<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996
REGISTRATION NO. 33-63721
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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>
------------------------
FOUR EMBARCADERO CENTER, SUITE 3620
SAN FRANCISCO, CALIFORNIA 94111-4155
(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 94111-4155
(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....... 1,290,853 shares $1.56 $2,013,750.68 $694.39
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Warrants to purchase Common
Shares......................... 441,147 Warrants -- -- $0
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Common Shares Underlying
Warrants....................... 441,147 shares $1.56 $688,189.32 $237.31
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Total Registration Fee........... $931.70
</TABLE>
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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.
(3) The registration fee was paid on the date of the original filing of the
Registration Statement (October 26, 1995).
------------------------
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
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<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION
- ------------------------------------------------- LOCATION IN REGISTRATION STATEMENT OR
PROSPECTUS
-------------------------------------------
<C> <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>
- ---------------
<TABLE>
<C> <S> <C>
* Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION
- ------------------------------------------------- LOCATION IN REGISTRATION STATEMENT OR
PROSPECTUS
-------------------------------------------
<C> <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, MARCH 29, 1996
PROSPECTUS
1,732,000 COMMON SHARES
(INCLUDING 441,147 COMMON SHARES ISSUABLE
UPON THE EXERCISE OF WARRANTS)
AND
WARRANTS TO PURCHASE 441,147 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 of
which 97,853 Warrants have been exercised. The 1,290,853 Common Shares
(including 1,193,000 Common Shares issued in the restructuring and the 97,853
Common Shares received upon the exercise of 97,853 Warrants issued in the
restructuring) and the 441,147 unexercised Warrants issued in these transactions
and 441,147 Common Shares underlying such unexercised 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 ("the AMEX")
under the trading symbol "AMS." The Common Shares are also listed on The Pacific
Stock Exchange ("The 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 and
Loss of Active Trading Market." On March 27, 1996 the last reported sale price
of the Common Shares on the AMEX was $1.25 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 The PSE, respectively, at the time of sale or sell the
Common Shares 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 MARCH , 1996
<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 (before extraordinary items) was
$15,644,000, $5,537,000 and $12,459,000 for the years ended December 31, 1993,
1994 and 1995, respectively. The Company had a net capital deficiency of
$10,576,000 at December 31, 1995. The Company reported net income of $7,344,000
and a corresponding reduction of its net capital deficiency in 1995 due to an
extraordinary gain of $19,803,000 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 December 31, 1995,
the Company had approximately $12,074,000 of long-term debt, $773,000 of
Subordinated Notes and approximately $22,771,000 of obligations under capital
leases. Scheduled payments of principal and interest under debt obligations and
capital leases are $13,137,000 during 1996. In addition, scheduled payments
under operating leases and related maintenance and service agreements are
approximately $2,681,000. The Company during the next 12 months must increase
its revenues and reduce its cost structure and debt payment schedules 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 months. Further, the high debt level may 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.
3
<PAGE> 7
LIMITED 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.
POTENTIAL INABILITY TO REPAY MATURING INDEBTEDNESS
A substantial portion of the Company's funded debt, including the
Subordinated Notes which mature in October 1996, will mature in 9 to 36 months.
During 1996 and 1997, $2,577,000 and $584,000 plus the then outstanding balance
(currently approximately $3,446,000 at February 29, 1996) of the New Revolver
(as defined below) will become due. The Company does not expect to 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.
TREND OF DECREASING REVENUES
The Company's revenues have decreased during the last three fiscal years.
During each of the three years ended December 31, 1993, 1994 and 1995, revenues
were $39,485,000, $38,545,000 and $34,077,000, respectively. This decrease in
revenues is a result of the sale by the Company of various revenue-producing
assets, reduced demand for certain of the Company's imaging services and severe
competition which have led to reduced pricing for the Company's services. This
trend has resulted in significant operating losses and during the period from
late 1992 until May 1995, the Company failed to meet certain of its fixed
obligations. The Company must increase its revenues or decrease its expenses in
order to remain viable. There can be no assurance that the Company will be able
to increase its revenues or decrease its expenses sufficiently to cover its
fixed obligations.
POSSIBLE DELISTING OF COMMON SHARES AND LOSS OF ACTIVE TRADING MARKET
The Common Shares are currently traded on the AMEX and The PSE. 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 $1.25 at March 27, 1996. 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
The 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." The offer and sale of the Common
Shares may result in temporary disruptions in the market and adversely affect
the price of Common Shares. The availability of the Securities (which represent
approximately 26% 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.
4
<PAGE> 8
INABILITY OF COMPANY TO PAY 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; POTENTIAL CONFLICT OF SHAREHOLDER INTERESTS
As of March 5, 1996, 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
40% of the Company's outstanding securities. In addition, as a result of
Securities issued to them pursuant to the terms of the Note Purchase Agreement
and in connection with the Company's lease restructuring, the Selling
Securityholders own directly or through immediately exercisable Warrants,
1,732,000 Common Shares, representing approximately 26% of the outstanding
securities of the Company. 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, or conversely, permitting such
shareholders to adopt transactions that a majority of the other shareholders
vote to reject. Accordingly, owners of Common Shares other than Dr. Bates and
the Selling Securityholders should recognize that their interests may conflict
and, as a result of the size of their shareholdings, Dr. Bates and the Selling
Securityholders will be able effectively to determine the course of action to be
taken by the Company.
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 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.
INABILITY OF THE COMPANY TO ACQUIRE ADVANCED 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.
EXPANSION OF REIMBURSEMENT PROGRAMS
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.
5
<PAGE> 9
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.
BURDEN AND COST OF GOVERNMENT REGULATION
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 field 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 equipment manufacturers, 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 and radiotherapy
services to approximately 220 hospitals, medical centers and medical offices
located in 22 states. The four principal diagnostic imaging services provided by
the Company are Magnetic Resonance Imaging (MRI), Computed Axial Tomography
Scanning (CT), Ultrasound and Nuclear Medicine. Radiotherapy services are
performed by the Company through a subsidiary which provides gamma knives to two
major university medical centers.
ASHS's address is Four Embarcadero Center, Suite 3620, San Francisco,
California 94111 and its telephone number is (415) 788-5300.
7
<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 97,853 Common
Shares issued upon exercise of Warrants issued pursuant to the Lease
Restructuring (as defined below) and 127,147 unexercised Warrants issued
pursuant to the Lease Restructuring, and the Common Shares issuable upon
exercise of such Warrants, are the Securities to which this Prospectus relates.
The Notes Repurchase was the culmination of 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 $26,547,000 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.
The Company's equipment leases were further restructured at the end of 1995 and
in March 1996. See "Financial Restructuring -- Lease Restructuring."
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
8
<PAGE> 12
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 was 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
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
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 in the amount of $2,869,000.
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
from September 30, 1996 to September 30, 2000. 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 generally accepted accounting principles 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 $22,771,000 as of December 31, 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 $3,500,000, into two promissory notes dated December 30,
1994 and January 1, 1995, respectively, in principal amounts of approximately
$2,000,000 and $500,000, respectively (the "GE Notes"). The GE Notes were issued
by AS-C to GE Medical and are guaranteed by ASHS and certain of its subsidiaries
and mature in February 2002 and on January 1, 2000, respectively. As amended,
the GE Notes bear interest at a rate of 5% and 10.5% per annum, respectively.
The GE Notes 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 Notes contain 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.
The Company issued to GE Medical on December 31, 1994 immediately
exercisable warrants (the "December Warrants") to purchase 97,853 Common Shares
for $0.01 per share until March 31, 1996. On May 17, 1995, additional warrants
were issued to purchase 127,147 Common Shares for $0.01 per share until
September 30, 1996 (the "May Warrants", and collectively with the December
Warrants the "GE
9
<PAGE> 13
Warrants"). Effective March 5, 1996, GE Medical exercised the December Warrants
to purchase 97,853 Common Shares of the Company.
The issuance of the December Warrants resulted in an increase of
approximately $600,000 of additional paid-in capital. In addition, the Company
was required to accrue approximately $400,000 of deferred tax liabilities in
connection with the Lease Restructuring. No gain or loss was recognized as part
of the Lease Restructuring or the conversion of the accrued liabilities into the
GE Notes.
In December 1995 (effective as of October 1, 1995) and in March 1996, the
Company further restructured its leases with GE Medical. GE Medical deferred
certain lease payments due in the fourth quarter of 1995 and first quarter of
1996. Further, the lease terms for some of the Company's MRI units were extended
up to an additional 26 months to coincide with the potential termination of the
Company's end-user contracts. In addition, the GE Notes were amended to change
the interest rate and defer certain installment payments due in 1996.
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.
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. On January 31,
1996, the lender under the New Revolver was replaced by an affiliate of such
lender under substantially identical terms. 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 31,
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 December 31, 1995, the Company had drawn $3,883,000
under the New Revolver and, based on eligible accounts receivable, an additional
$117,000 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 of AS-C's and CuraCare's equipment and
inventory 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 Company's Gamma Knife. 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.
10
<PAGE> 14
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
will receive proceeds equal to the aggregate exercise price, unless the holder
of a Noteholder Warrant elects to pay the exercise price by directing the
Company to withhold Common Shares in an amount equal to the exercise price
divided by the market price of the Common Shares on date of exercise. See
"Description of Securities -- Noteholder Warrants." The aggregate exercise price
of the unexercised Warrants is approximately $236,771. Any portion of such
exercise price received in cash will be added to the Company's working capital
and used for general corporate purposes.
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."
11
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995 as reflected on the Company's 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>
DECEMBER 31,
1995
----------------
<S> <C>
Current portion of long-term debt(1)......................................... $ 2,796,000
Current portion of obligations under capital leases(1)..................... 5,924,000
Senior Subordinated Notes.................................................. 773,000
------------
Total current obligations............................................... 9,493,000
------------
Long-term debt, less current portion(1)...................................... 9,278,000
Obligations under Capital Leases less current portion(1)..................... 16,847,000
------------
Total long-term obligations................................................ 26,125,000
------------
Total Obligations.................................................. 35,618,000
------------
Stockholder's equity (Net Capital Deficiency):
Common stock, without par value:
authorized shares -- 10,000,000, 4,244,000 shares issued and
outstanding(2).......................................................... 10,635,000
Common stock options issued to officer..................................... 2,414,000
Additional paid-in capital................................................. 930,000
Accumulated deficit........................................................ (24,555,000)
------------
Total stockholders' equity (Net Capital Deficiency)................ (10,576,000)
------------
TOTAL CAPITALIZATION............................................... $ 25,042,000
============
</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) 165,100 Common Shares reserved for
issuance for options remaining exercisable in the Company's 1984 Stock
Option Plan, (iii) 539,000 Common Shares underlying the then unexercised
Warrants, of (iv) 1,495,000 Common Shares issuable under an option granted
to the Company's Chairman and Chief Executive Officer.
12
<PAGE> 16
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
SUMMARY OF OPERATIONS
The following selected condensed consolidated financial data for the five
years ended December 31, 1995 are derived from the consolidated financial
statements. The data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information included
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995(2) 1994 1993(1) 1992 1991
------- ------- -------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Medical services revenues....................... $34,077 $38,545 $ 39,485 $48,834 $58,952
Costs of operations............................. 32,675 34,145 37,071 45,169 43,941
Selling and administrative expense.............. 8,432 5,971 6,820 6,273 7,051
Interest expense................................ 5,310 7,423 6,752 7,520 8,542
Write-down of intangible assets................. 600 0 5,308 -- --
------- ------- -------- ------- -------
Total costs and expenses........................ 47,017 47,539 55,951 58,962 59,534
------- ------- -------- ------- -------
(12,940) (8,994) (16,466) (10,128) (582)
Gain on sale of assets and early termination
of capital leases............................. 226 3,294 124 270 138
Equity in earnings (losses) of partnerships..... 54 85 (51) 51 221
Interest and other income....................... 204 98 742 181 310
------- ------- -------- ------- -------
(Loss)/income before income taxes and
extraordinary item............................ (12,456) (5,517) (15,651) (9,626) 87
Income tax provision (benefit).................. 3 20 (7) (111) 63
------- ------- -------- ------- -------
(Loss)/income before extraordinary item......... (12,459) (5,537) (15,644) (9,515) 24
Extraordinary item.............................. 19,803 362 -- -- 1,964
------- ------- -------- ------- -------
Net income (loss)............................... $ 7,344 $(5,175) $(15,644) $(9,515) $ 1,988
======= ======= ======== ======= =======
Primary earnings per share:
Income (loss) before extraordinary item....... $ (2.96) $ (1.93) $ (5.46) $ (3.39) $ 0.01
Extraordinary item............................ 4.71 0.13 0.00 0.00 0.69
------- ------- -------- ------- -------
Net income (loss)............................. $ 1.75 $ (1.80) $ (5.46) $ (3.39) $ 0.70
======= ======= ======== ======= =======
Fully diluted earnings per share:
Income (loss) before extraordinary item....... $ (2.96) $ (1.93) $ (5.46) $ (3.39) $ 0.01
Extraordinary item............................ 4.71 0.13 0.00 0.00 0.69
------- ------- -------- ------- -------
Net income (loss)............................. $ 1.75 $ (1.80) $ (5.46) $ (3.39) $ 0.70
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
DECEMBER 31,
---------------------------------------------------
1995(2) 1994 1993(1) 1992 1991
-------- -------- -------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital deficiency................... $ (6,793) $(33,369) $(56,518) $(33,244) $(3,960)
Total assets................................. 31,345 47,222 50,179 61,440 75,723
Current portion of long-term debt and
obligations under capitalized leases....... 8,720 11,214 26,635 15,288 10,366
Long term debt and obligations under
capitalized leases less current portion.... 26,125 24,244 3,106 19,792 30,950
Senior subordinated notes.................... 773 18,467 18,788 18,788 18,788
Stockholders' equity (Net capital
deficiency)................................ $(10,576) $(22,341) $(17,754) $ (2,151) $ 7,192
</TABLE>
- ---------------
(1) In August 1993, ASHS incorporated a new wholly-owned subsidiary, American
Shared Radiosurgery Services ("ASRS"). Accordingly, the financial data for
the Company presented above include the results of the establishment of the
subsidiary for 1993 through 1995.
(2) In June 1995, ASHS incorporated a new wholly-owned subsidiary, African
American Church Health And Economic Services, Inc. ("ACHES") and ACHES'
wholly-owned subsidiary, ACHES Insurance Services, Inc. ("AIS"), and in
October 1995, entered into an operating agreement granting ASRS an 81%
ownership interest in GK Financing, LLC. Accordingly, the financial data for
the Company presented above include the results of the establishment of
ACHES, AIS, and GK Financing, LLC for 1995.
13
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of 1995 to 1994
MEDICAL SERVICES REVENUES
Medical services revenues of $34,077,000 for the year ended December 31,
1995 represent an 11.6% decline compared to medical services revenues of
$38,545,000 for the prior year.
In 1995, revenues from MRI increased $2,413,000 or 11% compared to the
prior year and constituted 73% of medical services revenues compared to 59% in
1994. 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 39 new customer contracts as of
December 31, 1995 compared to December 31, 1994.
CT revenues declined $453,000 or 11% compared to the prior year due to the
operation of two fewer scanners and lower revenue generation from mobile routes
and constituted 10% of medical services revenues in 1995. Nuclear medicine and
ultrasound revenues decreased $1,220,000 from those for the year ended December
31, 1994 because of the 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. Non-MRI diagnostic imaging services
constituted 19% and 21% of total medical services revenues in 1995 and 1994,
respectively.
Respiratory therapy services revenues decreased $5,124,000 for the year
ended December 31, 1995 compared to the prior year due to the sale of eight
respiratory therapy contracts and the respiratory registry in December 1994 and
the termination of five contracts in 1995.
Gamma Knife revenues remained constant for the year ended December 31, 1995
compared to the prior year. Gamma Knife revenues are currently not a significant
component of the Company's revenues.
COST OF OPERATIONS
Total Cost of Operations decreased $1,470,000 for the year ended December
31, 1995 compared to the prior year. This resulted primarily from decreases in
medical services payroll and maintenance and supplies which was a result of the
sale of most of the Company's respiratory therapy contracts and was partially
offset by a write-down of equipment and an increase in equipment rental expense.
Medical services payroll, the largest routine component of total cost of
operations, decreased $3,300,000 for the year ended December 31, 1995 compared
to the prior year. The decrease is primarily attributable to the Company's sale
of certain respiratory contracts and the respiratory registry in December 1994
and the related personnel reductions. Maintenance and supplies decreased
$1,042,000 for the year ended December 31, 1995 compared to the prior year. The
decrease is primarily attributable to pricing reductions on MRI maintenance
contracts achieved by the Company. Another factor was a decrease in supply usage
associated with the sale and termination of respiratory therapy contracts.
Depreciation and amortization decreased $1,202,000 for the year ended December
31, 1995 compared to the prior year. The decrease is primarily attributable to
the adoption of Financial Accounting Standards No. 121 (FAS 121) during the
second quarter of 1995 as explained in further detail below. In addition, the
majority of capital leases were extended as of October 1, 1995 thereby extending
the depreciable life of the asset (as leased assets are depreciated based on
lease terms) and decreasing depreciation expense in the fourth quarter of 1995.
Equipment rental increased $1,228,000 for the year ended December 31, 1995
compared to the prior year. The increase is primarily attributable to the
commencement of five short term rentals during 1995. Other operating costs
decreased $979,000 for the year ended December 31, 1995 compared to the prior
year. The decrease is attributable to a significant reduction in regional office
administrative costs, property related and bad debt costs.
In connection with the early adoption of 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. 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
customers and equipment and reduced forecasted operating results for certain
assets to a level below previous expectations. Following its review,
14
<PAGE> 18
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 estimated remaining 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 of
such assets as determined by third parties and the recorded values. 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 increased $2,461,000 for the year ended
December 31, 1995 compared to the prior year. The increase is primarily
attributable to stock compensation expense totalling $2,679,000, which is
comprised of shares and options issued to the Company's Chairman and Chief
Executive Officer, Ernest A. Bates, M.D. Salary and wage expense was charged
$265,000 in the second quarter of 1995 for the issuance of 184,000 common shares
to Dr. Bates for his continued service to the Company and his personal guarantee
of $6,500,000 of indebtedness of the Company. In addition, during the fourth
quarter of 1995, a charge to salary and wage expense of $2,414,000 was recorded
in connection with the grant to Dr. Bates, following shareholder approval of an
option to acquire 1,495,000 additional Common Shares for $0.01 per share 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. See "Liquidity
and Capital Resources."
INTEREST EXPENSE
Interest expense decreased $2,113,000 for the year ended December 31, 1995
compared to the prior year. The decrease is primarily attributable to the Notes
Repurchase on May 17, 1995 (see "Liquidity and Capital Resources") and the
maturation of existing equipment leases and long-term debt. The decrease was
partially offset by the issuance on May 17, 1995 of Warrants to the Company's
primary equipment lessor, which resulted in a charge to interest expense of
$167,000. See "Liquidity and Capital Resources."
GAIN ON SALE OF ASSETS
Gain on sale of assets decreased $3,068,000 for the year ended December 31,
1995 compared to the prior year. The Company sold certain of its respiratory
therapy contracts and respiratory registry as of December 31, 1994 on terms that
resulted in a gain of $3,199,000. There were no material asset sales during
1995.
WRITE-DOWN OF INTANGIBLE ASSETS
Write-down of intangible assets increased $600,000 for the year ended
December 31, 1995 compared to the prior year. The increase is solely
attributable to the adoption of FAS 121 in the second quarter of 1995. See "Cost
of Operations."
EQUITY IN EARNINGS OF PARTNERSHIP
Equity in earnings of partnerships decreased $31,000 for the year ended
December 31, 1995 compared to the prior year due primarily to lower equipment
utilization on the partnership's two CT scanners during 1995.
INTEREST AND OTHER INCOME
Interest and other income increased $106,000 for the year ended December
31, 1995 compared to the prior year. The largest component of the increase was
the settlement of litigation related to a respiratory therapy contract included
in the December 31, 1994 sale.
15
<PAGE> 19
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
The Company had a loss before income taxes and extraordinary item of
$12,456,000 for the year ended December 31, 1995 compared to a loss of
$5,517,000 for the prior year. Included in the Company's loss for 1995 was a
charge of $4,425,000 due to adoption of FAS 121 and stock compensation expense
of $2,679,000.
NET INCOME
The Company had net income of $7,344,000 for the year ended December 31,
1995 compared to a loss of $5,175,000 for the prior year. The Company's net
income for 1995 included an extraordinary gain of $19,803,000 from its debt
restructuring recorded on May 17, 1995. The gain resulted from the purchase of
$17,694,000 aggregate face amount plus $8,853,000 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, $1,836,000 and $1,015,000,
respectively.
Comparison of 1994 to 1993
MEDICAL SERVICES REVENUES
Medical services revenues decreased 2.4% in 1994 compared to 1993. The 2.4%
decrease in 1994 was caused primarily by an 18% decrease ($1,398,000) in
respiratory therapy revenues in 1994.
MRI revenues increased 11% ($2,223,000) in 1994 compared to 1993. 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
which were partially offset by 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% and 52% in years 1994 and 1993, respectively.
The Company's non-MRI diagnostic imaging services revenues declined 19%
($1,905,000) in 1994 compared to 1993. The decline was attributable to decreased
CT revenue from the reduction in the CT fleet by two scanners in 1994, lower
revenue generated on mobile routes, reductions in per study wholesale prices and
competition. The Company was required 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 from 1993 revenues of $5,186,000. In addition,
nuclear medicine and ultrasound revenues decreased in 1994 compared to 1993, 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. The
decrease in nuclear medicine and ultrasound revenues was $735,000 in 1994 from
1993 revenues of $4,737,000. Non-MRI diagnostic imaging services revenues as a
percentage of total medical services revenues was 21% and 25% for the years
ended 1994 and 1993, respectively. The Company on December 31, 1994 sold two
ultrasound contracts as a part of its respiratory therapy contract sale.
Revenues from these contracts in 1994 was 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.
The Company on December 31, 1994 sold eight respiratory therapy department
contracts and its respiratory 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
16
<PAGE> 20
costs, insurance, property taxes, bad debt expense, fees and training expenses),
and write-down of equipment decreased $2,926,000 in 1994 compared to 1993.
Medical services payroll costs decreased by $1,158,000 in 1994 compared to
1993 and remained constant as a percent of medical services revenues (27% in
1994, 29% in 1993). 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.
The Company's maintenance and supplies costs were 20% and 19% of medical
service revenues in 1994 and 1993, respectively. Maintenance and supplies costs
increased $377,000 in 1994 compared to 1993. The increase in 1994 was primarily
attributable to equipment aging and additional equipment utilization. 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
and 13% in 1993. 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.
Other costs of operations as a percentage of medical services revenue was
13% in both 1994 and 1993. In the fourth quarter of 1993, the Company wrote-down
the carrying value of certain equipment to estimated net realizable value which
reflects its future estimated income producing capacity. 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.
SELLING AND ADMINISTRATIVE COSTS
The Company's selling and administrative costs decreased $849,000 in 1994
compared to 1993. 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.
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.
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.
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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.
INCOME TAX PROVISION
The 1994 and 1993 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.
BALANCE SHEET DATA
Liquidity and Capital Resources
The Company had cash and cash equivalents of $452,000 at December 31, 1995
compared to $1,225,000 at December 31, 1994. The Company's cash position
decreased in 1995 because the Company's cash flow was insufficient to meet its
debt and capital lease obligations.
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 a broad restructuring of 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 Notes in the principal amounts of
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approximately $2,000,000 and $500,000, respectively. As amended, the GE Notes
bear interest at an annual rate of 5% and 10.5%, respectively, payable in
arrears, and will mature in February 2002 and on January 1, 2000, respectively.
After November 1995, the principal balances of the GE Notes amortize in 75 equal
monthly installments until maturity. The GE Notes are secured by a lien on the
accounts receivable of CuraCare and AS-C and a lien on two CT units and one
Ultrasound unit.
On December 29, 1995 and March 1, 1996, the Company further restructured
certain of its medical equipment leases and the GE Notes to extend the terms of
the leases for periods of up to an additional 26 months, to defer certain
monthly lease payments and to defer certain installment payments on the GE Notes
in the beginning of 1996. This further restructuring results in payment
reductions of approximately $1,200,000 for the Company in 1996.
In connection with the issuance of GE Notes, the Company issued the GE
Warrants to purchase an aggregate of 225,000 Common Shares for $0.01 per share.
Effective March 5, 1996, 97,853 of the GE Warrants were exercised to purchase
97,853 Common Shares.
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 then fully diluted Common Shares), and Warrants for
an additional 314,000 Common Shares (equal to approximately 5% of the then 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.
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 and inventory and certain accounts receivable
of AS-C CuraCare and is guaranteed by Dr. Bates and ASHS. The proceeds of the
Term Loan and New Revolver were used to repurchase the Subordinated Notes,
refinance certain equipment and provide working capital. As of January 31, 1996,
the lender under the New Revolver was replaced by an affiliate under
substantially identical terms. 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, certain equipment, inventory and general intangibles, is guaranteed
by Dr. Bates and ASHS, and had a balance of $3,446,000 as of February 29, 1996.
The Company had additional borrowing capacity under the New Revolver, based on
its eligible accounts receivable valuation, of $554,000 at February 29, 1996.
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
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outstanding shares and the Selling Securityholders received additional Common
Shares and Warrants to maintain their respective fully diluted ownership of the
Common Shares.
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 capital lease payments and operating lease payments during the 12
months ending December 31, 1996 are $8,313,000 and $834,000, respectively, with
related maintenance commitments of approximately $1,847,000. Scheduled interest
and principal payments under the Company's other debt obligations during such
period are approximately $4,824,000. In order to generate sufficient cash to
satisfy these obligations as they become due, the Company's management will do
the following: (i) continue to implement its program of expense reductions; (ii)
identify and sell non-essential assets; (iii) negotiate favorable concessions
from major creditors; (iv) enhance revenues by increasing customer contracts and
equipment utilization; and (v) offer to exchange equity in the Company for
interest bearing debt. There can be no assurance that these measures will
generate sufficient cash to enable the Company to meet its scheduled
obligations. Any inability of the Company to meet its obligations when due would
result in a default which could permit the relevant obligor to accelerate the
obligation and seek other remedies including seizure of the Company's medical
imaging equipment. In such event, the Company would be forced to seek a
liquidation under Chapter 7 or a reorganization under Chapter 11 of the United
States Bankruptcy Code.
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BUSINESS
GENERAL DEVELOPMENT
The Company provides shared diagnostic imaging services and radiotherapy
services to approximately 220 hospitals, medical centers and medical offices
located in 22 states. The four principal diagnostic imaging services provided by
the Company are Magnetic Resonance Imaging (MRI), Computed Axial Tomography
Scanning (CT), Ultrasound, and Nuclear Medicine. Radiotherapy services are
performed by the Company through its subsidiary, GK Financing, LLC, a California
limited liability company ("GKF"), which provides Gamma Knives to two major
university medical centers.
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 ("ASRS"), 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
registry for approximately $4,000,000 in cash plus the assumption by the buyer
of $300,000 in liabilities.
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 states of California and New York.
On October 17, 1995, ASHS, through its wholly owned subsidiary, ASRS and
Elekta AB, through its wholly owned United States subsidiary, GKV Investments,
Inc., a Georgia corporation ("GKV"), entered into an agreement to form GKF to
provide alternative financing of Elekta Gamma Knife units in the United States
and Brazil. See "Gamma Knife Joint Venture."
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 diagnostic procedure 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 220 health care providers including hospitals, clinics and
physicians' offices located in 22 states. 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 have contracted for its
services. The Company, to a significantly lesser extent, bills patients directly
or relies on third party reimbursement.
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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 19%, 21%, and 25% in 1995,
1994 and 1993, respectively. Following the sale of a substantial portion of its
respiratory therapy contracts in December 1994 and contract terminations during
1995, the portion of the Company's revenues provided by non-MRI diagnostic
imaging services has declined. 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 33 MRI units operating at December
31, 1995, 25 of such units are 1.5 Tesla units, four are 1.0 Tesla units, and
four are 0.5 Tesla units. All 33 of the MRI units are mobile or transportable.
The Company had 143 MRI customers at December 31, 1995 compared to 104 customers
as of December 31, 1994. MRI revenues constitute 73%, 59% and 52% of total
medical services revenues in years 1995, 1994 and 1993, 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 were approximately
10%, 10% and 13% of medical services revenues in 1995, 1994 and 1993,
respectively.
Ultrasound and Nuclear Medicine. The Company owns and operates
approximately 25 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
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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 8% of medical services revenues
in 1995 and 10% and 12% in 1994 and 1993, 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 a 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 (the
"Promissory Note"). 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 entitled ASHS to purchase the Gamma Knife from its
Chairman and Chief Executive Officer. This option was assigned by ASHS to its
subsidiary, GKF, through ASRS and was exercised to purchase the Gamma Knife on
February 3, 1996. Upon exercise of the option, GKF assumed obligations of the
Company relating to the Gamma Knife. Additionally, in connection with GKF's
exercise of the option to acquire the Gamma Knife, the Promissory Note was
cancelled. The Gamma Knife became operational on August 3, 1994.
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 GKF. Pursuant to the operating agreement, as amended,
the Company contributed its Gamma Knife and related assets to GKF in exchange
for an 81% ownership interest held by ASRS in GKF. GKV contributed cash for a
19% ownership interest in GKF and loaned 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. GKF's primary business will be to provide financing on
a fee-
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for-service basis. The results of operations of GKF will be included in the
consolidated financial statements of the Company.
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 to upgrade existing equipment or 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. Revenues for all contracts and
contract amendments is recognized as earned based upon services provided for
each monthly period.
The Company employed at the end of 1995 nine sales and marketing and four
regional 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 or 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, some of which may have greater
financial resources than those of the Company, and from equipment manufacturers,
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
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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
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
25
<PAGE> 29
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 December 31, 1995, the Company employed approximately 194 employees on a
full-time basis and approximately 135 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's corporate offices are located at Four Embarcadero Center,
Suite 3620, San Francisco, California where it leases 2,996 square feet for
$8,122 per month. This lease runs through September 1999.
The Company also leases office and warehouse space in Modesto, California.
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, 1995, the Company's aggregate net rental
expenses for all properties and equipment was approximately $3,458,000.
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 The 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 $1.25 at March 27, 1996. 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 The 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, 1994...................................... 31/2 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
September 30, 1995.................................. 25/8 1 3/8
December 31, 1995................................... 111/16 1 1/4
</TABLE>
The Company estimates that there were approximately 1700 beneficial holders
of its Common Shares as of December 31, 1995.
The Company did not pay cash dividends in 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 March 5, 1996 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 59
years old.
WILLIE R. BARNES has been a director and Corporate 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. He also is a director of Franchise Finance Corporation of
America. Mr. Barnes is 64 years old.
MATTHEW HILLS became a director of the Company effective February 16, 1996
and has been the Chief Planning Officer for The Berkshire Group, a healthcare
and financial services company, since 1993. From 1990 to 1993, Mr. Hills was a
Manager and Consultant at the LEK Partnership. Prior to joining LEK, Mr. Hills
was an associate in the Corporate Finance Department at Drexel Burnham Lambert
from 1987 to 1990. Mr. Hills graduated from Brandeis University in 1981 and from
Harvard Business School in 1987 and is 36 years old. Mr. Hills was nominated to
serve on the Board of Directors by the Selling Securityholders.
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
and from the Board of Directors of Morgan Guaranty Trust Co. New York. He also
is a Director of Bethlehem Steel Corporation; a Director of J.P.M. Advisor
Funds; a Director of Trident Corp.; and a Trustee of The Johns Hopkins
University. 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 59 years old.
STANLEY S. TROTMAN, JR., became a director of the Company effective
February 16, 1996. He has been a Managing Director with the Health Care Group of
PaineWebber, an investment banking firm, since 1995 following the consolidation
of Kidder, Peabody, also an investment banking firm, with PaineWebber, and had
previously co-directed Kidder, Peabody's Health Care Group since April 1990.
Formerly he had been head of the Health Care Group at Drexel Burnham Lambert,
Inc. where he had been employed for approximately 22 years. He received his
undergraduate degree from Yale University in 1965 and holds an M.B.A. from
Columbia Business School in 1967. Mr. Trotman is 52 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. He is a director of Orthologic Corporation. 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 and March 8, 1996 to present, has held
the position of the Chief of its Department of Neurosurgery. Dr. Wilson is 66
years old.
29
<PAGE> 33
EXECUTIVE OFFICERS
The following table provides certain information, as of March 5, 1996,
concerning those persons who serve as executive officers of the Company. The
executive officers were appointed by the Board of Directors and serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------- --- --------------------------------------------------
<S> <C> <C>
Ernest A. Bates, M.D. 59 Chairman of the Board of Directors, Chief
Executive Officer and Acting President and Chief
Operating Officer
James A. Gordin 45 Acting Chief Financing Officer
Craig K. Tagawa 42 Senior Vice President
Richard Magary 55 Senior Vice President -- Administration, Assistant
Secretary
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.
JAMES A. GORDIN has served as Vice President and Acting Chief Financial
Officer of the Company since November 1, 1995. From October 1987 through October
1995, he was Vice President-Finance of the Company. From June 1985 through
September 1987, Mr. Gordin was Vice President and Chief Financial Officer of
CuraCare, Inc., then a wholly-owned subsidiary of National Medical Enterprises,
Inc. (now Tenet Healthcare Corporation), an owner and operator of hospitals and
other healthcare businesses. Mr. Gordin joined CuraCare, Inc. in September 1983,
as Controller. He is a graduate of California State University Stanislaus, and
is a Certified Public Accountant.
CRAIG K. TAGAWA has served as Chief Financial Officer from January 1992
through October 1995. Previously a Vice President in such capacity, Mr. Tagawa
became a Senior Vice President on February 28, 1993. He is also the Chief
Executive Officer of GKF. 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, an owner and operator of hospitals and other
health care businesses. Mr. Tagawa received his Undergraduate degree from the
University of California at Berkeley and his M.B.A. from Cornell University.
RICHARD MAGARY has served as Senior Vice President -- Administration since
February 28, 1993 and Assistant Secretary since 1985. 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.
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.
30
<PAGE> 34
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.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company for the
fiscal years ending December 31, 1993, December 31, 1994 and December 31, 1995
and paid in those years for services rendered in all capacities during 1993,
1994 and 1995, respectively, to the Chief Executive Officer and each executive
officer other than the Chief Executive Officer who served as an executive
officer at December 31, 1995 and earned cash compensation of $100,000 or more
during 1995.
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).......... 1995 $ 223,253 -- -- 1,495,000
Chairman of the Board, 1994 $ 225,218 -- -- --
Chief Executive Officer 1993 $ 235,010 -- -- --
Craig K. Tagawa(4).......... 1995 $ 129,328 $26,003 -- 90,000
Senior Vice President 1994 $ 119,426 -- -- --
1993 $ 122,237 -- -- --
David Neally................ 1995 $ 99,161 $48,076 -- 45,000
Senior Vice President 1994 $ 92,827 $17,322 -- --
Operations 1993 $ 73,692 $ 5,137 -- 8,250
Gregory Pape................ 1995 $ 265,745 -- -- 45,000
Senior Vice President 1994 $ 238,186 -- -- --
Sales and Marketing 1993 $ 196,177 -- -- 20,000
Richard Magary(3)........... 1995 $ 99,780 $ 9,927 -- 45,000
Senior Vice President 1994 $ 99,822 -- -- --
Administration 1993 $ 104,701 -- -- --
</TABLE>
- ---------------
(1) Each amount under this column includes amounts accrued in 1993, 1994 and
1995 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 and ASHS's Flexible Benefit Plan, a defined contribution
plan. Both plans are 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 1994 compared with 1993 reflects a 5% salary reduction,
effective February 6, 1994.
(4) 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 IN LAST FISCAL YEAR
The following table sets forth stock options granted in 1995 to each of the
Company's executive officers named in the Summary Compensation Table. The table
also sets forth the hypothetical gains that would exist for the options at the
end of their ten-year terms, assuming compounded rates of stock appreciation of
5% and 10%. The actual future value of the options will depend on the market
value of the Company's Common Shares.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL EXERCISE OR ASSUMED ANNUAL RATES
OPTIONS BASE PRICE OF STOCK PRICE APPRECIATION FOR
GRANTED TO MARKET OPTION TERM(1)
OPTIONS EMPLOYEES PRICE ON EXPIRATION ----------------------------------
NAME GRANTED IN FISCAL YEAR 1995 GRANT DATE DATE 0% 5% 10%
- ----------------- --------- ------------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest A. Bates,
M.D............ 1,495,000 86.4% $ 0.01/shares 8/15/05 $2,414,425 $3,946,800 $6,279,000
$1.625
Craig K.
Tagawa......... 90,000 5.2% $ 1.625/share 8/15/05 -- $92,250 $232,650
(2)
David Neally..... 45,000 2.6% $ 1.625/share 8/15/05 -- $46,125 $116,325
(2)
Gregory Pape..... 45,000 2.6% $ 1.625/share 8/15/05 -- $46,125 $116,325
(2)
Richard Magary... 45,000 2.6% $ 1.625/share 8/15/05 -- $46,125 $116,325
(2)
</TABLE>
(1) These amounts, based on assumed annually compounded appreciation rates of
0%, 5% and 10% as prescribed by Securities and Exchange Commission rules,
are not intended to forecast possible future appreciation, if any, of the
Company's stock price. The Company did not use an alternative formula for a
grant date valuation of the options as it is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown or volatile factors.
(2) All such options were granted pursuant to the Company's 1995 Stock Option
Plan and have an exercise price equal to the market price of a share of the
Company's Common Stock on the AMEX on the respective grant date.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The "Long-Term Incentive Plan Awards" ("LTIP Awards") table has been
omitted because no LTIP Awards made during 1995 to the Company's executive
officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized upon exercise of such options
during 1995, by the Company's executive officers named in the Summary
Compensation Table. The following table also sets forth the number of shares
underlying exercisable and unexercisable options held by such executive officers
on December 31, 1995.
32
<PAGE> 36
1984 AND 1995 STOCK OPTION PLANS
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END($)
ACQUIRED ON VALUE ----------------------------- ------------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------ ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ernest A. Bates,
M.D. ................ -- -- 1,495,000 -- $1,947,238(2) --
Craig E. Tagawa........ -- -- 125,000 -- (1) --
David Neally........... -- -- 50,050 4,950 (1) (1)
Gregory Pape........... -- -- 53,000 12,000 (1) (1)
Richard Magary......... -- -- 60,000 -- (1) --
</TABLE>
- ---------------
(1) The table does not include the aggregate gains that would have been realized
had those options been exercised on December 31, 1995, because the option
exercise varies for each option exercised the market price per Common Share
on such date.
(2) This percent is calculated by multiplying the number of Common Shares
underlying the options at December 31, 1995 by the market price per Common
Share on such date less the option exercise price.
STOCK OPTION PLANS
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, one advisor, and five
non-employee directors currently participate in the 1995 Plan. Any person who
beneficially owns more than 15% of the outstanding Common Shares will 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.
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
33
<PAGE> 37
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 Stock 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.
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 under the 1995 Plan,
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 granted to non-employee directors at 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
David Neally.................................... 45,000(1) 73,125
Senior Vice President -- Operations
Gregory Pape.................................... 45,000(1) 73,125
Senior Vice President -- Sales and Marketing
Richard Magary.................................. 45,000(1) 73,125
Senior Vice President -- Administration
Executive Group................................. 225,000(2) 365,625
Non-Executive Officer Group..................... 18,500(3) 30,063
Non-Executive Director Group (3 persons)........ 12,000(4) $ 19,500
</TABLE>
34
<PAGE> 38
- ---------------
(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 three 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. 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 and 1995, 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 fees during 1994 and 1995 to assist the Company with its
cash flow. The 1994 retainer fees were paid in February 1995. The Board has
approved the election by any director to receive a portion of his 1995 and 1996
retainer fees in Common Shares in an amount approximately equalling such fees
otherwise payable in cash. 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 1995, 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 fee amounts for 1996 will not change
from the 1994 and 1995 schedules.
EMPLOYMENT AGREEMENTS
The Company had no employment agreements with its directors or executive
officers in 1995.
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
35
<PAGE> 39
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. This option was
assigned to GKF and exercised on February 3, 1996. In connection with the
exercise of the option by GKF, the Promissory Note was cancelled.
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.
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 in 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. Augustus A. White, M.D. did not file a Statement of Changes of
Beneficial Ownership of Securities for a purchase of Common Shares occurring in
October 1995 within the required period following the transaction. The report
was filed on March 28, 1996. Ernest A. Bates, M.D. did not filed a Statement of
Changes in Beneficial Ownership for the 184,000 Common Shares issued to him in
May 1995. He filed 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 on November 10, 1995.
36
<PAGE> 40
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of March 5, 1996 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(5) CLASS(10)
------------------------------------------------------ ----------------------- ----------
<S> <C> <C>
Total Number of Shares................................ 6,662,101(6) 100.0%
Ernest A. Bates, M.D.(1).............................. 2,666,000(7) 45.7%
SunAmerica Inc.(2).................................... 128,066(2) 2.9%
SunAmerica Life Insurance Company(2).................. 277,473(2) 6.3%
Anchor National Life Insurance Company(2)............. 406,819 9.2%
Lion Advisors, L.P.................................... 384,195(8) 8.7%
1301 Avenue of the Americas
New York, NY 10019
AIF II, L.P........................................... 170,752(8) 3.9%
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars
Los Angeles, CA 90071
General Electric Company.............................. 225,000(9) 5.0%
c/o GE Medical Systems
20825 Swenson Drive
Waukesha, WI 53186
Willie R. Barnes(1)................................... 3,000(7) *
Matthew Hills(1)(3)................................... -- --
John F. Ruffle(1)(4).................................. 21,200 *
Stanley S. Trotman, Jr.(1)(3)......................... -- --
Augustus A. White, III, M.D.(1)....................... 15,000(7) *
Charles B. Wilson, M.D.(1)............................ 4,800(7) *
Craig K. Tagawa(1).................................... 127,600(7) 2.9%
Senior Vice President
David Neally(1)....................................... 52,800(7) 1.2%
Senior Vice President -- Operations
Richard Magary(1)..................................... 73,300(7) 1.7%
Senior Vice President -- Administration
Gregory Pape(1)....................................... 57,500(7) 1.3%
Senior Vice President -- Sales and Marketing
All Directors & Executive Officers as a Group (12 3,054,300(7)
persons)............................................ 49.4%
</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.
(2) Based on information contained in the Schedule 13D dated May 17, 1995, as
amended November 13, 1995 and March 11, 1996, 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
March 5, 1996, such entities were issued an additional
37
<PAGE> 41
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.
(3) Mr. Hills and Mr. Trotman were elected to the Board of Directors effective
February 16, 1996.
(4) Mr. Ruffle was elected to the Board of Directors effective May 18, 1995.
(5) 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.
(6) 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 March 5,
1996.
(7) Includes shares underlying options that are currently exercisable or which
will become exercisable within 60 days following March 5, 1996: Dr. Bates,
1,495,000; Mr. Barnes, 2,000 shares; Dr. White, 12,000 shares; Dr. Wilson,
4,800 shares; Mr. Tagawa, 125,000 shares; Mr. Neally, 51,700 shares; Mr.
Magary, 60,000 shares; Mr. Pape, 57,000 shares; and Directors and Executive
Officers as a group, 1,838,500 shares.
(8) Based on information contained in the Schedule 13D dated May 17, 1995, as
amended November 13, 1995 and November 27, 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.
(9) Represents immediately exercisable Warrants to acquire 127,147 Common
Shares and 97,853 Common Shares acquired upon exercise of Warrants
effective March 5, 1996.
(10) Shares that any person or group of persons is entitled to acquire upon the
exercise of options or warrants within 60 days after March 5, 1996, 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.
38
<PAGE> 42
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. Effective March 5, 1996, such Warrants were exercised to purchase 97,853
Common Shares. 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 1,290,853 Common Shares, the Noteholder Warrants and GE
Warrants and the 441,147 Common Shares underlying such unexercised 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 March 5,
1996, 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 13%
Anchor National Life Insurance Company..... 322,053 7% -0- 84,766 19%
SunAmerica Inc............................. 101,382 2% -0- 26,684 6%
Lion Advisors, L.P.(1)..................... 304,144 7% -0- 80,051 18%
AIF II, L.P.(2)............................ 135,174 3% -0- 35,578 8%
General Electric Company acting through GE
Medical Systems.......................... 97,853 2% 127,147 -0- 29%
Grace Brothers, Ltd........................ 105,385 2% -0- 27,737 6%
Upchurch Living Trust U/A/D 12/14/90....... 5,203 * -0- 1,370 *
</TABLE>
- ---------------
* less than one percent
(1) Represents shares held for the benefit of an investment account under
management over which Lion holds investment and voting power.
(2) The general partner of AIF II is Advisors, whose general partner is Apollo
Capital Management, Inc. Messrs. Leon Black and John Hannan, the directors
of Apollo Capital Management, Inc. disclaim beneficial ownership of all such
shares. Advisors is an affiliate of Lion.
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 30% of the 4,342,254 issued and outstanding Common Shares as of
March 5, 1996, and the Common Shares underlying the Warrants represent
approximately 9% of such issued and outstanding Common Shares plus those Common
Shares underlying the Warrants.
39
<PAGE> 43
DESCRIPTION OF SECURITIES
COMMON SHARES
The authorized capital stock of the Company consists of 10,000,000 Common
Shares, no par value. At March 5, 1996, 4,342,254 shares were issued and
outstanding and were held of record by 400 persons. The Company estimates there
were approximately 1700 beneficial holders of its Common Shares as of March 5,
1996. 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 the Common
Shares covered by this Prospectus and the Common Shares underlying the options
issued to Dr. Bates with the AMEX and The PSE with respect to the Securities.
See "Market Price of 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 1994 or 1995
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. Initially, an aggregate of 225,000 GE Warrants were issued at
an initial exercise price of $0.01 per share, of which 97,853 Warrants permitted
the purchase of up to 97,853 Common Shares to and including March 31, 1996.
After the exercise of the 97,853 GE Warrants effective March 5, 1996, the GE
Warrants entitle the registered holder thereof to acquire up to 127,147 Common
Shares at an exercise price of $0.01 per share 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 Warrants and the purchase of Common Shares for
which such GE Warrants are exercisable, the holder of the GE Warrants has no
right to vote such Common Shares on matters submitted to the shareholders of the
Company and has no right to receive dividends. Until such time, the holder of
the GE
40
<PAGE> 44
Warrants is not entitled, in respect of such GE Warrants, to share in the net
assets of the Company in the event of liquidation, dissolution or the winding up
of the Company's affairs.
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
41
<PAGE> 45
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 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 The 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
42
<PAGE> 46
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.
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, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, 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.
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<PAGE> 47
AMERICAN SHARED HOSPITAL SERVICES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors........................................................ F-2
Audited Consolidated Financial Statements
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 Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 48
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, 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
1995, 1994 and 1993 and has a significant working capital deficiency and a net
capital deficiency at December 31, 1995. 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.
As discussed in Note 3 to the financial statements, in 1995 the Company
adopted Financial Accounting Standards Board Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
ERNST & YOUNG LLP
February 20, 1996, except for Note 16,
as to which the date is March 8, 1996
Walnut Creek, California
F-2
<PAGE> 49
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 452,000 $ 1,225,000
Restricted cash............................................... 493,000 2,883,000
Receivables, less allowance for uncollectible accounts of
$1,448,000 ($1,424,000 in 1994):
Trade accounts receivable.................................. 6,251,000 6,183,000
Other...................................................... 202,000 537,000
Note receivable from officer............................... 57,000 54,000
----------- -----------
6,510,000 6,774,000
Inventories................................................... 67,000 146,000
Prepaid expenses and other current assets..................... 1,124,000 758,000
----------- -----------
Total current assets............................................ 8,646,000 11,786,000
Note receivable from officer, less current portion.............. 191,000 248,000
Property and equipment:
Land, buildings and improvements.............................. 1,560,000 2,351,000
Medical, transportation and office equipment.................. 7,453,000 9,670,000
Capitalized leased medical and transportation equipment....... 24,673,000 38,271,000
----------- -----------
33,686,000 50,292,000
Accumulated depreciation and amortization..................... 14,015,000 18,165,000
----------- -----------
Net property and equipment...................................... 19,671,000 32,127,000
Other assets.................................................... 1,462,000 943,000
Intangible assets, less accumulated amortization of $1,136,000
($1,386,000 in 1994).......................................... 1,375,000 2,118,000
----------- -----------
Total assets.................................................... $ 31,345,000 $ 47,222,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (net capital deficiency)
Current liabilities:
Accounts payable........................................... $ 3,524,000 $ 4,450,000
Accrued interest........................................... 170,000 8,497,000
Employee compensation and benefits......................... 1,175,000 1,210,000
Other accrued liabilities.................................. 1,077,000 1,317,000
Current portion of long-term debt.......................... 2,796,000 3,079,000
Current portion of obligations under capital leases........ 5,924,000 8,135,000
Senior subordinated notes.................................. 773,000 18,467,000
----------- -----------
Total current liabilities....................................... 15,439,000 45,155,000
Long-term debt, less current portion............................ 9,278,000 2,539,000
Obligations under capital leases, less current portion.......... 16,847,000 21,705,000
Deferred income taxes........................................... 164,000 164,000
Minority interest............................................... 193,000 --
Stockholders' equity (net capital deficiency):
Common stock, without par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 4,244,000 in 1995 and
2,867,000 in 1994.......................................... 10,635,000 8,795,000
Common stock options issued to officer........................ 2,414,000 --
Additional paid-in capital.................................... 930,000 763,000
Accumulated deficit........................................... (24,555,000) (31,899,000)
----------- -----------
Total stockholders' equity (net capital deficiency)............. (10,576,000) (22,341,000)
----------- -----------
Total liabilities and stockholders' equity (net capital
deficiency)................................................... $ 31,345,000 $ 47,222,000
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 50
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Medical services................................ $ 34,077,000 $38,545,000 $ 39,485,000
Costs and expenses:
Costs of operations:
Medical services payroll..................... 6,984,000 10,284,000 11,442,000
Maintenance and supplies..................... 6,766,000 7,808,000 7,431,000
Depreciation and amortization................ 8,302,000 9,504,000 7,715,000
Write-down of equipment...................... 3,825,000 -- 443,000
Equipment rental............................. 2,808,000 1,580,000 5,067,000
Other........................................ 3,990,000 4,969,000 4,973,000
Selling and administrative...................... 8,432,000 5,971,000 6,820,000
Interest........................................ 5,310,000 7,423,000 6,752,000
Write-down of intangible assets................. 600,000 -- 5,308,000
------------ ------------ ------------
Total costs and expenses.......................... 47,017,000 47,539,000 55,951,000
------------ ------------ ------------
(12,940,000) (8,994,000) (16,466,000)
Gain on sale of assets and early termination of
capital leases.................................. 226,000 3,294,000 124,000
Equity in earnings (losses) of partnerships....... 54,000 85,000 (51,000)
Interest and other income......................... 204,000 98,000 742,000
------------ ------------ ------------
Loss before income taxes and extraordinary item... (12,456,000) (5,517,000) (15,651,000)
Income tax expense (benefit)...................... 3,000 20,000 (7,000)
------------ ------------ ------------
Loss before extraordinary item.................... (12,459,000) (5,537,000) (15,644,000)
Extraordinary item -- gain on early extinguishment
of debt, net of income tax provision of $0 in
1995 and $7,000 in 1994......................... 19,803,000 362,000 --
------------ ------------ ------------
Net income (loss)................................. $ 7,344,000 $(5,175,000) $(15,644,000)
============ ============ ============
Primary earnings per share:
Loss before extraordinary item.................. $ (2.96) $ (1.93) $ (5.46)
Extraordinary item.............................. $ 4.71 $ .13 $ -
------------ ------------ ------------
Net income (loss)................................. $ 1.75 $ (1.80) $ (5.46)
============ ============ ============
Fully diluted earnings per share:
Loss before extraordinary item.................. $ (2.96) $ (1.93) $ (5.46)
Extraordinary item.............................. $ 4.71 $ .13 $ -
------------ ------------ ------------
Net income (loss)................................. $ 1.75 $ (1.80) $ (5.46)
============ ============ ============
Common shares and equivalents used in computing
per share amounts:
Primary...................................... 4,201,000 2,867,000 2,863,000
============ ============ ============
Fully diluted................................ 4,204,000 2,867,000 2,863,000
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 51
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON
STOCK OPTIONS ADDITIONAL
COMMON COMMON ISSUED TO PAID-IN ACCUMULATED
SHARES STOCK OFFICER CAPITAL DEFICIT TOTAL
--------- ----------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992...... 2,845,000 $ 8,754,000 $ -- $ 175,000 $(11,080,000) $ (2,151,000)
Issuance of common stock......... 22,000 41,000 -- -- -- 41,000
Net loss......................... -- -- -- -- (15,644,000) (15,644,000)
--------- ----------- ---------- -------- ------------ ------------
Balances at December 31, 1993...... 2,867,000 8,795,000 -- 175,000 (26,724,000) (17,754,000)
Issuance of warrants 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...... 2,867,000 8,795,000 -- 763,000 (31,899,000) (22,341,000)
Issuance of warrants to purchase
216,000 shares of common
stock......................... -- -- -- 180,000 -- 180,000
Issuance of warrants to purchase
127,147 shares of common
stock......................... -- -- -- 156,000 -- 156,000
Issuance of warrants to purchase
98,000 shares of common
stock......................... -- -- -- 81,000 -- 81,000
Stock issuance costs............. -- -- -- (250,000) -- (250,000)
Issuance of common stock to
officer....................... 184,000 265,000 -- -- -- 265,000
Issuance of common stock to
bondholders................... 1,193,000 1,575,000 -- -- -- 1,575,000
Issuance of common stock options
to officer.................... -- -- 2,414,000 -- -- 2,414,000
Net income....................... -- -- -- -- 7,344,000 7,344,000
--------- ----------- ---------- -------- ------------ ------------
Balances at December 31, 1995...... 4,244,000 $10,635,000 $ 2,414,000 $ 930,000 $(24,555,000) $(10,576,000)
========= =========== ========== ======== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 52
AMERICAN SHARED HOSPITAL SERVICES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................................... $ 7,344,000 $ (5,175,000) $(15,644,000)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Extraordinary gain, after income taxes................................. (19,803,000) (362,000) --
Gain on sale of assets................................................. (23,000) (3,294,000) (124,000)
Gain on early termination of capital leases............................ (203,000) -- --
Depreciation and amortization.......................................... 8,818,000 10,206,000 8,600,000
Write-down of equipment................................................ 3,825,000 -- 443,000
Write-down of intangible assets........................................ 600,000 -- 5,308,000
Equity in (earnings) losses of partnerships............................ (54,000) (85,000) 51,000
Compensation expense related to stock grants........................... 2,679,000 -- --
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash............................... 2,390,000 (2,883,000) --
Decrease (increase) in receivables................................... 264,000 (573,000) 1,573,000
Decrease in inventories.............................................. 79,000 201,000 177,000
Decrease (increase) in prepaid expenses and other assets............. (366,000) (64,000) 212,000
(Decrease) increase in accounts payable and accrued liabilities...... (674,000) (335,000) 8,881,000
------------ ------------ ------------
Net cash provided by (used in) operating activities........................ 4,876,000 (2,364,000) 9,477,000
INVESTING ACTIVITIES
Proceeds from sale of respiratory therapy contracts........................ -- 4,002,000 --
Deposit on Gamma Knives.................................................... (1,000,000) -- --
Refund of deposit on Gamma Knife........................................... -- 1,090,000 --
Proceeds from sale and disposition of equipment............................ 157,000 900,000 1,005,000
Increase in minority interest.............................................. 193,000 -- --
Payment for purchase of property and equipment............................. (226,000) (393,000) (354,000)
Note receivable to related party........................................... -- (290,000) --
Distributions received from partnerships................................... 55,000 58,000 27,000
Other...................................................................... 200,000 -- (401,000)
------------ ------------ ------------
Net cash (used in) provided by investing activities........................ (621,000) 5,367,000 277,000
FINANCING ACTIVITIES
Principal payments on long-term debt and obligations under capital
leases................................................................... (9,612,000) (4,357,000) (10,264,000)
Issuance of restructuring notes............................................ -- 2,486,000 --
Proceeds from issuance of common stock..................................... -- -- 41,000
Repayment of advance for equipment purchase................................ -- (800,000) --
Proceeds from loan agreement............................................... 7,000,000 -- --
Note payable from related party............................................ 1,300,000 -- --
Payment for repurchase of senior subordinated notes........................ (3,893,000) (64,000) --
Other...................................................................... 177,000 -- --
------------ ------------ ------------
Net cash used in financing activities...................................... (5,028,000) (2,735,000) (10,223,000)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents....................... (773,000) 268,000 (469,000)
Cash and cash equivalents at beginning of year............................. 1,225,000 957,000 1,426,000
------------ ------------ ------------
Cash and cash equivalents at end of year................................... $ 452,000 $ 1,225,000 $ 957,000
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid.............................................................. $ 3,625,000 $ 2,730,000 $ 1,613,000
============ ============ ============
Income taxes paid.......................................................... $ 82,000 $ 25,000 $ 27,000
============ ============ ============
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Purchases of equipment with lease financing................................ $ 1,342,000 $ 2,358,000 $ 5,100,000
(Decrease) increase in medical and capitalized lease equipment due to lease
restructuring............................................................ (480,000) 1,710,000 --
(Decrease) increase in capitalized lease obligations due to lease
restructuring............................................................ (480,000) 4,946,000 --
Decrease in accounts payable due to lease restructuring.................... -- 4,602,000 --
Decrease in capitalized lease obligations due to sale of respiratory
therapy contracts........................................................ -- (300,000) --
Accrued interest payable not paid as part of Senior Subordinated Notes
Repurchase............................................................... 8,853,000 -- --
Stock and warrants issued to bondholders as part of Senior Subordinated
Notes Repurchase......................................................... 1,836,000 588,000 --
Noncash portion of senior subordinated notes redemption.................... 13,801,000 257,000 --
</TABLE>
See accompanying notes.
F-6
<PAGE> 53
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BUSINESS AND BASIS OF PRESENTATION
Business
American Shared Hospital Services (the "Company") provides shared
diagnostic imaging services to hospitals located in approximately 22 states in
various geographic regions of the United States and to 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 in February 1996, acquired a second Gamma Knife
located in another major university medical center.
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, CuraCare, Inc. ("CuraCare"), MMRI, Inc., European
Shared Medical Services Ltd., American Shared Radiosurgery Services ("ASRS"),
African American Church Health and Economic Services, Inc. ("ACHES"), ACHES
Insurance Services, Inc. ("AIS") and its majority-owned subsidiary, GK
Financing, LLC.
On October 17, 1995, the Company through ASRS and Elekta AB (the
manufacturer of the Gamma Knife), through its wholly owned United States
subsidiary GKV Investments, Inc. ("GKV"), entered into an operating agreement
which formed GK Financing, LLC ("GKF"). GKF provides alternative financing of
Elekta Gamma Knife units in the United States and in Brazil. GKF will be the
preferred provider for Elekta AB of financing arrangements such as
fee-for-service lease arrangements.
In June 1995, ACHES and AIS were incorporated. AIS is a wholly owned
subsidiary of ACHES. ACHES is an integrated health service organization to
develop and promote the delivery of high quality healthcare services, primarily
to the African American community. AIS is an insurance agency qualified to sell
life, health, and disability insurance in the states of California and New York.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
The Company accounts for its investment in partnerships using the equity
method.
The Company faces severe competition from other providers of diagnostic
imaging services, some of which have greater financial resources than the
Company, and from equipment manufacturers, 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 current financial problems may
adversely affect its ability to obtain and retain certain profitable customer
contracts, and its current high debt burden may affect its ability to offer
technologically advanced equipment in the future. Due to the Company's financial
condition, the two stock exchanges which list the Company's stock have commenced
review procedures to determine whether the Company's common shares will remain
listed.
The Company leases substantially all of its medical equipment from one
primary provider.
Basis of Presentation
The Company has incurred net losses before extraordinary items of
$12,459,000, $5,537,000 and $15,644,000 in 1995, 1994 and 1993, respectively. At
December 31, 1995, the Company has a working capital deficiency of $6,793,000
and a net capital deficiency of $10,576,000. In addition, the Company will not
have sufficient cash resources to repay its debt obligations at maturity and
will be required to seek new financing. 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.
F-7
<PAGE> 54
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
These conditions raise 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.
Management's plans with regard to these operating issues include the
following: Continue to implement its program of expense reductions; identify and
sell non-essential assets; negotiate favorable concessions from major creditors;
enhance revenues by increasing customer contracts and equipment utilization; and
offer to exchange equity in the Company in place of interest bearing debt. It is
uncertain as to whether these events will occur, and if they do, the extent to
which they will address the Company's operating issues.
2. ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of the Consolidated Financial Statements of the Company
requires management to make estimates and assumptions that affect reported
amounts. These estimates are based on information available as of the date of
the financial statements. Actual results could differ from those estimates.
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. The Company maintains its cash in depository institutions which
offer varying levels of federal insurance. Restricted cash is not considered a
cash and cash equivalent for purposes of the Consolidated Statements of Cash
Flows.
Restricted Cash
Restricted cash represents cash limited as to use by a contractual
arrangement. Restricted cash at December 31, 1995 reflects cash that may only be
used for the operations of GK Financing, LLC. Restricted cash at December 31,
1994 represents cash pledged as collateral against borrowings under a now
extinguished loan agreement (see Note 7). This cash was used in 1995 to repay
the loan.
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. A
substantial portion of the Company's receivables collateralize its credit
facilities (see Note 7).
Accounting for Majority Owned Subsidiary
The Company accounts for GK Financing, LLC, as a consolidated entity due to
its majority ownership interest of 81%, which it acquired in exchange for its
contribution of assets with a net book value of $1,080,000 and fair value of
approximately $2,000,000 as of December 31, 1995. The increase between the net
book value and the fair value has been eliminated in consolidation. The minority
interest's 19% share of earnings (loss) is netted against "Equity in Earnings
(Losses) of Partnership" in the Statement of Operations.
F-8
<PAGE> 55
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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).
Property and Equipment
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (see Note 3). As a result of such adoption, property
and equipment is stated at cost, or the estimated fair value as determined by
third parties, if less, as of December 31, 1995. In 1994, property and equipment
was stated at cost, or estimated net recoverable value if less.
Depreciation is determined using the straight-line 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 mobile Magnetic
Resonance Imaging ("MRI") units, which include scanners and mobile vans.
Capitalized leased equipment is amortized over the term of the lease, which
range from 17 to 82 months. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life.
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 annually 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.
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.
Per Share Amounts
Per share information has been computed based on the weighted average
number of common shares and dilutive common share equivalents outstanding.
Stock Options
The Company currently follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. The Company intends to follow the provisions of APB 25 for future
years.
F-9
<PAGE> 56
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
Fair Value of Financial Instruments
The fair value of financial instruments approximate their recorded values
except as discussed below.
An estimate of the fair value of the Company's long-term debt would require
the use of a discounted cash flow analysis based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Management believes that the Company's creditors entered into the borrowing
arrangements as a result of the personal guarantees of an officer of the Company
and believes that the Company would be unable to obtain similar financing given
this fact and the current state of its financial matters. Accordingly,
management is unable, without incurring excessive costs, to estimate its
incremental borrowing rate, and considers estimation of fair value to be
impracticable.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
3. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
121 -- "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF"
In connection with the adoption of 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 revised future forecasted operating results for
certain assets to be 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
the provisions of FAS 121. An impairment loss of $4,425,000 was recorded as of
the second quarter of 1995 based on the differences between the fair value, as
determined by third parties, and the recorded values of certain assets. The
impairment loss is comprised of write-downs of equipment of $3,825,000
(primarily MRI, CT, nuclear medicine, and deferred assets); and a write-down of
goodwill of $600,000.
4. WRITE-DOWN OF INTANGIBLE ASSETS AND PROPERTY AND EQUIPMENT
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 medicine. Revenues and operating profits from CuraCare,
continued to decline 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 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
F-10
<PAGE> 57
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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.
Also during 1993, 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.
This write-down resulted in a charge to operations of $443,000 in 1993.
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
---------- --------
<S> <C> <C>
Deposit on Gamma Knives...................................... $1,000,000 $ --
Capitalized regulatory licensing fees........................ 70,000 212,000
Prepaid commissions.......................................... 114,000 --
Debt issuance costs, less accumulated amortization of $0 and
$950,000 in 1995 and 1994, respectively.................... -- 129,000
Purchased software, less accumulated amortization of $558,000
and $471,000 in 1995 and 1994, respectively................ 42,000 110,000
Investment in partnerships................................... 59,000 60,000
Capitalized stock issuance costs............................. -- 327,000
Other, less allowance of $0 in 1995 and $165,000 in 1994..... 177,000 105,000
---------- --------
$1,462,000 $943,000
========== ========
</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 "Senior Subordinated Notes") due in 1996. The Senior Subordinated
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 Senior
Subordinated Notes not previously exchanged, as described below, was reset to
16.5%.
Prior to the October 15, 1989 reset date, $2,140,000 of Senior Subordinated
Notes were exchanged into 14.75% senior subordinated notes due 1996. Except for
the interest rate, optional and mandatory redemption provisions of the Senior
Subordinated Notes and the fact that the 14.75% Senior Subordinated Notes were
not exchangeable, the terms of the 14.75% Senior Subordinated Notes are
substantially the same as the terms of the Senior Subordinated Notes. The
Company may redeem all or part of the Senior Subordinated Notes for 100% of the
principal amount, together with accrued and unpaid interest to the redemption
date.
F-11
<PAGE> 58
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
During 1995 and 1994, the Company repurchased certain of its Senior
Subordinated Notes resulting in extraordinary gains of $19,803,000 and $362,000
as follows:
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Principal amount of Notes repurchased....................... $17,694,000 $321,000
Accrued interest related to the Notes....................... 8,853,000 115,000
Unamortized debt issuance costs............................. (525,000) (3,000)
Stock and warrants issued to bond holders................... (1,836,000) --
Estimated tax liability..................................... -- (7,000)
Closing costs............................................... (490,000) --
----------- --------
23,696,000 426,000
Payment for repurchase...................................... (3,893,000) (64,000)
----------- --------
Extraordinary gain.......................................... $19,803,000 $362,000
=========== ========
</TABLE>
On May 12, 1995, the Company entered into a debt restructuring agreement
with four holders of $17,694,000 face value of its Senior Subordinated Notes. On
May 17, 1995, these Senior Subordinated Note holders 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. The remaining Senior Subordinated Noteholders hold $773,000 of the
notes as of December 31, 1995 and as a result of the restructuring, were paid
their past due accrued interest. In addition, the debt covenants were amended
which thereby cured the events of default on the Senior Subordinated Notes.
Concurrent with the closing of the Senior Subordinated Notes repurchase in
1995, the Company obtained three new credit facilities totaling $8,000,000 of
which $7,000,000 was originally drawn (see Note 7). Proceeds from the new credit
facilities were used as follows:
<TABLE>
<S> <C>
Repurchase of Senior Subordinated Notes.................................. $3,900,000
Reduction of other term debt............................................. 400,000
Closing costs............................................................ 570,000
Refinance of certain equipment........................................... 1,000,000
Payment of accrued and unpaid interest through April 15, 1995 to
remaining bondholders.................................................. 500,000
Working capital.......................................................... 630,000
----------
Total originally drawn................................................... $7,000,000
==========
</TABLE>
Closing costs include approximately $80,000 of loan origination fees which
have been capitalized.
F-12
<PAGE> 59
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Notes Issued in Conjunction with Lease Restructuring
Promissory note payable to primary provider of medical
equipment bearing interest at 4%, payable in 86 monthly
installments due in February 2002, secured by the
Company's accounts receivable and certain medical
equipment............................................... $ 1,976,000 $ 2,000,000
Promissory note payable to primary provider of medical
equipment bearing interest at 10.5%, payable in 60
monthly installments due in February 2000............... 404,000 481,000
Borrowings for Repurchase of Senior Subordinated Notes
Borrowings under $4 million Revolving Line of Credit
bearing interest at prime rate plus 5% (13.5% at
December 31, 1995) for repurchase of senior subordinated
notes maturing in May 1997.............................. 3,883,000 --
Borrowings under Term Loan for repurchase of senior
subordinated notes bearing interest at 15%, payable in
48 monthly installments due in June 1999................ 2,305,000 --
Gamma Knife loan payable to primary provider of medical
equipment bearing interest at 10.5%, payable in 40
monthly installments due in September 1998.............. 1,135,000 --
Borrowings under former loan agreement for repurchase of
senior subordinated notes (repaid in 1995).............. -- 2,883,000
Other Notes and Borrowings
Promissory note payable to related party, bearing interest
at prime rate plus 2% (10.5% at December 31, 1995)
$1,000,000 due in October 1996 and $300,000 due in
October 1997 (Note 15).................................. 1,300,000 --
Promissory note payable to related party in the amount of
$1,320,000, bearing interest at prime rate plus 2%
(10.5% at December 31, 1995) maturing in October 1997
for capital expenditures relating to GK Financing, LLC.
No amounts outstanding (Note 15)........................ -- --
Installment notes payable in monthly installments through
January 1999, bearing interest at 10.5% to 22%, secured
by certain medical equipment............................ 836,000 242,000
Promissory note payable bearing interest at 11.25%,
payable in 25 monthly installments due in July 1997..... 235,000 --
Other..................................................... -- 12,000
---------- ----------
12,074,000 5,618,000
Less current portion...................................... (2,796,000) (3,079,000)
---------- ----------
$ 9,278,000 $ 2,539,000
========== ==========
</TABLE>
Annual contracted maturities under the initial terms of long-term debt for
the five years after December 31, 1995 are as follows: $2,796,000 in 1996,
$6,043,000 in 1997, $1,695,000 in 1998, $868,000 in 1999, $350,000 in 2000 and
$322,000 thereafter.
The Company is severely limited by covenants in its credit agreements which
limit the Company's ability to merge with any other entity, to create
subsidiaries, to pay cash dividends, to repurchase stock for cash, incur
F-13
<PAGE> 60
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
additional indebtedness, or to change the status of the equipment acting as
collateral in such a way as to impair its value.
In addition, the Company has pledged substantially all of its liquid assets
and substantially all of its personal property to secure its existing debt.
Notes Issued in Conjunction with Lease Restructuring
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.
Borrowings for Repurchase of Senior Subordinated Notes
The repurchase of Senior Subordinated Notes was completed with the proceeds
of three new credit facilities: a new Revolving Line of Credit (the "New
Revolver"), a term loan, and a Gamma Knife Loan. Under the New Revolver, the
Company has 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%, 13.5% at December 31, 1995)
until maturity on May 31, 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 December 31, 1995,
the Company had drawn $3,883,000 under the New Revolver and, based on eligible
accounts receivable, had an additional $117,000 available under the facility.
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 lien on all of the Company's accounts receivable, certain equipment,
inventory and general intangibles. The New Revolver is personally guaranteed by
an officer of the Company.
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, inventory and certain real property of the Company and a second
priority lien on the Company'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. The Term Loan is also
guaranteed by an officer of the Company.
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
F-14
<PAGE> 61
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
effective September 17, 1995, and to extend the loan term to September 17, 1988,
to match renegotiated terms of the underlying customer contracts.
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 February 1995, 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. Proceeds from loans under the
agreement could only be used to repurchase the Company's senior subordinated
notes. Borrowings under the agreement bore interest at the prime rate plus 4%,
payable monthly.
On December 31, 1994, with the proceeds from the sale of certain of the
Company's respiratory therapy contracts (see Note 13), the Company deposited
$2,883,000 cash as collateral with the lender. On February 28, 1995, the cash
collateral was applied against the outstanding borrowings and this loan
agreement was terminated.
8. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Other -- net.................................................. $ (164,000) $ (164,000)
--------- ---------
Total deferred tax liabilities.................................. (164,000) (164,000)
Deferred tax assets:
Net operating loss carryforwards.............................. 6,400,000 9,960,000
Fixed assets.................................................. 2,900,000 1,800,000
Other -- net.................................................. 600,000 800,000
--------- ---------
Net deferred tax assets......................................... 9,900,000 12,560,000
Valuation allowance for deferred tax assets..................... (9,900,000) (12,560,000)
--------- ---------
Total deferred tax assets....................................... -- --
--------- ---------
Net deferred tax liabilities.................................... $ (164,000) $ (164,000)
========= =========
</TABLE>
The decrease in the valuation allowance during 1995 was $2,660,000.
The components of the provision (benefit) for income taxes consist of the
following:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
------------------ --------
1995 1994 1993
------ ------- --------
<S> <C> <C> <C>
Current:
Federal................................................ $ -- $ -- $ --
State.................................................. 3,000 27,000 (7,000)
Deferred (reduction):
Federal................................................ -- -- --
State.................................................. -- -- --
------ ------- -------
$3,000 $27,000 $ (7,000)
====== ======= =======
</TABLE>
F-15
<PAGE> 62
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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.
The provision (benefit) for income taxes as included in the consolidated
financial statements is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Income (loss) before extraordinary gain................ $3,000 $20,000 $(7,000)
Extraordinary gain..................................... -- 7,000 --
------ ------- -------
$3,000 $27,000 $(7,000)
====== ======= =======
</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) to
income (loss) before taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax, including tax on
extraordinary gain........................ $ 2,570,000 $(1,802,000) $(5,478,000)
Change in valuation allowance............... (2,660,000) 1,735,000
State income taxes (benefit), net of federal
benefit................................... 3,000 27,000 (7,000)
Amortization and write-down of intangible
assets.................................... 77,000 67,000 2,067,000
Limitation of net operating loss
carryback................................. -- -- 3,386,000
Other....................................... 13,000 -- 25,000
---------- ----------- -----------
$ 3,000 $ 27,000 $ (7,000)
========== =========== ===========
</TABLE>
At December 31, 1995, the Company has a net operating loss carryforward for
federal income tax return purposes of approximately $18,000,000 which expires
between 1999 and 2009. 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 $19,800,000 of the previous net
operating loss carryforward was used to offset the gain on early extinguishment
of the senior subordinated notes in May 1995.
9. STOCKHOLDERS' EQUITY
1984 Stock Option Plan
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 granted pursuant to the Plan
generally had lives of 10 years from the date of grant, subject to earlier
expiration in certain cases, such as termination of the grantee's employment.
On August 15, 1995, the Stock Option Committee of the Board of Directors
approved the amendment of the terms of substantially all options outstanding
under the Company's 1984 Stock 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 such
date.
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
F-16
<PAGE> 63
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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.
Approximately six employees, one advisor, and five non-employee directors
currently participate in the 1995 Plan. The 1995 Plan is administered by the
Stock Option Committee of the Board of Directors.
On August 15, 1995, the Stock Option Committee of the Board of Directors
approved the grant of 243,500 options under the Plan, subject to shareholder
approval. Additional grants of 12,000 were made to the Board of Directors under
the terms of the Plan. All such options are immediately exercisable at an
exercise price of $1.625 per share, which was the closing price of common shares
on such date.
Changes in options outstanding under the 1984 and 1995 Stock Option Plans
from December 31, 1992 to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
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 $ 1.38 - $7.50
Granted................................................ 256,000 $1.625
Exercised.............................................. -- --
Forfeited.............................................. (92,000) $ 3.00 - $7.125
-------
Options outstanding at December 31, 1995................. 420,000
Outstanding options exercisable at:
December 31, 1993...................................... 213,000 $ 1.38 - $7.50
=======
December 31, 1994...................................... 190,000 $ 1.38 - $7.50
=======
December 31, 1995...................................... 375,000 $ 1.38 - $1.625
=======
Options available for grant at December 31, 1995......... 74,000
=======
</TABLE>
Warrants Issued in Conjunction with Lease Restructuring
On December 30, 1994, as partial consideration for the financial
accommodations granted in the restructuring of the Company's lease obligations,
the Company issued immediately exercisable warrants to its primary provider of
leased equipment granting the right to purchase 97,853 common shares at a price
of $0.01 per share until March 31, 1996.
On May 17, 1995, simultaneous with the Notes repurchase (Note 6), the
Company issued additional warrants to its primary provider of leased equipment
granting the right to purchase 127,147 common shares at a price of $0.01 per
share until September 30, 1996.
F-17
<PAGE> 64
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
Options and Warrants Issued in Conjunction with Repurchase of Senior
Subordinated Notes
On May 17, 1995, simultaneous with the Notes repurchase (Note 6), the
Company issued 819,000 common shares (equal to approximately 20% of the
Company's then fully diluted common shares) and warrants to purchase 216,000
shares of common stock (equal to approximately 5% of the then fully diluted
common shares) to the holders of $17,694,000 face value of the Company's Senior
Subordinated Notes that were repurchased (the "ex-Noteholders"). The warrants
are immediately exercisable at $0.75 per share, expiring on May 17, 2002.
As a result of the additional options awarded to an officer of the Company,
the ex-Noteholders were granted 374,000 additional common shares and 98,000
additional warrants to purchase common shares, to maintain their ownership
interest at approximately 25% of the Company's then fully diluted common shares.
The warrants are immediately exercisable at $0.75 per share expiring on May 17,
2002.
Shares and Options Issued to Officer
Simultaneous with the Notes repurchase (Note 6), the Company's Chairman and
Chief Executive Officer, was issued an additional 184,000 shares of the
Company's common stock, which the Company has recorded as compensation expense
of $265,000. The common shares were granted to the officer in partial
consideration for a personal guarantee of $6.5 million of new credit facilities
and for continued employment with the Company.
In addition, on October 6, 1995, the officer was granted a ten-year
immediately exercisable option to purchase 1,495,000 common shares for an
exercise price of $0.01 per share which the Company has recorded as compensation
expense of $2,414,000. These options were granted to the officer as the final
consideration for personal guarantees of the new credit facilities and for
continued employment with the Company.
Capital shares reserved for future issuances total 2,529,000 shares at
December 31, 1995.
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 and applicable to the first 6% of each participant's salary. The
Company made no contributions to the plan in 1995, 1994 or 1993.
11. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases MRI units and other equipment under capital leases
having an aggregate net book value of $17,093,000 at December 31, 1995.
Amortization of assets recorded under capital leases is included with
depreciation expense, and is primarily amortized over the life of the lease.
On December 30, 1994 (effective as of November 1, 1994 for most leases that
were considered capital prior to that date and January 1, 1994 for operating
leases that were considered operating leases prior to that date) and again at
the end of 1995 the Company and its major provider of medical equipment entered
into a restructuring of the obligations of the Company under lease agreements.
Substantially all equipment financed by the Company under capital leases
was restructured and after restructuring continued to meet the criteria 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
F-18
<PAGE> 65
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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 met the criteria for capitalization, and were accounted for
as capital leases in the accompanying financial statements. Under all the
modified leases the Company is entitled to purchase the equipment at its fair
market value, or to extend the relevant lease, at the end of the lease term.
The modified leases, as identified above, were further restructured
effective October 1, 1995. No payments were required for the months of October
through December 1995. During these months interest was accrued and was added to
the outstanding principal balance of the capital leases. In addition, the leases
were extended up to an additional 26 months, where possible, to coincide with
the probable termination of the Company's end user contracts. After this
restructuring, the modified leases continue to meet the criteria to be accounted
for as capitalized leases. Under all the modified leases, the Company will be
entitled to purchase the equipment at its fair value or to extend the relevant
lease at the end of the lease term.
Future minimum lease payments, together with the present value of the net
minimum lease payments under capital leases at December 31, 1995, are summarized
as follows:
<TABLE>
<S> <C>
1996.................................................... $ 8,313,000
1997.................................................... 7,871,000
1998.................................................... 6,792,000
1999.................................................... 4,211,000
2000.................................................... 985,000
-----------
Net minimum lease payments.............................. 28,172,000
Less amounts representing interest...................... (5,401,000)
-----------
Present value of net minimum lease payments............. 22,771,000
Less current portion.................................... (5,924,000)
-----------
$16,847,000
===========
</TABLE>
In addition to the above capital lease payments, the Company is also
required to make repair, maintenance, and other lease related payments. These
payments vary primarily on the level and amount of repairs and service needed.
The estimated minimum payments under these agreements are approximately
$1,847,000, $1,820,000, $633,000, $253,000 and $59,000 from the years 1996 to
2000, respectively.
During 1995, 1994 and 1993, the Company financed approximately $1,342,000,
$2,358,000 and $5,100,000, respectively, of equipment purchases with capital
lease obligations. During 1995, 1994 and 1993, the Company incurred interest
costs of $5,310,000, $7,423,000 and $6,828,000, respectively, including
capitalized interest related to construction in progress of $-0- in 1995, $-0-
in 1994 and $76,000 in 1993.
12. 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 2000.
F-19
<PAGE> 66
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
Future minimum payments under noncancelable operating leases having initial
terms of more than one year consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996..................................................... $ 834,000
1997..................................................... 783,000
1998..................................................... 764,000
1999..................................................... 605,000
2000..................................................... 207,000
----------
$3,193,000
==========
</TABLE>
Payments for repair and maintenance agreements are included in the future
minimum operating lease payments shown above.
Rent expense was $3,458,000, $2,326,000 and $6,083,000 for the years ended
December 31, 1995, 1994 and 1993, respectively, and includes the above operating
leases as well as month-to-month rental and certain capital lease executory
costs.
13. 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 the operation of 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.
14. NOTE RECEIVABLE FROM OFFICER
At December 31, 1994, the Company had 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 in conjunction with the
note was $15,000 and $12,000 during 1995 and 1994, respectively.
15. COMMITMENTS AND CONTINGENCIES
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 (see 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 (see Note 16).
F-20
<PAGE> 67
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
On October 17, 1995, the Company through its 81% owned subsidiary, GK
Financing, LLC, entered into a quotation agreement to purchase four Gamma Knife
units from the equipment manufacturer. Under the terms of the quotation
agreement, the Company is committed to purchase this equipment for $11,744,000,
effective when the equipment is placed in service at a customer location. At
December 31, 1995, the Company had a $1,000,000 deposit related to this purchase
commitment which was classified as part of other assets. The equipment
manufacturer is a 19% owner of GK Financing, LLC, and provided the promissory
note payable of $1,300,000, $1,000,000 of which was subsequently used to make
the deposit on the equipment. Additionally, GK Financing, LLC signed another
promissory note for $1,320,000 with the equipment manufacturer to provide funds
for future capital expenditures. As of December 31, 1995 there have been no
borrowings under this note.
16. SUBSEQUENT EVENTS
Assignment and Exercise of Option to Purchase Gamma Knife
On February 3, 1996, the Company assigned its option to purchase the Gamma
Knife from the Chief Executive Officer (see Note 15) to its subsidiary GK
Financing, LLC; which then exercised the option to purchase the Gamma Knife.
Exercise of Warrants
The primary provider of leased equipment exercised 97,853 warrants at a
price of $.01 per share on March 5, 1996 (see Note 9).
Lease and Note Payable Restructuring
On March 1, 1996, the Company received an offer from its primary provider
of medical equipment to restructure certain of its capital lease obligations, as
well as its promissory note payable in the amount of $1,976,000 at December 31,
1995. The general terms of the restructuring provide for various months of no
payments in 1996 followed by increased payments in the latter part of the
agreements. The Company completed this restructuring on March 8, 1996.
F-21
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Risk Factors.......................... 3
The Company........................... 7
Financial Restructuring............... 8
Use of Proceeds....................... 11
Determination of Offering Price....... 11
Capitalization........................ 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 21
Properties............................ 27
<CAPTION>
PAGE
----
<S> <C>
Legal Proceedings..................... 27
Market Price of and Dividends on the
Common Shares....................... 28
Management............................ 29
Certain Relationships and
Related Transactions................ 33
Principal Shareholders................ 37
Selling Securityholders............... 39
Description of Securities............. 40
Plan of Distribution.................. 41
Legal Matters......................... 43
Experts............................... 43
Consolidated Financial Statements..... F-1
</TABLE>
<PAGE> 69
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.............................................. $ 1,000.00*
Printing................................................................ $ 30,000.00*
Accountants' fees and expenses.......................................... $ 90,000.00*
Legal fees and expenses................................................. $ 35,000.00*
Miscellaneous........................................................... $ 2,000.00*
-------------
-
Total......................................................... $176,431.70*
==============
</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> 70
(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
March 5, 1996........ 97,853 Common Shares (upon conversion of the GE Medical
97,853 Warrants issued on December 30, 1994)
</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. (See Exhibit 3.2 to this Registration
Statement on Form S-1, Registration No. 33-63721, filed on October 26, 1995)
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)
</TABLE>
II-2
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
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)
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 3,
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. (See Exhibit 4.4 to this Registration
Statement on Form S-1, Registration No. 33-63721, filed on October 26, 1995)
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. (See Exhibit 4.5 to this Registration Statement
on Form S-1, Registration No. 33-63721, filed on October 26, 1995)
4.6* Form of Common Stock Purchase Warrant held by Selling Noteholders of American
Shared Hospital Services. (See Exhibit 4.6 to this Registration Statement on
Form S-1, Registration No. 33-63721, filed on October 26, 1995)
4.7* Common Stock Purchase Warrant for shares of Common Stock of American Shared
Hospital Services held by General Electric Company, acting through GE Medical
Systems dated May 17, 1995. (See Exhibit 4.7 to this Registration Statement on
Form S-1, Registration No. 33-63721, filed on October 26, 1995)
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. (See Exhibit 4.8 to this Registration Statement on
Form S-1, Registration No. 33-63721, filed on October 26, 1995)
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. (See Exhibit 4.9 to this Registration Statement on Form S-1,
Registration No. 33-63721, filed on October 26, 1995)
4.10 Promissory Note, dated January 31, 1996, by American Shared-CuraCare and
CuraCare, Inc. in favor of DVI Business Credit Receivables 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. (See Exhibit 4.11 to this Registration Statement on Form S-1,
Registration No. 33-63721, filed on October 26, 1995)
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. (See Exhibit 4.12 to this Registration Statement on Form S-1,
Registration No. 33-63721, filed on October 26, 1995)
</TABLE>
II-3
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
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. (See Exhibit 4.13 to
this Registration Statement on Form S-1, Registration No. 33-63721, filed on
October 26, 1995)
4.14 Assignment and Assumption Agreement, dated as of December 31, 1995, between
American Shared Hospital Services (assignor) and American Shared Radiosurgery
Services (assignee).
4.15 Assignment and Assumption Agreement, dated as of December 31, 1995, between
American Shared Radiosurgery Services (assignor) and GK Financing, LLC
(assignee).
4.16 USC University Hospital Option Agreement, dated February 3, 1996, among
American Shared Hospital Services, Ernest A. Bates, M.D. and GK Financing,
LLC.
4.17 Assignment and Assumption Agreement, dated as of February 1, 1996, among
Ernest A. Bates, M.D. (assignor) and GK Financing, LLC (assignee).
4.18 Assignment and Assumption Agreement, effective as of February 3, 1996, among
Ernest A. Bates, M.D. (assignor) and GK Financing, LLC (assignee).
4.19 Promissory Note, dated January 1, 1995, by American Shared-CuraCare in favor
of General Electric Company, acting through GE Medical Systems, in the
principal sum of $2,000,000, as amended.
4.20 Promissory Note, dated December 30, 1994, by American Shared-CuraCare in favor
of General Electric Company, in the principal sum of $481,667.81, as amended.
5 Opinion of Sidley and Austin regarding legality of securities being
registered.
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 Statement No.
33-23416)
10.2* The Company's 1995 Stock Option Plan. (See Exhibit A to the Company's Proxy
Statement, filed on August 31, 1995)
10.3* Form of Indemnification Agreement between the Company 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 as amended. (See Exhibit 10.49 to
the Company's Annual Report on Form 10-K for fiscal year ended December 31,
1994)
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. (See Exhibit 10.5 to this Registration Statement on Form
S-1, Registration No. 33-63721, filed on October 26, 1995)
10.6 Loan and Security Agreement, dated as of January 31, 1996, among American
Shared-CuraCare and CuraCare, Inc., American Shared Hospital Services, Ernest
A. Bates, M.D. and DVI Business Credit Receivables 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. (See Exhibit 10.7 to this
Registration Statement on Form S-1, Registration No. 33-63721, filed on
October 26, 1995)
10.8 Form of Unconditional Continuing Guaranty of American Shared Hospital
Services.
</TABLE>
II-4
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
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
Receivables Corporation and General Electric Company, acting through GE
Medical Systems dated as of January 31, 1996.
10.11* Ernest A. Bates Stock Option Agreement dated as of August 15, 1995. (See
Exhibit B to the Company's Proxy Statement, filed on August 31, 1995)
10.12* Operating Agreement for GK Financing, LLC, dated as of October 17, 1995. (See
Exhibit 4.11 to this Registration Statement on Form S-1, Registration No.
33-63721, filed on October 26, 1995)
10.13 Amendments dated as of October 26, 1995 and as of December 20, 1995 to the GK
Financing, LLC Operating Agreement, 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, incorporated by reference to the signature page to this
Registration Statement.
27 Financial Data Schedule
</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
- --------------- ---------------------------------------
<C> <S>
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 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;
II-5
<PAGE> 74
(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-6
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-effective Amendment No. 1 to the 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 29th day of March, 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 Pre-effective Amendment No. 1 to the 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.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<C> <S> <C>
/s/ ERNEST A. BATES, Chairman of the Board March 29, 1996
M.D. and Chief Executive Officer
- ------------------------------------------
Ernest A. Bates, M.D.
- ------------------------------------------ Director and Secretary
Willie R. Barnes
/s/ MATTHEW Director March 29, 1996
HILLS
- ------------------------------------------
Matthew Hills
/s/ JOHN F. Director March 29, 1996
RUFFLE
- ------------------------------------------
John F. Ruffle
/s/ STANLEY S. TROTMAN, JR. Director March 29, 1996
- ------------------------------------------
Stanley S. Trotman, Jr.
/s/ AUGUSTUS A. WHITE, M.D. Director March 29, 1996
- ------------------------------------------
Augustus A. White, III, M.D.
/s/ CHARLES B. WILSON, M.D. Director March 29, 1996
- ------------------------------------------
Charles B. Wilson, M.D.
/s/ JAMES A. Acting Chief Financial Officer March 29, 1996
GORDIN (Principal Accounting Officer)
- ------------------------------------------
James A. Gordin
</TABLE>
II-7
<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, 1995 and 1994, and for each of the three
years in the period ended December 31, 1995, and have issued our report thereon
dated February 20, 1995, except for Note 6, as to which the date is March 8,
1996 (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
February 20, 1996
Walnut Creek, California
S-1
<PAGE> 77
SCHEDULE 5.02(4)
AMERICAN SHARED HOSPITAL SERVICES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED ADDITIONS ADDITIONS
BALANCE AT TO BALANCE AT CHARGED TO BALANCE AT CHARGED TO
DECEMBER 31, COSTS AND AMOUNTS DECEMBER 31, COSTS AND AMOUNTS DECEMBER 31, COSTS AND
1992 EXPENSES WRITTEN OFF 1993 EXPENSES WRITTEN OFF 1994 EXPENSES
------------ --------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance
for
uncollectible
accounts $(1,311,000 ) $(986,000) $1,154,000 $(1,143,000 ) $(1,101,000) $ 820,000 $(1,424,000 ) $(1,347,000)
<CAPTION>
BALANCE AT
AMOUNTS DECEMBER 31,
WRITTEN OFF 1995
----------- ------------
<S> <C> <C>
Allowance
for
uncollect
accounts $ 1,323,000 $(1,448,000 )
</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.(2) *
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.(3)
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.(4)
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.(5)
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.(6)
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.(7)
4.6 Form of Common Stock Purchase Warrant held by Selling Noteholders of *
American Shared Hospital Services.(8)
4.7 Common Stock Purchase Warrant for Shares of Common Stock of American *
Shared Hospital Services held by General Electric Company, acting
through GE Medical Systems dated May 17, 1995.(9)
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.(10)
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.(11)
4.10 Promissory Note, dated May 17, 1995, by American Shared-CuraCare and
CuraCare, Inc. in favor of DVI Business Credit Receivables 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.(12)
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.(13)
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.(14)
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------ ----------------------------------------------------------------------- -----------
<C> <S> <C>
4.14 Assignment and Assumption Agreement, dated as of December 31, 1995,
between American Shared Hospital Services (assignor) and American
Shared Radiosurgery Services (assignee).
4.15 Assignment and Assumption Agreement, dated as of December 31, 1995,
between American Shared Radiosurgery Services (assignor) and GK
Financing, LLC (assignee).
4.16 USC University Hospital Option Agreement, dated February 3, 1996, among
American Shared Hospital Services, Ernest A. Bates, M.D. and GK
Financing, LLC.
4.17 Assignment and Assumption Agreement, dated as of February 1, 1996,
among Ernest A. Bates, M.D. (assignor) and GK Financing, LLC
(assignee).
4.18 Assignment and Assumption Agreement, effective as of February 3, 1996,
among Ernest A. Bates, M.D. (assignor) and GK Financing, LLC
(assignee).
4.19 Promissory Note, dated January 1, 1995, by American Shared-CuraCare in
favor of GE Company, acting through GE Medical Systems, in the
principal sum of $2,000,000, as amended.
4.20 Promissory Note, dated December 30, 1994, by American Shared-CuraCare
in favor of General Electric Company, in the principal sum of
$481,667.81, as amended.
5 Opinion of Sidley and Austin regarding legality of securities being
registered.
10.1 The Company's 1984 Stock Option Plan, as amended.(15) *
10.2 The Company's 1995 Stock Option Plan.(16) *
10.3 Form of Indemnification Agreement between American Shared Hospital *
Services and members of its Board of Directors.(17)
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.(18)
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.(19)
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 Receivables 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.(20)
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 Receivables Corporation and General
Electric Company, acting through GE Medical Systems.
10.11 Ernest A. Bates Stock Option Agreement dated August 15, 1995.(21) *
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------ ----------------------------------------------------------------------- -----------
<C> <S> <C>
10.12 Operating Agreement for GK Financing, LLC, dated as of October 17, *
1995.
10.13 Amendments dated as of October 26, 1995 and as of December 20, 1995 to
the GK Financing, LLC Operating Agreement 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.(22) *
27 Financial Data Schedule.
</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 document was previously filed as Exhibit 3.2 to 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 4.1 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 4.2 to the registrant's
Registration Statement on Form S-2 (Registration No. 33-23416) and is
incorporated herein by this reference.
(5) 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.
(6) This document was previously filed as Exhibit 4.4 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(7) This document was previously filed as Exhibit 4.5 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(8) This document was previously filed as Exhibit 4.6 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(9) This document was previously filed as Exhibit 4.7 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(10) This document was previously filed as Exhibit 4.8 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(11) This document was previously filed as Exhibit 4.9 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(12) This document was previously filed as Exhibit 4.11 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(13) This document was previously filed as Exhibit 4.12 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(14) This document was previously filed as Exhibit 4.13 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(15) 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.
(16) This document was previously filed as Exhibit A to registrant's Proxy
Statement filed on August 31, 1995, and is incorporated herein by this
reference.
<PAGE> 81
(17) This document was previously 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.
(18) This document was previously filed as Exhibit 10.49 to this Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(19) This document was previously filed as Exhibit 10.5 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(20) This document was previously filed as Exhibit 10.7 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(21) This document was previously filed as Exhibit B to registrant's Proxy
Statement on August 31, 1995, and is incorporated herein by this reference.
(22) This document was previously filed as Exhibit 10.12 to this Registration
Statement on Form S-1 (Registration No. 33-63721) and is incorporated
herein by this reference.
(23) Incorporated by reference to the signature page of this Amendment No. 1 to
the Registration Statement on Form S-1 (Registration No. 33-63721).
<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 RECEIVABLES CORP. 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
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 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.
1
<PAGE> 2
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 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
2
<PAGE> 3
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 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 PENNSYLVANIA.
Dated: January 31, 1996
MAKER:
CURACARE, INC., a Delaware corporation
By: /s/ Ernest A. Bates, M.D.
-------------------------------------
Ernest A. Bates, M.D.
President
AMERICAN SHARED-CURACARE, a
California general partnership
By: American Shared Hospital
Services, general partner
By: /s/ Ernest A. Bates, M.D.
-------------------------------------
Ernest A. Bates, M.D.
President
3
<PAGE> 4
By: MMRI, Inc., general partner
By: /s/ Ernest A. Bates, M.D.
-------------------------------------
Ernest A. Bates, M.D.
President
4
<PAGE> 1
Exhibit 4.14
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made as of the 1st day of November
1995 by and between AMERICAN SHARED HOSPITAL SERVICES, a California
corporation, ("Assignor") and AMERICAN SHARED RADIOSURGERY SERVICES, a
California corporation ("Assignee").
RECITALS:
A. Assignee is a wholly-owned subsidiary of Assignor.
B. Assignor desires to Assign to Assignee that contract
between the Regents of the University of California dated July 3, 1990 and
amended August 1, 1995, a full copy of which is attached here as Exhibit A (the
"Contract").
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
premises and mutual covenants herein contained, the parties hereby agree as
follows:
1. ASSIGNMENT. Assignor hereby grants, conveys, transfers and
assigns to Assignee, its successors and assigns, all of Assignor's rights,
title and interest under, in and to the Contract:
2. ASSUMPTION OF LIABILITIES. Assignee hereby accepts the
grant, conveyance, transfer and assignment by Assignor to Assignee, its
successors and assigns, of all of Assignor's rights, title and interest under,
in and to the Contract, and hereby assumes and agrees to perform and discharge
all of Assignor's executory obligations arising under the Contract (the
"Assumed Contract Liabilities").
3. NO ASSUMPTION OF OTHER LIABILITIES. Except for the Assumed
Contract Liabilities identified in Section 2, Assignee does not assume, and
shall not in any manner become responsible or liable for, and Assignor shall
retain, pay, discharge and perform in full, all other debts, obligations or
liabilities of Assignor, whether known or unknown, fixed, contingent or
otherwise.
4. MISCELLANEOUS PROVISIONS.
4.1 FURTHER ASSURANCES. Assignor and Assignee agree,
at the other party's request, whether on or after the date hereof, and without
further consideration, that each shall execute and deliver any and all further
instruments and documents, and take such further actions, as the other party
may reasonably request or as may reasonably be required in order more
effectively to vest in Assignee all of Assignor's rights, title and interest
under, in and to the Contract, and to evidence Assignee's assumption of the
Assumed Contract Liabilities, or to otherwise carry out the provisions of this
Agreement.
<PAGE> 2
4.2 BINDING EFFECT. All of the terms, provisions and
conditions of this Agreement shall be binding on, and shall inure to and be
enforceable by, the parties hereto and their respective successors and assigns.
4.3 GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the Laws of the State of California.
IN TESTIMONY WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
AMERICAN SHARED HOSPITAL SERVICES
By: /s/ Ernest A. Bates
--------------------------------------------
Title: Chairman Chief Executive Officer
----------------------------------------
("Assignor")
AMERICAN SHARED RADIOSURGERY SERVICES
By: /s/ Ernest A. Bates
--------------------------------------------
Title: President
-----------------------------------------
("Assignee")
<PAGE> 3
ESTOPPEL CERTIFICATE AND CONSENT TO ASSIGNMENT
THIS ESTOPPEL CERTIFICATE AND CONSENT TO ASSIGNMENT (Certificate and
Consent") is given this 1st day of November, 1995 by The Regents of the
University of California ("University"). University certifies and consents to
the following:
1. CERTIFICATION OF COMPLIANCE. University hereby certifies that
the contract for services covered by the certain service contract ("Contract")
between University and American Shared Hospital Services ("American Shared"),
dated July 3, 1990 and amended August 1, 1995 a full copy of which is
attached hereto as Exhibit A, is valid and in full force and effect, and
represents the entire agreement between the parties thereto as of the date
hereof, that there is no existing default on the part of the parties in any of
the terms and conditions thereof, and no event has occurred which, with the
passing of time or giving of notice, or both, would constitute an event of
default. University hereby certifies that there are no known existing set-offs
or defenses against the enforcement of any of the terms, agreements, covenants,
conditions, and limitations of the Contract. The current fee schedule under
the Contract that American Shared is entitled to receive is attached hereto as
Exhibit B.
2. CONSENT TO ASSIGNMENT. University hereby consents to the
assignment of the Contract by American Shared to its wholly owned subsidiary
American Shared Radiosurgery Services (ASRS). Furthermore University hereby
consents to the assignment of the contract by ASRS to GK Financing, LLC
("GKF"), a Limited Liability Company in the proposed form set forth in the
Assignment and Assumption Agreement, dated October 17, 1995 between American
Shared and Buyer, a copy of which attached hereto as Exhibit C.
IN WITNESS WHEREOF, University has executed this Certificate
and Consent as of the date first written above.
The Regents of the University of California
By: /s/ Chuck Hancock 12/21/95
--------------------------------------------
Title: Senior Buyer
-----------------------------------------
("University")
<PAGE> 1
Exhibit 4.15
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made as of the 1st day of November
1995 by and between AMERICAN SHARED RADIOSURGERY SERVICES, a California
corporation, ("Assignor") and GK FINANCING, LLC ("Assignee").
RECITALS:
A. Assignor is a member of Assignee.
B. Pursuant to the Operating Agreement for GK Financing,
LLC, Assignor has agreed to assign to Assignee that contract between the
Regents of the University of California dated July 3, 1990 and amended August
1, 1995, a full copy of which is attached here as Exhibit A (the "Contract").
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
premises and mutual covenants herein contained, the parties hereby agree as
follows:
1. ASSIGNMENT. Assignor hereby grants, conveys, transfers and
assigns to Assignee, its successors and assigns, all of Assignor's rights,
title and interest under, in and to the Contract:
2. ASSUMPTION OF LIABILITIES. Assignee hereby accepts the
grant, conveyance, transfer and assignment by Assignor to Assignee, its
successors and assigns, of all of Assignor's rights, title and interest under,
in and to the Contract, and hereby assumes and agrees to perform and discharge
all of Assignor's executory obligations arising under the Contract (the
"Assumed Contract Liabilities").
3. NO ASSUMPTION OF OTHER LIABILITIES. Except for the Assumed
Contract Liabilities identified in Section 2, Assignee does not assume, and
shall not in any manner become responsible or liable for, and Assignor shall
retain, pay, discharge and perform in full, all other debts, obligations or
liabilities of Assignor, whether known or unknown, fixed, contingent or
otherwise.
4. MISCELLANEOUS PROVISIONS.
4.1 FURTHER ASSURANCES. Assignor and Assignee agree,
at the other party's request, whether on or after the date hereof, and without
further consideration, that each shall execute and deliver any and all further
instruments and documents, and take such further actions, as the other party
may reasonably request or as may reasonably be required in order more
effectively to vest in Assignee all of Assignor's rights, title and interest
under, in and to the Contract, and to evidence Assignee's assumption of the
Assumed Contract Liabilities, or to otherwise carry out the provisions of this
Agreement.
<PAGE> 2
4.2 BINDING EFFECT. All of the terms, provisions and
conditions of this Agreement shall be binding on, and shall inure to and be
enforceable by, the parties hereto and their respective successors and assigns.
4.3 GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the Laws of the State of California.
IN TESTIMONY WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
AMERICAN SHARED RADIOSURGERY SERVICES
By: /s/ Ernest A. Bates
----------------------------------------------
Title: President
-------------------------------------------
("Assignor")
GK FINANCING, LLC
By: /s/ Craig K. Tagawa
----------------------------------------------
Title: CEO
-------------------------------------------
("Assignee")
<PAGE> 1
EXHIBIT 4.16
USC UNIVERSITY HOSPITAL
OPTION AGREEMENT
FEBRUARY 3, 1996
American Shared Hospital Services ("ASHS") agrees to the transfer of the Option
Agreement dated November 28, 1994 between Ernest A. Bates, M.D. ("Bates") and
ASHS to GK Financing ("GKF"). In addition, GKF exercises its rights effective
February 3, 1996 pursuant to the Option Agreement to purchase the LGK and to
assume the G.E. installment Note. The transfer of the Option Agreement to GKF
from ASHS does not obligate GKF to pay Bates for any losses incurred from
ownership of the Gamma Knife prior to February 3, 1996. The obligation to
reimburse Bates for any losses prior to February 3, 1996 pursuant to Paragraph
3.1 of the Option Agreement shall remain with ASHS.
GK Financing, LLC Ernest A. Bates, M.D.
/s/ Craig K. Tagawa /s/ Ernest A. Bates
- ----------------------------------- -----------------------------------
American Shared Hospital Services
/s/ Ernest A. Bates
- -----------------------------------
<PAGE> 1
Exhibit 4.17
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made as of the 1st day of February
1996 by and between ERNEST A. BATES, M.D., an individual, ("Assignor") and GKF
FINANCING, LLC, a California limited liability Company ("Assignee").
RECITALS:
A. Assignor desires to Assign to Assignee that contract
between NME Hospitals, Inc., a Delaware corporation, dba USC University
Hospital dated April 6, 1994, a full copy of which is attached here as Exhibit
A (the "Contract").
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
premises and mutual covenants herein contained, the parties hereby agree as
follows:
1. ASSIGNMENT. Assignor hereby grants, conveys, transfers and
assigns to Assignee, its successors and assigns, all of Assignor's rights,
title and interest under, in and to the Contract:
2. ASSUMPTION OF LIABILITIES. Assignee hereby accepts the
grant, conveyance, transfer and assignment by Assignor to Assignee, its
successors and assigns, of all of Assignor's rights, title and interest under,
in and to the Contract, and hereby assumes and agrees to perform and discharge
all of Assignor's executory obligations arising under the Contract (the
"Assumed Contract Liabilities").
3. NO ASSUMPTION OF OTHER LIABILITIES. Except for the Assumed
Contract Liabilities identified in Section 2, Assignee does not assume, and
shall not in any manner become responsible or liable for, and Assignor shall
retain, pay, discharge and perform in full, all other debts, obligations or
liabilities of Assignor, whether known or unknown, fixed, contingent or
otherwise.
4. MISCELLANEOUS PROVISIONS.
4.1 FURTHER ASSURANCES. Assignor and Assignee agree,
at the other party's request, whether on or after the date hereof, and without
further consideration, that each shall execute and deliver any and all further
instruments and documents, and take such further actions, as the other party
may reasonably request or as may reasonably be required in order more
effectively to vest in Assignee all of Assignor's rights, title and interest
under, in and to the Contract, and to evidence Assignee's assumption of the
Assumed Contract Liabilities, or to otherwise carry out the provisions of this
Agreement.
4.2 BINDING EFFECT. All of the terms, provisions and
conditions of this Agreement shall be binding on, and shall inure to and be
enforceable by, the parties hereto and their respective successors and assigns.
<PAGE> 2
4.3 GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the Laws of the State of California.
IN TESTIMONY WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
ERNEST A. BATES, M.D.
By: /s/ Ernest A. Bates
-------------------------------------------
Title: (an Individual)
----------------------------------------
("Assignor")
GK FINANCING, LLC
By: /s/ Craig K. Tagawa
-------------------------------------------
Craig K. Tagawa
Title: Chief Executive Officer
----------------------------------------
("Assignee")
<PAGE> 3
ESTOPPEL CERTIFICATE AND CONSENT TO ASSIGNMENT
THIS ESTOPPEL CERTIFICATE AND CONSENT TO ASSIGNMENT (Certificate and
Consent") is given this 3rd day of February, 1996 by NME Hospitals, Inc., a
Delaware corporation, dba USC University Hospital ("University"). University
certifies and consents to the following:
1. CERTIFICATION OF COMPLIANCE. University hereby certifies that
the contract for services covered by the certain service contract ("Contract")
between University and Ernest A. Bates, M.D., an individual, ("Bates"), dated
April 6, 1994 a full copy of which is attached hereto as Exhibit A, is valid
and in full force and effect, and represents the entire agreement between the
parties thereto as of the date hereof, that there is no existing default on the
part of the parties in any of the terms and conditions thereof, and no event
has occurred which, with the passing of time or giving of notice, or both,
would constitute an event of default. University hereby certifies that there
are no known existing set-offs or defenses against the enforcement of any of
the terms, agreements, covenants, conditions, and limitations of the Contract.
2. CONSENT TO ASSIGNMENT. University hereby consents to the
assignment of the Contract by Bates to GK Financing, LLC, A California Limited
Liability Company, in the proposed form set forth in the Assignment and
Assumption Agreement, dated February 1, 1996 between Bates and University, a
copy of which attached hereto as Exhibit B.
IN WITNESS WHEREOF, University has executed this Certificate
and Consent as of the date first written above.
NME Hospitals, Inc.
By: /s/ Gerald S. Bosworth
--------------------------------------
Title: Chief Executive Officer
-----------------------------------
("University")
<PAGE> 1
Exhibit 4.18
ASSIGNMENT AND ASSUMPTION AGREEMENT
<TABLE>
<S> <C> <C>
Assignor: Assignee:
- -------- --------
Ernest A. Bates, M.D. GK Financing, LLC
230 Palo Alto Four Embarcadero Center #3620
San Francisco CA 94114 San Francisco CA 94111
Company: Contract:
- ------- --------
GENERAL ELECTRIC COMPANY Installment Note & Security
P.O. Box 414 W-490 Agreement 8506857
Milwaukee WI 53201 Equipment:
---------
1-Teksel Stereotactic Gamma Unit
at USC
Effective Date: 2/3/96
--------------
</TABLE>
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, herein "Agreement," dated
this 19th day of January 1996, is by and between Assignor and Assignee and
regards Assignor's assignment to Assignee and Assignee's assumption, effective
as of the Effective Date, of all of Assignor's rights, duties and obligations
under the Contract.
WHEREAS, Company has sold or leased to Assignor and Assignor has
purchased or rented from Company, subject to and in accordance with the terms,
conditions and provisions of the Contract, certain medical equipment described
in the Contract, a true and complete copy of which is attached hereto, made a
part hereof and marked "Exhibit A"; and
WHEREAS, Assignor desires to assign to Assignee and to be discharged
from all future rights, duties and obligations of Assignor under the Contract,
effective as of the Effective Date; and
WHEREAS, Assignee desires to accept the assignment from Assignor of
and to assume all future rights, duties and obligations of Assignor under the
Contract, effective as of the Effective Date; and
WHEREAS, Assignor and Assignee to accomplish this end must obtain the
written consent of Company and evidence their assignment and assumption
agreement in writing;
NOW, THEREFORE, for the reasons recited above and in consideration of
the mutual covenants contained herein, Assignor and Assignee intending to be
legally bound agree as follows:
1. Assignor hereby and by these presents does sell, assign,
transfer and convey unto Assignee, its successors and assigns,
<PAGE> 2
effective as of the Effective Date, all of the Assignor's future rights,
duties, and obligations under the Contract, to have and to hold the same unto
Assignee, its successors and assigns forever, as if Assignee were named in the
original Contract in place of the Assignor as an obligor thereunder, subject
however, to the terms and conditions of the Contract, Company having consented
to the said assignment and assumption, Assignor's retention of the full
benefit of and liability for all of its rights, duties and obligations under
the Contract that become due and payable or are otherwise to be performed prior
to the Effective Date, Assignee's only enjoying the benefit of and being solely
liable for all of Assignor's future rights, duties and obligations under the
Contract that become due and payable or are otherwise to be performed on or
after the Effective Date, and the Form of Consent set forth being executed by
Company.
2. Assignee hereby and by these presents does unconditionally
purchase and accept the assignment, transfer and conveyance from Assignor of
and assume, effective as of the Effective Date, all of Assignor's future
rights, duties and obligations under the Contract, to have and to hold the same
unto Assignee, its successors and assigns forever, as if the Assignee were
named in the original Contract in place of Assignor as an obligor thereunder,
subject, however, to the terms and conditions of the Contract, Company having
consented to the said assignment and assumption, Assignor's retention of the
full benefit of and liability for all of its rights, duties and obligations
under the Contract that become due and payable or are otherwise to be performed
prior to the Effective Date, Assignee only enjoying the full benefit of and
being solely liable for all of Assignor's future rights, duties and obligations
under the Contract that become due and payable or are otherwise to be performed
on or after the Effective Date, and the Form of Consent set forth below being
executed by Company.
3. Assignor hereby and by these presents does agree not to assert
against Company any defense, setoff, recoupment, claim or counterclaim which
Assignee might have against Company under or in relation to the Contract on or
after the Effective Date.
4. Assignee hereby and by these presents does agree not to assert
against Company any defense, setoff, recoupment, claim or counterclaim which
Assignor might have against Company under or in relation to the Contract before
the Effective Date.
5. Assignor and Assignee hereby and by these presents agree that
any consent by Company to this Agreement shall not be deemed to be a consent by
Company to any subsequent or other assignment and/or assumption by Assignor or
Assignee and that any other assignment and/or assumption without Company's
prior written consent shall be null and void.
6. Assignor represents and warrants to Assignee that all duties
and obligations owed by Assignor to Company under the Contract will be current
and not in default as of the Effective Date, and agrees to indemnify, defend
and hold harmless Assignee from and against any and all such duties and
obligations under the Contract other than those first coming due on or after
the Effective Date.
<PAGE> 3
IN WITNESS WHEREOF, Assignor and Assignee have caused these presents
to be executed the day first above written.
<TABLE>
<S> <C>
ATTESTED: ASSIGNOR:
Ernest A. Bates, M.D.
by /s/ Ernest A. Bates
--------------------
/s/ Margaret Franssen
- --------------------------- -----------------------
Witness Title
Ernest A. Bates, M.D.
-----------------------------
(Type Name of Subscriber)
February 9, 1996
---------------------------
Date
ASSIGNEE:
GK Financing, LLC
by: /s/ Craig K. Tagawa
----------------------------
/s/ Margaret Franssen CEO
- ---------------------------- -------------------------------
Witness Title
Craig K. Tagawa
-------------------------------
(Type Name of Subscriber)
February 9, 1996
-------------------------------
Date
</TABLE>
FORM OF CONSENT
GENERAL ELECTRIC COMPANY in consideration of the foregoing hereby consents to
this Assignment and Assumption Agreement and discharges Assignor from any
duties and obligations that become due, payable or performable under the
Contract on or after the Effective Date set forth in this Assignment and
Assumption Agreement.
<TABLE>
<S> <C>
ATTEST: GENERAL ELECTRIC COMPANY
by: /s/ Richard Schueller
------------------------------
/s/ R. Michels Investment Manager
- ------------------------ ---------------------------------
Witness Title
Richard Schueller
---------------------------------
(Type Name of Subscriber)
2-12-96
---------------------------------
Date
</TABLE>
26MARG
<PAGE> 1
Exhibit 4.19
PROMISSORY NOTE
(Deferral Note)
$2,000,000 LOS ANGELES, CALIFORNIA
PRINCIPAL AMOUNT JANUARY 1, 1995
FOR VALUE RECEIVED, the undersigned, AMERICAN SHARED-CURACARE, a
California general partnership, ("Maker"), hereby promises to pay to the order
of GENERAL ELECTRIC COMPANY, a New York corporation acting through GE Medical
Systems ("Payee"), an aggregate amount equal to the principal amount of Two
Million Dollars ($2,000,000) (the "Principal Amount"), together with accrued
interest on the unpaid balance of such amount, as follows:
1. All initially capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to such terms in
that certain Agreement entered into effective as of November 1, 1994
(the"Agreement") between Maker and Payee.
2. The Principal Amount under this Promissory Note ("Note") shall
bear interest at the rate of four percent (4.0%) per annum or the maximum rate
permitted by law, whichever is less, from the date hereof until paid in full by
Maker. All interest so computed will be accrued monthly in arrears beginning
on the date hereof and continuing for a period of eighty-six (86) months until
and including the last Business Day of February, 2002, except as provided
herein to the contrary.
3. Principal and interest under this Note is payable over an
eighty-six (86) month period commencing on the date hereof as follows:
interest only payments in an amount equal to
-1-
<PAGE> 2
Six Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents ($6,666.67)
shall be payable to Maker to Payee during the first eleven (11) months of the
term from January, 1995 through November, 1995, and the remaining principal and
interest shall be amortized in accordance with Schedule A attached hereto and
payable by Maker to Payee in equal, consecutive monthly installments of
principal and interest over the remaining seventy-five (75) months of the term
of this Note, each in the amount of Thirty Thousand One Hundred Eighty-Two
Dollars and Ninety-Three Cents ($30,182.93). Each such payment shall be due
and payable on the last Business Day of each month referenced above with a
final payment of the entire principal balance and accrued interest on the last
Business Day of February, 2002. Both principal and interest are payable in
lawful money of the United States of America in funds immediately available to
Payee in Waukesha, Wisconsin (or such other place for payments as may be
designated by Payee in accordance with the Agreement). The outstanding
Principal Amount and interest thereon may be prepaid in whole or in part at any
time prior to maturity without premium or penalty of any kind. All payments
hereunder, including any prepayments, shall be first applied to accrued
interest and the balance of such payments shall be applied to unpaid principal.
4. Maker's failure to make any payment of principal and/or
interest as and when due shall constitute a default hereunder ("Default"). If
any six (6) consecutive monthly payments of principal or interest accruing
hereunder are not paid by Maker as of the end of the sixth (6th) calendar month
in such six (6) month period and such default continues for a period of five
(5) days after written notice of nonpayment is given by Payee to Maker, then
such Defaults shall become an Event of Default hereunder. Maker shall pay on
demand as a late charge an amount equal to five percent (5%) of each overdue
payment, except as limited by applicable law. Such payments shall not cure a
Default or Event of Default under this Note or limit any of Payee's rights to
pursue any of its remedies hereunder or under the Agreement in connection
therewith. Interest which has accrued and is not paid monthly by Maker shall
be added to the outstanding Principal Amount for purposes of subsequent
calculations of interest due hereunder.
5. Upon the occurrence of an Event of Default, Payee may declare
the entire unpaid
-2-
<PAGE> 3
balance of principal and all accrued interest under this Note immediately due
and payable. The rights and remedies available to Payee under this Note and
the Agreement shall be cumulative and in addition to any other rights or
remedies that Payee may be entitled to pursue at law or in equity. Further,
the exercise of one or more of such rights or remedies shall not impair Payee's
right to exercise any other right or remedy at law or in equity.
Notwithstanding the occurrence of an Event of Default and/or payee's exercise
of any of its rights or remedies hereunder, until such time as Payee receives
payment of all amounts due hereunder, interest shall continue to accrue on the
outstanding Principal Amount, notwithstanding the provisions in Section 2 of
this Note.
6. Maker shall pay on demand any and all costs and expenses,
including reasonable attorneys' fees incurred, by Payee in connection with an
Event of Default and the collection of any outstanding principal and interest
accrued hereunder to enforce the terms hereof. Maker hereby waives to the full
extent permitted by law all rights to plead any statute of limitation as a
defense to any action hereunder.
7. The amounts due under this Note are not subject to reduction
or offset for any claims of Maker or its successor or assigns against Payee or
any other third party.
8. No delay or failure on the part of the holder of this Note in
exercising any right, privilege or option hereunder shall operate as a waiver
thereof or of any Default or Event of Default. The waiver of a Default or
Event of Default shall not constitute a continuing waiver or a waiver of any
subsequent Default or Event of Default.
9. Except as otherwise provided in the Agreement and except where
waiver is prohibited as a matter of applicable law, Maker hereby waives
presentment, demand, protest and notice of presentment, protest, default,
nonpayment, maturity, release, compromise, and settlement.
10. All payments made by Maker hereunder shall be delivered to
Payee at the
-3-
<PAGE> 4
following address: 20825 Swenson Drive, Suite 100, Waukesha, Wisconsin 53186,
Attn: Michele LeMon.
11. This Promissory Note shall be governed by and construed in
accordance with the laws of the State of California, without reference to any
choice or conflict of laws or rules that might otherwise apply.
12. Maker shall not have the right to assign, by operation of law
or otherwise, this Note without the prior written consent of Payee.
13. This Note incorporates herein by this reference the terms and
conditions of the Agreement. In the event of any conflict between the
provisions of this Note and the provisions of the Agreement, the provisions of
this Note shall prevail, except as specifically provided in Section 16 below to
the contrary.
14. No provisions of this Note may be amended, modified or
discharged orally, by course of dealing or otherwise, except by a writing duly
executed by the holder of this Note.
15. Maker hereby consents to the jurisdiction of any court of
record of the State of California or of the United States District Court for
the Central District of California over the person of Maker, and service of
process in any action or suit brought by Payee may be made upon Maker by
mailing a copy of the summons to Maker at the last address of Maker appearing
in Payee's records. Maker also waives (i) the right to trial by jury in the
event of any litigation to which Payee and Maker are parties in respect of any
matter arising under this Note, whether or not such litigation has been
commenced in respect of this Note and whether or not other persons are also
parties thereto, (ii) any claim that Los Angeles County or the Central District
of California is an inconvenient forum, and (iii) any claim against Payee for
consequential or special damages.
-4-
<PAGE> 5
16. An Event of Default hereunder shall constitute an Event of
Default under the Agreement, provided that Payee exercises its rights pursuant
to Section 5 above, and, except as expressly provided in the Agreement to the
contrary, any Event of Default under the Agreement shall constitute an Event of
Default hereunder, as appropriate.
17. Maker acknowledges that this Note does not establish a new
debt from Maker to Payee but is intended to evidence Payee's deferral of
Maker's obligation to pay those amounts constituting a portion of the Deferral
Amount in accordance with the terms hereof and the Agreement and to set forth
the terms upon which a portion of such Deferral Amount constituting the
Principal Amount hereunder shall be paid to Payee.
MAKER:
AMERICAN SHARED-CURACARE, a
California general partnership
By: AMERICAN SHARED HOSPITAL
SERVICES
Its: General Partner
By: /s/ Ernest A. Bates
-----------------------------
Ernest A. Bates, M.D.
Chief Executive Officer
By: MMRI, INC.
Its: General Partner
By: /s/ Ernest A. Bates
-----------------------------
Ernest A. Bates, M.D.
Chief Executive Officer
-5-
<PAGE> 6
ADDENDUM TO PROMISSORY NOTE DATED JANUARY 1, 1995
AMERICAN SHARED - CURACARE
FOUR EMBARCADERO CENTER #3620
SAN FRANCISCO, CA 94111
This is an Addendum to Promissory Note ("Note") (contract 507911) by AMERICAN
SHARED-CURACARE ("MAKER") to the order of GENERAL ELECTRIC COMPANY ("PAYEE")
dated January 1, 1995. The Note relates to a $2,000,000.00 deferral payment
for taxes and commenced billing January 31, 1995 for eighty-six (86) months.
It is hereby agreed and understood that the payment terms of the Note are being
revised as follows effective February 29, 1996:
<TABLE>
<S> <C>
Old Schedule
- ------------
11 Months @ $ 6,666.67 effective 1-31-95
75 Months @ $30,182.93
New Schedule
- ------------
11 Months @ $ 6,666.67 effective 1-31-95
2 Months @ $30,182.93
6 Months @ $ 8,135.00 beginning 2-29-96
67 Months @ $33,315.00 beginning 8-31-96
</TABLE>
The interest rate increases to 5% effective February 1, 1996.
All other Terms and Conditions from the original Note, to the extent not
inconsistent herewith, shall remain as initially written and apply to this
Addendum.
- ---------------------------------------------------------------------------
Accepted by Payee: Accepted by Maker:
GENERAL ELECTRIC COMPANY AMERICAN SHARED-CURACARE
A California Partnership
/s/ R. Schueller by /s/ Ernest A. Bates
- ------------------------- -----------------------------------
Signed Ernest A. Bates, M.D.
Chairman & CEO
American Shared Hospital Services
General Partner
3-8-96 March 05, 1996
- ------------------------- -----------------------------------
Date Date
-6-
<PAGE> 1
Exhibit 4.20
PROMISSORY NOTE
December 30, 1994
1400 Lone Palm Avenue Modesto Stanislaus CA
FOR VALUE RECEIVED, American Shared - Curacare ("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 Four Hundred Eighty One Thousand Six Hundred
Sixty Seven and 87/100 dollars ($481,667.87), 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 60 consecutive monthly installments of principal and interest of Ten
Thousand Three Hundred Fifty-Two and 92/100 Dollars ($10,352.92) 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 February 1, 1995 and
the following installments shall be due and payable on the same day of each
succeeding month (each, a "Payment Date").
All payment 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 authorized 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.
<PAGE> 2
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 a 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.
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 other (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
<PAGE> 3
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 waivers 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) and diligence in collecting this Note, and agrees to pay (if
permitted by law) all expenses incurred in collection, including Payee's actual
attorneys' fee. 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 - Curacare
A California Partnership
/s/ Genevieve M. Kelly By: /s/ Ernest A. Bates (Seal)
- ---------------------------- ---------------------------------
Witness Signature: Ernest A. Bates, M.D.
Chairman & CEO
American Shared Hospital Services,
General Partner
-------------------------------------
Print name (and title, if applicable)
ACKNOWLEDGED: General Electric Company
/s/ Michele LeMon By: /s/ R.S. Berger (Seal)
- ----------------------------- ---------------------------------
Signature
Richard S. Berger
Mgr. Financial Services-Finance
-------------------------------------
Print name (and title, if applicable)
<PAGE> 4
ADDENDUM TO PROMISSORY NOTE DATED DECEMBER 30, 1994
AMERICAN SHARED-CURACARE
1400 LONE PALM AVENUE
MODESTO, CA 95353
This is an Addendum to a Promissory Note ("Note") (Contract 507917-001) issued
by AMERICAN SHARED-CURACARE ("DEBTOR") in favor of GENERAL ELECTRIC COMPANY
("CREDITOR") dated December 30, 1994. The Note is for the tax amount due as
part of the restructure which was done in November, 1994 and commenced billing
February 1, 1995 for sixty (60) months.
It is agreed and understood that the payment term of the Note is being
restructured as follows effective January 1, 1996:
<TABLE>
<CAPTION>
New Schedule
- ------------
<S> <C>
11 Months @ $10,352.92 effective 2-1-95
4 Months @ -0- effective 1-1-96
45 Months @ $11,485.00
</TABLE>
All other Terms and Conditions from the original Note, to the extent not
inconsistent herewith, shall remain as initially written and apply to this
Addendum.
- -------------------------------------------------------------------------
Accepted by Creditor: Accepted by Debtor:
GENERAL ELECTRIC COMPANY AMERICAN SHARED-CURACARE
A California Partnership
/s/ R. Schueller /s/ Ernest A. Bates
- ------------------------- ----------------------------------------
Ernest A. Bates, M.D.
Chairman & CEO
American Shared Hospital Services
General Partner
1-3-96 12/28/95
- ------------------------- ----------------------------------------
Date Date
<PAGE> 1
[Sidley Letterhead]
EXHIBIT 5
March 27, 1996
Board of Directors
American Shared Hospital Services
Four Embarcadero Center, Suite 3620
San Francisco, California 94111
Re: Common Shares and Warrants
Gentlemen:
We refer to the Registration Statement on Form S-1 (File No.
33-63721) (the "Registration Statement") filed by American Shared Hospital
Services, a California corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the registration for sale by certain
securityholders of 1,290,853 common shares, no par value, of the Company (the
"Common Shares"), 441,147 warrants to purchase Common Shares (the "Warrants")
and the 441,147 Common Shares underlying such Warrants (the "Warrant Shares")
(the Common Shares, Warrants and Warrant Shares are referred to herein
collectively as the "Registered Securities").
We are familiar with the proceedings to date with respect to
the registration and proposed sale of the Registered Securities and have
examined such records, documents and questions of law, and satisfied ourselves
as to such matters of fact, as we have considered relevant and necessary as a
basis for this opinion.
Based on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly
existing under the laws of the State of California.
2. The Common Shares have been duly authorized
and validly issued by the Company, and are fully paid and non-assessable.
<PAGE> 2
Exhibit 5
Board of Directors
March 27, 1996
Page 2
3. The Warrants have been duly authorized and
validly issued by the Company. The Company has duly and validly reserved a
sufficient number of shares of its common stock to be delivered upon exercise
of the Warrants in accordance with their respective terms, and such Warrant
Shares, when issued as provided in the Warrants, and upon payment to the
Company of the exercise price provided for therein, will be duly and validly
issued, fully paid and non-assessable.
We do not find it necessary for the purposes of this opinion
to cover, and accordingly we express no opinion as to, the application of the
securities or blue sky laws of the various states to the resale of the
Registered Securities.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to all references to our firm included in or
made a part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
Los Angeles, California
<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 RECEIVABLES CORP.
Lender
Dated as of January 31, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<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. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.1. Name of Guarantor; Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1. Office and Records of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2. Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6 PROVISIONS CONCERNING GENERAL INTANGIBLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.1. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<TABLE>
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SECTION 7 OTHER PROVISIONS CONCERNING COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.1. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.2. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.3. Lender's Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.4. Reinstatement of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.5. Lender Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.6. Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.7. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.1. Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.3. No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.5. Deferred Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.6. Litigation and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.7. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.8. Laws and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.9. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.10. Health Care Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.9. Restrictions on Merger, Consolidation, Sale of Assets, Issuance of Stock, etc . . . . . . . . . . . 21
Section 9.10. Health Care Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.11. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.12. Subordinated Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.13. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.14. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.15. Equipment Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.16. Lender Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 10 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 11 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.1. Specific Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.2. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.3. Expenses Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.4. Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.5. Remedies Are Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<TABLE>
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SECTION 12 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.1. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 13.1. Delay and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 13.2. Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 13.3. Severability; Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 13.4. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 13.5. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13.7. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13.8. Termination of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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
</TABLE>
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<PAGE> 5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
January 31, 1996 by and among DVI Business Credit Receivables Corp., 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.
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<PAGE> 6
(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 Retail Account
and eighty percent (80%) of the Net Collectible Value for each Institutional
Account, and (ii) one hundred percent of Borrower's gross receipts from
Institutional and Retail Accounts during the preceding sixty (60) 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
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.
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<PAGE> 7
(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 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
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<PAGE> 8
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 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; excluding, however, all costs,
expenses and fees incurred in connection with the consummation of the
transactions contemplated by this Agreement and the Loan Documents.
(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.
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<PAGE> 9
(ab) "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.
(ac) "Note" shall mean the Secured Promissory Note
executed by Borrower pursuant to the terms of this Agreement.
(ad) "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.
(ae) "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.
(af) "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
5
<PAGE> 10
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;
(ag) "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.
(ah) "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.
(ai) "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.
(aj) "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.
(ak) "Termination Date" shall mean May 31, 1997.
(al) "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 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
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<PAGE> 11
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. The
proceeds of the Loan shall be used by Borrower to repay outstanding
indebtedness of Borrower to DVI Business Credit Corporation under a Loan and
Security Agreement dated as of May 17, 1995 in the principal amount of
$3,887,291 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
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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
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. On or before May 17, 1996,
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 May 17, 1996 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.
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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 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 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) 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;
(x) copies of the Articles of Incorporation of
each of CuraCare, Guarantor and the general partners of AS-Curacare, certified
by the Secretary of State;
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(xi) copies of the Bylaws of each of CuraCare,
Guarantor and the general partners of AS-CuraCare certified by an officer
thereof;
(xii) a copy of the Partnership Agreement of
CuraCare certified by a general partner;
(xiii) the written opinion of counsel to Borrower
issued on the Closing Date and satisfactory to Lender in scope and substance;
and
(xiv) 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) Neither an Event of Default nor an Unmatured Default
shall have occurred and be continuing.
(d) None of Borrower, Guarantor or Individual Guarantor
shall 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.
(e) 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
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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; excluding, however, the
Leksell Gamma Unit including Radiator Unit, Collimator Helmets, Stereotactic
Head Frame, Operating Table, TV System, Dose Planning System, Cobalt Source and
all components thereof, together with any additions, accessions, modifications,
improvements, replacements, substitutions and accessories thereto and therefor
or hereafter acquired.
(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
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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 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
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with respect to Accounts at any other location and shall not do so hereafter
except with the prior written consent of Lender.
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.
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
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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.
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.
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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 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, 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
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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 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
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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 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:
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
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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, 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.
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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 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,
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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.
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
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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 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
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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 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.
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
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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 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.
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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;
(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;
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(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;
(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;
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(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;
(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.
(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
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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.
(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
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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 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.
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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
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.
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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, 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.
30
<PAGE> 35
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) 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 Receivables
Corp.
c/o DVI Financial Services Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Attention: Cynthia J. Cohn
Executive Vice President
Telephone: (215) 230-
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.
31
<PAGE> 36
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
PENNSYLVANIA.
SECTION 13.7. 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.
SECTION 13.8. TERMINATION OF AGREEMENTS. Borrower,
Guarantor, Individual Guarantor and DVI Business Credit Corporation as Lender
("DVIBC") entered into a Loan and Security Agreement dated as of May 17, 1995
(the "DVIBC Agreement") pursuant to which Borrower issued to DVIBC a Promissory
Note due May 31, 1997 in the principal amount of $4,000,000 and Guarantor and
Individual Guarantor each separately guaranteed the obligations of Borrower
under the DVIBC Agreement. Upon the satisfactory completion of the Closing
pursuant to this Agreement, Borrower will have repaid the loan made pursuant to
the DVIBC Agreement in full, the Promissory Note will be cancelled and the
DVIBC Agreement and any loan documents executed in connection therewith will be
terminated.
32
<PAGE> 37
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
<TABLE>
<S> <C>
BORROWER: LENDER:
CURACARE, INC. DVI BUSINESS CREDIT RECEIVABLES CORP.
By: /s/ Ernest A. Bates, M.D. By: /s/ Steven R. Garfinkel
-------------------------------------------------- ------------------------------------------------
Ernest A. Bates, M.D. Steven R. Garfinkel
President Senior Vice President and CFO
AMERICAN SHARED-CURACARE
WITH RESPECT TO SECTION 13.9 ONLY
By: American Shared Hospital Services, general partner
DVI BUSINESS CREDIT CORPORATION
By: /s/ Ernest A. Bates, M.D.
------------------------------------------
Ernest A. Bates, M.D.
President By: /s/ Anthony Turek
------------------------------------------------
Anthony Turek
Executive Vice President
By: MMRI, Inc., general partner
By: /s/ Ernest A. Bates, M.D.
------------------------------------------
Ernest A. Bates, M.D.
President
GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES
By: /s/ Ernest A. Bates, M.D.
--------------------------------------------------
Ernest A. Bates, M.D.
President
INDIVIDUAL GUARANTOR:
/s/ Ernest A. Bates, M.D.
- -----------------------------------------------------------
ERNEST A. BATES, M.D.
</TABLE>
33
<PAGE> 38
SCHEDULE 1.1
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Liens
13.9. UCC FILINGS
AMERICAN SHARED HOSPITAL SERVICES
California, as of January 26, 1996:
(a) Secured Parties: NEMLC Leasing Corp.
GE Capital Corp.
Original File No.: 89081110
Original File Date: 03/31/89 (continued 03/07/94)
Related Filing: Assignment (03/07/94)
(b) Secured Party: Instrumentation Laboratory
Original File No.: 91176330
Original File Date: 08/19/91
(c) Secured Parties: Bankers Leasing Assoc. Inc.
Allied Bank/Coal City National
Original File No.: 91124632
Original File Date: 06/07/91
Related Filing: Assignment (12/02/91)
Note: CuraCare Inc. is also named as a debtor.
(d) Secured Party: American National Leasing Corp.
Assignee: Foothill Bank
Original File No.: 91184795
Original File Date: 08/26/91
(e) Secured Party: LB Credit Corp.
Original File No.: 92071345
Original File Date: 04/14/92
(f) Secured Party: Siemens Credit Corp.
Original File No.: 92185177
Original File Date: 08/24/92
Related Filing: Amendment (11/08/94)
(g) Secured Party: GE Co.
Original File No.: 92190116
Original File Date: 09/02/92
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare is also listed as a debtor.
(h) Secured Party: GE Co.
Original File No.: 92190131
Original File Date: 09/02/92
-34-
<PAGE> 39
Related Filing: Amendment (01/19/95)
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare is also listed as a debtor.
(i) Secured Party: GE Co.
Original File No.: 92209889
Original File Date: 09/28/92
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare is also listed as a debtor.
(j) Secured Party: GE Co.
Original File No.: 92209890
Original File Date: 09/28/92
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare is also listed as a debtor.
(k) Secured Party: Virtual Leasing Inc.
Original File No.: 92259836
Original File Date: 12/07/92
(l) Secured Party: Leasing Is Us Inc.
Assignee: Colonial Pacific Leasing
Original File No.: 92264223
Original File Date: 12/11/92
Related Filing: Amendment (10/06/95)
Note: CuraCare is also listed as a debtor.
(m) Secured Party: Leasing Is Us Inc.
Assignee: First Concord Acceptance Corp.
Original File No.: 93196808
Original File Date: 09/27/93
Note: CuraCare is also listed as a debtor.
(n) Secured Party: Southern Pacific Thrift & Loan
Association, Leasing Division
Original File No.: 93253914
Original File Date: 12/17/93
Related Filing: Assignment (06/23/95)
Note: CuraCare is also listed as a debtor.
(o) Secured Party: Southern Pacific Thrift & Loan Association
Original File No.: 93254003
Original File Date: 12/17/93
Related Filing: Assignment (05/25/95)
Note: American Shared-CuraCare and CuraCare, Inc.
are also listed as debtors.
(p) Secured Party: GE Co.
Original File No.: 92262311
Original File Date: 12/11/92
-35-
<PAGE> 40
Note: American Shared is listed as a
debtor and not American Shared
Hospital Services. American Shared-
CuraCare and CuraCare are also
listed as debtors.
(q) Secured Party: GE Co.
Original File No.: 93120676
Original File Date: 06/18/93
Related Filing: Amendment (01/19/95)
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare and CuraCare are also listed
as debtors.
(r) Secured Party: GE Co.
Original File No.: 93120677
Original File Date: 06/18/93
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare and CuraCare are also listed
as debtors.
(s) Secured Party: GE Co.
Original File No.: 93120678
Original File Date: 06/18/93
Related Filing: Amendment (01/19/95)
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare and CuraCare are also listed
as debtors.
(t) Secured Party: GE Co.
Original File No.: 93149265
Original File Date: 07/27/93
Note: American Shared is listed as a debtor and not
American Shared Hospital Services. American
Shared-CuraCare and CuraCare are also listed
as debtors.
(u) Secured Party: Siemens Medical Systems, Inc.
Assignee: Siemens Credit Corporation
Original File No.: 9507960564
Original File Date: 03/16/95
Note: American Shared Hospital is listed
as a debtor and not American Shared
Hospital Services. American
Shared-CuraCare is also listed as a
debtor.
(v) Secured Party: DVI Business Credit Corporation*
Original File No.: 9514360419
Original File Date: 05/18/95
(w) Secured Party: DVI Financial Services Inc.
Original File No.: 9514360442
-36-
<PAGE> 41
Original File Date: 05/18/95
(x) Secured Party: General Electric Company
Original File No.: 9514460191
Original File Date: 05/19/95
(y) Secured Party: AT&T Capital Leasing Service, Inc.
Original File No.: 9523060564
Original File Date: 08/17/95
Note: CuraCare/Modesto is listed as the
debtor and not CuraCare Inc.
American Shared Hospital (not
American Shared Hospital Services)
is also listed as a debtor.
Illinois, as of February 7, 1996:
No filings on record.
Kansas, as of January 30, 1996:
No filings on record.
* to be terminated
Oklahoma, as of January 25, 1996:
No filings on record.
Pennsylvania, as of February 16, 1996:
No filings on record.
AMERICAN SHARED - CURACARE
California, as of January 26, 1996:
1. Secured Party: GE Co.
Original File No.: 89325363
Original File Date: 12/22/89 (continued 07/21/94)
Related Filings: Amendment (08/04/93)
Amendment (01/19/95)
2. Secured Party: GE Co.
Original File No.: 91017745
Original File Date: 02/01/91
Related Filing: Amendment (01/19/95)
3. Secured Party: GE Co.
Original File No.: 91017746
Original File Date: 02/01/91
Related Filing: Amendment (01/19/95)
-37-
<PAGE> 42
4. Secured Party: GE Co.
Original File No.: 91017747
Original File Date: 02/01/91
5. Secured Party: GE Co.
Original File No.: 91060030
Original File Date: 03/22/91
6. Secured Party: GE Co.
Original File No.: 91076388
Original File Date: 04/09/91
Related Filing: Amendment (03/18/94)
7. Secured Party: GE Co.
Original File No.: 91076389
Original File Date: 04/09/91
8. Secured Party: GE Co.
Original File No.: 91150097
Original File Date: 07/15/91
9. Secured Party: GE Co.
Original File No.: 91169730
Original File Date: 08/09/91
Related Filing: Amendment (01/19/95)
10. Secured Party: GE Co.
Original File No.: 91169731
Original File Date: 08/09/91
Related Filing: Amendment (02/07/94)
11. Secured Party: GE Co.
Original File No.: 91169732
Original File Date: 08/09/91
Related Filing: Amendment (01/19/95)
12. Secured Party: GE Co.
Original File No.: 91169747
Original File Date: 08/09/91
Related Filings: Amendment (08/17/93)
Amendment (01/19/95)
13. Secured Party: GE Co.
Original File No.: 91169748
Original File Date: 08/09/91
14. Secured Party: GE Co.
Original File No.: 91169749
Original File Date: 08/09/91
Related Filing: Amendment (01/19/95)
-38-
<PAGE> 43
15. Secured Party: GE Co.
Original File No.: 91243163
Original File Date: 11/14/91
16. Secured Party: GE Co.
Original File No.: 91260896
Original File Date: 12/11/91
17. Secured Party: GE Co.
Original File No.: 92010597
Original File Date: 01/21/92
18. Secured Party: GE Co.
Original File No.: 92044808
Original File Date: 03/06/92
19. Secured Party: GE Co.
Original File No.: 92190116
Original File Date: 09/02/92
Note: American Shared (not American Shared Hospital
Services) is also listed as a debtor.
20. Secured Party: GE Co.
Original File No.: 92190131
Original File Date: 09/02/92
Related Filing: Amendment (01/19/95)
Note: American Shared (not American Shared Hospital
Services) is also listed as a debtor.
21. Secured Party: GE Co.
Original File No.: 92209889
Original File Date: 09/28/92
Note: American Shared (not American Shared Hospital
Services) is also listed as a debtor.
22. Secured Party: GE Co.
Original File No.: 92209890
Original File Date: 09/28/92
Note: American Shared (not American Shared Hospital
Services) is also listed as a debtor.
23. Secured Party: GE Co.
Original File No.: 92215127
Original File Date: 10/05/92
24. Secured Party: GE Co.
Original File No.: 92219927
Original File Date: 10/13/92
25. Secured Party: GE Co.
Original File No.: 92235312
Original File Date: 11/09/92
26. Secured Party: GE Co.
-39-
<PAGE> 44
Original File No.: 92272827
Original File Date: 12/31/92
27. Secured Party: GE Co.
Original File No.: 93109475
Original File Date: 06/08/93
28. Secured Party: GE Co.
Original File No.: 93120679
Original File Date: 06/18/93
29. Secured Party: GE Co.
Original File No.: 93165290
Original File Date: 08/17/93
30. Secured Party: GE Co.
Original File No.: 93180328
Original File Date: 09/07/93
31. Secured Party: Siemens Credit Corporation
Original File No.: 93206731
Original File Date: 10/12/93
Related Filing: Amendment (10/24/94)
32. Secured Party: Southern Pacific Thrift & Loan Association
Original File No.: 93254003
Original File Date: 12/17/93
Related Filing: Assignment (05/25/95)
Note: American Shared Hospital Services and
CuraCare, Inc. are also listed as debtors.
33. Secured Party: GE Co.
Original File No.: 94018207
Original File Date: 02/02/94
34. Secured Party: GE Co.
Original File No.: 94018219
Original File Date: 02/02/94
35. Secured Party: GE Co.
Original File No.: 94048340
Original File Date: 03/18/94
36. Secured Party: General Electric Company
Original File No.: 9427660185
Original File Date: 09/20/94
37. Secured Party: General Electric Company
Original File No.: 9502160483
Original File Date: 01/17/95
-40-
<PAGE> 45
38. Secured Party: General Electric Company
Original File No.: 9502160496
Original File Date: 01/17/95
39. Secured Party: GE Co.
Original File No.: 92262311
Original File Date: 12/11/92
Note: American Shared (not American Shared
Hospital Services) and CuraCare are also listed as debtors.
40. Secured Party: GE Co.
Original File No.: 93120676
Original File Date: 06/18/93
Related Filing: Amendment (01/19/95)
Note: American Shared (not American Shared Hospital
Services) and CuraCare are also listed as
debtors.
41. Secured Party: GE Co.
Original File No.: 93120677
Original File Date: 06/18/93
Note: American Shared (not American Shared Hospital
Services) and CuraCare are also listed as
debtors.
42. Secured Party: GE Co.
Original File No.: 93120678
Original File Date: 06/18/93
Related Filing: Amendment (01/19/95)
Note: American Shared (not American Shared Hospital
Services) and CuraCare are also listed as
debtors.
43. Secured Party: GE Co.
Original File No.: 93149265
Original File Date: 07/27/93
Note: American Shared (not American Shared Hospital
Services) and CuraCare are also listed as
debtors.
44. Secured Party: Siemens Medical Systems, Inc.
Assignee: Siemens Credit Corporation
Original File No.: 9507960564
Original File Date: 03/16/95
Note: American Shared Hospital (not
American Shared Hospital Services)
is also listed as a debtor.
45. Secured Party: Siemens Medical Systems, Inc.
Assignee: Siemens Credit Corporation
Original File No.: 9507960757
Original File Date: 03/16/95
-41-
<PAGE> 46
46. Secured Party: Siemens Medical Systems, Inc.
Assignee: Siemens Credit Corporation
Original File No.: 9508160752
Original File Date: 03/20/95
47. Secured Party: Siemens Medical Systems, Inc.
Assignee: Siemens Credit Corporation
Original File No.: 9508160761
Original File Date: 03/20/95
48. Secured Party: Siemens Medical Systems, Inc.
Assignee: Siemens Credit Corporation
Original File No.: 9508160769
Original File Date: 03/20/95
49. Secured Party: General Electric Company
Original File No.: 9508060519
Original File Date: 03/20/95
50. Secured Party: General Electric Company
Original File No.: 9427660194
Original File Date: 09/20/94
51. Secured Party: DVI Business Credit Corporation*
Original File No.: 9514360428
Original File Date: 05/18/95
52. Secured Party: DVI Financial Services Inc.
Original File No.: 9514360445
Original File Date: 05/18/95
53. Secured Party: General Electric Company
Original File No.: 9525160523
Original File Date: 09/07/95
54. Secured Party: General Electric Company
Original File No.: 9601760266
Original File Date: 01/16/96
* to be terminated
Illinois, as of January 30, 1996:
1. Secured Party: General Electric Co.
Original File No.: 2438685
Original File Date: 06/14/88 (continued 05/21/93)
Related Filings: Amendment (08/17/88)
Amendment (08/22/89)
2. Secured Party: Bell Atlantic Tricon Leasing Corp.
Original File No.: 2871965
Original File Date: 07/12/91
-42-
<PAGE> 47
3. Secured Party: General Electric Co.
Original File No.: 3057039
Original File Date: 11/30/92
4. Secured Party: General Electric Co.
Original File No.: 3135105
Original File Date: 06/18/93
5. Secured Party: General Electric Co.
Original File No.: 3163640
Original File Date: 09/03/93
6. Secured Party: General Electric Co.
Original File No.: 3307318
Original File Date: 09/19/94
7. Secured Party: General Electric Co.
Original File No.: 3352630
Original File Date: 01/17/95
8. Secured Party: General Electric Co.
Original File No.: 3352631
Original File Date: 01/17/95
9. Secured Party: General Electric Co.
Original File No.: 3352632
Original File Date: 01/17/95
10. Secured Party: General Electric Co.
Original File No.: 3352633
Original File Date: 01/17/95
11. Secured Party: General Electric Co.
Original File No.: 3377633
Original File Date: 03/17/95
12. Secured Party: General Electric Co.
Original File No.: 3492876
Original File Date: 01/16/96
13. Secured Party: Colonial Pacific Leasing
Original File No.: 3498112
Original File Date: 01/26/96
Kansas, as of January 30, 1996:
No filings on record.
Oklahoma, as of January 25, 1996:
No filings on record.
-43-
<PAGE> 48
Pennsylvania, as of February 16, 1996:
No filings on record.
CURACARE, INC.
California, as of January 26, 1996:
1. Secured Party: GE Co.
Original File No.: 93120676
Original File Date: 06/18/93
Related Filing: Amendment (01/19/95)
Note: American Shared Hospital Services and
American Shared-CuraCare are also listed as
debtors.
2. Secured Party: GE Co.
Original File No.: 93120677
Original File Date: 06/18/93
Note: American Shared Hospital Services and
American Shared-CuraCare are also listed as
debtors.
3. Secured Party: GE Co.
Original File No.: 93120678
Original File Date: 06/18/93
Related Filing: Amendment (01/19/95)
Note: American Shared Hospital Services and
American Shared-CuraCare are also listed as
debtors.
4. Secured Party: GE Co.
Original File No.: 93149265
Original File Date: 07/27/93
Note: American Shared Hospital Services and
American Shared-CuraCare are also listed as
debtors.
5. Secured Party: Leasing Is Us Inc.
Assignee: First Concord Acceptance Corp.
Original File No.: 93196808
Original File Date: 09/27/93
Note: American Shared Hospital Services and
American Shared-CuraCare are also listed as
debtors.
6. Secured Parties: Bankers Leasing Assoc. Inc.
Allied Bank/Coal City National
Original File No.: 91124632
Original File Date: 06/07/91
Related Filing: Assignment (12/02/91)
Note: American Shared Hospital Services is also
listed as a debtor.
7. Secured Party: Southern Pacific Thrift & Loan Association,
Leasing Division
Original File No.: 93253914 Original
File Date: 12/17/93
-44-
<PAGE> 49
Related Filing: Assignment (06/23/95)
Note: American Shared Hospital Services is
also listed as a debtor.
8. Secured Party: Southern Pacific Thrift & Loan Association
Original File No.: 93254003
Original File Date: 12/17/93
Related Filing: Assignment (05/25/95)
Note: American Shared Hospital Services is
also listed as a debtor.
9. Secured Party: Marcap Corp.
Original File No.: 90195480
Original File Date: 08/02/90 (continued 05/01/95)
10. Secured Party: Marcap Corp.
Original File No.: 90233618
Original File Date: 09/20/90 (continued 05/01/95)
11. Secured Party: Sopha Financial Services Inc.
Original File No.: 92048133
Original File Date: 03/09/92
Related Filing: Amendment (07/27/92)
12. Secured Party: Med One Financial Group
Original File No.: 92176641
Original File Date: 08/12/92
13. Secured Party: Macrolease International Corp.
Assignee: Eaton Financial Corp.
Original File No.: 92178346
Original File Date: 08/14/92
14. Secured Party: Hewlett-Packard Co.
Original File No.: 92208197
Original File Date: 09/24/92
15. Secured Party: GE Co.
Original File No.: 92262311
Original File Date: 12/11/92
Note: American Shared Hospital Services
and CuraCare are also listed as
debtors.
16. Secured Party: Leasing Is Us Inc.
Assignee: Colonial Pacific Leasing
Original File No.: 92264223
Original File Date: 12/11/92
Related Filing: Amendment (10/06/95)
Note: American Shared Hospital Services and
American Shared-CuraCare are also listed as
debtors.
17. Secured Party: GE Co.
Original File No.: 93171398
Original File Date: 08/24/93
-45-
<PAGE> 50
18. Secured Party: GE Co.
Original File No.: 93223874
Original File Date: 11/04/93
19. Secured Party: Comlease Inc.
Assignee: CA Thrift & Loan
Original File No.: 94003821
Original File Date: 01/07/94
Related Filing: Amendment (04/04/94)
20. Secured Party: Leasing Is Us Inc.
Assignee: Advanta Leasing Corp.
Original File No.: 94081248
Original File Date: 04/25/94
21. Secured Party: Hewlett-Packard Co.
Original File No.: 94144369
Original File Date: 07/15/94
22. Secured Party: Sopha Financial Services, Inc.
Original File No.: 9434860003
Original File Date: 11/28/94
23. Secured Party: IBM Credit Corporation
Original File No.: 9500461153
Original File Date: 12/16/94
24. Secured Party: General Electric Company
Original File No.: 9503160987
Original File Date: 01/27/95
25. Secured Party: Hewlett-Packard Co.
Original File No.: 93211066
Original File Date: 10/18/93
26. Secured Party: DVI Business Credit Corporation*
Original File No.: 9514360434
Original File Date: 05/18/95
27. Secured Party: DVI Financial Services Inc.
Original File No.: 9514360456
Original File Date: 05/18/95
Related Filing: Amendment (05/24/95)
28. Secured Party: General Electric Company
Original File No.: 9520960850
Original File Date: 07/27/95
* to be terminated
-46-
<PAGE> 51
29. Secured Party: General Electric Company
Original File No.: 9520960859
Original File Date: 07/27/95
30. Secured Party: General Electric Company
Original File No.: 9521260421
Original File Date: 07/27/95
31. Secured Party: General Electric Company
Original File No.: 9530060031
Original File Date: 10/26/95
32. Secured Party: AT&T Capital Leasing Service, Inc.
Original File No.: 9523060564
Original File Date: 08/17/95
Note: CuraCare/Modesto is listed as the
debtor and not CuraCare Inc.
American Shared Hospital (not
American Shared Hospital Services)
is also listed as a debtor.
Illinois, as of January 30, 1996:
1. Secured Party: U.S. Concord Inc.
Original File No.: 2412847
Original File Date: 04/12/88 (continued 03/29/93)
Related Filing: Assignment (01/24/89)
2. Secured Party: Marcap Corp.
Original File No.: 2764031 (continued 05/03/95)
Original File Date: 09/20/90
3. Secured Party: Med One Financial Group
Original File No.: 2870444
Original File Date: 07/09/91
4. Secured Party: Eaton Financial Corp.
Original File No.: 3036107
Original File Date: 10/01/92
5. Secured Party: General Electric Co.
Original File No.: 3353337
Original File Date: 01/18/95
6. Secured Party: General Electric Co.
Original File No.: 3358931
Original File Date: 01/31/95
-47-
<PAGE> 52
Kansas, as of January 30, 1996:
No filings on record.
Oklahoma, as of January 25, 1996:
1. Secured Party: U.S. Concord Inc.
Original File No.: 028447
Original File Date: 05/12/88 (continued 03/30/93)
Related Filing: Assignment from Foothill Capital Corporation
(01/23/89)
Pennsylvania, as of February 16, 1996:
No filings on record.
-48-
<PAGE> 53
SCHEDULE 3.1
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Grant of Security Interest
<TABLE>
<CAPTION>
Tag No. Description Fac No. Serial No. Present Location
- ------- ----------- ------- ---------- ----------------
<S> <C> <C> <C> <C>
10216 &
10215 Mobile ADAC SPECT 1520 904073 Central California
10301 &
13000 Mobile ADAC SPECT 1521 904093 Central California
10208 Acuson 128 2454 3900 Southern CA
13027 Acuson 128 4521 2712 Bay Minette, AL
17447 H-P 500, Incl. color flow upgrade 1530 2543A02139 Manteca, CA
10027 H-P 1000 4620 2434A01305 Georgetown, SC
13157 H-P 1000 1534 2434A01306 Santa Cruz, CA
10294 H-P 1000 4620 2527A01930 Georgetown, SC
11145 Freeland Cineview echo 1534 19101372 Santa Cruz, CA
10137 ATL UM-9 4520 103186 Pensacola, FL
13122 ATL UM-9 4522 102685 Enterprise, AL
10136 ATL UM-9 4626 103187 Cordele, GA
17870 ATL UN-9 4521 100957 Atmore, AL
13146 Hitachi EUB 450 4626 SE12845-803 Cordele, GA
11068 MRI Siemens GBS2 8015 Reseda, CA
11133 ImageVue Digital Alys 4620 32340023 Georgetown, SC
19114 Picker 1200 SX in E & W 3675 560 Dickson, TN
13125 Picker 1200 SX in E & W 1590 506 Pauls Valley, OK
17467 Picker 1200 SX in E & W 4673 541 Sacramento, CA
13128 Picker 1200 SX in Calumet 1592 529M Vandolia, IL
17736 Picker 1200 SX Calumet 4670 5616 Sepulveda, CA
10067 Toshiba TCT 80AX in E & W 3575 3602266 Seminole, OK
15022 Toshiba TCT 80AX in E & W 3672 4572512 Wylie, TX
</TABLE>
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C>
10150(1) Toshiba TCT 80AX in E & W 3673 2582106 Windsor, NC
15032(2) Toshiba TCT 80AX in E & W 4674 4612413 Marrietta, OK
</TABLE>
(1) Customer has a $1.00 buyout option exercisable December 7, 1997
(2) Customer has a $1.00 buyout option exercisable February 28, 199
<PAGE> 55
SCHEDULE 4.2
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Mergers and Consolidations
NONE
<PAGE> 56
SCHEDULE 4.3
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Purchase of Assets Outside Ordinary Course of Business
NONE
<PAGE> 57
SCHEDULE 6.1
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Material Contracts
1. Four Embarcadero Center Office Lease dated August 30,
1994 by and between Four Embarcadero Center Venture and ASHS.
2. Equipment Lease Agreement #130-0001151-000 dated
September 28, 1993, as amended, between Siemens Credit Corporation ("Siemens")
and AS-CuraCare.
3. Equipment Service Agreement #130-0001329-000 dated
March 1, 1995, as amended, between Siemens and AS-CuraCare.
4. Equipment Lease Agreement #130-0001009-000 dated
August 14, 1992, as amended, between Siemens and ASHS.
5. Agreement effective as of November 1, 1994, as
amended effective as of October 1, 1995, by and among General Electric Company
acting through GE Medical Systems ("GE") and ASHS, together with (a)
correspondence from GE regarding the transactions contemplated by the Loan
Documents and (b) the Intercreditor Agreement.
6. Operating Agreement for GK Financing, LLC effective
as of October 17, 1995, as amended.
<PAGE> 58
SCHEDULE 8.6
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Litigation and Proceedings
1. Pursuant to a stipulation for settlement, settling a complaint for
Rent and other Damages for Breach of Lease filed November 17, 1994 in
San Francisco County Superior Court by 444 MLHIRP Partnership
("MLHIRP"), Plaintiff v. American Shared Hospital Services ("ASHS")
and DOES 1 through 10, Defendants, filed with the court on September
22, 1995, ASHS agreed to pay the following to MLHIRP until MLHIRP has
received $170,000: (i) $35,000 on or before August 25, 1995; (ii) 50%
of any funds received by ASHS in reimbursement of its security deposit
with its current landlord; and (iii) $6,428.57 per month, commencing
September 1, 1995. If ASHS defaults under the stipulation, ASHS has
stipulated to a judgment of $350,000 less any funds previously paid to
the stipulation.
2. Complaint for amounts owing to subcontractors by virtue of non-payment
by the general contractor on the E.H.S. Trinity Hospital construction
project. Liens have been filed against the project (not the property
of American Shared Hospital Services, CuraCare, Inc., and/or American
Shared CuraCare) in an amount of $78,471.79. The Company believes
that the claims are without merit and has filed a claim against the
general contractor for $165,652.79. The contractor has filed a
counter complaint to foreclose its lien of $165,652.79 which
complaint, the Company believes to be without merit.
3. Other litigation from time to time and in the normal course of
business of American Shared Hospital Services, CuraCare, Inc., and/or
American Shared - CuraCare resulting from Workers Compensation
incidents, vehicle accidents, and general and professional liability,
which matters are covered by the Companies, insurance policies and/or
for which the Companies have set aside financial reserves.
<PAGE> 59
SCHEDULE 9.11
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JANUARY 31, 1996
Permitted Distributions
1. Guarantor entered into an Assignment and Assumption Agreement, dated
as of December 31, 1995, with American Shared Radiosurgery Services ("ASRS"), a
wholly owned subsidiary of Guarantor, pursuant to which, Guarantor assigned to
ASRS all of its rights, title and interest in to the contract between Guarantor
and the Regents of the University of California dated July 3, 1990 as amended
August 1, 1995 (the "Contract"), relating to the lease and operation of the
Gamma Knife located at The University of California at San Francisco.
In turn ASRS has assigned its rights in the Contract to GK Financing,
LLC ("GKF") an affiliate of Guarantor, pursuant to an Assignment and Assumption
Agreement, dated as of December 31, 1995.
2. Individual Guarantor owned the Gamma Knife located at USC University
Hospital ("USC") and had rights in a related customer contract with USC.
Individual Guarantor granted to Guarantor an option to acquire the Gamma Knife
and the related customer contract. Guarantor subsequently permitted Individual
Guarantor to extend a similar option directly to GKF, which exercised that
option effective February 3, 1996. As a result of the preceding transactions,
GKF now owns the Gamma Knife located at USC and the related underlying customer
contract with USC.
3. Under the Operating Agreement for GKF, effective as of October 17,
1995, between ASRS and GKV Investments, Inc., as amended, GKF shall make
monthly guaranteed payments to ASRS commencing January 1996 until and including
September 1998 in the amounts set forth on Exhibit H thereto and, with the
prior approval of GKF's Policy Committee, monthly net cash flow distributions
to ASRS commencing January 1996 until and including September 1998 in the
amounts set forth on Exhibit I thereto. In addition to such distributions,
after repayments of all amounts loaned by any member to GKF, GKF will
distribute, on an annual basis, the balance of its net cash flow, in excess of
agreed-upon cash reserves, to its members according to their percentage
ownership interest in GKF.
<PAGE> 1
Exhibit 10.8
UNCONDITIONAL CONTINUING GUARANTY
(Loan Agreement)
THIS UNCONDITIONAL CONTINUING GUARANTY ("Guaranty") is made and entered into as
of January 31, 1996, for the benefit of DVI Business Credit Receivables Corp.
("Lender"), whose principal place of business is located at 500 Hyde Park,
Doylestown, Pennsylvania 18901, 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
1
<PAGE> 2
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, 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
2
<PAGE> 3
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 Section Section 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. 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.
3
<PAGE> 4
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.
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.
4
<PAGE> 5
11. CHOICE OF LAW. THIS GUARANTY SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES
BY: /s/ Ernest A. Bates, M.D.
--------------------------------
Ernest A. Bates, M.D.
President
5
<PAGE> 1
Exhibit 10.9
UNCONDITIONAL CONTINUING GUARANTY
(Loan Agreement)
THIS UNCONDITIONAL CONTINUING GUARANTY ("Guaranty") is made and entered into as
of January 31, 1996, for the benefit of DVI Business Credit Receivables Corp.
("Lender"), whose principal place of business is located at 500 Hyde Park,
Doylestown, Pennsylvania 18901, 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 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,
1
<PAGE> 2
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, 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
2
<PAGE> 3
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 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 Section Section 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
3
<PAGE> 4
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, 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
4
<PAGE> 5
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. THIS GUARANTY SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
INDIVIDUAL GUARANTOR:
/s/ Ernest A. Bates, M.D.
- --------------------------------------
ERNEST A. BATES, M.D.
5
<PAGE> 1
Exhibit 10.10
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT ("Agreement") is made and entered
into as of January 31, 1996 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 Receivables Corp.
("DVIBCRC" 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") is 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 a first priority lien.
B. DVIFS and DVI Business Credit Corporation ("DVIBC") provided
Debtor with loans, secured by, among other collateral, the Accounts Receivable
Collateral. Debtor concurrently entered into certain Loan and Security
Agreements with DVIFS and DVIBC, respectively, pursuant to which DVIFS and
DVIBC extended credit and made advances to Debtor. Debtor, DVIFS, DVIBC and GE
had previously entered into an Intercreditor Agreement.
C. DVIBCRC is providing Debtor with a loan, secured by, among
other collateral, the Accounts Receivable Collateral, replacing the loan from
DVIBC to Debtor. The loan from DVIFS was made pursuant to a Loan Agreement
with Debtor dated as of May 17, 1995 and the loan from DVIBCRC is being made
pursuant to a Loan
1
<PAGE> 2
Agreement dated on or about the date hereof (the "Loan Agreements").
D. GE provided 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).
E. 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.
F. 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.
G. DVI and Debtor represent and warrant that the Loan and
Security Agreement entered into by DVIBC with Debtor is being terminated
concurrently with the execution of this Agreement and that the Loan and
Security Agreement being entered into by DVIBCRC with Debtor is on
substantially the same terms as the terminated Loan and Security Agreement.
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 DVIBCRC or DVIFS due and payable under, and evidenced by, the Loan
2
<PAGE> 3
Agreements, and any extensions or renewals thereof, and whether direct or
indirect, absolute or contingent, now existing or hereafter arising.
(c) "DVIBCRC 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 DVIBCRC 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 DVIBCRC in connection
with such Liquidation in respect of DVIBCRC's first priority lien and security
interest in the Accounts Receivable Collateral.
(h) "UCC" shall mean the California Uniform
Commercial Code.
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
DVIBCRC Debt (i) DVIBCRC shall have a first
3
<PAGE> 4
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
DVIBCRC'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 DVIBCRC 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 DVIBCRC retains a security interest in the Accounts
Receivable Collateral, GE shall not take 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
4
<PAGE> 5
the UCSF Gamma Knife superior to DVI's security interest therein, if any, 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 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.
5
<PAGE> 6
(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) DVIBCRC 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 under this Agreement, and
with respect to the DVIBCRC Debt only, subject to the limitations set forth in
Section 1(c) above, increase or reduce the amount of the DVIBCRC 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 DVIBCRC 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
6
<PAGE> 7
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
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 DVIBCRC 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 DVIBCRC or DVIFS, at:
DVI Financial Services, Inc.
500 Hyde Park
Doylestown, PA 18901
Attn: Michael A. O'Hanlon
Telefacsimile Number: (215) 230-8108
7
<PAGE> 8
(b) If to GE, at:
GE Medical Systems
20825 Swenson 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 DVIBCRC, and each of
them and Debtor, the form of which shall be reasonably acceptable to GE in its
good faith judgment.
14. Termination of Agreement. Debtor, DVIFS, DVI Business
Credit Corporation ("DVIBC") and GE entered into an Intercreditor Agreement
dated as of May 17, 1995 (the "DVIBC Intercreditor Agreement"). Upon the
execution of this Agreement by all parties hereto, the DVIBC Intercreditor
Agreement is terminated.
8
<PAGE> 9
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
By: /s/ Ernest A. Bates, M.D.
-------------------------------
Title: Chief Executive Officer
------------------------
AMERICAN SHARED-CURACARE, a California
general partnership
By: AMERICAN SHARED HOSPITAL SERVICES
Its: General Partner
By: /s/ Ernest A. Bates, M.D.
--------------------------
Ernest A. Bates, M.D.
Chief Executive Officer
CURACARE, INC., a Delaware corporation
By: /s/ Ernest A. Bates, M.D.
-------------------------------
Ernest A. Bates, M.D.
Chief Executive Officer
DVI:
DVI FINANCIAL SERVICES INC.
By: /s/ Melvin C. Breaux
-------------------------------
Title: Vice President
------------------------
DVI BUSINESS CREDIT RECEIVABLES CORP.
By: /s/ Melvin C. Breaux
--------------------------------
Title: Vice President
-------------------------
9
<PAGE> 10
GE:
GENERAL ELECTRIC COMPANY, a New York
corporation acting through GE MEDICAL
SYSTEMS
By: /s/ R. S. Berger
-------------------------------------
Title: MGR - Financial Services
------------------------------
WITH RESPECT TO PARAGRAPH 14 ONLY
DVI BUSINESS CREDIT CORPORATION
By: /s/ Melvin C. Breaux
-------------------------------------
Title: Vice President
------------------------------
10
<PAGE> 1
Exhibit 10.13
AMENDMENT AGREEMENT
This Amendment Agreement is made and entered as of October 26, 1995,
by and between AMERICAN SHARED RADIOSURGERY SERVICES, INC. ("ASRS") and GKV
INVESTMENTS, INC. ("GKV").
WHEREAS, ASRS and GKV are parties to that certain Operating Agreement
for GK Financing, LLC dated as of October 17, 1995 (the "Operating Agreement");
WHEREAS, ASRS and GKV desire to amend the Operating Agreement in
certain respects;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, ASRS and GKV agree as follows:
1. Defined Terms.
All capitalized terms used herein which are defined in the
Operating Agreement shall have the meaning set forth in the Operating
Agreement.
2. Amendment.
Exhibit A of the Operating Agreement shall be deleted and
replaced with Exhibit A attached hereto.
3. Full Force and Effect.
Except as explicitly amended by this Amendment Agreement, the
provisions of the Operating Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the date first above-written.
GKV INVESTMENTS, INC.
By: /s/ Richard S. Grome
--------------------------------
Title: President
------------------------------
<PAGE> 2
AMERICAN SHARED RADIOSURGERY
SERVICES
By: /s/ Ernest A. Bates
--------------------------------
Title: Chairman
------------------------------
<PAGE> 3
EXHIBIT A
CAPITAL CONTRIBUTION OF MEMBERS OF GK FINANCING, LLC
<TABLE>
<CAPTION>
=======================================================================================================
MEMBER'S
MEMBER'S MEMBER'S MEMBER'S CAPITAL PERCENTAGE
NAME ADDRESS CONTRIBUTION INTEREST
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASRS See Section 12.12 See below 81%
- -------------------------------------------------------------------------------------------------------
GKV See Section 12.12 $232,000 in cash on date of 19%
ASRS's initial contribution of
the UCSF Assets, subject to
Paragraph 12.24 and $495,000 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 the such Gamma Knife (collectively,
("UCSF Assets")) The UCSF Assets shall not include accounts receivable. The
UCSF Assets shall be deemed to have a gross 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
19/81 times the exact net market value of the UCSF Assets as of the date of
their transfer.
<PAGE> 4
(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 approximately 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 gross 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 Assets to the Company shall be qual to 19/81 times the exact
net 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.
<PAGE> 5
(6) ASRS hereby represents and warrants to the Company and to GKV that
there is no suit, action, claim for 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.
<PAGE> 6
Exhibit 10.13
SECOND AMENDMENT AGREEMENT
This Amendment Agreement is made and entered as of December 20, 1995,
by and between AMERICAN SHARED RADIOSURGERY SERVICES, INC. ("ASRS") and GKV
INVESTMENTS, INC. ("GKV").
WHEREAS, ASRS and GKV are parties to that certain Operating Agreement
for GK Financing, LLC dated as of October 17, 1995, as amended by that certain
Amendment Agreement dated as of October 26, 1995 (the "Operating Agreement");
WHEREAS, ASRS and GKV desire to amend the Operating Agreement in
certain respects;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, ASRS and GKV agree as follows:
1. Defined Terms.
All capitalized terms used herein which are defined in the
Operating Agreement shall have the meaning set forth in the Operating
Agreement.
2. Amendment.
2.1 Exhibit A of the Operating Agreement shall be deleted
and replaced with Exhibit A attached hereto.
2.2. Paragraph 5.3 of the Operating Agreement is hereby
amended by deleting such paragraph in its entirety and inserting the following
in lieu thereof:
"5.3 GUARANTEED PAYMENTS; DISTRIBUTIONS OF NET CASH FLOW BY
COMPANY
A. For each calendar month listed on Exhibit H
hereto, the Company shall, subject to the provisions of paragraph (2)
of Exhibit A hereto, make a payment to ASRS in the amount set forth
on Exhibit H corresponding to such calendar month. Such payments are
intended to be guaranteed payments within the meaning of section
707(c) of the Code and are referred to herein as the "ASRS Guaranteed
Payments". Each ASRS Guaranteed Payment shall be made on the 17th day
of the calendar month.
B. Subject to any limitations found
<PAGE> 7
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 as follows: (A) for each calendar month listed on Exhibit I
hereto, the Company shall, subject to the provisions of paragraph (2)
of Exhibit A hereto, distribute an amount of Net Cash Flow set forth
on Exhibit I corresponding to such calendar month 100% to ASRS ("ASRS
Monthly Preferential Cash Flow Distribution"); and (B) the balance of
Net Cash Flow shall be distributed annually 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
used for ASRS Guaranteed Payments and 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 Company) (all as determined by the Manager as directed by the
Policy Committee); provided, however, (i) that no distribution of cash
will be made (except for ASRS Guaranteed Payments and ASRS Monthly
Preferential Cash Flow Distributions) 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."
2.3. The Operating Agreement shall be amended by adding
Exhibit H and Exhibit I attached hereto.
3. Full Force and Effect.
Except as explicitly amended by this Second Amendment
Agreement, the provisions of the Operating Agreement shall remain in full force
and effect.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the date first above-written.
GKV INVESTMENTS, INC.
By: /s/ Richard S. Grome
--------------------------------
Title: President
------------------------------
AMERICAN SHARED RADIOSURGERY
SERVICES
By: /s/ Ernest A. Bates
---------------------------------
Title: Chairman
------------------------------
<PAGE> 9
EXHIBIT A
CAPITAL CONTRIBUTION
<TABLE>
<CAPTION>
========================================================================================================
MEMBER'S
MEMBER'S MEMBER'S MEMBER'S CAPITAL PERCENTAGE
NAME ADDRESS CONTRIBUTION INTEREST
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASRS See Section 12.12 See below 81%
- --------------------------------------------------------------------------------------------------------
GKV See Section 12.12 $232,000 in cash on date of 19%
ASRS's initial contribution of
the UCSF Assets, subject to
Paragraph 12.24 and $495,000 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) Not later than December 31, 1995, 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 have
a gross 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
Asset to the Company shall be equal to 19/81 times the exact net market value
of the UCSF Assets as of the date of their transfer. The capital account of
ASRS shall be credited with an amount equal to the gross fair market value of
the UCSF Assets when the UCSF are transferred by ASRS to the Company.
<PAGE> 10
(2) The Company shall assume the obligations of ASRS under the UCSF
Contract which accrue from and after the date on which ASRS transfers the UCSF
Assets to the Company, but the Company shall assume no other obligations of
ASRS related to the UCSF Assets, including the UCSF Lease and accounts payable.
ASRS shall make (or cause to be made) all remaining payments and perform all
other remaining obligations of lessee under the UCSF Lease and shall indemnify
the Company, GKV and their affiliates in relation to such payments and other
obligations. If ASRS fails to make (or to cause to be made) a payment under
the UCSF Lease by the due date thereof (or by the end of any applicable cure
period provided for in the UCSF Lease), then, notwithstanding the provisions of
paragraph 5.3 of the Operating Agreement, no further payments of ASRS
Guaranteed Payments or ASRS Monthly Preferential Cash Flow Distributions shall
thereafter be made. 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 and their
Affiliates, ASRS shall promptly reimburse the Company, GKV and their Affiliates
for attorneys' fees incurred by them related thereto.
(3) ASRS represents and warrants that it has an option (the "USC Option")
to purchase from Ernest A. Bates ("Bates') 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 Bates 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 consideration for the purchase of
the USC Assets pursuant to the USC Option is the assumption of the obligations
of Bates under the USC Lease. On January 1, 1996, ASRS shall transfer good and
marketable title to the USC Option to the Company.
(4) The Company shall exercise the USC Option and purchase the USC Assets
from Bates. The Company shall assume the obligations of Bates under the USC
Lease and the USC Contract which accrue from and after the date on which Bates
transfers the USC Assets to the Company, but the Company shall assume no other
obligations of ASRS or Bates 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 attorney's 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 Bates 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) The USC Assets shall be deemed to have a gross 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 Assets to the Company shall be
equal to 19/81 times the exact net market value of the USC Assets as of the
date of their transfer. The net market value of the USC Assets (and the fair
market value of the USC Option) shall be equal to the gross fair market value
of the USC Assets less the outstanding principal
<PAGE> 11
balance of the USC Lease as of the date of transfer of the USC Option to the
Company. The capital account of ASRS shall be credited with the fair market
value of the USC Option.
(6) ASRS hereby represents and warrants to the Company and to GKV that the
UCSF Contract, the UCSF Lease, the USC Option, 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 as well as the USC
Option.
(7) 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.
(8) If on a fiscal year basis, the cash flow (defined as revenues less
direct cash operating expenses) generated by the USC Assets is insufficient to
service the lease payments under the USC Lease or the cash flow generated by
the UCSF Assets is insufficient to make the ASRS Guaranteed Payments and the
ASRS Monthly Preferential Cash Flow Distribution, ASRS shall reimburse the
Company in cash for the difference, without credit to the Capital Account of
ASRS for such payment.
<PAGE> 12
EXHIBIT H
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ASRS GUARANTEED PAYMENTS
- --------------------------------------------------------------------------------------------------------------
Payment Due 17th of month Amount of ASRS Guaranteed Payment
Number
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Jan-96 $5,692.00
- --------------------------------------------------------------------------------------------------------------
2 Feb-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
3 March-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
4 April-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
5 May-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
6 June-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
7 July-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
8 Aug-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
9 Sept-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
10 Oct-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
11 Nov-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
12 Dec-96 $8,414.68
- --------------------------------------------------------------------------------------------------------------
13 Jan-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
14 Feb-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
15 March-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
16 April-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
17 May-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
18 June-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
19 July-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
20 Aug-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
21 Sept-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
22 Oct-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
23 Nov-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
24 Dec-97 $5,062.34
- --------------------------------------------------------------------------------------------------------------
25 Jan-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
26 Feb-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
27 March-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
28 April-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
29 May-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
30 June-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
31 July-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
32 Aug-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
33 Sept-98 $1,703.90
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
EXHIBIT I
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ASRS MONTHLY PREFERENTIAL CASH FLOW DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------------------
Payment Due 17th of month Amount of ASRS Monthly Cash Flow
Number Distribution
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Jan-96 $17,090.00
- --------------------------------------------------------------------------------------------------------------
2 Feb-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
3 March-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
4 April-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
5 May-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
6 June-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
7 July-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
8 Aug-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
9 Sept-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
10 Oct-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
11 Nov-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
12 Dec-96 $31,788.27
- --------------------------------------------------------------------------------------------------------------
13 Jan-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
14 Feb-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
15 March-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
16 April-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
17 May-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
18 June-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
19 July-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
20 Aug-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
21 Sept-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
22 Oct-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
23 Nov-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
24 Dec-97 $35,140.61
- --------------------------------------------------------------------------------------------------------------
25 Jan-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
26 Feb-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
27 March-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
28 April-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
29 May-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
30 June-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
31 July-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
32 Aug-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
33 Sept-98 $38,499.05
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 21.0
The subsidiaries of American Shared Hospital Services are:
CuraCare, Inc.
a Delaware corporation
MMRI, Inc.
a California corporation
European Shared Medical Services Limited
an English registered company
American Shared Radiosurgery Services
a California corporation
African American Church Health and Economic Services, Inc.
a California corporation
ACHES Insurance Services, Inc.
a California corporation
GK Financing, LLC
a California limited liability company
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 20, 1996 (except for Note 16, as to which the
date is March 8, 1996) in Amendment No. 1 to the Registration Statement (Form
S-1, No. 33-63721) and the related Prospectus of American Shared Hospital
Services for the registration of 1,732,000 shares of its common stock and
441,147 warrants to purchase its common stock.
Walnut Creek, California ERNST & YOUNG, LLP
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 945
<SECURITIES> 0
<RECEIVABLES> 7564
<ALLOWANCES> 1313
<INVENTORY> 67
<CURRENT-ASSETS> 8646
<PP&E> 33686
<DEPRECIATION> 14015
<TOTAL-ASSETS> 31345
<CURRENT-LIABILITIES> 15439
<BONDS> 26125
0
0
<COMMON> 10635
<OTHER-SE> 930
<TOTAL-LIABILITY-AND-EQUITY> 31345
<SALES> 34077
<TOTAL-REVENUES> 34077
<CGS> 0
<TOTAL-COSTS> 33275
<OTHER-EXPENSES> 8432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5310
<INCOME-PRETAX> (12456)
<INCOME-TAX> 3
<INCOME-CONTINUING> (12459)
<DISCONTINUED> 0
<EXTRAORDINARY> 19803
<CHANGES> 0
<NET-INCOME> 7344
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
</TABLE>
