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 September 30, 2017 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 001-08789

 

 

  

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.)

 

Two Embarcadero Center, Suite 410, 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”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller reporting company x
Emerging Growth Company ¨      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by a check mark whether the registrant is a shell company ( as defined in Rule 12b-2 of the Exchange Act).

Yes ¨   No x

 

As of November 7, 2017, there are outstanding 5,710,000 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   September 30, 2017     December 31, 2016  
             
Current assets:                
Cash and cash equivalents   $ 1,315,000     $ 2,871,000  
Restricted cash     350,000       250,000  
Accounts receivable, net of allowance for doubtful accounts of $100,000 at September 30, 2017 and $100,000 at December 31, 2016     5,345,000       4,085,000  
Other receivables     221,000       290,000  
Prepaid expenses and other current assets     1,859,000       892,000  
                 
Total current assets     9,090,000       8,388,000  
                 
                 
Property and equipment:                
Medical equipment and facilities     95,865,000       96,270,000  
Office equipment     566,000       537,000  
Deposits and construction in progress     3,682,000       8,073,000  
      100,113,000       104,880,000  
Accumulated depreciation and amortization     (50,057,000 )     (53,549,000 )
Net property and equipment     50,056,000       51,331,000  
                 
Investment in equity securities     579,000       579,000  
Other assets     251,000       300,000  
                 
Total assets   $ 59,976,000     $ 60,598,000  

 

LIABILITIES AND   (unaudited)        
SHAREHOLDERS’ EQUITY   September 30, 2017     December 31, 2016  
             
Current liabilities:                
Accounts payable   $ 261,000     $ 319,000  
Employee compensation and benefits     240,000       184,000  
Other accrued liabilities     1,289,000       1,100,000  
                 
                 
Current portion of long-term debt     2,495,000       2,205,000  
Current portion of obligations under capital leases     4,538,000       4,873,000  
                 
Total current liabilities     8,823,000       8,681,000  
                 
Long-term debt, less current portion     4,221,000       5,106,000  
Long-term capital leases, less current portion     13,538,000       14,852,000  
Deferred revenue, less current portion     530,000       610,000  
                 
Deferred income taxes     4,676,000       4,176,000  
                 
Shareholders’ equity:                
Common stock, no par value (10,000,000 authorized; 5,710,000 shares issued and outstanding at September 30, 2017 and 5,468,000 shares at December 31, 2016)     10,711,000       10,596,000  
Additional paid-in capital     6,107,000       5,949,000  
Retained earnings     5,455,000       4,950,000  
Total equity-American Shared Hospital Services     22,273,000       21,495,000  
Non-controlling interest in subsidiary     5,915,000       5,678,000  
Total shareholders’ equity     28,188,000       27,173,000  
                 
Total liabilities and shareholders’ equity   $ 59,976,000     $ 60,598,000  

 

See accompanying notes

 

  2  

 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three months ended September 30,     Nine months ended September 30,  
    2017     2016     2017     2016  
                         
Rental income from medical services   $ 4,613,000     $ 4,884,000     $ 14,472,000     $ 13,640,000  
                                 
Costs of revenue:                                
                                 
Maintenance and supplies     331,000       163,000       811,000       657,000  
                                 
Depreciation and amortization     1,674,000       1,687,000       5,000,000       4,898,000  
                                 
Other direct operating costs     726,000       638,000       2,182,000       2,117,000  
                                 
      2,731,000       2,488,000       7,993,000       7,672,000  
                                 
Gross Margin     1,882,000       2,396,000       6,479,000       5,968,000  
                                 
                                 
Selling and administrative expense     1,026,000       999,000       3,303,000       2,911,000  
                                 
Interest expense     417,000       501,000       1,314,000       1,219,000  
                                 
Operating income     439,000       896,000       1,862,000       1,838,000  
                                 
(Loss) on early extinguishment of debt     -       -       -       (108,000 )
                                 
Interest and other income (loss)     -       3,000       (1,000 )     11,000  
                                 
Income before income taxes     439,000       899,000       1,861,000       1,741,000  
                                 
Income tax expense     164,000       267,000       600,000       424,000  
                                 
Net income     275,000       632,000       1,261,000       1,317,000  
                                 
Less: Net (income) attributable to non-controlling interests     (176,000 )     (298,000 )     (756,000 )     (839,000 )
                                 
Net income attributable to American Shared Hospital Services   $ 99,000     $ 334,000     $ 505,000     $ 478,000  
                                 
Net income per share:                                
                                 
Earnings per common share - basic   $ 0.02     $ 0.06     $ 0.09     $ 0.09  
                                 
Earnings per common share - diluted   $ 0.02     $ 0.06     $ 0.09     $ 0.09  

 

See accompanying notes

 

  3  

 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

    PERIODS ENDED DECEMBER 31, 2016 AND SEPTEMBER 30, 2017  
                Additional                 Non-controlling        
    Common     Common     Paid-in     Retained     Sub-Total     Interests in        
    Shares     Stock     Capital     Earnings     ASHS     Subsidiaries     Total  
                                           
Balances at January 1, 2016     5,364,000     $ 10,376,000     $ 5,734,000     $ 4,020,000     $ 20,130,000     $ 5,050,000     $ 25,180,000  
                                                         
Stock-based compensation expense     4,000       -       215,000       -       215,000       -       215,000  
                                                         
Warrants exercised     100,000       220,000       -       -       220,000       -       220,000  
                                                         
Non-controlling interest investment in subsidiaries     -       -       -       -       -       7,000       7,000  
                                                         
Cash distributions to non-controlling interests     -       -       -       -       -       (699,000 )     (699,000 )
                                                         
Net income     -       -       -       930,000       930,000       1,320,000       2,250,000  
                                                         
Balances at December 31, 2016     5,468,000     $ 10,596,000     $ 5,949,000     $ 4,950,000     $ 21,495,000     $ 5,678,000     $ 27,173,000  
                                                         
Stock-based compensation expense     4,000       -       158,000       -       158,000       -       158,000  
                                                         
Restricted stock awards     162,000       -       -       -       -       -       -  
                                                         
Warrants and options exercised     76,000       115,000       -       -       115,000       -       115,000  
                                                         
Cash distributions to non-controlling interests     -       -       -       -       -       (519,000 )     (519,000 )
                                                         
Net income     -       -       -       505,000       505,000       756,000       1,261,000  
                                                         
Balances at September 30, 2017     5,710,000     $ 10,711,000     $ 6,107,000     $ 5,455,000     $ 22,273,000     $ 5,915,000     $ 28,188,000  

 

See accompanying notes

 

  4  

 

 

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Nine Months ended September 30,  
    2017     2016  
Operating activities:                
Net income   $ 1,261,000     $ 1,317,000  
                 
Adjustments to reconcile net income to net cash from operating activities:                
                 
Depreciation and amortization     5,050,000       4,929,000  
                 
Loss on sale or disposal of assets     15,000       -  
                 
Loss on early extinguishment of debt     -       108,000  
                 
Deferred income tax     500,000       378,000  
                 
Stock based compensation expense     158,000       161,000  
                 
Net accrued interest on lease financing     (79,000 )     -  
                 
Other non-cash items     -       4,000  
                 
Changes in operating assets and liabilities:                
                 
Accounts receivable and other receivables     (1,191,000 )     (1,281,000 )
                 
Prepaid expenses and other assets     (944,000 )     (226,000 )
                 
Deferred revenue     (84,000 )     (186,000 )
                 
Accounts payable and accrued liabilities     290,000       490,000  
                 
Net cash from operating activities     4,976,000       5,694,000  
                 
Investing activities:                
Payment for purchase of property and equipment     (760,000 )     (1,050,000 )
                 
Proceeds from sale of equipment     150,000       -  
                 
Net cash (used in) investing activities     (610,000 )     (1,050,000 )
                 
Financing activities:                
Principal payments on long-term debt     (1,595,000 )     (2,383,000 )
                 
Principal payments on capital leases     (3,823,000 )     (3,054,000 )
                 
Capital contributions from non-controlling interests     -       7,000  
                 
Distributions to non-controlling interests     (519,000 )     (514,000 )
                 
Proceeds from warrants and options exercised     115,000       -  
                 
Reclassification of restricted cash     (100,000 )     (200,000 )
                 
Proceeds from capital lease financing for reimbursement of payments for acquisition of equipment     -       1,137,000  
                 
Net cash (used in) financing activities     (5,922,000 )     (5,007,000 )
                 
Net change in cash and cash equivalents     (1,556,000 )     (363,000 )
                 
Cash and cash equivalents at beginning of period     2,871,000       2,209,000  
                 
Cash and cash equivalents at end of period   $ 1,315,000     $ 1,846,000  
                 
Supplemental cash flow disclosure:                
Cash paid during the period for:                
                 
Interest   $ 1,424,000     $ 1,614,000  
                 
Income taxes paid   $ 104,000     $ 219,000  
                 
Schedule of non-cash investing and financing activities                
Acquisition of equipment with capital lease financing   $ 2,153,000     $ 8,332,000  
                 
Acquisition of equipment with long-term debt financing   $ 992,000     $ -  

 

See accompanying notes

 

  5  

 

 

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 September 30, 2017 and the results of its operations for the three and nine-month periods ended September 30, 2017 and 2016, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2016 have been derived from audited consolidated financial statements.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016 included in the Company’s 10-K filed with the Securities and Exchange Commission.

 

These consolidated financial statements include the accounts of American Shared Hospital Services and its subsidiaries (the “Company”) as follows: the Company wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (“Orlando”), OR21, Inc. (“OR21”), and MedLeader.com, Inc. (“MedLeader”); the Company is the majority owner of Long Beach Equipment, LLC (“LBE”); ASRS is the majority-owner of GK Financing, LLC (“GKF”) which wholly-owns the subsidiaries Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”) and GK Financing U.K., Limited (“GKUK”); GKF is the majority owner of the subsidiaries Albuquerque GK Equipment, LLC (“AGKE”) and Jacksonville GK Equipment, LLC (“JGKE”).

 

The Company (through ASRS) and Elekta AB, the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. As of September 30, 2017, GKF provided Gamma Knife units to sixteen medical centers in the United States in the states of Arkansas, California, Florida, Illinois, Massachusetts, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, Tennessee, Ohio, Oregon, and Texas. GKF also owns and operates a single-unit Gamma Knife facility in Lima, Peru.

 

The Company through its wholly-owned subsidiary, Orlando, provided proton beam radiation therapy (“PBRT”) and related equipment to a customer in the United States. 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 Massachusetts.

 

The Company formed the subsidiaries GKPeru and GKUK for the purposes of expanding its business internationally into Peru and the United Kingdom, respectively; Orlando and LBE to provide proton beam therapy equipment and services in Orlando, Florida and Long Beach, California; and AGKE and JGKE to provide Gamma Knife equipment and services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. AGKE began operations in the second quarter of 2011 and JGKE began operations in the fourth quarter of 2011. Orlando treated its first patient in April 2016. GKPeru treated its first patient in July 2017. GKUK is inactive and LBE is not expected to generate revenue within the next two years.

 

  6  

 

 

The Company continues to develop its design and business model for “The Operating Room for the 21st Century” SM (“OR21”), through its 50% owned OR21, LLC (“OR21 LLC”). The remaining 50% is owned by an architectural design company. OR21 is not expected to generate significant revenue within the next two years.

 

MedLeader was formed to provide continuing medical education online and through videos for doctors, nurses, and other healthcare workers. This subsidiary is not operational at this time.

 

All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Based on the guidance provided in accordance with Accounting Standards Codification (“ASC”) 280 Segment Reporting (“ASC 280”), the Company has analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation therapy equipment to healthcare providers, and concluded there is one reportable segment, Rental Income from Medical Services. The Company provides Gamma Knife, PBRT, and IGRT equipment to seventeen hospitals in the United States as of September 30, 2017. The Company, through GKF, also owns and operates a single-unit Gamma Knife facility in Lima, Peru. These eighteen locations operate under different subsidiaries of the Company, but offer the same service, radiosurgery and radiation therapy. The operating results of the subsidiaries are reviewed by the Company’s Chief Executive Officer and Chief Financial Officer, who are also deemed the Company’s Chief Operating Decision Makers (“CODMs”) and this is done in conjunction with all of the subsidiaries and locations.

 

In February 2016, the Company used proceeds from the lease financing of its MEVION S250 at Orlando Health – UF Health Cancer Center (“Orlando Health”) to pay down $1,000,000 in Promissory Notes (the “Notes”) with four members of the Company’s Board of Directors. Based on the guidance provided in accordance with ASC 405 Extinguishment of Liabilities (“ASC 405”) and ASC 470 Debt Modifications and Extinguishments (“ASC 470”), the pay-down of the Notes is considered an extinguishment of debt and, as such, the difference between the net carrying amount of the Notes and the costs of extinguishment was recognized as a loss on the Company’s condensed consolidated statements of operations. During the year ended December 31, 2016, the Company recorded a loss on early extinguishment of debt of $108,000. The Notes were issued with common stock warrants with an estimated fair value of $145,000. The unamortized balance of the discount on the Notes, of $80,000, and deferred fees incurred from the issuance of the Note of approximately $28,000, were recorded as a loss on early extinguishment.

 

  7  

 

 

As of December 31, 2016, the Company had warrants outstanding representing the right to purchase 100,000 shares of the Company’s common stock at $2.20 per share. These warrants were issued with the Notes to four members of the Company’s Board of Directors. During the nine-month period ended September 30, 2017, 100,000 of the warrants were exercised. 50,000 of the 100,000 warrants were exercised via a cashless exercise resulting in the net issuance of approximately 25,000 shares. There are no warrants outstanding as of September 30, 2017.

 

In April 2017, an existing customer exercised their option to purchase the Gamma Knife unit at its hospital at the end of the lease term for a predetermined purchase price, pursuant to the lease agreement. The lease terminated in April 2017, at which time, the unit was depreciated to the purchase price of the sale. Based on the guidance provided in ASC 360 Property, Plant and Equipment (“ASC 360”), the Company did not classify or measure the asset as held for sale prior to the lease termination, because the Gamma Knife unit was not available for immediate sale.

 

On July 21, 2017, the Company entered into a Maintenance and Support Agreement (the “Mevion Service Agreement”) with Mevion Medical Systems, Inc. (“Mevion”), formerly Still River Systems, which provides for maintenance and support of the Company’s PBRT unit at Orlando Health. The Mevion Service Agreement began September 5, 2017 and required an upfront payment of $1,000,000 which was made on August 4, 2017, and further requires payments over the next 11 months. This payment portion was recorded as a prepaid contract and will be amortized over the one-year service period. The Mevion Service Agreement is for a five (5) year period.

 

In May 2014, the Financial Accounting Standards Board “(FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles (“GAAP”) when it becomes effective. In December 2016, FASB issued ASU 2016-20 Technical Corrections and Improvements to Topic 606, (“ASU 2016-20”), which affects some narrow aspects of ASU 2014-09. The new standard is effective for the Company for annual reporting periods beginning after December 15, 2017 and interim reporting periods therein. Early application is permitted for reporting periods beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The Company performed an analysis to determine if its revenue agreements with customers fall under the scope of ASU No. 2016-02 Leases (“ASU 2016-02”) or ASU 2014-09 and concluded that, other than with respect to the Company’s stand-alone facility in Lima, Peru, ASU 2014-09 was not applicable. The Company has a project team in place to analyze the impact of ASU 2014-09 to its revenue stream in Peru. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation, and disclosure upon adoption of ASU 2014-09. The Company intends to adopt the standard at the date required for public companies, but has not yet selected a transition method. The Company does not anticipate any change to its IT control environment from the adoption of ASU 2014-09.

 

  8  

 

 

In January 2016, the FASB issued ASU No. 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The new guidance is effective for the Company on January 1, 2018. Early adoption is permitted. The standard permits the use of cumulative-effect transition method. The Company is evaluating the effect that ASU 2016-01 will have on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize, for all leases, at the commencement date, a lease liability, and a right-of-use asset. Under the new guidance, lessor accounting is largely unchanged. The new guidance is effective for the Company on January 1, 2019. Early adoption is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures. The Company performed an analysis to determine if its revenue agreements with customers fall under the scope of ASU 2016-02 or ASU 2014-09 and conclude that, other than with respect to the Company’s stand-alone facility in Lima, Peru, ASU 2016-02 applied. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation, and disclosure upon adoption of ASU 2016-02.

 

In March 2016, the FASB issued ASU No. 2016-09 Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which changes five aspects of accounting for share-based payment award transactions including 1) accounting for income taxes; 2) classification of excess tax benefits on the statement of cash flows; 3) forfeitures; 4) minimum statutory tax withholding requirements; and 5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The new guidance is effective for the Company for interim and annual periods beginning after December 15, 2016. The Company adopted ASU 2016-09 on January 1, 2017. The Company elected to estimate the impact of forfeitures. There was no material impact on the consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The new guidance is effective for fiscal periods beginning after December 15, 2019. Early adoption is permitted for fiscal periods beginning after December 15, 2018. The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on eight specific cash flow issues: debt prepayment or extinguishment costs; settlement of zero-coupon or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the Predominance Principle. The new guidance is effective for fiscal periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect that ASU 2016-15 will have on its consolidated financial statements and related disclosures.

 

  9  

 

 

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230) – Restricted Cash (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect that ASU 2016-18 will have on its consolidated financial statements and related disclosures.

 

In May 2017, the FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The new guidance is effective for fiscal years beginning after December 31, 2017. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect that ASU 2017-09 will have on its consolidated financial statements and related disclosures.

 

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. The computation for the three and nine-month periods ended September 30, 2017 excluded approximately 14,000 stock options, respectively, because the exercise price of the options was higher than the average market price during those periods. The computation for the three-month period ended September 30, 2016 excluded approximately 571,000 stock options and the nine-month period ended September 30, 2016 excluded approximately 600,000 stock options and 200,000 common stock warrants, because the exercise price of the options or warrants was higher than the average market price during those periods.

 

The following table sets forth the computation of basic and diluted earnings per share for the three and nine-month periods ended September 30, 2017 and 2016:

 

    Three Months ended September 30,     Nine Months ended September 30,  
    2017     2016     2017     2016  
Net income attributable to American Shared Hospital Services   $ 99,000     $ 334,000     $ 505,000     $ 478,000  
                                 
Weighted average common shares for basic earnings per share     5,947,000       5,554,000       5,745,000       5,553,000  
Diluted effect of stock options and restricted stock     94,000       39,000       167,000       11,000  
Weighted average common shares for diluted earnings per share     6,041,000       5,593,000       5,912,000       5,564,000  
                                 
Basic earnings per share   $ 0.02     $ 0.06     $ 0.09     $ 0.09  
Diluted earnings per share   $ 0.02     $ 0.06     $ 0.09     $ 0.09  

 

  10  

 

 

Note 3.              Stock-based Compensation

 

In June 2010, the Company’s shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the Incentive Compensation Plan (the “Plan”), and among other things, increasing the number of shares of the Company’s common stock reserved for issuance under the Plan to 1,630,000. The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non-employee directors, and advisors. The Plan is a successor to the Company’s previous plans, and any shares awarded and outstanding under those plans were transferred to the Plan. No further grants or share issuances will be made under the previous plans. On June 27, 2017, the Company’s shareholders approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years to February 22, 2020.

 

Stock-based compensation expense associated with the Company’s stock options to employees is calculated using the Black-Scholes valuation model. The Company’s stock 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 (requisite service period), usually the vesting period. Accordingly, stock-based compensation cost before income tax effect for the Company’s options and restricted stock awards, in the amount of $58,000 and $158,000 is reflected in net income for the three and nine-month periods ended September 30, 2017 compared to $42,000 and $161,000 in the same periods prior year, respectively. At September 30, 2017, there was approximately $330,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, excluding the unrecognized compensation cost associated with the Award Agreements, discussed below. This cost is expected to be recognized over a period of approximately three years.

 

On January 4, 2017, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award Agreements”) for 161,766 restricted stock awards which vest upon the achievement of certain performance metrics. The Award Agreements expire on March 31, 2020. Based on the guidance in ASC 718 Stock Compensation (“ASC 718”), the Company concluded these were performance-based awards with vesting criteria tied to performance metrics and that as of September 30, 2017 it is not probable that any of the required metrics for vesting will be achieved. As a result, the Company has not recognized any stock-based compensation expense associated with these awards for the three and nine-month periods ended September 30, 2017. The unrecognized stock-based compensation expense for these awards was approximately $542,000 as of September 30, 2017. If and when the Company determines that the performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount and the remaining unrecognized amount will be recorded over the remaining requisite service period of the awards.

 

  11  

 

 

The following table summarizes restricted stock awards, consisting primarily of annual automatic grants and deferred compensation to non-employee directors, for the nine-month period ended September 30, 2017:

 

    Restricted
Stock
Awards 		    Grant Date
Weighted-
Average
Fair Value 		    Intrinsic
Value 		 
Outstanding at January 1, 2017     4,000     $ 2.25     $ -  
Granted     22,000     $ 3.47     $ -  
Vested     (17,000 )   $ 3.16     $ -  
Forfeited     -     $ -     $ -  
Outstanding at September 30, 2017     9,000     $ 3.58     $ -  

 

The following table summarizes stock option activity for the nine-month period ended September 30, 2017:

 

    Stock
Options 		    Grant Date
Weighted-
Average
Exercise
Price 		    Weighted-
Average
Remaining
Contractual
Life (in
Years) 		    Intrinsic
Value 		 
Outstanding at January 1, 2017     625,000     $ 2.85       4.25     $ -  
Granted     19,000     $ 3.62       6.80     $ -  
Exercised     (4,000 )   $ 2.81       -     $ -  
Forfeited     (23,000 )   $ 2.82       -     $ -  
Outstanding at September 30, 2017     617,000     $ 2.87       3.63     $ -  
Exercisable at September 30, 2017     300,000     $ 2.82       3.43     $ 9,000  

 

Note 4.              Investment in Equity Securities

 

As of September 30, 2017, and December 31, 2016, the Company had a $579,000 investment in the common stock of Mevion, representing an approximate 0.46% interest in Mevion. The Company accounts for this investment under the cost method. The Company carries its investment in Mevion at cost and reviews it 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 reviewed this investment at September 30, 2017 in light of both current market conditions and the current operations of Mevion as they continue to grow their PBRT business. Based on its analysis, the Company determined no additional impairment needed to be recognized as of September 30, 2017.

 

Note 5.              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.

 

  12  

 

 

The estimated fair value of the Company’s assets and liabilities as of September 30, 2017 and December 31, 2016 were as follows (in thousands):

 

    Level 1     Level 2     Level 3     Total     Carrying
Value 		 
September 30, 2017                                        
                                         
Assets:                                        
Cash, cash equivalents, restricted cash   $ 1,665     $ -     $ -     $ 1,665     $ 1,665  
Investment in equity securities     -       -       579       579       579  
Total   $ 1,665     $ -     $ 579     $ 2,244     $ 2,244  
                                         
Liabilities                                        
Debt obligations   $ -     $ -     $ 6,809     $ 6,809     $ 6,716  
Total   $ -     $ -     $ 6,809     $ 6,809     $ 6,716  
                                         
December 31, 2016                                        
                                         
Assets:                                        
Cash, cash equivalents, restricted cash   $ 3,121     $ -     $ -     $ 3,121     $ 3,121  
Investment in equity securities     -       -       579       579       579  
Total   $ 3,121     $ -     $ 579     $ 3,700     $ 3,700  
                                         
Liabilities                                        
Debt obligations   $ -     $ -     $ 7,354     $ 7,354     $ 7,311  
Total   $ -     $ -     $ 7,354     $ 7,354     $ 7,311  

 

Note 6.              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 during the three and nine-month periods ended September 30, 2017 or 2016, respectively. There are approximately 72,000 shares remaining under this repurchase authorization as of September 30, 2017.

 

Note 7.              Income Taxes

 

The Company generally calculates its effective income tax rate at the end of an interim period using an estimate of the annualized effective income tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annualized effective income tax rate cannot be made, the Company computes its provision for income taxes using the actual effective income tax rate for the results of operations reported within the year-to-date periods. The Company’s effective income tax rate is highly influenced by relative income or losses reported and the amount of the nondeductible stock-based compensation associated with grants of its common stock options and from the results of foreign operations. A small change in estimated annual pretax income (loss) can produce a significant variance in the annualized effective income tax rate given the expected amount of these items. As a result, the Company has computed its provision for income taxes for the three and nine-month periods ended September 30, 2017 and 2016 by applying the actual effective tax rates to income or (loss) reported within the condensed consolidated financial statements through those periods.

 

  13  

 

   

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 the Company, which involve risks and uncertainties including, but not limited to, the risks of the Gamma Knife, proton therapy and radiation therapy businesses, the risks of developing The Operating Room for the 21 st Century SM program, and the risks of investing in Mevion. Further information on potential factors that could affect the financial condition, results of operations and future plans of the Company 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, 2016 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 27, 2017.

 

The Company had seventeen Gamma Knife units, one PBRT system and one IGRT unit in operation on September 30, 2017, and on September 30, 2016, respectively. Three of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Nine of the Company’s sixteen current Gamma Knife customers are under fee-per-use contracts, and seven customers are under retail arrangements. The Company, through GKF, also owns and operates a single-unit Gamma Knife facility in Lima, Peru. This unit economically functions similarly to the Company’s turn-key retail arrangements. The Company’s contracts to provide radiation therapy and related equipment services to an existing Gamma Knife customer and the Company’s PBRT system at Orlando Health, are also considered retail arrangements. Retail arrangements are further classified as either turn-key or revenue sharing. Revenue from fee-per-use contracts is determined by each hospital’s contracted rate. Revenue is recognized at the time procedures are performed, based on each hospital’s contracted rate. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Under turn-key arrangements, the Company receives payment from the hospital in the amount of the hospital’s reimbursement from third party payors, and the Company is responsible for paying all the operating costs of the equipment. Operating costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating costs. For turn-key sites, the Company also shares a percentage of net operating profit. The Company records an estimate of net operating profit based on estimated revenues, less estimated operating costs. The operating costs and estimated net operating profit are recorded as other direct operating costs in the condensed consolidated statement of operations.

 

  14  

 

 

Effective January 1, 2017, the Centers for Medicare and Medicaid (“CMS”) established a Comprehensive Ambulatory Payment Classification for single session radiosurgery treatments. CMS has established a 2017 total reimbursement rate of approximately $9,000 ($8,800 in 2016) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of proton therapy for a simple treatment without compensation will be $494 ($506 in 2016) and $994 ($1,150 in 2016) for simple treatment with compensation, intermediate and complex treatments, respectively.

 

Rental income from medical services decreased by $271,000 and increased by $832,000 to $4,613,000 and $14,472,000 for the three and nine-month periods ended September 30, 2017 from $4,884,000 and $13,640,000 for the three and nine-month periods ended September 30, 2016, respectively. The Company’s PBRT system at Orlando Health treated its first patient in April 2016. For the three and nine-month periods ended September 30, 2017, revenues generated from this system were $935,000 and $2,953,000 compared to $800,000 and $1,246,000 in the same periods prior year, respectively. The number of PBRT fractions increased 71 and 2,038 to 940 and 3,349 for the three and nine-month periods ended September 30, 2017 compared to 869 and 1,311 in the same periods prior year, respectively. The increase is due to the PBRT system ramping up volume in its second year of operations.

 

Gamma Knife revenues decreased $369,000 and $869,000 to $3,564,000 and $11,150,000 for the three and nine-month periods ended September 30, 2017 compared to $3,933,000 and $12,019,000 in the same periods prior year, respectively. Excluding the customer site who purchased their Gamma Knife unit in April 2017 and the customer site whose contract expired August 31, 2017, Gamma Knife revenues increased $142,000 and decreased $51,000 for the three and nine-month periods ended September 30, 2017, compared to the same periods prior year, respectively. For the three-month period ended September 30, 2017, the increase was due to a favorable payor mix at the Company’s Gamma Knife retail sites. For the nine-month period ended September 30, 2017, the decrease was due to lower volumes at the Company’s existing Gamma Knife sites. The Company had two new Gamma Knife sites begin operations during the third quarter 2017. Both sites had minimal volume during the quarter and did not have a significant impact on Gamma Knife revenue for the three and nine-month periods ended September 30, 2017.

 

The number of Gamma Knife procedures decreased by 104 and 193 to 379 and 1,253 for the three and nine-month periods ended September 30, 2017 from 483 and 1,446 in the same periods in the prior year, respectively.  Excluding the customer site who purchased their Gamma Knife unit in April 2017 and the customer site whose contract expired August 31, 2017, Gamma Knife procedures increased 5 and decreased 26 for the three and nine-month periods ended September 30, 2017. The decrease for the nine-month period is due to normal, cyclical fluctuations. The Company had two new Gamma Knife sites begin operations during the third quarter 2017. Both sites had minimal volume during the quarter and did not have a significant impact on Gamma Knife volume for the three and nine-month periods ended September 30, 2017.

 

  15  

 

 

IGRT revenues decreased $38,000 and $6,000 to $114,000 and $369,000 for the three and nine-month periods ended September 30, 2017 from $152,000 and $375,000 in the same periods prior year, respectively. The decrease for the three and nine-month periods ended September 30, 2017 is due to lower volumes at the Company’s existing IGRT site.

 

Total costs of revenue increased by $243,000 and $321,000 to $2,731,000 and $7,993,000 for the three and nine-month periods ended September 30, 2017 from $2,488,000 and $7,672,000 in the same periods prior year, respectively. Maintenance and supplies increased by $168,000 and $154,000 for the three and nine-month periods ended September 30, 2017, respectively, primarily due to the Mevion Service Agreement which commenced September 2017. Depreciation and amortization decreased by $13,000 and increased $102,000 for the three and nine-month periods ended September 30, 2017, respectively. The decrease for the three-month period was due to the Company’s contracts which ended in the second and third quarters of 2017, respectively, offset by depreciation expense for the Company’s two new units which began operations in same periods. The increase for the nine-month period ended September 30, 2017 is primarily due to depreciation incurred on the PBRT system and the Company’s two new units which began operations in the second and third quarters of 2017, offset by the expired contracts in the same periods. Other direct operating costs increased by $88,000 and $65,000 for the three and nine-month periods ended September 30, 2017, respectively. The increase for the three and nine-month periods ended September 30, 2017 was due to operating costs at the Company’s Gamma Knife site in Peru and operating costs for the PBRT system.

 

Selling and administrative costs increased by $27,000 and $392,000 for the three and nine-month periods ended September 30, 2017 to $1,026,000 and $3,303,000 from $999,000 and $2,911,000 for the same periods prior year, respectively. For the three-month period ended September 30, 2017, the increase was driven by the Company’s new site in Peru. The increase for the nine-month period ended September 30, 2017 was driven by start-up costs for the Company’s new site in Peru, legal fees, consulting fees, travel costs, severance expense, and building rent. The Company moved offices on August 13, 2016. Prior to the move, the Company subleased a portion of its existing office space. The sublease income offset total rent expense over the term of the sublease, which ended in May 2016.

 

Interest expense decreased by $84,000 and increased $95,000 to $417,000 and $1,314,000 for the three and nine-month periods ended September 30, 2017 from $501,000 and $1,219,000 for the same periods prior year, respectively. For the three-month period ended September 30, 2017 the decrease was due to a lower average principal base on the Gamma Knife debt and leases, compared to prior year, effectively reducing interest expense. The increase for the nine-month period ended September 30, 2017 was due to interest incurred on the PBRT lease financing, offset by a lower average principal base on the Gamma Knife debt and leases, compared to prior year.

 

  16  

 

 

The Company incurred a loss on early extinguishment of debt of $0 for the three and nine-month periods ended September 30, 2017 compared to $0 and $108,000 for the same periods prior year, respectively. In February 2016, the Company used a portion of the proceeds from the lease financing for its first MEVION S250 to pay down the $1,000,000 of Notes that were issued pursuant to the Note agreements between the Company and four members of the Company’s Board of Directors. The Notes and warrant agreements permitted for early payment without penalty to the Company. The Notes were issued with common stock warrants with an estimated fair value of $145,000. The unamortized balance of the discount on the Notes, of $80,000, and deferred fees incurred from the issuance of the Note of approximately $28,000, were recorded as a loss on early extinguishment of debt on the Company’s condensed consolidated Statement of Operations.

 

Interest and other income (loss) decreased by $3,000 and $12,000 to $0 and a loss of $1,000 for the three and nine-month periods ended September 30, 2017 from $3,000 and $11,000 for the same periods prior year, respectively. Interest and other income (loss) is related to exchange rate transactions with the Company’s stand-alone facility in Lima, Peru.

 

Income tax expense decreased $103,000 and increased $176,000 to $164,000 and $600,000 for the three and nine-month periods ended September 30, 2017 from $267,000 and $424,000 for the same periods prior year, respectively. For the three-month period ended September 30, 2017, the decrease was due to lower taxable income attributable to Gamma Knife operations. For the nine-month period ended September 30, 2017, the increase was due to taxable income attributable to Orlando operations. Income tax expense for the nine-month period ended September 30, 2017 was also higher, compared to the same periods prior year, because the Company’s income tax expense computation could not include the losses associated with the Company’s Gamma Knife unit in Peru for financial reporting purposes.

 

Net income attributable to non-controlling interest decreased $122,000 and $83,000 to $176,000 and $756,000 for the three and nine-month periods ended September 30, 2017 from $298,000 and $839,000 for the same periods prior year, respectively. 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.

 

The Company had net income of $99,000, or $0.02 per diluted share, and net income of $505,000, or $0.09 per diluted share, for the three and nine-month periods ended September 30, 2017 compared to net income of $334,000, or $0.06 per diluted share, and net income of $478,000, or $0.09 per diluted share in the same periods prior year, respectively. Excluding the loss on early extinguishment of debt, net of estimated taxes, net income decreased $37,000 for the nine-month period ended September 30, 2017. For the three and nine-month periods ended September 30, 2017, the decrease in net income was primarily due to lower Gamma Knife volumes, following the expiration of two contracts, PBRT maintenance costs, and increased selling and administrative costs.

 

  17  

 

 

Liquidity and Capital Resources

 

The Company had cash and cash equivalents of $1,665,000 at September 30, 2017 compared to $3,121,000 at December 31, 2016. The Company’s cash position decreased by $1,556,000 due to the upfront payment of $1,000,000 for the Mevion Service Agreement and payments for the purchase of property and equipment of $760,000. These decreases were offset by proceeds from the sale of equipment of $150,000

 

The Company has scheduled interest and principal payments under its debt obligations of approximately $2,933,000 and scheduled capital lease payments of approximately $5,942,000 during the next 12 months. The Company believes that its cash flow from cash on hand, operations, and other cash resources are adequate to meet its scheduled debt and capital lease obligations during the next 12 months. See additional discussion below related to commitments.

 

The Company as of September 30, 2017 had shareholders’ equity of $28,188,000, working capital of $267,000 and total assets of $59,976,000.

 

Commitments

 

As of September 30, 2017, the Company had commitments to purchase two MEVION S250 PBRT systems for $25,800,000 and the Company had $2,000,000 in non-refundable deposits toward the purchase of these two PBRT systems from Mevion. The non-refundable deposits are recorded in the Condensed Consolidated Balance Sheets as deposits and construction in progress.

 

On July 21, 2017, the Company signed First Amendments to two System Build Agreements (the “Amendments”) for the Company’s second and third Mevion PBRT units. The Company and Mevion have agreed on preliminary construction and delivery timetables for the second and third PBRT units for which the Company has purchase commitments. The Company’s delivery timeframe is triggered by USFDA 510K clearance of Mevion’s recently developed treatment nozzle. The Company is actively seeking sites for these units but, to date, has not entered into agreements with any party for either placement of a PBRT unit or the related financing. The Company projects that it will be required to take delivery of the second and third PBRT units no later than 2019 and 2020, respectively.

 

As of September 30, 2017, the Company had commitments to perform two Cobtalt-60 reloads at existing Gamma Knife customer sites. Total Gamma Knife commitments as of September 30, 2017 were $1,500,000. The Cobalt-60 reloads are scheduled to occur in 2018. It is the Company’s intent to finance these reloads. There are no significant cash requirements, pending financing for the Cobalt-60 reloads in the next 12 months. There can be no assurance that financing will be available for the Company’s current or future projects, or at terms that are acceptable to the Company.

  

  18  

 

 

The Company estimates the following commitments for each of the equipment systems, with expected timing of payments as follows as of September 30, 2017:

 

    2017     Thereafter     Total  
                   
Proton Beam Units   $ -     $ 25,800,000     $ 25,800,000  
                         
Gamma Knife Units     -       1,500,000       1,500,000  
                         
Total Commitments   $ -     $ 27,300,000     $ 27,300,000  

 

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 September 30, 2017, 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. These controls and procedures are designed to ensure that material information relating to the company and its subsidiaries is communicated to the chief executive officer and the chief financial officer. Based on that evaluation, our chief executive officer and our chief financial officer concluded that, as of September 30, 2017, 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.

 

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.

 

There were no changes in our internal control over financial reporting during the three months ended September 30, 2017 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.

 

  19  

 

 

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, 2016.
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
   
  None.
   
Item 3. Defaults Upon Senior Securities.
   
  None.
   
Item 4. Mine Safety Disclosures
   
  Not applicable.
   
Item 5. Other Information.
   
  None.

 

  20  

 

 

Item 6. Exhibit Index

 

        Incorporated by reference herein
Exhibit                
Number   Description   Form   Exhibit   Date
                 
10.1 # Equipment Lease Agreement (for a Gamma Knife Unit) dated as of February 21, 2017 between Bryan Medical Center and GK Financing, LLC.            
10.2 * Second Amendment to Lease Agreement for a Gamma Knife Unit dated as of June 30, 2006 between Yale - New Haven Ambulatory Services Corporation, Yale New Haven Hospital, Inc. a/k/a Yale - New Haven Hospital and GK Financing, LLC            
31.1 * Certification of Chief Executive Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002            
31.2 * Certification of Chief Financial Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002            
32.1 ǂ Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002            
                 
101.INS * XBRL Instance Document            
101.SCH * XBRL Taxonomy Extension Schema Document            
101.CAL * XBRL Taxonomy Calculation Linkbase Document            
101.DEF * XBRL Taxonomy Definition Linkbase Document            
101.LAB * XBRL Taxonomy Label Linkbase Document            
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document            

 

  * Filed herewith.
  ǂ Furnished herewith.
  # 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. 

 

  21  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

AMERICAN SHARED HOSPITAL SERVICES

Registrant

 

Date: November 13, 2017 /s/ Ernest A. Bates, M.D.  
    Ernest A. Bates, M.D.  
    Chairman of the Board and Chief Executive Officer
       
Date: November 13, 2017 /s/ Craig K. Tagawa  
    Craig K. Tagawa  
    Senior Vice President  
    Chief Operating and Financial Officer  

 

  22  

 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

EQUIPMENT LEASE AGREEMENT

 

THIS EQUIPMENT LEASE AGREEMENT (“Agreement”) is made and entered into on February 21, 2017, by and between GK FINANCING, LLC, a California limited liability company (“GKF”), at 2 Embarcadero Center, Suite 410, San Francisco, California, 94111 and BRYAN MEDICAL CENTER , a Nebraska non-profit corporation (“Hospital”) at 2300 S. 16 th Street, Lincoln, Nebraska 68502, with reference to the following facts:

 

RECITALS

 

A.           GKF intends to purchase a Leksell Stereotactic Gamma Knife Perfexion (the “Equipment”) from Elekta Instruments, Inc., a Georgia corporation (“Elekta”).

 

B.           Hospital wishes to lease the Equipment from GKF, and GKF is willing to lease the Equipment to Hospital, upon the terms, covenants, conditions and agreements set forth in this Agreement.

 

AGREEMENT

 

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

 

1.             Lease . Subject to and in accordance with the covenants and conditions set forth in this Agreement, GKF hereby leases to Hospital, and Hospital hereby leases from GKF, the Equipment.

 

2.             LGK Agreement . Simultaneously with the execution of this Agreement, Hospital and Elekta shall enter into that certain LGK Agreement (the “LGK Agreement”), a copy of which is attached hereto as Exhibit 1. Hospital shall perform, satisfy and fulfill all of its obligations arising under the LGK Agreement when and as required thereunder. Hospital acknowledges that GKF is a third party beneficiary of the LGK Agreement and, in that capacity, GKF shall be entitled to enforce Hospital’s performance, satisfaction and fulfillment of its obligations thereunder.

 

3.             Term of the Agreement . The initial term of this Agreement (the “Term”) shall commence as of the date hereof and, unless earlier terminated or extended in accordance with the provisions of this Agreement, shall continue for a period of ten (10) years following the date of the performance of the first clinical Gamma Knife procedure (the “First Procedure Date”) at the Site. Hospital’s obligation to make the payments to GKF for the Equipment described in Section 8 below shall commence as of the First Procedure Date.

 

  - 1 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

4.             User License .

 

4.1           Hospital shall apply for and obtain in a timely manner a User License from the Nuclear Regulatory Commission and, if necessary, from the applicable state agency authorizing it to take possession of and maintain the Cobalt supply required in connection with the use of the Equipment during the term of this Agreement. Hospital also shall apply for and obtain in a timely manner all other licenses, permits, approvals, consents and authorizations which may be required by state or local governmental or other regulatory agencies for the development, construction and preparation of the Site, the charging to the Equipment with its Cobalt supply, the conduct of acceptance tests with respect to the Equipment, and the use of the Equipment during the Term, as more fully set forth in Article 2.1 of the LGK Agreement. Upon request, Hospital shall provide GKF with true and correct copies of any and all such licenses, permits, approvals, consents and authorizations.

 

5.             Delivery of Equipment; Site .

 

5.1           GKF shall coordinate with Elekta and Hospital to have the Equipment delivered to Hospital at ______ (the “Site”) on or prior to the delivery date agreed upon by Hospital and Elekta in the LGK Agreement. GKF makes no representations or warranties concerning delivery of the Equipment to the Site or the actual date thereof.

 

5.2           Subject to Section 6 below, Hospital, at its cost and expense, shall provide a safe, convenient Site for the Equipment. The location of the Site is contemplated to be the current Gamma Knife suite and shall be subject to the prior approval of GKF. The Site provided shall be empty of any equipment.

 

6.             Site Preparation and Installation of Equipment .

 

6.1           GKF, at its cost and expense, shall prepare all plans, specifications and site planning criteria (which site planning criteria are attached as Exhibit B to the LGK Agreement ) (collectively the “Site Planning Criteria”) required to prepare, construct and improve the Site for the installation, use and operation of the Equipment during the Term. The plans and specifications (i) shall be approved by Hospital, which approval shall not be unreasonably withheld or delayed; (ii) shall comply in all respects with the Site Planning Criteria; and (iii) to the extent required by applicable law, shall be submitted to all state and federal agencies for their review and approval. GKF, at its cost and expense, shall obtain all permits, certifications, approvals or authorizations required by applicable federal, state or local laws, rules or regulations necessary to prepare, construct and improve the Site as provided above.

 

  - 2 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

6.2           GKF, at its cost and expense, shall prepare, construct and improve the Site as necessary for the installation, use and operation of the Equipment during the Term, including, without limitation, providing all temporary or permanent shielding required for the charging of the Equipment with the Cobalt supply and for its subsequent use, selecting and constructing a proper foundation for the Equipment and the temporary or permanent shielding, aligning the Site for the Equipment, and installing all electrical systems and other wiring required for the Equipment. In connection with the construction of the Site, Hospital, at its cost and expense, shall select, purchase and install all radiation monitoring equipment, devices, safety circuits and radiation warning signs required at the Site in connection with the use and operation of the Equipment.

 

6.3           In addition to construction and improvement of the Site, GKF, at its cost and expense, shall be responsible for the installation of the Equipment at the Site, including the positioning of the Equipment on its foundation at the Site in compliance with the Site Planning Criteria.

 

6.4           During the Term, GKF, at its cost and expense, shall maintain the Site in a good working order, condition and repair, reasonable wear and tear expected.

 

7.             Marketing Support . GKF shall coordinate its Gamma Knife marketing plan with Hospital, which marketing plan shall be subject to the approval of Hospital. Hospital shall participate in meetings with GKF to jointly develop a marketing plan annually. The Hospital, with the support of GKF, shall implement the Gamma Knife marketing plan based on the approved budget and timeline. GKF shall be solely responsible for any out-of-pocket marketing expenses paid to unrelated third parties that are included in the marketing plan budget. Any marketing efforts conducted independently by Hospital shall be at Hospital's expense, and subject to coordination with GKF. Notwithstanding the foregoing, Hospital will not be obligated to pay for the marketing of or reimbursement to GKF for any marketing related expenses for the Gamma Knife, but is not prohibited from doing so as long as Hospital’s efforts are coordinated with GKF. Hospital shall use its best efforts to market the Gamma Knife and to educate the public and the medical community as to the benefits of the Gamma Knife.

 

8.             Lease Payments .

 

8.1           In consideration and as compensation to GKF for (i) the lease of the Equipment by GKF to Hospital pursuant to this Agreement; (ii) the preparation by GKF of all plans and specifications required to prepare, construct and improve the Site for the installation, use and operation of the Equipment; (iii) the preparation, construction and improvement of the Site as necessary for the installation, use and operation of the Equipment; (iv) the installation by GKF of the Equipment at the Site; and (v) the maintenance by GKF of the Site in a good working order, condition and repair, on a monthly basis, Hospital shall pay the “Lease Payment” to GKF for each "Procedure" that is performed by Hospital or its representatives or affiliates, irrespective of whether the Procedure is performed on the Equipment or using any other equipment or devices. As used herein:

 

  - 3 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

(1)         "Lease Payment" shall be equal to (a) [ * * * * * ] of the “Technical Component Collections” during each such month, minus (b) Hospital’s “Cost Component” during each such month.

 

(2)          “Technical Component Collections” means the total amount actually collected by Hospital or its representatives or affiliates during each month from any and all payor sources, including, without limitation, patients, insurance companies, state or federal government programs or any other third party payors, as reimbursement for the technical component of each Procedure, irrespective of whether the Procedure is performed on the Equipment or using any other equipment or devices, and including the technical component amount collected from any case rate or “global” fee. The technical fees to be billed for Procedures performed utilizing the Equipment during the Term of this Agreement shall be an amount which is economically justifiable based upon GKF's direct operating expenses and its total project costs, together with a return thereon. Hospital shall consult and mutually agree with GKF from time to time regarding the amount of the technical fees to be billed by Hospital for Procedures that are performed utilizing the Equipment and any revisions thereto, including, without limitation, the technical component portion of any case rate or “global” fee. Subject to compliance with the standard described in the preceding sentence, Hospital and GKF shall mutually agree on the setting or revision of the amount of the technical fees and the acceptance of technical fee component amounts with third party payors prior to their implementation.

 

(3)         Hospital’s “Cost Component” means the costs incurred by Hospital during the applicable month for services and personnel associated with the Equipment, which shall be limited to those costs set forth in Exhibit 8.1 attached hereto, irrespective of whether the Gamma Knife procedures are performed on an inpatient or outpatient basis.

 

(4)         As used herein, a “Procedure” shall mean 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, which Procedure is performed by Hospital, its representatives, affiliates, joint ventures and/or partnerships, on an inpatient or outpatient basis, or “under arrangement” (as used in the Medicare billing context), using any of the Equipment and/or any other equipment or devices that are used in lieu of, or as an alternative to, the Equipment, and includes, without limitation, any and all related treatment planning and delivery, imaging and other ancillary services.

 

If no Procedures are performed utilizing the Equipment or any other equipment or devices during any month, no Lease Payments shall be owing by Hospital to GKF for such month.

 

  - 4 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

8.2           Within fifteen (15) days following the end of each month (or portion thereof) during the term of this Agreement, Hospital shall pay the Lease Payments to GKF and shall concurrently inform GKF in writing as to the number of Procedures performed during that month utilizing the Equipment and any other equipment or devices. To facilitate Hospital’s billing and collection for Procedures performed, within two (2) business days after any Procedure is performed, GKF shall cause the administrative support individual referenced in Section 11.3 below to provide Hospital with written confirmation of the names of the patients treated. Hospital shall use best efforts to submit claims for reimbursement to the appropriate payors for each Procedure within ten (10) days after the patient receiving the treatment is discharged. Such claims shall be submitted under Hospital's provider numbers and license. Hospital shall also diligently follow up any unpaid or denied claims and re-bill and/or contest the same where appropriate so as to maximize Technical Component Collections. All or any portion of any Lease Payment which is not paid in full within thirty (30) days after its due date shall bear interest at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) until the unpaid Lease Payment, together with all accrued interest thereon is paid in full. If GKF shall at any time accept a Lease Payment from Hospital after it shall become due, such acceptance shall not constitute or be construed as a waiver of any or all of GKF’s rights under this Agreement, including the rights of GKF set forth in Section 20 hereof. Notwithstanding the foregoing, in the event that Technical Component Collections relating to the Equipment are less than Hospital’s Cost Component relating to the Equipment in any given month, GKF shall reimburse Hospital for said shortfall, provided that Hospital has complied with its obligations regarding the timely submission of claims as set forth in this Section, and provided, further , that GKF shall have no obligation to reimburse Hospital for any shortfalls relating to any other equipment or devices. No costs comprising Hospital's Cost Component shall be permitted to cumulate. If no Procedures are performed in a given month, the only Hospital Cost Component incurred will be for physical facility space as set forth in Exhibit 8.2.

 

8.3           Within thirty (30) days after the close of each month, Hospital shall provide GKF with a written report indicating the status of billings and collections for each Procedure performed during that month, including, without limitation, the amount of the claim submitted, the amount received or denied for each such procedure. Upon request by GKF, Hospital shall furnish to GKF information regarding reimbursement rates from any or all payor sources for Procedures (applicable to Procedures performed either on an inpatient or outpatient basis). If such reimbursement rates should change at any time or from time to time after the date hereof, in each instance, Hospital shall provide written notice thereof to GKF within thirty (30) days of Hospital receiving notice thereof. Prior to entering into or renewing any third party payor contracts for the provision of Procedures utilizing the Equipment, Hospital shall consult with GKF regarding the terms and provisions thereof, including the technical component reimbursement rates. GKF shall maintain the confidentiality of all information provided to GKF by Hospital with regard Procedure charges, billing and reimbursement rates.

 

  - 5 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

8.4           The parties acknowledge that the Lease Payments payable to GKF and Hospital's Cost Component reflect their respective fair market value, and are not determined in a manner that takes into account the volume or the value of any referral or other business generated between the parties.

 

8.5           Within ten (10) days after Hospital’s receipt of written request from GKF, GKF shall have the right to audit Hospital’s books and records (including, without limitation, the books and records pertaining to any other radiosurgery equipment and devices) during normal business hours to verify the Technical Component Collections and Hospital's Cost Component, and Hospital shall provide GKF with access to such books and records.

 

9.             Use of the Equipment .

 

9.1           The Equipment shall be used by Hospital only at the Site and shall not be removed therefrom. Hospital shall use the Equipment only in the regular and ordinary course of Hospital’s business operations and only within the capacity of the Equipment as determined by Elekta’s specifications. Hospital shall not use nor permit the Equipment to be used in any manner nor for any purpose which, Hospital has been informed by Elekta or GKF, the Equipment is not designed or reasonably suitably.

 

9.2           This is an agreement of lease only. Nothing herein shall be construed as conveying to Hospital any right, title or interest in or to the Equipment, except for the express leasehold interest granted to Hospital for the Term. All Equipment shall remain personal property (even though said Equipment may hereafter become attached or affixed to real property) and the title thereto shall at all times remain exclusively in GKF.

 

9.3           During the Term, upon the request of GKF, Hospital shall promptly affix to the Equipment in a prominent place, or as otherwise directed by GKF, labels, plates, insignia, lettering or other markings supplied by GKF indicating GKF’s ownership of the Equipment, and shall keep the same affixed for the entire Term. Hospital hereby authorizes GKF to cause this Lease or any statement or other instrument showing the interest of GKF in the Equipment to be filed or recorded, or refiled or re-recorded, with all governmental agencies considered appropriate by GKF, at GKF’s cost and expense. Hospital also shall promptly execute and deliver, or cause to be executed and delivered, to GKF any statement or instrument requested by GKF for the purpose of evidencing GKF’s interest in the Equipment, including financing statements and waivers with respect to rights in the Equipment from any owners or mortgagees of any real estate where the Equipment may be located.

 

  - 6 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

9.4           At Hospital’s cost and expense, Hospital shall (a) protect and defend GKF’s ownership of and title to the Equipment from and against all persons claiming against or through Hospital, (b) at all times keep the Equipment free from any and all liens, encumbrances, attachments, levies, executions, burdens, charges or legal processes imposed against Hospital, and (c) give GKF immediate written notice of any matter described in clause (b).

 

10.           Additional Covenants of Hospital . In addition to the other covenants of Hospital contained in this Agreement, Hospital shall, at its cost and expense:

 

10.1         Provide properly trained, technical and support personnel and supplies required for the proper performance of Gamma Knife procedures utilizing the Equipment. In this regard, Hospital shall use its best efforts to maintain on staff a minimum of two (2) Gamma Knife trained teams comprised of neurosurgeons, radiation oncologists and physicists.

 

10.2         Direct, supervise and administer the provision of all hospital services relating to Gamma Knife Procedures in accordance with all applicable laws, rules and regulations.

 

10.3         Use best efforts to keep and maintain the Equipment and the Site fully protected, secure and free from unauthorized access or use by any person.

 

10.4         Operate a fully functional radiation therapy department at the Site.

 

11.           Additional Covenants of GKF . In addition to the other covenants of GKF contained in this Agreement, GKF, at its cost and expense, shall:

 

11.1         Use its best efforts to require Elekta to meet its contractual obligations to GKF and Hospital upon delivery of the Equipment and put the Equipment, as soon as reasonably possible, into good, safe and serviceable condition and fit for its intended use in accordance with the manufacturer’s specifications, guidelines and field modification instructions.

 

11.2         Ensure Hospital’s quiet enjoyment and use of the Equipment, free of the rights of any other persons except for those rights reserved by GKF or granted to Elekta under the LGK Agreement or to the lender pursuant to Section 14 below.

 

11.3         GKF and Hospital shall mutually select an individual to be located at the Site to provide Gamma Knife administrative and marketing support services. The individual’s duties shall include but not be limited to scheduling Gamma Knife patients and coordinating professional and technical personnel and support services to perform said Gamma Knife treatment. This individual shall also verify patient insurance. The individual shall also assist with marketing activities on an as needed basis. If the individual is provided by the Hospital, GKF shall reimburse Hospital for the cost of the individual. GKF and Hospital shall mutually agree on individual.

 

  - 7 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

12.            Maintenance of Equipment; Damage or Destruction of Equipment .

 

12.1         During the Term and except as otherwise provided in this Agreement, GKF, at its cost and expense, shall (a) maintain the Equipment in good operating condition and repair, reasonable wear and tear excepted, (b) subject to Hospital’s compliance with its obligations under the LGK Agreement and under Sections 4, 5, 9, 10, 12, 13 and 16 hereunder, cause the equipment to be in compliance with all applicable state and federal regulations, and (c) maintain in full force and effect a Service Agreement with Elekta or other service vendor and any other service or other agreements required to fulfill GKF’s obligation to repair and maintain the Equipment under this Section 12. Hospital shall promptly notify GKF in the event of any damage or destruction to the Equipment or of any required maintenance or repairs to the Equipment. GKF shall pursue all remedies available to it under the Service Agreement, if any, and under any warranties made by Elekta with respect to the Equipment so that the Equipment will be free from defects in design, materials and workmanship and will conform to Elekta’s technical specifications concerning the Equipment.

 

12.2         GKF and Elekta shall have the right to access the Equipment for the purpose of inspection and the performance of repairs at all reasonable times, upon reasonable advance notice and with a minimum of interference or disruptions to Hospital’s regular business operations.

 

12.3         Hospital shall be liable for any damage to or destruction of the Equipment caused by misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital’s officers, employees, agents, and contractors. In the event the Equipment is damaged as a result of the misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital’s officers, employees, agents and contractors (other than GKF and Elekta), to the extent such damage is not covered by the Service Agreement or any warranties or insurance, GKF may service or repair the Equipment as needed and the cost thereof shall be paid by Hospital to GKF immediately upon written request; provided that, if GKF’s charges and costs for such service or repair are not paid in full by Hospital within sixty (60) days after GKF’s request therefor, in addition to such charges and costs, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and reasonable attorneys' fees and costs incurred by GKF in collecting such amount from Hospital. Any work so performed by GKF shall not deprive GKF of any of its rights, remedies or actions against Hospital for such damages.

 

  - 8 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

12.4         If the Equipment is rendered unusable as a result of any failure of, physical damage to or destruction of the Equipment, Hospital shall give GKF written notice thereof. GKF shall determine, within thirty (30) days after it is given written notice of such damage or destruction, whether the Equipment can be repaired. Subject to Section 12.3 above, in the event GKF determines that the Equipment cannot be repaired, at the election of GKF in GKF’s sole and absolute discretion, (a) GKF, at its cost and expense, may replace the Equipment as soon as reasonably possible taking into account the availability of replacement equipment from Elekta, Elekta’s other then-existing orders for equipment, and the then existing limitations on Elekta’s manufacturing capabilities, and (b) in such event, this Agreement shall continue in full force and effect as though such damage or destruction had not occurred. If GKF elects not to replace the Equipment, GKF shall provide written notice of such election to Hospital, and this Agreement shall terminate on the date that is ninety (90) days following the date of such notice. In the event GKF determines that the Equipment can be repaired, GKF shall cause the Equipment to be repaired as soon as reasonably possible thereafter. Hospital shall fully cooperate with GKF to effect the replacement of the Equipment or the repair of the Equipment (including, without limitation, providing full access to the Site) following the damage or destruction thereof.

 

13.           Alterations and Upgrades to Equipment .

 

13.1         Hospital shall not make any modifications, alterations or additions to the Equipment (other than normal operating accessories or controls) without the prior written consent of GKF. Hospital shall not, and shall not permit any person other than representatives of Elekta or any other person authorized by GKF to, effect any inspection, adjustment, preventative or remedial maintenance, or repair to the Equipment without the prior written consent of GKF. All modifications, alterations, additions, accessories or operating controls incorporated in or affixed to the Equipment (herein collectively called “additions” and included in the definition of “Equipment”) shall become the property of the GKF upon termination of this Agreement.

 

13.2         The necessity and financial responsibility for modifications, additions or upgrades to the Equipment, including the reloading of the Cobalt-60 source, shall be mutually agreed upon by GKF and Hospital. If (a) GKF and Hospital agree to reload the Cobalt-60 source (i.e., on or around the 75th month of the Term), then, notwithstanding any provisions to the contrary herein, the Initial Term shall be automatically extended for an additional three (3) years. The necessity for modifications, additions or upgrades to the Equipment, including the reloading of the Cobalt-60 source, shall be as mutually agreed upon by GKF and Hospital. The financial responsibility for such modifications, additions and upgrades are GKF’s.

 

  - 9 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

14.           Financing of Equipment by GKF . GKF, in its sole discretion, may finance the Equipment. Financing may be in the form of an installment loan, a capitalized lease or other commercially available debt or financing instrument. If GKF finances the Equipment through an installment loan, GKF shall be required to provide the Equipment as collateral for the loan. If GKF finances the Equipment through a capitalized lease, title shall vest with the lessor until such time as GKF exercises its buy-out option under the lease, if any. If required by the lender, lessor or other financing entity (the "Lender"), GKF may assign its interest under this Agreement as security for the financing. Hospital's interest under this Agreement shall be subordinate to the interests of the Lender, which Hospital shall promptly confirm in writing on Lender’s form, if requested by GKF.

 

15.           Equipment Operational Costs . GKF shall be responsible for all costs and expenses for the operation and use of the Equipment. Significant costs and expenses are enumerated in Exhibit 8.1. Between Hospital and GKF, Hospital shall be fully liable for all negligent, intentional or wrongful acts or omissions of Hospital, its officers, directors, employees and agents.

 

16.           Taxes . GKF shall pay all sales or use taxes imposed or assessed in connection with the purchase of the Equipment and all personal property taxes imposed, levied or assessed on the ownership and possession of the Equipment during the Term. All other taxes, assessments, licenses or other charges imposed, levied or assessed on the Equipment during the Term shall be paid by Hospital before the same shall become delinquent, whether such taxes are assessed or would ordinarily be assessed against GKF or Hospital; provided, however, Hospital shall not be required to pay any federal, state or local income, franchise, corporation or excise taxes imposed upon GKF’s net income realized from the lease of the Equipment. In case of a failure by Hospital to pay any taxes, assessments, licenses or other charges when and as required under this Section, GKF may (in GKF’s sole and absolute discretion) pay all or any part of such taxes, in which event the amount paid by GKF shall be immediately payable by Hospital to GKF upon written request; provided that, if GKF is not repaid in full by Hospital within sixty (60) days after GKF's request therefor, in addition to the repayment of the amounts paid by GKF, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and reasonable attorneys' fees and costs incurred by GKF in collecting such amount from Hospital.

 

  - 10 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

17.           No Warranties by GKF . Hospital warrants that as of the First Procedure Date, it shall have (a) thoroughly inspected the Equipment, (b) determined that the Equipment is consistent with the size, design, capacity and manufacture selected by it, and (c) satisfied itself that to the best of its knowledge the Equipment is suitable for Hospital’s intended purposes and is good working order, condition and repair at the time of acceptance. GKF SUPPLIES THE EQUIPMENT UNDER THIS AGREEMENT IN ITS “AS IS” CONDITION. GKF, NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE MANUFACTURER’S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT’S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE. As between GKF and Hospital, Hospital shall bear all risks with respect to the foregoing warranties. GKF shall not be liable for any direct, indirect and consequential losses or damages suffered by Hospital or by any other person for, and Hospital expressly waives any right to hold GKF liable hereunder for, any claims, demands and liabilities arising out of or in connection with the design or manufacture, possession or operation of the Equipment, including injury to persons or property resulting from the failure of, defective or faulty design, operation, condition, suitability or use of the Equipment. All warranty or other similar claims with respect to the Equipment shall be made by Hospital solely and exclusively against persons other than GKF, including Elekta or any other manufacturers or suppliers. In this regard and with prior written approval of GKF, Hospital may, in GKF’s name, but at Hospital’s sole cost and expense, enforce all warranties, agreements or representations, if any, which may have been made by Elekta or manufacturers, suppliers or other third parties regarding the Equipment to GKF or Hospital. GKF shall not be responsible for the operation of the Equipment, however it shall be GKF’s responsibility that the equipment be properly maintained. GKF and Hospital shall mutually agree to an acceptable delivery date for the Equipment.

 

18.           Termination for Economic Justification .

 

18.1          Following the initial twenty-four (24) months after the First Procedure Date and following each subsequent 12 month period thereafter during the Term, GKF shall have the option to terminate this Agreement if, within a reasonable period of time after GKF’s written request, Hospital does not provide GKF with a reasonable economic justification to continue this Agreement and the provision of Gamma Knife services at the Hospital. GKF's determination shall be based upon the utilization of the Equipment and other factors considered relevant by GKF in the exercise of its discretion. If GKF elects to terminate pursuant to this Section, GKF shall give written notice thereof to Hospital not less than ninety (90) days prior to the effective date of the termination designated in GKF’s written notice.

 

18.2          Notwithstanding the provisions of Section 18.1, if at any time during the Term of this Agreement, Hospital is suspended or terminated from participation in the Medicare program, GKF shall have the option to terminate this Agreement immediately by giving written notice thereof to Hospital.

 

18.3          As a result of any termination of this Agreement pursuant to this Section, GKF may enter upon the Site under Hospital supervision and remove the Equipment and any improvements made by GKF to the Site without liability of any kind or nature for appropriate removal or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at GKF’s sole cost and expense. If this Agreement is terminated by GKF for economic justification pursuant to Section 18.1 above, then, GKF shall remove the Equipment and such improvements within nine (9) months following the giving of written notice of termination by GKF, or as soon as practicable pursuant to GKF’s contract with Elekta for such removal, whichever occurs later.

 

  - 11 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

19.           Options to Extend Agreement . As of the end of the Term, Hospital shall have the option either to:

 

19.1          Extend the Term of this Agreement for a specified period of time and upon such other terms and conditions as may be agreed upon in writing by GKF and Hospital; or

 

19.2          Terminate this Agreement as of the expiration of the Term. GKF shall be responsible to contract with Elekta for removal of the Equipment as soon as practicable.

 

Hospital shall exercise one (1) of the two (2) options referred to above by giving an irrevocable written notice thereof to GKF at least nine (9) months prior to the expiration of the initial Term. Any such notice shall be sufficient if it states in substance that Hospital elects to exercise its option and states which of the two (2) options referred to above Hospital is exercising. If Hospital fails to exercise the option granted herein at least nine (9) months prior to the expiration of the initial Term, the option shall lapse and this Agreement shall expire as of the end of the initial Term. Further, if Hospital exercises the option to extend the Term and the parties are unable to mutually agree upon the length of the extension of the Term or any other terms or conditions applicable to such extension prior to the expiration of the Term, this Agreement shall expire as of the end of the initial Term.

 

20.            Events of Default by Hospital and Remedies .

 

20.1         The occurrence of any one of the following shall constitute an event of default under this Agreement (an “Event of Default”):

 

20.1.1           Hospital fails to pay any Lease Payment when due pursuant to Paragraph 8 above and such failure continues for a period of thirty (30) days after written notice thereof is given by GKF or its assignee to Hospital; however, if Hospital cures the payment default within the applicable thirty (30) day period, such default shall not constitute an Event of Default.

 

20.1.2           Hospital attempts to remove, sell, transfer, encumber, assign, sublet or part with possession of the Equipment or any items thereof, except as expressly permitted herein.

 

20.1.3           Hospital fails to observe or perform any of its covenants, duties or obligations arising under this Agreement or the LGK Agreement and such failure continues for a period of thirty (30) days after written notice thereof by GKF to Hospital; however, if Hospital cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, Hospital commences to cure the default during the initial thirty (30) day period and Hospital diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default.

 

  - 12 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

20.1.4           Hospital ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation.

 

20.1.5           Within sixty (60) days after the commencement of any proceedings against Hospital seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Hospital 's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.

 

20.1.6           Hospital is suspended or terminated from participation in the Medicare program.

 

20.2          Upon the occurrence of an Event of Default with respect to Hospital, GKF may at its option do any or all of the following:

 

20.2.1           By written notice to Hospital, immediately terminate this Agreement as to the Equipment, wherever situated. As a result of the termination, GKF may enter upon the Site and remove the Equipment and any improvements made by GKF to the Site without liability of any kind or nature for so doing or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at Hospital's sole cost and expense.

 

  - 13 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

20.2.2           Recover from Hospital as liquidated damages for the loss of the bargain represented by this Agreement and not as a penalty an amount equal to the present value of the unpaid estimated future rent payments to be made by Hospital to GKF through the end of the Term discounted at the rate of nine percent (9%), which liquidated damages, together with any past due Lease Payments interest thereon as set forth herein, shall become immediately due and payable. The unpaid estimated future lease payments shall be based on the prior twelve (12) months’ Lease Payments made by Hospital to GKF hereunder with an annual five (5%) percent increase thereof through the end of the Term. Hospital and GKF acknowledge that the liquidated damages formula set forth in this Section constitutes a reasonable method to calculate GKF's damages resulting from an Event of Default under the circumstances existing as of the date of this Agreement.

 

20.2.3           Sell, dispose of, hold, use or lease the Equipment or any improvements made by GKF to the Site, as GKF in its sole and absolute discretion may determine (and GKF shall not be obligated to give preference to the sale, lease or other disposition of the Equipment or improvements over the sale, lease or other disposition of similar Equipment or improvements owned or leased by GKF).

 

20.2.4           Exercise any other right or remedy which may be available to GKF under the Uniform Commercial Code or any other applicable law or proceed by appropriate court action, without affecting GKF’s title or right to possession of the Equipment or improvements, to enforce the terms hereof or to recover damages for the breach hereof or to cancel this Agreement as to the Equipment.

 

In addition to the foregoing remedies, Hospital shall be liable to GKF for all reasonable attorneys’ fees, costs and expenses incurred by GKF as a result of the Event of Default or the exercise of GKF’s remedies.

 

20.3         Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or available under applicable law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums then owing under this Agreement. Hospital shall in any event remain fully liable for all damages as may be provided by law and for all costs and expenses incurred by GKF on account of such default, including but not limited to, all court costs and reasonable attorneys' fees. The rights and remedies afforded GKF under this Agreement shall be deemed cumulative and not exclusive, and shall be in addition to any other rights or remedies to GKF provided by law or in equity.

 

21.            Events of Default by GKF and Remedies .

 

21.1         The occurrence of any one of the following shall constitute an Event of Default hereunder:

 

  - 14 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

21.1.1            GKF shall fail to observe or perform any of its covenants, duties or obligations arising under this Agreement and such failure shall continue for a period of thirty (30) days after written notice thereof is given by Hospital to GKF; however, if GKF cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, GKF commences to cure the default during the initial thirty (30) day period and GKF diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default.

 

21.1.2           GKF ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation.

 

21.1.3           Within sixty (60) days after the commencement of any proceedings against GKF seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without GKF’s consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.

 

21.2         Upon the occurrence of an Event of Default involving GKF, Hospital may, by written notice to GKF, immediately terminate this Agreement as to the Equipment and, in such event, GKF shall remove the Equipment, the Cobalt and any improvements made by GKF to the Site, at GKF’s sole cost and expense or, in the absence of removal by GKF within a reasonable period of time after a written request therefor, Hospital may remove the Equipment, the Cobalt and such improvements with all due care and store the same at GKF’s sole cost and expense.

 

21.3         Notwithstanding the occurrence of an Event of Default with respect to GKF (including any claim which would otherwise be in the nature of a set-off), Hospital shall fully perform and pay its obligations hereunder (including payment of all Lease Payments) without set-off or defense of any kind. Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or applicable law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums and owing under this Agreement when and as due.

 

  - 15 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

22.            Removal of Equipment . Upon expiration of the Term, GKF, at its cost and expense, shall remove the Equipment from the Site within a reasonable time period; provided that all of GKF’s right, title and interest in and to the improvements made by GKF to the Site pursuant to Section 6 above shall thereupon transfer to Hospital.

 

23.            Insurance .

 

23.1         During the Term, GKF shall, at its cost and expense, purchase and maintain in effect an all risk property and casualty insurance policy covering the Equipment. The all risk property and casualty insurance policy shall be for an amount not less than the replacement cost of the Equipment. The all risk property and casualty insurance policy maintained by GKF shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by GKF to Hospital upon request following the commencement of this Agreement and as of each annual renewal of such policy during the Term.

 

23.2         During the Term, Hospital shall, at its cost and expense, purchase and maintain in effect general liability and professional liability insurance policies covering the Site (together with all premises where the Site is located) and the use or operation of the Equipment by Hospital or its officers, directors, agents, employees, contractors or physicians. The general liability and professional liability insurance policies shall provide coverage in amounts not less than One Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) annual aggregate. GKF shall be named as additional insured party on the general liability and professional liability insurance policies to be maintained hereunder by Hospital. The policies to be maintained by Hospital hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by Hospital to GKF no later than the First Procedure Date and as of each annual renewal of such policies during the Term. Hospital shall require any physicians using the equipment to show evidence of professional liability insurance consistent with Hospital’s Medical Staff Bylaws.

 

23.3         During the construction of the Site and prior to the First Procedure Date, GKF, at its cost and expense, shall purchase and maintain a general liability insurance policy which conforms with the coverage amounts and other requirements described in Section 23.2 above and which names Hospital as an additional insured party. The policy to be maintained by GKF hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by GKF to Hospital prior to the commencement of any construction at the Site.

 

23.4         During the Term, Hospital shall purchase and maintain all workers compensation insurance to the extent required by applicable law.

 

  - 16 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

24.            Indemnification .

 

24.1         Hospital and GKF each hereby covenants and agrees that it will defend, indemnify and hold the other party and the other party's officers, directors, members, employees and agents at all times harmless from and against any loss, damage and expense (including reasonable attorneys’ fees and other costs of defense) caused by or arising out of: (i) any liability or obligation related to the business of the indemnifying party prior to the date hereof; (ii) any obligation or liability arising from services provided under this Agreement by the indemnifying party to the extent any such liability or obligation directly results from the negligence or intentional misconduct of the indemnifying party, it’s employees or agents ; or (iii) any obligation or liability resulting from a breach of any provision of this Agreement by the indemnifying party, it’s employees or agents. The obligations of the parties under this Section shall survive the expiration or earlier termination of this Agreement.

 

24.2         Any party that intends to enforce an indemnity obligation shall give the indemnifying party notice of any claim as soon as possible, but the failure to give such notice shall not constitute a waiver or release of the indemnifying party and shall not affect the rights of the indemnified party to recover under this indemnity, except to the extent the indemnifying party is materially prejudiced thereby. In connection with any claim giving rise to indemnity under this Section resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the indemnifying party, at its sole cost and expense, may, upon written notice to the indemnified party, assume control of the defense of such claim or legal proceeding, to the extent that the indemnifying party admits in writing its indemnification liability to the indemnified party with respect to all material elements thereof If the indemnifying party assumes the defense of any such claim or legal proceeding, the obligations of the indemnifying party hereunder as to such claim or legal proceeding shall be to take all steps necessary in the defense or settlement thereof and to hold the indemnified party harmless from and against any losses, damages, expenses or liability caused by or arising out of any settlement approved by the indemnifying party and the indemnified party or any judgment in connection with such claim or legal proceeding. Each indemnified party shall cooperate with the indemnifying party in the defense of any such action, the defense of which is assumed by the indemnifying party. Except with the consent of the indemnified party, which consent may be withheld at the indemnified party's sole discretion, the indemnifying party shall not consent to any settlement or the entry of any judgment arising from any such claim or legal proceeding which, in each case, does not include as an unconditional term thereof the delivery by the claimant or the plaintiff to the indemnified party of a release from all liability in respect thereof. If the indemnifying party does not assume the defense of any claim or litigation, any indemnified party may defend against such claim or litigation in such manner as it may deem appropriate, including but not limited to settling such claim or litigation, after giving notice of the same to the indemnifying party, on such terms as the indemnified party may deem appropriate. The indemnifying party will, promptly after any of the same is incurred, reimburse the indemnified party in accordance with the provisions hereof for all damages, losses, liabilities , costs and expenses incurred by the indemnified party.

 

  - 17 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

25.            Miscellaneous .

 

25.1          Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as provided under Section 14, neither party shall assign this Agreement nor any of its respective rights hereunder and Hospital shall not sublease the Equipment without the prior written consent of the other party, which consent shall not be unreasonably withheld. An assignment or sublease shall not relieve the assigning party or sublessor of any liability for performance of this Agreement during the remainder of the Term. Any purported assignment or sublease made without the other party's prior written consent shall be null, void and of no force or effect.

 

25.2          Agreement to Perform Necessary Acts . Each party agrees to perform any further acts and execute and deliver any further documents which may be reasonably necessary or otherwise reasonably required to carry out the provisions of this Agreement.

 

25.3          Validity . If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any court or other tribunal of competent jurisdiction, then the application of such clause or provision in contexts or to situations, circumstances or persons other than that in or to which it is held unenforceable, invalid or in violation of law shall not be affected thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect.

 

25.4          Attorney’s Fees and Costs . In the event of any action, arbitration or other proceedings between or among the parties hereto with respect to this Agreement, the non-prevailing party or parties to such action, arbitration or proceedings shall pay to the prevailing party or parties all costs and expenses, including reasonable attorneys' fees, incurred in the defense or prosecution thereof by the prevailing party or parties. The party which is a "prevailing party" shall be determined by the arbitrator(s) or judge(s) hearing the matter and shall be the party who is entitled to recover his, her or its costs of suit, whether or not the matter proceeds to a final judgment, decree or determination. A party not entitled to recover his, her or its costs of suit shall not recover attorneys' fees. If a prevailing party or parties shall recover a decision, decree or judgment in any action, arbitration or proceeding, the costs and expenses awarded to such party may be included in and as part of such decision, decree or judgment.

 

25.5          Entire Agreement; Amendment . This Agreement together with the Exhibits attached hereto constitutes the full and complete agreement and understanding between the parties hereto concerning the subject matter hereof and shall supersede any and all prior written and oral agreements with regard to such subject matter. This Agreement may be modified or amended only by a written instrument executed by all of the parties hereto.

 

  - 18 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

25.6          Number and Gender . Words in the singular shall include the plural, and words in a particular gender shall include either or both additional genders, when the context in which such words are used indicates that such is the intent.

 

25.7          Effect of Headings . The titles or headings of the various paragraphs hereof are intended solely for convenience or reference and are not intended and shall not be deemed to modify, explain or place any construction upon any of the provisions of this Agreement.

 

25.8          Counterparts . This Agreement may be executed in one or more counterparts by the parties hereto. All counterparts shall be construed together and shall constitute one agreement.

 

25.9          Governing Law . This Agreement shall be interpreted and enforced in accordance with the internal laws, and not the law of conflicts, of the State of Nebraska applicable to agreements made and to be performed in that State.

 

25.10          Exhibits . All exhibits attached hereto and referred to in this Agreement are hereby incorporated by reference herein as though fully set forth at length.

 

25.11          Ambiguities . The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to such ambiguous provision.

 

25.12          Representations . Each of the parties hereto represents (a) that no representation or promise not expressly contained in this Agreement has been made by any other party hereto or by any of its agents, employees, representatives or attorneys; (b) that this Agreement is not being entered into on the basis of, or in reliance on, any promise or representation by such party or individual, expressed or implied, other than such as are set forth expressly in this Agreement; (c) that it has been represented by counsel of its own choice in this matter or has affirmatively elected not to be represented by counsel; (d) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (e) it has full power and authority to execute, deliver and perform this Agreement, and (f) the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other similar action.

 

25.13          Non-Waiver . No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, or to exercise any right, power or remedy hereunder or under law or consequent upon a breach hereof or thereof shall constitute a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party from exercising any such right, power or remedy at any later time or times.

 

  - 19 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

25.14          Notices . All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered to the party to whom notice is to be given either (a) by personal delivery (in which case such notice shall be deemed to have been duly given on the date of delivery), (b) by next business day air courier service (e.g., Federal Express or other similar service) (in which case such notice shall be deemed given on the business day following deposit with the air courier service), or (c) by United States mail, first class, postage prepaid, registered or certified, return receipt requested (in which case such notice shall be deemed given on the third (3rd) day following the date of mailing), and properly addressed as follows:

 

To GKF: Craig K. Tagawa

 

Chief Executive Officer

GK Financing, LLC

Two Embarcadero Center

Suite 410

San Francisco, CA 94111

   
To Hospital:

Bryan Medical Center

1600 South 48 th

Lincoln, Nebraska 68506

Attn: _______________

 

A party to this Agreement may change his, her or its address for purposes of this Section by giving written notice to the other parties in the manner specified herein.

 

25.15         Special Provisions Respecting Medicare and Medicaid Patients .

 

25.15.1          Hospital and GKF shall generate such records and make such disclosures as may be required , from time to time, by the Medicare, Medicaid and other third party payment programs with respect to this Agreement in order to meet all requirements for participation and payment associated with such programs, including but not limited to the matters covered by Section 1861(v) (l) (I) of the Social Security Act.

 

25.15.2          For the purpose of compliance with Section 1861(v)(l)(I) of the Social Security Act, as amended, and any regulations promulgated pursuant thereto, both parties agree to comply with the following statutory requirements (a) Until the expiration of four (4) years after the termination of this Agreement, both parties shall make available, upon written request to the Secretary of Health and Human Services or, upon request, to the Comptroller General of the United States, or any of their duly authorized representatives, the contract, and books, documents and records of such party that are necessary to certify the nature and extent of such costs, and (b) if either party carries out any of the duties of the contract through a subcontract with a value or cost of $10,000 or more over a twelve month period, with a related organization, such subcontract shall contain a clause to the effect that until the expiration of four (4) years after the furnishing of such services pursuant to such subcontract, the related organization shall make available, upon written request to the Secretary, or upon request to the Comptroller General, or any of their duly authorized representatives the subcontract, and books, documents and records of such organization that are necessary to verify the nature and extent of such costs.

 

  - 20 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

25.16         Force Majeure . Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under this Agreement directly or indirectly caused by conditions beyond its reasonable control, including, without limitation, fires , floods, earthquakes, snow, ice, disasters, acts of God, accidents, riots, wars, operation of law, strikes, governmental action or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. Notwithstanding the foregoing, all parties shall make good faith efforts to perform under this Agreement in the event of any such circumstance. Further, once such an event is resolved, the parties shall again perform their respective obligations under this Agreement.

 

25.17         Article 2A Notice .

 

25.17.1         The parties hereto agree that, notwithstanding anything to the contrary set forth in this Agreement, this Agreement is and shall be treated and interpreted as a statutory "finance lease," as such term is defined in Article 2A of the Uniform Commercial Code (“UCC”) and Article 2A of the Nebraska Uniform Commercial Code - Leases, and that GKF shall be treated as a finance lessor who is entitled to the benefits and releases from liability accorded to a finance lessor thereunder. In furtherance of the foregoing, Hospital acknowledges that, prior to signing this Agreement, GKF has informed Hospital in writing (a) that Elekta is the entity supplying the Equipment to GKF, (b) that Hospital is entitled (under Section 2A of the Uniform Commercial Code and Article 2A of the Nebraska Uniform Commercial Code - Leases) 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 Equipment or the right to possession and use of the Equipment, 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 acknowledges and agrees that Hospital has selected both: (1) the Equipment; and (2) the supplier from whom GKF is to purchase the Equipment. Hospital acknowledges that GKF has not participated in any way in Hospital’s selection of the Equipment or of the supplier, and GKF has not selected, manufactured or supplied the Equipment. HOSPITAL IS ADVISED THAT IT MAY HAVE RIGHTS UNDER THE CONTRACT EVIDENCING GKF’S PURCHASE OF THE EQUIPMENT FROM THE SUPPLIER CHOSEN BY HOSPITAL AND THAT HOSPITAL SHOULD CONTACT THE SUPPLIER OF THE EQUIPMENT FOR A DESCRIPTION OF ANY SUCH RIGHTS.

 

  - 21 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

25.17.2         In the event Article 2A of the UCC is deemed to be applicable to this Agreement, Hospital hereby agrees to waive any and all rights and remedies given by Sections 2A-508 through 2A-522 of the UCC, including but not limited to the right to reject the Lease and Equipment; cancel the Lease; revoke acceptance of the Equipment, “cover” by making any purchase or lease of Equipment in its possession and control for any reason; recover damages under such UCC-2A sections for any breach of warranty and/or seek remedies of specific performance, replevin or the like for any Equipment. In addition, to the extent permitted by applicable law, Hospital also hereby waives any rights now or hereafter conferred by statute or otherwise which may require GKF to sell, lease or otherwise use any Equipment in mitigation of GKF’s damages or which may otherwise limit or modify any of GKF’s rights or remedies.

 

25.18         Independent Contractor Status . With respect to the performance of the duties and obligations arising under this Agreement, nothing in this Agreement is intended nor shall be construed to create a partnership, an employer/employee relationship , a joint venture relationship, or a lease or landlord/tenant relationship between GKF and Hospital. GKF acknowledges that physicians practicing at Hospital are not employees or agents of Hospital , but independent community practitioners.

 

  - 22 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.

 

GKF :   Hospital :
     
GK FINANCING, LLC,   BRYAN MEDICAL CENTER,
a California limited liability company   a Nebraska non-profit corporation
         
By: //Ernest A. Bates, M.D.   By: //David Reese
  Ernest A. Bates, M.D.,   Name: David Reese
  Policy Committee Member   Title: V.P. Clinical and Support Services

 

  - 23 -  
 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

Exhibit 1

 

LGK AGREEMENT

 

 

 

Prepared for

 

BRYAN HEALTH-WEST AKA BRYAN LGH

2300 S 16 th Street

LINCOLN, NEBRASKA 68502

 

February 9, 2017

 

Purchase and License Agreement 2013-243220-BP - 1 -    
     
Created on April 30, 2013    

 

 

LEKSELL GAMMA KNIFE® END USER AGREEMENT

 

THIS AGREEMENT is entered into as of the                      2017 by and between ELEKTA, INC., a corporation organized and existing under the laws of Georgia (hereinafter referred to as “Elekta”), and Bryan Health-West, aka Bryan LGH. (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 agrees, 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.

 

Purchase and License Agreement 2013-243220-BP - 2 -    
     
Created on April 30, 2013    

 

 

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 Bryan Health-West, aka Bryan LGH”

 

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

 

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

 

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.

 

Purchase and License Agreement 2013-243220-BP - 3 -    
     
Created on April 30, 2013    

 

 

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.   END USER
         
By: /s/ Ian G. Dickson   By: /s/ David Reese
         
Title: Treasurer   Title: VP, Clinical and Support Services
         
Date: February 2, 2017   Date: February 13, 2017

 

Purchase and License Agreement 2013-243220-BP - 4 -    
     
Created on April 30, 2013    

 

 

EXHIBIT A

SPECIFICATION

 

Qty Description
1 Leksell Gamma Knife ® PERFEXION™

 

Radiation Unit

- With radiation shielding doors and collimator system

Patient Positioning System™

- Patient couch and automatic Patient Positioning System™

Covers for radiation unit and Patient Position 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 Leksel Gamma Knife ® PERFEXION™

 

Clearance check tool

 

Document set

- Installation and supplementary documents

- 2 Instructions for Use

- 2 Emergency routines

- Signs and Labels

 

Support and Education & Training for PERFEXION™

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. -10 spaces in total selecting between the following two courses:

 

1) Leksell Gamma Knife ® PERFEXION™ 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 collaborating hospital.We pay for the tuition at an approved Elekta training site.

or

2)       Leksell GammaKnife ® PERFEXION™ 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.

 

Purchase and License Agreement 2013-243220-BP - 5 -    
     
Created on April 30, 2013    

 

 

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.

 

1 Standard LGP for LGK PERFEXION

 

Includes one (1) Leksell GammaPlan ® (LGP) license for creating new treatment plans for Leksell Gamma Knife ® PERFEXION™. 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 NTPS SUPPLIER ITEMS 10.1.1

 

1 LGP - Pre-Plan / Follow-up / Re-Treatment License

 

This software add-on facilitates planning of treatments days before surgery (pre-planning), to assess treatments (follow-up) and perform re-treatments.

 

With Re-Treatment, one can 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.

 

Requires the ImageMerge software add-on.

 

1 Linux Platform WS Power Edition Kit

 

HP Z600 Workstation Power Edition

Flat LCD Monitor 24” minimum

External HD for Backup

 

1 LGP - Real-time dose planning License

 

This add-on speeds up forward planning by allowing the update of isodoses 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 realize the potential of composite shots, while also simplifying the elaboration of new dose plans.

 

Real-time planning provides a shorter learning curve, more intuitive and better plans.

 

1 LGP - Functional Planning™ License

 

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

 

1 LGP - Image Merge 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™).

 

1 LGP - Color PET™ License

 

The ColorPET™ 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.

 

1 Radiation phantom with cassettes

 

Dosimetry phantom for Leksell Gamma Knife ®

 

1 Phantom Adaptor

 

1 LGK Perfexion, Accessories

 

1 English Manual

 

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.

 

Purchase and License Agreement 2013-243220-BP - 6 -    
     
Created on April 30, 2013    

 

 

1 LGP - INVERSE PLANNING License

 

This software add-on enables fast automatic planning. It consists of two key independent functions – filling and optimization – which affect the critical activities of dose distribution and plan optimization. With “filling”, the target is automatically filled with shots. The optimization function is used to improve a preliminary plan. The optimization process is controlled by prioritizing four parameters: target coverage, selectivity, dose gradient and treatment time. It is also possible to change the number and location of shots at any time during the procedure. By making the optimization very fast, an efficient iterative workflow is supported where the plan is developed through adjustment of the inverse planning settings, continued optimization and possibly manual planning.

 

1 LGP - CONVOLUTION DOSE ENGINE License

 

Convolution dose engine is specifically designed to rapidly generate dose plans for inhomogeneous tissue, such as tissue-air and tissue-bone interfaces. Convolution is an accelerated multi-beam convolution algorithm that models build-up effects and takes inhomogeneity of material into account. It is highly adapted to Leksell Gamma Knife ® . It has taken features from Collapsed cone convolution, the pencil beam convolution and uses the same basic principles as the TMR (Tissue-Maximum-Ratio) algorithm. The algorithm is able to compute the total dose received at any point within the three dimensional stereotactic space defined by the frame coordinates. The patient’s anatomy is defined by CT images used to account for material heterogeneities.

 

As a complement to the TMR dose algorithm, Convolution gives you freedom-of-choice and flexibility, allowing you to decide which dose calculation algorithm to use for a plan.

 

1 Earthquake protection kit

 

2 Leksell ® Coordinate Frame G kit with Insulated Posts and 40 TFS

 

A complete coordinate frame kit including Insulated Fixation Posts and a full set of Titanium Fixation Screws.

 

The Frame is an unsurpassed 3D ref and positioning system for imaging, stereotactic neurosurgery and Gamma Knife ® surgery.

 

1 OFFICE UPS 1500VA120V CPL

 

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EXHIBIT B

DESCRIPTION OF SITE

 

BRYAN HEALTH-WEST, AKA BRYAN LGH

2300 S 16 th STREET

LINCOLN, NEBRASKA 68502

 

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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 hereinbelow. 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.

 

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EXHIBIT D

LEKSELL GAMMAPLAN ® PFX™ 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 LGF 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.

 

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EXHIBIT E

END USER AGREEMENT AMENDMENTS

 

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Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

Exhibit 8.2

 

HOSPITAL’S COST COMPONENT

 

Rental for Physical Facility Space [ * * * * * ]
   
Registered Nurse [ * * * * * ]
   
Physicist [ * * * * * ]
   
Recovery Room [ * * * * * ]
   
Hospital Per Diem Charge [ * * * * * ]
   
MRI Procedure with Contrast [ * * * * * ]
   
MRI Procedure without Contrast [ * * * * * ]
   
CT Procedure with Contrast [ * * * * * ]
   
CT Procedure without Contrast [ * * * * * ]
   
Angiography Procedure [ * * * * * ]
   
Angiograph Cerebral Procedure [ * * * * * ]
   
Billing and Collection Fee [ * * * * * ]

 

On each anniversary of the First Procedure Date, Hospital may adjust these cost components up or down, which increases or decreases shall directly correlate to increases or decreases in Hospital’s direct cost (excluding administrative or overhead expenses) supported by documentation reasonably satisfactory to GKF.

 

  - 25 -  

 

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4) AND 240.24b-2. [*****] INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY WITH THE COMMISSION. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

Exhibit A

 

PHYSICAL SPACE

  

 

  - 26 -  

 

 

Exhibit 10.2

 

SECOND AMENDMENT TO

LEASE AGREEMENT FOR A GAMMA KNIFE UNIT

(PERFEXION UPGRADE)

 

This SECOND AMENDMENT TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT (this “Second Amendment”) is dated effective as of May 15, 2009 (the “Effective Date”) and is entered into by and between Yale-New Haven Hospital, Inc. a/k/a Yale-New Haven Hospital, a Connecticut corporation (“YNHH”) and GK Financing, LLC, a California limited liability company (“GKF”).

 

Recitals :

 

A.           On April 10, 1997 GKF and Yale-New Haven Ambulatory Services Corporation, a Connecticut corporation (“ASC”), entered into a Lease Agreement For A Gamma Knife Unit, which was amended pursuant to (i) a certain Addendum dated as of October 25, 2005 (the “Addendum”); and (ii) a certain Assignment, Assumption And Amendment of Lease Agreement For A Gamma Knife Unit dated effective as of June 30, 2006 (the “First Amendment”). The original Lease Agreement, as amended by the Addendum and the First Amendment, is referred to herein as the “Lease.”

 

B.           Pursuant to the First Amendment, ASC transferred and assigned its interest in the Lease to its affiliate, YNHH, and YNHH assumed all of ASC’s rights and obligations thereunder.

 

C.           YNHH and GKF desire to further amend the Lease to provide for the replacement and upgrade of the existing Leksell Gamma Knife, Model 4C (the “Model 4C”) that is currently being leased by GKF to YNHH 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 new Yale-New Haven Cancer Center to be known as The Smilow Cancer Hospital, located at Park Street and South Frontage Road (the “New Site”) contemporaneously with the de-installation of the Model 4C.

 

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 4C to the Perfexion .

 

a.           Subject to the terms and conditions set forth herein, GKF shall acquire and hold title to, and install the Perfexion with new cobalt-60 source, at the New Site (the “Perfexion Upgrade”). GKF shall use its commercially reasonable efforts to perform the Perfexion Upgrade either during the fourth quarter of 2009 or the first quarter of 2010, subject to availability of the Perfexion from the equipment manufacturer, issuance of all regulatory approvals, permits and/or waivers, and completion of construction of the New Site. The parties acknowledge that YNHH may not be able to perform procedures for several weeks during the Perfexion Upgrade and the deinstallation of the Model 4C.

 

b.           Subject to Section 2.c below, YNHH shall be solely responsible for the construction and preparation of the New Site, which construction and preparation shall be performed by YNHH in the same manner as was performed with respect to the original Site. Prior to the Perfexion Upgrade, YNHH shall enter into a mutually acceptable LGK Agreement with Elekta for the Perfexion.

 

Second amendment to GK Lease - Yale Perfexion - 1 -  

 

 

c.           GKF shall be responsible for installation costs related to the Perfexion Upgrade, consisting primarily of rigging costs.

 

d.           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, provided that YNHH shall have no obligation to pay for such costs.

 

e.           In connection with the Perfexion Upgrade, YNHH, at YNHH’s sole cost and expense, shall provide GKF with YNHH personnel (including YNHH physicists) and services upon reasonable request and as reasonably required by GKF, 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.

 

f.            Notwithstanding the foregoing, the Perfexion Upgrade shall be performed by GKF only after all necessary and appropriate licenses, permits, approvals, waivers, consents and authorizations, including, without limitation, the CON or its waiver, and the proper handling of the cobalt-60 (collectively, the “Permits”), have been obtained by YNHH at YNHH’s sole cost and expense. The timing and procedure for the Perfexion Upgrade shall be as mutually agreed upon between the parties.

 

3.            De-Installation of the Model 4C . Promptly following the Perfexion Upgrade, GKF shall de-install, remove and retain all ownership rights and title to the existing Model 4C. Notwithstanding anything to the contrary set forth in the Lease or herein, neither YNHH nor any of its affiliates shall have any ownership interest in the Model 4C, and YNHH on behalf of itself and its affiliates hereby waives any ownership interest (or option to purchase any ownership interest) in the Model 4C. With respect to the Deposit (in the amount of $100,000) previously deposited with GKF pursuant to Section 6.c of the Addendum, YNHH hereby grants, assigns and transfers unto GKF all of YNHH’s right, title and interest in and to the Deposit for the purpose of reducing the Per Procedure Payments to be paid to GKF by YNHH following the Perfexion Upgrade pursuant to this Second Amendment.

 

4.            Extension of Lease Term . In consideration of the Perfexion Upgrade, the Term is hereby extended to the date that is seven (7) years following the First Perfexion Procedure Date (as hereinafter defined); provided that the Term may be further extended as set forth in Section 7(a) below.

 

5.            Compensation .

 

a.          The parties acknowledge that the compensation payable to GKF for the Perfexion as set forth in this Second 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, YNHH’s capabilities in providing high quality radiation oncology services, market dynamics, GKF’s risk in providing the Equipment, and the provision to GKF of a reasonable rate of return on its investment in support of the Equipment. Based thereon, the Parties believe that the Per Procedure Payments and Additional Payments, if any, represent fair market value for the use of the Perfexion, the de-installation and removal of the Model 4C, the Perfexion Upgrade, marketing support, maintenance and service, personal property taxes, cost of insurance coverage for the Perfexion, and the other additional services and costs to be provided or paid for by GKF pursuant to this Second Amendment, and the transfer of the Deposit to GKF. YNHH undertakes no obligation to perform any minimum number of procedures on the Equipment, and the use of the Equipment 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.

 

Second amendment to GK Lease - Yale Perfexion - 2 -  

 

 

b.           Commencing from the first procedure performed using the Perfexion at the New Site (the “First Perfexion Procedure Date”) and continuing through the duration of the Term (as extended hereby), YNHH shall pay to GKF on a monthly basis, the applicable “Per Procedure Payments” (as set forth on Exhibit “A” attached hereto) multiplied by each and every procedure performed during the subject month using the Perfexion, irrespective of (i) whether the procedure is performed by YNHH, ASC, or their respective representatives or “Affiliates” (as defined in the First Amendment), or any other person or entity; or (ii) the actual amounts billed or collected, if any, pertaining to such procedures. As used herein, a “procedure” shall mean any treatment of a patient, 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.

 

c.           The Per Procedure Payments shall be payable within thirty (30) days after the conclusion of each calendar month in which the applicable procedures were performed. Throughout the Term and thereafter until final settlement of all amounts owed to either party under the Lease, each party shall have the right at reasonable times and upon reasonable advance notice to inspect, audit and copy the other party’s books and records which relate to scheduling and billing of, and reimbursement for, Gamma Knife procedures, the Per Procedure Payments and Additional Payments, and the service, insurance and property tax expenses associated with the Perfexion.

 

d.           In addition to the Per Procedure Payments, YNHH shall continue to remain obligated to pay GKF any Additional Payments that may become due from and after the Perfexion Upgrade, which Additional Payments shall be calculated and paid as set forth in the First Amendment, except that:

 

(i)          The incremental Additional Payment of $5,500 (as set forth in the First Amendment) for each procedure performed using the Additional Unit(s) shall be replaced with the applicable Per Procedure Payment then being paid by YNHH under this Second Amendment. For example, if the Per Procedure Payment then being paid by YNHH is $4,250, then, the incremental Additional Payment shall be equal to $4,250 multiplied by each procedure performed using the Additional Unit(s) during the corresponding Contract Year (or Shortfall Contract Year, if applicable), up to an aggregate of two hundred forty (240) procedures (prorated if the subject Contract Year is less than 365 days) combined between procedures performed using the Perfexion and procedures performed using the Additional Unit(s), irrespective of (1) whether such procedures are performed by YNHH, its representatives or Affiliates (as defined in the First Amendment), or any other person or entity; or (2) the actual amounts billed or collected, if any, pertaining to any such procedures; and

 

(ii)         “Contract Year” shall mean each successive twelve (12) month period commencing from the First Perfexion Procedure Date.

 

e.           Notwithstanding the foregoing, the compensation payable to GKF pertaining to procedures performed prior to the First Perfexion Procedure Date shall continue to be calculated and paid by YNHH in accordance with the First Amendment.

 

6.          Marketing Support . The parties obligations with respect to marketing the Perfexion shall continue in the same manner and with the same amounts as set forth in Section 2.d of the First Amendment.

 

Second amendment to GK Lease - Yale Perfexion - 3 -  

 

 

7.            Cobalt Reload . Notwithstanding anything to the contrary contained in the Lease, YNHH shall be solely responsible for all costs related to any future reloading (but not the initial loading) of the Cobalt-60 source for the Perfexion. However, if GKF and YNHH mutually agree that GKF will be solely responsible for the costs of such Cobalt-60 reloading, then, (a) the Term (as extended by this Second Amendment) shall be further extended for an additional three (3) years, plus the period of time during which the Perfexion is not in use due to the Cobalt-60 reloading; and (b) the Per Procedure Payment during years eight (8), nine (9) and ten (10) of the Term (as extended by this Second Amendment) shall be at a rate to be mutually negotiated between the parties, provided that if the parties cannot reach agreement as to such rates, then, (i) YNHH (and not GKF) shall be solely responsible for all costs related to any such future reloading, and (ii) the Term (as extended by this Second Amendment) shall not be further extended.

 

8.            Purchase Option Upon Expiration .

 

a.           Upon the expiration of the Term (as extended hereby), YNHH shall have the option to purchase GKF’s ownership interest in the Perfexion (the “Purchase Option”) for a purchase price of One Hundred Fifty Thousand Dollars ($150,000) (the “Option Purchase Price”). The Option Purchase Price shall be paid in full in cash to GKF upon the expiration of the Term of the Lease (as extended), upon which GKF shall transfer, convey and assign to YNHH, free and clear of all encumbrances, all of GKF’s right, title and interest in and to the Perfexion, on an “as is, where is” basis with all faults, and without representation or warranty (other than as to clear title). If the Purchase Option is exercised, upon the expiration or termination of the Lease (as extended), it is understood that GKF shall have no obligation with respect to the removal, relocation, reinstallation and/or repair of the Perfexion, except as to any obligations to insure and/or repair the Equipment that arose under the Lease prior to such expiration or termination.

 

b.           On or before the date that is twelve (12) months prior to the expiration of the Term of the Lease (as extended), GKF will provide YNHH with written notice of such expiration (the “Twelve Month Notice”). The Purchase Option may be exercised by YNHH by giving GKF written notice of such exercise (the “Exercise Notice”), which Exercise Notice shall be received by GKF not more than sixty (60) days following YNHH’s receipt of the Twelve Month Notice. The Twelve Month Notice and the Exercise Notice may be delivered by hand or sent by certified mail, return receipt requested to YNHH or GKF, as the case may be, at their respective addresses set forth below:

 

If to GKF: If to YNHH:
   
GK Financing, LLC Yale-New Haven Hospital, Inc.
Four Embarcadero Center, Suite 3700 20 york st
San Francisco, CA 94111 New Haven ct 06504
Attn:      Mr. Craig K. Tagawa,  
            Chief Executive Officer. Attn: John Skesh

 

9.            Other provisions .

 

a.           Upon request by GKF and at GKF’s reasonable expense, YNHH shall execute and deliver a commercially reasonable form of consent to sublease, to be attached as Exhibit “B” hereto, if such a document is reasonably requested by the third party financing company which holds a security interest in the Perfexion.

 

b.         In each of Section 20(e) (Events of Default by Yale and Remedies) and Section 21(e) (Events of Default by GKF and Remedies) of the Lease, the words, “under any present or future statute, law or regulation,” shall be deleted and replaced with the words, “under any then-current statute, law or regulation.”

 

Second amendment to GK Lease - Yale Perfexion - 4 -  

 

 

c.           GKF, at its cost and expense, shall cover the tuition costs for up to ten (10) Perfexion training slots for physicians and physicists who will be using the Perfexion. Travel and entertainment associated with training shall not be the responsibility of GKF.

 

d.           YNHH and GKF each, on its own behalf, represents and warrants to the other that neither it nor any of its respective owners has ever been (a) convicted of a criminal offense related to health care and/or related to the provision of services paid for by Medicare, Medicaid or another federal health care program; (b) excluded or debarred from participation in any federal health care program, including Medicare and Medicaid; or (c) otherwise sanctioned by the federal government, including being listed on the General Services Administration’s Excluded Party Listing System (the “Sanction Events”). YNHH and GKF shall each notify the other party immediately in the event that the representation contained in the preceding sentence is or becomes untrue at any time during the Term (as extended). Notwithstanding anything in the Lease or this Second Amendment to the contrary, upon the occurrence of any Sanction Event which results in the exclusion of either party from Medicare, Medicaid and any other Federal health care programs (the “Exclusion”), (i) no termination of the Lease or this Second Amendment (as the same may be further amended) will occur as a result thereof; and (ii) the parties shall work together in good faith to preserve their economic arrangement to the greatest extent possible, which includes, without limitation, the assignment by GKF (if GKF the subject of the Exclusion) of GKF’s interests to a non-excluded assignee with an equal or greater credit or financial condition as that of GKF, or if YNHH is the subject of the Exclusion, extending the Term and/or increasing the Per Procedure Payments to account for the period of time YNHH is excluded.

 

10.           Governing Law . This Second Amendment shall be governed by and construed under the laws of the State of Connecticut, without reference to its principles of conflicts of law.

 

11.           Counterparts . This Second Amendment 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.

 

12.           Captions . The captions and paragraph headings used herein are for convenience only and shall not be used in construing or interpreting this Second Amendment.

 

13.           Full Force and Effect . Except as amended by this Second Amendment, all of the terms and provisions of the Lease shall remain unchanged and in full force and effect and, together with this Second Amendment, represent the entire agreement of the parties with respect to the Equipment and its use by YNHH. Unless the context requires otherwise, with respect to the Perfexion, all references in the Lease to (i) the “Equipment” shall be deemed to mean the Perfexion; (ii) “Installation” shall be deemed to refer to the Perfexion Upgrade; (iii) the “LGK Agreement” shall be deemed to refer to the new LGK Agreement to be executed by YNHH relating to the Perfexion; (iv) the “Site” shall be deemed to refer to the New Site; (v) the “Term” shall be deemed to refer to the Term, as extended pursuant to this Second Amendment. To the extent any of the terms of the Lease conflict with the terms of this Second Amendment, the terms and provisions of this Second Amendment shall prevail and control. Where not different or in conflict with the terms and provisions of this Second Amendment, all applicable terms and provisions set forth in the Lease are incorporated within this Second Amendment as is if set forth herein and shall apply with equal force and effect to the Perfexion. Nothing set forth in this Second Amendment shall relieve either party from any or all of its obligations under the Lease with respect to the Model 4C, including, without limitation, the obligation to pay Lease Payments, Additional Payments, and the service, insurance and property tax expenses associated with the Model 4C.

 

Second amendment to GK Lease - Yale Perfexion - 5 -  

 

 

IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as of the first written above.

 

YALE-NEW HAVEN HOSPITAL, INC. GK FINANCING, LLC
         
By:

John Skelly                  

  By: Ernest A. Bates
Its: VP-Finance   Its: CEO ASHS
Dated: 5/15/09   Dated: 5/28/09

 

Second amendment to GK Lease - Yale Perfexion - 6 -  

 

 

Exhibit “A”

 

PER PROCEDURE PAYMENTS

 

Cumulative Procedures Performed
Using the Perfexion 		  Per Procedure Payment  
1-1,000   $ 4,925  
1,001 - 1,750   $ 4,250  
1,751+   $ 4,150  

 

Notwithstanding anything to the contrary set forth herein, (a) for purposes of determining the applicable Per Procedure Payment, the number of procedures performed using the Perfexion shall be counted and cumulated from and after the First Perfexion Procedure Date through the expiration of the Term (as extended hereby); (b) procedures previously performed using prior models of the Equipment (including the Model 4C) shall not be counted towards the cumulative total; and (c) there shall be no retroactive adjustment of the Per Procedure Payment irrespective of whether the number of procedures performed reaches a lower Per Procedure Payment level. For example, if the cumulative number of procedures totals 1,025, then, the Per Procedure Payment for the first 1,000 procedures would remain at $4,925 per procedure while the Per Procedure Payment for the next 25 procedures (i.e., for procedures 1,001 through 1,025) would be $4,250 per procedure. There are no minimum volume requirements.

Second amendment to GK Lease - Yale Perfexion - 7 -  

 

 

Exhibit “B”

 

CONSENT TO SUBLEASE

 

Second amendment to GK Lease - Yale Perfexion - 8 -  

 

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, or caused such disclosure controls and procedures to be designed under our supervision, 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;

 

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 change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s 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; and

 

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 the registrant's board of directors (or persons performing the equivalent functions):

 

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 control over financial reporting .

 

November 13, 2017

 

/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, or caused such disclosure controls and procedures to be designed under our supervision, 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;

 

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 change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s 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; and

 

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 the registrant's board of directors (or persons performing the equivalent functions):

 

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 control over financial reporting .

 

November 13, 2017

 

/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 September 30, 2017 (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.

 

November 13, 2017

 

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