UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2013 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 1-08789

 

 

 

American Shared Hospital Services

(Exact name of registrant as specified in its charter)

 

California 94-2918118
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)

 

Four Embarcadero Center, Suite 3700, 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 ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ¨   Accelerated Filer  ¨   Non-Accelerated Filer  ¨   Smaller reporting company  x

 

As of August 1, 2013, there are outstanding 4,608,870 shares of the Registrant’s common stock.

 

 
 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED BALANCE SHEETS

  

    (unaudited)        
ASSETS   June 30, 2013     December 31, 2012  
             
Current assets:                
Cash and cash equivalents   $ 1,345,000     $ 1,564,000  
Restricted cash     50,000       50,000  
Certificate of deposit     9,000,000       9,000,000  
Accounts receivable, net of allowance for doubtful accounts of $100,000 in 2013 and $100,000 in 2012     5,125,000       3,706,000  
Other receivables     342,000       401,000  
Prepaid expenses and other current assets     662,000       925,000  
Current deferred tax assets     315,000       310,000  
                 
Total current assets     16,839,000       15,956,000  
                 
Property and equipment:                
Medical equipment and facilities     85,763,000       84,453,000  
Office equipment     738,000       694,000  
Deposits and construction in progress     7,506,000       9,754,000  
      94,007,000       94,901,000  
                 
Accumulated depreciation and amortization     (40,716,000 )     (41,224,000 )
Net property and equipment     53,291,000       53,677,000  
                 
Investment in common stock     2,701,000       -  
Investment in preferred stock     -       2,687,000  
Other assets     1,004,000       1,003,000  
                 
Total assets   $ 73,835,000     $ 73,323,000  

 

LIABILITIES AND   (unaudited)        
SHAREHOLDERS' EQUITY   June 30, 2013     December 31, 2012  
             
Current liabilities:                
Accounts payable   $ 918,000     $ 263,000  
Employee compensation and benefits     236,000       168,000  
Customer deposits/deferred revenue     735,000       747,000  
                 
Other accrued liabilities     1,093,000       801,000  
Current portion of long-term debt     4,604,000       3,932,000  
Current portion of obligations under capital leases     3,625,000       3,742,000  
                 
Total current liabilities     11,211,000       9,653,000  
                 
Long-term debt, less current portion     14,679,000       13,837,000  
Long-term capital leases, less current portion     11,360,000       13,173,000  
Advances on line of credit     8,700,000       8,550,000  
                 
Deferred income taxes     3,280,000       3,280,000  
                 
Shareholders' equity:                
Common stock (4,609,000 shares at June 30, 2013 and 4,606,000 shares at December 31, 2012)     8,578,000       8,578,000  
Additional paid-in capital     4,959,000       4,902,000  
Accumulated other comprehensive income (loss)     (395,000 )     (357,000 )
Retained earnings     6,675,000       6,806,000  
Total equity-American Shared Hospital Services     19,817,000       19,929,000  
Non-controlling interest in subsidiary     4,788,000       4,901,000  
Total shareholders' equity     24,605,000       24,830,000  
                 
Total liabilities and shareholders' equity   $ 73,835,000     $ 73,323,000  

 

See accompanying notes

 

2
 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three months ended June 30,     Six months ended June 30,  
    2013     2012     2013     2012  
                         
Medical services revenue   $ 4,583,000     $ 4,284,000     $ 9,251,000     $ 8,687,000  
                                 
Costs of revenue:                                
                                 
Maintenance and supplies     466,000       329,000       847,000       719,000  
                                 
Depreciation and amortization     1,569,000       1,404,000       3,043,000       2,949,000  
                                 
Other direct operating costs     655,000       678,000       1,350,000       1,309,000  
                                 
      2,690,000       2,411,000       5,240,000       4,977,000  
                                 
Gross Margin     1,893,000       1,873,000       4,011,000       3,710,000  
                                 
Selling and administrative expense     1,153,000       1,109,000       2,388,000       2,133,000  
                                 
Interest expense     456,000       539,000       927,000       1,113,000  
                                 
Operating income     284,000       225,000       696,000       464,000  
                                 
Loss on foreign currency transactions     (393,000 )     -       (534,000 )     -  
Interest and other income     (6,000 )     14,000       8,000       15,000  
                                 
Income (loss) before income taxes     (115,000 )     239,000       170,000       479,000  
                                 
Income tax expense (benefit)     (12,000 )     13,000       40,000       24,000  
                                 
Net income (loss)     (103,000 )     226,000       130,000       455,000  
                                 
Less: Net income attributable to non-controlling interests     (19,000 )     (211,000 )     (227,000 )     (431,000 )
                                 
Net income (loss) attributable to American Shared Hospital Services   $ (122,000 )   $ 15,000     $ (97,000 )   $ 24,000  
                                 
Net income (loss) per share:                                
                                 
Earnings (loss) per common share - basic   $ (0.03 )   $ -     $ (0.02 )   $ 0.01  
                                 
Earnings (loss) per common share - assuming dilution   $ (0.03 )   $ -     $ (0.02 )   $ 0.01  

 

See accompanying notes

 

3
 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

    Six months ended June 30,  
    2013     2012  
             
Net income (loss) attributable to American Shared Hospital Services   $ (97,000 )   $ 24,000  
                 
Other comprehensive income (loss):                
Foreign currency translation adjustments     (60,000 )     -  
                 
Total comprehensive income (loss)     (157,000 )     24,000  
Less comprehensive income (loss) attributable to the non-controlling interest     (22,000 )     -  
                 
Comprehensive income (loss) attributable to American Shared Hospital Services   $ (135,000 )   $ 24,000  

 

See accompanying notes

 

4
 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

 

    PERIODS ENDED DECEMBER 31, 2011 AND 2012 AND JUNE 30, 2013  
                      Accumulated                          
                Additional     Other                 Non-controlling        
    Common     Common     Paid-in     Comprehensive     Retained     Sub-Total     Interests in        
    Shares     Stock     Capital     Income (Loss)     Earnings     ASHS     Subsidiaries     Total  
                                                 
Balances at January 1, 2011     4,597,000     $ 8,606,000     $ 4,703,000     $ -     $ 6,262,000     $ 19,571,000     $ 3,473,000     $ 23,044,000  
                                                                 
Stock based compensation expense     14,000       -       125,000       -       -       125,000       -       125,000  
                                                                 
Investment in subsidiaries by non-controlling interests     -       -       -       -       -       -       1,509,000       1,509,000  
                                                                 
Cash distributions to non-controlling interests     -       -       -       -       -       -       (996,000 )     (996,000 )
                                                                 
Net income     -       -       -       -       506,000       506,000       983,000       1,489,000  
                                                                 
Balances at December 31, 2011     4,611,000       8,606,000       4,828,000       -       6,768,000       20,202,000       4,969,000       25,171,000  
                                                                 
Repurchase of commone stock     (9,000 )     (28,000 )     -       -       -       (28,000 )     -       (28,000 )
                              -                                  
Stock based compensation expense     4,000       -       74,000       -       -       74,000       -       74,000  
                                                                 
Investment in subsidiaries by non-controlling interests     -       -       -       -       -       -       217,000       217,000  
                                                                 
Cumulative translation adjustment     -       -       -       (357,000 )     -       (357,000 )     (280,000 )     (637,000 )
                                                                 
Cash distributions to non-controlling interests     -       -       -       -       -       -       (780,000 )     (780,000 )
                                                                 
Net income     -       -       -       -       38,000       38,000       775,000       813,000  
                                                                 
Balances at December 31, 2012     4,606,000       8,578,000       4,902,000       (357,000 )     6,806,000       19,929,000       4,901,000       24,830,000  
                                                                 
Stock based compensation expense     3,000       -       57,000               -       57,000       -       57,000  
                                                                 
Investment in subsidiaries by non-controlling interests     -       -       -       -       (34,000 )     (34,000 )     67,000       33,000  
                                                                 
Cumulative translation adjustment     -       -       -       (38,000 )     -       (38,000 )     (22,000 )     (60,000 )
                                                                 
Cash distributions to non-controlling interests     -       -       -       -       -       -       (385,000 )     (385,000 )
                                                                 
Net loss     -       -       -       -       (97,000 )     (97,000 )     227,000       130,000  
                                                                 
Balances at June 30, 2013 (unaudited)     4,609,000     $ 8,578,000     $ 4,959,000     $ (395,000 )   $ 6,675,000     $ 19,817,000     $ 4,788,000     $ 24,605,000  

 

See accompanying notes

 

5
 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six Months ended June 30,  
    2013     2012  
Operating activities:                
Net income   $ 130,000     $ 455,000  
                 
Adjustments to reconcile net income to net cash from operating activities:                
                 
Depreciation and amortization     3,110,000       2,995,000  
                 
Deferred income tax     (6,000 )     -  
                 
Loss (gain) on foreign currency transactions     534,000       5,000  
                 
Stock based compensation expense     57,000       59,000  
                 
Loss (Gain) on sale of assets     -       3,000  
                 
Changes in operating assets and liabilities:                
                 
Receivables     (1,398,000 )     174,000  
                 
Prepaid expenses and other assets     162,000       (581,000 )
                 
Customer deposits/deferred revenue     (12,000 )     (25,000 )
                 
Accounts payable and accrued liabilities     1,014,000       (326,000 )
                 
Net cash from operating activities     3,591,000       2,759,000  
                 
Investing activities:                
Payment for purchase of property and equipment     (3,178,000 )     (3,709,000 )
                 
Investment in subsidiaries by non-controlling interests     -       79,000  
                 
Payment for repurchase of common stock     -       (29,000 )
                 
Investment in convertible preferred stock     (14,000 )     (31,000 )
                 
Net cash from investing activities     (3,192,000 )     (3,690,000 )
                 
Financing activities:                
Principal payments on long-term debt     (1,499,000 )     (1,950,000 )
                 
Principal payments on capital leases     (1,930,000 )     (1,833,000 )
                 
Long term debt financing on property and equipment     3,013,000       3,925,000  
                 
Advances on line of credit     229,000       350,000  
                 
Payments on line of credit     (79,000 )     (600,000 )
                 
Capital contributions from non-controlling interests     33,000       -  
                 
Distributions to non-controlling interests     (385,000 )     (539,000 )
                 
Net cash from financing activities     (618,000 )     (647,000 )
                 
Net change in cash and cash equivalents     (219,000 )     (1,578,000 )
                 
Cash and cash equivalents at beginning of period     1,564,000       2,580,000  
                 
Cash and cash equivalents at end of period   $ 1,345,000     $ 1,002,000  
                 
Supplemental cash flow disclosure:                
Cash paid during the period for:                
                 
Interest   $ 193,000     $ 1,204,000  
                 
Income taxes   $ 1,000     $ 86,000  
                 
Schedule of non-cash investing and financing activities                
Acquisition of equipment with capital lease financing   $ -     $ 264,000  

 

See accompanying notes

 

6
 

 

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’ consolidated financial position as of June 30, 2013 and the results of its operations for the three and six month periods ended June 30, 2013 and 2012, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2012 have been derived from audited financial statements.

 

These unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2012 included in the Company’s 10-K filed with the Securities and Exchange Commission.

 

These financial statements include the accounts of American Shared Hospital Services (the “Company”) and its wholly-owned subsidiaries: OR21, Inc. (“OR21”); MedLeader.com, Inc. (“MedLeader”); and American Shared Radiosurgery Services (“ASRS”); ASRS’ majority-owned subsidiary, GK Financing, LLC (“GKF”); GKF’s wholly-owned subsidiaries, GK Financing U.K., Limited (“GKUK”) and Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”); ASHS’ majority owned subsidiary, Long Beach Equipment, LLC (“LBE”), GKF’s majority owned subsidiaries, Albuquerque GK Equipment, LLC (“AGKE”), Jacksonville GK Equipment, LLC (“JGKE”) and EWRS, LLC (“EWRS”), and EWRS’ wholly owned subsidiary, EWRS Tibbi Cihazlar Ticaret Ltd Sti (“EWRS Turkey”).

 

The Company through its majority-owned subsidiary, GKF, provided Gamma Knife units to nineteen medical centers as of June 30, 2013 in the states of Arkansas, California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada, New Jersey, New Mexico, New York, Tennessee, Oklahoma, Ohio, Texas and Wisconsin, and in Turkey.

 

GKF also provides radiation therapy equipment to the radiation therapy department at the Gamma Knife site in Turkey. The Company also directly provides radiation therapy and related equipment, including Intensity Modulated Radiation Therapy (“IMRT”), Image Guided Radiation Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an existing Gamma Knife site in the United States.

 

The Company formed the subsidiaries GKUK, GKPeru, EWRS and EWRS Turkey for the purposes of expanding its business internationally into the United Kingdom, Peru and Turkey; LBE to provide proton beam therapy services in Long Beach, California; and AGKE and JGKE to provide Gamma Knife services in Albuquerque, New Mexico and Jacksonville, Florida. AGKE and EWRS Turkey began operation in the second quarter 2011 and JGKE began operation in the fourth quarter 2011. GKPeru is expected to begin operation in the latter part of 2014. GKUK is inactive and LBE is not expected to begin operations in 2013.

 

7
 

 

During 2012 and 2013, the Company’s partner in its Turkey operation, and its partners in the Jacksonville Gamma Knife operations have made investments in EWRS, and JGKE, respectively. These investments are included in the line item “Non-controlling interests in subsidiaries” in the Company’s financial statements.

 

Based on guidance provided in accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company analyzes its operations outside the United States to determine the functional currency of each operation. Management has determined that these operations are initially accounted for in U.S. Dollars since the primary transactions incurred are in U.S. Dollars and the Company provides significant funding towards the startup of the operation. When Management determines that an operation has become self-sufficient, the Company may change its accounting for the operation to the local currency from the U.S. Dollar, depending on the facts and circumstances. The Company determined that effective in the third quarter 2012, the functional currency for its Turkish operation, EWRS Turkey, was the Turkish Lira. Therefore, in accordance with ASC 830, EWRS Turkey’s balance sheet accounts were translated at rates in accordance with guidance provided under ASC 830, and accumulated gains and losses and translation differences were recorded in accumulated other comprehensive income (loss), which is a separate component of equity.

 

As of June 30, 2013 and December 31, 2012, EWRS Turkey’s balance sheet accounts were translated at rates in effect as of those dates, respectively, and income and expense accounts were translated at the weighted average rates of exchange during those respective periods. Translation adjustments resulting from this process were also recognized under accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in interest and other income in the Company’s Consolidated Statements of Operations. The Company recorded a net foreign currency loss of $393,000 and $534,000 for the three and six month periods ended June 30, 2013, respectively, and a net foreign currency gain of approximately $133,000 for the year ended December 31, 2012.

 

Based on guidance provided in accordance with 280 Segment Reporting (“ASC 280”), the Company has analyzed the factors that define an operating segment and determined that there is only one operating segment. The nineteen locations are aggregated into one reportable segment because, in the Company’s judgment, these operating segments have similar historical economic characteristics and are expected to have similar economic characteristics in the future. Furthermore, each operating segment utilizes the same business model and technologies, servicing the same end users (radiation therapy patients). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

8
 

 

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. For the three and six months ended June 30, 2013 basic earnings per share was computed using 4,606,000 common shares, and diluted earnings per share was computed using 4,609,000 and 4,613,000 common shares and equivalents, respectively. For the three and six months ended June 30, 2012 basic earnings per share was computed using 4,612,000 common shares and diluted earnings per share was computed using 4,640,000 and 4,639,000 common shares and equivalents, respectively.

 

The computation for the three and six month periods ended June 30, 2013 excluded approximately 608,000 of the Company’s stock options because the exercise price of the options was higher than the average market price during those periods. The computation for the three and six month periods ended June 30, 2012 excluded approximately 310,000 of the Company’s stock options because the exercise price of the options was higher than the average market price during the periods.

 

Note 3. Stock-based Compensation

 

On June 2, 2010, the Company’s shareholders approved an amendment and restatement of the 2006 Stock Incentive Plan (the “2006 Plan”). Among other things, the amendment and restatement renamed the 2006 Plan to the Incentive Compensation Plan (the “Plan”) and increased the number of shares of the Company’s common stock reserved for issuance under the Plan by an additional 880,000 shares from 750,000 shares to 1,630,000 shares. The shares are reserved for issuance to officers of the Company, other key employees, non-employee directors, and advisors. The Plan serves as successor to the Company’s previous two stock-based employee compensation plans, the 1995 and 2001 Stock Option Plans. The shares reserved under those two plans, including the shares of common stock subject to currently outstanding options under the plans, were transferred to the Plan, and no further grants or share issuances will be made under the 1995 and 2001 Plans. Under the Plan, there have been 115,000 restricted stock units granted, consisting primarily of annual automatic grants and deferred compensation to non-employee directors, and there are 608,000 options granted, of which 579,000 options are vested as of June 30, 2013.

 

Compensation expense associated with the Company’s stock-based awards to employees is calculated using the Black-Scholes valuation model. The Company’s stock-based awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimates. The estimated fair value of the Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest rate which are specific to each award. The estimated fair value of the Company’s options is amortized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Accordingly, stock-based compensation cost before income tax effect in the amount of $20,000 and $57,000 is reflected in net income for the three and six month periods ended June 30, 2013, compared to $27,000 and $59,000 in the same periods in the prior year, respectively. There were 18,000 options issued and no options exercised during both the three and six month periods ended June 30, 2013. There were no excess income tax benefits to report.

 

9
 

 

Note 4. Common Stock Investment

 

As of June 30, 2013 the Company has a $2,701,000 investment in the common stock of Mevion Medical Systems, Inc. (“Mevion”), formerly Still River Systems, Inc., representing an approximate 0.77% interest in Mevion.  Compared to December 31, 2012 the investment was $2,687,000 which represented a 1.0% interest in the convertible preferred stock of Mevion.  In order to remain preferred each investor was asked to contribute the pro rata share of their investment as of April 2013.  The Company chose not to make an additional investment at this time therefore the Company’s investment was converted from preferred stock to common stock in April 2013.  The Company accounts for this investment under the cost method.

 

In June 2013 Mevion announced that it had secured a $55 million round of financing which will be used to accelerate the manufacturing and deployment of the Mevion S250. The funds were raised from existing equity investors, as well as from debt financing. The Company invested an additional $14,000 in this round, which was less than its full entitlement.

 

The Company reviews its investment for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying value of the investment may not be recoverable. The Company evaluated this investment for impairment at December 31, 2012 and reviewed it at June 30, 2013 in light of both current market conditions and the ongoing needs of Mevion to raise cash to continue its development of the first compact, single room PBRT system. Based on its analysis, the Company estimates that there is currently an unrealized loss (impairment) of approximately $2.4 million.

 

In assessing whether the impairment is other than temporary, we evaluated the length of time and extent to which market value has been below cost, the financial condition and near term prospects of Mevion and our ability and intent to retain our investment for a period sufficient to allow for an anticipated recovery in the market value. Although the investment is not without risk, and the manufacture of the first unit has taken longer than originally anticipated, the Company believes that the current market value is a temporary situation brought on solely due to the delays in treating the first clinical patient.

 

During the second quarter of 2012, Mevion announced that it had received FDA 510(k) clearance for its MEVION S250 system, which enables users of the system to treat patients immediately upon completion of system installation. Mevion had previously announced that it had received the CE Mark certification which enables Mevion to market, sell and install these systems through the European Union and any country that recognizes the CE Mark. Based on the continuing progress being made by Mevion toward the manufacture and installation of the first single room PBRT system, the Company believes that our investment in Mevion is not other than temporarily impaired, and the fair value will increase so that the carrying value will be recovered.

 

Note 5. Line of Credit

 

The Company has a $9,000,000 renewable line of credit with a bank that has been in place since June 2004 and has a maturity date of August 1, 2014. The line of credit is drawn on from time to time as needed for equipment purchases and working capital. Amounts drawn against the line of credit are at an interest rate per year equal to the Bank’s prime rate minus 0.5 percentage point, or alternately, at the Company’s discretion, the LIBOR rate plus 1.0 percentage point, and are secured by the Company’s cash invested with the Bank. The Company is in compliance with all debt covenants under the agreement. The weighted average interest rate during the first six months of 2013 was 1.43%. At June 30, 2013, $8,700,000 was borrowed against the line of credit, compared to $8,550,000 at December 31, 2012.

 

10
 

 

Note 6. Fair Value of Financial Instruments

 

The Company’s disclosures of the fair value of financial instruments is based on a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The estimated fair value of the Company’s assets and liabilities as of June 30, 2013 and December 31, 2012 were as follows (in thousands):

 

    Level 1     Level 2     Level 3     Total     Carrying Value  
June 30, 2013                                        
                                         
Assets:                                        
Cash, cash equivalents, restricted cash   $ 10,395                     $ 10,395     $ 10,395  
Receivables     5,467                     $ 5,467       5,467  
Common stock investment             300             $ 300       2,701  
Total   $ 15,862     $ 300     $ -     $ 16,162     $ 18,563  
                                         
Liabilities                                        
Accounts payable and other accrued liabilities   $ 2,982                     $ 2,982     $ 2,982  
Advances on line of credit   $ 8,700                     $ 8,700     $ 8,700  
Debt obligations                     34,546     $ 34,546       34,268  
Total   $ 11,682     $ -     $ 34,546     $ 46,228     $ 45,950  
                                         
December 31, 2012                                        
                                         
Assets:                                        
Cash, cash equivalents, restricted cash   $ 10,614                     $ 10,614     $ 10,614  
Receivables     4,107                     $ 4,107       4,107  
Preferred stock investment             1,300             $ 1,300       2,687  
Total   $ 14,721     $ 1,300     $ -     $ 16,021     $ 17,408  
                                         
Liabilities                                        
Accounts payable and other accrued liabilities   $ 1,979                     $ 1,979     $ 1,979  
Advances on line of credit   $ 8,550                     $ 8,550     $ 8,550  
Debt obligations                     34,577     $ 34,577       34,684  
Total   $ 10,529     $ -     $ 34,577     $ 45,106     $ 45,213  

 

11
 

 

Note 7. Repurchase of Common Stock

 

In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares repurchased in the first or second quarter of 2013. In the second quarter 2012, the Company repurchased 9,000 shares at an average price of $3.26 per share. There are approximately 72,000 shares remaining under this repurchase authorization.

 

Note 8. Income Taxes

 

We generally calculate our effective income tax rate at the end of an interim period using an estimate of the annual effective income tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annual effective income tax rate cannot be made, we compute our provision for income taxes using the actual effective income tax rate for the year-to-date period. Our effective income tax rate is highly influenced by the amount of the nondeductible stock-based compensation associated with grants of our common stock options. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective income tax rate given the expected amount of these items. Because of this variability, a reliable estimate of the annual effective income tax rate for 2013 cannot be made. As a result, we have computed our provision (benefit) for income taxes for the three and six month periods ended June 30, 2013 by applying the actual effective tax rate to income (loss) for the period.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report to the Securities and Exchange Commission may be deemed to contain certain forward-looking statements with respect to the financial condition, results of operations and future plans of American Shared Hospital Services, which involve risks and uncertainties including, but not limited to, the risks of the Gamma Knife and radiation therapy businesses, the risks of developing The Operating Room for the 21 st Century® program, and the risks of investing in a development-stage company, Mevion, without a proven product. Further information on potential factors that could affect the financial condition, results of operations and future plans of American Shared Hospital Services is included in the filings of the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 11, 2013.

 

12
 

 

The Company had nineteen Gamma Knife units in operation on June 30, 2013 and June 30, 2012. Three of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Eleven of the Company’s nineteen current Gamma Knife customers are under fee-per-use contracts, and eight customers are under retail arrangements. The Company’s two contracts to provide radiation therapy and related equipment services to existing Gamma Knife customers are considered retail arrangements. Retail arrangements are further classified as either turn-key or revenue sharing. Revenue from fee per use contracts is recorded on a gross basis as determined by each hospital’s contracted rate. Under turn-key arrangements, the Company receives payment from the hospital in the amount of its reimbursement from third party payors, and is responsible for paying all the operating costs of the equipment. Revenue is recorded on a gross basis and estimated based on historical experience of that hospital’s contracts with third party payors. For revenue sharing arrangements the Company receives a contracted percentage of the reimbursement received by the hospital. The gross amount the Company expects to receive is recorded as revenue and estimated based on historical experience.

 

In July 2013, The Centers for Medicare and Medicaid (“CMS”) proposed to reimburse hospitals for a complete course of treatment comprised of a single session of Stereotactic Radiosurgery (“SRS”) at $8,576 effective January 1, 2014. This payment level would apply to single session treatment for all forms of SRS – Cobalt-60 SRS (Gamma Knife), robotic linear accelerator (LINAC) SRS or non-robotic LINAC SRS. By comparison, effective April 1, 2013, the Gamma Knife was reimbursed by CMS at $3,300 and during the period January 1, 2013 to March 31, 2013 at $7,910. This CMS proposed reimbursement rate is subject to comments from interested parties, and could change. Final CMS reimbursement rates are anticipated to be issued in fall 2013.

 

Medical services revenue increased by $299,000 and $564,000 to $4,583,000 and $9,251,000 for the three and six month periods ended June 30, 2013 from $4,284,000 and $8,687,000 for the three and six month periods ended June 30, 2012, respectively. The increases for both the three and six month periods are primarily due to two new contracts that began operation in the second quarter 2012 and first quarter 2013, and increased volume at the Company’s existing Gamma Knife sites. The increase in Gamma Knife revenue was offset by a decrease in radiation therapy revenue. The decrease was due to a decline in volume at the existing radiation therapy sites. Revenue from the Company’s radiation therapy contracts decreased for the three and six month period by $101,000 and $229,000 to $372,000 and $738,000, respectively.

 

The number of Gamma Knife procedures increased by 138 and 214 to 665 and 1,255 for the three and six month periods ended June 30, 2013 from 527 and 1,041 in the same periods in the prior year, respectively. The increase is primarily due to the start of operations at two new Gamma Knife sites that were not in operation during the first quarter 2012. For the three and six month period, volume at eight of the Company’s sites where Perfexion units have been installed increased by 35% and 25% respectively.

 

Total costs of revenue increased by $279,000 and $263,000 to $2,690,000 and $5,240,000 for the three and six month periods ended June 30, 2013 from $2,411,000 and $4,977,000 for the three and six month periods ended June 30, 2012, respectively. Maintenance and supplies increased by $137,000 and $128,000 for the three and six month periods ended June 30, 2013 compared to the same periods in the prior year, due to higher contract maintenance expense for Gamma Knife units. Depreciation and amortization increased by $165,000 and $94,000 for the three and six month periods ended June 30, 2013 compared to the same periods in the prior year, primarily due to the start of two new sites that began operation in the fourth quarter 2012 and first quarter 2013. Furthermore, there were two upgrades performed at existing sites during the first and second quarters of 2013. Other direct operating costs decreased by $23,000 and increased by $41,000 for the three and six month periods ended June 30, 2013 compared to the same periods in the prior year. The decrease for the three month period is due to lower operating costs in connection with the Company’s retail sites, partially offset by higher marketing costs. For the six month period, the increase is primarily due to higher property taxes, state and county taxes, and marketing costs, partially offset by lower operating costs at the Company’s retail sites.

 

13
 

 

Selling and administrative costs increased by $44,000 and $255,000 to $1,153,00 and $2,388,000 for the three and six month periods ended June 30, 2013 from $1,109,000 and $2,133,000 for the same periods in the prior year, respectively. For the three month period the increase is due to commission fees and higher amortization expense, partially offset by lower legal and travel expense. For the six month period the increase was primarily due to higher payroll related costs, accounting and consulting fees and rent expense, partially offset by reduced legal fees. The higher rent expense is due to accrued rent expense of approximately $115,000 in the first quarter 2013, relating to a sublease of a portion of the Company’s office space. The rent accrual is required because the Company subleased a portion of its existing office space through the remainder of its lease term at a rate lower than its lease rate, which resulted in a cumulative loss through the remainder of the lease term.

 

Interest expense decreased by $83,000 and $186,000 to $456,000 and $927,000 for the three and six month periods ended June 30, 2013 from $539,000 and $1,113,000 for the three and six month periods ended June 30, 2012. For both the three and six month periods, lower interest expense was driven by lower expense related to the more mature units. The mature units have lower interest expense because interest expense decreases as the outstanding principal balance of each loan is reduced.

 

Interest and other income decreased by $20,000 and $7,000 to a loss of $6,000 and gain of $8,000 for the three and six month periods ended June 30, 2013 from $14,000 and $15,000 for the three and six month periods ended June 30, 2012, respectively. For both the three and six month periods, the decrease was primarily due to the write off of net book value for disposed assets of $20,000 in second quarter 2013.

 

The loss from foreign currency transactions increased by $393,000 and $534,000 to a loss of $393,000 and $534,000 for the three and six month period ended June 30, 2013 due to unfavorable exchange rate variances. There was a net loss from exchange rate variances of $534,000 in the second quarter 2013 compared to a $0 loss in the same period in the prior year.

 

The Company had income tax benefit of $12,000 and income tax expense of $40,000 for the three and six month period ended June 30, 2013 compared to income tax expense of $13,000 and $24,000 for the three and six month periods ended June 30, 2012, respectively. For the three month period ended June 30, 2013 the Company recorded an income tax benefit due to the net loss recorded. The six month period ended June 30, 2013 included an estimate for state income taxes of $18,000.

 

14
 

 

Net income attributable to non-controlling interest decreased by $192,000 and $204,000 to $19,000 and $227,000 for the three and six month periods ended June 30, 2013 from $211,000 and $431,000 for the three and six month periods ended June 30, 2012. Non-controlling interest primarily represents the 19% interest of GK Financing owned by a third party, as well as non-controlling interests in subsidiaries of GK Financing owned by third parties that began operations in 2011. Variances in net income attributable to non-controlling interest represent the relative increase or decrease in profitability of GKF and these ventures. For the three and six month periods, the decrease in net income attributable to non-controlling interest was primarily due to the loss on unfavorable exchange rate variances.

 

The Company had a net loss of $122,000, or ($0.03) per diluted share, and $97,000, or ($0.02) per diluted share, for the three and six month periods ended June 30, 2013, compared to net income of $15,000, or $0.00 per diluted share, and $24,000, or $0.01 per diluted share, in the same periods in the prior year, respectively. For the three and six month period, the decrease in net income was primarily due to the loss on unfavorable exchange rate variances.

 

Liquidity and Capital Resources

 

The Company had cash and cash equivalents of $1,345,000 at June 30, 2013 compared to $1,564,000 at December 31, 2012. The Company’s cash position decreased by $219,000 due to payments for the purchase of property and equipment of $3,178,000, principal payments on long term debt and capital leases of $3,429,000, distributions to non-controlling interests of $385,000, and investment in convertible preferred stock of $14,000. These decreases were offset by net cash from operating activities of $3,591,000, capital contributions of $33,000, net advances on the Company’s line of credit with a bank of $150,000 and long term debt financing on the purchase of equipment of $3,013,000.

 

As of June 30, 2013, the Company has a $9,000,000 principal investment in a certificate of deposit with a bank at an interest rate of 0.45% and a maturity date in August 2013. At maturity date, the Company intends to roll over the certificate of deposit.

 

The Company has a two year renewable $9,000,000 line of credit with a bank, available as needed for equipment purchases and working capital. Amounts drawn against the line of credit are secured by the Company’s cash invested with the bank. At June 30, 2013 there was $8,700,000 drawn against the line of credit, compared to $8,550,000 at December 31, 2012.

 

The Company has scheduled interest and principal payments under its debt obligations of approximately $5,398,000 and scheduled capital lease payments of approximately $5,018,000 during the next 12 months. The Company believes that its cash flow from operations and cash resources are adequate to meet its scheduled debt and capital lease obligations during the next 12 months. 

 

The Company as of June 30, 2013 had shareholders’ equity of $24,605,000, working capital of $5,628,000 and total assets of $73,835,000.

 

15
 

 

Commitments

 

The Company has a $2,701,000 common stock investment in Mevion, a development stage company, which is considered a long-term investment on the balance sheet and is recorded at cost. As of June 30, 2013, the Company also has $3,000,000 in non-refundable deposits toward the purchase of three MEVION S250 proton beam radiation therapy (PBRT) systems from Mevion. The Company has entered into an agreement with a radiation oncology physician group which has contributed $400,000 towards the deposits on the third system. The Company’s first PBRT system has an anticipated delivery date in the first half of 2014.

 

The Company has made non-refundable deposits totaling $5,147,000 towards the purchase of a LGK Model 4 Gamma Knife unit to be installed at a site in Peru, a Perfexion unit at an existing customer site, and two Perfexion units scheduled to be installed at sites yet to be determined.

 

Including the commitments for the three MEVION S250 systems, the three Perfexion units, and the LGK Model 4 Gamma Knife unit, the Company has total remaining commitments to purchase equipment in the amount of approximately $40,000,000. It is the Company’s intent to finance the remaining purchase commitments as needed, and a financing commitment has been obtained for the first MEVION S250 system and for the unit in Peru. However, due to the current economic and credit market conditions it has been more difficult to obtain financing for some of the Company’s projects. The Company expects that it will be able to obtain financing on the commitments for the remaining Perfexion units. The Company also expects that it will be able to obtain financing commitments from lenders for its other two PBRT systems now that Mevion has obtained FDA approval on the MEVION S250. However, there can be no assurance that financing will be available for the Company’s current or future projects, or at terms that will be acceptable to the Company.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Company does not hold or issue derivative instruments for trading purposes and is not a party to any instruments with leverage or prepayment features. The Company does not have affiliation with partnerships, trusts or other entities whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements , and therefore has no exposure to the financing, liquidity, market or credit risks associated with such entities. At June 30, 2013 the Company had no significant long-term, market-sensitive investments.

 

Item 4. Controls and Procedures

 

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2013, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the chief executive officer and the chief financial officer, and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

16
 

 

There were no changes in our internal control over financial reporting during the three months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

None.

 

Item 1A. Risk Factors.

There are no changes from those listed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

 

Item 3. Defaults Upon Senior Securities.

None.

 

Item 4. [Removed and Reserved.]

 

Item 5. Other Information.

None.

 

Item 6. Exhibits.
(a) Exhibits

The following exhibits are filed herewith:

 

10.26b Second Amendment to Lease Agreement dated effective as of May 28, 1999, between GK Financing, LLC and Froedtert Memorial Lutheran Hospital, 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.)

 

17
 

 

10.35b Addendum Two to Lease Agreement dated effective as of October 31, 2012, between GK Financing, LLC and OSF Healthcare System (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.)

 

10.46a Addendum to Equipment Lease Agreement (Perfexion Upgrade) dated effective as of June 8, 2012, between GK Financing, LLC and Northern Westchester Hospital 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.)

 

31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101. The following materials from the Quarterly Report on Form 10-Q for American Shared Hospital Services for the quarter ended June 30, 2013, filed on August 14, 2013, formatted in XBRL: Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012; Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012; Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2013 and 2012; Condensed Consolidated Statement of Shareholder’s Equity for the periods ended December 31, 2011 and 2012 and six months ended June 30, 2013 (unaudited); Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012; and Notes to the Unaudited Condensed Consolidated Financial Statements, detail tagged.

 

18
 

 

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: August 14, 2013 /s/ Ernest A. Bates, M.D.
    Ernest A. Bates, M.D.
    Chairman of the Board and Chief Executive Officer
     
Date: August 14, 2013 /s/ Craig K. Tagawa
    Craig K. Tagawa
    Senior Vice President
    Chief Operating and Financial Officer

 

19

 

Exhibit 10.26b

  

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.

   

SECOND AMENDMENT TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT

 

This SECOND AMENDMENT TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT (this “Second Amendment”) is dated as of the 16 th day of May, 2013, and is entered into between GK FINANCING, LLC, a California limited liability company (“GKF”), and FROEDTERT MEMORIAL LUTHERAN HOSPITAL, INC., a non-profit Wisconsin corporation (“Medical Center”), with reference to the following facts:

 

RECITALS

 

A. GKF and Medical Center are parties to a certain Lease Agreement for a Gamma Knife United dated May 28, 1999, which Lease Agreement was amended by letter addendums and by a First Amendment dated December 29, 2008 (as amended, the “Agreement”).

 

WHEREAS, the parties desire to further amend the terms and provisions of the Agreement as set forth herein.

 

NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby amend the Agreement as follows:

 

AGREEMENT

 

1.            Defined Terms . Unless otherwise defined herein, the capitalized terms used herein shall have the same meanings set forth in the Agreement.

 

2.            Per Procedure Payment . In consideration of implementation of the American Tax Payer Relief Act of 2012, effective on May 1, 2013, Exhibit 1 of the Agreement (Per Procedure Payments) shall be deleted in its entirety and replaced with Exhibit 1 attached hereto. Provided, however, if Section 634 is modified or repealed, Medical Center shall pay to GKF the non-Medicare fee per procedure payment for Medicare procedures effective the date of the modification or repeal of Section 634.

 

3.            Full Force and Effect . Except as amended by this Second Amendment, all of the terms and provisions of the Agreement shall remain in full force and effect. Notwithstanding the foregoing, to the extent of any conflict or inconsistency between the terms and provisions of this Second Amendment and that of the Agreement, the terms and provisions of this Second Amendment shall prevail and control.

  

[Signatures continued on next page]

 

 
 

  

IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first written above.

 

GKF: Medical Center:
   
GK FINANCING, LLC FROEDTERT MEMORIAL LUTHERAN  HOSPITAL, INC.
   
By: /s/ Ernest A. Bates, MD By: /s/ Jeffrey Van De Kreeke
Name: Ernest A. Bates, MD Name: Jeffrey Van De Kreeke
Title: Policy Committee Member Title: VP – Finance

 

 
 

  

Exhibit 1

 

PER PROCEDURE PAYMENTS

 

Annual Paid Procedures   Non-Medicare   Medicare
Performed   Fee Per Procedure   Fee Per Procedure
*   *   *
*   *   *
*   *   *

 

Notwithstanding anything to the contrary set forth herein, (a) for purposes of determining the per procedure payment, the number of annual procedures performed shall be reset to zero (0) on each anniversary of the first day of the first full month after the Effective Date of this Agreement; (b) for purposes of determining the applicable per procedure payment tier, non-Medicare and Medicare procedures will be grouped chronologically as they are performed; and (c) there shall be no retroactive adjustment of the per procedure payment irrespective of whether the number of procedures performed during any fiscal year reaches a lower per procedure payment level. For example, if during an annual measuring period, * procedures are performed (of which * are non-Medicare procedures and * are Medicare procedures), then, (i) for each of the first * procedures performed (irrespective of the number of non-Medicare and Medicare procedures comprising the first * procedures), Medical Center would pay * for each non-Medicare procedure and * for each Medicare procedure; and (ii) for each of the next * procedures performed (irrespective of the number of non-Medicare and Medicare procedures comprising the next * procedures), Medical Center would pay * for each non-Medicare procedure and * for each Medicare procedure.

 

If no Procedures are performed utilizing the Equipment, no charges shall be incurred by Medical Center.

 

As used in the Agreement, a “Procedure” shall mean any treatment, whether performed on an inpatient or outpatient basis, that involves stereotactic, external, single fraction, conformal radiation, commonly called radiosurgery, that may include one or more isocenters during the patient treatment session, delivered to any site(s) superior to the foramen magnum, that is performed by Medical Center or its representatives or affiliates, irrespective of whether the Procedure is performed on the Model C or using any other equipment or devices.

 

Within then (10) days after Medical Center’s receipt of written request by GKF, GKF shall have the right to audit Medical Center’s books and records (including, without limitation, the books and records pertaining to any other radiosurgery equipment or devices) to verify the number of Procedures that have been performed by Medical Center, and Medical Center shall provide GKF with access to such books and records; provided that any patient names or identifiers shall not be disclosed.

 

 

 

 

Exhibit 10.35b

 

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.

 

ADDENDUM TWO

TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT

 

This ADDENDUM TWO TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT (this “Addendum Two”) is dated effective as of October 31, 2012, and is entered into between GK Financing, LLC, a California limited liability company (“GKF”) or its wholly owned subsidiary whose obligation under this Agreement shall be guaranteed by GKF, and OSF Healthcare System, an Illinois not for profit corporation, owner and operator of St. Francis Medical Center (“Medical Center”), with reference to the following recitals:

 

Recitals:

 

WHEREAS, on February 18, 2000, GKF and Medical Center executed a Lease Agreement for a Gamma Knife Unit, as amended by a certain Addendum to Lease Agreement for a Gamma Knife Unit dated as of April 13, 2007 (as amended, the “Lease”); and

 

WHEREAS, the parties desire to amend the terms and provisions of the Lease as set forth herein.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

Agreement:

 

1. Defined Terms . Unless otherwise defined herein, the capitalized terms used herein shall have the same meanings set forth in the Lease.

 

2. Extend System .

 

a. It is acknowledged that the Medical Center wishes to add the Extend system to the Perfexion Model.

 

b. Subject to the terms and conditions set forth in Section 3 (Per Procedure Payment) below, (i) GKF at GKF’s cost and expense shall add the Extend system to the Perfexion Model; and (ii) GKF shall use its commercially reasonable efforts to perform the Extend system addition in fourth quarter 2013.

 

 
 

 

Exhibit 10.35b

 

3. Per Procedure Payment .

 

a. Without modifying, amending or otherwise affecting the per procedure payments payable by Medical Center for the Perfexion Model under the Lease, commencing from and after the first clinical use of the Extend system, Medical Center shall pay to GKF a per treatment payment for using the Extend system, which payment shall be in the amount of * per treatment, irrespective of the number of treatments performed using the Extend system. As used in this Addendum Two, the term “treatment” shall mean each course of treatment (two to five fractions), whether performed on an inpatient or outpatient basis, during which a patient receives treatment using the Extend and/or any other equipment or devices that are used in lieu of, or as an alternative to, the Extend system. Medical Center shall be billed on the fifteenth (15th) and the last day of each month for the actual number of treatments performed using the Extend system during the first and second half of the month, respectively. Medical Center shall pay the treatments invoiced within thirty (30) days after being invoiced. Interest shall begin to accrue at the rate of 1-112% per month on all invoices remaining unpaid after 45 days.

 

4. Captions . The captions and paragraph headings used herein are for convenience only and shall not be used in construing or interpreting this Addendum Two.

 

5. Full Force and Effect . Except as amended by this Addendum Two, all of the terms and provisions of the Lease shall remain in full force and effect and shall be applicable to the Extend system, where appropriate; provided that, nothing set forth in this Addendum Two shall modify, amend or otherwise affect any of the parties respective obligations under the Lease with respect to the Perfexion Model.

 

IN WITNESS WHEREOF, the parties have executed this Addendum Two effective as of the date first written above.

 

GK FINANCING, LLC  

OSF HEALTHCARE SYSTEM,

owner and operator of Saint Francis

Medical Center

         
By: /s/ Ernest A. Bates, M.D.   By: /s/ Kevin D. Schocplein
         
Name:  Ernest A. Bates, M.D.   Name:  Kevin D. Schocplein
         
Title: GKF Policy Committee Member   Title: CEO

 

 

 

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.

 

AMENDMENT TO EQUIPMENT LEASE AGREEMENT
(PERFEXION UPGRADE)

 

This AMENDMENT TO EQUIPMENT LEASE AGREEMENT (PERFEXION UPGRADE) (this “Amendment”) is dated effective as of June 8, 2012 (the “Effective Date”), and is entered into by and among (i) GK FINANCING, LLC, a California limited liability company (“GKF”), whose address is Four Embarcadero Center, Suite 3700, San Francisco, CA 94111, and (ii) NORTHERN WESTCHESTER HOSPITAL CENTER, a not for profit corporation (“Hospital”), whose address is 400 East Main Street, Mount Kisco, NY 10549.

 

Recitals:

 

A.           GKF and Hospital entered into a certain Equipment Lease Agreement dated March 21, 2003 (the “Lease”), pursuant to which GKF agreed to lease to Hospital a Leksell Stereotactic Gamma Knife unit, Model C with Automatic Positioning System (the “Model C”).

 

B.           Hospital and GKF desire to amend the Lease to provide for the replacement and upgrade of the Model C that is currently being leased by GKF to Hospital pursuant to the Lease, with a Leksell Gamma Knife Perfexion unit (such Perfexion unit leased hereunder is referred to as the “Perfexion”), which will be installed at the existing Site at which the Model C is currently installed, and contemporaneously with the de-installation of the Model C (the “Perfexion Upgrade”).

 

Agreement:

 

NOW, THEREFORE , in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.            Defined Terms . Unless otherwise defined herein, the capitalized terms used herein shall have the same meanings set forth in the Lease.

 

2.            Upgrade of the Model C to the Perfexion .

 

a.           Subject to the terms and conditions set forth herein, GKF shall acquire and hold title to the Perfexion, and install the Perfexion with new cobalt-60 sources at the Site. GKF shall use its commercially reasonable efforts to complete the Perfexion Upgrade on or around _____________ or such other time as mutually agreed to in writing by Hospital and GKF, subject to availability of the Perfexion from the equipment manufacturer, issuance of all regulatory approvals, permits and/or waivers in a timely manner, and completion of construction of the Site. The parties acknowledge that Hospital may not be able to perform Procedures for approximately one (1) month during the Perfexion Upgrade and the deinstallation of the Model C. Concurrently with the execution of this Amendment, Hospital shall enter into a new LGK Agreement with Elekta, Inc., a Georgia corporation (“Elekta”), which shall supersede and replace the previous LGK Agreement attached as Exhibit 1 to the Lease (such new LGK Agreement shall hereinafter be referred to as the "LGK Agreement," and shall be deemed attached as Exhibit 1 to the Lease). Hospital shall operate and maintain a fully functional radiation therapy department at the Site which shall include the Perfexion. Use of the Perfexion shall be made available to all neurosurgeons and radiation oncologists with Hospital privileges.

 

- 1 -
 

 

Exhibit 10.46a

 

b.           Subject to Section 3.a below, Hospital shall be solely responsible for the construction and preparation of the Site and the rigging and installation of the Perfexion.

 

c.           GKF shall be solely responsible for maintenance and service, personal property taxes, and the cost of insurance coverage for the Perfexion to the same extent and at the same levels as required under the Lease.

 

d.           In connection with the Perfexion Upgrade, Hospital shall, at Hospital’s sole cost and expense, provide GKF with Hospital personnel (including Hospital physicists) and cooperation upon request and as reasonably required by GKF, among other things, to assist with compliance with local, state and federal regulatory requirements and with nuclear regulatory compliance issues and the calibration of the Perfexion.

 

e.           Notwithstanding the foregoing, the Perfexion Upgrade shall be performed by GKF only after all necessary and appropriate licenses, permits, approvals, waivers, consents and authorizations, and the proper handling of the Cobalt-60 (collectively, the “Permits”), have been obtained by Hospital at Hospital’s sole cost and expense.

 

f.            Upon request by GKF and at GKF’s reasonable expense, Hospital shall execute and deliver a commercially reasonable form of consent to sublease, subordination or other documentation if such a document is reasonably requested by the third party financing company which holds a security interest in the Perfexion.

 

g.           It is acknowledged that the Perfexion will come with two (2) new headframes. GKF agrees that Hospital shall, at no additional cost, retain its existing headframes from the Model C for use on the Perfexion, and that GKF shall, at GKF's sole cost and expense, refurbish such existing headframes for use on the Perfexion.

 

h.           GKF, at its cost and expense, shall cover the Perfexion training tuition costs for those physicians and physicists who will be using the Perfexion. Any travel and entertainment associated with training shall not be the responsibility of GKF.

 

i.            GKF hereby grants to Hospital a non-exclusive right and sublicense to use the "LGP Software" as defined in and contemplated under, and subject to the terms and conditions of, the LGK Agreement.

 

- 2 -
 

 

Exhibit 10.46a

 

j.            Upon receipt of Elekta’s report on the results of the Acceptance Tests (as defined in the LGK Agreement), Hospital shall have three (3) business days to review and validate the results of the Acceptance Tests to confirm that the Perfexion meets the manufacturer’s specifications and documentation. If Hospital fails to respond within such three (3) business day period, Hospital shall be deemed to have validated and confirmed the results of the Acceptance Tests.

 

3.            Model C; No Ownership Interests; Allocation of Shared Costs . Subject to Section 3.a below, GKF shall de-install, remove and retain all ownership rights and title to the existing Model C. Notwithstanding anything to the contrary set forth in the Lease or this Amendment, Hospital shall have no ownership interest (or option to purchase any ownership interest) in the Model C and/or the Perfexion.

 

a.            Allocation of Shared Costs . Notwithstanding anything set forth herein to the contrary, Hospital shall contribute the aggregate sum of * (the "Hospital Contribution") towards the costs payable to third parties pertaining to the construction and preparation of the Site, the rigging and installation of the Perfexion, and the de-installation and removal of the existing Model C (collectively, the "Shared Costs"), which Hospital Contribution shall be paid as set forth herein irrespective of the final aggregate amount of the Shared Costs. In furtherance of the foregoing, * of the Hospital Contribution (i.e., *) shall be paid to GKF upon the commencement of the deinstallation of the Model C, and the remaining * of the Hospital Contribution (i.e., *) shall be paid to GKF upon the successful completion of the Acceptance Tests as set forth in Section 2.j above. For the avoidance of doubt, Shared Costs shall only include direct costs actually paid to unaffiliated third parties, without administrative overhead or markup.

 

4.            Extension of Lease Term. In consideration of GKF’s agreement to perform the Perfexion Upgrade, the Term is hereby extended to the date that is ten (10) years following the “First Perfexion Procedure Date” (as hereinafter defined).

 

5.            Lease Payments .

 

a.           It is understood and agreed that Section 8.1 of the Lease (Per Procedure Payments) shall remain in full force and effect with respect to all Procedures performed prior to the de-installation of the Model C, and that all rent or lease payments pertaining to Procedures performed prior to the de-installation of the Model C shall continue to be calculated in accordance Section 8.1 of the Lease and shall be paid by Hospital to, and retained solely by, GKF. However, effective from and after the date the first Procedure is performed at the Site using the Perfexion (the “First Perfexion Procedure Date”), (i) the first paragraph only of Section 8.1 of the Lease shall be substituted and replaced with the following; and (ii) the remainder of Section 8.1 of the Lease (Per Procedure Payments) shall remain in full force and effect and shall apply to the Perfexion:

 

- 3 -
 

 

Exhibit 10.46a

 

"8.1 Per Procedure Payments. As rent for the lease of the Perfexion to Hospital pursuant to this Agreement, commencing from and after the First Perfexion Procedure Date, Hospital shall pay to GKF the sum as stipulated in Exhibit “A” attached hereto (under the caption, "Per Procedure Payments") for each “Procedure” that is performed by Hospital or its representatives or affiliates at the Site or within the State of New York at the direction of Hospital or any of its affiliates, whether on an inpatient or outpatient basis, or “under arrangement” (as used in the Medicare billing context), and irrespective of whether the Procedure is performed on the Perfexion or using any other equipment or devices. As used herein, a “Procedure” means any treatment that involves stereotactic, external, single fraction, conformal radiation, commonly called radiosurgery, that may include one or more isocenters during the patient treatment session, delivered to any site(s) superior to the foramen magnum. Hospital’s obligation to make Lease Payments pursuant to this Section 8.1 shall be expressly limited by Section 8.2, 8.3, and 8.4 hereof.

 

"Subject to the satisfaction in full of all of the "Payment Reduction Option Conditions," Hospital shall have the one-time option (the "Payment Reduction Option") in its sole discretion to effect a reduction to the Lease Payment, which reduction shall be in the amount of * per Procedure (i.e., if exercised, the Lease Payment would be as stipulated in Exhibit “A” attached hereto under the caption, "Per Procedure Payments With Payment Reduction Option"). As used herein, the "Payment Reduction Option Conditions" shall include all of the following: (a) Hospital shall have given prior written notice to GKF of Hospital's intent to exercise the Payment Reduction Option, which notice shall be given to GKF not less than sixty (60) days prior to the date of shipment of the Perfexion from Sweden (the "Perfexion Shipment Date"); (b) on or prior to the Perfexion Shipment Date, Hospital shall have paid to GKF by wire transfer a capital cost reduction payment in the amount of *; (c) no Hospital Event of Default (as defined in Section 20) has occurred and is then continuing, and no act or omission has occurred and is then continuing which, with the giving of notice and/or the passage of time, would constitute a Hospital Event of Default; and (d) Hospital is then in compliance and continues to be in compliance with all of the requirements set forth in this Agreement, including, without limitation, this Section."

 

b.           The parties acknowledge that the compensation payable by Hospital for the Perfexion as set forth in this Amendment has been negotiated by the parties at arm’s length based upon reasonable and jointly derived assumptions regarding the capacity for clinical services available from the Perfexion, Hospital’s capabilities in providing high quality radiation oncology services, market dynamics, GKF’s risk in providing the Perfexion, and the provision to GKF of a reasonable rate of return on its investment in support of the Perfexion. Based thereon, the Parties believe that the rent payments (including the reduced rent payments, if exercised) represent fair market value for the use of the Perfexion, the de-installation and removal of the Model C, the Perfexion Upgrade, maintenance and service, personal property taxes, cost of insurance coverage for the Perfexion, educational support, the capital cost reduction payment (if applicable), and any other additional services and costs to be provided or paid for by GKF pursuant to this Amendment. Hospital undertakes no obligation to perform any minimum number of procedures on the Perfexion, and the use of the Perfexion for the performance of procedures is wholly based upon the independent judgment of physicians who order such procedures to meet the medical needs of their patients.

 

- 4 -
 

 

Exhibit 10.46a

 

6.            Cobalt Reloading of the Perfexion . Subject to scheduling availability, around the end of the sixth (6th) year following the First Perfexion Procedure Date, the Perfexion shall be reloaded with new cobalt-60 that meets the manufacturer’s radioactivity level specifications (the “Reload”), subject to the following terms and conditions:

 

a.           Hospital shall be solely responsible for the rigging and installation of the Perfexion in connection with the Reload. The Reload shall be performed only after all necessary and appropriate licenses, permits, approvals, consents and authorizations, including, without limitation, the proper handling of the cobalt-60 (collectively, the “Reload Permits”), have been obtained by Hospital at Hospital’s sole cost and expense. The timing and procedure for such Reload shall be as mutually agreed upon between the parties.

 

b.           GKF makes no representation or warranty to Hospital concerning the Reload, and GKF shall have no obligation or liability to pay any damages to Hospital resulting therefrom, including, without limitation, any lost revenues or profits during the period of time that the Perfexion is unavailable to perform procedures due to the Reload process.

 

c.           Upon request and as required by GKF, Hospital, at Hospital’s cost and expense, shall provide GKF with Hospital personnel (including Hospital’s physicists) and services in connection with the Reload, among other things, to oversee, supervise and assist with construction and compliance with local, state and federal regulatory requirements and with nuclear regulatory compliance issues and the calibration of the Perfexion.

 

d.           Subject to Section 6.a above, GKF shall be solely responsible for the actual costs of the Reload paid or payable to third parties; provided that Hospital shall not be entitled to reimbursement for its own respective personnel costs, internal costs or overhead.

 

e.           Upon completion of the Reload, the Term (as extended pursuant to Section 4 above) shall be automatically further extended by an additional two (2) years (i.e., to the date that is twelve (12) years following the First Perfexion Procedure Date), plus the period of time that the Perfexion is unavailable to perform procedures due to the Reload (which is estimated to take approximately three (3) weeks for the Reload).

 

7.            Educational Support . Hospital’s obligations with respect to community and physician education regarding the Perfexion shall continue in the same manner and with the same amounts as set forth in Section 7 of the Lease; provided that community education activities may be expanded to the general public (in addition to physicians).

 

- 5 -
 

 

Exhibit 10.46a

 

8.            Charity/Excluded Procedures .

 

a.           As a means to permit Hospital to perform care for persons who are not covered by insurance programs and who do not have the means to pay for such procedures based upon Hospital’s adopted standards of indigency, GKF shall waive the per procedure Lease Payment for not more than * Perfexion procedure to be performed for an indigent person meeting the foregoing qualifications (a “Charity Procedure”) for each * paid Perfexion procedures (without counting any Charity Procedures) for which a per procedure Lease Payment is made to GKF. For purposes of counting the number of Perfexion procedures to determine the number of Charity Procedures allowed, there shall be no retroactive counting of procedures performed prior to the date of the First Perfexion Treatment Date. Hospital shall be solely responsible (and GKF shall not in any manner be or become responsible) for determining (i) whether any person described herein requires a Perfexion procedure, (ii) who shall receive a Perfexion procedure hereunder if more than * person described herein requires a Perfexion procedure, and (iii) whether any person meets the standards of indigency. Hospital shall provide reasonable written documentation evidencing satisfaction of the conditions set forth herein to GKF at or prior to the expected time of treatment.

 

b.           As a means of accommodating differing medical judgment and medical preference for alternative treatment modalities, for each annual period commencing from and after the First Perfexion Procedure Date, GKF shall waive the per procedure Lease Payment for not more than * procedures that are performed using equipment or devices other than the Perfexion (each, an “Excluded Procedure”).

  

  9.          Supplier and Owner of Perfexion . The parties hereto agree that, notwithstanding anything to the contrary set forth herein, the Lease is and shall be treated and interpreted as a "finance lease," as such term is defined in Article 2A of the Uniform Commercial Code, that GKF shall be treated as a finance lessor who is entitled to the benefits and releases from liability accorded to a finance lessor under Article 2A of the Uniform Commercial Code. In furtherance of the foregoing, Hospital acknowledges that, before signing this Amendment, GKF has informed Hospital in writing (a) that Elekta is the entity supplying the Perfexion, (b) that Hospital is entitled (under Section 2A of the Uniform Commercial Code) to the promises and warranties, including those of any third party, provided to GKF by Elekta which is the entity supplying the goods in connection with or as part of the contract by which GKF acquired the Perfexion or the right to possession and use of the Perfexion, and (c) that Hospital may communicate with Elekta and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. Hospital also acknowledges that Hospital has selected Elekta to supply the Perfexion and has directed GKF to acquire the Perfexion or the right to possession and use of the Perfexion from Elekta.

 

10.          Miscellaneous . This Amendment (a) shall be governed by and construed under the laws of the State of New York, without reference to its principles of conflicts of law; and (b) may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts shall together constitute the same instrument. The captions and paragraph headings used herein are for convenience only and shall not be used in construing or interpreting this Amendment. This Amendment constitutes the full and complete agreement and understanding between the parties hereto concerning the subject matter hereof and shall supersede any and all prior written and oral agreements with regard to such subject matter.

 

- 6 -
 

 

Exhibit 10.46a

   

11.          Full Force and Effect ; Except as amended by this Amendment, all of the terms and provisions of the Lease shall remain unchanged and in full force and effect and, together with this Amendment, represent the entire agreement of the parties with respect to the Perfexion and its use by Hospital. Unless the context requires otherwise, with respect to the Perfexion, all references in the Lease to (i) the “Agreement” shall be deemed to mean the Lease as amended by this Amendment; (ii) the “Equipment” shall be deemed to mean the Perfexion; (iii) the “LGK Agreement” shall be deemed to refer to the new LGK Agreement to be executed by Hospital relating to the Perfexion; and (iv) the “Term” shall be deemed to refer to the Term, as extended pursuant to this Amendment. To the extent any of the terms of the Lease conflict with the terms of this Amendment as it pertains to the Perfexion and the Perfexion Upgrade, the terms and provisions of this Amendment shall prevail and control. Where not different or in conflict with the terms and provisions of this Amendment, all applicable terms and provisions set forth in the Lease are incorporated within this Amendment as is if set forth herein and shall apply with equal force and effect to the Perfexion. Notwithstanding anything to the contrary set forth herein, no term or condition of this Agreement shall be effective to the extent it causes Hospital to breach the LGK Agreement or otherwise violate or infringe upon the rights of Elekta. Nothing set forth in this Amendment shall relieve either party from any or all of its obligations under the Lease with respect to the Model C, including, without limitation, the obligation to pay rent or lease payments and the service, insurance and property tax expenses associated with the Model C until de-installation.

 

IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the Effective Date.

 

GKF:   Hospital:
     
GK FINANCING, LLC   NORTHERN WESTCHESTER HOSPITAL
CENTER
       
By: /s/ Ernest A. Bates, MD   By: /s/ Joel Seligman
  Ernest A. Bates, M.D.   Joel Seligman
  Policy Committee Member   President and CEO
  Date: June 15, 2012   Date: 6/13/12

 

- 7 -
 

 

Exhibit 10.46a

 

Exhibit “A”

 

PER PROCEDURE PAYMENTS

 

Annual Paid Procedures Performed   Per Procedure Payment
*   * per Procedure
*   * per Procedure
*   * per Procedure

 

PER PROCEDURE PAYMENTS

WITH PAYMENT REDUCTION OPTION

 

Annual Paid Procedures Performed   Per Procedure Payment
*   * per Procedure
*   * per Procedure
*   * per Procedure

 

Notwithstanding anything to the contrary set forth herein, for purposes of determining the Per Procedure Payments, (a) only those Procedures performed on or after the First Perfexion Procedure Date shall be counted; (b) the number of annual Procedures performed on the Perfexion or using any other equipment or devices shall be reset to zero (0) at the commencement of each anniversary of the First Perfexion Procedure Date; (c) Charity Procedures and Excluded Procedures shall not be counted towards the annual Procedures performed; and (d) there shall be no retroactive adjustment of the Per Procedure Payments irrespective of whether the number of Procedures performed reaches a lower Per Procedure Payment level. For example, if during an annual measuring period, the number of annual counted Procedures totals *, then, the Per Procedure Payments for the first * Procedures would remain at * per Procedure while the Per Procedure Payments for the next * procedures (i.e., for Procedures * through *) would be * per Procedure (assuming the Payment Production Option has not been exercised). There are no minimum volume requirements.

 

- 8 -
 

 

Exhibit 10.46a

 

 

 

Prepared for

 

Northern Westchester Hospital
400 East Main Street
Mount Kisco, NY 10549-3477

 

April 16, 2012

 

- 1 -
 

 

LEKSELL GAMMA KNIFE® END USER AGREEMENT

 

THIS AGREEMENT is entered into as of the 8 day of June                  2012 by and between ELEKTA, INC., a corporation organized and existing under the laws of Georgia (hereinafter referred to as “Elekta”), and Northern Westchester Hospital,. (hereinafter referred to as “End User”).

 

WITNESSETH:

 

WHEREAS, Elekta has agreed to sell the “Leksell Gamma Knife®” system (hereinafter defined and referred to as the “LGK®”) to GK Financing, LLC., hereinafter referred to as “Buyer”), and

 

WHEREAS, Buyer has agreed to lease the LGK® to End User under separate agreement.

 

WHEREAS, Elekta and End User wish to enter this Agreement for their mutual benefit;

 

NOW THEREFORE, in consideration of the mutual covenants and obligations, warranties and indemnities herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I. DEFINED TERMS.

 

The following words and terms shall have the meanings set forth opposite them in this Article I:

 

Acceptance Tests are those tests which demonstrate that the LGK® meets the manufacturer’s specification and which are defined in the Purchase Agreement between Buyer and Elekta.

 

Charging means all handling of the Cobalt Supply at the Site and the installation of such Cobalt Supply in the LGK®.

 

Cobalt Supply means the supply of the Cobalt-60 sources to be installed in the LGK®.

 

Effective Date is the date of execution of this Agreement by the End User, as indicated in this Agreement.

 

Hardware shall mean that computer hardware and related equipment described in the Specification.

 

Lease Agreement shall mean the Agreement between Buyer and End User pursuant to which Buyer shall lease the LGK® to End User.

 

LGK® is the device, which is technically specified in Exhibit A hereto, to be sold, delivered, and installed by Elekta at the Site.

 

LGP Software means the dose planning software for the LGK®, which is described in the Specification.

 

Site shall mean that location described on the Exhibit B hereto.

 

Site Planning Criteria are the requirements which the Site must meet to properly accommodate the LGK® and are defined in the Purchase Agreement between Elekta and Buyer.

 

Specification refers to the technical standards with which the LGK® shall comply, as described in Exhibit A hereto.

 

ARTICLE II. PERMITS

 

2.1 Permits . End User shall obtain any license (the “User License”) from the Nuclear Regulatory Commission (or relevant state agency if the Site is located in an “Agreement State”) 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 LGK® with its Cobalt Supply, the conduct of Acceptance Tests, and the use of the LGK®. End User shall not run, operate, or otherwise use the LGK®, except for the purpose of conducting the Acceptance Tests, until the Acceptance Tests have been successfully completed.

 

ARTICLE III. OPERATION AND TRAINING.

 

3.1           Operation. End User warrants and covenants that the LGK® shall not be run, operated or otherwise used, except by and to qualified employees or physicians, who are suitably skilled and experienced to use the LGK®.

 

3.2           Technical Training. Elekta shall provide to four (4) persons on the Buyer’s staff instruction relating to the technical operation and maintenance of the LGK. Such instruction shall not exceed two consecutive days and will be provided on site by installation personnel at the time of install.

 

3.3           Introductory Clinical Training. Introductory Clinical Training Program. Indications, Technique, Literature, etc. Length of training is 5 consecutive days. Up to four (4) training spaces included (Tuition only). May be substituted for Technical/Applications training course at Elekta Sweden as noted on Exhibit A.

 

3.4           Post Clinical Start Up Site Visit . Elekta shall provide a one-day site visit from one Clinical Applications representative. The visit must be arranged within 3-6 months post clinical start up. The commitment will expire thereafter unless documented alternate arrangements are made. The purpose is to ensure the customer is comfortable using all features in the Leksell GammaPlan® PFXTM software.

 

3.5           LGK® Software . Elekta hereby consents to Buyer’s sublicense to End User of the LGK® Software, to be utilized only for the purpose of planning dosages of treatments to be performed with the LGK®. A copy of the LGK® Software License from Elekta to Buyer is attached hereto as Exhibit D End User agrees that its sublicense to the LGK® Software shall be subject to the terms and conditions of Exhibit D hereto. End User grees, in favor of Elekta, to perform the obligations assigned to Buyer in Exhibit D hereto. In the event the sublicense of the LGK® Software from Buyer to End User is terminated due to an act or omission of Buyer and without fault of the End User, then End User shall have the right to obtain from Elekta a direct royalty-free license to utilize the LGK® Software on the terms and conditions described in Exhibit D hereto.

 

- 2 -
 

 

3.6           Intellectual Property .

 

(a)          End User hereby acknowledges that the trademarks Gamma Knife® and Leksell Gamma Knife® (collectively, the “Mark”) are protected by United States federal registrations and the Mark constitutes valuable intellectual property of an affiliate of Elekta in which it has established substantial goodwill. End User hereby acknowledges that proper use of the Mark in any advertising of End User’s own surgical services performed with the LGK® surgical instrument is highly important to maintaining such value and goodwill.

 

(b)          Subject to the terms and conditions of this section, Elekta, as agent for Elekta Instrument, S.A. of Geneva, Switzerland, the owner of the Mark, hereby grants End-User a non-exclusive, royalty-free license without right to sublicense solely for the purpose of using the Mark in connection with the promotion and advertising of any of End User’s own services to be performed by use of the LGK® surgical instrument.

 

(c)          End User, in the conduct of End User’s business, is strictly prohibited from using the Mark in or as its official legal name. However, End User may use the trademark as part of the following fictitious trade name:

 

“Gamma Knife® ® Center of Northern Westchester Hospital”

 

As long as End User utilizes a fictitious trade name which includes the Mark, End User shall not perform radiosurgical services with any equipment other than the LGK®. If End User performs any radiosurgical service with any equipment other than the LGK® or if End User ceases to perform radiosurgical services with the LGK®, End User shall immediately cease utilizing the Mark as part of its fictitious trade name.

 

(d)          In advertising, references to the Mark must include the registration symbol ® and such symbol must be used at least once per piece of advertising material along with the words “Gamma Knife® and Leksell Gamma Knife® are U.S. federally registered trademarks of Elekta Instrument S.A.., Geneva, Switzerland” somewhere in the advertisement. Elekta reserves the right to require End User to discontinue the use of advertising that does not conform to such requirements.

 

(e)          End User may use the words “Gamma Knife® Center of [ add distinctive name ]” as part of any internet domain name, or URL, telephone number or other communications address or symbol provided that the full name, “Gamma Knife® Center of [ add distinctive name ]” is used. User may use a variation or abbreviation of such term only after obtaining Elekta’s prior written consent to the proposed use in question. User may not under any circumstances, use the words “gamma Knife® ” alone, for any internet domain name, or URL, telephone number or other communications address or symbol.

 

(f)          All advertising or promotional materials in which the mark is utilized shall comply with all applicable laws and regulations as well as the standards of proper advertising.

 

(g)         Elekta shall have the right to terminate the license granted in this section with immediate effect if End User violates any provision of this section or utilizes the Mark in any manner which, in the sole opinion of Elekta, presents a reasonable possibility of damage to the Mark.

 

(h)         Upon termination of the license granted by this section, End User shall immediately cease all use of the mark, including, but not limited to, the use permitted under subsection (e) of this section.

 

(i)          Buyer acknowledges that a breach of any of its covenants or agreements hereunder will cause immediate and irreparable harm to Elekta and Elekta Instrument S.A. End User acknowledges and agrees that no adequate remedy at law exists for any such breach, and End User agrees that in the event of such a breach Elekta shall be entitled to injunctive relief and such other relief as any court with jurisdiction may deem just and proper.

 

ARTICLE IV. CONFIDENTIALITY

 

4.1          End User shall treat and maintain as confidential all technical information and know-how to it pursuant to this Agreement (including LGK® Software), except for know-how specifically designated as non-confidential pursuant to this Agreement or otherwise so designated by the Elekta. End User shall not disclose any aspect of such know-how (including the LGK® Software) to any other Person, including any corporation or governmental or quasi-governmental agency; provided that, End User shall have the right to disclose such know-how to its employees and resident physicians to the extent necessary for use of the LGK®, but End User shall be responsible to ensure that such know-how is not disclosed by such persons.

 

4.2          The provisions of this Article IV shall survive the termination of this Agreement and shall apply with equal force to any technical information or know-how concerning the LGK® acquired by End User other than pursuant to this Agreement.

 

4.4          The obligations of confidentiality and restriction of access pursuant to this Article IV shall not apply to any trade secret or confidential information that was (a) in the public domain at the time of such access or subsequently came in to the public domain through no fault of the Person subject to the provisions of Article IV; (b) rightfully known to the Person given such access prior to such access or developed independently by the Person given such access; (c) received by the Person given such access as a matter of right from a source other than a Person subject to the provisions of this Article IV; or (d) required to be disclosed by subpoena or court order, but Buyer shall give immediate notice of such subpoena or court order to Elekta and shall request the court to grant confidential treatment to the confidential information disclosed pursuant to such subpoena or court order.

 

ARTICLE V. WARRANTY AND REPAIR SERVICE AGREEMENT

 

5.1          Elekta provides the warranty for the LGK® set forth in Exhibit C hereto.

 

5.2          On the date on which the Installation Test Protocol is completed, a Repair Service Agreement shall be in effect for five (5) years with the purpose of providing repair parts and services for the LGK® as per the Purchase Agreement between Buyer and Elekta.

 

ARTICLE VI. EXCUSABLE DELAYS

 

If the performance of this Agreement by Elekta or Buyer or any obligation of Elekta or Buyer hereunder is prevented, restricted or interfered with by reason of fire, explosion, acts of God, labor disputes or accidents affecting performance under this Agreement, or war, mobilization, civil commotions, blockade or embargo, or any law, regulation, ordinance or requirement of any government or regulatory agency, or any other act whatsoever similar to those above enumerated, or any other circumstance being beyond the reasonable control of Elekta or Buyer, then and in that event Elekta or Buyer, as the case may be, shall promptly notify the other parties hereto of the resulting difficulties therefrom, and any of the foregoing events shall excuse any performance required under this Agreement.

 

- 3 -
 

 

ARTICLE VII. LIMITATION OF LIABILITY; INDEMNIFICATION.

 

7.1          The exclusive remedies of End User and Elekta’s sole liabilities for breaches of this Agreement shall be limited to those specifically provided for in Section 5.1 (and Exhibit E hereto) and in this Article VII. In no event shall Elekta be liable to End User for loss of use, revenue or profit, or for any other direct, indirect, incidental or consequential damage, whether arising in contract or tort.

 

7.2          Elekta shall defend and indemnify End User and its Affiliates, agents, servants and employees, and hold them harmless from and against all damages, claims, judgments and liabilities by or to third parties (plus litigation costs incurred) resulting from injury to or death of any person or physical loss or damage to property arising out of defective materials, workmanship, or manufacture of the LGK® or the defective maintenance of the LGK® (but, with respect to maintenance, only to the extent performed by or on behalf of Elekta).

 

7.3          End User shall defend and indemnify Elekta and its Affiliates, agents, servants, and employees and hold them harmless from and against all damages, claims, judgments and liabilities by or to third parties (plus litigation costs incurred) resulting from injury to or death of any person or physical loss or damage to property arising out of the operation or medical use or misuse of the LGK® by or for End User (but which is not attributable to defective materials, workmanship or manufacture of the LGK®), the defective maintenance of the LGK® by or for End User (but only to the extent not performed by or on behalf of the Elekta), the failure of the Site to comply with the Site Planning Criteria, or the training provided by Elekta.

 

ARTICLE VIII. MISCELLANEOUS PROVISIONS.

 

8.1           Assignment. No party hereto shall assign its respective rights or obligations under this Agreement (including the LGP Software License) in whole or in part to any person without the prior written consent of the other party, except as provided in this Section 8.2 hereinafter. In the event of any assignment or transfer by End User of its rights or duties under this Agreement or the Lease or of any sale, transfer, lease or sublease of the LGK® or any component thereof to a third party, End User shall obtain the prior approval of Elekta of the proposed transferee (such approval not to be unreasonably withheld) and cause such transferee, prior to such transfer, to sign (1) an agreement that any acquired interest in the LGK® System is subject to the terms and conditions of this Agreement and evidencing such transferee’s agreement to be bound, to the same extent as End User, by the then-surviving provisions of this Agreement, including but not limited to the technical and scientific information provisions (Section 3.3), the confidentiality provisions (Article IV), the provisions of Articles V and VII hereof, and the provisions of the LGK® Software License or (2) a similar agreement otherwise approved by the Elekta, which approval shall not be unreasonably withheld.

 

8.2           Subcontractors . Elekta shall be entitled to appoint subcontractors or any other third parties for the performance or fulfillment in whole or in part of Elekta’s obligations under this Agreement without the consent of End User, and Elekta shall be fully responsible and liable for the performance of other entities. Elekta shall be entitled to assign any of its rights or obligations hereunder to any of its Affiliates without the consent of End User, but Elekta agrees that it will be fully responsible for any obligations assigned to Elekta’s Affiliates hereunder.

 

8.3           Arbitration. All disputes arising in connection with this Agreement shall be finally resolved by arbitration in Atlanta, Georgia under the Commercial Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of such award and an order of enforcement as the case may be. The parties hereby agree the rendering of an award by the arbitrator or arbitrators shall be a condition precedent to the initiation of any legal proceeding with respect to any dispute arising in connection with this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia and the United States.

 

8.4           Entire Agreement . This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior or contemporaneous agreements, negotiations or discussions between the parties with respect to the subject matter hereof. No amendment of the provisions of this Agreement will be valid unless made in writing and signed by both parties hereto..

 

IN WITNESS WHEREOF, the parties hereto have signed this Agreement in duplicate as of the date first written above.

 

ELEKTA INC.

 

By: /s/ Timothy R. Chandler  
Title: Secretary and Legal Counsel  
Date: 8/13/2012  
     
END USER  
     
By: /s/ Joel Seligman  
     
Title: President  
     
Date:  6/15/12  

 

- 4 -
 

 

EXHIBIT A

SPECIFICATION

 

Leksell Gamma Knife® PERFEXION TM

 

PRODUCT SPECIFICATION
Standard turn-key system

  

Qty   Description   Article no.
1   Leksell Gamma Knife ® PERFEXION TM   715000
2   Leksell ® Coordinate Frame TM Kit for PERFEXION TM   1002407
1   Leksell GammaPlan ®   in BOM
1   PERFEXION TM system tool kit    
1   LSS Spare Part Kit for Leksell ® Coordinate Frame TM   1002406
1   Skull scaling instrument   A0202-01
1   CT planning kit    
1   MRI planning kit    
1   X-ray planning kit    
1   Set of Co 60 sources   2000000
    Cobalt loading    
    Site planning    
    Installation and commissioning    
         
1   Support and Education & Training for PERFEXION TM   SER PERFEXION 0001

 

- 5 -
 

 

Leksell Gamma Knife ® PERFEXION TM

 

Radiation unit

- With radiation shielding doors and collimator system.

 

Patient Positioning System TM

- Patient couch and automatic Patient Positioning System.

 

Covers for radiation unit and Patient Positioning System

 

Electric cabinet

- Electric cabinet with cabling

- ECU - central unit and safety system electronic board, circuit breakers and cabling.

- SDU - sector drive electronic board, circuit breakers and cabling

- PPC1- software

- PPC2- software

- Medical UPS

 

Operator area

- Office cabinet

- Keyboard and mouse

- Operator console with patient and operator audio/video, power supply, opto insulators, cabling and connectors Flat screen monitors

Office UPS

 

MCU kit

MCU PC with USB CAN

MCU software

 

Treatment couch

Height adjustable mattress

Manual controls for treatment setup

 

Frame adapter

Model “Standard G”. For interfacing between Leksell Coordinate Frame model G and

Leksell Gamma Knife PERFEXION TM .

 

Clearance check tool

 

Document set

Installation and supplementary documents

2 instructions for use

2 emergency routines

Signs and labels

 

- 6 -
 

 

Leksell ® Coordinate Frame ® Kit for PERFEXION TM

 

Includes:        
Qty   Consists Of:   Article No.
1   Frame with Feet and Straight Front Piece   50487-01
1   Front Piece, Curved   60638-01
2   Insulated Fixation Post, Anterior   912462
2   Insulated Fixation Post, Short Posterior   912463
2   Insulated Fixation Post, Long Posterior   912862
6   Locking Screw, 5 x 19 mm, Titanium   60490-03
6   Locking Piece for Fixation Post   60497-01
1   Ear Plug Holder, Right   50498-01
1   Ear Plug Holder, Left   50498-02
2   Ear Plug   60136-01
1   Fixation Screws, Titanium, kit of 20 pairs   907999
2   Instrument Screw Driver, Double   50146-02
1   Sterilizing Tray for Frame   50151-03
4   Disposable Inserts, 25x4 pieces   912464
1   Instruction for Use, Leksell® Coordinate Frame kit   003818
1   Instructions for Use, Insulated Fixation Posts   012594
1   Quick Reference Guide   014611

 

PERFEXION TM system tool kit

Includes:

QA tool 1001182
- For radiation focus precision check.  
Frame Cap 717960

 - The frame cap is used during patient preparation for a treatment with Leksell Gamma Knife ® PERFEXION TM .

 

LSS Spare Part Kit for Leksell ® Coordinate Frame TM

Consists of 4 pieces of each of the following;

- Locking Screw, 5 x 19 mm, Titanium

- Locking Piece for Fixation Post

- Screw, 4 x 10 mm, Titanium

 

Skull scaling instrument

For measurement of skull shape for Leksell GammaPlan ® modeling

 

CT planning kit

Includes:

CT indicator A0800-11
- Fiducial box for CT imaging procedure  
CT adapter A0400-04
- Fixating the stereotactic frame to the CT table fixation  
CT table fixation A0401-XX
- Fixating the CT adapter to specified CT table.  

 

- 7 -
 

 

MRI planning kit  
Includes:  
MR adapter A0420-XX
- Fixating the stereotactic frame to specified MR table.  
MR indicator A0820-07
- Fiducial box for MR imaging procedure  
   
X-ray planning kit  
Includes:  
X-ray indicator A0860-04
- Fiducial box for angiography imaging procedure  
X-ray adapter and support A0440-XX
- Fixating the stereotactic frame to specified angiography table.  

 

Standard LGP for LGK PERFEXION

 

Includes one (1) Leksell GammaPlan® (LGP) license for creating new treatment plans for Leksell Gamma Knife® PERFEXIONTM .This main license allows the addition, management and storage of an unlimited number patient records and treatment plans. LGP also allows the visualization of treatment plans created at other LGK units.

 

Leksell GammaPlan® for Leksell Gamma Knife® PERFEXION TM includes:

 

1         STANDARD LGP FOR PERFEXION LICENSE

 

Includes one (1) Leksell GammaPlan® (LGP) license for creating new treatment plans for Leksell Gamma Knife® PERFEXIONTM .This main license allows the addition, management and storage of an unlimited number patient records and treatment plans. LGP also allows the visualization of treatment plans created at other LGK units.

 

1         RETREATMENT TM LICENSE

 

This software add-on facilitates planning of treatments days before surgery, the assessment of treatments and re-treatments. Users are free to plan days ahead of treatment, to prepare tomorrow’s follow-ups and plan additional treatment. ReTreatment TM also lets any user to integrate images and vital treatment information from previous plans. It is a powerful tool to import and display previous key treatment data in the new treatment images. Imported data are user defined regions (targets, risk structures) and prescription isodose. It increases the customer confidence when treating new lesions after an initial treatment.

 

1         WARPSPEED TM , REAL-TIME DOSE UPDATE LICENSE

 

This add-on speeds up planning by allowing the update of isodoses instantly during planning. Isodoses displayed in any workspace are instantly updated whenever one or several isocenters are added, modified, or removed. It is possible to fully apprehend the potential of composite shots, while also simplifying the elaboration of new dose plans. WarpSpeed TM provides a shorter learning curve, more intuitive and faster planning.

 

1         FUNCTIONAL PLANNING TM LICENSE

 

This software add-on allows users to perform some functional procedures based on the definition on the AC-PC line the visualization of functional targets based on functional target formulas.

 

1         IMAGEMERGE TM LICENSE

 

This software add-on allows an automatic or manual co-registration of any frameless image studies with a frame based reference study. Once co-registered, the frameless image can be used in LGP like any other study. Supports MR, CT and PET images (requires the optional module ColorPET TM ).

 

1         COLOR PET TM LICENSE

 

The ColorPET TM software add-on help users to can combine the physiological data of PET images with the anatomical data of CT and MR images using predefined color lookup tables. Requires the ImageMerge software add-on.

 

- 8 -
 

 

Color Printer 110V

Network color laser printer with

-         Ethernet connector, minimum speed 10/100

-         Support for Postscript Level 3 printing

-         Power supply 110 V

-         English menus and labels

-         Support for printing A4, US letter, US executive and US legal

Delivered model: HP Color Laser Jet or similar

 

1 LGP – DICOM RT License

DICOM RT provides an exclusive possibility to share treatment information with any DICOM RT compatible system. It includes:

IMPORT of DICOM RT STRUCT allows displaying any user-defined region/volume created on a DICOM RT system. Volumes can be target volumes, organ at risks, isodoses or any other region of interest defined by the user.

EXPORT of treatment data via DICOM RT STRUCT and DICOM RT DOSE allows sharing information with any compatible systems to perform dose comparison or dose addition.

 

Additional Training for Leksell Gamma Knife ® PERFEXION TM

 

6 Clinical Training

Principle and practice of Gamma Knife Surgery, clinical lectures, treatment planning, patient treatment - 5 days. Arranged by Elekta in collaboration with participating hospital.

 

- 9 -
 

 

Technical Specifications

Workflow    
Automatic positioning system   Couch integrated
Typical repositioning time   < 3 s
Typical collimator size setup time   < 3 s
Blocked collimation setup time   < 3 s
Mixed collimation setup time (Composite shot)   < 3 s
Check and verify   100%
QA procedure   Automatic
Accuracy    
Radiological accuracy   < 0.5 mm
Positioning repeatability   < 0.05 mm
Maximum patient weight   210 kg (460 pounds)
Treatment planning    
Treatment planning system   PC/Linux based
Dynamic shaping   Yes
Remote planning   Yes
Image co-registration   Yes
PET supported   Yes
Mechanical treatment range X/Y/Z   160/180/220 mm
Shape of accessible volume   Cylindrical
Real collimator sizes   4,8,16 mm diameter
Radiation data    
Total cobalt-60 activity at loading (approx.)   < 6,600 Curie (2.44 x 10 14 Bq)
Number of radiation sources   192
Radiation dose rate at focal point at loading   > 3 Gy/min
Physical data    
Overall length, including cover   4.46 m
Overall width, including cover   2.12 m
Overall height, including cover   1.91 m
Total weight (approximate)   20,000 kg

 

Radiation unit

The radiation unit is the radiation delivery system. It houses 192 Cobalt-60 sources and the collimator system that directs the radiation to the focus point. The radiation unit incorporates the management of the shielding doors and electro-mechanics of the source sectors.

 

The following section describes selected components within the radiation unit.

 

All components are chosen from well-recognized suppliers to secure reliability and to optimize performance of the system.

Collimator body with radiation shielding
Collimator body   Tungsten body with 576 collimator channels.
Collimators   Tungsten collimator inserts.
Pre-collimator   576 lead pre-collimator channels.
Outer shielding   Cast iron.
Inner shielding   Tungsten and lead.
Bearing for collimator body   Crossed roller bearing. Static axial load 680000 N
Shielding doors   Steel.
Shielding strips   Stainless Steel.
Servo Controller   High precision, fully digital servo drive with embedded intelligence.
Motor   DC motor with 2000 line encoder
Linear guide    
Linear guide blocks   Caged ball technology.
Gear   Planetary gear
Clutch   Ratchetting clutch
8 source carrying sector units    
Sector   Aluminum. 24 source housing
Shafts   Induction hardened stainless steel.
Bearings   Graphite bushings
Motor   24V DC motor
Encoder   500 impulses/turn
Linear guide unit   Repeatability: ±0.003mm.
Linear encoder   Absolute Linear encoder.
Solenoid   Photo-micro sensor.
Servo controllers   Intelligent servo card

 

- 10 -
 

 

Patient Positioning System

The Patient Positioning System is the component of the PERFEXION TM system that the patient reclines on for treatment and is positioned relative the point of focus in the radiation unit.

 

The following section describes selected components within the Patient Positioning System.

 

All components are chosen from well-recognized suppliers to secure reliability and to optimize the performance of Leksell Gamma Knife PERFEXION.

Couch framework with X/Y/Z drive

Framework   20 mm zinc chromated steel
Motors   DC motors with 2000 line encoders.
Gear   X/Y-axis Planetary gear 30:1 Z-axis Planetary gear 4:1
Ball screws Bearing houses Support bearings   X/Z -axis.
Screw jack   Y-axis: Integrated safety nut.
Linear guides    
Linear guide blocks   Caged ball technology.
Solenoid   Y-axis: Photo-micro sensor.
Linear encoders   Absolute Linear encoders. Accuracy grade +/- 0.005mm.
Servo Controllers   High precision, fully digital servo drive, with embedded intelligence.
Frame fixation   Hardened stainless steel
Comfort system    
Mattress support   Sandwich structure with aluminum honeycomb core and steel sheets
Actuator   DC actuator
Ball bearing   Stainless steel.
Covers    
Radiation unit and couch covers   3 layers glass reinforced polyester. Meets ASTM E84 with flame spread index less than 75. Flammability rating V-0 according to UL 94.

 

Control System

 

Office Cabinet

 

Includes:

MCU - Main Computer Unit

Office UPS - Uninterrupted Power Supply Ethernet Switch

 

Operators Console

Includes:

CIU - Connection and Isolation Unit

The CIU is powered by the office UPS and the internal power supply converting 100-250VAC to 24VDC.

 

PSS - Patient Surveillance system

The PSS is included in the operator console as a separate unit and handles the video/audio signals of the PERFEXION TM system. It is possible to connect a video recorder on the ‘auxiliary’ outputs.

External audio system, e.g., patients MP3 player, can be connected and played over the sound system integrated in the radiation unit covers.

 

MCU Monitor

19” Flat screen, UL-approved.

The MCU Monitor shows the Graphical User Interface of the MCU.

 

PSS Monitor

19” Flat screen, UL-approved.

The PSS monitor shows the video from the patient camera and provides the sound from the patient microphone.

 

- 11 -
 

 

Treatment room Monitor

19” Flat screen, UL-approved.

The treatment room monitor displays the same information as the MCU monitor on the operators console.

 

Treatment room Camera

The treatment room camera provides video to the PSS Monitor in the Operators Area.

 

Medical Cabinet

Includes:

 

SDU - Sector Drive Unit

The SDU contains 8 servo controllers (one for each sector).

 

ECU- Electronic Control Unit

The Control Unit consists of two complete Power PCs (PPC) with peripherals (RAM, ROM, inputs, outputs, CAN interfaces).

 

Medical UPS - Uninterrupted Power Supply

The medical UPS delivers 24VDC and 48VDC needed for the PERFEXIONTM system. It is approved for medical use.

 

Radiation phantom

 

The Radiation Phantom with Cassettes is used for calibrating the absorbed dose rate of Leksell Gamma Knife®.

 

INFORMATION TO BE FURNISHED BY BUYER

 

Not later than six months prior to the Contractual Delivery Date or two weeks after the Effective Date, whichever occurs later, Buyer shall inform Seller in writing of:

 

(i) the orientation of the LGK

 

(ii) the minimum lengths of cables required to connect the LGK at the Site; and

 

(iii) the manufacturer and model numbers of the CT, MRI and angiographic equipment which Buyer intends to use in connection with the LGK.

 

- 12 -
 

 

Support and Education & Training for PERFEXION TM

 

Education & Training Services

 

On-site Clinical Start-Up

One week on-site application training with Gamma Knife experienced neurosurgeon and/or radiation physicist certified by Elekta.

 

4 spaces in total selecting between the following two courses:

 

1) Leksell Gamma Knife ® PERFEXION TM Clinical Introductory Course

Principle and practice of Gamma Knife Surgery, clinical lectures, treatment planning, patient treatment 4-5 days. Arranged by Elekta in collaboration with participating hospital. We pay for the tuition at an approved Elekta training site.

 

2) Leksell GammaKnife ® PERFEXION TM Technical / Application training

For use, care and maintenance of the equipment.

Stereotactic imaging, physics, dosimetry, treatment planning, technical training on unloaded machine, QA procedures - 4 day arranged in Elekta Sweden. We pay for the tuition at an approved Elekta training site.

 

Support Services

The following support services are delivered in addition to parts warranty during the first year.

 

Maintenance System Management

Customization of the maintenance schedule for maximum equipment availability, performance and safety with minimum disruption to clinical patient flow.

 

Planned Maintenance

Scheduled preventive maintenance inspections in accordance with Elekta recommended maintenance intervals and procedures performed by Elekta certified engineers. The service includes installation of software maintenance releases and software upgrades. Also included is a service report detailing outstanding service needs and/or recommended parts replacement to sustain equipment performance at original design specifications. Parts, software and further service activities are not included. The customer is responsible for equipment availability for inspections at a mutually agreed time during regular Elekta office hours.

 

Remote Technical Support

Unlimited remote technical support, via phone, e-mail, fax or suitable equivalent, during regular Elekta office hours.

 

On-site Technical Support

Preplanned corrective maintenance by Elekta certified engineers to resolve technical issues on-site during regular Elekta office hours. This service includes a service report detailing the maintenance actions completed and recommending further service actions to eliminate the root cause of the problem(s). It is at the discretion of Elekta to determine whether an on-site visit is required to solve the technical issue. Parts and further service activities not included.

 

Remote Application Support

Unlimited remote application support, via phone, e-mail, fax or a suitable equivalent, during regular Elekta office hours.

 

Leksell GammaPlan ® , remote application support

Unlimited remote application support, via phone, e-mail, fax or a suitable equivalent, during regular Elekta office hours.

 

- 13 -
 

 

EXHIBIT B
DESCRIPTION OF SITE

 

Northern Westchester
400 East Main Street
Mount Kisco, NY 10549-3477

 

- 14 -
 

 

EXHIBIT C

ELEKTA'S WARRANTY

 

1. Subject to the exceptions set forth below, Elekta warrants to Buyer that for one year from the date of completed Installation Test Protocol, the LGK will perform consistently with the Specification and the LGK will be free from defects in design, materials, and workmanship which result in non-compliance with the Specification, except as otherwise provided herein below. Notwithstanding the foregoing, Elekta’s warranty set forth in this Section 1 does not cover:

 

(i) defects arising out of materials or parts provided, modified or designed by Buyer;
(ii) defects emanating from Buyer’s improper use or maintenance;
(iii) normal deterioration or normal wear and tear, including radioactive decay of the Cobalt Supply;
(iv) defects resulting from repairs or service of the LGK supplied other than by Elekta or its authorized representative;
(v) defects in the Hardware (and its operating software) (the warranty for which is regulated in Section 7 below) or the LGP Software (the warranty for which is regulated in Section 2 below).
(vi) the training referred to in Subsection 3.2 of the Terms and Conditions; or
(vii) defects in positioning or in the Site.

 

2. Elekta warrants that the LGP Software will, for a period of one year from the date of the completed Installation Test Protocol, perform substantially in accordance with the documentation delivered with such LGP Software. The warranty set forth in this Section 2 shall not apply if the LGP Software is subject to unauthorized repair or modification, improper application, improper installation, accidental damage, negligence in use, improper storage, acts of God, electrical power damage, equipment malfunction, or abnormal operating conditions, and in the event of any of the foregoing, Buyer shall be responsible to pay Elekta’s then standard charges for any repairs, replacements or services performed by Elekta.

 

3. In the event that the LGK or any part or component thereof shall fail to conform with the relevant warranty described herein, Elekta shall (or cause one of its Affiliates to) promptly repair or replace, at its option and at its expense, the defect in the LGK or component thereof. Repair or replacement parts furnished or work performed under this warranty shall be warranted for a period of one year from and after the date of such repair of replacement, but in no event shall any such warranty with respect to repair or replacement work or parts extend past that date which is two (2) years from and after the date of completion of the Installation Test Protocol. The defective LGK or part thereof which is replaced in accordance with this warranty shall be the property of Elekta, and Elekta will notify Buyer in writing immediately after repair or replacement as to what disposition Elekta desires of such LGK or part thereof, all at Elekta’s cost.

 

4.   In order to avail itself of its rights under this warranty, Buyer shall immediately notify Elekta in writing of any defects that appear under the warranty and shall give Elekta every opportunity of inspecting and remedying such defects.

 

5.   Year 2000 Compliance Warranty. Elekta further warrants that the equipment, software and use of data will be year 2000 compliant and accommodate a full year calculation in its software. Licensor will guarantee that the equipment and software will accept all data and perform to comply with the year 2000 warranties, assuring that the full four (4) positions (e.g. 1997) year is utilized.

 

6. THE FOREGOING WARRANTIES ARE EXCLUSIVE AND GIVEN AND ACCEPTED IN LIEU OF ALL OTHER WARRANTIES OF ELEKTA OR ITS REPRESENTATIVES WITH RESPECT TO QUALITY, PERFORMANCE AND OPERATION OF THE LGK, WRITTEN OR ORAL, EXPRESSED OR IMPLIED. ALL OTHER WARRANTIES OF ELEKTA OR ITS REPRESENTATIVES, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXPRESSLY DISCLAIMED. CORRECTION OF NON-CONFORMITIES OR DEFECTS AS PROVIDED ABOVE SHALL BE BUYER’S EXCLUSIVE REMEDY AND SHALL CONSTITUTE FULL AND FINAL FULFILLMENT OF ALL LIABILITIES OF ELEKTA, WHETHER IN WARRANTY, CONTRACT, NEGLIGENCE, STRICT LIABILITY, TORT OR OTHERWISE WITH RESPECT TO THE LGK. IN NO EVENT SHALL ELEKTA BE LIABLE FOR LOSS OF USE, REVENUE OR PROFIT, OR FOR ANY OTHER DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE ARISING IN ANY RESPECT FROM THE LGK OR ITS USE, OPERATION OR PERFORMANCE. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.

 

7. Elekta shall assign to Buyer all of Elekta’s rights under the warranty or warranties provided by the manufacturer (the “Computer Manufacturer”) for the Hardware and operating software included in the LGK. In the event the Hardware or operating software exhibit defects which are covered by the warranty of the Computer Manufacturer, Buyer may notify Elekta of the nature of such defects. In such case, Elekta shall promptly inform the Computer Manufacturer thereof and use its best efforts to arrange prompt repair service by the Computer Manufacturer pursuant to the terms of the Computer Manufacturer’s warranty or warranties Elekta shall furnish Buyer with such reasonable cooperation as Buyer may request with respect to the purchase by Buyer of any extended warranty or maintenance contract offered by the Computer Manufacturer.

 

- 15 -
 

 

EXHIBIT E

LEKSELL GAMMAPLAN ® PFX TM SOFTWARE LICENSE

 

1. LGP Software

 

1.1    Elekta hereby licenses to Buyer at no additional cost beyond the Purchase Price, the LGP Software, to be utilized only for the purpose of planning dosages of treatments to be performed with the LGK. In case Buyer already has an existing Leksell Gamma Knife ® Buyer may also retain one license to the old Leksell Gamma Plan ® software for archival purposes. Such license is also subject to the license terms and conditions set out in this Exhibit E. Such license is for the use by Buyer of the software at one (1) workstation.

 

1.2   Buyer shall not: (a) use LGP except in connection with the radiosurgical operations performed with the LGK at the Site; (b) make any modification to, adapt, translate, decompile, disassemble or create derivative works based on LGP or merge LGP into any other software; (c) reproduce LGP (or any portion thereof) or any materials related thereto except for one back-up copy made as part of Buyer’s regular computer software maintenance routines; (d) transfer, assign or sublicense LGP to any person except to an assignee of all of Buyer’s rights in this Agreement in a manner permitted by Section 8.1 of the Terms and Conditions; or (e) use LGP in connection with any access terminal other than the Hardware which has been specifically approved by Elekta in writing.

 

1.3 All right, title, interest and ownership of, in and to LGP, including but not limited to all trademarks, service marks, registrations, copyrights, and all other proprietary rights not expressly granted in this License, shall at all times remain the exclusive property of Elekta. Elekta shall retain all rights to LGP recorded on the original disk(s) and all subsequent copies of LGP, in whatever form recorded.

 

1.4   The term of Buyer’s license to LGP shall continue until the earlier of: (a) any sublicense, assignment or transfer or attempted sublicense, assignment or transfer by Buyer of LGP without the consent of Elekta; (b) the transport, movement or attempted transport or movement by the Buyer of LGP, or the Hardware on which LGP is installed, from the Site without prior written consent of Elekta; (c) any modification or adaptation of LGP for use with any equipment other than the LGK; (d) the use of LGP in connection with more than one access terminal unless Buyer has obtained the written consent of Elekta to the use of more than one access terminal at the same time or in connection with any access terminal other than the Hardware which has not been specifically approved by Elekta in writing; or (E) the mutual written consent of Buyer and Elekta.

 

2. Buyer’s Responsibilities Concerning Hardware and LGP

 

2.1 To facilitate E-Mail/Internet support, Buyer shall provide for E-Mail/Internet connectivity.

 

2.2 Buyer shall assign a system manager who will undergo the appropriate training on the operating system HP-UX and /or already have sufficient UNIX system administrator experience. Such training will be provided by the Hardware manufacturer and Elekta shall pay the fee therefore. Buyer shall pay all travel and other expenses associated with such training.

 

2.3 If Buyer elects to transfer images by a data network, then:

 

(a) Buyer shall provide the format to and right to read the diagnostic images generated by the user’s diagnostic equipment and planned to be used as input for LGP. The Buyer shall provide a sample image in digital and hard copy form in the orientation intended for clinical use.

 

(b) Buyer is responsible for obtaining up-to-date and accurate scanner image formats and any other scanner or PACS information from vendors necessary to integrate images into LGP and providing this to Elekta.

 

(c) The Hardware used to run LGP must be used solely for this purpose. All changes and additions to LGP and/or Hardware running LGP must receive prior written approval of Elekta.

 

(d) Buyer shall provide the images via an Ethernet connection using TCP/IP protocol and will provide all physical cabling to the LGP Hardware compatible with 100-Base-T or 1000-Base-T at the Installation location of the LGK.

 

(e) Buyer shall provide all TCP/IP networking parameters such as IP address, netmask, gateway address, etc. for the HP workstation included as a part of the Hardware.

 

- 16 -
 

 

EXHIBIT E

END USER AGREEMENT AMENDMENTS

 

Page left intentionally blank.

 

- 17 -

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Ernest A. Bates, M.D., as chief executive officer of American Shared Hospital Services, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of American Shared Hospital Services;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (or the fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting .

 

August 14, 2013

 

/s/ Ernest A. Bates, M.D.  
Ernest A. Bates, M.D.  
Chief Executive Officer  

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Craig K. Tagawa., as chief financial officer of American Shared Hospital Services, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of American Shared Hospital Services;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (or the fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting .

 

August 14, 2013

 

/s/ Craig K. Tagawa  
Craig K. Tagawa  
Chief Financial Officer  

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q of American Shared Hospital Services for the quarterly period ended June 30, 2013 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

Ernest A. Bates, M.D., the Chief Executive Officer and Craig K. Tagawa, the Chief Financial Officer of American Shared Hospital Services, each certifies that, to the best of his knowledge:

 

1.        the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.        the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of American Shared Hospital Services.

 

August 14, 2013

 

  /s/ Ernest A. Bates, M.D.
  Ernest A. Bates, M.D.
  Chief Executive Officer
   
  /s/ Craig K. Tagawa
  Craig K. Tagawa
  Chief Financial Officer