<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TWO EMBARCADERO CENTER, SUITE 2370, SAN FRANCISCO, CALIFORNIA 94111
- ------------------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 788-5300
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
----- -----
AS OF OCTOBER 18, 1999, THERE ARE OUTSTANDING 3,829,342 SHARES OF THE
REGISTRANT'S COMMON STOCK.
<PAGE> 2
AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS Sept. 30, 1999 Dec. 31, 1998
- ------------------------------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,983,000 $11,114,000
Restricted cash 50,000 2,226,000
Receivables, less allowance for
uncollectible accounts of
$0 in 1999 and 1998
Trade accounts receivable 1,301,000 1,228,000
Other 94,000 104,000
----------- -----------
1,395,000 1,332,000
Prepaid expenses, inventories and
other current assets 316,000 285,000
----------- -----------
TOTAL CURRENT ASSETS 12,744,000 14,957,000
Property and equipment:
Land, buildings & improvements 647,000 247,000
Medical and transportation equipment 23,902,000 15,447,000
Capitalized leased equipment 83,000 83,000
Deposits and construction in progress 2,955,000 1,079,000
----------- -----------
27,587,000 16,856,000
Accumulated depreciation and
amortization (6,250,000) (5,097,000)
----------- -----------
Net property & equipment 21,337,000 11,759,000
Other assets 216,000 183,000
Intangible assets, less accumulated
amortization 13,000 20,000
----------- -----------
TOTAL ASSETS $34,310,000 $26,919,000
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 254,000 $ 338,000
Interest payable 83,000 54,000
Employee compensation 182,000 814,000
Other accrued liabilities 597,000 519,000
Accrued exit costs 70,000 595,000
Income taxes payable 6,000 1,664,000
Current portion of long-term debt 1,881,000 1,873,000
Current portion of obligations
under capital leases 12,000 12,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,085,000 5,869,000
Long-term debt, less current portion 18,119,000 8,792,000
Obligations under capital leases,
less current portion 23,000 31,000
Accrued exit costs, less current portion 325,000 400,000
Deferred income taxes 96,000 0
Minority interest 870,000 731,000
Shareholders' equity:
Common stock, without par value:
authorized shares - 10,000,000; issued
& outstanding shares, 3,829,000 in
1999 and 4,544,000 in 1998 10,105,000 11,087,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 817,000 930,000
Accumulated deficit (1,544,000) (3,335,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 11,792,000 11,096,000
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $34,310,000 $26,919,000
=========== ===========
</TABLE>
See accompanying notes
2
<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Sept. 30, Nine Months ended Sept. 30,
---------------------------- ---------------------------
1999 1998 1999 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Medical services $1,991,000 $10,402,000 $5,269,000 $29,581,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 0 2,080,000 4,000 6,098,000
Maintenance and supplies 34,000 1,582,000 102,000 4,489,000
Depreciation and amortization 396,000 1,650,000 1,158,000 4,604,000
Equipment rental 0 1,239,000 0 3,341,000
Other 109,000 1,183,000 230,000 3,418,000
---------- ----------- ---------- -----------
539,000 7,734,000 1,494,000 21,950,000
Selling and administrative 565,000 1,274,000 1,505,000 4,095,000
Interest 342,000 910,000 846,000 2,637,000
---------- ----------- ---------- -----------
Total costs and expenses 1,446,000 9,918,000 3,845,000 28,682,000
---------- ----------- ---------- -----------
545,000 484,000 1,424,000 899,000
Gain on sale of assets and
early termination of capital leases 1,000 18,000 6,000 114,000
Interest and other income 178,000 18,000 446,000 47,000
Minority interest (154,000) (63,000) (368,000) (97,000)
---------- ----------- ---------- -----------
Income before income taxes 570,000 457,000 1,508,000 963,000
Income tax benefit (expense) 238,000 (6,000) 283,000 (7,000)
---------- ----------- ---------- -----------
Net income $ 808,000 $ 451,000 $1,791,000 $ 956,000
========== =========== ========== ===========
Net income per share:
Earnings per common share - basic $ 0.21 $ 0.09 $ 0.45 $ 0.20
========== =========== ========== ===========
Earnings per common share - assuming
dilution $ 0.15 $ 0.07 $ 0.32 $ 0.15
========== =========== ========== ===========
</TABLE>
See accompanying notes
3
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended Sept. 30,
------------------------------
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,791,000 $ 956,000
Adjustments to reconcile net cash
provided by operating activities:
Disposal of property and equipment (6,000) 5,000
Gain on early termination of capital leases 0 (119,000)
Depreciation and amortization 1,162,000 4,835,000
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 2,176,000 (377,000)
(Increase) in accounts receivable (63,000) (345,000)
(Increase) decrease in prepaid expenses, inventories and
other assets (64,000) 69,000
(Decrease) increase in accounts payable and accrued
liabilities (2,771,000) 3,949,000
------------ -----------
Net cash provided by operating activities 2,225,000 8,973,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) 14,000 481,000
Deposits on gamma knife units 0 (500,000)
Proceeds from sale of property and equipment 7,000 3,000
Deferred costs on potential sale of subsidiaries 0 (1,024,000)
Increase in minority interest 139,000 97,000
Other 0 85,000
------------ -----------
Net cash (used in) investing activities 160,000 (858,000)
FINANCING ACTIVITIES:
Payment for repurchase of stock (1,095,000) 0
Net (payments) on revolving line of credit 0 (1,072,000)
Principal payments on long-term debt and capitalized leases (1,421,000) (6,954,000)
------------ -----------
Net cash (used in) financing activities (2,516,000) (8,026,000)
------------ -----------
Net (decrease) increase in cash and cash equivalents (131,000) 89,000
Cash and cash equivalents at beginning of period 11,114,000 17,000
------------ -----------
Cash and cash equivalents at end of period $ 10,983,000 $ 106,000
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 817,000 $ 2,579,000
============ ===========
Income taxes $ 1,280,000 $ 30,000
============ ===========
</TABLE>
See accompanying notes
4
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AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly American Shared Hospital
Services' (the "Company") consolidated financial position as of September 30,
1999 and the results of its operations for the three and nine month periods
ended September 30, 1999 and 1998, which results are not necessarily indicative
of results on an annualized basis. Consolidated balance sheet amounts as of
December 31, 1998 have been derived from audited financial statements. These
financial statements include the accounts of the Company and its wholly-owned
subsidiaries: CuraCare, Inc. (included through November 12, 1998); MMRI, Inc.;
European Shared Medical Services Limited; American Shared Radiosurgery Services;
African American Church Health and Economic Services, Inc.; ACHES Insurance
Services, Inc.; and the Company's majority-owned subsidiary, GK Financing, LLC
("GKF").
The Company, through GKF, provides Gamma Knife units to eight medical centers in
Arkansas, California, Connecticut, Massachusetts, Ohio and Texas. The Company
provided shared diagnostic imaging and respiratory therapy services to health
care providers located in various geographic regions of the United States
through November 1998. The diagnostic imaging services provided by the Company
were Magnetic Resonance Imaging (MRI), Computed Axial Tomography Scanning (CT),
Ultrasound, Nuclear Medicine, and Cardiac Catheterization Laboratory services.
On November 13, 1998, the stock of Curacare, Inc. and the assets of the
diagnostic imaging services product line were sold to a third party ("Sale").
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Note 2. Per Share Amounts
Per share information has been computed based on the weighted average number of
common shares and dilutive common share equivalents outstanding.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Medical services revenues decreased $8,411,000 and $24,312,000 for the three and
nine month periods ended September 30, 1999 from $10,402,000 and $29,581,000 for
the three and nine month periods ended September 30, 1998. Revenues from Gamma
Knife services increased $561,000 (33%) and $2,394,000 (83%) for the three and
nine month periods ended September 30, 1999 compared to the same periods in the
prior year. The increases reflect increased utilization at centers in operation
for longer than one year (18%) and the addition of three
5
<PAGE> 6
Gamma Knife units at various periods during the nine months of 1999, including
two new Gamma Knife units in third quarter 1999. The Company's seventh Gamma
Knife unit commenced operation in mid-August 1999 and the Company's eighth and
newest Gamma Knife unit commenced operation in late September 1999. The
Company's second Gamma Knife unit's contract, scheduled to terminate in third
quarter 1999, has been extended on a month to month basis. The Company is
negotiating with the customer to sell them the unit, extend the contract or
remove the unit. Diagnostic imaging, respiratory therapy, and insurance services
revenues decreased $8,972,000 and $26,706,000 for the three and nine month
periods ended September 30, 1999 compared to the same periods in the prior year,
due to the Sale. During third quarter 1999, the Company transferred its
ownership in the revenue stream from ACHES Insurance Services, Inc. ("AIS") to
unrelated third parties. Revenues from AIS were immaterial to the Company.
Total Costs of operations decreased $7,195,000 and $20,456,000 for the three and
nine month periods ended September 30, 1999 compared to the same periods in the
prior year. Medical services payroll decreased $2,080,000 and $6,094,000 for the
three and nine month periods ended September 30, 1999 compared to the same
periods in the prior year. The decreases are attributable to the Sale and the
fact that the Company does not currently provide labor as a component of its
Gamma Knife services. Maintenance and supplies decreased $1,548,000 and
$4,387,000 for the three and nine month periods ended September 30, 1999
compared to the same period in the prior year due to the Sale. Maintenance and
supplies for Gamma Knife services increased $16,000 and $37,000 for the three
and nine month periods ended September 30, 1999 compared to the same periods in
the prior year primarily due to the expiration of the warranty period of two
units. Depreciation and amortization decreased $1,254,000 and $3,446,000 for the
three and nine month periods ended September 30, 1999 compared to the same
periods in the prior year due to the Sale. Depreciation and amortization for
Gamma Knife services increased $53,000 and $462,000 for the three and nine month
periods ended September 30, 1999 compared to the same periods in the prior year
primarily due to three additional Gamma Knife units during 1999. The increase in
Depreciation and amortization for Gamma Knife services during third quarter 1999
was mitigated because one of the Company's Gamma Knife units was depreciated to
its salvage value in mid third quarter 1999. Equipment rental decreased
$1,239,000 and $3,341,000 for the three and nine month periods ended September
30, 1999 compared to the same period in the prior year due to the Sale. Gamma
Knife services had zero Equipment rental expenses. Other operating costs
decreased $1,074,000 and $3,188,000 for the three and nine month periods ended
September 30, 1999 compared to the same periods in the prior year due to the
Sale. Other operating costs for Gamma Knife services decreased approximately
$27,000 and increased approximately $34,000 for the three and nine month periods
ended September 30, 1999. The decrease in third quarter 1999 was primarily due
to lower marketing expenses and the increase for the nine months ended September
30, 1999 was primarily due to higher insurance and personal property tax
expenses associated with more Gamma Knife units in service.
Selling and administrative costs decreased $709,000 and $2,590,000 for the three
and nine month periods ended September 30, 1999 compared to the same periods in
the prior year primarily due
6
<PAGE> 7
to personnel reductions in the areas of sales and marketing, accounting and
finance, administration, and the other expenses related to those functions.
Interest expense decreased $568,000 and $1,791,000 for the three and nine month
periods ended September 30, 1999 compared to the same periods in the prior year
due to the assumption of debt by the purchaser in the Sale. Interest expense for
Gamma Knife services increased $95,000 and $335,000 for the three and nine month
periods ended September 30, 1999 primarily due to three additional units
commencing operation at various periods in 1999.
Interest and other income increased $160,000 and $399,000 for the three and nine
month periods ended September 30, 1999 compared to the same periods in the prior
year primarily due to an increase in funds invested in overnight securities.
Minority interest increased $91,000 and $271,000 for the three and nine month
periods ended September 30, 1999 compared to the same periods in the prior year.
Minority interest represents the pre-tax income earned by the minority member's
19% interest in GKF. The increase in minority interest reflects the increased
profitability of GKF.
The Company recorded an Income tax benefit of $238,000 and $283,000 for the
three and nine-month periods ended September 30, 1999. The Company's deferred
tax asset and related allowance and its recorded tax liabilities at September
30, 1999 were adjusted after completion of the Company's 1998 income tax
returns. This adjustment resulted in recognition of an income tax benefit of
$238,000 at September 30, 1999.
The Company had Net income of $808,000 ($0.21 per basic share) and $1,791,000
($0.45 per basic share) for the three and nine month periods ended September 30,
1999 compared to Net income of $451,000 ($0.09 per basic share) and $956,000
($0.20 per basic share) in the same periods in the prior year. The increases
were primarily due to increased operating margins. The Company's Gross margin
(Medical services revenues less Costs of operations) as a percentage of Medical
services revenues increased to 73% in third quarter 1999 from 26% in third
quarter 1998.
Liquidity and Capital Resources
The Company had Cash and cash equivalents and Restricted cash of $11,033,000 at
September 30, 1999 compared to $13,340,000 at December 31, 1998. The Company's
cash position decreased $2,307,000 due primarily to the payment of federal and
state income taxes ($1,280,000) primarily related to the Sale, the Company's
repurchase of common stock ($1,095,000), payment of exit and other Sale related
costs ($1,085,000), and the pay-off of a Gamma Knife loan ($347,000).
Restricted cash of $50,000 at September 30, 1999 reflects the minimum cash
balance that must be maintained for the operations of GKF. Cash of $1,000,000
previously restricted under terms of the Sale was released from restriction on
April 16, 1999. GKF has distributed $972,000 to the Company and $228,000 to the
minority member of GKF from Restricted cash during 1999.
7
<PAGE> 8
The Company as of September 30, 1999 had Shareholders' equity of $11,792,000,
working capital of $9,659,000 and Total assets of $34,310,000.
The Company is investing its cash in overnight repurchase agreements and
commercial paper pending use in the Company's operations. The Company believes
its cash position combined with its working capital is adequate to service the
Company's cash requirements for the next 12 months.
The Year 2000 ("Y2K") issue results from programs written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes 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.
Due to the Sale, the Company is restructuring its computer operations by
replacing and upgrading most of its computer hardware and programs with
equipment and programs with more flexibility and that are Y2K compatible. This
replacement and upgrade process was essentially completed in the third quarter
of 1999 and the cost was approximately $80,000.
The Company's current revenue source, the Gamma Knife, is Y2K compliant. The
Company's eight current operational customers, which are large urban medical
centers, all have disbursement systems that are or will be Y2K compliant prior
to 2000.
Should the disbursement systems of the Company's operating customers not be Y2K
compliant, the Company would be materially impacted. The Company would exercise
its contractual rights due to nonpayment, if necessary.
The Company believes that the Y2K issue, except for any customer disbursement
systems which are not Y2K compliant on January 1, 2000, and for which the
customer cannot produce manual checks, will not materially affect the Company's
business, results of operations, or financial condition.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults upon Senior Securities.
None.
8
<PAGE> 9
ITEM 4. Submission of Matters to a Vote of Securities Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.20 Lease Agreement for a Gamma Knife Unit dated as
of June 1, 1998 between GK Financing, LLC and
Kettering Medical Center. (Confidential material
appearing in this document has been omitted and
filed separately with the Securities and
Exchange Commission in accordance with Rule
24b-2, promulgated under the Securities and
Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)
10.21 Addendum to Contract with GKF and KMC/WKNI,
dated June 1, 1998 between GK Financing, LLC and
Kettering Medical Center. (Confidential material
appearing in this document has been omitted and
filed separately with the Securities and
Exchange Commission in accordance with Rule
24b-2, promulgated under the Securities and
Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)
10.22 Lease Agreement for a Gamma Knife Unit dated as
of October 5, 1998 between GK Financing, LLC and
New England Medical Center Hospitals, Inc.
(Confidential material appearing in this
document has been omitted and filed separately
with the Securities and Exchange Commission in
accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as
amended. Omitted information has been replaced
with asterisks.)
10.23 Equipment Lease Agreement dated as of October
29, 1998 between GK Financing, LLC and the
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
Board of Trustees of the University of Arkansas
on behalf of The University of Arkansas for
Medical Sciences. (Confidential material
appearing in this document has been omitted and
filed separately with the Securities and
Exchange Commission in accordance with Rule
24b-2, promulgated under the Securities and
Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)
10.24 First Amendment to Lease Agreement for a Gamma
Knife Unit effective as of August 2, 1999
between GK Financing, LLC and Tenet
HealthSystems Hospitals, Inc. (formerly known as
NME Hospitals, Inc.) dba USC University
Hospital. (Confidential material appearing in
this document has been omitted and filed
separately with the Securities and Exchange Rule
24b-2, promulgated under the Securities and
Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
None.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements 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
Date: November 8, 1999 /s/ Ernest A. Bates, M.D.
---------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: November 8, 1999 /s/ Craig K. Tagawa
---------------------------
Craig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
<S> <C>
10.20 Lease Agreement for a Gamma Knife Unit dated as of June 1, 1998
between GK Financing, LLC and Kettering Medical Center. (Confidential
material appearing in this document has been omitted and filed
separately with the Securities and Exchange Commission in accordance
with Rule 24b-2, promulgated under the Securities and Exchange Act of
1934, as amended. Omitted information has been replaced with
asterisks.)
10.21 Addendum to Contract with GKF and KMC/WKNI, dated June 1, 1998 between
GK Financing, LLC and Kettering Medical Center. (Confidential material
appearing in this document has been omitted and filed separately with
the Securities and Exchange Commission in accordance with Rule 24b-2,
promulgated under the Securities and Exchange Act of 1934, as amended.
Omitted information has been replaced with asterisks.)
10.22 Lease Agreement for a Gamma Knife Unit dated as of October 5, 1998
between GK Financing, LLC and New England Medical Center Hospitals,
Inc. (Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under the
Securities and Exchange Act of 1934, as amended. Omitted information
has been replaced with asterisks.)
10.23 Equipment Lease Agreement dated as of October 29, 1998 between GK
Financing, LLC and the Board of Trustees of the University of Arkansas
on behalf of The University of Arkansas for Medical Sciences.
(Confidential material appearing in this document has been omitted and
filed separately with the Securities and Exchange Commission in
accordance with Rule 24b-2, promulgated under the Securities and
Exchange Act of 1934, as amended. Omitted information has been
replaced with asterisks.)
10.24 First Amendment to Lease Agreement for a Gamma Knife Unit effective as
of August 2, 1999 between GK Financing, LLC and Tenet HealthSystems
Hospitals, Inc. (formerly known as NME Hospitals, Inc.) dba USC
University Hospital. (Confidential material appearing in this document
has been omitted and filed separately with the Securities and Exchange
Rule 24b-2, promulgated under the Securities and Exchange Act of 1934,
as amended. Omitted information has been replaced with asterisks.)
27 Financial Data Schedule
</TABLE>
12
<PAGE> 1
Exhibit 10.20
LEASE AGREEMENT FOR A GAMMA KNIFE UNIT
THIS AGREEMENT FOR A GAMMA KNIFE UNIT on June 1, 1998, (hereinafter,
referred to as the "Agreement") is entered into between GK Financing, LLC, a
California Limited Liability Company, (hereinafter referred to as "GKF"), and
Kettering Medical Center, an Ohio non-profit corporation, (hereinafter referred
to as "Medical Center").
R E C I T A L S
WHEREAS, Medical Center wants to lease a Leksell Stereotactic Gamma Unit
Manufactured by Elekta Instruments, Inc., (hereinafter referred to as the
"Equipment"); and
WHEREAS, GKF is willing to lease the Equipment which GKF has acquired
from Elekta Instruments, Inc., a Georgia corporation (hereinafter referred to as
"Elekta"), to Medical Center, pursuant to the terms and conditions of this
Agreement.
NOW, therefore, in consideration of the foregoing premises and the
promises contained herein, the parties hereto hereby agree as follows:
1. Execution of LGK Agreement by and between Medical Center and Elekta.
Medical Center agrees that simultaneously with the execution of this Agreement
it shall execute that certain LGK Agreement with Elekta, (hereinafter referred
to as the "LGK Agreement"), a copy of which is attached hereto as Exhibit 1 and
incorporated herein by this reference. Medical Center agrees to fulfill all of
its obligations under the LGK Agreement and acknowledges that GKF is a third
party beneficiary of the LGK Agreement. Medical Center shall fully indemnify and
hold harmless GKF in the event that GKF suffers any loss, damage, claim or
expense (including attorneys' fees) solely as a result of Medical Center's
breach or alleged breach of the LGK Agreement.
2. Delivery of the Equipment and Site preparation. GKF shall arrange to
have the Equipment delivered to Medical Center , at 3535 Southern Blvd.,
Kettering, OH (the "Site") in coordination with Elekta. GKF shall exert its best
faith efforts to expedite the delivery of the Equipment in accordance with the
terms and conditions of the Purchase Agreement for the Equipment by and between
GKF and Elekta. Notwithstanding the preceding sentence, it is understood and
agreed that GKF has made no representations and warranties to Medical Center
concerning actual delivery dates or schedules for the Equipment at the Site.
-1-
<PAGE> 2
Medical Center shall provide a safe, convenient and properly prepared
Site, at its own expense, in accordance with all of the Equipment manufacturer's
(Elekta's) guidelines, specifications, technical instruments and Site Planning
Criteria (which Site Planning Criteria are attached hereto as Exhibit C to
Exhibit 1 and incorporated herein by this reference), which criteria shall
include Elekta's estimated delivery schedule when and as received by GKF, on
Medical Center controlled property (The "Site") for the proper performance of
Gamma Knife procedures. Site location shall be acceptable to GKF. Medical Center
shall prepare at its sole cost and expense the requisite site plans and
specifications and shall submit them to Elekta and GKF for approval. Medical
Center shall obtain, in a timely manner, a User License from the Nuclear
Regulatory Commission and/or appropriate state agency authorizing it to take
possession of the Cobalt Supply and shall obtain such other licenses, permits,
approvals, consents and authorizations, which may be required by local
governmental or other regulatory agencies for the Site, its preparation, the
charging of the Equipment with its Cobalt Supply, the conduct of Acceptance
tests, and the use of the Equipment all as more fully set forth in Article 3.1
of the LGK Agreement.
3. Commencement of Term. The Term (hereinafter defined) of this
Agreement shall commence upon the performance of the first clinical Gamma Knife
procedure at the Site (the "Commencement Date"). Medical Center shall become
liable to GKF for the payments referred to in Paragraph 6 hereinbelow upon the
Commencement Date.
4. Costs of Site Preparation; Costs of Installation. Medical Center's
obligations shall include preparation of plans and specifications for the
construction and preparation of the Site in such form as will result in the
Site, when constructed in accordance with such plans and specifications, being
in full compliance with Elekta's Site Planning Criteria. Medical Center shall at
its own expense and risk, prepare, construct and make ready the Site as
necessary, for the installation of the Equipment, including, but not limited to,
providing any temporary and/or permanent shielding for the charging of the
equipment and its use, selecting and preparing a proper foundation for the
Equipment and for such shielding and walls, as well as proper alignment of the
Site and wiring. Medical Center shall be financially responsible for the
positioning of the Equipment on its foundation at the Site.
Medical Center shall also at its own expense select, purchase and
install all radiation monitoring equipment and devices, safety circuits and
radiation warning signs needed for the Equipment at the Site, according to all
applicable federal, state and local laws, regulations, recommendations or
custom.
Upon completion of the Site, Medical Center shall warrant that the Site
will be safe and suitable for its use of the Equipment. Medical Center shall
fully indemnify and hold harmless GKF from any and all loss, liability, damage,
expense or claim (including attorneys' fees) which GKF may suffer and incur and
which relate to the Site and the Equipment's positioning thereon.
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Medical Center shall be liable to GKF for any damage to the Equipment
caused by (a) defects in construction of the Site or defects in the positioning
of the Equipment at the Site; (b) defects arising out of materials or parts
provided, modified or designed by Medical Center with respect to the Site; or
(c) negligent or intentional acts of omission or commission by Medical Center or
any of its officers, agents, physicians, and employees in connection with the
Site preparation or operation of the Equipment at the Site.
Medical Center warrants that it shall utilize its best efforts to
fulfill on an expeditious basis its obligations under this Paragraph 4. Medical
Center further warrants that it shall on a regular basis keep GKF informed of
Medical Center's progress in fulfilling its obligations pursuant to this
Paragraph 4. Should Medical Center not have all site preparations completed by
the delivery date specified by a separate agreement plus a sixty (60) day grace
period such that the site is acceptable for positioning and installation of the
equipment, Medical Center shall reimburse GKF at an interest rate of Bank of
America's prime rate plus 2% on GKF's equipment cost until the site is prepared
to allow positioning and installation of the equipment.
5. Term of the Equipment. GKF agrees to provide to Medical Center the
Equipment pursuant to the terms of this Agreement, for a term of ten (10) years
from the Commencement Date as described in Paragraph 3 hereinabove (the "Term")
, unless terminated earlier as provided herein.
6. Per Procedure Payments. Medical Center shall pay to GKF a per
procedure payment of * for the use of the Equipment. A procedure shall be
defined as a single patient treatment session that may include one or more
isocenters during that session. Medical Center shall be billed on the fifteenth
(15th) and the last day of each month for the actual number of procedures
performed during the first and second half of the month, respectively. Medical
Center shall pay the procedures invoiced within thirty (30) days after being
invoiced. Interest shall begin to accrue at the rate of 1-1/2% per month on all
invoices remaining unpaid after 45 days.
7. Use of the Equipment. The Equipment may be used by Medical Center
only at the location stated above and shall not be removed therefrom. Medical
Center shall not assign or sublease the Equipment or its rights hereunder
without the prior written consent of GKF; which consent shall not be
unreasonably withheld. No permitted assignment or sublease shall relieve Medical
Center of any of its obligations hereunder. Medical Center shall not use nor
permit the Equipment to be used in any manner nor for any purpose for which, in
the opinion of Elekta or GKF, the Equipment is not designed or reasonably
suitable. Medical Center shall not permit any liens, whether voluntary or
involuntary, to attach to the Equipment, without the prior written consent of
GKF. Medical Center shall have no interest in the Equipment other than the
rights acquired as a lessee hereunder and the Equipment shall remain the
property of GKF regardless of the manner in which it may be installed or
attached at the Site. Medical Center shall, at GKF's request, affix to the
Equipment tags, decals, or plates furnished by GKF, indicating GKF's ownership
of the Equipment.
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8. Additional Covenants of Medical Center. In addition to the other
covenants made by Medical Center, Medical Center shall at its own cost and
expense:
(a) Provide properly trained professional, technical and support
personnel and supplies required for the proper performance of medical procedures
utilizing the Equipment.
(b) Assume all medical and financial responsibility for the overseers'
monitoring of all patients' medical condition and treatment.
(c) Fully comply with all of its obligations under the LGK Agreement.
(d) Indemnify GKF as herein provided: (i) Medical Center hereby agrees
to fully indemnify and/or reimburse (including attorneys' fees) GKF on a prompt
basis for any and all damage to the Equipment (including any violations by
Medical Center, its agents, officers, physicians, employees, successors and
assigns of the Service Agreement described in Paragraph 15 hereof) to the extent
such damages are caused by the negligent or wrongful acts or omissions of
Medical Center, its agents, officers, physicians and employees. In the event the
Equipment is destroyed or rendered unusable, this indemnification shall extend
up to (but not exceed) the full replacement value of the Equipment at the time
of its destruction less salvage value, if any. (ii) Medical Center hereby
further agrees to indemnify and hold GKF, its agents, officers, employees,
successors and assigns, harmless from and against any and all claims,
liabilities, obligations, losses, damages, injuries, penalties, actions, costs
and expenses (including attorneys' fees) for all events and/or occurrences
described in Article 7.3 of the LGK Agreement to the same extent that Medical
Center agrees to indemnify Elekta thereunder. Medical Center further agrees to
fully indemnify and hold harmless GKF for any loss, damage, claim, or expense
(including attorneys' fees) GKF may suffer or incur as a result of Medical
Center's breach or breach alleged in litigation with regard to the LGK
Agreement.
(e) Provide reasonable and customary marketing materials (i.e.
brochures, announcements, etc.) and marketing support from an administrative and
physician (i.e. seminars by neurosurgeons and radiation therapists to referring
physicians, etc.) commitment standpoint for this clinical service.
9. Additional Covenants, Representations and Warranties of GKF. In
addition to the other covenants, representations and warranties, made by GKF in
this Agreement:
(a) GKF represents and warrants that GKF has full power and authority to
enter into this Agreement, and that this Agreement does not and will not violate
any agreement, contract or instrument binding upon GKF.
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(b) GKF represents and warrants to Medical Center that, upon delivery of
the Equipment to Medical Center, GKF shall use its best faith efforts to require
that Elekta meets its contractual obligations to GKF and in putting the
Equipment, as soon as possible, into good, safe and serviceable condition and
fit for its intended use in accordance with the manufacturer's specifications,
guidelines and field modification instructions.
(c) GKF represents and warrants that throughout the term of this
Agreement, Medical Center shall enjoy the use of the Equipment, free of the
rights of any other persons except for those rights reserved by GKF or granted
to Elekta under the LGK Agreement or under Elekta's Purchase Agreement with GKF.
(d) During the entire term of this agreement and subsequent extension
thereof, GKF shall maintain in full force and effect: (i) the Service Agreement
referenced in Paragraph 15 hereof; and (ii) any other service or other
agreements required to fulfill GKF's obligations to Medical Center pursuant to
this Paragraph 9(d). GKF represents and warrants that during the entire term of
this agreement and any subsequent extensions thereof, that it will fully pursue
any and all remedies it may have against Elekta under the Service Agreement to
insure that the Equipment will be in conformity with Elekta's warranties so that
it is free from defects in design, materials, and workmanship which result in
noncompliance with the specifications and/or Elekta's warranties to GKF. In no
event, however, shall the warranty obligations of GKF to Medical Center with
respect to the Equipment be greater or more extensive than Elekta's warranty
obligations to GKF with respect to the Equipment.
10. Ownership/Title. It is expressly understood that Medical Center
shall acquire no right, title or interest in or to the Equipment, other than the
right to the possession and use of the same in accordance with the terms of this
Agreement.
GKF may at its sole discretion finance the Equipment. Financing may be
in the form of an installment loan or a capitalized lease or other commercially
available debt instrument. Should GKF finance the Equipment through an
installment loan, GKF shall be required to provide the Equipment as collateral
against the loan. Should GKF finance the Equipment through a capitalized lease
title shall vest with the lessor until GKF exercises its buy-out option. In
addition, should GKF finance the Equipment, said agreement may be used as
collateral against the loan.
11. Cost of Use of the Equipment. Except as is otherwise provided
herein, Medical Center shall bear the entire cost of using the Equipment during
the Term of this Agreement. This shall include, but not be limited to, providing
trained professionals, technical and support personnel and supplies to properly
operate the Equipment. Medical Center shall be fully responsible and liable for
all acts and/or omissions of such professional, technical and support personnel.
12. Taxes. GKF shall pay any personal property taxes levied against the
Equipment and any other taxes or governmental fees or assessments, however
denoted,
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whether of the federal government, any state government or any local government,
levied or based on this Agreement or the use of the Equipment except for those
taxes, if any, pertaining to the gross income or gross receipts of Medical
Center.
13. Maintenance and Inspections. GKF agrees to exercise due and proper
care in the maintenance of the Equipment and to keep the Equipment in a good
state of repair, reasonable wear and tear excepted. Medical Center shall be
liable to GKF for all damage to the Equipment caused by the misuse, negligence,
improper use or other intentional or negligent acts or omissions of Medical
Center's employees, officers, agents, and physicians.
GKF (and Elekta) shall have the right of access to the Equipment for the
purpose of inspecting same at all reasonable times and upon reasonable notice
and with a minimum of interference to Medical Center's operations. In the event
the Equipment is improperly used by Medical Center or its employees, agents,
officers, and physicians, GKF may service or repair the same as needed and such
expense shall be paid by Medical Center, unless the repair is covered by the
Service Agreement described in Paragraph 15 hereof.
Any work so performed by or in the service or maintenance of the
Equipment as a result of Medical Center's failure or neglect to do so shall not
deprive GKF of any of its rights, remedies or actions against Medical Center for
damages caused by such failure or neglect.
14. Equipment Modifications/Additions/Upgrades. The parties agree that
the necessity and financial responsibility for modifications/additions/upgrades
to the Equipment, including the reloading of the Cobalt-60 source, shall be
discussed and mutually decided by GKF and Medical Center. *
15. Service Agreement. GKF warrants that it shall simultaneously with
the execution of this Agreement enter into a Service Agreement with Elekta.
16. Termination If, after the initial twenty-four (24) month period of
service, and subsequent 12 month periods of service, Medical Center does not
provide GKF with a reasonable economic justification to continue providing Gamma
Knife services hereunder, then and in that event, GKF shall have the option of
terminating this Agreement upon the giving of written notice to Medical Center
of said termination not less than ninety (90) days prior to GKF's designated
termination date.
17. Options to Extend Agreement.
(a) Medical Center shall have the option at the end of the ten (10) year
initial Term to:
(i) Renegotiate this Agreement for a five (5) year term.
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(ii) Terminate this Agreement. If Medical Center terminates this
Agreement at the end of the initial term, GKF shall remove the Gamma Knife
within an agreed upon period of time after the expiration of the ten (10) year
initial Term.
Medical Center shall exercise one (1) of the two (2) options
referred to above, by mailing an irrevocable written notice thereof to GKF at
Four Embarcadero Center, Suite 3620, San Francisco, California, 94111, by
registered mail, postmarked on or before the end of the ninth (9th) year of the
ten (10) year initial Term of this Agreement. Any such notice shall be
sufficient if it states in substance that Medical Center elects to exercise its
option and states which of the two (2) options referred to above Medical Center
is exercising.
18. No Warranties by GKF. Medical Center warrants that as of the
Commencement Date, it shall have (a) thoroughly inspected the Equipment; (b)
determined for itself that all items of the Equipment are of a size, design,
capacity and manufacture selected by it; and (c) satisfied itself that to the
best of its knowledge the Equipment is suitable for Medical Center's stated
purposes. GKF SUPPLIES THE EQUIPMENT "AS IS" AND NOT BEING THE MANUFACTURER OF
THE EQUIPMENT OR THE MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION,
EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR
WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that all
such risks as between GKF and Medical Center, shall be borne by Medical Center.
Medical Center agrees to look solely to the manufacturer (Elekta) or to
suppliers of the Equipment (and its software) for any and all warranty claims.
Any and all warranties made by Elekta will be in its good faith best efforts
enforced by GKF on behalf of Medical Center during the ten (10) year initial
Term hereof. Medical Center agrees that GKF shall not be responsible for the
delivery, installation, or operation of the Equipment or for any delay or
inadequacy of any or all of the foregoing. GKF shall not be responsible for any
direct or indirect consequential loss or damage resulting from the installation,
operation or use of the Equipment or otherwise. Medical Center expressly waives
any right to hold GKF liable hereunder for any claims, demands and liabilities
arising out of or in connection with the design, manufacture, possession or
operation of the Equipment.
19. Events of Default and Remedies. The occurrence of any one of the
following shall constitute an Event of Default hereunder:
(a) Medical Center fails to pay any installment of semi-monthly
procedure payments when due when such default continues for a period of thirty
(30) days after notice thereof from GKF or its assignee is given to Medical
Center.
(b) Medical Center attempts to remove, sell, transfer, encumber,
sublet or part with possession of the Equipment or any items thereof, except as
expressly permitted herein;
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<PAGE> 8
(c) Medical Center shall fail to observe or perform any of the
other obligations required to be observed or performed by Medical Center
hereunder and such failure shall continue uncured for twenty (20) days after
written notice thereof to Medical Center by GKF;
(d) Medical Center ceases doing business as a going concern,
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a voluntary petition in
bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law or regulation or files an answer admitting the material allegations
of a petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or any
substantial part of its assets or properties, or it or its shareholders shall
take any action looking to its dissolution or liquidation.
(e) Within sixty (60) days after the commencement of any
proceedings against Medical Center seeking reorganization, arrangement,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceedings shall not have been
dismissed, or if within thirty (30) days after the appointment without Medical
Center's consent or acquiescence of any trustee, receiver or liquidator of it or
of all or any substantial part of its assets and properties, such appointment
shall not be vacated.
Upon the occurrence of an Event of Default, GKF may at its option
do any or all of the following: (i) by notice to Medical Center, terminate this
Agreement as to the Equipment in default, wherever situated, and for such
purposes, enter upon the Site without liability for so doing or GKF may cause
Medical Center and Medical Center hereby agrees to return the Equipment to GKF
at Medical Center's sole cost and expense; (ii) recover from, as liquidated
damages for the loss of the bargain and not as a penalty, an amount equal to the
present value of the unpaid estimated future lease payments by Medical Center to
GKF through the end of the Agreement term discounted at the rate of nine percent
(9%), which payment shall become immediately due and payable. Unpaid estimated
future lease payments shall be based on the prior 12 months lease payments with
an annual five (5%) percent increase; (iii) sell, dispose of, hold, use or lease
the Equipment in default, as GKF in its sole discretion may determine (and GKF
shall not be obligated to give preference to the sale, lease or other
disposition of the Equipment over the sale, lease or other disposition of
similar Equipment owned or leased by GKF). In any event, Medical Center shall,
without further demand, pay to GKF an amount equal to all sums due and payable
for all periods up to and including the date on which GKF had declared this
Agreement to be in default.
In the event, that Medical Center shall have paid to GKF the
liquidated damages referred to in (iii) above, GKF hereby agrees to pay to
Medical Center promptly after receipt thereof, all rentals or proceeds received
from the reletting or sale of the
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<PAGE> 9
Equipment during the balance of the ten (10) year initial Term (after deduction
of all expenses incurred by GKF; said amount never to exceed the amount of the
liquidated damages paid by Medical Center). Medical Center agrees that GKF shall
have no obligation to sell the Equipment. Medical Center shall in any event
remain fully liable for reasonable damages as provided by law for all costs and
expenses incurred by GKF on account of such default, including but not limited
to, all court costs and reasonable attorneys' fees. Medical Center hereby agrees
that, in any event, it shall be liable for any deficiency after any sale, lease
or other disposition of the Equipment by GKF. The rights afforded GKF hereunder
shall not be deemed to be exclusive, but shall be in addition to any other
rights or remedies provided by law.
20. Insurance.
(a) During the ten (10) year initial Term of this Agreement (and
any successive terms) GKF shall, at its own cost and expense, keep in effect an
all risk and hazard insurance policy covering the Equipment. The all risk and
hazard insurance policy shall be for an amount not less than the replacement
cost of the Equipment. During the ten (10) year initial Term of this Agreement,
Medical Center shall, at its own cost and expense keep in effect public
liability and professional liability insurance policies concerning the operation
of the Equipment by Medical Center. Said policies shall be in the amounts of not
less than $1,000,000 per occurrence and $5,000,000 in aggregate per year.
University and GKF, their successors and assigns, shall be named as additional
insureds and/or loss payees on the insurance policies maintained hereunder by
the other party. Evidence of such insurance coverages shall be furnished by both
parties to the other party upon written request, by no later than the
Commencement Date.
(b) If the Equipment is rendered unusable as a result of any
physical damage to, or destruction of, the Equipment, Medical Center shall give
to GKF immediate notice. GKF shall determine, within thirty (30) days after the
date of occurrence of such damage or destruction, whether the Equipment can be
repaired. In the event GKF determines that the Equipment cannot be repaired, GKF
at its sole cost and expense shall promptly replace the Equipment. This
Agreement shall continue in full force and effect as though such damage or
destruction had not occurred. In the event GKF determines that the Equipment can
be repaired, GKF shall cause the Equipment to be promptly repaired.
21. Notices. Any notices required under this Agreement shall be sent in
writing and shall be deemed to have been duly given if delivered by hand or
mailed by certified or registered mail to the following addresses:
To GKF: Craig K. Tagawa, C.E.O.
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111
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To Medical Center: Frank Perez, CEO
Kettering Medical Center
3535 Southern Blvd
Kettering, OH 45429
Or to such other addresses as either party may specify for the reception of
notice from time to time in writing to the other party. Any such notice shall be
effective only when actually received by the party to whom addressed.
22. Integration/Supersedure. This Agreement contains the full and entire
Agreement between the parties hereto, and no oral or written understanding is of
any force or effect whatsoever unless expressly contained in a writing executed
subsequent to the date of this Agreement.
23. Waivers. To the extent that GKF fails or chooses not to pursue any
of its remedies under this Agreement or pursuant to applicable law, such shall
not prejudice GKF's rights to pursue any of those remedies at any future time
and shall not constitute a waiver of GKF's rights.
24. Assignments. This Agreement is binding upon and shall inure to the
benefit of the permitted successors or assigns of the respective parties hereto,
except that neither party may assign its rights or obligations under this
Agreement without the express written consent of the other (which consent shall
not be unreasonably withheld).
25. Amendments. This Agreement shall not be amended or altered in any
manner unless such amendment or alteration is in a writing signed by both
parties.
26. Record-Keeping Requirements. To the extent required by the
regulations promulgated by the Health Care Financing Administration pursuant to
Section 952 of the Omnibus Reconciliation Act of 1980, GKF shall:
(a) Until the expiration of four (4) years following the
furnishing of services pursuant to this Agreement, GKF agrees to make available
upon written request of the Secretary of Health and Human Services or the U.S.
Comptroller General or any of their duly authorized representatives, this
Agreement, any books, documents and records necessary to verify the nature and
extent of costs incurred by Medical Center by reason of the activities of GKF
under this Agreement; and
(b) If GKF elects to delegate any of its duties under this
Agreement (which have a cost or value of Ten Thousand Dollars ($10,000.00) or
more over a twelve (12) month period) to a related organization, GKF may do so
only through a subcontractor which is consented to by Medical Center, it being
understood that, inasmuch as Medical Center is entering into this Agreement in
reliance on GKF's reputation and expertise, that Medical Center shall be the
sole judge of the reputation and expertise of the proposed delegee, and only
through a subcontractor which provides that, until the expiration of four
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(4) years following the furnishing of services under such subcontract, the
related organization shall make available, on request of the Secretary of Health
and Human Services or the U.S. Comptroller General or any of their authorized
representatives, the subcontract, and books, documents and records of the nature
and extent of costs incurred by Medical Center by reason of activities of such
related organization under such subcontract. No delegation by GKF of its duties
hereunder shall relieve GKF from liability hereunder.
27. Miscellaneous Provisions.
(a) The invalidity or unenforceability of any portion or
provision of this Agreement shall not effect the validity or enforceability of
any other portion, nor shall either party's implied or express consent to the
breach or waiver of any provision of this Agreement constitute a waiver of such
provision as to any subsequent breach.
(b) In the event of any claim or controversy arising hereunder,
the prevailing party in such claim or controversy shall be entitled to a
reasonable attorneys' fee in addition to whatever other relief said party would
be otherwise entitled.
(c) Force Majeure. Failure to perform by either party will be
excused in the event of any delay or inability to perform its duties under this
Agreement directly or indirectly caused by conditions beyond its reasonable
control including without limitation, fires, floods, earthquakes, snow, ice,
disasters, Acts of God, accidents, riots, wars, operation of law, strikes,
governmental action or regulations, shortages of labor, fuel, power, materials,
manufacturer delays or transportation problems.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
Medical Center GK Financing, LLC
By: /s/ Frank Perez By: /s/ Craig K. Tagawa
-------------------------------- --------------------------------
Frank Perez Craig K. Tagawa
Chief Executive Officer Chief Executive Officer
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Exhibit 10.21
Addendum to Contract with GKF and KMC/WKNI, dated June 1, 1998
27. Miscellaneous Provisions
D) Research & Development Treatments
Per Procedure payments referenced in paragraph 6 shall be waived for
procedures deemed to be of a research nature. Payments due to GKF are
based solely on procedures that are presently reimbursed by health
insurers, Medicare or Medicaid. It is understood by Medical Center that
procedures deemed to be of research nature shall be performed at such
time as to not conflict with the scheduling of clinical procedures.
E) Medical Center shall pay to GKF a per procedure payment of * for the
first * procedures performed annually. For annual paid procedures in
excess of *, Medical Center shall pay GKF * for each procedure performed
in excess of * during the same 12 (twelve) month period. For purposes of
this payment schedule, the counting of the number of procedures will
commence from the date of the First Clinical Gamma Knife procedure at
the Site until the date which is twelve (12) months thereafter (the
First Reset Date). On the First Reset Date and on each anniversary of
the First Reset Date, counting of procedures for this purpose will be
reset and commence from zero (0). Terms are as otherwise specified in
paragraph 6.
F) Charity Cases
As a means to permit Medical Center to perform charity care for a
persons who require Gamma Knife procedures, who are not covered by
Medicare or private insurance programs (whether indemnity, preferred
provider, health maintenance organization, etc.) and who do not have the
means to pay for such procedures based upon Medical Centers adopted
standards of indigency, GKF shall waive the per procedure payment
described in this paragraph 6 for * Gamma Knife procedure for each *
Gamma Knife procedures performed under this Agreement by Medical Center
for which a per procedure payment is made to GKF in the manner described
herein. Medical Center shall be solely responsible (and GKF shall not in
any manner be or become responsible) (a) whether any person described
herein requires a Gamma Knife procedure, (b) who shall receive a Gamma
Knife procedure, hereunder if more than one (1) person described herein
requires a Gamma Knife procedure, and (2) whether any person meets the
standards of indigency. Medical Center shall provide reasonable written
documentation evidencing satisfaction of the conditions set forth herein
to GKF at or prior to the expected time of payment in order for GKF to
waive the per procedure payment set forth in paragraph 6.
<PAGE> 2
G) Externalities
The Medical Center is aware that external conditions may exits whereby
either GKF or Elekta may not be able to deliver a Gamma Knife to the
designated site in Kettering, Ohio in a timely manner. If delivery is
not taken by the Medical Center by August 31, 1999 and the failure to
take delivery of the Gamma Knife is not due to delays caused by
Kettering Medical Center, this entire lease agreement will be considered
void, with no further obligations by either party, and each party
holding the other harmless for any expenses or damages incurred as a
result of or in anticipation of entering this Agreement.
Medical Center GK Financing, LLC
By: /s/ Frank Perez By: /s/ Craig K. Tagawa
-------------------------------- --------------------------------
Frank Perez Craig K. Tagawa
Chief Executive Officer Chief Executive Officer
<PAGE> 1
Exhibit 10.22
LEASE AGREEMENT FOR A GAMMA KNIFE UNIT
THIS LEASE AGREEMENT FOR A GAMMA KNIFE UNIT (the "Agreement") is entered
into as of October 5, 1998, between GK FINANCING, LLC, a California limited
liability company (hereinafter referred to as "GKF"), and NEW ENGLAND MEDICAL
CENTER HOSPITALS, INC., a Massachusetts corporation (hereinafter referred to as
"Medical Center").
R E C I T A L S
WHEREAS, Medical Center wants to lease from GKF a Leksell Gamma Knife
manufactured by Elekta Instruments, Inc., (hereinafter referred to as the
"Equipment", Specifications of which are attached as Exhibit A to the LGK
Agreement, which is defined in Paragraph 2 below); and
WHEREAS, GKF is willing to lease the Equipment, which GKF has acquired
from Elekta Instruments, Inc., a Georgia corporation (hereinafter referred to as
"Elekta"), to Medical Center, pursuant to the terms and conditions of this
Agreement.
AGREEMENT
NOW, therefore, in consideration of the foregoing premises and the
promises contained herein, the parties hereto hereby agree as follows:
1. Lease. Subject to and in accordance with the covenants and conditions
set forth in this Agreement, GKF hereby leases to Medical Center, and Medical
Center hereby leases from GKF, the Equipment. The Equipment to be leased to
Medical Center pursuant to this Agreement shall include the latest approved
Gamma Knife technology available as of the date of this Agreement, including all
hardware and software related thereto as listed in the Specifications.
2. Execution of LGK Agreement by and between Medical Center and Elekta.
Medical Center agrees that simultaneously with the execution of this Agreement
it shall execute that certain LGK Agreement with Elekta, (hereinafter referred
to as the "LGK Agreement"), a copy of which is attached hereto as Exhibit 1 and
incorporated herein by this reference. Medical Center agrees to fulfill all of
its obligations under the LGK Agreement and acknowledges that GKF is a third
party beneficiary of the LGK Agreement. Medical Center shall indemnify and hold
harmless GKF in the event that GKF suffers any loss, damage, claim or expense
(including reasonable attorneys' fees) solely as a result of Medical Center's
breach of the LGK Agreement.
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3. Delivery of the Equipment. GKF shall use its best efforts to cause
Elekta to deliver the Equipment and the Cobalt Supply (as defined in the LGK
Agreement), at GKF or Elekta's expense, to the Site (as defined in Exhibit B to
the LGK Agreement) or to such other location in the Boston area as Medical
Center may specify in advance, between December 15, 1998 and January 15, 1999,
or, if the Determination of Need ("DON") is not received on or before November
21, 1998, Medical Center and Elekta shall renegotiate the delivery to the
earliest possible date (as applicable, the "Delivery Date"); provided that
Elekta shall have no obligation to deliver the Equipment unless Medical Center
shall have completed the development, preparation and construction of the Site
in compliance with Paragraphs 4 and 5 below. Notwithstanding the foregoing, it
is understood and agreed that GKF has made no representations and warranties to
the Medical Center concerning the actual delivery dates or schedules for the
Equipment at Site, and that GKF shall have no obligation to pay any damages to
Medical Center resulting from any late delivery of the Equipment.
4. Design of Site and Receipt of Regulatory Approvals. Medical Center
shall provide, at its own expense, a Site which complies with Elekta's Site
Planning Criteria (which Site Planning Criteria is attached as Exhibit C to the
LGK Agreement). Site location shall be reasonably acceptable to GKF. Medical
Center shall prepare at its sole cost and expense the requisite Site plans and
specifications and shall submit them to Elekta and GKF for approval which
approval shall not be unreasonably withheld or delayed. Medical Center's Site
plans and specifications shall be deemed approved by GKF and Elekta unless,
within thirty (30) days after receipt thereof, GKF or Elekta notifies Medical
Center in writing of its exceptions thereto, in which event the parties shall
promptly confer to resolve such exceptions. Site location shall be deemed
acceptable to GKF unless, within thirty (30) days after receipt of Medical
Center's description of the proposed Site, GKF notifies Medical Center of its
objections thereto, in which event the parties shall promptly confer to resolve
such objections. Medical Center shall obtain, in a timely manner, a User License
from the Nuclear Regulatory Commission and/or appropriate state agency
authorizing it to take possession of the Cobalt Supply and shall obtain such
other licenses, permits, approvals, consents and authorizations, which may be
required by local governmental or other regulatory agencies for the Site, its
preparation, the Charging (as defined in the LGK Agreement) of the Equipment
with its Cobalt Supply, the conduct of Acceptance Tests (as defined in the LGK
Agreement), and the use of the Equipment all as more fully set forth in Article
2.1 of the LGK Agreement.
Medical Center shall work diligently toward receipt by November 21,
1998, of a DON for the Equipment and the provision of services using the
Equipment.
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This Agreement shall become null and void in the event that the Medical
Center does not receive a DON for the Equipment and the provision of the
services related thereto on or before April 1, 1999, after using its best
efforts to do so.
5. Site Preparation and Positioning of Equipment.
5.1 Medical Center shall, at its own expense and risk, prepare,
construct and make ready the Site as necessary for the "Installation" (as
defined in the LGK Agreement) of the Equipment, including, but not limited to,
providing any temporary and/or permanent shielding for the Charging of the
Equipment and its use, selecting and preparing a proper foundation for the
Equipment and for such shielding and walls, as well as proper alignment of the
Site and wiring. Once the Equipment has been delivered pursuant to Paragraph 3,
Medical Center shall, at Medical Center's own expense and risk, position the
Equipment on its foundation at the Site in compliance with the Site Planning
Criteria.
5.2 Medical Center shall also at its own expense select, purchase
and install all radiation monitoring equipment and devices, safety circuits and
radiation warning signs needed for the Equipment at the Site, according to all
applicable federal, state and local laws and regulations.
5.3 Upon completion of the Site, Medical Center shall warrant
that the Site will comply with the Site Planning Criteria and all applicable
federal, state and local laws, rules and regulations.
5.4 Medical Center shall be liable for, and shall indemnify GKF
from and against, all damage to the Equipment caused by (a) defects in
construction of the Site or in positioning the Equipment at the Site; (b)
defects arising out of materials or parts provided, modified or designed by
Medical Center for or with respect to the Site; (c) negligent, intentional or
wrongful acts or omissions by Medical Center or any of its officers, directors,
agents, contractors (or their subcontractors), or employees in connection with
the construction and preparation of the Site; and (d) negligent or intentional
and wrongful operation of the Equipment at the Site. Further, neither the review
and approval of Site plans, specifications and/or positioning plans by GKF
and/or Elekta, nor the construction of any other Site preparation, shall relieve
Medical Center for liability for damages to the Equipment caused by the failure
to comply with applicable federal, state or local laws or regulations, including
building codes, or those portions of the Site Planning Criteria relating to the
load bearing capacity of the floor of the treatment room and to radiation
protection.
5.5 Medical Center warrants that it shall utilize its best
efforts to fulfill on an expeditious basis its obligations under this Paragraph
5. Medical Center further warrants that it shall on a regular basis keep GKF
informed of Medical Center's progress in fulfilling its obligations pursuant to
this Paragraph 5. Should
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Medical Center not have all Site preparations completed by the Delivery Date
specified in Paragraph 3 above plus a sixty (60) day grace period such that the
Site meets the Site Planning Criteria and is ready for positioning and
Installation of the Equipment, Medical Center shall reimburse GKF at an interest
rate of Bank of America's prime rate plus 2% on GKF's financing, maintenance and
storage costs with respect to the Equipment until the Site is prepared to allow
positioning and Installation of the Equipment.
6. Term of the Agreement. The initial term of this Agreement (the
"Term") shall commence as of the date hereof and, unless earlier terminated or
extended in accordance with the provisions of this Agreement, shall continue for
a period of ten (10) years following the date of the performance of the first
clinical Gamma Knife procedure (the "First Procedure Date") at the Site. Medical
Center's obligation to make the rental payments to GKF for the Equipment as
described in Paragraph 7 below shall commence as of the First Procedure Date.
6.1 Installation and Charging of Equipment and Performance of
Acceptance Tests. Within seven (7) days following completion of the positioning
of the Equipment at the Site by Medical Center, GKF shall use its best efforts
to cause Elekta, at Elekta's sole expense and risk, to Install the Equipment,
including the Charging of the Equipment with its Cobalt Supply, in accordance
with the LGK Agreement. Upon completion of Installation of the Equipment, GKF
shall use its best efforts to cause Elekta to perform the Acceptance Tests (as
defined in the LGK Agreement) to the satisfaction of Elekta, GKF and Medical
Center. Notwithstanding the foregoing, it is understood and agreed that GKF has
made no representations and warranties to Medical Center concerning the
Installation or Charging of the Equipment or the performance of the Acceptance
Tests, and that GKF shall have no obligation to pay any damages to Medical
Center resulting therefrom.
7. Per Procedure Payments. Medical Center shall pay to GKF a per
procedure payment as specified in Exhibit 2 for the use of the Equipment. A
"procedure" shall be defined as a single patient treatment session that may
include one or more isocenters during that session. Medical Center shall be
billed on the fifteenth (15th) and the last day of each month for the actual
number of procedures performed during the first and second half of the month,
respectively. Medical Center shall pay for the procedures invoiced within thirty
(30) days after being invoiced. Interest shall begin to accrue at the rate of
1-1/2% per month on all invoices remaining unpaid after 45 days.
(a) If the "Medicare Reimbursement Rate" in effect on any "Reset Date"
is less than the "Medicare Base Rate" by * or more, then, Medical Center may at
its option inform GKF in writing within thirty (30) days after the applicable
Reset Date and shall provide GKF with the information used in calculating such
Medicare Reimbursement Rate.
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(b) Within thirty (30) days after GKF's receipt of such notice and
information from Medical Center, the parties shall meet to renegotiate in good
faith the per procedure payments payable by Medical Center under this Agreement;
provided that either party shall have the right to reject any per procedure rate
proposed by the other party. Each party shall permit the other to inspect such
party's books and records pertaining to the Equipment in order to verify their
respective Operating Income. Notwithstanding the foregoing, Medical Center shall
have no recourse to arbitration as provided in this Section 7 with respect to
any per procedure payment rate proposed by Medical Center which would result in
negative Operating Income to GKF, in which event this Agreement shall remain
unchanged and in full force and effect.
(c) If, within sixty (60) days following GKF's receipt of Medical
Center's notice, the parties are unable to agree in good faith on reduced per
procedure payment rates, which rates would not result in GKF incurring negative
Operating Income, then, GKF and Medical Center shall jointly appoint an
arbitrator who shall have not less than ten (10) years experience in medical
equipment financing and who shall have no prior relationship, attorney/client or
otherwise, with any of the parties. Such arbitrator shall review the information
presented by both parties and shall render a decision within thirty (30) days of
his or her appointment. In rendering a decision, the arbitrator shall be bound
by the following: (i) Any reduced per procedure payment rate determined by the
arbitrator shall not provide Medical Center with estimated Operating Income in
excess of a breakeven level, and (ii) any reduced per procedure payment rate
determined by the arbitrator shall not result in negative Operating Income to
GKF. The arbitrator's decision shall be binding upon the parties and
non-appealable. The fees and expenses of the arbitrator shall be shared equally
between the parties. The foregoing arbitration procedure shall apply only to
disagreements arising from this subsection (c) and not to any other disputes or
disagreements arising from this Agreement.
(d) If the parties mutually agree on a renegotiated per procedure
payment or if a renegotiated per procedure payment is determined by the
arbitrator as set forth above, then such renegotiated per procedure payment
shall become effective on the date of such agreement or determination, and
Exhibit 2 hereto shall be deemed automatically amended as of such date.
(e) As used herein:
(i) The "Medicare Reimbursement Rate" shall mean the sum of the
reimbursement rates to Medical Center under DRG 7 and DRG 8 (or, if no longer in
effect, their respective inpatient rate replacements for Gamma Knife procedures)
in effect as of any Reset Date.
(ii) The "Medicare Base Rate" shall mean the sum of the
reimbursement rates under DRG 7 and DRG 8 in effect as of the date hereof. It is
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acknowledged that, as of the date hereof, the reimbursement rates for DRG 7 and
DRG 8 are $17,462.40 and $9,450.56, respectively.
(iii) The "Reset Date" shall mean the date which is two (2) years
after the Commencement Date and each anniversary date thereafter.
(iv) "Operating Income" with respect to either party shall mean
the revenues generated by such party from the Equipment less such party's
corresponding direct operating expenses related to the Equipment, including,
without limitation, applicable interest and depreciation expenses on the
Equipment and Site improvements, but excluding physician professional fees and
indirect overhead expenses. In determining Operating Income with respect to
Medical Center, (1) the revenues to be used in such determination shall be those
generated by Medical Center related to the performance of procedures using the
Equipment for Gamma Knife services; and (2) subject to the limitations set forth
in this subsection (iv), the direct operating expenses shall be those related to
the performance of procedures using the Equipment, including, without
limitation, Medical Center's actual costs related to the hospital stay,
diagnostic imaging procedures, nursing services (to the extent not covered as
part of the cost of the hospital stay), and physicist compensation.
8. Use of the Equipment. The Equipment may be used by Medical Center
only at the Site and shall not be removed therefrom. Medical Center shall not
assign or sublease the Equipment or its rights hereunder without the prior
written consent of GKF; which consent shall not be unreasonably withheld. No
permitted assignment or sublease shall relieve Medical Center of any of its
obligations hereunder. Medical Center shall not use nor permit the Equipment to
be used in any manner nor for any purpose for which, in the reasonable opinion
of Elekta or GKF based on current medical practice, the Equipment is not
designed or reasonably suitable. Medical Center shall not permit any liens,
whether voluntary or involuntary, to attach to the Equipment, without the prior
written consent of GKF. Medical Center shall have no interest in the Equipment
other than the rights acquired as a lessee hereunder and the Equipment shall
remain the property of GKF regardless of the manner in which it may be installed
or attached at the Site. Medical Center shall, at GKF's request, affix to the
Equipment tags, decals, or plates furnished by GKF, indicating GKF's ownership
of the Equipment.
9. Additional Covenants of Medical Center. In addition to the other
covenants made by Medical Center, Medical Center shall at its own cost and
expense:
9.1 Provide properly trained professional, technical and support
personnel and supplies required for the proper performance of medical procedures
utilizing the Equipment.
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9.2 Assume all medical and financial responsibility for the
overseers' monitoring of all patients' medical condition and treatment.
9.3 Fully comply with all of its obligations under the LGK
Agreement.
9.4 Indemnify GKF as herein provided: (i) Medical Center hereby
agrees to indemnify and/or reimburse (including reasonable attorneys' fees) GKF
on a prompt basis for any and all damage to the Equipment (including, without
limitation, any violations by Medical Center, its agents, officers, physicians,
employees, successors and assigns of the Repair Service Agreement described in
Paragraph 16 below) to the extent such damages are caused by the negligent or
wrongful acts or omissions of Medical Center, its agents, officers, physicians
and employees and are not covered and reimbursed by GKF's insurance. In the
event the Equipment is destroyed or rendered unusable as a result of such
negligent or wrongful acts or omissions, this indemnification shall extend up to
(but not exceed) the full replacement value of the Equipment at the time of its
destruction less salvage value, if any. (ii) Medical Center hereby further
agrees to indemnify and hold GKF, its agents, officers, employees, successors
and assigns, harmless from and against any and all claims, liabilities,
obligations, losses, damages, injuries, penalties, actions, costs and expenses
(including reasonable attorneys' fees) for all events and/or occurrences
described in Article 7.3 of the LGK Agreement to the same extent that Medical
Center agrees to indemnify Elekta thereunder.
9.5 Provide reasonable and customary marketing materials (i.e.
brochures, announcements, etc.) and marketing support from an administrative and
physician (i.e. seminars by neurosurgeons and radiation therapists to referring
physicians, etc.) commitment for this clinical service. Medical Center shall
spend not less than One Hundred Thousand Dollars ($100,000) on marketing and
promotion of the services provided through the Equipment during the first year
of this Agreement, and Fifty Thousand Dollars ($50,000) per year thereafter or
such other amounts as may be mutually agreed upon by the parties.
Notwithstanding the foregoing, Medical Center shall not be obligated to incur
expenditures for marketing or promotion if the events described in Section 7(a)
have occurred, and Medical Center's Operating Income following the renegotiation
process set forth in Section 7 above is negative.
10. Additional Covenants, Representations and Warranties of GKF. In
addition to the other covenants, representations and warranties, made by GKF in
this Agreement:
10.1 GKF represents and warrants that GKF has full power and
authority to enter into this Agreement, and that this Agreement does not and
will not violate any agreement, contract or instrument binding upon GKF.
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10.2 GKF represents and warrants to Medical Center that, upon
delivery of the Equipment to Medical Center, GKF shall use its best faith
efforts to require that Elekta meets its contractual obligations to GKF and puts
the Equipment, as soon as possible, into good, safe and serviceable condition
and fit for its intended use in accordance with the manufacturer's
specifications, guidelines and field modification instructions.
10.3 GKF represents and warrants that throughout the term of this
Agreement, Medical Center shall enjoy the use of the Equipment, free of the
rights of any other persons except for those rights reserved by GKF under this
Agreement or granted to Elekta under the LGK Agreement.
10.4 During the entire term of this Agreement and subsequent
extensions thereof, GKF shall maintain in full force and effect: (i) the Repair
Service Agreement referenced in Paragraph 16 below; and (ii) any other service
or other agreements required to fulfill GKF's obligations to Medical Center
pursuant to this Paragraph 10.4. GKF acknowledges that Medical Center is a
third-party beneficiary of the Repair Service Agreement. GKF shall indemnify and
hold harmless Medical Center in the event Medical Center suffers any loss,
damage, claim or expense (including reasonable attorneys' fees) solely as the
result of GKF's breach of the Repair Service Agreement. GKF represents and
warrants that during the entire term of this Agreement and any subsequent
extensions thereof, that it will fully pursue any and all remedies it may have
against Elekta under the Repair Service Agreement to insure that the Equipment
will be in conformity with Elekta's warranties so that it is free from defects
in design, materials, workmanship or manufacture which result in noncompliance
with the Specifications and/or Elekta's warranties to GKF.
11. Ownership/Title. It is expressly understood that Medical Center
shall acquire no right, title or interest in or to the Equipment, other than the
right to the possession and use of the same in accordance with the terms of this
Agreement.
GKF may at its sole discretion finance the Equipment. Financing may be
in the form of an installment loan or a capitalized lease or other commercially
available debt instrument. Should GKF finance the Equipment through an
installment loan, GKF shall be required to provide the Equipment as collateral
against the loan. Should GKF finance the Equipment through a capitalized lease
title shall vest with the lessor until GKF exercises its buy-out option. In
addition, should GKF finance the Equipment, said agreement may be used as
collateral against the loan. No financing by GKF will relieve GKF of its
obligations to Medical Center or materially change Medical Center's duties or
materially increase the burdens or risks imposed on Medical Center. Prior to the
financing, Medical Center and the entity financing the Equipment shall enter
into a mutually acceptable subordination, attornment and non-disturbance
agreement.
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12. Cost of Use of the Equipment. Except as is otherwise provided
herein, Medical Center shall bear the entire cost of using the Equipment during
the Term of this Agreement. This shall include, but not be limited to, providing
trained professionals, technical and support personnel and supplies to properly
operate the Equipment. Medical Center shall be fully responsible and liable for
all acts and/or omissions of such professional, technical and support personnel.
13. Taxes. GKF shall pay any personal property taxes levied against the
Equipment and any other taxes or governmental fees or assessments, however
denoted, whether of the federal government, any state government or any local
government, levied or based on this Agreement or the use of the Equipment except
for those taxes, if any, pertaining to the gross income or gross receipts of
Medical Center.
14. Maintenance and Inspections. GKF agrees to exercise due and proper
care in the maintenance of the Equipment and to keep the Equipment in a good
state of repair, reasonable wear and tear excepted.
GKF (and Elekta) shall have the right of access to the Equipment for the
purpose of inspecting same at all reasonable times and upon reasonable notice
and with a minimum of interference to Medical Center's operations. In the event
the Equipment is improperly used by Medical Center or its employees, agents,
officers, and physicians, GKF may service or repair the same as needed and such
expense shall be paid by Medical Center, unless the repair is covered by the
Repair Service Agreement.
15. Equipment Modifications/Additions/Upgrades.
15.1 Medical Center may elect in writing to have the Cobalt-60
sources reloaded at any time after the date that is seven (7) years following
the First Procedure Date and prior to the expiration of the initial Term, so
long as the annual number of procedures performed on the Equipment is greater
than * procedures per year for the two years immediately prior to Medical
Center's election. Such reloading shall be done at GKF's expense, provided that
any expenses pertaining to leasehold improvements or refurbishment of the Site
shall be paid for solely by Medical Center.
15.2 If Medical Center elects to reload as set forth above, the
Term shall automatically be extended for an additional four (4) years, plus the
time expended in reloading, which extension shall commence on the expiration of
the initial Term of this Agreement. Unless Medical Center notifies GKF at least
ninety (90) days prior to the expiration of the extended Term that Medical
Center wishes to purchase the Equipment in cash at its fair market value (based
upon the "in use" value of the Equipment) as determined by an appraiser mutually
agreed upon
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between the parties, GKF shall remove the Equipment, at its sole expense, within
ninety (90) days after the expiration of the extended Term.
15.3 If the Term is extended pursuant to Paragraph 15.2 above,
the per procedure rate payable during the extended term shall be as follows:
<TABLE>
<CAPTION>
YEAR ANNUAL PROCEDURES PERFORMED FEE PER PROCEDURE
---- --------------------------- -----------------
<S> <C> <C>
11-14 * *
* *
* *
* *
</TABLE>
16. Repair Service Agreement. GKF warrants that it shall simultaneously
with the execution of this Agreement enter into a Repair Service Agreement with
Elekta, a copy of which is attached hereto as Exhibit 3 and incorporated herein
by this reference. GKF agrees to fulfill all of its obligations under the Repair
Service Agreement and acknowledges that Medical Center is a third party
beneficiary of the Repair Service Agreement.
17. Termination. If, after the initial twenty-four (24) month period
following the First Procedure Date or any subsequent 12 month period, the sum of
all per-procedure payments made by Medical Center to GKF under this Agreement
during the most recent twelve (12) month period fell short of * , then and in
that event, GKF shall have the option (but not the obligation) of terminating
this Agreement upon the giving of written notice to Medical Center of said
termination not less than one hundred and eighty (180) days prior to GKF's
designated termination date. GKF shall remove the Equipment, at its sole
expense, within ninety (90) days after the designated termination date, unless
Medical Center notifies GKF within ninety (90) days following receipt of GKF's
notice of termination that it wishes to purchase the Equipment in cash at a
price to be mutually agreed upon by the parties. Notwithstanding the foregoing,
such * shall not be used as a basis for determining GKF's breakeven level of
Operating Income pursuant to Section 7 above.
18. Option to Extend Agreement.
18.1 If the Term has not been extended pursuant to Paragraph 15.2
above, Medical Center shall have the option at the end of the ten (10) year
initial Term to:
(i) Renegotiate this Agreement for a five year renewal
term.
(ii) Terminate this Agreement. If Medical Center
terminates this Agreement at the end of the initial Term, Medical Center shall
have the option
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to purchase the Equipment in cash at its fair market value (based upon the "in
use" value of the Equipment) as determined by an appraiser to be mutually agreed
upon between the parties. Medical Center shall exercise such option by giving
written notice to GKF not less than ninety (90) days prior to the expiration of
the initial Term. If Medical Center does not issue such notice, Medical Center
shall be deemed to have elected not to exercise such option, and GKF shall
remove the Equipment, at its sole cost and expense, within ninety (90) days
after the expiration of the ten (10) year initial Term.
Medical Center shall exercise one (1) of the two (2) options referred to above
by mailing an irrevocable written notice thereof to GKF at Four Embarcadero
Center, Suite 3620, San Francisco, California, 94111, by registered mail,
postmarked on or before the end of the ninth (9th) year of the ten (10) year
initial Term of this Agreement. Any such notice shall be sufficient if it states
in substance that Medical Center elects to exercise its option and states which
of the two (2) options referred to above Medical Center is exercising.
19. No Warranties by GKF with Respect to the Equipment. GKF SUPPLIES THE
EQUIPMENT "AS IS" AND NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE
MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR
IMPLIED, AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS
TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that all such risks as
between GKF and Medical Center, shall be borne by Medical Center. Medical Center
agrees to look solely to the manufacturer (Elekta) or to suppliers of the
Equipment (and its software) for any and all warranty claims with respect to the
Equipment. Any and all warranties made by Elekta to GKF will be in its good
faith best efforts enforced by GKF on behalf of Medical Center during the ten
(10) year initial Term hereof and any renewal Terms. Medical Center agrees that
GKF shall not be responsible for the delivery, installation, or operation of the
Equipment or for any delay or inadequacy of any or all of the foregoing. GKF
shall not be responsible for any direct or indirect consequential loss or damage
resulting from the installation, operation or use of the Equipment or otherwise.
Medical Center expressly waives any right to hold GKF liable hereunder for any
claims, demands and liabilities arising out of or in connection with the design,
manufacture, possession or operation of the Equipment.
20. Events of Default by Medical Center and Remedies. The occurrence of
any one of the following shall constitute an Event of Default by Medical Center
hereunder:
(a) Medical Center fails to pay any installment of semi-monthly
procedure payments when due when such default continues for a period of thirty
(30) days after notice thereof from GKF or its assignee is given to Medical
Center.
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(b) Medical Center attempts to remove, sell, transfer, encumber,
sublet or part with possession of the Equipment or any items thereof, except as
expressly permitted herein;
(c) Medical Center shall fail to observe or perform any of the
other obligations required to be observed or performed by Medical Center
hereunder and such failure shall continue uncured for sixty (60) days after
written notice thereof to Medical Center by GKF;
(d) Medical Center ceases doing business as a going concern,
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a voluntary petition in
bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law or regulation or files an answer admitting the material allegations
of a petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or any
substantial part of its assets or properties, or it or its shareholders shall
take any action looking to its dissolution or liquidation.
(e) Within sixty (60) days after the commencement of any
proceedings against Medical Center seeking reorganization, arrangement,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceedings shall not have been
dismissed, or if within thirty (30) days after the appointment without Medical
Center's consent or acquiescence of any trustee, receiver or liquidator of it or
of all or any substantial part of its assets and properties, such appointment
shall not be vacated.
Upon the occurrence of an Event of Default by Medical Center, GKF may at its
option do any or all of the following: (i) by written notice to Medical Center,
terminate this Agreement as to the Equipment in default, wherever situated, and
for such purposes, enter upon the Site without liability for so doing or GKF may
cause Medical Center and Medical Center hereby agrees to return the Equipment to
GKF at Medical Center's sole cost and expense; (ii) recover from Medical Center,
as liquidated damages for the loss of the bargain and not as a penalty, an
amount equal to the present value of the unpaid estimated future lease payments
by Medical Center to GKF through the end of the initial Term discounted at the
rate of nine percent (9%), which payment shall become immediately due and
payable. Unpaid estimated future lease payments shall be based on the prior 12
months lease payments with an annual five percent (5%) percent increase; (iii)
sell, dispose of, hold, use or lease the Equipment in default, as GKF in its
sole discretion may determine (and GKF shall not be obligated to give preference
to the sale, lease or other disposition of the Equipment over the sale, lease or
other disposition of similar Equipment owned or leased by GKF). In any event,
Medical Center shall, without
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further demand, pay to GKF an amount equal to all sums due and payable for all
periods up to and including the date on which GKF had declared this Agreement to
be in default.
In the event that Medical Center shall have paid to GKF the liquidated damages
referred to in (ii) above, GKF hereby agrees to pay to Medical Center promptly
after receipt thereof, all rentals or proceeds received from the reletting or
sale of the Equipment during the balance of the ten (10) year initial Term
(after deduction of all expenses incurred by GKF; said amount never to exceed
the amount of the liquidated damages paid by Medical Center). Medical Center
agrees that GKF shall have no obligation to sell the Equipment. Medical Center
shall in any event remain fully liable for reasonable damages as provided by law
for all costs and expenses incurred by GKF on account of such default, including
but not limited to, all court costs and reasonable attorneys' fees. Medical
Center hereby agrees that, in any event, it shall be liable for any deficiency
after any sale, lease or other disposition of the Equipment by GKF. The rights
afforded GKF hereunder shall not be deemed to be exclusive, but shall be in
addition to any other rights or remedies provided by law.
21. Events of Default by GKF and Remedies. The occurrence of any one of
the following shall constitute an Event of Default by GKF hereunder:
(a) GKF shall fail to observe or perform any of the obligations
required to be observed or performed by GKF hereunder and such failure shall
continue uncured for sixty (60) days after written notice thereof to GKF by
Medical Center;
(b) GKF ceases doing business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its inability to pay
its debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of a petition filed against
it in any such proceeding, consents to or acquiesces in the appointment of a
trustee, receiver, or liquidator of it or of all or any substantial part of its
assets or properties, or it or its shareholders shall take any action looking to
its dissolution or liquidation.
(c) Within sixty (60) days after the commencement of any
proceedings against GKF seeking reorganization, arrangement, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceedings shall not have been dismissed, or if within
thirty (30) days after the appointment without GKF's consent or acquiescence of
any trustee, receiver or liquidator of it or of all or any substantial part of
its assets and properties, such appointment shall not be vacated.
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Upon the occurrence of an Event of Default by GKF, Medical Center may at its
option do any or all of the following: (i) by written notice to GKF, terminate
this Agreement and, in such event, GKF shall remove the Equipment at GKF's sole
cost and expense or, in the absence of removal by GKF within ninety (90) days
after a written request therefor, Medical Center may remove the Equipment with
all due care and store the Equipment at GKF's sole cost and expense, or (ii)
purchase the Equipment in cash at a price to be mutually agreed upon by the
parties.
GKF shall in any event remain fully liable for reasonable damages as provided by
law for all costs and expenses incurred by Medical Center on account of such
default, including but not limited to all court costs and reasonable attorney's
fees. The rights afforded Medical Center hereunder shall not be deemed to be
exclusive, but shall be in addition to any other rights or remedies provided by
law.
22. Insurance.
22.1 During the ten (10) year initial Term of this Agreement (and
any successive terms) GKF shall, at its own cost and expense, keep in effect an
all risk and hazard insurance policy covering the Equipment. The all risk and
hazard insurance policy shall be for an amount not less than the replacement
cost of the Equipment. During the ten (10) year initial Term of this Agreement,
Medical Center shall, at its own cost and expense, keep in effect public
liability and professional liability insurance policies concerning the operation
of the Equipment by Medical Center. Said policies shall be in the amounts of not
less than $1,000,000 per occurrence and $5,000,000 in aggregate per year.
Medical Center and GKF, their successors and assigns, shall be named as
additional insureds and/or loss payees on the insurance policies maintained
hereunder by the other party. Evidence of such insurance coverages shall be
furnished by both parties to the other party upon written request, by no later
than the Delivery Date.
22.2 If the Equipment is rendered unusable as a result of any
physical damage to, or destruction of, the Equipment, Medical Center shall give
to GKF immediate notice. GKF shall determine, within thirty (30) days after the
date of occurrence of such damage or destruction, whether the Equipment can be
repaired. In the event GKF determines that the Equipment cannot be repaired, GKF
at its sole cost and expense shall promptly replace the Equipment subject to
availability. This Agreement shall continue in full force and effect as though
such damage or destruction had not occurred. In the event GKF determines that
the Equipment can be repaired, GKF shall cause the Equipment to be promptly
repaired at its sole expense, subject, however, to Medical Center's obligations
under Section 5.4 above.
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<PAGE> 15
23. Notices. Any notices required under this Agreement shall be sent in
writing and shall be deemed to have been duly given if delivered by hand or
mailed by certified or registered mail to the following addresses:
To GKF: GK Financing, LLC
Craig K. Tagawa, C.E.O.
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111
To Medical Center: New England Medical Center Hospitals, Inc.
750 Washington Street
NEMC 428
Boston, MA 02111
Or to such other addresses as either party may specify for the reception of
notice from time to time in writing to the other party.
24. Integration/Supersedure. This Agreement contains the full and entire
Agreement between the parties hereto, and no oral or written understanding is of
any force or effect whatsoever unless expressly contained in a writing executed
subsequent to the date of this Agreement.
25. Waivers. To the extent that either party fails or chooses not to
pursue any of its remedies under this Agreement or pursuant to applicable law,
such shall not prejudice such party's rights to pursue any of those remedies at
any future time and shall not constitute a waiver of such party's rights.
26. Assignments. This Agreement is binding upon and shall inure to the
benefit of the permitted successors or assigns of the respective parties hereto,
except that neither party may assign its rights or obligations under this
Agreement without the express written consent of the other (which consent shall
not be unreasonably withheld or delayed).
27. Amendments. This Agreement shall not be amended or altered in any
manner unless such amendment or alteration is in a writing signed by both
parties.
28. Record-Keeping Requirements.
28.1 Medical Center and GKF shall generate such records and make
such disclosures as may be required, from time to time, by the Medicare,
Medicaid and other third party payment programs with respect to this Agreement
in order to meet all requirements for participation and payment associated with
such programs, including but not limited to the matters covered by Section
1861(v)(1)(I) of the Social Security Act.
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<PAGE> 16
28.2 For the purpose of compliance with Section 1861(v)(1)(I) of
the Social Security Act, as amended, and any regulations promulgated pursuant
thereto, both parties agree to comply with the following statutory requirements
(a) Until the expiration of four (4) years after the termination of this
Agreement, both parties shall make available, upon written request to the
Secretary of Health and Human Services or, upon request, to the Comptroller
General of the United States, or any of their duly authorized representatives,
the contract, and books, documents and records of such party that are necessary
to certify the nature and extent of such costs, and (b) if either party carries
out any of the duties of the contract through a subcontract with a value or cost
of $10,000 or more over a twelve month period, with a related organization, such
subcontract shall contain a clause to the effect that until the expiration of
four (4) years after the furnishing of such services pursuant to such
subcontract, the related organization shall make available, upon written request
to the Secretary, or upon request to the Comptroller General, or any of their
duly authorized representatives the subcontract, and books, documents and
records of such organization that are necessary to verify the nature and extent
of such costs.
29. Miscellaneous Provisions.
29.1 The invalidity or unenforceability of any portion or
provision of this Agreement shall not effect the validity or enforceability of
any other portion, nor shall either party's implied or express consent to the
breach or waiver of any provision of this Agreement constitute a waiver of such
provision as to any subsequent breach.
29.2 In the event of any claim or controversy arising hereunder,
the prevailing party in such claim or controversy shall be entitled to a
reasonable attorneys' fee in addition to whatever other relief said party would
be otherwise entitled.
29.3 Force Majeure. Failure to perform by either party will be
excused in the event of any delay or inability to perform its duties under this
Agreement directly or indirectly caused by conditions beyond its reasonable
control including without limitation, fires, floods, earthquakes, snow, ice,
disasters, Acts of God, accidents, riots, wars, operation of law, strikes,
governmental action or regulations, shortages of labor, fuel, power, materials,
manufacturer delays or transportation problems.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
NEW ENGLAND MEDICAL CENTER GK FINANCING, LLC
HOSPITALS, INC.
By: /s/ Signature By: /s/ Craig K. Tagawa
-------------------------------- --------------------------------
Its: Chief Operating Officer Craig K. Tagawa
Chief Executive Officer
Page 17
<PAGE> 18
Exhibit 1
LGK AGREEMENT
Page 18
<PAGE> 19
Exhibit 2
PER PROCEDURE PAYMENTS
<TABLE>
<CAPTION>
YEAR ANNUAL PROCEDURES PERFORMED FEE PER PROCEDURE
---- --------------------------- -----------------
<S> <C> <C>
1-4 * *
* *
* *
* *
5-7 * *
* *
* *
* *
8-10 * *
* *
* *
* *
</TABLE>
Page 19
<PAGE> 20
Exhibit 3
REPAIR SERVICE AGREEMENT
Page 20
<PAGE> 1
EXHIBIT 10.23
EQUIPMENT LEASE AGREEMENT
THIS EQUIPMENT LEASE AGREEMENT ("Agreement") is made and entered into on
October 29, 1998, by and between GK FINANCING, LLC, a California limited
liability company ("GKF"), and the BOARD OF TRUSTEES OF THE UNIVERSITY OF
ARKANSAS ON BEHALF OF THE UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES
("Hospital"), with reference to the following facts:
R E C I T A L S
A. GKF owns a Leksell Stereotactic Gamma Knife Unit (the "Equipment")
which it acquired from by Elekta Instruments, Inc., a Georgia corporation
("Elekta"), pursuant to that certain Agreement dated ____________, together with
the Exhibits attached thereto between GKF and Elekta (collectively, the
"Purchase Agreement").
B. Hospital wishes to lease the Equipment from GKF, and GKF is willing
to lease the Equipment to Hospital, upon the terms, covenants, conditions and
agreements set forth in this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein, and for such other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Lease. Subject to and in accordance with the covenants and conditions
set forth in this Agreement, GKF hereby leases to Hospital, and Hospital hereby
leases from GKF, the Equipment. The Equipment to be leased to Hospital pursuant
to this Agreement shall include the latest approved Gamma Knife technology
available as of the date of this Agreement, including all hardware and software
related thereto.
2. LGK Agreement. Simultaneously with the execution of this Agreement,
Hospital and Elekta shall enter into that certain LGK Agreement (the "LGK
Agreement"), a copy of which is attached hereto as Exhibit 1. Hospital shall
perform, satisfy and fulfill all of its obligations arising under the LGK
Agreement when and as required thereunder. Hospital acknowledges that GKF is a
third party beneficiary of the LGK Agreement and, in that capacity, GKF shall be
entitled to enforce Hospital's performance, satisfaction and fulfillment of its
obligations thereunder.
3. Term of the Agreement. The initial term of this Agreement (the
"Term") shall commence as of the date hereof and, unless earlier terminated or
extended in accordance with the provisions of this Agreement, shall continue for
a period of fifteen
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<PAGE> 2
(15) years following the date of the performance of the first clinical Gamma
Knife procedure (the "First Procedure Date") at the Site. Hospital's obligation
to make the payments to GKF for the Equipment described in Section 8 below shall
commence as of the First Procedure Date.
4. Certificate of Need; User License. Hospital shall apply for and
obtain in a timely manner a User License from the Nuclear Regulatory Commission
and, if necessary, from the applicable state agency authorizing it to take
possession of and maintain the Cobalt supply required in connection with the use
of the Equipment during the term of this Agreement. Hospital also shall apply
for and obtain in a timely manner all other licenses, permits, approvals,
consents and authorizations which may be required by state or local governmental
or other regulatory agencies for the charging of the Equipment with its Cobalt
supply, the conduct of acceptance tests with respect to the Equipment, and the
use of the Equipment during the Term, as more fully set forth in Article 2.1 of
the LGK Agreement.
5. Delivery of Equipment; Site.
5.1 GKF shall coordinate with Elekta and Hospital to have the
Equipment delivered to Hospital at 4301 W. Markham, Little Rock, Arkansas 72205
(the "Site") on or prior to the delivery date agreed upon by Hospital and Elekta
in the LGK Agreement. GKF makes no representations or warranties concerning
delivery of the Equipment to the Site or the actual date thereof.
5.2 Subject to Section 6 below, Hospital, at its cost and
expense, shall provide a safe, convenient and properly prepared Site for the
Equipment in accordance with Elekta's guidelines, specifications, technical
instructions and site planning criteria (which site planning criteria are
attached as Exhibit B to the LGK Agreement) (collectively the "Site Planning
Criteria"). The location of the Site shall be subject to the prior approval of
GKF.
6. Site Preparation and Installation of Equipment.
6.1 GKF, at its cost and expense, shall prepare all plans and
specifications required to prepare, construct and improve the Site for the
installation, use and operation of the Equipment during the Term. The plans and
specifications (i) shall be approved by Hospital, which approval shall not be
unreasonably withheld or delayed; (ii) shall comply in all respects with the
Site Planning Criteria; and (iii) to the extent required by applicable law,
shall be submitted to the State of Arkansas Health Department and the State of
Arkansas Building Services Office for their review. GKF, at its cost and
expense, shall obtain all permits, certifications, approvals or authorizations
required by applicable federal, state or local laws, rules or regulations
necessary to prepare, construct and improve the Site as provided above.
2
<PAGE> 3
6.2 GKF, at its cost and expense, shall prepare, construct and
improve the Site as necessary for the installation, use and operation of the
Equipment during the Term, including, without limitation, providing all
temporary or permanent shielding required for the charging of the Equipment with
the Cobalt supply and for its subsequent use, selecting and constructing a
proper foundation for the Equipment and the temporary or permanent shielding,
aligning the Site for the Equipment, and installing all electrical systems and
other wiring required for the Equipment. In connection with the construction of
the Site, GKF, at its cost and expense, shall select, purchase and install all
radiation monitoring equipment, devices, safety circuits and radiation warning
signs required at the Site in connection with the use and operation of the
Equipment. GKF shall be responsible for the shipment, storage, placement and
removal of all Cobalt and depleted Cobalt, provided that, if Hospital elects to
purchase the Equipment pursuant to Section 19.2 below, Hospital shall be solely
responsible for such duties following its election. Any depleted Cobalt supply
shall be properly disposed of by GKF at such time as GKF shall deem necessary,
in GKF's sole and absolute judgment.
6.3 In addition to construction and improvement of the Site, GKF,
at its cost and expense, shall be responsible for the installation of the
Equipment at the Site, including the positioning of the Equipment on its
foundation at the Site in compliance with the Site Planning Criteria.
6.4 During the Term, GKF, at its cost and expense, shall maintain
the Site in a good working order, condition and repair, reasonable wear and tear
excepted.
7. Marketing Support. GKF shall coordinate its Gamma Knife marketing
plan with Hospital, which marketing plan shall be subject to the approval of
Hospital.
8. Lease Payments.
8.1 In consideration and as compensation to GKF for (i) the lease
of the Equipment by GKF to Hospital pursuant to this Agreement; (ii) the
preparation by GKF of all plans and specifications required to prepare,
construct and improve the Site for the installation, use and operation of the
Equipment; (iii) the preparation, construction and improvement of the Site as
necessary for the installation, use and operation of the Equipment; (iv) the
installation by GKF of the Equipment at the Site; and (v) the maintenance by GKF
of the Site in a good working order, condition and repair, Hospital shall pay to
GKF on a monthly basis an amount (the "Lease Payments") equal to (a) the *. As
used herein:
(1) *
(2) *
(3) *
3
<PAGE> 4
On each anniversary date of this Agreement, the parties shall meet to review *,
and any adjustments thereto must be mutually agreed upon by the parties in
writing. Upon request by GKF, Hospital shall promptly furnish GKF with written
documentation substantiating such *. As used herein, a "Gamma Knife procedure"
shall mean a single patient treatment session that may include one or more
isocenters during that session. If no Gamma Knife procedures are performed by
Hospital or any other person utilizing the Equipment, no Lease Payments shall be
owing by Hospital to GKF.
8.2 Payment by Hospital to GKF of the Lease Payments shall be
made within ten (10) days following receipt by Hospital of the reimbursement for
the technical component of such Gamma Knife procedure from payor sources. To
facilitate Hospital's billing and collection for Gamma Knife procedures
performed, within two (2) business days after any Gamma Knife procedure is
performed, GKF shall cause the administrative support individual referenced in
Section 11.3 below to provide Hospital with written confirmation of the names of
the patients treated. Hospital shall submit claims for reimbursement to the
appropriate payors for each Gamma Knife procedure within ______ (___) days after
the patient receiving the treatment is discharged. All or any portion of any
Lease Payment which is not paid in full within sixty (60) days after its due
date shall bear interest at the annual rate of five percent (5%) in excess of
the Federal Reserve Discount Rate then in effect as published in the Wall Street
Journal or similar publication (or the maximum monthly interest rate permitted
to be charged by law between an unrelated, commercial borrower and lender, if
less) until the unpaid Lease Payment, together with all accrued interest thereon
is paid in full. If GKF shall at any time accept a Lease Payment from Hospital
after it shall become due, such acceptance shall not constitute or be construed
as a waiver of any or all of GKF's rights under this Agreement, including the
rights of GKF set forth in Section 20 hereof.
8.3 Within thirty (30) days after the close of each month,
Hospital shall provide GKF with a written report indicating the status of
billings and collections for each Gamma Knife procedure performed during that
month, including, without limitation, the amount of the claim submitted and the
amount received for each such procedure. Upon request by GKF, Hospital shall
furnish to GKF information regarding reimbursement rates from any or all payor
sources for Gamma Knife procedures (applicable to procedures performed either on
an inpatient or outpatient basis). If such reimbursement rates should change at
any time or from time to time after the date hereof, in each instance, Hospital
shall provide written notice thereof to GKF within five (5) days of Hospital
receiving notice thereof.
9. Use of the Equipment.
9.1 The Equipment shall be used by Hospital only at the Site and
shall not be removed therefrom. Hospital shall use the Equipment only in the
regular and ordinary course of Hospital's business operations and only within
the capacity of the
4
<PAGE> 5
Equipment as determined by Elekta's specifications. Hospital shall not use nor
permit the Equipment to be used in any manner nor for any purpose which, in the
opinion of Elekta or GKF, the Equipment is not designed or reasonably suitable.
9.2 This is an agreement of lease only. Nothing herein shall be
construed as conveying to Hospital any right, title or interest in or to the
Equipment, except for the express leasehold interest granted to Hospital for the
Term. All Equipment shall remain personal property (even though said Equipment
may hereafter become attached or affixed to real property) and the title thereto
shall at all times remain exclusively in GKF.
9.3 During the Term, upon the request of GKF, Hospital shall
promptly affix to the Equipment in a prominent place, or as otherwise directed
by GKF, labels, plates, insignia, lettering or other markings supplied by GKF
indicating GKF's ownership of the Equipment, and shall keep the same affixed for
the entire Term. Hospital hereby authorizes GKF to cause this Lease or any
statement or other instrument showing the interest of GKF in the Equipment to be
filed or recorded, or refiled or re-recorded, with all governmental agencies
considered appropriate by GKF, at GKF's cost and expense. Hospital also shall
promptly execute and deliver, or cause to be executed and delivered, to GKF any
statement or instrument requested by GKF for the purpose of evidencing GKF's
interest in the Equipment, including financing statements and waivers with
respect to rights in the Equipment from any owners or mortgagees of any real
estate where the Equipment may be located.
9.4 At Hospital's cost and expense, Hospital shall (a) protect
and defend GKF's ownership of and title to the Equipment from and against all
persons claiming against or through Hospital, (b) at all times keep the
Equipment free from any and all liens, encumbrances, attachments, levies,
executions, burdens, charges or legal processes imposed against Hospital, and
(c) give GKF immediate written notice of any matter described in clause (b).
10. Additional Covenants of Hospital. In addition to the other covenants
of Hospital contained in this Agreement, Hospital shall, at its cost and
expense:
10.1 Provide properly trained professional, technical and support
personnel and supplies required for the proper performance of Gamma Knife
procedures utilizing the Equipment. In this regard, Hospital shall maintain on
staff a minimum of two (2) Gamma Knife trained teams comprised of neurosurgeons,
radiation therapists and physicists.
10.2 Direct, supervise and administer the diagnosis, treatment
and care of all patients who receive Gamma Knife procedures.
5
<PAGE> 6
10.3 In consultation with GKF, provide reasonable and customary
marketing support in terms of administrative and physician support for the Gamma
Knife service to be operated by the Hospital.
10.4 Keep and maintain the Equipment and the Site fully
protected, secure and free from unauthorized access or use by any person.
11. Additional Covenants of GKF. In addition to the other covenants of
GKF contained in this Agreement, GKF, at its cost and expense, shall:
11.1 Use its best efforts to require Elekta to meets its
contractual obligations to GKF and Hospital upon delivery of the Equipment and
put the Equipment, as soon as reasonably possible, into good, safe and
serviceable condition and fit for its intended use in accordance with the
manufacturer's specifications, guidelines and field modification instructions.
11.2 Cause Hospital to enjoy the use of the Equipment, free of
the rights of any other persons except for those rights reserved by GKF or
granted to Elekta under the LGK Agreement or the Purchase Agreement.
11.3 Furnish an individual who shall be located at the Site and
who shall provide administrative and marketing support services at the Site.
12. Maintenance of Equipment; Damage or Destruction of Equipment.
12.1 During the Term and except as otherwise provided in this
Agreement, GKF, at its cost and expense, shall (a) maintain the Equipment in
good operating condition and repair, reasonable wear and tear excepted, (b)
subject to Hospital's compliance with its obligations under the LGK Agreement
and under Sections 4, 5, 9, 10, 12, and 16 hereunder, cause the equipment to be
in compliance with all applicable state and federal regulations, and (c)
maintain in full force and effect a Service Agreement with Elekta and any other
service or other agreements required to fulfill GKF's obligation to repair and
maintain the Equipment under this Section 12. A copy of the Service Agreement
with Elekta (the "Service Agreement") is attached as Exhibit F to the LGK
Agreement (attached hereto as Exhibit 1). A schedule of the maintenance to the
Equipment to be performed under the Service Agreement shall be delivered by GKF
to Hospital. Hospital shall promptly notify GKF in the event of any damage or
destruction to the Equipment or of any required maintenance or repairs to the
Equipment, regardless of whether such repairs or maintenance are covered or not
covered by the Service Agreement. GKF shall pursue all remedies available to it
under the Service Agreement and under any warranties made by Elekta with respect
to the Equipment so that the Equipment will be free from defects in design,
materials and workmanship and will conform to Elekta's technical specifications
concerning the Equipment.
6
<PAGE> 7
12.2 GKF and Elekta shall have the right to access the Equipment
for the purpose of inspection and the performance of repairs at all reasonable
times, upon reasonable advance notice and with a minimum of interference or
disruptions to Hospital's regular business operations.
12.3 Hospital shall be liable for any damage to or destruction of
the Equipment caused by the misuse, improper use, or other intentional and
wrongful or negligent acts or omissions of Hospital's officers, employees,
agents, contractors and physicians. In the event the Equipment is damaged as a
result of the misuse, improper use, or other intentional and wrongful or
negligent acts or omissions of Hospital's officers, employees, agents,
contractors and physicians, to the extent such damage is not covered by the
Service Agreement or any warranties or insurance, GKF may service or repair the
Equipment as needed and the cost thereof shall be paid by Hospital to GKF
immediately upon written request; provided that, if GKF's charges and costs for
such service or repair are not paid in full by Hospital within sixty (60) days
after GKF's request therefor, in addition to such charges and costs, Hospital
shall pay interest thereon to GKF until paid in full at the annual rate of five
percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as
published in the Wall Street Journal or similar publication (or the maximum
monthly interest rate permitted to be charged by law between an unrelated,
commercial borrower and lender, if less) and costs incurred by GKF in collecting
such amount from Hospital (other than attorneys' fees). Any work so performed by
GKF shall not deprive GKF of any of its rights, remedies or actions against
Hospital for such damages.
12.4 If the Equipment is rendered unusable as a result of any
physical damage to or destruction of the Equipment, Hospital shall give GKF
written notice thereof. GKF shall determine, within thirty (30) days after it is
given written notice of such damage or destruction, whether the Equipment can be
repaired. Subject to Section 12.3 above, in the event GKF determines that the
Equipment cannot be repaired, at the election of GKF in GKF's sole and absolute
discretion, (a) GKF, at its cost and expense, may replace the Equipment as soon
as reasonably possible taking into account the availability of replacement
equipment from Elekta, Elekta's other then existing orders for equipment, and
the then existing limitations on Elekta's manufacturing capabilities, and (b) in
such event, this Agreement shall continue in full force and effect as though
such damage or destruction had not occurred. If GKF elects not to replace the
Equipment, GKF shall provide written notice of such election to Hospital, and
this Agreement shall terminate on the date that is ninety (90) days following
the date of such notice. In the event GKF determines that the Equipment can be
repaired, GKF shall cause the Equipment to be repaired as soon as reasonably
possible thereafter. Hospital shall fully cooperate with GKF to effect the
replacement of the Equipment or the repair of the Equipment (including, without
limitation, providing full access to the Site) following the damage or
destruction thereof.
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<PAGE> 8
13. [Intentionally omitted.]
14. Financing of Equipment by GKF. GKF, in its sole discretion, may
finance the Equipment. Financing may be in the form of an installment loan, a
capitalized lease or other commercially available debt or financing instrument.
If GKF finances the Equipment through an installment loan, GKF shall be required
to provide the Equipment as collateral for the loan. If GKF finances the
Equipment through a capitalized lease, title shall vest with the lessor until
such time as GKF exercises its buy-out option under the lease, if any. If
required by the lender, lessor or other financing entity (the "Lender"), GKF may
assign its interest under this Agreement as security for the financing.
Hospital's interest under this Agreement shall be subject to the interests of
the Lender and Hospital shall execute such documentation as the Lender shall
reasonably require in furtherance of this Section 14.
15. Equipment Operational Costs. Except as otherwise expressly provided
in this Agreement, Hospital shall be responsible and liable for all costs and
expenses incurred, directly or indirectly, in connection with the operation and
use of the Equipment during the Term, including, without limitation, the costs
and expenses required to provide trained physicians, professionals, and
technical and support personnel, supplies and other items required to properly
operate the Equipment and perform Gamma Knife procedures. GKF shall be
responsible for all costs and expenses for all utilities required for the
operation and use of the Equipment. Between Hospital and GKF, Hospital shall be
fully liable for all negligent, intentional or wrongful acts or omissions of
such physicians, professional, technical and support personnel.
16. Taxes. GKF shall pay all sales or use taxes imposed or assessed in
connection with the purchase of the Equipment and all personal property taxes
imposed, levied or assessed on the ownership and possession of the Equipment
during the Term. All other taxes, assessments, licenses or other charges
imposed, levied or assessed on the Equipment during the Term shall be paid by
Hospital before the same shall become delinquent, whether such taxes are
assessed or would ordinarily be assessed against GKF or Hospital; provided,
however, Hospital shall not be required to pay any federal, state or local
income, franchise, corporation or excise taxes imposed upon GKF's net income
realized from the lease of the Equipment. In case of a failure by Hospital to
pay any taxes, assessments, licenses or other charges when and as required under
this Section, GKF may (in GKF's sole and absolute discretion) pay all or any
part of such taxes, in which event the amount paid by GKF shall be immediately
payable by Hospital to GKF upon written request; provided that, if GKF is not
repaid in full by Hospital within sixty (60) days after GKF's request therefor,
in addition to the repayment of the amounts paid by GKF, Hospital shall pay
interest thereon to GKF until paid in full at the annual rate of five percent
(5%) in excess of the Federal Reserve Discount Rate then in effect, as published
in the Wall Street Journal or similar publication (or the maximum monthly
interest rate permitted to be charged by law between an unrelated, commercial
borrower
8
<PAGE> 9
and lender, if less) and costs incurred by GKF in collecting such amount from
Hospital (other than attorneys' fees).
17. No Warranties by GKF. Hospital warrants that as of the First
Procedure Date, it shall have (a) thoroughly inspected the Equipment, (b)
determined that the Equipment is consistent with the size, design, capacity and
manufacture selected by it, and (c) satisfied itself that to the best of its
knowledge the Equipment is suitable for Hospital's intended purposes and is good
working order, condition and repair. GKF SUPPLIES THE EQUIPMENT UNDER THIS
AGREEMENT IN ITS "AS IS" CONDITION. GKF, NOT BEING THE MANUFACTURER OF THE
EQUIPMENT OR THE MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION,
EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE OR USE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL
OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE. As between GKF and
Hospital, Hospital shall bear all risks with respect to the foregoing
warranties. GKF shall not be liable for any direct, indirect and consequential
losses or damages suffered by Hospital or by any other person, and Hospital
expressly waives any right to hold GKF liable hereunder for, any claims, demands
and liabilities arising out of or in connection with the design, manufacture,
possession or operation of the Equipment, including injury to persons or
property resulting from the failure of, defective or faulty design, operation,
condition, suitability or use of the Equipment, or with the accuracy,
completeness or suitability of the Site Planning Criteria, including GKF's good
faith compliance therewith. All warranty or other similar claims with respect to
the Equipment or the Site Planning Criteria shall be made by Hospital solely and
exclusively against persons other than GKF, including Elekta or any other
manufacturers or suppliers. In this regard and with prior written approval of
GKF, Hospital may, in GKF's name, but at Hospital's sole cost and expense,
enforce all warranties, agreements or representations, if any, which may have
been made by Elekta or manufacturers, suppliers or other third parties regarding
the Equipment to GKF or Hospital. GKF shall not be responsible for the delivery,
installation or operation of the Equipment or for any delay or inadequacy of any
or all of the foregoing.
18. Termination for Economic Justification.
18.1 If, following the initial eighteen (18) months after the
First Procedure Date and following each subsequent 12 month period thereafter
during the Term, based upon the utilization of the Equipment and other factors
considered relevant by GKF in the exercise of its discretion, within a
reasonable period of time after GKF's written request, Hospital does not provide
GKF with a reasonable economic justification to continue this Agreement and the
provision of Gamma Knife services at the Hospital, then and in that event, GKF
shall have the option to terminate this Agreement by giving a
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written notice thereof to Hospital not less than ninety (90) days prior to the
effective date of the termination designated in GKF's written notice.
18.2 Notwithstanding the provisions of Section 18.1, if at any
time during the term of this Agreement, Hospital is suspended or terminated from
participation in the Medicare program, GKF shall have the option to terminate
this Agreement immediately by giving written notice thereof to Hospital.
18.3 As a result of any termination of this Agreement pursuant to
this Section 18, GKF may enter upon the Site and remove the Equipment and any
improvements made by GKF to the Site without liability of any kind or nature for
so doing or GKF may demand that Hospital remove and return the Equipment and
such improvements to GKF, all at GKF's sole cost and expense. Notwithstanding
the foregoing, Hospital may elect in its sole discretion to purchase GKF's Site
improvements by giving GKF notice of Hospital's election within five (5) days
following the receipt by Hospital of GKF's written notice of termination. The
purchase price (the "TI Purchase Price") for such Site improvements shall be
equal to the actual cost of such improvements incurred by GKF which are then
unamortized as of the effective date of such termination. Amortization shall be
straight-line over a period of fifteen (15) years corresponding with the Term of
this Agreement. As an example, if GKF elected to terminate this Agreement
pursuant to Section 18.1 on the date which is five years after the First
Procedure Date, then the TI Purchase Price on such termination would be 10/15s
of the actual cost of the Site improvements. The costs of such improvements
shall be evidenced by invoices and other documentation, and shall include any
financing charges or costs. Within five (5) days following GKF's receipt of
Hospital's election to purchase the Site improvements, GKF shall inform Hospital
of the amount of the TI Purchase Price as determined in accordance with this
Section 18.3, and shall provide Hospital upon request with supporting
documentation therefor. Payment of the TI Purchase Price shall be made by
Hospital to GKF within five (5) days following GKF's determination of the TI
Purchase Price.
19. Options to Extend Agreement. As of the end of the Term, Hospital
shall have the option either to:
19.1 Extend the Term of this Agreement for a specified period of
time and upon such other terms and conditions as may be agreed upon by GKF and
Hospital taking into account the use (e.g., number of Gamma Knife procedures,
etc.) of the Equipment at the Site during the initial Term and other factors
deemed relevant by the parties;
19.2 Purchase the Equipment from GKF for cash (or other
immediately available federal funds) at its then fair market value (based upon
the "in use" value of the Equipment); or
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19.3 Terminate this Agreement as of the expiration of the Term.
Hospital shall exercise one (1) of the three (3) options referred to above by
giving an irrevocable written notice thereof to GKF at least nine (9) months
prior to the expiration of the initial Term. Any such notice shall be sufficient
if it states in substance that Hospital elects to exercise its option and states
which of the three (3) options referred to above Hospital is exercising. If
Hospital fails to exercise the option granted herein at least nine (9) months
prior to the expiration of the initial Term, the option shall lapse and this
Agreement shall expire as of the end of the initial Term. Further, if Hospital
exercises the option specified in Section 19.1 above and the parties are unable
to mutually agree upon the length of the extension of the Term or any other
terms or conditions applicable to such extension prior to the expiration of the
Term, this Agreement shall expire as of the end of the initial Term.
20. Events of Default by Hospital and Remedies.
20.1 The occurrence of any one of the following shall constitute
an event of default under this Agreement (an "Event of Default"):
20.1.1 Hospital fails to pay any Lease Payment when due
pursuant to Paragraph 8 above and such failure continues for a period of thirty
(30) days after written notice thereof is given by GKF or its assignee to
Hospital; however, if Hospital cures the payment default within the applicable
thirty (30) day period, such default shall not constitute an Event of Default.
20.1.2 Hospital attempts to remove, sell, transfer,
encumber, assign, sublet or part with possession of the Equipment or any items
thereof, except as expressly permitted herein.
20.1.3 Hospital fails to observe or perform any of its
covenants, duties or obligations arising under this Agreement or the LGK
Agreement and such failure continues for a period of thirty (30) days after
written notice thereof by GKF to Hospital; however, if Hospital cures the
default within the applicable thirty (30) day period or if the default
reasonably requires more than thirty (30) days to cure, Hospital commences to
cure the default during the initial thirty (30) day period and Hospital
diligently completes the cure as soon as reasonably possible following the end
of the thirty (30) day period, such default shall not constitute an Event of
Default.
20.1.4 Hospital ceases doing business as a going concern,
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a voluntary petition in
bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law or regulation or files an answer admitting the material allegations
of a
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petition filed against it in any such proceeding, consents to or acquiesces in
the appointment of a trustee, receiver, or liquidator of it or of all or any
substantial part of its assets or properties, or it or its shareholders shall
take any action looking to its dissolution or liquidation
20.1.5 Within sixty (60) days after the commencement of
any proceedings against Hospital seeking reorganization, arrangement,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceedings shall not have been
dismissed, or if within thirty (30) days after the appointment without
Hospital's consent or acquiescence of any trustee, receiver or liquidator of it
or of all or any substantial part of its assets and properties, such appointment
shall not be vacated.
20.2 Upon the occurrence of an Event of Default with respect to
Hospital, GKF may at its option do any or all of the following:
20.2.1 By written notice to Hospital, immediately
terminate this Agreement as to the Equipment, wherever situated. As a result of
the termination, GKF may enter upon the Site and remove the Equipment and any
improvements made by GKF to the Site without liability of any kind or nature for
so doing or GKF may demand that Hospital remove and return the Equipment and
such improvements to GKF, all at Hospital's sole cost and expense.
20.2.2 Recover damages from Hospital as may be awarded by
a court of competent jurisdiction for the loss of the bargain represented by
this Agreement. For purposes of determining such damages, the parties agree that
the following methodology shall be used: (a) the amount of such damages shall be
equal to the present value of the unpaid estimated future Lease Payments to be
made by Hospital to GKF through the end of the Term discounted at the rate of
nine percent (9%); and (b) the unpaid estimated future Lease Payments shall be
based on the historical trend of payments made by Hospital to GKF hereunder
taking into account known factors which could impact the historical trend
through the end of the Term. Hospital and GKF acknowledge that the methodology
set forth in this Section 20.2.2 constitutes a reasonable method to calculate
GKF's damages resulting from an Event of Default under the circumstances
existing as of the date of this Agreement. GKF shall use reasonable commercial
efforts to mitigate its damages by attempting to sell or lease the Equipment;
provided that (i) GKF shall not be obligated to give preference to the sale or
lease of the Equipment over the sale, lease or other disposition of similar
equipment or improvements owned or leased by GKF, (ii) GKF shall have no
obligation to sell or lease any improvements made by GKF to the Site, and (iii)
GKF's inability in good faith to mitigate damages shall not limit or otherwise
affect the foregoing methodology for determining damages as set forth in this
Section.
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20.2.3 Sell, dispose of, hold, use or lease the Equipment
or any improvements made by GKF to the Site, as GKF in its sole and absolute
discretion may determine (and GKF shall not be obligated to give preference to
the sale, lease or other disposition of the Equipment or improvements over the
sale, lease or other disposition of similar Equipment or improvements owned or
leased by GKF). Notwithstanding the foregoing, Hospital may elect in its sole
discretion to purchase GKF's Site improvements by giving GKF notice of
Hospital's election within five (5) days following the receipt by Hospital of
GKF's written notice of termination. The purchase price for such Site
improvements shall be equal to the TI Purchase Price (as defined and calculated
in accordance with Section 18.3 above). Within five (5) days following GKF's
receipt of Hospital's election to purchase the Site improvements, GKF shall
inform Hospital of the amount of the TI Purchase Price and shall provide
Hospital upon request with supporting documentation therefor. Payment of the TI
Purchase Price shall be made by Hospital to GKF within five (5) days following
GKF's determination of the TI Purchase Price. The TI Purchase Price shall be in
addition to any other damages, rights or remedies which GKF may be entitled to
as a result of such termination.
20.2.4 Exercise any other right or remedy which may be
available to GKF under the Uniform Commercial Code or any other applicable law
or proceed by appropriate court action, without affecting GKF's title or right
to possession of the Equipment or improvements, to enforce the terms hereof or
to recover damages for the breach hereof or to cancel this Agreement as to the
Equipment.
In addition to the foregoing remedies, Hospital shall be liable to GKF for all
costs and expenses incurred by GKF as a result of the Event of Default or the
exercise of GKF's remedies (other than attorneys' fees).
20.3 Upon termination of this Agreement or the exercise of any
other rights or remedies under this Agreement or available under applicable law
following an Event of Default, Hospital shall, without further request or
demand, pay to GKF all Lease Payments and other sums owing under this Agreement.
Hospital shall in any event remain fully liable for all damages as may be
provided by law and for all costs and expenses incurred by GKF on account of
such default, including but not limited to, all court costs. The rights and
remedies afforded GKF under this Agreement shall be deemed cumulative and not
exclusive, and shall be in addition to any other rights or remedies to GKF
provided by law or in equity.
21. Events of Default by GKF and Remedies.
21.1 The occurrence of any one of the following shall constitute
an Event of Default hereunder:
21.1.1 GKF shall fail to observe or perform any of its
covenants, duties or obligations arising under this Agreement and such failure
shall continue for a
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period of thirty (30) days after written notice thereof is given by Hospital to
GKF; however, if GKF cures the default within the applicable thirty (30) day
period or if the default reasonably requires more than thirty (30) days to cure,
GKF commences to cure the default during the initial thirty (30) day period and
GKF diligently completes the cure as soon as reasonably possible following the
end of the thirty (30) day period, such default shall not constitute an Event of
Default.
21.1.2 GKF ceases doing business as a going concern, makes
an assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of a petition filed against
it in any such proceeding, consents to or acquiesces in the appointment of a
trustee, receiver, or liquidator of it or of all or any substantial part of its
assets or properties, or it or its shareholders shall take any action looking to
its dissolution or liquidation.
21.1.3 Within sixty (60) days after the commencement of
any proceedings against GKF seeking reorganization, arrangement, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceedings shall not have been dismissed, or if within
thirty (30) days after the appointment without GKF's consent or acquiescence of
any trustee, receiver or liquidator of it or of all or any substantial part of
its assets and properties, such appointment shall not be vacated.
21.2 Upon the occurrence of an Event of Default involving GKF,
Hospital may at its option do any or all of the following:
21.2.1 By written notice to GKF, immediately terminate
this Agreement as to the Equipment and, in such event, GKF shall remove the
Equipment, the Cobalt and any improvements made by GKF to the Site, at GKF's
sole cost and expense or, in the absence of removal by GKF within a reasonable
period of time after a written request therefor, Hospital may remove the
Equipment, the Cobalt and such improvements with all due care and store the same
at GKF's sole cost and expense.
21.2.2 Seek to recover from GKF such loss as may be
realized by Hospital in the ordinary course of events as a result of the Event
of Default.
21.3 GKF shall in any event remain fully liable for reasonable
damages as provided by law and for all costs and expenses incurred by GKF on
account of such default, including but not limited to, all court costs (other
than attorneys' fees). However, GKF shall not in any manner be or become liable
to Hospital for any consequential or incidental damages that may be suffered by
Hospital which arise out of or result from the
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Event of Default. The rights and remedies afforded Hospital under this Agreement
shall be deemed cumulative to include the purchase option contained in section
18.3 and not exclusive and shall be in addition to any other rights or remedies
to Hospital provided by law or in equity.
21.4 Notwithstanding the occurrence of an Event of Default with
respect to GKF (including any claim which would otherwise be in the nature of a
set-off), Hospital shall fully perform and pay its obligations hereunder
(including payment of all Lease Payments) without set-off or defense of any
kind. Upon termination of this Agreement or the exercise of any other rights or
remedies under this Agreement or applicable law following an Event of Default,
Hospital shall, without further request or demand, pay to GKF all Lease Payments
and other sums owing under this Agreement when and as due.
22. Removal of Equipment. Upon expiration of the Term, GKF, at its cost
and expense, shall remove the Equipment from the Site not more than ninety (90)
days following the last day of the Term; provided that all of GKF's right, title
and interest in and to the improvements made by GKF to the Site pursuant to
Section 6 above shall thereupon transfer to Hospital.
23. Insurance.
23.1 During the Term, GKF shall, at its cost and expense,
purchase and maintain in effect an all risk property and casualty insurance
policy covering the Equipment. The all risk property and casualty insurance
policy shall be for an amount not less than the replacement cost of the
Equipment. The all risk property and casualty insurance policy maintained by GKF
shall be evidenced by a certificate of insurance or other reasonable
documentation which shall be delivered by GKF to Hospital upon request following
the commencement of this Agreement and as of each annual renewal of such policy
during the Term.
23.2 During the Term, Hospital shall, at its cost and expense,
purchase and maintain in effect professional liability insurance covering the
use or operation of the Equipment by Hospital's physicians. The professional
liability insurance policies shall provide coverage in amounts not less than One
Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars
($3,000,000.00) annual aggregate. The policies to be maintained by Hospital
hereunder shall be evidenced by a certificate of insurance or other reasonable
documentation which shall be delivered by Hospital to GKF no later than the
First Procedure Date and as of each annual renewal of such policies during the
Term.
23.3 During the construction of the Site and prior to the First
Procedure Date, GKF, at its cost and expense, shall purchase and maintain a
general liability insurance policy which conforms with the coverage amounts and
other requirements
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described in Section 23.2 above and which names Hospital as an additional
insured party. The policy to be maintained by GKF hereunder shall be evidenced
by a certificate of insurance or other reasonable documentation which shall be
delivered by GKF to Hospital prior to the commencement of any construction at
the Site.
23.4 During the Term, Hospital shall purchase and maintain all
workers compensation insurance to the maximum extent required by applicable law.
24. [Intentionally omitted.]
25. Miscellaneous.
25.1 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Except as provided under Section 14, neither party shall assign this
Agreement nor any of its respective rights hereunder and Hospital shall not
sublease the Equipment without the prior written consent of the other party,
which consent shall not be unreasonably withheld. An assignment or sublease
shall not relieve the assigning party or sublessor of any liability for
performance of this Agreement during the remainder of the Term. Any purported
assignment or sublease made without the other party's prior written consent
shall be null, void and of no force or effect.
25.2 Agreement to Perform Necessary Acts. Each party agrees to
perform any further acts and execute and deliver any further documents which may
be reasonably necessary or otherwise reasonably required to carry out the
provisions of this Agreement.
25.3 Validity. If for any reason any clause or provision of this
Agreement, or the application of any such clause or provision in a particular
context or to a particular situation, circumstance or person, should be held
unenforceable, invalid or in violation of law by any court or other tribunal of
competent jurisdiction, then the application of such clause or provision in
contexts or to situations, circumstances or persons other than that in or to
which it is held unenforceable, invalid or in violation of law shall not be
affected thereby, and the remaining clauses and provisions hereof shall
nevertheless remain in full force and effect.
25.4 Attorney's Fees and Costs. In the event of any action,
arbitration or other proceedings between or among the parties hereto with
respect to this Agreement, each party shall pay for their own attorneys' fees
and related costs and expenses, irrespective of which party is deemed to be the
prevailing party.
25.5 Entire Agreement; Amendment. This Agreement together with
the Exhibits attached hereto constitutes the full and complete agreement and
understanding between the parties hereto concerning the subject matter hereof
and shall supersede any
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and all prior written and oral agreements with regard to such subject matter.
This Agreement may be modified or amended only by a written instrument executed
by all of the parties hereto.
25.6 Number and Gender. Words in the singular shall include the
plural, and words in a particular gender shall include either or both additional
genders, when the context in which such words are used indicates that such is
the intent.
25.7 Effect of Headings. The titles or headings of the various
paragraphs hereof are intended solely for convenience or reference and are not
intended and shall not be deemed to modify, explain or place any construction
upon any of the provisions of this Agreement.
25.8 Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be construed together
and shall constitute one agreement.
25.9 Governing Law. This Agreement shall be interpreted and
enforced in accordance with the internal laws, and not the law of conflicts, of
the State of Arkansas applicable to agreements made and to be performed in that
State.
25.10 Exhibits. All exhibits attached hereto and referred to in
this Agreement are hereby incorporated by reference herein as though fully set
forth at length.
25.11 Ambiguities. The general rule that ambiguities are to be
construed against the drafter shall not apply to this Agreement. In the event
that any provision of this Agreement is found to be ambiguous, each party shall
have an opportunity to present evidence as to the actual intent of the parties
with respect to such ambiguous provision.
25.12 Representations. Each of the parties hereto represents (a)
that no representation or promise not expressly contained in this Agreement has
been made by any other party hereto or by any of its agents, employees,
representatives or attorneys; (b) that this Agreement is not being entered into
on the basis of, or in reliance on, any promise or representation, expressed or
implied, other than such as are set forth expressly in this Agreement; (c) that
it has been represented by counsel of its own choice in this matter or has
affirmatively elected not to be represented by counsel; (d) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (e) it has full power and authority to
execute, deliver and perform this Agreement, and (f) the execution, delivery and
performance of this Agreement has been duly authorized by all necessary
corporate or other similar action.
25.13 Non-Waiver. No failure or delay by a party to insist upon
the strict performance of any term, condition, covenant or agreement of this
Agreement, or to exercise any right, power or remedy hereunder or under law or
consequent upon a breach
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hereof or thereof shall constitute a waiver of any such term, condition,
covenant, agreement, right, power or remedy or of any such breach or preclude
such party from exercising any such right, power or remedy at any later time or
times.
25.14 Notices. All notices, requests, demands or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be delivered to the party to whom notice is to be given
either (a) by personal delivery (in which case such notice shall be deemed to
have been duly given on the date of delivery), (b) by next business day air
courier service (e.g., Federal Express or other similar service) (in which case
such notice shall be deemed given on the business day following deposit with the
air courier service), or (c) by United States mail, first class, postage
prepaid, registered or certified, return receipt requested (in which case such
notice shall be deemed given on the third (3rd) day following the date of
mailing), and properly addressed as follows:
To GKF: Craig K. Tagawa
Chief Executive Officer
GK Financing, LLC
Four Embarcadero Center
Suite 3620
San Francisco, CA 94111
To Hospital: University of Arkansas Hospital
4301 W. Markham
Little Rock, Arkansas 72205
Attn: Chief Executive Officer
A party to this Agreement may change his, her or its address for purposes of
this Section by giving written notice to the other parties in the manner
specified herein.
25.15 Special Provisions Respecting Medicare and Medicaid
Patients
25.15.1 Hospital and GKF shall generate such records and
make such disclosures as may be required, from time to time, by the Medicare,
Medicaid and other third party payment programs with respect to this Agreement
in order to meet all requirements for participation and payment associated with
such programs, including but not limited to the matters covered by Section
1861(v)(1)(I) of the Social Security Act.
25.15.2 For the purpose of compliance with Section
1861(v)(1)(I) of the Social Security Act, as amended, and any regulations
promulgated pursuant thereto, both parties agree to comply with the following
statutory requirements (a) Until the expiration of four (4) years after the
termination of this Agreement, both parties shall make available, upon written
request to the Secretary of Health and Human Services or, upon request, to the
Comptroller General of the United States, or any of their
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duly authorized representatives, the contract, and books, documents and records
of such party that are necessary to certify the nature and extent of such costs,
and (b) if either party carries out any of the duties of the contract through a
subcontract with a value or cost of $10,000 or more over a twelve month period,
with a related organization, such subcontract shall contain a clause to the
effect that until the expiration of four (4) years after the furnishing of such
services pursuant to such subcontract, the related organization shall make
available, upon written request to the Secretary, or upon request to the
Comptroller General, or any of their duly authorized representatives the
subcontract, and books, documents and records of such organization that are
necessary to verify the nature and extent of such costs.
25.16 Force Majeure. Failure to perform by either party will be
excused in the event of any delay or inability to perform its duties under this
Agreement directly or indirectly caused by conditions beyond its reasonable
control, including, without limitation, fires, floods, earthquakes, snow, ice,
disasters, acts of God, accidents, riots, wars, operation of law, strikes,
governmental action or regulations, shortages of labor, fuel, power, materials,
manufacturer delays or transportation problems. Notwithstanding the foregoing,
all parties shall make good faith efforts to perform under this Agreement in the
event of any such circumstance. Further, once such an event is resolved, the
parties shall again perform their respective obligations under this Agreement.
25.17 Independent Contractor Status. With respect to the
performance of the duties and obligations arising under this Agreement, nothing
in this Agreement is intended nor shall be construed to create a partnership, an
employer/employee relationship, a joint venture relationship, or a lease or
landlord/tenant relationship between GKF and Hospital.
[SIGNATURES CONTINUED ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
"GKF" GK FINANCING, LLC,
a California limited liability company
By: /s/ Craig Tagawa
------------------------------------
Craig Tagawa,
Chief Executive Officer
"HOSPITAL" BOARD OF TRUSTEES OF THE
UNIVERSITY OF ARKANSAS ON BEHALF
OF THE UNIVERSITY OF ARKANSAS
FOR MEDICAL SCIENCES
By: /s/ Harry P. Ward
------------------------------------
Name: Harry P. Ward
Title: Chancellor
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EXHIBIT 8.1
HOSPITAL'S *
Registered nurse *
Recovery room *
Hospital daily charge *
Hospital, including ventilator daily charge *
MRI procedure *
CT procedure *
Angiography procedure *
Physicist *
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EXHIBIT 10.24
FIRST AMENDMENT TO
LEASE AGREEMENT FOR A GAMMA KNIFE UNIT
This First Amendment to Lease Agreement for a Gamma Knife Unit
("Amendment") is made and entered into effective as of the 2nd day of August,
1999, by and between GK Financing, LLC, a California limited liability company
("GKF") and Tenet HealthSystem Hospitals, Inc., a Delaware corporation, formerly
known as NME Hospitals, Inc., and doing business as USC University Hospital
("Hospital").
THIS AMENDMENT is made and entered into with reference to the following
facts:
A. Hospital and American Shared Hospital Services, a California
corporation ("ASHS") entered into that certain Lease Agreement for a Gamma Knife
Unit dated as of January 27, 1993 ("Agreement") which sets forth their
respective rights, obligations and duties regarding the ASHS's lease of a
Leksell Stereotactic Gamma Unit to Hospital;
B. Pursuant to that certain Assignment and Assumption Agreement
("Assignment") dated as of February 1, 1996, by and between Ernest A. Bates,
M.D., an individual, former Chairman and CEO of ASHS, and successor in interest
to ASHS ("Assignor"), and GKF, Assignor assigned to GKF and GKF assumed from
Assignor, all of Assignor's right, title and interest under, in and to the
Agreement;
C. Hospital and GKF desire to amend the Agreement subject to and in
accordance with the covenants, terms and conditions set forth in this Amendment;
and
D. Hospital and GKF desire to enter into this Amendment to provide a
clear and comprehensive statement of their respective rights, duties and
obligations with respect to the subject matter hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and notwithstanding any contrary
provisions of the Agreement, the Agreement is hereby amended as follows:
1. Term and Termination. Notwithstanding the execution date of this
Amendment, the term of the Agreement is hereby extended for a period of one (1)
month, commencing on August 2, 1999, and shall thereafter automatically be
extended on a month-to-month basis until the first to occur of: (i) Hospital
notifies GKF of Hospital's election to purchase the Equipment as set forth in
Section 14 hereunder, or (ii) either party, at least fifteen (15) days prior to
the expiration of the one month term then in effect, notifies the other party in
writing of its election not to extend the term of the Agreement upon the
expiration of the term then in effect. If the Agreement is, for whatever reason,
not extended and Hospital does not exercise its option to purchase the
Equipment, as hereinafter set forth, GKF shall remove the Equipment from
Hospital's
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premises within a mutually agreed upon period, utilizing best efforts after the
expiration of the Agreement.
2. Section 14 of the Agreement, entitled "Options to Extend Agreement"
is hereby deleted in its entirety and is superseded by the following:
"14. Option to Purchase.
At any time prior to the expiration of the term of this Agreement, upon
written notice to GKF, Hospital shall have the right to purchase the
Equipment for a sum equal to *. In the event Hospital exercises its
right to purchase hereunder, Hospital will tender full payment in cash
or cash equivalent to GKF within thirty (30) days after the date of
Hospital's notice of its election to purchase, and GKF shall deliver to
Hospital a Bill of Sale and General Conveyance sufficient to vest title
to the Equipment in Hospital free and clear of any liens or
encumbrances."
3. Meanings. Terms used and not otherwise defined in this Amendment
shall have the respective meanings assigned to them in the Agreement.
4. Conflicts. Whenever the terms or conditions of the Agreement and this
Amendment are in conflict, the terms of this Amendment shall control.
5. Modifications. Expect as specifically modified by the terms of this
Amendment, all of the covenants, terms and conditions of the Agreement shall
remain in full force and effect.
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
EXECUTION PAGE TO FOLLOW
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IN WITNESS WHEREOF, the parties have executed this Addendum effective as
of the day and year first written above.
"GKF"
GK Financing, LLC, a California limited
liability company
By /s/ Craig K. Tagawa
-------------------------------------
Craig K. Tagawa, CEO
"HOSPITAL"
Tenet HealthSystem Hospitals, Inc., a
Delaware corporation d/b/a USC University
Hospital
/s/ Ted Schreck
----------------------------------------
Ted Schreck, CEO
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OF AMERICAN SHARED HOSPITAL
SERVICES ("COMPANY") EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE
SHEETS AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998 (AUDITED) AND
FROM THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIODS
ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN PART I, ITEM 1 OF THE
COMPANY'S REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,033
<SECURITIES> 0
<RECEIVABLES> 1,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,744
<PP&E> 27,587
<DEPRECIATION> 6,250
<TOTAL-ASSETS> 34,310
<CURRENT-LIABILITIES> 3,085
<BONDS> 18,142
0
0
<COMMON> 10,105
<OTHER-SE> 3,231
<TOTAL-LIABILITY-AND-EQUITY> 34,310
<SALES> 5,269
<TOTAL-REVENUES> 5,269
<CGS> 0
<TOTAL-COSTS> 1,494
<OTHER-EXPENSES> 1,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 846
<INCOME-PRETAX> 1,508
<INCOME-TAX> (283)
<INCOME-CONTINUING> 1,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,791
<EPS-BASIC> .45
<EPS-DILUTED> .32
</TABLE>
