obligations at
maturity. Accordingly, the Company will be required to seek new financing to
meet its maturing obligations. There can be no assurance that such financing
will be available or that the terms of any such financing will be acceptable to
the Company.
TRADING MARKET FOR COMMON SHARES; POSSIBLE DELISTING OF COMMON SHARES
The Common Shares are currently traded on the American Stock Exchange and
The Pacific Stock Exchange. The announcement by the Company of the terms of a
restructuring in early April 1994 was followed by a significant decline in the
market price of the Common Shares. The Company's losses and net capital
deficiency have caused the Company to no longer satisfy the minimum criteria
with respect to net income and net worth for continued listing published by the
AMEX. The per share trading price of the Common Shares is also below the minimum
criteria for continued listing on such exchange. The closing per share price was
$1.625 at June 30, 1995. The Company has been advised that its net capital
deficiency is inconsistent with the criteria applied by the PSE for continued
listing on such exchange. The AMEX and PSE are currently reviewing the Company's
financial condition following the restructuring in order to determine whether
the Common Shares will continue to be listed on such exchanges. Accordingly, no
assurances can be given that a holder of Common Shares will be able to sell
Common Shares in the future on a national or regional securities exchange, or
that there will be an active trading market for the Common Shares or as to the
price at which the Common Shares might trade.
OFFER AND SALE OF SECURITIES MAY DEPRESS MARKET PRICE OF COMMON SHARES
The Selling Securityholders may offer and sell Common Shares in a number of
different ways. See "Plan of Distribution." In the event that the Selling
Securityholders do not sell their Common Shares in an underwritten offering, the
offer and sale process may result in temporary disruptions in the market and
adversely affect the price of Common Shares. In any event, the availability of
the Securities (which represent approximately 30% of the fully diluted Common
Shares after exercise of the Warrants) for sale by the Selling Securityholders
may depress the market price of Common Shares for a significant period.
NO DIVIDENDS
The Company is prohibited by its credit agreements from paying dividends on
the Common Shares and does not anticipate being in a position to pay dividends
for the foreseeable future.
CONTROL BY MAJOR SHAREHOLDERS
As of October 6, 1995, Ernest A. Bates, M.D., the Company's Chairman of the
Board and Chief Executive Officer, owns 2,666,000 Common Shares through directly
owned shares and currently exercisable options, which represents approximately
46% of the Company's outstanding Common Shares. In addition, as a
4
<PAGE> 8
result of Securities issued to them pursuant to the terms of the Note Purchase
Agreement, the Selling Securityholders own directly or through immediately
exercisable Warrants 1,732,000 Common Shares, representing approximately 37% of
the outstanding securities of the Company. (On October 6, 1995, The Board of
Directors increased the number of Directors, creating one vacancy to be filled
by an independent third party nominated by the holders of the Noteholder
Warrants, as defined below.) Thus, Dr. Bates and any of the Selling
Securityholders acting together will have the power to determine the outcome of
a shareholder vote with respect to any fundamental corporate transaction,
including mergers and the sale of all or substantially all of the Company's
assets. This could have the effect of blocking transactions that a majority of
the other shareholders would otherwise find attractive.
DEPENDENCE ON KEY PERSONNEL
The Company's operations and business are dependent to a significant extent
upon the continued active participation of its founder, Chairman of the Board
and Chief Executive Officer, Ernest A. Bates, M.D. In the past, Dr. Bates has
personally guaranteed various financial obligations of the Company, which has
enabled the Company to secure insurance and obtain credit. Certain of the
Company's lenders have also sought to insure the continued involvement of Dr.
Bates by requiring his personal guarantee of a significant amount of the
Company's debt. Should Dr. Bates become unavailable to the Company for any
reason, it could have a material adverse effect on the Company's business,
results of operations, financial condition and prospects.
TECHNOLOGY
Diagnostic imaging technology is subject to continuous development and
change. New technological breakthroughs may require the Company to acquire new
or technologically improved products to service its customers. There can be no
assurance that the Company's financial resources will enable it to make the
investment necessary to acquire such products. The failure to acquire or use new
technology and products could have a material adverse effect on the Company's
business and results of operations.
REIMBURSEMENT
Customers to which the Company provides services generally receive payment
for patient care from governmental and private insurer reimbursement programs.
As a result, a significant adverse change in such reimbursement policies might
have a material adverse effect on the Company's business and results of
operations. As a result of federal cost-containment legislation currently in
effect, hospital in-patients covered by federally funded reimbursement programs
are classified into diagnostic related groups ("DRG") in accordance with the
patient's diagnosis, necessary medical procedures and other factors. Patient
reimbursement is limited to a predetermined amount for each DRG. Because the
reimbursement payment is predetermined, it does not necessarily cover the cost
of all medical services actually provided. Currently the DRG system is not
applicable to out-patient services, and consequently many health care providers
have an incentive to use contract shared services on an out-patient basis. If
the DRG program is at some future date expanded to include out-patient
reimbursement, such change could have a material adverse effect on the Company's
business and results of operations.
RISK OF ADVERSE HEALTHCARE REFORM LEGISLATION
In addition to extensive existing government healthcare regulation, there
are numerous initiatives at the federal and state levels for comprehensive
reforms affecting the payment for and availability of healthcare services,
including a number of proposals that would significantly limit reimbursement
under Medicare and Medicaid. It is not clear at this time what proposals, if
any, will be adopted or, if adopted, what effect such proposals would have on
the Company's business. Aspects of certain of these healthcare proposals, such
as cutbacks in the Medicare and Medicaid programs, containment of healthcare
costs on an interim basis by means that could include a short-term freeze on
prices charged by healthcare providers, and permitting greater state flexibility
in the administration of Medicaid, could adversely affect the Company. There can
be no assurance that any currently proposed or future healthcare legislation or
other changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on the Company.
5
<PAGE> 9
GOVERNMENT REGULATIONS
Many aspects of the medical industry in the United States are subject to a
high degree of governmental regulation. Generally, failure to comply with any
such regulations may result in denial of the right to conduct business and
significant fines. For example, legislation in various jurisdictions requires
that health facilities obtain a Certificate of Need ("CON") prior to making
expenditures in excess of specified amounts. The CON procedure can be expensive
and time consuming, and consequently a health care facility may elect to use the
Company's services rather than purchase equipment subject to CON requirements.
CON requirements vary from state to state as they apply to the operations of
both the Company and its customers. In some jurisdictions the Company is
required to comply with CON procedures before operating its services and in
other jurisdictions customers must comply with CON procedures before using the
Company's services. An increase in the complexity or substantive requirements of
such federal, state and local laws and regulations could adversely affect the
Company's business.
LABOR SHORTAGES
Shortages of licensed technicians in the diagnostic imaging fields in
certain areas of the country could adversely affect the Company's labor costs in
those areas should the shortage become acute.
COMPETITION
The Company faces severe competition from other providers of diagnostic
imaging services, some of which have greater financial resources than the
Company, and from hospitals, imaging centers and physician groups owning
in-house diagnostic units. Significant competitive factors in the diagnostic
services market include equipment price and availability, performance quality,
ability to upgrade equipment performance and software, service and reliability.
The Company's financial problems have adversely affected its ability to obtain
and retain certain profitable customer contracts, and its high debt burden may
adversely affect its ability to offer technologically advanced equipment in the
future. There can be no assurance that the Company will be able to retain its
competitive position in the medical imaging industry following the
restructuring.
6
<PAGE> 10
THE COMPANY
The Company provides shared diagnostic imaging services to approximately
224 hospitals, medical centers and medical offices located in 20 states and one
hospital in the United Kingdom. The four diagnostic imaging services provided by
the Company are Magnetic Resonance Imaging (MRI), Computer Axial Tomography
Scanning (CT), Ultrasound and Nuclear Medicine. In addition, the Company
provides a Gamma Knife to a major university medical center and has an option to
acquire a second Gamma Knife located in another major university medical center.
ASHS's address is Four Embarcadero Center, Suite 3620, San Francisco,
California 94111 and its telephone number is (415) 788-5300.
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<PAGE> 11
FINANCIAL RESTRUCTURING
GENERAL
On May 17, 1995, pursuant to the terms of the Note Purchase Agreement dated
as of May 12, 1995 (the "Note Purchase Agreement"), the Company repurchased (the
"Notes Repurchase") $17,694,000 principal amount of its Subordinated Notes from
certain holders for consideration consisting of $3,893,000 in cash, 819,000
Common Shares and immediately exercisable Warrants to purchase an additional
216,000 Common Shares, at an exercise price of $0.75 per share, representing 20%
and 5%, respectively, of the fully diluted Common Shares. Pursuant to the terms
of the Note Purchase Agreement, these holders were issued an additional 374,000
Common Shares and 98,000 Warrants following the approval by the Company's
shareholders of the grant to the Company's Chairman and Chief Executive Officer
of an option to purchase 1,495,000 Common Shares. The 1,193,000 Common Shares
and 314,000 Warrants issued as part of the Notes Repurchase, plus 225,000
Warrants issued pursuant to the Lease Restructuring (as defined below), and the
Common Shares issuable upon exercise of such Warrants, are the Securities to
which this Prospectus relates.
The Notes Repurchase was the final event in a broad restructuring of the
Company's capital structure that commenced in mid-1992. As part of the
restructuring, the Company was able to amend most of the capital and operating
leases covering its medical equipment (the "Lease Restructuring") to reduce
monthly payments, eliminate $26,548,000 of indebtedness (including principal and
accrued and unpaid interest) through the Notes Repurchase and replace its
operating line of credit. On the date of the Notes Repurchase, the Company
entered into three new credit facilities totalling $8,000,000, which provided
funds for the Notes Repurchase and working capital, as well as term debt
reduction and the refinancing of certain medical equipment. As a result, the
Company was able to cure all existing defaults on its debt and equipment leases.
BACKGROUND
Beginning in 1992, the Company experienced substantial declines in revenues
from its businesses. The revenue declines, which were caused by increased
competition and reduced acceptance of the services offered by the Company,
combined with high fixed payment obligations under existing equipment leases and
the Subordinated Notes, led to a serious cash shortage in the second half of
1992. During this period the Company concluded that revenues from its operating
activities would be insufficient to meet its fixed obligations and determined
that these obligations would have to be restructured.
The Company failed to make the required semi-annual payments due under the
Subordinated Notes beginning on October 15, 1992. In addition, the Company
suspended lease payments on a significant portion of its leases beginning on
December 1, 1992. As a result of these actions, both the Subordinated Notes and
the equipment leases relating to substantially all of the Company's medical
imaging equipment were in default. This gave the holders of such obligations, as
well as the lender under the Company's secured working capital facility, the
right to declare all amounts immediately due and payable and, in the case of the
leases, reclaim substantially all of the Company's medical imaging equipment.
The Company stated that any such action by the holders would have forced the
Company to seek a liquidation under Chapter 7 or a reorganization under Chapter
11 of the United States Bankruptcy Code.
ELEMENTS OF RESTRUCTURING
In light of the foregoing, the Company began negotiations in late 1992 to
restructure its equipment lease and debt obligations to more closely match
anticipated revenues and costs. These negotiations led to the Lease
Restructuring in December 1994, and the Notes Repurchase and replacement of the
Company's revolving credit facility in May 1995. Each of these events is
described below:
1. Revolving Credit Facility. The Company's previous revolving credit
facility provided for borrowings up to $5,000,000 based on a formula relating to
eligible accounts receivable and was secured by a lien on the accounts
receivable and inventory of CuraCare, Inc. ("CuraCare"), a Delaware corporation
which is a wholly-owned subsidiary of ASHS. During the period in which defaults
existed under the Subordinated Notes and equipment leases, the Company's
revolving credit lender gradually reduced the funds available to the
8
<PAGE> 12
Company under the facility. On December 31, 1994, in connection with the sale of
a majority of the Company's respiratory therapy contracts and its respiratory
therapy registry, the Company provided cash collateral equal to the amount
borrowed under the revolving credit facility. The facility was repaid in full at
maturity on February 28, 1995.
2. Lease Restructuring. On December 30, 1994 (effective as of November 1,
1994 for most capital leases and January 1, 1994 for operating leases) the
Company and General Electric Company, a New York corporation acting through GE
Medical Systems ("GE Medical") entered into the Lease Restructuring.
American Shared-CuraCare, a California general partnership ("AS-C") whose
partners are ASHS and a wholly-owned subsidiary of ASHS, is the entity through
which the Company leases its MRI medical imaging equipment. In the Lease
Restructuring, substantially all equipment financed by AS-C under capital leases
(the "Existing Capital Leases") for which GE Medical was the lessor were
restructured and after restructuring continue to meet the financial statement
accounting criteria under generally accepted accounting principles ("GAAP") to
be accounted for as capital leases. Under the restructured leases, scheduled
payments by AS-C provide for the retirement of the unpaid principal balance
under the Existing Capital Leases over the extended and restructured lease terms
which will expire on various dates between December 31, 1996 through December
31, 1999. AS-C will be entitled to purchase the leased equipment at its fair
market value, or to extend the relevant lease, at the end of the lease term, in
each case on terms offered by GE Medical at that time.
All operating leases in effect at January 1, 1994 under which GE Medical
was the lessor of equipment to AS-C (the "Restructured GE Operating Leases")
were amended to extend and restructure the payment schedules. AS-C will be
entitled to purchase the leased equipment at its fair market value, or to extend
the relevant lease, at the end of the lease term, in each case on terms offered
by GE Medical at that time. As a result of the modification of lease terms, the
Restructured GE Operating Leases meet the financial statement accounting
criteria under GAAP to be accounted for as capital leases and are accounted for
as such. The present value of the net minimum lease payments on the Company's
capital leases was $25,812,000 as of June 30, 1995.
As part of the Lease Restructuring, GE Medical converted various lease and
service payments that were due and unpaid, and a portion of the restructured
lease payments for the period from January 1, 1994 through March 31, 1994,
totalling approximately $3,000,000, into a $2,000,000 promissory note dated
January 1, 1995 (the "GE Note"). The GE Note was issued by AS-C to GE Medical
and is guaranteed by ASHS and certain of its subsidiaries. The GE Note will
mature in February 2002 and bears interest at a rate of 4% per annum. Monthly
payments of interest only are due through November 1995 and thereafter the
principal balance will amortize in 75 equal monthly installments until maturity.
The GE Note and the Company's guarantee are secured by a second priority lien on
the accounts receivable of ASHS and CuraCare and a first priority lien on
certain medical imaging equipment. The GE Note contains restrictive covenants
that limit the ability of the Company to incur debt, create liens, pay dividends
on the Common Shares, make capital expenditures, acquire or dispose of assets
and merge with other companies.
In connection with the issuance of the GE Note, the Company issued GE
Medical on December 30, 1994 an immediately exercisable warrant (the "December
Warrant") to purchase 97,853 Common Shares for $0.01 per share until March 31,
1996. On May 17, 1995, an additional warrant was issued to purchase 127,147
Common Shares until September 30, 1996 (the "May Warrant", the December Warrant
and the May Warrant being collectively referred to as the "GE Warrants").
3. Notes Repurchase and New Credit Facilities. As described above, the
Notes Repurchase was consummated on May 17, 1995. The Notes Repurchase was the
culmination of over two years of negotiations between the Company and a small
number of holders who owned in the aggregate approximately 96% of the
Subordinated Notes. Prior to consummating the Notes Repurchase, the Company and
such holders had agreed to a restructuring (the "Prior Restructuring") in which
the holders would have exchanged their debt for new Common Shares that would
have given them an 89.4% ownership interest in the outstanding common equity of
ASHS. The Notes Repurchase was consummated in lieu of the Prior Restructuring.
9
<PAGE> 13
The Notes Repurchase was completed with the proceeds of three new credit
facilities. Concurrent with the Notes Repurchase on May 17, 1995, the Company
entered into a new revolving credit facility (the "New Revolver") with a
different lender than the previous revolving credit facility. Under the New
Revolver, the Company will have available up to $4,000,000 according to a
formula based on eligible accounts receivable. The New Revolver provides for
interest payments only (computed at the Bank of America prime rate plus 5%)
until maturity on May 17, 1997 when all amounts are due and payable. The initial
proceeds of $3,000,000 drawn under the New Revolver were used primarily to fund
the cash consideration in the Notes Repurchase. At September 30, 1995, the
Company had drawn $3,201,000 under the New Revolver and, based on eligible
accounts receivable, an additional $209,000 was available under the facility.
The New Revolver is secured by a first priority lien on all of AS-C's and
CuraCare's accounts receivable, certain equipment, inventory and general
intangibles and is guaranteed by ASHS and Ernest A. Bates, M.D., individually.
The Company also entered into a $2,500,000 four-year loan agreement that will
amortize in 48 equal installments with interest at an annual rate of 15% (the
"Term Loan"). The Term Loan is secured by a first priority lien on certain
equipment and inventory of AS-C and CuraCare and CuraCare's real property in
Modesto, California and a second priority lien on AS-C's and CuraCare's accounts
receivable and general intangibles. In addition to funding the repurchase of the
Subordinated Notes, the proceeds of the Term Loan were applied to the
refinancing of certain medical imaging equipment and to provide working capital
to the Company.
On May 17, 1995, the Company also entered into a $1,500,000 18-month level
amortizing loan at an interest rate of 10.5% (the "Gamma Knife Loan"). The
proceeds of the Gamma Knife Loan were used to refinance the Company's Gamma
Knife, to fund in part the Notes Repurchase, and to provide working capital. The
Gamma Knife Loan is collateralized with a first priority security interest in
the Gamma Knife owned by the Company. The payments on this loan were
restructured in September 1995 from $90,431 per month to $40,203 per month
effective September 17, 1995, and to extend the loan term to September 17, 1998,
to match renegotiated terms of the underlying customer contract.
In connection with the financing of the Notes Repurchase, the lenders that
provided the New Revolver and the Term Loan required a personal guarantee from
the Company's Chairman and Chief Executive Officer. In consideration of the
guarantee and of his continued service to the Company, the Chairman and Chief
Executive Officer was issued 184,000 Common Shares and, after obtaining
shareholder approval on October 6, 1995, an immediately exercisable 10-year
option to acquire 1,495,000 Common Shares for $0.01 per share.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities. All of the proceeds will be received by the Selling Securityholders.
See "Selling Securityholders." Upon exercise of any of the Warrants, the Company
shall receive proceeds equal to the aggregate respective exercise price in
return for the Common Shares.
DETERMINATION OF OFFERING PRICE
The offering price of the Securities will be determined by the Selling
Securityholders in transactions entered into by them regarding the Securities.
See "Plan of Distribution."
10
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1995 as reflected on the Company's unaudited condensed consolidated balance
sheet. The table should be read in conjunction with the Consolidated Financial
Statements and related Notes to Consolidated Financial Statements contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
(UNAUDITED)
<S> <C>
Current portion of long-term debt(1)........................................... $ 1,152,000
Current portion of Obligations under Capital Leases(1)......................... 8,512,000
----------
Total Current Obligations.................................................... 9,664,000
----------
Long-term debt, less current portion(1)........................................ 7,378,000
Obligations under Capital Leases less current portion(1)....................... 17,300,000
Senior Subordinated Notes...................................................... 773,000
----------
Total long-term obligations.................................................. 25,451,000
----------
Total Obligations.................................................... 35,115,000
----------
Stockholder's equity (Net Capital Deficiency):
Common stock, without par value:
authorized shares -- 10,000,000 3,870,000 shares issued and
outstanding(2)........................................................... 10,141,000
Additional paid-in capital................................................... 849,000
Accumulated deficit.......................................................... (19,574,000)
----------
Total stockholders' equity (Net Capital Deficiency).................. (8,584,000)
----------
TOTAL CAPITALIZATION................................................. $ 26,531,000
==========
</TABLE>
- ---------------
(1) See Notes 7 and 11 of the Notes to the Consolidated Financial Statements
which describe in detail the long-term debt and capitalized lease
obligations of the Company.
(2) Does not include (i) 330,000 Common Shares reserved for issuance under the
Company's 1995 Stock Option Plan, (ii) 183,100 Common Shares remaining
exercisable in the Company's 1984 Stock Option Plan, (iii) 539,000 Common
Shares underlying the Warrants, or (iv) 1,495,000 Common Shares issuable
under an option granted to the Company's Chairman and Chief Executive
Officer.
11
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the five years ended
December 31, 1994 are derived from the consolidated financial statements. The
condensed consolidated financial results for the six month periods ended June
30, 1995 and 1994 are derived from unaudited condensed consolidated financial
statements. The unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six months
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1995. The data should be read
in conjunction with the consolidated financial statements, related notes, and
other financial information included herein.
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------
1995 1994 1994 1993(1) 1992 1991 1990(2)
------- ------- ------- -------- -------- ------- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Medical services revenues............... $17,140 $19,451 $38,545 $ 39,485 $ 48,834 $58,952 $60,427
======= ======= ======= ======== ======== ======= =======
Costs of operations..................... 18,446 17,238 34,145 37,071 45,169 43,941 47,969
Write-down of intangible assets......... 600 0 0 5,308 -- -- --
Selling and administrative expense...... 2,958 3,025 5,971 6,820 6,273 7,051 8,529
Interest expense........................ 3,274 3,082 7,423 6,752 7,520 8,542 8,614
------- ------- ------- -------- -------- ------- -------
Total costs and expenses................ 25,278 23,345 47,539 55,951 58,962 59,534 65,112
------- ------- ------- -------- -------- ------- -------
(8,138) (3,894) (8,994) (16,466) (10,128) (582) (4,685)
(Loss)/gain on sale of assets........... (46) 145 3,294 124 270 138 218
Equity in earnings (losses) of
partnerships.......................... 23 37 85 (51) 51 221 198
Interest and other income............... 108 45 98 742 181 310 656
------- ------- ------- -------- -------- ------- -------
(Loss)/income before income taxes and
extraordinary items................... (8,053) (3,667) (5,517) (15,651) (9,626) 87 (3,613)
------- ------- ------- -------- -------- ------- -------
Income tax provision (benefit).......... 0 18 20 (7) (111) 63 --
------- ------- ------- -------- -------- ------- -------
(Loss)/income before extraordinary
items................................. (8,053) (3,685) (5,537) (15,644) (9,515) 24 (3,613)
Extraordinary items..................... 20,378 -- 362 -- -- 1,964 11
------- ------- ------- -------- -------- ------- -------
Net income (loss)....................... $12,325 $(3,685) $(5,175) $(15,644) $ (9,515) $ 1,988 $(3,602)
======= ======= ======= ======== ======== ======= =======
Income (loss) per share:
Income (loss) before extraordinary
items.............................. $ (2.47) $ (1.29) $ (1.93) $ (5.46) $ (3.39) $ 0.01 $ (1.30)
Extraordinary items................... $ 6.24 $ 0.00 $ 0.13 $ 0.00 $ 0.00 $ 0.69 $ 0.00
------- ------- ------- -------- -------- ------- -------
Net income (loss) per share........... $ 3.77 $ (1.29) $ (1.80) $ (5.46) $ (3.39) $ 0.70 $ (1.30)
======= ======= ======= ======== ======== ======= =======
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1994 1993(1) 1992 1991 1990(2)
-------- -------- -------- ------- -------
JUNE 30,
1995
-----------
(UNAUDITED) (AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency)................. $(8,857) $(33,369) $(56,518) $(33,244) $(3,960) $(3,711)
Total assets................................. 32,938 44,339 50,179 61,440 75,723 74,360
Current portion of long-term debt and
obligations under capitalized leases....... 9,664 8,331 26,635 15,288 10,366 14,282
Long term debt and obligations under
capitalized leases less current portion.... 24,678 24,244 3,106 19,792 30,950 21,823
Senior subordinated notes.................... 773 18,467 18,788 18,788 18,788 24,975
Stockholders' equity (Net capital
deficiency)................................ $(8,584) $(22,341) $(17,754) $ (2,151) $ 7,192 $ 5,122
</TABLE>
- ---------------
12
<PAGE> 16
(1) In August 1993, ASHS incorporated a new wholly owned subsidiary, American
Shared Radiosurgery Services. Accordingly, the financial data for the
Company presented above include the results of the establishment of the
subsidiary for 1993 through the six months ended June 30, 1995.
(2) In November 1990, the Company started operations of a new wholly owned
subsidiary, European Shared Medical Services Limited. Accordingly, the
financial data for the Company presented above include the results of the
newly established subsidiary for 1990 through the six months ended June 30,
1995.
13
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1995 to Six Months Ended June 30, 1994
MEDICAL SERVICES REVENUES
Medical services revenues of $17,140,000 for the six months ended June 30,
1995 represent a 12% decline compared to medical services revenues of
$19,451,000 for the six months ended June 30, 1994.
Revenues from MRI for the six month period ended June 30, 1995 increased
$1,343,000 compared to the same period in the prior year. The increase was due
primarily to the commencement of new customer contracts and increased
utilization from contracts commenced in prior periods. The Company had a net
increase of approximately 14 new customer contracts as of June 30, 1995 compared
to June 30, 1994.
CT revenues declined $395,000 for the six month period ended June 30, 1995
compared to the same period in the prior year due to the operation of two fewer
scanners and lower revenue generation from mobile routes. Nuclear medicine and
ultrasound revenues decreased $616,000 for the six month period ended June 30,
1995 compared to the same period in the prior year as a result of the December
31, 1994 sale by the Company of two ultrasound contracts as a part of its
respiratory therapy department contract sale and the continued decline in mobile
ultrasound usage.
Respiratory therapy services revenues decreased $2,643,000 for the six
month period ended June 30, 1995 compared to the same period in the prior year
due to the sale of eight respiratory therapy contracts and the respiratory
registry in December 1994, and the termination of three contracts in the first
six months of 1995. During the remainder of 1995 an additional two contracts
will terminate.
Gamma Knife revenues remained constant for the six month period ended June
30, 1995 compared to the same period in the prior year. Gamma Knife revenues are
currently not a significant component of the Company's revenues.
COST OF OPERATIONS
Total Costs of Operations increased $1,208,000 for the six month period
ended June 30, 1995 compared to the same period in the prior year. The increase
in total costs of operations resulted primarily from the write-down of equipment
and deferred assets of $3,825,000. Medical services payroll, the largest routine
component of total costs of operations, decreased $1,742,000 for the six month
period ended June 30, 1995 compared to the same period in the prior year. The
decrease is primarily attributable to the Company's sale of certain respiratory
therapy contracts and the respiratory therapy registry during the fourth quarter
of 1994. Maintenance and supplies decreased $109,000 for the six month period
ended June 30, 1995 compared to the same period in the prior year. The decrease
is primarily attributable to pricing reductions on MRI maintenance contracts and
a decrease in supply usage associated with the sale and termination of
respiratory therapy contracts. Depreciation and amortization increased $658,000
for the six month period ended June 30, 1995 compared to the same period in the
prior year. The increase is primarily attributable to the Company's Lease
Restructuring with its primary equipment lessor which was effective January 1,
1994 but recorded cumulatively in the fourth quarter of 1994. Equipment leases
previously accounted for as rentals were accounted for as capitalized leases
(increased depreciation and interest expense) due to the Lease Restructuring.
Equipment rental decreased $1,107,000 for the six month period ended June 30,
1995 compared to the same period in the prior year as a result of the Lease
Restructuring. Other operating costs decreased $317,000 for the six month period
ended June 30, 1995 compared to the same period in the prior year primarily due
to a reduction in regional office and property related costs.
In connection with the adoption of the statement of Financial Accounting
Standards No. 121 (FAS 121) during the second quarter of 1995, management
reviewed the recoverability of the carrying value of long-lived assets,
primarily fixed assets, goodwill and deferred costs based on the life of the
assets. The Company initiated its review of potential loss impairment due to the
continuing changes in the health care environment
14
<PAGE> 18
which have put downward pressure on customer and equipment pricing and reduced
forecasted operating results for certain assets to a level below previous
expectations. Following its review, management concluded that there was an
impairment in the recorded value of fixed assets, goodwill and deferred costs
under FAS 121 based on management's estimate of future undiscounted cash flows
over the useful life of certain assets. Accordingly, an impairment loss of
$4,425,000 was recorded in the second quarter of 1995 based on the differences
between the fair value determined by third parties and the recorded values of
certain assets. The impairment loss is comprised of a charge for the write-downs
of equipment and deferred assets of $3,825,000 (primarily MRI, CT and nuclear
medicine) and goodwill of $600,000.
SELLING AND ADMINISTRATIVE COSTS
Selling and administrative costs decreased $67,000 for the six month period
ended June 30, 1995 compared to the same period in the prior year. The six month
period ended June 30, 1995 results would have reflected a higher decrease in
expenses except for a second quarter 1995 charge of $265,000 to salary and wage
expense for the 184,000 Common Shares issued to the Company's Chairman and Chief
Executive Officer, Ernest A. Bates, M.D., for his continued services to the
Company and his personal guarantee of $6,500,000 of indebtedness of the Company.
See "Liquidity and Capital Resources".
INTEREST EXPENSE
Interest expense increased $192,000 for the six month period ended June 30,
1995 compared to the same period in the prior year. The increase is primarily
due to the Lease Restructuring and utilization of a new credit facility
commencing May 17, 1995 (see "Liquidity and Capital Resources"), offset by the
reduction in interest from the Notes Repurchase on May 17, 1995 (see "Liquidity
and Capital Resources") and the repayment of the Company's revolving credit
facility on February 28, 1995. In addition, the GE Warrants issued on May 17,
1995 resulted in a charge to interest expense of $167,000.
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
The Company had a loss before extraordinary items of $8,053,000 for the six
month period ended June 30, 1995 as compared to a loss of $3,685,000 for the
same period in the prior year. Included in the Company's loss for the six month
period ended June 30, 1995 was a charge of $4,425,000 due to adoption of FAS
121.
NET INCOME
The Company had net income of $12,325,000 for the six month period ended
June 30, 1995 compared to a net loss of $3,685,000 for the same period in the
prior year. The Company's net income for the six month period ended June 30,
1995 included an extraordinary gain of $20,378,000 on its debt restructuring
recorded on May 17, 1995. The gain resulted from the repurchase of $17,694,000
of face amount plus $8,854,000 of accrued and unpaid interest of the
Subordinated Notes net of cash, Common Shares and Warrants issued, and
transaction related costs of $3,893,000, $1,250,000 and $1,027,000 respectively.
Comparison of 1994 to 1993 and 1993 to 1992
MEDICAL SERVICES REVENUES
Medical services revenues decreased 2.4% in 1994 compared to 1993 and
decreased 19.1% in 1993 compared to 1992. The 2.4% and 19.1% decreases in 1994
and 1993, respectively, were caused primarily by an 18% decrease ($1,398,000) in
respiratory therapy revenues in 1994 and a 19% decrease ($6,891,000) in
diagnostic imaging services revenues in 1993.
MRI revenues increased 11% ($2,223,000) in 1994 compared to 1993 and
decreased 12% ($2,859,000) in 1993 compared to 1992. The increase in 1994
compared to 1993 was primarily due to the commencement of new customer contracts
and increased utilization from contracts commenced in 1993. The decrease in 1993
compared to 1992 was due to the termination of services at three fixed site
locations and a decline in revenues
15
<PAGE> 19
from the mobile MRI units. MRI revenues from mobile units decreased due to the
termination of certain long standing contracts and the replacement of those
contracts with new contracts with lower pricing and procedure volumes. In
addition, the marketing time required to replace terminating customers
lengthened because of increased competition and the fact that more health care
providers already had access to MRI services. Revenues were also negatively
impacted by delays in the commencement of replacement contracts due to
regulatory and site improvement delays and termination notification periods
which certain customers were obligated to provide to previous providers. MRI
revenues as a percentage of total medical services revenues were 59%, 52% and
48% in years 1994, 1993 and 1992, respectively.
The Company's non-MRI diagnostic imaging services revenues declined 19%
($1,905,000) in 1994 compared to 1993 after a 29% ($4,032,000) decrease in 1993
compared to 1992. The decline in both years was attributable to decreased CT
revenue from the reduction in the CT fleet by two scanners in 1994 and three
scanners in 1993, lower revenue generated on mobile routes, reductions in per
study wholesale prices and competition. The Company has had to convert the
majority of its CT fleet from higher revenue and cost mobile routes to lower
revenue and cost interim rental placement units to maintain utilization.
Revenues from CT operations decreased $1,170,000 in 1994 and $2,209,000 in 1993
from 1992 revenues of $7,395,000. In addition, nuclear medicine and ultrasound
revenues decreased in 1994 compared to 1993 and in 1993 compared to 1992 as a
result of the Company's continued de-emphasis of mobile nuclear and ultrasound
contracts and the expiration of one in-house ultrasound contract in 1994 and
four ultrasound contracts in 1993. The decrease in nuclear medicine and
ultrasound revenues was $735,000 in 1994 and $1,823,000 in 1993 from a 1992
revenue base of $6,560,000. Non-MRI diagnostic imaging services revenues as a
percentage of total medical services revenues was 21%, 25% and 29% for the years
ended 1994, 1993 and 1992, respectively. The Company on December 31, 1994 sold
two ultrasound department contracts as a part of its respiratory therapy
department contract sale. These contracts had 1994 revenues of approximately
$850,000.
Respiratory therapy services revenues in 1994 decreased $1,398,000 compared
to 1993 due to the termination of six contracts at various periods during 1993.
Revenues in 1993 decreased $2,415,000 from 1992 primarily due to the termination
of six contracts. The Company on December 31, 1994 sold eight respiratory
therapy department contracts and its respiratory therapy registry which had
aggregate revenues in 1994 of approximately $5,300,000.
COST OF OPERATIONS
The Company's cost of operations, consisting of payroll, maintenance and
supplies, depreciation and amortization, equipment rental, other operating
expenses (such as vehicle fuel, building rents, regional office costs,
insurance, property taxes, bad debt expense, fees and training expenses), and
write-down of equipment decreased in absolute dollars both in 1994 and 1993
compared to prior years.
Medical services payroll costs decreased by $1,158,000 in 1994 compared to
1993 and $2,431,000 in 1993 compared to 1992 and remained constant as a percent
of medical services revenues (27% in 1994, 29% in 1993, 28% in 1992). The
medical services payroll cost decline was due to the continued decrease in labor
intensive (Respiratory Therapy, mobile CT, Ultrasound, Nuclear Medicine) service
revenues due to contract expirations and termination of marginally profitable
and unprofitable contracts.
Depreciation and amortization increased $1,789,000 in 1994 compared to
1993. The increase in depreciation was primarily due to the impact of the Lease
Restructuring. Effective January 1, 1994, equipment leases previously accounted
for as rentals are accounted for as capitalized leases due to the Lease
Restructuring. Secondarily, depreciation increased due to the full year's impact
of depreciation on capital expenditures related to upgrades performed on certain
MRI units in the last half of 1993. Depreciation and amortization decreased
$1,040,000 in 1993 compared to 1992 primarily due to equipment acquired in the
CuraCare acquisition in October 1987 being depreciated to salvage value during
1992 and 1993 and suspension of depreciation for certain MRI systems while in
upgrade.
The Company's maintenance and supplies costs were 20%, 19%, and 19% as a
percent of medical service revenues in 1994, 1993, and 1992, respectively.
Maintenance and supplies costs increased $377,000 in 1994 compared to 1993 and
decreased $1,961,000 in 1993 compared to 1992. The increase in 1994 was
primarily
16
<PAGE> 20
attributable to equipment aging and additional equipment utilization. The
decrease in 1993 was primarily attributable to improved pricing on MRI
maintenance contracts. In addition, cost reductions were achieved in both 1994
and 1993 due to reduced medical supplies costs associated with fewer respiratory
therapy contracts and fixed site MRI units and improved pricing on MRI cryogen
supply contracts.
Equipment rental as a percentage of medical services revenue was 4% in
1994, 13% in 1993 and 8% in 1992. The decrease in equipment rental of $3,487,000
in 1994 compared to 1993 was primarily attributable to the Lease Restructuring
in which equipment previously accounted for as rentals, effective as of January
1, 1994, is being accounted for as capitalized leases and to less reliance on
interim equipment rentals. The increase in equipment rental of $891,000 in 1993
compared to 1992 was primarily attributable to the addition of one operating
lease, several MRI units under short term rental and the full year's impact in
1993 of the two operating leases entered into in 1992.
Other costs of operations as a percentage of medical services revenue was
13%, 13% and 11% in 1994, 1993 and 1992, respectively. The $4,000 decrease in
1994 was due to the continued reduction in regional office costs. The $546,000
decrease in other costs in 1993 was due primarily to the continued reduction in
regional office costs, building rent and relocation costs related to certain
fixed site MRI units.
In the fourth quarter of 1993 and the third and fourth quarters of 1992,
the Company wrote down the carrying value of certain equipment to estimated net
realizable value which reflects its future estimated income producing capacity.
In 1993, the write-down of $443,000 resulted from the decline in market
acceptance of two of the Company's less technologically advanced MRI units.
Efforts to re-market these units have been unsuccessful. In 1992, the write-down
resulted from the decline in market acceptance of five of the Company's less
technologically advanced MRI units, six CT units and certain ultrasound and
nuclear medicine equipment. After efforts to remarket these units during 1992,
it became evident that there was a permanent impairment in their estimated net
realizable value. The write-downs resulted in a charge to operations of
$3,454,000 for the year ended December 31, 1992.
SELLING AND ADMINISTRATIVE COSTS
The Company's selling and administrative costs decreased $849,000 in 1994
compared to 1993 and increased $547,000 in 1993 compared to 1992. The decrease
in 1994 was primarily attributable to a reduction in the costs associated with
the fourth quarter of 1993 write-down of intangible assets associated with the
Company's CuraCare acquisition, reduced travel related expenses and building
rent. The increase in 1993 compared to 1992 was due to the increase in sales
force initiated in the second half of 1992 in recognition of the more
competitive MRI environment, costs associated with a reduction in force,
relocation of the corporate office and restructuring fees totalling $340,000.
INTEREST EXPENSE
The Company's interest expense increased by $671,000 in 1994 compared to
1993 due to the Lease Restructuring in which equipment previously accounted for
as rentals is treated as capitalized leases effective January 1, 1994.
The Company's interest expense decreased by $768,000 in 1993 compared to
1992. The decrease occurred due to the maturation of existing equipment leases
and long-term debt and the replacement of three MRI units sold or returned at
lease maturity with two MRI units under capital lease financing.
WRITEDOWN OF INTANGIBLE ASSETS
During 1993, the Company's management continued to evaluate the
realizability of intangible assets associated with its acquisition of CuraCare.
CuraCare operates substantially all of the Company's non-MRI businesses,
including CT, Respiratory Therapy, Ultrasound and Nuclear Medicine. Revenues and
operating profits from CuraCare have continued to decline significantly over the
past few years despite strategic plans implemented by management. During the
fourth quarter of 1993, the Company's management determined it was unlikely that
the Company's non-MRI businesses would have significant growth potential in the
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foreseeable future. The Company's management, therefore, reduced the operational
management and sales force for its non-MRI businesses.
The changing health care environment and reduced barriers of entry due to
decreased equipment costs for non-MRI businesses contributed to losses in 1992
and 1993. The Company determined, based on its methodology of evaluating the
recoverability of intangible assets, that the forecasted cash flow for non-MRI
businesses did not support the future amortization of the intangible asset
balance of $5,308,000 at December 31, 1993, for these modalities.
The Company projected forward its results from operations, and cash flows,
including interest expense, for five years to analyze the recoverability of its
intangible assets. In formulating the financial forecasts, the Company
considered historical trends, current market conditions and potential new trends
and their impact on revenues. Based on these forecasts it was determined that
the cumulative results of operations and cash flows for non-MRI businesses were
inadequate to recover any portion of the intangible asset balance associated
with CuraCare. Accordingly, the Company wrote-down the intangible asset balance
of $5,308,000 in the fourth quarter of 1993. The Company's remaining intangible
asset balance of $2,118,000 at December 31, 1994 related primarily to its MRI
business.
GAIN ON SALE OF ASSETS
The gain on sale of assets of $3,294,000 in 1994 was primarily due to a
gain of $3,199,000 on the sale of certain respiratory therapy contracts. The
sale resulted in the Company receiving cash of approximately $4,000,000 and the
buyer assuming approximately $300,000 in liabilities. Gain (Loss) on sale of
equipment fluctuates depending on the timing of asset dispositions. The Company
continued selling non-essential assets during 1994.
INTEREST AND OTHER INCOME
Interest and other income decreased $644,000 in 1994 compared to 1993
because during 1993 the Company's insurance carrier paid a business interruption
insurance claim of $575,000 for lost MRI service revenues in the United Kingdom.
Interest and other income increased in 1993 compared to 1992 primarily due to
the business interruption insurance payment.
INCOME TAX PROVISION
The 1994, 1993 and 1992 amounts relate to miscellaneous payments and
refunds of federal and state income taxes and adjustments of amounts paid and
accrued in prior years.
NET LOSS
The 1994 net loss of $5,175,000 was primarily attributable to a continued
decline in medical services revenues without a corresponding reduction in
operating costs, partially offset by the gain on the sale of respiratory therapy
contracts.
During September 1994, the Company recognized an extraordinary gain on the
early extinguishment of indebtedness of $362,000. The extraordinary gain
resulted from the repurchase of $321,000 face amount plus $115,000 of accrued
and unpaid interest of the Company's 14 3/4% Notes, net of income tax and
deferred financing costs of $10,000, for $64,000 in cash.
The 1993 net loss of $15,644,000 was primarily attributable to the
significant reduction in medical services revenues, the write-down of intangible
CuraCare assets and interest on the Subordinated Notes.
The 1992 net loss of $9,515,000 was primarily attributable to the
significant reduction in medical services revenues, the write-down of equipment
and interest payments on the Subordinated Notes.
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BALANCE SHEET DATA
Liquidity and Capital Resources
The Company had cash and cash equivalents of $461,000 at June 30, 1995
compared to $1,225,000 at December 31, 1994. The Company's cash position
decreased in 1995 as a result of its operating losses.
On May 17, 1995, the Company repurchased for cash and securities
approximately 96% of its outstanding Subordinated Notes. The Notes Repurchase,
together with the December 1994 Lease Restructuring and the availability of up
to $8,000,000 of new debt financing, concluded restructuring the Company's
obligations.
In 1992, the Company determined that it would not generate sufficient
revenues or achieve sufficient expense reductions to meet in full its scheduled
debt and lease obligations. Accordingly, the Company suspended interest payments
under the Subordinated Notes beginning with the October 15, 1992 semi-annual
interest payment and suspended lease payments on a significant portion of its
equipment leases from December 1, 1992. As a result, the Company was in default
under substantially all of its debt and lease obligations and the holders had
the right to accelerate such obligations. The Company stated that any such
acceleration would cause it to seek a liquidation in bankruptcy.
The Company engaged in restructuring negotiations with its creditors
following the actions referred to in the immediately preceding paragraph. As a
result of these negotiations, the Company restructured certain of its
outstanding obligations as described below.
1. Secured Credit Facility. The Company's revolving credit facility was
repaid in full and terminated on February 28, 1995 with a portion of the
proceeds of the sale of eight respiratory therapy contracts. The New Revolver
was entered into in May 1995 in connection with the Notes Repurchase.
2. Equipment Leases. On December 30, 1994, the Company entered into the
Lease Restructuring. Under the Lease Restructuring, the leases covering
substantially all of the Company's medical equipment were modified to extend the
lease terms and to reduce scheduled lease payments. During 1994, the Company
made monthly aggregate payments based on the estimated restructured lease
payments. In addition, certain accrued and unpaid lease and service payments
were converted into the GE Note, a $2,000,000 secured seven year note. The GE
Note bears interest at an annual rate of 4%, payable in arrears, and will mature
in February 2002. Monthly payments of interest only are due through November,
1995. Thereafter the principal balance of the GE Note will amortize in 75 equal
monthly installments until maturity. The GE Note is secured by a lien on the
accounts receivable of CuraCare and AS-C. The GE Note is also secured by a lien
on two CT units and one Ultrasound unit.
In connection with the issuance of GE Note, the Company issued the GE
Warrants to purchase an aggregate of 225,000 Common Shares for $0.01 per share.
3. Subordinated Notes. On May 12, 1995, in lieu of a previously negotiated
restructuring that would have resulted in the exchange of approximately 96% of
the Subordinated Notes for new common shares that would have represented
approximately 89.4% of the Company's common equity, the Company agreed to
repurchase such Subordinated Notes (including accrued and unpaid interest) for a
combination of cash and equity securities equal to approximately 25% of the
Company's fully diluted shares. On May 17, 1995 the Company completed the Notes
Repurchase. After giving effect to certain subsequent adjustments, these holders
received $3,892,681 in cash, plus a total of 1,193,000 Common Shares (equal to
approximately 20% of ASHS's fully diluted Common Shares), and Warrants for an
additional 314,000 Common Shares (equal to approximately 5% of the fully diluted
Common Shares). The Warrants are immediately exercisable at $0.75 per share.
The Restructuring results in annual interest savings related to the
Subordinated Notes of approximately $2,890,000. After the Restructuring there
remain outstanding approximately $773,000 principal amount of Subordinated Notes
that mature in October 1996 with required annual interest payments of $125,000.
The Company paid accrued and unpaid interest through April 15, 1995 of
approximately $460,000 to holders of Subordinated Notes that were not purchased
on May 17, 1995. The subsequent semi-annual interest payment due October 15,
1995 was paid timely by the Company.
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The Notes Repurchase was completed with the proceeds of the Term Loan, New
Revolver and the Gamma Knife Loan. The Term Loan is a 48 month level amortizing
loan of $2,500,000 at an annual interest rate of 15%. The Term Loan is secured
by various unencumbered equipment, CuraCare's Modesto real property and certain
accounts receivable. The proceeds were used to repurchase the Subordinated
Notes, refinance certain equipment and provide working capital. The New Revolver
is a two year, $4,000,000 interest only revolving credit facility at Bank of
America prime lending rate plus 5%. The New Revolver is secured by AS-C's and
CuraCare's accounts receivable and had a balance of $3,201,000 as of September
30, 1995. The proceeds were used to repurchase Subordinated Notes. The Company
had additional borrowing capacity under its revolving credit facility, based on
its eligible accounts receivable valuation, of $209,000 at September 30, 1995.
The Gamma Knife Loan is an 18 month level amortizing loan of $1,500,000 at an
annual interest rate of 10.5%. The proceeds were utilized to refinance the
Company's Gamma Knife and provide additional working capital. The payments on
this loan were restructured in September 1995 from $90,431 per month to $40,203
per month, effective September 17, 1995, and to extend the loan term until
September 17, 1998.
At the Company's annual shareholder meeting held on October 6, 1995, the
Company's shareholders approved the issuance of an option for additional Common
Shares to Dr. Bates as further consideration for his continued service to the
Company and his personal guarantee of $6,500,000 of the Company's new credit
facilities. As a result of this issuance, Dr. Bates held approximately 46% of
the Company's then fully diluted outstanding shares and the Selling
Securityholders received additional shares and warrants to maintain their
respective fully diluted ownership of the Common Shares. Existing shareholders
own approximately 30% of the Common Shares, fully diluted.
The various restructuring transactions described above cured all of the
Company's outstanding defaults relating to its debt and lease obligations. The
Company nevertheless remains highly leveraged and has significant cash payment
requirements under its equipment leases and credit facilities. Scheduled cash
equipment lease payments during the 12 months from July 1995 to June 1996 are
$10,778,000 and scheduled interest and principal payments under the Company's
other loan obligations during such period are approximately $2,167,000. The
Company's revenues during the first six months of 1995 were not sufficient to
make these payments. In addition, the Company has loan and other debt maturities
of approximately $10,692,000 due prior to October 31, 1996 and an additional
$8,359,000 due and the outstanding balance (currently approximately $3,200,000)
of the New Revolver prior to October 31, 1997. Accordingly, the Company during
the 12 months from July 1995 to June 1996 must increase its revenues and reduce
its cost structure, and secure refinancing, in order to meet its obligations as
they become due. There can be no assurance that the Company will be able to meet
its scheduled obligations during the next 12 months.
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BUSINESS
GENERAL DEVELOPMENT
The Company provides shared diagnostic imaging services to approximately
224 hospitals, medical centers and medical offices located in 20 states and one
hospital in the United Kingdom. The four diagnostic imaging services provided by
the Company are Magnetic Resonance Imaging, Computed Axial Tomography Scanning,
Ultrasound, and Nuclear Medicine. In addition, the Company provides a Gamma
Knife to a major university medical center and has an option to acquire a second
Gamma Knife located in another major university medical center.
ASHS was incorporated in the state of California in September 1983. ASHS's
predecessor, Ernest A. Bates, M.D., Ltd. (d/b/a American Shared Hospital
Services), a California limited partnership, was formed in June 1980. In October
1987 the Company acquired CuraCare, Inc. from Tenet Healthcare Corporation
(formerly known as National Medical Enterprises, Inc., "Tenet") for $22,250,000.
The acquisition of CuraCare significantly expanded and diversified the services
offered by the Company and increased its market penetration.
Prior to May 1989, the MRI services were provided through AS-C, which was a
joint venture between the Company and MMRI, Inc. ("MMRI"), a California
corporation and a wholly owned subsidiary of Tenet. Effective May 1, 1989, the
Company purchased 100% of MMRI, Inc., ASHS's co-venturer in AS-C, from Tenet for
$4,200,000. MMRI's only asset is its 50% interest in AS-C.
In November 1990 the Company started a new wholly owned subsidiary,
European Shared Medical Services Limited, an English registered company, to
provide MRI services in the United Kingdom. In addition, in August 1993, the
Company incorporated a new wholly owned subsidiary in California, American
Shared Radiosurgery Services, to provide Gamma Knife services.
Following its acquisition of CuraCare, the Company provided respiratory
therapy services to acute care hospitals. On December 31, 1994, the Company sold
a majority of its respiratory therapy department contracts and its Respiratory
Therapy Registry for approximately $4,000,000 in cash plus the assumption by the
buyer of $300,000 in liabilities and agreed that it would no longer compete in
such business.
In June 1995, ASHS incorporated two new wholly owned subsidiaries,
African-American Church Health & Economic Services, Inc. ("ACHES"), a California
corporation, and ACHES Insurance Services, Inc., ("AIS"), a California
corporation and insurance agency qualified to sell life, health and disability
insurance in the state of California.
On October 17, 1995, ASHS, through its wholly owned subsidiary, American
Shared Radiosurgery Services ("ASRS") and Elekta AB, through its wholly owned
United States subsidiary, GKV Investments, Inc., a Georgia corporation ("GKV"),
entered into an agreement to form GK Financing, LLC, a limited liability company
to provide alternative financing of Elekta Gamma Knife units in the United
States and Brazil. See "Gamma Knife Joint Ventures."
GENERAL
Medical diagnostic imaging systems facilitate the diagnosis of diseases and
disorders at an early stage, often minimizing the amount and cost of care needed
to stabilize, treat or cure the patient and frequently obviating the need for
exploratory surgery. This diagnosis can often be performed on a out-patient
basis eliminating the need for hospitalization. Diagnostic imaging systems
utilize energy waves to penetrate human tissue and generate computer processed
cross-sectional images of the body which can be displayed either on film or on a
video monitor. The Company provides its diagnostic imaging services to
approximately 224 health care providers including hospitals, clinics and
physicians' offices located in 20 states and the United Kingdom. The Company's
technologists operate the equipment under the direction of licensed physicians
on the customer's staff who order procedures, interpret examination results and
maintain general responsibility for the patient. Generally, the Company directly
charges the hospitals, medical centers and medical offices that
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have contracted for its services. The Company, to a significantly lesser extent,
bills patients directly or relies on third party reimbursement.
Third party reimbursement comprises approximately 10% of the Company's
medical services revenues. Non-MRI diagnostic imaging services revenues as a
percentage of total medical services revenues were 21%, 25% and 29% in 1994,
1993, 1992, respectively. Following the sale of a substantial portion of its
respiratory therapy contract management business in December 1994, the portion
of the Company's revenues provided by non-MRI diagnostic imaging services is
expected to decline. For the six month period ended June 30, 1995, non-MRI
diagnostic imaging services revenues as a percentage of total medical services
revenues were 20%. See "Management's Discussion and Analysis -- Total Revenues."
The Company provides its diagnostic imaging services on both a shared and a
full-time basis. Shared services are provided based on agreed upon time periods.
The Company contracts with health care providers to provide equipment, operating
technologists, patient care coordinators and, in some cases, operating supplies.
The major advantages to a health care provider in contracting with the
Company for such services include: (i) avoiding the high cost of owning and
operating the equipment, (ii) avoiding the cost of hiring and training technical
personnel and support staff, (iii) reducing the risks associated with
technological obsolescence or under-utilization of the equipment and services,
and (iv) not being required to incur the cost of complying with certain
governmental regulations.
Magnetic Resonance Imaging. MRI utilizes magnetic fields and applied radio
waves to obtain computer processed cross-sectional images of the body. MRI
provides clinical images superior to alternative technologies in many
applications by providing information concerning neurologic, orthopedic,
vascular and oncologic diseases. MRI benefits from multiplanar imaging, obviates
the need for ionizing radiation and generally offers superior image resolution
than previously available from CT. The Company is a leading provider of high
field strength MRIs on a shared service basis. The Company believes that it has
a competitive advantage because of its strategy of operating primarily
top-of-the-line, high magnetic field strength (1.5 Tesla superconductive magnet
systems) mobile MRI units. MRI units containing higher strength magnets are
preferred technology because they provide improved image quality, faster
operating speed and greater potential for new applications than do MRI units
with less powerful magnets. Of the Company's 27 MRI units operating at December
31, 1994, 19 of such units are 1.5 Tesla units, three are 1.0 Tesla units, and
five are 0.5 Tesla units. All 27 of the MRI units are mobile or transportable.
In addition, the Company has two 1.5T less technologically advanced fixed site
MRI units for sale. The Company had 104 MRI customers at December 31, 1994
compared to 90 customers as of December 31, 1993. In addition, effective January
5, 1995 the Company entered into a management agreement with an equipment
leasing company to manage three of its mobile MRI units. MRI revenues constitute
59%, 52% and 48% of total medical services revenues in years 1994, 1993 and
1992, respectively.
To a greater extent during the past several years, increased indications of
MRI utility plus reductions in equipment costs have allowed more hospitals to
purchase their own system instead of utilizing the Company's services. This has
contributed to a more competitive marketplace for the Company's services.
Computed Axial Tomography. The Company operates 16 CT units, 15 of which
are housed in specially designed mobile vans serving one or more hospitals and
one of which is a fixed-site unit. CT utilizes multiple X-Ray beams and
detectors to derive information which is then synthesized by computers to
produce cross-sectional images of organs or other areas of the body. CT can be
used to perform examinations of any part of the human anatomy and provides a
delineation of tissue not possible with conventional X-ray. CT eliminates the
problem of overlapping structures such as bone and soft tissue inherent in
images produced by conventional X-Ray. The most commonly performed CT
examinations are of the brain, abdomen, and lumbo-sacral spine, although
examinations of the chest, pelvis and extremities are also performed. With the
advent of MRI, the relative benefits of CT have decreased. Due to a variety of
factors, including increased competition among manufacturers of CT units, the
selling price of CT units has decreased thereby enabling more hospitals and
health care providers to acquire their own units instead of utilizing the
Company's services. Consequently, the Company has reduced its services in this
area in response to these changes in the market. CT revenues
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were approximately 10% of medical services revenues in 1994 and 13% and 15% in
1993 and 1992, respectively.
Ultrasound and Nuclear Medicine. The Company owns and operates
approximately 30 systems providing ultrasound and nuclear medicine services.
Ultrasound technology applies high-frequency pulsed and continuous sound waves
to the body. These sound waves strike vessels and other internal body structures
and echo back to the equipment, where they register upon a video monitor.
Ultrasound systems provide a low medical risk, non-invasive procedure for
determining the primary diagnosis in renal, pancreatic, vascular and abdominal
diseases and obstetrics. Nuclear medicine is a diagnostic imaging system
utilizing short-lived radioactive isotopes and computers to perform various
examinations and process the resulting medical data for the physician to
establish the presence or absence of disease. Nuclear medicine not only provides
an anatomic image but also provides functional information which cannot be
provided by MRI or CT.
Nuclear medicine services of the Company are primarily composed of Single
Photon Emission Computed Tomography ("SPECT") wherein radioisotopes are injected
into the patient and the patient is subsequently imaged by a camera which moves
around the patient. The information received by the camera is then reconstructed
by computer to produce a three dimensional image. Although more costly, this
three dimensional image yields a more accurate image when compared to other
nuclear medicine techniques. The Company provides SPECT services on both a
shared service and full-time basis. Smaller health care providers which require
fewer studies on a regular basis may find it more cost efficient to utilize
SPECT on a mobile shared service basis than acquiring their own unit. Ultrasound
and nuclear medicine revenues were approximately 10% of medical services
revenues in 1994 and 12% and 13% in 1993 and 1992, respectively.
GAMMA KNIFE
The Company's first Gamma Knife, which is operated at a major university
medical center on a fee-per-procedure basis, commenced operation in September
1991. The Gamma Knife treats certain vascular malformations and intracranial
tumors without surgery.
In January 1993, the Company entered into a purchase agreement with the
manufacturer for $2,900,000 plus sales tax on its second Gamma Knife and a
fee-for-service lease with another university medical center. During 1993, the
Company advanced $1,090,000 to the equipment manufacturer. Included in this
amount was $800,000 advanced by a third party lessor and guaranteed by the
Company's Chairman and Chief Executive Officer. The Company was unable to fund
the next required advance payment and was notified by the manufacturer that the
Company was in default under the provisions of the purchase agreement.
On April 6, 1994, the Company's agreements to purchase the Gamma Knife from
the manufacturer and lease the Gamma Knife to such university medical center
were formally terminated. Settlement of these agreements entailed the payment of
$130,000 in interest and costs to the manufacturer and the university medical
center. The Company's Chairman and Chief Executive Officer simultaneously agreed
to enter into substantially identical purchase and lease obligations as those
previously executed by the Company. On April 6, 1994 new purchase and lease
agreements were entered into by the Company's Chairman and Chief Executive
Officer and the manufacturer and the university medical center. Of the
$1,090,000 in advances previously paid to the manufacturer, $800,000 was
refunded to the third party lessor and $290,000 (less certain settlement costs)
was refunded to the Company and the Company simultaneously advanced $290,000 to
the Chairman and Chief Executive Officer who executed a Promissory Note. As of
September 30, 1995, the balance outstanding on the Promissory Note was
approximately $262,000. The Promissory Note is repayable over 60 months
including interest at 6% per annum. Concurrently, the third party lessor agreed
to fund the remaining $2,610,000 purchase price of the Gamma Knife on behalf of
the Chairman and Chief Executive Officer and the Company received an option to
purchase the Gamma Knife. The option entitles the Company to purchase the Gamma
Knife from its Chairman and Chief Executive Officer for an amount equal to the
remaining debt obligation associated with the Gamma Knife plus costs and losses,
if any, incurred by the Chairman and Chief Executive Officer, when the Company
is able to obtain financing for this purchase. The Gamma Knife became
operational on August 3, 1994.
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GAMMA KNIFE JOINT VENTURE
ASHS, through ASRS, a California corporation, and Elekta Holdings U.S.,
Inc., through its wholly owned subsidiary, GKV, entered into an agreement on
October 17, 1995 to form GK Financing, LLC ("GKF"), a California limited
liability corporation. In exchange for a 78% ownership interest held by ASRS in
GKF the Company will contribute two Gamma Knives (each subject to a financing
lease) and the respective leases relating thereto to GKF. GKV will contribute
$800,000 for a 22% ownership interest in GKF and lend funds to GKF. GKF will be
the preferred alternative financing provider in the United States and Brazil for
the purchase of Gamma Knife units sold by Elekta Instruments, Inc., a U.S.
subsidiary of the Gamma Knife manufacturer. Financing by GKV will most likely
occur when an alternative payment method such as a fee-for-service arrangement
is desired. GKF has placed orders for four new Gamma Knife systems.
CUSTOMERS AND MARKETING
The market for services offered by the Company consists of major urban
medical centers, suburban and rural hospitals, health maintenance organizations
("HMOs") and other managed care providers, governmental institutions, large
multi-specialty medical groups, physician offices and medical clinics. The type
of services offered by the Company in a given area may vary, depending upon such
factors as the size of the client medical care provider, the treatment needs of
specific patient groups within the client's service area, the modalities and
services required by the client and the number and nature of competitive
services available. The more capital intensive services, such as MRI, CT, and
Gamma Knife, may be effectively offered to urban medical centers, hospitals,
large multi-specialty medical groups, governmental institutions, larger HMOs and
large third-party purchasers of health services. The less capital intensive
services, such as ultrasound, nuclear medicine and, under certain circumstances,
CT, are most effectively offered to suburban and rural hospitals, physicians'
offices and medical clinics.
The Company believes that it offers among the broadest range of services to
health care providers of companies in the shared diagnostic imaging services
industry and therefore has a unique ability to service a broad spectrum of the
health care market. The Company continually monitors developments in the medical
equipment industry and makes an effort to acquire new modalities and equipment
as the opportunity arises in order to maintain its technologically advanced
services and to expand its market share. When the Company's medical equipment
does not generate adequate revenues, the Company seeks to sell such equipment
and acquire newer, more advanced replacement equipment when appropriate.
During the normal course of business, the Company has customer contracts
which terminate. The Company's sales representatives and operational managers
must replace terminating customers with new customers to maintain the Company's
revenues. Revenue fluctuations may occur dependent upon the maturation cycle of
terminating existing contracts and how quickly replacement customers can attain
the revenue levels of terminating customers. Revenues per customer are
historically higher for established customers.
The Company employed at the end of 1994 eight sales and marketing and four
operational managers located in the Western, Southeastern, and Midwest regions
of the country. The Company markets its services through a direct sales effort
emphasizing the quality of its equipment, the reliability and efficiency of its
services, the ability to tailor its services to specific customer needs and the
cost containment benefits realized by the customer when it utilizes the
Company's services. No single customer accounted for 10% or more of the
Company's total revenues in 1994 nor for the Company's revenues for each of the
first and second fiscal quarters of 1995.
COMPETITION
Utilization of the Company's diagnostic imaging services depends upon
several factors, including the number of physicians and their respective areas
of practice, the number and nature of competitive diagnostic units available,
and the size and demographics of the service areas. The market for diagnostic
imaging services is highly competitive. The Company faces competition from other
providers of mobile diagnostic services,
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some of which may have greater financial resources than those of the Company,
and from hospitals, imaging centers and health care providers owning in-house
diagnostic units. Significant competitive factors in the diagnostic services
market include equipment price and availability, performance quality, ability to
upgrade equipment performance and software, service and reliability. Adverse
market conditions have significantly impacted providers of mobile services of
which there are only approximately five operating on a national basis. Those
with greater financial resources are better able to withstand adverse market
conditions.
Competition in the MRI service industry has increased since 1992 due to
deterioration of market conditions in that industry. Recent deterioration is
based partly upon a temporary increase in purchases of MRI units by physician
partnerships in the late 1980s and early 1990s, which has largely been halted by
legislation that limits self-referrals. The increased competition among MRI
equipment manufacturers has resulted in greater availability to end users of new
imaging equipment from manufacturers at more competitive pricing than
contracting with full-service providers such as the Company.
GOVERNMENT REGULATION
Customers to whom the Company provides services receive payments for
patient care from federal government and private insurer reimbursement programs.
As a result of federal cost-containment legislation currently in effect, a
prospective payment system ("PPS") is utilized to reimburse hospitals for care
given to hospital in-patients covered by federally funded reimbursement
programs. Patients are classified into a Diagnosis Related Group ("DRG") in
accordance with the patient's diagnosis, necessary medical procedures and other
factors. Patient reimbursement is limited to a predetermined amount for each DRG
placing material limitations on actual reimbursement for imaging services.
Because the reimbursement payment is predetermined, it does not necessarily
cover the cost of all medical services actually provided. Currently the DRG
system is not applicable to out-patient services, and consequently many health
care providers have an incentive to use contracted shared services on an
out-patient basis. In 1986 and again in 1990 the Congress enacted legislation
requiring the Department of Health and Human Services ("DHHS") to develop
proposals for a PPS for hospital outpatient services. DHHS has not as yet
developed such a proposal, and the effect on the Company's business of such a
proposal, if made, cannot be predicted at this time.
The Company's experience suggests that the hospital in-patient DRG system
and the expansion of managed care has had a favorable impact on the Company's
business. Rising costs in the health care field together with the implementation
of the DRG system have encouraged hospitals and other health care providers to
minimize costs. The Company's shared diagnostic imaging services allow hospitals
and other medical care providers to provide sophisticated diagnostic equipment
and qualified personnel at a cost directly related to each service rendered to
the patient. In recent years, however, competitive factors (such as equipment
availability and pricing) have limited the Company's ability to benefit from the
favorable impact of DRGs and managed care.
Several health care reform proposals have been promulgated during the
Clinton administration. These proposals attempt to increase access to care and
to control rising health care expenditures. Since a specific health care reform
policy has not been enacted, the impact on the Company's business of such a
proposal, if made, cannot be determined at this time.
The payment of remuneration to induce the referral of health care business
has been a subject of increasing governmental and regulatory focus in recent
years. Section 1128B(b) of the Social Security Act (sometimes referred to as the
"federal anti-kickback statute") provides criminal penalties for individuals or
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce referrals for items or services, or induce the
purchase, lease, order, or arrangement or the recommendation for the purchase,
lease on order of items or services, in each case for which payment may be made
under the Medicare and Medicaid programs and certain other government funded
programs. The Social Security Act provides authority to the Office of Inspector
General through civil proceedings to exclude an individual or entity from
participation in the Medicare and state health programs if it is determined any
such party has violated Section 1128B(b) of the Social Security Act. The Company
believes that it is in compliance with the federal anti-kickback statute.
Additionally, the Omnibus Budget Reconciliation Act of 1993, often referred to
25
<PAGE> 29
as "Stark II" bans physician referrals to providers of designated health
services with which the physician has a financial relationship. The term
"designated health services" includes: clinical laboratory services, physical
therapy services, occupational therapy services, radiology or other diagnostic
services, radiation therapy services, durable medical equipment, parenteral and
enteral nutrients, equipment and supplies, home health services, outpatient
prescription drugs, inpatient and outpatient hospital services. On January 1,
1995, the Physician Ownership and Referral Act of 1993 became effective in
California. This legislation prohibits physician self-referrals for covered
goods and services including diagnostic nuclear medicine and diagnostic imaging
if the physician (or the physician's immediate family) concurrently has a
financial interest in the entity receiving the referral. The Company believes
that it is in compliance with the Physician Ownership and Referral Act of 1993.
The Company cannot determine what impact this legislation (which applies to all
payors) will have upon demand for its services.
Legislation in various jurisdictions requires that health facilities obtain
a Certificate of Need ("CON") prior to making expenditures for medical
technology in excess of specified amounts. The CON procedure can be expensive
and time consuming, and consequently a health care facility may elect to use the
Company's services rather than purchase imaging equipment subject to CON
requirements. CON requirements vary from state to state in their application to
the operations of both the Company and its customers. In some jurisdictions the
Company is required to comply with CON procedures to provide its services and in
other jurisdictions customers must comply with CON procedures before using the
Company's services.
The Company's nuclear medicine imaging equipment requires the use of
radioactive isotopes for which there are existing governmental regulations
covering storage, use and disposal. All contracts for nuclear medicine imaging
include arrangements for the disposal of radioactive isotopes either by the
supplier of the isotopes or by agreement with the nuclear medicine department of
the client hospital. The Company is also subject to periodic review concerning
the storage, use and disposal of isotopes used in its nuclear medicine imaging
equipment. The Company has passed all such reviews. The Company's other services
are not generally subject to inspection or review by regulatory bodies.
Mobile diagnostic imaging equipment must, where applicable, comply with
federal and state regulations concerning patient safety, equipment operating
specifications and radiation exposure levels. The equipment manufacturer is
primarily responsible for assuring compliance. The Company believes that its
equipment complies with all such regulations based on the quality control
features and specifications of the equipment manufacturers and the Company's
preventative maintenance program.
Certain states in which the Company operates require that certain of the
Company's personnel be licensed or certified. Such requirements generally
involve educational requirements and the payment of specified fees. All of the
Company's technical personnel are duly licensed or certified where required to
perform the services provided by the Company. The Company continually monitors
the compliance of its personnel with such licensing and certification
requirements.
INSURANCE AND INDEMNIFICATION
The Company's contracts with equipment vendors generally do not contain
indemnification provisions. The Company maintains a comprehensive insurance
program covering the value of its property, equipment and vehicles, subject to
deductibles which the Company believes are reasonable.
The Company's customer contracts generally contain mutual indemnification
provisions. The Company maintains general and professional liability insurance
and believes its present insurance coverage and indemnification agreements are
adequate for its business.
EMPLOYEES
At September 30, 1995, the Company employed approximately 200 employees on
a full-time basis and approximately 130 on a part-time basis. None of these
employees is subject to a collective bargaining agreement and there is no union
representation within the Company. The Company maintains various employee
benefit plans and believes its employee relations are good.
26
<PAGE> 30
PROPERTIES
The Company owns approximately two acres of land and 27,000 square feet of
office and warehouse space located thereon in Modesto, California. Title to the
property has been pledged to secure its obligations under the Term Loan.
The Company's corporate offices are located at Four Embarcadero Center,
Suite 3620, San Francisco, California where it leases 2,996 square feet for
$7,740 per month. This lease runs through September 1999.
An additional property leased by the Company principally for field
operations and sales support is located in West Chicago, Illinois. The Company's
Tennessee office was closed in March 1995.
For the year ended December 31, 1994 and the six month period ended June
30, 1995, the Company's aggregate net rental expenses for all properties and
equipment were approximately $2,326,000 and $1,500,000 respectively.
LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company or
any of its property. The Company knows of no legal or administrative proceedings
against the Company contemplated by governmental authorities.
27
<PAGE> 31
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON SHARES
The Common Shares are currently traded on the AMEX and PSE. The
announcement by the Company of the terms of the Prior Restructuring in early
April 1994 was followed by a significant decline in the market price of the
Common Shares. The Company's losses and net capital deficiency have caused the
Company to no longer satisfy the minimum criteria with respect to net income and
net worth for continued listing published by the AMEX. The per share trading
price is also below the minimum criteria of such exchange. The closing per share
price of the Common Shares was $1.625 at June 30, 1995. The Company has been
advised that its net capital deficiency is inconsistent with the criteria
applied by the PSE for continued listing on such exchange. The AMEX and PSE are
currently reviewing the Company's financial condition following the
restructuring in order to determine whether the Common Shares will continue to
be listed for trading thereon.
The table below sets forth the high and low closing sales prices of the
Common Shares of ASHS on the American Stock Exchange Consolidated Reporting
System for each full quarter for the last two fiscal years.
<TABLE>
<CAPTION>
PRICES FOR
COMMON SHARES
--------------
QUARTER ENDING HIGH LOW
-------------- ---- ---
<S> <C> <C>
March 31, 1993...................................... 3 7/8 2 3/4
June 30, 1993....................................... 4 1/4 2 7/8
September 30, 1993.................................. 4 5/8 3 3/8
December 31, 1993................................... 4 2 5/8
March 31, 1994...................................... 3 1/2 2 3/4
June 30, 1994....................................... 13/16 1/2
September 30, 1994.................................. 11/16 3/16
December 31, 1994................................... 5/8 3/16
March 31, 1995...................................... 5/8 1/4
June 30, 1995....................................... 2 5/16
</TABLE>
The Company estimates that there were approximately 1700 beneficial holders
of its Common Shares as of October 6, 1995.
The Company did not pay cash dividends in 1993 or 1994 or in the first two
quarters of 1995 and does not intend to pay dividends in the near future. The
Company is prohibited by its credit agreements from paying dividends on the
Common Shares and does not anticipate being in a position to pay dividends for
the foreseeable future.
28
<PAGE> 32
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Set forth below is certain information as of October 6, 1995 regarding each
of the directors of the Company.
ERNEST A. BATES, M.D. has been a director, the Chairman of the Board and
Chief Executive Officer of the Company since it was incorporated in 1983. He
founded the Company's predecessor limited partnership in 1980. Dr. Bates is 58
years old.
WILLIE R. BARNES has been a director and Secretary of the Company since
1984. He has been a partner in the law firm of Musick Peeler & Garrett since
June 1992, was in solo practice from February 1992 until June 1992, was a
partner in the law firm of Katten Muchin Zavis & Weitzman from March 1991 until
January 1992, was a partner in the law firm of Wyman Bautzer Kuchel & Silbert
from April 1989 until its dissolution effective March 14, 1991, and was a
partner in the law firm of Manatt Phelps Rothenberg & Phillips from April 1979
until March 1989. Mr. Barnes is 63 years old.
WILLIE L. BROWN, JR. has been a director of the Company since 1984. He has
been a member of the Assembly of the state of California since 1964, was Speaker
of the Assembly from 1980 until May 1995, and was named Speaker Emeritus in May
1995. He is the sole proprietor of the Law Offices of Willie L. Brown, Jr. in
San Francisco, California, which began operations in 1978. He also is of counsel
to the law firm of Christensen, White, Miller, Fink & Jacobs in Los Angeles,
California since July 1994. Mr. Brown is 61 years old.
JOHN F. RUFFLE was elected a Director of the Company on May 18, 1995. He
retired in 1993 as Vice-Chairman of the Board of J.P. Morgan & Co. Incorporated.
He also is a Director of Bethlehem Steel Corporation; a Director of J.P.M.
Advisor Funds; a Director of Trident Corp.; a Trustee of The Johns Hopkins
University; a Trustee of the Overlook Hospital Foundation, Summit, N.J.; and a
Trustee of the Madison, N.J. YMCA. He is a graduate of The Johns Hopkins
University, with an M.B.A. in finance from Rutgers University, and is a
Certified Public Accountant. Mr. Ruffle is 58 years old.
AUGUSTUS A. WHITE III, M.D. has been a director of the Company since 1990.
He has been a Professor of Orthopaedic Surgery at Harvard Medical School since
1978. He was Orthopaedic Surgeon-in-Chief at Beth Israel Hospital, Boston, MA
from 1978 to 1991. Dr. White is 58 years old.
CHARLES B. WILSON, M.D. has most recently been a director of the Company
since June 1993. He also was a director of the Company from March 1984 until
March 1989. He has been a Professor and Director of the Brain Tumor Research
Foundation at the University of California Medical Center, San Francisco since
1968, and from 1968 until April 1, 1994 was the Chief of its Department of
Neurosurgery. Dr. Wilson is 66 years old.
EXECUTIVE OFFICERS
The following table provides certain information, as of October 6, 1995,
concerning those persons who served as executive officers of the Company in
1994. The executive officers were appointed by the Board of Directors and serve
at the discretion of the Board of Directors.
29
<PAGE> 33
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ernest A. Bates, M.D............ 58 Chairman of the Board of Directors, Chief
Executive Officer, and Acting President and Chief
Operating Officer
Craig K. Tagawa................. 42 Senior Vice President -- Chief Financial Officer
Richard Magary.................. 54 Senior Vice President -- Administration
James R. Brock.................. 62 Senior Vice President -- Special Projects
Gregory Pape.................... 39 Senior Vice President -- Sales and Marketing
David Neally.................... 43 Senior Vice President -- Operations
</TABLE>
ERNEST A. BATES, M.D., founder of the Company, has served in the positions
listed above since the incorporation of the Company, except for the periods May
1, 1991 through November 6, 1992 and February 1989 through August 1989 during
which time Dr. Bates did not serve in the capacity of President and Chief
Operating Officer. Dr. Bates is a graduate of The Johns Hopkins University and
the University of Rochester. He is currently an Assistant Clinical Professor of
Neurosurgery at the University of California Medical Center at San Francisco,
and a member of the Board of Trustees of The Johns Hopkins University and the
University of Rochester.
CRAIG K. TAGAWA has served as Chief Financial Officer since January 1992.
Previously a Vice President in such capacity, Mr. Tagawa became a Senior Vice
President on February 28, 1993. From September 1988 through January 1992, Mr.
Tagawa served in various positions with the Company. From 1982 through August
1988, Mr. Tagawa served as Vice President of Finance and Controller of Medical
Ambulatory Care, Inc., the Dialysis division of National Medical Enterprises,
Inc. now Tenet Healthcare Corporation (owner, operator of hospitals and other
health care businesses). Mr. Tagawa received his Undergraduate degree from the
University of California at Berkeley and his MBA from Cornell University.
RICHARD MAGARY has served as Senior Vice President -- Administration since
February 28, 1993. From April 1987 through February 1993, Mr. Magary served as a
Vice President in the same capacity. From 1982 through March 1987, he served as
Chief Financial Officer of the Company and its predecessor. Mr. Magary is a
graduate of the University of San Francisco.
JAMES R. BROCK has served as Senior Vice President -- Special Projects
since August 1, 1995. From January 1, 1995 to July 1995, Mr. Brock served as
Senior Vice President -- Cardiovascular Services. From May 29, 1994 to December
1994, he served as a Regional Sales Manager. From May 1992 through February
1993, he served as a Vice President -- Corporate Development. Prior to May 1992,
Mr. Brock served in a variety of sales and operational positions with the
Company since its inception. Mr. Brock holds a Bachelor of Science Degree in
Accounting and Economics from the University of Denver, with postgraduate work
in law and health care management.
GREGORY PAPE has served as Senior Vice President -- Sales and Marketing
since June 1994. From January 1993 through June 1994, Mr. Pape was a Zone Vice
President -- Sales and Marketing for the Company. Mr. Pape served in the
capacity of Regional Sales Manager for the Company for the period from March
1991 through January 1993. From September 1989 through February 1991, Mr. Pape
was a Regional Sales Manager for Medical Imaging Corporation of America, Inc.
Mr. Pape earned his undergraduate degree at the University of Miami, with
postgraduate work in law at the University of Dayton, Ohio.
DAVID NEALLY has served as Senior Vice President -- Operations since May
1994. From January 1993 through May 1994, Mr. Neally was a Zone Vice President
for Operations. Prior to January 1993, Mr. Neally had served in a variety of
sales and operations positions since joining CuraCare in 1980. Mr. Neally
received his undergraduate degree from John Wood College in Quincy, Illinois and
is also a graduate of St. Mary's School of Cardiopulmonary Technology in Quincy,
Illinois.
30
<PAGE> 34
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company during
1994 and paid in 1994 for services rendered in all capacities during 1993 to the
Chief Executive Officer and each executive officer other than the Chief
Executive Officer who served as an executive officer at December 31, 1994, and
earned cash compensation of $100,000 or more during 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(6)
ANNUAL COMPENSATION -------------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) OPTIONS
- ---------------------------- ---- --------- ------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Ernest A. Bates(3).......... 1994 $225,218 -- -- --
Chairman of the Board, 1993 $235,010 -- -- --
Chief Executive Officer 1992 $229,133 -- -- --
Craig K. Tagawa(4).......... 1994 $119,426 -- -- --
Senior Vice President 1993 $122,237 $ 700(5) -- --
Chief Financial Officer 1992 $113,902 -- -- 15,000
David Neally................ 1994 $ 92,827 $17,322 --
Senior Vice President 1993 $ 73,692 $ 5,137 -- 8,250
Operations 1992 $ 68,824 $13,009 -- 750
Gregory Pape................ 1994 $238,186 -- -- --
Senior Vice President 1993 $196,177 -- -- 20,000
Sales and Marketing 1992 $110,001 -- -- --
</TABLE>
- ---------------
(1) Each amount under this column includes amounts accrued in 1992, 1993 and
1994 that would have been paid to such persons in such years, except that
such amounts were instead deferred pursuant to the Retirement Plan for
Employees of American Shared Hospital Services and CuraCare, a defined
contribution plan available to employees of the Company generally.
(2) The Company has determined that with respect to the executive officers named
in the Summary Compensation Table, the aggregate amount of other benefits
does not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported in the Summary Compensation Table as paid to such executive
officer in the relevant year.
(3) The lower salary in 1992 compared with 1993 for Dr. Bates reflects a 10%
salary reduction which was in effect during the first three months of 1992.
Dr. Bates' salary again was reduced by 5%, effective February 6, 1994.
(4) The lower salary in 1992 compared with 1993 for Mr. Tagawa reflects an 8%
salary reduction which was in effect during the first three months on 1992.
Mr. Tagawa's salary again was reduced by 5%, effective February 6, 1994.
(5) Represents the fair market value of 100 Common Shares granted to Mr. Tagawa
pursuant to the American Shared Hospital Services 1991 Employee Stock Bonus
Plan. Pursuant to such Plan, 100 Common Shares were granted to each
employee, other than the Chief Executive Officer, who was employed by the
Company from June 21, 1991 through February 26, 1992 and whose basic
employment compensation was reduced by 2% or more during that time period.
(6) No restricted stock awards or long-term incentive plan payouts were made to
the executive officers named in the Summary Compensation Table during the
years listed in the Summary Compensation Table.
31
<PAGE> 35
OPTION GRANTS AND LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The "Option Grants in the Last Fiscal Year" table and "Long-Term Incentive
Plan Awards" ("LTIP Awards") table has been omitted because no options were
granted and no LTIP Awards made during 1994 to the Company's executive officers
named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized upon exercise of such options
during 1994, by the Company's executive officers named in the Summary
Compensation Table. The following table also sets forth the number of shares
underlying exercisable and unexercisable options held by such executive officers
on December 31, 1994. The table does not include the aggregate gains that would
have been realized had those options been exercised on December 31, 1994 because
the option exercise price for each option exceeded the market price per Common
Share on such date.
1984 STOCK OPTION PLAN
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ernest A. Bates, M.D........ -- -- -- -- -- --
Craig K. Tagawa............. -- -- 30,000 5,000 -- --
David Neally................ -- -- 4,800 5,200 -- --
Gregory Pape................ -- -- 8,000 12,000 -- --
</TABLE>
1995 STOCK OPTION PLAN
On August 15, 1995, the Board of Directors approved the Company's 1995
Stock Option Plan (the "1995 Plan") providing for non-qualified stock options
and "incentive stock options," subject to approval by the Company's
shareholders. At the 1995 Annual Meeting held on October 6, 1995, the
shareholders approved the 1995 Plan. Under the 1995 Plan, 330,000 Common Shares
have been reserved for awards to officers and other key employees, non-employee
directors, and advisors subject to adjustment in the event of a stock split,
stock dividend, recapitalization, reorganization, merger or other similar event
or change in capitalization. Approximately six employees and five non-employee
directors are eligible to participate in the 1995 Plan. Any person who
beneficially owns more than 15% of the outstanding Common Shares is not be
eligible to participate in the 1995 Plan.
The 1995 Plan is administered by the Stock Option Committee of the Board of
Directors (the "Committee") which determines when options become exercisable,
provided that no option shall be exercisable later than ten years after its date
of grant. Options may be exercised during the lifetime of the optionee only by
such optionee and are not transferable other than by optionee's will or by the
laws of descent or distribution or pursuant to beneficiary designation
procedures specified in the 1995 Plan.
Upon shareholder approval, the 1995 Plan became effective as of August 15,
1995 and will terminate ten years thereafter, unless terminated earlier by the
Board of Directors. The Board of Directors may amend the 1995 Plan at any time
except that, without the approval of the shareholders of the Company, no
amendment may, among other things, (i) increase the number of Common Shares
available under the 1995 Plan, (ii) reduce the minimum purchase price of a
Common Share subject to an option or (iii) extend the term of the 1995 Plan.
32
<PAGE> 36
Non-qualified stock options. On August 15, 1995, the Committee granted
243,500 non-qualified options to certain officers of the Company and other
eligible persons, subject to approval of the 1995 Plan by the Company's
shareholders. See "Security Ownership of Certain Beneficial Owners and
Management." Each such option had an initial exercise price of $1.625 per Common
Share, which was the closing price of the Common Shares on the AMEX on the date
of grant, and vested immediately. The exercise price of all non-qualified stock
options must be no less than 25% of the fair market value of the Common Shares
on the date of the grant. Non-qualified options to purchase 4,000 Common Shares
are also granted automatically to non-employee directors (up to an aggregate of
12,000 options granted to each non-employee director under any plan of the
Company) on the date of each annual meeting of shareholders of the Company and,
on the date a person first becomes a non-employee director, such non-employee
director will be granted a number of options pro-rated for the period of time
until the next annual meeting of shareholders. Such options will be fully
exercisable one year after their date of grant with special provisions for death
and termination for disability and will expire ten years after the date of
grant.
At its meeting on August 15, 1995, the Committee amended the terms of
substantially all options outstanding under the Company's 1984 Option Plan
(covering an aggregate of approximately 165,000 Common Shares) to reduce the
initial exercise price to $1.625 per Common Share, which was the closing price
of Common Shares on the AMEX on such date.
In the event of certain change of control events or the approval by
shareholders of a reorganization, merger or consolidation (unless the Company's
shareholders receive 60% or more of the stock of the surviving company) or the
approval by shareholders of a liquidation, dissolution or sale of all or
substantially all of the Company's assets, all awards will become fully vested
and be "cashed-out" by the Company except, in the case of a merger or similar
transaction in which the shareholders receive publicly traded common stock, all
outstanding options will become exercisable in full, and each option will
represent a right to acquire the appropriate number of shares of common stock
received in the merger or similar transaction. Special provisions regarding
exercise exist in the event of death or termination for disability.
Incentive Stock Options. No incentive stock option will be exercisable
more than ten years after its date of grant, unless the recipient of the
incentive stock option owns greater than ten percent of the voting power of all
shares of capital stock of the Company (a "ten percent holder"), in which case
the option must be exercised within five years after its date of grant. The
option exercise price of an incentive stock option will not be less than the
fair market value of the Common Shares on the date of grant of such option,
unless the recipient of the incentive stock option is a ten percent holder, in
which case the option exercise price will be 110% of fair market value. Special
provisions regarding exercise exist in the event of death or termination for
disability.
33
<PAGE> 37
1995 STOCK OPTION PLAN TABLE
The following table sets forth (i) the number of Common Shares underlying
options that were granted to the Chairman and Chief Executive Officer and each
executive officer named in the Summary Compensation Table, all executive
officers as a group and to all persons (other than non-employee directors and
executive officers) eligible to receive awards under the 1995 Plan and the value
of such Common Shares at August 15, 1995, and (ii) the number of Common Shares
underlying options to be granted to non-employee directors on the date of each
annual meeting of shareholders beginning with the 1995 Annual Meeting on October
6, 1995.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES DOLLAR
UNDERLYING VALUE(S)(5)
NAME AND POSITION OPTIONS ($)
------------------------------------------------ ------------- -----------
<S> <C> <C>
Ernest A. Bates, M.D............................ 0 0
Chairman and Chief Executive Officer
Craig K. Tagawa................................. 90,000(1) $ 146,250
Senior Vice President -- Chief Financial Officer
David Neally.................................... 45,000(1) 73,125
Senior Vice President -- Operations
Gregory Pape.................................... 45,000(1) 73,125
Senior Vice President -- Sales and Marketing
Executive Group................................. 225,000(2) 365,625
Non-Executive Officer Employee Group............ 49,500(3) 80,438
Non-Executive Director Group (3 persons)........ 12,000(4) $ 19,500
</TABLE>
- ---------------
(1) Represents options granted on August 15, 1995, subject to shareholder
approval of the 1995 Plan, at an exercise price equal to $1.625, which was
the closing price of the Common Shares on the AMEX on such date.
(2) Comprises four individuals who were granted options on August 15, 1995,
subject to shareholder approval of the 1995 Plan, at an exercise price equal
to $1.625, which was the closing price of the Common Shares on the AMEX on
such date.
(3) Comprises two individuals who were granted options on August 15, 1995,
subject to shareholder approval of the 1995 Plan, at an exercise price equal
to $1.625, which was the closing price of the Common Shares on the AMEX on
such date.
(4) The option exercise price per share would be the closing sale price of the
Common Shares on the AMEX on the date of grant. On October 6, 1995, the
closing sale price of Common Shares on the AMEX was $1.625 per share. Each
option will be fully exercisable one year after the date of grant and will
expire ten years after the date of grant.
(5) Dollar value of options granted is calculated as the number of Common Shares
underlying the options multiplied by the closing sale price of the Common
Shares on the AMEX on the date of the grant. The taxable benefit received by
each grantee upon exercise of the options will consist of any increase in
the price of the Common Shares on the AMEX on the date of exercise from the
closing price on the date of grant.
In addition, the Board of Directors and the Company's shareholders have
approved the terms of a NonQualified Stock Option Agreement between the Company
and Dr. Bates. Pursuant to this Agreement, Dr. Bates may purchase, at any time
prior to August 15, 2005, up to 1,495,000 Common Shares at an initial exercise
price of $0.01 per share.
COMPENSATION OF DIRECTORS
During 1994, non-employee directors were scheduled to receive an annual
retainer fee of $5,000 each. The non-employee directors agreed to defer payment
of the retainer fee during 1994 to assist the Company
34
<PAGE> 38
with its cash flow. The 1994 retainer fees were paid in February 1995.
Non-employee directors also were entitled to receive $1,000 for attendance in
person at each regular and special meeting of the Board of Directors. In
addition, non-employee directors who were members of a committee of the Board of
Directors were entitled to receive $200 for attendance in person at each
committee meeting. Non-employee directors are not entitled to any fee for Board
of Directors or committee meetings held by conference telephone at which they
are not present in person. Of the four Board meetings held during 1994, one was
a regular meeting which directors attended in person, and three were special
meetings which were held by conference telephone. Non-employee directors also
received reimbursement of expenses incurred in attending meetings. No payment is
made for attendance at meetings by any director who is an employee of the
Company. The director compensation schedule for 1995 will not change from the
1994 schedule.
EMPLOYMENT AGREEMENTS
In 1984, the Company entered into employment agreements with Ernest A.
Bates, M.D. (the Company's Chairman and Chief Executive Officer) and James R.
Brock (then the Company's Vice President -- Marketing) each of which was
automatically extended for successive one-year periods through January 1994 when
such agreements terminated in accordance with their terms. Each of the
agreements provided that, in the event of a change in control or sale of all or
substantially all of the assets of the Company, the employment agreements would
not terminate and the surviving, resulting or acquiring corporation would be
bound by the terms of the agreements. Each of these employment agreements
provided for salary increases to be determined by the Board of Directors and
certain other benefits.
BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This Report of the Board of Directors and Stock Option Committee describes
the Company's method of compensating its executive officers, and describes the
basis on which 1994 compensation was paid to such executive officers, including
those named in the Summary Compensation Table.
The Board of Directors determined that compensation paid in 1994 by the
Company to its Chief Executive Officer and other executive officers would be
based on policies in effect in recent prior years. As a result, it was
unnecessary for the Compensation Committee to meet, and it did not meet, during
1994.
The Company's compensation program seeks to establish compensation that is
competitive in both the healthcare industry and among entrepreneurial,
growth-oriented companies in order to attract and retain high quality employees.
Compensation is linked to each employee's level of responsibility and personal
achievements with respect to operational and financial goals established by the
Chief Executive Officer and the Board of Directors. Depending on the individual
officer's area of responsibility, such goals may include new business and
revenue acquisition, operating expense reduction and control, operating
efficiencies, etc. In addition, the compensation system seeks to develop and
encourage employee ownership of the Company's stock through stock options.
The primary component of executive compensation for the Company is base
salary, except in the case of the Senior Vice President -- Sales and Marketing
where sales commissions are a substantial component of compensation and are
included under "salary" in the Summary Compensation Table. Discretionary bonuses
may be paid, based on a formula, if financial and other results of the
individual executive's area of responsibility meet or exceed financial and
operational targets established at the beginning of the fiscal year. No bonuses
have been paid by the Company during the last three fiscal years, except in the
case of bonuses paid pursuant to pre-established formulae based on goals and
targets of a specific business area.
Base salary was established for the Chief Executive Officer and other
executive officers with the assistance of an outside consulting firm in 1991.
Such compensation was designed to fall in the mid-range for the relevant
executive position or compensation paid by a group of entrepreneurial,
growth-oriented companies believed by the Company to be comparable in their
stage of development and business condition, based on information provided by
the independent compensation consulting organization. The companies surveyed
were not identical to those reflected in the performance graph set forth in this
Registration Statement. The compensation of most of the Company's senior
executives, including the Chief Executive Officer, was reduced
35
<PAGE> 39
by up to 10% during the period from June 1991 through March 1992. Such executive
officers were compensated throughout 1993 at the level in effect prior to the
reductions. Any other increases in base compensation during the past three
fiscal years have been made only to reflect the increased responsibilities of
the particular executive officer. The compensation of certain of the Company's
executive officers again was reduced, beginning in February 1994, by 5%.
In addition to base compensation, the Company has used grants of stock
options to retain senior executives (other than the Chief Executive Officer) and
to motivate them to improve long-term stock market performance. No new options
were granted during 1994. The number of options granted in the past was
determined by reference to the level of responsibility of the particular
executive in the Company and such executive's proposed role in the Company's
future operations. On August 15, 1995, the Board of Directors approved the 1995
Stock Option Plan and issued stock options to key employees and directors,
subject to shareholder approval. See "1995 Stock Option Plan."
<TABLE>
<CAPTION>
BOARD OF DIRECTORS STOCK OPTION COMMITTEE
--------------------------------------------------- ----------------------
<S> <C>
Ernest A. Bates, M.D., Chairman Ernest A. Bates, M.D.
Willie R. Barnes John F. Ruffle
Willie L. Brown, Jr.
John F. Ruffle
Augustus A. White III, M.D.
Charles B. Wilson, M.D.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On April 6, 1994, the Company entered into settlement agreements with each
of Elekta Instruments, Inc. ("Elekta"), the manufacturer of the Gamma Knife, and
NME Hospitals, Inc., d/b/a USC University Hospital ("USC Hospital"), the lessor
of a Gamma Knife, to resolve disputes arising out of the Company's inability to
make a required progress payment under the agreement to purchase such Gamma
Knife. The settlement agreements required that the Company terminate its
original agreement to purchase the Gamma Knife from Elekta and to lease the
Gamma Knife to USC Hospital. Further conditions to execution of the settlement
agreements included that Dr. Bates, the Company's Chairman and Chief Executive
Officer, enter into a purchase agreement and lease agreement with Elekta and USC
Hospital, respectively, substantially identical to the respective terminated
agreements.
Pursuant to the new purchase agreement, Dr. Bates was entitled to purchase
the Gamma Knife from Elekta for an aggregate purchase price of $2,900,000 plus
sales tax. Dr. Bates obtained financing for the Gamma Knife purchase from an
unaffiliated third party. Dr. Bates' lender has financed the total purchase
price, less $290,000 advanced by the Company, pursuant to an interest bearing
installment note and security agreement. The Company has advanced $290,000 of
the purchase price, to be repaid by Dr. Bates over the term of the new lease
agreement, pursuant to a promissory note bearing interest at 6% per annum and
repayable over 60 months.
The Company and Dr. Bates, have entered into an option agreement entitling
the Company to purchase the Gamma Knife from Dr. Bates for an amount equal to
the remaining debt obligations associated with the Gamma Knife plus costs and
losses, if any, incurred by the Chief Executive Officer, when the Company is
able to obtain financing for this purchase. It is the Company's intent to
exercise the option to purchase the Gamma Knife from Dr. Bates as soon as the
Company is able to obtain the required funds.
On October 6, 1995 the Company entered into the Option Agreement with its
Chairman and Chief Executive Officer. Under the Option Agreement, Dr. Bates was
granted a ten-year option to purchase 1,495,000 Common Shares for an initial
exercise price of $0.01 per share. In addition, on May 17, 1995, as part of the
Notes Repurchase, the Company issued 184,000 Common Shares to Dr. Bates in
partial consideration of his personal guarantee of $6,500,000 of indebtedness of
the Company.
36
<PAGE> 40
Willie R. Barnes, the Secretary and a director of the Company, is a partner
in the law firm of Musick, Peeler & Garrett. That law firm performed legal
services for the Company during 1994 and 1995. The management of the Company is
of the opinion that the fees paid to Mr. Barnes' law firm are comparable to
those fees that would have been paid for comparable legal services from a law
firm not affiliated with the Company.
COMPLIANCE WITH SECTION 16(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Reports filed under the Exchange Act and received by the Company on or
after January 1, 1994 indicate that during 1994 and 1995 executive officers of
the Company did not file timely reports as follows: James R. Brock, David Neally
and Gregory Pape each did not file an Initial Statement of Beneficial Ownership
of Securities within the required period following such person's appointment as
an Executive Officer of the Company. Each such person filed the required report
in June 1995. John F. Ruffle did not file an Initial Statement of Beneficial
Ownership of Securities within the required period following his appointment as
a Director of the Company. He filed the required report on June 20, 1995. James
R. Brock did not file a Statement of Changes of Beneficial Ownership of
Securities for a sale of Common Shares occurring in September 1995 within the
required period following the transaction. He filed the required report on
October 16, 1995. Ernest A. Bates, M.D. has not filed a Statement of Changes in
Beneficial Ownership for the 184,000 Common Shares issued to him in May 1995. He
will file the required report with a Statement of Beneficial Changes of
Ownership for the option for 1,495,000 Common Shares issued to him in October
1995.
37
<PAGE> 41
PERFORMANCE GRAPH, TOTAL RETURN TO SHAREHOLDERS
The following graph and table compare cumulative total shareholder return
on the Company's Common Shares with the cumulative total return of the Standard
& Poor's 500 Stock Index and a group of peer companies in the diagnostic imaging
industry during the five years ended December 31, 1994.
<TABLE>
<CAPTION>
American
Shared Hos-
Measurement Period pital S&P 500 In-
(Fiscal Year Covered) Services dex Peer Group
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 33.33 96.90 97.96
1991 148.15 126.42 77.73
1992 88.89 136.05 48.71
1993 77.78 149.76 20.80
1994 14.81 151.74 23.39
</TABLE>
<TABLE>
<CAPTION>
RETURN (AS A PERCENTAGE INCREASE OR DECREASE)
---------------------------------------------
COMPANY/INDEX NAME 1990 1991 1992 1993 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
American Shared Hospital -66.67 344.44 -40.00 -12.50 -80.95
Services
S&P 500 Index -3.11 30.47 7.62 10.08 1.32
Peer Group -2.04 -20.65 -37.34 -57.30 12.46
</TABLE>
INDEXED CUMULATIVE RETURNS
<TABLE>
<CAPTION>
BASE
PERIOD RETURN
--------------------------------------------------------------
COMPANY/INDEX NAME 1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
American Shared Hospital 100.00 33.33 148.15 88.89 77.78 14.81
Services
S&P 500 Index 100.00 96.90 126.42 136.05 149.76 151.74
Peer Group 100.00 97.96 77.73 48.71 20.80 23.39
</TABLE>
PEER GROUP POPULATION
<TABLE>
<S> <C>
Alliance Imaging Inc (included in the 1992-1994 returns only)
American Health Services (excluded in the 1993, 1994 returns (no price
information available))
Health Images Inc
Maxum Health Corp. (included in the 1992 returns only)
Medalliance Inc (included in the 1993, 1994 returns only (previously
ImageAmerica Corp.))
Medical Diagnostics Inc (included in the 1993, 1994 returns only)
Medical Imaging Centers of America
Medical Resources Inc (included in the 1993, 1994 returns only)
NMR of America Inc
This total shareholders return model assumes reinvested dividends.
Fiscal year basis: December
Prepared by Standard & Poor's Compustat, a division of McGraw-Hill Inc.
</TABLE>
38
<PAGE> 42
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of October 6, 1995 of (i) each
person known to the Company to own beneficially 5% or more of the Common Shares,
(ii) each director of the Company, (iii) the chief executive officer and each
other executive officer named in the Summary Compensation Table, and (iv) all
directors and executive officers as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
COMMON SHARES OWNED BENEFICIALLY
--------------------------------------
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(2) CLASS(8)
------------------------------------------------------ ----------------------- ----------
<S> <C> <C>
Total Number of Shares................................ 6,668,901(9) 100.0%
Ernest A. Bates, M.D.(1).............................. 2,666,000(6) 46.0%
SunAmerica Inc.(3).................................... 128,066(3) 2.9%
SunAmerica Life Insurance Company(3).................. 277,473(3) 6.4%
Anchor National Life Insurance Company(3)............. 406,819 9.3%
Lion Advisors, L.P.................................... 384,195(4) 8.9%
1301 Avenue of the Americas
New York, NY 10019
AIF II, L.P........................................... 170,752(4) 4.0%
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars
Los Angeles, CA 90071
General Electric Company.............................. 225,000(5) 5.0%
c/o GE Medical Systems
20825 Swenson Drive
Waukesha, WI 53186
Willie R. Barnes(1)................................... 7,000(6) *
Willie L. Brown, Jr.(1)............................... 6,000(6) *
John F. Ruffle(1)(7).................................. 25,200(6)(7) *
Augustus A. White, III, M.D.(1)....................... 14,000(6) *
Charles B. Wilson, M.D.(1)............................ 4,800(6) *
Craig K. Tagawa(1).................................... 127,600(6) 2.9%
Senior Vice President -- Chief Financial Officer
David Neally(1)....................................... 51,150(6) 1.2%
Senior Vice President -- Operations
Gregory Pape(1)....................................... 53,500(6) 1.2%
Senior Vice President -- Sales and Marketing
All Directors & Executive Officers as a Group (10 3,028,550(6)
persons)............................................ 50.0%
</TABLE>
- ---------------
* Less than 1%
(1) The address of each such individual is c/o American Shared Hospital
Services, Four Embarcadero Center, Suite 3620, San Francisco, California
94111-4155. The share ownership information for Dr. Bates includes 1,495,000
Common Shares underlying an immediately exercisable option with an initial
exercise price equal to $0.01 per share.
(2) Each person directly or indirectly has sole voting and investment power with
respect to the shares listed under this column as being owned by such
person.
(3) Based on information contained in the Schedule 13D dated May 17, 1995 and
filed with the Securities and Exchange Commission by SunAmerica Inc. and its
direct and indirect subsidiaries, SunAmerica Life Insurance Company
(formerly known as Sun Life Insurance Company of America) and Anchor
National Life Insurance Company, such entities then owned beneficially
557,923 Common Shares, including immediately exercisable Warrants to acquire
116,436 Common Shares. As of October 6, 1995,
39
<PAGE> 43
such entities were issued an additional 201,607 Common Shares and 52,828
Warrants. The address of each Beneficial Owner is c/o SunAmerica Inc., 1
SunAmerica Center, Los Angeles, CA 90067.
(4) Based on information contained in the Schedule 13D dated May 17, 1995 and
filed jointly with the Securities and Exchange Commission by Lion Advisors,
L.P. ("Lion") and AIF II, L.P. ("AIF II"), such entities then owned
beneficially 381,135 Common Shares, including immediately exercisable
Warrants to acquire 79,541 Common Shares. As of October 6, 1995, such
entities were issued an additional 137,724 Common Shares and Warrants to
acquire 36,088 Common Shares. The managing general partner of AIF II is
Apollo Advisors, L.P. ("Advisors"). Advisors and Lion are affiliates. Lion
beneficially holds the indicated securities for an investment account under
management over which Lion has investment, dispositive and voting power. The
Company does not believe that Lion and AIF II are affiliates of the Company
under the Act.
(5) Represents immediately exercisable Warrants to acquire 225,000 Common
Shares.
(6) Includes shares underlying options that are currently exercisable or which
will become exercisable within 60 days following October 6, 1995: Dr. Bates,
1,495,000; Mr. Barnes, 6,000 shares; Mr. Brown, 6,000 shares; Mr. Ruffle,
4,000 shares; Dr. White, 12,000 shares; Dr. Wilson, 4,800 shares; Mr.
Tagawa, 125,000 shares; Mr. Neally, 50,050 shares; Mr. Pape, 53,000 shares;
and Directors and Executive Officers as a group, 1,815,850 shares.
(7) Mr. Ruffle was elected to the Board of Directors effective May 18, 1995.
(8) Shares that any person or group of persons is entitled to acquire upon the
exercise of options or warrants within 60 days after October 6, 1995 are
treated as issued and outstanding for the purpose of computing the percent
of the class owned by such person or group of persons but not for the
purpose of computing the percent of the class owned by any other person.
(9) Represents the aggregate of issued and outstanding Common Shares plus Common
Shares that all persons or groups of persons are entitled to acquire upon
the exercise of options or warrants within 60 days after October 6, 1995.
40
<PAGE> 44
SELLING SECURITYHOLDERS
On May 17, 1995, in connection with the Notes Repurchase, the Company
issued 819,000 Common Shares and immediately exercisable Warrants (the
"Noteholder Warrants") to purchase 216,000 Common Shares to certain holders of
the Subordinated Notes. An additional 374,000 Common Shares and 98,000
Noteholder Warrants were issued to such holders as of October 6, 1995. The
Noteholder Warrants will expire on May 17, 2002 and have an initial exercise
price of $0.75 per Common Share.
In connection with the Lease Restructuring, on December 30, 1994, the
Company issued to GE Medical immediately exercisable Warrants to acquire 97,853
Common Shares at an initial exercise price of $0.01 per share until March 31,
1996. On May 17, 1995, the Company issued additional Warrants to GE Medical to
acquire 127,147 Common Shares at an initial exercise price of $0.01 per share
until September 30, 1996.
This Prospectus relates to the offer and sale by the Selling
Securityholders of the 1,193,000 Common Shares, the Noteholder Warrants and GE
Warrants and the 539,000 Common Shares underlying such Warrants. The Prospectus
is part of a registration statement filed under the Act pursuant to the terms of
the Registration Rights Agreement. In the Registration Rights Agreement, the
Company has agreed to keep the registration statement effective for up to 36
months or until all of the Securities have been sold, if earlier. The
Registration Rights Agreement provides that certain rights of the parties
thereto are assignable in connection with a sale of Common Shares and/or
Warrants.
The Securities offered by this Prospectus are offered for the account of
the Selling Securityholders. The following table sets forth, as of October 6,
1995, the names of the Selling Securityholders offering the Securities, the
number and percentage of Common Shares owned by such Selling Securityholders,
and the number of Warrants owned by such Selling Securityholders.
<TABLE>
<CAPTION>
COMMON PERCENTAGE OF GE NOTEHOLDER PERCENTAGE
SHARES COMMON SHARES WARRANTS WARRANTS OF
OWNED OWNED OWNED OWNED WARRANTS
------- ------------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SunAmerica Life Insurance Company.......... 219,659 5% -0- 57,814 11%
Anchor National Life Insurance Company..... 322,053 8% -0- 84,766 16%
SunAmerica Inc............................. 101,382 3% -0- 26,684 5%
Lion Advisors, L.P......................... 304,144 7% -0- 80,051 15%
AIF II, L.P................................ 135,174 3% -0- 35,578 7%
General Electric Company acting through GE
Medical Systems.......................... -0- 0% 225,000 -0- 42%
Grace Brothers, Ltd........................ 105,385 2% -0- 27,737 5%
Upchurch Living Trust U/A/D 12/14/90....... 5,203 * -0- 1,370 *
</TABLE>
- ---------------
* less than one percent
Because the Selling Securityholders may sell all or a part of their Common
Shares and Warrants, no estimate can be given as to the number of Common Shares
or Warrants to be held by any Selling Securityholders upon termination of the
offering. The Common Shares owned by the Selling Securityholders represent
approximately 28% of the issued and outstanding Common Shares and the Common
Shares underlying the Warrants represent approximately 11% of the issued and
outstanding Common Shares plus those Common Shares underlying the Warrants.
41
<PAGE> 45
DESCRIPTION OF SECURITIES
COMMON SHARES
The authorized capital stock of the Company consists of 10,000,000 Common
Shares, no par value. At October 6, 1995, 4,244,401 shares were issued and
outstanding and were held of record by 425 persons. The Company estimates there
were approximately 1700 beneficial holders of its Common Shares as of October 6,
1995. The Common Shares of the Company are listed on the American Stock Exchange
and The Pacific Stock Exchange under the symbol "AMS." The Company's Board of
Directors has authorized completion of listing applications for additional
Common Shares with the AMEX and PSE with respect to the Securities. See "Market
Price on and Dividends on the Registrant's Common Shares."
Each Common Share has the same rights, privileges and preferences as every
other share and will share equally in the Company's net assets upon liquidation
or dissolution. The Common Shares have no conversion or redemption rights or
sinking fund provisions. All Common Shares outstanding are, and all Common
Shares issued upon exercise of the Warrants will be, validly issued, fully paid
and non-assessable. The Common Shares have no preemptive rights. Shareholders
are entitled to one vote for each share owned on all matters submitted to the
shareholders and have the right, subject to certain conditions, to elect to
cumulate their votes in the election of directors. Shareholders are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor. The Company did not pay dividends in 1993 or 1994
and does not intend to pay dividends in the near future. See "Market Price on
and Dividends on the Registrant's Common Shares" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a description
of financing agreements that prohibit or restrict the declaration of dividends
on the Common Shares.
The transfer agent and registrar for the Common Shares is American Stock
Transfer & Trust Company, New York, New York.
WARRANTS
GE Warrants. The GE Warrants entitle the registered holder thereof to
acquire up to 225,000 Common Shares at an initial exercise price of $0.01 per
share, of which 97,853 Common Shares may be purchased to and including March 31,
1996 and 127,147 Common Shares may be purchased to and including September 30,
1996. The GE Warrants were issued in certificated form. The GE Warrants may be
exercised by surrendering the warrant certificate evidencing such Warrants, a
written election to exercise the GE Warrant specifying the number of Common
Shares to be purchased and the payment of the exercise price. Payment of the
exercise price may be made by check payable to the Company. Upon surrender of
the warrant certificate and payment of the purchase price, the Company will
deliver or cause to be delivered stock certificates representing the number of
whole Common Shares to which such holder is entitled. If less than all of the GE
Warrants evidenced by a warrant certificate are to be exercised, a new warrant
certificate will be issued for the remaining number of GE Warrants. No
fractional Common Shares will be issued upon exercise of the GE Warrants. A
fractional share otherwise issuable will be rounded up to the nearest whole
share.
The number of Common Shares purchasable upon the exercise of the GE
Warrants and the exercise price are subject to adjustment in certain events (and
subject to certain limitations set forth in the warrant certificate) including:
(i) the payment by the Company of a dividend or the making of a distribution on
its Common Shares in additional Common Shares or in securities convertible into
Common Shares other than convertible indebtedness or convertible preferred
stock, (ii) subdivisions and combinations of the Common Shares, and (iii)
reclassifications of the Common Shares.
Until exercise of the GE Warrant and the purchase of Common Shares, the
holder of the GE Warrants has no right to vote on matters submitted to the
shareholders of the Company and has no right to receive dividends. Until such
time, the holder of the GE Warrants is not entitled to share in the net assets
of the Company in the event of liquidation, dissolution or the winding up of the
Company's affairs.
42
<PAGE> 46
Noteholder Warrants. The Noteholder Warrants entitle the registered
holders thereof to acquire up to 314,000 Common Shares at an initial exercise
price of $0.75 per share up to and including May 17, 2002. The Noteholder
Warrants were issued in certificated form. The Noteholder Warrants may be
exercised by surrendering the warrant certificate evidencing such warrants, a
written election to exercise the Noteholder Warrant specifying the number of
Common Shares to be purchased and the payment of the exercise price. Payment of
the exercise price may be made at the holder's option (a) in cash, (b) by
certified or official bank check payable to order of the Company, or (c) by the
Company withholding that number of shares of Common Shares with a value as of
the date of exercise equal to the aggregate exercise price. Upon surrender of
the warrant certificate and the purchase price, the Company will deliver or
cause to be delivered stock certificates representing the number of Common
Shares designated to be exercised, less the number of Common Shares withheld by
the Company as payment therefor, if applicable. If less than all of the
Noteholder Warrants evidenced by a warrant certificate are to be exercised, a
new warrant certificate will be issued for the remaining number of Noteholder
Warrants. No fractional Common Shares will be issued upon exercise of the
Noteholder Warrants. The Company shall pay to the holder of the Noteholder
Warrant an amount in cash equal to the same fraction of the current value per
share on the date of the exercise.
The number of Common Shares purchasable upon the exercise of the Noteholder
Warrants and the exercise price are subject to adjustment in certain events (and
subject to certain limitations set forth in the warrant certificate) including:
(i) the payment of a dividend on its Common Shares in additional shares of
Common Shares, (ii) the payment of a dividend or other distribution on its
Common Shares or other issuance to all holders of its Common Shares of rights or
warrants entitling them to subscribe for Common Shares at a price per share less
than the current market price on the record date of such dividend, distribution
or issuance, (iii) subdivisions, combinations and reclassifications of the
Common Shares, (iv) subject to an election to receive such dividend or
distribution, the distribution to all holders of Common Shares of evidences of
indebtedness, shares of capital stock, cash or assets (including securities, but
excluding any dividend or distribution referred to in clauses (i) or (ii) above
for which an adjustment is made), and (v) the issuance or sale of shares of
Common Shares by the Company for consideration per share less than the current
market price.
No adjustment in the number of Common Shares purchasable and the exercise
price will be required unless such adjustment would require an increase or
decrease of at least 1% in the exercise price; provided, however, that any
adjustment that is not made will be carried forward and taken into account in
any subsequent adjustment.
In case of certain consolidations, mergers or capital reorganizations or
reclassifications of the Company, each holder of a Noteholder Warrant shall be
entitled to receive, in lieu of the Common Shares of the Company, the kind and
amount of securities, cash or other property to which such holder would have
been entitled upon such consummation if such holder had exercised the Noteholder
Warrant in full immediately prior thereto.
The holders of the Noteholder Warrants have no right to vote on matters
submitted to the shareholders of the Company. Except as set forth in the warrant
certificate with respect to the right to elect to receive certain distributions,
the holders of the Noteholder Warrants have no right to receive dividends. The
holders of the Noteholder Warrants are not entitled to share in the net assets
of the Company in the event of liquidation, dissolution or the winding up of the
Company's affairs.
PLAN OF DISTRIBUTION
The Selling Securityholders may sell the Securities: (i) in an underwritten
offering or offerings, (ii) through brokers and dealers, (iii) "at the market"
to or through a market maker or into an existing trading market, on an exchange
or otherwise, for such shares, (iv) in other ways not involving market makers or
established trading markets, including direct sales to purchasers and (v) to the
extent not prohibited by applicable securities law, in ways other than pursuant
to the distribution plan presented in the Prospectus. Pursuant to the terms of
the Registration Rights Agreement, the Company has agreed to maintain the
43
<PAGE> 47
effectiveness of the registration statement for a period of 36 months or until
all of the Securities have been sold, if earlier.
The distribution of Securities may be effected from time to time in one or
more underwritten transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Any such underwritten offering
may be on a "best efforts" or a "firm commitment" basis.
In connection with any such underwritten offering, underwriters or agents
may receive compensation from the Selling Securityholders for whom they may act
as agents in the form of discounts, concessions or commissions. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents.
At any time a particular offer of Securities is made, if required, a
Prospectus Supplement will be distributed that will set forth the names of the
Selling Securityholder(s) offering such Securities, the aggregate amount of such
Securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Such Prospectus Supplement and, if necessary, a post-effective amendment to the
Registration statement of which this Prospectus is a part will be filed with the
Commission to reflect the disclosure of additional information with respect to
the distribution of such Securities.
The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of Securities may be deemed to be underwriters,
and any profit on the sale of Securities by the Selling Securityholders and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Act.
Under an agreement that may be entered into by the Company, underwriters,
dealers, and agents who participate in the distribution of Securities may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Act, or to contribution with respect to payments
which such underwriters, dealers or agents may be required to make in respect
thereof.
The sale of the Securities by the Selling Securityholders may also be
effected from time to time by Selling Securities directly to purchasers or to or
through certain broker-dealers. In connection with any such sale, any such
broker-dealer may act as agent for the Selling Securityholders or may purchase
from the Selling Securityholders all or a portion of the Securities as principal
and thereafter may resell any Securities so purchased. Sales by any such
broker-dealer, acting as agent or as principal, may be made pursuant to any of
the methods described below. Such sales may be made on the AMEX or PSE or other
exchanges on which the Common Shares are then traded, in the over-the-counter
market, in negotiated transactions or otherwise at prices and at terms then
prevailing or at prices related to the then-current market prices or at prices
otherwise negotiated.
The Securities may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to this Prospectus which is part
of the Registration Statement; (c) a special offering, an exchange distribution
or a secondary distribution in accordance with applicable stock exchange rules;
and (d) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers. In effecting sales, broker-dealers engaged by
the Selling Securityholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the Selling
Securityholders in amounts to be negotiated immediately prior to the sale that
will not exceed those customary in the types of transaction involved.
Broker-dealers may also receive compensation from purchasers of the shares which
is not expected to exceed that customary in the types of transactions involved.
44
<PAGE> 48
Unless prohibited by applicable law, the Selling Securityholders may assign
their right to sell the Securities.
No director, officer or agent of the Company is expected to be involved in
soliciting offers to purchase the Securities offered hereby, and no such person
will be compensated by the Company for the sale of any of such Securities.
Certain officers of the Company may assist such representatives of the Selling
Securityholders in such efforts but will not be compensated therefor.
The Company will pay all of the expenses incident to the offering and sale
of the Securities, other than commissions, discounts and fees of underwriters,
dealers or agents. The Company has agreed to indemnify the Selling
Securityholders against certain losses, claims, damages and liabilities,
including liabilities under the Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities
offered hereby will be passed upon for the Company by Sidley & Austin, Los
Angeles, California.
EXPERTS
The consolidated financial statements and schedule of American Shared
Hospital Services at December 31, 1994 and 1993, and for each of the three years
in the period ended December 31, 1994, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which contains an explanatory
paragraph with respect to the substantial doubt surrounding the Company's
ability to continue as a going concern mentioned in Note 1 to the consolidated
financial statements) appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
45
<PAGE> 49
AMERICAN SHARED HOSPITAL SERVICES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets............................................................ F-3
Consolidated Statements of Operations.................................................. F-4
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)............... F-5
Consolidated Statements of Cash Flow................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
American Shared Hospital Services
We have audited the accompanying consolidated balance sheets of American
Shared Hospital Services as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Shared Hospital Services at December 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
American Shared Hospital Services will continue as a going concern. As more
fully described in Note 1, the Company incurred substantial operating losses in
1994, 1993 and 1992 and has a significant working capital deficiency and a net
capital deficiency at December 31, 1994. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
ERNST & YOUNG LLP
March 24, 1995, except for
Note 15, as to which the
date is May 17, 1995
F-2
<PAGE> 51
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
JUNE 30, ------------ ------------
1995
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 461,000 $ 1,225,000 $ 957,000
Receivables, less allowance for uncollectible accounts of $1,404,000
(unaudited) in 1995 ($1,424,000 in 1994 and $958,000 in 1993):
Trade accounts receivable............................................ 5,381,000 6,183,000 5,617,000
Other................................................................ 541,000 537,000 530,000
Note receivable from officer......................................... 54,000 54,000 --
------------ ------------ ------------
5,976,000 6,774,000 6,147,000
Inventories............................................................ 113,000 146,000 347,000
Prepaid expenses and other current assets................................ 500,000 758,000 694,000
------------ ------------ ------------
Total current assets............................................ 7,050,000 8,903,000 8,145,000
Note receivable from officer, less current portion....................... 232,000 248,000 --
Property and equipment:
Land, buildings and improvements....................................... 2,204,000 2,351,000 1,741,000
Medical, transportation and office equipment........................... 5,006,000 9,670,000 14,651,000
Capitalized leased medical and transportation equipment................ 28,750,000 38,271,000 56,541,000
------------ ------------ ------------
35,960,000 50,292,000 72,933,000
Accumulated depreciation and amortization.............................. 12,121,000 18,165,000 35,236,000
------------ ------------ ------------
Net property and equipment............................................... 23,839,000 32,127,000 37,697,000
Intangible assets, less accumulated amortization of $1,050,000
(unaudited) in 1995 ($1,386,000 in 1994 and $1,189,000 in 1993)........ 1,376,000 2,118,000 2,550,000
Other assets............................................................. 441,000 943,000 1,787,000
------------ ------------ ------------
Total assets.................................................... $ 32,938,000 $ 44,339,000 $ 50,179,000
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable....................................................... $ 3,664,000 $ 4,450,000 $ 8,177,000
Accrued interest....................................................... 146,000 8,497,000 7,689,000
Employee compensation and benefits..................................... 1,050,000 1,210,000 1,260,000
Other accrued liabilities.............................................. 1,383,000 1,317,000 1,314,000
Advance for equipment purchase......................................... -- -- 800,000
Current portion of long-term debt...................................... 1,152,000 196,000 2,535,000
Current portion of obligations under capital leases.................... 8,512,000 8,135,000 24,100,000
Senior subordinated notes.............................................. -- 18,467,000 18,788,000
------------ ------------ ------------
Total current liabilities....................................... 15,907,000 42,272,000 64,663,000
Senior Subordinated Notes................................................ 773,000 -- --
Long-term debt, less current portion..................................... 7,378,000 2,539,000 --
Obligations under capital leases, less current portion................... 17,300,000 21,705,000 3,106,000
Deferred income taxes.................................................... 164,000 164,000 164,000
Stockholders' equity (net capital deficiency):
Common stock, without par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 3,870,000 (unaudited) in 1995, and
2,867,000 in 1994 and 1993........................................... 10,141,000 8,795,000 8,795,000
Additional paid-in capital............................................. 849,000 763,000 175,000
Accumulated deficit.................................................... (19,574,000) (31,899,000) (26,724,000)
------------ ------------ ------------
Total stockholders' equity (net capital deficiency)............. (8,584,000) (22,341,000) (17,754,000)
------------ ------------ ------------
Total liabilities and stockholders' equity (net capital
deficiency)................................................... $ 32,938,000 $ 44,339,000 $ 50,179,000
============= ============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE> 52
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------
1994 1994 1993 1992
----------- ----------- ------------ -----------
1995 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Medical services........... $17,140,000 $19,451,000 $38,545,000 $ 39,485,000 $48,834,000
Costs and expenses:
Costs of operations:
Medical services
payroll............... 3,473,000 5,215,000 10,284,000 11,442,000 13,873,000
Maintenance and
supplies.............. 3,412,000 3,521,000 7,808,000 7,431,000 9,392,000
Depreciation and
amortization.......... 4,623,000 3,965,000 9,504,000 7,715,000 8,755,000
Write-down of equipment
and deferred assets... 3,825,000 -- -- 443,000 3,454,000
Equipment rental........ 1,208,000 2,315,000 1,580,000 5,067,000 4,176,000
Other................... 1,905,000 2,222,000 4,969,000 4,973,000 5,519,000
----------- ----------- ----------- ------------ -----------
18,446,000 17,238,000 34,145,000 37,071,000 45,169,000
Selling and
administrative.......... 2,958,000 3,025,000 5,971,000 6,820,000 6,273,000
Interest................... 3,274,000 3,082,000 7,423,000 6,752,000 7,520,000
----------- ----------- ----------- ------------ -----------
Total costs and
expenses......... 24,678,000 23,345,000 47,539,000 50,643,000 58,962,000
----------- ----------- ----------- ------------ -----------
(7,538,000) (3,894,000) (8,994,000) (11,158,000) (10,128,000)
(Loss) gain on sale of
assets..................... (46,000) 145,000 3,294,000 124,000 270,000
Write-down of intangible
assets..................... (600,000) -- -- (5,308,000) --
Equity in earnings (losses)
of partnerships............ 23,000 37,000 85,000 (51,000) 51,000
Interest and other income.... 108,000 45,000 98,000 742,000 181,000
----------- ----------- ----------- ------------ -----------
Loss before income taxes and
extraordinary item......... (8,053,000) (3,667,000) (5,517,000) (15,651,000) (9,626,000)
Income tax expense
(benefit).................. 0 18,000 20,000 (7,000) (111,000)
----------- ----------- ----------- ------------ -----------
Loss before extraordinary
item....................... (8,053,000) (3,685,000) (5,537,000) (15,644,000) (9,515,000)
Extraordinary item -- gain on
early extinguishment of
debt....................... 20,378,000 -- 362,000 -- --
----------- ----------- ----------- ------------ -----------
Net income (loss)............ $12,325,000 $(3,685,000) $(5,175,000) $(15,644,000) $(9,515,000)
=========== =========== =========== ============ ===========
Per share amounts:
Loss before extraordinary
item.................... $ (2.47) $ (1.29) $ (1.93) $ (5.46) $ (3.39)
Extraordinary item......... 6.24 -- .13 -- --
----------- ----------- ----------- ------------ -----------
Net income (loss) per
share................... $ 3.77 $ (1.29) $ (1.80) $ (5.46) $ (3.39)
=========== =========== =========== ============ ===========
Common shares and equivalents
used in computing per share
amounts.................... 3,267,000 2,867,000 2,867,000 2,863,000 2,810,000
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 53
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1991.......... $ 8,582,000 $ 175,000 $ (1,565,000) $ 7,192,000
Issuance of 64,000 shares of common
stock............................. 172,000 -- -- 172,000
Net loss............................. -- -- (9,515,000) (9,515,000)
---------- -------- ------------ -----------
Balances at December 31, 1992.......... 8,754,000 175,000 (11,080,000) (2,151,000)
Issuance of 22,000 shares of common
stock............................. 41,000 -- -- 41,000
Net loss............................. -- -- (15,644,000) (15,644,000)
---------- -------- ------------ -----------
Balances at December 31, 1993.......... 8,795,000 175,000 (26,724,000) (17,754,000)
Issuance of warrant to purchase
97,853 shares of common stock..... -- 588,000 -- 588,000
Net loss............................. -- -- (5,175,000) (5,175,000)
---------- -------- ------------ -----------
Balances at December 31, 1994.......... 8,795,000 763,000 (31,899,000) (22,341,000)
Issuance of 1,003,000 shares of
common stock (unaudited).......... 1,346,000 -- -- 1,346,000
Issuance of warrants to purchase
343,147 shares of common stock
(unaudited)....................... -- 336,000 -- 336,000
Stock issuance costs (unaudited)..... -- (250,000) -- (250,000)
Net income (unaudited)............... -- -- 12,325,000 12,325,000
---------- -------- ------------ -----------
Balance at June 30, 1995 (unaudited)... $10,141,000 $ 849,000 $(19,574,000) $(8,584,000)
========== ======== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 54
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1995 1994 1994 1993 1992
------------ ----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $12,325,000 $(3,685,000) $(5,175,000) $(15,644,000) $ (9,515,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
(Loss) gain on sale of assets........................... 46,000 (145,000 ) (3,294,000) (124,000) (270,000)
Extraordinary gain, after income taxes.................. (20,378,000) -- (362,000) -- --
Depreciation and amortization........................... 4,928,000 4,324,000 10,206,000 8,600,000 9,940,000
Write-down of equipment and deferred assets............. 3,825,000 -- -- 443,000 3,454,000
Write-down of intangible assets......................... 600,000 -- -- 5,308,000 --
Equity in (earnings) losses of partnerships............. (23,000 ) (37,000 ) (85,000) 51,000 (51,000)
Compensation from stock grants.......................... 265,000 -- -- -- --
Deferred income taxes................................... -- -- -- -- (68,000)
Changes in operating assets and liabilities:
Decrease (increase) in receivables.................... 798,000 (114,000 ) (573,000) 1,573,000 4,424,000
Decrease (increase) in inventories.................... 33,000 (20,000 ) 201,000 177,000 217,000
Decrease (increase) in prepaid expenses and other
assets.............................................. 208,000 185,000 (64,000) 212,000 (97,000)
(Decrease) increase in accounts payable and accrued
liabilities......................................... (377,000 ) 1,474,000 4,267,000 8,881,000 1,364,000
----------- ----------- ---------- ------------ -----------
Net cash provided by operating activities................. 2,250,000 1,982,000 5,121,000 9,477,000 9,398,000
INVESTING ACTIVITIES
Proceeds from sale of respiratory therapy contracts....... -- -- 4,002,000 -- --
Issuance of restructuring notes........................... -- -- 2,486,000 -- --
Refund of deposit on Gamma Knife.......................... -- -- 1,090,000 -- --
Proceeds from sale and disposition of equipment........... 63,000 671,000 900,000 1,005,000 4,854,000
Payment for purchase of property and equipment............ 209,000 (785,000 ) (393,000) (354,000) (839,000)
Note receivable to related party.......................... -- -- (290,000) -- --
Distributions received from partnerships.................. -- -- 58,000 27,000 241,000
Other..................................................... (111,000 ) 652,000 -- (401,000) 610,000
----------- ----------- ---------- ------------ -----------
Net cash provided by investing activities................. 161,000 538,000 7,853,000 277,000 4,866,000
FINANCING ACTIVITIES
Principal payments on long-term debt and obligations under
capital leases.......................................... (5,719,000 ) (2,073,000 ) (8,959,000) (10,264,000) (14,102,000)
Proceeds from loan agreement.............................. 7,000,000 -- -- -- --
Proceeds from issuance of common stock.................... -- -- -- 41,000 172,000
Cash deposited as collateral on loan...................... -- -- (2,883,000) -- --
Repayment of advance for equipment purchase............... -- -- (800,000) -- --
Payment for repurchase of senior subordinated notes....... (3,893,000 ) -- (64,000) -- --
Other..................................................... (563,000 ) -- -- -- --
----------- ----------- ---------- ------------ -----------
Net cash used in financing activities..................... (3,175,000 ) (2,073,000 ) (12,706,000) (10,223,000) (13,930,000)
Net (decrease) increase in cash and cash equivalents...... (764,000 ) 447,000 268,000 (469,000) 334,000
Cash and cash equivalents at beginning of period.......... 1,225,000 957,000 957,000 1,426,000 1,092,000
----------- ----------- ---------- ------------ -----------
Cash and cash equivalents at end of period................ $ 461,000 $1,404,000 $ 1,225,000 $ 957,000 $ 1,426,000
=========== =========== ========== ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid............................................. $2,770,000 $ 466,000 $ 1,591,000 $ 1,613,000 $ 5,839,000
=========== =========== ========== ============ ===========
Income taxes paid......................................... $ 54,000 $ 18,000 $ 25,000 $ 27,000 $ 27,000
=========== =========== ========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 55
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION
American Shared Hospital Services (the "Company") provides multimodality
diagnostic and respiratory therapy services to hospitals and other medical care
providers. The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, CuraCare, Inc. ("CuraCare"), MMRI,
Inc., European Shared Medical Services Ltd., American Shared Radiosurgery
Services, African American Church Health & Economic Services, Inc., and ACHES
Insurance Services, Inc. All significant intercompany accounts and transactions
have been eliminated. The Company accounts for its investment in partnerships
using the equity method.
The Company incurred net losses of $5,175,000, $15,644,000 and $9,515,000
in 1994, 1993 and 1992, respectively. At December 31, 1994, the Company has a
working capital deficiency of $33,369,000 (including $18,467,000 in senior
subordinated notes in default and classified as current liabilities) and a net
capital deficiency of $22,341,000. This condition raises substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
The financial information as of June 30, 1995 and for the six months ended
June 30, 1995 is unaudited, but includes all adjustments (consisting of only
normal recurring adjustments) that the Company considers necessary for a fair
presentation of the financial position at such date and the operating results
and cash flows for those periods. Operating results for the six months ended
June 30, 1995 are not necessarily indicative of the results that may be expected
for the entire year ending December 31, 1995.
2. ACCOUNTING POLICIES
Revenues and Accounts Receivable
Revenue is recognized on a fee-for-service basis when the service is
delivered. Trade accounts receivable are principally from hospitals and other
health care providers located throughout the U.S., with no one customer
providing a significant percent of revenues. The Company's revenues from its
foreign operations comprised approximately 1% of total revenues. The Company
performs credit evaluations of its customers and generally does not require
collateral. The Company maintains an allowance for doubtful accounts at a level
which management believes is sufficient to cover potential credit losses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash
equivalents.
Inventories
Inventories, which consist of minor medical equipment and supplies used in
the Company's business, are valued at the lower of cost or market, using a
valuation method which approximates FIFO (first-in, first-out).
F-7
<PAGE> 56
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
Property and Equipment
Property and equipment is stated at cost, or estimated net recoverable
value if less, and is depreciated by the straightline method over the estimated
useful lives of the assets which are generally as follows:
<TABLE>
<S> <C>
Building and improvements.............................. 25-40 years
Medical and transportation equipment................... 2-10 years
</TABLE>
Capitalized leased equipment consists primarily of fixed and mobile
Magnetic Resonance Imaging ("MRI") units, which include scanners and mobile
vans. Capitalized leased equipment is amortized over the term of lease, which
range from 24 to 60 months, or the estimated useful life of the equipment if a
bargain purchase option exists (eight years). Leasehold improvements are
amortized over the shorter of the lease terms or the estimated useful lives.
During 1993 and 1992, the Company experienced a decline in the market
acceptance of certain of its less advanced MRI and CT scanning equipment.
Accordingly, the Company reduced the carrying value of this equipment to the
Company's estimate of the future revenue generating capacities of the equipment.
These write-downs resulted in a charge to operations of $443,000 and $3,454,000
in 1993 and 1992, respectively. (See Unaudited Note 16 for further discussion.)
During the six months ended June 30, 1995 and years ended December 31,
1994, 1993 and 1992, the Company incurred interest costs of $3,274,000,
$7,423,000, $6,828,000 and $7,569,000, respectively. The Company capitalized
interest related to construction in progress of $0, $0, $76,000 and $49,000 for
the six months ended June 30, 1995 and the years ended December 31, 1994, 1993,
and 1992, respectively.
Intangible Assets
Intangible assets represent the excess of cost of net assets acquired as
the result of the acquisition of businesses and are being amortized by the
straight-line method over 15 years.
The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the intangible balance (for each
business acquisition) over its remaining life can be recovered through
forecasted future operations using an undiscounted cash flow methodology.
Per Share Amounts
Per share information has been computed based on the weighted average
number of common shares and dilutive common share equivalents outstanding.
Income Taxes
The liability method is used to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
3. WRITE-DOWN OF INTANGIBLE ASSETS
During 1993, the Company's management continued to evaluate the
realizability of intangible assets recorded in connection with its acquisition
of CuraCare in 1987, which subsidiary conducts substantially all of the
Company's non-MRI operations, including CT scanning, respiratory therapy,
ultrasound and nuclear
F-8
<PAGE> 57
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
medicine. Revenues and operating profits from CuraCare, have continued to
decline significantly over the past few years despite several strategic plans
implemented by management. In the fourth quarter of 1993, management continued
to evaluate its non-MRI operations and determined that significant revenue
growth was unlikely and reduced its operations management and sales force
accordingly.
These conditions helped to contribute to higher than expected losses in
1992 and 1993 and an accumulated deficit at December 31, 1993, before the
write-off of goodwill. The Company has determined, based on its methodology of
evaluating the recoverability of goodwill, that the forecasted results of
operations for non-MRI operations (which were based on historic financial trends
and current market conditions) did not support the future amortization of the
recorded goodwill balance of $5,308,000 at December 31, 1993, for these
modalities.
The methodology employed to assess the recoverability of the Company's
goodwill was to forecast results of operations, including interest expense,
forward five years. The Company then evaluated the recoverability of goodwill on
the basis of these forecasts of future operations. In formulating the financial
forecasts, the Company considered the near-term, as well as the longer-term
business outlook. These near-term forecasts took into consideration recent
historical financial results and current market conditions, as well as
foreseeable opportunities for future growth. For the longer-term, the Company
also considered the possible emergence of new trends and their potential impact
upon each of the modalities.
Based on such forecasts, the cumulative results of operations for non-MRI
operations were insufficient to recover any portion of the respective goodwill
balances. Accordingly, the Company wrote off its remaining goodwill balances for
these operations of $5,308,000 in the fourth quarter of 1993.
4. INVESTMENT IN PARTNERSHIPS
The Company has entered into partnerships with health care providers for
the acquisition and operation of CT scanners, and records its investment and its
share of partnership earnings under the equity method. The summarized combined
financial position and results of operations of the partnerships are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993 1992
-------- ---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets............................................ $ 76 $187 $135 $ 461
Liabilities....................................... -- -- 65 302
Revenues.......................................... 191 525 556 1,534
Net income (loss)................................. 24 255 (58) 259
</TABLE>
F-9
<PAGE> 58
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
Capitalized stock issuance costs.................. $ -- $327,000 $ --
Capitalized regulatory licensing fees............. 84,000 212,000 --
Debt issuance costs, less accumulated amortization
of $3,000, $950,000 and $957,000 in 1995, 1994
and 1993, respectively.......................... 77,000 129,000 289,000
Purchased software, less accumulated amortization
of $515,000, $471,000 and $370,000 in 1995, 1994
and 1993, respectively.......................... 76,000 110,000 178,000
Investment in partnerships........................ 3,000 60,000 31,000
Deposits for purchase of Gamma Knife (Note 14).... -- -- 1,090,000
Other, less allowance of $165,000 in 1995 and 1994
and $185,000 in 1993............................ 201,000 105,000 199,000
-------- -------- ----------
$441,000 $943,000 $1,787,000
======== ======== ==========
</TABLE>
6. SENIOR SUBORDINATED NOTES
In 1988, the Company completed a concurrent public common stock and debt
offering consisting of $30,000,000 of senior subordinated exchangeable reset
notes (the "Notes") due in 1996. The Notes bore interest at an initial rate of
14% per annum payable semiannually commencing April 15, 1989. On October 15,
1989, the interest rate on the Notes not previously exchanged, as described
below, was reset to 16.5%.
Prior to the October 15, 1989 reset date, $2,140,000 of Notes were
exchanged into 14.75% senior subordinated notes due 1996. Except for the
interest rate, optional and mandatory redemption provisions of the Notes and the
fact that the 14.75% Notes were not exchangeable, the terms of the 14.75% Notes
are substantially the same as the terms of the Notes. The Company may redeem all
or part of the Notes for 100% of the principal amount, together with accrued and
unpaid interest to the redemption date.
The Company was required to make mandatory sinking fund payments of
$4,500,000 annually commencing October 15, 1994, reduced by the principal amount
of notes previously repurchased and canceled. These payments are calculated to
retire 30% of the issue prior to maturity. Previously repurchased and canceled
notes were adequate to satisfy mandatory sinking fund payments.
Under the terms of the loan indenture, the Company is required to maintain
consolidated net worth (shareholders' equity as defined) of at least $7,000,000.
In the event consolidated net worth is below $7,000,000 at the end of any two
consecutive fiscal quarters, the Company is required to make an offer within 65
days to repurchase 25% ($7,500,000) of the original principal amount of the
Notes at face value plus accrued interest. The debt agreement limits the
Company's ability to adopt a plan of sale or liquidation and to incur certain
types of additional indebtedness subject to meeting certain earnings to fixed
charge ratios, as defined. The debt agreement also limits the amount of
dividends the Company can declare on capital stock to the sum of (1) 50% of
consolidated net income, or 100% of net loss, since June 30, 1988; (2) 50% of
the net proceeds from the sale of capital stock, or debt that has subsequently
been converted to capital stock; (3) $2,000,000.
F-10
<PAGE> 59
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
During 1994, the Company repurchased certain of the Notes as follows:
<TABLE>
<S> <C>
Principal amount of Notes repurchased............................. $321,000
Accrued interest related to the Notes............................. 115,000
Unamortized issuance costs........................................ (3,000)
Estimated tax liability........................................... (7,000)
--------
426,000
Payment for repurchase............................................ (64,000)
--------
Extraordinary gain................................................ $362,000
========
</TABLE>
The funds to repurchase the notes in 1994 came from operating activities.
The amount at June 30, 1995 of senior subordinated debt outstanding is
$773,000.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Borrowings under loan agreement for repurchase of
senior subordinated notes......................... $ 2,477,000 -- --
Borrowings under line of credit for repurchase of
senior subordinated notes......................... 2,798,000 -- --
Borrowings under former loan agreement for
repurchase of senior subordinated notes........... -- $ 2,883,000 $ 2,528,000
Less cash held by the lender as collateral.......... -- (2,883,000) --
Promissory note payable bearing interest at 4%
payable in 86 monthly installments due in February
2002, secured by the Company's accounts receivable
and certain medical equipment..................... 2,000,000 2,000,000 --
Promissory note payable bearing interest at 10.5%
payable in 60 monthly installments due in February
2000.............................................. 443,000 481,000 --
Promissory note payable bearing interest at 11.25%
payable in 25 monthly installments due in July
1997.............................................. 304,000 -- --
Installment notes, payable in monthly installments
through May 1998, bearing interest at 11.25% to
11.88% secured by certain medical equipment....... 501,000 242,000 --
Other............................................... 7,000 12,000 7,000
---------- ---------- ----------
8,530,000 2,735,000 2,535,000
Less current portion................................ (1,152,000) (196,000) (2,535,000)
---------- ---------- ----------
$ 7,378,000 $ 2,539,000 $ --
========== ========== ==========
</TABLE>
Contracted maturities under the initial terms of long-term debt as of June
30, 1995 are as follows: $479,000, $1,268,000, $4,018,000, $1,161,000, $843,000
and $761,000 for the years ending December 31, 1995, 1996, 1997, 1998, 1999 and
thereafter, respectively.
F-11
<PAGE> 60
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
Foothill Loan
In March 1991, the Company entered into a loan agreement (as amended),
which initially expired in March 1993 and was extended for periodic terms
through March 1994, under which it could generally borrow up to 66% of eligible
accounts receivable, reduced to 50% if total borrowings equal or exceed
$4,000,000, up to a maximum of $5,000,000. On March 30, 1994, the agreement was
modified to extend its term through February 28, 1995. Proceeds from loans under
the agreement can only be used to repurchase the Company's senior subordinated
notes. Borrowings under the agreement bear interest at the prime rate plus 4%
(12.5% at December 31, 1994), payable monthly. Under the terms of the agreement,
the Company's cash receipts are processed through bank accounts controlled by
the lender and the lender has a first priority security interest in all accounts
receivable and certain land and buildings. The loan agreement prohibits the
Company from acquiring, merging or consolidating with any other business
organization, from making any change in its financial structure and from
prepaying existing indebtedness, without the consent of the lender. A former
Director of the Company is the President and Co-Chief Executive of the lender.
On December 31, 1994, with the proceeds from the sale of certain of the
Company's respiratory therapy contracts (see Note 12), the Company deposited
approximately $2,900,000 cash as collateral with the lender. On February 28,
1995 the loan agreement was terminated.
Restructuring Notes
On December 30,1994 the Company converted various service and other
payments that were due and unpaid into a $2,000,000 promissory note with its
primary provider of medical equipment. The note is dated January 1, 1995 and was
issued by the Company in conjunction with the lease restructuring (see Note 11).
The note matures in February 2002 and bears interest at an annual rate of 4%
payable in arrears. Monthly payments of interest only are due for the first
eleven months through November 1995. Thereafter, the principal balance of the
note will amortize in 75 equal monthly installments until maturity. The note is
secured by a second priority lien on the accounts receivable of the Company and
a first priority lien on certain medical equipment.
The Company also converted $481,000 of unpaid use taxes into a note payable
to its primary provider of medical equipment. The note bears interest at 10.5%
payable in 60 monthly payments beginning February 1, 1995.
The restructuring notes limit the Company's ability to merge with any other
entity, to create subsidiaries, to pay cash dividends, to repurchase stock for
cash, or to change the status of the equipment acting as collateral in such a
way as to impair its value.
F-12
<PAGE> 61
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
8. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Fixed assets............................... $ (164,000) $(5,200,000) $ (570,000)
Other -- net............................... -- -- (4,000)
--------- --------- ---------
Total deferred tax liabilities............... (164,000) (5,200,000) (574,000)
Deferred tax assets:
Fixed assets............................... 1,600,000 -- --
Net operating loss carryforwards........... 2,600,000 11,500,000 11,400,000
Other -- net................................. 800,000 800,000 812,000
--------- --------- ---------
Net deferred tax assets...................... 5,000,000 12,300,000 12,212,000
Valuation allowance for deferred tax
assets..................................... (5,000,000) (7,264,000) (11,802,000)
--------- --------- ---------
Total deferred tax assets.................... -- 5,036,000 410,000
--------- --------- ---------
Net deferred tax liabilities................. $ (164,000) $ (164,000) $ (164,000)
========= ========= =========
</TABLE>
The decrease in the valuation allowance from December 31, 1994 to June 30,
1995 and from December 31, 1993 to December 31, 1994 of $2,264,000 and
$4,538,000, respectively was due primarily to a decline in the net operating
loss carryforward for 1995 and to an increase in total deferred tax assets
related to fixed assets for 1994.
The components of the provision (benefit) for income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
SIX MONTHS
ENDED LIABILITY METHOD DEFERRED
JUNE 30, ------------------- METHOD
1995 1994 1993 1992
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Current:
federal............................... $ -- $ -- $ -- $ --
state................................. -- 27,000 (7,000) (43,000)
Deferred (reduction):
federal............................... -- -- -- (68,000)
state................................. -- -- -- --
------ ------- ------- ---------
$ -- $27,000 $(7,000) $(111,000)
====== ======= ======= =========
</TABLE>
The amounts relate to state income taxes, miscellaneous payments and
refunds of federal and state income taxes and adjustments of amounts paid and
accrued in prior years.
F-13
<PAGE> 62
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
The provision (benefit) for income taxes is included in the consolidated
financial statements as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------
1995 1994 1993 1992
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary
gain.................................. $ -- $20,000 $(7,000) $(111,000)
Extraordinary gain...................... -- 7,000 -- --
------- ------- ------- ---------
$ -- $27,000 $(7,000) $(111,000)
======= ======= ======= =========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. federal statutory tax rate (35% in 1995, 1994 and 1993 and
34% in 1992) to income (loss) before taxes as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------
1995 1994 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computed expected tax, including tax
on extraordinary gain............... $ 4,314,000 $(1,802,000) $(5,478,000) $(3,273,000)
Cancellation of indebtedness.......... (4,347,000) (129,000) -- --
State income taxes (benefit), net of
federal benefit..................... -- 27,000 (7,000) (43,000)
Amortization and writedown of
intangible assets................... 33,000 67,000 2,067,000 219,000
Limitation of net operating loss
carryback........................... -- 1,864,000 3,386,000 2,966,000
Other................................. -- -- 25,000 20,000
----------- ----------- ----------- -----------
$ 0 $ 27,000 $ (7,000) $ (111,000)
=========== =========== =========== ===========
</TABLE>
At December 31, 1994, the Company had a net operating loss carryforward for
federal income tax return purposes of approximately $30,000,000 which expires
between 1999 and 2008. This carryforward is subject, in part, to separate return
limitations. The Company's ability to utilize the net operating loss
carryforward may be limited in the event of a 50% or more ownership change
within any three-year period. Approximately $22,600,000 (unaudited) of the net
operating loss carryforward was used to offset the gain on early extinguishment
of the senior subordinated notes in May 1995.
9. STOCKHOLDERS' EQUITY
Stock Options
Under the Company's 1984 Stock Option Plan (the "Plan"), as amended, a
total of 475,000 stock options were authorized for grant. The Plan terminated
according to its terms on March 1, 1994. Options may be designated either as
"incentive stock options" (as defined in the Internal Revenue Code, as amended)
or as nonqualified options. Under the Plan, the exercise price must be at least
100% of the fair market value of the Company's common stock as of the date of
grant. Options granted generally become exercisable at the rate of 20% per year,
on a cumulative basis, beginning 11 months after the date of the grant. Options
granted pursuant to the Plan generally were good for 10 years from the date of
grant, subject to earlier expiration in certain cases, such as termination of
the grantee's employment.
F-14
<PAGE> 63
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
Changes in options outstanding from December 31, 1991 to June 30, 1995 are
as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1991................... 390,000 $ 1.38 - $7.50
Granted.................................................. 86,000 $4.38
Exercised................................................ (64,000) $ 1.38 - $7.13
Forfeited................................................ (27,000) $3.00
--------
Options outstanding at December 31, 1992................... 385,000 $ 1.38 - $7.50
Granted.................................................. 93,000 $3.375 - $3.875
Exercised................................................ (22,000) $1.875
Forfeited................................................ (148,000) $ 1.875 - $6.50
--------
Options outstanding at December 31, 1993................... 308,000 $ 1.38 - $7.50
Granted.................................................. -- --
Exercised................................................ -- --
Forfeited................................................ (52,000) $ 1.38 - $5.00
--------
Options outstanding at December 31, 1994................... 256,000
Granted (unaudited)...................................... --
Exercised (unaudited).................................... --
Forfeited (unaudited).................................... 73,000 $3.625 - $7.125
--------
Options outstanding at June 30, 1995 (unaudited)........... 183,000
========
Outstanding options exercisable at:
December 31, 1992........................................ 237,000 $ 1.38 - $7.50
========
December 31, 1993........................................ 213,000 $ 1.38 - $7.50
========
December 31, 1994........................................ 190,000 $ 1.38 - $7.50
========
June 30, 1995 (unaudited)................................ 135,000 $ 1.38 - $7.50
========
Options available for grant at June 30, 1995 (unaudited)... 0
========
</TABLE>
Stock Warrant
As partial consideration for the financial accommodations granted in the
restructuring of the current service obligations in connection with the issuance
of the restructuring notes described in Note 7, the Company issued an
immediately exercisable stock warrant to its primary provider of leased
equipment granting the right to purchase 97,853 common shares at a price of
$0.01 per share. The warrant expires on March 31, 1996. The Company will be
entitled to redeem the warrant in connection with a sale of all or substantially
all the common shares.
10. RETIREMENT PLAN
The Company has a defined contribution retirement plan which covers
substantially all employees. Under the terms of the plan, the Company may
contribute a discretionary matching contribution on behalf of each participant,
determined each year by the Company, equal to a percentage of each participant's
contributions
F-15
<PAGE> 64
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
and applicable to the first 6% of each participant's salary. The Company made no
contributions to the plan in 1994, 1993 or 1992.
11. LEASES
On December 30, 1994 (effective as of November 1, 1994 for most capital
leases and January 1, 1994 for operating leases) the Company and its major
provider of medical equipment entered into a restructuring of the obligations of
the Company under its capital leases and operating leases.
Modification of Leases
Substantially all equipment financed by the Company under capital leases
was restructured and after restructuring continues to meet the criteria of and
to be accounted for as capitalized leases. Under these modified leases, required
payments by the Company are scheduled to retire the unpaid principal balance
over the extended lease terms which will expire on various dates through
December 31, 1999. All the operating leases covered by the restructuring
agreement in effect on October 31, 1994 were modified to extend the payment
schedules. As a result of modification of lease terms, these leases now meet the
criteria for capitalization, and are accounted for as capital leases in the
accompanying financial statements. Under all the modified leases the Company
will be entitled to purchase the equipment at its fair market value, or to
extend the relevant lease, at the end of the lease term.
Capital Leases
The Company leases MRI units and other equipment under capital leases
having an aggregate net book value of $20,584,000 at June 30, 1995 and
$28,177,000 at December 31, 1994. Amortization of assets recorded under capital
leases is included with depreciation expense.
Future minimum lease payments, together with the present value of the net
minimum lease payments under capital leases are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
<S> <C> <C>
Year ended December 31:
1995.................................................... $ 5,422,000 $ 11,397,000
1996.................................................... 10,522,000 10,225,000
1997.................................................... 8,651,000 8,686,000
1998.................................................... 4,940,000 4,940,000
1999.................................................... 1,666,000 1,666,000
2000.................................................... 0 --
----------- -----------
Net minimum lease payments................................ 31,201,000 36,914,000
Less amounts representing interest........................ (5,389,000) (7,074,000)
----------- -----------
Present value of net minimum lease payments............... 25,812,000 29,840,000
Less current portion...................................... (8,512,000) (8,135,000)
----------- -----------
$17,300,000 $ 21,705,000
=========== ===========
</TABLE>
These lease agreements have end-of-term purchase options ranging from $1 to
the fair market value of the equipment.
F-16
<PAGE> 65
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
During 1995, 1994, 1993 and 1992, the Company financed approximately
$38,000, $2,358,000, $5,100,000 and $8,400,000, respectively, of equipment
purchases with capital lease obligations.
Operating Leases
The Company leases MRI and CT scanning equipment, automobiles,
transportation equipment, office space, and facilities to service and operate
scanners under operating leases expiring at various dates through 1999.
Future minimum payments under noncancelable operating leases having initial
terms of more than one year consisted of the following as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
---------- ------------
<S> <C> <C>
Year ended December 31:
1995..................................................... $ 376,000 $ 752,000
1996..................................................... 694,000 694,000
1997..................................................... 626,000 626,000
1998..................................................... 570,000 570,000
1999 and thereafter...................................... 433,000 433,000
---------- ----------
$2,699,000 $3,075,000
========== ==========
</TABLE>
Rent expense was $1,500,000, $2,326,000, $6,083,000 and $5,072,000 for the
six months ended June 30, 1995 and the years ended December 31, 1994, 1993 and
1992, respectively.
12. SALE OF RESPIRATORY THERAPY CONTRACTS
The Company sold eight of fourteen respiratory therapy contracts to an
unrelated third party on December 31, 1994 for approximately $4,000,000 in cash.
As a result of the sale, the Company wrote off $180,000 in assets relating to
the contracts. In addition, the purchaser agreed to assume $300,000 in lease
obligations related to the assets. The Company recognized a gain on this
transaction of $3,199,000. Revenues generated under these contracts was
approximately $5,300,000 in 1994. A net loss in 1994 of $400,000 was recognized
on these contracts on a fully costed basis. The sale of the contracts
constitutes a sale of a portion of a product line in which the Company is
reducing its emphasis.
13. NOTE RECEIVABLE FROM OFFICER
At December 31, 1994, the Company has advanced $290,000 to the Chief
Executive Officer who executed a promissory note payable to the Company. The
note bears interest at 6% and is payable in 60 monthly fully amortizing payments
beginning in January 1995. Interest income recognized during the year was
$12,000 and has been added to the note receivable balance.
14. COMMITMENTS AND CONTINGENCIES
In January 1993, the Company entered into a commitment to purchase a Gamma
Knife for $2,900,000 and lease the Gamma Knife to a hospital. During 1993,
$1,090,000 was advanced to the equipment manufacturer ("the Manufacturer")
including $800,000 advanced by a third party lessor and guaranteed by the Chief
Executive Officer of the Company. The Company was unable to pay or finance
scheduled progress
F-17
<PAGE> 66
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
payments and had been informed by the manufacturer that the Company was in
default under the terms of the purchase agreement and that such agreement was
terminated.
On April 6, 1994, the Company's agreements to purchase a Gamma Knife from
an equipment manufacturer and lease the Gamma Knife to a hospital were
terminated. As a settlement, the Company paid approximately $130,000 in interest
and costs to the parties and the Company's Chief Executive Officer agreed to
enter into purchase and lease obligations substantially identical to those
previously entered into by the Company. The Manufacturer has agreed to sell the
Gamma Knife to, and the hospital agreed to lease the Gamma Knife from, the
Company's Chief Executive Officer. Of the $1,090,000 in deposits previously paid
to the Manufacturer, $800,000 was returned to the third party lessor and
$290,000 previously paid by the Company was advanced by the Company to the Chief
Executive Officer who executed a promissory note payable (Note 13).
Concurrently, the third party lessor agreed to fund the remaining $2,610,000
purchase price of the Gamma Knife on behalf of the Chief Executive Officer and
the Company received an option to purchase the Gamma Knife from the Chief
Executive Officer for an amount equal to the remaining debt obligation
associated with the Gamma Knife plus costs and operating losses, if any, on the
Gamma Knife if and when the Company is able to obtain financing for the
purchase.
15. SUBSEQUENT EVENTS -- DEBT RESTRUCTURING
Subsequent to year-end, on May 12, 1995, the Company entered into a revised
debt restructuring agreement with four holders of approximately 96% of its
Senior Subordinated Notes. On May 17, 1995, these Senior Subordinated
Noteholders received approximately $3,900,000 in cash, plus 819,000 shares of
common stock (equal to approximately 20% of the Company's then fully diluted
outstanding shares), and warrants for an additional 216,000 shares of common
stock (equal to approximately 5% of the then fully diluted common shares). The
warrants are immediately exercisable at $0.75 per share. As part of the
restructuring, the debt covenants were amended to remove the restrictions on the
payment of dividends, to remove the maintenance of consolidated net worth
requirements, and to remove the limitations on entering into additional
indebtedness which thereby cured the events of default on the Senior
Subordinated Notes.
Concurrent with the closing of the Notes repurchase, the Company obtained
three new credit facilities totaling $8 million. Proceeds from the new credit
facilities were used for the Notes repurchase, for reduction of other term debt,
for refinancing certain equipment, and for working capital.
Simultaneous with the Notes repurchase, Ernest A. Bates, M.D. the Company's
Chairman and Chief Executive Officer, was issued an additional 184,000 shares of
the Company's common stock. The common shares were granted to Dr. Bates in
partial consideration for his personal guarantees of the new credit facilities
and for his continued employment with the Company.
The remaining holders of the Company's Senior Subordinated Notes which was
not repurchased were paid their past due interest.
As a result of the debt restructuring, the Company recognized an
extraordinary gain of $20,378,000 for the six months ended June 30, 1995.
16. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS
Debt Restructuring
On October 6, 1995, Dr. Bates was granted a ten-year option to purchase
1,495,000 common shares for an exercise price of $0.01 per share. These options
were granted to Dr. Bates as the final consideration for his
F-18
<PAGE> 67
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
personal guarantees of the new credit facilities and for his continued
employment with the Company. As a result of the additional options awarded to
Dr. Bates, the ex-Noteholders of the Senior Subordinated Notes were granted
374,000 additional common shares and 98,000 additional warrants to purchase
common shares to maintain their ownership interest at 25%.
Stock Option Plan
On October 6, 1995, the shareholders approved the Company's 1995 Stock
Option Plan. Under the Plan, 330,000 shares of common stock have been reserved
for award to officers and other key employees, and to non-employee directors. On
August 15, 1995, the Stock Option Committee of the Board of Directors granted
243,500 options under the Plan, subject to shareholder approval. All such
options were immediately exercisable at an exercise price of $1.625 per share.
On October 6, 1995, options for an additional 12,000 shares were automatically
granted in accordance with terms of the Plan to three Directors. The options
were immediately exercisable at $1.625 per share.
Adoption of FASB 121 -- Accounting for Long Lived Assets
In connection with the adoption of the statement of Financial Accounting
Standards No. 121 (FAS 121), during the second quarter of 1995, management
reviewed the recoverability of the carrying value of long-lived assets,
primarily fixed assets, goodwill and deferred costs based on the life of the
assets. The Company initiated its review of potential loss impairment due to the
continuing changes in the health care environment which have put downward
pressure on customer and equipment pricing. These changes have resulted in
recent operating results and future forecasted operating results for certain
assets which were less than previously planned. This situation led to the
conclusion that there was a potential impairment in the recorded value of fixed
assets, goodwill and deferred costs. Management's estimate of future
undiscounted cash flows over the useful life of certain assets was determined to
be less than their recorded values, indicating impairment of these assets under
provisions of FAS 121. An impairment loss of $4,425,000 was recorded in the
second quarter of 1995 based on the differences between the fair value
determined by third parties and the recorded values of certain assets. The
impairment loss is comprised of write-downs of equipment of $3,650,000
(primarily MRI, CT and nuclear medicine); goodwill of $600,000; and deferred
assets of $175,000.
New Subsidiaries and Ventures
GK FINANCING, LLC.
On October 6, 1995, the Company through its wholly owned subsidiary
American Shared Radiosurgery Services (ASRS) and Elekta AB through its wholly
owned United States subsidiary GKV Investments, Inc. (GKV) reached an agreement
in principle to form GK Financing, LLC (GKF).
ASRS intends to contribute its ownership of two existing Gamma Knife units
in return for approximately a 78% ownership interest in GKF. GKV is contributing
approximately $800,000 in cash for its 22% ownership interest. GKV has also
committed to making an initial loan to GKF of $1,300,000.
GK Financing, LLC will provide alternative financing of Elekta Gamma Knife
units in the United States and in Brazil. GKF will be a preferred provider of
financing arrangements such as fee-for-service lease arrangements. GKF has
placed deposits totalling $1,000,000 for four (4) Gamma Knife Systems.
F-19
<PAGE> 68
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 IS UNAUDITED)
ACHES
African-American Church Health & Economic Services, Inc. (ACHES), a
California Corporation is a wholly owned subsidiary of American Shared Hospital
Services and was incorporated on June 14, 1995.
ACHES Insurance Services, Inc. (AIS), a California Corporation, is a wholly
owned subsidiary of ACHES and was incorporated on June 22, 1995. AIS is an
insurance agency qualified to sell life, health and disability insurance in the
state of California.
F-20
<PAGE> 69
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Risk Factors.......................... 3
The Company........................... 7
Financial Restructuring............... 8
Use of Proceeds....................... 10
Determination of Offering Price....... 10
Capitalization........................ 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 21
Properties............................ 27
Legal Proceedings..................... 27
Market Price of and Dividends on the
Registrant's Common Shares.......... 28
Management............................ 29
Principal Shareholders................ 39
Selling Securityholders............... 41
Description of Securities............. 42
Plan of Distribution.................. 43
Legal Matters......................... 45
Experts............................... 45
Consolidated Financial Statements..... F-1
</TABLE>
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all fees and
expenses in connection with the distribution of the securities being registered
pursuant to this Registration Statement, all of which fees and expenses will be
paid by the Registrant:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................. $ 931.70
American Stock Exchange fee.......................................... $ 17,500.00*
Pacific Stock Exchange fee........................................... $ 4,330.00*
Printing............................................................. $ 13,500.00*
Accountants' fees and expenses....................................... $ 60,000.00*
Legal fees and expenses.............................................. $ 35,000.00*
Miscellaneous........................................................ $ 2,000.00*
--------------
Total...................................................... $133,261,70.00*
==============
</TABLE>
- ---------------
* Estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 204(10) of the California General Corporation Law ("GCL") permits
the inclusion in the articles of incorporation of a California corporation of a
provision eliminating or limiting the personal liability of a director for
monetary damages in an action brought by or in the right of the corporation for
breach of a director's duties to the corporation and its shareholders. The
foregoing provision is subject to certain qualifications set forth in the GCL
including, without limitation, that such provision may not limit or eliminate
liability of directors for (i) intentional misconduct, (ii) transactions from
which a director derived an improper personal benefit, (iii) reckless disregard
of the director's duties, and (iv) an unexcused pattern of inattention. The
Company's Articles of Incorporation, as amended, contains an article eliminating
the liability of the directors for monetary damages to the fullest extent
permissible under California law.
Section 317 of the GCL permits the indemnification of officers, directors,
employees and agents of California corporations. Article Fifth, Section 2, of
the Company's Articles of Incorporation, as amended, provides that the
Registrant is authorized to provide indemnification to its agents in excess of
the indemnification otherwise permitted by Section 317 of the GCL.
Article IX, Section 7, of the Bylaws of the Company contains the following
indemnification provision:
Section 7. Indemnification of Corporate Agents; Purchase of Liability
Insurance. (a) The Corporation shall, to the maximum extent permitted by the
General Corporation Law of the state of California, and as the same may from
time to time be amended, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding to which such person was or is a party or is
threatened to be made a party arising by reason of the fact that such person is
or was an agent of the Corporation. For purposes of this Section 7, an "agent"
of the Corporation includes any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the Corporation or of another enterprise
at the request of the such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, and includes an action or proceeding by or in
the right of the Corporation to procure a judgment in its favor; and "expenses"
includes attorneys' fees and any expenses of establishing a right to
indemnification under this subdivision (a).
II-1
<PAGE> 71
(b) The Corporation shall, if and to the extent the Board of Directors so
determines by resolution, purchase and maintain insurance in an amount and on
behalf of such agents of the Corporation as the Board may specify in such
resolution against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not the
Corporation would have the capacity to indemnify the agent against such
liability under the provisions of this Section 7.
Each of the directors of the Corporation has entered into an
Indemnification Agreement with the Company pursuant to which the Company is,
subject to the limitations in the following sentence, obligated to indemnify the
directors to the fullest extent provided by law, notwithstanding such
indemnification not specifically being provided in the Company's Articles,
Bylaws or by statute. The Company is not obligated under the Indemnification
Agreement to indemnify directors for the following: acts or omission or
transactions from which a director may not be relieved from liability under
Section 204 of the California General Corporation Law, a proceeding or action
instituted by an appropriate bank regulatory agency, claims initiated by such
director except with respect to proceedings to enforce a right of
indemnification unless the Board has approved the initiation or bringing of such
suit, a proceeding instituted by a director to enforce the Indemnification
Agreement which is found by a court of competent jurisdiction to be not in good
faith or frivolous, insured claims or claims under Section 16(b) of the
Securities Exchange Act of 1934.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Lease Restructuring and the Notes Repurchase (as
defined in the Prospectus included as part of this Registration Statement), the
Company issued various securities under the exemption provided by Section 4(2)
of the Act and Rule 506 promulgated by the Commission thereunder. Each such
issuance is described in the table of sales of unregistered securities below:
<TABLE>
<CAPTION>
DATE OF ISSUANCE SECURITIES ISSUED RECIPIENT
- --------------------- ----------------------------------------------- ----------------------
<S> <C> <C>
December 30, 1994.... Warrants to acquire 97,853 Common Shares GE Medical
May 17, 1995......... Warrants to acquire 127,147 Common Shares GE Medical
May 17, 1995......... 184,000 Common Shares Ernest A. Bates, M.D.
May 17, 1995......... 819,000 Common Shares and Warrants to acquire Certain holders of
216,000 Common Shares Subordinated Notes
October 6, 1995...... Option to acquire 1,495,000 Common Shares Ernest A. Bates, M.D.
October 6, 1995...... 374,000 Common Shares and Warrants to acquire Certain holders of
98,000 Common Shares Subordinated Notes
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
3.1* Articles of Incorporation of the Company, as amended. (See Exhibit 3.1 to the
Company's Registration Statement on Form S-2, Registration No. 33-23416)
3.2 By-laws of the Company, as amended.
4.1* Indenture between American Shared Hospital Services and First Interstate Bank
of California, as Trustee, dated October 15, 1988, relating to the Senior
Subordinated Exchangeable Reset Notes Due 1996. (See Exhibit 4.1 to the
Company's Registration Statement on Form S-2, Registration No. 33-23416)
4.2* Indenture between American Shared Hospital Services and First Interstate Bank
of California, as Trustee, dated October 15, 1988, relating to the 14 3/4%
Senior Subordinated Notes Due 1996. (See Exhibit 4.2 to the Company's
Registration Statement on Form S-2, Registration No. 33-23416)
</TABLE>
II-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
4.3* Supplemental Indenture No. 1, dated as of October 15, 1989, to the Indenture
between American Shared Hospital Services and First Interstate Bank of
California, as Trustee, dated October 15, 1988, relating to the Senior
Subordinated Exchangeable Reset Notes Due 1996. (See Exhibit 4.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1989)
4.4 Supplemental Indenture No. 2 dated as of May 17, 1995 to the Indenture between
American Shared Hospital Services and First Interstate Bank of California, as
Trustee, dated October 15, 1988, relating to the Senior Subordinated
Exchangeable Reset Notes Due 1996.
4.5 Supplemental Indenture No. 1 dated as of May 17, 1995, to the Indenture
between American Shared Hospital Services and First Interstate Bank of
California, as Trustee, dated October 15, 1988, relating to the 14 3/4% Senior
Subordinated Notes Due 1996.
4.6 Form of Common Stock Purchase Warrant held by Selling Noteholders of American
Shared Hospital Services.
4.7 Form of Common Stock Purchase Warrant for shares of Common Stock of American
Shared Hospital Services held by General Electric Company, acting through GE
Medical Systems.
4.8 Registration Rights Agreement dated as of May 17, 1995 by and among American
Shared Hospital Services, the Holders referred to in the Note Purchase
Agreement, dated as of May 12, 1995 and General Electric Company, acting
through GE Medical Systems.
4.9 Promissory Note, dated May 17, 1995, by American Shared Hospital Services in
favor of General Electric Company in the principal sum of $1,500,000, as
amended.
4.10 Promissory Note, dated May 17, 1995, by American Shared-CuraCare and CuraCare,
Inc. in favor of DVI Business Credit Corporation, in the principal sum of
$4,000,000.
4.11 Promissory Note, dated May 17, 1995, by American Shared-CuraCare and CuraCare,
Inc. in favor of DVI Financial Services Inc. in the principal sum of
$2,500,000.
4.12 Security Agreement dated as of May 17, 1995 by and between American Shared
Hospital Services and General Electric Company, acting through GE Medical
Systems.
4.13 Agreement and Proxy dated as of May 12, 1995 by Ernest A. Bates, M.D. Accepted
and Agreed to by Anchor National Life Insurance Company, Sun Life Insurance
Company of America, SunAmerica Inc., AIF II, L.P., Lion Advisors, L.P., Grace
Brothers, Ltd., and Upchurch Living Trust U/A/D 12/14/90.
5 Opinion of Sidley and Austin regarding legality of securities being
registered. (To be filed by amendment)
10.1* The Company's 1984 Stock Option Plan, as amended. (See Exhibit 10.24 to the
Company's Registration Statement on Form S-2, Registration No. 33-23416)
10.2* The Company's 1995 Stock Option Plan. (See Exhibit A to the Company's Proxy
Statement, Registration No. 1-8789)
10.3* Form of Indemnification Agreement between the registrant and members of its
Board of Directors. (See Exhibit 10.35 to the Company's Registration Statement
on Form S-2, Registration No. 33-23416)
10.4* Agreement, effective as of November 1, 1994, by and among General Electric
Company, acting through GE Medical Systems, and American Shared Hospital
Services, and certain of its subsidiaries. (See Exhibit 10.49 to the Company's
Annual Report on Form 10-K for fiscal year ended December 31, 1994)
</TABLE>
II-3
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
10.5 Note Purchase Agreement dated as of May 12, 1995, by and among Anchor National
Life Insurance Company, Sun Life Insurance Company of America, and SunAmerica
Inc., AIF II, L.P., Lion Advisors, L.P., Grace Brothers, Ltd. and Upchurch
Living Trust U/A/D 12/14/90, American Shared Hospital Services and Ernest A.
Bates, M.D.
10.6 Loan and Security Agreement, dated as of May 17, 1995, among American Shared-
CuraCare and CuraCare, Inc., American Shared Hospital Services, Ernest A.
Bates, M.D. and DVI Business Credit Corporation.
10.7 Loan and Security Agreement, dated as of May 17, 1995, among American Shared-
CuraCare and CuraCare, Inc., American Shared Hospital Services, Ernest A.
Bates, M.D. and DVI Financial Services Inc.
10.8 Form of Unconditional Continuing Guaranty of American Shared Hospital
Services.
10.9 Form of Unconditional Continuing Guaranty of Ernest A. Bates, M.D.
10.10 Intercreditor Agreement among American Shared Hospital Services, American
Shared-CuraCare, DVI Financial Services Inc. and DVI Business Credit
Corporation and General Electric Company, acting through GE Medical Systems
dated as of May 17, 1995.
10.11* Ernest A. Bates Stock Option Agreement dated as of August 15, 1995. (See
Exhibit B to the Company's Proxy Statement, Registration No. 1-8789.)
10.12 Operating Agreement for GK Financing, LLC, dated as of October 17, 1995.
21* Subsidiaries of American Shared Hospital Services (See Exhibit 21.0 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994.)
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Sidley & Austin, incorporated by reference to Exhibit 5 to this
Registration Statement.
24* Power of Attorney, incorporated by reference to the signature page to this
Registration Statement.
</TABLE>
- ---------------
* The exhibits thus designated are incorporated by reference as exhibits hereto.
Following the description of such exhibits is a reference to the copy of the
exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
(b) Financial Statement Schedules
The following financial statement schedules are filed herewith:
<TABLE>
<CAPTION>
SCHEDULE NUMBER DESCRIPTION
- --------------- ---------------------------------------
<S> <C>
5.02(4) Valuation and Qualifying Accounts.
</TABLE>
Schedules other than that listed above have been omitted since they are either
not required, are not applicable, or the required information is shown in the
consolidated financial statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Act;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration
II-4
<PAGE> 74
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
b. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of San Francisco, state of
California on this 26th day of October, 1995.
AMERICAN SHARED HOSPITAL SERVICES
By /s/ ERNEST A. BATES, M.D.
------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest A. Bates, M.D. and Richard Magary, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<S> <C> <C>
Chairman of the Board October 26, 1995
/s/ ERNEST A. BATES, M.D. and Chief Executive Officer
- ------------------------------------------
Ernest A. Bates, M.D.
/s/ WILLIE R. BARNES Director and Secretary October 26, 1995
- ------------------------------------------
Willie R. Barnes
/s/ WILLIE L. BROWN, JR. Director October 26, 1995
- ------------------------------------------
Willie L. Brown, Jr.
/s/ JOHN F. RUFFLE Director October 26, 1995
- ------------------------------------------
John F. Ruffle
/s/ AUGUSTUS A. WHITE, M.D. Director October 26, 1995
- ------------------------------------------
Augustus A. White, III, M.D.
/s/ CHARLES B. WILSON, M.D. Director October 26, 1995
- ------------------------------------------
Charles B. Wilson, M.D.
Chief Financial Officer October 26, 1995
/s/ CRAIG K. TAGAWA (Principal Accounting Officer)
- ------------------------------------------
Craig K. Tagawa
</TABLE>
II-6
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
American Shared Hospital Services
We have audited the consolidated financial statements of American Shared
Hospital Services as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, and have issued our report thereon
dated March 24, 1995, except for Note 15, as to which the date is May 17, 1995
(included elsewhere in this Registration statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein. The financial statement schedule does not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
ERNST & YOUNG LLP
March 24, 1995
S-1
<PAGE> 77
SCHEDULE 5.02(4)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS ADDITIONS
BALANCE AT CHARGED TO BALANCE AT CHARGED TO BALANCE AT CHARGED TO
DECEMBER 31, COSTS AND AMOUNTS DECEMBER 31, COSTS AND AMOUNTS DECEMBER 31, COSTS AND
1991 EXPENSES WRITTEN OFF 1992 EXPENSES WRITTEN OFF 1993 EXPENSES
------------ ---------- ----------- ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts..... $ (1,357,000) $ (957,000) $ 1,003,000 $ (1,311,000) $ (986,000) $ 1,154,000 $ (1,143,000) $(1,266,000)
<CAPTION>
BALANCE AT
AMOUNTS DECEMBER 31,
WRITTEN OFF 1994
----------- ------------
<S> <C> <C>
Allowance for
uncollectible
accounts..... $ 820,000 $ (1,589,000)
</TABLE>
S-2
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------ ----------------------------------------------------------------------- -----------
<C> <S> <C>
3.1 Articles of Incorporation of the Company, as amended.(1) *
3.2 By-laws of the Company, as amended.
4.1 Indenture between American Shared Hospital Services and First *
Interstate Bank of California, as Trustee, dated October 15, 1988,
relating to the Senior Subordinated Exchangeable Reset Notes Due
1996.(2)
4.2 Indenture between American Shared Hospital Services and First *
Interstate Bank of California, as Trustee, dated October 15, 1988,
relating to the 14 3/4% Senior Subordinated Notes Due 1996.(3)
4.3 Supplemental Indenture No. 1, dated as of October 15, 1989, to the *
Indenture between American Shared Hospital Services and First
Interstate Bank of California, as Trustee, dated October 15, 1988,
relating to the Senior Subordinated Exchangeable Reset Notes Due
1996.(4)
4.4 Supplemental Indenture No. 2 dated as of May 17, 1995 to the Indenture
between American Shared Hospital Services and First Interstate Bank of
California, as Trustee, dated October 15, 1988 relating to the Senior
Subordinated Exchangeable Reset Notes Due 1996.
4.5 Supplemental Indenture No. 1 dated as of May 17, 1995, to the Indenture
between American Shared Hospital Services and First Interstate Bank of
California, as Trustee, dated October 15, 1988, relating to the 14 3/4%
Senior Subordinated Notes Due 1996.
4.6 Form of Common Stock Purchase Warrant held by Selling Noteholders of
American Shared Hospital Services.
4.7 Form of Common Stock Purchase Warrant for Shares of Common Stock of
American Shared Hospital Services held by General Electric Company,
acting through GE Medical Systems.
4.8 Registration Rights Agreement dated as of May 17, 1995 by and among
American Shared Hospital Services, the Holders referred to in the Note
Purchase Agreement, dated as of May 12, 1995 and General Electric
Company, acting through GE Medical Systems.
4.9 Promissory Note, dated May 17, 1995, by American Shared Hospital
Services in favor of General Electric Company in the principal sum of
$1,500,000, as amended.
4.10 Promissory Note, dated May 17, 1995, by American Shared-CuraCare and
CuraCare, Inc. in favor of DVI Business Credit Corporation, in the
principal sum of $4,000,000.
4.11 Promissory Note, dated May 17, 1995, by American Shared-CuraCare and
CuraCare, Inc. in favor of DVI Financial Services Inc. in the principal
sum of $2,500,000.
4.12 Security Agreement dated as of May 17, 1995 by and between American
Shared Hospital Services and General Electric Company, acting through
GE Medical Systems.
4.13 Agreement and Proxy dated as of May 12, 1995 by Ernest A. Bates, M.D.
Accepted and Agreed to by Anchor National Life Insurance Company, Sun
Life Insurance Company of America, SunAmerica Inc., AIF II, L.P., Lion
Advisors, L.P., Grace Brothers, Ltd., and Upchurch Living Trust U/A/D
12/14/90.
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------ ----------------------------------------------------------------------- -----------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
5 Opinion of Sidley and Austin regarding legality of securities being
registered.(5)
10.1 The Company's 1984 Stock Option Plan, as amended.(6) *
10.2 The Company's 1995 Stock Option Plan.(7) *
10.3 Form of Indemnification Agreement between American Shared Hospital *
Services and members of its Board of Directors.(8)
10.4 Agreement, dated as of November 1, 1994, by and among General Electric *
Company, acting through GE Medical Systems, and American Shared
Hospital Services, and certain of its subsidiaries.(9)
10.5 Note Purchase Agreement dated as of May 12, 1995, by and among Anchor
National Life Insurance Company, Sun Life Insurance Company of America,
and SunAmerica Inc., AIF II, L.P., Lion Advisors, L.P., Grace Brothers,
Ltd., Upchurch Living Trust U/A/D 12/14/90, American Shared Hospital
Services and Ernest A. Bates, M.D.
10.6 Loan and Security Agreement, dated as of May 17, 1995, among American
Shared-Curacare and Curacare, Inc., American Shared Hospital Services,
Ernest A. Bates, M.D. and DVI Business Credit Corporation.
10.7 Loan and Security Agreement, dated as of May 17, 1995, among American
Shared-CuraCare and CuraCare, Inc., American Shared Hospital Services,
Ernest A. Bates, M.D. and DVI Financial Services Inc.
10.8 Form of Unconditional Continuing Guaranty of American Shared Hospital
Services.
10.9 Form of Unconditional Continuing Guaranty of Ernest A. Bates, M.D.
10.10 Intercreditor Agreement dated as of May 17, 1995 among American Shared
Hospital Services, American Shared-CuraCare, DVI Financial Services
Inc. and DVI Business Credit Corporation and General Electric Company,
acting through GE Medical Systems.
10.11 Ernest A. Bates Stock Option Agreement dated August 15, 1995.(10) *
10.12 Operating Agreement for GK Financing, LLC, dated as of October 17,
1995.
21 Subsidiaries of American Shared Hospital Services. *
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Sidley & Austin, incorporated by reference to Exhibit 5 to *
this Registration Statement.
24 Power of Attorney.(11) *
</TABLE>
- ---------------
* Not applicable. See the footnote below for the reference to the copy of the
Exhibit incorporated by reference as an Exhibit hereto as such Exhibit has
been heretofore filed with the Commission, to which there have been no
amendments or changes; or to be filed by amendment hereto.
(1) This document was previously filed as Exhibit 3.1 to registrant's
Registration Statement on Form S-2 (Registration No. 33-23416) and is
incorporated herein by this reference.
(2) This documents was previously filed as Exhibit 4.1 to the registrant's
Registration Statement on Form S-2 (Registration No. 33-23416) and is
incorporated herein by this reference.
(3) This document was previously filed as Exhibit 4.2 to the registrant's
Registration Statement on Form S-2 (Registration No. 33-23416) and is
incorporated herein by this reference.
(4) This document was previously filed as Exhibit 4.3 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1989 and is
incorporated herein by this reference.
<PAGE> 80
(5) To be filed by amendment.
(6) This document was previously filed as Exhibit 10.24 to registrant's
Registration Statement on Form S-2 (Registration No. 33-23416), and is
incorporated herein by this reference.
(7) This document was previously filed as Exhibit A to registrant's Proxy
Statement (Registration No. 1-8789) and is incorporated herein by this
reference.
(8) This document was filed as Exhibit 10.35 to registrant's Registration
Statement on Form S-2 (Registration No. 33-23416), and is incorporated
herein by this reference.
(9) This document was previously filed as Exhibit 10.49 to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(10) This document was previously filed as Exhibit B to registrant's Proxy
Statement (Registration No. 1-8789) which is incorporated herein by this
reference.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
AMERICAN SHARED HOSPITAL SERVICES
(a California corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Applicability......................................... 1
Section 1. Applicability of Bylaws.......................... 1
ARTICLE II - Offices.............................................. 1
Section 1. Principal Offices................................ 1
Section 2. Change in Location or
Number of Offices................................ 1
ARTICLE III - Meetings of Shareholders............................ 1
Section 1. Place of Meetings................................ 1
Section 2. Annual Meetings.................................. 1
Section 3. Special Meetings................................. 2
Section 4. Notice of Annual, Special
or Adjourned Meetings............................ 2
Section 5. Record Date...................................... 3
Section 6. Quorum........................................... 4
Section 7. Adjournment...................................... 5
Section 8. Validation of Action Taken
at Defectively Called, Noticed
or Held Meetings................................. 5
Section 9. Voting for Election of Directors................. 5
Section 10. Proxies.......................................... 6
Section 11. Inspectors of Election........................... 7
Section 12. Action by Written Consent........................ 7
ARTICLE IV - Directors............................................ 8
Section 1. Number of Directors.............................. 8
Section 2. Election of Directors............................ 8
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 3. Term of Office................................... 8
Section 4. Vacancies........................................ 9
Section 5. Removal.......................................... 9
Section 6. Resignation...................................... 9
Section 7. Fees and Compensation............................ 10
ARTICLE V - Committees of the Board of Directors.................. 10
Section 1. Designation of Committees........................ 10
Section 2. Powers of Committees............................. 10
ARTICLE VI - Meetings of the Board of Directors
and Committees Thereof.............................. 11
Section 1. Place of Meetings................................ 11
Section 2. Organization Meeting............................. 11
Section 3. Other Regular Meetings........................... 11
Section 4. Special Meetings................................. 11
Section 5. Notice of Special Meetings....................... 11
Section 6. Waivers, Consents and Approvals.................. 12
Section 7. Quorum; Action at Meetings;
Telephone Meetings............................... 12
Section 8. Adjournment...................................... 12
Section 9. Action Without a Meeting......................... 12
Section 10. Meetings of and Action by
Committees....................................... 12
ARTICLE VII - Officers............................................ 13
Section 1. Officers......................................... 13
Section 2. Election of Officers............................. 13
Section 3. Subordinate Officers, Etc. ...................... 13
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION> Page
----
<S> <C>
Section 4. Removal and Resignation.......................... 13
Section 5. Vacancies........................................ 14
Section 6. Chairman of the Board............................ 14
Section 7. President........................................ 14
Section 8. Vice President................................... 14
Section 9. Secretary........................................ 14
Section 10. Chief Financial Officer.......................... 15
ARTICLE VIII - Records and Reports............................... 15
Section 1. Minute Book...................................... 15
Section 2. Share Register................................... 15
Section 3. Books and Records of Account..................... 16
Section 4. Bylaws........................................... 16
Section 5. Inspection of Records............................ 16
Section 6. Annual Report to Shareholders.................... 16
ARTICLE IX - Miscellaneous........................................ 16
Section 1. Checks, Drafts, Etc.............................. 16
Section 2. Contracts, Etc. - How Executed................... 16
Section 3. Certificates of Stock............................ 17
Section 4. Lost Certificates................................ 17
Section 5. Representation of Shares of
Other Corporations............................... 17
Section 6. Construction and Definitions..................... 17
Section 7. Indemnification of Corporate
Agents; Purchase of Liability
Insurance........................................ 18
ARTICLE X - Amendments............................................ 18
Section 1. Amendments....................................... 18
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
AMERICAN SHARED HOSPITAL SERVICES
(a California corporation)
ARTICLE I
APPLICABILITY
Section 1. Applicability of Bylaws. These Bylaws govern, except as
otherwise provided by statute or its Articles of Incorporation, the management
of the business and the conduct of the affairs of the Corporation.
ARTICLE II
OFFICES
Section 1. Principal Offices. The Board of Directors shall fix the
location of the principal executive office of the Corporation at any place
within or outside the State of California. If the principal executive office
is located outside this state, and the Corporation has one or more business
offices in this state, the Board of Directors shall designate a principal
business office in the State of California.
Section 2. Change in Location or Number of Offices. The Board of
Directors may change any office from one location to another or eliminate any
office or offices.
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. Meetings of the shareholders shall be
held at any place within or without the State of California designated by the
Board of Directors, or, in the absence of such designation, at the principal
executive office of the Corporation.
Section 2. Annual Meetings. An annual meeting of the shareholders
shall be held within 180 days following the end of the fiscal year of the
Corporation at a date and time designated by the Board of Directors. Directors
shall be elected at each annual meeting and any other proper business may be
transacted thereat.
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Section 3. Special Meetings. (a) Special meetings of the shareholders
may be called by the Board of Directors, the Chairman of the Board and the
President or by the shareholders upon the request of the holders of shares
entitled to cast not less than 10 percent of the votes at such meeting.
(b) Any request for the calling of a special meeting of the
shareholders shall (1) be in writing, (2) specify the date and time thereof,
which date shall be not less than 35 nor more than 60 days after receipt of the
request, (3) specify the general nature of the business to be transacted
thereat and (4) be given either personally or by first-class mail, postage
prepaid, or other means of written communication to the Chairman of the Board,
President, any Vice President or Secretary of the Corporation. The officer
receiving a proper request to call a special meeting of the shareholders shall
cause notice to be given pursuant to the provisions of Section 4 of this
article to the shareholders entitled to vote thereat that a meeting will be
held at the date and time specified by the person or persons calling the
meeting. If notice is not given within 20 days of the receipt of the request,
the shareholders making the request may give notice of such meeting so long as
the notice given complies with the other provisions of this subsection.
(c) No business may be transacted at a special meeting unless the
general nature thereof was stated in the notice of such meeting.
Section 4. Notice of Annual, Special or Adjourned Meetings. (a)
Whenever any meeting of the shareholders is to be held, a written notice of
such meeting shall be given in the manner described in subdivision (d) of this
section not less than 10 nor more than 60 days before the date thereof to each
shareholder entitled to vote thereat. The notice shall state the place, date
and hour of the meeting and (1) in the case of a special meeting, the general
nature of the business to be transacted or (2) in the case of the annual
meeting, those matters which the Board of Directors, at the time of the giving
of the notice, intends to present for action by the shareholders. The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, management intends to
present for election.
(b) Any proper matter may be presented at an annual meeting for action.
However, any action to approve (1) a contract or transaction in which a
director has a direct or indirect financial interest under Section 310 of the
Corporations Code of California, (2) an amendment of the articles
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<PAGE> 7
of incorporation under Section 902 of that code, (3) a reorganization of the
corporation, under Section 1201 of that code, (4) a voluntary dissolution of
the corporation under Section 1900 of that code, or (5) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares under Section 2007 of that code may be taken only if the notice of the
meeting states the general nature of the matter to be approved.
(c) Notice need not be given of an adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken,
except that if the adjournment is for more than 45 days or if after the
adjournment a new record date is provided for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at that meeting.
(d) Notice of any meeting of the shareholders shall be given
personally, by first class mail, or by telegraph or other written
communication, addressed to the shareholder at his address appearing on the
books of the Corporation or given by him to the Corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the Corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. Notice shall be deemed to have been
given at the time when delivered personally to the recipient, deposited in the
mail, delivered to a common carrier for transmission to the recipient or sent
by other means of written communication. An affidavit of the mailing or other
means of giving notice may be executed by the Secretary, assistant secretary or
any transfer agent of the Corporation giving the notice and shall be prima
facie evidence of the giving of the notice. Such affidavits shall be filed and
maintained in the minute books of the Corporation.
(e) If any notice or report addressed to the shareholder at his
address appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon his written demand at the principal executive office of
the Corporation for a period of one year from the date of the giving of the
notice or report to all other shareholders.
Section 5. Record Date. (a) The Board of Directors may fix a time in
the future as a record date for
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<PAGE> 8
determination of the shareholders (1) entitled to notice of any meeting or to
vote thereat, (2) entitled to give written consent to any corporate action
without a meeting, (3) entitled to receive payment of any dividend or other
distribution or allotment of any rights or (4) entitled to exercise any rights
in respect of any other lawful action. The record date so fixed shall be not
more than 60 nor less than 10 days prior to the date of any meeting of the
shareholders nor more than 60 days prior to any other action.
(b) In the event no record date is fixed:
(1) The record date for determining the shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given.
(3) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the 60th day prior to
the date of such other action, whichever is later.
(c) Only shareholders of record on the close of business on the record
date are entitled to notice and to vote, to give written consent or to receive
a dividend, distribution or allotment of rights or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date.
(d) A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set for the original meeting.
Section 6. Quorum. (a) A majority of the shares entitled to vote at a
meeting of the shareholders, represented in person or by proxy, shall
constitute a quorum for the transaction of business thereat.
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<PAGE> 9
(b) The shareholders present at a duly called or held meeting at which
a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 7. Adjournment. Any meeting of the shareholders may be
adjourned from time to time whether or not a quorum is present by the vote of a
majority of the shares represented thereat either in person or by proxy. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting.
Section 8. Validation of Actions Taken at Defectively Called, Noticed
or Held Meetings. (a) The transactions of any meeting of the shareholders,
however called and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote thereat, not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. Any written waiver of notice shall comply with
subdivision (f) of Section 601 of the Corporations Code of the State of
California. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(b) Attendance of a person at a meeting shall constitute a waiver of
notice of and presence at such meeting, except (1) when the person objects, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened and (2) that attendance at a meeting
is not a waiver of any right to object to the consideration of any matter
required by the General Corporation Law of the State of California to be
included in the notice but not so included, if such objection is expressly made
at the meeting.
Section 9. Voting for Election of Directors. (a) Except as provided in
subdivision (c) of this section, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute at least a majority
of the required quorum) shall be the act of the shareholders, unless the vote
of a greater number is required by law or the Articles of Incorporation.
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<PAGE> 10
(b) Every shareholder complying with subdivision (c) of this section
and entitled to vote at any election of directors may cumulate his votes and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which his shares are normally
entitled, or distribute his votes on the same principle among as many
candidates as he thinks fit.
(c) No shareholder shall be entitled to cumulate his votes (i.e., cast
for any candidate a number of votes greater than the number of votes which such
shareholder normally is entitled to cast) unless the candidate's or candidates'
names for which he desires to cumulate his votes have been placed in nomination
prior to the voting and the shareholder has given notice at the meeting prior
to the voting of his intention to cumulate his votes. If any one shareholder
has given such notice, all shareholders may cumulate their votes for candidates
in nomination.
(d) Elections for directors may be by voice vote or by ballot unless
any shareholder entitled to vote demands election by ballot at the meeting
prior to the voting, in which case the vote shall be by ballot.
(e) In any election of directors, the candidates receiving the highest
number of affirmative votes of the shares entitled to be voted for them up to
the number of directors to be elected by such shares are elected as directors.
Section 10. Proxies. (a) Every person entitled to vote shares may
authorize another person or persons to act with respect to such shares by a
written proxy signed by him or his attorney-in-fact and filed with the
Secretary of the Corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by him or his
attorney-in-fact.
(b) Any validly executed proxy, except a proxy which is irrevocable
pursuant to subdivision (c) of this section, shall continue in full force and
effect until the expiration of the term specified therein or upon its earlier
revocation by the person executing it prior to the vote pursuant thereto (1) by
a writing delivered to the Corporation stating that it is revoked, (2) by
written notice of death of the person executing the proxy, delivered to the
Corporation, (3) by a subsequent proxy executed by the person executing the
prior proxy and presented to the meeting or (4) as to any meeting by attendance
at such meeting and voting in person by the person executing the proxy. No
proxy shall be
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valid after the expiration of 11 months from the date thereof unless otherwise
provided in the proxy. The date contained on the form of proxy shall be deemed
to be the date of its execution.
(c) A proxy which states that it is irrevocable is irrevocable for the
period specified therein subject to the provisions of subdivisions (e) and (f)
of Section 705 of the Corporations Code of the State of California.
Section 11. Inspectors of Election. (a) In advance of any meeting of
the shareholders, the Board of Directors may appoint either one or three
persons (other than nominees for the office of director) as inspectors of
election to act at such meeting or any adjournments thereof. If inspectors of
election are not so appointed, or if any person so appointed fails to appear or
refuses to act, the chairman of any such meeting may, and on the request of any
shareholder or his proxy shall, appoint inspectors of election (or persons to
replace those who so fail or refuse to act) at the meeting. If appointed at a
meeting on the request of one or more shareholders or the proxies thereof, the
majority of shares represented in person or by proxy shall determine whether
one or three inspectors are to be appointed.
(b) The duties of inspectors of election and the manner of performance
thereof shall be as prescribed in subdivisions (b) and (c) of Section 707 of
the Corporations Code of the State of California.
Section 12. Action by Written Consent. (a) Subject to subdivisions
(b) and (c) of this section, any action which may be taken at any annual or
special meeting of the shareholders may be taken without a meeting, without a
vote and without prior notice, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes which would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed with the Secretary of the
Corporation and maintained with the corporate records.
(b) Except for the election of a director by written consent to fill a
vacancy (other than a vacancy created by removal), directors may be elected by
written consent only by the unanimous written consent of all shares entitled to
vote for the election of directors. In the case of an election of a director by
written consent to fill a vacancy (other than a vacancy created by removal),
any such election requires the consent of a majority of the outstanding shares
entitled to vote for the election of directors.
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(c) Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give prompt notice of the corporate
action approved by the shareholders without a meeting. This notice shall be
given in the manner specified in subdivision (d) of Section 4 of this Article
III. In the case of approval of (1) contracts or transactions in which a
director has a direct or indirect financial interest under Section 310 of the
Corporations Code of California, (2) indemnification of agents of the
corporation, under Section 317 of that code, (3) a reorganization of the
corporation, under Section 1201 of that code, or (4) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, under Section 2007 of that code, notice of such approval shall be given
at least ten (10) days before the consummation of any action authorized by that
approval.
(d) Any shareholder giving a written consent, or his proxyholders, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxyholders, may revoke the consent by a writing received by
the Corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter. Such revocation is effective
upon its receipt by the Secretary of the Corporation.
ARTICLE IV
DIRECTORS
Section 1. Number of Directors. (a) The authorized number of
directors shall depend upon the number of shareholders. If there is only one
shareholder, then there will only be one director. Whenever there is more than
one shareholder, then there will be no less than seven nor more than thirteen
directors. The exact number of directors shall be fixed from time to time,
within the limits specified in this subdivision, by an amendment of subdivision
(b) of this section adopted by the Board of Directors.
(b) The exact number of directors shall be one (1) until changed as
provided in subdivision (a) of this section. Notwithstanding the preceding
sentence, at all times while there is one (1) shareholder of the corporation,
said shareholder, may without amending these bylaws determine that there shall
be seven (7) directors. Said shareholder may elect the aforementioned seven
(7) directors by noticing a meeting of the shareholders of the corporation.
(c) The maximum or minimum authorized number of directors may only be
changed by an amendment of this section approved by the vote or written consent
of a majority of the an amendment reducing the minimum number to a number less
than 5 shall not be adopted if the votes cast against its adoption at a meeting
(or the shares not consenting in the
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case of action by written consent) exceed 16-2/3% of such outstanding shares;
and provided, further, that in no case shall the stated maximum authorized
number of directors exceed two times the stated minimum number of authorized
directors minus one.
Section 2. Election of Directors. Directors shall be elected at each
annual meeting of the shareholders.
Section 3. Term of Office. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which he is elected and until a successor has been elected, and qualified.
Section 4. Vacancies. (a) A vacancy in the Board of Directors exists
whenever any authorized position of director is not then filled by a duly
elected director, whether caused by death, resignation, removal, change in the
authorized number of directors or otherwise.
(b) Except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the
directors then in office, whether or not less than a quorum, or by a sole
remaining director. A vacancy created by the removal of a director shall be
filled only by a person elected by a majority of the shareholders entitled to
vote at a duly held meeting at which there is a quorum present or by the
unanimous written consent of the holders of the outstanding shares entitled to
vote at such a meeting.
(c) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors.
Section 5. Removal. (a) The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony.
(b) Any or all of the directors may be removed without cause if such
removal is approved by a majority of the outstanding shares entitled to vote;
provided, however, that no director may be removed (unless the entire Board of
Directors is removed) if whenever the votes cast against his removal, or not
consenting in writing to such removal, would be sufficient to elect such
director if voted cumulatively at an election at which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of directors authorized at
the time of his most recent election were then being elected.
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(c) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of his term of office.
Section 6. Resignation. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or
the Board of Directors of the Corporation, unless the notice specifies a later
time for the effectiveness of such resignation. If the resignation is effective
at a future time, a successor may be elected to take office when the
resignation becomes effective.
Section 7. Fees and Compensation. Directors may be paid for their
services in such capacity a sum in such amounts, at such times and upon such
conditions as may be determined from time to time by resolution of the Board of
Directors and may be reimbursed for their expenses, if any, for attendance at
each meeting of the Board. No such payments shall preclude any director from
serving the Corporation in any other capacity and receiving compensation in any
manner therefor.
ARTICLE V
COMMITTEES OF THE BOARD OF DIRECTORS
Section 1. Designation of Committees. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate (1) one or more committees, each consisting of two or more directors
and (2) one or more directors as alternate members of any committee, who may
replace any absent member at any meeting thereof. Any member or alternate
member of a committee shall serve at the pleasure of the Board.
Section 2. Powers of Committees. Any committee, to the extent
provided in the resolution of the Board of Directors designating such
committee, shall have all the authority of the Board, except with respect to:
(a) The approval of any action for which the General Corporation Law
of the State of California also requires any action by the shareholders;
(b) The filling of vacancies on the Board or in any committee thereof;
(c) The fixing of compensation of the directors for serving on the
Board or on any committee thereof;
(d) The amendment or repeal of these Bylaws or the adoption of new
bylaws;
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(e) The amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the Corporation, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors; or
(g) The designation of other committees of the Board or the
appointment of members or alternate members thereof.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES THEREOF
Section 1. Place and Meetings. Regular meetings of the Board of
Directors shall be held at any place within or without the State of California
which has been designated from time to time by the Board or, in the absence of
such designation, at the principal executive office of the Corporation. Special
meetings of the Board shall be held either at any place within or without the
State of California which has been designated in the notice of meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the Corporation.
Section 2. Organization Meeting. Immediately following each annual
meeting of the shareholders the Board of Directors shall hold a regular meeting
for the purpose of organization and the transaction of other business. Notice
of any such meeting is not required.
Section 3. Other Regular Meetings. Other regular meetings of the
Board of Directors shall be held without call at such time as shall be
designated from time to time by the Board. Notice of any such meeting is not
required.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called at any time for any purpose or purposes by the Chairman
of the Board or the President or any vice president or the Secretary or any two
directors. Notice shall be given of any special meeting of the Board.
Section 5. Notice of Special Meetings. Notice of the time and place
of special meetings of the Board of Directors shall be delivered personally or
by telephone to each director or sent to each director by first-class mail or
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telegraph, charges prepaid, addressed to each director at that director's
address as shown on the records of the Corporation. Such notice shall be given
four days prior to the holding of the special meeting if sent by mail or 48
hours prior to the holding thereof if delivered personally or given by
telephone or telegraph. The notice or report shall be deemed to have been given
at the time when delivered personally to the recipient or deposited in the mail
or sent by other means of written communication. Notice of any special meeting
of the Board of Directors need not specify the purpose thereof.
Section 6. Waivers, Consents and Approvals. Notice of any meeting of
the Board of Directors need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
him. All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Section 7. Quorum: Action at Meetings; Telephone Meetings. (a) A
majority of the authorized number of directors shall constitute a quorum for
the transaction of business. Every act or decision done or made by a majority
of the directors present is the act of the Board of Directors, unless action by
a greater proportion of the directors is required by law or the Articles of
Incorporation.
(b) A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
(c) Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment so long
as all members participating in such meeting can hear one another.
Section 8. Adjournment. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
If the meeting is adjourned for more than 24 hours, notice of any adjournment
to another time or place shall be given prior to the time of the adjourned
meeting to the directors who were not present at the time of the adjournment.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board
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individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
Section 10. Meetings of and Action by Committees. The provisions of
this Article apply to committees of the Board of Directors and action by such
committees with such changes in the language of those provisions as are
necessary to substitute the committee and its members for the Board and its
members.
ARTICLE VII
OFFICERS
Section 1. Officers. The Corporation shall have as officers, a
President, a Secretary and a Chief Financial Officer. The Treasurer is the
chief financial officer of the Corporation unless the Board of Directors has by
resolution designated a vice president or other officer to be the chief
financial officer. The Corporation may also have, at the discretion of the
Board, a Chairman of the Board, one or more vice presidents, one or more
assistant secretaries, one or more assistant treasurers and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.
Section 2. Election of Officers. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen by the Board of
Directors.
Section 3. Subordinate Officers, Etc. The Board of Directors may
appoint by resolution, and may empower the Chairman of the Board, if there be
such an officer, or the President, to appoint such other officers as the
business of the Corporation may require, each of whom shall hold office for
such period, have such authority and perform such duties as are determined from
time to time by resolution of the Board or, in the absence of any such
determination, as are provided in these Bylaws. Any appointment of an officer
shall be evidenced by a written instrument filed with the Secretary of the
Corporation and maintained with the corporate records.
Section 4. Removal and Resignation. (a) Subject to the rights, if
any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors or, except in
case of any
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officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by resolution of the Board.
(b) Subject to the rights, if any, of the Corporation under any
contract of employment, any officer may resign at any time effective upon
giving written notice to the Chairman of the Board, President, any vice
president or Secretary of the Corporation, unless the notice specifies a later
time for the effectiveness of such resignation.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board. If there is a Chairman of the
Booard, he shall, if present, preside at all meetings of the Board of
Directors, exercise and perform such other powers and duties as may be from
time to time assigned to him by resolution of the Board or prescribed by these
Bylaws and, if there is no President, the Chairman of the Board shall be the
chief executive officer of the Corporation and have the power and duties set
forth in Section 7 of this Article.
Section 7. President. Subject to such supervisory powers, if any, as
may be given by these Bylaws or the Board of Directors to the Chairman of the
Board, if there be such an officer, the President shall be the chief executive
officer and general manager of the Corporation and shall, subject to the
control of the Board, have general supervision, direction and control of the
business and affairs of the Corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board, or if there
be none, at all meetings of the Board. He shall have the general powers and
duties of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by resolution of the Board.
Section 8. Vice President. In the absence or disability of the
President, the vice presidents in order of their rank as fixed by the Board of
Directors, or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The
vice presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board or as
the President may from time to time delegate.
14
<PAGE> 19
Section 9. Secretary. (a) The Secretary shall keep or cause to be
kept (1) the minute book, (2) the share register and (3) the seal, if any, of
the Corporation.
(b) The Secretary, an assistant secretary, or, if they are absent or
unable to act, any other officer shall give, or cause to be given, notice of
all meetings of the shareholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board of Directors or
any committee of the Board of Directors.
Section 10. Chief Financial Officer. (a) The Chief Financial Officer
shall keep, or cause to be kept, the books and records of account of the
Corporation.
(b) The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated from time to time by resolution of the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, shall render to the President and the Board, whenever
they request it, an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed from time to
time by the Board or as the President may from time to time delegate.
ARTICLE VIII
RECORDS AND REPORTS
Section 1. Minute Book. The Corporation shall keep or cause to be kept
in written form at its principal executive office or such other place as the
Board of Directors may order, a minute book which shall contain a record of all
actions by its shareholders, Board or committees of the Board including the
time, date and place of each meeting; whether a meeting is regular or special
and, if special, how called; the manner of giving notice of each meeting and
a copy thereof; the names of those present at each meeting of the Board or
committees thereof; the number of shares present or represented at each meeting
of the shareholders; the proceedings of all meetings; any written waivers of
notice, consents to the holding of a meeting or approvals of the minutes
thereof; and written consents for actions without a meeting.
15
<PAGE> 20
Section 2. Share Register. The Corporation shall keep or cause to be
kept at its principal executive office or, if so provided by resolution of the
Board of Directors, at the Corporation's transfer agent or registrar, a share
register, or a duplicate share register, which shall contain the names of the
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
Section 3. Books and Records of Account. The Corporation shall keep
or cause to be kept at its principal executive office or such other place as
the Board of Directors may order, adequate and correct books and records of
account.
Section 4. Bylaws. The Corporation shall keep at its principal
executive office or, in the absence of such office in the State of California,
at its principal business office in the state, the original or a copy of the
bylaws as amended to date.
Section 5. Inspection of Records. The shareholders and directors of
the Corporation shall have all of the rights to inspect the books and records
of the Corporation that are specified in Section 213 and 1600 through 1602 of
the Corporations Code of the State of California.
Section 6. Annual Report to Shareholders. The Board of Directors
shall cause an annual report to be sent to the shareholders not later than 120
days after the close of the fiscal year of the Corporation. Such report shall
comply with the provisions of Section 1501 of the Corporations Code of the
State of California and shall be sent in the manner specified in Section 4(d)
of Article III at least 15 days prior to the annual meeting of shareholders to
be held during the next fiscal year.
ARTICLE IX
MISCELLANEOUS
Section 1. Checks, Drafts, Etc. All checks, drafts or other orders
for payment of money, notes or other evidences of indebtedness, and any
assignment or endorsement thereof, issued in the name of or payable to the
Corporation, shall be signed or endorsed by such person or persons and in such
manner as, from time to time, shall be determined by resolution of the Board of
Directors.
16
<PAGE> 21
Section 2. Contracts, Etc. - How Executed. The Board of Directors,
except as otherwise provided in these Bylaws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and, unless so authorized or
ratified by the Board, no officer, employee or other agent shall have any power
or authority to bind the Corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or to any amount.
Section 3. Certificates of Stock. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when the shares are fully paid or the Board of Directors may
authorize the issuance of certificates for shares as partly paid provided that
these certificates shall conspicuously state the amount of the consideration to
be paid for them and the amount already paid. All certificates shall be signed
in the name of the Corporation by the Chairman of the Board or the President or
a vice president and by the Chief Financial Officer or an assistant treasurer
or the Secretary or an assistant secretary, certifying the number of shares and
the class or series thereof owned by the shareholder. Any or all of the
signatures on a certificate may be by facsimile signature. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Section 4. Lost Certificates. Except as provided in this section, no
new certificate for shares shall be issued in lieu of an old certificate unless
the latter is surrendered to the Corporation and canceled at the same time.
The Board of Directors may in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, upon such terms and conditions as the Board may
require, including provision for indemnification of the Corporation secured by
a bond or other adequate security sufficient to protect the Corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of such certificate or the
issuance of such new certificate.
Section 5. Representation of Shares of Other Corporations. Any person
designated by resolution of the
17
<PAGE> 22
Board of Directors or, in the absence of such designation, the Chairman of the
Board, the President or any vice president or the Secretary, or any other
person authorized by any of the foregoing, is authorized to vote on behalf of
the Corporation any and all shares of any other corporation or corporations,
foreign or domestic, owned by the Corporation.
Section 6. Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the Corporations Code of the State of California shall govern the
construction of these Bylaws.
Section 7. Indemnification of Corporate Agents; Purchase of Liability
Insurance. (a) The Corporation shall, to the maximum extent permitted by the
General Corporation Law of the State of California, and as the same may from
time to time be amended, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding to which such person was or is a
party or is threatened to be made a party arising by reason of the fact that
such person is or was an agent of the Corporation. For purposes of this Section
7, an "agent" of the Corporation includes any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Corporation or
of another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, and includes an action
or proceeding by or in the right of the Corporation to procure a judgment in
its favor; and "expenses" includes attorneys' fees and any expenses of
establishing a right to indemnification under this subdivision (a).
(b) The Corporation shall, if and to the extent the Board of Directors
so determines by resolution, purchase and maintain insurance in an amount and
on behalf of such agents of the Corporation as the Board may specify in such
resolution against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not the
Corporation would have the capacity to indemnify the agent against such
liability under the provisions of this Section 7.
18
<PAGE> 23
ARTICLE X
AMENDMENTS
Section 1. Amendments. New bylaws may be adopted or these Bylaws may
be amended or repealed by the affirmative vote or written consent of a majority
of the outstanding shares entitled to vote. Subject to the next preceding
sentence, bylaws (other than a bylaw or amendment thereof specifying or
changing a fixed number of directors or the maximum or minimum number, or
changing from fixed to a variable board or vice versa) may be adopted, amended
or repealed by the Board of Directors.
19
<PAGE> 24
SECRETARY'S CERTIFICATE
I, Willie R. Barnes, do hereby certify that:
1. I am, and have been, at all times herein mentioned, the duly
elected and acting Secretary of American Shared Hospital Services, a California
corporation (the "Company").
2. On April 17, 1984, the sole shareholder of the Company adopted the
following resolution, approving an amendment to Section 1 of Article IV of the
Bylaws of the Company by written consent in accordance with California law:
BE IT RESOLVED that, subsections (a) and (b) of Section 1 of
Article IV of the Bylaws of this Corporation, which presently read:
"Section 1. Number of Directors. (a) The authorized number
of directors shall be not less than seven nor more than thirteen. The exact
number of directors shall be fixed from time to time within the limits
specified in this subsection, by an amendment of subsection (b) of this
section adopted by the Board of Directors.
(b) The exact number of directors shall be seven until changed
as provided in subsection (a) of this section."
be, and they hereby are, amended to read:
"Section 1. Number of Directors. (a) The authorized number
of directors shall be not less than six nor more than eleven. The exact
number of directors shall be fixed from time to time within the limits
<PAGE> 25
specified in this subsection, by an amendment of subsection (b) of this
section adopted by the Board of Directors.
(b) The exact number of directors shall be six until changed
as provided in subsection (a) of this section."
3. The total number of outstanding shares of the Company entitled to
consent to the approval of the amendment to the Bylaws was 1,161,481 shares.
The number of shares consenting to the approval was 1,161,481 shares, which
constitutes 100% of the issued and outstanding shares of the Company.
Therefore, the shareholders of the Company have duly approved the amendment to
the Bylaws as set forth above in accordance with the provisions of California
law.
The foregoing resolutions are presently in full force and effect and
have not been rescinded or revoked as of the date hereof.
IN WITNESS WHEREOF, I have hereupon subscribed my name, and set the
seal of the Company this 17 day of April, 1984.
/s/ WILLIE R. BARNES
----------------------------------
Willie R. Barnes, Secretary
[SEAL]
<PAGE> 26
RESOLUTION OF THE BOARD OF DIRECTORS
WHEREAS Section 1(a) of Article IV provides that the authorized number
of Directors shall be no less than seven nor more than thirteen, with the exact
number of Directors being fixed from time to time within these limits by an
amendment to subdivision (b) of Section 1 of Article IV;
WHEREAS subdivision (b) of Section 1 of Article IV provides that the
exact number of Directors shall be six until changed by an amendment to this
subdivision; and
WHEREAS the Board desires to amend subdivision (b) of Section 1 of
Article IV to specify that the exact number of Directors shall be seven
RESOLVED THEREFORE that subdivision (b) of Section 1 of Article IV
shall be amended to read as follows:
"(b) The exact number of Directors shall be seven until
changed as provided in subdivision (a) of this Section."
I certify that the foregoing Resolution was adopted by the Board of
Directors of American Shared Hospital Services on January 31, 1986.
/s/ WILLIE R. BARNES
--------------------------------
Willie R. Barnes
Secretary
<PAGE> 27
CERTIFICATE OF AMENDMENT
TO BYLAWS OF
AMERICAN SHARED HOSPITAL SERVICES
The undersigned, being the Secretary of American Shared Hospital
Services, a California corporation, hereby certifies that the Bylaws of this
corporation were amended, effective March 23, 1988, by the Board of Directors
to delete Article IX, Section 7 and to add the following new Article IX,
Sections 7, 8, 9, 10, 11, and 12, which provide in their entirety as follows:
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.
Section 7. Mandatory Indemnification of Directors. The corporation
shall, to the maximum extent and in the manner permitted by the California
Corporations Code ("Code"), indemnify each of its directors against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceedings (as defined in Section 317(a) of the Code), arising by reason of
the fact that such person is or was an agent of the corporation. For purposes
of this Article IX, a "director" of the corporation includes any person (i) who
is or was a director of the corporation, (ii) who is or was serving at the
request of the corporation as a director of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was a director of a
corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
Section 8. Permissive Indemnification. The corporation shall have the
power, to the extent and in the manner permitted by the Code, to indemnify
each of its officers, employees and agents against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlemenets, and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Article IX, an
"employee" or "agent" of the corporation (other than a director, includes any
person (i) who is or was an employee or agent of the corporation, (ii) who is
or was serving at the request of the corporation, as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was an employee or agent of the corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
<PAGE> 28
Section 9. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
defending any civil or criminal action or proceeding for which indemnification
is required pursuant to Section 7 or for which indemnification is permitted
pursuant to Section 8 following authorization thereof by the Board of
Directors, in the case of directors shall and in the case of other agents of
the corporation entitled to indemnification may, be paid by the corporation in
advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article IX.
Section 10. INDEMNITY NOT EXCLUSIVE. The indemnification provided by
this Article IX shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of shareholders or disinterested directors or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office, to the extent that such additional rights to indemnification are
authorized in the Articles of Incorporation.
Section 11. INSURANCE INDEMNIFICATION. The corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was
an agent of the corporation against any liability asserted against or incurred
by such person in such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article IX.
Section 12. CONFLICTS. No indemnification or advance shall be made
under this Article IX, except where such indemnification or advance is mandated
by law or the order, judgment or decree of any court of competent jurisdiction,
in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders of an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Dated: June 3, 1988.
/s/ WILLIE R. BARNES
----------------------------
Willie R. Barnes,
Secretary
<PAGE> 29
CERTIFICATE OF AMENDMENT TO BYLAWS
OF
AMERICAN SHARED HOSPITAL SERVICES
The undersigned, being the Secretary of American Shared Hospital
Services, a California corporation, hereby certifies that the Bylaws of this
Corporation were amended, effective October 26, 1988, by the Board of Directors
to amend Article IV, Section 1(b) to read as follows:
"(b) The exact number of directors shall be nine (9) until
changed as provided in Subdivision (a) of this Section."
Dated: October 26, 1988
/s/ WILLIE R. BARNES
-------------------------------------
Willie R. Barnes,
Secretary
<PAGE> 30
CERTIFICATE OF AMENDMENT TO BYLAWS
OF
AMERICAN SHARED HOSPITAL SERVICES
The undersigned, being the Secretary of American Shared Hospital
Services, a California corporation, hereby certifies that the Bylaws of this
Corporation were amended, effective August 15, 1995 by the Board of Directors
to amend Article IV, Section 1(b) to read as follows:
"(b) The exact number of directors shall be six (6) until
changed as provided in Subdivision (a) of this Section."
Dated: October 19, 1995
/s/ WILLIE R. BARNES
-------------------------------------
Willie R. Barnes,
Secretary
<PAGE> 31
CERTIFICATE OF AMENDMENT TO BYLAWS
OF
AMERICAN SHARED HOSPITAL SERVICES
The undersigned, being the Secretary of American Shared Hospital
Services, a California corporation, hereby certifies that the Bylaws of this
Corporation were amended, effective October 6, 1995 by the Board of Directors
to amend Article IV, Section 1(b) to read as follows:
"(b) The exact number of directors shall be seven (7) until
changed as provided in Subdivision (a) of this Section."
Dated: October 19, 1995
/s/ WILLIE R. BARNES
-------------------------------------
Willie R. Barnes,
Secretary
<PAGE> 1
EXHIBIT 4.4
AMERICAN SHARED HOSPITAL SERVICES
AND
FIRST INTERSTATE BANK OF CALIFORNIA,
AS TRUSTEE
--------------------
SUPPLEMENTAL INDENTURE NO. 2
Dated as of May 17, 1995
to
INDENTURE
Dated as of October 15, 1988
Providing for
$30,000,000 Senior Subordinated Exchangeable
Reset Notes Due October 15, 1996
<PAGE> 2
SUPPLEMENTAL INDENTURE NO. 2, dated as of May 17, 1995, between
American Shared Hospital Services, a California corporation (the "Company"), and
First Interstate Bank of California, a California corporation (the "Trustee").
WHEREAS, the Company and the Trustee executed an indenture (the
"Indenture"), dated as of October 15, 1988, providing for the issuance of up to
$30,000,000 in principal amount of the Company's Senior Subordinated
Exchangeable Reset Notes Due October 15, 1996 (the "Securities");
WHEREAS, the Company and the Trustee executed a Supplemental
Indenture (the "Supplemental Indenture"), dated as of October 15, 1989,
providing for a new interest rate and optional redemption provisions for the
Securities (the Indenture, as so modified by such Supplemental Indenture, is
referred to herein as the "Indenture");
WHEREAS, pursuant to Section 9.02 of the Indenture, the Company
and the Trustee may amend the Indenture or the Securities with the written
consent of the holders of at least a majority in principal amount of the then
outstanding Securities;
WHEREAS, the Company received from the holders of approximately
96% of the outstanding Securities written consents to the amendments to the
Indenture and the Securities effected hereby;
WHEREAS, the Company has determined that all the requirements
of law and the Articles of Incorporation and By-Laws of the Company and of the
Indenture have been fully complied with and all other acts and things necessary
to make this Supplemental Indenture No. 2 a valid, binding and legal agreement
enforceable in accordance with its terms and the terms of the Indenture have
been done and performed;
NOW, THEREFORE, in consideration of the premises, and to embody
the amendments set forth below, it is hereby agreed between the Company and the
Trustee as follows:
ARTICLE ONE
1. The Indenture is hereby amended to delete the following
sections: Section 4.05 (Restrictions on Dividends and
-2-
<PAGE> 3
Other Payments); Section 4.07 (Maintenance of Consolidated Net Worth); Section
4.11 (Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries); and Section 4.12 (Limitation on Creation of Indebtedness).
2. The Securities (the form of which is incorporated by
reference into the Indenture pursuant to Section 2.01 thereof) are hereby
amended to delete Sections 8 (Maintenance of Consolidated Net Worth) and 9
(Limitation on Creation of Indebtedness).
3. The amendment of the Indenture and the Securities effected
by this Supplemental Indenture No. 2 shall be evidenced upon the Securities
authenticated and delivered under the Indenture after the date of this
Supplemental Indenture No. 2 by placing on the face thereof a legend
substantially in the following form:
"The Indenture has been amended by a Supplemental Indenture
No. 2, dated as of May 17, 1995, which, among other things, deletes
certain covenants that limited the ability of the Company to pay
dividends and create indebtedness and required the Company to maintain a
specified minimum consolidated net worth. Reference is made to such
Supplemental Indenture No. 2 for a statement of the amended rights and
obligations of the Company and of the holders of the Securities."
At the demand of and without cost to the holder of any of
the Securities outstanding at the date of this Supplemental Indenture No. 2,
such outstanding Securities may be exchanged for Securities modified as set
forth in this paragraph 3 of like form and like denomination, upon surrender by
such holder to the Trustee of such outstanding Securities.
ARTICLE TWO
Except as expressly altered or amended by this Supplemental
Indenture No. 2, the Indenture and the Securities issued thereunder hereby are
ratified and confirmed and all the terms, provisions and conditions thereof
shall be and continue in full force and effect. The Indenture and this
Supplemental Indenture No. 2 shall be read, taken and construed as one and the
-3-
<PAGE> 4
same instrument and shall be binding upon the holders of all Securities.
ARTICLE THREE
This Supplemental Indenture No. 2 may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
-4-
<PAGE> 5
SIGNATURES
Dated as of May 17, 1995 AMERICAN SHARED HOSPITAL
SERVICES
By: __________________________
Ernest A. Bates, M.D.
Chairman and
Chief Executive Officer
Attest: _____________________
Assistant Secretary
Dated as of May 17, 1995 FIRST INTERSTATE BANK
OF CALIFORNIA, as Trustee
By: __________________________
Vice President
-5-
<PAGE> 1
EXHIBIT 4.5
AMERICAN SHARED HOSPITAL SERVICES
AND
FIRST INTERSTATE BANK OF CALIFORNIA,
AS TRUSTEE
--------------------
SUPPLEMENTAL INDENTURE NO. 1
Dated as of May 17, 1995
to
INDENTURE
Dated as of October 15, 1988
Providing for
14-3/4% Senior Subordinated
Notes Due October 15, 1996
<PAGE> 2
SUPPLEMENTAL INDENTURE NO. 1, dated as of May 17, 1995, between
American Shared Hospital Services, a California corporation (the "Company"), and
First Interstate Bank of California, a California corporation (the "Trustee").
WHEREAS, the Company and the Trustee executed an indenture (the
"Indenture"), dated as of October 15, 1988, providing for the issuance of up to
$30,000,000 in principal amount of the Company's 14-3/4% Senior Subordinated
Notes Due October 15, 1996 (the "Securities");
WHEREAS, pursuant to Section 9.02 of the Indenture, the Company
and the Trustee may amend the Indenture or the Securities with the written
consent of the holders of at least a majority in principal amount of the then
outstanding Securities;
WHEREAS, the Company received from the holders of approximately
92% of the outstanding Securities written consents to the amendments to the
Indenture and the Securities effected hereby;
WHEREAS, the Company has determined that all the requirements
of law and the Articles of Incorporation and By-Laws of the Company and of the
Indenture have been fully complied with and all other acts and things necessary
to make this Supplemental Indenture a valid, binding and legal agreement
enforceable in accordance with its terms and the terms of the Indenture have
been done and performed;
NOW, THEREFORE, in consideration of the premises, and to embody
the amendments set forth below, it is hereby agreed between the Company and the
Trustee as follows:
ARTICLE ONE
1. The Indenture is hereby amended to delete the
following sections: Section 4.05 (Restrictions on Dividends and Other Payments);
Section 4.07 (Maintenance of Consolidated Net Worth); Section 4.11 (Limitation
on Dividend and Other Payment Restrictions Affecting Subsidiaries); and Section
4.12 (Limitation on Creation of Indebtedness).
2. The Securities (the form of which is incorporated by
reference into the Indenture pursuant to Section 2.01 thereof)
-2-
<PAGE> 3
are hereby amended to delete Sections 8 (Maintenance of Consolidated Net Worth)
and 9 (Limitation on Creation of Indebtedness).
3. The amendment of the Indenture and the Securities
effected by this Supplemental Indenture No. 1 shall be evidenced upon the
Securities authenticated and delivered under the Indenture after the date of
this Supplemental Indenture No. 1 by placing on the face thereof a legend
substantially in the following form:
"The Indenture has been amended by a Supplemental
Indenture No. 1, dated as of May 17, 1995, which, among other things,
deletes certain covenants that limited the ability of the Company to
pay dividends and create indebtedness and required the Company to
maintain a specified minimum consolidated net worth. Reference is made
to such Supplemental Indenture No. 1 for a statement of the amended
rights and obligations of the Company and of the holders of the
Securities."
At the demand of and without cost to the holder of any of the
Securities outstanding at the date of this Supplemental Indenture No. 1, such
outstanding Securities may be exchanged for Securities modified as set forth in
this paragraph 3 of like form and like denomination, upon surrender by such
holder to the Trustee of such outstanding Securities.
ARTICLE TWO
Except as expressly altered or amended by this Supplemental
Indenture No. 1, the Indenture and the Securities issued thereunder hereby are
ratified and confirmed and all the terms, provisions and conditions thereof
shall be and continue in full force and effect. The Indenture and this
Supplemental Indenture No. 1 shall be read, taken and construed as one and the
same instrument and shall be binding upon the holders of all Securities.
ARTICLE THREE
This Supplemental Indenture No. 1 may be executed in any number
of counterparts, each of which when so executed shall
-3-
<PAGE> 4
be deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
-4-
<PAGE> 5
SIGNATURES
Dated as of May 17, 1995 AMERICAN SHARED HOSPITAL
SERVICES
By: __________________________
Ernest A. Bates, M.D.
Chairman and
Chief Executive Officer
Attest: _____________________
Assistant Secretary
Dated as of May 17, 1995 FIRST INTERSTATE BANK
OF CALIFORNIA, as Trustee
By: __________________________
Vice President
-5-
<PAGE> 1
EXHIBIT 4.6
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. THE HOLDER OF THIS WARRANT OR ANY SUCH
SHARES MAY BE REQUIRED TO DELIVER TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN
OPINION OF COUNSEL (REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE
COMPANY) TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT (OR QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO
ANY TRANSFER OF THIS WARRANT OR THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR
QUALIFIED).
AMERICAN SHARED HOSPITAL SERVICES
Common Stock Purchase Warrant
No. ____________ _____________ shares
May 17, 1995
AMERICAN SHARED HOSPITAL SERVICES, a California corporation
(together with any corporation that shall succeed to or assume the obligations
of the Company hereunder in compliance with Section 4, the "Company"), for value
received, hereby certifies that ________, or its registered assigns (the
"Holder"), is entitled to purchase from the Company an aggregate of ________
shares of Common Stock (as defined below), at the Exercise Price (as defined
below) per share, subject to the terms, conditions and adjustments set forth
below, in whole or in part, at any time or from time to time from and after the
date hereof and on or prior to the Expiration Date (defined below).
1. The following terms shall have the meanings ascribed to them below:
"Business Day" shall mean any day other than a Saturday or
Sunday or a day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
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"Closing Price" with respect to any security on any day shall
mean (i) the closing sale price, regular way, on such day or, in case no such
sale takes place on such day, the average of the reported closing bid and asked
prices, regular way, in each case on the principal national securities exchange
or quotation system on which such security is quoted or listed or admitted to
trading or (ii) if not so quoted or listed, the average of the closing bid and
asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or (iii) if not so available, in such
manner as furnished by any New York Stock Exchange member firm selected from
time to time by the Board of Directors, or, to the extent permitted by
applicable law, a duly authorized committee thereof (the "Board of Directors")
for that purpose.
"Common Stock" shall mean the Common Stock, no par value, of
the Company and any stock into which such Common Stock shall have been changed
or any stock resulting from any reclassification of such Common Stock.
"Current Market Price" on any day shall mean the average
Closing Price of the Common Stock during the 30 Trading Day period ending on
such day.
"Expiration Date" shall mean May 17, 2002.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, business trust, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof.
"Record Date" with respect to any dividend or distribution,
shall mean the record date fixed for the determination of stockholders entitled
to receive such dividend or distribution.
"Trading Day" with respect to any Security shall mean (x) if
such security is listed or admitted for trading or quoted on a national
securities exchange or quotation system, a day on which such national securities
exchange is open for business or (y) if such security is not otherwise listed,
admitted for trading or quoted, any Business Day.
2. Exercise of Warrant.
2.1 Manner of Exercise. This Warrant may be exercised by the
Holder hereof, in whole or in part, during normal business hours on any Business
Day, by surrender of this Warrant to the Company at its office maintained
pursuant to Section 9, accompanied by a subscription in substantially the form
attached to this Warrant (or a reasonable facsimile thereof), duly executed by
such Holder and, in the case of clause (a) below, accompanied by payment of the
aggregate Exercise Price of the number of shares of Common Stock designated in
such subscription. Payment of such Exercise Price may be made, at the option of
the Holder (a) in cash, by certified or official bank check payable to the order
of the Company, or (b) by the Company withholding that number of shares of
Common Stock with an aggregate Closing Price as of the date of exercise equal to
such aggregate Exercise Price.
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2.2 When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant and the accompanying subscription
shall have been duly surrendered to the Company as provided in Section 2.1, and
at such time the Holder shall be deemed to have become the holder of record of a
number of shares of Common Stock equal to the number of shares designated in
such subscription less, in the case of clause 2.1(b), the number of shares of
Common Stock withheld by the Company as payment therefor.
2.3 Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, in accordance with the
terms of Section 2.1, the Company shall cause to be issued in the name of the
Holder (or its designee), and delivered to the Holder (or at its direction),
(a) a certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock to which such Holder shall be entitled upon such exercise plus, in lieu of
any fractional share to which such Holder would otherwise be entitled, cash in
an amount equal to the same fraction of the Closing Price per share on the date
of such exercise, and
(b) in case such exercise is in part only, a new
Warrant of like tenor, calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock equal to the number of such shares called
for on the face of this Warrant (after giving effect to any adjustment thereof
after the date hereof) minus the number of such shares designated by the Holder
upon such exercise as provided in Section 2.1.
3. Adjustments.
3.1 General. The number of shares of Common Stock that the
Holder shall be entitled to receive upon each exercise hereof shall be
determined by multiplying the number of shares of Common Stock that would
otherwise (but for the provisions of this Section 3) be issuable upon such
exercise, by a fraction (i) the numerator of which is $0.75 and (ii) the
denominator of which is the Exercise Price on the date of such exercise.
The "Exercise Price" shall initially be $0.75 per share;
provided, that the Exercise Price shall be adjusted and readjusted from time to
time as provided in this Section 3; provided, however, that no such adjustment
shall be made to the Exercise Price in connection with the issuance of (i) up to
1,495,000 shares of Common Stock to the chairman and chief executive officer of
the Company on or prior to May 17, 1996, (ii) warrants to purchase shares of
Common Stock to General Electric Company, a New York corporation acting through
GE Medical Systems ("GE") on or prior to May 17, 1996, and (iii) options granted
to members of management (other than the chairman and chief executive officer)
pursuant to an incentive stock option plan approved by a majority of the
Company's shareholders to purchase up to five percent (5%) of the fully-diluted
shares of Common Stock outstanding on the date of adoption of the plan.
3.2 Stock Dividends. If, after the date hereof, the Company
shall declare or pay any dividend on the Common Stock payable in Common Stock,
then, and in each such case, the Exercise Price shall be reduced, as of the
close of business on the Record Date, by multiplying such Exercise Price by a
fraction (a) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on such Record Date
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and (b) the denominator of which shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution.
3.3 Rights. If, after the date hereof, the Company shall pay or
make a dividend or other distribution on its Common Stock consisting exclusively
of, or shall otherwise issue to all holders of its Common Stock, rights or
warrants entitling the holders thereof to subscribe for or purchase shares of
Common Stock at a price per share less than the Current Market Price on the
Record Date, the Exercise Price shall be reduced, as of the close of business on
the Record Date, by multiplying such Exercise Price by a fraction (a) the
numerator of which shall be the number of shares of Common Stock outstanding at
the close of business on such Record Date plus the number of shares of Common
Stock that the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Closing Price and (b) the denominator of which shall be the number of shares of
Common Stock outstanding at the close of business on such record date plus the
number of shares of Common Stock so offered for subscription or purchase. For
purposes of this Section 3.3, the issuance of rights or warrants to subscribe
for or purchase stock or securities convertible into shares of Common Stock
shall be deemed to be the issuance of rights or warrants to purchase the shares
of Common Stock into which such stock or securities are convertible at an
aggregate offering price equal to the aggregate offering price of such stock or
securities plus the minimum aggregate amount (if any) payable upon conversion of
such stock or securities into Common Stock.
3.4 Stock Splits, etc. If, after the date hereof, the
outstanding shares of Common Stock shall be subdivided into a greater number of
shares of Common Stock or combined into a smaller number of shares of Common
Stock by stock split, combination, reclassification or otherwise, the Exercise
Price in effect at the close of business on the day upon which such subdivision
or combination becomes effective shall be proportionately reduced or increased,
such reduction or increase, as the case may be, to become effective immediately
prior to the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
3.5 Other Distributions. If, after the date hereof, the Company
shall, by dividend or otherwise, distribute to all holders of record of its
Common Stock evidences of indebtedness, shares of capital stock, cash or assets
(including securities, but excluding any dividend or distribution for which an
adjustment is made pursuant to Section 3.2 or 3.3 above), the Exercise Price
shall be reduced, as of the close of business on the Record Date, by multiplying
such Exercise Price by a fraction (a) the numerator of which shall be the
Closing Price per share of Common Stock on the Record Date less the fair market
value on such Record Date, of such evidences of indebtedness, shares of capital
stock, cash and assets that are distributed to a holder of one share of Common
Stock and (b) the denominator of which shall be such Closing Price per share of
the Common Stock. For purposes of this Section 3.5, any dividend or distribution
that includes shares of Common Stock or rights or warrants to subscribe for or
purchase shares of Common Stock shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, cash, assets or shares of capital
stock other that such shares of Common Stock, rights or warrants (so that any
Exercise Price reduction required by this Section 3.5 is made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock,
rights or warrants (so that there is made any further Exercise Price reduction
required by Section 3.2 or 3.3 hereof).
In lieu of any adjustment to the Exercise Price provided for in
this Section 3.5, the Holder may elect, in its sole discretion, to receive such
dividend or distribution as would be received by a holder of the number
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of shares of Common Stock issuable upon the exercise of this Warrant. Such
dividend or distribution shall be declared, ordered, made or paid at the time
such dividend or distribution is declared, ordered, made or paid on the Common
Stock, without any requirement of any exercise hereof.
3.6 Sales Below Market Price. If, after the date hereof, the
Company shall issue or sell its shares of Common Stock for consideration per
share that is less than the Current Market Price on the Trading Day next
preceding the date of such issuance (unless (i) the provisions of 3.2, 3.3, 3.4
or 3.5 shall be applicable, (ii) such issuance or sale is in connection with a
bona fide underwritten public offering, or (iii) such issuance or sale is in
consideration for assets or ownership interests acquired by the Company in an
arm's length transaction with a bona fide third party) the Exercise Price shall
be adjusted to equal the product of the Exercise Price in effect immediately
prior to such action, multiplied by a fraction (a) the numerator of which is the
Adjusted Fair Market Value per share and (b) the denominator of which is such
Current Market Price.
"Adjusted Fair Market Value" shall mean (i) the sum of (x) the
product of (A) the number of shares of Common Stock outstanding immediately
prior to such issue or sale times (B) the Current Market Price, plus (y) the
consideration, if any, received by the Company upon such issue or sale, divided
by (ii) the number of shares of Common Stock outstanding immediately after such
issue or sale.
3.7 Minimum Adjustment of Warrant Price. If the amount of any
adjustment of the Exercise Price required pursuant to this Section 3 would be
less than one percent (1%) of the Exercise Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one percent (1%)
of such Exercise Price, provided, that all such adjustments required pursuant to
Section 3 and carried forward under this Section 3.7 shall be made upon (and in
connection with) any exercise of the Warrant.
3.8 Form of Warrants. Irrespective of any adjustments in the
Exercise Price or the number of shares of Common Stock purchasable upon the
exercise of this Warrant, this Warrant (and any Warrant hereafter issued) may
continue to express the same price and number and kind of shares as are stated
in the Warrant initially issued.
4. Consolidation, Merger, etc. If, after the date hereof, the
Company shall
(a) consolidate with or merge into any other Person
and shall not be the continuing or surviving corporation of such consolidation
or merger, or
(b) permit any other Person to consolidate with or
merge into the Company and the Company shall be the continuing or surviving
Person but, in connection with such consolidation or merger, the Common Stock
shall be changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or
(c) effect a capital reorganization or
reclassification of the Common Stock,
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then (i) lawful and adequate provision shall be made so that, upon the basis and
the terms and in the manner provided in this Warrant, the Holder of this
Warrant, upon the exercise hereof after the consummation of such transaction,
shall be entitled to receive, in lieu of the Common Stock issuable upon such
exercise, the kind and amount of securities, cash or other property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised the rights represented by this Warrant in full immediately prior
thereto and (ii) appropriate provision shall be made with respect to rights and
interests of the Holder to the end that the provisions hereof (including without
limitation provisions for adjustment of the Exercise Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of any conversion rights
hereunder.
5. Certain Covenants. The Company shall (a) not permit the par
value of any shares of stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, and (b) take all such
action as may be necessary or appropriate to validly and legally issue fully
paid and nonassessable shares of stock on the exercise of this Warrant.
6. Accountants' Report as to Adjustments. Upon the occurrence
of any event requiring adjustment or readjustment in the Exercise Price or the
shares of Common Stock issuable upon the exercise of this Warrant, the Company
will promptly compute such adjustment or readjustment in accordance with the
terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
to verify such computation and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based. The Company
will promptly mail a copy of each such report to the Holder.
7. Payment of Taxes. The Company shall pay any and all issue or
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock upon exercise of the Warrants. The Company shall not, however, be
required to pay any tax payable in respect of any transfer involved in the issue
or delivery of Warrants or shares of Common Stock issued upon exercise of the
Warrants (or other securities or assets) in a name other than that in which the
Warrants so exercised were registered.
8. Reservation of Stock, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
this Warrant, the number of shares of Common Stock from time to time issuable
upon exercise of this Warrant. All shares of Common Stock issuable upon exercise
of this Warrant shall be duly authorized and, when issued upon such exercise in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, with no liability on the part of the holders thereof.
9. Ownership and Transfer.
(a) The Company shall treat the person in whose name
this Warrant is registered on the register (the "Warrant Register") kept at the
office of the Company maintained pursuant to this Section 9 as the owner and
holder hereof for all purposes.
(b) This Warrant shall be transferable only on the
Warrant Register, upon delivery hereof, accompanied by a written instrument or
instruments of transfer, duly executed by the registered Holder hereof or
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by the duly appointed legal representative hereof or by a duly authorized
attorney. Upon the surrender of this Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the Company maintained
pursuant to Section 9, the Company shall execute and deliver to or upon the
order of the Holder hereof a new Warrant or Warrants of like tenor, in the name
of such Holder or as such Holder may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for on the
face hereof.
(c) The Company will maintain an office in the State
of California, which office shall initially be at Four Embarcadero Center, Suite
3620, San Francisco, California 94111-4115, until such time as the Company shall
notify the Holder of any change of location of such office.
(d) If any warrant certificate shall be mutilated,
lost, stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate, or in lieu
of and substitution for the certificate lost, stolen or destroyed, and upon
receipt of evidence to their reasonable satisfaction of the destruction, loss or
theft of any certificate and such security or indemnity as may reasonably be
required by them to save each of them and any of their agents harmless, to issue
a new certificate of like tenor and representing an equivalent right or
interest.
10. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the Holder any rights as a
stockholder of the Company or as imposing any obligation on such Holder to
purchase any securities or as imposing any liabilities on such Holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
11. Notices. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Warrant shall be in writing and shall be
personally served or delivered by a reputable air courier service with charges
prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed (a) if to the Holder, at the registered address of such Holder as set
forth in the register kept at the principal office of the Company, or (b) if to
the Company, to the attention of its Chief Executive Officer at its office
maintained pursuant to Section 9, provided that the exercise of any Warrant
shall be effective only in the manner provided in Section 2. Notice shall be
deemed given on the date of service or confirmation of receipt of transmission
if personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the next Business Day
following delivery of such notice to a reputable air courier service.
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12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. Titles and headings of sections of this Warrant are for
convenience only and shall not affect the construction of any provision of this
Warrant.
AMERICAN SHARED HOSPITAL SERVICES
By:_____________________________________
Name:
Title:
Attest
By:_______________________________
Name:
Title:
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FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To: AMERICAN SHARED HOSPITAL SERVICES
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, ______* shares
of Common Stock of AMERICAN SHARED HOSPITAL SERVICES and requests that the
certificates for such shares be issued in the name of, and delivered to the
undersigned, whose address is set forth below. In payment therefor (check one):
[ ] The Company may withhold therefrom, and the undersigned holder hereby
surrenders its right to, that number of shares of Common Stock with an
aggregate Closing Price as of the date of exercise equal to the
aggregate Exercise Price for the shares designated for purchase in the
preceding sentence.
[ ] The undersigned holder has included a certified or official bank
check payable to the order of the Company in an amount equal to the
aggregate Exercise Price for the shares designated for purchase in the
preceding sentence.
Dated: _____________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
_____________________________________
(Street Address)
_____________________________________
(City) (State) (Zip Code)
_____________________________________
* Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case after making any
adjustment for additional shares of Common Stock which, pursuant to the
adjustment provisions of this Warrant, may be delivered upon exercise.
In the case of a partial exercise, a new Warrant or Warrants will be
issued and delivered, representing the unexercised portion of the
Warrant, to the holder surrendering the Warrant.
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FORM OF ASSIGNMENT
For value received _________________ hereby sells, assigns and
transfers unto ______________ the within Warrant, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
______________ attorney, to transfer said Warrant on the books of the Company,
with full power of substitution in the premises.
Dated: ___________________
_____________________________________
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant in every particular,
without alternation or
enlargement or any change
whatever.
Signature Guaranteed:
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EXHIBIT 4.7
AMERICAN SHARED HOSPITAL SERVICES
COMMON STOCK PURCHASE WARRANT
MAY 17, 1995
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TABLE OF CONTENTS
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1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Division and Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Stock Dividends, Subdivisions, Combinations
and Reclassification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Other Provisions Applicable to Adjustments
under this Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . 9
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Termination of Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 Annual Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.3 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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[14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.8 Governing Law; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.9 MUTUAL WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE> 4
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES FOR WHICH IT CAN
BE EXERCISED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT OR STATE LAW, THE
RULES AND REGULATIONS THEREUNDER OR THE TRANSFER RESTRICTIONS OF THIS WARRANT.
AMERICAN SHARED HOSPITAL SERVICES
COMMON STOCK PURCHASE WARRANT
127,147 Shares, Subject to Adjustment
May 17, 1995
THIS IS TO CERTIFY THAT GENERAL ELECTRIC COMPANY, a New York
corporation acting through GE Medical Systems, or registered assigns, is
entitled, at any one time on and after the Exercise Date and on or prior to the
Expiration Date (as hereinafter defined), to purchase from AMERICAN SHARED
HOSPITAL SERVICES, a California corporation (the "Company"), 127,147 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), of the Company at a purchase price of $0.01 per share (subject to
adjustment as provided herein), all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below.
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company following the date of this Warrant.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the States of New
York or California.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
<PAGE> 5
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock of the Company, and any capital stock into which
such Common Stock may thereafter be changed, and shall also include capital
stock of the Company of any other class (regardless of how denominated) issued
to the holders of shares of Common Stock upon any reclassification thereof which
is not preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption.
"Convertible Securities" shall mean evidences of indebtedness, options,
warrants or other rights to receive shares of stock or other securities which
are convertible into or exchangeable, with or without payment of additional
consideration in cash or property, for Common Stock, either immediately or upon
the occurrence of a specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Date" shall mean the date hereof.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean September 30, 1996 or such earlier date,
if any, on which all or substantially all of the outstanding Common Stock is
sold in one or a series of transactions.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant and all other options,
warrants, Convertible Securities or other rights to purchase or receive Common
Stock outstanding on such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"GE Medical" shall mean General Electric Company, a New York
corporation acting through GE Medical Systems.
"Holder" shall mean the Person or Persons in whose name the Warrant set
forth herein is registered on the books of the Company
-2-
<PAGE> 6
maintained for such purpose. In the event more than one Person is so registered,
"Holder" for purposes of consent, demand or other action allowed or required to
be taken hereunder by the Holders of this Warrant, the word "Holder" shall refer
to a simple majority in interest of such Persons.
"NASD" shall mean the National Association of Securities Dealers, Inc.,
or any successor corporation thereto.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held exclusively by
or for the account solely of the Company or any wholly-owned subsidiary thereof
(collectively, "Subsidiary-Held Shares"), and shall include all shares issuable
in respect of any certificates representing fractional interests in shares of
Common Stock. Subsidiary-Held Shares shall remain Subsidiary-Held Shares even if
held in pledge as security unless and until such shares are foreclosed upon and
record, beneficial or equitable ownership transferred.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Preferred Stock" shall mean any class of the Company's stock having
rights, preferences or privileges senior or prior in right to any other class.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Restructuring Agreement" shall mean that certain Agreement dated
effective as of November 1, 1994, between the Company and General Electric
Company, acting through GE Medical Systems which provides for restructuring of
obligations of the Company and to which a form of this Warrant is attached as an
exhibit.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" shall mean, with respect to any Person, any corporation of
which an aggregate of more than 50 percent of the outstanding stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of
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<PAGE> 7
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person and/or one or more Subsidiaries of such Person.
"Subsidiary-Held Shares" shall have the meaning set forth above in the
definition of "Outstanding."
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this Warrant. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the percentage of Fully Diluted Outstanding Shares of Common Stock
for which they may be exercised. Collectively, all unexercised Warrants shall be
exercisable for the exact same number of shares as this Warrant would be
exercisable in the event any such Transfer or division had not occurred.
Exercise of any warrant shall not trigger any of the adjustments contemplated by
Section 4 of this Warrant.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Exercise Date and until 5:00
p.m., California time, on the Expiration Date, the Holder may exercise the
Warrant on Business Days, for all or any part of 127,147 shares (subject to
adjustment as provided hereunder) of Common Stock then purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at Four Embarcadero Center,
Suite 3620, San Francisco, California 94111 or at the office or agency
designated by the Company pursuant to Section 12, (i) a written notice of
Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (ii) payment of the Warrant
Price in the manner specified below, and (iii) this Warrant. Such notice shall
be substantially in the form of the subscription form
-4-
<PAGE> 8
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt thereof, the Company shall, as promptly as
practicable, and in any event within five Business Days thereafter, execute or
cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Outstanding shares of Common Stock issuable upon such exercise. The stock
certificate or certificates so delivered shall be, to the extent possible, in
such denomination or denominations as such Holder shall request in the notice
and shall be registered in the name of Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant shall be deemed to
have been exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other Person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the payment as set forth
below, and this Warrant are received by the Company as described above and all
taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to
the issuance of such shares have been paid or agreed to be paid when finally
determined.
Payment of the Warrant Price shall be made by check.
2.2 Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable. The Company shall pay all expenses in connection
with, and all taxes and other governmental charges that may be imposed with
respect to, the issue or delivery thereof, unless such tax or charge is imposed
by law upon Holder, in which case such taxes or charges shall be paid by Holder.
The Company shall not be required, however, to pay any tax or other charge
imposed in connection with any transfer involved in the issuance of any
certificate for shares of Common Stock issuable upon exercise of this Warrant in
any name other than that of Holder, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not issue a fractional share
of Common Stock upon exercise of this Warrant. A fractional share otherwise
issuable shall be rounded up to the nearest whole share.
2.4 Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder) shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10, 13, and 16 of this
-5-
<PAGE> 9
Warrant. The Company shall, at the time of each exercise of this Warrant upon
the request of the holder of the shares of Common Stock issued upon such
exercise hereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all such rights;
provided, however, that if such holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. This Warrant shall be nontransferable other than to a
division, subsidiary or affiliate of GE Medical except by merger of the Holder
with another entity or otherwise as specifically contemplated in Section 9
hereof or by operation of law. Subject to compliance with Section 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall, subject
to Section 9, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised by
a new Holder for the purchase of shares of Common Stock without having a new
Warrant issued. If requested by the Company, a new Holder shall acknowledge in
writing, in form reasonably satisfactory to the Company, such Holder's
continuing obligations under Section 9 of this Warrant.
3.2 Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
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<PAGE> 10
3.3 Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4 Maintenance of Books. The Company shall maintain, at its aforesaid
office or agency, books for the registration, and the registration of transfer,
of this Warrant.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions, Combinations and Reclassification.
If at any time the Company shall with respect to its Common Stock or Convertible
Securities:
(a) pay a dividend or make distribution of Additional Shares of
Common Stock or Convertible Securities other than convertible
indebtedness or convertible Preferred Stock (in which event such
Additional Shares of Common Stock issuable upon exchange or conversion
shall be deemed distributed),
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock,
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or
(d) reclassify its Common Stock (other than a change in par
value, or from par value to no par value) into shares of Common Stock
and shares of any other class of stock; and, if the Outstanding shares
of Common Stock shall be changed into a larger or smaller number of
shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of
the Outstanding shares of Common Stock within the meaning of this
Section 4.1.,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable after the occurrence of any such event shall be equal to (A) the
maximum number of shares of Common Stock underlying this Warrant prior to the
occurrence of any such event, multiplied by (B) the number of Fully Diluted
Outstanding shares of Common Stock after any such event, divided by the number
of Fully Diluted Outstanding shares of Common Stock prior to any such event, and
(ii) the Current Warrant Price shall be adjusted to equal the Current Warrant
Price multiplied (A) by the number of shares of
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<PAGE> 11
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment. Any increased number of shares of
Common Stock subject to this Warrant resulting from application of the foregoing
shall be allocated ratably among all shares of Common Stock subject to this
Warrant prior to each such event and the shares (including the newly allocated
shares) not subject to clause (i) of Section 2.1 shall remain subject to the
conditions precedent to exercise described in clause (ii) of Section 2.1.
4.2 Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable provided
for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(b) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
5. NOTICES TO WARRANT HOLDERS
5.1 Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of this Warrant, shall
be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated, specifying the number of shares of
Common Stock for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to each Holder in accordance with Section 16.2. The Company shall keep
at its office or agency designated pursuant to Section 12 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business
-8-
<PAGE> 12
hours by any Holder or any prospective purchaser of a Warrant designated by a
Holder thereof.
5.2 Notice of Certain Corporate Action. The Holder shall be entitled to
the same rights to receive notice of corporate action as any holder of Common
Stock.
6. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value, if any, of any shares of Common
Stock receivable upon the exercise of this Warrant above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b)
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all times reserve
and keep available for issuance upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be
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<PAGE> 13
reasonably necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of such Common Stock at such adjusted
Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be reasonably necessary from any
public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of warrants require registration or qualification with any governmental
authority under any federal or state law (otherwise than as provided in Section
9) before such shares may be so issued, the Company will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered or qualified; provided that the provisions of Section 9 shall
govern with respect to Company's obligation to effect the registration of its
securities under the Securities Act.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
This Warrant shall not be transferable except to a division, subsidiary
or affiliate of GE Medical or by merger of the Holder with another entity or
otherwise by operation of law. Furthermore, this Warrant and the Warrant Stock
shall not be transferred, hypothecated or assigned before satisfaction of the
conditions specified in this Section 9, which conditions are intended to ensure
compliance with the provisions of the Securities Act and state law, with respect
to the Transfer of this Warrant or any Warrant Stock. Holder, by acceptance of
this Warrant, agrees to be bound by the provisions of this Section 9.
Furthermore, Holder, by acceptance of this Warrant and by acceptance and
delivery of the Subscription Form in the form of Exhibit A hereto, represents
and warrants to the Company for its reliance in connection with issuing this
Warrant and the Warrant Stock, respectively, that (i) Holder is acquiring the
Warrant, and if applicable, the Warrant Stock for
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<PAGE> 14
Holder's own account for investment and not for sale or other disposition
thereof; (ii) Holder understands that such securities are not registered under
the Securities Act and must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available; (iii) Holder, by reason of its business and financial experience has
the capacity to protect its own interests in connection with purchase and
transfer of such securities and is able to bear the economic risk thereof; and
(iv) the Company has made available to Holder all documents and information
regarding an investment in such securities requested by or on behalf of Holder,
including but not limited to all publicly available information on file with the
Commission.
9.1 Restrictive Legend.
(a) Except as otherwise provided in this Section 9, each
certificate for Warrant Stock initially issued upon the exercise of
this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
The shares represented by this certificate have not
been registered under the Securities Act of 1933,
as amended, and are subject to the conditions
specified in a certain Common Stock Purchase
Warrant dated May 17, 1995, originally issued by
American Shared Hospital Services. No transfer of
the shares represented by this certificate shall be
valid or effective until such conditions and any
requirements of state law have been fulfilled. A
copy of the form of said Warrant is on file with
the Secretary of American Shared Hospital Services.
The holder of this certificate, by acceptance of
this certificate, agrees to be bound by the
provisions of such Warrant.
b) Except as otherwise provided in this Section 9,
each Warrant shall be stamped or otherwise imprinted with a
legend in substantially the following form:
This Common Stock Purchase Warrant and the
securities for which it can be exercised have not
been registered under the Securities Act of 1933,
as
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<PAGE> 15
amended, and may not be transferred in violation of
such Act or state law, the rules and regulations
thereunder or the transfer restrictions of this
Warrant.
9.2 Notice of Proposed Transfers. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Warrant Stock, the holder of such
Warrants or Warrant Stock shall give 10 days prior written notice (a "Transfer
Notice") to the Company of such holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and shall
obtain and deliver to the Company an opinion in form and substance reasonably
satisfactory to the Company (addressed to the Company and upon which the Company
may rely) from counsel to such holder who shall be reasonably satisfactory to
the Company, that the proposed Transfer of such Warrants or such Warrant Stock
may be effected without registration under the Securities Act and any applicable
state securities laws. After receipt of the Transfer Notice and opinion, the
Company shall, within five days thereof, so notify the holder of such Warrants
or Warrant Stock and such holder shall thereupon be entitled to Transfer such
Warrants or such Warrant Stock, in accordance with the terms of the Transfer
Notice. Each certificate, if any, evidencing such shares of Warrant Stock issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(b), unless in the opinion of such counsel such
legend is not required in order to ensure compliance with the Securities Act and
any applicable state securities laws. The holder of the Warrants or the Warrant
Stock, as the case may be, giving the Transfer Notice shall not be entitled to
transfer and shall not transfer such Warrants or such Warrant Stock until (i)
the Company receives a written statement of investment intent and sophistication
from the proposed transferee of such Warrants or Warrant Stock in substance
substantially similar to clauses (i), (ii) and (iii) of the final sentence of
the first paragraph of Section 9 and (ii) such holder receives notice from the
Company under this Section 9.2.
9.3 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability after the Exercise Date of the Warrants and the Warrant Stock
and the legend requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) when the Company shall have received an opinion of
counsel reasonably satisfactory to it that such legend is not required in order
to ensure compliance with the Securities Act. Whenever after the Exercise Date
the restrictions imposed by Section 9 shall terminate as to this Warrant, as
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<PAGE> 16
hereinabove provided, the Holder hereof shall be entitled to receive from the
Company, at the expense of the Company, a new Warrant bearing the following
legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED
ON___________, ______, AND ARE OF NO FURTHER FORCE
AND EFFECT."
All Warrants thereafter issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants entitled to bear
such legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of Warrant
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from the Company, at the Company's expense, a new certificate representing such
Warrant Stock not bearing the restrictive legend set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each
holder of Warrant Stock in supplying such information as may be reasonably
necessary for such Holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of GE Medical shall be sufficient
indemnity) and in case of mutilation upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
such Holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which shall initially be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this Warrant.
The Company
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<PAGE> 17
shall notify Holder in writing prior to any change of the address of the office
at which the Warrants may be presented.
13. FINANCIAL AND BUSINESS INFORMATION
13.1 Information. Except during any period when the Company is a
Public Company (as hereinafter defined), it will deliver to each Holder, as soon
as practicable after the end of each month, and in any event within 30 days
thereafter, and after the end of each quarter and in any event within 45 days
thereafter, one copy of an unaudited consolidated balance sheet, statement of
income and statement of cash flow of the Company and its Subsidiaries for such
period setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal years. Such financial statements
shall be prepared by the Company in accordance with GAAP and shall be
accompanied by the certification of the Company's chief executive officer or
chief financial officer that such financial statements are complete and correct
and present fairly the consolidated financial position, results of operations
and cash flow of the Company and its Subsidiaries as at the end of such period
and for such year-to-date period, as the case may be.
For purposes of this Section 13, the term "Public Company"
shall mean a company (i) that is subject to the reporting requirements of
Section 15(d) of the Exchange Act, or (ii) any of whose securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
13.2 Annual Information. Except during any period when the Company is
a Public Company, it will deliver to each Holder as soon as practicable after
the end of each fiscal year of the Company, and in any event within 90 days
thereafter, one copy of:
(i) an audited consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income and
retained earnings and cash flow of the Company and its
Subsidiaries for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year; all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) an opinion
thereon of the independent certified public accountants regularly retained by
the Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company and (ii) a report of such
independent certified public accountants confirming, or describing the agreed
upon procedures applied to the Company's schedules computing, any adjustment,
made pursuant
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<PAGE> 18
to Section 4 during such year. Such report shall include a description of any
errors determined by the accountants in the Company's schedules.
13.3 Filings. The Company will file on or before the required date all
required regular or periodic reports (pursuant to the Exchange Act) with the
Commission and will deliver to Holder promptly upon their becoming available one
copy of each report, notice or proxy statement sent by the Company to its
stockholders generally, and of each regular or periodic report (pursuant to the
Exchange Act) and any Registration Statement, prospectus or written
communication (other than transmittal letters) pursuant to the Securities Act,
filed by the Company with (i) the Commission or (ii) any securities exchange on
which shares of Common Stock are listed (provided, however, that the Company may
request filing extensions pursuant to Rule 12b-25 under the Securities and
Exchange Act of 1934, as amended).
[14. Intentionally Omitted.]
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
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<PAGE> 19
16. MISCELLANEOUS
16.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Company shall operate
as a waiver of such right or otherwise prejudice the Company's rights, powers or
remedies. No course of dealing or any delay or failure to exercise any right
hereunder on the part of the Holder shall operate as a waiver of such right or
otherwise prejudice the Holder's rights, powers or remedies. If the Company
fails to make, when due, any payments provided for hereunder, or fails to comply
with any other provision of this Warrant, the Company shall pay to the Holder
such amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by the Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
16.2 Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered (i) in person with receipt acknowledged, (ii) by facsimile
transmission, with receipt electronically confirmed during normal business hours
of recipient, and that is confirmed by sending, no later than one Business Day
following such transmission, a copy of such facsimile, by registered or
certified mail, return receipt requested, postage prepaid, or (iii) by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address or facsimile transmission number appearing on the books
of the Company maintained for such purpose.
(b) If to the Company at:
American Shared Hospital Services
Four Embarcadero Center, Suite 3620
San Francisco, California 94111-4115
Attention: Chief Executive Officer
(415) 788-5300
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged or sent by facsimile with receipt
electronically confirmed during normal business hours of
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<PAGE> 20
recipient, or three Business Days after the same shall have been deposited in
the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
16.3 Remedies. Each holder of Warrant and Warrant Stock, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under Section 9
of this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of Section 9 of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
16.4 Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of the Company and the successors and
assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
16.5 Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder, provided that no such Warrant may be modified or amended to
reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
16.6 Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
16.7 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16.8 Governing Law; Service of Process. In all respects, including all
matters of construction, validity and performance, this Agreement and the
obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the
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<PAGE> 21
laws of the state of the Company's incorporation applicable to contracts made
and performed in such state, without regard to the principles thereof regarding
conflict of laws, and any applicable laws of the United States of America.
Service of process on the Company or Holder in any action arising out of or
relating to this Agreement shall be effective if mailed to such party in
accordance with the procedures and requirements set forth in Section 16.2.
16.9 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE COMPANY AND HOLDER HEREOF
WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES),
THE COMPANY AND HOLDER HEREOF DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY AND HOLDER
HEREOF WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
AMERICAN SHARED HOSPITAL SERVICES
By:____________________________
Name: Ernest A. Bates, M.D.
Title: Chief Executive Officer
Attest:
By:_______________________
Title:
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<PAGE> 22
EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of the attached Warrant irrevocably
exercises such Warrant for the purchase of ___________ shares of Common Stock of
American Shared Hospital Services and herewith makes payment therefor, all at
the price and on the terms and conditions specified in such Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to __________________________ whose address is________________
___________________ and, if such shares of Common Stock shall not include all
of the shares of Common Stock issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned.
__________________________________
Name of Registered Owner)
__________________________________
(Signature of Registered Owner)
__________________________________
(Street Address)
__________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 23
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of the attached
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under such Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint___________________
attorney-in-fact to register such transfer on the books of American Shared
Hospital Services maintained for the purpose, with full power of substitution in
the premises.
Dated:____________________ Print Name:______________________
Signature:_______________________
Witness:_________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
pursuant to the Note Purchase Agreement, dated as of May 17, 1995 among American
Shared Hospital Services, a California corporation (the "Company"), the Holders
referred to therein (the "Note Purchase Agreement") and General Electric
Company, a New York corporation acting through GE Medical Systems. In order to
induce the Holders to enter into the Note Purchase Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used by not otherwise defined herein shall
have the meaning given thereto in the Note Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
Advice: See Section 5 hereof.
Common Stock: The common stock, no par value, of the Company.
DTC: See Section 5 hereof.
GE Warrant: Warrants to purchase 225,000 shares of Common
Stock.
Losses: See Section 7 hereof.
NASDAQ: See Section 5 hereof.
Person: Any individual, partnership, corporation, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity.
Piggyback Registration: See Section 3 hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously
<PAGE> 2
omitted from a prospectus filed as part of an effective registration statement
in reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: The Shares and Warrants and the
GE Warrant, upon the respective original issuance thereof, and at all times
subsequent thereto, until, in the case of any such security, (i) it is
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement covering it, (ii) it is saleable by the holder
thereof pursuant to Rule 144(k) or (iii) it is distributed to the public
pursuant to Rule 144.
Registration Expenses: See Section 6 hereof.
Registration Statement: Any registration statement of
the Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
Shareholder: Each of the shareholders party hereto and
GE Medical Systems and any party who shall hereafter acquire from a Shareholder
and hold Registrable Securities.
Shares: Any shares of capital stock of the Company
owned by any Shareholder, whether owned on the date hereof or hereafter
acquired, including (without limitation) any shares issued upon exercise of the
Warrants or the GE Warrant.
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<PAGE> 3
Special Counsel: Any special counsel to the Shareholders, the
fees and expenses of which the Shareholders of Registrable Securities will be
reimbursed pursuant to Section 7(b) hereof.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are to be sold to an underwriter
for reoffering to the public.
Warrants: Any warrants to purchase shares of Common Stock
owned by any Shareholder, whether owned on the date hereof or hereafter
acquired.
Warrant Shares: The shares of Common Stock issued upon
exercise of the Warrants in accordance with the terms thereof.
2. Shelf Registration
(a) The Company shall, on or prior to July 31, 1995
prepare and file with the SEC a Registration Statement under the Securities Act
for an offering to be made on a continuous basis pursuant to Rule 415 (or any
similar rule that may be adopted by the SEC) under the Securities Act covering
all the Registrable Securities (the "Shelf Registration").
(b) The Shelf Registration shall be on Form S-1 or
another appropriate Form (reasonably acceptable to the holders of the
Registrable Securities offered thereby) permitting registration of such
Registrable Securities for resale by such holders in the manner or manners
designated by them (including, without limitation, one or more underwritten
offerings). The Company shall not permit any securities other than the
Registrable Securities to be included in the Shelf Registration.
(c) The Company shall use its best efforts to cause
the Shelf Registration to become effective under the Securities Act on or prior
to 60 days after the filing thereof and shall keep the Shelf Registration
continuously effective for a period of 36 months from the date on which the
Shelf Registration becomes effective under the Securities Act (subject to
extension pursuant to Section 4(a) and Section 5 hereof), or such shorter period
that will terminate when all Registrable Securities covered by the Shelf
Registration have been sold. The Company shall also supplement or make
amendments to the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used by the Company or if
required by the Securities
3
<PAGE> 4
Act or if reasonably requested by holders of a majority of the Registrable
Securities covered by the Shelf Registration or any underwriter of the
Registrable Securities.
(d) If any of the Registrable Securities registered
pursuant to the Shelf Registration are to be sold in one or more firm commitment
underwritten offerings, and the managing underwriter advises the Shareholders of
such securities in writing that in its opinion the total number or dollar amount
of Registrable Securities proposed to be sold in such offering is such as to
materially and adversely affect the success of such offering, then there shall
be included in such firm commitment underwritten offering the number or dollar
amount of Registrable Securities held by the Shareholders that in the opinion of
such managing underwriter can be sold, and such Registrable Securities shall be
allocated pro rata on the basis of the number or dollar amount of securities
owned by each such Shareholder participating in such offering.
3. Piggyback Registration
(a) Right to Piggyback. If at any time the Company
proposes to file a registration statement under the Securities Act with respect
to an offering of any class of equity securities (other than a registration
statement (i) on Form S-4 or S-8 or any successor forms thereto, or (ii) filed
in connection with an offering made solely to employees of the Company), whether
or not for its own account, then the Company shall give written notice of such
proposed filing to the Shareholders of Registrable Securities at least fifteen
days before the anticipated filing date. Such notice shall offer such
Shareholders the opportunity to register such amount of Registrable Securities
as each such Shareholder may request (a "Piggyback Registration"). Subject to
Section 3(b) hereof, the Company shall include in each such Piggyback
Registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein. The Shareholders of Registrable
Securities shall be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company
shall cause the managing underwriter of a proposed underwritten offering to
permit Shareholders of Registrable Securities requested to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any similar securities, if any, of the Company
included therein. Notwithstanding the foregoing, if the managing underwriter of
such offering delivers an opinion to the holders of Registrable Securities that
the total number or dollar amount of securities that such Shareholders, the
Company and any other Persons having rights to participate in
4
<PAGE> 5
such registration ("Other Holders"), propose to include in such offering is such
as to materially and adversely affect the success of such offering, then:
(i) if such Piggyback Registration is a
primary registration on behalf of the Company, the amount of securities to be
offered for the account of Shareholders of Registrable Securities and Other
Holders, shall be reduced (to zero if necessary) pro rata on the basis of the
number or dollar amounts of securities owned by each such holder participating
in such offering to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters; and
(ii) if such Piggyback Registration is an
underwritten secondary registration on behalf of holders of securities of the
Company pursuant to demand registration rights, the Company shall include in
such registration: (x) first, up to the full number or dollar amount of
securities of such Persons exercising "demand" registration rights that in the
opinion of such managing underwriter or underwriters can be sold or allocated
among such holders as they may otherwise so determine, and (y) second, any
securities to be sold for the account of the Company and (z) third, the number
or dollar amount of Registrable Securities and securities held by Shareholders
and Other Holders in excess of the amount of securities such Persons exercising
"demand" registration rights propose to sell that, in the opinion of such
managing underwriter or underwriters, can be sold (allocated pro rata among the
Shareholders of such Registrable Securities and Other Holders on the basis of
the number or dollar amount of securities owned by such holders).
4. Hold-Back Agreements
(a) Restrictions on Sale by Shareholders of
Registrable Securities. Each Shareholder agrees not to effect any sale or
transfer of the Registrable Securities issued to it as part of the consideration
under the Note Purchase Agreement until the earlier to occur of (i) September
17, 1995, and (ii) the shareholder vote with respect to the Additional Issuance.
In addition, each Shareholder whose Registrable Securities are covered by a
Registration Statement filed pursuant to Section 2 or 3 hereof, agrees that, if
such Shareholder is requested (pursuant to a timely written notice) by the
managing underwriter in an underwritten offering, not to effect any public sale
or distribution of any of the Company's equity securities, including a sale
pursuant to Rule 144 (except as part of such underwritten registration), during
the 10-day period prior to, and during the 90-day period beginning on, the
closing date of each underwritten offering made pursuant to such Registration
Statement. If a request is made pursuant to this Section 4(a), the time period
during which a Shelf Registration is required to remain continu-
5
<PAGE> 6
ously effective pursuant to Section 2(c) shall be extended by 100 days or such
shorter period that will terminate when all such Registrable Securities not so
included have been sold pursuant to such Registration Statement.
(b) Restrictions on Sale by the Company and Others.
The Company shall not effect any registration of its securities (other than a
registration statement on Form S-8 or any successor form thereto), or effect any
public or private sale or distribution of any of its securities other than in
connection with the Additional Issuance, including a sale pursuant to Regulation
D under the Securities Act, whether on its own behalf or at the request of any
holder or holders of such securities (other than pursuant to and in accordance
with this Agreement), (i) from the date hereof until 90 days after the effective
date of the Shelf Registration, and (ii) for a 90 day period from the date of
each notice to the Company of a Shareholder's intent to sell Registrable
Securities pursuant to an underwritten public offering, unless the Company shall
have first notified in writing the Shareholders of Registrable Securities
covered by such Registration Statement of its intention to do so, and the
Shareholders of a majority of the Registrable Securities requested to be
registered pursuant to Section 2 shall have consented thereto in writing;
provided that the Company shall not be obligated to refrain from sales or
transfers pursuant to clause (ii) above with respect to more than one such
underwritten public offering during any 12-month period.
The Company shall cause each holder of its equity securities
purchased from the Company at any time on or after the date of this Agreement
(other than in a registered public offering) to agree not to effect any public
sale or distribution of any such securities during such period, including a sale
pursuant to Rule 144.
5. Registration Procedures
In connection with the Company's registration obligations
pursuant to Sections 2 and 3 hereof, the Company shall effect such registrations
to permit the sale of such Registrable Securities in accordance with the
intended method or methods of disposition thereof, and pursuant thereto the
Company shall as expeditiously as possible:
(a) Prepare and file with the SEC a Registration
Statement or Registration Statements on any appropriate Form under the
Securities Act available for the sale of the Registrable Securities by the
holders thereof in accordance with the intended method or methods of
distribution thereof, and cause each such Registration Statement to become
effective and remain effective as provided herein; provided, however, that
before filing a Registration Statement or Prospectus or any amendments or
supplements thereto (including documents that would be incorporated or deemed to
6
<PAGE> 7
be incorporated therein by reference) the Company shall furnish to the
Shareholders of the Registrable Securities covered by such Registration
Statement, the Special Counsel and the managing underwriters, if any, copies of
all such documents proposed to be filed, which documents will be subject to the
review of such Shareholders, the Special Counsel and such underwriters, and the
Company shall not file any such Registration Statement or amendment thereto or
any Prospectus or any supplement thereto (including such documents which, upon
filing, would or would be incorporated or deemed to be incorporated by reference
therein) to which the Shareholders of a majority of the Registrable Securities
covered by such Registration Statement, the Special Counsel or the managing
underwriter, if any, shall reasonably object to the contents thereof on a timely
basis.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2; cause the related Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
as so amended or to such Prospectus as so supplemented.
(c) Notify the selling Shareholders of Registrable
Securities, the Special Counsel and the managing underwriters, if any, promptly,
and (if requested by any such Person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC or
any other Federal or state governmental authority for amendments or supplements
to a Registration Statement or related Prospectus or for additional information,
(iii) of the issuance by the SEC or any other Federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) if at any
time the representations and warranties of the Company contained in any
agreement contemplated by Section 5(m) below (including any underwriting
agreement) below cease to be true and correct, (v) of the receipt by the Company
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (vi) of the happening of any event which makes any statement made in
such Registration Statement or related Prospectus or any document
7
<PAGE> 8
incorporated or deemed to be incorporated therein by reference untrue or which
requires the making of any changes in a Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact required to be stated therein is necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (vii) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.
(d) Use every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of a Registration
Statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest possible moment.
(e) If requested by the managing underwriters, if
any, or any Shareholder of Registrable Securities being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such Shareholder agree
should be included therein as may be required by applicable law, (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to any Registration Statement.
(f) Furnish to each selling Shareholder of
Registrable Securities, the Special Counsel and each managing underwriter, if
any, without charge, (i) at least one signed copy of the Registration Statement
or Statements and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference or
deemed incorporated therein by reference and all exhibits (including those
previously furnished or incorporated by reference) at the earliest practicable
time under the circumstances before the filing of such documents with the SEC
and (ii) as many copies of the Prospectus or Prospectuses relating to such
Registrable Securities (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons may request. The Company hereby consents
to the use of such Prospectus or each amendment or supplement thereto by each of
the selling Shareholders of Registrable Securities and the underwriters, if any,
in connection with the offering and sale of the Registrable Securities covered
by such Prospectus or any amendment or supplement thereto.
8
<PAGE> 9
(g) Prior to any public offering of Registrable
Securities, to register or qualify or cooperate with the selling Shareholders of
Registrable Securities, the underwriters, if any, and their respective counsel
in connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as any seller or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it is not then
so qualified or (ii) take any action that would subject it to taxation or
general service of process in any such jurisdiction where it is not then so
subject.
(h) Cooperate with the selling Shareholders of
Registrable Securities and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restrictive
legends; and enable such Registrable Securities to be registered in such names
as the managing underwriters, if any, request at least two business days prior
to any sale of Registrable Securities to the underwriters.
(i) Cause the Registrable Securities covered by the
applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities.
(j) Upon the occurrence of any event contemplated by
paragraph 5(c)(vi) or 5(c)(vii) above, prepare a supplement or post-effective
amendment to each Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(k) Cause all Registrable Securities covered by such
Registration Statement to be (i) listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed, or (ii)
authorized to be quoted on the National
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<PAGE> 10
Association of Securities Dealers Automated Quotation System ("NASDAQ") or the
National Market System of NASDAQ if the securities so qualify.
(l) Enter into such agreements (including an
underwriting agreement in form, scope and substance as is customary in
underwritten offerings) and take all such other actions in connection therewith
(including those requested by the managing underwriters, if any, or the
Shareholders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, (i) make such
representations and warranties to the Shareholders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated by reference, if any,
in each case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the Shareholders of a
majority of the Registrable Securities being sold) addressed to each selling
Shareholder of Registrable Securities and each of the underwriters, if any,
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such
Shareholders and underwriters, including without limitation the matters referred
to in paragraph 5(m)(i) above; (iii) obtain "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company (and,
if necessary, any other certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to each selling Shareholder of Registrable
Securities and each of the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings; and (iv) deliver such
documents and certificates as may be requested by the Shareholders of a majority
of the Registrable Securities being sold, the Special Counsel and the managing
underwriters, if any, to evidence the continued validity of the representations
and warranties of the Company and its subsidiaries made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
(m) Make available for inspection by a representative
of the Shareholders of Registrable Securities being sold, any underwriter
participating in any disposition of Registrable Securities, if any, and any
attorney or accountant retained by
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<PAGE> 11
such selling Shareholders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that any records,
information or documents that are designated by the Company in writing as
confidential at the time of delivery of such records, information or documents
shall be kept confidential by such Persons unless (i) such records, information
or documents are in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities or (iii) disclosure of such records, information or documents, in
the opinion of counsel to such Person, is otherwise required by law (including,
without limitation, pursuant to the requirements of the Securities Act).
(n) File any reports required to be filed by it under
the Securities Act and the Securities Exchange Act of 1934, as amended, and that
it will take such further action as any Shareholder may reasonably request, all
to the extent required from time to time to enable Shareholders to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 or Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Shareholder, the Company will deliver to such Shareholder a written statement as
to whether it has complied with such requirements.
(o) Use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
(p) Prior to the effective date of the Shelf
Registration or the first Piggy-Back Registration, whichever shall occur first,
(i) provide the transfer agent with printed certificates for the Registrable
Securities in a form eligible for deposit with The Depository Trust Company
("DTC"), and (ii) provide a CUSIP number for the Registrable Securities.
(q) In connection with an underwritten offering,
participate, to the extent reasonably requested by the managing underwriter for
the offering or the Holders, in customary efforts to sell the securities under
the offering, including, without
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<PAGE> 12
limitation, participating in "road shows"; provided that the Company shall not
be obligated so to participate in more than one such offering in any 12-month
period.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing.
Each Shareholder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iii), 5(c)(v), 5(c)(vi) or 5(c)(vii) hereof, such Shareholder
will forthwith discontinue disposition of such Registrable Securities covered by
such Registration Statement or Prospectus until such Shareholder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(j) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus. In the event the Company
shall give any such notice, the time period mentioned in Section 2(c) hereof
shall be extended by the number of days during the time period from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(j) hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any of the Registration Statements become effective. Such
fees and expenses shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (x) with respect
to filings required to be made with the National Association of Securities
Dealers, Inc. and (y) of compliance with securities or "blue sky" laws
(including without limitation fees and disbursements of counsel for the
underwriters or selling holders in connection with "blue sky" qualifications of
the Registrable Securities and determination of the eligibility of the
Registrable Securities for investment under the laws of such jurisdictions as
the managing under-
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<PAGE> 13
writers, if any, or Shareholders of a majority of the Registrable Securities
being sold may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with DTC and of printing prospectuses if the printing
of prospectuses is requested by the Shareholders of a majority of the
Registrable Securities included in any Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company, (v) fees and disbursements of all independent certified public
accountants referred to in Section (5)(m)(iii) hereof (including the expenses of
any annual or special audit and "cold comfort" letters required by or incident
to such performance), and (vi) fees and expenses of all other Persons retained
by the Company.
(b) In connection with any Shelf Registration or
Piggyback Registration hereunder, the Company shall reimburse the Shareholders
of the Registrable Securities being registered in such registration for the
reasonable fees and disbursements of not more than one counsel (or more than one
counsel if a conflict exists among such selling Shareholders in the exercise of
the reasonable judgment of counsel for the selling Shareholders and counsel for
the Company), together with appropriate local counsel, chosen by the
Shareholders of a majority of the Registrable Securities being registered.
7. Indemnification
(a) Indemnification by the Company. The Company
shall, without limitation as to time, indemnify and hold harmless, to the
fullest extent permitted by law, each Shareholder of Registrable Securities, the
partners, officers, directors, agents and employees of each of them, each Person
who controls such Shareholder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the partners, officers,
directors, agents and employees of each such controlling person, from and
against all losses, claims, damages, liabilities, costs (including, without
limitation, the costs of preparation and attorneys' fees) and expenses
(collectively, "Losses") to be reimbursed promptly, as incurred, arising out of
or based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or form of Prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are based solely upon
information furnished in writing to the Company by such Shareholder expressly
for use therein. The Company shall also indemnify each underwriter, selling
broker, dealer manager and similar securities industry professional
participating in the distribution, and each of their officers, directors, agents
and employees and each Person
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<PAGE> 14
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) Indemnification by Shareholder of Registrable
Securities. In connection with any Registration Statement in which a Shareholder
of Registrable Securities is participating, such Shareholder of Registrable
Securities shall furnish to the Company in writing such information as the
Company reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the fullest extent permitted
by law, the Company, its directors and officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling persons, from and against all Losses
arising out of or based upon any untrue statement of a material fact contained
in any Registration Statement, Prospectus or preliminary prospectus or arising
out of or based upon any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in and in conformity with any information so furnished in writing by
such Shareholder to the Company expressly for use in such Registration Statement
or Prospectus and that such information was solely relied upon by the Company in
preparation of such Registration Statement, Prospectus or preliminary
prospectus. In no event shall the liability of any selling Shareholder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the proceeds (net of payment of all expenses) received by such Shareholder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. If any
Person shall be entitled to indemnity hereunder (an "indemnified party"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any Proceeding with respect to which such indemnified party
seeks indemnification or contribution pursuant hereto; provided, however, that
the failure to so notify the indemnifying party shall not relieve the
indemnifying party from any obligation or liability except to the extent that
the indemnifying party has been prejudiced materially by such failure. All such
fees and expenses (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) shall be paid to
the indemnified party, as incurred, within five days of written notice thereof
to the indemnifying party (regardless of whether it is ultimately determined
that an indemnified party is not entitled to indemnification hereunder). The
indemnifying party shall not consent to entry of any judgment or enter into any
settlement or otherwise seek to terminate any Proceeding in
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<PAGE> 15
which any indemnified party is or could be a party and as to which
indemnification or contribution could be sought by such indemnified party under
this Section 7, unless such judgment, settlement or other termination includes
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance satisfactory to the
indemnified party, from all liability in respect of such claim or litigation for
which such indemnified party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for
in this Section 7 is unavailable to an indemnified party under Section 7(a) or
7(b) hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall, jointly and severally, contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or indemnifying parties, on the
one hand, and such indemnified party, on the other hand, shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provision of this Section
7(d), an indemnifying party that is a selling Shareholder of Registrable
Securities shall not be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities sold by such
indemnifying party and distributed to the public were offered to the public
exceeds the amount of any damages which such indemnifying party has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section
15
<PAGE> 16
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement
obligations of the Company hereunder shall be in addition to any liability the
Company may otherwise have hereunder or otherwise. The provisions of this
Section 7 shall survive so long as Registrable Securities remain outstanding,
notwithstanding any transfer of the Registrable Securities by any Shareholder or
any termination of this Agreement.
8. Underwritten Registrations
If any of the Registrable Securities covered by a Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Shareholders of a majority of such Registrable Securities
included in such offering. If any Piggyback Registration is an underwritten
offering, the Company shall have the right to select the investment banker or
investment bankers and managers to administer the offering; provided,
however, that such investment bank or manager shall be reasonably
satisfactory to the Shareholders of a majority of the Registrable Securities
included in such offering.
9. Miscellaneous
(a) Remedies. In the event of a breach by the Company
of its obligations under this Agreement, each Shareholder of Registrable
Securities, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not,
as of the date hereof, and shall not, on or after the date of this Agreement,
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the Shareholders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
entered into any agreement with respect to its securities granting any
registration rights to any Person other than this Agreement.
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<PAGE> 17
(c) Amendments and Waivers. This Agreement may be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may be given, provided the same are in writing and signed
by the Company and each of the Shareholders of Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Shareholders of Registrable Securities whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect the
rights of other Shareholders of Registrable Securities may, in lieu of complying
with the first sentence of this Section 9(c), be given by all Shareholders of
the Registrable Securities being sold; provided, however, that the provisions of
this sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing and shall be deemed
given (i) when made, if made by hand delivery, (ii) upon confirmation, if made
by telecopier or (iii) one business day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
(x) if to a Shareholder of Registrable
Securities, at the most current address given by such Shareholder to
the Company in accordance with the provisions of this Section 9(d),
which address initially is the address set forth on its respective
signature page attached hereto; and
(y) if to the Company, initially at Four
Embarcadero Center, Suite 3620, San Francisco, California 94111-4115,
Fax: (415) 788-5660, Attention: Chief Executive Officer, and thereafter
at such other address, notice of which is given in accordance with the
provisions of this Section 9(d);
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(e) Owner of Registrable Securities. The Company will
maintain, or will cause its registrar and transfer agent to maintain, a stock
book with respect to the Common Stock and the Warrants, in which all transfers
of Registrable Securities of which the Company has received notice will be
recorded. The Company may deem and treat the person in whose name Registrable
Securities are registered in the stock book of the Company as the owner thereof
for all purposes, including without limitation, the giving of notices under this
Agreement.
17
<PAGE> 18
(f) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of any and all successors and
assigns of each of the parties and shall inure to the benefit of each
Shareholder of any Registrable Securities. The Company may not assign its rights
or obligations hereunder without the prior written consent of each Shareholder
of any Registrable Securities. Notwithstanding the foregoing, no transferee
shall have any of the rights granted under this Agreement (i) until such
transferee shall acknowledge its rights and obligations hereunder by a signed
written statement of such transferee's acceptance of such rights and obligations
or (ii) if the transferor notifies the Company in writing on or prior to such
transfer that the transferee shall not have such rights.
(g) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS.
(j) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, void or unenforceable.
(k) Attorneys' Fees. In any action or proceeding
brought to enforce any provision of this Agreement, or where any provision
hereof is validly asserted as a defense, the prevailing party, as determined by
the court, shall be entitled to recover reasonable attorneys' fees in addition
to any other available remedy.
18
<PAGE> 19
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as of the date first above written.
AMERICAN SHARED HOSPITAL SERVICES
By:_______________________________
Name:
Title:
AIF II, L.P.
By: Apollo Advisors, L.P.
Managing General Partner
By: Apollo Capital Management, Inc.
General Partner
By:___________________________
Its:__________________________
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attn: Pandora Pang
Fax: (310) 201-4198
19
<PAGE> 20
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:_______________________________
Name:
Title:
Address for Notice:
1999 Avenue of the Stars, 38th Floor
Los Angeles, California 90067
Attn:
Fax: (310) 772-6150
GENERAL ELECTRIC COMPANY
acting through GE MEDICAL SYSTEMS
By:_______________________________
Name:
Title:
Address for Notice:
20825 Swensen Drive, Suite 100
Waukesha, Wisconsin 53186
Attn: Investment Manager
Fax: (414) 798-4528
20
<PAGE> 21
GRACE BROTHERS, LTD.
By:_______________________________
Name:
Title:
Address for Notice:
1000 West Diversey Street, Suite 233
Chicago, Illinois 60614
Attn: Bradford Whitmore
Fax: (312) 868-0509
LION ADVISORS, L.P.
on behalf of an account under
management
By: Lion Capital Management, Inc.
General Partner
By:___________________________
Its:__________________________
Address for Notice:
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attn: Pandora Pang
Fax: (310) 201-4198
21
<PAGE> 22
SUN LIFE INSURANCE COMPANY OF AMERICA
By:_______________________________
Name:
Title:
Address for Notice:
1999 Avenue of the Stars, 38th Floor
Los Angeles, California 90067
Attn:
Fax: (310) 772-6150
SUNAMERICA INC.
By:_______________________________
Name:
Title:
Address for Notice:
1999 Avenue of the Stars, 38th Floor
Los Angeles, California 90067
Attn:
Fax: (310) 772-6150
22
<PAGE> 23
UPCHURCH LIVING TRUST U/A/D 12/14/90
By:_______________________________
Name:
Title:
Address for Notice:
James B. Upchurch
C/O Libra Investments, Inc.
11766 Wilshire Boulevard, Suite 870
Los Angeles, California 90025
Fax: (310) 312-5666
23
<PAGE> 1
EXHIBIT 4.9
PROMISSORY NOTE
May 17, 1995
Four Embarcadero Ctr. Suite 3620 San Francisco CA 94111-4155
FOUR VALUE RECEIVED, American Shared Hospital Services ("Maker") promises,
jointly and severally if more than one, to pay to the order of GENERAL ELECTRIC
COMPANY or any subsequent holder hereof (each, a "Payee") at its office located
at 20825 Swenson Drive, Waukesha, WI 53186 or at such other place as Payee may
designate, the principal sum of One million five hundred thousand and 00/100
($1,500,000.00), with interest on the unpaid principal balance from and
including the date hereof at the rate of ten and 50/100 percent (10.50%) per
annum, to be paid in lawful money of the United States, in 18 consecutive
monthly installments of principal and interest of Ninety thousand four hundred
thirty-one and 33/100 calculated in arrears ($90,431.33) and a final
installment which shall be in the amount of the total outstanding principal and
interest. The first installment shall be due and payable June 17, 1995 and the
following installments shall be due and payable on the same day of each
succeeding month (each, a "Payment Date").
All payments shall be applied first to interest and then to principal. The
acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time. Interest shall be calculated on the basis of a 365 day year and will be
charged for each calendar day on which any principal is outstanding.
The Maker hereby expressly authorizes General Electric Company to insert the
date value is actually given in the blank space on the face hereof.
Time is of the essence hereof. If any installment of principal and interest or
any other sum due under this Note is not received within ten (10) days after
the applicable Payment Date, the Maker agrees to pay in addition to the amount
of each such installment a late payment charge of five percent (5%) of said
installment, but not exceeding any lawful maximum. In the event that (i) Maker
fails to make payment of any amount due hereunder within ten (10) days after
the same becomes due and payable; or (ii) Maker defaults or fails to perform
under any term or condition contained in any other agreement with Payee, then
the entire principal sum remaining unpaid, together with all interest thereon
and any other sum payable under this Note, at the election of Payee, shall
immediately become due and payable, with interest thereon at 20% per annum from
the date of such accelerated maturity until paid.
The Maker may prepay in full, but not in part, its entire indebtedness
hereunder upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
[Prior to the first annual anniversary date of this Note: five percent (5%)
Prior to the second annual anniversary date of this Note: four percent (4%)
Prior to the third annual anniversary date of this Note: three percent (3%)
Prior to the fourth annual anniversary date of this Note: two percent (2%)
Prior to the fifth annual anniversary date of this Note: one percent (1%)
and zero percent (0%) thereafter, plus all other sums due hereunder.]
Your default under a Schedule or default by you or any entity managed or
controlled by you or by any principal of yours under any other agreement or
contract with us, regardless of when the agreement or contract was entered
into, will, at our sole option, if the default is not cured within ten days
after written notice of default, constitute a default of that Schedule and all
other agreements and contracts between you and/or such a principal or entity
and us.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
1
<PAGE> 2
It is the intention of the parties hereto to comply with the
applicable usury laws; accordingly, it is agreed that,
notwithstanding any provision to the contrary in this Note, in no
event shall this Note require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law.
If any such excess interest is contracted for, charged or received
under this Note, or in the event that all of the principal balance
shall be prepaid, so that under any of such circumstances the amount
of interest contracted for, charged or received under this Note on
the principal balance shall exceed the maximum amount of interest
permitted by applicable law, then in such event (a) the provisions
of this paragraph shall govern and control, (b) neither Maker nor
any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest
permitted by applicable law, (c) any such excess which may have
been collected shall be either applied as a credit against the then
unpaid principal balance or refunded to Maker, at the option of the
Payee, and (d) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from Maker or otherwise by Payee in connection with such indebtedness;
provided, however, that if any applicable state law is amended or the law of
the United States of America preempts any applicable state law, so that it
becomes lawful for the Payee to receive a greater simple interest per annum
rate than is presently allowed, the Maker agrees that, on the effective date of
such amendment or preemption, as the case may be, the lawful maximum hereunder
shall be increased to the maximum simple interest per annum rate allowed by the
higher of the amended state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all
substitutions or releases of any party primarily or secondarily liable on this
Note or any term and provision hereof, which may be made, granted or consented
to by Payee, and agree that suit may be brought and maintained against any one
or more of them, at the election of payee without joinder of any other as a
party thereto. The Maker and each Obligor hereby waives presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection herewith, as well as filing of suit (if
permitted by law) and diligence in collecting this Note, and agrees to pay (if
permitted by law) all expenses incurred in collection, including Payee's actual
attorneys' fees. Maker and each Obligor agrees that fees not in excess of
twenty percent (20%) of the amount then due shall be deemed reasonable. Maker
and each Obligor hereby waives all benefits of valuation, appraisement and
exemption laws.
AMERICAN SHARED HOSPITAL SERVICES
/s/ Richard Magary By: /s/ Ernest A. Bates, M.D. (Seal)
- ---------------------------------- -------------------------------------
Witness Signature
Ernest A. Bates, M.D.
Chairman and CEO
-------------------------------------
Print name (and title, if applicable)
ACKNOWLEDGED: General Electric Company
By: /s/ R. Schueller (Seal)
- ---------------------------------- --------------------------------------
Witness Signature
Richard Schueller
--------------------------------------
Print name (and title, if applicable)
2
<PAGE> 3
AMENDMENT TO PROMISSORY NOTE DATED MAY 17, 1995
CONTRACT 8508100-001
AMERICAN SHARED HOSPITAL SERVICES
FOUR EMBARCADERO CENTER #3620
SAN FRANCISCO, CA 94111
This is an Amendment to Promissory Note ("Note") (contract 8508100) from
AMERICAN SHARED HOSPITAL SERVICES ("ASHS") in favor of GENERAL ELECTRIC COMPANY
("GE") dated May 17, 1995. The Note was for $1,500,00.00 and was collateralized
by the Gamma Knife at UCSF. The Note commenced billing June 17, 1995 (in
arrears) for eighteen (18) months.
It is agreed and understood that ASHS has obtained an extension to its contract
with UCSF to provide the Gamma Knife on a per procedure basis. The contract
between ASHS and UCSF will now run through September 17, 1998. In consideration
of this contract extension, GE is extending the terms of its Note with ASHS
effective September 17, 1995 and lowering the monthly payment. A new
amortization schedule is attached as Exhibit A.
All other Terms and Conditions from the original Note, to the extent not
inconsistent herewith, shall remain as initially written and apply to this
Amendment.
<TABLE>
_____________________________________________________________________________________________________________
<CAPTION>
Note Maker: Note Holder:
<S> <C>
AMERICAN SHARED HOSPITAL SERVICES GENERAL ELECTRIC COMPANY
by /s/ ERNEST A. BATES, M.D. /s/ R. SCHUELLER
------------------------------------------ ----------------------------------------------
Ernest A. Bates, M.D. Signed
Chairman and CEO
September 5, 1995 September 7, 1995
------------------------------------------ ----------------------------------------------
Date Date
</TABLE>
<PAGE> 1
EXHIBIT 4.10
PROMISSORY NOTE
Due May 31, 1997
FOR VALUE RECEIVED, the undersigned AMERICAN SHARED-CURACARE
and CURACARE, INC. (collectively and individually "Maker") jointly and severally
hereby promise to pay to DVI BUSINESS CREDIT CORPORATION or its assignee (the
"Holder), or order, the principal sum of Four Million and No/100 Dollars
($4,000,000) or such amount thereof as may be from time to time advanced
hereunder, pursuant to the terms of that certain Loan and Security Agreement
dated as of the date hereof between Holder as Lender, Maker as Borrower,
American Shared Hospital Services as Guarantor and Ernest A. Bates, M.D. as
Individual Guarantor (the "Agreement"), with interest on the unpaid principal
balance from time to time outstanding until paid at the fluctuating rate of
interest announced publicly by Bank of America, NT&SA in San Francisco,
California, from time to time as its base rate plus Five percent (5.0%) per
annum, computed on the basis of a 360-day year and actual days elapsed, until
paid. Interest shall be payable at the end of each month this Note is
outstanding in accordance with the terms of the Agreement, with all unpaid
principal and interest due and payable in full on May 31, 1997.
If any part of the interest due on this Note is not paid when
due, it shall be added to the principal amount of this Note and thereafter bear
interest at the rate provided above. If the specified interest rate shall at any
time exceed the maximum allowed by law, then the applicable interest rate shall
be reduced to the maximum allowed by law.
1. This Note shall be subject to prepayment or redemption in
whole or in part at any time without penalty or premium. Notwithstanding the
foregoing, the Agreement may not be terminated, and will not be terminated by
any prepayment, without payment of the termination fee required pursuant to
Section 2.7 of the Agreement.
2. Principal and interest shall be payable to Holder at 4041
MacArthur Avenue, Suite 401, Newport Beach, California 92660, or such other
place as the Holder may, from time to time in writing, appoint.
3. This Note is made pursuant to, and secured by the Agreement.
This Note is also secured by any Security Documents referred to in the
Agreement. The Agreement and the Security Documents create a lien on and
security interest in, the personal property described therein
("Collateral"). The Agreement and the Security Documents shall
hereinafter be collectively referred to as the "Loan and Security
Documents" and are hereby incorporated by reference in and made a part of
this Note.
4. The occurrence of any Event of Default under the Agreement
shall, at the election of the Holder, make the entire unpaid balance of the
principal amount of this Note and accrued interest immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character.
1
<PAGE> 2
5. Failure of the Holder to exercise the acceleration option of
paragraph 4 of this Note on the occurrence of any of the events enumerated
therein shall not constitute waiver of the right to exercise such option on the
subsequent occurrence of any of the events enumerated therein.
6. Principal and interest shall be payable in lawful money of
the United States of America which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment. Maker waives presentment,
demand for payment, notice of nonpayment, protest and notice of protest, and all
other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note. Maker consents to any and all
assignments of this Note, extensions of time, renewals and waivers that may be
made or granted by the Holder. Maker expressly agrees that such assignments,
extensions of time, renewals or waivers shall not affect Maker's liability.
Maker agrees that Holder may, without notice to Maker and without affecting the
liability of Maker, accept additional or substitute security for this Note,
release any security or any party liable for this Note or extend or renew this
Note.
7. If Maker shall fail to make any payment of interest or
principal, including the payment due upon maturity, when the same is due and
payable and such failure shall continue for five (5) business days after
nonpayment, a late charge by way of damages shall be immediately due and
payable. Maker recognizes that default by Maker in making the payments herein
agreed to be paid when due will result in the Holder incurring additional
expenses, in loss to the Holder of the use of the money due and in frustration
to the Holder in meeting its other commitments. Maker agrees that, if for any
reason Maker fails to pay any amount due under this Note when due, the Holder
shall be entitled to damages for the detriment caused thereby, but that it is
extremely difficult and impractical to ascertain the extent of such damages.
Maker therefore agrees that a sum equal to ten cents ($.10) for each one dollar
($1.00) of each payment which is not received within five (5) business days
after the date it is due and payable is a reasonable estimate of the said
damages to the Holder, which sum Maker agrees to pay on demand.
8. If action be instituted on this Note (including without
limitation, any proceedings for collection hereof in any bankruptcy or probate
matter or case), or if proceedings are commenced on or under any of the Loan and
Security Documents, Maker promises to pay the Holder all costs of collection and
enforcement including, without limitation, reasonable attorneys' fees.
9. Any and all notices or other communications or payments
required or permitted to be given hereunder shall be effective when received or
refused if given or rendered in writing, in the manner provided in the
Agreement.
10. This Note shall inure to the benefit of the Holder's
successors and assigns. References to the "Holder" shall be deemed to refer to
the holder(s) of this Note at the time such reference becomes relevant.
2
<PAGE> 3
11. If any term, provision, covenant, or condition of this Note
is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the rest of this Note shall remain in full force and effect to
the greatest extent permitted by law and shall in no other way be affected,
impaired or invalidated.
12. Nothing contained herein or in the Loan and Security
Documents shall be deemed to prevent recourse to and the enforcement against
Maker and the Collateral of all liabilities, obligations and undertakings
contained herein and in the Loan and Security Documents.
13. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS
OF THE STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE
STATE AND/OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
Dated: May 17, 1995
MAKER:
CURACARE, INC., a Delaware corporation
By:
_____________________________
Ernest A. Bates, M.D.
President
AMERICAN SHARED-CURACARE, a California
general partnership
By: American Shared Hospital Services,
general partner
By:
_____________________________
Ernest A. Bates, M.D.
President
By: MMRI, Inc., general partner
By:
_____________________________
Ernest A. Bates, M.D.
President
3
<PAGE> 1
EXHIBIT 4.11
PROMISSORY NOTE
Due June 1, 1999
FOR VALUE RECEIVED, the undersigned AMERICAN SHARED-CURACARE
AND CURACARE, INC. (collectively and individually "Maker") hereby promise to pay
to DVI FINANCIAL SERVICES INC. or its assignee (the "Holder), or order, the
principal sum of Two Million Five Hundred Thousand and No/100 Dollars
($2,500,000) with interest thereon at Fifteen and 00/100 percent (15.00%) per
annum, computed on the basis of a 360-day year and actual days elapsed, until
paid. Principal and interest shall be payable in forty-eight (48) equal monthly
installments of Seventy Thousand Five and 77/100 Dollars ($70,005.77) each,
commencing on the first day of July, 1995 ("Commencement Date") and on the first
day of each succeeding month, with all unpaid principal and interest due and
payable in full on June 1, 1999.
If any part of the principal or interest of this Note is not
paid when due, it shall thereafter bear interest a rate equal to the "Prime
Rate" announced by National Westminster Bank, USA (which is not necessarily the
best rate charged to its customers) plus two percent (2%) from and as of the
date of delinquency until paid. If the specified interest rate shall at any time
exceed the maximum allowed by law, then the applicable interest rate shall be
reduced to the maximum allowed by law.
1. This Note shall not be subject to prepayment or
redemption in whole or in part.
2. Principal and interest shall be payable to Holder at 500
Hyde Park, Doylestown, Pennsylvania 18901, or such other place as the Holder
may, from time to time in writing, appoint.
3. This Note is made pursuant to, and secured by that certain
Loan and Security Agreement dated as of the date hereof between Holder as
Lender, and Maker as Borrower, American Shared Hospital Services as Guarantor
and Ernest A. Bates, M.D. as Individual Guarantor (the "Agreement"). This Note
is also secured by any Security Documents referred to in the Agreement. The
Agreement and the Security Documents create a lien on and security interest in,
the personal property described therein ("Collateral"). The Agreement and the
Security Documents shall hereinafter be collectively referred to as the "Loan
and Security Documents" and are hereby incorporated by reference in and made a
part of this Note.
4. The occurrence of any Event of Default under the Agreement
shall, at the election of the Holder, make the entire unpaid balance of the
principal amount of this Note and accrued interest immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character.
5. Failure of the Holder to exercise the acceleration option of
paragraph 4 of this Note on the occurrence of any of the events enumerated
therein shall not constitute waiver
1
<PAGE> 2
of the right to exercise such option on the subsequent occurrence of any of the
events enumerated therein.
6. Principal and interest shall be payable in lawful money of
the United States of America which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment. Maker waives presentment,
demand for payment, notice of nonpayment, protest and notice of protest, and all
other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note. Maker consents to any and all
assignments of this Note, extensions of time, renewals and waivers that may be
made or granted by the Holder. Maker expressly agrees that such assignments,
extensions of time, renewals or waivers shall not affect Maker's liability.
Maker agrees that Holder may, without notice to Maker and without affecting the
liability of Maker, accept additional or substitute security for this Note,
release any security or any party liable for this Note or extend or renew this
Note.
7. If Maker shall fail to make any payment of interest or
principal, including the payment due upon maturity, when the same is due and
payable and such failure shall continue for five (5) business days after
nonpayment, a late charge by way of damages shall be immediately due and
payable. Maker recognizes that default by Maker in making the payments herein
agreed to be paid when due will result in the Holder incurring additional
expenses, in loss to the Holder of the use of the money due and in frustration
to the Holder in meeting its other commitments. Maker agrees that, if for any
reason Maker fails to pay any amount due under this Note when due, the Holder
shall be entitled to damages for the detriment caused thereby, but that it is
extremely difficult and impractical to ascertain the extent of such damages.
Maker therefore agrees that a sum equal to ten cents ($.10) for each one dollar
($1.00) of each payment which is not received within five (5) business days
after the date it is due and payable is a reasonable estimate of the said
damages to the Holder, which sum Maker agrees to pay on demand.
8. If action be instituted on this Note (including without
limitation, any proceedings for collection hereof in any bankruptcy or probate
matter or case), or if proceedings are commenced on or under any of the Loan and
Security Documents, Maker promises to pay the Holder all costs of collection and
enforcement including, without limitation, reasonable attorneys' fees.
9. Any and all notices or other communications or payments
required or permitted to be given hereunder shall be effective when received or
refused if given or rendered in writing, in the manner provided in the
Agreement.
10. This Note shall inure to the benefit of the Holder's
successors and assigns. References to the "Holder" shall be deemed to refer to
the holder(s) of this Note at the time such reference becomes relevant.
11. If any term, provision, covenant, or condition of this Note
is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the rest of this Note shall remain in full force and effect to
the greatest extent permitted by law and shall in no other way be affect-
2
<PAGE> 3
ed, impaired or invalidated.
12. Nothing contained herein or in the Loan and Security
Documents shall be deemed to prevent recourse to and the enforcement against
Maker and the Collateral of all liabilities, obligations and undertakings
contained herein and in the Loan and Security Documents.
13. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS
OF THE STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE
STATE AND/OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
Dated: May 17, 1995
MAKER:
CURACARE, INC.
a Delaware corporation
By:_____________________________
Ernest A. Bates, M.D.
President
AMERICAN SHARED-CURACARE
a California general partnership
By: American Shared Hospital Services,
general partner
By:_____________________________
Ernest A. Bates, M.D.
President
By: MMRI, Inc.,
general partner
By:_____________________________
Ernest A. Bates, M.D.
President
3
<PAGE> 1
EXHIBIT 4.12
SECURITY AGREEMENT
BY AND BETWEEN
AMERICAN SHARED HOSPITAL SERVICES,
A CALIFORNIA CORPORATION
AND
GENERAL ELECTRIC COMPANY,
A NEW YORK CORPORATION,
ACTING THROUGH GE MEDICAL SYSTEMS
<PAGE> 2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of May 17, 1995 by
and between AMERICAN SHARED HOSPITAL SERVICES, a California corporation
("Obligor"), and GENERAL ELECTRIC COMPANY, a New York corporation, acting
through GE Medical Systems ("GE").
R E C I T A L S
A. GE is a primary supplier of equipment and services to Obligor and
its affiliates, CuraCare, Inc., a Delaware corporation ("CuraCare"), and
American Shared - CuraCare, a California general partnership ("AS-C")
(collectively, "Affiliates").
B. GE has agreed to make a loan to Obligor, but only upon the condition
precedent, among others, that Obligor shall have granted the lien and security
interest to GE contemplated by this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. As used in this Security Agreement, the following
terms shall have the following meanings, unless the context otherwise requires
(any terms defined in that certain Agreement among GE, Obligor, AS-C and
CuraCare dated effective as of November 1, 1994 (the "Agreement") and not
otherwise defined herein shall have their meanings defined therein when used
herein):
"Code" shall mean, with respect to each state in which Obligor
operates a business or owns property, the Uniform Commercial Code as codified by
such state.
"Collateral" shall mean, collectively, all of Obligor's present
and future right, title and interest in and to the Equipment and Proceeds
thereof.
"DVI" shall mean DVI Financial Services, Inc. and DVI Business
Credit Corporation.
"DVI Loan Documents" shall mean those certain loan documents
between the Affiliates and DVI that are more particularly described in Exhibit 1
hereto.
"Equipment" shall mean the Leksell gamma knife unit more
particularly described in Exhibit 2 hereto, as well as all
<PAGE> 3
additions to, replacements of or accessions to any of the foregoing and
accessories thereto whether installed thereon or affixed thereto.
"Note" shall mean that certain Promissory Note of even date
herewith from Obligor to GE in the original principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000).
"Obligations" shall mean Obligor's obligations pursuant to the
Note and this Security Agreement.
"Permitted Liens" shall mean (a) the second priority Lien of
DVI in the Equipment pursuant to the DVI Loan Documents and (b) any existing
Liens of GE or Liens hereafter granted to GE by Obligor.
"Proceeds" shall have the meaning assigned to it under the Code
and shall include, but not be limited to, (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Obligor from time to time
with respect to any of the Collateral, (b) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral, and
(c) all accessions to, substitutions for and all replacements, products and
proceeds of the Collateral.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due of the Obligations, Obligor hereby
assigns, grants, conveys, mortgages, pledges, hypothecates and transfers to GE
for the benefit of GE, a continuing first priority and perfected security
interest in and lien on all of Obligor's right, title and interest in, to and
under the Collateral.
3. Rights of GE. GE may, at any time or times hereafter, upon written
notice to Obligor and after allowing Obligor ten (10) Business Days to resolve
any security interest, lien, claim or encumbrance asserted by any Person against
the Collateral (other than the Permitted Liens), without waiving or releasing
any of the Obligations or any liability or duty of Obligor under any other
documents, or any Event of Default, pay, acquire and/or accept an assignment of
any such security interest, lien, claim or encumbrance asserted by any such
Person. All sums paid by GE in respect thereof and all costs, fees and expenses,
including, without limitation, reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, which are incurred by GE on account thereof,
shall be payable, upon demand, by Obligor to GE and shall be additional
Obligations hereunder secured by the Collateral.
4. Representations and Warranties. Obligor, with respect to itself and
the Collateral, hereby represents and warrants to GE that:
-2-
<PAGE> 4
(a) This Security Agreement constitutes a valid obligation of
Obligor, legally binding upon Obligor and enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability. No consent or notification of any other party and no
consent, license, approval or authorization, or registration or declaration
with, any governmental authority, bureau or agency is required in connection
with either the grant by Obligor of the liens and security interests granted
hereby or the execution, delivery, performance, validity or enforceability of
this Security Agreement.
(b) Obligor is the sole legal and beneficial owner of the
Collateral free and clear of any and all mortgages, liens, security interests,
encumbrances, claims or rights of others except for the security interest
granted to GE herein and the Permitted Liens.
(c) No security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such
agreements, financing statements, security or lien instruments or continuation
statements as relate exclusively to Permitted Liens or as may have been filed by
Obligor in favor of GE prior to the date hereof or pursuant to this Security
Agreement.
(d) Upon GE taking all actions required under each applicable
Code to perfect the security interest granted hereunder, this Security Agreement
creates a valid and perfected first priority security interest in and Lien on
all right, title and interest of Obligor in the Collateral, securing payment of
the Obligations prior to all other liens, encumbrances, security interests and
rights of others created under the UCC in the Collateral and is or will be, as
applicable, enforceable as such as against creditors of and purchasers from
Obligor to the extent provided in the Code. Obligor hereby warrants that, except
for such actions required under the applicable Code to be taken by GE in order
to perfect its security interest granted pursuant to this Security Agreement,
all filings and other actions necessary or desirable to protect and perfect such
lien and security interest in the Collateral have been duly made or taken.
5. Covenants. Unless GE otherwise consents in writing, Obligor, with
respect to itself and the Collateral, hereby covenants and agrees with GE,
subject to the rights of the holders of the Permitted Liens, that from and after
the date of this Security Agreement and until the Obligations are fully
satisfied:
-3-
<PAGE> 5
(a) At any time and from time to time, upon the written request
of GE, and at the sole expense of Obligor, Obligor will promptly and duly
execute and deliver any and all such further instruments and documents and take
such further action that may be necessary or desirable or that GE may reasonably
request in order to perfect and protect the security interest granted or
purported to be granted hereby or to enable GE to exercise and enforce its
rights and remedies hereunder with respect to the Collateral. Upon the written
request of GE, Obligor will execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as GE may reasonably request, in order to perfect
and preserve the security interests granted or purported to be granted hereby.
(b) Obligor hereby authorizes GE to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Obligor where permitted by law.
(c) Obligor will perform and comply in all material respects
with all obligations under contracts and all other agreements to which it is a
party or by which it is bound relating to the Collateral, the nonperformance of
which would have a Material Adverse Effect on Obligor.
(d) Other than Permitted Liens, Obligor will not create, permit
or suffer to exist, and Obligor will defend the Collateral against and take such
other action as is necessary to remove, any lien, security interest,
encumbrance, claim or right, in or to the Collateral; and Obligor will defend
the right, title and interest of GE in and to any of Obligor's rights to the
Collateral, including, without limitation, in and to the Proceeds and products
thereof against the claims and demands of all Persons whomsoever.
(e) Obligor shall not sell, transfer, assign (by operation of
law or otherwise), lease or otherwise dispose of or transfer any Collateral or
any interest therein, or attempt, offer or contract to do so.
(f) Obligor shall not enter into any transaction that is
reasonably likely to have a Material Adverse Effect on the Collateral.
(g) Obligor will advise GE promptly, in reasonable detail, of
(i) any lien, security interest, encumbrance or claim made or asserted against
any of the Collateral, other than the Permitted Liens, (ii) any material change
in the Collateral, and (iii) the occurrence of any other event which would be
reasonably likely to have a Material Adverse Effect on the aggregate value of
the Collateral or on the security interest created hereunder.
-4-
<PAGE> 6
(h) GE shall at all times have full and free access during
normal business hours to all the books, correspondence and records of Obligor,
and GE or its representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Obligor agrees to render to GE, at Obligor's sole
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. GE and its representatives shall at all times
also have the right to enter into and upon any premises where the Collateral is
located for the purpose of inspecting the same, or protecting its interests
therein.
(i) Obligor shall not change its corporate name without giving
GE at least thirty (30) days prior written notice of its intent to do so.
6. GE's Appointment as Attorney-in-Fact.
(a) Obligor hereby irrevocably constitutes and appoints GE and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Obligor and in the name of Obligor or in GE's own name, from time
to time in GE's discretion, for the purpose of carrying out the terms of this
Security Agreement, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, Obligor hereby gives GE the power and right, on
behalf of Obligor, without prior notice to or the consent of Obligor, to do the
following after the occurrence and during the continuance of an Event of
Default, subject, however, to the rights of the holders of the Permitted Liens:
(i) in the name of Obligor or in GE's own name or
otherwise, to take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of monies due with
respect to the Collateral;
(ii) to enforce the rights of GE with respect to the
Collateral;
(iii) to defend any suit, action or proceeding brought
with respect to the Collateral;
(iv) to settle, compromise or adjust any suit, action
or proceedings described above and, in connection therewith, to give such
discharges or releases as GE may deem appropriate;
(v) in connection with the dispositions provided in
Section 8 below, to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with the Collateral as fully and completely as though GE were
the absolute owner thereof for all purposes; and
-5-
<PAGE> 7
(vi) to do, at GE's option and Obligor's sole expense,
at any time, or from time to time, all acts and things which GE deems necessary
to protect, preserve or realize upon the Collateral and GE's security interest
therein, in order to effect the intent of this Security Agreement, all as fully
and effectively as Obligor might do.
Obligor hereby ratifies all that said attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is a power coupled with an interest and shall be irrevocable.
(b) If Obligor fails to perform any agreement contained herein,
GE may itself perform, or cause performance of, such agreement.
(c) The powers conferred on GE hereunder are solely to protect
its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. GE shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers, and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Obligor for any act or failure to act, except for its own gross negligence or
willful misconduct.
7. Term; Performance by GE of Obligor's Obligations.
(a) This Security Agreement shall remain in full force and
effect until the payment and satisfaction in full of the Obligations.
(b) If Obligor fails to perform or comply with any of its
agreements contained herein and GE, as provided by the terms of this Security
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of GE incurred in connection with
such performance or compliance, together with interest thereon at four percent
(4%) per annum shall be payable by Obligor to GE on demand and shall constitute
additional Obligations secured hereby.
8. Remedies, Rights Upon Default. Upon and after an Event of
Default:
(a) GE may, subject to the rights of the holders of the
Permitted Liens, exercise, in addition to all other rights and remedies granted
to it in this Security Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party or lien creditor under the Code (whether or not the Code applies
to the affected Collateral) or under any other applicable law of any
jurisdiction. Without limiting the generality of the foregoing, Obligor
expressly agrees that in any such event GE shall have the right, subject,
however, to the rights of the holders of the Permitted Liens to (i) enter upon
the premises of Obligor, or any
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<PAGE> 8
other place where the Collateral is located and kept, through self-help and
without judicial process, without first obtaining a final judgment or giving
Obligor notice and opportunity for a hearing on the validity of GE's claim and
without any obligation to pay rent to Obligor, and to remove the Collateral
and/or (ii) to require Obligor to assemble, and Obligor hereby agrees to
assemble, the Collateral and make it available to GE at a place to be designated
by GE, in its sole discretion. GE, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of the time and place of public or private sale) to or upon Obligor or any other
Person (all and each of which demands, advertisements and/or notices are hereby
expressly waived), may, subject to the rights of the holders of the Permitted
Liens, forthwith receive, appropriate and realize upon the Collateral, or any
part thereof and/or may forthwith sell, assign, give an option or options to
purchase, or otherwise dispose of and deliver said Collateral (or contract to do
so), or any part thereof, at public or private sale or sales board or at any of
GE's offices or elsewhere at such prices as it may deem best, for cash or on
credit without assumption of any credit risk. Any such sales may be adjourned
from time to time with or without notice. GE shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. GE shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold, free of any right or equity of redemption of Obligor
released and, in lieu of actual payment of the purchase price therefor, to set
off the amount of such purchase price against the Obligations. The net proceeds
of any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred therein
or incidental to the care, safekeeping or otherwise of any or all of the
Collateral or in any way relating to the rights of GE hereunder, including
reasonable attorneys' fees and legal expenses, shall be applied by GE to the
payment in whole or in part of the Obligations, in such order as GE may elect.
Obligor shall remain liable for any deficiency remaining unpaid after such
application, and only after (i) so paying over such net proceeds and after the
payment by GE of any other amount required by any provision of law, including
the Code, and (ii) paying to DVI any surplus amounts held by GE which DVI has
advised GE are payable to DVI, need GE account for the surplus, if any, to
Obligor. To the extent permitted by applicable law, Obligor waives all claims,
damages and demands against GE arising out of the repossession, retention or
sale of the Collateral. Obligor agrees that GE need not give more than ten (10)
days' notice of the time and place of any public sale or of the time after which
a private sale may take place and that such notice is reasonable notification of
such matters. Obligor shall remain liable for any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all amounts to
which GE is entitled, Obligor also being liable for the
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<PAGE> 9
reasonable fees and expenses of any attorneys employed by GE to collect such
deficiency.
(b) Except as otherwise provided in the Agreement and this
Security Agreement, Obligor hereby waives presentment, demand, protest or any
notice (to the extent permitted by applicable law) of any kind in connection
with this Security Agreement or any Collateral.
9. Limitation on GE's Duty in Respect of Collateral. Beyond the safe
custody thereof, GE shall not have any duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
it or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto.
10. Attorneys' Fees and Expenses. If, during the existence and
continuance of an Event of Default, GE employs legal counsel or any other third
person for advice, consultation or other representation or incurs legal and/or
other costs and expenses in connection with: (a) the administration of this
Security Agreement or the Note and the transactions contemplated hereby and
thereby; (b) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (c) the
exercise or enforcement of any of the rights of GE hereunder, (d) the failure by
Obligor to perform or observe any of the provisions hereof, or (e) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
GE, Obligor or any other Person) in any way relating to the Collateral, this
Security Agreement or the Note or Obligor's affairs; (f) any attempt to collect
any of the amounts under the Note or to enforce any rights of GE against Obligor
or any other Person which may be obligated to GE by virtue of this Security
Agreement or the Note; and/or (g) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of the Collateral; then, in any
such event, the reasonable attorneys' fees arising from such services and all
reasonably incurred expenses, costs, charges and other fees of such counsel or
third party or of GE or relating to any of the events or actions described in
this Section 10 shall be payable, on demand, by Obligor to GE and shall be
additional Obligations secured by the Collateral.
11. Waivers by Obligor. Except as otherwise provided for in the
Agreement and in this Security Agreement, Obligor hereby waives to the extent
allowed by law (a) presentment, demand and protest and notice of presentment,
protest, default, nonpayment, maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, documents, instruments and
guaranties at any time held by GE on which Obligor may in any way be liable and
hereby ratifies and confirms whatever GE may do in this regard; (b) notice prior
to taking possession or control of the Collateral or any bond or security which
might be required by any court prior to allowing GE to exercise any of GE's
remedies;
-8-
<PAGE> 10
and (c) the benefit of all valuation, appraisement and exemption laws.
12. Indemnity.
(a) Obligor shall indemnify GE and its affiliates from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel)
which may be imposed on, incurred by, or asserted against GE in any litigation,
proceeding or investigation instituted or conducted by any governmental agency
or instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Security Agreement or the Note, except to the extent that any of the foregoing
arises out of the gross negligence or wilful misconduct of GE.
(b) Obligor shall upon demand pay to GE the amount of any and all
reasonable expenses which GE may incur in connection with (i) the administration
of this Security Agreement, (ii) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of GE
hereunder, or (iv) the failure by Obligor to perform or observe any of the
provisions hereof.
13. Termination Statements. Obligor acknowledges and agrees that it is
Obligor's intent that all financing statements filed hereunder shall remain in
full force and effect until this Security Agreement and the Note shall have been
terminated in accordance with the provisions hereunder and thereunder.
Accordingly, Obligor waives any rights which it may have under the Code to
demand the filing of termination statements with respect to the Collateral, and
agrees that GE shall not be required to send such termination statements to
Obligor, or to file them with any filing office, unless and until this Security
Agreement and the Note shall have been terminated in accordance with their
respective terms as a result of the performance of all covenants of Obligor,
including the payment in full of all Obligations in immediately available funds.
14. Notices. All notices and other communications under this Security
Agreement shall be given to GE and Obligor in accordance with Section 8.11 of
the Agreement.
15. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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<PAGE> 11
16. No Waiver; Cumulative Remedies. GE shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by GE, and
then only to the extent therein set forth. A waiver by GE of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which GE would otherwise have had on any future occasion. No failure to
exercise nor any delay in exercising on the part of GE, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by GE.
17. Successors and Assigns; Governing Law. This Security Agreement and
all obligations of Obligor hereunder shall be binding upon the successors and
assigns of Obligor, and shall, together with the rights and remedies of GE
hereunder, inure to the benefit of GE and its successors and assigns. This
Security Agreement shall be governed by, and be construed and interpreted in
accordance with, the laws of the State of California, without giving effect to
any choice of law or conflict of law provision or rule (whether the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
18. No Third-Party Beneficiary. None of the provisions herein contained
are intended by the parties, nor shall they be deemed, to confer any benefit on
any person not a party to this Security Agreement.
IN WITNESS WHEREOF, the parties have caused this Security Agreement to
the executed by their duly authorized officers on the date first specified
above.
OBLIGOR: GE:
AMERICAN SHARED HOSPITAL GENERAL ELECTRIC COMPANY,
SERVICES, a California a New York corporation acting
corporation through GE MEDICAL SYSTEMS
By:_________________________ By:__________________________
Ernest A. Bates, M.D. Richard S. Berger
President Manager, Financial Services
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<PAGE> 1
EXHIBIT 4.13
AGREEMENT AND PROXY
This AGREEMENT AND PROXY (the "Agreement"), dated as of May 12,
1995, is made by Ernest A. Bates, M.D. ("Dr. Bates"), in order to induce ANCHOR
NATIONAL LIFE INSURANCE COMPANY, a California corporation, SUN LIFE INSURANCE
COMPANY OF AMERICA, an Arizona corporation, and SUNAMERICA INC., a Maryland
corporation (collectively, "SunAmerica"), AIF II, L.P., a Delaware limited
partnership, LION ADVISORS, L.P., a Delaware limited partnership, on behalf of
an account under management (together with AIF II, L.P., "Apollo"), GRACE
BROTHERS, LTD., an Illinois limited partnership, and UPCHURCH LIVING TRUST U/A/D
12/14/90 (each a "Holder," and collectively the "Holders") to enter into the
Note Purchase Agreement, dated the date hereof (the "Note Purchase Agreement").
NOW THEREFORE, Dr. Bates hereby agrees as follows:
1. Dr. Bates shall (a) not revoke any proxy granted by him or
on his behalf in connection with the April 7, 1995 shareholders meeting of
American Shared Hospital Services, a California corporation (the "Company") or
any adjournments thereof; and (b) cause the Company to reconvene the April 7,
1995 shareholders meeting on May 18, 1995 and to take the shareholders vote and
all related actions at such meeting with respect to the matters described in the
Company's Proxy Statement dated February 14, 1995 (the "Matters") on such date.
2. Dr. Bates hereby represents that he is the legal and
beneficial owner of 1,005,000 shares of Common Stock, no par value (the "Common
Stock"), of the Company and he hereby irrevocably appoints and constitutes
Apollo Advisors, L.P. and SunAmerica Inc., jointly and not severally, in
accordance with the provisions of Section 705 of the California General
Corporation Law, as his attorney and proxy, with full power of substitution, to
attend meetings, vote, give consents and to otherwise act on his behalf to (a)
cause the Company to reconvene the April 7, 1995 shareholders meeting (including
all adjournments thereof) and take the shareholders vote with respect to all
Matters, and (b) vote such shares with respect to all Matters; provided,
that this proxy shall (i) not become effective until the first to occur of a
default or other breach (x) by Dr. Bates of any provision hereof, or (y) by the
Corporation of the penultimate paragraph of the Letter Agreement, dated May 5,
1995, among the Company, Apollo and SunAmerica, and (ii) terminate (x)
immediately if it is used for any purpose other than as specified herein or (y)
on May 25, 1995 if the transactions contemplated by the Exchange Agreement,
dated February 14, 1995, as amended by the Note Purchase Agreement (the
"Exchange Agreement") have not been consummated by such date.
<PAGE> 2
3. Dr. Bates hereby represents that (a) this Agreement is a
valid and binding obligation of Dr. Bates enforceable in accordance with its
terms, except to the extent that such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
enforcement of creditor's rights generally, and by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity) and (b) the proxy granted herein is given in consideration of the
continuation of credit to the Company by the Holders.
4. Dr. Bates shall use all reasonable efforts to obtain all
consents and approvals, and to do all other things, necessary for the
transactions contemplated by this Agreement and the Note Purchase Agreement and
to take such further action and to deliver or cause to be delivered to each
other at the closing and at such other times thereafter as shall be reasonably
agreed by such additional agreements or instruments as any of them may
reasonably request for the purpose of carrying out this Agreement and the
agreements and transactions contemplated hereby.
5. Dr. Bates hereby acknowledges and agrees that irreparable
harm, for which there may be no adequate remedy at law and for which the
ascertainment of damages would be difficult, would occur in the event any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Consequently, Dr. Bates hereby agrees
that each Holder shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, in each instance without being required to post
bond or other security and in addition to, and without having to prove the
inadequacy of, other remedies at law.
6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has caused this Agreement
to be duly executed and delivered as of the date first above written. By their
acceptance hereof, the Holders hereby agree that the exercise of the proxy
granted to them by Dr. Bates pursuant to Section 2 hereof shall constitute their
agreement to waive any then remaining conditions to the Holders' performance
under the Exchange Agreement so long as the transactions contemplated by the
Exchange Agreement are consummated on or before May 25, 1995.
____________________________________
Ernest A. Bates, M.D.
Accepted and Agreed to:
AIF II, L.P.
By: Apollo Advisors, L.P.
Managing General Partner
By: Apollo Capital Management, Inc.
General Partner
By:
-----------------------------
Its:
-----------------------------
ANCHOR NATIONAL LIFE INSURANCE
COMPANY
3
<PAGE> 4
By:___________________________________
Its:__________________________________
GRACE BROTHERS, LTD.
By:__________________________________
Its:_________________________________
LION ADVISORS, L.P.
on behalf of an account
under management
By: Lion Capital Management, Inc.
General Partner
By:
-----------------------------
Its:
-----------------------------
SUN LIFE INSURANCE COMPANY OF
AMERICA
By:
-----------------------------
Its:
-----------------------------
SUNAMERICA INC.
4
<PAGE> 5
By:_______________________________
Its:______________________________
UPCHURCH LIVING TRUST U/A/D 12/14/90
By:_______________________________
Its: Trustee
5
<PAGE> 1
EXHIBIT 10.5
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (the "Agreement"), dated as of May
12, 1995, is made by and among ANCHOR NATIONAL LIFE INSURANCE COMPANY, a
California corporation, SUN LIFE INSURANCE COMPANY OF AMERICA, an Arizona
corporation, and SUNAMERICA INC., a Maryland corporation (collectively,
"SunAmerica"), AIF II, L.P., a Delaware limited partnership, LION ADVISORS,
L.P., a Delaware limited partnership, on behalf of an account under management
(together with AIF II, L.P., "Apollo"), GRACE BROTHERS, LTD., an Illinois
limited partnership ("Grace") and UPCHURCH LIVING TRUST U/A/D 12/14/90
("Upchurch") (each a "Holder," and collectively, the "Holders"), AMERICAN SHARED
HOSPITAL SERVICES, a California corporation (the "Company") and Ernest A. Bates,
M.D. ("Dr. Bates").
WHEREAS, the Company has not made interest payments with
respect to its 14-3/4% Senior Subordinated Notes due 1996 (the "14-3/4% Notes")
and its Senior Subordinated Exchangeable Reset Notes due 1996 (the "16-1/2%
Notes" and together with the 14-3/4% Notes, the "Notes") since April 15, 1992;
and
WHEREAS, the Holders, severally and not jointly, are the
beneficial owners of certain of the Notes; and
WHEREAS, the parties hereto entered into an Exchange Agreement,
dated as of February 14, 1995 (the "Exchange Agreement") providing for a
comprehensive restructuring of the Company's obligations including (a) an
exchange offer and certain other transactions contemplated by the Exchange
Agreement (the "Exchange Offer"), providing for, among other things, the
exchange of 1,969.3556 shares of Common Stock (as defined below) for each $1,000
principal amount (and accrued interest thereon) of the 14-3/4% Notes held by the
Holders and 2,020.7943 shares of Common Stock for each $1000 principal amount
(and accrued interest thereon) of the 16-1/2% Notes held by the Holders, as
described in the Company's proxy statement dated February 14, 1995 (the "Proxy
Statement") and (b) the modification of certain equipment leases and certain
related transactions between the Company and its subsidiaries on the one hand
and General Electric Company, acting through GE Medical Systems on the other
hand, as described in the Proxy Statement (the "GE Lease Modification" and,
together with the Exchange Offer, the "Restructuring Transactions");
1
<PAGE> 2
WHEREAS, the Company has proposed a purchase of the Holders'
Notes (the "Note Purchase") for cash and equity in lieu of the Restructuring
Transactions; and
WHEREAS, the Company and the Holders' desire to amend the
Exchange Agreement to, among other things, provide that the Exchange Agreement
shall terminate upon consummation of the Note Purchase.
NOW THEREFORE, the parties hereby agree as follows:
SECTION 1. The Note Purchase
Section 1.1 Agreement to Sell and to Purchase
(a) Subject to the terms and conditions hereof, each of the
Holders, severally and not jointly, shall sell to the Company, and the Company
shall purchase from each Holder, such principal amount of Notes, the Company
shall, in consideration therefore pay to each Holder, on the Closing Date, the
amount of cash, and number of shares of Common Stock and warrants to purchase
Common Stock, which shall be substantially in the form of Exhibit A hereto and
immediately exerciseable upon the payment of an exercise price initially equal
to $0.75 (the "Warrants") as set forth below:
<TABLE>
<CAPTION>
Shares of Common
Common Stock
Holder Notes Cash Stock Warrants
- ---------- ---------- ------------- ------- -------
<S> <C> <C> <C> <C>
SunAmerica $9,515,000 $2,098,372.45 441,487 116,436
Apollo $6,500,000 $1,433,465.15 301,594 79,541
Grace $1,600,000 $ 343,864.65 72,347 19,081
Upchurch $ 79,000 $ 16,978.32 3,572 942
</TABLE>
(b) Subject to the terms and conditions hereof, if the
Company issues additional equity to Dr. Bates as described in the letter
agreement dated May 5, 1995 (the "Letter Agreement") among the Company, Apollo
and SunAmerica (the "Additional Issuance") after the Closing Date, the Company
shall, in consideration for the Notes purchased pursuant to this Section 1,
concurrently issue to each Holder such number of additional Warrants and shares
of Common Stock (the "Delayed Securities")
2
<PAGE> 3
as set forth in Exhibit A to the Letter Agreement (and in any event sufficient
Delayed Securities so that each such Holder thereafter holds the same percentage
of the outstanding Common Stock (assuming full exercise of the Warrants)).
Section 1.2 Closing
The closing of the Note Purchase (the "Closing") shall take
place at 2:00 p.m., local time, on May 17, 1995, or such other date as the
parties hereto shall agree in writing (the "Closing Date"), at the offices of
Sidley & Austin, Los Angeles, California or at such other place as the parties
hereto shall agree in writing.
At the Closing (a) each Holder shall deliver (i) either (A)
certificates, duly endorsed for transfer, or (B) by book-entry transfer into the
indenture trustee's account at The Depository Trust Company, of the Notes being
delivered by such Holder pursuant to Section 1.1, (ii) duly executed consents
with respect to each Note substantially in the form of Exhibit A to the Exchange
Agreement (the "Consents"), and (iii) executed letters of withdrawal or
resignation from the Board of Directors of the Company from each of the persons
nominated by the Holders, and (b) the Company shall (i) deposit into bank
accounts, designated by each Holder, by wire transfer of immediately available
funds, an amount equal to the aggregate cash portion of the purchase price being
paid to such Holder pursuant to Section 1.1 above, and (ii) deliver to each
Holder (x) a stock certificate or certificates representing the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
specified pursuant to Section 1.1 above, and (y) a warrant certificate or
certificates substantially in the form of Exhibit A representing the Warrants
specified pursuant to Section 1.1 above. Concurrently with the closing of any
Additional Issuance the Company shall deliver to each Holder a stock certificate
or certificates representing the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock and a warrant certificate or
certificates representing the duly authorized and validly issued Warrants
comprising the Delayed Securities issuable on such date. The certificates
representing the shares of Common Stock and the Warrants shall be in definitive
form and registered in the name of the Holder or its nominee or designee and in
such denominations as such Holder shall request not later than one business day
prior to the Closing Date or the closing date of an Additional Issuance as the
case may be.
SECTION 2. Amendment of Exchange Agreement
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<PAGE> 4
(a) The last sentence of Section 1(a)(ii) of the
Exchange Agreement is hereby amended in its entirety by substituting therefore
the following:
"The Consents shall not be effective for any purpose
until immediately prior to the consummation of the Exchange Offer and
shall be returned to the respective Holders who executed such
instruments at the close of business on May 25, 1995, if the Exchange
Offer has not been consummated."
(b) Section 1(b) of the Exchange Agreement is hereby
amended in its entirety by substituting therefore the following:
"(b) The Company hereby agrees to cause all of the
Notes tendered into the Exchange Offer to be returned to the respective
Holders thereof at the close of business on May 25, 1995, if the
Exchange Offer has not been consummated."
(c) Section 2.1(o) of the Exchange Agreement is hereby
amended in its entirety by substituting therefore the following:
"the Company and CuraCare, Inc., on the one hand, and
DVI Financial Services, Inc. and DVI Business Credit, Inc.
(collectively, "DVI"), on the other hand, shall have entered into a
permanent credit facility in accordance with the terms of DVI's letter
to the Company dated April 28, 1995 and in accordance with the
intercreditor arrangements with GE as set forth in GE's letter to the
Company dated April 21, 1995;"
(d) Section 5 of the Exchange Agreement is hereby
amended by adding the following immediately after Section 5.4 thereof:
"5.5 Shareholders Meeting
The Company hereby agrees that it will (i)
reconvene the April 7, 1995 shareholders meeting on May 18, 1995, (ii) not
adjourn such reconvened meeting, and (iii) take the shareholders vote and all
related actions with respect to the matters described in the Proxy Statement on
such date.
4
<PAGE> 5
5.6 Specific Performance
Each of the Company and Dr. Bates hereby
acknowledges and agrees that irreparable harm, for which there
may be no adequate remedy at law and for which the
ascertainment of damages would be difficult, would occur in the
event any of the provisions of this Agreement or any of the
Documents or any of the Restructuring Transactions were not
performed in accordance with their specific terms or were
otherwise breached. Consequently, each of the Company and Dr.
Bates hereby agrees that each Holder shall be entitled to an
injunction or injunctions to prevent breaches of the provisions
of this Agreement or any other Document or any of the
Restructuring Transactions and to enforce specifically the
terms and provisions hereof or thereof in any court of the
United States or any state thereof having jurisdiction, in each
instance without being required to post bond or other security
and in addition to, and without having to prove the inadequacy
of, other remedies at law."
(e) Section 6.1(d) of the Exchange Agreement is
hereby amended in its entirety by substituting therefore the following:
"(d) automatically on the earlier of (i) the
closing of the purchase of the Notes held by each Holder pursuant to the Note
Purchase Agreement, dated as of May 12, 1995, by and among the parties hereto
and (ii) May 25, 1995 or such earlier date on or after May 15, 1995 designated
by Apollo and SunAmerica in a written notice to the Company."
(f) Except as expressly set forth herein, all terms
and conditions of the Exchange Agreement shall remain unaffected. All references
to the term "Agreement" therein shall be deemed to refer to the Exchange
Agreement as modified hereby.
5
<PAGE> 6
SECTION 3. Closing Conditions
Section 3.1 Conditions to Obligations of Holders
The obligations of the Holders pursuant to Section 1 hereof are
subject to the satisfaction of each of the following conditions:
(a) The expiration or termination of any waiting
period (and any extension thereof) applicable to the consummation of the Note
Purchase or any of the transactions contemplated hereby (collectively, the
"Purchase Transactions") under any applicable law;
(b) the delivery of a certificate or certificates,
dated the Closing Date and signed by the Chairman of the Board of Directors and
the Chief Financial Officer of the Company, certifying (A) that the conditions
set forth in Sections 3.1(h) and 3(j) hereof have been satisfied and (B) such
other matters as each of the Holders may reasonably request;
(c) the delivery of an opinion, dated the Closing
Date and addressed to each Holder, from Sidley & Austin, counsel to the Company,
substantially in the form of Exhibit B hereto;
(d) the delivery of a certificate, dated as of a
recent date and signed by the Company's stock transfer agent, certifying the
number of outstanding Shares of Common Stock;
(e) all fees and expenses incurred in connection
with the negotiation of the Restructuring Transactions and the negotiation and
consummation of the Note Purchase and the other Purchase Transactions including,
without limitation, the fees and expenses of legal counsel representing Apollo
and SunAmerica shall have been paid in full;
(f) there shall have been no order or preliminary or
permanent injunction entered in any action, claim or proceeding and no law
enacted, entered, enforced, promulgated, amended, issued or deemed applicable to
(A) the Holders, the Company or any subsidiary or affiliate of the Company or
the Holders or (B) the Note Purchase, which shall have remained in effect and
which shall have had the effect of:
6
<PAGE> 7
(1) making illegal, materially delaying or otherwise directly or indirectly
prohibiting or making materially more costly the consummation of the Note
Purchase or the other Purchase Transactions; (2) prohibiting or materially
limiting the ownership of the Company's Common Stock by any of the Holders; (3)
compelling the Company, the Holders or any of their respective affiliates to
dispose of or hold separate all or any material portion of the business or
assets of the Company, the Holders or any of their respective affiliates, as a
result of the Note Purchase; or (4) requiring divestiture by any Holder or any
affiliate of any Holder of any Warrants or shares of Common Stock;
(g) as of the Closing Date, each of the employees of
the Company listed on Schedule A to the Exchange Agreement (each a "Key
Employee") shall continue to be employed by the Company in the capacity
indicated on Schedule A to the Exchange Agreement;
(h) the representations and warranties contained in
Section 4 of this Agreement shall be true and correct at and as of the Closing
Date;
(i) as of the date of the Proxy Statement and as of
the Closing Date, none of the Proxy Statement or any amendment or supplement
thereto contains or will contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(j) subsequent to the date hereof (A) there has been
no material adverse effect on the condition, financial or otherwise, or in the
earnings or business affairs or business prospects ("Material Adverse Effect")
of the Company or its subsidiaries, whether or not arising in the ordinary
course of business, the occurrence of which gives rise to an obligation of the
Company to amend, supplement or otherwise revise the disclosure provided in the
Proxy Statement, (B) without the prior written consent of each of the Holders,
the Company has not incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transaction not in the ordinary course
of business, or required to be disclosed on a balance sheet prepared in
accordance with GAAP, either when considered alone or together with all other
such transactions, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on its capital stock;
(k) the Note Purchase shall not be prohibited by any
applicable law;
7
<PAGE> 8
(l) each of the Holders shall participate in the
Note Purchase in accordance with Section 1 hereof;
(m) the Company and CuraCare, Inc., on the one hand,
and DVI Financial Services, Inc. and DVI Business Credit, Inc. (collectively,
"DVI"), on the other hand, shall have entered into a permanent credit facility
in accordance with the terms of DVI's letter to the Company dated April 28, 1995
and in accordance with the intercreditor arrangements with GE as set forth in
GE's letter to the Company dated April 21, 1995 (the DVI Facility");
(n) the GE Lease Modification shall continue to
remain in effect, an Event of Default (as defined in the documents relating to
the GE Lease Modification) shall not have occurred and be continuing and any
amendment thereto shall be under terms reasonably acceptable to each of the
Holders; and
(o) the Company and the Holders shall have entered
into a registration rights agreement substantially in the form of Exhibit C
hereto (the "Registration Rights Agreement").
Section 3.2 Conditions to Obligations of the Company
(a) the expiration or termination of any waiting
period (and any extension thereof) applicable to the consummation of the Note
Purchase and the Purchase Transactions under any applicable law;
(b) there shall have been no order or preliminary or
permanent injunction entered in any action, claim or proceeding and no law
enacted, entered, enforced, promulgated, amended, issued or deemed applicable to
(A) the Holders, the Company or any subsidiary or affiliate of the Company or
the Holders or (B) the Note Purchase, which shall have remained in effect and
which shall have had the effect of: (1) making illegal, materially delaying or
otherwise directly or indirectly prohibiting or making materially more costly
the consummation of the Note Purchase or the other Purchase Transactions; (2)
prohibiting or materially limiting the ownership of the Company's Common Stock
by any of the Holders; (3) compelling the Company, the Holders or any of their
respective affiliates to dispose of or hold separate all or any material portion
of the business or assets of the Company, the Holders or any of their respective
affiliates, as a result of the Note Purchase; or (iv) requiring divestiture by
any Holder or any affiliate of any Holder of any Warrants of shares of Common
Stock; and
8
<PAGE> 9
(c) the Note Purchase shall not be prohibited by any
applicable law;
(d) each of the Holders shall participate in the
Note Purchase in accordance with Section 1 hereof; and
(e) each of the persons nominated by the Holders
shall have withdrawn or resigned from the Company's Board of Directors;
(f) each of the Holders shall have provided the
Consents; and
(g) DVI shall have agreed to enter into the DVI
Facility.
SECTION 4. Representations and Warranties
The Company represents and warrants to each Holder as follows:
Section 4.1 Capitalization
(a) The total authorized capital stock of the
Company consists of 10,000,000 shares of common stock, no par value (the "Common
Stock"), 2,867,401 of which are issued and outstanding on the date hereof. Each
share of the Company's capital stock that is issued and outstanding (i) has been
duly authorized and validly issued and (ii) is fully paid and nonassessable and
free of preemptive and similar rights.
(b) Upon consummation of the Note Purchase, and upon
each issuance of Delayed Securities, each Holder will acquire valid title to the
shares of Common Stock and Warrants being acquired by it, free and clear of all
liens and restrictions on voting and transfer other than (x) restrictions on
transfer imposed by Federal and state securities laws, (y) liens or restrictions
on voting and transfer arising from the actions of any Holder, and (z) as set
forth in this Agreement and the Registration Rights Agreement.
(c) The Common Stock and Warrants to be issued as
consideration for the Notes (including the Delayed Securities, if any) have been
duly authorized and, upon consummation of the Note Purchase, and upon each
issuance of Delayed Securities, will be validly issued, fully paid and
nonassessable and free of preemptive or similar rights, and the Common Stock
issuable upon exercise of the
9
<PAGE> 10
Warrants (the "Warrant Shares") has been duly authorized and, when issued upon
such exercise in accordance with the terms thereof, will be validly issued,
fully paid and nonassessable and free of preemptive or similar rights. A
sufficient number of shares of Common Stock have been reserved solely for
issuance and delivery upon exercise of the Warrants.
(d) Except for this Agreement, the warrants to
purchase an aggregate of 225,000 shares of Common Stock issued or to be issued
in connection with the GE Lease Modification and the DVI Facility, the shares of
Common Stock to be issued in the Additional Issuance, and options granted
pursuant to and listed in the Proxy Statement and referred to in Exhibit A to
the Letter Agreement, there are, and immediately following the Closing Date
there will be, no outstanding (i) securities convertible into or exchangeable
for any capital stock of the Company or any subsidiary of the Company, (ii)
options, warrants or other rights to purchase or subscribe to capital stock of
the Company or any subsidiary of the Company or securities convertible into or
exchangeable for capital stock of the Company of any subsidiary of the Company,
or (iii) contracts, commitments, agreements, understandings, arrangements, calls
or claims of any kind, to which the Company or any of its subsidiaries is a
party or that arise from any action of the Company or any of its subsidiaries,
relating to the issuance of any capital stock of the Company or any subsidiary
of the Company, any such convertible or exchangeable securities or any such
options, warrants or rights.
Section 4.2 Authorization of Agreement
The execution and delivery of this Agreement and the other
documents relating to the transactions contemplated hereby (the "Documents") to
which the Company or any subsidiary of the Company is a party, and the
consummation of the transactions contemplated hereby or thereby have been duly
authorized by the Company and no other proceedings on the part of any of the
Company, any subsidiary of the Company or any of their respective stockholders
or affiliates are necessary to authorize this Agreement or the other Documents
or to consummate the transactions contemplated hereby or thereby. This Agreement
is, and as of the Closing Date, each of the Documents to which the Company or
any subsidiary of the Company is a party will be, a valid and binding obligation
of the Company or such subsidiary, as the case may be, enforceable in accordance
with its terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting enforcement of creditor's rights generally, and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
10
<PAGE> 11
Section 4.3 No Violation
Neither the execution or delivery by the Company or any of its
subsidiaries of the Documents to which it is a party, the performance by each of
the Company and each of its subsidiaries of its obligations under this Agreement
and the other Documents, nor the consummation of the transactions contemplated
hereby or thereby will (i) constitute a breach or violation under the Charter
Documents of the Company or any of its subsidiaries, or (ii) constitute a
violation of any Applicable Law, in each case as defined in the Exchange
Agreement.
Section 4.4 No Default
(a) No Event of Default (as defined in each of the
Documents) has occurred, which Event of Default could, singly or in the
aggregate, have a Material Adverse Effect on the Company after the date on which
the Purchase transactions are consummated. There exists no condition that, with
the passage of time or otherwise, would (i) except as set forth in the Proxy
Statement, result in a default by the Company or any of its subsidiaries under
any agreement, which default could, singly or in the aggregate, have a Material
Adverse Effect on the Company after the date on which the transactions
contemplated hereby or thereby are consummated, or (ii) except as set forth in
the Proxy Statement on the date hereof, result in the imposition of any penalty
or the acceleration of any indebtedness or obligation which could, singly or in
the aggregate, have a Material Adverse Effect on the Company.
(b) Neither the execution or delivery by the Company
or any of its subsidiaries of the Documents to which it is a party, the
performance by any of the Company or any of its subsidiaries of its obligations
under this Agreement and the other Documents, nor the consummation of the
transactions contemplated hereby or thereby will conflict with, violate,
constitute a breach or violation of or a default (with the passage of time or
otherwise) under, require the consent of any person under, give to others any
rights of termination, amendment, acceleration or cancellation of or result in
the imposition of a lien on any of the properties or assets of any of the
Company's subsidiaries or an acceleration of indebtedness pursuant to, any
material agreement, except for such conflicts, violations, breaches or defaults
(i) for which consents have already been obtained; and (ii) which could not,
singly or in the aggregate, have a Material Adverse Effect on the Company.
Section 4.5 Representations and Warranties in the Exchange
Agreement
11
<PAGE> 12
The representations and warranties of the Company in the
Exchange Agreement were true on the date thereof, are true on the date hereof
and will be true on the Closing Date after giving effect to the transactions
contemplated by this Agreement and the other Documents.
Section 4.6 Proposed Restructurings
Neither the Company nor any of its subsidiaries is currently
contemplating or has taken any action with respect to any liquidation,
bankruptcy, dissolution or other reorganization proceedings except as
contemplated by the Purchase Transactions and the Restructuring Transactions.
SECTION 5. Representations and Warranties of each of the
Holders
Each of the Holders, severally and not jointly, represents and
warrants to the Company as follows:
Section 5.1 Authorization of Agreement
The execution and delivery of this Agreement and the
performance of its obligations hereunder have been duly authorized by such
Holder and no other proceedings on the part of any such Holder or any of its
respective stockholders or affiliates are necessary to authorize this Agreement
or to consummate the Note Purchase. This Agreement is a valid and binding
obligation of such Holder, enforceable in accordance with its terms, except to
the extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting enforcement of creditor's rights generally, and by general principles
of equity (regardless of whether enforcement is considered in a proceeding at
law or in equity).
Section 5.2 Title to Notes
12
<PAGE> 13
12
As of the date hereof, each of the Holders beneficially owns
free and clear of all claims, liens, charges, encumbrances, options and security
interests, to the Notes in the principal amount set forth below:
<TABLE>
<CAPTION>
Principal
Amount of Notes
----------
<S> <C>
SunAmerica $9,515,000
Apollo $6,500,000
Grace $1,600,000
Upchurch $ 79,000
</TABLE>
Section 5.3 Private Placement
(a) Such Holder understands that the Note Purchase
is intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act").
(b) The shares of Common Stock and Warrants
(including the Delayed Securities, if any) to be acquired by such Holder in the
Note Purchase are being acquired for its own account for investment and without
a view to making a distribution thereof in violation of the Securities Act or
any state securities laws which may be applicable.
(c) Such Holder has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in such shares of Common Stock and
Warrants (including the Delayed Securities, if any) and such Holder is capable
of bearing the economic risks of such investment, including a complete loss of
its investment.
(d) Such Holder is an "accredited investor" as such
term is defined in Regulation D under the Securities Act.
(e) Such Holder acknowledges that the Company and,
for purposes of the opinions to be delivered to the Holders pursuant to Section
3.1(c) hereof, Sidley & Austin, will rely on the accuracy and truth of its
representations in this Section 5.3, and such Holder hereby consents to such
reliance.
13
<PAGE> 14
(f) Such Holder acknowledges that upon original
issuance thereof, and until such time as the same is no longer required under
the applicable requirements of the Securities Act, each certificate evidencing
the shares of Common Stock and Warrants being acquired by it (including the
Delayed Securities, if any) shall bear a legend substantially in the form of
Schedule B hereto.
SECTION 6. Other Agreements
Section 6.1 Warrant Shares
The Company hereby agrees that it will (a) not permit the par
value, if any, of any Warrant Shares to exceed the amount payable therefor upon
exercise, and (b) at all times reserve and keep available, solely for issuance
and delivery upon exercise of the Warrants, the number of shares of Common Stock
from time to time issuable upon exercise of the Warrants.
Section 6.2 Supplemental Indentures
The Company hereby agrees to execute and deliver the
Supplemental Indentures.
Section 6.3 Covenants of Holders
Each Holder, severally and not jointly, hereby agrees:
(a) to vote the shares of Common Stock issued to
such Holder pursuant to Section 1 hereof (and held by such Holder on the date of
any such vote) in favor of the Additional Issuance; and
(b) that the exercise of the proxy granted by Dr.
Bates pursuant to that certain Agreement and Proxy, dated as of the date hereof,
shall constitute such Holder's agreement (i) to waive any then remaining
conditions to the Holders' performance under the Exchange Agreement and (ii) to
perform thereunder, in each case so long as (A) the Company performs its
obligations thereunder and (B) the transactions contemplated by the Exchange
Agreement are consummated on or before May 25, 1995.
14
<PAGE> 15
Section 6.4 Further Assurances
Each party hereto agrees to use all reasonable efforts to
obtain all consents and approvals, and to do all other things, necessary for the
transactions contemplated by this Agreement on or prior to the termination of
this Agreement pursuant to Section 7.1 hereof. The parties agree to take such
further action and to deliver or cause to be delivered to each other at the
closing and at such other times thereafter as shall be reasonably agreed by such
additional agreements or instruments as any of them may reasonably request for
the purpose of carrying out this Agreement and the agreements and transactions
contemplated hereby.
SECTION 7. Miscellaneous
Section 7.1 Termination
This Agreement may be terminated and the Note Purchase may be
abandoned at any time prior to the closing (provided that any such
termination or consummation of the Exchange Offer shall not relieve any party
from liability for a breach of any provision hereof prior to such termination):
(a) by the unanimous written consent of the Company,
Dr. Bates and the Holders;
(b) by the Holders if (i) any representation,
warranty, covenant or agreement of the Company or Dr. Bates contained in this
Agreement or any of the other Documents shall have been breached in any material
respect (other than those qualified by a materiality standard which shall have
been breached in any respect); or (ii) the Company's board of directors fails to
approve this Agreement or the Note Purchase and the other transactions
contemplated hereby and by the other Documents; and
(c) automatically on May 17, 1995, unless otherwise
extended by the Holders in their sole discretion.
Termination pursuant to the foregoing clause (a),
(b) or (c) notwithstanding, Sections 2 and 6.3(b) hereof shall remain in effect.
15
<PAGE> 16
Section 7.2 Successors and Assigns
This Agreement shall be binding upon and shall inure to the
benefit of any and all successors and assigns of the parties hereto. This
Agreement may not be assigned by any party, by operation of law or otherwise,
without the express prior written consent of each of the other parties, which
consent may be granted or withheld in each such party's sole discretion;
provided, however, that no such consent shall be necessary in connection with
an assignment by Apollo or SunAmerica to any Related Person of such Holder if
such Related Person shall agree to be bound by the terms of this Agreement.
"Related Person" of any Holder means any subsidiary or affiliate of such
Holder or any investment fund, investment account or investment entity whose
investment manager, investment advisor, or principal thereof, is such Holder,
an affiliate of such Holder or an investment manager, investment advisor or
principal of such Holder or affiliate.
Section 7.3 Specific Performance
Each of the Company and Dr. Bates and, with respect to Section
6.3, the Holders hereby acknowledges and agrees that irreparable harm, for which
there may be no adequate remedy at law and for which the ascertainment of
damages would be difficult, would occur in the event any of the provisions of
this Agreement or any of the Documents or any of the Purchase Transactions were
not performed in accordance with their specific terms or were otherwise
breached. Consequently, each of the Company and Dr. Bates and, with respect to
Section 6.3, the Holders hereby agrees that each party hereto shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement or any other Document or any of the Purchase Transactions and to
enforce specifically the terms and provisions hereof or thereof in any court of
the United States or any state thereof having jurisdiction, in each instance
without being required to post bond or other security and in addition to, and
without having to prove the inadequacy of, other remedies at law.
16
<PAGE> 17
Section 7.4 Amendment and Waiver
This Agreement may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given,
provided that the same are in writing and signed by the parties hereto.
Section 7.5 Counterparts
This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
Section 7.6 Headings
The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
Section 7.7 Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
Section 7.8 Entire Agreement
This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein.
17
<PAGE> 18
Section 7.9 Severability
If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
AMERICAN SHARED HOSPITAL SERVICES
By:
-----------------------------
Its: Chairman and CEO
AIF II, L.P.
By: Apollo Advisors, L.P.
Managing General Partner
By: Apollo Capital Management, Inc.
General Partner
By:
-----------------------------
Its:
-----------------------------
ANCHOR NATIONAL LIFE INSURANCE
COMPANY
By:
-----------------------------
-----------------------------
Ernest A. Bates, M.D.
19
<PAGE> 20
GRACE BROTHERS, LTD.
By:
-----------------------------
Its:
-----------------------------
LION ADVISORS, L.P.
on behalf of an account
under management
By: Lion Capital Management, Inc.
General Partner
By:
-----------------------------
Its:
-----------------------------
SUN LIFE INSURANCE COMPANY OF AMERICA
By:
-----------------------------
SUNAMERICA INC.
By:
-----------------------------
Its:
-----------------------------
20
<PAGE> 21
UPCHURCH LIVING TRUST U/A/D 12/14/90
By:
-----------------------------
Its: Trustee
21
<PAGE> 1
EXHIBIT 10.6
LOAN AND SECURITY AGREEMENT
among
AMERICAN SHARED-CURACARE
and
CURACARE, INC.
Borrower,
AMERICAN SHARED HOSPITAL SERVICES
Guarantor,
ERNEST A. BATES, M.D.
Individual Guarantor
and
DVI BUSINESS CREDIT CORPORATION
Lender
Dated as of May 17, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
SECTION 1
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. SPECIFIC DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND UNIFORM COMMERCIAL CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 1.3. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2
LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.1. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.2. REVOLVING NATURE OF THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.3. INTEGRAL AMOUNTS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.4. NOTICE OF BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.5. REPAYMENT OF LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.6. PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.7. LENDER'S FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.8. INTEREST ON THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.9. CONDITIONS TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3
SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.1. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4
SPECIFIC REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.1. NAME OF GUARANTOR; BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.2. MERGERS AND CONSOLIDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.3. PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.4. CHANGE OF NAME OR IDENTITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.5. CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5
PROVISIONS CONCERNING ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.1. OFFICE AND RECORDS OF BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.2. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5.3. RETURNS AND REPOSSESSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.4. BORROWING BASE REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.5. SCHEDULES OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.6. LENDER'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.7. DISCLAIMER OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.8. POST DEFAULT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.9. ACCOUNTS OWED BY FEDERAL GOVERNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.10. BUSINESS ACTIVITY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 4
<TABLE>
SECTION 6
<S> <C>
PROVISIONS CONCERNING GENERAL INTANGIBLES . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.1. CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7.1. TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 7.2. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 7.3. LENDER'S DUTY OF CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 7.4. REINSTATEMENT OF LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 7.5. LENDER EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.6. INSPECTION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.7. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.1. CORPORATE STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.2. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.3. NO BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.4. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.5. DEFERRED COMPENSATION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.6. LITIGATION AND PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.7. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.8. LAWS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.9. FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.10. HEALTH CARE LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.11. CUMULATIVE REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.1. ENCUMBRANCE OF COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.2. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.3. CONDITION AND REPAIR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.4. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.5. ACCOUNTING SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.6. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.7. FURTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.8. ERISA COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 9.9. RESTRICTIONS ON MERGER, CONSOLIDATION,
SALE OF ASSETS, ISSUANCE OF STOCK, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.10. HEALTH CARE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9.11. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.12. SUBORDINATED OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.13. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.14. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.15. EQUIPMENT LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9.16. LENDER CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
iv
<PAGE> 6
<TABLE>
SECTION 10
<S> <C>
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 24
SECTION 11
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 11.1. SPECIFIC REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 11.2. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.3. EXPENSES SECURED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 11.4. EQUITABLE RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 11.5. REMEDIES ARE CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 12
INDEMNITY . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.1. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 13
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 30
SECTION 13.1. DELAY AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 13.2. COMPLETE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 13.3. SEVERABILITY; HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 13.4. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 13.5. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 13.6. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 13.7. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 13.8. WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
SCHEDULES
1.1. LIENS
3.1. GRANT OF SECURITY INTEREST
4.2. MERGERS AND CONSOLIDATIONS
4.3. PURCHASE OF ASSETS OUTSIDE ORDINARY COURSE OF BUSINESS
6.1. CONTRACTS
8.6. LITIGATION AND PROCEEDINGS
9.11 PERMITTED DISTRIBUTIONS
v
<PAGE> 7
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
May 17, 1995 by and among DVI Business Credit Corporation, a Delaware
corporation ("Lender"), American Shared-CuraCare, a California general
partnership ("AS-CuraCare") and CuraCare, Inc., a Delaware corporation
("CuraCare") (AS-CuraCare and CuraCare, collectively and individually referred
to as "Borrower"), American Shared Hospital Services, a California corporation
("Guarantor") and Ernest A. Bates, M.D. ("Individual Guarantor").
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS. The following definitions
shall apply:
(a) "Account Debtors" shall mean Borrower's and its
Affiliates' customers and all other persons who are obligated or indebted to
Borrower or any Affiliate in any manner, whether directly or indirectly,
primarily or secondarily, contingently or otherwise, with respect to Accounts.
(b) "Accounts" shall mean all accounts, contract rights,
instruments, documents, chattel paper and obligations in any form owing to
Borrower or any Affiliate arising out of the sale or lease of goods or the
rendition of services by Borrower or any Affiliate whether or not earned by
performance; all credit insurance, guaranties, letters of credit, advises of
credit and other security for any of the above; all merchandise returned to or
reclaimed by Borrower or any Affiliate; and Borrower's Books relating to any of
the foregoing.
(c) "Advance" shall mean an advance of loan proceeds
constituting all or a part of the Loan.
(d) "Affiliate" shall mean with respect to any Person, any
other Person which directly or indirectly Controls, is Controlled by or is under
common Control with that Person.
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<PAGE> 8
(e) "Borrower's Books" shall mean all of Borrower's and its
Affiliates' books and records including but not limited to: minute books,
ledgers; records indicating, summarizing or evidencing Borrower's and its
Affiliates' assets, liabilities and the Accounts; all information relating to
Borrower's and its Affiliates business operations or financial condition; and
all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
(f) "Base Rate" shall mean the rate of interest announced
publicly by Bank of America, NT&SA in San Francisco, California, from time to
time as its base rate.
(g) "Borrowing Base" shall mean, on the date of determination
thereof, an amount equal to the lesser of (i) the sum of seventy-five percent
(75%) of the Net Collectible Value for each type of Eligible Account, and (ii)
one hundred percent of Borrower's gross receipts from Institutional and Retail
Accounts during the preceding forty-five (45) day period; provided, however,
that workers compensation and personal injury claims may never exceed ten
percent (10%) of the Borrowing Base.
(h) "Closing Date" shall mean the date of the first Advance of
the Loan.
(i) "Collateral" shall have the meaning specified in Section
3.1 hereof.
(j) "Control" shall mean (i) the ownership of a majority of
the voting power of all classes of voting stock of a corporation, or (ii) the
ownership of a majority of the beneficial interest in income and capital of a
person other than a corporation.
(k) "Distribution" shall mean, with respect to any shares of
capital stock or any warrant or right to acquire shares of capital stock or any
other equity security, (i) the retirement, redemption, purchase or other
acquisition, directly or indirectly, for value by the issuer of any such
security, except to the extent that the consideration therefor consists of
shares of stock, (ii) the declaration or (without duplication) payment of any
2
<PAGE> 9
dividend in cash, directly or indirectly, on or with respect to any such
security, (iii) any investment in the holder of five percent (5%) or more of any
such security if a purpose of such investment is to avoid characterization of
the transaction as a Distribution, and (iv) any other cash payment constituting
a distribution under applicable laws with respect to such security.
(l) "Eligible Accounts" shall mean Borrower's accounts
receivable from commercial insurance, Medicare, Medi-Cal, managed care
providers, workers' compensation and personal injury claims (collectively
referred to as "Retail Accounts"), which have been due and payable for 90 or
fewer days, and Borrower's account receivable under contracts with hospitals and
other similar health service providers (referred to as "Institutional Accounts")
which have been due and payable for 90 or fewer days.
(m) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and all references to sections thereof shall include such
sections and any predecessor provisions thereto, including any rules or
regulations issued in connection therewith.
(n) "ERISA Affiliate" shall mean each trade or business
(whether or not incorporated) that together with Borrower would be deemed a
"contributing sponsor" to a single employee plan within the meaning of Section
4001 of ERISA.
(o) "Event of Default" shall have the meaning specified in
Section 10 hereof.
(p) "Governmental Authority" shall mean any governmental or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality thereof, or any court, tribunal, grand
jury or arbitrator, in any case whether foreign or domestic.
(q) "Guaranty" shall mean the Unconditional Continuing
Guaranty executed by Guarantor unconditionally guaranteeing Borrower's
Obligations under this Agreement.
(r) "Health Care Laws" shall mean all federal, state and local
laws specifically relating to health care providers and health care services,
including, but not limited to, Section
3
<PAGE> 10
1877(a) of the Social Security Act as amended by the Omnibus Budget
Reconciliation Act of 1993, 42 USC Section 1395nn.
(s) "Indebtedness" of a Person shall mean (i) all items
(except items of capital stock, capital or paid-in surplus or of retained
earnings) which, in accordance with generally accepted accounting principles,
would be included in determining total liabilities as shown on the liability
side of the balance sheet of such Person as of the date as of which Indebtedness
is to be determined, including any lease which, in accordance with generally
accepted accounting principles would constitute indebtedness; (ii) all
indebtedness secured by any mortgage, pledge, security, lien or conditional sale
or other title retention agreement to which any property or asset owned or held
by such Person is subject, whether or not the indebtedness secured thereby shall
have been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise then for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock or equity purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable.
(t) "Individual Guaranty" shall mean the Unconditional
Continuing Guaranty executed by Individual Guarantor unconditionally
guaranteeing Borrower's Obligations under this Agreement.
(u) "Intercreditor Agreement" shall mean that certain
Intercreditor Agreement dated on or about the date hereof among Guarantor,
AS-CuraCare, CuraCare, Lender, DVI Financial Services Inc. ("DVIFS") and General
Electric Company, a New York corporation acting through GE Medical Systems
("GE").
(v) "Lender Expenses" shall mean (i) all costs or expenses
(including, without limitation, taxes and insurance premiums) required to be
paid by Borrower or its Affiliates under this Agreement or under any of the
other Loan Documents that are paid or advanced by Lender; (ii) filing,
recording, publication and search fees paid or incurred by Lender in connection
with Lender's transactions with Borrower; (iii) costs and expenses incurred by
Lender to correct any Event of Default or enforce any provision of
4
<PAGE> 11
the Loan Documents or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, and preparing for sale or advertising to
sell the Collateral, whether or not a sale is consummated, after the occurrence
of an Event of Default; (iv) costs and expenses of suit incurred by Lender in
enforcing or defending the Loan Documents or any portion thereof; (v) all costs
or expenses incurred by Lender to convert any data submitted to Lender by
Borrower or Guarantor to an acceptable form; and (vi) Lender's reasonable
attorney fees and expenses incurred (before or after execution of this
Agreement) in advising Lender with respect to, or in structuring, drafting,
reviewing, negotiating, amending, terminating, enforcing, defending or otherwise
concerning, the Security Documents or any portion thereof, irrespective of
whether suit is brought.
(w) "Lien" shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
(x) "Loan" shall mean each loan or any other loan or loans
made by Lender to Borrower pursuant to this Agreement.
(y) "Loan Documents" shall mean (i) this Agreement; (ii) the
Note; (iii) the Security Documents; (iv) any other agreements or documents
hereafter delivered to secure repayment of the Loan; (v) the Lock Box Agreement
and (vi) any other certificates, documents or instruments delivered by Borrower
to Lender pursuant to the terms of this Agreement.
(z) "Lock Box Agreement" shall mean the letter of direction
with respect to those certain Lock Box Agreements between Borrower and First
Interstate Bank of California and between Borrower and Bank of America NT & SA.
(aa) "Net Collectible Percentage" shall mean seventy percent
(70%) with respect to Retail Accounts and ninety-five percent (95%) with respect
to Institutional Accounts.
(bb) "Net Collectible Value" shall mean, for each type of
Eligible Account, the Net Collectible Percentage times the aggregate current
outstanding amount for such type of Eligible Account.
5
<PAGE> 12
(cc) "Note" shall mean the Secured Promissory Note executed by
Borrower pursuant to the terms of this Agreement.
(dd) "Obligations" shall mean (i) the due and punctual payment
of all amounts due or become due under the Note; (ii) the performance of all
obligations of Borrower under this Agreement, the Note and all other Loan
Documents (iii) all extensions, renewals, modifications, amendments and
refinancings of any of the foregoing; (iv) all Lender Expenses; (v) all loans,
advances, indebtedness and other obligations owed by Borrower to Lender of every
description whether now existing or hereafter arising (including those owed by
Borrower to others and acquired by Lender by purchase, assignment, or otherwise)
and whether direct or indirect, primary or as guarantor or surety, absolute or
contingent, liquidated or unliquidated, matured or unmatured, whether or not
secured by additional collateral; and (vi) all loans, advances, indebtedness and
other obligations owed by Borrower to Lender under the Other Loan Document of
every description whether now existing or hereafter arising (including those
owed by Borrower to others and acquired by Lender by purchase, assignment or
otherwise) and whether direct or indirect, primary or as guarantor or surety,
absolute or contingent, liquidated or unliquidated, matured or unmatured,
whether or not secured by additional collateral.
(ee) "Other Loan Document" shall mean that certain Loan and
Security Agreement dated on or about the date hereof among Borrower, Guarantor,
Individual Guarantor and DVIFS.
(ff) "Permitted Liens" shall mean (i) Liens for property taxes
and assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other
6
<PAGE> 13
Liens of like general nature incurred in the ordinary course of business and not
in connection with the borrowing of money; provided that in each case the
obligation secured is not overdue or, if overdue, is being contested in good
faith by appropriate actions or proceedings; and further provided that any such
warehouse's or statutory landlord's Liens have been subordinated to the Liens of
Lender in a manner satisfactory to Lender; and (iv) Liens existing on the date
of this Agreement that secure indebtedness outstanding on such date and that are
disclosed on Schedule 1.1 hereto;
(gg) "Person" shall mean an individual, corporation,
partnership, limited liability company, trust, unincorporated association, joint
venture, joint-stock company, government (including political subdivisions),
Governmental Authority or any other entity.
(hh) "Proceeds" shall mean all proceeds and products of
Collateral and all additions and accessions to, replacements of, insurance or
condemnation proceeds of, and documents covering Collateral; all property
received wholly or partly in trade or exchange for Collateral; all claims
against third parties arising out of damage, destruction or decrease in value of
the Collateral; all leases of Collateral; and all rents, revenues, issues,
profits and proceeds arising from the sale, lease, license, encumbrance,
collection or any other temporary or permanent disposition of the Collateral or
any interest therein.
(ii) "Security Documents" shall mean the Guaranty, the
Individual Guaranty and any agreement or instrument entered into between
Borrower and Lender or executed by Borrower, Guarantor or Individual Guarantor
and delivered to Lender in connection with this Agreement.
(jj) "Senior-Subordinated Notes" shall mean Guarantor's 16
1/2% Senior Subordinated Exchangeable Notes Due 1996 and Borrower's 14 3/4%
Senior Subordinated Notes Due 1996.
(kk) "Termination Date" shall mean May 31, 1997.
(ll) "Unmatured Default" shall mean any event or condition
that, with notice, passage of time, or a determination by Lender or any
combination of the foregoing would constitute an Event of Default.
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<PAGE> 14
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
UNIFORM COMMERCIAL CODE. All financial terms used in this Agreement, other than
those defined in this Section 1, have the meanings accorded to them under
generally accepted accounting principles. All other terms used in this
Agreement, other than those defined in this Section 1, have the meanings
accorded to them in the Uniform Commercial Code as enacted in any applicable
jurisdiction.
SECTION 1.3. CONSTRUCTION.
(a) Unless the context of this Agreement clearly requires
otherwise, the plural includes the singular, the singular includes the plural,
the part includes the whole, "including" is not limiting, and "or" has the
inclusive meaning of the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder" and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of this
Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and its counsel and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
SECTION 2.1. THE LOAN. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender agrees to
advance to Borrower, individually or collectively, from time to time and
Borrower agrees to borrow from Lender, revolving loans in an amount not to
exceed the lesser of (i) Four Million Dollars ($4,000,000) (the "Commitment
Amount"), and (ii) the Borrowing Base, which shall be evidenced by a Note.
Notwithstanding the above, the parties hereto acknowledge that the initial
Borrowing Base is, and shall remain for a period of ten business days,
$3,000,000. The proceeds of the Loan shall be used by Borrower to fund a
Distribution to Borrower's corporate parent,
8
<PAGE> 15
Guarantor, for the purpose of repaying a portion of the Senior-Subordinated
Notes and as a part of Borrower's working capital. The Borrowing Base shall be
calculated on a daily basis on the reports delivered to Lender pursuant to
Section 5.4.
SECTION 2.2. REVOLVING NATURE OF THE LOAN. On a daily basis
the Borrowing Base will be recalculated by adding daily billings to the prior
week's Eligible Accounts and subtracting deposits and adjustments, if applicable
and then multiplying this amount by the Net Collectable Percentage. The Loan may
be repaid or prepaid pursuant to Sections 2.5 or 2.6 and shall be mandatorily
prepaid pursuant to Section 2.6 by the Borrower. Subject to the provisions of
this Agreement, any amounts repaid may be reborrowed, up to the amounts
available under Section 2.1 at the time of such Borrowing, until prepaid the
business day immediately preceding the Termination Date. Lender's commitments to
make Advances shall expire, and the amount of Loan then outstanding shall mature
and be repaid by Borrower, without further action on the part of Lender, on the
Termination Date.
SECTION 2.3. INTEGRAL AMOUNTS OF LOANS. Advances may be of any
minimum amount.
SECTION 2.4. NOTICE OF BORROWING. Whenever Borrower desires to
borrow under Section 2.1, Borrower shall deliver to Lender a Drawdown Request
Form, in a form reasonably satisfactory to Lender, signed by an authorized
officer no later than 11:00 a.m. at least one (1) business day in advance of the
proposed funding date. The Drawdown Request Form shall specify (i) the funding
date (which shall be a business day) with respect to the requested Loan and (ii)
the amount of the proposed Advance.
SECTION 2.5. REPAYMENT OF LOAN. All receipts from Borrower's
and its Affiliates' accounts receivable shall be deposited on a daily basis in a
bank depository lock box in accordance with the terms of the Lock Box Agreement.
Lender will debit the lock box account at the end of each day in payment of (i)
Lender's fees then due and payable in accordance with Section 2.7, (ii) amounts
then due and payable under the Other Loan Document, and (iii) on the first day
of each month with respect to interest accrued on the Loan during the preceding
month. Excess receipts remaining in the lock box account after the payment of
fees and interest shall be applied to the principal amount of the Loan on a
daily basis. Lender will credit Borrower's account in
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accordance with the foregoing priorities with respect to all funds debited net
of fees from the lock box account on a daily basis. Notwithstanding the
foregoing, after the occurrence and during the continuance of an Event of
Default, receipts in the lock box will be distributed in accordance with the
relative priorities set forth in and the terms and conditions of the
Intercreditor Agreement.
SECTION 2.6. PREPAYMENT. The Loan shall be subject to
prepayment or redemption in whole or in part at the end of any month prior to
the Termination Date. This Loan Agreement may not be terminated, and will not be
terminated by any prepayment, without payment of the termination fee required
pursuant to Section 2.7. If any aging report or Borrowing Base report delivered
to Lender pursuant to Section 5.4 indicates that the outstanding Loan amount
exceeds the Borrowing Base, Borrower shall immediately prepay a portion of the
outstanding Loan amount such that after such prepayment the Borrowing Base
equals or exceeds the outstanding Loan amount.
SECTION 2.7. LENDER'S FEES. Upon the execution of this
Agreement, Borrower shall pay to Lender a loan origination fee of Eighty
Thousand Dollars ($80,000). On or before the anniversary date of the effective
date of this Agreement, Borrower shall pay Lender a renewal fee of Forty
Thousand Dollars ($40,000). On or before the first day of each month Borrower
shall pay Lender a monthly maintenance fee of Two Thousand Five Hundred Dollars
($2,500). On or before the first day of each month Borrower shall pay Lender an
unutilized loan fee of equal to one-half of one percent (0.5%) of the difference
between the Commitment Amount and the outstanding Loan amount as of the
immediately previous month-end. If Borrower elects to terminate this Agreement
at any time before the Termination Date, Borrower shall pay Lender a termination
fee of Eighty Thousand Dollars ($80,000) if terminated prior to the anniversary
date of this Agreement and Forty Thousand Dollars ($40,000) thereafter. Lender's
fees will be deducted, when due, directly from receipts from accounts receivable
deposited in accordance with Section 2.5.
SECTION 2.8. INTEREST ON THE LOANS. All Advances shall bear
interest on the unpaid principal amount thereof from the date made until paid in
full at a fluctuating rate equal to the Base Rate plus five percent (5.0%). The
outstanding principal balance of all other Obligations shall bear interest from
the date such Obligations are due until paid in full at a fluctuating rate equal
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to the Base Rate plus five percent (5.0%). Interest accrued but not paid
pursuant to Section 2.5 shall be treated as an Advance if not otherwise paid
within five (5) days of the end of the month in which it accrues.
SECTION 2.9. CONDITIONS TO THE CLOSING. The obligation of
Lender to make Advances under this Agreement is subject to Lender's
determination that Borrower as of the date of the Advance has satisfied, and
continues to satisfy, the following conditions:
(a) The representations and warranties set forth in this
Agreement and in the Other Loan Document shall be true and correct on and as of
the date hereof and shall be true and correct in all material respects as of the
date of the Advance and Borrower shall have performed all obligations which were
to have been performed by it hereunder.
(b) Borrower shall have executed and delivered to Lender (or
shall cause to be executed and delivered to Lender by the appropriate Persons)
the following:
(i) this Agreement;
(ii) the Note;
(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Individual Guaranty;
(vi) the Intercreditor Agreement;
(vii) the Lock Box Agreement;
(viii) evidence satisfactory to Lender that each of
CuraCare, Guarantor and the general partners of AS-CuraCare is a corporation
duly formed, validly existing and in good standing in the state in which it was
formed and in each state in which it is authorized to do business;
(ix) pay-off letters, UCC Termination Statements
and Lien Releases as required to grant Lender a first priority security
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interest other than Permitted Liens in Collateral pledged as security for
repayment of the Loan;
(x) repayment of the Senior-Subordinated Notes on
terms and conditions satisfactory to Lender;
(xi) certified copies of resolutions of the Board of
Directors of CuraCare, Guarantor and the general partners of AS-CuraCare
authorizing the execution and delivery of Loan Documents to be executed by
Borrower and Guarantor;
(xii) copies of the Articles of Incorporation of each
of CuraCare, Guarantor and the general partners of AS-Curacare, certified by the
Secretary of State;
(xiii) copies of the Bylaws of each of CuraCare,
Guarantor and the general partners of AS-CuraCare certified by an officer
thereof;
(xiv) a copy of the Partnership Agreement of CuraCare
certified by a general partner;
(xv) the written opinion of counsel to Borrower
issued on the Closing Date and satisfactory to Lender in scope and substance;
and
(xvi) a certificate from an officer of Borrower
indicating that the representations and warranties contained herein are true and
correct as of the Closing Date.
(c) Borrower shall have paid closing fees to Lender including
Lender's legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default shall
have occurred and be continuing.
(e) None of Borrower, Guarantor or Individual Guarantor shall
not have suffered a material or adverse change in its business, operations or
financial condition from that reflected in the Financial Statements of Borrower,
Guarantor and Individual Guarantor delivered to Lender or otherwise.
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(f) Lender shall have received such additional supporting
documents, certificates and assurances as Lender shall reasonably request which
shall be satisfactory to Lender in form and substance.
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST. In order to secure
prompt payment and performance of all Obligations, Borrower hereby grants to
Lender a continuing first-priority pledge and security interest in the following
property of Borrower, subject to terms of the Intercreditor Agreement (the
"Collateral"), whether now owned or existing or hereafter acquired or arising
and regardless of where located subject only to Permitted Liens. This security
interest in the Collateral shall attach to all Collateral without further action
on the part of Lender or Borrower.
The Collateral shall consist of the following, subject in each
case only to Permitted Liens and the terms and conditions of the Intercreditor
Agreement, together with such third-party consents, lien waivers and estoppel
certificates as Lender shall reasonably require:
(a) all of Borrower's presently existing and hereafter arising
Accounts, contract rights, instruments, notes, drafts, documents, chattel paper
and all other forms of obligations owing to Borrower arising out of the sale or
lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and
all of Borrower's Books relating to any of the foregoing, and the Proceeds of
any of the foregoing, including the pledge to it of the Accounts, cash and
non-cash Proceeds subject only to Permitted Liens;
(b) all of Borrower's equipment and machinery listed on
Schedule 3.1 and all machine tools, motors, tools, parts, attachments,
accessories, accessions, replacements, upgrades, substitutions, additions and
improvements related thereto, wherever located, and the Proceeds of any of the
foregoing, including cash and non-cash Proceeds.
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(c) all of Borrower's presently existing and hereafter
acquired general intangibles (including, without limitation, any and all choses
or things in action, goodwill, patents, trade names, trademarks, blueprints,
drawings, purchase orders, computer programs, computer discs, computer tapes,
literature, reports, catalogues, deposit accounts and tax refunds) other than
goods and accounts, as well as all of Borrower's Books relating to any of the
foregoing, and the Proceeds of any of the foregoing, including cash and non-cash
Proceeds;
(d) all of Borrower's presently existing and hereafter
acquired inventory including, without limitation, goods held for sale or lease
or to be furnished under a contract of service, wherever located, and any
documents of title representing any of the above, and the Proceeds of any of the
foregoing, including cash and non-cash Proceeds;
provided, however, anything in the foregoing notwithstanding the Collateral does
not include, and Lender takes no security interest in, equipment leased by GE or
any other equipment lessor to Borrower or Borrower's leasehold interest in such
equipment.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF GUARANTOR; BORROWER.
(a) The exact corporate name of Guarantor is American
Shared Hospital Services. Guarantor was incorporated under the laws of the State
of California. The following are all previous legal names of Guarantor: None.
Guarantor uses the following trade names: None. The following are all other
trade names used by Guarantor in the past: None.
(b) The exact corporate name of CuraCare is CuraCare,
Inc. CuraCare was incorporated under the laws of the State of Delaware. The
following are all previous legal names of CuraCare: None. CuraCare uses the
following trade names: None. The following are all other trade names used by
CuraCare in the past: None.
(c) The exact name of AS-CuraCare is American
Shared-CuraCare. AS-CuraCare was formed under the laws of the
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State of California. The following are all previous legal names of AS-CuraCare:
None. AS-CuraCare uses the following trade names: None. The following are all
other trade names used by AS-CuraCare in the past: None.
SECTION 4.2. MERGERS AND CONSOLIDATIONS. Except as disclosed
on Schedule 4.2, no entity has merged into any of Borrower or its Affiliates or
been consolidated with Borrower or any Affiliate.
SECTION 4.3. PURCHASE OF ASSETS. Except as disclosed on
Schedule 4.3 no entity has sold substantially all of its assets to Borrower or
any Affiliate or sold assets to Borrower or any Affiliate outside the ordinary
course of such seller's business at any time in the past.
SECTION 4.4. CHANGE OF NAME OR IDENTITY. Borrower shall not
change its or its Affiliates' name, business structure or identity or use or
permit any Affiliate to use any new trade name with prior notifications of
Lender or merge or permit any Affiliate to merge into or consolidate with any
other entity.
SECTION 4.5. CORPORATE STRUCTURE. Guarantor is the direct or
indirect holder of one hundred percent (100%) of the ownership interests,
whether stock or partnership interests, of CuraCare and AS-CuraCare. Individual
Guarantor is the holder of twenty-five percent (25%) or more of the common stock
of Guarantor. Such common stock is the sole authorized class of stock in
Guarantor.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
SECTION 5.1. OFFICE AND RECORDS OF BORROWER. Borrower's and
Guarantor's chief executive offices are located at: Four Embarcadero Center,
Suite 3620, San Francisco, California 94111. Borrower and Guarantor maintain all
of their records with respect to Accounts at 1400 Lone Palm Avenue, Modesto,
California 95351. Borrower and Guarantor have not at any time within the past
four (4) months maintained their chief executive office or their records with
respect to Accounts at any other location and shall not do so hereafter except
with the prior written consent of Lender.
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SECTION 5.2. REPRESENTATIONS. Borrower and Guarantor represent
and warrant that each Account at the time of its assignment to Lender (a) will
be owned solely by Borrower, (b) will be for a liquidated amount maturing as
stated in Borrower's Books; (c) will be a bona fide existing obligation created
by the rendition of services to Account Debtors or their insured by Borrower in
the ordinary course of its business; and (d) will not be subject to any known
deduction, offset, counterclaim, return privilege, or other condition, except as
reflected on Borrower's Books. Borrower and Guarantor shall neither redate any
invoices nor reissue new invoices in full or partial satisfaction of old
invoices nor permit an Affiliate to do so. Allowances, if any, as between
Borrower and its customers will be on the same basis and in accordance with the
usual customary practices of Borrower as they exist on the date of this
Agreement.
SECTION 5.3. RETURNS AND REPOSSESSIONS. Borrower shall notify
Lender within five (5) business days of occurrence of all material claims
asserted by Account Debtors.
SECTION 5.4. BORROWING BASE REPORTS. Borrower shall on a
weekly basis execute and deliver to Lender, in a form satisfactory to Lender,
(i) a Borrowing Base report; (ii) a detailed aging of Accounts; and (iii) a
charges, collections and adjustment summary for the week. Borrower shall on a
daily basis execute and deliver to Lender an updated Borrowing Base report
reflecting additional daily billings, writeoffs and deposits and all of
Borrower's accounts receivable data in a computer disc or tape format acceptable
to Lender. Lender shall periodically review Borrower's actual adjustments to
cash receipts and writeoffs, as well as Borrower's payor profile. To the extent
Borrower's adjustments, writeoffs and payor profile materially changes, Lender
may, in its sole discretion, change the Net Collectible Percentage attributable
to each type of account by written notice to Borrower of such change.
SECTION 5.5. SCHEDULES OF ACCOUNTS. From time to time,
Borrower shall provide Lender with schedules describing in the aggregate all
Accounts created or acquired by Borrower; provided, however, that Borrower's
failure to execute and deliver such schedules or assignments shall not affect or
limit Lender's security interests and other rights in and to the Accounts.
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Together with each schedule, Borrower shall, if requested by Lender, furnish
Lender with copies of Borrower's sales journals or invoices, customer purchase
orders or the equivalent, and original shipping or delivery receipts for all
goods sold, and Borrower warrants the genuineness thereof.
SECTION 5.6. LENDER'S RIGHTS. Any officer, employee or agent
of Lender shall have the right, at any time or times hereafter, in the name of
Lender or its nominee (including Borrower), with prior notice to Borrower, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone or otherwise; and all reasonable costs thereof shall be payable
by Borrower to Lender. Lender, or its designee may at any time after default by
Borrower hereunder notify customers or Account Debtors that Accounts have been
assigned to Lender or of Lender's security interest therein and after default by
Borrower hereunder collect the same directly and charge all reasonable
collection costs and expenses to Borrower's account.
SECTION 5.7. DISCLAIMER OF LIABILITY. Lender shall not be
liable to Borrower or any third person for the correctness, validity or
genuineness of any instruments or documents released or endorsed to Borrower by
Lender (which shall automatically be deemed to be without recourse to Lender in
any event) or for the existence, character, quantity, quality, condition, value
or delivery of any goods purporting to be represented by any such documents; and
Lender, by accepting a Lien on the Collateral or by releasing any Collateral to
Borrower, shall not be deemed to have assumed any obligation or liability to any
supplier or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.7.
SECTION 5.8. POST DEFAULT RIGHTS. If an Event of Default has
occurred and is continuing hereunder, no discount, credit or allowance shall be
granted or permitted by Borrower to any Account Debtor. Lender may, after
default by Borrower, settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms that Lender considers advisable, and in such
cases, Lender will credit Borrower's account with only the net amounts received
by Lender in payment of such disputed Accounts, after deducting all Lender
Expenses incurred in connection therewith.
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SECTION 5.9. ACCOUNTS OWED BY FEDERAL GOVERNMENT. If any
Accounts shall arise out of a contract with the United States of America or any
department, agency, subdivision or instrumentality thereof, Borrower shall
promptly notify Lender thereof in writing and take all other action requested by
Lender to protect Lender's Lien on such Accounts under the provisions of the
federal laws on assignment of claims.
SECTION 5.10. BUSINESS ACTIVITY REPORTS. Borrower and its
Affiliates have filed and shall file all legally required notices and reports of
its business activities with the California taxing authorities and the
appropriate Governmental Authority of each other jurisdiction in which Borrower
or an Affiliate is legally required to file such a notice or report.
SECTION 6
PROVISIONS CONCERNING GENERAL INTANGIBLES
SECTION 6.1. CONTRACTS.
(a) Schedule 6.1. is a true and complete list of all material
contracts and agreements to which Borrower or any Affiliate is a party.
(b) Neither Borrower nor any of its Affiliates shall amend,
modify or supplement any contract or agreement included in the Collateral or
waive any provision thereof other than in accordance with Borrower's standard
business practice, nor shall such standard business practice be materially
changed without Lender's consent, which shall not be unreasonably withheld.
(c) Borrower and its Affiliates shall remain liable to perform
all of its duties and obligations under any contracts and agreements included in
the Collateral to the same extent as if this Agreement had not been executed;
and Lender shall not have any obligation or liability under such contracts and
agreements by reason of this Agreement or otherwise.
(d) Borrower and its Affiliates need not pay any amount due
under any contract or agreement listed on Schedule 6.1, nor otherwise perform
any action required under the terms of any such contract or agreement, if such
payment or performance is being
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contested in good faith by appropriate proceedings promptly initiated and
diligently conducted, if Lender is notified in advance of such contest, and if
Borrower or an Affiliate establishes any reserve or other appropriate provision
required by generally accepted accounting principles and deposits with Lender
cash or an acceptable bond reasonably requested by Lender.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
SECTION 7.1. TITLE. Borrower has good and marketable title to
the Collateral, and the Liens granted to Lender pursuant to this Agreement are
fully perfected first-priority Liens, subject only to the terms of the
Intercreditor Agreement and the proper filing of any financing statement or
notice necessary to provide notice to third parties of the existence of such
Liens, in and to the Collateral with priority over the rights of every person in
the Collateral is free, clear, and unencumbered by any Liens in favor of any
person other than Lender except for Permitted Liens.
SECTION 7.2. FURTHER ASSURANCES. Borrower shall execute and
deliver to Lender, concurrent with Borrower's execution of this Agreement and at
any time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the Collateral and
in order to consummate fully all of the transactions contemplated under the Loan
Documents. Borrower and Guarantor hereby irrevocably make, constitute and
appoint Lender (and any of Lender's officers, employees or agents designated by
Lender) as Borrower's and its Affiliates' true and lawful attorney with power to
sign the name of Borrower and its Affiliates on any of the above-described
documents or on any other similar documents that need to be executed, recorded
or filed in order to perfect or continue perfected Lender's Liens in the
Collateral. The appointment of Lender as Borrower's and its Affiliates' attorney
is irrevocable as long as any Obligations are outstanding. Any person dealing
with Lender shall be entitled to
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rely conclusively on any written or oral statement of Lender that this power of
attorney is in effect.
SECTION 7.3. LENDER'S DUTY OF CARE. Lender shall have no duty
of care with respect to the Collateral except that Lender shall exercise
reasonable care with respect to the Collateral in Lender's custody. Lender shall
be deemed to have exercised reasonable care if such property is accorded
treatment substantially equal to that which Lender accords its own property or
if Lender takes such action with respect to the Collateral as the Borrower shall
request or agree to in writing provided that no failure to comply with any such
request nor any omission to do any such act requested by the Borrower shall be
deemed a failure to exercise reasonable care. Lender's failure to take steps to
preserve rights against any parties or property shall not be deemed to be
failure to exercise reasonable care with respect to the Collateral in Lender's
custody. All risk, loss, damage or destruction of the Collateral shall be borne
by Borrower.
SECTION 7.4. REINSTATEMENT OF LIENS. If, at any time after
payment in full by Borrower of all Obligations and termination of Lender's
Liens, any payments on Obligations previously made by Borrower or any other
Person must be disgorged by Lender for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy, or reorganization of Borrower or such
other Person), this Agreement and Lender's Liens granted hereunder shall be
reinstated as to all disgorged payments as though such payments had not been
made, and Borrower shall sign and deliver to Lender all documents and things
necessary to perfect all terminated Liens.
SECTION 7.5. LENDER EXPENSES. If Borrower or an Affiliate
fails to pay any moneys (whether taxes, assessments, insurance premiums or
otherwise) due to third persons or entities, fails to make any deposits or
furnish any required proof of payment or deposit or fails to discharge any Lien
not permitted hereby, all as required under the terms of this Agreement, then
Lender may, to the extent that it determines that such failure by Borrower or
its Affiliates could have a material adverse effect on Lender's interests in the
Collateral, in its discretion and without prior notice to Borrower, make payment
of the same or any part thereof. Any amounts paid or deposited by Lender shall
constitute Lender Expenses, shall become part of the Obligations, shall bear
interest at the rate of eighteen percent (18%) per annum, and shall be
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secured by the Collateral. Any payments made by Lender shall not constitute (a)
an agreement by Lender to make similar payments in the future or (b) a waiver by
Lender of any Event of Default under this Agreement. Lender need not inquire as
to, or contest the validity of, any such expense, tax, security interest,
encumbrance or Lien and the receipt of the usual official notice for the payment
of moneys to a governmental entity shall be conclusive evidence that the same
was validly due and owing.
Borrower shall immediately and without demand reimburse Lender
for all sums expended by Lender that constitute Lender Expenses, and Borrower
hereby authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
SECTION 7.6. INSPECTION OF RECORDS. During usual business
hours, Lender shall have the right to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter relating to, the
Collateral and Guarantor's and Borrower's financial condition and Borrower
agrees to reimburse Lender for its costs and expenses in doing so and to copy
and make extracts therefrom. Guarantor and Borrower waive the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by Lender pursuant
to this Agreement and agrees that Lender may directly contact any such
accounting firm or service bureau in order to obtain such information.
SECTION 7.7. WAIVERS. Except as specifically provided for
herein, Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper and guaranties
at any time held by Lender on which Borrower may in any way be liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby
warrants and represents to Lender the following:
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SECTION 8.1. CORPORATE STATUS. Each of CuraCare, Guarantor and
AS-CuraCare's general partners is a corporation validly existing and in good
standing under the laws of the state of its incorporation; AS-CuraCare is a
general partnership validly existing under the laws of the State of California;
and each of such entities is qualified and licensed to do business and is in
good standing in any state in which the conduct of its business or its ownership
of property requires that it be so qualified or licensed, and has the power and
authority (corporate and otherwise) to execute and carry out the terms of the
Loan Documents to which it is a party, to own its assets and to carry on its
business as currently conducted.
SECTION 8.2. AUTHORIZATION. The execution, delivery, and
performance by Borrower and Guarantor of this Agreement and each Loan Document
have been duly authorized by all necessary corporate or partnership action.
Borrower, Guarantor and Individual Guarantor have duly executed and delivered
this Agreement and each Loan Document to which they are a party, and each of
them constitutes a valid and binding obligation of Borrower, Guarantor and
Individual Guarantor, as applicable, enforceable according to its terms except
as limited by equitable principles and by bankruptcy, insolvency or similar laws
affecting the rights of creditors generally.
SECTION 8.3. NO BREACH. The execution, delivery and
performance by Borrower, Guarantor and Individual Guarantor of this Agreement
and each Loan Document to which they or an Affiliate is a party (a) will not
contravene any law or any governmental rule or order binding on Collateral; (b)
will not violate any provision of the articles of incorporation, bylaws or
partnership agreement, as applicable, of Borrower or its Affiliates; (c) will
not violate any agreement or instrument by which Borrower, its Affiliates or
Individual Guarantor, as applicable, is bound; (d) do not require any notice to
consent by any governmental body; and (e) will not result in the creation of a
Lien on any assets of Borrower or its Affiliates except the Lien to Lender
granted herein.
SECTION 8.4. TAXES. All assessments and taxes, whether real,
personal or otherwise, due or payable by or imposed, levied or assessed against
Borrower, its Affiliates or any of their property have been paid in full before
delinquency or before the expiration of any extension period; and Borrower and
its Affiliates have made due and timely payment or deposit of all federal,
state,
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and local taxes, assessments or contributions required of it by law, except only
for items that Borrower or its Affiliates are currently contesting diligently
and in good faith and that have been fully disclosed in writing to Lender.
SECTION 8.5. DEFERRED COMPENSATION PLANS. Borrower and each
ERISA Affiliate have made all required contributions to all deferred
compensation plans to which such person is required to contribute, and neither
Borrower nor any ERISA Affiliate has any liability for any unfunded benefits of
any single-employer or multi-employer plans. Neither Borrower nor any ERISA
Affiliate is or at any time has been a sponsor of, provided, or maintained for
any employees any defined benefit plan.
SECTION 8.6. LITIGATION AND PROCEEDINGS. Except as set forth
on Schedule 8.6 attached hereto, there are no outstanding judgments against
Borrower, its Affiliates or any of their assets and there are no actions or
proceedings pending by or against Borrower or its Affiliates before any court or
administrative agency. Borrower has no knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving Borrower or its Affiliates,
except for ongoing collection matters in which Borrower or its Affiliates are
the plaintiff and except as set forth in Schedule 8.6 hereto.
SECTION 8.7. BUSINESS. Borrower and its Affiliates have all
franchises, authorizations, patents, trademarks, copyrights and other rights
necessary to advantageously conduct their business. They are all in full force
and effect and are not in known conflict with the rights of others. Neither
Borrower nor any of its Affiliates is a party to or subject to any agreement or
restriction that is so unusual or burdensome that it might have a material
adverse effect on Borrower's or its Affiliates' business, properties or
prospects.
SECTION 8.8. LAWS AND AGREEMENTS. Borrower and its Affiliates
are in compliance with all material agreements applicable to it, including
obligations to contribute to any employee benefit plan or pension plan regulated
by ERISA. Borrower and its Affiliates are in material compliance with all laws
applicable to it. For purposes of this Section 8.8, compliance with the GE
Affected Debt (as defined in the Intercreditor Agreement) shall mean that an
"Event of Default", as such term is
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defined with respect to the GE Affected Debt, has not occurred and is continuing
with respect thereto.
SECTION 8.9. FINANCIAL CONDITION. All financial statements and
information relating to Borrower and its Affiliates that have been or may
hereafter be delivered by Borrower to Lender are accurate and complete and have
been prepared in accordance with generally accepted accounting principles
consistently applied. Borrower and its Affiliates have no material obligations
or liabilities of any kind not disclosed in that financial information, and
there has been no material adverse change in the financial condition of Borrower
or its Affiliates since the date of the most recent financial statements
submitted to Lender.
SECTION 8.10. HEALTH CARE LAWS.
(a) Borrower and its Affiliates have obtained all permits,
licenses and other authorizations that are required under Health Care Laws
applicable to Borrower and such Affiliates are in compliance in all material
respects with all terms and conditions of the required permits, licenses and
authorizations, and are also in compliance in all material respects with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in such Health
Care Laws.
(b) Borrower is not aware of, and has not received notice of,
any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against Borrower or its
Affiliates, relating in any way to Health Care Laws.
SECTION 8.11. CUMULATIVE REPRESENTATIONS. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements that
Borrower shall give, or cause to be given, to Lender, either now or hereafter.
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SECTION 9
COVENANTS
SECTION 9.1. ENCUMBRANCE OF COLLATERAL. Borrower shall not
create, incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower or its Affiliates, except for Liens to Lender and
Permitted Liens.
SECTION 9.2. BUSINESS. Borrower and its Affiliates shall
engage primarily in business of the same general character as that now conducted
by Borrower and its Affiliates.
SECTION 9.3. CONDITION AND REPAIR. Borrower and its Affiliates
shall maintain in good repair and working order all properties used in their
business and from time to time shall make all appropriate repairs and
replacements thereof.
SECTION 9.4. TAXES. Borrower and its Affiliates shall pay all
taxes, assessments and other governmental charges imposed upon it or any of its
assets or in respect of any of its franchises, business, income or profits
before any penalty or interest accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
that have become due and payable and that by law have or might become a Lien or
charge upon any of its assets, provided that (unless any material item or
property would be lost, forfeited or materially impaired as a result thereof) no
such charge or claim need be paid if it is being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted, if Lender
is notified in advance of such contest, and if Borrower or an Affiliate
establishes any reserve or other appropriate provision required by generally
accepted accounting principles with Lender and deposits cash or an acceptable
bond in an amount equal to twice the amount of such charge or claim. Borrower
and its Affiliates shall make timely payment or deposit of all FICA payments and
withholding taxes required of it by applicable laws and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower or an
Affiliate has made such payments or deposits.
SECTION 9.5. ACCOUNTING SYSTEM. Borrower and its Affiliates at
all times hereafter shall maintain a standard and
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modern system of accounting in accordance with generally accepted accounting
principles consistently applied, with ledger and account cards or computer
tapes, disks, printouts and records that contain information pertaining to the
Collateral that may from time to time be requested by Lender. Borrower shall not
modify or change its method of accounting or enter into any agreement hereafter
with any third-party accounting firm or service bureau for the preparation or
storage of Borrower's accounting records without said accounting firm's or
service bureau's agreeing to provide to Lender information regarding the
Collateral and Borrower's financial condition.
SECTION 9.6. FINANCIAL STATEMENTS. Guarantor shall submit
monthly financial statements, showing a comparison of actual expenditures to
budgeted amounts, with respect to Guarantor on a consolidated basis, to Lender
as soon as available, and in any event within twenty (20) days of the end of
each month. Guarantor shall provide Lender with copies of all reports filed by
it with the Securities and Exchange Commission. Additionally, Guarantor will
submit audited financial statements with respect to Guarantor on a consolidated
basis to Lender as soon as available, and in any event within ninety (90) days
of the end of each fiscal year. With all financial statements, Guarantor will
also deliver a certificate of its chief financial officer attesting that no
Event of Default or Unmatured Default under the Agreement has occurred and is
continuing.
SECTION 9.7. FURTHER INFORMATION. Guarantor or Borrower shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's financial condition
and any condition or event that constitutes a breach of or event that
constitutes an Event of Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning
Guarantor's, Borrower's and its Affiliates' credit standing.
SECTION 9.8. ERISA COVENANTS. Guarantor and Borrower shall,
and shall cause each ERISA Affiliate to, comply with all applicable provisions
of ERISA and all other laws applicable to any deferred compensation plans with
which Guarantor, Borrower or any ERISA Affiliate is associated, and shall
promptly notify Lender of the occurrence of any event that could result in any
material
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liability of Borrower to any person to any person whatsoever with respect to any
such plan.
SECTION 9.9. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF
ASSETS, ISSUANCE OF STOCK, ETC. Unless authorized by Lender, Guarantor and
Borrower shall not, nor shall they permit any Affiliate, to:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets in any
transaction or series of related transactions (other than sales in the ordinary
course of business);
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(d) acquire interests in excess of Two Hundred Forty Thousand
Dollars ($240,000) in the aggregate in any calendar year in any business
(whether by purchase of assets, purchase of stock, merger or otherwise);
(e) become subject to any agreement or instrument which by its
terms would restrict Guarantor's or Borrower's right or ability to perform any
of its obligations to Lender pursuant to the terms of the Loan Documents (Lender
acknowledges that compliance with the terms of the Intercreditor Agreement shall
not constitute a breach of this clause 9.9(e)); or
(f) authorize or issue any additional stock or equity interest
other than the issuance by Guarantor of its common stock.
SECTION 9.10. HEALTH CARE COVENANTS.
(a) Borrower and its Affiliates shall comply in all material
respects with, and will obtain all permits required by all Health Care Laws
applicable to Borrower and such Affiliates.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower or an Affiliate
would be required to notify any governmental authority with jurisdiction over
Health Care Laws.
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SECTION 9.11. DISTRIBUTIONS. Except as set forth on Schedule
9.11 hereto, Guarantor shall not make any Distributions and shall prohibit its
Affiliates that are not directly or indirectly wholly-owned by Guarantor from
making any Distributions.
SECTION 9.12. SUBORDINATED OBLIGATIONS. Neither Borrower nor
any Affiliate shall voluntarily prepay any principal (including the making of
any sinking fund payment), interest or any other amount in respect of any
obligations that are subordinate to Borrower's Obligations to Lender, including
without limitation, its Obligations to GE pursuant to the Deferral Note issued
pursuant to that certain Agreement dated November 1, 1994 among GE and Guarantor
and its Affiliates ("Subordinate Obligations"). Notwithstanding the foregoing,
Guarantor shall be permitted to prepay or repurchase any Senior-Subordinated
Notes upon receipt by Lender of prior notice of such Prepayment or repurchase
and certification by Guarantor that such prepayment or repurchase will not
impair Borrower's ability to perform its obligations under this Agreement.
SECTION 9.13. AMENDMENTS. Neither Borrower nor its Affiliates
shall amend any provision of any Subordinate Obligation if such amendment would
(i) affect any of the subordination provisions thereof, (ii) advance the date of
any required payment or prepayment thereunder, (iii) make covenants therein more
burdensome, when considered in their entirety, to Borrower or its Affiliates, or
(iv) reduce any default or grace period therein provided, or (v) otherwise have
a material adverse effect on the interests of Lender.
SECTION 9.14. CAPITAL EXPENDITURES. Neither Borrower nor its
Affiliates shall make capital expenditures (excluding for purposes of this
Section 9.14 expenditures permitted pursuant to Section 9.15) in excess of Two
Hundred Forty Thousand Dollars ($240,000) in any transaction (or group of
related transactions) or One Million Dollars ($1,000,000) in the aggregate in
any calendar year.
SECTION 9.15. EQUIPMENT LEASES. Neither Borrower nor its
Affiliates shall become the lessee under any operating or capital lease (or
series of operating or capital leases with respect to assets that are related to
the operation of a unit of equipment (including, without limitation, the unit,
associated van or modular building, and related component parts)), if the
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aggregate payments thereunder during any one calendar year exceed Two Hundred
Forty Thousand Dollars ($240,000) with respect to such unit of equipment and
assets that are related to the operation of such unit of equipment; provided,
however, that Borrower and its Affiliates are expressly permitted to remain
lessee under, and make all payments required by, any leases with GE, entered
into on or about or prior to the date of this Agreement, subject in each case to
the terms of the Intercreditor Agreement of applicable; provided, further,
Borrower notifies Lender of the existence of such leases on or prior to the
Closing Date.
SECTION 9.16. LENDER CONSENTS. Borrower or Guarantor may
request that Lender consent to any action prohibited by Sections 9.9 and 9.11
through 9.15 by delivering a written request which specifies in reasonable
detail the nature of the proposed action. Lender agrees to consider such request
in a timely fashion and will provide Borrower or Guarantor with a written
response to such request. Nothing in this Section 9.16 shall be construed to
require Lender to approve any such request.
SECTION 10
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the
following events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or
interest or any other payment on the Note or any other Obligation when due and
payable, by acceleration or otherwise, and such failure shall continue for five
(5) business days after the payment is due;
(b) Borrower fails to observe or perform any covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender; provided, however, that if such failure can
not be cured within such thirty (30) day period, Borrower shall not be in
default if the cure is commenced within such thirty (30) day period and
thereafter such cure is diligently pursued to completion;
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(c) A court enters a decree or order for relief in respect of
Borrower or an Affiliate in an involuntary case under any applicable bankruptcy,
insolvency, or other similar law then in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or other similar
official) of Borrower or an Affiliate or for any substantial part of their
property, or orders the windup or liquidation of Borrower's or an Affiliate's
affairs; or a petition initiating an involuntary case under any such bankruptcy,
insolvency, or similar law is filed against Borrower or an Affiliate and is
pending for sixty (60) days without dismissal;
(d) Borrower or an Affiliate commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law then in effect, makes
any general assignment for the benefit of creditors, fails generally to pay its
debts as such debts become due, or takes corporate action in furtherance of any
of the foregoing;
(e) Final judgment for the payment of money on any claim in
excess of $100,000 is rendered against Borrower or an Affiliate and remains
undischarged for twenty (20) days during which execution is not effectively
stayed;
(f) Guarantor or Individual Guarantor revoke or attempt to
revoke their guaranty of any of the Obligations, or becomes the subject of an
insolvency proceeding of the type described in clauses (c) or (d) above with
respect to Borrower or fails to observe or perform any covenant, condition or
agreement to be performed under any Loan Document to which it is a party;
(g) Borrower or an Affiliate makes any payment on account of
any Subordinate Obligations, other than payments specifically permitted by the
terms of such subordination or this Agreement;
(h) Any person holding any Subordinate Obligations becomes the
subject of any proceeding resulting in the termination of the subordination
arrangement, terminates the subordination arrangement or asserts that it is
terminated.
(i) Any Collateral or any part thereof is sold, agreed to be
sold, conveyed or allocated by operation of law or otherwise;
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(j) Borrower or an Affiliate defaults under the terms of any
Indebtedness or lease involving total payment obligations of Borrower or an
Affiliate in excess of $100,000 and such default is not cured within the time
period permitted pursuant to the terms and conditions of such Indebtedness or
lease, or an event occurs that gives any creditor or lessor the right to
accelerate the maturity of any such indebtedness or lease payments; provided,
however, with respect to any default under the GE Affected Debt (as defined in
the Intercreditor Agreement) an Event of Default shall not be deemed to exist
under this Agreement until such default constitutes an "Event of Default", as
such term is defined with respect to the GE Affected Debt;
(k) Demand is made for payment of any Indebtedness in excess
of $100,000 that was not originally payable upon demand when incurred but the
terms of which were later changed to provide for payment upon demand;
(l) Borrower or an Affiliate is enjoined, restrained or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs;
(m) A judgment or other claim in excess of $100,000 becomes a
Lien upon any or all of Borrower's or its Affiliates' assets, other than a
Permitted Lien;
(n) A notice of Lien, levy or assessment in excess of $100,000
is filed of record with respect to any or all of Borrower's or its Affiliates'
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal or other Government
Agency; or any tax or debt owing at any time hereafter to any one or more of
such entities becomes a Lien upon any or all of Borrower's or its Affiliates'
assets and the same is not paid on the payment date thereof, except to the
extent such tax or debt is being contested by Borrower or an Affiliate as
permitted in Section 8.4;
(o) There is a material impairment of the value of the
Collateral or priority of Lender's Liens on the Collateral;
(p) Any of Borrower's or its Affiliates' assets in excess of
$100,000 or any Collateral are seized, subjected to a distress warrant, levied
upon or come into the possession of any judicial officer;
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(q) Any representation or warranty made in writing to Lender
by any officer of Borrower in connection with the transaction contemplated in
this Agreement is materially incorrect when made;
(r) Guarantor shall be in default with respect to any of its
Obligations to Lender and such default is not cured within the time provided
permitted pursuant to the terms and conditions of such Obligation;
(s) Borrower shall be in default with respect to any of its
Obligations to Lender or an Event of Default or an Unmatured Default occurs
under the Other Loan Document;
(t) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (e), (j), (k), (m) and (n)
hereof exceeds $250,000; or
(u) Borrower shall fail to direct all receipts from Accounts
to the Lock Box.
SECTION 11
REMEDIES
SECTION 11.1. SPECIFIC REMEDIES. Upon the occurrence of any
Event of Default, subject in each case to the terms of the Intercreditor
Agreement:
(a) Lender may cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement, under the Other Loan Document,
or under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by Borrower.
(c) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower or its Affiliates
then or thereafter held with Lender, including amounts represented by
certificates of deposit.
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(d) Lender may enter any premises of Borrower or its
Affiliates, with or without judicial process, and take possession of the
Collateral; provided however, that Lender may only exercise such remedy if it
may do so without a breach of the peace. Lender may remove the Collateral and
may remove or copy all records pertaining thereto, or Lender may remain on such
premises and use the premises for the purpose of collecting, preparing and
disposing of the Collateral, without any liability for rent or occupancy
charges. Borrower shall, upon request of Lender, assemble the Collateral and any
records pertaining thereto and make them available at a place designated by
Lender that is reasonably convenient to both parties.
(e) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease and insure the Collateral. Lender may use and operate
equipment of Borrower or its Affiliates in order to process or finish inventory
included in the Collateral. If any Collateral consists of documents, Lender may
proceed either as to the documents or as to the goods represented thereby.
(f) Lender may pay, purchase, contest or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(g) Lender may (i) notify Account Debtors to make payment on
Accounts directly to Lender; (ii) settle, adjust, compromise, extend or renew
Accounts, whether before or after legal proceedings to collect such Accounts
have commenced; (iii) prepare and file any bankruptcy proofs of claim or similar
documents against any Account Debtor; (iv) prepare and file any notice,
assignment, satisfaction, or release of Lien, UCC termination statement or any
similar document; (v) sell or assign Accounts, individually or in bulk, upon
such terms, for such amounts, and at such time or times as Lender deems
advisable; (vi) complete the performance required of Borrower or its Affiliates
under any contract or agreement to which Borrower or an Affiliate is a party and
out of which Accounts arise or may arise.
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(h) Lender may (i) endorse Borrower's or its Affiliates' name
on all checks, notes, drafts, money orders or other forms of payment of or
security for Accounts or other Collateral; (ii) sign Borrower's or its
Affiliates' name on drafts drawn on Account Debtors or issuers of letters of
credit; and (iii) notify the postal authorities in Borrower's or its Affiliates'
name to change the address for delivery of Borrower's or its Affiliates' mail to
an address designated by Lender, receive and open all mail addressed to Borrower
or an Affiliate, copy all mail, return all mail relating to Collateral, and hold
all other mail available for pickup by Borrower or an Affiliate.
(i) Lender may sell the Collateral at public or private sale
and is not required to repossess Collateral before selling it. Any requirement
of reasonable notice of any disposition of the Collateral shall be satisfied if
such notice is sent to Borrower, ten (10) days prior to such disposition by any
of the methods provided in Section 13.5 hereof. Borrower shall be credited with
the net proceeds of such sale only when they are actually received by Lender,
and Borrower shall continue to be liable for any deficiency remaining after the
Collateral is sold or collected.
(j) If the sale is to be a public sale, Lender shall also give
notice of the time and place by publishing a notice one time at least five (5)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held.
(k) To the maximum extent permitted by applicable law, Lender
may be the purchaser of any or all of the Collateral at any public sale and
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any
public sale, to use and apply all or any part of the Obligations as a credit on
account of the purchase price of any Collateral payable by Lender at such sale.
SECTION 11.2. POWER OF ATTORNEY. Guarantor and Borrower hereby
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as Guarantor's and Borrower's attorney, with power whether before or
after the occurrence of an Event of Default: (a) to endorse Borrower's or its
Affiliates' name on any checks, notes, acceptances, money orders, drafts or
other forms of payment or security that may come into Lender's possession; (b)
to sign Borrower's or its Affiliates' name on
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drafts against Account Debtors, on schedules and assignments of Accounts, on
verifications of Accounts, and on notices to Account Debtors; (c) to notify the
post office authorities to change the address for delivery of Borrower's or its
Affiliates' mail to an address designated by Lender, to receive and open all
mail addressed to Borrower or an Affiliate and to retain all mail relating to
the Collateral and forward all other mail to Borrower or an Affiliate; (d) to
send requests for verification of Accounts; (e) to execute UCC Financing
Statements; and (f) to do all things necessary to carry out this Agreement. The
appointment of Lender as Borrower's attorney and each and every one of Lender's
rights and powers, being coupled with an interest, are irrevocable as long as
any Obligations are outstanding. Lender agrees not to exercise the power granted
in clauses 11.2(a) through 11.2(c) prior to the occurrence of an Event of
Default and agrees not to exercise the power granted in clause 11.2(d) prior to
notification of Borrower of its intent to do so, but such limitations do not
limit the effectiveness of such power of attorney at any time. Any person
dealing with Lender shall be entitled to rely conclusively on any written or
oral statement of Lender that this power of attorney is in effect. Lender may
also use Borrower's stationery in connection with exercising its rights and
remedies and performing the Obligations of Borrower.
SECTION 11.3. EXPENSES SECURED. All expenses, including
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Document or by law shall be
payable by Borrower to Lender, shall be part of the Obligations, and shall be
secured by the Collateral.
SECTION 11.4. EQUITABLE RELIEF. Borrower recognizes that in
the event Borrower fails to perform, observe, or discharge any of its
Obligations or liabilities under this Agreement, no remedy of law will provide
adequate relief to Lender, and Borrower agrees that Lender shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
SECTION 11.5. REMEDIES ARE CUMULATIVE. No remedy set forth
herein is exclusive of any other available remedy or remedies, but each is
cumulative and in addition to every other right or remedy given under this
Agreement or under any other agreement between Lender and Borrower or Guarantor
or now or hereafter existing at law or in equity or by statute. Lender may
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pursue its rights and remedies concurrently or in any sequence, and no exercise
of one right or remedy shall be deemed to be an election. No delay by Lender
shall constitute a waiver, election or acquiescence by it. Borrower on its
behalf waives any rights to require Lender to (i) proceed against Guarantor or
any other party; or (ii) proceed against or exhaust any security held from
Guarantor. Lender may at any time and from time to time, without notice to, or
consent of, Borrower, and without affecting or impairing the obligation of
Borrower hereunder do any of the following: (i) renew or extend any Obligations
of Guarantor, or of any other party at any time directly or contingently liable
for payment of any of the Obligations of Guarantor; (ii) accept partial payments
of the Obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the Obligations of
Guarantor and the security therefor in any manner; (iv) consent to the transfer
or sale of any security or bid and purchase at any sale of any security of
Guarantor. Borrower expressly agrees that the validity of this Agreement and the
Obligations of Borrower shall not be terminated, affected or impaired by reason
of the waiving, delaying, exercising or non-exercising, of any of Lender's
rights against Guarantor or as a result of the substitution, release,
repossession, sale, disposition or destruction of any Collateral securing any
Obligations of Guarantor. Lender shall not be released or discharged, either in
whole or in part, by Lender's failure or delay to perfect or continue the
perfection of any security interest in any Collateral which secures the
Obligations of Guarantor or to protect the property covered by such security
interest.
SECTION 12
INDEMNITY
SECTION 12.1. GENERAL INDEMNITY. Borrower shall protect,
indemnify and defend and save harmless Lender and its directors, officers,
agents and employees from and against any and all loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits or
demands (including fees and disbursements of counsel) on account of any suit or
proceeding before any Governmental Authority which arises from the transactions
contemplated in this Agreement or otherwise arising in connection with or
relating to the Loan and any security therefor,
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unless such suit, claim or damages are caused by the negligence or intentional
malfeasance of Lender or its directors, officer, agents or employees. Upon
receiving knowledge of any suit, claim or demand asserted by a third-party that
Lender believes is covered by this indemnity, Lender shall give Borrower timely
notice of the matter and an opportunity to defend it, at Borrower's sole cost
and expense, with legal counsel acceptable to Lender. Lender may, at its option,
also require Borrower to so defend the matter. This obligation on the part of
Borrower shall survive the termination of this Agreement and the repayment of
the Note.
SECTION 13
MISCELLANEOUS
SECTION 13.1. DELAY AND WAIVER. No delay or omission to
exercise any right shall impair any such right or be a waiver thereof, but any
such right may be exercised from time to time and as often as may be deemed
expedient. A waiver on one occasion shall be limited to that particular
occasion.
SECTION 13.2. COMPLETE AGREEMENT. This Agreement and the
Schedules are the complete agreement of the parties hereto and supersede all
previous understandings relating to the subject matter hereof. This Agreement
may be amended only by an instrument in writing that explicitly states that it
amends this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
SECTION 13.3. SEVERABILITY; HEADINGS. If any part of this
Agreement or the application thereof to any person or circumstance is held
invalid, the remainder of this Agreement shall not be affected thereby. The
section headings herein are included for convenience only and shall not be
deemed to be a part of this Agreement.
SECTION 13.4. BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the respective legal representatives,
successors and assigns of the parties hereto; however, Borrower may not assign
any of its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee)
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may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of Lender; and Lender (or
such subsequent assignee who in turn assigns as aforesaid) shall then be
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
SECTION 13.5. NOTICES. Any notices under or pursuant to this
Agreement shall be deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, telecopy, or similar electronic medium to
the following addresses:
To Borrower: American Shared Hospital Services
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111
Attention: Ernest A. Bates, M.D.
Telephone: (415) 788-5300
Telecopier: (415) 788-5660
To Lender: DVI Business Credit
c/o DVI Financial Services Inc.
4041 MacArthur Ave.
Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn
Executive Vice President
Telephone: (714) 414-6100
Telecopier: (714) 414-6199
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
38
<PAGE> 45
Either party may change such address by sending notice of the change to
the other party; such change of address shall be effective only upon actual
receipt of the notice by the other party.
SECTION 13.6. GOVERNING LAW. ALL ACTS AND TRANSACTIONS
HEREUNDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
SECTION 13.7. JURISDICTION. Borrower agrees that the state and
federal courts in Orange County, California or any other court in which Lender
initiates proceedings have jurisdiction over all matters arising out of this
Agreement and that service of process in any such proceeding shall be effective
if mailed to Borrower at its address described in the Notices section of this
Agreement. Borrower waives any right it may have to assert the defense of forum
non conveniens or to object to such venue and hereby consents to any
court-ordered relief.
SECTION 13.8. WAIVER OF TRIAL BY JURY. LENDER, GUARANTOR AND
BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF
THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER, GUARANTOR AND BORROWER.
39
<PAGE> 46
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
CURACARE, INC. DVI BUSINESS CREDIT CORPORATION
By:____________________________________ By:_______________________________
Ernest A. Bates, M.D. Anthony Turek
President Executive Vice President
AMERICAN SHARED-CURACARE
By: American Shared Hospital
Services, general partner
By:___________________________
Ernest A. Bates, M.D.
President
By: MMRI, Inc., general partner
By:___________________________
Ernest A. Bates, M.D.
President
GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES
By:____________________________________
Ernest A. Bates, M.D.
President
40
<PAGE> 47
INDIVIDUAL GUARANTOR:
_________________________________
ERNEST A. BATES, M.D.
41
<PAGE> 1
EXHIBIT 10.7
LOAN AND SECURITY AGREEMENT
among
AMERICAN SHARED-CURACARE
and
CURACARE, INC.
Borrower,
AMERICAN SHARED HOSPITAL SERVICES
Guarantor,
ERNEST A. BATES, M.D.
Individual Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of May 17, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
SECTION 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. SPECIFIC DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND UNIFORM COMMERCIAL CODE . . . . . . . . . . . . . . . . . . 6
SECTION 1.3. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2
LOAN . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.1. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.2. TERM AND REPAYMENT OF LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.3. PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.4. CONDITIONS TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3
SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.1. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4
SPECIFIC REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.1. NAME OF GUARANTOR; BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.2. MERGERS AND CONSOLIDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.3. PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.4. CHANGE OF NAME OR IDENTITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.5. CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5
PROVISIONS CONCERNING COLLATERAL . . . . . . . . . . . . . . . . . . 11
SECTION 5.1. TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.2. NO WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.3. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.4. ADDITIONAL COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.5. LENDER'S DUTY OF CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.6. BORROWER'S CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.7. REINSTATEMENT OF LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.8. LENDER EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.9. INSPECTION OF COLLATERAL AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.10. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 14
SECTION 6.1. CORPORATE STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.2. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.3. NO BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 6.4. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.5. DEFERRED COMPENSATION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.6. LITIGATION AND PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.7. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.8. LAWS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.9. FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.10. ENVIRONMENTAL LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.11. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.12. OWNERSHIP OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.13. HEALTH CARE LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.14. CUMULATIVE REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.1. ENCUMBRANCE OF COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.2. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.3. CONDITION AND REPAIR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.4. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.5. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.6. ACCOUNTING SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.8. FURTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.9. ERISA COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.10. ENVIRONMENTAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.11. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF ASSETS, ISSUANCE OF STOCK, ETC . . . . . . . . . . . . . . 20
SECTION 7.12. HEALTH CARE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7.13. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7.14. SUBORDINATED OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7.15. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7.16. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7.17. EQUIPMENT LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7.18. LENDER CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 9.1. SPECIFIC REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 9.2. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9.3. EXPENSES SECURED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 9.4. EQUITABLE RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 9.5. REMEDIES ARE CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 10
INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 10.1. GENERAL INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 10.2. SPECIFIC ENVIRONMENTAL INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
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<TABLE>
<S> <C>
SECTION 11
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.1. DELAY AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.2. COMPLETE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.3. SEVERABILITY; HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.4. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.5. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11.6. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 11.7. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 11.8. WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
SCHEDULES
1.1. LIENS
3.1. GRANT OF SECURITY INTEREST
4.2. MERGERS AND CONSOLIDATIONS
4.3. PURCHASE OF ASSETS OUTSIDE ORDINARY COURSE OF BUSINESS
6.6. LITIGATION AND PROCEEDINGS
6.11. INSURANCE
6.12. OWNERSHIP OF PROPERTY
7.13. PERMITTED DISTRIBUTIONS
iii
<PAGE> 5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into
as of May 17, 1995 by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), American Shared-CuraCare, a California general
partnership ("AS-CuraCare") and CuraCare, Inc., a Delaware corporation
("CuraCare") (AS-CuraCare and CuraCare, collectively and individually referred
to as "Borrower"), American Shared Hospital Services, a California corporation
("Guarantor") and Ernest A. Bates, M.D. ("Individual Guarantor").
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS. The following definitions
shall apply:
(a) "Account Debtors" shall mean Borrower's and its
Affiliates' customers and all other persons who are obligated or indebted to
Borrower or any Affiliate in any manner, whether directly or indirectly,
primarily or secondarily, contingently or otherwise, with respect to Accounts.
(b) "Accounts" shall mean all accounts, contract rights,
instruments, documents, chattel paper and obligations in any form owing to
Borrower or any Affiliate arising out of the sale or lease of goods or the
rendition of services by Borrower or any Affiliate whether or not earned by
performance; all credit insurance, guaranties, letters of credit, advises of
credit and other security for any of the above; all merchandise returned to or
reclaimed by Borrower or any Affiliate; and Borrower's Books relating to any of
the foregoing.
(c) "Advance" shall mean an advance of loan proceeds
constituting all or a part of the Loan.
(d) "Affiliate" shall mean with respect to any Person any
other Person which directly or indirectly Controls, is Controlled by or is
under common Control with that Person.
(e) "Borrower's Books" shall mean all of Borrower's and
its Affiliates' books and records including but not limited to: minute books,
ledgers; records indicating, summarizing or evidencing Borrower's and its
Affiliates' assets, liabilities and the Accounts; all information relating to
Borrower's and its Affiliates business operations or financial condition; and
all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
1
<PAGE> 6
(f) "Closing Date" shall mean the date of the first
Advance of the Loan.
(g) "Collateral" shall have the meaning specified in
Section 3.1 hereof.
(h) "Control" shall mean (i) the ownership of a majority
of the voting power of all classes of voting stock of a corporation, or (ii)
the ownership of a majority of the beneficial interest in income and capital of
a person other than a corporation.
(i) "Deed of Trust" shall mean a deed of trust among
CuraCare, Lender and Chicago Title and Trust Company with respect to CuraCare's
Modesto property.
(j) "Distribution" shall mean, with respect to any shares
of capital stock or any warrant or right to acquire shares of capital stock or
any other equity security, (i) the retirement, redemption, purchase or other
acquisition, directly or indirectly, for value by the issuer of any such
security, except to the extent that the consideration therefor consists of
shares of stock, (ii) the declaration or (without duplication) payment of any
dividend in cash, directly or indirectly, on or with respect to any such
security, (iii) any investment in the holder of five percent (5%) or more of
any such security if a purpose of such investment is to avoid characterization
of the transaction as a Distribution, and (iv) any other cash payment
constituting a distribution under applicable laws with respect to such
security.
(k) "Environmental Laws" shall mean all federal, state,
local and foreign laws relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes, and any and all
regulations, codes, plans, orders, decrees, judgments, injunctions, notices, or
demand letters issued, entered, promulgated, or approved thereunder.
(l) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all references to sections thereof shall include
such sections and any predecessor provisions thereto, including any rules or
regulations issued in connection therewith.
(m) "ERISA Affiliate" shall mean each trade or business
(whether or not incorporated) that together with Borrower would be deemed a
"contributing sponsor" to a single employee plan within the meaning of Section
4001 of ERISA.
2
<PAGE> 7
(n) "Event of Default" shall have the meaning specified
in Section 8 hereof.
(o) "Governmental Authority" shall mean any governmental
or political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality thereof, or any court, tribunal,
grand jury or arbitrator, in any case whether foreign or domestic.
(p) "Guaranty" shall mean the Unconditional Continuing
Guaranty executed by Guarantor unconditionally guaranteeing Borrower's
Obligations under this Agreement.
(q) "Health Care Laws" shall mean all federal, state and
local laws relating to health care providers and health care services,
including, but not limited to, Section 1877(a) of the Social Security Act as
amended by the Omnibus Budget Reconciliation Act of 1993, 42 USC Section
1395nn.
(r) "Indebtedness" of a Person shall mean (i) all items
(except items of capital stock, capital or paid-in surplus or of retained
earnings) which, in accordance with generally accepted accounting principles,
would be included in determining total liabilities as shown on the liability
side of the balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including any lease which, in accordance with
generally accepted accounting principles would constitute indebtedness; (ii)
all indebtedness secured by any mortgage, pledge, security, lien or conditional
sale or other title retention agreement to which any property or asset owned or
held by such Person is subject, whether or not the indebtedness secured thereby
shall have been assumed; and (iii) all indebtedness of others which such Person
has directly or indirectly guaranteed, endorsed (otherwise then for the
collection or deposit in the ordinary course of business), discounted or sold
with recourse or agreed (contingently or otherwise) to purchase or repurchase
or otherwise acquire, or in respect of which such Person has agreed to supply
or advance funds (whether by way of loan, stock or equity purchase, capital
contribution or otherwise) or otherwise to become directly or indirectly
liable.
(s) "Individual Guaranty" shall mean the Unconditional
Continuing Guaranty executed by Individual Guarantor unconditionally
guaranteeing Borrower's Obligations under this Agreement.
(t) "Intercreditor Agreement" shall mean that certain
Intercreditor Agreement dated on or about the date hereof among Guarantor,
AS-CuraCare, CuraCare, Lender, DVI Business Credit ("DVIBC") and General
Electric Company, a New York corporation acting through GE Medical Systems
("GE").
(u) "Lender Expenses" shall mean (i) all costs or
expenses (including, without limitation, taxes and insurance
3
<PAGE> 8
premiums) required to be paid by Borrower or its Affiliates under this
Agreement or under any of the other Loan Documents that are paid or advanced by
Lender; (ii) filing, recording, publication and search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses incurred by Lender to convert any data submitted to
Lender by Borrower or Guarantor to an acceptable form; and (vi) Lender's
reasonable attorney fees and expenses incurred (before or after execution of
this Agreement) in advising Lender with respect to, or in structuring,
drafting, reviewing, negotiating, amending, terminating, enforcing, defending
or otherwise concerning, the Security Documents or any portion thereof,
irrespective of whether suit is brought.
(v) "Lien" shall mean any security interest, mortgage,
pledge, assignment, lien or other encumbrance of any kind, including any
interest of a vendor under a conditional sale contract or consignment and any
interest of a lessor under a capital lease.
(w) "Loan" shall mean each loan or any other loan or
loans made by Lender to Borrower pursuant to this Agreement.
(x) "Loan Documents" shall mean (i) this Agreement; (ii)
the Note; (iii) the Security Documents; (iv) any other agreements or documents
hereafter delivered to secure repayment of the Loan; (v) the Lock Box Agreement
and (vi) any other certificates, documents or instruments delivered by Borrower
to Lender pursuant to the terms of this Agreement.
(y) "Lock Box Agreement" shall mean the letter of
direction with respect to those certain Lock Box Agreements between Borrower
and First Interstate Bank of California and between Borrower and Bank of
America NT&SA.
(z) "Note" shall mean the Secured Promissory Note
executed by Borrower pursuant to the terms of this Agreement.
(aa) "Obligations" shall mean (i) the due and punctual
payment of all amounts due or become due under the Note; (ii) the performance
of all obligations of Borrower under this Agreement, the Note and all other
Loan Documents; (iii) all extensions, renewals, modifications, amendments and
refinancings of any of the foregoing; (iv) all Lender Expenses; (v) all loans,
advances, indebtedness and other obligations owed by Borrower to Lender of
every description whether now existing or hereafter arising (including those
owed by Borrower to others and acquired by Lender
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by purchase, assignment, or otherwise) and whether direct or indirect, primary
or as guarantor or surety, absolute or contingent, liquidated or unliquidated,
matured or unmatured, whether or not secured by additional collateral; and (vi)
all loans, advances, indebtedness and other obligations owed by Borrower to
Lender under the Other Loan Document of every description whether now existing
or hereafter arising (including those owed by Borrower to others and acquired
by Lender by purchase, assignment or otherwise) and whether direct or indirect,
primary or as guarantor or surety, absolute or contingent, liquidated or
unliquidated, matured or unmatured, whether or not secured by additional
collateral.
(bb) "Other Loan Document" shall mean that certain Loan
and Security Agreement among Borrower, Guarantor, Individual Guarantor and
DVIBC dated on or about the date hereof.
(cc) "Permitted Liens" shall mean (i) Liens for property
taxes and assessments or governmental charges or levies and Liens securing
claims or demands of mechanics and materialmen, provided that payment thereof
is not yet due or is being contested as permitted in this Agreement; (ii) Liens
of or resulting from any judgment or award, the time for the appeal or petition
for rehearing of which has not expired, or in respect of which Borrower is in
good faith prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review has been
secured; (iii) Liens and priority claims incidental to the conduct of business
or the ownership of properties and assets (including warehouse's and attorney's
Liens and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; and (iv) Liens existing on the date of this Agreement
that secure indebtedness outstanding on such date and that are disclosed on
Schedule 1.1 hereto;
(dd) "Person" shall mean an individual, corporation,
partnership, limited liability company, trust, unincorporated association,
joint venture, joint-stock company, government (including political
subdivisions), Governmental Authority or any other entity.
(ee) "Proceeds" shall mean all proceeds and products of
Collateral and all additions and accessions to, replacements of, insurance or
condemnation proceeds of, and documents covering Collateral; all property
received wholly or partly in trade or exchange for Collateral; all claims
against third parties arising
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out of damage, destruction, or decrease in value of the Collateral; all leases
of Collateral; and all rents, revenues, issues, profits and proceeds arising
from the sale, lease, license, encumbrance, collection or any other temporary
or permanent disposition of the Collateral or any interest therein.
(ff) "Security Documents" shall mean the Guaranty, the
Individual Guaranty, the Deed of Trust and any agreement or instrument entered
into between Borrower and Lender or executed by Borrower, Guarantor or
Individual Guarantor and delivered to Lender in connection with this Agreement.
(gg) "Senior-Subordinated Notes" shall mean Borrower's 16
1/2% Senior Subordinated Exchangeable Notes Due 1996 and Borrower's 14 3/4%
Senior Subordinated Notes Due 1996.
(hh) "Unmatured Default" shall mean any event or condition
that, with notice, passage of time, or a determination by Lender or any
combination of the foregoing would constitute an Event of Default.
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
UNIFORM COMMERCIAL CODE. All financial terms used in this Agreement other than
those defined in this Section, have the meanings accorded to them under
generally accepted accounting principles. All other terms used in this
Agreement, other than those defined in this Section, have the meanings accorded
to them in the Uniform Commercial Code as is enacted in any applicable
jurisdiction.
SECTION 1.3. CONSTRUCTION.
(a) Unless the context of this Agreement clearly requires
otherwise, the plural includes the singular, the singular includes the plural,
the part includes the whole, "including" is not limiting, and "or" has the
inclusive meaning of the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of this
Agreement.
(b) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Lender or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by each of the parties and its counsel and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to accomplish the purposes and intentions of all parties hereto fairly.
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SECTION 2
LOAN
SECTION 2.1. THE LOAN. Subject to the terms and conditions
and relying on the representations and warranties set forth herein, Lender
agrees to advance to Borrower, individually or collectively, and Borrower
agrees to borrow from Lender, a senior secured term loan in the amount of Two
Million Five Hundred Thousand Dollars ($2,500,000) which shall be evidenced by
a Note. The proceeds of the Loan shall be used by Borrower to repay a portion
of the Senior-Subordinated Notes and as a part of its working capital.
SECTION 2.2. TERM AND REPAYMENT OF LOAN. The "Term" of the
Loan shall be forty-eight (48) months and shall be payable in forty-eight (48)
consecutive monthly installments of Seventy Thousand Five Dollars and 77/100
($70,005.77) on the same day of each calendar month commencing on the
Commencement Date set forth in the Note. All payments of principal and
interest shall be paid in full without setoff, deduction or counterclaim.
Lender shall be entitled to debit the lock box maintained pursuant to the Lock
Box Agreement on the due date of each monthly installment for all amounts due
and payable pursuant to this Agreement.
SECTION 2.3. PREPAYMENT. The Loan shall not be subject to
prepayment or redemption in whole or in part prior to the expiration of the
Term.
SECTION 2.4. CONDITIONS TO THE CLOSING. The obligation of
Lender to make an Advance on the Closing Date is subject to Lender's
determination that Borrower has satisfied the following conditions on the
Closing Date:
(a) The representations and warranties set forth in this
Agreement and in the Other Loan Document shall be true and correct on and as of
the date hereof and shall be true and correct in all material respects as of
the Closing Date and Borrower shall have performed all obligations which were
to have been performed by it hereunder prior to Closing Date.
(b) Borrower shall have executed and delivered to Lender
(or shall cause to be executed and delivered to Lender by the appropriate
Persons) the following:
(i) this Agreement;
(ii) the Note;
(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Individual Guaranty;
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(vi) the Deed of Trust;
(vii) the Intercreditor Agreement;
(viii) the Lock Box Agreement;
(ix) an updated Appraisal with respect to
CuraCare's Modesto, California property, satisfactory to Lender verifying a
fair market value of $830,000 or more;
(x) evidence satisfactory to Lender that each of
CuraCare, Guarantor and the general partners of AS- CuraCare is a corporation
duly formed, validly existing and in good standing in the state in which it was
formed and in each state in which it is authorized to do business;
(xi) certificates of insurance that evidence the
insurance coverage and policy provisions required by this Agreement and in the
Loan Documents;
(xii) a mortgagee's title insurance policy with
respect to the Modesto property acceptable to Lender;
(xiii) pay-off letters, UCC Termination Statements,
and Mortgage and Lien Releases as required to grant Lender a first priority
security interest other than Permitted Liens in Collateral pledged as security
for repayment of the Loan;
(xiv) repayment of the Senior-Subordinated Notes on
terms and conditions satisfactory to Lender;
(xv) certified copies of resolutions of the Board
of Directors of CuraCare, Guarantor and the general partners of AS-CuraCare
authorizing the execution and delivery of Loan Documents to be executed by
Borrower and Guarantor;
(xvi) copies of the Articles of Incorporation of
each of CuraCare, Guarantor and the general partners of AS-Curacare, certified
by the Secretary of State;
(xvii) copies of the Bylaws of each of CuraCare,
Guarantor and the general partners of AS-CuraCare certified by an officer
thereof;
(xviii) a copy of the Partnership Agreement of
CuraCare certified by a general partner;
(xix) the written opinion of counsel to Borrower
issued on the Closing Date and satisfactory to Lender in scope and substance;
and
(xx) a certificate from an officer of Borrower
indicating that the representations and warranties contained herein are true
and correct as of the Closing Date.
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(c) Borrower shall have paid closing fees to Lender
including Lender's legal fees incurred by Lender for the negotiation and
preparation of the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default
shall have occurred and be continuing.
(e) None of Borrower, Guarantor nor Individual Guaranty
shall not have suffered a material or adverse change in its business,
operations or financial condition from that reflected in the Financial
Statements of Borrower and Guarantor delivered to Lender or otherwise.
(f) Lender shall have received such additional supporting
documents, certificates and assurances as Lender shall reasonably request which
shall be satisfactory to Lender in form and substance.
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST. In order to secure
prompt payment and performance of all Obligations, Borrower hereby grants to
Lender a continuing first-priority pledge and security interest in the
following property of Borrower, subject to the terms of the Intercreditor
Agreement (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located subject only to Permitted
Liens. This security interest in the Collateral shall attach to all Collateral
without further action on the part of Lender or Borrower. Regardless of the
manner of affixation, the Collateral shall remain the personal property and not
become part of the real estate. Borrower agrees to keep the Collateral at the
location(s) set forth in Schedule 3.1, and will notify Lender promptly, in
writing, of any change in the location of the Collateral within such state, but
will not remove the Collateral from such state without the prior written
consent of Lender.
The Collateral shall consist of the following, subject in each
case only to Permitted Liens and the terms and conditions of the Intercreditor
Agreement, together with such third-party consents, lien waivers and estoppel
certificates as Lender shall reasonably require:
(a) the real estate owned by CuraCare at its Modesto,
California facility and the fixtures thereon, all as more completely described
in the Deed of Trust;
(b) all of Borrower's equipment and machinery listed on
Schedule 3.1 and all machine tools, motors, tools, parts, attachments,
accessories, accessions, replacements, upgrades, substitutions, additions and
improvements related thereto, wherever
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located, and the Proceeds of any of the foregoing, including cash and non-cash
Proceeds;
(c) all of Borrower's presently existing and hereafter
arising Accounts, contract rights, instruments, notes, drafts, documents,
chattel paper and all other forms of obligations owing to Borrower arising out
of the sale or lease of goods or the rendition of services, whether or not
earned by performance, and any and all credit insurance, guarantees and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Accounts,
cash and non-cash Proceeds;
(d) all of Borrower's presently existing and hereafter
acquired general intangibles (including, without limitation, any and all choses
or things in action, goodwill, patents, trade names, trademarks, blueprints,
drawings, purchase orders, computer programs, computer discs, computer tapes,
literature, reports, catalogues, deposit accounts and tax refunds) other than
goods and accounts, as well as all of Borrower's Books relating to any of the
foregoing, and the Proceeds of any of the foregoing, including cash and
non-cash Proceeds;
(e) all of Borrower's presently existing and hereafter
acquired inventory including, without limitation, goods held for sale or lease
or to be furnished under a contract of service, wherever located, and any
documents of title representing any of the above, and the Proceeds of any of
the foregoing, including cash and non-cash Proceeds;
provided, however, anything in the foregoing notwithstanding the Collateral
does not include, and Lender takes no security interest in, equipment leased by
GE or any other equipment lessor to Borrower or Borrower's leasehold interest
in such equipment.
SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF GUARANTOR; BORROWER. The exact
corporate name of Guarantor is American Shared Hospital Services. Guarantor
was incorporated under the laws of the State of California. The following are
all previous legal names of Borrower: None. Borrower uses the following trade
names: None. The following are all other trade names used by Borrower in the
past: None.
(b) The exact corporate name of CuraCare is CuraCare,
Inc. CuraCare was incorporated under the laws of the State of Delaware. The
following are all previous legal names of CuraCare: None. CuraCare uses the
following trade names: None. The following are all other trade names used by
CuraCare in the past: None.
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(c) The exact name of AS-CuraCare is American Shared-
CuraCare. AS-CuraCare was formed under the laws of the State of California.
The following are all previous legal names of AS-CuraCare: None. AS-CuraCare
uses the following trade names: None. The following are all other trade names
used by AS-CuraCare in the past: None.
SECTION 4.2. MERGERS AND CONSOLIDATIONS. Except as disclosed
on Schedule 4.2, no entity has merged into any of Borrower or its Affiliates or
been consolidated with Borrower or any Affiliate.
SECTION 4.3. PURCHASE OF ASSETS. Except as disclosed on
Schedule 4.3 no entity has sold substantially all of its assets to Borrower or
any Affiliate or sold assets to Borrower or any Affiliate outside the ordinary
course of such seller's business at any time in the past.
SECTION 4.4. CHANGE OF NAME OR IDENTITY. Borrower shall not
change its or its Affiliates' name, business structure, or identity or use or
permit any Affiliate to use any new trade name with prior notifications of
Lender or merge or permit any Affiliate to merge into or consolidate with any
other entity.
SECTION 4.5. CORPORATE STRUCTURE. Guarantor is the direct or
indirect holder of one hundred percent (100%) of the ownership interests,
whether stock or partnership interests, of CuraCare and AS-CuraCare.
Individual Guarantor is the holder of twenty-five percent (25%) or more of the
common stock of Guarantor. Such common stock is the sole authorized class of
stock in Guarantor.
SECTION 5
PROVISIONS CONCERNING COLLATERAL
SECTION 5.1. TITLE. Borrower has good and marketable title
to the Collateral, and the Liens granted to Lender pursuant to this Agreement
are fully perfected first-priority Liens, subject only the terms of the
Intercreditor Agreement and the proper filing of any financing statement or
notice necessary to provide notice to third parties of the existence of such
Liens, in and to the Collateral with priority over the rights of every person
in the Collateral is free, clear, and unencumbered by any Liens in favor of any
person other than Lender except for Permitted Liens.
SECTION 5.2. NO WARRANTIES. This Agreement is solely a
financing agreement. Borrower acknowledges that with respect to the
appropriate Collateral: the Collateral has or will have been selected and
acquired solely by Borrower for Borrower's purposes; Lender is not the
manufacturer, dealer, vendor or supplier of the Collateral; the Collateral is
of a size, design, capacity, description and manufacturer selected by Borrower;
Borrower is
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satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER,
EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY,
DESIGN OR OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE,
THE VALUE OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE
COLLATERAL OR WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER.
SECTION 5.3. FURTHER ASSURANCES. Borrower and its Affiliates
shall execute and deliver to Lender, concurrent with Borrower's execution of
this Agreement and at any time or times hereafter at the request of Lender, all
financing statements, continuation financing statements, security agreements,
chattel mortgages, assignments, endorsements of certificates of title,
applications for titles, affidavits, reports, notices, schedules of accounts,
letters of authority and all other documents Lender may reasonably request, in
form satisfactory to Lender, to perfect and maintain perfected Lender's Liens
in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower and Guarantor hereby
irrevocably make, constitute, and appoint Lender (and any of Lender's officers,
employees, or agents designated by Lender) as Borrower's and its Affiliates'
true and lawful attorney with power to sign the name of Borrower and its
Affiliates on any of the above-described documents or on any other similar
documents that need to be executed, recorded, or filed in order to perfect or
continue perfected Lender's Liens in the Collateral. The appointment of Lender
as Borrower's and its Affiliates' attorney is irrevocable as long as any
Obligations are outstanding. Any person dealing with Lender shall be entitled
to rely conclusively on any written or oral statement of Lender that this power
of attorney is in effect.
SECTION 5.4. ADDITIONAL COLLATERAL. If there is a material
impairment of the value of the Collateral, Borrower shall grant a security
interest to Lender in additional assets satisfactory to Lender having a value
at least equal to the decline in value of the existing Collateral.
SECTION 5.5. LENDER'S DUTY OF CARE. Lender shall have no
duty of care with respect to the Collateral except that Lender shall exercise
reasonable care with respect to the Collateral in Lender's custody. Lender
shall be deemed to have exercised reasonable care if such property is accorded
treatment substantially equal to that which Lender accords its own property or
if Lender takes such action with respect to the Collateral as the Borrower
shall request or agree to in writing provided that no failure to comply with
any such request nor any omission to do any such act requested by the Borrower
shall be deemed a failure to exercise reasonable care. Lender's failure to
take steps to preserve rights against any parties or property shall not be
deemed to be failure to exercise reasonable care with respect to the Collateral
in Lender's custody. All risk, loss, damage or destruction of the Collateral
shall be borne by Borrower.
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SECTION 5.6. BORROWER'S CONTRACTS. Borrower and its
Affiliates shall remain liable to perform its Obligations under any contracts
and agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender shall not have any Obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
SECTION 5.7. REINSTATEMENT OF LIENS. If, at any time after
payment in full by Borrower of all Obligations and termination of Lender's
Liens, any payments on Obligations previously made by Borrower or any other
Person must be disgorged by Lender for any reason whatsoever (including,
without limitation, the insolvency, bankruptcy, or reorganization of Borrower
or such other Person), this Agreement and Lender's Liens granted hereunder
shall be reinstated as to all disgorged payments as though such payments had
not been made, and Borrower shall sign and deliver to Lender all documents and
things necessary to perfect all terminated Liens.
SECTION 5.8. LENDER EXPENSES. If Borrower or an Affiliate
fails to pay any moneys (whether taxes, assessments, insurance premiums or
otherwise) due to third persons or entities, fails to make any deposits or
furnish any required proof of payment or deposit or fails to discharge any Lien
not permitted hereby, all as required under the terms of this Agreement, then
Lender may, to the extent that it determines that such failure by Borrower or
its Affiliates could have a material adverse effect on Lender's interests in
the Collateral, in its discretion and without prior notice to Borrower, make
payment of the same or any part thereof. Any amounts paid or deposited by
Lender shall constitute Lender Expenses, shall become part of the Obligations,
shall bear interest at the rate of eighteen percent (18%) per annum, and shall
be secured by the Collateral. Any payments made by Lender shall not constitute
(a) an agreement by Lender to make similar payments in the future or (b) a
waiver by Lender of any Event of Default under this Agreement. Lender need not
inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or Lien, and the receipt of the usual official notice for
the payment of moneys to a governmental entity shall be conclusive evidence
that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender
for all sums expended by Lender that constitute Lender Expenses, and Borrower
hereby authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
SECTION 5.9. INSPECTION OF COLLATERAL AND RECORDS. During
usual business hours, Lender may inspect and examine the Collateral and check
and test the same as to quality, quantity, value and condition and Borrower
agrees to reimburse Lender for its costs and expenses in so doing. Lender
shall also have the right at any time or times hereafter, during usual business
hours to inspect and verify Borrower's Books in order to verify the amount
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or condition of, or any other matter relating to, the Collateral and
Guarantor's and Borrower's financial condition and to copy and make extracts
therefrom. Guarantor and Borrower waive the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Lender pursuant to this Agreement
and agrees that Lender may directly contact any such accounting firm or service
bureau in order to obtain such information.
SECTION 5.10. WAIVERS. Except as specifically provided for
herein, Borrower waives demand, protest, notice of protest, notice of default
or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal
of any or all commercial paper, accounts, documents, instruments, chattel
paper, and guaranties at any time held by Lender on which Borrower may in any
way be liable.
SECTION 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby
warrants and represents to Lender the following:
SECTION 6.1. CORPORATE STATUS. Each of CuraCare, Guarantor
and AS-CuraCare's general partners is a corporation validly existing and in
good standing under the laws of the state of its incorporation; AS-CuraCare is
a general partnership validly existing under the laws of the State of
California; and each of such entities is qualified and licensed to do business
and is in good standing in any state in which the conduct of its business or
its ownership of property requires that it be so qualified or licensed, and has
the power and authority (corporate and otherwise) to execute and carry out the
terms of the Loan Documents to which it is a party, to own its assets and to
carry on its business as currently conducted.
SECTION 6.2. AUTHORIZATION. The execution, delivery, and
performance by Borrower and Guarantor of this Agreement and each Loan Document
have been duly authorized by all necessary corporate or partnership action.
Borrower, Guarantor and ndividual Guarantor have duly executed and delivered
this Agreement and each Loan Document to which they are a party, and each of
them constitutes a valid and binding obligation of Borrower, Guarantor and
Individual Guarantor, as applicable, enforceable according to its terms except
as limited by equitable principles and by bankruptcy, insolvency or similar
laws affecting the rights of creditors generally.
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SECTION 6.3. NO BREACH. The execution, delivery and
performance by Borrower, Guarantor and Individual Guarantor of this Agreement
and each Loan Document to which they or an Affiliate is a party (a) will not
contravene any law or any governmental rule or order binding on Collateral; (b)
will not violate any provision of the articles of incorporation, bylaws or
partnership agreement, as applicable, of Borrower or its Affiliates; (c) will
not violate any agreement or instrument by which Borrower, its Affiliates or
Individual Guarantor, as applicable, is bound; (d) do not require any notice to
consent by any governmental body; and (e) will not result in the creation of a
Lien on any assets of Borrower or its Affiliates except the Lien to Lender
granted herein.
SECTION 6.4. TAXES. All assessments and taxes, whether real,
personal or otherwise, due or payable by or imposed, levied or assessed against
Borrower, its Affiliates or any of their property have been paid in full before
delinquency or before the expiration of any extension period; and Borrower and
its Affiliates have made due and timely payment or deposit of all federal,
state, and local taxes, assessments, or contributions required of it by law,
except only for items that Borrower or its Affiliates are currently contesting
diligently and in good faith and that have been fully disclosed in writing to
Lender.
SECTION 6.5. DEFERRED COMPENSATION PLANS. Borrower and each
ERISA Affiliate have made all required contributions to all deferred
compensation plans to which such person is required to contribute, and neither
Borrower nor any ERISA Affiliate has any liability for any unfunded benefits of
any single-employer or multi-employer plans. Neither Borrower nor any ERISA
Affiliate is or at any time has been a sponsor of, provided, or maintained for
any employees any defined benefit plan.
SECTION 6.6. LITIGATION AND PROCEEDINGS. Except as set forth
on Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower, its Affiliates or any of their assets and there are no actions or
proceedings pending by or against Borrower or its Affiliates before any court
or administrative agency. Borrower has no knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving Borrower or its Affiliates,
except for ongoing collection matters in which Borrower or its Affiliates are
the plaintiff and except as set forth in Schedule 6.6 hereto.
SECTION 6.7. BUSINESS. Borrower and its Affiliates have all
franchises, authorizations, patents, trademarks, copyrights and other rights
necessary to advantageously conduct their business. They are all in full force
and effect and are not in known conflict with the rights of others. Neither
Borrower nor any of its Affiliates is a party to or subject to any agreement or
restriction that is so unusual or burdensome that it might have a material
adverse effect on Borrower's or its Affiliates' business, properties or
prospects.
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SECTION 6.8. LAWS AND AGREEMENTS. Borrower and its
Affiliates are in compliance with all material agreements applicable to it,
including obligations to contribute to any employee benefit plan or pension
plan regulated by ERISA. Borrower and its Affiliates are in material
compliance with all laws applicable to it. For purposes of this Section 6.8
compliance with the GE Affected Debt (as defined in the Intercreditor
Agreement) shall mean that an "Event of Default", as such term is defined with
respect to the GE Affected Debt, has not occurred and is not continuing with
respect thereto.
SECTION 6.9. FINANCIAL CONDITION. All financial statements
and information relating to Borrower and its Affiliates that have been or may
hereafter be delivered by Borrower to Lender are accurate and complete and have
been prepared in accordance with generally accepted accounting principles
consistently applied. Borrower and its Affiliates have no material obligations
or liabilities of any kind not disclosed in that financial information, and
there has been no material adverse change in the financial condition of
Borrower or its Affiliates since the date of the most recent financial
statements submitted to Lender.
SECTION 6.10. ENVIRONMENTAL LAWS.
(a) Borrower and its Affiliates have obtained all
permits, licenses, and other authorizations that are required under
Environmental Laws and Borrower and its Affiliates are in compliance in all
material respects with all terms and conditions of the required permits,
licenses and authorizations, and are also in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
the Environmental Laws.
(b) Borrower is not aware of, and has not received notice
of, any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common-law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or threatened against Borrower or any of
its Affiliates, relating in any way to Environmental Laws.
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SECTION 6.11. INSURANCE. Schedule 6.11 sets forth a complete
and accurate list of all policies of fire, liability, product liability,
workers' compensation, health, business interruption and other forms of
insurance currently in effect with respect to Borrower's business, true copies
of which have heretofore been delivered to Lender. All such policies are
valid, outstanding and enforceable policies and, to the best knowledge of
Borrower, each will remain in full force and effect at least through the
respective dates set forth on Schedule 6.11.
SECTION 6.12. OWNERSHIP OF PROPERTY. Except as set forth
Schedule 6.12 hereto, Borrower has good and marketable title to all of its
properties and assets, free and clear of all liens, security interests and
encumbrances, except liens to secure repayment of the Loan. Borrower has the
exclusive right to use all such assets.
SECTION 6.13. HEALTH CARE LAWS.
(a) Borrower and its Affiliates have obtained all
permits, licenses and other authorizations that are required under Health Care
Laws applicable to Borrower and such Affiliates are in compliance in all
material respects with all terms and conditions of the required permits,
licenses and authorizations, and are also in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such Health Care Laws.
(b) Borrower is not aware of, and has not received notice
of, any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against Borrower or its
Affiliates, relating in any way to Health Care Laws.
SECTION 6.14. CUMULATIVE REPRESENTATIONS. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements that
Borrower shall give, or cause to be given, to Lender, either now or hereafter.
SECTION 7
COVENANTS
SECTION 7.1. ENCUMBRANCE OF COLLATERAL. Borrower shall not
create, incur, assume or permit to exist any Lien on any
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Collateral now owned or hereafter acquired by Borrower or its Affiliates, except
for Liens to Lender and Permitted Liens.
SECTION 7.2. BUSINESS. Borrower and its Affiliates shall engage
primarily in business of the same general character as that now conducted by
Borrower and its Affiliates.
SECTION 7.3. CONDITION AND REPAIR. Borrower and its Affiliates
shall maintain in good repair and working order all material properties used in
their business and from time to time shall make all appropriate repairs and
replacements thereof.
SECTION 7.4. TAXES. Borrower and its Affiliates shall pay all
taxes, assessments and other governmental charges imposed upon it or any of its
assets or in respect of any of its franchises, business, income or profits
before any penalty or interest accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
that have become due and payable and that by law have or might become a Lien or
charge upon any of its assets, provided that (unless any material item or
property would be lost, forfeited or materially impaired as a result thereof) no
such charge or claim need be paid if it is being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted, if Lender
is notified in advance of such contest, and if Borrower or an Affiliate
establishes any reserve or other appropriate provision required by generally
accepted accounting principles and deposits with Lender cash or an acceptable
bond in an amount equal to twice the amount of such charge or claim. Borrower
and its Affiliates shall make timely payment or deposit of all FICA payments and
withholding taxes required of it by applicable laws and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower or an
Affiliate has made such payments or deposits.
SECTION 7.5. INSURANCE. Borrower and its Affiliates shall
maintain, with financially sound and reputable insurers, insurance with respect
to its properties and business against loss or damage of the kinds and in the
amounts customarily insured against by corporations of established reputation
engaged in the same or similar businesses. Each such policy shall name Lender as
an additional insured and, where applicable, as loss payee under a lender loss
payable endorsement satisfactory to Lender and shall provide for thirty (30)
days' written notice to Lender before such policy is altered or canceled.
SECTION 7.6. ACCOUNTING SYSTEM. Borrower and its Affiliates at
all times hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower shall not modify or change its method of
accounting or enter into any agreement hereafter with any
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third-party accounting firm or service bureau for the preparation or storage of
Borrower's accounting records without said accounting firm's or service bureau's
agreeing to provide to Lender information regarding the Collateral and
Borrower's financial condition.
SECTION 7.7. FINANCIAL STATEMENTS. Guarantor shall submit
monthly financial statements, showing a comparison of actual expenditures to
budgeted amounts, with respect to Guarantor, on a consolidated basis, to Lender
as soon as available, and in any event within twenty (20) days of the end of
each month. Guarantor shall provide Lender with copies of all reports filed by
it with the Securities and Exchange Commission. Additionally, Guarantor will
submit audited financial statements with respect to Guarantor on a consolidated
basis to Lender as soon as available, and in any event within ninety (90) days
of the end of each fiscal year. With all financial statements, Guarantor will
also deliver a certificate of its chief financial officer attesting that no
Event of Default or Unmatured Default under the Agreement has occurred and is
continuing.
SECTION 7.8. FURTHER INFORMATION. Borrower shall promptly
supply Lender with such other information concerning its affairs as Lender may
reasonably request from time to time hereafter and shall promptly notify Lender
of any material adverse change in Borrower's financial condition and any
condition or event that constitutes a breach of or event that constitutes an
Event of Default under this Agreement. In addition, Borrower and Guarantor
authorize Lender to contact credit reporting agencies concerning Guarantor's,
Borrower's and its Affiliates' credit standing.
SECTION 7.9. ERISA COVENANTS. Borrower shall, and shall cause
each ERISA Affiliate to, comply with all applicable provisions of ERISA and all
other laws applicable to any deferred compensation plans with which Borrower or
any ERISA Affiliate is associated, and shall promptly notify Lender of the
occurrence of any event that could result in any material liability of Borrower
to any person to any person whatsoever with respect to any such plan.
SECTION 7.10. ENVIRONMENTAL COVENANTS.
(a) Borrower and its Affiliates shall comply in all material
respects with, and will obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
governmental authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
an Affiliate would be required to notify any governmental authority with
jurisdiction over Environmental Laws.
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SECTION 7.11. RESTRICTIONS ON MERGER, CONSOLIDATION, SALE OF
ASSETS, ISSUANCE OF STOCK, ETC. Unless authorized by Lender, Guarantor and
Borrower shall not, nor shall they permit any Affiliate to:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets in any
transaction or series of related transactions (other than sales in the ordinary
course of business);
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(d) acquire interests in excess of Two Hundred Forty Thousand
Dollars ($240,000) in the aggregate in any calendar year in any business
(whether by purchase of assets, purchase of stock, merger or otherwise);
(e) become subject to any agreement or instrument which by its
terms would restrict Guarantor's right or ability to perform any of its
obligations to Lender pursuant to the terms of the Loan Documents (Lender
acknowledges that compliance with the terms of the Intercreditor Agreement shall
not constitute a breach of this clause 7.11(e)); or
(f) authorize or issue any additional stock or equity interest
other than the issuance by Guarantor of its common stock.
SECTION 7.12. HEALTH CARE COVENANTS.
(a) Borrower and its Affiliates shall comply in all material
respects with, and will obtain all permits required by, all Health Care Laws
applicable to Borrower and such Affiliates.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower or an Affiliate
would be required to notify any governmental authority with jurisdiction over
Health Care Laws.
SECTION 7.13. DISTRIBUTIONS. Except as set forth on Schedule
7.13 hereto, Guarantor shall not make any Distributions and shall prohibit its
Affiliates that are not directly or indirectly wholly-owned by Guarantor from
making any Distributions.
SECTION 7.14. SUBORDINATED OBLIGATIONS. Neither Guarantor nor
any Affiliate shall voluntarily prepay any principal (including the making of
any sinking fund payment), interest or any other amount in respect of any
Obligations that are subordinate to Borrower's obligations to Lender, including
without limitation, its Obligations to GE pursuant to the Deferral Note issued
pursuant to that certain Agreement dated November 1, 1994 among GE and Guarantor
and its Affiliates ("Subordinate Obligations").
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Notwithstanding the foregoing, Guarantor shall be permitted to prepay or
repurchase any Senior-Subordinated Notes upon receipt by Lender of prior notice
of such repayment or repurchase and certification by Guarantor that such
prepayment or repurchase will not impair Borrower's ability to perform its
obligations under this Agreement.
SECTION 7.15. AMENDMENTS. Neither Borrower nor its Affiliates
shall amend any provision of any Subordinate Obligation if such amendment would
(i) affect any of the subordination provisions thereof, (ii) advance the date of
any required payment or prepayment thereunder, (iii) make covenants therein more
burdensome, when considered in their entirety, to Borrower or its Affiliates, or
(iv) reduce any default or grace period therein provided, or (v) otherwise have
a material adverse effect on the interests of Lender.
SECTION 7.16. CAPITAL EXPENDITURES. Neither Borrower nor its
Affiliates shall make capital expenditures (excluding for purposes of this
Section 7.16 expenditures permitted pursuant to Section 7.17) in excess of Two
Hundred Forty Thousand Dollars ($240,000) in any transaction (or group of
related transactions) or One Million Dollars ($1,000,000) in the aggregate in
any calendar year.
SECTION 7.17. EQUIPMENT LEASES. Neither Borrower nor its
Affiliates shall become the lessee under any operating or capital lease (or
series of operating or capital leases with respect to assets that are related to
the operation of a unit of equipment (including, without limitation, the unit,
associated van or modular building, and related component parts)), if the
aggregate payments thereunder during any one calendar year exceed Two Hundred
Forty Thousand Dollars ($240,000) with respect to such unit of equipment and
assets that are related to the operation of such unit of equipment; provided,
however, that Borrower and its Affiliates are expressly permitted to remain
lessee under, and make all payments required by, any leases with GE, entered
into on or about or prior to the date of this Agreement, subject in each case to
the terms of the Intercreditor Agreement if applicable; provided, further,
Borrower notifies Lender of the existence of such leases on or prior to the
Closing Date.
SECTION 7.18. LENDER CONSENTS. Borrower or Guarantor may
request that Lender consent to any action prohibited by Sections 7.11 and 7.13
through 7.17 by delivering a written request which specifies in reasonable
detail the nature of the proposed action. Lender agrees to consider such request
in a timely fashion and will provide Borrower or Guarantor with a written
response to such request. Nothing in this Section 7.18 shall be construed to
require Lender to approve any such request.
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SECTION 8
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the
following events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest
or any other payment on the Note or any other Obligation when due and payable,
by acceleration or otherwise, and such failure shall continue for five (5) days
after the payment is due;
(b) Borrower fails to observe or perform any covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender; provided, however, that if such failure can
not be cured within such thirty (30) day period, Borrower shall not be in
default if the cure is commenced within such thirty (30) day period and
thereafter such cure is diligently pursued to completion;
(c) Borrower fails to keep its and its Affiliates' assets
insured as required herein, or material uninsured damage to or loss, theft or
destruction of the Collateral occurs;
(d) A court enters a decree or order for relief in respect of
Borrower or an Affiliate in an involuntary case under any applicable bankruptcy,
insolvency, or other similar law then in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or other similar
official) of Borrower or an Affiliate or for any substantial part of their
property, or orders the windup or liquidation of Borrower's or an Affiliate's
affairs; or a petition initiating an involuntary case under any such bankruptcy,
insolvency, or similar law is filed against Borrower or an Affiliate and is
pending for sixty (60) days without dismissal;
(e) Borrower or an Affiliate commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law then in effect, makes
any general assignment for the benefit of creditors, fails generally to pay its
debts as such debts become due, or takes corporate action in furtherance of any
of the foregoing;
(f) Final judgment for the payment of money on any claim in
excess of $100,000 is rendered against Borrower or an Affiliate and remains
undischarged for twenty (20) days during which execution is not effectively
stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any
of the Obligations, or becomes the subject of an insolvency proceeding of the
type described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant,
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condition or agreement to be performed under any Loan Document to which it is a
party;
(h) Borrower or an Affiliate makes any payment on account of
any Subordinate Obligations, other than payments specifically permitted by the
terms of such subordination or this Agreement;
(i) Any person holding any Subordinate Obligations becomes the
subject of any proceeding resulting in the termination of the subordination
arrangement, terminates the subordination arrangement or asserts that it is
terminated.
(j) Any Collateral or any part thereof is sold, agreed to be
sold, conveyed or allocated by operation of law or otherwise;
(k) Borrower or an Affiliate defaults under the terms of any
Indebtedness or lease involving total payment obligations of Borrower or an
Affiliate in excess of $100,000 and such default is not cured within the time
period permitted pursuant to the terms and conditions of such Indebtedness or
lease, or an event occurs that gives any creditor or lessor the right to
accelerate the maturity of any such indebtedness or lease payments; provided,
however, with respect to any default under the GE Affected Debt (as defined in
the Intercreditor Agreement) an Event of Default shall not be deemed to exist
under this Agreement until such default constitutes an "Event of Default", as
such term is defined with respect to the GE Affected Debt;
(l) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(m) Borrower or an Affiliate is enjoined, restrained or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs;
(n) A judgment or other claim in excess of $100,000 becomes a
Lien upon any or all of Borrower's or its Affiliates' assets, other than a
Permitted Lien;
(o) A notice of Lien, levy or assessment in excess of $100,000
is filed of record with respect to any or all of Borrower's or its Affiliates'
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal or other Government
Agency; or any tax or debt owing at any time hereafter to any one or more of
such entities becomes a Lien upon any or all of Borrower's or its Affiliates'
assets and the same is not paid on the payment date thereof, except to the
extent such tax or debt is being contested by Borrower or an Affiliate as
permitted in Section 6.4;
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(p) There is a material impairment of the value of the
Collateral or priority of Lender's Liens on the Collateral;
(q) Any of Borrower's or its Affiliates' assets in excess of
$100,000 or any Collateral are seized, subjected to a distress warrant, levied
upon or come into the possession of any judicial officer;
(r) Any representation or warranty made in writing to Lender by
any officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(s) Guarantor shall be in default with respect to any of its
Obligations to Lender or an Event of Default or an Unmatured Default occurs
under the Other Loan Document; or
(t) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (f), (k), (l), (n) and (o)
hereof exceeds $250,000.
SECTION 9
REMEDIES
SECTION 9.1. SPECIFIC REMEDIES. Upon the occurrence of any
Event of Default, subject in each case to the terms of the Intercreditor
Agreement:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower or its
Affiliates, with or without judicial process, and take possession of the
Collateral; provided however, that Lender may only exercise such remedy if it
may do so without a breach of the peace. Lender may remove the Collateral and
may remove or copy all records pertaining thereto, or Lender may remain on such
premises and use the premises for the purpose of collecting, preparing and
disposing of the Collateral, without any liability for rent or occupancy
charges. Borrower shall, upon request of Lender, assemble the Collateral and any
records pertaining thereto and make them available at a place designated by
Lender that is reasonably convenient to both parties.
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(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower or its Affiliates in order to process or finish inventory
included in the Collateral. If any Collateral consists of documents, Lender may
proceed either as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(f) Lender may (i) endorse Borrower's or its Affiliates' name
on all checks, notes, drafts, money orders or other forms of payment of or
security for Accounts or other Collateral; (ii) sign Borrower's or its
Affiliates' name on drafts drawn on Account Debtors or issuers of letters of
credit; and (iii) notify the postal authorities in Borrower's or its Affiliates'
name to change the address for delivery of Borrower's or its Affiliates' mail to
an address designated by Lender, receive and open all mail addressed to Borrower
or an Affiliate, copy all mail, return all mail relating to Collateral, and hold
all other mail available for pickup by Borrower or an Affiliate.
(g) Lender may sell the Collateral at public or private sale
and is not required to repossess Collateral before selling it. Any requirement
of reasonable notice of any disposition of the Collateral shall be satisfied if
such notice is sent to Borrower, ten (10) days prior to such disposition by any
of the methods provided in Section 11.5 hereof. Borrower shall be credited with
the net proceeds of such sale only when they are actually received by Lender,
and Borrower shall continue to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give
notice of the time and place by publishing a notice one time at least five (5)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender
may be the purchaser of any or all of the Collateral at any public sale and
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any
public sale, to use and apply all or any part of the Obligations as a credit on
account of the purchase price of any Collateral payable by Lender at such sale.
SECTION 9.2. POWER OF ATTORNEY. Guarantor and Borrower hereby
appoint Lender (and any of Lender's officers, employees, or
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agents designated by Lender) as Guarantor's and Borrower's attorney, with power
whether before or after the occurrence of an Event of Default: (a) to endorse
Borrower's or its Affiliates' name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's or its Affiliates' name on drafts against
Account Debtors, on schedules and assignments of Accounts, on verifications of
Accounts, and on notices to Account Debtors; (c) to notify the post office
authorities to change the address for delivery of Borrower's or its Affiliates'
mail to an address designated by Lender, to receive and open all mail addressed
to Borrower or an Affiliate and to retain all mail relating to the Collateral
and forward all other mail to Borrower or an Affiliate; (d) to send requests for
verification of Accounts; (e) to execute UCC Financing Statements; and (f) to do
all things necessary to carry out this Agreement. The appointment of Lender as
Borrower's attorney and each and every one of Lender's rights and powers, being
coupled with an interest, are irrevocable as long as any Obligations are
outstanding. Lender agrees not to exercise the power granted in clauses 9.2(a)
through 9.2(c) prior to the occurrence of an Event of Default and agrees not to
exercise the power granted in clause 9.2(d) prior to notification of Borrower of
its intent to do so, but such limitations do not limit the effectiveness of such
power of attorney at any time. Any person dealing with Lender shall be entitled
to rely conclusively on any written or oral statement of Lender that this power
of attorney is in effect. Lender may also use Borrower's stationery in
connection with exercising its rights and remedies and performing the
Obligations of Borrower.
SECTION 9.3. EXPENSES SECURED. All expenses, including attorney
fees, incurred by Lender in the exercise of its rights and remedies provided in
this Agreement, in the Other Loan Document or by law shall be payable by
Borrower to Lender, shall be part of the Obligations, and shall be secured by
the Collateral.
SECTION 9.4. EQUITABLE RELIEF. Borrower recognizes that in the
event Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, no remedy of law will provide adequate relief
to Lender, and Borrower agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
SECTION 9.5. REMEDIES ARE CUMULATIVE. No remedy set forth
herein is exclusive of any other available remedy or remedies, but each is
cumulative and in addition to every other right or remedy given under this
Agreement or under any other agreement between Lender and Borrower or Guarantor
or now or hereafter existing at law or in equity or by statute. Lender may
pursue its rights and remedies concurrently or in any sequence, and no exercise
of one right or remedy shall be deemed to be an election. No delay by Lender
shall constitute a waiver, election, or acquiescence by it. Borrower on its
behalf waives any rights to
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require Lender to (i) proceed against Guarantor or any other party; or (ii)
proceed against or exhaust any security held from Guarantor. Lender may at any
time and from time to time, without notice to, or consent of, Borrower, and
without affecting or impairing the obligation of Borrower hereunder do any of
the following: (i) renew or extend any Obligations of Guarantor, or of any other
party at any time directly or contingently liable for payment of any of the
Obligations of Guarantor; (ii) accept partial payments of the Obligations of
Guarantor; (iii) settle, release (by operation of law or otherwise), compound,
compromise, collect or liquidate any of the Obligations of Guarantor and the
security therefor in any manner; (iv) consent to the transfer or sale of any
security or bid and purchase at any sale of any security of Guarantor. Borrower
expressly agrees that the validity of this Agreement and the Obligations of
Borrower shall not be terminated, affected or impaired by reason of the waiving,
delaying, exercising or non-exercising, of any of Lender's rights against
Guarantor or as a result of the substitution, release, repossession, sale,
disposition or destruction of any Collateral securing any Obligations of
Guarantor. Lender shall not be released or discharged, either in whole or in
part, by Lender's failure or delay to perfect or continue the perfection of any
security interest in any Collateral which secures the Obligations of Guarantor
or to protect the property covered by such security interest.
SECTION 10
INDEMNITY
SECTION 10.1. GENERAL INDEMNITY. Borrower shall protect,
indemnify and defend and save harmless Lender and its directors, officers,
agents and employees from and against any and all loss, cost, liability
including negligence, tort and strict liability), expense, damage, suits or
demands (including fees and disbursements of counsel) on account of any suit or
proceeding before any Governmental Authority which arises from the transactions
contemplated in this Agreement or otherwise arising in connection with or
relating to the Loan and any security therefor, unless such suit, claim or
damages are caused by the negligence or intentional malfeasance of Lender or its
directors, officer, agents or employees. Upon receiving knowledge of any suit,
claim or demand asserted by a third-party that Lender believes is covered by
this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower shall survive
the termination of this Agreement and the repayment of the Note.
SECTION 10.2. SPECIFIC ENVIRONMENTAL INDEMNITY. Borrower hereby
agrees unconditionally to indemnify, defend and
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hold harmless Lender, its directors, officers, employees and agents against any
loss, liability, damage or expense or claim arising under any Environmental
Laws having jurisdiction over the property or assets of Borrower or its
Affiliates or any portion thereof or its use.
SECTION 11
MISCELLANEOUS
SECTION 11.1. DELAY AND WAIVER. No delay or omission to
exercise any right shall impair any such right or be a waiver thereof, but any
such right may be exercised from time to time and as often as may be deemed
expedient. A waiver on one occasion shall be limited to that particular
occasion.
SECTION 11.2. COMPLETE AGREEMENT. This Agreement and the
Schedules are the complete agreement of the parties hereto and supersede all
previous understandings relating to the subject matter hereof. This Agreement
may be amended only by an instrument in writing that explicitly states that it
amends this Agreement and is signed by the party against whom enforcement of
the amendment is sought. This Agreement may be executed in counterparts, each
of which will be an original and all of which will constitute a single
agreement.
SECTION 11.3. SEVERABILITY; HEADINGS. If any part of this
Agreement or the application thereof to any person or circumstance is held
invalid, the remainder of this Agreement shall not be affected thereby. The
section headings herein are included for convenience only and shall not be
deemed to be a part of this Agreement.
SECTION 11.4. BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of the respective legal representatives,
successors and assigns of the parties hereto; however, Borrower may not assign
any of its rights or delegate any of its Obligations hereunder. Lender (and
any subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who shall thereupon have all of the rights of
Lender; and Lender (or such subsequent assignee who in turn assigns as
aforesaid) shall then be relieved and discharged of any responsibility or
liability with respect to this Agreement and said Collateral.
SECTION 11.5. NOTICES. Any notices under or pursuant to this
Agreement shall be deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, telecopy, or similar electronic medium to
the following addresses:
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To Borrower: American Shared Hospital Services
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111
Attention: Ernest A. Bates, M.D.
Telephone: (415) 788-5300
Telecopier: (415) 788-5660
To Lender: DVI Business Credit
c/o DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Telecopier: (215) 230-8108
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Either party may change such address by sending notice of the
change to the other party; such change of address shall be effective only upon
actual receipt of the notice by the other party.
SECTION 11.6. GOVERNING LAW. ALL ACTS AND TRANSACTIONS
HEREUNDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
SECTION 11.7. JURISDICTION. Borrower agrees that the state
and federal courts in Orange County, California or any other court in which
Lender initiates proceedings have jurisdiction over all matters arising out of
this Agreement and that service of process in any such proceeding shall be
effective if mailed to Borrower at its address described in the Notices section
of this Agreement. Borrower waives any right it may have to assert the defense
of forum non conveniens or to object to such venue and hereby consents to any
court-ordered relief.
SECTION 11.8. WAIVER OF TRIAL BY JURY. LENDER, GUARANTOR
AND BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT
OF THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER, GUARANTOR AND BORROWER.
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<PAGE> 34
IN WITNESS WHEREOF, Borrower, Guarantor, Individual Guarantor
and the Lender have executed this Agreement by their duly authorized officers
as of the date first above written.
BORROWER: LENDER:
CURACARE, INC. DVI FINANCIAL SERVICES INC.
By: By:
------------------------------ --------------------------
Ernest A. Bates, M.D. Richard E. Miller
President President
AMERICAN SHARED-CURACARE
By: American Shared Hospital
Services, general partner
By:
-------------------------
Ernest A. Bates, M.D.
President
By: MMRI, Inc., general partner
By:
-------------------------
Ernest A. Bates, M.D.
President
GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES
By:
-----------------------------------
Ernest A. Bates
President
INDIVIDUAL GUARANTOR:
- ---------------------------------------
ERNEST A. BATES, M.D.
30
<PAGE> 1
EXHIBIT 10.8
UNCONDITIONAL CONTINUING GUARANTY
(Loan Agreement)
THIS UNCONDITIONAL CONTINUING GUARANTY ("Guaranty") is made and entered into as
of May 17, 1995, for the benefit of _________________________________
("Lender"), whose principal place of business is located at 4041 MacArthur
Ave., Suite 401, Newport Beach, California 92660, by American Shared Hospital
Services, a California corporation ("Guarantor"), whose principal place of
business is located at Four Embarcadero Center, Suite 3620, San Francisco
California 94111.
RECITALS
A. Guarantor directly or indirectly owns all of the ownership
interests in American Shared-CuraCare, a California general partnership, and
CuraCare, Inc., a Delaware corporation ("collectively and individually,
"Borrower").
AGREEMENT
1. Guaranty. In order to induce Lender, and in consideration thereof,
to enter into that certain Loan and Security Agreement dated as of the date
hereof (the "Agreement") with Borrower, Guarantor and Ernest A. Bates, M.D.,
and any future agreements with Borrower, Guarantor unconditionally, absolutely
and irrevocably guarantees and promises to Lender to pay, perform and
discharge, any and all present and future indebtedness, liabilities and
obligations (collectively "Obligations") of Borrower to Lender, including but
not limited to the repayment to Lender of all sums presently due and owing and
of all sums that shall in the future become due and owing from Borrower whether
arising under the Agreement or otherwise.
2. Obligations. The Obligations of Borrower include any and all
loans, advances, indebtedness and other obligations owed by Borrower to Lender
of every description whether now existing or hereafter arising (including those
owed to others by Borrower and acquired by Lender by purchase, assignment or
otherwise) and include Obligations that are: (a) direct or indirect; (b) fixed
or contingent; (c) primary or as guarantor or surety; (d) liquidated or
unliquidated; (e) matured or unmatured; (f) acquired by pledge, assignment,
security interest or purchase; (g) secured or unsecured; (h) primary or
secondary; (i) joint, several or joint and several; (j) represented by letters
of credit now or hereafter issued by Lender for the benefit of or at the
request of Borrower; and (k) all of Lender's expenses, included but not limited
to (i) all reasonable costs or expenses, including without limitation, taxes
and insurance premiums, required to be paid by Borrower under the Agreement
that are paid or advanced by Lender, (ii) all filing, recording, publication
and search fees paid or incurred by Lender in connection with Lender's
transactions with Borrower, (iii) all costs and expenses incurred by Lender to
correct any Event of Default (as defined in the Agreement) or enforce any
provision of the Agreement, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale or advertising to
sell any security for the Obligations, whether or not a sale is consummated,
after the occurrence of an Event of Default (iv) all costs and expenses of suit
incurred by Lender and enforcing or defending the Agreement or any portion
thereof, and (v) all reasonable Lender's attorney's fees and expenses incurred
in advising, structuring, drafting,
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<PAGE> 2
reviewing, negotiating, amending, terminating, enforcing, defending or
concerning the Agreement or any portion thereof, irrespective of whether suit
is brought, and includes each Borrower's prompt, full and faithful performance,
observance and discharge of each and every term, condition, agreement,
representation, warranty, undertaking and provision to be performed by Borrower
under the Agreement.
3. Attorneys' Fees. Guarantor agrees to pay Lender the costs and
expenses of the enforcement of this Guaranty, including attorneys' fees.
4. Waivers.
(a) Scope of Risk Defenses. Lender may at any time and from time
to time, without notice to, or the consent of, Guarantor, and without affecting
or impairing the obligation of Guarantor hereunder, do any of the following:
(i) renew or extend any Obligations of Borrower, of its customers, of any
co-guarantors (whether hereunder or under a separate instrument) or of any
other party at any time directly or contingently liable for the payment of any
of the Obligations; (ii) accept partial payments of the Obligations; (iii)
settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of the Obligations and the security therefor in any
manner; (iv) consent to the transfer or sale of security, or (v) bid and
purchase at any sale of any security.
(b) Primary Obligation Defenses. Guarantor waives any rights to
require Lender to (i) proceed against Borrower or any other party; (ii) proceed
against or exhaust any security held from Borrower; or (iii) pursue any other
remedy in Lender's power whatsoever. Guarantor waives any defense based on or
arising out of any defense of Borrower other than payment in full of the
Obligations, including without limitation any defense based on or arising out
of any disability of Borrower, or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of Borrower.
(c) Commercially Reasonable Sale and Anti-deficiency Laws. Lender
may, at Lender's election, foreclose on any security held by Lender by one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, or exercise any other right or remedy Lender
may have against Borrower, or any security, without affecting or impairing in
any way the liability of Guarantor except to the extent the Obligations have
been paid. Guarantor waives any defense arising out of any such election by
Lender, even though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of Lender against
Borrower or any security. In the absence of agreeing to the waivers contained
in this subsection 4(c), Guarantor may have the right of subrogation or
reimbursement against a Borrower. For example, if Lender elects to foreclose,
by nonjudicial sale, any deeds of trust securing any indebtedness of Borrower
to Lender, causing Guarantor to lose any such rights or create defenses to
enforcement of this Guaranty, Guarantor gives up any such potential defenses by
agreeing to these waivers. Guarantor also expressly waives any defense or
benefit that may be derived from California Code of Civil Procedure Sections
580a, 580d or 726 or comparable provisions of the laws of any other state and
all securityship defenses it would otherwise under California law or under the
laws of any other state.
2
<PAGE> 3
(d) Disclosure Defenses. Guarantor expressly waives all
set-offs and counterclaims and waives all notices, protests and demands
including, but not limited to, notice of default in payment or in the
performance or observance of any of the terms, provisions, covenants or
conditions contained in any agreement between Lender and any Borrower.
(e) Borrowers' Defenses On Underlying Obligations. Guarantor
expressly agrees that the validity of this Guaranty and the obligations of
Guarantor shall not be terminated, affected or impaired by reason of the
waiving, delaying, exercising or nonexercising, of any of Lender's rights
against any Borrower pursuant to any of the Agreement against Guarantor by
reason of this Guaranty or as a result of the substitution, release,
repossession, sale, disposition or destruction of any collateral securing the
Obligations.
(f) Impairment of Collateral Defenses. Guarantor shall not be
released or discharged, either in whole or in part, by Lender's failure or delay
to perfect or continue the perfection of any security interest in any property
which secures the Obligations of any Borrower or Guarantor to Lender, or to
protect the property covered by such security interest.
(g) Guarantor's Right to Revoke. Guarantor expressly waives
the right to revoke or terminate this continuing Guaranty, including any
statutory right of revocation under California Civil Code Section 2815, or
comparable provisions of the laws of any other state.
5. Financial Condition of Borrower. Guarantor assumes all
responsibility for being and keeping informed of Borrower's financial condition
and assets and of all other circumstances bearing upon the risk of nonpayment
of the Obligations and the nature, scope and extent of the risks which
Guarantor assumes and incurs hereunder, and agrees that Lender shall have no
duty to advise Guarantor of information known to it regarding such
circumstances or risks.
6. Guarantor Not Entitled To Subrogation. No payment by Guarantor
hereunder shall entitle Guarantor, by subrogation, indemnity, reimbursement,
contribution or otherwise, to any payment by Borrower or to any subrogation,
indemnity, reimbursement or contribution out of the property of Borrower until
the Obligations have been paid in full.
7. Recovery of Preferences. If a claim is made upon Lender at any
time for repayment or recovery of any amount(s) or other value received by
Lender, from any source, in payment of or on account of any of the Obligations
of Borrower guaranteed hereunder and Lender repays or otherwise becomes liable
for all or any part of such claim by reason of (a) any judgment, decree or
order of any court or administrative body having competent jurisdiction, or (b)
any settlement or compromise of any such claim, Guarantor shall remain liable
to Lender hereunder for the amount so repaid or for which Lender is otherwise
liable to the same extent as if such amount(s) had never been received by
Lender, notwithstanding any termination hereof or the termination of any
agreements evidencing any of the Obligations of Borrower.
8. Events Of Default. The occurrence of any Event of Default under
the Agreement shall constitute an event of default under this Guaranty and upon
the occurrence thereof and at Lender's election without notice or demand,
Guarantor's obligations hereunder shall become due, payable and enforceable
against Guarantor, whether or not the Obligations are then due and payable.
3
<PAGE> 4
9. Binding On Successors and Assigns. This Guaranty shall bind
Guarantor's legal representatives, successors and assigns, and shall inure to
the benefit of Lender's successors and assigns, including, but not limited to,
any party to whom Lender may assign the Agreement or any other agreements, and
Guarantor hereby waives notice of any such assignment. All of Lender's rights
are cumulative and not alternative.
10. Miscellaneous. This Guaranty contains the entire agreement of the
parties hereto and no other oral or written agreement exists. This Guaranty may
not be amended or modified except by a writing signed by Lender and Guarantor.
This Guaranty is a valid and subsisting legal instrument and no provision which
may be deemed unenforceable shall in any way invalidate any other provision or
provisions, all of which shall remain in full force and effect. No invalidity,
irregularity or unenforceability of all or any part of the Obligations
guaranteed nor any other circumstance which might be a legal defense of a
guarantor shall affect, impair, or be a defense to this Guaranty. Each of the
persons who has signed this or any other Guaranty has unconditionally delivered
it to Lender, and the failure to sign this or any other Guaranty by any other
person shall not discharge the liability of any signer. The unconditional
liability of the signer applies whether the signer is jointly and severally
liable for the entire amount of the debt, or for only a pro-rata portion.
11. Choice of Law and Forum. THIS GUARANTY SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND
GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND/OR FEDERAL
COURTS IN THE STATE OF CALIFORNIA.
GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES
BY: /s/ ERNEST A. BATES, M.D.
-------------------------
Ernest A. Bates, M.D.
President
Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.9
UNCONDITIONAL CONTINUING GUARANTY
(Loan Agreement)
THIS UNCONDITIONAL CONTINUING GUARANTY ("Guaranty") is made and entered into as
of May 17, 1995, for the benefit of __________________________ ("Lender"),
whose principal place of business is located at 4041 MacArthur Ave., Suite 401,
Newport Beach, California 92660, by Ernest A. Bates, M.D., an individual
("Individual Guarantor") whose principal place of business is located at Four
Embarcadero Center, Suite 3620, San Francisco, California 94111.
RECITALS
A. Individual Guarantor is the chief executive officer of American
Shared Hospital Services, a California corporation ("Guarantor"), and owns
twenty-five percent (25%) or more of the outstanding shares of Guarantor's
common stock.
B. Guarantor directly or indirectly owns all of the ownership interests
in American Shared-CuraCare, a California general partnership, and CuraCare,
Inc., a Delaware corporation ("collectively and individually, "Borrower").
AGREEMENT
1. Guaranty. In order to induce Lender, and in consideration thereof,
to enter into that certain Loan and Security Agreement dated as of the date
hereof (the "Agreement") with Borrower, Guarantor and Individual Guarantor and
any future agreements with Borrower, Individual Guarantor unconditionally,
absolutely and irrevocably guarantees and promises to Lender to pay, perform
and discharge, any and all present and future indebtedness, liabilities and
obligations (collectively "Obligations") of Borrower to Lender, including
but not limited to the repayment to Lender of all sums presently due and owing
and of all sums that shall in the future become due and owing from Borrower
whether arising under the Agreement or otherwise.
2. Obligations. The Obligations of Borrower include any and all loans,
advances, indebtedness and other obligations owned by Borrower to Lender of
every description whether now existing or hereafter arising (including those
owed to others by Borrower and acquired by Lender by purchase, assignment or
otherwise) and include Obligations that are: (a) direct or indirect; (b) fixed
or contingent; (c) primary or as guarantor or surety; (d) liquidated or
unliquidated; (e) matured or unmatured; (f) acquired by pledge, assignment,
security interest or purchase; (g) secured or unsecured; (h) primary or
secondary; (i) joint, several or joint and several; (j) represented by letters
of credit now or hereafter issued by Lender for the benefit of or at the
request of Borrower; and (k) all of Lender's expenses, included but not limited
to (i) all reasonable costs or expenses, including without limitation, taxes
and insurance premiums, required to be paid by Borrower under the Agreement
that are paid or advanced by Lender, (ii) all filing, recording, publication
and search fees paid or incurred by Lender in connection with Lender's
transactions with Borrower, (iii) all costs and expenses incurred by Lender to
correct any Event of Default (as defined in the Agreement) or enforce any
provision of the Agreement, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling,
1
<PAGE> 2
preparing for sale or advertising to sell any security for the Obligations,
whether or not a sale is consummated, after the occurrence of an Event of
Default (iv) all costs and expenses of suit incurred by Lender and enforcing
or defending the Agreement or any portion thereof, and (v) all reasonable
Lender's attorney's fees and expenses incurred in advising, structuring,
drafting, reviewing, negotiating, amending, terminating, enforcing, defending
or concerning the Agreement or any portion thereof, irrespective of whether
suit is brought, and includes each Borrower's prompt, full and faithful
performance, observance and discharge of each and every term, condition,
agreement, representation, warranty, undertaking and provision to be performed
by Borrower under the Agreement.
3. Attorneys' Fees. Individual Guarantor agrees to pay Lender the
costs and expenses of the enforcement of this Guaranty, including attorneys'
fees.
4. Waivers.
(a) Scope of Risk Defenses. Lender may at any time and from time
to time, without notice to, or the consent of, Individual Guarantor, and
without affecting or impairing the obligation of Individual Guarantor
hereunder, do any of the following: (i) renew or extend any Obligations of
Borrower, of its customers, of any co-guarantors (whether hereunder or under a
separate instrument) or of any other party at any time directly or contingently
liable for the payment of any of the Obligations; (ii) accept partial payments
of the Obligations; (iii) settle, release (by operation of law or otherwise),
compound, compromise, collect or liquidate any of the Obligations and the
security therefor in any manner; (iv) consent to the transfer or sale of
security, or (v) bid and purchase at any sale of any security.
(b) Primary Obligation Defenses. Individual Guarantor waives any
rights to require Lender to (i) proceed against Borrower or any other party;
(ii) proceed against or exhaust any security held from Borrower; or (iii)
pursue any other remedy in Lender's power whatsoever. Individual Guarantor
waives any defense based on or arising out of any defense of Borrower other
than payment in full of the Obligations, including without limitation any
defense based on or arising out of any disability of Borrower, or the
unenforceability of the Obligations or any part thereof from any cause, or the
cessation from any cause of the liability of Borrower.
(c) Commercially Reasonable Sale and Anti-deficiency Laws. Lender
may, at Lender's election, foreclose on any security held by Lender by one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, or exercise any other right or remedy Lender
may have against Borrower, or any security, without affecting or impairing in
any way the liability of Individual Guarantor except to the extent the
Obligations have been paid. Individual Guarantor waives any defense arising out
of any such election by Lender, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy
of Lender against Borrower or any security. In the absence of agreeing to the
waivers contained in this subsection 4(c), Individual Guarantor may have the
right of subrogation or reimbursement against a Borrower. For example, if
Lender elects to foreclose, by nonjudicial sale, any deeds of trust securing
any indebtedness of Borrower to Lender, causing Individual Guarantor to lose
any such rights or create defenses to enforcement of this Guaranty, Individual
Guarantor gives up any such
2
<PAGE> 3
potential defenses by agreeing to these waivers. Individual Guarantor also
expressly waives any defense or benefit that may be derived from California
Code of Civil Procedure Sections 580a, 580d or 726 or comparable provisions of
the laws of any other state and all securityship defenses it would otherwise
under California law or under the laws of any other state.
(d) Disclosure Defenses. Individual Guarantor expressly waives all
set-offs and counterclaims and waives all notices, protests and demands
including, but not limited to, notice of default in payment or in the
performance or observance of any of the terms, provisions, covenants or
conditions contained in any agreement between Lender and any Borrower.
(e) Borrowers' Defenses On Underlying Obligations. Individual
Guarantor expressly agrees that the validity of this Guaranty and the
obligations of Individual Guarantor shall not be terminated, affected or
impaired by reason of the waiving, delaying, exercising or nonexercising, of any
of Lender's rights against any Borrower pursuant to any of the Agreement against
Individual Guarantor by reason of this Guaranty or as a result of the
substitution, release, repossession, sale, disposition or destruction of any
collateral securing the Obligations.
(f) Impairment of Collateral Defenses. Individual Guarantor
shall not be released or discharged, either in whole or in part, by Lender's
failure or delay to perfect or continue the perfection of any security interest
in any property which secures the Obligations of any Borrower or Individual
Guarantor to Lender, or to protect the property covered by such security
interest.
(g) Individual Guarantor's Right to Revoke. Individual Guarantor
expressly waives the right to revoke or terminate this continuing Guaranty,
including any statutory right of revocation under California Civil Code Section
2815, or comparable provisions of the laws of any other state.
5. Financial Condition of Borrower. Individual Guarantor assumes all
responsibility for being and keeping informed of Borrower's financial condition
and assets and of all other circumstances bearing upon the risk of nonpayment
of the Obligations and the nature, scope and extent of the risks which
Individual Guarantor assumes and incurs hereunder, and agrees that Lender shall
have no duty to advise Individual Guarantor of information known to it
regarding such circumstances or risks.
6. Individual Guarantor Not Entitled To Subrogation. No payment by
Individual Guarantor hereunder shall entitle Individual Guarantor, by
subrogation, indemnity, reimbursement, contribution or otherwise, to any
payment by Borrower or to any subrogation, indemnity, reimbursement or
contribution out of the property of Borrower until the Obligations have been
paid in full.
7. Recovery of Preferences. If a claim is made upon Lender at any
time for repayment or recovery of any amount(s) or other value received by
Lender, from any source, in payment of or on account of any of the Obligations
of Borrower guaranteed hereunder and Lender repays or otherwise becomes liable
for all or any part of such claim by reason of (a) any judgment, decree or
order of any court or administrative body having competent jurisdiction,
3
<PAGE> 4
or (b) any settlement or compromise of any such claim, Individual Guarantor
shall remain liable to Lender hereunder for the amount so repaid or for which
Lender is otherwise liable to the same extent as if such amount(s) had never
been received by Lender, notwithstanding any termination hereof or the
termination of any agreements evidencing any of the Obligations of Borrower.
8. Events of Default. The occurrence of any Event of Default
under the Agreement shall constitute an event of default under this Guaranty
and upon the occurrence thereof and at Lender's election without notice or
demand, Individual Guarantor's obligations hereunder shall become due, payable
and enforceable against Individual Guarantor, whether or not the Obligations
are then due and payable.
9. Binding On Successors and Assigns. This Guaranty shall bind
Individual Guarantor's legal representatives, successors and assigns, and shall
inure to the benefit of Lender's successors and assigns, including, but not
limited to, any party to whom Lender may assign the Agreement or any other
agreements, and Individual Guarantor hereby waives notice of any such
assignment. All of Lender's rights are cumulative and not alternative.
10. Miscellaneous. This Guaranty contains the entire agreement
of the parties hereto and no other oral or written agreement exists. This
Guaranty may not be amended or modified except by a writing signed by Lender
and Individual Guarantor. This Guaranty is a valid and subsisting legal
instrument and no provision which may be deemed unenforceable shall in any way
invalidate any other provision or provisions, all of which shall remain in full
force and effect. No invalidity, irregularity or unenforceability of all or any
part of the Obligations guaranteed nor any other circumstance which might be a
legal defense of a guarantor shall affect, impair, or be a defense to this
Guaranty. Each of the persons who has signed this or any other Guaranty has
unconditionally delivered it to Lender, and the failure to sign this or any
other Guaranty by any other person shall not discharge the liability of any
signer. The unconditional liability of the signer applies whether the signer is
jointly and severally liable for the entire amount of the debt, or for only a
pro-rata portion.
11. Choice of Law and Forum. THIS GUARANTY SHALL IN ALL RESPECTS
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND
INDIVIDUAL GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND/OR
FEDERAL COURTS IN THE STATE OF CALIFORNIA.
INDIVIDUAL GUARANTOR:
/s/ ERNEST A. BATES
- --------------------
ERNEST A. BATES, M.D.
4
<PAGE> 1
EXHIBIT 10.10
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT ("Agreement") is made and entered
into as of May 17, 1995 among American Shared Hospital Services, a California
corporation, American Shared-CuraCare, a California general partnership,
CuraCare, Inc., a Delaware corporation (collectively, "Debtor"), DVI Financial
Services Inc. ("DVIFS") and DVI Business Credit Corporation ("DVIBC" and,
together with DVIFS, sometimes referred to herein, collectively, as "DVI") and
General Electric Company, a New York corporation acting through GE Medical
Systems ("GE").
RECITALS
A. CuraCare, Inc. ("CuraCare") and American Shared-CuraCare ("AS-C")
are presently indebted to GE pursuant to certain notes, loan and security
agreements and equipment leases, including, without limitation (1) a promissory
note in the principal amount of $2,000,000 from AS-C to GE (the "Deferral
Note"), (2) CuraCare's guaranty of the Deferral Note ("Guaranty"), and (3)
various equipment leases between (a) GE and CuraCare and (b) GE and AS-C (the
"GE Leases" and, together with the Deferral Note, sometimes referred to herein,
collectively, as the "GE Affected Debt"). As security for the payment and
performance of the Deferral Note and Guaranty, and each of them, CuraCare and
AS-C, and each of them, pursuant to Security Agreements dated as of November 1,
1994 (collectively the "Security Agreements") have granted to GE a lien and
security interest in certain assets of CuraCare and AS-C, including Accounts
(as defined in Section 1 of the Security Agreements), whether from third parties
of Debtor or affiliates of Debtor, and all rights of Debtor to receive monies
due and to become due under or pursuant to (a) such Accounts, (b) Contract
Rights (as defined in Section 1 of the Security Agreements), or (c) chattel
paper, documents, instruments and other obligations of any kind of Debtor, now
or hereafter existing (the "Accounts Receivable Collateral"), which lien is
currently of first priority.
B. DVI has been requested by Debtor to provide Debtor with loans,
secured by, among other collateral, the Accounts Receivable Collateral. Debtor
concurrently herewith has entered into certain Loan and Security Agreements with
DVIFS and DVIBC,
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respectively, (the "Loan Agreements") pursuant to which DVI will extend credit
and make advances to Debtor.
C. GE has been requested by Debtor to provide Debtor with an additional
loan, secured by certain collateral, more particularly described as the
"UCSF Gamma Knife" (as defined in the loan and security documentation
between Debtor and GE).
D. GE represents and warrants that the Accounts Receivable Collateral
secures the Deferral Note and Guaranty only and does not secure any other GE
Debt, including the GE Leases or the loan secured by the UCSF Gamma Knife. GE
further represents and warrants that none of the GE Debt is cross-collateralized
with respect to the Accounts Receivable Collateral, including the Deferral Note,
GE Leases or the loan secured by the UCSF Gamma Knife.
E. DVI and GE wish to agree as to their respective liens upon and
security interests in the Accounts Receivable Collateral and the UCSF Gamma
Knife and as to certain other rights, priorities and interests.
NOW, THEREFORE, for value received and in consideration of the
mutual covenants herein, the parties hereto intend to be legally bound and
hereby do agree as follows:
AGREEMENT
1. For purposes of this Agreement, the following terms are
used as hereinafter defined:
(a) "Acceleration Date" shall mean the earliest date
of election specified in the notice provided by DVI or GE, as the case may be,
pursuant to Section 2(b) hereof.
(b) "DVI Debt" shall mean any and all indebtedness,
liabilities and obligations, in an aggregate amount, for the purposes of this
Agreement, up to, but not to exceed, the principal amount of Six Million Five
Hundred Thousand Dollars ($6,500,000) plus an amount not to exceed Five Hundred
Thousand Dollars ($500,000) for any other obligations including, but not limited
to, interest, late charges, taxes, attorneys' fees, court costs, indemnities,
and costs of repossession, transportation, storage, resale or re-lease, repair
or refurbishment of any collateral, owed by Debtor to DVIBC or DVIFS
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due and payable under, and evidenced by, the Loan Agreements, and any extensions
or renewals thereof, and whether direct or indirect, absolute or contingent, now
existing or hereafter arising.
(c) "DVIBC Debt" shall mean any and all indebtedness,
liabilities and obligations, in an aggregate amount for the purposes of this
Agreement, up to but not to exceed the principal amount of Four Million Dollars
($4,000,000), owed by Debtor to DVIBC due and payable under, and evidenced by,
the Loan Agreements, and any extensions or renewals thereof, and whether direct
or indirect, absolute or contingent, now existing or hereafter arising.
(d) "DVIFS Debt" shall mean any and all indebtedness,
liabilities and obligations, in an aggregate amount, for the purposes of this
Agreement, up to but not to exceed the principal amount of Two Million Five
Hundred Thousand Dollars ($2,500,000), owed by Debtor to DVIFS due and payable
under, and evidenced by, the Loan Agreements, and any extensions or renewals
thereof, and whether direct or indirect, absolute or contingent, now existing or
hereafter arising.
(e) "GE Debt" shall mean any and all indebtedness,
liabilities and obligations owed by Debtor to GE, whether direct or indirect,
absolute or contingent, now existing or hereafter arising (including, without
limitation, the GE Affected Debt).
(f) "Liquidation" shall refer to the collection,
liquidation and disposition of the Accounts Receivable Collateral.
(g) "Second Lien Liquidation Proceeds" shall mean
proceeds, if any, from the Liquidation of Accounts Receivable Collateral, other
than such proceeds, if any, received or to be received by DVIBC in connection
with such Liquidation in respect of DVIBC's first priority lien and security
interest in the Accounts Receivable Collateral.
(h) "UCC" shall mean the California Uniform Commercial
Code.
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2. Relative Priorities relating to Accounts Receivable
Collateral.
(a) The parties agree at all times, whether before,
during or after the pendency of any bankruptcy, reorganization or other
insolvency proceeding, and notwithstanding the time of granting or of perfection
of any security interest or lien or the time of filing or of recording of any
financing statements or any other documents, instruments or agreements under the
UCC or any other applicable law and as relates only to DVIBC Debt (i) DVIBC
shall have a first priority lien upon and security interest in the Accounts
Receivable Collateral superior to GE's security interest therein, and any
security interest of GE therein, whether now existing or hereafter acquired,
shall be subordinate to DVIBC's security interest therein; and (ii) each of GE
and DVIFS shall have a second and junior lien upon and security interest in the
Accounts Receivable Collateral ranking equally in priority.
(b) In the event that either of DVIBC or DVIFS elects
to accelerate any or all of Debtor's obligations pursuant to the DVI Debt, DVI
shall, forthwith upon such acceleration, notify GE in writing of such election
and the date thereof. In the event that GE elects to accelerate any or all of
Debtor's obligations pursuant to the GE Affected Debt, GE shall, forthwith upon
such acceleration, notify DVI in writing of such election and the date thereof.
The failure of either party to give the notice required by this section 2(b)
shall not affect the validity of the acceleration of the indebtedness with
respect to Debtor or create any claim or right on behalf of any third party. The
sending of such notice by either party shall not impose on the recipient thereof
any obligation to cure any default or Event of Default.
(c) GE and DVIFS (as related only to DVIFS Debt) shall
share in equal amounts and on an equal basis (pari passu) in all Second Lien
Liquidation Proceeds, if any, from any Liquidation of Accounts Receivable
Collateral.
(d) Irrespective of whether any Event of Default shall
have occurred under any agreements evidencing the DVI Debt or the GE Debt, and
notwithstanding any provisions of the UCC, so long as any DVI Debt remains
unpaid, and DVIBC retains a security interest in the Accounts Receivable
Collateral, GE shall not take
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any action to foreclose or realize upon or enforce any of its rights with
respect to the Accounts Receivable Collateral, including but not limited to,
notifying any account debtor, without the prior written consent of DVI, and
shall hold all Accounts Receivable Collateral and proceeds thereof, which may
come into GE's possession in trust for DVI, and shall turn over any such
collateral to DVI upon request. This provision does not limit GE's exercise of
any rights and remedies it may have under the GE Leases.
3. Relative Priorities Relating to UCSF Gamma Knife.
(a) The parties agree, at all times, whether before,
during or after the pendency of any bankruptcy, reorganization or other
insolvency proceeding, and notwithstanding the time of granting or of perfection
of any security interest or lien or the time of filing or of recording of any
financing statements or any other documents, instruments or agreements under the
UCC or any other applicable law that GE shall have a first priority lien upon
and security interest in the UCSF Gamma Knife superior to DVI's security
interest therein, and any security interest of DVI therein, whether now existing
or hereafter acquired, shall be subordinate to GE's security interest therein.
(b) Irrespective of whether any Event of Default shall
have occurred under the terms of any agreements evidencing the GE Debt or the
DVI Debt, and notwithstanding any provisions of the UCC, so long as any of the
GE Debt remains unpaid, and GE retains a security interest in the UCSF Gamma
Knife, DVI shall not take any action to foreclose or realize upon or enforce any
of its rights with respect to the UCSF Gamma Knife without the prior written
consent of GE, and shall hold all collateral and proceeds thereof, which may
come into DVI's possession in trust for GE, and shall turn over any such
proceeds to GE upon request.
(c) All proceeds realized from any disposition of the
UCSF Gamma Knife shall be allocated between, and shared by, GE and DVI in
conformity with their respective lien priorities.
4. Waivers and Consents. DVI and GE, and each of them, may at
any time, and from time to time, without notice to, or consent of the other
party, and without affecting or impairing
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the priority, subordination, rights and obligations under this Agreement, do any
of the following:
(a) Modify, (as permitted by Section 4(h) with respect
to the DVI Debt) renew or extend any DVI Debt or GE Debt respectively;
(b) Accept partial payment of any DVI Debt or GE Debt,
respectively;
(c) Settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any DVI Debt or GE Debt,
respectively, and the collateral therefor in any manner;
(d) Consent to the transfer or sale of any collateral
securing any DVI Debt or GE Debt, respectively; or
(e) Bid and purchase at any sale of any sale of any
collateral securing any DVI Debt or GE Debt, respectively.
(f) Except for the notices required by Section 2(b) of
this Agreement, DVI and GE, and each of them, waive all notices, protests and
demands, including, but not limited to, notice of (i) default or (ii) payment or
in performance or observance of any of the terms, provisions, covenants or
conditions contained in any agreement or instrument with Debtor evidencing any
senior DVI Debt or senior GE Debt, respectively.
(g) DVI and GE, and each of them, agree that the
validity of this Agreement and the subordination, priority, rights and
obligations of DVI and GE, and each of them, shall not be terminated, affected
or impaired by reason of the waiving, delaying, exercising or non-exercising of
either party's rights relating to its debt or as a result of the substitution,
release, repossession, sale, disposition or destruction of any collateral, or by
either party's failure or delay to perfect or continue the perfection of any
security interest in any Collateral or to perfect the Collateral securing the
indebtedness owed to either party by Debtor.
(h) DVIBC may at any time, and from time to time,
without notice to, or consent of GE, and without affecting or impairing the
priority, subordination, rights and obligations
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under this Agreement, and with respect to the DVIBC Debt only, subject to the
limitations set forth in Section 1(c) above, increase or reduce the amount of
the DVIBC Debt, modify any formula or requirements for determining Eligible
Accounts, modify the Net Collectible Value or Net Collectible Percentage of the
Accounts, and modify the amounts of, and formula for determining, Advances and
Advance Percentages. All capitalized terms in this Subsection 4(h) shall have
the meanings set forth in the Loan Agreement between DVIBC and Debtor.
5. Debtor Repayment. GE hereby agrees that, at any time a
payment with respect to the GE Debt is made thereto by Debtor and DVI has
provided written notice to GE within thirty (30) days of such payment that
amounts are then due and payable to DVI under the DVI Debt, GE shall pay over to
DVI the amount then due and payable to DVI pursuant to the DVI Debt (including
any balloon payments but excluding any amounts which have been accelerated by
DVI), in each case as of the date of receipt of such notice by GE, provided,
however, that any such payment by GE to DVI shall not exceed the amount of such
payment by Debtor to GE. Debtor acknowledges that any such payment by GE to DVI
will be deemed to reduce the amount of any such payment by Debtor with respect
to such portion of the Affected GE Debt, as determined by GE, and that Debtor
will therefore be in default with respect to such Affected GE Debt. Debtor
agrees, on the date of payment, to notify DVI in writing of the date and amount
of any payment made to GE with respect to the GE Debt.
6. Parties Intended to be Benefitted. All of the
understandings, covenants and agreements contained herein are solely for the
benefit of DVI and GE, and there are no other parties (including Debtor or any
of its creditors, successors or assigns) which are intended to be benefitted, in
any way, by this Agreement.
7. No Limitation Intended. Nothing contained in this Agreement
is intended to or shall affect or limit, in any way, the rights that DVI and GE
have with respect to Debtor or any third parties pursuant to any written
agreement or otherwise. DVI and GE hereby specifically reserve all of their
respective rights against Debtor and all other third parties. DVI shall be
entitled to deal with Debtor free from interference by GE, and GE shall be
entitled to deal with Debtor free from interference by DVI. Nothing contained in
this Agreement, nor any action taken
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by any of the parties hereto, is intended to constitute or shall be deemed to
constitute DVI and GE as a partnership, association, joint venture or other
entity.
8. Waiver of Marshalling. GE specifically waives and renounces
any right, under any applicable law, including California Civil Code Section
3433 or any analogous statute, which it may have, whether at law or in equity,
to require DVI to marshall the collateral unless it has been granted a security
interest by Debtor, or any portion thereof, or to otherwise seek satisfaction
from any particular assets of Debtor or from any third party.
9. Term. This Agreement shall have a term expiring upon the
later of (a) the repayment, performance and satisfaction in full of the DVI Debt
and the release by DVIBC and DVIFS of their respective security interests in the
Accounts Receivable Collateral, or (b) the repayment, performance and
satisfaction in full of the GE Debt and the release by GE of its respective
security interest in the UCSF Gamma Knife.
10. Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties hereto, or whenever any of the
parties desires to give or serve upon the others communications with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be delivered
either in person, with receipt acknowledged, or by regular, registered, or
certified United States mail, postage prepaid, or by telefacsimile, addressed as
follows:
(a) If to DVIBC or DVIFS, at:
DVI Financial Services, Inc.
500 Hyde Park
Doylestown, PA 18901
Attn: Michael A. O'Hanlon
Telefacsimile Number: (215) 230-8108
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(b) If to GE, at:
GE Medical Systems
20825 Swanson Drive, Suite 100
Waukesha, Wisconsin 53186
Attn: Manager - Financial Services
Telefacsimile Number: (414) 798-4530
or at such other address as may be substituted by notice given as herein
provided. Giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or actually received via telefacsimile transmission,
or three (3) days after the same shall have been deposited in the United States
mail.
11. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which shall together constitute one and the same Agreement.
12. THE CONSTRUCTION, INTERPRETATION, VALIDITY AND
ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS
OF THE STATE OF CALIFORNIA. In any action, suit, arbitration or mediation
relating to the enforcement of this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including reasonable attorneys'
fees.
13. This Agreement shall become effective upon the execution
of the Loan Agreements by and between DVIFS and DVIBC, and each of them and
Debtor, the form of which shall be reasonably acceptable to GE in its good faith
judgment.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
DEBTOR:
AMERICAN SHARED HOSPITAL SERVICES,
a California corporation
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By: ___________________________________________________
Title:_____________________________________________
AMERICAN SHARED-CURACARE, a California
general partnership
By: AMERICAN SHARED HOSPITAL SERVICES
Its: General Partner
By: __________________________________________
Ernest A. Bates, M.D.
Chief Executive Officer
CURACARE, INC., a Delaware corporation
By: _________________________________________________
Ernest A. Bates, M.D.
Chief Executive Officer
DVI:
DVI FINANCIAL SERVICES INC.
By: _________________________________________________
Title:___________________________________________
DVI BUSINESS CREDIT CORPORATION
By: _________________________________________________
Title:___________________________________________
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GE:
GENERAL ELECTRIC COMPANY, a New York
corporation acting through GE MEDICAL
SYSTEMS
By: ________________________________________________
Title:__________________________________________
11
<PAGE> 1
EXHIBIT 10.12
OPERATING AGREEMENT
FOR
GK FINANCING, LLC
This Agreement is effective as of
the 17th day of October, 1995
<PAGE> 2
OPERATING AGREEMENT
FOR
GK FINANCING, LLC
RECITALS
A. This Operating Agreement, effective as of October 17, 1995, governs
the relationship among Members of GK Financing, LLC ("Company") and between
Company and Members, pursuant to the Act and the Articles, as either may be
amended from time to time.
B. It is the intention of the Members that the Company be treated as a
partnership for income tax purposes.
Now therefore, in consideration of their mutual promises, covenants,
and Agreements, the parties hereto do hereby promise, covenant, and agree as
follows:
ARTICLE I
INTRODUCTORY MATTERS
1.1 FORMATION OF LIMITED LIABILITY COMPANY
Pursuant to the Act American Shared Radiosurgery Services
("ASRS") and GKV Investments, Inc. ("GKV"), acknowledge they are Members of the
limited liability company organized under the laws of the State of California
known as GK Financing, LLC whose Articles were filed effective October 16, 1995.
The purposes for the organization of Company shall be those set forth in its
Articles. Company may, as provided in its Articles and the Agreement, exercise
all of the powers described in Title 2.5 of Corporations Code of the State of
California also known as the Beverly-Killea Limited Liability Company Act.
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1.2 REGULATION OF INTERNAL AFFAIRS BY OPERATING AGREEMENT
Consistent with the Articles and the Act, the internal affairs of
Company and the conduct by its business shall be regulated by the Agreement as
it shall be amended by the Members from time to time.
1.3 LAWS GOVERNING OPERATING AGREEMENT
The Agreement is subject to, and governed by, the mandatory provisions
of the Act and the Articles filed with the Secretary of State, as both are
amended from time to time. In the event of a direct conflict between the
provisions of the Agreement and the mandatory provisions of the Act or the
provisions of the Articles, such provisions of the Act or the Articles, as the
case may be, will be controlling.
1.4 TERM OF OPERATING AGREEMENT
The term of the Agreement shall be co-terminus with the period of
duration of Company provided in the Articles unless Company is earlier
terminated upon its voluntary or involuntary dissolution.
1.5 USE OF FULL LEGAL NAME REQUIRED
The business of Company shall be conducted under the name GK Financing,
LLC, until such time as the Members shall designate otherwise and file
amendments to the Articles in accordance with applicable law. The phrase "LLC"
shall always appear as part of the name of Company on all correspondence,
stationery, checks, invoices and any and all documents and papers executed by
Company and as otherwise required by the Act.
1.6 NO INDIVIDUAL AUTHORITY FOR A MEMBER
No Member acting alone, shall have any authority to act for, or to
undertake or assume, any obligation, debt, duty or responsibility on behalf of
the Company, unless that member is a Manager and acting in accordance with this
Agreement.
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1.7 LIMITATIONS ON CONTRACTION OF DEBTS
Except as otherwise provided in the Agreement including Subparagraph
3.3.B, no debt shall be contracted or liability incurred by or on behalf of
Company, except in accordance with Paragraph 2.14.
1.8 TITLE TO ALL PROPERTIES IN NAME OF COMPANY
Real and personal property owned or purchased by Company shall be held
and owned, and conveyance made, in the name of Company. Instruments and
documents providing for the acquisition, mortgage or disposition of property of
Company shall be valid and binding upon Company, except as otherwise limited in
the Agreement including Subparagraph 3.3.B., if executed by the Manager.
1.9 MAINTENANCE OF REGISTERED OFFICE AND AGENT FOR SERVICE OF
PROCESS IN CALIFORNIA
Company shall have an agent for service of process in California who
may be either a natural person or a corporation meeting the qualifications of
Corporations Code Section 17061(d)(1) and Section 17050(a)(5). Every agent for
service of process must have a street address for the service of process. The
street address of the agent for service of process is the registered office of
the limited liability company in this state. Within 30 days after changing the
location of his office from one address to another in this state, an agent for
service of process must file a certificate with the Secretary of State setting
forth the names of the limited liability companies represented by him, the
address at which he, she, or it has maintained the office for each of the
limited liability companies, and the new address to which the office is
transferred.
1.10 REQUIRED MAINTENANCE OF RECORDS IN CALIFORNIA OFFICE
Company shall continuously maintain an office in the State of
California which may but need not be a place of its business in this state or
its registered office, at which it shall keep:
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a. A current list of the full name and last known business address of
each Member and of each holder of an Economic Interest in
alphabetical order together with the Capital Contribution and
Percentage Share in Net Profits and Net Losses;
b. If the Articles provide Company is to be managed by one or more
managers and not by all of its members, a current list of the full
name and business or residence address of each Manager;
c. A copy of the filed Articles and all amendments thereto, together
with any powers of attorney pursuant to which the Articles or any
amendments thereto were executed;
d. Copies of Company's federal, state and local income tax returns or
information returns and reports, if any, for the six (6) most
recent taxable years;
e. A copy of the Agreement and any amendments thereto, together with
any powers of attorney pursuant to which any written operating
Agreement or amendments were executed;
f. Copies of financial statements of Company for the six (6) most
recent taxable years; and
g. The books and records of the Company as they relate to the
internal affairs of the Company for at least the current and past
four fiscal years.
1.11 RECORDS OF COMPANY SUBJECT TO INSPECTION
Records kept pursuant to Paragraph 1.10 are subject to inspection and
copying at the reasonable request, and at the expense, of any Member during
ordinary business hours.
1.12 PLACES OF BUSINESS OUTSIDE STATE OF CALIFORNIA
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Members, acting through the Policy Committee, may identify other places
of business of Company outside the State of California, appoint agents for
service of process and make filings as may be required or desirable under the
laws of such other places.
1.13 FILING OF FICTITIOUS BUSINESS NAME STATEMENT
The Manager shall file such fictitious business name statements as may
be required or desirable under the laws of any place in which the Company holds
assets or conducts business activities.
1.14 OTHER FORMATION MATTERS
A. Adoption of Company Seal
Members, acting through the Policy Committee, shall adopt a
company seal circular in form containing the words GK FINANCING, LLC, together
with the date of organization of Company.
B. Maintenance of Company Minute Book
Members shall authorize the maintenance of a Company minute book
to include the Articles, the Agreement and any amendments thereto and the
minutes of meetings (or consents in lieu of meetings) of Members and Managers
and other important documents of Company.
C. Establishment of Bank Accounts
Members shall authorize the establishment of one or more
depository accounts for the funds of Company and designate persons authorized to
draw against such accounts on behalf of Company (more specifically described
elsewhere in the Agreement).
D. Reimbursement of Expenses of Organization
Members shall authorize Company to pay its expenses of
organization and to reimburse any person advancing
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funds for this purpose. Provided, however, no Member shall be reimbursed for
legal fees or expenses incurred in relation to the preparation and negotiation
of this Agreement.
1.15 MINIMUM OF TWO MEMBERS
The Company shall at all times have at least two Members.
1.16 DEFINITIONS OF TERMS
The terms used in the Agreement with their initial letters capitalized,
shall, unless the context otherwise requires, have the meanings specified in
this Paragraph 1.16 or, if not defined in this Paragraph 1.16, elsewhere in the
Agreement. When used in the Agreement, the following terms shall have the
meanings set forth below:
A. "Act" shall mean the Beverly-Killea Limited Liability Act as amended
from time to time.
B. "Affiliate" shall mean any individual, partnership, corporation,
trust, or other entity or association, directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common control with a
Member, the Company or other Person, as the context requires. The term
"control," as used in the immediately preceding sentence, means, with respect to
a corporation the right to exercise, directly or indirectly, more than 50
percent of the voting rights attributable to the controlled corporation, and,
with respect to any individual, partnership, trust, other entity or association,
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled entity.
C. "Agreement" shall mean this Operating Agreement between all Members
of Company regulating the affairs of Company and the conduct of its business, as
originally executed and as amended from time to time, and shall refer to the
Agreement as a whole, unless the context otherwise requires.
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D. "Annual Budget" shall mean, with respect to each fiscal year, the
Annual Operating Budget and the Annual Capital Budget for such fiscal year. The
Annual Budget for the first fiscal year is included in the Business Plan. If the
Policy Committee does not approve an Annual Budget for a particular fiscal year,
then: (i) the Annual Operating Budget for such fiscal year shall be deemed to be
the Annual Operating Budget for the immediately preceding fiscal year but with
each line item in such budget increased by the percentage increase in the
Wholesale Price Index which occurred during the preceding fiscal year plus any
increase due to the expiration of a Gamma Knife warranty and the commencement of
the service agreement for such Gamma Knife; (ii) no capital expenditures shall
be made during such fiscal year.
E. "Annual Capital Budget" shall mean, with respect to each fiscal
year, the annual capital budget for such fiscal year proposed by the Manager and
approved by the Policy Committee, except as provided herein.
F. "Annual Operating Budget" shall mean, with respect to each fiscal
year, the annual operating budget for such fiscal year proposed by the Manager
and approved by the Policy Committee, except as provided herein.
G. "Articles" shall mean the Articles of Organization for Company
originally filed with the Secretary of State of California, including all
amendments thereto or restatements thereof and shall mean the Articles as a
whole unless the context otherwise requires.
H. "ASHS" shall mean American Shared Hospital Services, a California
corporation, which is the ultimate beneficial owner of all the outstanding
capital stock of ASRS.
I. "ASRS" shall mean American Shared Radiosurgery Services, a
California corporation.
J. "Bankruptcy" shall mean, (i) the entry of a decree or order for
relief against a Member by a court of competent jurisdiction in any involuntary
case brought against the Member under any bankruptcy, insolvency or other
similar law
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(collectively, "Debtor Relief Laws") generally affecting the rights of creditors
and relief of debtors now or hereafter in effect; (ii) the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or other
similar agent under applicable Debtor Relief Laws for the Member or for any
substantial part of its assets or property; (iii) the ordering by a court of
competent jurisdiction of the winding up or liquidation of a Member's affairs;
(iv) the filing of a petition in any such involuntary bankruptcy case, which
petition remains not dismissed for a period of 180 days or which is not
dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code
(or any corresponding provision of any future United States bankruptcy law); (v)
the commencement by a Member of a voluntary case under any applicable Debtor
Relief Law now or hereafter in effect; (vi) the consent by a Member to the entry
of an order for relief in an involuntary case under any such law or to the
appointment of or the taking of possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar agent under any applicable
Debtor Relief Laws for the Member or for any substantial part of its assets or
property; or (vii) the making by a Member of any general assignment for the
benefit of its creditors.
K. "Business Plan" shall mean that business plan for the Company which
will be agreed to by the Members.
L. "Capital Account" shall mean the amount of the capital interest of a
Member or assignee determined in accordance with Article IV of the Agreement.
M. "Capital Contribution" shall mean the value of any money, property
(including promissory notes or other binding obligation to contribute money or
property), contributed as capital in a Member's capacity as a Member, as shown
in Exhibit A, as the same may be amended from time to time. In the case of an
assignee who has not been admitted as a Member, the assignee's Capital
Contribution shall include such contributions made by the assignee and the
assignor.
N. "Code" shall mean the Internal Revenue Code of 1986, as amended. All
references herein to sections of the Code
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shall include any corresponding provision or provisions of succeeding law.
O. "Company" shall mean GK FINANCING, LLC.
P. "Distribution" means a transfer of money or property by Company to
its Members without consideration.
Q. "Dissolution Event" for Company means with respect to any Member,
the death, retirement, resignation, expulsion, bankruptcy or dissolution of such
Member or occurrence of any other event which terminates his continued
membership in the Company.
R. "EHUS" shall mean Elekta Holdings U.S., Inc., a Georgia corporation,
which is the indirect owner of all the outstanding capital stock of GKV and EII
and an Affiliate of Elekta AB.
S. "Economic Interest" shall mean the right to share in the Net
Profits, Net Losses, deductions, credit or similar items and to receive
Distributions from Company but neither Management and Voting Rights nor
Information Rights except as provided in Act Section 17106.
T. "Gamma Knife" shall mean the Leksell Gamma Knife, as such term is
defined in the LGK Purchase Agreement.
U. "GKV" shall mean GKV Investments, Inc., a Georgia corporation.
V. "Information Rights" means the right to inspect, copy or obtain
information and documents concerning the affairs of Company as provided in Act
Section 17106 and in Paragraphs 6.3 and 6.4 of the Agreement.
W. "Interest" means "Membership Interest".
X. "LGK Purchase Agreement" shall mean that certain LGK Purchase
Agreement to be executed on the effective date of
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this Agreement by the Company and Elekta Instruments, Inc. ("EII") (a Georgia
Corporation). EII is an affiliate of GKV.
Y. "Majority-In-Interest" shall mean more than fifty percent (50%)
of the interest of Members (or class of Members as the case may be) of the
profits interests and of the capital interests of Company within the meaning of
such term in Revenue Procedure 94-46, 1994-28 I.R.B. 1.
Z. "Management and Voting Rights" shall be those rights of a Member
described in Article III of the Agreement as they may be limited in the
Agreement, the Articles and the Act.
A(i). "Manager" shall be a Person elected by Members of Company to
manage Company.
B(i). "Member" shall mean each Person (other than any Person who has
withdrawn, been expelled, died, retired or dissolved) who has been admitted to
Company as a Member in accordance with the Articles and the Agreement.
C(i). "Membership Interest" in Company shall mean the entire ownership
interest of a Member in Company at any particular time, including collectively
Economic Rights, Management and Voting Rights and Information Rights of such
Member as provided in the Agreement and under the Act, together with the
obligations of such Member to comply with all terms and provisions of the
Agreement. A Membership Interest constitutes personal property. A Member or
assignee of any Membership Interest of a Member has no interest in specific
property of Company.
D(i). "Officer" means any person elected as such by Policy Committee.
E(i). "Percentage Interest" shall mean the percentage of a Member set
forth opposite the name of such Member under the column "Member's Percentage
Interest" in Exhibit A hereto, as such percentage may be adjusted from time to
time pursuant to the terms of the Agreement.
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F(i). "Person" includes individuals, general partnerships, limited
partnerships, other limited liability companies, corporations, trusts, estates,
real estate investment trusts and any other association.
G(i). "Provisional Business Plan" shall mean that provisional business
plan for the Company attached as Exhibit B hereto.
H(i). "Provisional Budget" shall mean the Provisional Capital Budget
and the Provisional Operating Budget.
I(i). "Provisional Capital Budget" shall mean the initial capital
budget for the period beginning on the date of this Agreement AND ENDING
DECEMBER 31, 1995 proposed by the Manager and approved by the Policy Committee.
J(i). "Provisional Operating Budget" shall mean the initial operating
budget for the period beginning on the date of this Agreement AND ENDING
DECEMBER 31, 1995 proposed by the Manager and approved by the Policy Committee.
K(i). "Registered Office" shall mean the office maintained at the
street address of the agent for service of process of the Company in California.
L(i). "Regulations" shall, unless the context clearly indicates
otherwise, mean the regulations currently in force as final or temporary that
have been issued by the U.S. Department of Treasury pursuant to its authority
under the Code.
M(i). "Return of Capital" means any distribution to a Member to the
extent of the positive balance in the Capital Account of the Member immediately
before the distribution.
N(i). "Secretary of State" shall mean the Secretary of State of
California or his or her duly appointed delegate unless another state is
mentioned in the same context.
O(i). "Territory" shall mean the United States of America and Brazil.
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P(i). "GKV Loan" shall have the meaning set forth in Subparagraph
12.22.A hereof.
Q(i). "UCSF Assets" shall have the meaning set forth in Exhibit A
hereto.
R(i). "USC Assets" shall have the meaning set forth in Exhibit A
hereto.
S(i). "Draw Down Loan" shall have the meaning set forth in Subparagraph
12.23.A hereof.
ARTICLE II
MEMBERS, CAPITAL CONTRIBUTIONS AND WITHDRAWALS,
MEMBERSHIP INTERESTS, ADMISSIONS, CERTIFICATES,
LIMITATIONS ON LIABILITIES AND RESPONSIBILITIES OF MEMBERS
AND CERTAIN FINANCING MATTERS
2.1 NAMES, ADDRESSES OF INITIAL MEMBERS AND INITIAL CAPITAL
CONTRIBUTIONS
A. Members, their respective addresses, their respective aggregate
Capital Contributions to Company, and their respective Percentage Interests in
Net Profits and Net Losses of Company are set forth on Exhibit A, as they may be
amended from time to time, pursuant to Subparagraph 2.1.B hereof.
B. (1) In the event a Member makes a capital contribution in
addition to its Capital Contribution described on Exhibit A
hereto, such Member's Percentage Interest shall be increased so
as to be equal to:
PPI x 1 - ( VNC ) + ( VNC )
--------- ---------
(FMV + VNC) (FMV + VNC)
where: PPI = the Contributing Member's Percentage Interest
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immediately prior to the contribution expressed
as a number less than 1.
VNC= the amount of cash and/or the fair market value
of the additional property contributed.
FMV= the fair market value of the assets of the
Company immediately prior to the contribution,
but including the contract with a health care
institution, if any, relating to the Gamma Knife
contributed.
The Percentage Interest of the other Member shall be reduced so as to be equal
to:
OPI x 1 - ( VNC )
-----------
( FMV + VNC )
where: OPI = the other Member's Percentage Interest immediately prior to the
contribution expressed as a number less than 1.
(2) The fair market value of the Company's assets immediately
prior to the contribution shall be determined by mutual agreement of the
Members. In the event the Members are unable to agree on the fair market value
of the Company's assets immediately prior to the contribution, such value shall
be determined by an appraiser jointly agreed to by the Members. If the Members
do not agree on an appraiser, each Member shall select an appraiser, at its own
expense, and the two selected appraisers shall mutually select a third
appraiser, at the expense of the Company. The Fair Market Value shall be the
average of the two appraisals closest in amount to each other except that if one
appraisal is equal to the average of all three appraisals, the Fair Market Value
shall be equal to such average.
2.2 FORM OF CAPITAL CONTRIBUTIONS
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As provided in the Articles, Members shall make the initial Capital
Contributions in cash or property as provided in Exhibit A hereto. Members shall
make subsequent Capital Contributions (other than those described on Exhibit A),
if any, in cash unless otherwise agreed by all Members or as otherwise provided
herein. No Member shall be required to make any Capital Contributions to Company
other than the capital contributions set opposite to the name of Member on
Exhibit A, as it may be amended from time to time.
2.3 ACCEPTANCE OF ADDITIONAL CAPITAL CONTRIBUTIONS
As provided in the Articles, in order to obtain additional funds or for
other business purposes, a Member may contribute additional capital to Company,
but only upon the written consent of all other Members. Provided, however, GKV
shall have the right to transfer to the Company, as Capital Contributions, one
or two Gamma Knife units to be used in the Company's business at any time or
times determined by GKV during the three (3) year period following the effective
date of this Agreement. Each Gamma Knife unit shall be deemed to have a fair
market value equal to the price which was paid by the Company for the last Gamma
Knife purchased by it prior to such contribution pursuant to a Gamma Knife
purchase agreement. During the first eighteen (18) months of the three year
period following the effective date of this Agreement, GKV's right to transfer
any such Gamma Knife unit as a Capital Contribution to the Company shall be
subject to prior written approval of ASRS. ASRS shall have the right, but not
the obligation, to make a Capital Contribution to the Company, in cash, in any
amount less than or equal to the value of such Capital Contribution by GKV,
which Capital Contribution by ASRS shall be due and payable on the effective
date of the transfer of such Gamma Knife to the Company as a Capital
Contribution. The transfer of a Gamma Knife unit to the Company as a Capital
Contribution shall be effective upon delivery to the end user's site relating to
such Gamma Knife. At the time of each such contribution of such Gamma Knife
unit, the Company shall be valued to determine appropriate changes, if any, in
the Percentage Interest of the Members, pursuant to Subparagraph 2.1.B.
2.4 LIMITATIONS ON WITHDRAWALS OF CAPITAL CONTRIBUTION
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No Member shall have the right to withdraw its Capital Contributions or
to demand and receive property of Company or any distribution in return for its
Capital Contributions, except as may be specifically provided in the Agreement
or required by law. No Member shall receive out of Company property any part of
its Capital Contribution until (i) all liabilities of Company, except
liabilities to Members on account of their Capital Contributions, have been paid
or there remains property of Company sufficient to pay them; (ii) the consent of
all Members is had, unless the return of the Capital Contributions may be
rightfully demanded as provided in the Act; (iii) the Articles are canceled or
so amended as to allow the withdrawal or reduction. Subject to other provisions
of the Agreement and the Act, a Member may rightfully demand the return of its
Capital Contributions on the dissolution of Company. In the absence of a
statement in the Articles to the contrary or the consent of all Members of
Company, a Member, irrespective of the nature of its contribution, has only the
right to demand and receive cash in return for its Capital Contribution.
2.5 PERCENTAGE INTEREST OF MEMBER
Each Member shall have a Percentage Interest as reflected on Exhibit A
as it may be amended from time to time, pursuant to Subparagraph 2.1.B hereof.
2.6 ADMISSION OF ADDITIONAL MEMBER
As provided in the Articles, (i) Members may admit to Company
additional Member(s) who will participate in the profits, losses, available cash
flow, and ownership of the assets of Company on such terms as are determined by
all Members; (ii) admission of any such additional Member(s) shall require the
written consent of all Members then having any Interest in Company, which may be
granted or withheld in the sole and absolute discretion of each Member; and
(iii) admission of such additional Member(s) may result in a dilution of the
Percentage Interests of the then Members.
2.7 LIMITATION ON LIABILITY OF MEMBERS AND MANAGERS
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Except as provided under applicable law, no Member or Manager shall be
liable under a judgment, decree or order of a court, or in any other manner, for
a debt, obligation or liability of Company whether that liability or obligation
arises in contract or tort. No Member shall be required to loan any funds to
Company except as provided herein. No Member shall be required to make any
contribution to Company by reason of any negative balance in his Capital
Account, nor shall any negative balance in a Member's Capital Account create any
liability on the part of the Member to any third party.
2.8 LIABILITY OF MEMBERS TO COMPANY
A. Liability of Members to Company
A Member is liable to Company: (i) for the difference between his
or its contribution to capital as actually made and that stated in the Articles,
the Agreement, subscription for contribution or other document executed by the
Member as having been made by the Member; and (ii) for any unpaid contribution
to capital which he or it agreed in the Articles, the Agreement or other
document executed by the Member to make in the future at the time and on the
conditions stated in the Articles, Agreement or other document evidencing such
agreement. No Member shall be excused from an obligation to Company to perform
any promise to contribute money, property or to perform services because of
death, disability, dissolution or any other reason.
B. Member as Trustee for Company
A Member holds as trustee for Company (i) specific property stated
in the Articles, Agreement or other document executed by the Member as
contributed by such Member, but which was not contributed or which has been
wrongfully or erroneously returned; and (ii) money or other property wrongfully
paid or conveyed to such Member on account of his or its contribution.
C. Waiver of Liability of Member
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The liabilities of a Member as set out in this Paragraph 2.8 can
be waived or compromised only by the consent of all Members.
2.9 NO RESPONSIBILITY FOR PRE-FORMATION COMMITMENTS
In the event that any Member (or any of such Member's shareholders, or
Affiliates) has incurred any indebtedness or obligation prior to the date hereof
that related to or otherwise affects Company, neither Company nor any other
Member shall have any liability or responsibility for or with respect to such
indebtedness or obligation unless such indebtedness or obligation is assumed by
Company pursuant to a written instrument signed by all Members. Furthermore,
neither Company nor any Member shall be responsible or liable for any
indebtedness or obligation that is hereafter incurred by any other Member (or
any of such Member's shareholders or Affiliates). In the event that a Member (or
any of such Member's shareholders or Affiliates), (collectively, the "Liable
Member"), whether prior to or after the date hereof, incurs (or has incurred)
any debt or obligation that neither Company nor the other Members has any
responsibility or liability for, the Liable Member shall indemnify and hold
harmless Company and the other Members from any liability or obligation they may
incur in respect thereof.
2.10 RESERVED
2.11 RIGHTS OF JUDGMENT CREDITOR OF MEMBER
On application to a court of competent jurisdiction by a judgment
creditor of a Member, the court may charge the Member's Interest with payment of
the unsatisfied amount of the judgment with interest, if ordered by such court.
To the extent so charged the judgment creditor has only the rights of an
assignee of the Member's Interest. This Paragraph 2.11 does not deprive any
Member of the benefit of any exemption applicable to his Interest.
2.12 MEMBER REMUNERATION
Unless otherwise provided in this Agreement or in a separate written
agreement, no Member is entitled to remuneration
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for acting on Company business except for reasonable compensation under Act
Section 17352(c) for winding up of affairs of Company.
2.13 LEGAL REPRESENTATIVE OR SUCCESSOR OF A MEMBER
If a Member who is an individual dies or is adjudged by a court of
competent jurisdiction to be incompetent to manage his or her person or property
the executor, administrator, guardian, conservator or other legal representative
may exercise all rights of the Member in the purpose of settling his or her
estate or administering his or her property.
2.14 CERTAIN FINANCING MATTERS
A. Initial Capital Budget
The Members have established the Provisional Budget, including
provision for capital equipment, startup expenditures, and Working Capital,
which is set forth as Exhibit B. After all Capital Contributions described in
Exhibit A on the effective date of this Agreement have been made, the Company
shall, and the Members shall cause the Company to, maintain a cash reserve equal
to $800,000.00.
(a) Definition of "Working Capital": For the purposes of this
Paragraph 2.14, the term "Working Capital" refers to the cash and cash
equivalents available to the Company from time to time to satisfy its current
obligations and other reasonable cash flow requirements.
B. Additional Capital Requirements
(a) General: It is the expectation and intention of the Members
that, except as specifically provided in Paragraph 2.3 and in this Subparagraph
2.14.B, any and all additional capital requirements (if any) of the Company will
be funded out of the operating profits of the Company.
(b) Financing of Capital Requirements:
Whenever it is determined by the Policy Committee that the
Company's available Working Capital is, or is
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presently likely to become, insufficient for the effective conduct of the
Company's business, the Policy Committee may authorize the Manager, on behalf of
the Company, to arrange a financing transaction to obtain additional capital to
fund the operations of the business of the Partnership ("Financing
Transaction"). A Financing Transaction may include: (i) loans from third party
sources and/or any Member or any Affiliate of a Member (including without
limitation accounts receivables financing), and (ii) any leasing transaction for
equipment or furnishings utilized in the Company's business.
(c) Loans by Members:
Except as expressly provided herein, no Member shall lend or
advance money to or for the Company's benefit without the prior approval of the
Policy Committee. If any Member shall lend money to the Company or advance money
on the Company's behalf, the amount of such loan or advance shall not be an
increase in such Member's Interest, Capital Account or Economic Interest. The
amount of such loan or advance shall be a debt due from the Company to such
Member.
ARTICLE III
MANAGEMENT AND CONTROL OF BUSINESS INCLUDING MEETINGS
3.1 MANAGEMENT OF COMPANY AND DESIGNATION OF MANAGER
A. Policy Committee
(a) The Members shall establish the Policy Committee as follows:
ASRS shall appoint one (1) individual, Ernest A. Bates, M.D., to serve on the
Policy Committee, and act as Chairman thereof, and GKV shall appoint one (1)
individual, Laurant Leksell, to serve on the Policy Committee. Either individual
may appoint an alternate to represent them at a meeting of the Policy Committee.
The foregoing composition of the Policy Committee shall not be changed by
changes in a Member's Percentage Interest. The Policy Committee shall serve,
generally speaking, in the same role as a board of directors of a corporation,
and in this regard shall set operating policy of the Company and direct the
Manager with respect to the implementation
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thereof. Without limiting the generality of the foregoing, the Policy Committee
shall: (a) set all operating policies for the Company; (b) review, revise and
approve the Annual Budget proposed by the Manager; (c) review and approve all
proposed contracts, equipment acquisitions and related leases; (d) approve
contracts; (e) approve any individual expenditure over $10,000 not provided for
in the Annual Budget; (f) oversee the Manager; (g) approve all distributions in
accordance with Paragraph 5.3; (h) approve acquisition, mortgage and/or
disposition of property; (i) exercise such other authorities as are reserved to
the Policy Committee by other provisions of this Agreement; (i) approve all
borrowings by the Company in excess of $10,000 (including all drawings by the
Company under the GKV Loan and the Draw Down Loan) and (k) remove the Manager
and select a replacement for such Manager. The individuals on the Policy
Committee may be replaced at any time by a subsequent designee from the Member
having appointed that individual. The Policy Committee may act only with
unanimous approval of all of its members.
(b) Upon written request to the Policy Committee by any Member,
the Policy Committee shall immediately cause notice to be given to the Members
entitled to vote that a meeting will be held at a time requested by the Member
calling the meeting, not less than ten (10) days nor more than sixty (60) days
after the receipt of the request. If the notice is not given within twenty (20)
days after receipt of the request, the Member entitled to call the meeting may
give the notice or seek any remedy under applicable law.
B. Management of Company by Manager
As provided in the Articles and this Agreement, the business and
affairs of Company shall be managed under the direction of the Manager, who
shall be subject to the complete direction and control of the Policy Committee
except as otherwise provided in this Agreement. The initial Manager shall be
ASRS and it shall utilize Craig Tagawa as its agent for such purpose. A Member,
unless also appointed (or hired) as a Manager, officer or other employee, shall
not participate in the day to day operation of the business affairs of Company,
except through the Policy Committee, and if so appointed (or hired), shall
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participate only within the scope of authority of such position as defined in
the Agreement or elsewhere.
C. Designation of Managers
Company shall have one Manager. Craig Tagawa on behalf of the
Manager, ASRS, shall execute the duties of Manager on behalf of ASRS. Craig
Tagawa shall be appointed Chief Executive Officer of Company unless he resigns,
dies or is removed by the Policy Committee and until otherwise agreed by all of
the Members. For as long as Craig Tagawa is employed by ASRS or any of its
Affiliates, ASRS shall cause Craig Tagawa to devote approximately ninety percent
(90%) of his business time to the Company. In the event of the death, disability
or resignation of Craig Tagawa, a successor Chief Executive Officer shall be
elected by the Policy Committee.
D. Term of Manager
A Manager whose term has expired shall continue to serve until a
successor is elected and qualified.
3.2 SPECIFIC DUTIES OF MANAGER
A. Duty to Present Financial Statements
The Manager shall present monthly, quarterly and annual financial
statements of the Company to the Policy Committee as soon as such financial
statements are prepared.
B. Duty of Manager to Qualify to Do Business in California and Other
States
If required by law, the Manager shall be qualified to do business
in California by obtaining a certificate of authority to do so from the
Secretary of State of the State of California and other states as required.
C. Manager to Safekeep Funds of Company
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The Manager shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of Company, whether or not in its
immediate possession or control. The funds of Company shall not be commingled
with the funds of any other person and the Manager shall not employ, or permit
any other person to employ, such funds in any manner except for the benefit of
Company. The bank accounts of Company shall be maintained in such banking
institutions as are approved by the Policy Committee and withdrawals shall be
made only in the regular course of Company business and as otherwise authorized
in the Agreement on such signature or signatures as may be authorized by the
Policy Committee.
D. Day to Day Operations, etc
Day to day operations of the Company shall be directed by the
Manager. The Manager shall propose, subject to the review and approval of the
Policy Committee: (a) the Annual Budget of the Company (which Manager shall
propose to the Policy Committee not later than 60 days prior to the first day of
each fiscal year); (b) operating policies and procedures; (c) accounting
policies and procedures in accordance with United States generally accepted
accounting principles; (d) financial systems and controls; (e) proposed
expenditures by the Company with regards to the purchase and/or lease of
equipment; and (f) personnel policies for the Company. ASRS shall perform
billing services for the Company, either directly or through an arrangement with
an Affiliate of Manager. ASRS shall provide accounting and other administrative
services for the Company. Manager shall create an investment policy, which shall
include consideration of prices to be charged, services to be offered, site and
other minimum requirements, risk sharing with customers and return on Company
investment. Such investment policy shall not dictate or limit the decisions of
the Policy Committee, which may consider other relevant matters in deciding
whether or not the Company will invest in any proposed project.
E. Warranted Reliance by Manager on Others
In performing its duties, Manager shall be entitled to rely on
information, opinions, reports, or statements of the following persons or groups
unless it has knowledge
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concerning the matter in question that would cause such reliance to be
unwarranted:
(a) one or more employees or other agents of Company whom the
Manager reasonably believes to be reliable and competent in the matters
presented;
(b) any attorney, public accountant, or other person as to matters
which the Manager reasonably believes to be within such person's professional or
expert competence; or
(c) a committee that has been established by the Policy Committee,
as to matters within such committee's designated authority, which committee the
Manager reasonably believe to merit competence.
F. Other Activities of Members Permitted
Members may, subject to the limitations of Paragraph 12.9 hereof,
engage in other business activities and shall be obliged to devote only as much
of its time to the business of Company as shall be reasonably required in light
of the purposes of Company.
G. Manager's Liability
Manager shall perform its duties as a Manager in good faith, in a
manner it reasonably believes to be in the best interests of Company, with such
care as an ordinarily prudent person in a like position would use under similar
circumstances, and in accordance with the Articles, this Agreement and
applicable law. A Person who so performs its duties shall not have any liability
by reason of being or having been a Manager of Company.
3.3 POWERS OF MANAGER
A. Powers of Manager
Subject to the limitations of Subparagraph 3.3.B hereof, the
Manager shall have all necessary powers to carry out the purposes, business, and
objectives of Company consistent with
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the decisions of the Policy Committee, including, but not limited to, the right
to enter into and carry out contracts involving payments or obligations of less
than $10,000 in the aggregate for each contract; to employ employees, agents,
consultants and advisors on behalf of Company; to lend or borrow money involving
amounts of less than $10,000 in the aggregate for each loan or borrowing and to
issue evidences of indebtedness related thereto; to bring and defend actions in
law or at equity; provided in each case that such actions are contemplated by
the Provisional Budget or an Annual Budget and within the guidelines imposed by
the Policy Committee. The Manager may deal with any Affiliate, but only on terms
and conditions that would be available from an independent responsible third
party that is willing to perform and with the prior written consent of all
Members. The Manager shall have the authority to sign agreements and other
documents on behalf of Company in the ordinary course of business, subject to
the limitations of Subparagraph 3.3.B hereof. Subject to the limitations of
Subparagraph 3.3.B, the Manager shall have power and authority, to act on behalf
of Company and subject to the limitations of the Act and the limitations set
forth herein:
(a) To acquire property from any Person as Manager may determine,
provided the aggregate payments or indebtedness for each acquisition is less
than $10,000;
(b) To borrow money for Company from banks, other lending
institutions, the Members, or Affiliates of the Members or Manager on such terms
as they deem appropriate, and in connection therewith, to hypothecate, encumber
and grant security interests in the assets of Company to secure repayment of the
borrowed sums, provided the aggregate payments or indebtedness for each
borrowing is less than $10,000. Except as otherwise provided in the Act, no debt
shall be contracted or liability incurred by or on behalf of Company, except by
the Manager;
(c) To purchase liability and other insurance to protect the
property and business of Company. At a minimum, the Company shall maintain
liability insurance covering each Gamma Knife site having a maximum deductible
of $100,000 per site and coverage limit of at least $5,000,000 per site;
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(d) To hold and own any Company real and personal properties in
the name of Company;
(e) To invest any funds of Company temporarily (by way of example
but not limitation) in time deposits, short-term governmental obligations,
commercial paper or other investments;
(f) To execute on behalf of Company instruments and documents,
including, without limitation, checks and drafts; provided the aggregate
payments or indebtedness related to each such instrument or document is less
than $10,000 and is contemplated by the Provisional Budget or an Annual Budget;
(g) To employ accountants, legal counsel, managing agents or other
experts to perform services for Company and to compensate them from Company
funds, provided such employment is contemplated by the Provisional Budget or an
Annual Budget;
(h) To retain and compensate employees and agents generally, and
to define their duties;
(i) To enter into any and all other agreements on behalf of
Company, with any other Person for any purpose necessary or appropriate to the
conduct of the business of Company in the ordinary course of business;
(j) Subject to the Provisional Budget or the Annual Budget, to pay
reimbursement from Company of all expenses of Company reasonably incurred and
paid by the Manager on behalf of Company;
(k) Subject to the Provisional Budget or the Annual Budget, to pay
from Company funds under control of Manager compensation due to ASRS or any
Affiliate of ASRS; and
(l) To do and perform all other acts as may be necessary or
appropriate to the conduct of the business of Company;
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B. Limitations on Power of Manager in Extraordinary Matters
In addition to other limitations set forth in this Agreement, the
Manager shall not have authority hereunder to cause Company to engage in
transactions as set forth in this Subparagraph 3.3.B. without the prior approval
of the Policy Committee.
(a) The sale, exchange or other disposition of Company's assets
not contemplated by an Annual Budget shall require the unanimous vote of
Members.
(b) The merger of Company with any other limited liability company
or limited partnership shall require the unanimous vote of Members and the
merger of Company with another corporation shall require the unanimous vote of
all Members of Company.
(c) Notwithstanding any other provisions of the Agreement, no
equipment acquisition or related lease may be effected, debt (including debt
refinancing), liability or individual expenditure of more than $10,000.00 may be
contracted, no contract may be entered into on behalf of Company, no Company
property may be disposed of, and no Distribution pursuant to Paragraph 5.2 shall
be made except as approved by the Policy Committee.
(d) The Manager shall neither change the amount nor character of
Capital Contributions, nor change the character of the business of Company
without the written consent of all Members.
(e) The Manager shall not make a false or erroneous statement in
the Articles.
(f) The amendment of the Agreement shall require the unanimous
agreement of all Members and as otherwise provided in Paragraph 12.13 hereof.
(g) Any other transaction described in the Agreement as requiring
a vote of Members.
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C. Manager as Agent of Company
The Manager is an agent of Company for the purpose of its
business, and for purposes of the execution in name of Company of any instrument
for apparently carrying on in the usual way the business of Company and binds
Company, unless such act is in contravention of the Articles or the Agreement or
unless the Manager so acting otherwise lacks the authority to act for Company
and the person with whom he is dealing has knowledge of the fact that he has no
such authority.
D. Acts of Manager as Conclusive Evidence of Authority
Every contract, deed, mortgage, lease and other instrument
executed by the Manager shall be conclusive evidence in favor of every person
relying thereon or claiming thereunder that at the time of the delivery thereof
(i) Company was in existence, (ii) neither the Agreement nor the Articles had
been amended in any manner so as to restrict the delegation of authority among
Members or the Manager, and (iii) the execution and delivery of such instrument
was duly authorized by Members and the Manager.
Any person may always rely on a certificate addressed to him and
signed by the Manager hereunder:
(i) as to who are the Members or Manager hereunder;
(ii) as to the existence or non-existence of any fact which
constitutes a condition precedent to acts by the Members or the Manager or in
any other manner germane to the affairs of Company;
(iii) as to who is authorized to execute and deliver any
instrument or document of Company;
(iv) as to the authenticity of any copy of the Articles, the
Agreement, amendments thereto and any other document relating to the conduct of
the affairs of Company; or
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(v) as to any act or failure to act by Company or as to any other
matter whatsoever involving Company, the Manager or any Member in the capacity
as a Member or Manager.
3.4 RESERVED
3.5 RESERVED
3.6 PROCEDURES FOR POLICY COMMITTEE MEETINGS
Subject to the provisions of Paragraph 3.1.A, the meeting procedures
set forth in the Act shall govern meetings of the Policy Committee.
3.7 COMPENSATION OF THE MANAGER, OFFICERS AND MEMBERS
Subject to the Provisional Budget and Annual Budget, the Company shall
reimburse ASRS for ninety percent (90%) of Craig Tagawa's compensation and all
of his expenses directly related to the business of the Company for as long as
Craig Tagawa is acting as Chief Executive Officer of the Company and for the
costs reasonably incurred by ASRS in providing administrative services to the
Company as described herein. Subject to the Provisional Budget and Annual
Budget, the Company shall reimburse Members for all reasonable travel expenses
related to the business of the Company. Subject to the Provisional Budget and
Annual Budget, the Company shall reimburse GKV for sixty percent (60%) of
Richard Grome's compensation and all of his expenses directly related to the
business of the Company for as long as Richard Grome is acting as Chief
Operating Officer. Such compensation shall not be a Distribution and shall be an
expense of the Company for all purposes.
3.8 RESERVED
3.9 BUSINESS PURPOSE OF THE COMPANY
The Company shall be the preferred alternative financing provider of
EII and EISA to health care institutions in the United States and Brazil
acquiring Gamma Knife units. The Company will purchase Gamma Knife units from
EII or its Affiliates and may enter leases (other than traditional financing
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leases), joint venture or enter into other operating arrangements with health
care institutions for the use of the Gamma Knife units. The Company's activities
in support of this business purpose will include:
A. Acquiring or arranging for the use of space and facilities necessary
for the implementation of the Company's business purpose.
B. Acquiring or arranging for the use of equipment, supplies, and
materials necessary for health care institutions' use of the Gamma Knife.
C. Purchasing or leasing the Gamma Knife to be utilized by the Company.
D. New or replacement equipment proposed to be utilized by the Company
will be obtained pursuant to such purchase or leasing or other arrangements as
may be approved by the Policy Committee. It is the current expectation and
intention of the Members that all major pieces of equipment or significant
upgrades to existing equipment will be obtained through leasing or other
financial arrangements.
E. Providing and obtaining the services of professional and technical
support personnel and related services necessary for the performance of the
Company's services.
F. Entering into licensing and royalty agreements related to
intellectual property developed or obtained by the Company.
G. Engaging in or performing all acts and activities which are
incidental to or in furtherance of its business purposes.
H. The Company shall not engage in the provision of any services for
which a license to practice medicine is required under California or other
applicable law.
ARTICLE IV
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CAPITAL ACCOUNTS
4.1 CAPITAL ACCOUNT FOR EACH MEMBER
Manager shall maintain a separate capital account (a "Capital Account")
for each Member in accordance with the requirements of Regulations Section
1.704-1(b)(2)(iv). To the extent that the results determined under any provision
of this Article IV vary from the results that would be required under the rules
described in Regulations Section 1.704-1(b)(2)(iv), the rules set forth in
Regulations Section 1.704-1(b)(2)(iv) shall be used and govern the maintenance
of Capital Accounts under the Agreement.
4.2 RESERVED
4.3 CAPITAL ACCOUNT MAINTENANCE
Subject to the other Paragraphs of this Article, the Capital Account of
any Member shall be maintained for such Member in accordance with the following
provisions:
A. To each Member's Capital Account there shall be credited the amount
of cash contributed by such Member, the initial Gross Asset Value of any
property contributed by such Member, such Member's distributive share of Net
Profits and any items in the nature of income or gains which are specially
allocated, and the amount of any liabilities of Company assumed by the Member or
which are secured by any property distributed to the Member.
B. To each Capital Account there shall be debited the amount of cash
and the Gross Asset Value of any property distributed to the Member pursuant to
any provision of the Agreement, the Member's distributive share of Net Losses
and any items in the nature of expenses or losses which are specially allocated,
and the amount of any liabilities of the Member assumed by Company or which are
secured by any property contributed by the Member to Company.
C. In the event all or a portion of a Membership Interest is
transferred in accordance with the terms of the
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Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it relates to the transferred interest.
D. In the event that assets of Company other than cash are distributed
in kind to a Member, Capital Accounts shall be adjusted for the hypothetical
"book" gain or loss that would have been realized by Company if the distributed
assets had been sold for their fair market values in a cash sale (in order to
reflect unrealized gain or loss).
4.4 DEFINITIONS USED IN CAPITAL ACCOUNT MAINTENANCE
A. "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
a. The initial Gross Asset Value of any asset contributed by a
Member to Company shall, except as otherwise provided in Section 2.3 hereof in
relation to Gamma Knife units, be the gross fair market value of such asset, as
determined by the Policy Committee.
b. The Gross Asset Values of all assets of Company shall be
adjusted to equal their respective gross fair market values, as determined by
the Policy Committee, as of the following times: (i) the acquisition of an
additional Interest by any new or existing Member in exchange for more than a de
minimis Capital Contribution; (ii) the distribution by Company to a Member of
more than a de minimis amount of property as consideration for an Interest; and
(iii) the liquidation of Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses
(i) and (ii) above shall be made only if the Policy Committee reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in Company.
c. The Gross Asset Value of any asset of Company distributed to
any Member shall be adjusted to equal the gross fair market value of such asset
on the date of Distribution, as determined by the distributee and the Manager,
provided that, if
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the distributee is a Manager, the determination of the fair market value of the
distributed asset shall require the consent of the non-distributee Members; or
if the parties cannot agree, an appraiser mutually acceptable to both parties
shall be selected to determine the Gross Asset Value of such asset.
d. The Gross Asset Values of assets of Company shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this Subparagraph to the
extent the Manager determines that an adjustment pursuant to Subparagraph
4.4.A.b above is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this Subparagraph.
e. If the Gross Asset Value of an asset has been determined or
adjusted pursuant to any of the Subparagraphs above, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset and shall be utilized for purposes of computing Net Profits and
Net Losses.
B. "Net Profits" and "Net Losses" shall have the meanings set forth
in Subparagraph 5.2.G.
4.5 POWER TO MODIFY CAPITAL ACCOUNTS TO COMPLY WITH REGULATIONS
The foregoing provisions and the other provisions of the Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Policy Committee determines
that it is necessary to modify the manner in which the Capital Accounts are
computed in order to comply with such Regulations and to reflect the agreed upon
sharing of the distribution of cash, the Policy Committee may make such
modification, provided that it is not likely to have a material effect on the
amounts
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distributable to any Member upon the dissolution of Company. The Policy
Committee also shall make any appropriate modifications in the event
unanticipated events occur that might otherwise cause the Agreement not to
comply with Regulations Section 1.704-1(b).
ARTICLE V
ALLOCATIONS OF NET PROFITS AND NET LOSSES AND DISTRIBUTIONS
5.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES
A. General Allocations of Net Profits and Net Losses
After giving effect to the special allocations set forth elsewhere
herein, Net Profits and Net Losses for any fiscal year of the Company shall
be allocated as follows:
(I) Allocation of Net Profits
Net Profits for any fiscal year shall be allocated to each
Member in accordance with its Percentage Interest.
(II) Allocation of Net Losses
Net Losses for any fiscal year shall be allocated to each
Member in accordance with its Percentage Interest.
B. Certain Special Allocations
The following special allocations shall be made in the following
order:
(I) Company Minimum Gain Chargeback
If there is a net decrease in Company Minimum Gain for a
Company taxable year, then each Member shall be allocated items of income and
gain for such year (and, if necessary, for subsequent years) in the manner and
to the extent required by Regulations Section 1.704-2(f).
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(II) Member Minimum Gain Chargeback
If there is a net decrease during a Company fiscal year in
Member Minimum Gain, then any Member with a share of Member Minimum Gain
(determined under Regulations Section 1.704-2(i)(5)) at the beginning of such
year shall be allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in the manner and to the extent required by
Regulations Section 1.704-2(i)(4).
(III) Qualified Income Offset
Any Member who unexpectedly receives an adjustment,
allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)
(d)(4), (5), or (6) will be allocated items of income and gain (consisting
of a pro rata portion of each item of Company income, including gross income
and gain, for such year) in an amount and manner sufficient to eliminate
any Adjusted Capital Account Deficit as quickly as possible, provided that
such allocation shall be made if and only to the extent such Member would
have an Adjusted Capital Account Deficit after all other allocations pursuant
to this Subparagraph 5.1.B have been made tentatively as if this Subparagraph
5.1.B(III) were not in the Agreement.
(IV) Gross Income Allocation
In the event any Member has a deficit Capital Account at the
end of any Company fiscal year which is in excess of the sum of (i) the amount
such Member is obligated to restore, and (ii) the amount such Member is deemed
to be obligated to restore pursuant to the penultimate sentences of Regulations
Section 1.704-2(g)(1) and Section 1.704-2(i)(5), each such Member shall be
specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that any allocation pursuant to this
Subparagraph 5.1.B(IV) shall be made if and only to the extent that such Member
would have a deficit Capital Account in excess of such sum after all other
allocations provided for in this Subparagraph 5.1.B have been tentatively made
as if this Subparagraph 5.1.B(IV) and Subparagraph 5.1.B(III) were not in the
Agreement.
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(V) Allocation of Nonrecourse Deductions
Member Nonrecourse Deductions shall be allocated to the
Member, if any, that bears the economic risk of loss for the Member Nonrecourse
Debt to which the Member Nonrecourse Deductions are attributable in accordance
with Regulations Section 1.704-2(i)(1). Company Nonrecourse Deductions shall be
allocated in the same manner as Net Profits.
(VI) Syndication Expenses
In the event that additional Members are admitted to the
Company on different dates, all syndication expenses shall be divided among the
persons who are Members from time to time so that, to the extent possible, the
cumulative amount of syndication expenses allocated with respect to each Member
at any time is in proportion to that Member's Percentage Interest as determined
after such admission. In the event the Manager shall determine that such result
is not likely to be achieved through future allocations of syndication expenses,
the Manager may allocate other items of income, gain, deduction or loss so as to
achieve the same effect on the Capital Accounts of the Members.
C. Certain Other Allocation Rules
(I) Allocation of Income, Gains and Losses Related to
Contributed Property
In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to Company for federal income tax purposes and
its Gross Asset Value. In the event the Gross Asset Value of any Company asset
is adjusted pursuant to the provisions of this Agreement, subsequent allocations
of income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for federal
income tax purposes and its Gross Asset Value in the same manner as under Code
Section 704(c) and the Regulations
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thereunder. Any elections or other decisions relating to such allocations shall
be made by the Policy Committee in any manner permitted by the Regulations that
reasonably reflects the purpose and intention of the Agreement. Unless the
Policy Committee determines otherwise, the method of allocation with respect to
each item of contributed property shall be chosen in a manner that results in
the greatest allocation of depreciation or amortization with respect to such
item of property to the Members other than the Member that contributed such item
of property. Allocations pursuant to this Subparagraph are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any member's Capital Account or share of Net Profits,
Net Losses, or other items or distributions pursuant to any other provision of
the Agreement.
(III) Allocations to Avoid Adjusted Capital Account Deficit
Notwithstanding any other provision of this Article, no
Member shall receive an allocation of Net Losses or any other item of loss or
deduction that would create or increase an Adjusted Capital Account Deficit of
the Member. Any Net Loss, or item thereof, that cannot be allocated to a Member
as a result of the foregoing limitation shall be allocated to all Members who do
not have an Adjusted Capital Account Deficit. Any Net Loss, or item thereof,
allocated to Members pursuant to the preceding sentence shall be taken into
account in computing subsequent allocations of Net Profits so that the net
amount of any items so allocated to each Member shall, to the extent possible,
be equal to the net amount that would have been allocated to each Member if the
allocations required by the preceding sentence had not been made.
(IV) Excess Nonrecourse Liabilities
Solely for purposes of determining a Member's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a)(3), the Member's interests in the Company
equal their respective Percentage Interests determined from time to time.
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(V) Allocation of Net Profits and Losses and Distributions in
Respect of a Transferred Interest
If any Interest is transferred, or is increased or decreased
by reason of the admission of a new Member or otherwise, during any fiscal year
of Company, each item of income, gain, loss, deduction, or credit of Company for
such fiscal year shall be allocated to the Members based upon the pro rata
method, except that any gain or loss of Company realized in connection with a
sale or other disposition of any of the assets of Company shall be allocated
solely to the parties owning Interests in Company as of the date such sale or
other disposition occurs.
(VI) Curative Allocations
The allocations set forth in Subparagraph 5.1.B hereof (the
"Regulatory Allocations") are intended to comply with certain requirements in
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss or deduction pursuant to this Subparagraph 5.1.C(VI). Therefore,
notwithstanding any other provisions of this Agreement (other than the
Regulatory Allocations), the Manager shall make such offsetting special
allocations of Company income gain, loss or deduction in whatever manner the
Manager determines appropriate so that, after such offsetting allocations are
made, each Member's Capital Account balance is, to the extent possible, equal to
the Capital Account balance such Member would have had if the Regulatory
Allocations were not part of this Agreement and all Company items were
located pursuant to Subparagraph 5.1.A. In exercising its discretion
hereunder, the Manager shall take into account any future Regulatory Allocations
that are likely to offset other Regulatory Allocations previously made.
5.2 DEFINITIONS OF TECHNICAL TERMS USED FOR ALLOCATION PURPOSES
A. "Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such
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Member's Capital Account as of the end of the relevant fiscal year, after giving
effect to the following adjustments:
(i) Credit to such Capital Account means any
amounts which such Member is obligated to restore pursuant to the terms of such
Member's promissory note or otherwise) or is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) Debit to such Capital Account means the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
B. "Company Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2).
C. "Company Nonrecourse Deductions" has the meaning set
forth in Regulations Section 1.704-2(b)(1).
D. "Member Minimum Gain" means minimum gain attributable
to a Member Nonrecourse Debt pursuant to Regulations Section 1.704-2(i)(3).
E. "Member Nonrecourse Debt" means any debt of Company
that is nonrecourse for purposes of Regulations Section 1.1001-2, for which any
Member bears the economic risk of loss within the meaning of Regulations Section
1.752-2.
F. "Member Nonrecourse Deduction" has the meaning set
forth in Regulations Section 1.704-2(i)(1) and 1.704- 2(i)(2).
G. "Net Profits" and "Net Losses" means, for each fiscal
year or other period, an amount equal to Company's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a), and all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code
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Section 703(a)(1) shall be included in taxable income or loss, with the
following adjustments:
(i) Any income of Company that is exempt from
federal income tax and not otherwise taken into account in computing Net Profits
or Net Losses pursuant to this Paragraph, shall be added to such taxable income
or loss;
(ii) Any expenditures of Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704- 1(b)(2)(iv)(i), and not otherwise taken
into account in computing Net Profits or Net Losses pursuant to this
Subparagraph, shall be subtracted from such taxable income or loss;
(iii) In the event that the Gross Asset Value of any
Company asset is adjusted pursuant to Subparagraph 4.4B, the amount of such
adjustment shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Net Profits or Net Losses;
(iv) Gain or loss resulting from any disposition of
Company property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value of
the property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such fiscal
year or other period;
(vi) To the extent an adjustment to the adjusted
tax basis of any Company asset is required pursuant to Code Section 734(b) or
Code Section 743(b) and in accordance with Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts
as a result of a distribution other than in liquidation of a Member's interest
in the Company, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from
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the deposition of the asset and shall be taken into account for computing Net
Profits or Net Losses; and
(vii) Any items that are specially allocated
pursuant to Article V of the Agreement shall not be taken into account in
computing Net Profits or Net Losses.
H. "Depreciation" means, for each fiscal year or other
period, an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that, if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
other period, Depreciation shall be an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis; provided, that if the adjusted basis
for federal income tax purposes of an asset at the beginning of such fiscal year
is zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Manager.
5.3 DISTRIBUTIONS OF NET CASH FLOW BY COMPANY
Subject to any limitations found elsewhere in the Agreement and
under law including the requirements of Section 17254 of the Act that the assets
of Company after the distribution be in excess of all liabilities except for
liabilities owed to Members for their capital Contributions as described in
Paragraph 5.6, the Manager shall, with the prior approval of the Policy
Committee, distribute Net Cash Flow as defined below to the Members in
accordance with their respective Percentage Interests, but only to those persons
or entities recognized on the books of Company as Members or as assignees of
interests on the day of the distribution. With respect to any fiscal period, Net
Cash Flow means all cash of the Company, other than cash retained for the
purposes of a Working Capital reserve established by the Policy Committee,
including cash from operations, financing, refinancing, exchange or other
disposition of Company assets (other than upon the dissolution of the
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Company) (all as determined by the Manager as directed by the Policy Committee);
provided, however, (i) that no distribution of cash will be made until all
amounts loaned by any Member, if any (and all interest with respect to such
amounts) have been repaid in full; and (ii) that no distribution shall be made
which is in violation of any security or lending agreement with a third party,
or which would occur at a time prior to repayment in full of any debt of the
Company, if any, to any Member.
5.4 RESERVED.
5.5 DISTRIBUTION OF ASSETS BY COMPANY
Distributions of assets with respect of an Interest in Company
shall be made only to the Members who, according to the books and records of
Company, are the holders of record of the interests in respect of which such
distributions are made on the actual date of distribution. Neither Company nor
any Member shall incur any liability for making distributions in accordance with
the provisions of the preceding sentence, whether or not Company or the Member
has knowledge or notice of any transfer or purported transfer of ownership of
Interest in Company which has not been approved by unanimous vote of the
Members.
5.6 IMPAIRMENT OF CAPITAL LIMITATIONS ON DIVISION AND
DISTRIBUTION OF NET CASH FLOW
Company may, from time to time, distribute Net Cash Flow to the
Members of Company upon the basis stipulated in this Article V (and subject to
the limitations set forth in Paragraph 5.3); provided that after distribution is
made, the assets of Company are in excess of all liabilities of Company except
liabilities to Members on account of their Capital Contributions after giving
effect to all distributions, revaluations and allocations.
ARTICLE VI
ACCOUNTING, RECORDS, AND REPORTING BY MEMBERS
6.1 ACCOUNTING DECISIONS AND RELIANCE ON OTHERS
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All decisions as to accounting matters, except as otherwise
specifically set forth herein, shall be made by the Manager. The Manager may
rely upon the advice of accountants reasonably selected by the Manager as to
whether such decisions are in accordance with accounting methods followed for
federal income tax purposes.
6.2 RECORDS AND ACCOUNTING MAINTAINED
The books and records of Company shall be kept, and the
financial position and the results of its operations recorded, in accordance
with United States generally accepted accounting principles. The books and
records of Company shall reflect all Company transactions and shall be
appropriate and adequate for Company's business. The fiscal year of Company for
financial reporting and for federal income tax purposes shall be the calendar
year. The Company's annual financial statements shall be audited by one of the
following firms selected by the Policy Committee: (a) Arthur Andersen, LLP, (b)
Ernst & Young LLP, (c) Coopers & Lybrand, (d) Deloitte & Touche, (e) Price
Waterhouse, or (f) KPMG Peat Marwick.
6.3 ACCESS FOR MEMBERS TO ACCOUNTING RECORDS
All books and records of Company shall be maintained at any
office of Company or at Company's principal place of business, and each Member
or holder of an Economic Interest, and his duly authorized representative, shall
have access to them at such office of Company and the right to inspect and copy
them at reasonable times. In addition, the Manager shall present monthly,
quarterly and annual financial statements of the Company to the Policy Committee
as soon as such financial statements are prepared.
6.4 ANNUAL TAX INFORMATION FOR MEMBERS
Company shall prepare and deliver to each Member within the
time period required by law after the end of each fiscal year all information
necessary for the preparation of such Member's federal income tax return.
Company shall also prepare and deliver, within 60 days after the end of each
fiscal year, an audited financial report of Company for such fiscal year,
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containing a balance sheet as of the last day of the year then ended, an income
statement for the year then ended, a statement of cash flows, and a statement of
reconciliation of the Capital Accounts of Members.
6.5 TAX MATTERS FOR COMPANY HANDLED BY MANAGER
The Manager shall be designated as "Tax Matters Partner" (as
defined in Code Section 6231), to represent Company (at Company's expense) in
connection with all examinations of Company's affairs by tax authorities,
including resulting judicial and administrative proceedings, and to expend
Company funds for professional services and costs associated therewith. In its
capacity as "Tax Matters Partner", the Manager shall oversee Company tax affairs
in the overall best interests of Company.
6.6 FEDERAL INCOME TAX ELECTIONS MADE BY POLICY COMMITTEE
The Manager, at the exclusive direction of the Policy Committee
and on behalf of Company, may make all elections for federal income tax
purposes, including but not limited to, the following:
A. Use of Accelerated Depreciation Methods
To the extent permitted by applicable law and
regulations, Company may elect to use an accelerated depreciation method on any
depreciable unit of the assets of Company.
B. Adjustment of Basis of Assets
In case of a transfer of all or part of the Interest
of any Member, Company may elect, pursuant to Code Sections 734, 743, and 754 of
the Code, as amended (or corresponding provisions of future law) to adjust the
basis of the assets of Company.
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C. Variation Between Tax Basis and Value
To the extent permitted by the Regulations, the
Policy Committee may elect any acceptable method under Code Section 704(c).
6.7 RESERVED
6.8 ANNUAL FILING OF LIST OF MANAGERS AND DESIGNATION OF
AGENT FOR SERVICE OF PROCESS
The Manager on behalf of Company shall, within ninety (90) days
after filing the original Articles and annually thereafter on or before the last
day of the month which the anniversary date of the filing of the original
Articles occurs in each year, file with the Secretary of State an annual
statement on a form prescribed by the Secretary of State and enclose any
required filing fee. The statement required to be filed must contain all of the
information required by Act Section 17060.
ARTICLE VII
CONSEQUENCES OF DEATH, DISSOLUTION,
RETIREMENT OR BANKRUPTCY OF MEMBER
7.1 CONSENT TO CONTINUE BUSINESS OF COMPANY
Upon the occurrence of any Dissolution Event, Company shall
dissolve unless the remaining Members holding a Majority-In-Interest consent to
the continuation of the business of Company. A Member whose actions or conduct
result in the Dissolution Event is referred to herein as the "Former Member".
7.2 PURCHASE OF MEMBER'S INTEREST
Upon the occurrence of any Dissolution Event specified in
Subparagraph 9.1(iii) and the consent of the remaining Members holding a
Majority-In-Interest (excluding for this purpose the Membership Interest of the
Former Member) to continue the business of Company, the other Members (the
"Remaining Members") shall have an option to purchase the Former Member's
Membership Interest. Within ninety (90) days of such consent, or
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within ninety (90) days of the inheritance or transfer by operation of law to a
person of the Former Member's Membership Interest, the Remaining Members shall
notify the Manager in writing of their desires to purchase a portion of the
Former Member's Interest.
7.3 FAILURE TO SUBMIT NOTICE OF PURCHASE
The failure of any Remaining Member to submit a notice within
the applicable period shall constitute an election on the part of the Member not
to purchase any of the Former Member's Interest. Each Remaining Member shall be
entitled to purchase a portion of the Former Member's Interest on a pro rata
basis based on the Remaining Member's Percentage of Interest on the date of the
consent referred to in Paragraph 7.2 hereof.
7.4 ELECTION TO PURCHASE LESS THAN ALL OF AN INTEREST
In the event any Remaining Member elects to purchase none or
less than all of its pro rata part of the Former Member's Interest, then, at its
election, those Remaining Members can elect to purchase more than their pro rata
part, i.e., the proportion that the Percentage Interest of the Former Member
bears to the aggregate of the Percentage Interests of all Members and the Former
Member. If the Remaining Members fail to purchase the entire interest of the
Former Member, Company may elect to purchase the unpurchased portion of the
Former Member's Interest. If none of the above elects to purchase, the same
shall pass by operation of law to any assignee or shall remain in the hands of
the Former Member. Notwithstanding any provision of the Agreement to the
contrary, the remaining Members may mutually agree to an allocation of the
Former Member's Interest to be purchased by each of them.
7.5 VALUATION OF INTEREST OF MEMBER
The Former Member's Interest shall be valued according to its
book value determined in accordance with generally accepted accounting
principles, provided, however, if the Former Member or such Former Member's
trustee or heirs or any Remaining Member electing to purchase or Company if it
elects to purchase, deems the book value to vary from fair market value by more
than
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five percent (5%), such person shall be entitled to require an appraisal. In
such event, the value of the Former Member's Interest shall equal the fair
market value of the Interest as determined by agreement within ninety (90) days
after the notice to remaining Members or, in case of a failure to agree within
such ninety (90) day period, as determined by three appraisers, one selected by
the Former Member or such Former Member's trustee(s) or heir(s), one selected by
the Remaining Member, and one selected by the two appraisers so named. All
appraisers appointed under this Paragraph 7.5 shall be generally known and
respected with respect to appraisals in the Company's industry. The fair market
value of the Former Member's interest in Company shall be the average of the two
appraisals closest in amount to each other except that if one appraisal is equal
to the average of all three appraisals, the fair market value shall be equal to
such average. In the event the fair market value is determined to be within five
percent (5%) of book value, the party requesting such appraisal shall pay all
expense of the same otherwise incurred by the parties offering to enter into the
transaction at the book valuation. In the event the fair market value is
determined not to be within five percent (5%) of book value, the expense of such
appraisal shall be paid by the Company.
7.6 PAYMENT OF PURCHASE PRICE
The purchase price shall be paid by Company or the Remaining
Member, as the case may be, within 60 days after the determination of the fair
market value of the Former Member's Interest in Company as provided herein.
7.7 PURCHASE TERMS VARIED BY AGREEMENT
Nothing contained herein is intended to prohibit Members from
agreeing upon terms and conditions for the purchase by Company or any Member of
the Interest of any Member in Company desiring to retire, withdraw or resign, in
whole or in part, as a Member (on such terms and conditions as may be agreed
upon by the selling Member and Company or the remaining Members as the case may
be), nor is anything herein intended to limit or otherwise affect the ability of
a Member to demand a return of his or its contribution to Company as may be
required in the Act.
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ARTICLE VIII
TRANSFER AND ASSIGNMENT OF INTERESTS
8.1 TRANSFER AND ASSIGNMENT OF INTERESTS
No Member shall be entitled to assign, convey, sell, encumber
or in any way alienate all or any part of his Membership Interest in Company as
a Member except with the prior written consent of all other Members, which
consent may be given or withheld, conditioned or delayed as the other Members
may determine in their sole and absolute discretion.
8.2 FURTHER RESTRICTIONS ON TRANSFER OF INTERESTS
In addition to other restrictions found in the Agreement, no
Member shall assign, convey, sell, encumber or in any way alienate all or any
part of his Interest in Company: (i) without registration under applicable
federal and state securities laws, or unless he delivers an opinion of counsel
satisfactory to Company that registration under such laws is not required; or
(ii) if the Interest to be sold or exchanged, when added to the total of all
other Interests sold or exchanged in the preceding twelve (12) consecutive
months prior thereto, would result in the termination of Company under Code
Section 708.
8.3 SUBSTITUTION OF MEMBERS AFTER TRANSFER OF INTEREST
Notwithstanding anything herein to the contrary, a transferee
of an Interest shall have the right to become a substitute Member (with all
Membership Rights related thereto) only if (i) the other Members shall have
consented thereto (which consent may be granted or withheld in the sole and
absolute discretion of each Member), (ii) the requirements of Paragraph 8.2
relating to securities and tax requirements hereof are met, (which approval may
be granted, delayed or withheld in their sole and absolute discretion), (iii)
such Person executes an instrument satisfactory to the Remaining Members
accepting and adopting the terms and provisions of the Agreement, and (iv) such
Person pays any reasonable expenses in connection with his or her admission as a
new Member. An assignee who becomes a substituted Member has, to the extent
assigned, the rights and powers of a
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Member under the Articles, the Agreement and the Act. An assignee who becomes a
substituted Member is also liable for obligations to contribute to capital and
to return any unlawful distributions made to such assignee.
8.4 EFFECTIVE DATE OF PERMITTED TRANSFERS OF AN INTEREST
Any permitted transfer of all or any portion of an Interest in
Company will take effect on the first day of the month following the date of
receipt by the other Members of written notice of the transfer. Any transferee
of an Interest in Company shall take subject to the restrictions on transfer
imposed by the Agreement.
8.5 NO EFFECT TO TRANSFERS IN VIOLATION OF AGREEMENT
Upon any transfer of an Interest in Company in violation of the
Agreement, the transferee shall have only Economic Rights and shall have no
Management and Voting Rights or Information Rights. Until the assignee of an
Interest in Company becomes a Member, the assignor continues to be a Member and
to have the power to exercise Management Rights and Information Rights.
8.6 RESERVED
ARTICLE IX
DISSOLUTION AND WINDING UP
9.1 CONDITIONS OF DISSOLUTION
Company shall be dissolved, its assets shall be disposed of,
and its affairs wound up on the first to occur of the following:
(i) The expiration of the period fixed for the duration of
Company term as stated in its Articles;
(ii) A determination by the unanimous written agreement of
all Members that Company shall be dissolved and wound up;
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(iii) The occurrence of a Dissolution Event and the failure
of either (a) Company or the Remaining Members to purchase the Interest of the
Former Member as provided in Paragraph 7.2, (b) Members holding a
Majority-In-Interest (excluding for this purpose the Membership Interest of the
Former Member) to consent to the continuation of business of Company;
(iv) The sale of all or substantially all of the assets of
Company;
(v) The entry of a decree of judicial dissolution by a
court of competent jurisdiction providing for the dissolution of company filed
by any Manager or any Member or Members;
(vi) If performance of any term, covenant, condition or
provision of this Agreement is or will be illegal or in violation of any
statute, regulation or ordinance and cannot be corrected by the good faith
efforts of the Members within ten (10) days after written notice thereof;
(vii) If the Company has not entered into six (6)
alternative financing agreements (evidenced by executed written contracts)
during the two (2) year period commencing with the effective date of this
Agreement; provided that this Subparagraph (vii) shall become void and of no
further effect on the day on which the Company receives an equity capital
contribution from a Member that is not ASRS or GKV; or
(viii) If the Policy Committee is unable to attain a
unanimous vote on any decision materially affecting the business of the Company,
or to obtain a unanimous vote to approve an Annual Budget for two (2)
consecutive fiscal years.
9.2 STATEMENT OF INTENT TO DISSOLVE
As soon as possible following the occurrence of any of the
events specified in Paragraph 9.1, the Manager on behalf of Company shall file a
certificate of dissolution and form prescribed by the Secretary of State as
required by the Act. The Manager shall deliver two signed copies of the
Statement of Intent to Dissolve to the Secretary of State. Upon the filing of
the certificate of dissolution, the Company shall cease to carry
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on its business, except insofar as may be necessary for the winding up of its
business, but its separate existence continues until the certificate of
cancellation of articles of organization has been filed with the Secretary of
State or until a decree dissolving the company has been entered by a court of
competent jurisdiction.
9.3 WINDING UP
Upon the occurrence of any of the events specified in Paragraph
9.1, Company shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets, disposing of and conveying its
property, collecting and dividing its assets, satisfying the claims of its
creditors and prescribing and defending actions by or against Company in order
to collect and discharge obligations. No Member shall take any action that is
inconsistent with, or not necessary to or appropriate for, winding up the
business and affairs of Company. To the extent not inconsistent with the
foregoing, all covenants and obligations in the Agreement shall continue in full
force and effect until such time as the assets have been distributed and Company
has terminated. If any Member receives a distribution in kind such item or items
shall be deemed to have been sold for fair market value, and Capital Accounts
shall be adjusted to reflect deemed gain or loss on each such transaction. Upon
the filing of the Statement of Intent to Dissolve, the following shall occur:
A. ASRS shall have the right (but not the obligation) to purchase
from the Company either or both of the Company's Gamma Knife projects (including
all physical assets and all intangible assets associated with such projects)
located at the USC University Hospital and at the University of California San
Francisco Hospital previously transferred by ASRS to the Company. At the time
of such transfer(s), if any, ASRS shall pay to the Company cash in an amount
equal to the fair market value of such transferred assets as of the time of
transfer.
B. GKV shall have the right and obligation to purchase from the
Company the rights of the Company under the LGK Purchase Agreement relating to
each Gamma Knife for which the Company has not entered into an alternative
financing agreement with an end-
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user (and each such Gamma Knife if title thereto shall have passed to the
Company), and the consideration for such rights shall consist of: (i) the
assumption by GKV of all of the Company's obligations under the LGK Purchase
Agreement relating to each such Gamma Knife; and (ii) a cash amount equal to any
advance payments theretofore actually paid by the Company to EII and/or its
Affiliates in relation to Gamma Knife units ordered by the Company but for which
no alternative financing agreement has been entered by the Company with an
end-user. However, GKV shall have the right to offset such cash payment against
the then outstanding principal and accrued interest under the GKV Loan and/or
the Draw Down Loan, whether or not such principal or accrued interest is then
payable.
C. In addition, the Members shall have the option to acquire the
rights of the Company to other existing alternative financing agreements with
end-users relating to Gamma Knives (which shall include any Gamma Knife related
thereto) and other assets by paying to the Company cash in an amount equal to
the fair market value of such transferred assets. Such fair market value shall
be determined in accordance with the procedures described in Subparagraph
2.1.B.2. In the event more than one Member desires to exercise such right, such
rights shall be exercised by the Members as closely as practicable in proportion
to their Percentage Interests.
9.4 RESPONSIBILITIES FOR WINDING UP
The Manager shall be responsible and be compensated for
overseeing the winding up and liquidation of Company, shall take full account of
the liabilities of Company and assets, shall cause its assets to be liquidated
as promptly as is consistent with obtaining the fair market value thereof, and
shall cause the proceeds therefrom, to the extent sufficient therefor, to be
applied and distributed as next provided. The persons responsible for winding up
the affairs of Company shall give written notice of the commencement of winding
up by mail for all known creditors and claimants whose addresses appear on the
records of Company.
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9.5 ORDER OF PAYMENT UPON DISSOLUTION
In settling accounts of Company after dissolution, the Manager
shall settle the liabilities of Company with payments in the following order, as
required by the Act:
(i) To creditors, including Members, in the order of
priority as provided by law, except those to Members of Company on account of
their contributions;
(ii) To Members of Company in accordance with the
respective positive Capital Account balances after giving effect to all Capital
Contributions, distributions, revaluations and allocations required under this
Agreement, in an amount equal to the sum of such positive Capital Account
balances; and
(iii) Any remaining assets shall be distributed to the
members in proportion to their Percentage Interests.
9.6 COMPLIANCE WITH REGULATIONS
All distributions to the Members upon the winding up and
dissolution of Company shall be strictly in accordance with the positive Capital
Account balance limitation and other requirements of Regulations Section
1.704-1(b)(2)(ii)(d), provided however that no Member shall be required to
restore a negative balance in its Capital Account upon dissolution of Company.
9.7 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION
Except as otherwise specifically provided in the Agreement,
each Member shall only be entitled to look solely at the assets of Company for
the return of his positive Capital Account balance. The Manager shall be
entitled to reasonable compensation for winding up the affairs of the Company.
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ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION OF MEMBERS AND MANAGER
Company shall indemnify against expenses and liabilities any
Member, Manager or Officer made a party or who was threatened to be made a party
to any proceeding by Company or another because such party is or was a Member,
Manager or Officer, as a matter of right, against all liability incurred by such
individual in connection with any action, suit, or proceeding or any threatened,
pending or complete action, suit or proceeding; whether civil, criminal,
administrative, or investigative provided that it shall be determined in the
specific case in accordance with Paragraph 10.5 of this Article X that
indemnification of such individual is permissible in the circumstances because
the individual has met the standard of conduct for indemnification set forth in
this Article X.
10.2 ADVANCE UNDERTAKINGS FOR INDEMNIFICATION
Company shall pay for or reimburse the reasonable expenses
incurred by a Member, Manager or Officer in connection with any such proceeding
as incurred in advance of final disposition of the action, suit, or proceeding
thereof if (i) the person furnishes Company a written affirmation of the
person's good faith belief that it has met the standard of conduct for
indemnification described in Paragraph 10.5, (ii) the person furnishes Company a
written undertaking, executed personally or on such person's behalf, to repay
the advance if it is ultimately determined by a court of competent jurisdiction
that such person did not meet such standard of conduct and that it is not
entitled to be indemnified, and (iii) a determination is made in accordance with
Paragraph 10.6 that based upon facts then known to those making the
determination, indemnification would not be precluded under this Article.
The undertaking described above must be a general obligation of
the individual, subject to such reasonable limitations as Company may permit,
but need not be secured and may be accepted without reference to financial
ability to make
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repayment. Company shall indemnify a Member, Manager or Officer
who is wholly successful, on the merits or otherwise, in the defense of any such
proceeding, as a matter of right, against reasonable expenses incurred by the
person in connection with the proceeding without the requirement of a
determination as set forth in Paragraph 10.6.
10.3 ADVANCEMENT OF EXPENSES
Upon demand by a Member, Manager or Officer for indemnification
or advancement of expenses incurred in defending a civil or criminal suit or
proceeding, as the case may be, Company shall expeditiously determine whether
the Member, Manager or Officer is entitled thereto in accordance with this
Article X.
10.4 INDEMNIFICATION OF OTHERS
Company shall be empowered, but shall not be obligated, to
indemnify any individual who is or was an employee or agent of Company to the
same extent as if such individual were a Member, Manager or Officer. Such
indemnification shall occur only after unanimous approval by the Policy
Committee.
10.5 STANDARDS OF CONDUCT FOR INDEMNIFICATION
Indemnification of a Manager, Member or Officer is permissible
under this Article X only if (i) such person conducted itself in good faith and
within the scope of authority granted by the Policy Committee, and (ii)
reasonably believed that its conduct was in or at least not opposed to Company's
best interest; and (iii) in the case of any criminal proceeding, it had no
reasonable cause to believe its conduct was unlawful. The termination of a
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent is not, of itself, determinative that the person
did not meet the standard of conduct described in this Paragraph 10.5.
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10.6 PROCEDURES TO DETERMINE INDEMNIFICATION
A determination as to whether indemnification of or
advancement of expenses is permissible shall be made by any one of the following
procedures:
(i) By the Policy Committee in good faith by a unanimous vote;
or
(ii) By special legal counsel to the Company selected by the
Policy Committee.
10.7 RESERVED
10.8 RESERVED
10.9 RESERVED
10.10 RESERVED
10.11 DEFINITIONS FOR INDEMNIFICATION PROVISIONS
A. "Expenses" mean all reasonable direct and indirect
costs (including without limitation counsel fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees
and all other disbursements or out-of-pocket expenses) actually incurred in
connection with the investigation, defense, settlement or appeal of a proceeding
or establishing or enforcing a right to indemnification under this Article X,
applicable law or otherwise.
B. "Liabilities" mean the obligations (including one incurred
by way of settlement) to pay a judgment, settlement, penalty, fine, excise tax
(including an excise tax assessed with respect to an employee benefit plan), or
reasonable expenses incurred with respect to a proceeding.
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C. "Party" means a person who was, is or is
threatened to be made a named defendant or respondent in a
proceeding.
D. "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal.
10.12 INSURANCE FOR INDEMNIFICATION
Company shall, upon approval by the Policy Committee, which
shall determine who may be covered, purchase and maintain insurance for the
benefit of any person who is or was a Member, Manager or Officer, employee or
agent, against any liability asserted against or expenses incurred by such
person in any capacity or arising out of such person's service with Company,
whether or not Company would have the power to indemnify such person against
such liability.
ARTICLE XI
REQUIRED ARBITRATION OF DISPUTES
11.1 DISPUTES REQUIRING ARBITRATION
All disputes arising in connection with this Agreement shall be
finally settled by arbitration in Chicago, Illinois, under the Commercial
Arbitration Rules of the American Arbitration Association. Judgement upon the
awarded rendered may be entered in any court having jurisdiction or application
may be made to such court for judicial acceptance of such award and an order of
enforcement as the case may be.
11.2 This Agreement shall be governed by and interpreted in accordance
with the laws of the State of California, not including laws and principles
relating to the conflict of laws.
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ARTICLE XII
MISCELLANEOUS
12.1 COMPLETE AGREEMENT
The Agreement and the Articles constitute the complete and
exclusive statement of agreement among Members. The Agreement and the Articles
replace and supersede all prior agreements by and among Members or any of them.
The Agreement and the Articles supersede all prior written and oral statements
and no representation, statement, or condition or warranty not contained in the
Agreement or the Articles will be binding on the Members or have any force or
effect whatsoever. In the event of any conflict between provisions of the
Agreement and provisions of the Articles, the Articles shall be controlling.
12.2 BINDING EFFECT
Subject to the provisions of the Agreement relating to
transferability, the Agreement will be binding upon and inure to the benefit of
Members, and their respective distributees, successors and assigns, but only to
the extent that assignment and approval by all Members is in accordance with the
Act, the Articles and the Agreement.
12.3 NO THIRD PARTY BENEFICIARY
The Agreement is made solely and specifically among and for the
benefit of the parties hereto, and their respective successors and assigns
subject to the express provisions hereof relating to successors and assigns, and
no other person will have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of the Agreement as a third party
beneficiary or otherwise.
12.4 NOT FOR BENEFIT OF CREDITORS
The provisions of the Agreement are intended only for the
regulation of relations among Members and Company. The Agreement is not intended
for the benefit of a creditor who is not a Member and does not grant any rights
to or confer any benefits on any
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creditor who is not a Member or any other person who is not a Member, a Manager,
or an Officer.
12.5 GENDER AND NUMBER IN NOUNS AND PRONOUNS
Common nouns and pronouns will be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the person
or persons, firm or corporation may in the context require. The singular shall
include the plural and the masculine gender shall include the feminine and
neuter, and vice versa, as the context requires. Any reference to the Code,
Regulations, the Act, California statutes or other statutes or laws will include
all amendments, modifications, or replacements of the specific sections and
provisions concerned.
12.6 HEADINGS
All headings herein are inserted only for convenience and ease
of reference and are not to be considered in the construction or interpretation
of any provision of the Agreement.
12.7 REFERENCES IN THE AGREEMENT
Numbered or lettered Articles, Paragraphs and Subparagraphs
herein contained refer to Articles, Paragraphs and Subparagraphs of the
Agreement unless otherwise expressly stated.
12.8 EXHIBITS
All Exhibits attached to the Agreement are incorporated and
shall be treated as if set forth herein.
12.9 RESTRICTED ACTIVITIES OF MEMBERS
Each Member covenants that, while he or it is a Member of the
Company, he or it shall not (and shall not allow any of its Affiliates to),
directly or indirectly, either have any ownership or economic interest in, or be
an employee, agent, independent contractor or otherwise participate in the
operation or control of, any entity that engages in the ownership, operation or
utilization of a Gamma Knife in the same city in which a site owned or being
developed by the Company is located within the Territory, except
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for those potential sites listed on Exhibit D. In addition, each Member shall
have the obligation to inform the Company in writing of such potential
ownership, operation or utilization of any other Gamma Knife in the Territory
and the Company shall have 30 days to give the Member written notice that the
Company will take over the obligations of the Member in pursuing this ownership,
operation or utilization under the same or equivalent conditions and
circumstances in place of the Member. If the Company does not notify the Member
within 30 days, the Member is free to become involved in the aforementioned
ownership, operation or utilization. Provided, however, nothing contained herein
shall prohibit GKV or its Affiliates from any form of ownership, operation,
utilization or participation in : (i) any Gamma Knife site in which GKV or any
of its Affiliates presently has an ownership or participation as of the date of
this Agreement as set forth in Exhibit D; (ii) any Gamma Knife potential site
identified by EII or any of its Affiliates to the Company pursuant to that
certain letter agreement dated October , 1995, between the Company and EII, if
such site was not pursued by the Company in the manner described in such letter
agreement; or (iii) any business ancillary to the sale of Gamma Knifes,
including, without limitation, the provision of service or maintenance on a
Gamma Knife or provision of clinical, educational or marketing support related
to a Gamma Knife. In addition, ASRS covenants that while it is a Member it shall
not (and shall not allow any of its Affiliates to) promote, own or invest, in
the Territory, in alternative stereotactic radiosurgery equipment to the Gamma
Knife, except for those potential sites listed on Exhibit D. Except for the
foregoing restriction, any Member may engage in any other business, investment
or professional activity, and neither the Company nor any other Member shall
have any rights in and to said business, professions or investments, or in the
income or profits derived therefrom by reason of this Agreement.
12.10 RESERVED
12.11 ADDITIONAL DOCUMENTS AND ACTS
Each Member agrees to execute and deliver such additional
documents and instruments and to perform such additional acts as may be
necessary or appropriate to effectuate, carry out and
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perform all of the terms, provisions, and conditions of the Agreement and the
transactions contemplated hereby.
12.12 NOTICES
Any notice to be given or to be served upon Company or any
party hereto in connection with the Agreement must be in writing and will be
deemed to have been given and received at the earlier of a) the time when
personally delivered or delivered by telefax to the address specified by the
party to receive the notice or b) four (4) days after deposited in the United
States Mail for First Class delivery. Such notices will be given to a Member at
the address specified below. Any Member or Company may, at any time by giving
four (4) days' prior written notice to the other Members and Company, designate
any other address in substitution of the foregoing address to which such notice
will be given.
The addresses of the Members are:
GKV: 8 Executive Park West
Suite 805
Atlanta, GA 30329
Telefax: (404) 634-3335
ASRS: Four Embarcadero Center
Suite 3620
San Francisco, CA 94111-4155
Telefax: (415) 788-5660
12.13 AMENDMENTS
All amendments to the Agreement will be in writing and signed
by all the Members.
12.14 PUBLICITY
Neither of the parties will make any disclosure of the
transactions contemplated by the Agreement or the other agreements, or any
discussions in connection therewith, without the prior written consent of each
of the other parties. The preceding sentence shall not apply to any disclosure
required to be made by
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the Act, securities laws or other applicable law as
reasonably determined by counsel to the party determining that such disclosure
is required, except that such party, whenever practicable, shall be required to
consult with the other party concerning the timing and content of such
disclosure before making it.
12.15 RELIANCE ON AUTHORITY OF PERSON SIGNING AGREEMENT
In the event that a Member is not a natural person, neither
Company nor any Member will (a) be required to determine the authority of the
individual signing the Agreement to make any commitment or undertaking on behalf
of such entity or to determine any fact or circumstance bearing upon the
existence of the authority of such individual or (b) be required to see to the
application or distribution of proceeds paid or credited to individuals signing
the Agreement on behalf of such entity.
12.16 WARRANTIES AND REPRESENTATIONS
Each Member separately represents and warrants that he/she/it
is not a party to any pending or threatened suit, action or legal,
administrative, arbitration or other proceeding which might materially and
adversely affect the business of the Company or the transactions contemplated by
this Agreement, nor does such Member know of any facts which are likely with the
passage of time to give rise to such a suit, action or proceeding. Each Member
separately represents and warrants that he/she/it is not a party to any
agreement, understanding, tment or other obligation that prohibits or restricts
such Member's performance under this Agreement, except that it is understood
that ASRS/ASHS is required to obtain certain approvals to transfer ownership of
its assets contributed pursuant to Exhibit A.
12.17 REPRESENTATIONS
Each of the Members acknowledges and agrees (a) that no
representation or promise not expressly contained in this Agreement has been
made by any of the other Members or by any of such Member's agents, employees,
representatives or attorneys; (b) that this Agreement is not being entered into
on the basis of, or in reliance upon, any promise or representation, express or
implied, other than such as are set forth expressly in this Agreement; and
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(c) that each Member has had the opportunity to be represented by counsel of
said Member's choice in this matter, including the negotiations and transaction
which preceded the execution of this Agreement.
12.18 REPRESENTATION BY COUNSEL, ETC.
Each Member acknowledges and represents that it has been
represented by counsel and other advisors of its own choice in the negotiations
with respect to the formation of the Company, the preparation of the Articles,
the preparation of this Agreement and all other documents with respect to the
Company, the potential consequences of investment in and operation of the
Company, and the decisions to invest in and become Members with respect to the
Company.
12.19 MULTIPLE COUNTERPARTS
The Agreement may be executed in several counterparts, each of
which will be deemed an original but all of which will constitute one and the
same instrument. However, in making proof hereof it will be necessary to produce
only one copy hereof signed by the party to be charged.
12.20 RESERVED
12.21 PARENT UNDERTAKINGS
A. Contemporaneously with the execution of this
Agreement, each Member shall cause its parent (ASHS for ASRS and EHUS for GKV)
to execute a Parent Undertaking in the form attached hereto as Exhibit E
pursuant to which such parent agrees:
(i) to respect and abide by the exclusivity provisions
set forth in Paragraph 12.9 hereof; and
(ii) not to allow a sale or transfer of any capital
stock in such Member without first offering to sell such capital stock to the
other Member for the same price and on the same terms and conditions as have
been offered by a third party.
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B. This Agreement shall not become effective until
ASHS and EHUS have executed the Parent Undertaking.
12.22 LOAN BY GKV TO THE COMPANY
A. On the date on which the Boards of Directors of the
Members give their approval pursuant to Section 12.24, GKV shall make a loan to
the Company in the amount of $1,300,000 (the "GKV Loan"). Such loan shall be
evidenced by a promissory note in the form attached hereto as Exhibit F. Such
loan shall bear interest at two percent (2%) above the "prime rate" as announced
from time to time by the Wachovia Bank of Georgia, N.A. Interest shall be
payable upon any payment of the principal amount. At a minimum, $1,000,000 in
principal amount of the loan shall be payable one year from the date of this
Agreement and the remaining principal balance shall be paid two years from the
date of this Agreement, but a mandatory prepayment of $250,000 (subject to a
maximum of $1,000,000) shall be made each time a Gamma Knife loan or lease
financing is obtained by the Company.
B. At any time prior to its maturity date, ASRS and
GKV shall have the right by mutual consent, to convert up to $1,000,000 of the
outstanding principal balance of the GKV Loan plus any accrued but unpaid
interest on the GKV Loan into a capital contribution to GKV. Such capital
contribution shall be deemed to have a fair market value equal to the
outstanding principal balance of the GKV Loan and any accrued but unpaid
interest on the GKV Loan. In the event of such conversion the outstanding
principal balance of the GKV Loan into a Capital Contribution, the Percentage
Interests of the Members shall be adjusted in the manner described in
Subparagraph 2.1.B hereof.
C. ASRS shall have the right, but not the obligation,
to make a Capital Contribution to the Company, in cash, in any amount less than
or equal to the amount converted described in Subparagraph 12.22.B, which
Capital Contribution by ASRS shall be due and payable on the effective date of
such conversion.
12.23 DRAW DOWN LOAN BY GKV TO THE COMPANY
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A. Upon the effectiveness of this Agreement, the
Company shall enter into the draw down Promissory Note attached hereto as
Exhibit G (the "Draw Down Loan").
B. At any time prior to the maturity date of the Draw
Down Loan, ASRS and GKV shall have the right by mutual consent, to convert any
of the outstanding principal balance of the Draw Down Loan plus any accrued but
unpaid interest on the Draw Down Loan into a capital contribution by GKV. Such
capital contribution shall be deemed to have a fair market value equal to the
converted principal of the Draw Down Loan plus any accrued but unpaid interest
on the Draw Down Loan. In the event of such conversion of any of the Draw Down
Loan into a capital contribution, the Percentage Interests of the Members shall
be adjusted in the manner described in Subparagraph 2.1.B hereof.
C. ASRS shall have the right, but not the obligation,
to make a Capital Contribution to the Company, in cash, in any amount less than
or equal to the amount converted described in Subparagraph 12.23.B, which
Capital Contribution by ASRS shall be due and payable on the effective date of
such conversion.
12.24 This Agreement shall not become effective until
ASRS/ASHS receives approval from its Board of Directors and EHUS/GKV receives
approval from their Boards of Directors. GKV shall have no obligation to make
its initial capital contribution described in Exhibit A until any and all
required consents and/or approvals necessary for ASRS/ASHS to contribute its
UCSF Assets to the Company are obtained and provided to GKV. GKV shall have no
obligation to make the second capital contribution described in Exhibit A until
any and all required consents and/or approvals necessary for ASRS/ASHS to
contribute its USC Assets to the Company are obtained and provided to GKV.
IN WITNESS WHEREOF, all of the Members of GK FINANCING, LLC, A
California Limited Liability Company, have executed the Agreement, effective the
17th DAY OF October, 1995.
MEMBER:
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GKV
BY:
-----------------------------
Title:
ASRS:
BY:
-----------------------------
Title:
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EXHIBIT A
CAPITAL CONTRIBUTION OF MEMBERS OF GK FINANCING, LLC
<TABLE>
<CAPTION>
=====================================================================================================
MEMBER'S
MEMBER'S NAME MEMBER'S ADDRESS MEMBER'S CAPITAL CONTRIBUTION PERCENTAGE
INTEREST
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASRS See Section 12.12 See below 78%
- -----------------------------------------------------------------------------------------------------
GKV See Section 12.12 $278,000 in cash on date of ASRS's 22%
initial contribution of the UCSF
Assets, subject to Paragraph 12.24
and $522,000 in cash on date of
ASRS's second contribution of USC
Asset, subject to Paragraph 12.24 *
- -----------------------------------------------------------------------------------------------------
TOTALS:
=====================================================================================================
</TABLE>
* NOTE: Cash amounts to be contributed by GKV may be adjusted as
provided in paragraphs (1) and (3) below.
Initial Capital Contribution by ASRS:
(1) On the effective date of this Agreement or as soon as
practical, ASRS shall transfer to the Company good and marketable title to the
Gamma Knife located at the University of California at San Francisco (subject
only to a financing lease with a current principal balance of approximately
$1,237,000 (the "UCSF Lease")), the contract between ASHS/ASRS and the Regents
of the University of California which is located at the University of California
at San Francisco (the "UCSF Contract") relating to the Gamma Knife, and all
other physical and intangible assets relating to such Gamma Knife (collectively,
("UCSF Assets")) The UCSF Assets shall not include accounts receivable. The UCSF
Assets shall be deemed to
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have a net fair market value of approximately $2,224,000. The exact fair market
value of the UCSF Assets shall be determined as of the date of their transfer to
the Company on the basis of the methodology and assumptions set forth in the
existing valuation report by American Appraisal Associates. The exact amount of
cash to be contributed by GKV on the date on which ASRS transfers the UCSF
Assets to the Company shall be equal to 22/78 times the exact fair market value
of the UCSF Assets as of the date of their transfer.
(2) The Company shall assume the obligations of ASRS under the UCSF
Lease and the UCSF Contract which accrue from and after the date on which ASRS
transfer the UCSF Assets to the Company, but the Company shall assume no other
obligations of ASRS related to the UCSF Assets, including accounts payable. ASRS
shall indemnify the Company, GKV and their Affiliates for all damages, costs,
expenses, and liabilities (including attorneys' fees) incurred by any of them in
relation to any claims arising from or in relation to the UCSF Assets prior to
the date on which ASRS transfers the UCSF Assets to the Company. Upon demand by
the Company, GKV or their Affiliates, ASRS shall promptly reimburse the Company,
GKV and their Affiliates for attorneys' fees incurred by them related thereto.
(3) On January 1, 1996, or as soon as practical (when ASRS/ASHS has
obtained all required consents /approvals to transfer said asset to Company),
ASRS shall transfer to the Company good and marketable title to the Gamma Knife
located at the USC University Hospital (subject only to a financing lease with
an approximate principal balance as of January 1, 1996 of $2,314,000 (the "USC
Leases")), the contract between ASRS and USC University Hospital (the "USC
Contract") relating to the Gamma Knife, and all other physical and intangible
assets relating to such Gamma Knife (collectively, the "USC Assets"). The USC
Assets shall not include accounts receivable. The USC Assets shall be deemed to
have a net fair market value of approximately $4,426,000. The exact fair market
value of the USC Assets shall be determined as of the date of their transfer to
the Company on the basis of the methodology and assumptions set forth in the
existing valuation report by American Appraisal Associates. The exact amount of
cash to be contributed by GKV on the date on which ASRS transfers the USC
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Assets to the Company shall be equal to 22/78 times the exact fair market value
of the USC Assets as of the date of their transfer.
(4) The Company shall assume the obligations of ASRS under the USC
Lease and the USC Contract which accrue from and after the date on which ASRS
transfers the USC Assets to the Company, but the Company shall assume no other
obligations of ASRS relating to the USC Assets, including accounts payable. ASRS
shall indemnify the Company, GKV and their Affiliates for all damages, costs,
expenses, and liabilities (including attorneys' fees) incurred by any of them in
relation to any claims arising from or in relation to the USC Assets prior to
the date on which ASRS transfers the USC Assets to the Company. Upon demand by
the Company, GKV or their Affiliates, ASRS shall promptly reimburse
the Company, GKV and their Affiliates for attorneys' fees incurred by them
related thereto.
(5) ASRS hereby represents and warrants to the Company and to GKV
that the UCSF Contract, the UCSF Lease, the USC Contract and the USC Lease are
in full force and effect and neither party to each such contract or lease is in
breach thereof and that ASRS has heretofore delivered to GKV true, correct and
complete copies of all such contracts and leases.
(6) ASRS hereby represents and warrants to the Company and to GKV
that there is no suit, action, claim or investigation pending or threatened
against, affecting or relating to or arising from the UCSF Assets or the USC
Assets, and there exists no basis or grounds for same.
(7) If on a fiscal year basis, the cash flow (defined as revenues
less direct cash operating expenses) generated by the UCSF Assets or the USC
Assets, is insufficient to service the lease payments under the UCSF Lease or
the USC Lease, as the case may be, ASRS shall reimburse the Company in cash for
the difference between said lease payments and said cash flow, without credit to
the Capital Account of ASRS for such payment.
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EXHIBIT E
PARENT UNDERTAKING
WHEREAS, GKV INVESTMENTS, INC. ("GKV"), a Georgia corporation, and AMERICAN
SHARED RADIOSURGERY SERVICES, INC. ("ASRS"), a California corporation, are
parties to that certain Operating Agreement for GK Financing, LLC of even date
herewith (the "Operating Agreement");
WHEREAS, AMERICAN SHARED HOSPITAL SERVICES ("ASHS"), a California
corporation, is the ultimate beneficial owner of all of the outstanding capital
stock of ASRS;
WHEREAS, ELEKTA HOLDINGS U.S., INC. ("EHUS"), a Georgia corporation, is an
indirect owner of all of the outstanding capital stock of GKV;
WHEREAS, section 12.21 of the Operating Agreement requires EHUS and ASHS to
execute this Parent Undertaking as a condition to the effectiveness of the
Operating Agreement;
WHEREAS, it is in the direct interest of ASHS and EHUS for the Operating
Agreement to become effective;
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, ASHS and EHUS hereby agree as follows:
1. Definitions.
All capitalized terms used herein which are defined in the
Operating Agreement shall have the meanings set forth in the Operating
Agreement.
2. Exclusivity.
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EHUS and ASHS agree to abide by the restrictions set forth in
section 12.9 of the Operating Agreement and to cause each of their Affiliates to
abide by the restrictions set forth in section 12.9 of the Operating Agreement.
3. Right of First Refusal.
3.1 Except as provided in this Section 3.1, ASHS hereby
agrees that it shall not allow any shares of capital stock of ASRS to be sold,
transferred, assigned, pledged or otherwise encumbered during the term of the
Operating Agreement except for a bona fide sale for cash to a third party and
then only after ASHS shall have given GKV written notice of such proposed sale,
including the number of shares proposed to be sold, the price therefor, and the
identity of the proposed purchaser, and the opportunity to purchase the shares
proposed to be sold for the same price and on the same terms and conditions. GKV
shall have a period of thirty (30) days after receipt of notice from ASHS in
which to decide whether or not to purchase such shares. Notwithstanding the
foregoing, GKV shall not have such right of first refusal if ASHS sells,
transfers, assigns or pledges shares of capital stock of ASRS to an Affiliate of
ASHS.
3.2 Except as provided in this Section 3.2, EHUS hereby
agrees that it shall not permit any shares of capital stock of GKV to be sold,
transferred, assigned, pledged or otherwise encumbered during the term of the
Operating Agreement except for a bona fide cash sale to a third party and then
only after EHUS shall have given notice to ASRS of the proposed sale, including
the number of shares proposed to be sold, the price therefor, and the identity
of the proposed purchaser, and the opportunity to purchase such shares proposed
to be sold for the same price and on the same terms and conditions. ASRS shall
have a period of thirty (30) days after the receipt of such notice in which to
decide whether or not to purchase such shares. Notwithstanding the foregoing,
ASRS shall not have such right of first refusal if EHUS sells, transfers,
assigns or pledges shares of capital stock of GKV to an Affiliate of EHUS.
4. Indemnification for Representations.
4.1 ASHS hereby agrees to indemnify and hold harmless
EHUS, GKV and their Affiliates for any and all damages, costs, expenses and
liabilities (including attorneys' fees) incurred by any of them as a
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result of the breach of any representation or warranty made by ASRS in, or any
claim against ASRS for indemnification arising under, the Operating Agreement.
4.2 EHUS hereby agrees to indemnify and hold harmless
ASHS, ASRS and their Affiliates for any and all damages, costs, expenses and
liabilities (including attorneys' fees) incurred by any of them as a result of
the breach of any representation or warranty made by GKV in, or any claim
against GKV for indemnification arising under, the Operating Agreement.
5. Arbitration.
All disputes arising in connection with this Undertaking shall
be finally settled by arbitration in Chicago, Illinois under the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court having jurisdiction, or application
may be made to such court for judicial acceptance of such award and an order of
enforcement, as the case may be. Any arbitration arising in relation to this
Undertaking may be joined with any arbitration arising in relation to the
Operating Agreement.
6. Governing Law.
This agreement shall be governed by and interpreted in
accordance with the laws of the State of California, not including laws and
principles relating to the conflict of laws.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first above-written.
AMERICAN SHARED HOSPITAL SERVICES
By:
--------------------------------
Title:
-----------------------------
74
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ELEKTA HOLDINGS U.S., INC.
By:
--------------------------------
Title:
-----------------------------
75
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Exhibit No. 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 24, 1995, except for Note 15, as to which the
date is May 17, 1995, in the Registration Statement (Form S-1 No. 33-00000) and
related Prospectus of American Shared Hospital Services dated October 26, 1995.
ERNST & YOUNG LLP
San Francisco, California
October 26, 1995
