<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM___________________ TO ________________
COMMISSION FILE NUMBER 1-8789
AMERICAN SHARED HOSPITAL SERVICES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2918118
STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
FOUR EMBARCADERO CENTER, SUITE 3620, SAN FRANCISCO, CALIFORNIA 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (415)788-5300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
COMMON STOCK NO PAR VALUE AMERICAN STOCK EXCHANGE
PACIFIC EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO/ /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/
AS OF MARCH 20, 1998, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $6,229,519.
NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING AS OF MARCH 20,
1998: 4,769,384.
NO DOCUMENTS ARE INCORPORATED BY REFERENCE IN THIS REPORT.
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PART I
ITEM 1.
BUSINESS
GENERAL
American Shared Hospital Services ("ASHS" and together with its subsidiaries,
the "Company") primarily provides shared diagnostic imaging services and
radiosurgery services to more than 200 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. Radiosurgery
services are performed by the Company through its subsidiary, GK Financing, LLC,
a California limited liability company ("GKF"), which provides Gamma Knife units
to three major medical centers. The Company also provides Cardiac
Catheterization Laboratory and Respiratory Therapy services.
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. ("CuraCare") 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 American Shared -
CuraCare ("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, ASHS's co-venturer in
AS-C, from Tenet for $4,200,000. MMRI's only asset is its 50% interest in AS-C.
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, the Company 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 California and New York.
On October 17, 1995, the Company, through its wholly-owned subsidiary, American
Shared Radiosurgery Services ("ASRS"), and Elekta Holdings U.S., Inc.
("Elekta"), through its wholly-owned 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."
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RECENT DEVELOPMENTS
On March 12, 1998, the Company and MMRI entered into a Securities Purchase
Agreement (the "Purchase Agreement") with Alliance Imaging, Inc., and two of its
subsidiaries (collectively, the "Purchaser"). Pursuant to the Purchase
Agreement, the Purchaser would acquire all of the outstanding common stock of
CuraCare and all of the partnership interests in AS-C. These entities together
constitute the Company's diagnostic imaging business through which it provides
MRI, CT, Ultrasound, Nuclear Medicine services, as well as Cardiac
Catheterization Laboratory, and Respiratory Therapy services. The purchase price
is $13,552,000 in cash and the assumption by the Purchaser of the liabilities of
the Company's diagnostic imaging business, including approximately $26.1 million
in debt. Following the transaction, the Company will continue to provide Gamma
Knife radiosurgery services through its 81% interest in GKF.
The proposed transaction is subject to customary conditions, including receipt
of regulatory approvals and the approving vote of the holders of a majority of
the Company's outstanding common shares. The Company will seek the approval of
its shareholders in the near future, and expects the transaction to be
consummated in the third quarter of 1998. The Company, however, can give no
assurance that the transaction will in fact be consummated.
OPERATIONS
DIAGNOSTIC IMAGING SERVICES
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 an
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 as of December 31, 1997, to 216 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. Third party reimbursement comprises approximately 10% of the
Company's medical services 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
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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 MRI units on a
shared-service basis. The Company believes that it has a competitive advantage
because of its strategy of operating primarily top-of-the-line, high magnetic
field strength (1.5 Tesla superconductive magnet systems) mobile MRI units. MRI
units containing higher strength magnets are preferred technology because they
provide improved image quality, faster operating speed and greater potential for
new applications than do MRI units with less powerful magnets. Of the Company's
27 MRI units operating at December 31, 1997, 17 of such units are 1.5 Tesla
units, 7 are 1.0 Tesla units, and 3 are 0.5 Tesla units. All of the company's
MRI units are mobile or transportable. The Company had 146 MRI customers at
December 31, 1997, compared to 144 customers as of December 31, 1996. MRI
revenues constituted 76%, 75% and 73% of total medical services revenues in
years 1997, 1996 and 1995, 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 operated 15 CT units as of December 31, 1997. CT utilizes multiple
x-ray beams and detectors to derive information that 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 lumbosacral region, 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
8%, 10% and 10% of medical services revenues in 1997, 1996 and 1995,
respectively.
ULTRASOUND AND NUCLEAR MEDICINE
The Company owns and operates approximately 18 systems providing Ultrasound and
Nuclear Medicine services as of December 31, 1997. Ultrasound technology applies
high-frequency pulsed and continuous sound waves to the body. These sound waves
strike vessels and other internal body structures and echo back to the
equipment, where they register upon a video monitor. Ultrasound systems provide
a low medical risk, non-invasive procedure for determining the primary diagnosis
in renal, pancreatic, vascular and abdominal diseases and obstetrics. Nuclear
Medicine is a diagnostic imaging system utilizing short-lived radioactive
isotopes and computers to perform various examinations and process the resulting
medical data for the
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physician to establish the presence or absence of disease. Nuclear Medicine not
only provides an anatomic image, but also provides functional information that
cannot be provided by MRI or CT.
Nuclear Medicine services of the Company primarily consist of Single Photon
Emission Computed Tomography ("SPECT") wherein radioisotopes are injected into
the patient and the patient is subsequently imaged by a camera that 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 a shared
service 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. The Company's Nuclear
Medicine services consist of one mobile SPECT system as of December 31, 1997.
Ultrasound and Nuclear Medicine revenues were approximately 6% of medical
services revenues in 1997 and 7% and 8% in 1996 and 1995, respectively.
GAMMA KNIFE
The Gamma Knife treats certain vascular malformations and intracranial tumors
without surgery. The Gamma Knife defines a small three dimensional intracranial
target volume and delivers a clinically significant dose of radiation
(Cobalt-60) within the target volume while avoiding the delivery of a clinically
significant dose beyond the target volume to healthy tissue.
The Company's first Gamma Knife, which is operated by GKF at a major university
medical center on a fee-per-procedure basis, commenced operation in September
1991. The Company's second Gamma Knife, which became operational on August 3,
1994, was contributed to GKF in February 1996. GKF commenced operation of its
third Gamma Knife unit in September, 1997 at a medical center on a
fee-per-procedure basis.
GAMMA KNIFE JOINT VENTURE
The Company, through ASRS, a California corporation, and Elekta, through its
wholly-owned subsidiary, GKV, entered into an operating agreement on October 17,
1995, to form GKF, a California limited liability corporation. Pursuant to the
operating agreement, as amended, the Company contributed its Gamma Knife units
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-for-service basis. The
results of operations of GKF are 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.
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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 that
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. Revenue on all contracts and
contract amendments is recognized as earned based upon services provided for
each monthly period.
At the end of 1997, the Company employed twelve sales and marketing and two
regional operational managers. 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 1997 or 1996.
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. Mobile diagnostic
services providers with greater financial resources may have increased access to
capital and are better able to withstand adverse market conditions.
The increased competition among MRI equipment manufacturers has resulted in
greater availability to end users of new imaging equipment from manufacturers at
more competitive prices. Lower equipment pricing may make it more advantageous
for the end user to purchase the equipment rather than contracting with
full-service providers such as the Company.
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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. 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 have 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.
Effective October 1, 1997, Gamma Knife services for Medicare hospital
in-patients were reclassified from DRG 1 to either DRG 7 or DRG 8. This
reclassification is estimated to reduce hospital revenues from the Medicare DRG
program by approximately 30%. This reclassification does not directly effect
other third party payors, which comprise the majority of the hospital's payors.
The Company is not currently directly impacted by the change, because all of its
existing contracts are reimbursed by the hospital to the Company on a
fee-per-service basis. However, the Company has entered into one contract that
has not yet commenced on a shared revenue basis. Revenues under this contract
will be reduced due to the reimbursement rate change. A significant number of
future contracts for Gamma Knife services may be based on a shared revenue
instead of a fee-for-service basis.
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 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.
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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 self 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 cannot determine what impact this legislation will have on
the 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's Gamma Knife units contain Cobalt-60 radioactive sources. The
medical centers which house the Company's Gamma Knife units are responsible for
obtaining possession and user's licenses for the Cobalt-60 source.
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.
The Company believes it is in substantial compliance with the various rules and
regulations which effect its businesses.
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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, 1997, the Company employed approximately 189 employees on a
full-time basis and approximately 155 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.
ITEM 2.
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 $8,893
per month. This lease runs through September 1999. The Company also leases
office space in Modesto, California. Additional properties are leased by the
Company principally for field operations and sales support in West Chicago,
Illinois, and Sacramento, California.
For the year ended December 31, 1997, the Company's aggregate net rental
expenses for all properties and equipment were approximately $3,285,000.
ITEM 3.
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.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common shares, no par value (the "Common Shares"), are currently
traded on the American Stock Exchange ("AMEX") and the Pacific Exchange ("PCX").
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 $1-11/16 at March 20, 1998. The Company has been advised that
its net capital deficiency is inconsistent with the criteria applied by the PCX
for continued listing on such exchange. The AMEX and the PCX are continuing to
monitor the Company's financial condition 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 the Company 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, 1996 2 1-1/4
June 30, 1996 2 1-1/4
September 30, 1996 1-3/4 1-1/4
December 31, 1996 1-15/16 1-3/16
March 31, 1997 2-3/16 1-3/8
June 30, 1997 1-5/8 3/4
September 30, 1997 1-7/8 1
December 31, 1997 2-3/16 1-7/16
</TABLE>
The Company estimates that there were approximately 1200 beneficial holders of
its Common Shares as of December 31, 1997.
The Company did not pay cash dividends in 1997, 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.
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ITEM 6.
SELECTED FINANCIAL DATA SUMMARY OF OPERATIONS
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995(1) 1994 1993(2)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Medical services revenues $ 37,172 $ 36,989 $ 34,077 $ 38,545 $ 39,485
======== ======== ======== ======== ========
Costs of operations 27,044 28,071 32,675 34,145 37,071
Selling and administrative expense 5,901 5,309 8,432 5,971 6,820
Interest expense 3,671 4,199 5,310 7,423 6,752
Write-down of intangible assets 0 0 600 0 5,308
-------- -------- -------- -------- --------
Total costs and expenses 36,616 37,579 47,017 47,539 55,951
-------- -------- -------- -------- --------
556 (590) (12,940) (8,994) (16,466)
Gain on sale of assets and early termination 821 3 226 3,294 124
of capital leases
Interest and other income 155 227 258 183 691
-------- -------- -------- -------- --------
Income (loss) before income taxes and 1,532 (360) (12,456) (5,517) (15,651)
extraordinary item
Income tax provision (benefit) 10 (7) 3 20 (7)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 1,532 (353) (12,459) (5,537) (15,644)
Extraordinary item 0 0 19,803 362 0
-------- -------- -------- -------- --------
Net income (loss) $ 1,522 $ (353) $ 7,344 $ (5,175) $(15,644)
======== ======== ======== ======== ========
Earnings (loss) per common share: $ 0.32 $ (0.08) ($ 2.96) $ (1.93) $ (5.46)
Income (loss) before extraordinary item
Extraordinary item $ 0.00 $ 0.00 $ 4.71 $ 0.13 $ 0.00
-------- -------- -------- -------- --------
Net income (loss) $ 0.32 $ (0.08) $ 1.75 $ (1.80) $ (5.46)
======== ======== ======== ======== ========
Earnings (loss) per common share assuming dilution:
Income (loss) before extraordinary item $ 0.24 $ (0.08) $ (2.96) $ (1.93) $ (5.46)
Extraordinary item $ 0.00 $ 0.00 $ 4.71 $ 0.13 $ 0.00
-------- -------- -------- -------- --------
Net income (loss) per common share assuming dilution:
$ 0.24 $ (0.08) $ 1.75 $ (1.80) $ (5.46)
======== ======== ======== ======== ========
</TABLE>
See Accompanying Notes
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BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996 1995(1) 1994 1993(2)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital deficiency $ (8,039) $(10,888) $ (6,793) $(33,369) $(56,518)
Total assets 30,209 32,969 31,335 47,222 50,179
Current portion of long-term debt and 10,929 13,182 8,720 11,214 26,635
obligation under capitalized leases
Long-term debt and obligations under 21,569 23,935 26,125 24,244 3,106
capitalized leases less current
portion
Senior subordinated notes 0 0 773 18,467 18,788
Stockholders' equity (Net capital $ (8,953) $(10,475) $(10,576) $(22,341) $(17,754)
deficiency)
See Accompanying Notes
</TABLE>
(1) 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 through 1997.
(2) 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 1997.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company had net income of $1,522,000 ($0.32 per share) on medical services
revenues of $37,172,000 in 1997. The Company had a net loss of $353,000 ($(0.08)
per share) on medical services revenues of $36,989,000 in 1996.
TOTAL REVENUES
<TABLE>
<CAPTION>
Increase Increase
(In Thousands) 1997 (Decrease) 1996 (Decrease) 1995
- -------------- ---- ---------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Medical Services $37,172 0.5% $36,989 8.6% $34,077
</TABLE>
12
<PAGE> 13
Medical services revenues increased 0.5% in 1997 compared to 1996, and increased
8.6% in 1996 compared to 1995. The 0.5% increase in 1997 and the 8.6% increase
in 1996 compared to prior years were primarily due to increases in MRI revenues.
MRI revenues increased 2% ($650,000) in 1997 compared to 1996 and increased 11%
($2,667,000) in 1996 compared to 1995. The increases in 1997 and 1996 were
primarily due to the commencement of new customer contracts and increased
utilization from contracts commenced in prior periods. MRI revenues as a
percentage of total medical services revenues were 76%, 75% and 73% in years
1997, 1996 and 1995, respectively.
The Company's non-MRI diagnostic imaging services revenues decreased 19%
($1,176,000) in 1997 compared to 1996 after a 1% ($60,000) decrease in 1996
compared to 1995. The revenue decline in 1997, compared to 1996, was primarily
attributable to decreased CT revenue which was due to utilization of two (2)
fewer CT units in 1997, and decreased nuclear medicine revenue due to the
termination of an in-house nuclear medicine contract in March 1997. Revenues
from CT operations decreased $614,000 in 1997 and $26,000 in 1996 from 1995
revenues of $3,563,000. The decrease in Nuclear Medicine and Ultrasound revenues
was $562,000 in 1997 and $34,000 in 1996 from a 1995 revenue base of $2,782,000.
Non-MRI diagnostic imaging services revenues as a percentage of total medical
services revenues was 14%, 17% and 18% for the years ended 1997, 1996 and 1995,
respectively. The Company's CT, Ultrasound, and Nuclear Medicine services
revenues continue to decline because customers are increasingly buying their own
equipment.
Contract service revenues consisting of Respiratory Therapy services and Cardiac
Catheterization Laboratory revenues increased $354,000 in 1997 compared to 1996
and decreased $415,000 in 1996 compared to 1995. The increase in 1997 was
primarily due to revenues from the Cardiac Catheterization Laboratory contracts
which commenced May 1996 and December 1996, respectively. The decrease in 1996
compared to 1995 resulted primarily from four terminated Respiratory Therapy
service contracts in 1995. The Company currently has one Respiratory Therapy
service contract.
Gamma Knife revenues increased $354,000 and $705,000 in 1997 and 1996,
respectively, compared to the prior years. The 1997 increase was primarily due
to the commencement of a third Gamma Knife unit in September 1997. The increase
in 1996 was a result of the inclusion of results of the Company's second Gamma
Knife beginning in February 1996.
COST OF OPERATIONS
<TABLE>
<CAPTION>
Increase Increase
(In Thousands) 1997 (Decrease) 1996 (Decrease) 1995
- -------------- ---- ---------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Cost of Operations, Exclusive of $27,044 (3.7%) $28,071 (2.7%) $28,850
Write-Down of Equipment
Percentage of Revenue 72.8% 75.9% 84.7%
Write-Down of Equipment $ 0 0% $ 0 (100.0%) $ 3,825
Percentage of Revenue 0.0% 0.0% 11.2%
</TABLE>
13
<PAGE> 14
The Company's cost of operations, consisting of payroll, maintenance and
supplies, depreciation and amortization, equipment rental and other operating
expenses (such as vehicle fuel, building rents, regional office costs,
insurance, property taxes, bad debt expense, fees and training expenses)
decreased $1,027,000 in 1997 and $4,604,000 in 1996 compared to prior years.
Medical services payroll costs, the largest component of total cost of
operations, increased by $221,000 in 1997 compared to 1996 and increased by
$328,000 in 1996 compared to 1995. Medical services payroll costs as a percent
of medical services remains constant at 20% in years 1997, 1996 and 1995. The
1997 and 1996 increase was primarily due to staffing increases to service
additional MRI customer volumes and an increase in staffed units in 1997.
The Company's maintenance and supplies costs were 16%, 18% and 20% of medical
service revenues in 1997, 1996 and 1995 respectively. Maintenance and supplies
costs decreased $739,000 in 1997 compared to 1996 and decreased $68,000 in 1996
compared to 1995. The decreases in 1997 and 1996 are primarily attributable to
MRI maintenance cost savings.
Depreciation and amortization decreased $233,000 in 1997 compared to 1996 and
$1,671,000 in 1996 compared to 1995. The decrease in 1997 was primarily
attributable to decreased MRI and nuclear medicine depreciation as a result of
fewer MRI units accounted for as capital leases in 1997. The decrease in 1996 is
primarily attributable to the early adoption of Financial Accounting Standards
No. 121 (FAS 121) during the second quarter of 1995 as explained in 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
commencing the fourth quarter of 1995.
Equipment rental as a percentage of medical services revenues was 7% in 1997, 9%
in 1996 and 8% in 1995. Equipment rental decreased $763,000 in 1997 compared to
1996 and increased $641,000 in 1996 compared to 1995. The decrease in 1997 is
primarily attributable to the return of five (5) MRI rental units which resulted
from mobile route consolidation and customer contract terminations. The increase
in 1996 is primarily attributable to the utilization of short-term MRI and CT
rentals to meet customer commitments.
Other costs of operations as a percentage of medical services revenues was 12%,
11% and 12% in 1997, 1996 and 1995, respectively. The increase of $487,000 in
1997 compared to 1996 reflects increased fuel, personal property tax costs,
insurance, and bad debt expenses. The decrease of $9,000 in 1996 compared to
1995 reflects a decrease in equipment and CON related costs and regional office
administrative costs offset by increased fuel costs, MRI space rental costs and
physician reading fees.
In connection with the early adoption of the statement of Financial Accounting
Standards No. 121 (FAS 121) during the second quarter of 1995, management
reviewed the recoverability of the carrying value of long-lived assets,
primarily fixed assets, goodwill and deferred costs. 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 and reduced forecasted operating results for certain assets to a level
below previous expectations. Following its review, management concluded that
there was an impairment in the recorded value of fixed assets, goodwill and
deferred costs under FAS 121 based on management's estimate of future
undiscounted cash flows over the 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
14
<PAGE> 15
$3,825,000 (primarily MRI, CT and Nuclear Medicine) and goodwill of $600,000.
SELLING AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Increase Increase
(In Thousands) 1997 (Decrease) 1996 (Decrease) 1995
- -------------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C>
Selling and Administrative Costs $5,901 11.2% $5,309 (37.0%) $8,432
Percentage of Revenue 15.9% 14.4% 24.7%
</TABLE>
The Company's selling and administrative costs increased $592,000 in 1997
compared to 1996 and decreased $3,123,000 in 1996 compared to 1995. The increase
in 1997 was primarily due to increased sales and administrative payroll costs,
building rental costs, audit and tax fees and legal fees associated with a
proposed acquisition of the Company which was not consummated. The decrease in
1996 is primarily attributable to a 1995 stock compensation expense totaling
$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 services 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." The decrease in 1996 was also
related to reduced legal and insurance costs.
INTEREST EXPENSE
<TABLE>
<CAPTION>
Increase Increase
(In Thousands) 1997 (Decrease) 1996 (Decrease) 1995
- -------------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C>
Interest Expense $3,671 (12.6%) $4,199 (20.9%) $5,310
Percentage of Revenue 9.9% 11.4% 15.6%
</TABLE>
The Company's interest expense decreased $528,000 in 1997 compared to 1996 and
$1,111,000 in 1996 compared to 1995. The decrease in 1997 and 1996 are primarily
attributable to a lower outstanding amount of interest bearing debt due to the
repurchase by the Company on May 17, 1995 of $17,964,000 aggregate principal
amount of its Senior Subordinated Notes, the exchange for common shares
($413,000 aggregate principal amount) and payment at maturity ($360,000
aggregate principal amount) of its Senior Subordinated Notes in the third and
fourth quarters of 1996, respectively, and decreased capitalized lease-related
interest.
WRITE-DOWN OF INTANGIBLE ASSETS
(In Thousands)
<TABLE>
<CAPTION>
Increase Increase
1997 (Decrease) 1996 (Decrease) 1995
----- ---------- ----- ---------- ----
<S> <C> <C> <C> <C> <C>
Write-down of Intangible Assets 0 0.0% $ 0 (100%) $600
Percentage of Revenue 0.0% 0.0% 1.8%
</TABLE>
15
<PAGE> 16
The Company's write-down of intangible assets decreased $600,000 in 1996 as
compared to 1995. The decrease in 1996 compared to 1995 is solely attributable
to the early adoption of FAS 121 in the second quarter of 1995. See "Cost of
Operations" above.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project cost has not been estimated, but is not expected to be material.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made or are not completed timely, the Year 2000 issue
could have a material impact on the operations of the Company.
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
(In Thousands) Increase Increase
1997 (Decrease) 1996 (Decrease) 1995
-------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
$821 27,267% $ 3 (98.7%) $226
Gain on Sale of Assets and Early Termination
of Capital Leases
Percentage of Revenue 2.2% 0.0% 0.7%
Interest and Other Income $155 (31.7%) 227 (12.0%) 258
Percentage of Revenue 0.4% 0.6% 0.8%
</TABLE>
The Company's gain on sale of assets and early termination of capital leases
increased $818,000 in 1997 compared to 1996 and decreased $223,000 in 1996
compared to 1995. The increase in 1997 was the result of a gain on the early
termination of a capital lease ($141,000) when the customer's in-house nuclear
medicine contract was terminated during March 1997, an insurance settlement
($388,000) following the loss of a mobile MRI unit in an accident during second
quarter 1997, a gain on sale of another MRI unit ($140,000) during third quarter
1997 and a gain on sale of a mobile SPECT unit ($115,000) in the fourth quarter
of 1997. Gain on sale of equipment fluctuates depending on the timing of asset
dispositions. The Company continues to sell non-essential assets in the normal
course of business.
NET INCOME (LOSS)
<TABLE>
<CAPTION>
(In Thousands, Increase Increase
except per share amounts) 1997 (Decrease) 1996 (Decrease) 1995
- ------------------------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item $1,532 525.6% $ (360) (97.1%) $(12,456)
Percentage of Revenue 4.1% (1.0%) (36.6%)
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C>
Income (loss) Per Share $ 0.32 500.0% $(0.08) (97.3%) $ (2.96)
Extraordinary item $0 0.0% $ 0 (100.0%) $ 19,803
Extraordinary Item, $ 4.71
Per share $ 0.00 0.00% $ 0.00 (100.0%)
Net Income (loss) $1,522 531.2% $ (353) (104.8%) $ 7,344
Net Income (loss) per share $ 0.32 500.0% $(0.08) (104.6%) $ 1.75
</TABLE>
The Company had net income of $1,522,000 in 1997 compared to a net loss of
$353,000 for 1996. Net income for 1997 resulted in part from increased operating
margins and in part from gains from early termination of capital leases and sale
of assets.
The Company had a net loss of $353,000 for 1996 compared to net income of
$7,344,000 for 1995. 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 Company's 14-3/4% and 16-1/2%
Senior Subordinated Notes due October 15, 1996 net of cash, Common Shares and
warrants to purchase Common Shares issued and transaction related costs of
$3,893,000, $1,836,000 and $1,015,000, respectively. Included in the Company's
1995 results was a charge of $4,425,000 due to adoption of FAS 121 and stock
compensation expense of $2,679,000 (see "Selling and Administrative").
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $17,000 at December 31, 1997
compared to $368,000 at December 31, 1995. The Company's cash position decreased
$351,000 due primarily to the Company's debt payment requirements and working
capital needs.
Restricted cash at December 31, 1997 and December 31, 1996 reflects cash that
may only be used for the operations of GK Financing, LLC. The increase in
restricted cash is due to cash flow from Gamma Knife operations.
On May 17, 1995, the Company repurchased (the "Notes Repurchase") for cash and
securities approximately 96% of its outstanding Senior Subordinated Notes
("Subordinated Notes"). The Notes Repurchase, together with a 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 as more
fully explained in the Company's 1996 Form 10-K.
On December 29, 1995 and March 1, 1996, the Company further restructured certain
of its medical equipment leases and related notes (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 due at
the beginning of 1996. This further restructuring resulted in payment reductions
of approximately $1,200,000 for the Company in 1996 and subsequent years.
The various restructuring transactions described above cured all of the
Company's then-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
equipment capital lease payments and operating lease payments during the 12
months ending December 31, 1998 are $7,487,000 and $2,551,000, respectively,
with related maintenance commitments of approximately
17
<PAGE> 18
$1,916,000. Scheduled interest and principal payments under the Company's other
debt obligations during such period are approximately $4,855,000 which excludes
the Company's revolving line of credit balance of $5,438,000 at December 31,
1997 ($5,207,000 at February 28, 1998) whose maturity has been extended to May
31, 1999. Although the Company's operating performance has improved, the Company
is uncertain it will have the cash resources to pay all of its obligations when
they are due. Accordingly, the Company will continue its program of expense
reductions, revenue enhancements and asset sales as well as refinancing or
renegotiating the terms of its fixed obligations ("Program"). The Company's
ability to meet its obligations when due are dependent upon the success of the
Company's Program. 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 obligations 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.
As part of the Program, the Company in March 1996 sold its Modesto buildings for
$650,000 in cash, and negotiated an increase in its working capital line of
credit to $5,500,000 and extended its maturity date by two years to May 31,
1999. The Company also completed in August 1996 an exchange offer (the "Exchange
Offer") for $413,000 aggregate principal amount of Subordinated Notes. The
purpose of the Exchange Offer was to improve the Company's capital structure and
relieve the Company of the requirement to pay $836,000 of principal and interest
in October, 1996 when the Subordinated Notes were to mature. In the Exchange
Offer, the Company issued approximately 287,000 additional shares of Common
Stock for $413,000 principal amount of Subordinated Notes. The remaining
$360,000 of the Subordinated Notes was paid at maturity on October 16, 1996.
In the long term, the Company believes that it must respond to fundamental
changes in the industry. The medical diagnostic imaging business, both mobile
and fixed, is in a period of consolidation as a result of the growth of managed
care and other competitive forces. Smaller companies, such as the Company, must
either grow through acquisitions or become part of larger enterprises in order
to compete successfully and achieve acceptable returns for their shareholders.
In light of the unavailability of capital to the Company and continuing weakness
in the price of its common stock, the Company has been willing to entertain
acquisition offers. In late 1996 and early 1997, the Company unsuccessfully
pursued a merger with a larger industry participant. In late 1997, the Company
was approached by Alliance Imaging, Inc., another major industry participant,
with respect to a sale of the Company's medical diagnostic imaging business. On
March 12 1998, the Company and Alliance entered into an agreement under which
the Company would sell its medical diagnostic imaging assets to Alliance for
consideration consisting of cash and the assumption of related liabilities. See
Part I, Item 1 "Business -- General --Recent Developments". The Company accepted
the proposed transaction in response to the industry trend toward consolidation,
the increasingly difficult competitive environment for smaller participants,
such as the Company, and to provide capital for the expansion of the Company's
radiosurgery services business. There can be no assurance that the transaction
will be consummated. If the transaction is not consummated, the Company will be
required to continue to operate as an independent entity, and to face the
serious liquidity and other problems referred to above.
IMPACT OF INFLATION AND CHANGING PRICES
The Company does not believe inflation has had a significant impact on
operations, because most of its customer contracts include a cost of living
price adjustment provision, which the Company believes will be sufficient to
offset the impact of any future inflation on the Company's costs of operation.
18
<PAGE> 19
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements and Financial Statement
Schedules included at page A-1 of this report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
THE BOARD OF DIRECTORS
The following provides current information concerning those persons who serve on
the Company's Board of Directors.
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 61 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 is a Director of Franchise Finance Corporation of America.
Mr. Barnes is 66 years old.
MATTHEW HILLS became a director in 1996. He has been a partner in BG Affiliates,
a private equity investment group, since 1996. Prior to that, he was the Chief
Planning Officer and a Senior Vice President of 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. He is also a Director of K-Bro Linen Systems, Inc.
and in Aspen Furniture, Inc. Mr. Hills graduated from Brandeis University in
1981 and from Harvard Business School in 1987. Mr. Hills was nominated to serve
on the Board of Directors by certain shareholders who were participants in the
Notes Repurchase. Mr. Hills is 38 years old.
19
<PAGE> 20
JOHN F. RUFFLE has been a director of the Company since 1995. He retired in 1993
as Vice-Chairman of the Board and a Director of J.P. Morgan & Co. Incorporated
and Morgan Guaranty Trust Co. of New York. He also is a Director of Bethlehem
Steel Corporation; a member of the Boards of Managers of North Moore Fund, LLC
and JP Morgan Global Emerging Markets Fund, LLC; a Trustee of JPM Series Trust
II; a Director of Trident Corp.; a Director of Polymer Group, Inc.; a Director
of Wackenhut Corrections Corp; and a Trustee of the Johns Hopkins University. He
is a graduate of The Johns Hopkins University, with an MBA in finance from
Rutgers University, and is a Certified Public Accountant. Mr. Ruffle is 60 years
old.
STANLEY S. TROTMAN, JR., became a director of the Company in 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 54 years old.
AUGUSTUS A. WHITE III, M.D. has been a director of the Company since 1990. He
has been a Professor of Orthopedic Surgery at Harvard Medical School since 1978.
He was Orthopedic Surgeon-in-Chief at Beth Israel Hospital, Boston, MA., from
1978 to 1991. He also is a director of Orthologic Corporation. Dr. White is 61
years old.
CHARLES B. WILSON, M.D. most recently has been a director of the Company since
1993. He also was a director of the Company from March 1984 until March 1989. He
has been a Professor of Neurosurgery at the University of California Medical
Center, San Francisco, since 1968. From 1968 until April 1994, and from March
1996 until July 1997, Dr. Wilson also held the position of Chairman of the
University's Department of Neurosurgery. He also is a Senior Research Fellow of
The Institute for the Future. Dr. Wilson is 67 years old.
EXECUTIVE OFFICERS
The following table provides current information, 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. 61 Chairman of the Board of Directors, Chief Executive Officer and Acting
President and Chief Operating Officer
Craig K. Tagawa 44 Senior Vice President - Chief Financial Officer
Richard Magary 57 Senior Vice President - Administration, Assistant Secretary
David Neally 45 Senior Vice President - Operations
Gregory Pape 42 Senior Vice President - Sales and Marketing
- ------------------------------------ -------- ----------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
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 School of Medicine. He is currently an Assistant
Clinical Professor of Neurosurgery at the University of California Medical
Center at San Francisco, and a member of the Board of Trustees of the Johns
Hopkins University and the University of Rochester.
CRAIG K. TAGAWA has served as Chief Financial Officer since May 1996. Mr. Tagawa
also 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 GK
Financing, LLC. 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.
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.
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.
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, 1997, indicate that during 1997 directors, officers and 10%
shareholders of the Company filed all required reports within the periods
established by applicable rules.
21
<PAGE> 22
ITEM 11.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During 1997 non-employee Directors were scheduled to receive an annual retainer
fee of $5,000 each. The non-employee Directors agreed to defer payment of their
1997 retainer fees until a date to be determined in 1998, to assist the Company
with its cash flow. Non-employee Directors in 1997 also received $1,000 for
attendance in person at each regular and special meeting of the Board Directors,
and $200 for attendance in person at each committee meeting, as well as an
automatic grant of Options from the Company's 1995 Stock Option Plan, to acquire
up to 4,000 common shares annually of the Company's common stock at the market
price on date of grant, until a Director has options for a total of 12,000
shares in all Company plans. 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. All three of the Board meetings held
during 1997 were regular meetings which Directors attended in person.
Non-employee directors also received reimbursement of expenses incurred in
attending meetings. No payment is made for attendance at meetings by a Director
who is an employee of the Company.
The Company had no employment contracts with its directors or executive officers
named in the Summary Compensation Table in 1997.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company for the
fiscal years ending December 31, 1995, December 31, 1996, and December 31, 1997
and paid in those years for services rendered in all capacities during 1995,
1996 and 1997 respectively, to the Chief Executive Officer and each executive
officer other than the Chief Executive Officer who served as an officer at
December 31, 1997 and earned cash compensation of $100,000 or more during 1997.
22
<PAGE> 23
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS (3)
ANNUAL COMPENSATION OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION(2) UNDERLYING OPTIONS
- --------------------------- ---- -------- ------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Ernest A. Bates, M.D 1997 $267,994 -- -- --
Chairman of the Board 1996 $223,412 -- -- --
Chief Executive Officer 1995 $223,253 -- -- 1,495,000
Craig K. Tagawa 1997 $216,000 (4) -- -- --
Senior Vice President 1996 $165,747 -- -- --
Chief Financial Officer 1995 $129,328 $26,003 -- 90,000
David Neally 1997 $139,162 -- -- --
Senior Vice President 1996 $101,000 $38,500 -- --
Operations 1995 $104,654 $48,076 -- 45,000
Gregory Pape 1997 $292,650 (5) -- -- --
Senior Vice President 1996 $278,895 (6) -- -- --
Sales and Marketing 1995 $265,745 (7) -- -- 45,000
Richard Magary 1997 $118,813 -- -- --
Senior Vice President 1996 $ 99,780 -- -- --
Administration 1995 $ 99,780 $ 9,927 -- 45,000
</TABLE>
23
<PAGE> 24
(1) Each amount under this column includes amounts accrued in 1995, 1996, and
1997, 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' 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) 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.
(4) Includes sales commissions of approximately $45,000 earned and paid in
1997.
(5) Includes sales commissions of approximately $92,000 earned in 1996 and paid
in 1997 and approximately $58,000 earned and paid in 1997.
(6) Includes sales commissions of approximately $82,000, earned in 1995 and
paid in 1996, and $107,000 earned and paid in 1996.
(7) Includes sales commissions of approximately $83,000, earned in 1994 and
paid in 1995, and approximately $92,000 earned and paid in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
"The Option Grants for the Fiscal Year" Table has been omitted because no
options were granted during 1997 to the Company's executive officers named in
the Summary Compensation Table.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The "Long-term Incentive Plan Awards" ("LTIP Awards") table has been omitted
because no LTIP Awards were made during 1997 to the Company's executive officers
named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized upon exercise of such options
during 1997, by the Company's executive officers named in the Summary
Compensation Table. The following table also sets forth the number of shares
underlying exercisable and unexercisable options held by such executive officers
on December 31, 1997.
24
<PAGE> 25
1984 AND 1995 STOCK OPTION PLANS
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END($)(1)
SHARES ACQUIRED VALUE ------------------------------- ------------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ernest A. Bates -- -- 1,495,000 -- $2,601,300 --
Craig K. Tagawa -- -- 125,000 -- $ 15,625 --
David Neally -- -- 53,350 1,650 $ 6,669 $206
Gregory Pape -- -- 61,000 4,000 $ 7,625 $500
Richard Magary -- -- 60,000 -- $ 7,500 --
</TABLE>
(1) This amount is calculated by multiplying the number of Common Shares
underlying the options at December 31, 1997 by the market price per
Common Share on such date less the option exercise price.
25
<PAGE> 26
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of March 23, 1998, 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 OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
COMMON SHARES OWNED BENEFICIALLY
NAME & ADDRESS OF AMOUNT & NATURE OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP (3) PERCENT OF CLASS (8)
---------------- ----------------------------- --------------------
<S> <C> <C>
Total Number of Shares 6,981,050 (4) 100.0%
Ernest A. Bates, M.D. (1) 2,334,070 (5) (7) 37.3%
SunAmerica Inc. (2) 128,066 (2) 2.7%
SunAmerica Life Insurance 277,473 (2) 5.7%
Company (2)
Anchor National Life Insurance 307,219 (2) 6.3%
Company (2)
Lion Advisors, L.P. 384,195 (6) (7) 7.9%
1301 Avenue of the Americas
New York, NY 10019
AIF II, L.P. 170,752 (6) (7) 4.7%
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars
Los Angeles, CA 90071
General Electric Company 225,000(7) 4.7%
c/o GE Medical Systems
20825 Swenson Drive
Waukesha, WI 53186
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
Willie R. Barnes (1) 9,000 (5) (7) *
Matthew Hills (1) 6,915 (5) (7) *
John F. Ruffle (1) 80,711 (5) (7) 1.7%
Stanley S. Trotman, Jr. (1) 108,295 (5) (7) 2.3%
Augustus A. White, III, M.D. (1) 17,992 (5) (7) *
Charles B. Wilson, M.D. (1) 9,600 (5) *
Craig K. Tagawa (1)
Senior Vice President-
Chief Financial Officer 137,600 (5) (7) 2.8%
David Neally (1)
Senior Vice President-
Operations 55,100 (5) 1.1%
Gregory Pape (1)
Senior Vice President-
Sales and Marketing 65,000 (5) 1.3%
Richard Magary (1)
Senior Vice President-
Administration 78,300 (5) (7) 1.6%
All Directors & Executive Officers as a Group
(11 persons) 2,906,583 (5) (7) 44.0%
</TABLE>
* Less than 1%
(1) The address of each such individual is c/o American Shared Hospital
Services, Four Embarcadero Center, Suite 3620, San Francisco, California
94111-4155.
(2) Based on information provided to the Company 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 as of March 27, 1997, such entities then
owned beneficial 712,758 Common Shares, including immediately exercisable
Warrants to acquire 169,264 Common Shares. The address of each Beneficial
Owner is c/o SunAmerica Center, Los Angeles, CA 90067.
(3) 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.
(4) 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 23,
1998.
(5) Includes shares underlying options that are currently exercisable or which
will become exercisable within 60 days following March 23, 1998: Dr. Bates,
1,495,000; Mr. Barnes, 8,000 shares; Mr. Hills, 5,333 shares; Mr. Ruffle,
8,000 shares; Mr. Trotman, 5,333 shares; Dr. White, 12,000 shares;
27
<PAGE> 28
Dr. Wilson, 9,600 shares; Mr. Tagawa, 125,000 shares; Mr. Neally, 54,000
shares; Mr. Pape, 65,000 shares; Mr. Magary, 55,000 shares; and Directors
and Executive Officers as a group, 1,842,266 shares.
(6) Based on information contained in the Schedule 13D dated March 23, 1998 and
filed with the Securities and Exchange Commission by Apollo Advisors II,
L.P. and affiliates, including Lion Advisors L.P. and AIF II, L.P., such
entities own beneficially 554,947 Common Shares, including immediately
exercisable warrants to acquire 115,629 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.
(7) In connection with the Securities Purchase Agreement dated March 12, 1998
among American Shared Hospital Services ("ASHS") and MMRI, Inc., and
Alliance Imaging, Inc., Embarcadero Holding Corp. I, and Embarcadero
Holding Corp. II ("Purchasers") the Purchasers entered into Stockholder
Agreements, each dated as of March 12, 1998, with certain stockholders of
ASHS, each of whose beneficial interest is indicated in the accompanying
table. These stockholders have agreed to vote, and have granted a proxy to
vote their shares of Common Stock (including in the case of Ernest A.
Bates, M.D., the Common Stock issuable upon the exercise of his 1,495,000
options), in favor of the Securities Purchase Agreement and the
transactions contemplated thereby.
(8) Shares that any person or group of persons is entitled to acquire upon the
exercise of options or warrants within 60 days after March 23, 1998, 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.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 1997 and may do so again in 1998. 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.
Stanley S. Trotman, Jr., a director of the Company, is a managing director with
the Health Care Group of PaineWebber, Inc., an investment banking firm.
PaineWebber has provided investment banking services to the Company in the past
and will provide such services in 1998 with respect to the proposed sale of the
Company's diagnostic imaging business to Alliance Imaging, Inc. The management
of the Company is of the opinion that the fees agreed to be paid to Mr.
Trotman's firm are comparable to those fees that would have been paid for
comparable investment banking services from a firm not affiliated with the
Company.
28
<PAGE> 29
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES. The following Financial Statements
and Schedules are filed with this Report:
Report of Independent Auditors
Audited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedules
Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements and
notes thereto.
Consent of Independent Auditors
(b) EXHIBITS. The following Exhibits are filed with this Report.
Exhibit
Number: Description:
- ------- ------------
2.1 Securities Purchase Agreement, dated as of March 12, 1998, by
and among Alliance Imaging, Inc.; Embarcadero Holding Corp. I;
Embarcadero Holding Corp. II; American Shared Hospital
Services; and MMRI, Inc.
3.1 Articles of Incorporation of the Company, as amended.(1)
3.2 By-laws for the Company, as amended.(2)
4.6 Form of Common Stock Purchase Warrant of American Shared
Hospital Services.(2)
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.(2)
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.(2)
29
<PAGE> 30
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.
(3)
4.11 Promissory Note, dated May 17,1 995, by American
Shared-CuraCare and CuraCare, Inc. in favor of DVI Financial
Services Inc. in the principal sum of $2,500,000.(2)
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.(2)
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.(2)
4.14 Assignment and Assumption Agreement, dated as of December 31,
1995, between American Shared Hospital Services (assignor) and
American Shared Radiosurgery Services (assignee).(3)
4.15 Assignment and Assumption Agreement, dated as of February 3,
1996, between American Shared Radiosurgery Services (assignor)
and GK Financing, LLC (assignee).(3)
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.(3)
4.17 Assignment and Assumption Agreement, dated as of February 3,
1996, among Ernest A. Bates, M.D. (assignor) and GK Financing,
LLC (assignee).(3)
4.18 Assignment and Assumption Agreement, effective as of February
3, 1996, among Ernest A. Bates, M.D. (assignor) and GK
Financing, LLC (assignee).(3)
4.19 Promissory Note, dated January 1, 1995, by American
Shared-CuraCare in favor in General Electric Company, acting
through GE Medical Systems, in the principal sum of
$2,000,000, as amended.(3)
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.(3)
4.21 Promissory Note, dated April 29, 1996 by GK Financing, LLC in
favor of Skandinaviska Enskilda Banken in the principal amount
of $1,300,000.(4)
4.22 Promissory Note, dated December 23, 1996 by American
Shared-CuraCare in favor of General Electric company, in the
principal amount of $1,631,595.10.(4)
10.1 The Company's 1984 Stock Option Plan, as amended.(5)
30
<PAGE> 31
10.2 The Company's 1995 Stock Option Plan, as amended. (6)
10.3 Form of Indemnification Agreement between American Shared
Hospital Services and members of its Board of Directors. (5)
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. (7)
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. (2)
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. (3)
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. (2)
10.8 Form of Unconditional Continuing Guaranty of American Shared
Hospital Services. (3)
10.9 Form of Unconditional Continuing Guaranty of Ernest A. Bates,
M.D. (3)
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. (3)
10.11 Ernest A. Bates, Stock Option Agreement dated as of August 15,
1995. (8)
10.12 Operating Agreement for GK Financing, LLC, dated as of October
17, 1995. (2)
10.13a 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. (3)
10.13b Amendment dated as of October 16, 1996 to the GK Financing,
LLC Operating Agreement, dated as of October 17, 1995.
10.14 Amendment No. 1, dated March 29, 1996, to 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 (Exhibit 10.6). (4)
10.15 Amendment No. 2, dated January 31, 1996, to Loan and Security
Agreement, dated as of January 31, 1996, among American
Shared-CuraCare and CuraCare, Inc., American Shared
31
<PAGE> 32
Hospital Services, Ernest A. Bates, M.D. and DVI Business
Credit Receivables Corporation (Exhibit 10.6).(4)
10.16 Amendment No. 3, dated April 23, 1997, to Loan and Security
Agreement, dated January 31, 1996 among American
Shared-CuraCare and CuraCare, Inc., American Shared Hospital
Services, Ernest A. Bates, M.D. and DVI Business Credit
Receivables Corp. (Exhibit 10.6).
10.17 Amendment No. 4, dated July 31, 1997, to Loan and Security
Agreement, dated January 31, 1996 among American
Shared-CuraCare and CuraCare, Inc., American Shared Shared
Hospital Services, Ernest A. Bates, M.D. and DVI Business
Credit Receivables Corp. (Exhibit 10.6).
10.18 Amendment No. 5, dated November 26, 1997, to Loan and Security
Agreement, dated January 31, 1996 among American
Shared-CuraCare and CuraCare, Inc., American Shared Shared
Hospital Services, Ernest A. Bates, M.D. and DVI Business
Credit Receivables Corp. (Exhibit 10.6).
21 Subsidiaries of American Shared Hospital Services.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule for the year ended December 31, 1997.
27.a Restated Financial Data Schedule for the fiscal year ended
December 31, 1995.
27.b Restated Financial Data Schedule for the three months ended
March 31, 1996.
27.c Restated Financial Data Schedule for the six months ended June
30, 1996.
27.d Restated Financial Data Schedule for the nine months ended
September 30, 1996.
27.e Restated Financial Data Schedule for the fiscal year ended
December 31, 1996.
27.f Restated Financial Data Schedule for the three months ended
March 31, 1997.
27.g Restated Financial Data Schedule for the six months ended June
30, 1997.
27.h Restated Financial Data Schedule for the nine months ended
September 30, 1997.
- ----------------------------
(1) This document was filed as Exhibit 3.1 to registrant's
Registration Statement on Form S-2 (Registration
No. 33-23416), which is incorporated herein by this reference.
(2) These documents were filed as Exhibits 3.2, 4.6, 4.8, 4.9,
4.11, 4.12, 4.13, 10.5, 10.7 and 10.12, to registrant's
Registration Statement on Form S-1 (Registration No. 33-63721)
filed on October 26, 1995, which is incorporated herein by
this reference.
(3) These documents were filed as Exhibits 4.10, 4.14, 4.15, 4.16,
4.17,4.18, 4.19, 4.20, 10.6, 10.8, 10.9, 10.10 and 10.13,
respectively, to the registrant's Pre-Effective Amendment No.
1 to registrant's Registration Statement on Form S-1
(Registration No. 33-63721) filed on March 29, 1996, which is
incorporated herein by this reference.
(4) These documents were filed as Exhibits 4.21, 4.22, 10.14, and
10.15, respectively, to registrant's Annual Report on Form
10-K for fiscal year ended December 31, 1996, which is
incorporated herein by this reference.
(5) These documents were filed as Exhibits 10.24 and 10.35
respectively, to registrant's Registration Statement on Form
S-2 (Registration NO. 33-23416), which is incorporated herein
by this reference.
(6) This document was filed as Exhibit A to registrant's Proxy
Statement, filed on August 31, 1995, which is incorporated
herein by this reference.
32
<PAGE> 33
(7) This document was filed as Exhibit 10.49 to registrant's
Annual Report on Form 10-K for fiscal year ended December 31,
1994, which is incorporated herein by this reference.
(8) This document was filed as Exhibit B to registrant's Proxy
Statement, filed on August 31, 1995, which is incorporated
herein by this reference.
(C) Reports on Form 8-K:
The Company filed no reports on Form 8-K
during the quarter ended December 31, 1997.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN SHARED HOSPITAL SERVICES
(Registrant)
March 27, 1998 By: /s/ Ernest A. Bates
-----------------------------
Ernest A. Bates
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ernest A. Bates Chief Executive Officer March 27, 1998
- -------------------------------------- and Chairman of the Board
Ernest A. Bates
/s/ Willie R. Barnes Director and Secretary March 27, 1998
- --------------------------------------
Willie R. Barnes
/s/ Mathew Hills Director March 27, 1998
- --------------------------------------
Matthew Hills
/s/ John F. Ruffle Director March 27, 1998
- --------------------------------------
John F. Ruffle
/s/ Stanley S. Trotman, Jr. Director March 27, 1998
- --------------------------------------
Stanley S. Trotman, Jr.
/s/ Augustus A. White, III Director March 27, 1998
- --------------------------------------
Augustus A. White, III,
/s/ Charles B. Wilson Director March 27, 1998
- --------------------------------------
Charles B. Wilson
/s/ Craig K. Tagawa . Chief Financial March 27, 1998
- -------------------------------------- Officer (Principal
Craig K. Tagawa Accounting Officer)
</TABLE>
34
<PAGE> 35
CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN SHARED HOSPITAL SERVICES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 36
American Shared Hospital Services
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors.................................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets....................................................2
Consolidated Statements of Operations..........................................4
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency).......5
Consolidated Statements of Cash Flows..........................................6
Notes to Consolidated Financial Statements.....................................8
<PAGE> 37
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, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, 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 operating losses in 1996 and 1995 and
has a significant working capital deficiency and a net capital deficiency at
December 31, 1997. In addition, the Company does not have sufficient cash
resources to meet debt obligations maturing in 1998. 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,
including a discussion of the proposed sale of certain significant assets
subsequent to December 31, 1997. 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".
Walnut Creek, California
February 27, 1998,
except for Note 14, as to which the date is
March 12, 1998
1
<PAGE> 38
American Shared Hospital Services
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,000 $ 368,000
Restricted cash 651,000 218,000
Receivables, less allowance for uncollectible
accounts of $1,302,000 ($1,240,000 in 1996):
Trade accounts receivable 6,658,000 6,341,000
Other 472,000 207,000
------------ ------------
7,130,000 6,548,000
Prepaid expenses, inventories and other current
assets 708,000 698,000
------------ ------------
Total current assets 8,506,000 7,832,000
Property and equipment:
Land, buildings and improvements 1,572,000 1,226,000
Medical, transportation, office and leased equipment 12,202,000 9,880,000
Capitalized leased medical and transportation
equipment 26,410,000 29,318,000
Deposits and construction in progress 1,901,000 1,530,000
------------ ------------
42,085,000 41,954,000
Accumulated depreciation and amortization (21,983,000) (18,523,000)
------------ ------------
Net property and equipment 20,102,000 23,431,000
Other assets 563,000 468,000
Intangible assets, less accumulated amortization of
$1,529,000 ($1,330,000 in 1996) 1,038,000 1,238,000
------------ ------------
Total assets $ 30,209,000 $ 32,969,000
============ ============
</TABLE>
2
<PAGE> 39
American Shared Hospital Services
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable $ 3,693,000 $ 3,705,000
Accrued interest 32,000 50,000
Employee compensation and benefits 1,050,000 944,000
Other accrued liabilities 841,000 839,000
Current portion of long-term debt 4,784,000 6,816,000
Current portion of obligations under capital leases 6,145,000 6,366,000
------------ ------------
Total current liabilities 16,545,000 18,720,000
Long-term debt, less current portion 11,936,000 7,690,000
Obligations under capital leases, less current portion 9,633,000 16,245,000
Deferred gain on early lease termination 296,000 --
Deferred income taxes 164,000 164,000
Minority interest 588,000 625,000
Stockholders' equity (net capital deficiency):
Common stock, without par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 4,769,000 in 1997
and 1996 11,089,000 11,089,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 930,000 930,000
Accumulated deficit (23,386,000) (24,908,000)
------------ ------------
Total stockholders' equity (net capital deficiency) (8,953,000) (10,475,000)
------------ ------------
Total liabilities and stockholders' equity (net
capital deficiency) $ 30,209,000 $ 32,969,000
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 40
American Shared Hospital Services
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Medical services $ 37,172,000 $ 36,989,000 $ 34,077,000
Costs and expenses:
Costs of operations:
Medical services payroll 7,533,000 7,312,000 6,984,000
Maintenance and supplies 5,959,000 6,698,000 6,766,000
Depreciation 6,398,000 6,631,000 8,302,000
Write-down of equipment -- -- 3,825,000
Equipment rental 2,686,000 3,449,000 2,808,000
Other 4,468,000 3,981,000 3,990,000
Selling and administrative 5,901,000 5,309,000 8,432,000
Interest 3,671,000 4,199,000 5,310,000
Write-down of intangible assets -- -- 600,000
------------ ------------ ------------
Total costs and expenses 36,616,000 37,579,000 47,017,000
------------ ------------ ------------
556,000 (590,000) (12,940,000)
Gain on sale of assets and early
termination of capital leases due to 821,000 3,000 226,000
casualty loss
Interest and other income 155,000 227,000 258,000
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item 1,532,000 (360,000) (12,456,000)
Income tax expense (benefit) 10,000 (7,000) 3,000
------------ ------------ ------------
Income (loss) before extraordinary item 1,522,000 (353,000) (12,459,000)
Extraordinary item--gain on early
extinguishment of debt (net of income -- -- 19,803,000
tax expense of $0)
------------ ------------ ------------
Net income (loss) $ 1,522,000 $ (353,000) $ 7,344,000
============ ============ ============
Earnings (loss) per common share:
Income (loss) before extraordinary item $ 0.32 $ (0.08) $ (2.96)
Extraordinary item $ 0.00 $ 0.00 $ 4.71
------------ ------------ ------------
Net income (loss) per common share $ 0.32 $ (0.08) $ 1.75
============ ============ ============
Earnings (loss) per common share assuming dilution:
Income (loss) before extraordinary item $ 0.24 $ (0.08) $ (2.96)
Extraordinary item $ 0.00 $ 0.00 $ 4.71
------------ ------------ ------------
Net income (loss) per common share assuming dilution $ 0.24 $ (0.08) $ 1.75
============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 41
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, 1995 4,244,000 $ 10,635,000 $ 2,414,000 $ 930,000 $(24,555,000) $(10,576,000)
Exercise of warrants
to purchase 225,000
shares of common 225,000 2,000 -- -- -- 2,000
stock
Issuance of common
stock to noteholders 287,000 430,000 -- -- -- 430,000
Issuance of common
stock to Board 13,000 22,000 -- -- -- 22,000
members
Net loss -- -- -- -- (353,000) (353,000)
--------- ------------ ------------ ---------- ------------ ------------
Balances at December 31, 1996 4,769,000 11,089,000 2,414,000 930,000 (24,908,000) (10,475,000)
Net income -- -- -- -- 1,522,000 1,522,000
--------- ------------ ------------ ---------- ------------ ------------
Balances at December 31, 1997 4,769,000 $ 11,089,000 $ 2,414,000 $ 930,000 $(23,386,000) $ (8,953,000)
========= ============ ============ ========== ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 42
American Shared Hospital Services
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,522,000 $ (353,000) $ 7,344,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain, after income taxes -- -- (19,803,000)
Gain on sale of assets (270,000) (3,000) (23,000)
Gain on early termination of capital leases (551,000) -- (203,000)
Depreciation 6,752,000 6,978,000 8,818,000
Write-down of equipment -- -- 3,825,000
Write-down of intangible assets -- -- 600,000
Compensation expense related to stock grants -- -- 2,679,000
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (433,000) 275,000 2,390,000
(Increase) decrease in receivables (582,000) (95,000) 264,000
(Increase) decrease in prepaid
expenses, inventories and other assets (10,000) 493,000 (287,000)
Increase (decrease) in accounts payable
and accrued liabilities 843,000 1,563,000 (674,000)
----------- ----------- ------------
Net cash provided by operating activities 7,271,000 8,858,000 4,930,000
INVESTING ACTIVITIES
Deposits made to purchase Gamma Knives -- (500,000) (1,000,000)
Proceeds from sale and disposition of equipment 331,000 70,000 157,000
(Decrease) increase in minority interest (37,000) 442,000 129,000
Payment for purchase of property and equipment (349,000) (293,000) (226,000)
Distributions received from partnerships -- 15,000 55,000
Other (168,000) (84,000) 210,000
----------- ----------- ------------
Net cash used in investing activities (223,000) (350,000) (675,000)
FINANCING ACTIVITIES
Principal payments on long-term debt and
obligations under capital leases (8,962,000) (8,226,000) (8,612,000)
Payment for exercise of warrants -- 2,000 --
Net proceeds (payments) from revolving line of 1,563,000 (8,000) (1,000,000)
credit
Proceeds from loan agreement -- -- 7,000,000
Note payable from related party -- -- 1,300,000
Payment for repurchase of senior subordinated -- (360,000) (3,893,000)
notes
Other -- -- 177,000
----------- ----------- ------------
Net cash used in financing activities (7,399,000) (8,592,000) (5,028,000)
----------- ----------- ------------
Net decrease in cash and cash equivalents (351,000) (84,000) (773,000)
Cash and cash equivalents at beginning of year 368,000 452,000 1,225,000
=========== =========== ============
Cash and cash equivalents at end of year $ 17,000 $ 368,000 $ 452,000
=========== =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 3,689,000 $ 4,320,000 $ 3,625,000
=========== =========== ============
Income taxes paid $ 29,000 $ 31,000 $ 82,000
=========== =========== ============
</TABLE>
6
<PAGE> 43
American Shared Hospital Services
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1997 1996 1995
----------- ----------- ------------
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
<S> <C> <C> <C>
Acquisition of equipment with lease/debt $ 3,999,000 $ 9,996,000 $ 1,342,000
financing
(Decrease) increase in medical and capitalized
lease equipment due to lease restructuring (1,137,000) (1,461,000) (480,000)
(Decrease) increase in capitalized lease
obligations due to lease restructuring (2,036,000) (1,461,000) (480,000)
Accrued interest payable not paid as part of
Senior Subordinated Notes Repurchase -- 17,000 8,853,000
Stock and warrants issued to noteholders as
part of Senior Subordinated Notes Repurchase -- 430,000 1,836,000
Noncash portion of Senior Subordinated Notes -- 413,000 13,801,000
redemption
Note receivable from officer added to basis of
acquired asset -- 248,000 --
Accounts payable converted to notes 817,000 1,971,000 --
</TABLE>
See accompanying notes.
7
<PAGE> 44
American Shared Hospital Services
Notes to Consolidated Financial Statements
December 31, 1997
1. BUSINESS AND BASIS OF PRESENTATION
BUSINESS
American Shared Hospital Services (the "Company") provides shared diagnostic
imaging services to health care providers located in approximately 22 states in
various geographic regions of the United States. 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 Gamma Knife units to three medical centers. The Company also provides
Cardiac Catheterization Laboratory and Respiratory Therapy services.
In June 1995, African American Church Health and Economic Services, Inc.
("ACHES") and ACHES Insurance Services, Inc. ("AIS") were incorporated. AIS is a
wholly owned subsidiary of ACHES. AIS is an insurance agency qualified to sell
life, health, and disability insurance in the states of California and New York.
ACHES through AIS sells life, health and disability insurance primarily to the
African-American Community.
On October 17, 1995, the Company (through American Shared Radiosurgery Services
("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
Brazil. GKF is the preferred provider for Elekta AB of financing arrangements,
such as fee-for-service lease arrangements with health care institutions in the
United States and Brazil.
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, CuraCare, Inc. ("CuraCare"), MMRI, Inc., European
Shared Medical Services Ltd., and its majority-owned subsidiary, GK Financing,
LLC.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
8
<PAGE> 45
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
1. BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
BUSINESS (CONTINUED)
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 are continuing to monitor the
Company's financial condition to determine whether the Company's common shares
will remain listed. The Company is currently negotiating the sale of a
significant amount of its operating assets. (See Note 14 -- Subsequent Event.)
The Company leases substantially all of its medical equipment from one primary
provider.
BASIS OF PRESENTATION
The Company has reported net income of $1,522,000 in 1997, and net losses before
extraordinary items of $353,000, and $12,459,000 in 1996 and 1995, respectively.
At December 31, 1997, the Company has a working capital deficiency of $8,039,000
and a net capital deficiency of $8,953,000. 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.
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.
9
<PAGE> 46
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
1. BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
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 and
enhance revenues by increasing customer contracts and equipment utilization. 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. The Company is
currently negotiating the sale of a significant amount of its operating assets.
(See Note 14 - Subsequent Event.)
2. ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the financial statements 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 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, 1997 and 1996 reflects cash that may only be
used for the operations of GK Financing, LLC.
10
<PAGE> 47
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
REVENUES AND ACCOUNTS RECEIVABLE
Revenue is recognized on a fee-for-service or contingent rental 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 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 6).
ACCOUNTING FOR MAJORITY-OWNED SUBSIDIARY
The Company accounts for GK Financing, LLC, as a consolidated entity due to its
81% majority-equity interest. The minority interest's 19% share of earnings
(loss) is netted against "Interest and Other Income" in the consolidated
statements of operations.
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 are stated at cost, or the estimated fair value as determined by
third parties, if less.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets which for medical and transportation equipment is
generally 2 - 10 years.
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 ranges from 24
to 96 months. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life.
11
<PAGE> 48
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
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.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.
Basic earnings per share has been computed based on the weighted-average number
of common shares outstanding. The Company incurred a net loss for 1996 and 1995,
therefore, the incremental shares that arise as a result of the stock options
and warrants outstanding are anti-dilutive as they reduce the loss per share.
12
<PAGE> 49
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary
item $ 1,522,000 $ (353,000) $ (12,459,000)
Extraordinary item -- -- 19,803,000
-------------- -------------- --------------
Numerator for basic and diluted earnings
(loss) per share $ 1,522,000 $ (353,000) $ 7,344,000
============== ============== ==============
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares 4,769,000 4,498,000 4,201,000
Effect of dilutive securities
Employee stock options 1,574,000 -- --
-------------- -------------- --------------
Denominator for diluted earnings (loss) per
share - adjusted weighted-average shares 6,343,000 4,498,000 4,201,000
============== ============== ==============
Basic earnings per share:
Income before extraordinary item $ 0.32 $ (0.08) $ (2.97)
Extraordinary item -- -- 4.71
-------------- -------------- --------------
Net income $ 0.32 $ (0.08) $ 1.75
============== ============== ==============
Diluted earnings per share:
Income before extraordinary item $ 0.24 $ (0.08) $ (2.97)
Extraordinary item -- -- 4.71
-------------- -------------- --------------
Net income $ 0.24 $ (0.08) $ 1.75
============== ============== ==============
</TABLE>
13
<PAGE> 50
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based employee
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company believes that adoption of SFAS 130 will not have a
material impact on the Company's consolidated financial statements.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 will change the way
companies report selected segment information in annual financial statements and
also requires those companies to report selected segment information in interim
financial reports to stockholders. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company believes that the application of
the new rules will not have a material impact on the Company's consolidated
financial statements.
14
<PAGE> 51
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
The fair value of all other financial instruments approximate its recorded
values.
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 ("SFAS 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 being 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 SFAS 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.
No such impairment loss adjustment was required in 1997 or 1996.
15
<PAGE> 52
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
----------- -----------
<S> <C> <C>
Capitalized regulatory licensing fees $ 110,000 $ 90,000
Prepaid commissions 114,000 114,000
Purchased software, less accumulated amortization of
$424,000 and $417,000 in 1997 and 1996, respectively 50,000 51,000
Investment in partnerships - 33,000
Other assets 289,000 180,000
----------- -----------
$ 563,000 $ 468,000
=========== ===========
</TABLE>
5. SENIOR SUBORDINATED NOTES
During 1996 and 1995, the Company repurchased certain of its Senior Subordinated
Notes resulting in extraordinary gains of $0 and $19,803,000, respectively.
The extraordinary gain in 1995 was the result of 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 Noteholders ("ex-Noteholders") received
approximately $3,900,000 in cash, plus 819,000 shares of common stock and
warrants for an additional 216,000 shares of common stock. 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 then fully diluted common shares. The warrants are immediately
exercisable at $0.75 per share. The remaining Senior Subordinated Noteholders
held $773,000 of the notes as of December 31, 1995. In addition, the debt
covenants were amended which thereby cured the events of default on the Senior
Subordinated Notes.
During 1996, the Company extended an exchange offer for the remaining $773,000
of Senior Subordinated Notes for common stock. On August 30, 1996, the Company
exchanged $413,000 of its Senior Subordinated Notes, and the interest accrued
thereon, for 287,000 shares of common stock valued at $430,000, using the market
price on the date of exchange. The remaining $360,000 of the Senior Subordinated
Notes, and the accrued interest thereon, was settled by the Company in cash on
October 15, 1996, the stated maturity date of the Senior Subordinated Notes.
16
<PAGE> 53
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
5. SENIOR SUBORDINATED NOTES (CONTINUED)
The following table summarizes the early extinguishment of debt during 1996 and
1995, as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Principal amount of Notes repurchased $ 413,000 $ 17,694,000
Accrued interest related to the Notes 17,000 8,853,000
Unamortized debt issuance costs -- (525,000)
Stock and warrants issued to note holders (430,000) (1,836,000)
Estimated tax liability -- --
Closing costs -- (490,000)
------------ ------------
-- 23,696,000
Payment for repurchase -- (3,893,000)
------------ ------------
Extraordinary gain $ -- $ 19,803,000
============ ============
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------- ----------
Notes Issued in Conjunction with Lease Restructuring
- ----------------------------------------------------
<S> <C> <C>
Promissory note payable to primary provider of medical
equipment bearing interest at 5% (effective February 1996)
and 4% during 1995, payable in 86 monthly installments
maturing in February 2002, secured by the Company's
accounts receivable and certain medical equipment $1,505,000 $1,823,000
Promissory note payable to primary provider of medical
equipment bearing interest at 10.75%, payable in 60
monthly installments with the remaining balance due in
January 2002 1,341,000 1,632,000
Promissory note payable to primary provider of medical
equipment bearing interest at 10.5%, payable in 60 monthly
installments maturing in February 2000 248,000 353,000
Promissory note payable to primary provider of medical
equipment bearing interest at 10.75%, payable in 36 monthly
installments with the remaining balance due in January 2000 104,000 147,000
</TABLE>
17
<PAGE> 54
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------ ------------
Borrowings for Repurchase of Senior Subordinated Notes
- ------------------------------------------------------
<S> <C> <C>
Borrowings under $5.5 million Revolving Line of Credit
bearing interest at prime rate plus 3.75% (12.25% at
December 31, 1997) for repurchase of Senior Subordinated
Notes maturing in May 1999 $ 5,438,000 $ 3,875,000
Borrowings under Term Loan for repurchase of Senior
Subordinated Notes bearing interest at 15%, payable in 48
monthly installments maturing in June 1999 1,066,000 1,764,000
Gamma Knife loan payable to primary provider of medical
equipment bearing interest at 10.5%, payable in 40
monthly installments maturing in September 1998 346,000 768,000
Other Notes and Borrowings
- --------------------------
Gamma Knife loan payable to primary provider of medical
equipment bearing interest at 10.5%, payable in 60
monthly installments maturing in July 1999 (Note 13) 1,128,000 1,752,000
Promissory note payable, bearing interest at prime rate
plus 2% (10.25% at December 31, 1996) due in October 1998
(Note 13) 550,000 1,300,000
Borrowings under term loan bearing interest at 10.6%, payable
in 84 monthly installments maturing in September 2004 2,271,000 --
Installment notes payable in monthly installments through
March 2003, bearing interest at 9.9% to 22%, secured by
certain medical equipment 985,000 983,000
Promissory note payable, bearing interest at 11.25%,
payable in 25 monthly installments maturing in July 1997 -- 109,000
Promissory note payable, bearing interest at 10.6%, payable
in 30 monthly installments maturing in March 2000 738,000 --
Borrowings for Gamma Knife deposits under promissory note,
bearing interest at prime rate plus 2% (10.5% at
December 31, 1997) payable when Gamma Knife units
commence operation
1,000,000 --
------------ ------------
16,720,000 14,506,000
Less current portion (4,784,000) (6,816,000)
------------ ------------
$ 11,936,000 $ 7,690,000
============ ============
</TABLE>
18
<PAGE> 55
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
Annual contracted maturities under the initial terms of long-term debt for the
five years after December 31, 1997 are as follows: $4,784,000 in 1998,
$8,136,000 in 1999, $1,325,000 in 2000, $1,181,000 in 2001, $519,000 in 2002 and
$775,000 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
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
The Company 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.
On December 23, 1996, the Company also converted past due service payments into
a $1,632,000 promissory note with its primary provider of medical equipment. The
note matures in January 2002 and bears interest at an annual rate of 10.75%. The
note is unsecured.
The Company also converted $147,000 of unpaid property taxes into a promissory
note payable to its primary provider of medical equipment. The note bears
interest at an annual rate of 10.75%, payable in 36 consecutive monthly
installments with the remaining balance due in January 2000.
19
<PAGE> 56
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
Borrowings for Repurchase of Senior Subordinated Notes
The repurchase of Senior Subordinated Notes (the "Notes Repurchase") was
completed with the proceeds of three new credit facilities: a new revolving line
of credit (the "Revolver"), a term loan, and a Gamma Knife Loan. Under the
Revolver, the Company has available up to $5,500,000 according to a formula
based on eligible accounts receivable. The Revolver provides for interest
payments only (computed at the Bank of America prime rate plus 3.75%, 12.25% at
December 31, 1997) until maturity on May 31, 1999, when all amounts are due and
payable. The initial proceeds of $3,000,000 drawn under the Revolver were used
primarily to fund the cash consideration in the Notes Repurchase. At December
31, 1997, the Company had drawn $5,438,000 under the Revolver and, based on
eligible accounts receivable, had an additional $62,000 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 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 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 first 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 one of the Gamma Knife units owned by the
Company. The payments on this loan were restructured 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.
20
<PAGE> 57
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
Deferred tax liabilities:
<S> <C> <C>
Other - net $ (164,000) $ (164,000)
----------- -----------
Total deferred tax liabilities (164,000) (164,000)
Deferred tax assets:
Net operating loss carryforwards 5,300,000 5,700,000
Fixed assets 2,200,000 3,100,000
Other - net 500,000 800,000
----------- -----------
Net deferred tax assets 8,000,000 9,600,000
Valuation allowance for deferred tax assets 8,000,000 9,600,000
----------- -----------
Total deferred tax assets -- --
----------- -----------
Net deferred tax liabilities $ (164,000) $ (164,000)
=========== ===========
</TABLE>
The decrease in the valuation allowance during 1997 was $1,600,000.
The components of the provision (benefit) for income taxes consist of the
following:
<TABLE>
<CAPTION>
Liability Method
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
Current:
<S> <C> <C> <C>
Federal $ -- $ -- $ --
State 10,000 (7,000) 3,000
Deferred (reduction):
Federal -- -- --
State -- -- --
------------ ------------ ------------
$ 10,000 $ (7,000) $ 3,000
============ ============ ============
</TABLE>
The amounts relate to state income taxes, miscellaneous payments and refunds of
federal and state income taxes and adjustments of amounts paid and accrued in
prior years.
21
<PAGE> 58
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes as included in the consolidated
financial statements is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) before extraordinary gain $ 10,000 $ (7,000) $ 3,000
Extraordinary gain - - -
--------- --------- ---------
$ 10,000 $ (7,000) $ 3,000
========= ========= =========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed by
applying the U.S. federal statutory tax rate (35% in 1997, 1996 and 1995) to
income (loss) before taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- -----------
<S> <C> <C> <C>
Computed expected tax, including tax on
extraordinary gain $ 536,000 $(126,000) $ 2,570,000
Change in valuation allowance (1,600,000) (300,000) (2,660,000)
State income taxes (benefit), net of federal benefit 10,000 (7,000) 3,000
Reduction in carryovers and tax attributes 984,000 323,000 --
Other 80,000 103,000 90,000
----------- --------- -----------
$ 10,000 $ (7,000) $ 3,000
=========== ========= ===========
</TABLE>
At December 31, 1997, the Company has a net operating loss carryforward for
federal income tax return purposes of approximately $13,000,000 which expires
between 1999 and 2011. A substantial part of this carryforward is subject to
separate return limitations. The company has state carryforwards of varying
amounts. The Company's ability to utilize its net operating loss carryforwards
and other deferred tax assets may be limited in the event of a 50% or more
ownership change within any three-year period. Approximately $16,000,000 of net
operating loss carryforwards were used to offset the gain on early
extinguishment of the Senior Subordinated Notes in May 1995. (See Note 6 -
Long-Term Debt.)
22
<PAGE> 59
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
8. 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 shares, to reduce the initial exercise price to $1.625 per
share, which was the closing price of common shares on such date.
1995 Stock Option Plan
The Company's 1995 Stock Option Plan, providing for nonqualified stock options
and "incentive stock options," was approved by the Company's Board of Directors
on August 15, 1995, subject to shareholder approval, which was given on October
6, 1995. Under the 1995 Plan, 330,000 common shares are reserved for awards to
officers and other key employees, non-employee directors, and advisors.
Provisions of the 1995 Stock Option Plan include an automatic grant to each
non-employee director of up to 4,000 shares annually on the date of the
Company's Annual Shareholder Meeting, at an exercise price equal to the market
price of the Company's common shares on that date, until the non-employee
director has options for a total of 12,000 shares of the Company's common stock
in all Company plans. Directors who are appointed or elected to the Company's
Board of Directors on a date other than that of the Annual Shareholder Meeting
receive a pro-rata grant of such shares, at an exercise price equal to the
market price of the Company's common shares on the date of grant. Grants of
options for 19,000 shares were made pursuant to this provision during 1995.
23
<PAGE> 60
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1995 Stock Option Plan (continued)
Changes in options outstanding under the 1984 and 1995 Stock Option Plans from
January 1, 1995 to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NUMBER PRICE WEIGHTED AVERAGE
OF SHARES PER SHARE EXERCISE PRICE
-------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 256,000 $1.375-$7.50 --
Granted 256,000 $1.625 --
Exercised -- -- --
Forfeited (92,000) $3.00 - $7.125 --
---------------
Balance at December 31, 1995 420,000 $1.375-$1.625 --
Granted 19,000 $1.634
Forfeited (22,000) $1.625
---------------
Balance at December 31, 1996 417,000 $1.625
Granted 14,000 $1.688
Exercised -- --
Forfeited (2,000) $1.596
---------------
Balance at December 31, 1997 429,000 $1.627
===============
</TABLE>
At December 31, 1997, 43,000 options were available for grant and 7,000 shares
were reserved for future issuance under the 1995 Plan.
Shares and Options Issued to Officer
Simultaneous with the Notes repurchase in 1995 (Note 5), the Company's Chairman
and Chief Executive Officer was issued an additional 184,000 shares of the
Company's stock, for which the Company recorded 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.
24
<PAGE> 61
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
Shares and Options Issued to Officer (continued)
In addition, on August 15, 1995, the officer was granted a ten-year, immediately
exercisable option to purchase 1,495,000 common shares for an exercise price of
$.01 per share for which the Company has recorded compensation expense of
$2,414,000. These options were granted to the officer as final consideration for
personal guarantees of the new credit facilities and for continued employment
with the Company.
The following table summarizes information about all options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------------- --------------- ---------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$ .01 1,495,000 7.80 $ 0.1 1,495,000 $ .01
1.625 - 1.6875 470,600 6.27 1.627 406,316 1.627
----------------- --------------- ---------------- ----------- --------------- -----------
$ .01 -1.6875 1,965,600 7.46 $ 0.372 1,901,316 $ 0.355
================= =============== ================ =========== =============== ===========
</TABLE>
At December 31, 1997 and 1996, 1,890,000 and 1,873,000 options, respectively,
were vested and exercisable.
25
<PAGE> 62
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
Pro Forma Information related to Option Grants
Pro forma information regarding net income and earnings per share is required by
SFAS 123 for awards granted after December 31, 1995, as if the Company had
accounted for its stock-based awards to employees under the fair value method of
SFAS 123. The fair value of the Company's stock-based awards to employees was
estimated using a Black-Scholes option pricing model. The Black-Scholes options
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based awards to employees have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's option grants under the 1984 and 1996 Plans was estimated
assuming no expected dividends and the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C>
Expected life (years) 9.5 9.5
Expected volatility 93.8% 99.3%
Risk-free interest rate 6.3% 7.9%
</TABLE>
The weighted-average fair value of options granted during 1997 was $1.50. For
pro forma purposes, the estimated fair value of the Company's options is
amortized over the options' vesting period. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Net income (loss) As reported $ 1,522,000 $ (353,000)
Pro forma 1,458,000 (387,000)
Net income (loss)
per share As reported .24 (0.08)
Pro forma .23 (0.06)
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to December 31,
1995, its pro forma effect will not be fully reflected until approximately 1999.
26
<PAGE> 63
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1995-1996 Director Retainer Shares
On February 16, 1996, the Company's Board of Directors agreed that non-employee
directors could elect to receive some or all of their $5,000 annual Directors'
Retainer Fees for 1995 and/or 1996 in shares of the Company's common stock,
instead of in cash, at the rate of $1.6875 per share, which was the closing
price of the Company's common stock on that date. A total of 13,047 shares was
issued during 1996 for that purpose. The remaining Director Retainer Fees due to
non-employee directors for 1995 and/or 1996 were paid in cash during 1996.
Warrants Issued in Conjunction with Lease Restructuring
In 1995 and 1996, as 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 and 127,147 common shares, respectively,
at a price of $.01 per share. In 1996, these warrants were exercised to purchase
225,000 common shares.
Options and Warrants Issued in Conjunction with Repurchase of Senior
Subordinated Notes
On May 17, 1995, simultaneous with the Notes repurchase (Note 5), 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 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 then fully diluted common shares. The
warrants are immediately exercisable at $0.75 per share, expiring on May 17,
2002.
Capital shares reserved for future issuances total 2,951,000 shares at December
31, 1997.
27
<PAGE> 64
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
9. RETIREMENT PLAN
The Company has a defined contribution retirement plan for which substantially
all full-time employees are eligible. 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 1997, 1996 or 1995.
10. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases MRI units and other equipment under capital leases having an
aggregate net book value of $12,284,000 at December 31, 1997. 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 leases that were
considered operating prior to that date) and at the end of 1995 and certain
leases again in early 1996, the Company and its major provider of medical
equipment entered into a restructuring of the obligations of the Company under
lease agreements.
Substantially all capital leases of the Company have been 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 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.
28
<PAGE> 65
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
10. OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
On March 1, 1996, the Company received an offer from its primary provider of
medical equipment to restructure certain of its capital lease obligations. 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.
Future minimum lease payments, together with the present value of the net
minimum lease payments under capital leases at December 31, 1997, are summarized
as follows:
<TABLE>
<CAPTION>
NPV OF MAINTENANCE
MINIMUM AND OTHER LEASE
LEASE LEASE RELATED PAYMENT
PAYMENTS COSTS TOTAL
---------------------------------------------
<S> <C> <C> <C>
1998 $ 7,487,000 $ 1,916,000 $ 9,403,000
1999 6,157,000 1,580,000 7,737,000
2000 3,261,000 653,000 3,914,000
2001 917,000 158,000 1,075,000
2002 442,000 46,000 488,000
Thereafter 226,000 16,000 242,000
------------- ------------- ------------
Total 18,490,000 $ 4,369,000 $ 22,859,000
============= ============
Less amounts representing interest 2,712,000
-------------
Present value of net minimum lease payments 15,778,000
Less current portion 6,145,000
-------------
$ 9,633,000
=============
</TABLE>
As shown above, in addition to the capital lease payments, the Company is also
required to make maintenance and other executory cost lease related payments.
During 1997, 1996 and 1995, the Company financed approximately $1,049,000,
$7,263,000, and $1,342,000, respectively, of equipment purchases with capital
lease obligations. During 1997, 1996 and 1995, the Company incurred interest
costs of $3,671,000, $4,199,000, and $5,310,000, respectively.
29
<PAGE> 66
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
11. OPERATING LEASES
The Company leases certain MRI and CT scanning equipment, automobiles,
transportation equipment, and office space under operating leases expiring at
various dates through 2003.
Future minimum payments under noncancelable operating leases having initial
terms of more than one year consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
1998 $ 2,551,000
1999 2,353,000
2000 1,926,000
2001 1,139,000
2002 886,000
Thereafter 156,000
-----------
$ 9,011,000
===========
</TABLE>
Payments for repair and maintenance agreements are included in the future
minimum operating lease payments shown above.
Rent expense was $3,285,000 $3,841,000, and $3,458,000 for the years ended
December 31, 1997, 1996 and 1995, respectively, and includes the above operating
leases as well as month-to-month rental and certain capital lease executory
costs.
12. PURCHASE OF GAMMA KNIFE FROM RELATED PARTY
On February 3, 1996, the Company purchased a Gamma Knife through its subsidiary,
GK Financing, LLC from its Chief Executive Officer in exchange for forgiveness
of the outstanding balance of a note due to the Company of $248,000 at December
31, 1996, plus assumption of a note payable in the amount of $2,270,000. The
note is payable to the Company's primary provider of medical equipment, bearing
interest at 10.5%, due in 60 monthly installments, with final payment due July
1999.
30
<PAGE> 67
American Shared Hospital Services
Notes to Consolidated Financial Statements (continued)
13. COMMITMENTS AND CONTINGENCIES
On October 11, 1996 and October 17, 1995, the Company, through GKF, entered into
quotation agreements to purchase a total of seven Gamma Knife units from the
equipment manufacturer. Under the terms of the quotation agreements, the Company
is committed to purchase this equipment for $19,654,000, effective when the
equipment is placed in service at each customer location. At December 31, 1997,
the Company had a $1,750,000 deposit related to these purchase commitments which
is classified as construction in progress. GFK has a promissory note for
$1,320,000 with the equipment manufacturer to provide funds for future capital
expenditures. As of December 31, 1997, there have been no borrowings under this
note.
14. SUBSEQUENT EVENT - SALE OF ASSETS (UNAUDITED)
On March 12, 1998, the Company entered into a definitive agreement to sell
certain of its medical diagnostic imaging assets to Alliance Imaging, Inc.
("Alliance") an affiliate of Apollo Management, L.P. for $13.6 million in cash
and the assumption of liabilities associated with the Company's diagnostic
imaging business, including approximately $26.1 million of debt. The Company is
in the process of finalizing its calculation of the gain it would expect to
recognize on the sale.
The following table presents certain financial information of the assets to be
sold:
<TABLE>
<S> <C>
Revenues for the year ended December 31, 1997 were approximately $ 34,772,000
Total assets at December 31, 1997 were approximately 22,100,000
Total liabilities at December 31, 1997 were approximately 31,900,000
</TABLE>
The proposed transaction is subject to certain conditions, including receipt of
regulatory approvals and the approving vote of a majority of the shareholders of
the Company.
31
<PAGE> 68
American Shared Hospital Services
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Balance at Charged to
December 31, Costs and Amounts December 31, Costs and
1994 Expenses Written Off 1995 Expenses
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Allowance for $ (1,424,000) $ (1,347,00) $ 1,323,000 $ (1,448,000) $ (1,014,00)
uncollectible
accounts
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Amounts December 31, Costs and Amounts December 31,
Written Off 1996 Expenses Written Off 1997
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Allowance for $ 1,222,000 $ (1,240,000) $ (1,296,000) $ 1,234,000 $ (1,302,000)
uncollectible
accounts
</TABLE>
<PAGE> 69
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Description Number
- ------ ----------- ---------------
<S> <C> <C>
2.1 Securities Purchase Agreement, dated as of March 12, 1998, by and among Alliance
Imaging, Inc.; Embarcadero Holding Corp. I: Embarcadero Holding Corp. II; American
Shared Hospital Services; and MMRI, Inc.
3.1 Articles of Incorporation of the Company, as amended. (1) *
3.2 By-laws for the Company, as amended. (2) *
4.6 Form of Common Stock Purchase Warrant of American Shared Hospital Services. (2) *
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.(2)
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. (2)
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. (3)
4.11 Promissory Note, dated May 17,1 995, by American Shared-CuraCare and CuraCare, Inc. *
in favor of DVI Financial Services Inc. in the principal sum of $2,500,000.(2)
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.(2) *
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.(2)
4.14 Assignment and Assumption Agreement, dated as of December 31, 1995, between American *
Shared Hospital Services (assignor) and American Shared Radiosurgery Services (assignee).(3)
4.15 Assignment and Assumption Agreement, dated as of February 3, 1996, between American
Shared Radiosurgery Services (assignor) and GK Financing, LLC (assignee).(3) *
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. (3) *
</TABLE>
<PAGE> 70
<TABLE>
<S> <C> <C>
4.17 Assignment and Assumption Agreement, dated as of February 3, 1996, among Ernest A. *
Bates, M.D. (assignor) and GK Financing, LLC (assignee). (3)
4.18 Assignment and Assumption Agreement, effective as of February 3, 1996, among Ernest *
A. Bates, M.D. (assignor) and GK Financing, LLC (assignee). (3)
4.19 Promissory Note, dated January 1, 1995, by American Shared-CuraCare in favor in
General Electric Company, acting through GE Medical Systems, in the principal sum of *
$2,000,000, as amended. (3)
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. (3)
4.21 Promissory Note, dated April 29, 1996 by GK Financing, LLC in favor of Skandinaviska *
Enskilda Banken in the principal amount of $1,300,000. (4)
4.22 Promissory Note, dated December 23, 1996 by American Shared-CuraCare in favor of *
General Electric company, in the principal amount of $1,631,595.10. (4)
10.1 The Company's 1984 Stock Option Plan, as amended. (5) *
10.2 The Company's 1995 Stock Option Plan, as amended. (6) *
10.3 Form of Indemnification Agreement between American Shared Hospital Services and *
members of its Board of Directors. (5)
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. (7)
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. (2)
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. (3)
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. (2)
10.8 Form of Unconditional Continuing Guaranty of American Shared Hospital Services. (3) *
10.9 Form of Unconditional Continuing Guaranty of Ernest A. Bates, M.D. (3) *
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. (3)
</TABLE>
<PAGE> 71
<TABLE>
<S> <C> <C>
10.11 Ernest A. Bates, Stock Option Agreement dated as of August 15, 1995. (8) *
10.12 Operating Agreement for GK Financing, LLC, dated as of October 17, 1995. (2) *
10.13a 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. (3)
10.13b Amendment dated as of October 16, 1996 to the GK Financing, LLC Operating Agreement,
dated as of October 17, 1995.
10.14 Amendment No. 1, dated March 29, 1996, to 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 (Exhibit 10.6). (4)
10.15 Amendment No. 2, dated January 31, 1996, to Loan and Security Agreement, dated as of *
January 31, 996, among American Shared-CuraCare and CuraCare, Inc., American Shared
Hospital Services, Ernest A. Bates, M.D. and DVI Business Credit Receivables
Corporation (Exhibit 10.6).(4)
10.16 Amendment No. 3, dated April 23, 1997, to Loan and Security Agreement, dated January
31, 1996 among American Shared-CuraCare and CuraCare, Inc., American Shared Hospital
Services, Ernest A. Bates, M.D. and DVI Business Credit Receivables Corp. (Exhibit 10.6).
10.17 Amendment No. 4, dated July 31, 1997, to Loan and Security Agreement, dated January 31,
1996 among American Shared-CuraCare and CuraCare, Inc., American Shared Shared Hospital
Services, Ernest A. Bates, M.D. and DVI Business Credit Receivables Corp. (Exhibit
10.6). (8)
10.18 Amendment No. 5, dated November 26, 1997, to Loan and Security Agreement, dated January
31, 1996 among American Shared-CuraCare and CuraCare, Inc., American Shared Shared
Hospital Services, Ernest A. Bates, M.D. and DVI Business Credit Receivables Corp.
(Exhibit 10.6). (8)
21. Subsidiaries of American Shared Hospital Services.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule for the year ended December 31, 1997.
27.a Restated Financial Data Schedule for the fiscal year ended
December 31, 1995.
27.b Restated Financial Data Schedule for the three months ended
March 31, 1996.
27.c Restated Financial Data Schedule for the six months ended June
30, 1996.
27.d Restated Financial Data Schedule for the nine months ended
September 30, 1996.
27.e Restated Financial Data Schedule for the fiscal year ended
December 31, 1996.
27.f Restated Financial Data Schedule for the three months ended
March 31, 1997.
27.g Restated Financial Data Schedule for the six months ended June
30, 1997.
27.h Restated Financial Data Schedule for the nine months ended
September 30, 1997.
</TABLE>
- ------------------------
(1) This document was filed as Exhibit 3.1 to registrant's
Registration Statement on Form S-2 (Registration No. 33-23416),
which is incorporated herein by this reference.
(2) These documents were filed as Exhibits 3.2, 4.6, 4.8, 4.9, 4.11,
4.12, 4.13, 10.5, 10.7 and 10.12, to registrant's Registration
Statement on Form S-1 (Registration No. 33-63721) filed on October
26, 1995, which is incorporated herein by this reference.
<PAGE> 72
(3) These documents were filed as Exhibits 4.10, 4.14, 4.15, 4.16,
4.17, 4.18, 4.19, 4.20, 10.6, 10.8, 10.9, 10.10, and 10.13,
respectively, to the registrant's Pre-Effective Amendment No. 1 to
registrant's Registration Statement on Form S-1 (Registration No.
33-63721) filed on March 29, 1996, which is incorporated herein by
this reference.
(4) These documents were filed as Exhibits 4.21, 4.22, 10.14, and
10.15, respectively, to registrant's Annual Report on Form 10-K
for fiscal year ended December 31, 1996, which is incorporated
herein by this reference.
(5) These documents were filed as Exhibits 10.24 and 10.35
respectively, to registrant's Registration Statement on Form S-2
(Registration No. 33-23416), which is incorporated herein by this
reference.
(6) This document was filed as Exhibit A to registrant's Proxy
Statement, filed on August 31, 1995, which is incorporated herein
by this reference.
(7) This document was filed as Exhibit 10.49 to registrant's Annual
Report on Form 10-K for fiscal year ended December 31, 1994, which
is incorporated herein by this reference.
(8) This document was filed as Exhibit B to registrant's Proxy
Statement, filed on August 31, 1995, which is incorporated herein
by this reference.
<PAGE> 1
================================================================================
Exhibit 2.1
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
ALLIANCE IMAGING, INC.
EMBARCADERO HOLDING CORP. I,
EMBARCADERO HOLDING CORP. II,
AMERICAN SHARED HOSPITAL SERVICES,
AND
MMRI, INC.
DATED AS OF MARCH 12, 1998
================================================================================
<PAGE> 2
SECURITIES PURCHASE AGREEMENT dated
as of March 12, 1998, by and among ALLIANCE
IMAGING, INC., a Delaware corporation
("Alliance"), EMBARCADERO HOLDING CORP. I, a
Delaware corporation ("Purchaser A"),
EMBARCADERO HOLDING CORP. II, a Delaware
corporation ("Purchaser B" and, together
with Purchaser A, the "Purchasers"),
AMERICAN SHARED HOSPITAL SERVICES, a
California corporation ("Parent") and MMRI,
INC., a California corporation ("M Sub").
WHEREAS, each Entity is engaged in the business of providing
mobile, shared diagnostic imaging services to hospitals, medical centers and
medical offices (including magnetic resonance imaging ("MRI") services,
computed axial tomography scanning ("CT") services, ultrasound services,
nuclear medicine services and related services) (collectively, the "Business");
WHEREAS, the Parent owns all of the issued and outstanding
shares of common stock, par value $1.00, of CT Sub (the "CT Shares") and the
Parent Partnership Interests;
WHEREAS, M Sub owns the M Sub Partnership Interests;
WHEREAS, the Sellers desire to sell to Alliance, and Alliance
desires to purchase from the Sellers, all of the Shares, on the terms and
subject to the conditions contained in this Agreement; and
WHEREAS, Alliance has designated the Purchasers, each of which
is a wholly-owned Subsidiary of Alliance, to acquire the Shares for and on
behalf of Alliance.
NOW, THEREFORE, in consideration of the premises and the
mutual representations hereinafter set forth, the parties hereto hereby agree
as follows (certain capitalized terms used herein are defined on Annex I
hereto):
ARTICLE I
PURCHASE AND SALE
1.1 TRANSFER OF SHARES.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing (after the transactions referenced in Section 1.2
have been consummated), (i) the
<PAGE> 3
Parent shall sell, transfer, convey and assign to Purchaser A, and Purchaser A
shall purchase and acquire from the Parent, all of the Shares (other than the M
Sub Partnership Interests), free and clear of all Encumbrances and (ii) M Sub
shall sell, transfer, convey and assign to Purchaser B and Purchaser B shall
purchase and acquire from M Sub, the M Sub Partnership Interests, free and clear
of all Encumbrances. It is agreed by the parties, that Purchaser A and Purchaser
B have been designated by, and hereto shall purchase the Shares for and on
behalf of Alliance.
(b) The Sellers shall, at any time after the Closing, upon the
request of the Purchasers, take, execute, acknowledge and deliver, and cause to
be taken, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney or assurances as may be
required to transfer, convey, grant and confirm to and vest in the Purchasers,
good and marketable title to all of the Shares, free and clear of all
Encumbrances.
1.2 TRANSFERS OF ASSETS AND LIABILITIES.
(a) Prior to the Closing Date, the Parent and M Sub shall
effectively sell, transfer, convey and assign (the "Asset Contribution") to the
Partnership, (i) all of the Parent's and M Sub's right, title and interest in,
to and under the assets, properties, interests in properties and rights of the
Parent or M Sub, as the case may be, of every kind, nature and description,
whether real, personal or mixed, movable or immovable, tangible or intangible,
used in or held for use in the Business, wherever located and listed on
Schedule 1.2(a) hereof (the "Purchased Parent Assets") and (ii) all of the
Liabilities (other than any Excluded Liabilities) related to the Purchased
Parent Assets, on terms and conditions satisfactory to the Purchasers
including, without limitation, pursuant to such deeds, bills of sale,
endorsements, assignments and other good and sufficient instruments of sale,
transfer, conveyance and assignment (collectively, the "Conveyance
Instruments") as are necessary to sell, transfer, convey and assign to the
Partnership the Purchased Parent Assets and such Liabilities.
(b) Prior to the Closing Date, (i) the Parent shall cause each
of the Entities to effectively sell, transfer, convey and assign (the "Asset
Disposition") to the Parent all of such Entities' right, title and interest in,
to and under the assets, properties, interests in properties and rights listed
on Schedule 1.2(b) hereof (the "Excluded Assets") and (ii) the Parent shall
assume from each of the Entities all of the Excluded Liabilities which are
Liabilities of each Entity, on terms and conditions satisfactory to the
Purchasers including, without limitation, pursuant to Conveyance Instruments as
are necessary to sell, transfer, convey and assign to the Parent the Excluded
Assets and the Excluded Liabilities.
(c) Anything contained in this Agreement to the contrary
notwithstanding, (i) neither the Purchasers nor Alliance are assuming any
Liabilities (fixed or contingent, known or unknown, matured or unmatured) of
the Sellers or the Entities whether or not relating to the Business which are
specified on Schedule 1.2(c) (the "Excluded Liabilities") all of which Excluded
Liabilities shall at and after the Closing become the exclusive
2
<PAGE> 4
responsibility of the Parent and (ii) on the Closing Date, the Sellers or any of
their Subsidiaries (other than the Entities and GK Finance) shall retain (x) not
less than $600,000 aggregate amount of Liabilities in respect of accounts
payable (y) not less than $175,000 aggregate amount of Liabilities in respect of
accrued expenses (other than Liabilities in respect of accrued expenses
referenced in Section 1.2(c)(z)) and (z) all of the Liabilities in respect of
accrued expenses for "accrued payroll" and "accrued payroll taxes and benefits"
outstanding as of the Closing Date.
1.3 PAYMENT OF THE PURCHASE PRICE.
The aggregate purchase price (the "Purchase Price") to be paid by
Alliance to the Sellers for the Shares and the covenants set forth in Section
6.10 of this Agreement shall be a cash amount equal to $13,552,000. At the
Closing and subject to the terms and conditions of this Agreement and the
Related Documents, Alliance shall cause the Purchasers to make payment of the
Purchase Price (minus $75,000 of the Purchase Price which was previously paid
to the Parent) to the Sellers by wire transfer of immediately available funds
to the accounts previously designated in writing to the Purchasers by the
Parent.
1.4 ALLOCATION OF PURCHASE PRICE.
The parties hereto agree that the Purchase Price, subject to any
indemnification payments made hereunder, shall be allocated to the CT Shares
and to the Partnership Interests by the Purchasers on a basis reasonably
satisfactory to the Sellers.
ARTICLE II
THE CLOSING
Unless this Agreement shall have terminated pursuant to its
terms, the closing (the "Closing") of the transactions contemplated by this
Agreement and the Related Documents shall take place at the offices of
O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York
10112, at 10:00 a.m. (New York time) on a date that shall be mutually agreeable
to the parties hereto (the "Closing Date"), provided, however, that the parties
shall use commercially reasonable efforts to consummate the Closing, in
accordance with Section 6.3 hereof, as soon as practicable following the date
of the Parent Stockholder Approval.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Sellers jointly and severally represent and warrant to the
Purchasers and Alliance as of the date hereof, and as of the Closing Date as
follows:
3
<PAGE> 5
3.1 TITLE TO THE SHARES.
Each of the Sellers is the lawful record and beneficial owner of the
Shares purported to be owned by it and has good and marketable title to such
Shares, free and clear of any Encumbrances whatsoever and with no restriction
on the voting rights and other incidents of record and beneficial ownership
pertaining thereto (except restrictions imposed by federal and state securities
laws). No Entity is the subject of any bankruptcy, reorganization or similar
proceeding.
3.2 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
(a) CT Sub is a corporation. The Partnership is a general partnership.
The Parent was incorporated on October 31, 1983 in the State of California. CT
Sub was incorporated on May 1, 1984 in the State of Delaware. M Sub was
incorporated on October 8, 1987 in the State of California. The Partnership was
formed on March 7, 1985 in the State of California.
(b) Each Seller and each Entity is duly organized and validly existing
and in good standing under the laws of its jurisdiction of organization and has
all requisite power and authority (corporate and otherwise) to own, lease and
operate its assets and properties and to carry on its business as presently
conducted.
(c) Each Seller and each Entity is duly qualified and in good standing
to transact business as a foreign Person in those jurisdictions set forth
opposite its name on Schedule 3.2(c), which constitute all the jurisdictions in
which the character of the property owned, leased or operated by such Person or
the nature of the business or activities conducted by such Person makes such
qualification necessary other than those jurisdictions in which the failure to
be so qualified and in good standing could not reasonably be expected to have a
Material Adverse Effect.
(d) The Purchasers have been furnished with true, correct and complete
copies of the Organizational Documents of each Entity and each Seller, in each
case as amended and in effect on the date hereof.
(e) No Entity or Seller has (i) during the five year period prior to the
date hereof, engaged in any business other than the Business or as otherwise set
forth opposite its name on Schedule 3.2(e)(i) and (ii) within the last five
years, used any trade names or assumed names other than the trade names or
assumed names set forth opposite its name on Schedule 3.2(e)(ii).
(f) Each Seller has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions contemplated hereby and thereby. Except for the Parent
Stockholder Approval, each Seller's execution and delivery of this Agreement and
each Related Document to which it is or will be a party, and the performance by
each Seller of its obligations hereunder and
4
<PAGE> 6
thereunder have been duly and validly authorized by all requisite corporate
action on the part of such Seller, and this Agreement and each Related Document
to which either Seller is or will be a party has been, or upon the execution
thereof will be, duly and validly executed and delivered by such Seller,
respectively, and constitutes, or upon its execution and delivery will
constitute, a valid and binding obligation of such Seller, respectively,
enforceable against such Seller, respectively, in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in equity or at law). Except as set forth on
Schedule 3.2(f), none of the execution and delivery by each Seller of this
Agreement and each Related Document, the performance by either Seller of its
obligations under this Agreement and each Related Document to which it is or
will be a party, or the consummation of the transactions contemplated hereby or
thereby, does or will (a) result in the creation of an Encumbrance upon any
Entities' assets or properties, (b) conflict with, or result in any violation or
breach of, any of the terms, conditions or provisions of, or constitute (with
due notice or lapse of time, or both) a default or give rise to any right of
contingent payment, termination, cancellation, acceleration or non-renewal,
under, any provision of any Organizational Document of any such Person or any
Contract to which any such Person is a party or by which any of its assets or
properties is or may be bound which, in the case of such Contracts, could
reasonably be expected to have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby or under the Related
Documents and other than with respect to the foregoing for which consents have
been obtained, or (c) violate any Law applicable to any Entity or Seller, which
conflict or violation could prevent the consummation of the transactions
contemplated by this Agreement or any of the Related Documents to which any such
Person is or will be a party.
(g) Except as contemplated by this Agreement or as set forth on Schedule
3.2(g), no consent, approval, Permit, Order, notification or authorization of,
or any exemption from or registration, declaration or filing with, any
Governmental Entity or any Person is required in connection with the execution,
delivery and performance by any Seller of this Agreement or any Related Document
to which any Seller is or will be a party or the consummation by any Seller of
the transactions contemplated hereby or thereby, except for those consents,
approvals, Permits, Orders, notifications, authorizations, exemptions,
registrations, declarations or filings the failure to obtain could not
reasonably be expected to have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereunder or under the Related
Documents or for those consents, approvals, Permits, Orders, notifications,
authorizations, exemptions, registrations, declarations and filings which have
been obtained.
3.3 CAPITALIZATION.
(a) The authorized capital stock of CT Sub consists of 1,000 duly
authorized shares of common stock, par value $1.00 per share, of which 1,000
shares are duly and validly issued and outstanding, fully paid and
nonassessable, with no personal
5
<PAGE> 7
Liability attached to the ownership thereof and all of which are held of record
and beneficially by the Parent.
(b) The Partnership Interests of the Partnership are owned beneficially
and of record in the amounts and by the Persons set forth in Schedule 3.3(b).
(c) There are no securities outstanding which are convertible into,
exchangeable for, or carrying the right to acquire, Equity Interests of any
Entity, or subscriptions, warrants, options, calls, puts, convertible
securities, registration or other rights, arrangements or commitments obligating
any Entity to issue, sell, register, purchase or redeem any of its Equity
Interests or any ownership interest or rights therein. There are no voting
trusts or other similar agreements to which any Entity is bound with respect to
the voting of the any Entity's Equity Interests. There are no stock appreciation
rights, phantom stock rights or similar rights or arrangements outstanding with
respect to any Entity.
(d) Except as set forth on Schedule 3.3(d), there are no Contracts,
commitments, arrangements, understandings or restrictions to which any Seller or
any of its Subsidiaries is bound relating in any way to any Equity Interest of
any Entity, including any rights of first refusal and any rights of first offer.
(e) All Shares issued by each Entity have been issued in transactions
exempt from registration under the Securities Act and the rules and regulations
promulgated thereunder and all applicable state securities or "blue sky" laws,
and no Entity has violated the Securities Act or any applicable state securities
or "blue sky" laws which may give rise to rights of rescission, cancellation or
damages in connection with the issuance of any such securities.
3.4 SUBSIDIARIES; INVESTMENTS.
No Entity owns or holds, directly or indirectly, any Equity Interest
in any Person.
3.5 FINANCIAL INFORMATION.
(a) The Parent has filed with the SEC all reports, forms, schedules and
statements and other documents required to be filed by it (the "SEC Documents").
As of their respective filing dates, (i) the SEC Documents complied in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and (ii) none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements included in the SEC Documents complied, as
of their respective filing dates, as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with GAAP (except, in
the case of unaudited
6
<PAGE> 8
statements, as permitted by Form 10-Q of the SEC and as otherwise noted therein)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present, in all material respects,
the consolidated financial position of the Parent and its Subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth on Schedule 3.5(a) and except for Liabilities
incurred in the ordinary course of business consistent with past practices since
the date of the most recent consolidated balance sheet included in the SEC
Documents filed and publicly available prior to the date hereof, neither the
Parent nor any of its Subsidiaries has any Liabilities of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a balance sheet or in the notes thereto.
(b) Schedule 3.5(b) contains true, correct and complete copies of the
unaudited balance sheets of each of the Entities as of December 31, 1997 (the
"Latest Balance Sheet"; and such date being the "Latest Balance Sheet Date"),
and the unaudited statements of operations, shareholders' equity and cash flows
for the twelve month period then ended, adjusted to give effect to the
consummation of the transactions contemplated by Section 1.2 hereof as if such
transactions were consummated at January 1, 1997 prepared in accordance with
GAAP (the "Entities' Financial Statements").
(c) Neither of the Sellers has any knowledge of any fact, event or
circumstance that would reasonably cause it to believe that the Entities'
Financial Statements do not fairly present, in all material respects, the
financial position of the Persons referenced therein as of the dates indicated
and the results of operations and cash flows of such Persons for the periods
indicated.
(d) Schedule 3.5(d) sets forth as of January 31, 1998, the Funded
Indebtedness owed by the Parent and each Entity to any third party (separately
identifying the portion of such Funded Indebtedness incurred in respect of each
mobile and each fixed magnetic resonance imaging unit (each, an "MRI Unit"),
each mobile and each fixed computed axial tomography unit (each, a "CT Unit"),
each single photon emission computed tomography unit (each a "SPECT UNIT"), each
ultrasound machine (each, an "Ultrasound Machine"), each respiratory system
(each a "Respiratory System"), and each cardiac catherization lab (each a "Cath
Lab" and together with the MRI Units, CT Units, SPECT Units, Ultrasound
Machines, Respiratory Systems, and Cath Labs, the "Units") owned, leased or on
order by any Entity and the Parent, if any). As of the date hereof, the sum of
the aggregate commitments of the lenders under the DVI Revolving Credit
Agreement is $5,500,000 and as of the close of business on March 10, 1998, the
aggregate principal amount of loans and obligations outstanding thereunder is
$5,222,484.75.
(e) Schedule 3.5(e) sets forth as of (other than in the case of clause
(iv) below) the date which is 10 Business Days prior to the date hereof, (i) the
specifications of each Unit owned, leased, used or on order by any Entity or the
Parent, (ii) the name of the applicable Entity or the Parent, whether such Unit
is owned, leased, used or on order and,
7
<PAGE> 9
in the case of Units used but not owned or leased by any such Person, the name
of the owner or the lessee thereof, (iii) the date that such Person purchased,
commenced leasing or using or, in the case of Units on order, has committed to
purchase or lease, such Unit, (iv) the net book value per Unit as of December
31, 1997 or, in the case of Units on order, the price to be paid to the
manufacturer thereof or that any such Person or any source of financing has
committed to pay to the manufacturer thereof (specifying, if applicable, the
price applicable to the Unit and the price applicable to the coach or van used
or to be used to transport such Unit) and (v) a summary of whether Tax payments
in respect of the lease payments for each Unit are paid at the inception of the
relevant lease or as part of the monthly lease payment.
(f) Schedule 3.5(f) sets forth (i) thedate and cost of each upgrade
completed in the one year period prior to the date hereof to each Unit owned,
leased or used by each Entity or the Parent and (ii) all amounts in excess of an
aggregate of $25,000 that each Entity or the Parent has committed to pay in
respect of any pending upgrade.
(g) Schedule 3.5(g) sets forth a true and correct Schedule of all of the
accounts payable of the Entities (including payee, amount due and due date) as
of the close of business on January 31, 1998.
(h) Schedule 3.5(h) sets forth a true and correct Schedule of (i) all
principal payments or prepayments made by the Parent and each Entity for the
year ended on the Latest Balance Sheet Date and for the one month period ending
January 31, 1998, (ii) the interest expense incurred by the Parent and each
Entity in respect of Funded Indebtedness for the year ended on the Latest
Balance Sheet Date and for the one month period ending January 31, 1998, (iii)
the revenues, cash operating expenses, and EBITDA generated per Unit for the
Parent and each Entity for the year ended on the Latest Balance Sheet Date and
for the one month period ending January 31, 1998 and (iv) the capital
expenditures made by the Parent and each Entity for the year ended on the Latest
Balance Sheet Date, and for the one month period ending January 31, 1998, in
each case, setting forth such information separately for each such Person.
3.6 INFORMATION SUPPLIED.
None of the information supplied or to be supplied by the Parent
specifically for inclusion or incorporation by reference in any documents to be
filed by the Parent with the SEC or any other Governmental Entity in connection
with the Parent Stockholder Vote and the other transactions contemplated hereby
and under the Related Documents will, on the date of its filing, or, with
respect to the Proxy Statement, as supplemented if necessary, on the date it is
sent or given to stockholders or at the time of the Parent Stockholder Vote,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, that no representation or warranty is made by the Sellers
with respect to statements made or incorporated by reference therein based on
information supplied by the Purchasers
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specifically for inclusion or incorporation by reference therein. The Proxy
Statement and any such other documents filed by the Parent with the SEC or with
any other Governmental Entity will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder.
3.7 ABSENCE OF CHANGES.
Since the Latest Balance Sheet Date and on or prior to the date
hereof, except as set forth on Schedule 3.7, the Parent (with respect to the
Business) and each Entity have been operated in the ordinary course, consistent
with past practice, and there has not been:
(a) any change or event that, individually or in the aggregate with any
other change or event, has had or can reasonably be expected to have a material
adverse effect on the assets, properties, business, financial condition, results
of operations or prospects of the Business (a "Material Adverse Effect");
(b) any general uniform increase in the salaries or wages of employees
of the Parent or any Entity, or any increase in salaries or wages payable to any
officer, director or employee of any such Person whose total salary, wages,
bonus and commissions for 1997 exceeded $75,000;
(c) any change in the tax or other accounting methods or practices
followed by the Parent or any Entity, any change in depreciation or amortization
policies or rates previously adopted or any write-up of inventory or other
assets;
(d) any delivery of a notice of non-renewal or any failure to renew any
Contract by any hospitals, clinics, medical or healthcare providers, health
maintenance organizations or other customers or third party payors, which are
material, individually or in the aggregate, except that any such event shall not
be deemed material for this purpose to the extent that new or additional
Contracts as replacements thereof have been obtained;
(e) any loss of any employee of the Parent or any Entity who earned,
during 1997, more than $125,000 (in salary, bonus and other cash compensation);
(f) any sale, lease, license or other disposition of any assets with a
book value in excess of $50,000 in the aggregate;
(g) any issuance, sale or transfer of any Equity Interests of any Entity
or issuance or sale of any securities convertible into, exercisable or
exchangeable for or options or warrants to purchase or rights to subscribe for,
any such Equity Interests;
(h) any new Contract (except for any Contract related to any Employee
Benefit Plan of the Parent for which neither Entity has assumed or has any
Liability that is not disclosed hereunder) entered into with aggregate payments
which could exceed $50,000, any incurrence of Funded Indebtedness or operating
leases (other than Funded Indebtedness or operating leases outstanding on the
date hereof and disclosed on any
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Schedule hereunder) or any amendment, waiver or modification with respect to the
terms of any Funded Indebtedness or operating leases (including, without
limitation, any increase in the commitments to extend credit thereunder);
(i) a change in any accounting principles or policies;
(j) any material Tax election made or compromise of any material Tax
Liability;
(k) any payments made by the Parent or any Entity to or for the benefit
of GK Finance (other than payments made on behalf of GK Finance and reimbursed
by GK Finance on a basis consistent with past practices and in the ordinary
course of business);
(l) any amendment to any Organizational Document or Contracts;
(m) any creation or incurrence (whether or not voluntary) of any
Encumbrance other than Permitted Encumbrances and Encumbrances which exist on
the date hereof and which have been disclosed on the Schedules to this
Agreement;
(n) any payments made or deferred in respect of accounts payable or any
expenses in a manner which is not consistent with past practices or is not in
the ordinary course of business; or
(o) any agreement, whether in writing or otherwise, to take any of the
actions specified in the foregoing clauses in this Section 3.7.
3.8 TAX MATTERS; CERTAIN DEFINITIONS.
(a) Except as set forth on Schedule 3.8(a), each Entity, each Seller and
every other corporation (a "Consolidated Affiliate") that is or has been
included (or should have been included) in the filing of a consolidated or
combined Tax Return that included any Entity or Seller, (but with respect to a
Consolidated Affiliate, only for the years that such Consolidated Affiliate was
(or should have been included) in such Tax Return (the "Years Included")),
(i) has timely paid or caused to be paid all Taxes required to
be paid by it through the date hereof and as of the Closing Date
(including any Taxes shown due on any Tax Return filed by such Entity or
Seller);
(ii) has filed or caused to be filed in a timely and proper
manner (within any applicable extension periods) all Tax Returns
required to be filed by it with the appropriate Governmental Entities in
all jurisdictions in which such Tax Returns are required to be filed;
and
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(iii) (iii) has not requested or caused to be requested any
extension of time within which to file any Tax Return, which Tax Return
has not since been filed.
(b) The Sellers have previously delivered true, correct and complete
copies of all Tax Returns filed by or on behalf of the Sellers and each Entity
for each of the Tax years of each such Person for which the applicable statutes
of limitation have not, as of the Closing Date, expired. All such Tax Returns
are true, complete and correct.
(c) Except as set forth in Schedule 3.8(c):
(i) no Entity, Seller or Consolidated Affiliate, for the Years
Included, has been notified by the Internal Revenue Service or any other
taxing authority that any issues have been raised, which issues are
currently pending, by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of any such Person, there
are no pending Tax audits and no waivers of statutes of limitation have
been given or requested with respect to any such Person which waivers
are currently in effect;
(ii) full and adequate provision has been made (A) on the Latest
Balance Sheet, and the books and records of each Entity and the Sellers
for all Tax Liabilities of such Person for all periods ending on or
prior to the Latest Balance Sheet Date, and (B) on the books and records
of each such Person for all Tax Liabilities of each such Person for all
periods beginning after the Latest Balance Sheet Date;
(iii) no Entity, Seller or Consolidated Affiliate has or shall
incur any Tax Liability from and after the Latest Balance Sheet Date
through the Closing Date other than Taxes attributable to the
transactions described herein or attributable to transactions or other
activities conducted in the ordinary course of business and consistent
with previous years and past practices;
(iv) no Entity or the Sellers is or has (A) made an election to
be treated as a "consenting corporation" under Section 341(f) of the
Code or (B) been a "personal holding company" within the meaning of
Section 542 of the Code;
(v) each Entity, Seller and Consolidated Affiliate, for the
Years Included, has complied in all respects with all applicable Laws
relating to the collection or withholding of Taxes (such as sales Taxes
or withholding of Taxes from the wages of employees);
(vi) CT Sub is, as of the Closing Date will be, and has been
from October 15, 1987 and through the Closing, a member of the
affiliated group, as defined in Section 1504 of the Code, that included
the Parent (the "Consolidated Group"). CT Sub has been included in all
consolidated Tax Returns filed by the
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Consolidated Group for all periods during which CT Sub has been a member
of the Consolidated Group including the taxable year of the Consolidated
Group that includes the Closing Date;
(vii) no Entity or the Sellers has incurred any Liability to
make or possibly make any payments either alone or in conjunction with
any other payments, including payments that are made in connection with
transactions contemplated hereunder or under the Related Documents, that
would constitute a "parachute payment" within the meaning of, Section
280G of the Code (or any corresponding provision of state, local or
foreign income Tax Law);
(viii) no Entity has agreed with the Internal Revenue Service to
change its method of accounting and the Internal Revenue Service has not
proposed that any Entity change its method of accounting for any Tax
period;
(ix) no written claim has ever been made by any taxing authority
in a jurisdiction in which any Entity, Seller or Consolidated Affiliate
(for the Years Included) does not file Tax Returns that such Person is
or may be subject to taxation by that jurisdiction; and
(x) no Entity or the Sellers is a foreign Person within the
meaning of Treas. Reg. Section 1.1445-2(b), and the Purchasers have been
furnished with a true and accurate certificate of each such Person so
stating which complies in all respects with Treas. Reg. Section
1.1445-2(b)(1).
(d) Schedule 3.8(d) sets forth a list of all of the states and
localities with respect to which each Entity and the Sellers is required to file
or be included in a consolidated or combined filing of any corporate, income or
franchise tax returns during the three taxable years ended December 31, 1996.
(e) The Partnership, since its date of organization and for all years
and periods thereafter up to the Closing, has been validly classified as a
partnership for Federal, state and local income tax purposes and subject to the
provisions of Subchapter K of the Code, the Partnership will have a valid
Section 754 election in effect as of the Closing Date.
(f) M Sub has not engaged in any sales, transfers or dispositions of
tangible personal property (other than the sale of the M Sub Partnership
Interests to be sold on the Closing Date) during the twelve month period ending
on the Closing Date.
3.9 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
(a) Each Entity has (or will have after the consummation of the Asset
Contribution) good and marketable title to all of the assets, properties and
interests in properties, real, personal or mixed, reflected on its Latest
Balance Sheet or acquired after such Latest Balance Sheet Date (except accounts
receivable paid in full subsequent to the
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Latest Balance Sheet Date), free and clear of all Encumbrances, of any kind or
character, except for those Encumbrances set forth on Schedule 3.9 and Permitted
Encumbrances. The properties and assets necessary or required to conduct the
Business are in reasonably good repair and operating condition, ordinary wear
and tear excepted and are sufficient for the conduct of the Business as
presently conducted. After the consummation of the transactions contemplated by
Section 1.2 hereof, the Parent and M Sub shall own no assets whatsoever related
to the Business (other than the Excluded Assets) and the Partnership shall
acquire good and marketable title to all of the Purchased Parent Assets. As of
the Closing Date, each of the transactions contemplated by Section 1.2 hereof
shall have been consummated in accordance with their respective terms. Each of
Schedule 1.2(a), Schedule 1.2(b) and Schedule 1.2(c) accurately reflects the
aggregate balances of each of the assets and liabilities set forth therein, in
each case as of the date hereof.
(b) Except as set forth in Schedule 3.9, the Parent and each Entity has
complied in all material respects with the terms of all material leases to which
it is a party or under which it is in occupancy relating to the Business, and
all such leases are in full force and effect. The Parent and each Entity enjoy
peaceful and undisturbed possession under all such material leases.
3.10 REAL PROPERTY-OWNED OR LEASED.
No Entity owns any real property. Schedule 3.10(a) contains a list
and brief description of all of the real property leased by each Entity
pursuant to one or more leases (the "Leased Property"), and sets forth the
names of the lessor and the lessee and the basic terms thereof. The Leased
Property constitutes all real property used or occupied by the Entities in
connection with the Business.
3.11 INTELLECTUAL PROPERTY.
(a) Except in each case as set forth on Schedule 3.11(a):
(i) each Entity owns, has the right to use, sell, license and
dispose of, and has the right to bring actions for the infringement of,
all Intellectual Property Rights necessary or required for the conduct
of the Business (collectively, the "Owned Requisite Rights"), other than
those Intellectual Property Rights for which any Entity has a valid
license, all of which are listed on Schedule 3.11(a) (collectively, the
"Licensed Requisite Rights"; and together with the Owned Requisite
Rights, the "Requisite Rights"), and such rights to use, sell, license,
dispose of and bring actions are exclusive with respect to the Owned
Requisite Rights;
(ii) each Entity has taken reasonable and practicable steps
designed to safeguard and maintain (i) the secrecy and confidentiality
of Confidential or Proprietary Information and (ii) the proprietary
rights of each Entity in all of its Requisite Rights;
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(iii) no Entity has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property Rights of any Person or committed any acts of unfair
competition, and no Entity has received from any Person in the past five
years any notice, charge, complaint, claim or assertion thereof, and no
such claim is impliedly threatened; and
(iv) no Entity has sent to any Person in the past five years, or
otherwise communicated to any Person, any notice, charge, complaint,
claim or other assertion of any present, impending or threatened
infringement by or misappropriation of, or other conflict with, any
Intellectual Property Rights of any Entity by such other Person or any
acts of unfair competition by such other Person, nor to the Best
Knowledge of the Sellers, is any such infringement, misappropriation,
conflict or act of unfair competition occurring or threatened.
(b) Schedule 3.11(b) contains a true and complete list of all
applications, filings and other formal actions made or taken pursuant to any
Laws by each Entity to perfect or protect its interest in its Intellectual
Property Rights, including, without limitation, all patents, patent
applications, trademarks, trademark applications, service marks and service mark
applications, copyrights and copyright applications.
3.12 AGREEMENTS, NO DEFAULTS, ETC.
(a) Except for Contracts relating to any Employee Benefit Plan listed on
Schedule 3.17(a), Schedule 3.12 contains a true and complete list and brief
description of all Contracts, to which each Entity is a party and (x) which were
entered into or made outside the ordinary course of business, or (y) which were
entered into or made in the ordinary course of business and are described in any
of clauses (i) through (xiv) of this Section 3.12(a). Except as set forth on
Schedule 3.12, no Entity is a party to any of the following: (i)
distributorship, dealer, sales, advertising, agency, manufacturer's
representative or other Contract relating to the payment of a commission; (ii)
Contract for the employment of any officer, employee or consultant or any other
type of Contract or understanding with any officer, employee or consultant,
including any agreement or understanding relating to severance payments, but
excluding Contracts, agreements or understandings relating to any Employee
Benefit Plan listed on Schedule 3.17(a); (iii) indenture, mortgage, promissory
note, loan agreement, security agreement, pledge agreement, conditional sale,
guarantee or other Contract for the borrowing of money, for a line of credit or
for a Capital Lease; (iv) Contract for charitable contributions; (v) Contract
for capital expenditures in excess of $25,000 individually or $100,000 in the
aggregate; (vi) Contract or arrangement for the sale of any assets, properties
or rights other than the sale of services or products in the ordinary course of
business; (vii) lease or other agreement pursuant to which it is a lessee of or
holds or operates any machinery, equipment (including Units), motor vehicles,
office furniture, fixtures, products, merchandise or other personal property
owned by any other Person, with annual lease payments in excess of $20,000
individually or $50,000 in the aggregate; (viii) Contract with respect to the
lending or investing of funds, other than with respect to any Employee
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Benefit Plan listed on Schedule 3.17(a); (ix) Contract with respect to any form
of intangible property, including any Intellectual Property Rights; (x) Contract
which restricts any Entity from engaging in any aspect of the Business or any
other business anywhere in the world; (xi) Contract or group of related
Contracts with the same Person (excluding purchase orders entered into in the
ordinary course of business which are to be completed within three months of
entering into such purchase orders) for the purchase or sale of products or
services under which the undelivered balance thereof (including the aggregate
undelivered balance under any such Contracts between the same Person and such
Entity) has a selling price or outstanding balance in excess of $10,000; (xii)
agreement for the acquisition or disposition of a Person or a division of a
Person for which either of the Entities shall have continuing Liabilities after
the Closing Date; (xiii) Contract to provide MRI, CT, ultrasound or nuclear
medicine services to a hospital, clinic or provider; and (xiv) other Contract
material to the Business, including all franchise agreements and license
agreements and all financing agreements related thereto, other than with respect
to any Employee Benefit Plan listed on Schedule 3.17(a). With respect to the
Contracts specified in Section 3.12(a)(vii), Schedule 3.12 sets forth with
respect to each such Contract, as of the date hereof, the aggregate annual
rental payments (including interest factor) and the purchase price payable to
terminate such Contract and acquire the underlying asset. With respect to the
Contracts specified in Section 3.12(a)(xiii), Schedule 3.12 sets forth the fees,
as of the date hereof, for each scan, study or other service performed
thereunder.
(b) All items listed on Schedule 3.12 are in full force and effect,
constitute legal, valid and binding obligations of the respective parties
thereto, and are enforceable in accordance with their respective terms except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in equity or at law). Except as set forth on Schedule 3.12, there
exists no default, or any event which upon the giving of notice or the passage
of time, or both, would give rise to a claim of a default in the performance by
any Entity or to the Best Knowledge of the Sellers, any other party to any of
the foregoing of their respective obligations thereunder. The Purchasers have
been furnished with true, complete and correct copies of all items listed on
Schedule 3.12.
3.13 LITIGATION, ETC.
(a) Except as disclosed on Schedule 3.13(a), there are no (i)
Proceedings pending or, to the Best Knowledge of the Sellers, threatened against
any Entity, whether at law or in equity, whether civil or criminal in nature or
whether before or by any Governmental Entity or arbitrator, or (ii) Orders of
any Governmental Entity or arbitrator with respect to, involving or against any
Entity. The Sellers have delivered to the Purchasers, or made available to the
Purchasers, all material documents and correspondence relating to such matters
referred to on Schedule 3.13(a).
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(b) Schedule 3.13(b) lists each matter described in Section 3.13(a) that
was in existence within the last 3 years that resulted in any criminal sanctions
or payments in excess of $50,000 by any Entity (whether as a result of a
judgment, civil fine, settlement or otherwise).
3.14 COMPLIANCE WITH LAWS.
Each Entity (a) has complied in all respects with, and is in
compliance in all respects with, all Laws, Orders and Permits applicable to it
and the Business, the noncompliance with which could reasonably be expected to
have a Material Adverse Effect and (b) has all material Permits used or
necessary in the conduct of the Business. All of such Permits are listed on
Schedule 3.14, are in full force and effect, no violations with respect to any
thereof have occurred or are or have been recorded, no Proceeding is pending
or, to the Best Knowledge of the Sellers, threatened to revoke or limit any
thereof except, in each case, such of the foregoing as could not reasonably be
expected to have a Material Adverse Effect. No investigation or review by any
Governmental Entity with respect to any Entity is pending or, to the Best
Knowledge of the Sellers, threatened, nor has any Governmental Entity notified
any Entity or any Seller of its intention to conduct the same.
3.15 INSURANCE.
(a) Schedule 3.15(a) contains a true and complete list of all policies
of liability, theft, fidelity, fire, product liability, workmen's compensation
and other forms of insurance held by each Entity and/or by any Seller for the
benefit of any Entity (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims thereunder) other than policies
relating to any Employee Benefit Plan.
(b) Except as set forth on Schedule 3.15(b), with respect to each policy
of insurance listed on Schedule 3.15(a): (i) all premiums with respect thereto
are currently paid and are not subject to adjustment, and no Person is in
default in any respect with respect to its obligations under such policy, and
(ii) no Entity has received any notice that such policy has been or shall be
canceled or terminated or will not be renewed on substantially the same terms as
are now in effect or the premium on such policy shall be materially increased on
the renewal thereof.
3.16 LABOR RELATIONS: EMPLOYEES.
(a) Schedule 3.16(a) sets forth a list of all directors, officers and
employees of each Entity and employees of the Parent (solely with respect to the
Business) as of the date hereof whose aggregate compensation exceeded $75,000 in
1997, together with their respective titles, their rate of annual salary,
bonuses and commissions for 1997 and the respective dates on which they
commenced employment. To the extent any such employee is on a leave of absence
as of the date hereof, Schedule 3.16(a) indicates the nature of such leave of
absence and such employee's anticipated date of return to active employment.
Except as set forth on Schedule 3.16(a), no former employee whose
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aggregate compensation exceeded $75,000 in 1997 has left the service of any
Entity or the Parent within the last 6 months. The schedule of employees of the
Parent and the Entities previously provided to the Purchasers by the Parent
(which sets forth the Person (as among the Parent and the Entities) which
employs each such employee) was true and correct as of the date provided and
none of such employees who are currently employees of Parent or the Entities has
become employed by any other Person (as among Parent and the Entities) since
such date.
(b) As of the date hereof, except as set forth on Schedule 3.16(b): (i)
there is no labor strike or work stoppage actually pending against any Entity or
the Parent; (ii) no Entity or the Parent is a party to or bound by any
collective bargaining agreement or union contract; (iii) no such agreement is
currently being negotiated by any Entity or the Parent and (iv) no Entity or the
Parent has received a request for recognition from any labor organization or any
notice that a petition for election with respect to such Person has been filed
with the National Labor Relations Board.
3.17 ERISA COMPLIANCE.
(a) Schedule 3.17(a) contains a true, complete and correct list of all
existing Employee Benefit Plans (collectively, the "Employee Plans") (i) that
cover any employees, contract employees or former employees of any Entity or any
spouses, family members or beneficiaries thereof (A) that are maintained,
sponsored or contributed to by any Entity or (B) with respect to which any
Entity is obligated to contribute or has any Liability, or (ii) with respect to
which any Entity has any Liability on account of the maintenance or sponsorship
thereof or contribution thereto by any present or former ERISA Affiliate of any
Entity.
(b) Administration and Compliance. Except as set forth on Schedule
3.17(b), with respect to each Employee Plan:
(i) such Employee Plan has been established, maintained,
operated and administered in all material respects in accordance with
its terms and in compliance in all material respects with ERISA, the
Code, and other applicable Laws (including with respect to reporting and
disclosure);
(ii) all amounts withheld pursuant to such Employee Plan from
employees have, where applicable, been timely deposited into the
appropriate trust or account;
(iii) no Entity or any ERISA Affiliate of either Entity has
breached the fiduciary rules of ERISA or engaged in a prohibited
transaction that could subject either Entity to any Tax or penalty
imposed under Section 4975 of the Code or Section 502(i), (j) or (l) of
ERISA in excess of $50,000;
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(iv) as of the date hereof, no Proceedings (other than routine
claims for benefits or administrative appeals with respect thereto) are
pending against such Employee Plan;
(v) such Employee Plan, if intended to be "qualified", within
the meaning of Section 401(a) of the Code, has been determined by the
Internal Revenue Service to be so qualified to the extent addressed in
the most recent favorable determination letter, and nothing has occurred
that has or could reasonably be expected to adversely affect such
qualification;
(vi) except as may be required under Laws of general
application, such Employee Plan does not obligate any Entity to provide
any employee or former employee, or their spouses, family members or
beneficiaries, any post-employment or post-retirement health or life
insurance, accident or other "welfare-type" benefits;
(vii) if such Employee Plan is a "group health plan" within the
meaning of Section 5000 of the Code, such Employee Plan has been
maintained in compliance with Section 4980B of the Code and Title I,
Subtitle B, Part 6 of ERISA so that no Tax imposed under Section 4980B
of the Code has been or is expected to be incurred by either Entity in
excess of $50,000;
(viii) all reporting and disclosure obligations imposed under
ERISA and the Code have been satisfied in all material respects and no
IRS Form 5500 has been filed late (after consideration of any applicable
extension) for any of the three most recently ended plan years; and
(ix) without limiting Section 3.8(c), no benefit payable or
which becomes payable by any Entity pursuant to such Employee Plan shall
constitute an "excess parachute payment," within the meaning of Section
280G of the Code, which is or may be subject to the imposition of an
excise Tax under Section 4999 of the Code or which will not be
deductible by reason of Section 280G of the Code.
(c) Since 1988, no Entity and no ERISA Affiliate of any Entity is or has
ever maintained or been obligated to contribute to a "multiemployer plan" as
defined in Section 3(37) of ERISA, a "multiple employer plan," as defined in
Section 413 of the Code, or a "defined benefit pension plan," as defined in
Section 3(35) of ERISA;
(d) With respect to each Employee Plan, as of the date hereof, the
Purchasers have been provided with true and complete copies, to the extent
applicable, of each plan and trust document governing the terms of such Employee
Plan, the two most recent annual reports (Form 5500 and attachments) and
financial statements prepared therefor, the most recent favorable determination
letter issued to Parent or either Entity (and pending requests therefor), and
each of the foregoing documents accurately reflects the terms of such Employee
Plan in effect at the time such document was prepared
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(including, without limitation, any agreement or provision which would limit the
ability of any Entity to make any prospective amendments or terminate such
Employee Plan).
3.18 CERTAIN ADDITIONAL REGULATORY MATTERS.
(a) None of the Sellers, the Entities or any officer, director or
managing employee of the Sellers or the Entities (within the meaning of 42
U.S.C. (Section 1320a-5(b)) have engaged in any activities which constitute
violations of, or are cause for imposition of civil penalties upon any Entity or
mandatory or permissive exclusion of any Entity from Medicare or Medicaid, under
(S) 1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States
Code, the federal Civilian Health and Medical Plan of the Uniformed Services
statute ("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which constitute violations of
or deficiencies under the standards of any private accrediting organization from
which any Entity is accredited or seeks accreditation, including the following
activities:
(i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(ii) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(iii) knowingly and willfully presenting or causing to be
presented a claim for reimbursement under CHAMPUS, Medicare, Medicaid or
any other State Health Care Program or Federal Health Care Program that
is (i) for an item or service that the Person presenting or causing to
be presented knows or should know was not provided as claimed, or (ii)
for an item or service where the Person presenting knows or should know
that the claim is false or fraudulent;
(iv) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in
return for referring, or to induce the referral of, an individual to a
Person for the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by CHAMPUS,
Medicare or Medicaid, or any other State Health Care Program or any
Federal Health Care Program, or (iii) in return for, or to induce, the
purchase, lease, or order, or the arranging for or recommending of the
purchase, lease, or order, of any good, facility, service, or item for
which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid or any other State Health Care Program or any Federal Health
Care Program; or
(v) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be
stated therein or necessary to
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make the statements contained therein not misleading) of a material fact
with respect to (i) the conditions or operations of a facility in order
that the facility may qualify for CHAMPUS, Medicare, Medicaid or any
other State Health Care Program certification or any Federal Health Care
Program certification, or (ii) information required to be provided under
(S) 1124(A) of the Social Security Act ("SSA") (42 U.S.C. (S) 1320a-3).
(b) Each Entity has a Medicare provider number, and a participating
provider agreement in force with a Medicare Part B carrier, in each locale, as
applicable, in which such Entity bills directly to Medicare for services
furnished by such Entity.
(c) Each Entity has a Medicaid number and a participating provider
agreement in each state, as applicable, in which such Entity bills directly to
such states' Medicaid agency for services provided by such Entity.
3.19 MEDICARE/MEDICAID PARTICIPATION.
None of the Sellers, the Entities, or any officer, director, or
managing employee (as defined in SSA (S) 1126(b) or any regulations promulgated
thereunder) of the Sellers or the Entities: (1) has had a civil monetary
penalty assessed against him, her or it under (S) 1128A of the SSA or any
regulations promulgated thereunder; (2) has been excluded from participation
under the Medicare program or a state health care program as defined in SSA (S)
1128(h) or any regulations promulgated thereunder ("State Health Care Program")
or a federal health care program as defined in SSA (S) 1128B(f) ("Federal
Health Care Program"); or (3) has been convicted (as that term is defined in 42
C.F.R. (S) 1001.2) of any of the following categories of offenses as described
in SSA (S) 1128(a) and (b)(1), (2), (3) or any regulations promulgated
thereunder:
(i) criminal offenses relating to the delivery of an item or
service under Medicare or any State Health Care Program or any Federal
Health Care Program;
(ii) criminal offenses under federal or state law relating to
patient neglect or abuse in connection with the delivery of a health
care item or service;
(iii) criminal offenses under federal or state law relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct in connection with the delivery of a health care
item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or
local governmental agency;
(iv) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense; or
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(v) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
3.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 3.20(a), each Entity is in material
compliance with all applicable Environmental, Health and Safety Laws. Each
Entity has all of the Permits, licenses, authorizations, registrations and
approvals from Governmental Entities necessary to operate the Business, and all
such Permits, licenses, authorizations, registrations and approvals are valid
and in effect
(b) Except as set forth on Schedule 3.20(b), there are no pending or, to
the knowledge of the Sellers, threatened claims by any Governmental Entity
concerning or alleging a violation of any Environmental Health and Safety Law by
any Entity, nor are any pending or, to the knowledge of the Sellers, threatened
claims under any Environmental Health and Safety Laws concerning any property or
facility previously owned, leased or operated by any Seller or Entity or
predecessor of any Seller or Entity.
(c) Except as set forth on Schedule 3.20(c), no Entity presently is the
subject of any ongoing administrative or judicial proceeding or investigation
brought by any Governmental Entity under any Environmental, Health or Safety Law
including, without limitation, any voluntary clean-up program or any Proceeding
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA," also known as "Superfund") or any state counterparts to CERCLA, nor
is any Entity obligated to remediate, monitor, investigate, conduct corrective
action or report on environmental, health and safety matters concerning the
Business pursuant to any order, agreement, decree or mediation or arbitration
proceeding.
(d) Except as set forth on Schedule 3.20(d), in the five years preceding
the date hereof, no Entity has received any written notice, report or other
written information (i) regarding any actual or alleged violation of any
Environmental, Health and Safety Laws, or (ii) that any Entity is potentially
responsible under any Environmental, Health and Safety Laws for response costs,
corrective action or natural resource damages, as those terms are defined under
any Environmental, Health and Safety Laws.
(e) Except as set forth on Schedule 3.20(e), Sellers are not aware of
impending changes in Environmental Health or Safety Laws which could reasonably
be expected to materialize before the one year anniversary of the Closing Date
and which could result in a Material Adverse Effect.
(f) Sellers have provided to the Purchasers copies of, or access for
purposes of review to, all documents, reports, studies or other non-legally
privileged information concerning environmental, heath or safety matters
relating to the Business which are in the possession of Sellers. The information
prepared or originated by the Sellers or the Entities and provided to the
Purchasers is true and correct.
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3.21 BROKERS.
No Seller or Entity has employed any broker or finder or incurred any
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby for which any Purchaser or Alliance
may have Liability after the Closing.
3.22 RELATED TRANSACTIONS.
Except as set forth on Schedule 3.22 or on Schedules 3.17 (a) or (b)
and except for compensation to bona-fide employees of any Entity for services
rendered in the ordinary course of business, no Affiliate of any Entity or any
"associate" (as defined in the rules promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) thereof, is now (i) party to any
transaction or Contract with any Entity providing for the furnishing of
services by, or rental of real or personal property from, or otherwise
requiring payments to, any such Affiliate or associate, or (ii) the direct or
indirect owner of a controlling interest in any Person which is a present or
potential competitor, supplier or customer of any Entity (other than
nonaffiliated holdings in publicly held companies). Except as set forth on
Schedule 3.22, no Entity is a guarantor or otherwise liable for any actual or
potential Liability of its Affiliates and their associates (other than with
respect to any Entity, the other Entity). Except as set forth on Schedule
3.22, no Entity owns or pays for any social club memberships, whether or not
for the benefit of any Entity and/or its executives.
3.23 BANK ACCOUNTS; POWERS OF ATTORNEY.
Schedule 3.23 sets forth a true and complete list of (i) all bank
accounts and safe deposit boxes of each Seller and Entity and all Persons who
are signatories thereunder or who have access thereto and (ii) the names of all
persons, firms, associations, corporations or business organizations holding
general or special powers of attorney from any Seller or Entity and a summary
of the terms thereof.
3.24 VOTING.
The affirmative vote of a majority of the outstanding shares (the
"Parent Stockholder Approval") of the Parent's common stock, par value $0.01
per share (the "Parent Common Stock") is the only vote of the holders of any
class or series of the Parent's capital stock which is necessary to approve
this Agreement and the transactions contemplated hereby.
3.25 OPINION OF FINANCIAL ADVISOR.
The Board of Directors of the Parent has received the oral opinion of
Paine Webber Incorporated to the effect that, as of the date hereof, the
consideration to be received in respect of Shares pursuant to this Agreement is
fair from a financial point of view to the Parent.
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3.26 PHYSICIAN RELATIONSHIPS.
(a) Except as set forth in Schedule 3.26 the Entities do not have any
"financial relationship" with any "referring physician" or an immediate family
member of such physician, within those terms' meanings under 42 U.S.C. Section
1395nn.
(b) To the Best Knowledge of each of the Sellers, no "referring
physician" (within the meaning of 42 U.S.C. Section 1395nn) owns any securities
of the Sellers.
3.27 OTHER HOSPITAL RELATIONSHIPS.
Except as set forth in Schedule 3.27 other than with respect to
reading radiologists, the Entities do not have any lease or other arrangement
with any hospital or other entity whereby the Entities pay the hospital or
other entity rent or any other fee the amount of which is dependent in whole or
in part on the gross or net revenues, net income, or cash flow of any segment
of the business of the Entities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants, severally as to
itself, as of the date hereof and as of the Closing Date as follows:
4.1 ORGANIZATION; CORPORATE AUTHORITY.
Such Purchaser is a corporation duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its incorporation and
has all requisite power and authority (corporate or otherwise) to own, lease
and operate its assets and properties and to carry on its business as presently
conducted and as presently proposed to be conducted. Such Purchaser is duly
qualified and in good standing to transact business as a foreign Person in
those jurisdictions set forth on Schedule 4.1, which, as of the date hereof,
constitute all the jurisdictions in which the character of the property owned,
leased or operated by such Purchaser or the nature of the business or
activities conducted by such Purchaser makes such qualification necessary.
4.2 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
Such Purchaser has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by such Purchaser of this Agreement and each Related Document to
which it is or will be a party, and performance of its obligations hereunder
and thereunder have been duly and validly authorized by all necessary corporate
action on the part of such Purchaser. This Agreement and each Related Document
to which it is or will be a party has been or upon
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the execution thereof will be, duly and validly executed and delivered by such
Purchaser, and constitutes, or upon its execution and delivery will constitute,
a valid and binding obligation of such Purchaser, enforceable against it in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law). Neither such
Purchaser's execution and delivery of, and/or performance of its obligations
under, this Agreement and each Related Document to which it is or will be a
party, nor the consummation of the transactions contemplated hereby and thereby
shall (i) conflict with or result in any violation or breach of, any of the
terms, conditions or provisions of, or constitute (with due notice or lapse of
time, or both) a default under, or give rise to any right of termination,
cancellation or acceleration or result in the creation of any Encumbrance upon
any of the assets or properties of such Purchaser under provision of such
Purchaser's Organizational Documents or any Contract to which such Purchaser is
a party (other than security documents relating to financing arrangements
existing for the benefit of the Purchasers' Affiliates) or by which it or any of
its assets or properties is or may be bound which, in the case of such
Contracts, would reasonably be expected to have a material adverse effect on any
Purchaser or prevent the consummation of the transactions contemplated hereby or
under the Related Documents and other than with respect to the foregoing for
which consents have been obtained or (ii) violate, or result in the creation of
an Encumbrance upon any of such Purchaser's assets as a result of, any Law's
applicable to such Purchaser or any of its properties or assets, in each case,
which would prohibit the such Purchaser from consummating the transactions
contemplated hereby.
4.3 BROKERS.
Such Purchaser has not employed any broker or finder or incurred any
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby for which any Seller may have any
Liability after the Closing.
4.4 CONSENTS.
Except as contemplated by this Agreement or as set forth on Schedule
4.4, and the Related Documents, no consent, approval, Order or authorization
of, or registration, declaration or filing with or notification to, any
Governmental Entity or any third party is required in connection with the
execution, delivery and performance by such Purchaser of this Agreement or the
Related Documents to which such Purchaser is or will be a party or the
consummation of the transactions contemplated hereby or thereby except for
those consents, approvals, Orders, authorizations, registrations, declarations,
filings or notifications the failure to obtain could not reasonably be expected
to have a material adverse effect on such Purchaser or except for those
consents, approvals, Orders, authorizations, registrations, declarations or
filings which have been obtained.
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4.5 INVESTMENT REPRESENTATIONS.
Each of the Purchasers are acquiring the Shares to be purchased by it,
for its own account, for investment and not with a view to the distribution
thereof in violation of the Securities Act.
4.6 INFORMATION SUPPLIED.
None of the written information supplied or to be supplied by any
Purchaser specifically for inclusion or incorporation by reference in the Proxy
Statement, as supplemented if necessary, and any other documents to be filed by
the Parent with the SEC or any Governmental Entity in connection with the
transactions contemplated hereby will, on the date of its filing or, with
respect to the Proxy Statement, as supplemented if necessary, on the date it is
sent or given to stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ALLIANCE
Alliance represents and warrants, as to itself, as of the date
hereof and as of the Closing Date as follows:
5.1 ORGANIZATION; CORPORATE AUTHORITY.
Alliance is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite power and authority (corporate or otherwise) to own, lease and
operate its assets and properties and to carry on its business as presently
conducted and as presently proposed to be conducted.
5.2 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
Alliance has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by Alliance of this Agreement and each Related Document to which it
is or will be a party, and performance of its obligations hereunder and
thereunder have been duly and validly authorized by all necessary corporate
action on the part of Alliance. This Agreement and each Related Document to
which Alliance is or will be a party has been or upon the execution thereof
will be, duly and validly executed and delivered by it, and constitutes, or
upon its execution and delivery will constitute, a valid and binding obligation
of it, enforceable against it in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar
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laws affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law). Neither
Alliance's execution and delivery of, and/or performance of its obligations
under, this Agreement and each Related Document to which it is or will be a
party, nor the consummation of the transactions contemplated hereby and thereby
shall (i) conflict with or result in any violation or breach of, any of the
terms, conditions or provisions of, or constitute (with due notice or lapse of
time, or both) a default under, or give rise to any right of termination,
cancellation or acceleration or result in the creation of any Encumbrance upon
any of the assets or properties of Alliance under provision of its
Organizational Documents or any Contract to which it is a party or by which it
or any of its assets or properties is or may be bound which, in the case of such
Contracts, would reasonably be expected to have a material adverse effect on it
or prevent the consummation of the transactions contemplated hereby or under the
Related Documents and other than with respect to the foregoing for which
consents have been obtained or (ii) violate, or result in the creation of an
Encumbrance upon any of its assets as a result of, any Law's applicable to it or
any of its properties or assets, in each case, which would prohibit it from
consummating the transactions contemplated hereby.
5.3 DESIGNATION OF PURCHASERS.
Alliance has duly designated the Purchasers to acquire the
Shares hereunder, and will cause the Purchasers to perform each and every
obligation undertaken by them herein.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 ACCESS TO RECORDS AND PROPERTIES OF THE ENTITIES.
From and after the date hereof until the Closing, the Sellers shall,
and shall cause each Entity to afford, (i) to the Purchasers, their respective
lenders and Affiliates and each of their respective authorized representatives,
including accountants, consultants and attorneys, free and full access at all
reasonable times to the assets, business, facilities, properties, books,
records (including tax returns filed and in preparation), customers,
consultants, and employees of or relating to each Entity and the Parent in
order that the Purchasers have full opportunity to make such investigation as
they shall reasonably desire to make of the affairs of each Entity and the
Parent and in order that the Purchasers may integrate the Business into the
business currently being conducted by the Purchasers' Affiliates, and (ii) to
the respective independent certified public accountants of the Purchasers, free
and full access at all reasonable times to the records of the independent
certified public accountants of each Entity and the Parent. The Sellers shall
cause their employees to actively cooperate and assist Purchasers and such
other Persons in effecting such integration. From and after the date hereof
until the Closing, (i) the Sellers shall provide to the Purchasers promptly but
in any event no later than the 25th day after the
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last day of each calendar month, a copy of the consolidated and consolidating
balance sheets, statements of operations, shareholders equity and cash flows of
the Parent and its Subsidiaries for each such calendar month, together with a
copy of the Parent's "white book" and "blue book" (and any supporting
information with respect thereto), and (ii) such other information regarding the
Parent and its Subsidiaries as may be reasonably requested by the Purchasers.
The investigation contemplated by this Section 6.1 shall not affect or otherwise
diminish or obviate in any respect any of the representations and warranties or
the indemnification obligations contained in this Agreement.
6.2 CONDUCT PENDING CLOSING.
From and after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to Article IX, each of the Sellers
shall, and shall cause each Entity to (unless otherwise consented to in writing
by the Purchasers):
(a) not sell, lease, license or otherwise dispose of any assets with a
book value in excess of $50,000 in the aggregate;
(b) not issue, sell or in any way transfer any Equity Interests of the
Entities or issue or sell any securities convertible into, exercisable or
exchangeable for or options or warrants to purchase or rights to subscribe for,
any such Equity Interests;
(c) not change the number of authorized shares of the Equity Interests
of the Entities or reclassify, combine, split, subdivide or redeem or otherwise
repurchase any of such Equity Interests, or issue, deliver, pledge or encumber
any additional Equity Interests of the Entities or other securities equivalent
to, or exchangeable for, Equity Interests of the Entities or enter into any
Contract to do any of the foregoing;
(d) not incur or issue any securities evidencing any Funded Indebtedness
or enter into any operating leases (other than Funded Indebtedness of a Seller
for which no Entity (or its assets) is liable or obligated (whether
contractually, by applicable Law, as a guarantor or through the incurrence or
grant of any Encumbrances), Funded Indebtedness related to money advanced from
Sellers or GK Finance to an Entity on a basis consistent with past practice and
in the ordinary course of business, provided that the amounts so advanced are
repaid prior to the Closing Date, Funded Indebtedness or operating leases
outstanding on the date hereof and disclosed on any Schedules hereunder), or
amend, modify or agree to a waiver of the terms of any Funded Indebtedness or
operating leases (including, without limitation increasing any commitments to
extend credit thereunder);
(e) not enter into any Contract with aggregate payments which could
exceed $50,000 (except for any Contract related to any Employee Benefit Plan of
the Parent or any Subsidiary other than the Entities, and for which Contract
neither Entity assumes or has any Liability not disclosed hereunder) or any
Contract in respect of the rental of any Unit;
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(f) not enter into any employment agreement, or in any manner change the
Person (as among the Parent and the Entities) which is the employer of the
employees of the Parent and the Entities from the Person disclosed on the
schedule referenced in the last sentence of Section 3.16(a) as such employee's
employer, or terminate the employment of any employees in a manner which is
inconsistent with past practices or policies, or except as required by
applicable Law, effect any increase in the rate or terms of compensation payable
or to become payable to officers or employees of any Entity or the Parent
(solely as relating to the Business) other than increases in compensation under
Employee Benefit Plans which are available to all employees generally;
(g) not create or suffer to exist any Encumbrance on any of its assets
or properties other than Permitted Encumbrances, Encumbrances on Equity
Interests or assets of GK Finance or any assets of Subsidiaries of the Parent
other than the Entities, and Encumbrances which exist on the date hereof and
which have been disclosed on the Schedules to this Agreement;
(h) not change its tax or accounting principles, policies or practices,
change any depreciation or amortization policies or rates previously adopted or
write-up inventory or any other assets;
(i) not make any material Tax election or compromise any material Tax
Liability;
(j) not make any payments to or for the benefit of GK Finance (other
than payments made on behalf of GK Finance and reimbursed by GK Finance on a
basis consistent with past practices and in the ordinary course of business);
(k) not amend any of its Organizational Documents or any Contracts
(other than Contracts related to any Employee Plan);
(l) not enter into any transaction other than in the ordinary course of
business, or any transaction which is not at arms-length with unaffiliated
third Persons;
(m) not take or omit to take any action which would result in the
representations and warranties contained in this Agreement and the Related
Documents being untrue on the Closing Date, other than such action as shall have
been previously agreed to in writing by the parties hereto;
(n) not make any material change in the manner in which such Person
extends discounts or credits to customers or any material change in the manner
or terms by which such Person collects its accounts receivable or otherwise
deals with customers;
(o) not agree or otherwise commit to take any of the actions set forth
above;
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(p) promptly provide the Purchasers with at least five Business Days
notice of (i) the terms and conditions with respect to renewals of any existing
Contracts to be renewed by the Entities, (ii) any intention to not renew any
existing Contracts and (iii) the actual nonrenewal of any existing Contract;
(q) conduct its business substantially as presently conducted and only
in the ordinary course consistent with past practice;
(r) use commercially reasonable efforts to (i) maintain its business,
assets, relations with present employees, customers, suppliers, partners,
licensees and operations as an ongoing business and preserve its goodwill, in
accordance with past custom and practice and (ii) to satisfy each of the closing
conditions to be satisfied by it set forth in Article VII hereof; and
(s) pay and continue to defer all accounts payable and all expenses in a
manner which is consistent with past practices and in the ordinary course of
business.
6.3 EFFORTS TO CONSUMMATE.
Subject to the terms and conditions of this Agreement, each party
shall use commercially reasonable efforts to take or cause to be taken all
actions and do or cause to be done all things required under all applicable
Laws, in order to consummate the transactions contemplated hereby.
6.4 NO SOLICITATION.
(a) The Parent shall, shall cause M Sub and each Entity to and shall
direct and cause its and each such Person's officers, directors, employees,
representatives and agents to, immediately cease any discussions or negotiations
with any parties (other than the Purchasers and Alliance) that may be ongoing
with respect to an Alternative Transaction. The Parent shall not, shall cause M
Sub and each Entity not to and shall not authorize or permit any of its or any
such Person's officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative representing any
such Person to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal that may lead to an
Alternative Transaction or (ii) participate in any discussions or negotiations
regarding any proposed Alternative Transaction; provided, however, that if, at
any time prior to the Closing Date, the Board of Directors of the Parent
determines in good faith, based on written advice from outside counsel, that
action is required by reason of such Board of Directors' fiduciary duties to the
Parent's stockholders under applicable law, the Parent may (subject to
compliance with Section 6.4(c)), in response to an unsolicited Third Party
Proposal, (A) furnish information with respect to the Parent and the Entities to
the Person making such Third Party Proposal pursuant to a confidentiality
agreement that is at least as protective of the Parent's and its Subsidiaries'
interests as is the Confidentiality Agreement and (B) participate in
negotiations regarding such a Third Party Proposal. Without limiting the
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foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director, officer or employee of the Parent, M Sub
or any Entity or any investment banker, financial advisor, attorney, accountant
or other representative acting on behalf of any such Person shall be deemed to
be a breach of this Section 6.4(a).
(b) Neither the Board of Directors of the Parent nor any committee
thereof shall (i) withdraw or modify the approval or recommendation by such
Board of Directors or such committee of this Agreement, the Related Documents or
any of the transactions contemplated hereby or thereby, (ii) approve or
recommend any Alternative Transaction or (iii) cause or permit the Parent, M Sub
or any Entity to enter into any letter of intent, agreement in principle,
acquisition agreement or other agreement (an "Acquisition Agreement") with
respect to an Alternative Transaction unless the Board of Directors of the
Parent shall have previously terminated this Agreement pursuant to Section
9.1(f).
(c) In addition to the obligations of the Parent set forth in paragraphs
(a) and (b) of this Section 6.4, the Parent shall immediately advise the
Purchasers orally and in writing of any request for information or of any
proposal or any inquiry regarding any Alternative Transaction, the material
terms and conditions of such request, proposal or inquiry and the identity of
the Person making such request, proposal or inquiry. The Parent will keep the
Purchasers fully informed of the status and details (including amendments or
proposed amendments) of any such request, proposal or inquiry.
(d) Nothing contained in this Section 6.4 shall prohibit the Parent from
at any time taking and disclosing to its stockholders a position contemplated by
Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Parent's stockholders, in each case with respect to any Third
Party Proposal, if the Parent shall have provided the Purchasers with as much
advance notice of its position and proposed disclosure as is possible under the
circumstances; provided, however, that neither the Parent nor its Board of
Directors nor any Committee thereof shall, except as permitted by Section
6.4(b), withdraw or modify, or propose to withdraw or modify, its position with
respect to this Agreement, the Related Documents or any of the transactions
contemplated hereby or thereby or approve or recommend, or propose to approve or
recommend, an Alternative Transaction.
6.5 CONFIDENTIALITY.
The Sellers and the Purchasers agree that, through and including the
Closing Date, they shall comply with that certain letter agreement relating to
matters of confidentiality dated as of July 24, 1997 (as amended, modified or
supplemented, the "Confidentiality Agreement").
6.6 NOTICE OF PROSPECTIVE BREACH.
Each party shall immediately notify the other parties in writing upon
the occurrence, or failure to occur, of any event, which occurrence or failure
to occur would be reasonably likely to cause any representation or warranty of
such party that is contained
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in this Agreement or any Related Document to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Closing.
6.7 PUBLIC ANNOUNCEMENTS.
Each party agrees that, except (i) as otherwise required by Law or
Order and (ii) for disclosure to its respective directors, officers, employees,
financial advisors, potential financing sources, legal counsel, independent
certified public accountants or other agents, advisors or representatives on a
need-to-know basis and with whom such party has a confidential relationship, it
will not issue any reports, statements or releases, in each case pertaining to
this Agreement or any Related Document to which it is a party or the
transactions contemplated hereby or thereby, without consulting in advance with
the other parties hereto.
6.8 COOPERATION REGARDING TAX FILINGS; SECTION 338(h)(10).
(a) After the Closing, the Purchasers and the Sellers shall act in good
faith and cooperate with one another for the purpose of filing all Tax Returns
and reports required to be filed by any of them. Parent shall join Purchaser A
in a timely election pursuant to Section 338(h)(10) of the Code (and under any
comparable provision of any state or local law) with respect to the CT Shares
(the "338(h)(10) Election"). The parties hereto recognize that the 338(h)(10)
Election will result in the purchase of the CT Shares hereunder being treated as
a sale of assets by CT Sub for Federal income Tax purposes and for applicable
state and local tax purposes and that any Tax Liability arising with respect to
the 338(h)(10) Election (other than a Liability for Transfer Taxes described in
Section 10.14) shall be deemed a Covered Tax. None of the parties hereto shall
make any Tax Return or other filing that is inconsistent with the foregoing.
(b) The Purchasers shall be responsible for the preparation and filing
of all 338(h)(10) Election forms and the Sellers shall execute and deliver to
Purchasers such documents as are reasonably requested to properly complete such
forms at least twenty (20) days prior to the date such 338(h)(10) Election is
required to be filed. The Sellers agree that the Purchasers shall be entitled to
determine the allocation of the Modified Aggregate Deemed Sales Price (as
defined in the treasury regulations promulgated under Section 338 of the Code)
among the assets of CT Sub in their sole discretion, and in accordance with
Section 338 of the Code and the regulations thereunder (including the allocation
of any adjustment to the Modified Aggregate Deemed Sales Price by reason of any
purchase price adjustment or indemnification payment under this Agreement), and
shall notify the Sellers of such determination as soon as possible after making
such determination. The Purchasers and the Sellers agree to act in accordance
with any such allocation in all relevant Tax Returns and filings.
(c) Parent shall cause to be prepared and cause to be timely filed all
consolidated, combined or unitary federal, state, local or foreign Tax Returns
required to be filed with respect to Parent for all taxable periods ending
before or including the Closing Date and shall include CT Sub in all such
returns in which it is eligible to be
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included. The Purchasers agree to cooperate with Parent and its Affiliates in
the preparation of the portions of such Tax Returns pertaining to CT Sub. The
Parent shall permit the Purchasers to review and comment on the portion of all
Tax Returns prepared by Parent pursuant to this Section 6.8(c) pertaining to CT
Sub, or the Partnership prior to the filing of such Tax Returns. Parent shall
cause to be timely paid all Taxes to which such Tax Returns relate for all
periods covered by such Tax Returns.
(d) The extent to which Taxes of CT Sub and the Partnership for a
taxable period that includes but does not end on the Closing Date are treated as
Taxes for the period ending on or prior to the Closing Date shall be determined
for all purposes, including for purposes of calculating Covered Taxes, as
follows: (i) Taxes measured in whole or in part by net or gross income and Taxes
relating to specific transactions shall be apportioned on the basis of a closing
of the books of the Entity liable for such Tax at the close of business on the
Closing Date; provided, however, that all transactions not in the ordinary
course of business and not contemplated in this Agreement that occur on the
Closing Date after Purchaser A's purchase of the CT Shares shall be reported on
Purchaser A's federal income tax return to the extent permitted by Treas. Reg.
Section 1502-76(b((1)(3); and (ii) all other Taxes shall be prorated according
to the ratio of the number of days in such taxable period prior to and including
the Closing Date to the number of days in such taxable period.
(e) The Sellers shall cause to be prepared all required federal, state,
local and foreign Tax Returns of CT Sub and the Partnership for any period which
ends on or before the Closing Date, for which Tax Returns have not been filed as
of the Closing Date (other than Tax Returns to be filed by Parent pursuant to
Section 6.8(c)). The Purchasers shall cause to be prepared and cause to be
timely filed all required federal, state, local and foreign Tax Returns of CT
Sub and the Partnership (other than Tax Returns to be filed by Parent pursuant
to Section 6.8(c)) for taxable periods beginning before and ending after the
Closing Date. The Sellers and Purchasers agree to cooperate with each other in
the preparation of such Tax Returns. The Purchasers shall permit Sellers to
review and comment on all Tax Returns prepared by the Purchasers pursuant to
this Section 6.8(e) and such Tax Returns shall be subject to the prior approval
of the Sellers which approval shall not be unreasonably withheld. The Sellers
shall permit the Purchasers to review and comment on all Tax Returns prepared by
the Sellers pursuant to this Section 6.8(e). Prior to the date such Tax Returns
are due, the Parent will provide the Purchasers with amounts equal to the
Covered Taxes, as shown on the Tax Returns to be filed under this Section
6.8(e), after taking into account any Tax or estimated Tax paid with respect to
such Covered Taxes prior to the Closing Date. Promptly after receipt by the
Purchasers of the amounts in respect of the Covered Taxes from the Parent, the
Purchasers will cause the applicable Tax Returns prepared by the Seller to be
filed.
(f) Parent shall be entitled to any refund of Taxes paid by or with
respect to CT Sub that is attributable to taxable periods ending on or prior to
the Closing Date, and the Purchasers shall cause CT Sub to pay over to Parent
any such refunds (net of any Tax Liability attributable thereto and any expenses
incurred in the collection of such refund)
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within fifteen (15) days after receipt thereof. If the amount of such refund
that is paid over by Parent is subsequently reduced by a Governmental Entity,
Parent shall pay to Purchasers an amount necessary to reflect such adjustment.
(g) The Parent shall not file any claim for a refund or credit, or an
amended return claiming a refund or credit, after the Closing Date, for any Tax
paid by CT Sub without the prior written consent of the Purchasers, which
consent shall not be unreasonably withheld.
(h) Each of the Purchasers and the Sellers shall promptly notify the
other party upon receipt of a notice of any pending or threatened Tax audit or
assessment (a "Tax Claim") that may affect the Tax Liabilities of CT Sub, or the
Partnership and for which any Seller would be liable under this Agreement;
provided, however, that no delay on the part of either party in so notifying the
other party shall relieve the other party from any liability or obligation
hereunder (unless, and then solely to the extent) that the other party is
materially and irrevocably prejudiced by such delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Tax
Claim.
(i) If the Sellers shall acknowledge in a writing delivered to the
Purchasers that such Tax Claim is properly subject to their indemnification
obligations hereunder and the Sellers shall have the financial resources to meet
such indemnification obligations, then subject to the further provisions of this
Section 6.8(i), the Sellers shall have the right to assume the defense of such
Tax Claim at their own expense and by their own counsel and other advisers,
which counsel and other advisors shall be reasonably satisfactory to the
Purchasers; provided, however, that the Sellers shall not have the right to
assume the defense of any Tax Claim, notwithstanding the giving of such written
acknowledgment, if the Sellers shall not have assumed the defense of such Tax
Claim in a timely fashion. Notwithstanding anything to the contrary contained
herein, if a Tax Claim involves, or could have a material effect on any material
matter beyond the scope of the indemnification obligations of the Sellers, the
Sellers and Purchasers shall jointly assume the defense of such Tax Claim at
their own expense. If the Sellers exercise their right to assume the defense of
a Tax Claim pursuant to and in accordance with this Section 6.8(i), (i) the
Purchasers shall be entitled to participate in such defense with their own
counsel and other advisors at their own expense, (ii) the Purchasers will
reasonably cooperate with the Sellers and their counsel and advisors in the
defense of such Tax Claim, and (iii) the Sellers shall not make any settlement
of such Tax Claim without the written consent of the Purchasers, which consent
shall not be unreasonably withheld, provided that consent may be withheld if any
Losses to be incurred by the Purchasers pursuant to such settlement are not
indemnified pursuant to the indemnification provisions set forth in Article VIII
hereunder.
(j) If the Sellers shall assume the defense of a Tax Claim pursuant to
and in accordance with Section 6.8(i), the Sellers shall not be responsible for
any legal or other defense costs subsequently incurred by the Purchasers in
connection with the defense thereof. If the Sellers do not exercise their right
to assume the defense of a Tax Claim or
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are otherwise restricted from doing so pursuant to Section 6.8(i), the Sellers
shall nevertheless be entitled to participate in such defense with their own
counsel and other advisors at their own expense. If the defense of a Tax Claim
is retained by the Purchasers, the Purchasers shall not be entitled to settle
such Tax Claim without the prior written consent of the Sellers, which consent
shall not be unreasonably withheld.
(k) After the Closing Date, the Sellers and the Purchasers shall make
available to the other, as reasonably requested, all information, records or
documents relating to Tax Liabilities or potential Tax Liabilities of CT Sub or
the Partnership for all periods ending on or prior to the Closing Date, and
shall preserve all such information, records and documents until the expiration
of any applicable statute of limitations or extensions thereof.
(l) All Tax Returns which are required to be prepared by Sellers
pursuant to Sections 6.8(c) and (e) shall be prepared and filed in a manner
consistent with past practice and applicable Law and, on such Tax Returns, no
position shall be taken, elections made or method adopted that is inconsistent
with positions taken, elections made or methods used in preparing and filing
similar Tax Returns in prior periods.
6.9 EXCHANGE PROCEEDS.
If, between the date hereof and the Closing, any Entity or any Seller
receives any proceeds in consideration for the exchange of any of its assets
(solely, in the case of the Parent as it relates to the Purchased Parent
Assets), whether from the sale of any such assets, from insurance proceeds
payable on account of any loss or casualty to such assets, any proceeds from
the taking of such assets pursuant to the power of eminent domain, or any other
proceeds from whatever source relating to the disposition of such assets (the
"Exchange Proceeds"), the Sellers shall immediately notify the Purchasers of
the receipt of such Exchange Proceeds and shall consult with the Purchasers
with respect to the application of any such Exchange Proceeds. The Sellers
shall ensure that any Exchange Proceeds received by any Entity shall either be
used to purchase replacement assets or shall be retained by the applicable
Entity.
6.10 NON-COMPETE; NON-SOLICITATION.
(a) During the Non-Compete Period, the Parent shall not, and cause its
Affiliates not to, directly or indirectly, own, manage, control, participate in,
consult with, render services for, or in any manner engage in or represent any
business within any Restricted Territory that is competitive with the Business
or any product or services of the Business as such Business is conducted or
proposed to be conducted from and after the Closing Date; provided, however,
that nothing herein shall be deemed to prevent the Parent or any of its
Affiliates from engaging in any activities presently conducted or proposed to be
conducted by GK Finance or from providing any imaging modality as part of its
"Operating Room of the Twenty First Century" business.
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(b) During the Non-Compete Period, none of the Parent nor any Affiliate
shall directly or indirectly through another Person (i) induce or attempt to
induce any employee of any Purchaser or any Affiliate of such Purchaser to leave
the employ of such Purchaser or such Affiliate or in any way interfere with the
relationship between such Purchaser or any such Affiliate, on the one hand, and
any employee thereof, on the other hand, or (ii) induce or attempt to induce any
customer, supplier, licensee or other business relation of any Purchaser or any
Affiliate of such Purchaser to cease doing business with such Person or in any
way interfere with the relationship between any such customer, supplier,
licensee or business relation, on the one hand, and such Person, on the other
hand.
(c) If, at the time of enforcement of this Section 6.10, a court holds
that the restrictions stated herein are unreasonable under the circumstances
then existing, the parties agree that the maximum period, scope or geographical
area reasonable under such circumstances shall be substituted for the stated
period, scope or area. The parties hereto acknowledge that money damages would
be an inadequate remedy for any breach of this Section 6.10. Therefore, in the
event of a breach or threatened breach of this Section 6.10, the Purchasers or
their successors or assigns may, in addition to other rights and remedies
existing in their favor, apply to any court of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce, or
prevent any violations of, the provisions of this Section 6.10.
6.11 CERTAIN TAX MATTERS.
From the date hereof until the Closing Date, (i) the Parent shall and
shall cause each Entity to file all tax returns and reports ("Post-Signing
Returns") required to be filed in a manner consistent with past practices; (ii)
the Parent shall and shall cause each Entity to timely pay all Taxes shown as
due and payable on the Post-Signing Returns; (iii) the Parent shall and shall
cause each Entity to make provision for all Taxes payable for which no
Post-Signing Return is due prior to the Closing Date; (iv) the Parent shall
allow the Purchasers an opportunity to review and comment on any Post-Signing
Return prior to the due date of such Post-Signing Return; and (v) the Parent
will promptly notify the Purchasers of any action, suit, proceeding, claim or
audit pending against or with respect to the Parent or any Entity in respect of
any Tax where there is a possibility of a determination or decision which could
have an adverse effect on the Parent's or any Entity's Tax Liabilities or Tax
attributes.
6.12 ADVICE OF CHANGES; FILINGS.
The Parent shall confer with the Purchasers on a regular and frequent
basis as reasonably requested by the Purchasers, report on operational matters
and promptly advise the Purchasers orally and, if requested by the Purchasers,
in writing of any change with respect to the Parent or any Entity. The Parent
shall promptly provide to the Purchasers (or their counsel) copies of all
filings made by the Parent or any Entity with any
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Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
(a) The Parent will, as soon as practicable following the date hereof,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"Stockholders Meeting") for the purpose of obtaining the approval of this
Agreement, the Related Documents, and the transactions contemplated hereby and
thereby. The Parent will, through its Board of Directors, recommend to its
stockholders that the Parent Stockholder Approval be given.
(b) The Parent will, as soon as practicable following the date hereof,
prepare and file a preliminary proxy or information statement (as amended,
modified or supplemented, the "Proxy Statement") with the SEC and will use its
best efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be mailed to its stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the SEC staff. The
Proxy Statement shall contain the written opinion of Paine Webber Incorporated,
opining as to the matters set forth in Section 3.25. The Parent will afford the
Purchasers opportunity to review and comment upon any description of the
Purchasers or their Affiliates, this Agreement, the Related Documents or the
transactions contemplated hereby and thereby set forth in the Proxy Statement
(including all drafts or amendments thereto). Each Purchaser shall provide the
Parent with all necessary information reasonably requested with respect to
itself and Alliance solely for inclusion by the Parent in the Proxy Statement.
The Parent will notify the Purchasers promptly of the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement or for additional information
and will supply the Purchasers with copies of all correspondence between the
Parent or any of its representatives, on the one hand, and the SEC or its staff,
on the other hand, with respect to the Proxy Statement. If at any time prior to
the Stockholders Meeting there shall occur any event that should be set forth in
an amendment or supplement to the Proxy Statement, the Parent will promptly
prepare and mail to its stockholders such an amendment or supplement.
6.13 MAINTENANCE OF CASH AND CASH EQUIVALENTS.
During the period commencing on the Closing Date and ending on April
15, 1999, the Parent shall at all times hold cash or Cash Equivalents of not
less than $1,000,000 in the aggregate in an investment account at a financial
institution reasonably satisfactory to the Purchasers which shall not be
subject to any Encumbrance other than Permitted Encumbrances. During such
period, the Parent shall provide copies of all notices or reports delivered to
it in respect of such account to the Purchasers within 5 Business Days of the
receipt thereof.
6.14 FURTHER ASSURANCES.
The Sellers shall and shall cause the Entities to take such further
actions or execute such further documents or instruments as shall be reasonably
requested by the Purchasers
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to further implement the transactions contemplated by Section 1.2 including,
without limitation, discharging or disposing of any Excluded Liability which may
be a Liability of any Entity on terms reasonably satisfactory to the Purchasers.
6.15 AUDITED FINANCIAL STATEMENTS.
The Parent shall, and shall cause each of its Subsidiaries to, provide
the Purchasers and their advisors with such information (including, without
limitation, consolidating balance sheets and statements of operations as at
December 31, 1997 and for the fiscal year then ended; such consolidating
financial statements to incorporate the Entities in such form as presented in
Schedule 3.5(b) as well as individual columns for each of GK Finance, Parent
and each other Subsidiary of the Parent, in each case, as adjusted to give
effect to the transactions contemplated by Section 1.2 hereof), and access to
its books and records (including, without limitation, access to its management
employees), to permit them or their advisors to prepare audited balance sheets
of the Entities as of December 31, 1997, and related audited statements of
operations, shareholders' equity and cash flows for the period then ended, in
each case in accordance with GAAP and adjusted to give effect to the
consummation of the transactions contemplated by Section 1.2 as if such
transactions were consummated at January 1, 1997.
6.16 DVI FUNDED INDEBTEDNESS.
At the request of the Purchasers, on the Closing Date, the Parent
shall and shall cause its Subsidiaries to repay all Funded Indebtedness held by
DVI Financial Services, Inc. and DVI Business Credit Receivables Corp. ("DVI")
under agreements relating to Funded Indebtedness provided by DVI to the Parent
and its Subsidiaries upon payment by the Purchasers in full of all amounts due
on the Closing Date to DVI in respect of principal, accrued interest thereon
and prepayment premiums not to exceed $75,000 in the aggregate. On the Closing
Date, Parent shall deliver all instruments and documents reasonably requested
by the Purchasers to evidence the repayment in full of such Funded Indebtedness
including reasonably satisfactory pay-off letters, releases of Encumbrances,
releases of pledges of Equity Interests and UCC-3 financing statements.
6.17 TRANSFER OF PARENT PARTNERSHIP INTERESTS.
Upon the request of the Purchasers, the Parent shall, on or
immediately prior to the Closing Date, assign the Parent Partnership Interests
to a newly organized wholly-owned corporate Subsidiary (which shall conduct no
business whatsoever) and shall cause such Subsidiary to assign the Parent
Partnership Interests to Purchaser A in accordance with Section 1.1 hereof.
6.18 CERTAIN EMPLOYEE MATTERS.
(a) On the Closing Date, the Purchasers shall or shall cause
the Entities or an Affiliate of the Purchasers, to continue the employment of
or offer employment, as applicable, to the employees of the Entities and Parent
to be identified by the Purchasers
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prior to the Closing Date in accordance with the terms of a letter, dated of
even date herewith, delivered by Purchaser A to the Parent (any such employees
who so continue or accept such offer of employment being referred to herein as
the "Hired Employees"). Such employment shall be in a substantially similar
position as such Hired Employee held while employed by the applicable Entity or
Parent prior to the Closing, and the Purchasers shall have no Liability or
obligation to any other employees of the Parent or any of its Subsidiaries
(other than the Entities as set forth herein). Prior to the Closing, Parent and
the Entities shall take such actions and, after the Closing Date, Parent and the
Purchasers shall take, and the Purchasers shall cause the Entities to take, such
actions as are necessary so that each Hired Employee shall cease to be entitled
to participate in or accrue benefits under any of Parent's Employee Benefit
Plans, programs, policies and arrangements except to the extent required by
applicable Law. The Purchasers shall, or shall cause the Entities or an
Affiliate of the Purchasers, to take such actions as may be necessary such that,
subject to the provisions of this Section 6.18, on and after the Closing Date,
each Hired Employee shall be eligible to participate in, and be subject to the
provisions of, the Employee Benefit Plans (including a 401(k) plan and a
flexible benefits plan), programs, personnel policies and guidelines sponsored
or maintained by Alliance, and applicable for employees of Alliance or its
Affiliates in a similar position, subject to the satisfaction of all the
eligibility criteria for participation thereunder (except as otherwise provided
in this Section 6.18).
(b) With respect to the Alliance Employee Benefit Plans, programs,
personnel policies and guidelines, Alliance shall grant all Hired Employees from
and after the Closing Date credit for all service with the Entities and Parent
prior to the Closing Date for all purposes. Alliance shall take such actions as
are necessary to provide that on the Closing Date all Hired Employees and their
spouses and dependents shall be immediately covered by the group health plan
maintained by Alliance which shall (i) provide immediate coverage as of the
Closing Date without any waiting period, (ii) waive any pre-existing condition
exclusions or limitations, and (iii) provide that any amounts paid by Hired
Employees through the Closing Date for medical expenses that are treated as
deductible, co-insurance and out-of-pocket payments under the Parent's health
plan shall reduce the amount of any deductible, co-insurance or out-of-pocket
payments required to be paid for a similar period under the Alliance health
plan; provided, however, that the Sellers shall provide Alliance with a list of
all current and former employees participating in the Parent's health plan along
with a listing of each employee's deductible and co-insurance payments through
the Closing Date.
(c) Effective as of the Closing, the Purchasers shall assume the
Parent's or Entities' obligations with respect to accrued sick pay, personal
holidays and vacation pay for Hired Employees, provided that the vacation pay
costs as of the Latest Balance Sheet Date have been accrued and reflected on the
Latest Balance Sheet.
(d) Parent shall take such actions as are necessary to provide that the
Hired Employees are fully vested in their benefits under the Retirement Plan for
Employees of Parent and CT Sub (the "ASHS 401(k) Plan"). Parent shall also take
such actions as are
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necessary to provide that the Hired Employees will be eligible to receive
distributions from the ASHS 401(k) Plan that will be eligible for rollover to
the Alliance "401(k)" plan. The Purchasers shall take such action as is
necessary after the Closing Date to provide that the Alliance "401(k)" plan will
allow rollovers of distributions from the ASHS 401(k) Plan.
(e) After the Closing Date, the Purchasers and the Sellers agree to take
such actions as are necessary to provide for the transfer of the account
balances of the flexible spending accounts of each Hired Employee from Parent's
"Section 125" plan to the Alliance "Section 125" plan and the Purchasers shall
provide for the reimbursement from the Alliance "Section 125" plan of medical
and childcare expenses incurred by Hired Employees during 1998.
(f) After the Closing Date, the Purchasers shall be responsible for
providing health care continuation coverage pursuant to the requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), to
the extent required by COBRA, for all former employees of the Entities and/or
their "qualified beneficiaries" (as such term is defined in Part 6 of Title I of
ERISA) who were receiving health care continuation coverage under COBRA prior to
the Closing Date or who are or become eligible to receive such coverage on or
after the Closing Date. As of the date hereof, there were 2 former employees of
the Entities and/or their "qualified beneficiaries" who were receiving health
care continuation coverage under COBRA and 8 former employees who experienced a
"qualifying event" under COBRA.
ARTICLE VII
CLOSING CONDITIONS
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party to consummate the
transactions contemplated hereby is subject to the satisfaction prior to the
Closing Date of the following conditions unless waived (to the extent such
conditions can be waived) by the Parent (on behalf of the Sellers) or the
Purchasers and Alliance, as applicable:
(a) Approvals. The authorizations, consents, Orders or approvals of, or
declarations or filings with, or expiration of waiting periods of any
Governmental Entity required to consummate the transactions contemplated hereby
shall have been obtained or made.
(b) Stockholder Approval. The Parent Stockholder Approval shall have
been obtained.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
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(d) Actions and Statutes. No Proceeding shall have been taken or
threatened, and no Law or Order shall have been enacted, promulgated or issued
or deemed applicable to the transactions contemplated by this Agreement or the
Related Documents by any Governmental Entity that could (i) make the
consummation of the transactions contemplated hereby or thereby illegal or
substantially delay the consummation of any material aspect of the transactions
contemplated hereby or thereby or (ii) render any party unable to consummate the
transactions contemplated hereby or thereby.
7.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASERS AND ALLIANCE.
The obligations of the Purchasers and Alliance under this Agreement
are subject to the satisfaction of the following conditions unless waived (to
the extent such conditions can be waived) by the Purchasers and Alliance:
(a) Accuracy of Representations and Warranties. All representations and
warranties made by the Sellers in this Agreement and the Related Documents shall
be true and correct, individually or in the aggregate, in all material respects
(except for such representations and warranties which are qualified by their
terms by a reference to materiality, or "Material Adverse Effect" which
representations and warranties as so qualified shall be true and correct,
individually or in the aggregate, in all respects) as of the date hereof and as
of the Closing Date (unless such representations and warranties relate to a
specific date other than the Closing Date, in which case such representations
and warranties shall be true and correct, individually or in the aggregate, in
all material respects, or in all respects, as the case may be, on such date)
with the same effect as if such representations and warranties had been made at
and as of the Closing Date (including, after giving effect to the transactions
contemplated by Section 1.2).
(b) Performance of Obligations of the Sellers. The Sellers shall have
performed in all material respects all obligations, agreements and covenants
required to be performed by them under this Agreement and the Related Documents
prior to or as of the Closing Date.
(c) Certificates. At the Closing, in consideration of the delivery of
the Purchase Price pursuant to Section 1.3 hereof, (a) the Parent shall deliver
or cause to be delivered to Purchaser A, the certificates representing the
Shares (other than the M Sub Partnership Interests) and the Parent shall deliver
or cause to be delivered to Purchaser B, a certificate representing the M Sub
Partnership Interests, in each case, duly endorsed in blank for transfer or
accompanied by stock and partnership transfer powers duly executed in blank,
sufficient in form and substance to convey to each Purchaser good and marketable
title to all of the Shares purchased by such Purchaser, free and clear of all
Encumbrances.
(d) Consents and Approvals. The Purchasers shall have received duly
executed copies of all consents and approvals required for or in connection with
the execution and delivery by the Sellers of this Agreement and each of the
Related
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Documents to which any of them may be parties (including, without limitation,
the assumption of any Funded Indebtedness and any consents or approvals
necessary to be obtained in connection with the transactions contemplated by
Section 10.4(b)), the consummation of the transactions contemplated hereby and
thereby, and the continued conduct of the Business as previously conducted
(including, without limitation, the transfer of any necessary regulatory Permits
currently in the name of the Parent or any Subsidiary other than the Entities),
in form and substance reasonably satisfactory to the Purchasers and their
counsel. The Sellers shall obtain all Permits required to conduct the Business
which have not been obtained on or prior to the date hereof in the name of the
Entities. The Parent shall cause each of the Encumbrances designated to be
terminated on or prior to the Closing Date on Schedule 3.9 to be so terminated
on or prior to the Closing Date (unless such Encumbrances cease to be effective
under applicable Law).
(e) Asset Contribution and Asset Disposition. The Asset Contribution,
Asset Disposition and the other transactions contemplated by Section 1.2 shall
each be consummated in accordance with Section 1.2 hereof.
(f) Absence of Material Adverse Effect. Since the Latest Balance Sheet
Date, there shall have been no change in respect of the Business that has had or
is reasonably likely to have a Material Adverse Effect.
(g) Related Documents. Each of the agreements attached hereto as Exhibit
A-1 and Exhibit A-2, respectively (each as amended, modified or supplemented, a
"Related Document" or a "Stockholder Agreement") shall have been executed and
delivered by the parties thereto and the transactions contemplated thereby to be
completed at or prior to the Closing substantially consummated or effected, as
the case may be, in accordance with the terms thereof.
(h) Partnership Agreement Amendment. The Partnership Agreement shall be
amended and restated in its entirety by the Sellers on such terms and conditions
as shall be satisfactory to the Sellers and the Purchasers.
(i) Sellers' Certificates. Each of the following certificates shall have
been executed and delivered, as the case may be, by the Person who or which is
the subject thereof:
(i) a certificate of the Sellers, dated as of the Closing Date,
certifying, in each case, (i) that true and complete copies of the
Organizational Documents of each Entity and the Sellers as in effect on
the Closing Date are attached thereto, (ii) as to the incumbency and
genuineness of the signatures of each officer of such Seller executing
this Agreement and the Related Documents, (iii) the genuineness of the
resolutions (attached thereto) of the board of directors of the Sellers
authorizing the execution, delivery and performance of this Agreement
and the Related Documents to which the Sellers are a party and the
consummation of the transactions contemplated hereby and thereby and
(iv) the genuineness of the resolutions (attached thereto) of the
management committee or
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similar governing body of each Entity authorizing such Entity to consent
to the transactions contemplated by this Agreement;
(ii) certificates of the secretaries of state of the states (or
other applicable office) in which each Seller and each Entity is
organized and qualified to do business, dated as of a date not more than
five days prior to the Closing Date, certifying as to the good standing
and non-delinquent tax status of such Seller and Entity;
(iii) a certificate signed by the principal executive officer of
each Seller, dated as of the Closing Date, and certifying as to (A) the
accuracy of the representations and warranties of the Sellers contained
herein, as contemplated by Section 7.2(a) hereof, and (B) the
performance of the obligations, covenants and agreements of the Sellers
contained herein, as contemplated in Section 7.2(b) hereof; and
(iv) a certificate of the Sellers dated as of the Closing Date,
certifying that no Entity is a foreign person within the meaning of
Section 1445 of the Code.
(j) Resignation of Officers and Directors. The Purchasers shall have
received letters from all of the officers and directors of the Entities,
resigning their respective positions as officers and directors of such Entities,
respectively, immediately upon the Closing.
(k) Officer's Certificate. The Purchasers shall have received a
certificate of a duly authorized officer of the Parent certifying as to the
matters set forth in Section 7.2(e).
7.3 CONDITIONS TO OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers under this Agreement are subject to the
satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by the Sellers:
(a) Accuracy of Representations and Warranties. All representations and
warranties made by Alliance and the Purchasers in this Agreement and the Related
Documents shall be true and correct, individually or in the aggregate, in all
material respects (except for such representations and warranties which are
qualified by their terms by a reference to materiality, or "Material Adverse
Effect" which representations and warranties as so qualified shall be true and
correct, individually or in the aggregate, in all respects) as of the date
hereof and at and as of the Closing Date (unless such representations and
warranties relate to a specific date other than the Closing Date, in which case,
such representations and warranties shall be true and correct, individually or
in the aggregate, in all material respects, or in all respects, as the case may
be, on such date)
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with the same effect as if such representations and warranties had been made at
and as of the Closing Date.
(b) Performance of Obligations of the Purchasers and Alliance. Alliance
and the Purchasers shall have performed in all material respects all
obligations, agreements and covenants required to be performed by them under
this Agreement and the Related Documents prior to or as of the Closing Date.
(c) Certificates. Each of the following certificates shall have been
executed and delivered, as the case may be, by the Person who or which is the
subject thereof:
(i) a certificate of the secretary of Alliance and each
Purchaser, dated as of the Closing Date, certifying, in each case, (i)
that true and complete copies of its Organizational Documents as in
effect on the Closing Date are attached thereto, (ii) as to the
incumbency and genuineness of the signatures of each officer of Alliance
and such Purchaser executing this Agreement and the Related Documents,
and (iii) the genuineness of the resolutions (attached thereto) of the
board of directors of Alliance and such Purchaser (or committee thereof)
authorizing the execution, delivery and performance of this Agreement
and the Related Documents to which Alliance or such Purchaser is a party
and the consummation of the transactions contemplated hereby and
thereby;
(ii) (xlii) certificates of the secretaries of state of the
states in which Alliance and each of the Purchasers is organized, dated
a date not more than five days prior to the Closing Date as of the
Closing Date, certifying as to the good standing and non-delinquent tax
status of Alliance and the Purchasers; and
(iii) (xliii) a certificate signed by a principal executive
officer of Alliance and each Purchaser, dated as of the Closing Date,
and certifying as to (A) the accuracy of the representations and
warranties of Alliance and such Purchaser contained herein, as
contemplated by Section 7.3(a) hereof and (B) the performance of the
obligations, agreements and covenants of Alliance and such Purchaser
contained herein, as contemplated in Section 7.3(b) hereof.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION GENERALLY; ETC.
(a) Subject to the further terms of this Article VIII, the Sellers
agree, jointly and severally, to indemnify the Purchaser Indemnified Persons
for, and hold them harmless from and against, any and all Purchaser Losses
arising from or in connection with any of the following:
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(i) the untruth, inaccuracy or breach of any representation or
warranty (without regard to whether such representation or warranty is
qualified by reference to materiality or "Material Adverse Effect") of
the Sellers contained herein, in any Related Document, or in any
certificate delivered by any Seller relating thereto delivered in
connection herewith (or any facts or circumstances constituting any such
untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of the Sellers
contained in this Agreement or in any Related Document;
(iii) any Liability of any Entity in any manner related to a
claim asserted under the Agreement for Purchase and Sale of Assets,
dated as of December 30, 1994 among Vencor, Inc., CT Sub and Parent;
(iv) for any Liability with respect to Covered Taxes and for 50%
of any Liability with respect to all transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees ("Transfer Taxes")
with respect to the transactions contemplated by Section 1.2; and
(v) any Liability of any Entity for Taxes attributable to the
inclusion of an adjustment in taxable income of an Entity under Section
481 of the Code for any Tax period beginning on or after the Closing
Date as a result of a required or optional change in method of
accounting with respect to a Tax period ending on or prior to the
Closing Date.
(b) Subject to the further terms of this Article VIII, each of Alliance
and the Purchasers agree jointly and severally to indemnify the Seller
Indemnified Persons for, and hold them harmless from and against, any and all
Seller Losses arising from or in connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty (without regard to whether such representation or warranty is
qualified by reference to materiality or "Material Adverse Effect") of
Alliance or such Purchaser contained herein, any Related Document, or
any certificate delivered by Alliance or such Purchaser in connection
herewith at or before the Closing (or any facts or circumstances
constituting any such untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of Alliance or
either Purchaser contained in this Agreement or in any Related Document;
(iii) any failure to comply after the Closing Date with the
Worker Adjustment and Retraining Act of 1988, as amended, or any similar
state law arising out of, or relating to, any actions taken by Alliance
or the Purchasers with respect to Hired Employees after the Closing
Date; and
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(iv) any Liability for Transfer Taxes to be borne by
Purchasers or Alliance pursuant to Section 10.14.
(c) Notwithstanding the foregoing the Purchasers shall not be entitled
to indemnification hereunder for any Losses arising as a result of the untruth
or inaccuracy of any representation or warranty to the extent that a Liability
arising as a result of such untruth or inaccuracy is reflected as a Liability in
the financial statements delivered on the date hereof pursuant to Section 3.5
hereof.
(d) Absent fraud, the rights of the parties for indemnification relating
to this Agreement and the transactions contemplated hereby and under the Related
Documents shall be strictly limited to those contained in this Article VIII, and
such indemnification rights shall be the exclusive remedies of the parties
subsequent to the Closing Date with respect to any matter relating to this
Agreement or arising in connection herewith.
8.2 ASSERTION OF CLAIMS.
No claim shall be brought for a breach of a representation or warranty
under Section 8.1 hereof unless the Indemnified Persons, or any of them, at any
time prior to the applicable Survival Date, give the Indemnifying Persons (a)
written notice of the existence of any such claim, specifying the nature and
basis of such claim and the amount thereof, to the extent known or (b) written
notice pursuant to Section 8.3 of any Third Party Claim, the existence of which
might give rise to such a claim. Upon the giving of such written notice as
aforesaid, the Indemnified Persons, or any of them, shall have the right to
commence legal proceedings prior to or subsequent to the Survival Date for the
enforcement of their rights under Section 8.1.
8.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
The obligations and liabilities of an Indemnifying Person with respect
to Losses resulting from the assertion of claim or Liability by third parties
other than in respect of Tax Claims (each, a "Third Party Claim") shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim which might give rise to any Loss
by the Indemnified Persons, stating the nature and basis of such Third Party
Claim, and the amount thereof to the extent known; provided, however, that no
delay on the part of the Indemnified Persons in notifying any Indemnifying
Persons shall relieve the Indemnifying Persons from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Person thereby
is materially and irrevocably prejudiced by the delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Third
Party Claim, including any summons, complaint or other pleading which may have
been served, any written demand or any other document or instrument.
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(b) If the Indemnifying Persons shall acknowledge in a writing delivered
to the Indemnified Persons that such Third Party Claim is properly subject to
their indemnification obligations hereunder, then the Indemnifying Persons shall
have the right to assume the defense of any Third Party Claim at their own
expense and by their own counsel, which counsel shall be reasonably satisfactory
to the Indemnified Persons; provided, however, that the Indemnifying Persons
shall not have the right to assume the defense of any Third Party Claim,
notwithstanding the giving of such written acknowledgment, if (i) the
Indemnified Persons shall have been advised by counsel that there are one or
more legal or equitable defenses available to them which are different from or
in addition to those available to the Indemnifying Persons, and, in the opinion
of the Indemnified Persons, counsel for the Indemnifying Persons could not
adequately represent the interests of the Indemnified Persons because such
interests could be in conflict with those of the Indemnifying Persons, or (ii)
the Indemnifying Persons shall not have assumed the defense of the Third Party
Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the defense of a Third
Party Claim (under circumstances in which the proviso to the first sentence of
Section 8.3(b) is not applicable), the Indemnifying Persons shall not be
responsible for any legal or other defense costs subsequently incurred by the
Indemnified Persons in connection with the defense thereof. If the Indemnifying
Persons do not exercise their right to assume the defense of a Third Party Claim
by giving the written acknowledgment referred to in Section 8.3(b), or are
otherwise restricted from so assuming by the proviso to the first sentence of
Section 8.3(b), the Indemnifying Persons shall nevertheless be entitled to
participate in such defense with their own counsel and at their own expense. If
the defense of a Third Party Claim is assumed by the Indemnified Persons, the
Indemnified Persons shall not be entitled to settle such Third Party Claim
without the prior written consent of the Indemnifying Persons, which shall not
be unreasonably withheld.
(d) If the Indemnifying Persons exercise their right to assume the
defense of a Third Party Claim, (i) the Indemnified Persons shall be entitled to
participate in such defense with their own counsel at their own expense and (ii)
the Indemnifying Persons shall not make any settlement of any claims without the
written consent of the Indemnified Persons, which shall not be unreasonably
withheld.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Subject to the further provisions of this Section 8.4, the
representations and warranties contained in this Agreement, the Related
Documents, or in any certificate or other writing delivered in connection with
this Agreement shall survive the Closing Date until April 15, 1999; provided,
however, that (i) the representations and warranties contained in Sections 3.1,
3.2, 3.3, 3.4, 3.21, 4.1, 4.2, 4.3, 4.4, 5.1, 5.2 and 5.3 (other than the
covenant set forth therein which shall survive in accordance with the second
sentence of this Section 8.4(a)) of this Agreement shall survive indefinitely
and (ii) the representations and warranties contained in Sections 3.8 and 3.20
of this Agreement shall survive the Closing Date until the expiration of any
applicable statue of limitations (those
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representations and warranties referenced in the foregoing clauses (i) and (ii),
being the "Excluded Representations and Warranties") for Third Party Claims
applicable to the matters covered thereby. The covenants and other agreements of
the parties contained in this Agreement and the Related Documents (including the
indemnity provided for in Section 8.1(a)(iii) of this Agreement) shall survive
the Closing Date until they are otherwise terminated by their terms. The
obligations of the Sellers under Section 8.1(a)(iv) and (a)(v) shall survive the
Closing Date until the expiration of any applicable statute of limitations with
respect to the matters set forth therein. The obligations of Alliance and the
Purchasers under Section 8.1(b)(iv) shall survive the Closing Date until the
expiration of any applicable statute of limitations with respect to the matters
set forth therein.
(b) For convenience of reference, the date upon which any representation
or warranty contained herein shall terminate, if any, is referred to herein as
the "Survival Date".
8.5 LIMITATIONS ON INDEMNIFICATION.
(a) Indemnity Baskets for the Sellers. The Purchaser Indemnified Persons
shall not have the right to be indemnified for breaches of representations and
warranties pursuant to Section 8.1(a)(i) unless and until the Purchaser
Indemnified Persons shall have incurred on a cumulative basis aggregate Losses
(without giving effect, in determining whether and to what extent
representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect") in
an amount of $500,000, in which event the right to be indemnified shall apply in
respect of all Losses; provided, however, that in no event shall the limitations
set forth in this Section 8.5(a) apply with respect to the Excluded
Representations and Warranties.
(b) Indemnity Limitations for the Sellers. The sum of all Losses
(without giving effect, in determining whether and to what extent
representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect")
pursuant to which indemnification is payable by the Sellers pursuant to Section
8.1(a)(i) shall not exceed $2,000,000; provided, however, that in no event shall
the limitations set forth in this Section 8.5(b) apply with respect to the
Excluded Representations and Warranties.
8.6 LIMITATIONS ON INDEMNIFICATION.
(a) Indemnity Baskets for the Purchasers and Alliance. The Seller
Indemnified Persons shall not have the right to be indemnified for breaches of
representations and warranties pursuant to Section 8.1(b)(i) unless and until
the Seller Indemnified Persons shall have incurred on a cumulative basis
aggregate Losses (without giving effect, in determining whether and to what
extent representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect") in
an amount of $500,000, in which event the right to be indemnified shall apply in
respect of all Losses; provided, however, that in no event shall
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the limitations set forth in this Section 8.6(a) apply with respect to the
Excluded Representations and Warranties.
(b) Indemnity Limitations for the Purchasers and Alliance. The sum of
all Losses (without giving effect, in determining whether and to what extent
representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect")
pursuant to which indemnification is payable by the Purchasers and Alliance
pursuant to Section 8.1(b)(i) shall not exceed $2,000,000; provided, however,
that in no event shall the limitations set forth in this Section 8.6(b) apply
with respect to the Excluded Representations and Warranties.
8.7 ALLOCATION OF INDEMNIFICATION PAYMENTS.
The parties hereto agree that any indemnification payment shall be
treated as an adjustment to the Purchase Price.
ARTICLE IX
TERMINATION; EFFECT OF TERMINATION
9.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing by:
(a) the mutual written consent of the parties hereto; or
(b) the Purchasers or Alliance, if there has been a breach by any Seller
of any of the representations or warranties in this Agreement or in any Related
Document, individually or in the aggregate, in any material respect (except for
representations and warranties which are qualified by their terms by a reference
to materiality or "Material Adverse Effect" in which case, such representations
or warranties as so qualified shall have been breached in any respect),
covenant, obligation or agreement set forth in this Agreement or in any Related
Document and such breach shall not have been cured within 10 Business Days after
notice thereof is given by any Purchaser or Alliance (except that no cure period
shall be provided for a breach which by its nature cannot be cured); or
(c) the Sellers, if there has been a breach by Alliance or any Purchaser
of any of the representations or warranties in this Agreement or in any Related
Document, individually or in the aggregate, in any material respect (except for
representations and warranties which are qualified by their terms by a reference
to materiality or "Material Adverse Effect" in which case, such representations
or warranties as so qualified shall have been breached in any respect),
covenant, obligation or agreement set forth in this Agreement or in any Related
Document and such breach shall not have been cured within 10 Business Days after
notice thereof is given by any Seller (except that no cure period shall be
provided for a breach which by its nature cannot be cured); or
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(d) either the Purchasers, Alliance or the Sellers, if the Closing shall
not have been consummated by September 15, 1998; or
(e) either the Purchasers, Alliance or the Sellers, if any permanent
injunction or Order of a Governmental Entity preventing the Closing shall have
become final and nonappealable;
(f) By either Parent or the Purchasers if, prior to the Closing Date,
(i) the Board of Directors of the Parent determines that a Third Party Proposal
for an Alternative Transaction constitutes a Superior Proposal, (ii) the Parent
promptly notifies the Purchasers of its determination in writing, which writing
shall set forth the terms and conditions of the Third Party Proposal and the
identity of the Person making the Third Party Proposal, (iii) ten days have
elapsed following receipt by the Purchasers of such written notice, (iv) during
such ten day period the Parent cooperates with the Purchasers with the intent of
enabling, but not obligating, the Purchasers to agree to a modification of the
terms and conditions of this Agreement so that the transactions contemplated
hereby may be effected, and (v) at the end of such ten day period, the Board of
Directors of the Parent continues to believe that such Third Party Proposal
constitutes a Superior Proposal and the Parent pays to the Purchasers the
amounts specified under Section 10.5(b) pursuant to the terms thereof. For
purposes of this Agreement, a "Superior Proposal" means any Third Party Proposal
to effect an Alternative Transaction; provided that (i) the Board of Directors
of the Parent determines in its good faith judgment (following the consultation
with, and the receipt of the advice of, the Parent's financial advisor) that
such Third Party Proposal is on terms that are more favorable to the Parent's
stockholders than the transactions contemplated by this Agreement (taking into
account all relevant factors, including the amount and form of consideration to
be received, the relative value of any non-cash consideration, and the timing
and certainty of closing) and (ii) the Board of Directors of the Parent
determines in its good faith judgment (based on the written advice of outside
counsel) that the failure to recommend or accept such Third Party Proposal would
violate the fiduciary duties of the Board of Directors of the Parent under
applicable Law;
provided, however, in each case, that none of the Sellers, Alliance nor the
Purchasers shall be entitled to terminate this Agreement if such party's breach
of this Agreement has prevented the satisfaction of a condition. Any
termination pursuant to this Section 9.1 shall be effected by written notice
from the party or parties so terminating to the other parties hereto, which
notice shall specify the Section of this Agreement pursuant to which this
Agreement is being terminated.
9.2 EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in
Section 9.1, this Agreement shall be of no further force or effect, except for
Section 6.7, Section 10.5 and this Section 9.2, each of which shall survive the
termination of this Agreement; provided, however, that the Liability of any
party for any intentional, willful or knowing breach by
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such party of the representations, warranties, covenants, obligations or
agreements of such party set forth in this Agreement occurring prior to the
termination of this Agreement shall survive the termination of this Agreement
and, in addition, in the event of any action for breach of contract in the event
of a termination of this Agreement, the prevailing party shall be reimbursed by
the other party to the action for reasonable attorneys' fees and expenses
relating to such action.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 AMENDMENT.
This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by the parties hereto. No waiver
by any party of any default, misrepresentation, or breach of representation or
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
10.2 ENTIRE AGREEMENT.
This Agreement and the other agreements and documents referenced
herein (including, but not limited to, the schedules and the exhibits (in their
executed form) attached hereto) and any other document or agreement
contemporaneously entered into with this Agreement (including the Related
Documents) contain all of the agreements among the parties hereto with respect
to the transactions contemplated hereby and supersede all prior agreements or
understandings among the parties with respect thereto (including, but not
limited to, the letter agreement dated September 15, 1997 (as amended to the
date hereof) between the Parent and Apollo Management, L.P.
10.3 SEVERABILITY.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the Law and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn
so as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
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10.4 BENEFITS OF AGREEMENT.
All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. Except as expressly provided herein, this Agreement shall
not confer any rights or remedies upon any Person other than the foregoing;
provided, however, that anything contained herein to the contrary
notwithstanding, the Purchasers may (a) collaterally assign this Agreement and
the Related Documents, without the prior consent of any other party, to a
financial or lending institutions providing financing to such Persons or their
Affiliates, (b) assign the rights to acquire any and all assets (including
interests under leases, Permits and Contracts with third parties) related to
certain MRI Units to be designated by the Purchasers to the Sellers to any
Affiliate of the Purchasers, pursuant to Conveyance Instruments reasonably
satisfactory to the Purchasers on the Closing Date and (c) assign this
Agreement to any wholly-owned Subsidiary of Alliance.
10.5 FEES AND EXPENSES
(a) Except as otherwise provided herein and as provided below in this
Section 10.5, all fees and expenses incurred in connection with this Agreement,
the Related Documents and the transactions contemplated hereby and thereby shall
be paid by the party incurring such fees or expenses, whether or not such
transactions are consummated; provided, however, that the Purchasers shall pay
the reasonable fees and expenses of Ernst & Young, LLP in connection with the
preparation of the financial statements referenced in Section 3.5(b) and Section
6.15.
(b) If this Agreement is terminated pursuant to Section 9.1(f), the
Sellers shall pay to the Purchasers promptly upon such termination $1,350,000
plus all Expenses.
(c) If this Agreement is terminated by any Purchaser or Alliance
pursuant to Section 9.1(d) as a result of a failure to be satisfied of the
condition precedent set forth in Section 7.1(b), and, if, within 180 days of
such termination either an Alternative Transaction shall be consummated or any
Seller or Entity shall enter into an Acquisition Agreement providing for an
Alternative Transaction, then the Sellers shall pay the Purchasers, upon the
closing of such transaction, if and whenever it occurs, $1,350,000 plus all
Expenses. No amounts whatsoever shall be payable to the Purchasers under this
Section 10.5(c) if, at the Stockholders Meeting or any adjournments or
postponements thereof, the Purchasers or their Affiliates fail to vote or cause
to be voted, or fail to grant or cause the granting of consent or approval with
respect to, any shares of Parent Common Stock owned by them or as to which they
have voting rights, in favor of this Agreement and the transactions contemplated
hereby.
(d) The Sellers acknowledge that the agreements contained in this
Section 10.5 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Purchasers and Alliance would
not enter into this Agreement. Accordingly, if the Sellers fail promptly to pay
any amount due pursuant to this Section 10.5, and, in order to obtain such
payment, the Purchasers or Alliance
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commence a suit which results in a judgment against the Sellers for the amounts
set forth in this Section 10.5, the Sellers shall pay the Purchasers and
Alliance all costs and expenses (including attorney's fees and expenses) in
connection with such suit, together with interest on such amounts (excluding the
Purchaser's and Alliance's costs and expenses) at the prime rate of the Bankers
Trust Company in effect on the date such payment was required to be made. If
such a suit results in a judgment against the Purchasers or Alliance, the
Purchasers and Alliance shall pay to the Sellers all costs and expenses
(including attorney's fees and expenses) in connection with such suit.
"Expenses" shall mean all reasonably documented out-of-pocket expenses incurred
by the Purchasers and Alliance in connection with this Agreement, the Related
Documents and the transactions contemplated hereby and thereby, including fees
and expenses of its consultants, attorneys, accountants, and other advisors;
provided, however, that unless the Parent has previously agreed in writing to
increase such amount, the aggregate amount of such Expenses reimbursable under
this Section 10.5 shall not exceed $350,000.
10.6 HEADINGS.
Descriptive headings are for convenience only and shall not control or
affect in any way the meaning or construction of any provision of this
Agreement.
10.7 NOTICES.
All notices or other communications pursuant to this Agreement shall
be in writing and shall be deemed to be sufficient if delivered personally,
telecopied, sent by nationally-recognized, overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to any Seller, to:
American Shared Hospital Services
Four Embarcadero Center
Suite 3620
San Francisco, California 94111
Attention: Ernest A. Bates, M.D.
Telephone No.: (415) 788-5300
Facsimile No.: (415) 788-5660
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with a copy to:
Sidley & Austin
875 Third Avenue
14th Floor
New York, New York 10022
Attention: Daniel Kelly
Telephone No.: (212) 906-2000
Facsimile No.: (212) 906-2021
(b) if to the Purchasers or Alliance, to:
Alliance Imaging, Inc.
1065 PacifiCenter Drive
Suite 200
Anaheim, California 92806
Attention: Richard N. Zehner
Telephone No.: (714) 688-7100
Facsimile No.: (714) 688-3388
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: John J. Suydam, Esq.
Telephone No.: (212) 408-2400
Facsimile No.: (212) 408-2420.
All such notices and other communications shall be deemed to
have been given and received (i) in the case of personal delivery, on the date
of such delivery, (ii) in the case of delivery by telecopier, on the date of
such delivery, (iii) in the case of delivery by nationally-recognized,
overnight courier, on the Business Day following dispatch, and (iv) in the case
of mailing, on the third Business Day following such mailing.
10.8 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement.
10.9 GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE
OF LAW OR CONFLICTING
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PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK
TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF
NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT,
EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE
SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY RELATED DOCUMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HERETO HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY AND ASSETS, GENERALLY AND UNCONDITIONALLY THE
JURISDICTION OF THE AFORESAID COURTS.
10.10 INCORPORATION OF EXHIBITS AND SCHEDULES.
The Annexes, Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
10.11 INTERPRETATION; CONSTRUCTION.
The term "Agreement" means this agreement together with all schedules,
annexes and exhibits hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms hereof. Unless
the context otherwise requires, words importing the singular shall include the
plural, and vice versa. In this Agreement, the term "Best Knowledge" of any
Person means (i) the actual knowledge of such Person and (ii) that knowledge
which should have been acquired by such Person after making such due inquiry
and exercising such due diligence as a prudent businessperson would have made
or exercised in the management of his or her business affairs, including due
inquiry of those officers, directors, employees and professional advisers
(including attorneys, accountants and consultants) of the Person who could
reasonably be expected to have actual knowledge of the matters in question.
When used in the case of the Sellers, the term "Best Knowledge" shall include
the Best Knowledge of each Seller and each Entity. The use in this Agreement
of the term "including" means "including, without limitation." The words
"herein", "hereof", "hereunder", "hereby", "hereto", "hereinafter", and other
words of similar import refer to this Agreement as a whole, including the
schedules, annexes and exhibits, as the same may from time to time be amended,
modified, supplemented or restated, and not to any particular article, section,
subsection, paragraph, subparagraph or clause contained in this Agreement. All
references to articles, sections, subsections, clauses, paragraphs, schedules
and exhibits mean such provisions of this Agreement and the schedules and
exhibits attached to this Agreement, except where otherwise stated. The title
of and the article, section and paragraph headings in this Agreement are for
convenience of reference only and shall not govern or
54
<PAGE> 56
affect the interpretation of any of the terms or provisions of this Agreement.
The use herein of the masculine, feminine or neuter forms shall also denote the
other forms, as in each case the context may require. Where specific language is
used to clarify by example a general statement contained herein, such specific
language shall not be deemed to modify, limit or restrict in any manner the
construction of the general statement to which it relates. The language used in
this Agreement has been chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
Accounting terms used but not otherwise defined herein shall have the meanings
given to them under GAAP. Unless expressly provided otherwise, the measure of a
period of one month or year for purposes of this Agreement shall be that date of
the following month or year corresponding to the starting date, provided that if
no corresponding date exists, the measure shall be that date of the following
month or year corresponding to the next day following the starting date. For
example, one month following February 18 is March 18, and one month following
March 31 is May 1.
10.12 REMEDIES.
The parties shall each have and retain all rights and remedies
existing in their favor under this Agreement, the Related Documents, at law or
equity, including rights to bring actions for specific performance and
injunctive and other equitable relief (including, without limitation, the
remedy of rescission) to enforce or prevent a breach or any violation of this
Agreement or the Related Documents. All such rights and remedies shall, to the
extent permitted by applicable Law, be cumulative.
10.13 APPOINTMENT OF REPRESENTATIVE.
M Sub hereby irrevocably appoints the Parent to be its
attorney-in-fact and representative for the purpose of administering this
Agreement on behalf M Sub. The Purchasers shall be entitled to deal
exclusively with the Parent, as the representative of M Sub. Purchaser B
hereby irrevocably appoints Purchaser A to be its attorney-in-fact and
representative for the purpose of administering this Agreement on behalf of
Purchaser B. The Sellers shall be entitled to deal exclusively with Purchaser
A as the representative of Purchaser B.
10.14 SALE AND TRANSFER TAXES.
All Transfer Taxes incurred in connection with the consummation of the
transactions contemplated herein (other than the Transfer Taxes referenced in
Section 8.1(a)(iv) to be borne by the Sellers) shall be paid 100% by Alliance
and the Purchasers.
10.15 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENT.
55
<PAGE> 57
* * *
56
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have executed this
Securities Purchase Agreement as of the date first written above.
ALLIANCE IMAGING, INC.
By: /s/ Richard N. Zehner
----------------------------------
Name: Richard N. Zehner
Title: CEO
EMBARCADERO HOLDING CORP. I
By: /s/ Josh Harris
----------------------------------
Name: Josh Harris
Title: Vice President
EMBARCADERO HOLDING CORP. II
By: /s/ Josh Harris
----------------------------------
Name: Josh Harris
Title: Vice President
AMERICAN SHARED HOSPITAL
SERVICES
By: /s/ Ernest A. Bates
----------------------------------
Name: Ernest A. Bates, M.D.
Title: Chairman and CEO
57
<PAGE> 59
MMRI, INC.
By: /s/ Ernest A. Bates
----------------------------------
Name: Ernest A. Bates, M.D.
Title: Chairman and President
58
<PAGE> 60
ANNEX I
DEFINITIONS
"Acquisition Agreement" has the meaning ascribed thereto in
Section 6.4.
"Affiliate" means, with respect to any Person, (i) a director,
officer or greater than 10% shareholder of such Person, (ii) a spouse, parent,
sibling or descendant of such Person (or spouse, parent, sibling or descendant
of any director or executive officer of such Person), or (iii) any other Person
that, directly or indirectly through one or more intermediaries, Controls, or
is Controlled by, or is under common Control with, such Person.
"Alliance" has the meaning ascribed thereto in the preamble.
"Alternative Transaction" means any (i) acquisition or
purchase of any material portion of the Business or any material assets of
either Entity outside the ordinary course of business, (ii) acquisition or
purchase of any Equity Securities of any Entity, any tender offer or exchange
offer that if consummated would result in any Person beneficially owning more
than 50% of any class of Equity Securities of the Parent or any Equity
Securities of either Entity or (iii) any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving any Entity, other than the transactions contemplated to be effected
with the Purchasers by this Agreement.
"ASHS 401(k) Plan" has the meaning ascribed thereto in Section
6.18.
"Asset Contribution" has the meaning ascribed thereto in
Section 1.2.
"Asset Disposition" has the meaning ascribed thereto in
Section 1.2.
"Business" has the meaning ascribed thereto in the first
WHEREAS clause.
"Business Day" means any day that is not a Saturday, Sunday or
a day on which banking institutions in New York, New York are not required to
be open.
"Capital Lease" means any obligation to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a balance
sheet of such Person as of such date computed in accordance with GAAP.
"Cash Equivalents" means any of the following: (a) securities
issued, or that are directly and fully guaranteed or insured, by the United
States Government or any agency or instrumentality thereof having maturities of
not more than 12 months from the date of acquisition, (b) time deposits and
certificates of deposit having maturities of not more than 12 months from the
date of acquisition of any domestic commercial bank having capital and surplus
in excess of $500,000,000, (c) repurchase agreements with a
<PAGE> 61
term of not more than seven days for underlying securities of the types
described in clauses (a) and (b) above entered into with any bank meeting the
qualifications specified in clause (b) above or with securities dealers of
recognized national standing, and (d) commercial paper rated (as of the date of
acquisition thereof) at least A-1 or the equivalent thereof by Moody's Investors
Service, Inc. and at least P-1 or the equivalent thereof by Standard & Poor's
Corporation and maturing within six months after the date of its acquisition.
"Cath Lab" has the meaning ascribed thereto in Section 3.5.
"CERCLA" has the meaning ascribed thereto in Section 3.20.
"CHAMPUS" has the meaning ascribed thereto in Section 3.18.
"Closing" has the meaning ascribed thereto in Article II.
"Closing Date" has the meaning ascribed thereto in Article II.
"COBRA" has the meaning ascribed thereto in Section 6.18.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential or Proprietary Information" means all
information disclosed (i) by or on behalf of any Entity or any Seller to the
Purchasers, Alliance or to employees, consultants or others in a confidential
relationship with any of them, or (ii) by or on behalf of the Purchasers or
Alliance to any Seller or any Entity, or to employees, consultants or others in
a confidential relationship with any of them, in each case other than such
information which (A) becomes generally available to the public (other than as
a result of a breach of this Agreement), (B) was known to the party to whom
such information was disclosed prior to its disclosure to such party, (C) is
hereafter available to the party to whom such information was disclosed on a
non-confidential basis from a source (other than the party disclosing or on
whose behalf such information was disclosed) which was, to the knowledge of the
receiving party, entitled to disclose the same or (D) is compelled by Law or
Order to be disclosed by the party to whom such information was disclosed.
"Confidentiality Agreement" has the meaning ascribed thereto
in Section 6.5.
"Consolidated Affiliate" has the meaning ascribed thereto in
Section 3.8.
"Consolidated Group" has the meaning ascribed thereto in
Section 3.8.
"Contract" means any agreement, contract, or license (i) for
purposes of Section 3.7(l) and Section 6.2(k), relating to payments by any
Person of a dollar amount in excess of $25,000 and (ii) for purposes of all
other Sections of this Agreement, relating to payments by any Person of a
dollar amount in excess of $10,000.
<PAGE> 62
"Control" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of
securities, by contract or otherwise.
"Conveyance Instruments" has the meaning ascribed thereto in
Section 1.2.
"Covered Taxes" means, all Taxes of CT Sub and/or the
Partnership with respect to periods ending on or prior to the Closing Date
other than those Taxes that are to be paid by Purchasers and Alliance pursuant
to Section 10.14.
"CT Shares" has the meaning ascribed thereto in the second
WHEREAS clause.
"CT Sub" means CuraCare, Inc., a Delaware corporation.
"CT Unit" has the meaning ascribed thereto in Section 3.5.
"DVI" has the meaning ascribed thereto in Section 6.16.
"DVI Revolving Credit Agreement" means the Loan and Security
Agreement dated as of January 31, 1996 among MRI Sub and CT Sub, as borrowers,
the Parent and Ernest A. Bates, M.D., as guarantors, and DVI, as lender, as
amended by Amendment No. 1 dated March 26, 1996, as amended by Amendment No. 2
dated January 31, 1997, as amended by Amendment No. 3 dated April 30, 1997, as
amended by Amendment No. 4 dated as of July 31, 1997 and as amended by
Amendment No. 5 dated as of December 1, 1997.
"EBITDA" means, for any period with respect to any Unit, net
income (or net loss) from operations plus, to the extent deducted in
calculating such net income (or net loss), the sum of (a) interest expense, (b)
income tax expense, (c) depreciation expense and (d) amortization expense, in
each case determined and as properly allocated to such Unit in accordance with
GAAP.
"Employee Benefit Plan" means (i) any qualified or
non-qualified "employee pension benefit plan," as defined in Section 3(2) of
ERISA, including any "multiemployer plan," as defined in Section 3(37) of ERISA,
or "multiple employer plan," as defined in Section 413 of the Code, (ii) any
"employee welfare benefit plan," as defined in Section 3(1) of ERISA, or (iii)
any severance, employment, incentive, bonus, profit-sharing, stock option, stock
purchase or other pension, welfare or fringe plan, program or arrangement,
whether or not subject to ERISA and whether or not funded.
"Employee Plans" has the meaning ascribed thereto in Section
3.17.
"Encumbrances" shall mean any security interest, mortgage,
lien, pledge or charge or any option or right of first refusal.
"Entities" means CT Sub and the Partnership.
<PAGE> 63
"Entities' Financial Statements" has the meaning ascribed
thereto in Section 3.5.
"Environmental, Health and Safety Laws" means all Laws,
Permits, Orders and Contracts and all common Law relating to or addressing
pollution or protection of the environment, public health and safety, or
employee health and safety, including, but not limited to, all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation.
"Equity Interests" means (i) with respect to a corporation,
any and all shares, interests, participation or other equivalents (however
designated) of corporate stock, including all common stock and preferred stock,
or warrants, options or other rights to acquire any of the foregoing and (ii)
with respect to a partnership, limited liability company or similar Person, any
and all units, interests, rights to purchase, warrants, options or other
equivalents of, or other ownership interests in, any such Person.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means, with respect to any Person, any other
Person that is a member of a "controlled group of corporations" with, or is
under "common control" with, or is a member of the same "affiliated service
group" with such Person as defined in Section 414(b), 414(c), 414(m) or 414(o)
of the Code.
"Exchange Act" has the meaning ascribed thereto in Section
3.22.
"Exchange Proceeds" has the meaning ascribed thereto in
Section 6.9.
"Excluded Assets" has the meaning ascribed thereto in Section
1.2.
"Excluded Liabilities" has the meaning ascribed thereto in
Section 1.2.
"Excluded Representations and Warranties" has the meaning
ascribed thereto in Section 6.4.
"Expenses" has the meaning ascribed thereto in Section 10.5.
"Federal Health Care Program" has the meaning ascribed thereto
in Section 3.19.
"Funded Indebtedness" means, without duplication, with respect
to any Person the aggregate amount (including the current portions thereof) of
all (i) indebtedness for money borrowed from others and purchase money
indebtedness (other
<PAGE> 64
than accounts payable in the ordinary course) of such Person; (ii) indebtedness
of the type described in clause (i) above guaranteed, directly or indirectly, in
any manner by such Person, through an agreement, contingent or otherwise, to
supply funds to, or in any other manner invest in, the relevant debtor, or to
purchase indebtedness, or to purchase and pay for property if not delivered or
pay for services if not performed, primarily for the purpose of enabling such
debtor to make payment of the indebtedness or to assure the owners of the
indebtedness against loss (any such arrangement being hereinafter referred to as
a "Guaranty"), but excluding endorsements of checks and other instruments in the
ordinary course; (iii) indebtedness of the type described in clause (i) above
secured by any Encumbrances upon property owned by such Person, even though such
Person has not in any manner become liable for the payment of such indebtedness;
(iv) interest expense accrued but unpaid, and all prepayment premiums, on or
relating to any of such indebtedness; (v) obligations in respect of leases which
would be required to be capitalized under GAAP; and (vi) obligations under
operating leases for Units.
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"GK Finance" means GK Financing, LLC, a California limited
liability company.
"Governmental Entity" means any federal, state, local or
foreign government and any court, tribunal, administrative agency, commission
or other governmental or regulatory authority or agency, domestic, foreign or
supranational.
"Guaranty" has the meaning ascribed thereto in the definition
of Funded Indebtedness.
"Hired Employees" has the meaning ascribed thereto in Section
6.18.
"Indemnified Persons" means and includes the Seller
Indemnified Persons and/or the Purchaser Indemnified Persons, as the case may
be.
"Indemnifying Persons" means and includes the Seller
Indemnifying Persons and/or the Purchaser Indemnifying Persons, as the case may
be.
"Intellectual Property Rights" means all intellectual property
rights, including, without limitation, patents, patent applications,
trademarks, trademark applications, tradenames, servicemarks, servicemark
applications, trade dress, logos and designs and the goodwill connected with
the foregoing, copyrights and copyright applications, know-how, trade secrets,
proprietary processes and formulae, confidential information, franchises,
licenses, inventions, instructions, marketing materials and all documentation
and media constituting, describing or relating to the foregoing, including,
without limitation, manuals, memoranda and records.
"Latest Balance Sheet" has the meaning ascribed thereto in
Section 3.5.
<PAGE> 65
"Latest Balance Sheet Date" has the meaning ascribed thereto
in Section 3.5.
"Law" means any applicable foreign, federal, state or local
law, statute, treaty, rule, directive, regulation, ordinance and similar
provision having the force or effect of law or an Order of any Governmental
Entity (including all Environmental, Health and Safety Laws).
"Leased Property" has the meaning ascribed thereto in Section
3.10.
"Liability" means any liability whether fixed or unfixed or
liquidated or unliquidated.
"Licensed Requisite Rights" has the meaning ascribed thereto
in Section 3.11.
"Losses" means any and all losses, claims, damages,
Liabilities, expenses (including reasonable attorneys' and accountants' and
other professionals' fees), assessments and Taxes, (including interest or
penalties thereon) that are the subject of indemnification under Article VIII,
in each case, (i) net of any cash insurance benefits actually received and (ii)
net of any Tax benefits realized in respect of the Losses for which the
indemnification payments are being made. For purposes of this definition, Tax
benefits realized shall mean the sum of all reductions in federal, state, local
and foreign Taxes (including estimated Taxes) payable by the Indemnified Person
solely as a result of the Losses for which the indemnification payments are
being made. All calculations shall be made using reasonable assumptions agreed
upon by the Purchasers, Alliance and the Sellers including the timing of the
utilization of any such Tax benefits, and any such Tax benefits shall be assumed
to be utilized in a given Tax year only after all other Tax benefits available
in such year have first been taken into account. If a Tax benefit that has been
taken into account for purposes of calculating Losses hereunder is wholly or
partially disallowed by a taxing authority, the Indemnifying Person shall pay
the Indemnified Person the amount that would have been paid originally with
respect to such Losses had such disallowed Tax benefit not been taken into
account.
"M Sub" has the meaning ascribed thereto in the preamble.
"M Sub Partnership Interests" means the 50% general
partnership interests in the Partnership held or owned by M Sub.
"Material Adverse Effect" has the meaning ascribed thereto in
Section 3.7.
"MRI Unit" has the meaning ascribed thereto in Section 3.5.
"Non-Compete Period" means the period ending on the fifth
anniversary of the Closing Date.
<PAGE> 66
"Orders" means judgments, writs, decrees, compliance
agreements, injunctions or judicial or administrative orders and determinations
of any Governmental Entity or arbitrator.
"Organizational Documents" means (i) any certificate or
articles filed with any state which filing forms a Person and (ii) all
agreements, documents or instruments governing the internal affairs of a
Person, including such Person's by-laws, codes of regulations, partnership
agreements, limited liability company agreements, joint venture agreements and
operating agreements.
"Owned Requisite Rights" has the meaning ascribed thereto in
Section 3.11.
"Parent" has the meaning ascribed thereto in the preamble.
"Parent Common Stock" has the meaning ascribed thereto in
Section 3.24.
"Parent Partnership Interests" means the 50% general
partnership interest in the Partnership held or owned by the Parent.
"Parent Stockholder Approval" has the meaning ascribed thereto
in Section 3.24.
"Partnership" means American Shared-CuraCare, a California
general partnership.
"Partnership Agreement" means the Joint Venture Agreement,
between M Sub and the Parent, dated March 7, 1985, as modified by the
Modification to Joint Venture Agreement dated April 5, 1985, the Modification
to Joint Venture Agreement dated May 20, 1985, the First Supplement to the
Joint Venture Agreement dated as of October 14, 1987, the Second Supplement to
the Joint Venture Agreement dated as of May 15, 1995, and as further amended,
modified or supplemented from time to time including, without limitation, as
amended and restated pursuant to Section 7.2 hereunder.
"Partnership Interests" means the M Sub Partnership Interests
and the Parent Partnership Interests.
"Permits" means all permits, certificates of need, licenses,
authorizations, registrations, franchises, approvals, certificates, variances
and similar rights obtained, or required to be obtained, from Governmental
Entities.
"Permitted Encumbrances" means with respect to any Person, (i)
Encumbrances for Taxes not yet due and payable or being contested in good faith
by appropriate proceedings and for which there are adequate reserves on the
books and records of such Person, (ii) workers or unemployment compensation
liens arising in the ordinary course of business, (iii) statutory lessor liens
arising under leases, and (iv)
<PAGE> 67
mechanic's, materialman's, supplier's, vendor's or similar liens arising in the
ordinary course of business securing amounts that are not delinquent.
"Person" shall be construed broadly and shall include an
individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a Governmental Entity (or any department, agency or political
subdivision thereof).
"Post Signing Returns" has the meaning ascribed thereto in
Section 6.11.
"Proceedings" means any action, suit, investigation or
proceedings before any Governmental Entity or arbitrator other than the review
by Internal Revenue Service of an application for a favorable determination
letter regarding any Employee Plan.
"Proxy Statement" has the meaning ascribed thereto in Section
6.12.
"Purchase Price" has the meaning ascribed thereto in Section
1.3.
"Purchased Parent Assets" has the meaning ascribed thereto in
Section 1.2.
"Purchaser A" has the meaning ascribed thereto in the
preamble.
"Purchaser B" has the meaning ascribed thereto in the
preamble.
"Purchaser Indemnified Persons" means and includes the
Purchasers, their Affiliates (including, without limitation, Alliance), their
successors and assigns, and the respective officers, directors, employees and
agents of each of the foregoing.
"Purchaser Indemnifying Persons" means Alliance and each
Purchaser (jointly and severally) and their successors and assigns.
"Purchaser Losses" means any and all Losses sustained,
suffered or incurred by any Purchaser Indemnified Person arising from or in
connection with any such matter which is the subject of indemnification under
Article VIII.
"Purchasers" has the meaning ascribed thereto in the preamble.
"Related Documents" has the meaning ascribed thereto in Section
7.2
"Requisite Rights" has the meaning ascribed thereto in Section
3.11.
"Respiratory System" has the meaning ascribed thereto in
Section 3.5.
"Restricted Territory" means any portion of the United States
in which the Business has operated during the three years preceding the Closing
Date.
"SEC" means the United States Securities and Exchange
Commission and any successor agency.
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"SEC Documents" has the meaning ascribed thereto in Section
3.5.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Indemnified Persons" means and includes the Sellers
and their respective successors and assigns.
"Seller Indemnifying Persons" means and includes the Sellers
(jointly and severally) and their respective successors and assigns.
"Seller Losses" shall mean any and all Losses sustained,
suffered or incurred by any Seller Indemnified Person arising from or in
connection with any matter which is the subject of indemnification under
Article VIII.
"Sellers" means the Parent and M Sub.
"Shares" means the CT Shares and the Partnership Interests.
"SPECT UNIT" has the meaning ascribed thereto in Section 3.5.
"SSA" has the meaning ascribed thereto in Section 3.18.
"State Health Care Program" has the meaning ascribed thereto
in Section 3.19.
"Stockholders Agreement" has the meaning ascribed thereto in
Section 7.2.
"Stockholders Meeting" has the meaning ascribed thereto in
Section 6.12.
"Subsidiary" means any Person with respect to which a
specified Person (or a Subsidiary thereof) has the power to vote or direct the
voting of sufficient securities to elect a majority of the directors or other
governing body.
"Superfund" has the meaning ascribed thereto in Section 3.20.
"Superior Proposal" has the meaning ascribed thereto in
Section 9.1.
"Survival Date" has the meaning ascribed thereto in Section
8.4.
"Tax Claim" has the meaning ascribed thereto in Section 6.8.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Taxes" means, with respect to any Person, (i) all income
taxes (including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings or
profits) and all gross receipts, sales, use,
<PAGE> 69
ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties and other taxes,
fees, assessments or charges of any kind whatsoever, together with all interest
and penalties, additions to tax and other additional amounts imposed by any
taxing authority (domestic or foreign) on such Person (if any) and (ii) any
liability for the payment of any amount of the type described in clause (i)
above as a result of (A) being a "transferee" (within the meaning of Section
6901 of the Code or any other applicable Law) of another Person, (B) being a
member of an affiliated, combined or consolidated group or (C) a contractual
arrangement or otherwise.
"Third Party Claim" has the meaning ascribed thereto in
Section 8.3.
"Third Party Proposal" means a bona fide proposal from a third
party, which proposal did not result from a breach of Section 6.4(a) and which
third party the Board of Directors of the Parent determines in good faith has
the capacity and is reasonably likely to consummate a Superior Proposal.
"338(h)(10) Election" has the meaning ascribed thereto in
Section 6.8.
"Transfer Taxes" has the meaning ascribed thereto in Section
8.1.
"Ultrasound Machine" has the meaning ascribed thereto in
Section 3.5.
"Units" has the meaning ascribed thereto in Section 3.5.
"Years Included" has the meaning ascribed thereto in Section
3.8.
<PAGE> 70
ADDENDUM
The following is a list of and description of the contents of Schedules to the
foregoing Securities Purchase Agreement that have been omitted from such
Agreement as filed with the Annual Report on Form 10-K; such Schedules will be
provided to the Commission upon request:
<TABLE>
<CAPTION>
Schedule Number Title and Description
- --------------- ---------------------
<S> <C>
1.2(a) Purchased Parent Assets: assets used in the business current
held by the Parent and that are to be assigned or transfered to
the Entities prior to the Closing.
1.2(b) Excluded Assets: assets held by either of the Entities that are
to be assigned or transfered by the Entities to the Parent
prior to the Closing.
1.2(c) Excluded Liabilities: liabilities of the Entities that are not
being assumed by the Purchasers and that must be assumed by the
Parent prior to the Closing.
3.2(c) Jurisdictions of Sellers and Entities: list of each state
(other than the state of incorporation) in which the Sellers
and Entities are qualified to do business and are in good
standing.
3.2(e)(i) Businesses: Description of businesses engaged in during the
last five years by the Sellers and the Entities.
3.2(e)(ii) Trade Names and Assumed Names: trade and assumed names used by
the Sellers and the Entities.
3.2(f) Authority: listing of agreements or documents that would be in
default as a result of the agreement, absent waiver or consent.
3.2(g) Consents: Consents of third parties that must be obtained for
the transactions contemplated by the Agreement.
3.3(b) Partnership Interests: Listing of percentage of interests in
the Partnership owned by each Seller.
3.3(d) Contracts re Equity Interests: Listing of any outstanding
agreements related to equity interests in the Entities.
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
3.5(a) Parent and Subsidiary Liabilities Incurred Since September 30,
1997: Description of Liabilities incurred by Parent and its
Subsidiaries since September 30, 1997.
3.5(b) Pro Forma Financial Statements: Financial Statements of the
Entities pro forma for the transactions provided for in Section
1.2 of the Agreement.
3.5(d) Funded Indebtedness: Funded Indebtedness outstanding at January
31, 1998.
3.5(e) Specifications of Units: Information related to each Unit used
in the Business, including specifications, net book value, date
acquired.
3.5(f) Upgrades and Commitments for Upgrades of Units: Description of
upgrades completed within the last year and upgrades that have
been committed to be completed.
3.5(g) Accounts Payable: Accounts payable outstanding at January 31,
1998.
3.5(h) Principal Payments or Prepayments: Listing of principal and
interest payments made and capital expenditures during the year
ended December 31, 1997 and one month ended January 31, 1998;
revenues and EBITDA for each Unit for the year ended December
31, 1997 and the one month ended January 31, 1998.
3.7 Changes in Operations: Description of changes in operations of
the business since December 31, 1997.
3.8(a) Tax Returns: Description of any tax returns that have not been
filed on a timely basis.
3.8(c) Audits: Description of any outstanding audits related to taxes.
3.8(d) States Where Filed Income Tax Returns: Listing of states in
which income tax returns were required to be filed in each of
the three years ended December 31, 1997.
3.9 Compliance with Leases; Encumbrances on Property: Schedule
showing any existing defaults or items that, with passage of
time or giving of notice, would constitute a default under
leases and a listing of liens (UCC financing statements) on
record against the Sellers and the Entities.
3.10(a) Leased Real Property: Listing of all real property leased by
the Sellers and Entities and a description of the basic terms
of the leases.
</TABLE>
- 2 -
<PAGE> 72
<TABLE>
<S> <C>
3.11(a) Owned or Leased Intellectual Property: Listing of intellectual
property owned or leased by the Sellers and Entities.
3.11(b) Applications re Intellectual Property: Listing of applications
to register trade marks or service marks that are pending.
3.12 Contracts: Listing of Contracts related to the Business.
3.12 Defaults: Defaults under Contracts existing at the signing date
or items that, with the passage of time or giving of notice
could constitute default.
3.13(a) Pending and Threatened Civil and Criminal Proceedings: Listing
and description of pending and threatened civil and criminal
litigation, investigations, administrative proceedings and
similar matters.
3.13(b) Concluded Material Proceedings: Description of concluded
matters in which the Entities paid more than $50,000 in
settlement or damages during the last three years.
3.14 Permits: Listing of permits issued to Sellers or the Entities
used in the Business.
3.15(a) Insurance: Listing of insurance policies maintained by the
Sellers or the Entities in connection with the Business and a
summary of pending claims.
3.15(b) Premiums: Listing of any premiums for insurance policies that
have not been paid or are subject to adjustment or
retrospective premium.
3.16(a) Officers, Directors and Employees Earning Greater than $75,000
per year: Listing of officers and directors of the Entitites
and employees who earned more than $75,000 during 1997.
3.16(b) Labor Matters: Listing of any pending labor matters.
3.17(a) Employee Benefit Plans: Listing of employee benefit plans
maintained by the Sellers or the Entities.
3.17(b) Administration of Employee Benefit Plans: Listing of any
pending proceedings or violations in the administration of the
employee benefit plans.
3.20(a) Environmental Matters: Listing of any matters in which the
Entitites are not in compliance with environmental laws.
</TABLE>
- 3 -
<PAGE> 73
<TABLE>
<S> <C>
3.20(b) Environmental Claims: Listing of any pending or threatened
claims by governmental entities concerning a violation of an
environmental law.
3.20(c) Administrative Proceedings re Environmental: Listing of any
pending administrative or judicial proceeding or investigation
regarding remediation under environmental, health or safety
laws.
3.20(d) Notices of Violations of Environmental: Listing of notices or
violations or requirements to remediate or take corrective
action related to environmental, health and safety laws during
the last five years by the Entities.
3.20(e) Changes in Environmental Laws: Listing of changes in
environmental laws of which the Sellers have knowledge.
3.22 Related Transactions: Summary of transactions with affiliates.
3.23 Bank Accounts and Powers of Attorney: Listing of bank accounts
maintained by the Sellers or the Entities and powers of
attorney granted by Entities or Sellers.
3.26 Physician Relationships: Description of any "financial
relationships" of the Entities with "referring physicians"
under 42 U.S.C. Section 1395nn..
3.27 Hospital Relationships: Description of any relationships of the
Entities with hospitals in connection with rental payments
based on fees or revenues of any segment of the business of the
Entities.
4.1 Organization of Purchasers: Jurisdictions in which Purchasers
are qualified to do business as a foreign person.
4.4 Consents: Listing of consents that must be obtained or actions
that must be taken by Purchasers to avoid conflicts with
agreements or documents to which it is a party or subject.
</TABLE>
- 4 -
<PAGE> 1
Exhibit 10.13b
THIRD AMENDMENT AGREEMENT
This Amendment Agreement is made and entered as of October 16, 1996, 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 (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.
Paragraph 9.1 of the Operating Agreement is hereby amended by deleting
subparagraph (vii) (which relates to a failure by the Company to enter into six
(6) alternative financing agreements during the two (2) year period commencing
with the effective date of the Operating Agreement) therefrom in its entirety.
3. Full Force and Effect.
Except as explicitly amended by this Third Amendment Agreement, the
provisions of the Operating Agreement shall remain in full force and effect.
<PAGE> 2
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 Grome
Title: President
AMERICAN SHARED RADIOSURGERY
SERVICES, INC.
By: /s/ Ernest A. Bates
Title: President
<PAGE> 1
Exhibit 10.16
AMENDMENT NO. 3
TO LOAN AND SECURITY AGREEMENT ("AGREEMENT")
DATED JANUARY 31, 1996 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")
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend the Agreement as follows:
1) The Agreement shall be renewed for two (2) years effective May 31, 1997.
Upon execution hereof, Borrower shall pay Lender a renewal fee equal to 1%
of the Commitment Amount.
2) Section 2.8 "Interest on the Loans" shall be amended and replaced in its
entirety with the following:
"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 three and three quarter percent
(3.75%). 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 three and three quarter percent
(3.75%). 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.
Any provision in Amendment No. 3 ("Amendment") hereof that may be contrary to
any provision of the Agreement shall prevail and override the Agreement. Except
as expressly set forth herein, all other provisions of the Agreement shall
remain in full force and effect. Both parties warrant to each other that this
Amendment has been authorized and duly executed and is binding on both parties
hereto as of 30th day of April, 1997.
LENDER:
DVI BUSINESS CREDIT RECEIVABLES CORP.
By: /s/ Cynthia J. Cohn
---------------------
Name: Cynthia J. Cohn
Title: Executive Vice President
BORROWER: BORROWER:
AMERICAN SHARED-CURACARE CURACARE, INC.
A CALIFORNIA PARTNERSHIP
By: /s/ Ernest A. Bates By: /s/ Ernest A. Bates
-------------------------- --------------------------
Name: Ernest A. Bates, M.D. Name: Ernest A. Bates, M.D.
Title: Chairman & CEO, American Shared Title: President
Hospital Services, general partner
The undersigned acknowledges that DVI has no obligation to provide it with
notice of, or to obtain its consent to, the terms of this Amendment to Loan and
Security Agreement. The undersigned nevertheless acknowledges and agrees to the
terms and conditions of this Amendment and acknowledges that its Guaranty
remains fully valid, binding, and enforceable against it in accordance with its
terms.
GUARANTOR: GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES ERNEST A. BATES, M.D., INDIVIDUAL
By: /s/ Ernest A. Bates By: /s/ Ernest A. Bates
-------------------------- --------------------------
Print Name: Ernest A. Bates, M.D. Print Name: Ernest A. Bates, M.D.,
an Individual
Title: Chairman & CEO
Date: April 23, 1997 Date: April 23, 1997
<PAGE> 1
Exhibit 10.17
AMENDMENT NO. 4
TO LOAN AND SECURITY AGREEMENT ("AGREEMENT")
DATED JANUARY 31, 1996 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")
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend the Agreement as follows:
1) Section 2.1 "The Loan" first sentence shall be amended to read as follows:
2) 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 the amount not to exceed the lesser
of (i) Five Million and 00/100 Dollars ($5,000,000.00) (the "Commitment
Amount"), and (ii) the Borrowing Base, which shall be evidenced by a Note.
3) Upon execution hereof, Borrower shall pay Lender an Origination Fee of one
percent (1%) of the $500,000.00 increased Commitment Amount.
Any provision in Amendment No. 4 ("Amendment") hereof that may be contrary to
any provision of the Agreement shall prevail and override the Agreement. Except
as expressly set forth herein, all other provisions of the Agreement shall
remain in full force and effect. Both parties warrant to each other that this
Amendment has been authorized and duly executed and is binding on both parties
hereto as of ___ day of _______ 1997.
LENDER:
DVI BUSINESS CREDIT RECEIVABLES CORP.
By: /s/ Cynthia J. Cohn
----------------------
Name: Cynthia J. Cohn
Title: Executive Vice President
BORROWER: BORROWER:
AMERICAN SHARED-CURACARE CURACARE, INC.
A CALIFORNIA PARTNERSHIP
By: /s/ Ernest A. Bates By: /s/ Ernest A. Bates
---------------------- -------------------------
Name: Ernest A. Bates Name: Ernest A. Bates
Title: Chairman & CEO Title: Chairman & CEO
The undersigned acknowledges that DVI has no obligation to provide it with
notice of, or to obtain its consent to, the terms of this Amendment to Loan and
Security Agreement. The undersigned nevertheless acknowledges and agrees to the
terms and conditions of this Amendment and acknowledges that its Guaranty
remains fully valid, binding, and enforceable against it in accordance with its
terms.
GUARANTOR: GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES ERNEST A. BATES, M.D., INDIVIDUAL
By: /s/ Ernest A. Bates By: /s/ Ernest A. Bates
---------------------- ----------------------------
Print Name: Ernest A. Bates Print Name: Ernest A. Bates
Title: Chairman & CEO
Date: 7/31/97 Date: 7/31/97
<PAGE> 1
Exhibit 10.18
AMENDMENT NO. 5
TO LOAN AND SECURITY AGREEMENT ("AGREEMENT")
DATED JANUARY 31, 1996 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")
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend the Agreement as follows:
1) Subject 2.1 "The Loan" first sentence shall be amended to read as follows:
Subject to the terms and conditions and relying on the representations and
warranties set forth herein, Lender agrees to advance to Borrrower,
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) Five Million Five Hundred Thousand Dollars ($5,500,000.00) (the
"Commitment Amount"), and (ii) the Borrowing Base, which shall be evidenced
by a Note.
2) Upon execution of this Amendment, Borrower shall pay Lender an Origination
Fee of one percent (1%) on the increased Commitment Amount of $500,000.00.
Increases to the Commitment Amount during the term will be charged on the
incremental increase at the same origination percentage. All other fees will
remain the same in accordance with the Agreement.
Any provision in Amendment No. 5 ("Amendment") hereof that may be contrary to
any provision of the Agreement shall prevail and override the Agreement. Except
as expressly set forth herein, all other provisions of the Agreement shall
remain in full force and effect. Both parties warrant to each other that this
Amendment has been authorized and duly executed and is binding on both parties
hereto as of the 1st day of December, 1997.
LENDER:
DVI BUSINESS CREDIT RECEIVABLES CORP.
By: /s/ Cynthia J. Cohn
---------------------
Name: Cynthia J. Cohn
Title: Executive Vice President
BORROWER: BORROWER:
AMERICAN SHARED-CURACARE CURACARE, INC.
By: /s/ Ernest A. Bates By: /s/ Ernest A. Bates
------------------------ --------------------------
Name: Ernest A. Bates, M.D. Name: Ernest A. Bates, M.D.
Title: Chief Executive Officer Title: Chief Executive Officer
The undersigned acknowledges that Lender has no obligation to provide it with
notice of, or to obtain its consent to, the terms of this Amendment to Loan and
Security Agreement. The undersigned nevertheless acknowledges and agrees to the
terms and conditions of this Amendment and acknowledges that its Guaranty
remains fully valid, binding, and enforceable against it in accordance with its
terms.
GUARANTOR: GUARANTOR:
AMERICAN SHARED HOSPITAL SERVICES ERNEST A. BATES, M.D., INDIVIDUAL
By: /s/ Ernest A. Bates By: /s/ Ernest A. Bates
------------------------ --------------------------
Name: Ernest A. Bates, M.D. Name: Ernest A. Bates, M.D.
Title: Chief Executive Officer
Date: November 26, 1997 Date: November 26, 1997
<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 incorporation by reference in the Registration Statement, as
amended, (Forms S-8, No. 2-90646; No. 33-21509; No. 33-48980) pertaining to the
1984 Stock Option and Employment Agreement of American Shared Hospital Services;
the Registration Statement (Form S-8, No. 33-45999) pertaining to the American
Shared Hospital Services 1991 Employee Stock Bonus Plan; the Registration
Statement (Form S-8, No. 333-08009) pertaining to the 1995 Stock Option Plan of
American Shared Hospital Services; the Registration Statement, as amended, (Form
S-3, No. 333-12879) pertaining to the registration of 2,679,047 of Common Shares
of American Shared Hospital Services; and the Registration Statement, as
amended, (Form S-3, No. 33-63721) pertaining to the registration of 1,290,853 or
Common Shares of American Shared Hospital Services and 441,147 Warrants to
purchase Common Shares of American Shared Hospital Services and in the related
Prospectuses of our report dated February 27, 1998, except for Note 14, as to
which the date is March 12, 1998, with respect to the consolidated financial
statements and schedule of American Shared Hospital Services included in this
Annual Report (Form 10-K) for the year ended December 31, 1997.
March 30, 1998
Walnut Creek, California
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0
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<EPS-PRIMARY> (.11)
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0
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0
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