-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RL7bbDO+SLXbBHOaftP4G0gZ92dFvaUnB0tLD1nQBgAfL9skX3fOtS/I4Udms1mf f0dffdCMBRicMXFfLDBOXg== 0000950149-99-001911.txt : 19991109 0000950149-99-001911.hdr.sgml : 19991109 ACCESSION NUMBER: 0000950149-99-001911 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SHARED HOSPITAL SERVICES CENTRAL INDEX KEY: 0000744825 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 942918118 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08789 FILM NUMBER: 99742960 BUSINESS ADDRESS: STREET 1: TWO EMBARCADERO CENTER STREET 2: SUITE 2370 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-3823 BUSINESS PHONE: 415-788-5300 MAIL ADDRESS: STREET 1: 4 EMBARCADERO CENTER CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1999 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO ____________________ COMMISSION FILE NUMBER 1-8789 AMERICAN SHARED HOSPITAL SERVICES ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 94-2918118 ------------------------------ ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) TWO EMBARCADERO CENTER, SUITE 2370, SAN FRANCISCO, CALIFORNIA 94111 - ------------------------------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 788-5300 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- AS OF OCTOBER 18, 1999, THERE ARE OUTSTANDING 3,829,342 SHARES OF THE REGISTRANT'S COMMON STOCK. 2 AMERICAN SHARED HOSPITAL SERVICES PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (audited) ASSETS Sept. 30, 1999 Dec. 31, 1998 - ------------------------------ -------------- ------------- Current assets: Cash and cash equivalents $10,983,000 $11,114,000 Restricted cash 50,000 2,226,000 Receivables, less allowance for uncollectible accounts of $0 in 1999 and 1998 Trade accounts receivable 1,301,000 1,228,000 Other 94,000 104,000 ----------- ----------- 1,395,000 1,332,000 Prepaid expenses, inventories and other current assets 316,000 285,000 ----------- ----------- TOTAL CURRENT ASSETS 12,744,000 14,957,000 Property and equipment: Land, buildings & improvements 647,000 247,000 Medical and transportation equipment 23,902,000 15,447,000 Capitalized leased equipment 83,000 83,000 Deposits and construction in progress 2,955,000 1,079,000 ----------- ----------- 27,587,000 16,856,000 Accumulated depreciation and amortization (6,250,000) (5,097,000) ----------- ----------- Net property & equipment 21,337,000 11,759,000 Other assets 216,000 183,000 Intangible assets, less accumulated amortization 13,000 20,000 ----------- ----------- TOTAL ASSETS $34,310,000 $26,919,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 254,000 $ 338,000 Interest payable 83,000 54,000 Employee compensation 182,000 814,000 Other accrued liabilities 597,000 519,000 Accrued exit costs 70,000 595,000 Income taxes payable 6,000 1,664,000 Current portion of long-term debt 1,881,000 1,873,000 Current portion of obligations under capital leases 12,000 12,000 ----------- ----------- TOTAL CURRENT LIABILITIES 3,085,000 5,869,000 Long-term debt, less current portion 18,119,000 8,792,000 Obligations under capital leases, less current portion 23,000 31,000 Accrued exit costs, less current portion 325,000 400,000 Deferred income taxes 96,000 0 Minority interest 870,000 731,000 Shareholders' equity: Common stock, without par value: authorized shares - 10,000,000; issued & outstanding shares, 3,829,000 in 1999 and 4,544,000 in 1998 10,105,000 11,087,000 Common stock options issued to officer 2,414,000 2,414,000 Additional paid-in capital 817,000 930,000 Accumulated deficit (1,544,000) (3,335,000) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 11,792,000 11,096,000 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $34,310,000 $26,919,000 =========== ===========
See accompanying notes 2 3 AMERICAN SHARED HOSPITAL SERVICES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months ended Sept. 30, Nine Months ended Sept. 30, ---------------------------- --------------------------- 1999 1998 1999 1998 ---------- ----------- ---------- ----------- REVENUES: Medical services $1,991,000 $10,402,000 $5,269,000 $29,581,000 COSTS AND EXPENSES: Costs of operations: Medical services payroll 0 2,080,000 4,000 6,098,000 Maintenance and supplies 34,000 1,582,000 102,000 4,489,000 Depreciation and amortization 396,000 1,650,000 1,158,000 4,604,000 Equipment rental 0 1,239,000 0 3,341,000 Other 109,000 1,183,000 230,000 3,418,000 ---------- ----------- ---------- ----------- 539,000 7,734,000 1,494,000 21,950,000 Selling and administrative 565,000 1,274,000 1,505,000 4,095,000 Interest 342,000 910,000 846,000 2,637,000 ---------- ----------- ---------- ----------- Total costs and expenses 1,446,000 9,918,000 3,845,000 28,682,000 ---------- ----------- ---------- ----------- 545,000 484,000 1,424,000 899,000 Gain on sale of assets and early termination of capital leases 1,000 18,000 6,000 114,000 Interest and other income 178,000 18,000 446,000 47,000 Minority interest (154,000) (63,000) (368,000) (97,000) ---------- ----------- ---------- ----------- Income before income taxes 570,000 457,000 1,508,000 963,000 Income tax benefit (expense) 238,000 (6,000) 283,000 (7,000) ---------- ----------- ---------- ----------- Net income $ 808,000 $ 451,000 $1,791,000 $ 956,000 ========== =========== ========== =========== Net income per share: Earnings per common share - basic $ 0.21 $ 0.09 $ 0.45 $ 0.20 ========== =========== ========== =========== Earnings per common share - assuming dilution $ 0.15 $ 0.07 $ 0.32 $ 0.15 ========== =========== ========== ===========
See accompanying notes 3 4 AMERICAN SHARED HOSPITAL SERVICES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months ended Sept. 30, ------------------------------ 1999 1998 ------------ ----------- OPERATING ACTIVITIES: Net income $ 1,791,000 $ 956,000 Adjustments to reconcile net cash provided by operating activities: Disposal of property and equipment (6,000) 5,000 Gain on early termination of capital leases 0 (119,000) Depreciation and amortization 1,162,000 4,835,000 Changes in operating assets and liabilities: Decrease (increase) in restricted cash 2,176,000 (377,000) (Increase) in accounts receivable (63,000) (345,000) (Increase) decrease in prepaid expenses, inventories and other assets (64,000) 69,000 (Decrease) increase in accounts payable and accrued liabilities (2,771,000) 3,949,000 ------------ ----------- Net cash provided by operating activities 2,225,000 8,973,000 INVESTING ACTIVITIES: Purchase of property and equipment (net of financing) 14,000 481,000 Deposits on gamma knife units 0 (500,000) Proceeds from sale of property and equipment 7,000 3,000 Deferred costs on potential sale of subsidiaries 0 (1,024,000) Increase in minority interest 139,000 97,000 Other 0 85,000 ------------ ----------- Net cash (used in) investing activities 160,000 (858,000) FINANCING ACTIVITIES: Payment for repurchase of stock (1,095,000) 0 Net (payments) on revolving line of credit 0 (1,072,000) Principal payments on long-term debt and capitalized leases (1,421,000) (6,954,000) ------------ ----------- Net cash (used in) financing activities (2,516,000) (8,026,000) ------------ ----------- Net (decrease) increase in cash and cash equivalents (131,000) 89,000 Cash and cash equivalents at beginning of period 11,114,000 17,000 ------------ ----------- Cash and cash equivalents at end of period $ 10,983,000 $ 106,000 ============ =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid during the period for: Interest $ 817,000 $ 2,579,000 ============ =========== Income taxes $ 1,280,000 $ 30,000 ============ ===========
See accompanying notes 4 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' (the "Company") consolidated financial position as of September 30, 1999 and the results of its operations for the three and nine month periods ended September 30, 1999 and 1998, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 1998 have been derived from audited financial statements. These financial statements include the accounts of the Company and its wholly-owned subsidiaries: CuraCare, Inc. (included through November 12, 1998); MMRI, Inc.; European Shared Medical Services Limited; American Shared Radiosurgery Services; African American Church Health and Economic Services, Inc.; ACHES Insurance Services, Inc.; and the Company's majority-owned subsidiary, GK Financing, LLC ("GKF"). The Company, through GKF, provides Gamma Knife units to eight medical centers in Arkansas, California, Connecticut, Massachusetts, Ohio and Texas. The Company provided shared diagnostic imaging and respiratory therapy services to health care providers located in various geographic regions of the United States through November 1998. The diagnostic imaging services provided by the Company were Magnetic Resonance Imaging (MRI), Computed Axial Tomography Scanning (CT), Ultrasound, Nuclear Medicine, and Cardiac Catheterization Laboratory services. On November 13, 1998, the stock of Curacare, Inc. and the assets of the diagnostic imaging services product line were sold to a third party ("Sale"). All significant intercompany accounts and transactions have been eliminated in consolidation. Note 2. Per Share Amounts Per share information has been computed based on the weighted average number of common shares and dilutive common share equivalents outstanding. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Medical services revenues decreased $8,411,000 and $24,312,000 for the three and nine month periods ended September 30, 1999 from $10,402,000 and $29,581,000 for the three and nine month periods ended September 30, 1998. Revenues from Gamma Knife services increased $561,000 (33%) and $2,394,000 (83%) for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year. The increases reflect increased utilization at centers in operation for longer than one year (18%) and the addition of three 5 6 Gamma Knife units at various periods during the nine months of 1999, including two new Gamma Knife units in third quarter 1999. The Company's seventh Gamma Knife unit commenced operation in mid-August 1999 and the Company's eighth and newest Gamma Knife unit commenced operation in late September 1999. The Company's second Gamma Knife unit's contract, scheduled to terminate in third quarter 1999, has been extended on a month to month basis. The Company is negotiating with the customer to sell them the unit, extend the contract or remove the unit. Diagnostic imaging, respiratory therapy, and insurance services revenues decreased $8,972,000 and $26,706,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year, due to the Sale. During third quarter 1999, the Company transferred its ownership in the revenue stream from ACHES Insurance Services, Inc. ("AIS") to unrelated third parties. Revenues from AIS were immaterial to the Company. Total Costs of operations decreased $7,195,000 and $20,456,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year. Medical services payroll decreased $2,080,000 and $6,094,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year. The decreases are attributable to the Sale and the fact that the Company does not currently provide labor as a component of its Gamma Knife services. Maintenance and supplies decreased $1,548,000 and $4,387,000 for the three and nine month periods ended September 30, 1999 compared to the same period in the prior year due to the Sale. Maintenance and supplies for Gamma Knife services increased $16,000 and $37,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year primarily due to the expiration of the warranty period of two units. Depreciation and amortization decreased $1,254,000 and $3,446,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year due to the Sale. Depreciation and amortization for Gamma Knife services increased $53,000 and $462,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year primarily due to three additional Gamma Knife units during 1999. The increase in Depreciation and amortization for Gamma Knife services during third quarter 1999 was mitigated because one of the Company's Gamma Knife units was depreciated to its salvage value in mid third quarter 1999. Equipment rental decreased $1,239,000 and $3,341,000 for the three and nine month periods ended September 30, 1999 compared to the same period in the prior year due to the Sale. Gamma Knife services had zero Equipment rental expenses. Other operating costs decreased $1,074,000 and $3,188,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year due to the Sale. Other operating costs for Gamma Knife services decreased approximately $27,000 and increased approximately $34,000 for the three and nine month periods ended September 30, 1999. The decrease in third quarter 1999 was primarily due to lower marketing expenses and the increase for the nine months ended September 30, 1999 was primarily due to higher insurance and personal property tax expenses associated with more Gamma Knife units in service. Selling and administrative costs decreased $709,000 and $2,590,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year primarily due 6 7 to personnel reductions in the areas of sales and marketing, accounting and finance, administration, and the other expenses related to those functions. Interest expense decreased $568,000 and $1,791,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year due to the assumption of debt by the purchaser in the Sale. Interest expense for Gamma Knife services increased $95,000 and $335,000 for the three and nine month periods ended September 30, 1999 primarily due to three additional units commencing operation at various periods in 1999. Interest and other income increased $160,000 and $399,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year primarily due to an increase in funds invested in overnight securities. Minority interest increased $91,000 and $271,000 for the three and nine month periods ended September 30, 1999 compared to the same periods in the prior year. Minority interest represents the pre-tax income earned by the minority member's 19% interest in GKF. The increase in minority interest reflects the increased profitability of GKF. The Company recorded an Income tax benefit of $238,000 and $283,000 for the three and nine-month periods ended September 30, 1999. The Company's deferred tax asset and related allowance and its recorded tax liabilities at September 30, 1999 were adjusted after completion of the Company's 1998 income tax returns. This adjustment resulted in recognition of an income tax benefit of $238,000 at September 30, 1999. The Company had Net income of $808,000 ($0.21 per basic share) and $1,791,000 ($0.45 per basic share) for the three and nine month periods ended September 30, 1999 compared to Net income of $451,000 ($0.09 per basic share) and $956,000 ($0.20 per basic share) in the same periods in the prior year. The increases were primarily due to increased operating margins. The Company's Gross margin (Medical services revenues less Costs of operations) as a percentage of Medical services revenues increased to 73% in third quarter 1999 from 26% in third quarter 1998. Liquidity and Capital Resources The Company had Cash and cash equivalents and Restricted cash of $11,033,000 at September 30, 1999 compared to $13,340,000 at December 31, 1998. The Company's cash position decreased $2,307,000 due primarily to the payment of federal and state income taxes ($1,280,000) primarily related to the Sale, the Company's repurchase of common stock ($1,095,000), payment of exit and other Sale related costs ($1,085,000), and the pay-off of a Gamma Knife loan ($347,000). Restricted cash of $50,000 at September 30, 1999 reflects the minimum cash balance that must be maintained for the operations of GKF. Cash of $1,000,000 previously restricted under terms of the Sale was released from restriction on April 16, 1999. GKF has distributed $972,000 to the Company and $228,000 to the minority member of GKF from Restricted cash during 1999. 7 8 The Company as of September 30, 1999 had Shareholders' equity of $11,792,000, working capital of $9,659,000 and Total assets of $34,310,000. The Company is investing its cash in overnight repurchase agreements and commercial paper pending use in the Company's operations. The Company believes its cash position combined with its working capital is adequate to service the Company's cash requirements for the next 12 months. The Year 2000 ("Y2K") issue results from programs written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognizes a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing disruption of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Due to the Sale, the Company is restructuring its computer operations by replacing and upgrading most of its computer hardware and programs with equipment and programs with more flexibility and that are Y2K compatible. This replacement and upgrade process was essentially completed in the third quarter of 1999 and the cost was approximately $80,000. The Company's current revenue source, the Gamma Knife, is Y2K compliant. The Company's eight current operational customers, which are large urban medical centers, all have disbursement systems that are or will be Y2K compliant prior to 2000. Should the disbursement systems of the Company's operating customers not be Y2K compliant, the Company would be materially impacted. The Company would exercise its contractual rights due to nonpayment, if necessary. The Company believes that the Y2K issue, except for any customer disbursement systems which are not Y2K compliant on January 1, 2000, and for which the customer cannot produce manual checks, will not materially affect the Company's business, results of operations, or financial condition. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Defaults upon Senior Securities. None. 8 9 ITEM 4. Submission of Matters to a Vote of Securities Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are filed herewith:
Exhibit Number Description -------------- ----------- 10.20 Lease Agreement for a Gamma Knife Unit dated as of June 1, 1998 between GK Financing, LLC and Kettering Medical Center. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.21 Addendum to Contract with GKF and KMC/WKNI, dated June 1, 1998 between GK Financing, LLC and Kettering Medical Center. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.22 Lease Agreement for a Gamma Knife Unit dated as of October 5, 1998 between GK Financing, LLC and New England Medical Center Hospitals, Inc. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.23 Equipment Lease Agreement dated as of October 29, 1998 between GK Financing, LLC and the
9 10 Board of Trustees of the University of Arkansas on behalf of The University of Arkansas for Medical Sciences. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.24 First Amendment to Lease Agreement for a Gamma Knife Unit effective as of August 2, 1999 between GK Financing, LLC and Tenet HealthSystems Hospitals, Inc. (formerly known as NME Hospitals, Inc.) dba USC University Hospital. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 27 Financial Data Schedule
(b) Reports on Form 8-K. None. 10 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN SHARED HOSPITAL SERVICES Registrant Date: November 8, 1999 /s/ Ernest A. Bates, M.D. --------------------------- Ernest A. Bates, M.D. Chairman of the Board and Chief Executive Officer Date: November 8, 1999 /s/ Craig K. Tagawa --------------------------- Craig K. Tagawa Senior Vice President Chief Operating and Financial Officer 11 12 EXHIBIT INDEX
Number Description 10.20 Lease Agreement for a Gamma Knife Unit dated as of June 1, 1998 between GK Financing, LLC and Kettering Medical Center. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.21 Addendum to Contract with GKF and KMC/WKNI, dated June 1, 1998 between GK Financing, LLC and Kettering Medical Center. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.22 Lease Agreement for a Gamma Knife Unit dated as of October 5, 1998 between GK Financing, LLC and New England Medical Center Hospitals, Inc. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.23 Equipment Lease Agreement dated as of October 29, 1998 between GK Financing, LLC and the Board of Trustees of the University of Arkansas on behalf of The University of Arkansas for Medical Sciences. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 10.24 First Amendment to Lease Agreement for a Gamma Knife Unit effective as of August 2, 1999 between GK Financing, LLC and Tenet HealthSystems Hospitals, Inc. (formerly known as NME Hospitals, Inc.) dba USC University Hospital. (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.) 27 Financial Data Schedule
12 EX-10.20 2 LEASE AGREEMENT FOR A GAMMA KNIFE UNIT. 1 Exhibit 10.20 LEASE AGREEMENT FOR A GAMMA KNIFE UNIT THIS AGREEMENT FOR A GAMMA KNIFE UNIT on June 1, 1998, (hereinafter, referred to as the "Agreement") is entered into between GK Financing, LLC, a California Limited Liability Company, (hereinafter referred to as "GKF"), and Kettering Medical Center, an Ohio non-profit corporation, (hereinafter referred to as "Medical Center"). R E C I T A L S WHEREAS, Medical Center wants to lease a Leksell Stereotactic Gamma Unit Manufactured by Elekta Instruments, Inc., (hereinafter referred to as the "Equipment"); and WHEREAS, GKF is willing to lease the Equipment which GKF has acquired from Elekta Instruments, Inc., a Georgia corporation (hereinafter referred to as "Elekta"), to Medical Center, pursuant to the terms and conditions of this Agreement. NOW, therefore, in consideration of the foregoing premises and the promises contained herein, the parties hereto hereby agree as follows: 1. Execution of LGK Agreement by and between Medical Center and Elekta. Medical Center agrees that simultaneously with the execution of this Agreement it shall execute that certain LGK Agreement with Elekta, (hereinafter referred to as the "LGK Agreement"), a copy of which is attached hereto as Exhibit 1 and incorporated herein by this reference. Medical Center agrees to fulfill all of its obligations under the LGK Agreement and acknowledges that GKF is a third party beneficiary of the LGK Agreement. Medical Center shall fully indemnify and hold harmless GKF in the event that GKF suffers any loss, damage, claim or expense (including attorneys' fees) solely as a result of Medical Center's breach or alleged breach of the LGK Agreement. 2. Delivery of the Equipment and Site preparation. GKF shall arrange to have the Equipment delivered to Medical Center , at 3535 Southern Blvd., Kettering, OH (the "Site") in coordination with Elekta. GKF shall exert its best faith efforts to expedite the delivery of the Equipment in accordance with the terms and conditions of the Purchase Agreement for the Equipment by and between GKF and Elekta. Notwithstanding the preceding sentence, it is understood and agreed that GKF has made no representations and warranties to Medical Center concerning actual delivery dates or schedules for the Equipment at the Site. -1- 2 Medical Center shall provide a safe, convenient and properly prepared Site, at its own expense, in accordance with all of the Equipment manufacturer's (Elekta's) guidelines, specifications, technical instruments and Site Planning Criteria (which Site Planning Criteria are attached hereto as Exhibit C to Exhibit 1 and incorporated herein by this reference), which criteria shall include Elekta's estimated delivery schedule when and as received by GKF, on Medical Center controlled property (The "Site") for the proper performance of Gamma Knife procedures. Site location shall be acceptable to GKF. Medical Center shall prepare at its sole cost and expense the requisite site plans and specifications and shall submit them to Elekta and GKF for approval. Medical Center shall obtain, in a timely manner, a User License from the Nuclear Regulatory Commission and/or appropriate state agency authorizing it to take possession of the Cobalt Supply and shall obtain such other licenses, permits, approvals, consents and authorizations, which may be required by local governmental or other regulatory agencies for the Site, its preparation, the charging of the Equipment with its Cobalt Supply, the conduct of Acceptance tests, and the use of the Equipment all as more fully set forth in Article 3.1 of the LGK Agreement. 3. Commencement of Term. The Term (hereinafter defined) of this Agreement shall commence upon the performance of the first clinical Gamma Knife procedure at the Site (the "Commencement Date"). Medical Center shall become liable to GKF for the payments referred to in Paragraph 6 hereinbelow upon the Commencement Date. 4. Costs of Site Preparation; Costs of Installation. Medical Center's obligations shall include preparation of plans and specifications for the construction and preparation of the Site in such form as will result in the Site, when constructed in accordance with such plans and specifications, being in full compliance with Elekta's Site Planning Criteria. Medical Center shall at its own expense and risk, prepare, construct and make ready the Site as necessary, for the installation of the Equipment, including, but not limited to, providing any temporary and/or permanent shielding for the charging of the equipment and its use, selecting and preparing a proper foundation for the Equipment and for such shielding and walls, as well as proper alignment of the Site and wiring. Medical Center shall be financially responsible for the positioning of the Equipment on its foundation at the Site. Medical Center shall also at its own expense select, purchase and install all radiation monitoring equipment and devices, safety circuits and radiation warning signs needed for the Equipment at the Site, according to all applicable federal, state and local laws, regulations, recommendations or custom. Upon completion of the Site, Medical Center shall warrant that the Site will be safe and suitable for its use of the Equipment. Medical Center shall fully indemnify and hold harmless GKF from any and all loss, liability, damage, expense or claim (including attorneys' fees) which GKF may suffer and incur and which relate to the Site and the Equipment's positioning thereon. -2- 3 Medical Center shall be liable to GKF for any damage to the Equipment caused by (a) defects in construction of the Site or defects in the positioning of the Equipment at the Site; (b) defects arising out of materials or parts provided, modified or designed by Medical Center with respect to the Site; or (c) negligent or intentional acts of omission or commission by Medical Center or any of its officers, agents, physicians, and employees in connection with the Site preparation or operation of the Equipment at the Site. Medical Center warrants that it shall utilize its best efforts to fulfill on an expeditious basis its obligations under this Paragraph 4. Medical Center further warrants that it shall on a regular basis keep GKF informed of Medical Center's progress in fulfilling its obligations pursuant to this Paragraph 4. Should Medical Center not have all site preparations completed by the delivery date specified by a separate agreement plus a sixty (60) day grace period such that the site is acceptable for positioning and installation of the equipment, Medical Center shall reimburse GKF at an interest rate of Bank of America's prime rate plus 2% on GKF's equipment cost until the site is prepared to allow positioning and installation of the equipment. 5. Term of the Equipment. GKF agrees to provide to Medical Center the Equipment pursuant to the terms of this Agreement, for a term of ten (10) years from the Commencement Date as described in Paragraph 3 hereinabove (the "Term") , unless terminated earlier as provided herein. 6. Per Procedure Payments. Medical Center shall pay to GKF a per procedure payment of * for the use of the Equipment. A procedure shall be defined as a single patient treatment session that may include one or more isocenters during that session. Medical Center shall be billed on the fifteenth (15th) and the last day of each month for the actual number of procedures performed during the first and second half of the month, respectively. Medical Center shall pay the procedures invoiced within thirty (30) days after being invoiced. Interest shall begin to accrue at the rate of 1-1/2% per month on all invoices remaining unpaid after 45 days. 7. Use of the Equipment. The Equipment may be used by Medical Center only at the location stated above and shall not be removed therefrom. Medical Center shall not assign or sublease the Equipment or its rights hereunder without the prior written consent of GKF; which consent shall not be unreasonably withheld. No permitted assignment or sublease shall relieve Medical Center of any of its obligations hereunder. Medical Center shall not use nor permit the Equipment to be used in any manner nor for any purpose for which, in the opinion of Elekta or GKF, the Equipment is not designed or reasonably suitable. Medical Center shall not permit any liens, whether voluntary or involuntary, to attach to the Equipment, without the prior written consent of GKF. Medical Center shall have no interest in the Equipment other than the rights acquired as a lessee hereunder and the Equipment shall remain the property of GKF regardless of the manner in which it may be installed or attached at the Site. Medical Center shall, at GKF's request, affix to the Equipment tags, decals, or plates furnished by GKF, indicating GKF's ownership of the Equipment. -3- 4 8. Additional Covenants of Medical Center. In addition to the other covenants made by Medical Center, Medical Center shall at its own cost and expense: (a) Provide properly trained professional, technical and support personnel and supplies required for the proper performance of medical procedures utilizing the Equipment. (b) Assume all medical and financial responsibility for the overseers' monitoring of all patients' medical condition and treatment. (c) Fully comply with all of its obligations under the LGK Agreement. (d) Indemnify GKF as herein provided: (i) Medical Center hereby agrees to fully indemnify and/or reimburse (including attorneys' fees) GKF on a prompt basis for any and all damage to the Equipment (including any violations by Medical Center, its agents, officers, physicians, employees, successors and assigns of the Service Agreement described in Paragraph 15 hereof) to the extent such damages are caused by the negligent or wrongful acts or omissions of Medical Center, its agents, officers, physicians and employees. In the event the Equipment is destroyed or rendered unusable, this indemnification shall extend up to (but not exceed) the full replacement value of the Equipment at the time of its destruction less salvage value, if any. (ii) Medical Center hereby further agrees to indemnify and hold GKF, its agents, officers, employees, successors and assigns, harmless from and against any and all claims, liabilities, obligations, losses, damages, injuries, penalties, actions, costs and expenses (including attorneys' fees) for all events and/or occurrences described in Article 7.3 of the LGK Agreement to the same extent that Medical Center agrees to indemnify Elekta thereunder. Medical Center further agrees to fully indemnify and hold harmless GKF for any loss, damage, claim, or expense (including attorneys' fees) GKF may suffer or incur as a result of Medical Center's breach or breach alleged in litigation with regard to the LGK Agreement. (e) Provide reasonable and customary marketing materials (i.e. brochures, announcements, etc.) and marketing support from an administrative and physician (i.e. seminars by neurosurgeons and radiation therapists to referring physicians, etc.) commitment standpoint for this clinical service. 9. Additional Covenants, Representations and Warranties of GKF. In addition to the other covenants, representations and warranties, made by GKF in this Agreement: (a) GKF represents and warrants that GKF has full power and authority to enter into this Agreement, and that this Agreement does not and will not violate any agreement, contract or instrument binding upon GKF. -4- 5 (b) GKF represents and warrants to Medical Center that, upon delivery of the Equipment to Medical Center, GKF shall use its best faith efforts to require that Elekta meets its contractual obligations to GKF and in putting the Equipment, as soon as possible, into good, safe and serviceable condition and fit for its intended use in accordance with the manufacturer's specifications, guidelines and field modification instructions. (c) GKF represents and warrants that throughout the term of this Agreement, Medical Center shall enjoy the use of the Equipment, free of the rights of any other persons except for those rights reserved by GKF or granted to Elekta under the LGK Agreement or under Elekta's Purchase Agreement with GKF. (d) During the entire term of this agreement and subsequent extension thereof, GKF shall maintain in full force and effect: (i) the Service Agreement referenced in Paragraph 15 hereof; and (ii) any other service or other agreements required to fulfill GKF's obligations to Medical Center pursuant to this Paragraph 9(d). GKF represents and warrants that during the entire term of this agreement and any subsequent extensions thereof, that it will fully pursue any and all remedies it may have against Elekta under the Service Agreement to insure that the Equipment will be in conformity with Elekta's warranties so that it is free from defects in design, materials, and workmanship which result in noncompliance with the specifications and/or Elekta's warranties to GKF. In no event, however, shall the warranty obligations of GKF to Medical Center with respect to the Equipment be greater or more extensive than Elekta's warranty obligations to GKF with respect to the Equipment. 10. Ownership/Title. It is expressly understood that Medical Center shall acquire no right, title or interest in or to the Equipment, other than the right to the possession and use of the same in accordance with the terms of this Agreement. GKF may at its sole discretion finance the Equipment. Financing may be in the form of an installment loan or a capitalized lease or other commercially available debt instrument. Should GKF finance the Equipment through an installment loan, GKF shall be required to provide the Equipment as collateral against the loan. Should GKF finance the Equipment through a capitalized lease title shall vest with the lessor until GKF exercises its buy-out option. In addition, should GKF finance the Equipment, said agreement may be used as collateral against the loan. 11. Cost of Use of the Equipment. Except as is otherwise provided herein, Medical Center shall bear the entire cost of using the Equipment during the Term of this Agreement. This shall include, but not be limited to, providing trained professionals, technical and support personnel and supplies to properly operate the Equipment. Medical Center shall be fully responsible and liable for all acts and/or omissions of such professional, technical and support personnel. 12. Taxes. GKF shall pay any personal property taxes levied against the Equipment and any other taxes or governmental fees or assessments, however denoted, -5- 6 whether of the federal government, any state government or any local government, levied or based on this Agreement or the use of the Equipment except for those taxes, if any, pertaining to the gross income or gross receipts of Medical Center. 13. Maintenance and Inspections. GKF agrees to exercise due and proper care in the maintenance of the Equipment and to keep the Equipment in a good state of repair, reasonable wear and tear excepted. Medical Center shall be liable to GKF for all damage to the Equipment caused by the misuse, negligence, improper use or other intentional or negligent acts or omissions of Medical Center's employees, officers, agents, and physicians. GKF (and Elekta) shall have the right of access to the Equipment for the purpose of inspecting same at all reasonable times and upon reasonable notice and with a minimum of interference to Medical Center's operations. In the event the Equipment is improperly used by Medical Center or its employees, agents, officers, and physicians, GKF may service or repair the same as needed and such expense shall be paid by Medical Center, unless the repair is covered by the Service Agreement described in Paragraph 15 hereof. Any work so performed by or in the service or maintenance of the Equipment as a result of Medical Center's failure or neglect to do so shall not deprive GKF of any of its rights, remedies or actions against Medical Center for damages caused by such failure or neglect. 14. Equipment Modifications/Additions/Upgrades. The parties agree that the necessity and financial responsibility for modifications/additions/upgrades to the Equipment, including the reloading of the Cobalt-60 source, shall be discussed and mutually decided by GKF and Medical Center. * 15. Service Agreement. GKF warrants that it shall simultaneously with the execution of this Agreement enter into a Service Agreement with Elekta. 16. Termination If, after the initial twenty-four (24) month period of service, and subsequent 12 month periods of service, Medical Center does not provide GKF with a reasonable economic justification to continue providing Gamma Knife services hereunder, then and in that event, GKF shall have the option of terminating this Agreement upon the giving of written notice to Medical Center of said termination not less than ninety (90) days prior to GKF's designated termination date. 17. Options to Extend Agreement. (a) Medical Center shall have the option at the end of the ten (10) year initial Term to: (i) Renegotiate this Agreement for a five (5) year term. -6- 7 (ii) Terminate this Agreement. If Medical Center terminates this Agreement at the end of the initial term, GKF shall remove the Gamma Knife within an agreed upon period of time after the expiration of the ten (10) year initial Term. Medical Center shall exercise one (1) of the two (2) options referred to above, by mailing an irrevocable written notice thereof to GKF at Four Embarcadero Center, Suite 3620, San Francisco, California, 94111, by registered mail, postmarked on or before the end of the ninth (9th) year of the ten (10) year initial Term of this Agreement. Any such notice shall be sufficient if it states in substance that Medical Center elects to exercise its option and states which of the two (2) options referred to above Medical Center is exercising. 18. No Warranties by GKF. Medical Center warrants that as of the Commencement Date, it shall have (a) thoroughly inspected the Equipment; (b) determined for itself that all items of the Equipment are of a size, design, capacity and manufacture selected by it; and (c) satisfied itself that to the best of its knowledge the Equipment is suitable for Medical Center's stated purposes. GKF SUPPLIES THE EQUIPMENT "AS IS" AND NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that all such risks as between GKF and Medical Center, shall be borne by Medical Center. Medical Center agrees to look solely to the manufacturer (Elekta) or to suppliers of the Equipment (and its software) for any and all warranty claims. Any and all warranties made by Elekta will be in its good faith best efforts enforced by GKF on behalf of Medical Center during the ten (10) year initial Term hereof. Medical Center agrees that GKF shall not be responsible for the delivery, installation, or operation of the Equipment or for any delay or inadequacy of any or all of the foregoing. GKF shall not be responsible for any direct or indirect consequential loss or damage resulting from the installation, operation or use of the Equipment or otherwise. Medical Center expressly waives any right to hold GKF liable hereunder for any claims, demands and liabilities arising out of or in connection with the design, manufacture, possession or operation of the Equipment. 19. Events of Default and Remedies. The occurrence of any one of the following shall constitute an Event of Default hereunder: (a) Medical Center fails to pay any installment of semi-monthly procedure payments when due when such default continues for a period of thirty (30) days after notice thereof from GKF or its assignee is given to Medical Center. (b) Medical Center attempts to remove, sell, transfer, encumber, sublet or part with possession of the Equipment or any items thereof, except as expressly permitted herein; -7- 8 (c) Medical Center shall fail to observe or perform any of the other obligations required to be observed or performed by Medical Center hereunder and such failure shall continue uncured for twenty (20) days after written notice thereof to Medical Center by GKF; (d) Medical Center ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation. (e) Within sixty (60) days after the commencement of any proceedings against Medical Center seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Medical Center's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated. Upon the occurrence of an Event of Default, GKF may at its option do any or all of the following: (i) by notice to Medical Center, terminate this Agreement as to the Equipment in default, wherever situated, and for such purposes, enter upon the Site without liability for so doing or GKF may cause Medical Center and Medical Center hereby agrees to return the Equipment to GKF at Medical Center's sole cost and expense; (ii) recover from, as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to the present value of the unpaid estimated future lease payments by Medical Center to GKF through the end of the Agreement term discounted at the rate of nine percent (9%), which payment shall become immediately due and payable. Unpaid estimated future lease payments shall be based on the prior 12 months lease payments with an annual five (5%) percent increase; (iii) sell, dispose of, hold, use or lease the Equipment in default, as GKF in its sole discretion may determine (and GKF shall not be obligated to give preference to the sale, lease or other disposition of the Equipment over the sale, lease or other disposition of similar Equipment owned or leased by GKF). In any event, Medical Center shall, without further demand, pay to GKF an amount equal to all sums due and payable for all periods up to and including the date on which GKF had declared this Agreement to be in default. In the event, that Medical Center shall have paid to GKF the liquidated damages referred to in (iii) above, GKF hereby agrees to pay to Medical Center promptly after receipt thereof, all rentals or proceeds received from the reletting or sale of the -8- 9 Equipment during the balance of the ten (10) year initial Term (after deduction of all expenses incurred by GKF; said amount never to exceed the amount of the liquidated damages paid by Medical Center). Medical Center agrees that GKF shall have no obligation to sell the Equipment. Medical Center shall in any event remain fully liable for reasonable damages as provided by law for all costs and expenses incurred by GKF on account of such default, including but not limited to, all court costs and reasonable attorneys' fees. Medical Center hereby agrees that, in any event, it shall be liable for any deficiency after any sale, lease or other disposition of the Equipment by GKF. The rights afforded GKF hereunder shall not be deemed to be exclusive, but shall be in addition to any other rights or remedies provided by law. 20. Insurance. (a) During the ten (10) year initial Term of this Agreement (and any successive terms) GKF shall, at its own cost and expense, keep in effect an all risk and hazard insurance policy covering the Equipment. The all risk and hazard insurance policy shall be for an amount not less than the replacement cost of the Equipment. During the ten (10) year initial Term of this Agreement, Medical Center shall, at its own cost and expense keep in effect public liability and professional liability insurance policies concerning the operation of the Equipment by Medical Center. Said policies shall be in the amounts of not less than $1,000,000 per occurrence and $5,000,000 in aggregate per year. University and GKF, their successors and assigns, shall be named as additional insureds and/or loss payees on the insurance policies maintained hereunder by the other party. Evidence of such insurance coverages shall be furnished by both parties to the other party upon written request, by no later than the Commencement Date. (b) If the Equipment is rendered unusable as a result of any physical damage to, or destruction of, the Equipment, Medical Center shall give to GKF immediate notice. GKF shall determine, within thirty (30) days after the date of occurrence of such damage or destruction, whether the Equipment can be repaired. In the event GKF determines that the Equipment cannot be repaired, GKF at its sole cost and expense shall promptly replace the Equipment. This Agreement shall continue in full force and effect as though such damage or destruction had not occurred. In the event GKF determines that the Equipment can be repaired, GKF shall cause the Equipment to be promptly repaired. 21. Notices. Any notices required under this Agreement shall be sent in writing and shall be deemed to have been duly given if delivered by hand or mailed by certified or registered mail to the following addresses: To GKF: Craig K. Tagawa, C.E.O. Four Embarcadero Center, Suite 3620 San Francisco, CA 94111 -9- 10 To Medical Center: Frank Perez, CEO Kettering Medical Center 3535 Southern Blvd Kettering, OH 45429 Or to such other addresses as either party may specify for the reception of notice from time to time in writing to the other party. Any such notice shall be effective only when actually received by the party to whom addressed. 22. Integration/Supersedure. This Agreement contains the full and entire Agreement between the parties hereto, and no oral or written understanding is of any force or effect whatsoever unless expressly contained in a writing executed subsequent to the date of this Agreement. 23. Waivers. To the extent that GKF fails or chooses not to pursue any of its remedies under this Agreement or pursuant to applicable law, such shall not prejudice GKF's rights to pursue any of those remedies at any future time and shall not constitute a waiver of GKF's rights. 24. Assignments. This Agreement is binding upon and shall inure to the benefit of the permitted successors or assigns of the respective parties hereto, except that neither party may assign its rights or obligations under this Agreement without the express written consent of the other (which consent shall not be unreasonably withheld). 25. Amendments. This Agreement shall not be amended or altered in any manner unless such amendment or alteration is in a writing signed by both parties. 26. Record-Keeping Requirements. To the extent required by the regulations promulgated by the Health Care Financing Administration pursuant to Section 952 of the Omnibus Reconciliation Act of 1980, GKF shall: (a) Until the expiration of four (4) years following the furnishing of services pursuant to this Agreement, GKF agrees to make available upon written request of the Secretary of Health and Human Services or the U.S. Comptroller General or any of their duly authorized representatives, this Agreement, any books, documents and records necessary to verify the nature and extent of costs incurred by Medical Center by reason of the activities of GKF under this Agreement; and (b) If GKF elects to delegate any of its duties under this Agreement (which have a cost or value of Ten Thousand Dollars ($10,000.00) or more over a twelve (12) month period) to a related organization, GKF may do so only through a subcontractor which is consented to by Medical Center, it being understood that, inasmuch as Medical Center is entering into this Agreement in reliance on GKF's reputation and expertise, that Medical Center shall be the sole judge of the reputation and expertise of the proposed delegee, and only through a subcontractor which provides that, until the expiration of four -10- 11 (4) years following the furnishing of services under such subcontract, the related organization shall make available, on request of the Secretary of Health and Human Services or the U.S. Comptroller General or any of their authorized representatives, the subcontract, and books, documents and records of the nature and extent of costs incurred by Medical Center by reason of activities of such related organization under such subcontract. No delegation by GKF of its duties hereunder shall relieve GKF from liability hereunder. 27. Miscellaneous Provisions. (a) The invalidity or unenforceability of any portion or provision of this Agreement shall not effect the validity or enforceability of any other portion, nor shall either party's implied or express consent to the breach or waiver of any provision of this Agreement constitute a waiver of such provision as to any subsequent breach. (b) In the event of any claim or controversy arising hereunder, the prevailing party in such claim or controversy shall be entitled to a reasonable attorneys' fee in addition to whatever other relief said party would be otherwise entitled. (c) Force Majeure. Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under this Agreement directly or indirectly caused by conditions beyond its reasonable control including without limitation, fires, floods, earthquakes, snow, ice, disasters, Acts of God, accidents, riots, wars, operation of law, strikes, governmental action or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. IN WITNESS WHEREOF, the parties have signed this Agreement on the day and year first above written. Medical Center GK Financing, LLC By: /s/ Frank Perez By: /s/ Craig K. Tagawa -------------------------------- -------------------------------- Frank Perez Craig K. Tagawa Chief Executive Officer Chief Executive Officer -11- EX-10.21 3 ADDENDUM TO CONTRACT WITH GKF AND KMC/WKNI 1 Exhibit 10.21 Addendum to Contract with GKF and KMC/WKNI, dated June 1, 1998 27. Miscellaneous Provisions D) Research & Development Treatments Per Procedure payments referenced in paragraph 6 shall be waived for procedures deemed to be of a research nature. Payments due to GKF are based solely on procedures that are presently reimbursed by health insurers, Medicare or Medicaid. It is understood by Medical Center that procedures deemed to be of research nature shall be performed at such time as to not conflict with the scheduling of clinical procedures. E) Medical Center shall pay to GKF a per procedure payment of * for the first * procedures performed annually. For annual paid procedures in excess of *, Medical Center shall pay GKF * for each procedure performed in excess of * during the same 12 (twelve) month period. For purposes of this payment schedule, the counting of the number of procedures will commence from the date of the First Clinical Gamma Knife procedure at the Site until the date which is twelve (12) months thereafter (the First Reset Date). On the First Reset Date and on each anniversary of the First Reset Date, counting of procedures for this purpose will be reset and commence from zero (0). Terms are as otherwise specified in paragraph 6. F) Charity Cases As a means to permit Medical Center to perform charity care for a persons who require Gamma Knife procedures, who are not covered by Medicare or private insurance programs (whether indemnity, preferred provider, health maintenance organization, etc.) and who do not have the means to pay for such procedures based upon Medical Centers adopted standards of indigency, GKF shall waive the per procedure payment described in this paragraph 6 for * Gamma Knife procedure for each * Gamma Knife procedures performed under this Agreement by Medical Center for which a per procedure payment is made to GKF in the manner described herein. Medical Center shall be solely responsible (and GKF shall not in any manner be or become responsible) (a) whether any person described herein requires a Gamma Knife procedure, (b) who shall receive a Gamma Knife procedure, hereunder if more than one (1) person described herein requires a Gamma Knife procedure, and (2) whether any person meets the standards of indigency. Medical Center shall provide reasonable written documentation evidencing satisfaction of the conditions set forth herein to GKF at or prior to the expected time of payment in order for GKF to waive the per procedure payment set forth in paragraph 6. 2 G) Externalities The Medical Center is aware that external conditions may exits whereby either GKF or Elekta may not be able to deliver a Gamma Knife to the designated site in Kettering, Ohio in a timely manner. If delivery is not taken by the Medical Center by August 31, 1999 and the failure to take delivery of the Gamma Knife is not due to delays caused by Kettering Medical Center, this entire lease agreement will be considered void, with no further obligations by either party, and each party holding the other harmless for any expenses or damages incurred as a result of or in anticipation of entering this Agreement. Medical Center GK Financing, LLC By: /s/ Frank Perez By: /s/ Craig K. Tagawa -------------------------------- -------------------------------- Frank Perez Craig K. Tagawa Chief Executive Officer Chief Executive Officer EX-10.22 4 LEASE AGREEMENT FOR A GAMMA KNIFE UNIT 1 Exhibit 10.22 LEASE AGREEMENT FOR A GAMMA KNIFE UNIT THIS LEASE AGREEMENT FOR A GAMMA KNIFE UNIT (the "Agreement") is entered into as of October 5, 1998, between GK FINANCING, LLC, a California limited liability company (hereinafter referred to as "GKF"), and NEW ENGLAND MEDICAL CENTER HOSPITALS, INC., a Massachusetts corporation (hereinafter referred to as "Medical Center"). R E C I T A L S WHEREAS, Medical Center wants to lease from GKF a Leksell Gamma Knife manufactured by Elekta Instruments, Inc., (hereinafter referred to as the "Equipment", Specifications of which are attached as Exhibit A to the LGK Agreement, which is defined in Paragraph 2 below); and WHEREAS, GKF is willing to lease the Equipment, which GKF has acquired from Elekta Instruments, Inc., a Georgia corporation (hereinafter referred to as "Elekta"), to Medical Center, pursuant to the terms and conditions of this Agreement. AGREEMENT NOW, therefore, in consideration of the foregoing premises and the promises contained herein, the parties hereto hereby agree as follows: 1. Lease. Subject to and in accordance with the covenants and conditions set forth in this Agreement, GKF hereby leases to Medical Center, and Medical Center hereby leases from GKF, the Equipment. The Equipment to be leased to Medical Center pursuant to this Agreement shall include the latest approved Gamma Knife technology available as of the date of this Agreement, including all hardware and software related thereto as listed in the Specifications. 2. Execution of LGK Agreement by and between Medical Center and Elekta. Medical Center agrees that simultaneously with the execution of this Agreement it shall execute that certain LGK Agreement with Elekta, (hereinafter referred to as the "LGK Agreement"), a copy of which is attached hereto as Exhibit 1 and incorporated herein by this reference. Medical Center agrees to fulfill all of its obligations under the LGK Agreement and acknowledges that GKF is a third party beneficiary of the LGK Agreement. Medical Center shall indemnify and hold harmless GKF in the event that GKF suffers any loss, damage, claim or expense (including reasonable attorneys' fees) solely as a result of Medical Center's breach of the LGK Agreement. Page 1 2 3. Delivery of the Equipment. GKF shall use its best efforts to cause Elekta to deliver the Equipment and the Cobalt Supply (as defined in the LGK Agreement), at GKF or Elekta's expense, to the Site (as defined in Exhibit B to the LGK Agreement) or to such other location in the Boston area as Medical Center may specify in advance, between December 15, 1998 and January 15, 1999, or, if the Determination of Need ("DON") is not received on or before November 21, 1998, Medical Center and Elekta shall renegotiate the delivery to the earliest possible date (as applicable, the "Delivery Date"); provided that Elekta shall have no obligation to deliver the Equipment unless Medical Center shall have completed the development, preparation and construction of the Site in compliance with Paragraphs 4 and 5 below. Notwithstanding the foregoing, it is understood and agreed that GKF has made no representations and warranties to the Medical Center concerning the actual delivery dates or schedules for the Equipment at Site, and that GKF shall have no obligation to pay any damages to Medical Center resulting from any late delivery of the Equipment. 4. Design of Site and Receipt of Regulatory Approvals. Medical Center shall provide, at its own expense, a Site which complies with Elekta's Site Planning Criteria (which Site Planning Criteria is attached as Exhibit C to the LGK Agreement). Site location shall be reasonably acceptable to GKF. Medical Center shall prepare at its sole cost and expense the requisite Site plans and specifications and shall submit them to Elekta and GKF for approval which approval shall not be unreasonably withheld or delayed. Medical Center's Site plans and specifications shall be deemed approved by GKF and Elekta unless, within thirty (30) days after receipt thereof, GKF or Elekta notifies Medical Center in writing of its exceptions thereto, in which event the parties shall promptly confer to resolve such exceptions. Site location shall be deemed acceptable to GKF unless, within thirty (30) days after receipt of Medical Center's description of the proposed Site, GKF notifies Medical Center of its objections thereto, in which event the parties shall promptly confer to resolve such objections. Medical Center shall obtain, in a timely manner, a User License from the Nuclear Regulatory Commission and/or appropriate state agency authorizing it to take possession of the Cobalt Supply and shall obtain such other licenses, permits, approvals, consents and authorizations, which may be required by local governmental or other regulatory agencies for the Site, its preparation, the Charging (as defined in the LGK Agreement) of the Equipment with its Cobalt Supply, the conduct of Acceptance Tests (as defined in the LGK Agreement), and the use of the Equipment all as more fully set forth in Article 2.1 of the LGK Agreement. Medical Center shall work diligently toward receipt by November 21, 1998, of a DON for the Equipment and the provision of services using the Equipment. Page 2 3 This Agreement shall become null and void in the event that the Medical Center does not receive a DON for the Equipment and the provision of the services related thereto on or before April 1, 1999, after using its best efforts to do so. 5. Site Preparation and Positioning of Equipment. 5.1 Medical Center shall, at its own expense and risk, prepare, construct and make ready the Site as necessary for the "Installation" (as defined in the LGK Agreement) of the Equipment, including, but not limited to, providing any temporary and/or permanent shielding for the Charging of the Equipment and its use, selecting and preparing a proper foundation for the Equipment and for such shielding and walls, as well as proper alignment of the Site and wiring. Once the Equipment has been delivered pursuant to Paragraph 3, Medical Center shall, at Medical Center's own expense and risk, position the Equipment on its foundation at the Site in compliance with the Site Planning Criteria. 5.2 Medical Center shall also at its own expense select, purchase and install all radiation monitoring equipment and devices, safety circuits and radiation warning signs needed for the Equipment at the Site, according to all applicable federal, state and local laws and regulations. 5.3 Upon completion of the Site, Medical Center shall warrant that the Site will comply with the Site Planning Criteria and all applicable federal, state and local laws, rules and regulations. 5.4 Medical Center shall be liable for, and shall indemnify GKF from and against, all damage to the Equipment caused by (a) defects in construction of the Site or in positioning the Equipment at the Site; (b) defects arising out of materials or parts provided, modified or designed by Medical Center for or with respect to the Site; (c) negligent, intentional or wrongful acts or omissions by Medical Center or any of its officers, directors, agents, contractors (or their subcontractors), or employees in connection with the construction and preparation of the Site; and (d) negligent or intentional and wrongful operation of the Equipment at the Site. Further, neither the review and approval of Site plans, specifications and/or positioning plans by GKF and/or Elekta, nor the construction of any other Site preparation, shall relieve Medical Center for liability for damages to the Equipment caused by the failure to comply with applicable federal, state or local laws or regulations, including building codes, or those portions of the Site Planning Criteria relating to the load bearing capacity of the floor of the treatment room and to radiation protection. 5.5 Medical Center warrants that it shall utilize its best efforts to fulfill on an expeditious basis its obligations under this Paragraph 5. Medical Center further warrants that it shall on a regular basis keep GKF informed of Medical Center's progress in fulfilling its obligations pursuant to this Paragraph 5. Should Page 3 4 Medical Center not have all Site preparations completed by the Delivery Date specified in Paragraph 3 above plus a sixty (60) day grace period such that the Site meets the Site Planning Criteria and is ready for positioning and Installation of the Equipment, Medical Center shall reimburse GKF at an interest rate of Bank of America's prime rate plus 2% on GKF's financing, maintenance and storage costs with respect to the Equipment until the Site is prepared to allow positioning and Installation of the Equipment. 6. Term of the Agreement. The initial term of this Agreement (the "Term") shall commence as of the date hereof and, unless earlier terminated or extended in accordance with the provisions of this Agreement, shall continue for a period of ten (10) years following the date of the performance of the first clinical Gamma Knife procedure (the "First Procedure Date") at the Site. Medical Center's obligation to make the rental payments to GKF for the Equipment as described in Paragraph 7 below shall commence as of the First Procedure Date. 6.1 Installation and Charging of Equipment and Performance of Acceptance Tests. Within seven (7) days following completion of the positioning of the Equipment at the Site by Medical Center, GKF shall use its best efforts to cause Elekta, at Elekta's sole expense and risk, to Install the Equipment, including the Charging of the Equipment with its Cobalt Supply, in accordance with the LGK Agreement. Upon completion of Installation of the Equipment, GKF shall use its best efforts to cause Elekta to perform the Acceptance Tests (as defined in the LGK Agreement) to the satisfaction of Elekta, GKF and Medical Center. Notwithstanding the foregoing, it is understood and agreed that GKF has made no representations and warranties to Medical Center concerning the Installation or Charging of the Equipment or the performance of the Acceptance Tests, and that GKF shall have no obligation to pay any damages to Medical Center resulting therefrom. 7. Per Procedure Payments. Medical Center shall pay to GKF a per procedure payment as specified in Exhibit 2 for the use of the Equipment. A "procedure" shall be defined as a single patient treatment session that may include one or more isocenters during that session. Medical Center shall be billed on the fifteenth (15th) and the last day of each month for the actual number of procedures performed during the first and second half of the month, respectively. Medical Center shall pay for the procedures invoiced within thirty (30) days after being invoiced. Interest shall begin to accrue at the rate of 1-1/2% per month on all invoices remaining unpaid after 45 days. (a) If the "Medicare Reimbursement Rate" in effect on any "Reset Date" is less than the "Medicare Base Rate" by * or more, then, Medical Center may at its option inform GKF in writing within thirty (30) days after the applicable Reset Date and shall provide GKF with the information used in calculating such Medicare Reimbursement Rate. Page 4 5 (b) Within thirty (30) days after GKF's receipt of such notice and information from Medical Center, the parties shall meet to renegotiate in good faith the per procedure payments payable by Medical Center under this Agreement; provided that either party shall have the right to reject any per procedure rate proposed by the other party. Each party shall permit the other to inspect such party's books and records pertaining to the Equipment in order to verify their respective Operating Income. Notwithstanding the foregoing, Medical Center shall have no recourse to arbitration as provided in this Section 7 with respect to any per procedure payment rate proposed by Medical Center which would result in negative Operating Income to GKF, in which event this Agreement shall remain unchanged and in full force and effect. (c) If, within sixty (60) days following GKF's receipt of Medical Center's notice, the parties are unable to agree in good faith on reduced per procedure payment rates, which rates would not result in GKF incurring negative Operating Income, then, GKF and Medical Center shall jointly appoint an arbitrator who shall have not less than ten (10) years experience in medical equipment financing and who shall have no prior relationship, attorney/client or otherwise, with any of the parties. Such arbitrator shall review the information presented by both parties and shall render a decision within thirty (30) days of his or her appointment. In rendering a decision, the arbitrator shall be bound by the following: (i) Any reduced per procedure payment rate determined by the arbitrator shall not provide Medical Center with estimated Operating Income in excess of a breakeven level, and (ii) any reduced per procedure payment rate determined by the arbitrator shall not result in negative Operating Income to GKF. The arbitrator's decision shall be binding upon the parties and non-appealable. The fees and expenses of the arbitrator shall be shared equally between the parties. The foregoing arbitration procedure shall apply only to disagreements arising from this subsection (c) and not to any other disputes or disagreements arising from this Agreement. (d) If the parties mutually agree on a renegotiated per procedure payment or if a renegotiated per procedure payment is determined by the arbitrator as set forth above, then such renegotiated per procedure payment shall become effective on the date of such agreement or determination, and Exhibit 2 hereto shall be deemed automatically amended as of such date. (e) As used herein: (i) The "Medicare Reimbursement Rate" shall mean the sum of the reimbursement rates to Medical Center under DRG 7 and DRG 8 (or, if no longer in effect, their respective inpatient rate replacements for Gamma Knife procedures) in effect as of any Reset Date. (ii) The "Medicare Base Rate" shall mean the sum of the reimbursement rates under DRG 7 and DRG 8 in effect as of the date hereof. It is Page 5 6 acknowledged that, as of the date hereof, the reimbursement rates for DRG 7 and DRG 8 are $17,462.40 and $9,450.56, respectively. (iii) The "Reset Date" shall mean the date which is two (2) years after the Commencement Date and each anniversary date thereafter. (iv) "Operating Income" with respect to either party shall mean the revenues generated by such party from the Equipment less such party's corresponding direct operating expenses related to the Equipment, including, without limitation, applicable interest and depreciation expenses on the Equipment and Site improvements, but excluding physician professional fees and indirect overhead expenses. In determining Operating Income with respect to Medical Center, (1) the revenues to be used in such determination shall be those generated by Medical Center related to the performance of procedures using the Equipment for Gamma Knife services; and (2) subject to the limitations set forth in this subsection (iv), the direct operating expenses shall be those related to the performance of procedures using the Equipment, including, without limitation, Medical Center's actual costs related to the hospital stay, diagnostic imaging procedures, nursing services (to the extent not covered as part of the cost of the hospital stay), and physicist compensation. 8. Use of the Equipment. The Equipment may be used by Medical Center only at the Site and shall not be removed therefrom. Medical Center shall not assign or sublease the Equipment or its rights hereunder without the prior written consent of GKF; which consent shall not be unreasonably withheld. No permitted assignment or sublease shall relieve Medical Center of any of its obligations hereunder. Medical Center shall not use nor permit the Equipment to be used in any manner nor for any purpose for which, in the reasonable opinion of Elekta or GKF based on current medical practice, the Equipment is not designed or reasonably suitable. Medical Center shall not permit any liens, whether voluntary or involuntary, to attach to the Equipment, without the prior written consent of GKF. Medical Center shall have no interest in the Equipment other than the rights acquired as a lessee hereunder and the Equipment shall remain the property of GKF regardless of the manner in which it may be installed or attached at the Site. Medical Center shall, at GKF's request, affix to the Equipment tags, decals, or plates furnished by GKF, indicating GKF's ownership of the Equipment. 9. Additional Covenants of Medical Center. In addition to the other covenants made by Medical Center, Medical Center shall at its own cost and expense: 9.1 Provide properly trained professional, technical and support personnel and supplies required for the proper performance of medical procedures utilizing the Equipment. Page 6 7 9.2 Assume all medical and financial responsibility for the overseers' monitoring of all patients' medical condition and treatment. 9.3 Fully comply with all of its obligations under the LGK Agreement. 9.4 Indemnify GKF as herein provided: (i) Medical Center hereby agrees to indemnify and/or reimburse (including reasonable attorneys' fees) GKF on a prompt basis for any and all damage to the Equipment (including, without limitation, any violations by Medical Center, its agents, officers, physicians, employees, successors and assigns of the Repair Service Agreement described in Paragraph 16 below) to the extent such damages are caused by the negligent or wrongful acts or omissions of Medical Center, its agents, officers, physicians and employees and are not covered and reimbursed by GKF's insurance. In the event the Equipment is destroyed or rendered unusable as a result of such negligent or wrongful acts or omissions, this indemnification shall extend up to (but not exceed) the full replacement value of the Equipment at the time of its destruction less salvage value, if any. (ii) Medical Center hereby further agrees to indemnify and hold GKF, its agents, officers, employees, successors and assigns, harmless from and against any and all claims, liabilities, obligations, losses, damages, injuries, penalties, actions, costs and expenses (including reasonable attorneys' fees) for all events and/or occurrences described in Article 7.3 of the LGK Agreement to the same extent that Medical Center agrees to indemnify Elekta thereunder. 9.5 Provide reasonable and customary marketing materials (i.e. brochures, announcements, etc.) and marketing support from an administrative and physician (i.e. seminars by neurosurgeons and radiation therapists to referring physicians, etc.) commitment for this clinical service. Medical Center shall spend not less than One Hundred Thousand Dollars ($100,000) on marketing and promotion of the services provided through the Equipment during the first year of this Agreement, and Fifty Thousand Dollars ($50,000) per year thereafter or such other amounts as may be mutually agreed upon by the parties. Notwithstanding the foregoing, Medical Center shall not be obligated to incur expenditures for marketing or promotion if the events described in Section 7(a) have occurred, and Medical Center's Operating Income following the renegotiation process set forth in Section 7 above is negative. 10. Additional Covenants, Representations and Warranties of GKF. In addition to the other covenants, representations and warranties, made by GKF in this Agreement: 10.1 GKF represents and warrants that GKF has full power and authority to enter into this Agreement, and that this Agreement does not and will not violate any agreement, contract or instrument binding upon GKF. Page 7 8 10.2 GKF represents and warrants to Medical Center that, upon delivery of the Equipment to Medical Center, GKF shall use its best faith efforts to require that Elekta meets its contractual obligations to GKF and puts the Equipment, as soon as possible, into good, safe and serviceable condition and fit for its intended use in accordance with the manufacturer's specifications, guidelines and field modification instructions. 10.3 GKF represents and warrants that throughout the term of this Agreement, Medical Center shall enjoy the use of the Equipment, free of the rights of any other persons except for those rights reserved by GKF under this Agreement or granted to Elekta under the LGK Agreement. 10.4 During the entire term of this Agreement and subsequent extensions thereof, GKF shall maintain in full force and effect: (i) the Repair Service Agreement referenced in Paragraph 16 below; and (ii) any other service or other agreements required to fulfill GKF's obligations to Medical Center pursuant to this Paragraph 10.4. GKF acknowledges that Medical Center is a third-party beneficiary of the Repair Service Agreement. GKF shall indemnify and hold harmless Medical Center in the event Medical Center suffers any loss, damage, claim or expense (including reasonable attorneys' fees) solely as the result of GKF's breach of the Repair Service Agreement. GKF represents and warrants that during the entire term of this Agreement and any subsequent extensions thereof, that it will fully pursue any and all remedies it may have against Elekta under the Repair Service Agreement to insure that the Equipment will be in conformity with Elekta's warranties so that it is free from defects in design, materials, workmanship or manufacture which result in noncompliance with the Specifications and/or Elekta's warranties to GKF. 11. Ownership/Title. It is expressly understood that Medical Center shall acquire no right, title or interest in or to the Equipment, other than the right to the possession and use of the same in accordance with the terms of this Agreement. GKF may at its sole discretion finance the Equipment. Financing may be in the form of an installment loan or a capitalized lease or other commercially available debt instrument. Should GKF finance the Equipment through an installment loan, GKF shall be required to provide the Equipment as collateral against the loan. Should GKF finance the Equipment through a capitalized lease title shall vest with the lessor until GKF exercises its buy-out option. In addition, should GKF finance the Equipment, said agreement may be used as collateral against the loan. No financing by GKF will relieve GKF of its obligations to Medical Center or materially change Medical Center's duties or materially increase the burdens or risks imposed on Medical Center. Prior to the financing, Medical Center and the entity financing the Equipment shall enter into a mutually acceptable subordination, attornment and non-disturbance agreement. Page 8 9 12. Cost of Use of the Equipment. Except as is otherwise provided herein, Medical Center shall bear the entire cost of using the Equipment during the Term of this Agreement. This shall include, but not be limited to, providing trained professionals, technical and support personnel and supplies to properly operate the Equipment. Medical Center shall be fully responsible and liable for all acts and/or omissions of such professional, technical and support personnel. 13. Taxes. GKF shall pay any personal property taxes levied against the Equipment and any other taxes or governmental fees or assessments, however denoted, whether of the federal government, any state government or any local government, levied or based on this Agreement or the use of the Equipment except for those taxes, if any, pertaining to the gross income or gross receipts of Medical Center. 14. Maintenance and Inspections. GKF agrees to exercise due and proper care in the maintenance of the Equipment and to keep the Equipment in a good state of repair, reasonable wear and tear excepted. GKF (and Elekta) shall have the right of access to the Equipment for the purpose of inspecting same at all reasonable times and upon reasonable notice and with a minimum of interference to Medical Center's operations. In the event the Equipment is improperly used by Medical Center or its employees, agents, officers, and physicians, GKF may service or repair the same as needed and such expense shall be paid by Medical Center, unless the repair is covered by the Repair Service Agreement. 15. Equipment Modifications/Additions/Upgrades. 15.1 Medical Center may elect in writing to have the Cobalt-60 sources reloaded at any time after the date that is seven (7) years following the First Procedure Date and prior to the expiration of the initial Term, so long as the annual number of procedures performed on the Equipment is greater than * procedures per year for the two years immediately prior to Medical Center's election. Such reloading shall be done at GKF's expense, provided that any expenses pertaining to leasehold improvements or refurbishment of the Site shall be paid for solely by Medical Center. 15.2 If Medical Center elects to reload as set forth above, the Term shall automatically be extended for an additional four (4) years, plus the time expended in reloading, which extension shall commence on the expiration of the initial Term of this Agreement. Unless Medical Center notifies GKF at least ninety (90) days prior to the expiration of the extended Term that Medical Center wishes to purchase the Equipment in cash at its fair market value (based upon the "in use" value of the Equipment) as determined by an appraiser mutually agreed upon Page 9 10 between the parties, GKF shall remove the Equipment, at its sole expense, within ninety (90) days after the expiration of the extended Term. 15.3 If the Term is extended pursuant to Paragraph 15.2 above, the per procedure rate payable during the extended term shall be as follows:
YEAR ANNUAL PROCEDURES PERFORMED FEE PER PROCEDURE ---- --------------------------- ----------------- 11-14 * * * * * * * *
16. Repair Service Agreement. GKF warrants that it shall simultaneously with the execution of this Agreement enter into a Repair Service Agreement with Elekta, a copy of which is attached hereto as Exhibit 3 and incorporated herein by this reference. GKF agrees to fulfill all of its obligations under the Repair Service Agreement and acknowledges that Medical Center is a third party beneficiary of the Repair Service Agreement. 17. Termination. If, after the initial twenty-four (24) month period following the First Procedure Date or any subsequent 12 month period, the sum of all per-procedure payments made by Medical Center to GKF under this Agreement during the most recent twelve (12) month period fell short of * , then and in that event, GKF shall have the option (but not the obligation) of terminating this Agreement upon the giving of written notice to Medical Center of said termination not less than one hundred and eighty (180) days prior to GKF's designated termination date. GKF shall remove the Equipment, at its sole expense, within ninety (90) days after the designated termination date, unless Medical Center notifies GKF within ninety (90) days following receipt of GKF's notice of termination that it wishes to purchase the Equipment in cash at a price to be mutually agreed upon by the parties. Notwithstanding the foregoing, such * shall not be used as a basis for determining GKF's breakeven level of Operating Income pursuant to Section 7 above. 18. Option to Extend Agreement. 18.1 If the Term has not been extended pursuant to Paragraph 15.2 above, Medical Center shall have the option at the end of the ten (10) year initial Term to: (i) Renegotiate this Agreement for a five year renewal term. (ii) Terminate this Agreement. If Medical Center terminates this Agreement at the end of the initial Term, Medical Center shall have the option Page 10 11 to purchase the Equipment in cash at its fair market value (based upon the "in use" value of the Equipment) as determined by an appraiser to be mutually agreed upon between the parties. Medical Center shall exercise such option by giving written notice to GKF not less than ninety (90) days prior to the expiration of the initial Term. If Medical Center does not issue such notice, Medical Center shall be deemed to have elected not to exercise such option, and GKF shall remove the Equipment, at its sole cost and expense, within ninety (90) days after the expiration of the ten (10) year initial Term. Medical Center shall exercise one (1) of the two (2) options referred to above by mailing an irrevocable written notice thereof to GKF at Four Embarcadero Center, Suite 3620, San Francisco, California, 94111, by registered mail, postmarked on or before the end of the ninth (9th) year of the ten (10) year initial Term of this Agreement. Any such notice shall be sufficient if it states in substance that Medical Center elects to exercise its option and states which of the two (2) options referred to above Medical Center is exercising. 19. No Warranties by GKF with Respect to the Equipment. GKF SUPPLIES THE EQUIPMENT "AS IS" AND NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that all such risks as between GKF and Medical Center, shall be borne by Medical Center. Medical Center agrees to look solely to the manufacturer (Elekta) or to suppliers of the Equipment (and its software) for any and all warranty claims with respect to the Equipment. Any and all warranties made by Elekta to GKF will be in its good faith best efforts enforced by GKF on behalf of Medical Center during the ten (10) year initial Term hereof and any renewal Terms. Medical Center agrees that GKF shall not be responsible for the delivery, installation, or operation of the Equipment or for any delay or inadequacy of any or all of the foregoing. GKF shall not be responsible for any direct or indirect consequential loss or damage resulting from the installation, operation or use of the Equipment or otherwise. Medical Center expressly waives any right to hold GKF liable hereunder for any claims, demands and liabilities arising out of or in connection with the design, manufacture, possession or operation of the Equipment. 20. Events of Default by Medical Center and Remedies. The occurrence of any one of the following shall constitute an Event of Default by Medical Center hereunder: (a) Medical Center fails to pay any installment of semi-monthly procedure payments when due when such default continues for a period of thirty (30) days after notice thereof from GKF or its assignee is given to Medical Center. Page 11 12 (b) Medical Center attempts to remove, sell, transfer, encumber, sublet or part with possession of the Equipment or any items thereof, except as expressly permitted herein; (c) Medical Center shall fail to observe or perform any of the other obligations required to be observed or performed by Medical Center hereunder and such failure shall continue uncured for sixty (60) days after written notice thereof to Medical Center by GKF; (d) Medical Center ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation. (e) Within sixty (60) days after the commencement of any proceedings against Medical Center seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Medical Center's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated. Upon the occurrence of an Event of Default by Medical Center, GKF may at its option do any or all of the following: (i) by written notice to Medical Center, terminate this Agreement as to the Equipment in default, wherever situated, and for such purposes, enter upon the Site without liability for so doing or GKF may cause Medical Center and Medical Center hereby agrees to return the Equipment to GKF at Medical Center's sole cost and expense; (ii) recover from Medical Center, as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to the present value of the unpaid estimated future lease payments by Medical Center to GKF through the end of the initial Term discounted at the rate of nine percent (9%), which payment shall become immediately due and payable. Unpaid estimated future lease payments shall be based on the prior 12 months lease payments with an annual five percent (5%) percent increase; (iii) sell, dispose of, hold, use or lease the Equipment in default, as GKF in its sole discretion may determine (and GKF shall not be obligated to give preference to the sale, lease or other disposition of the Equipment over the sale, lease or other disposition of similar Equipment owned or leased by GKF). In any event, Medical Center shall, without Page 12 13 further demand, pay to GKF an amount equal to all sums due and payable for all periods up to and including the date on which GKF had declared this Agreement to be in default. In the event that Medical Center shall have paid to GKF the liquidated damages referred to in (ii) above, GKF hereby agrees to pay to Medical Center promptly after receipt thereof, all rentals or proceeds received from the reletting or sale of the Equipment during the balance of the ten (10) year initial Term (after deduction of all expenses incurred by GKF; said amount never to exceed the amount of the liquidated damages paid by Medical Center). Medical Center agrees that GKF shall have no obligation to sell the Equipment. Medical Center shall in any event remain fully liable for reasonable damages as provided by law for all costs and expenses incurred by GKF on account of such default, including but not limited to, all court costs and reasonable attorneys' fees. Medical Center hereby agrees that, in any event, it shall be liable for any deficiency after any sale, lease or other disposition of the Equipment by GKF. The rights afforded GKF hereunder shall not be deemed to be exclusive, but shall be in addition to any other rights or remedies provided by law. 21. Events of Default by GKF and Remedies. The occurrence of any one of the following shall constitute an Event of Default by GKF hereunder: (a) GKF shall fail to observe or perform any of the obligations required to be observed or performed by GKF hereunder and such failure shall continue uncured for sixty (60) days after written notice thereof to GKF by Medical Center; (b) GKF ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation. (c) Within sixty (60) days after the commencement of any proceedings against GKF seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without GKF's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated. Page 13 14 Upon the occurrence of an Event of Default by GKF, Medical Center may at its option do any or all of the following: (i) by written notice to GKF, terminate this Agreement and, in such event, GKF shall remove the Equipment at GKF's sole cost and expense or, in the absence of removal by GKF within ninety (90) days after a written request therefor, Medical Center may remove the Equipment with all due care and store the Equipment at GKF's sole cost and expense, or (ii) purchase the Equipment in cash at a price to be mutually agreed upon by the parties. GKF shall in any event remain fully liable for reasonable damages as provided by law for all costs and expenses incurred by Medical Center on account of such default, including but not limited to all court costs and reasonable attorney's fees. The rights afforded Medical Center hereunder shall not be deemed to be exclusive, but shall be in addition to any other rights or remedies provided by law. 22. Insurance. 22.1 During the ten (10) year initial Term of this Agreement (and any successive terms) GKF shall, at its own cost and expense, keep in effect an all risk and hazard insurance policy covering the Equipment. The all risk and hazard insurance policy shall be for an amount not less than the replacement cost of the Equipment. During the ten (10) year initial Term of this Agreement, Medical Center shall, at its own cost and expense, keep in effect public liability and professional liability insurance policies concerning the operation of the Equipment by Medical Center. Said policies shall be in the amounts of not less than $1,000,000 per occurrence and $5,000,000 in aggregate per year. Medical Center and GKF, their successors and assigns, shall be named as additional insureds and/or loss payees on the insurance policies maintained hereunder by the other party. Evidence of such insurance coverages shall be furnished by both parties to the other party upon written request, by no later than the Delivery Date. 22.2 If the Equipment is rendered unusable as a result of any physical damage to, or destruction of, the Equipment, Medical Center shall give to GKF immediate notice. GKF shall determine, within thirty (30) days after the date of occurrence of such damage or destruction, whether the Equipment can be repaired. In the event GKF determines that the Equipment cannot be repaired, GKF at its sole cost and expense shall promptly replace the Equipment subject to availability. This Agreement shall continue in full force and effect as though such damage or destruction had not occurred. In the event GKF determines that the Equipment can be repaired, GKF shall cause the Equipment to be promptly repaired at its sole expense, subject, however, to Medical Center's obligations under Section 5.4 above. Page 14 15 23. Notices. Any notices required under this Agreement shall be sent in writing and shall be deemed to have been duly given if delivered by hand or mailed by certified or registered mail to the following addresses: To GKF: GK Financing, LLC Craig K. Tagawa, C.E.O. Four Embarcadero Center, Suite 3620 San Francisco, CA 94111 To Medical Center: New England Medical Center Hospitals, Inc. 750 Washington Street NEMC 428 Boston, MA 02111 Or to such other addresses as either party may specify for the reception of notice from time to time in writing to the other party. 24. Integration/Supersedure. This Agreement contains the full and entire Agreement between the parties hereto, and no oral or written understanding is of any force or effect whatsoever unless expressly contained in a writing executed subsequent to the date of this Agreement. 25. Waivers. To the extent that either party fails or chooses not to pursue any of its remedies under this Agreement or pursuant to applicable law, such shall not prejudice such party's rights to pursue any of those remedies at any future time and shall not constitute a waiver of such party's rights. 26. Assignments. This Agreement is binding upon and shall inure to the benefit of the permitted successors or assigns of the respective parties hereto, except that neither party may assign its rights or obligations under this Agreement without the express written consent of the other (which consent shall not be unreasonably withheld or delayed). 27. Amendments. This Agreement shall not be amended or altered in any manner unless such amendment or alteration is in a writing signed by both parties. 28. Record-Keeping Requirements. 28.1 Medical Center and GKF shall generate such records and make such disclosures as may be required, from time to time, by the Medicare, Medicaid and other third party payment programs with respect to this Agreement in order to meet all requirements for participation and payment associated with such programs, including but not limited to the matters covered by Section 1861(v)(1)(I) of the Social Security Act. Page 15 16 28.2 For the purpose of compliance with Section 1861(v)(1)(I) of the Social Security Act, as amended, and any regulations promulgated pursuant thereto, both parties agree to comply with the following statutory requirements (a) Until the expiration of four (4) years after the termination of this Agreement, both parties shall make available, upon written request to the Secretary of Health and Human Services or, upon request, to the Comptroller General of the United States, or any of their duly authorized representatives, the contract, and books, documents and records of such party that are necessary to certify the nature and extent of such costs, and (b) if either party carries out any of the duties of the contract through a subcontract with a value or cost of $10,000 or more over a twelve month period, with a related organization, such subcontract shall contain a clause to the effect that until the expiration of four (4) years after the furnishing of such services pursuant to such subcontract, the related organization shall make available, upon written request to the Secretary, or upon request to the Comptroller General, or any of their duly authorized representatives the subcontract, and books, documents and records of such organization that are necessary to verify the nature and extent of such costs. 29. Miscellaneous Provisions. 29.1 The invalidity or unenforceability of any portion or provision of this Agreement shall not effect the validity or enforceability of any other portion, nor shall either party's implied or express consent to the breach or waiver of any provision of this Agreement constitute a waiver of such provision as to any subsequent breach. 29.2 In the event of any claim or controversy arising hereunder, the prevailing party in such claim or controversy shall be entitled to a reasonable attorneys' fee in addition to whatever other relief said party would be otherwise entitled. 29.3 Force Majeure. Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under this Agreement directly or indirectly caused by conditions beyond its reasonable control including without limitation, fires, floods, earthquakes, snow, ice, disasters, Acts of God, accidents, riots, wars, operation of law, strikes, governmental action or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. Page 16 17 IN WITNESS WHEREOF, the parties have signed this Agreement on the day and year first above written. NEW ENGLAND MEDICAL CENTER GK FINANCING, LLC HOSPITALS, INC. By: /s/ Signature By: /s/ Craig K. Tagawa -------------------------------- -------------------------------- Its: Chief Operating Officer Craig K. Tagawa Chief Executive Officer Page 17 18 Exhibit 1 LGK AGREEMENT Page 18 19 Exhibit 2 PER PROCEDURE PAYMENTS
YEAR ANNUAL PROCEDURES PERFORMED FEE PER PROCEDURE ---- --------------------------- ----------------- 1-4 * * * * * * * * 5-7 * * * * * * * * 8-10 * * * * * * * *
Page 19 20 Exhibit 3 REPAIR SERVICE AGREEMENT Page 20 EX-10.23 5 EQUIPMENT LEASE AGREEMENT 1 EXHIBIT 10.23 EQUIPMENT LEASE AGREEMENT THIS EQUIPMENT LEASE AGREEMENT ("Agreement") is made and entered into on October 29, 1998, by and between GK FINANCING, LLC, a California limited liability company ("GKF"), and the BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ON BEHALF OF THE UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES ("Hospital"), with reference to the following facts: R E C I T A L S A. GKF owns a Leksell Stereotactic Gamma Knife Unit (the "Equipment") which it acquired from by Elekta Instruments, Inc., a Georgia corporation ("Elekta"), pursuant to that certain Agreement dated ____________, together with the Exhibits attached thereto between GKF and Elekta (collectively, the "Purchase Agreement"). B. Hospital wishes to lease the Equipment from GKF, and GKF is willing to lease the Equipment to Hospital, upon the terms, covenants, conditions and agreements set forth in this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements set forth herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Lease. Subject to and in accordance with the covenants and conditions set forth in this Agreement, GKF hereby leases to Hospital, and Hospital hereby leases from GKF, the Equipment. The Equipment to be leased to Hospital pursuant to this Agreement shall include the latest approved Gamma Knife technology available as of the date of this Agreement, including all hardware and software related thereto. 2. LGK Agreement. Simultaneously with the execution of this Agreement, Hospital and Elekta shall enter into that certain LGK Agreement (the "LGK Agreement"), a copy of which is attached hereto as Exhibit 1. Hospital shall perform, satisfy and fulfill all of its obligations arising under the LGK Agreement when and as required thereunder. Hospital acknowledges that GKF is a third party beneficiary of the LGK Agreement and, in that capacity, GKF shall be entitled to enforce Hospital's performance, satisfaction and fulfillment of its obligations thereunder. 3. Term of the Agreement. The initial term of this Agreement (the "Term") shall commence as of the date hereof and, unless earlier terminated or extended in accordance with the provisions of this Agreement, shall continue for a period of fifteen 1 2 (15) years following the date of the performance of the first clinical Gamma Knife procedure (the "First Procedure Date") at the Site. Hospital's obligation to make the payments to GKF for the Equipment described in Section 8 below shall commence as of the First Procedure Date. 4. Certificate of Need; User License. Hospital shall apply for and obtain in a timely manner a User License from the Nuclear Regulatory Commission and, if necessary, from the applicable state agency authorizing it to take possession of and maintain the Cobalt supply required in connection with the use of the Equipment during the term of this Agreement. Hospital also shall apply for and obtain in a timely manner all other licenses, permits, approvals, consents and authorizations which may be required by state or local governmental or other regulatory agencies for the charging of the Equipment with its Cobalt supply, the conduct of acceptance tests with respect to the Equipment, and the use of the Equipment during the Term, as more fully set forth in Article 2.1 of the LGK Agreement. 5. Delivery of Equipment; Site. 5.1 GKF shall coordinate with Elekta and Hospital to have the Equipment delivered to Hospital at 4301 W. Markham, Little Rock, Arkansas 72205 (the "Site") on or prior to the delivery date agreed upon by Hospital and Elekta in the LGK Agreement. GKF makes no representations or warranties concerning delivery of the Equipment to the Site or the actual date thereof. 5.2 Subject to Section 6 below, Hospital, at its cost and expense, shall provide a safe, convenient and properly prepared Site for the Equipment in accordance with Elekta's guidelines, specifications, technical instructions and site planning criteria (which site planning criteria are attached as Exhibit B to the LGK Agreement) (collectively the "Site Planning Criteria"). The location of the Site shall be subject to the prior approval of GKF. 6. Site Preparation and Installation of Equipment. 6.1 GKF, at its cost and expense, shall prepare all plans and specifications required to prepare, construct and improve the Site for the installation, use and operation of the Equipment during the Term. The plans and specifications (i) shall be approved by Hospital, which approval shall not be unreasonably withheld or delayed; (ii) shall comply in all respects with the Site Planning Criteria; and (iii) to the extent required by applicable law, shall be submitted to the State of Arkansas Health Department and the State of Arkansas Building Services Office for their review. GKF, at its cost and expense, shall obtain all permits, certifications, approvals or authorizations required by applicable federal, state or local laws, rules or regulations necessary to prepare, construct and improve the Site as provided above. 2 3 6.2 GKF, at its cost and expense, shall prepare, construct and improve the Site as necessary for the installation, use and operation of the Equipment during the Term, including, without limitation, providing all temporary or permanent shielding required for the charging of the Equipment with the Cobalt supply and for its subsequent use, selecting and constructing a proper foundation for the Equipment and the temporary or permanent shielding, aligning the Site for the Equipment, and installing all electrical systems and other wiring required for the Equipment. In connection with the construction of the Site, GKF, at its cost and expense, shall select, purchase and install all radiation monitoring equipment, devices, safety circuits and radiation warning signs required at the Site in connection with the use and operation of the Equipment. GKF shall be responsible for the shipment, storage, placement and removal of all Cobalt and depleted Cobalt, provided that, if Hospital elects to purchase the Equipment pursuant to Section 19.2 below, Hospital shall be solely responsible for such duties following its election. Any depleted Cobalt supply shall be properly disposed of by GKF at such time as GKF shall deem necessary, in GKF's sole and absolute judgment. 6.3 In addition to construction and improvement of the Site, GKF, at its cost and expense, shall be responsible for the installation of the Equipment at the Site, including the positioning of the Equipment on its foundation at the Site in compliance with the Site Planning Criteria. 6.4 During the Term, GKF, at its cost and expense, shall maintain the Site in a good working order, condition and repair, reasonable wear and tear excepted. 7. Marketing Support. GKF shall coordinate its Gamma Knife marketing plan with Hospital, which marketing plan shall be subject to the approval of Hospital. 8. Lease Payments. 8.1 In consideration and as compensation to GKF for (i) the lease of the Equipment by GKF to Hospital pursuant to this Agreement; (ii) the preparation by GKF of all plans and specifications required to prepare, construct and improve the Site for the installation, use and operation of the Equipment; (iii) the preparation, construction and improvement of the Site as necessary for the installation, use and operation of the Equipment; (iv) the installation by GKF of the Equipment at the Site; and (v) the maintenance by GKF of the Site in a good working order, condition and repair, Hospital shall pay to GKF on a monthly basis an amount (the "Lease Payments") equal to (a) the *. As used herein: (1) * (2) * (3) * 3 4 On each anniversary date of this Agreement, the parties shall meet to review *, and any adjustments thereto must be mutually agreed upon by the parties in writing. Upon request by GKF, Hospital shall promptly furnish GKF with written documentation substantiating such *. As used herein, a "Gamma Knife procedure" shall mean a single patient treatment session that may include one or more isocenters during that session. If no Gamma Knife procedures are performed by Hospital or any other person utilizing the Equipment, no Lease Payments shall be owing by Hospital to GKF. 8.2 Payment by Hospital to GKF of the Lease Payments shall be made within ten (10) days following receipt by Hospital of the reimbursement for the technical component of such Gamma Knife procedure from payor sources. To facilitate Hospital's billing and collection for Gamma Knife procedures performed, within two (2) business days after any Gamma Knife procedure is performed, GKF shall cause the administrative support individual referenced in Section 11.3 below to provide Hospital with written confirmation of the names of the patients treated. Hospital shall submit claims for reimbursement to the appropriate payors for each Gamma Knife procedure within ______ (___) days after the patient receiving the treatment is discharged. All or any portion of any Lease Payment which is not paid in full within sixty (60) days after its due date shall bear interest at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) until the unpaid Lease Payment, together with all accrued interest thereon is paid in full. If GKF shall at any time accept a Lease Payment from Hospital after it shall become due, such acceptance shall not constitute or be construed as a waiver of any or all of GKF's rights under this Agreement, including the rights of GKF set forth in Section 20 hereof. 8.3 Within thirty (30) days after the close of each month, Hospital shall provide GKF with a written report indicating the status of billings and collections for each Gamma Knife procedure performed during that month, including, without limitation, the amount of the claim submitted and the amount received for each such procedure. Upon request by GKF, Hospital shall furnish to GKF information regarding reimbursement rates from any or all payor sources for Gamma Knife procedures (applicable to procedures performed either on an inpatient or outpatient basis). If such reimbursement rates should change at any time or from time to time after the date hereof, in each instance, Hospital shall provide written notice thereof to GKF within five (5) days of Hospital receiving notice thereof. 9. Use of the Equipment. 9.1 The Equipment shall be used by Hospital only at the Site and shall not be removed therefrom. Hospital shall use the Equipment only in the regular and ordinary course of Hospital's business operations and only within the capacity of the 4 5 Equipment as determined by Elekta's specifications. Hospital shall not use nor permit the Equipment to be used in any manner nor for any purpose which, in the opinion of Elekta or GKF, the Equipment is not designed or reasonably suitable. 9.2 This is an agreement of lease only. Nothing herein shall be construed as conveying to Hospital any right, title or interest in or to the Equipment, except for the express leasehold interest granted to Hospital for the Term. All Equipment shall remain personal property (even though said Equipment may hereafter become attached or affixed to real property) and the title thereto shall at all times remain exclusively in GKF. 9.3 During the Term, upon the request of GKF, Hospital shall promptly affix to the Equipment in a prominent place, or as otherwise directed by GKF, labels, plates, insignia, lettering or other markings supplied by GKF indicating GKF's ownership of the Equipment, and shall keep the same affixed for the entire Term. Hospital hereby authorizes GKF to cause this Lease or any statement or other instrument showing the interest of GKF in the Equipment to be filed or recorded, or refiled or re-recorded, with all governmental agencies considered appropriate by GKF, at GKF's cost and expense. Hospital also shall promptly execute and deliver, or cause to be executed and delivered, to GKF any statement or instrument requested by GKF for the purpose of evidencing GKF's interest in the Equipment, including financing statements and waivers with respect to rights in the Equipment from any owners or mortgagees of any real estate where the Equipment may be located. 9.4 At Hospital's cost and expense, Hospital shall (a) protect and defend GKF's ownership of and title to the Equipment from and against all persons claiming against or through Hospital, (b) at all times keep the Equipment free from any and all liens, encumbrances, attachments, levies, executions, burdens, charges or legal processes imposed against Hospital, and (c) give GKF immediate written notice of any matter described in clause (b). 10. Additional Covenants of Hospital. In addition to the other covenants of Hospital contained in this Agreement, Hospital shall, at its cost and expense: 10.1 Provide properly trained professional, technical and support personnel and supplies required for the proper performance of Gamma Knife procedures utilizing the Equipment. In this regard, Hospital shall maintain on staff a minimum of two (2) Gamma Knife trained teams comprised of neurosurgeons, radiation therapists and physicists. 10.2 Direct, supervise and administer the diagnosis, treatment and care of all patients who receive Gamma Knife procedures. 5 6 10.3 In consultation with GKF, provide reasonable and customary marketing support in terms of administrative and physician support for the Gamma Knife service to be operated by the Hospital. 10.4 Keep and maintain the Equipment and the Site fully protected, secure and free from unauthorized access or use by any person. 11. Additional Covenants of GKF. In addition to the other covenants of GKF contained in this Agreement, GKF, at its cost and expense, shall: 11.1 Use its best efforts to require Elekta to meets its contractual obligations to GKF and Hospital upon delivery of the Equipment and put the Equipment, as soon as reasonably possible, into good, safe and serviceable condition and fit for its intended use in accordance with the manufacturer's specifications, guidelines and field modification instructions. 11.2 Cause Hospital to enjoy the use of the Equipment, free of the rights of any other persons except for those rights reserved by GKF or granted to Elekta under the LGK Agreement or the Purchase Agreement. 11.3 Furnish an individual who shall be located at the Site and who shall provide administrative and marketing support services at the Site. 12. Maintenance of Equipment; Damage or Destruction of Equipment. 12.1 During the Term and except as otherwise provided in this Agreement, GKF, at its cost and expense, shall (a) maintain the Equipment in good operating condition and repair, reasonable wear and tear excepted, (b) subject to Hospital's compliance with its obligations under the LGK Agreement and under Sections 4, 5, 9, 10, 12, and 16 hereunder, cause the equipment to be in compliance with all applicable state and federal regulations, and (c) maintain in full force and effect a Service Agreement with Elekta and any other service or other agreements required to fulfill GKF's obligation to repair and maintain the Equipment under this Section 12. A copy of the Service Agreement with Elekta (the "Service Agreement") is attached as Exhibit F to the LGK Agreement (attached hereto as Exhibit 1). A schedule of the maintenance to the Equipment to be performed under the Service Agreement shall be delivered by GKF to Hospital. Hospital shall promptly notify GKF in the event of any damage or destruction to the Equipment or of any required maintenance or repairs to the Equipment, regardless of whether such repairs or maintenance are covered or not covered by the Service Agreement. GKF shall pursue all remedies available to it under the Service Agreement and under any warranties made by Elekta with respect to the Equipment so that the Equipment will be free from defects in design, materials and workmanship and will conform to Elekta's technical specifications concerning the Equipment. 6 7 12.2 GKF and Elekta shall have the right to access the Equipment for the purpose of inspection and the performance of repairs at all reasonable times, upon reasonable advance notice and with a minimum of interference or disruptions to Hospital's regular business operations. 12.3 Hospital shall be liable for any damage to or destruction of the Equipment caused by the misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital's officers, employees, agents, contractors and physicians. In the event the Equipment is damaged as a result of the misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital's officers, employees, agents, contractors and physicians, to the extent such damage is not covered by the Service Agreement or any warranties or insurance, GKF may service or repair the Equipment as needed and the cost thereof shall be paid by Hospital to GKF immediately upon written request; provided that, if GKF's charges and costs for such service or repair are not paid in full by Hospital within sixty (60) days after GKF's request therefor, in addition to such charges and costs, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and costs incurred by GKF in collecting such amount from Hospital (other than attorneys' fees). Any work so performed by GKF shall not deprive GKF of any of its rights, remedies or actions against Hospital for such damages. 12.4 If the Equipment is rendered unusable as a result of any physical damage to or destruction of the Equipment, Hospital shall give GKF written notice thereof. GKF shall determine, within thirty (30) days after it is given written notice of such damage or destruction, whether the Equipment can be repaired. Subject to Section 12.3 above, in the event GKF determines that the Equipment cannot be repaired, at the election of GKF in GKF's sole and absolute discretion, (a) GKF, at its cost and expense, may replace the Equipment as soon as reasonably possible taking into account the availability of replacement equipment from Elekta, Elekta's other then existing orders for equipment, and the then existing limitations on Elekta's manufacturing capabilities, and (b) in such event, this Agreement shall continue in full force and effect as though such damage or destruction had not occurred. If GKF elects not to replace the Equipment, GKF shall provide written notice of such election to Hospital, and this Agreement shall terminate on the date that is ninety (90) days following the date of such notice. In the event GKF determines that the Equipment can be repaired, GKF shall cause the Equipment to be repaired as soon as reasonably possible thereafter. Hospital shall fully cooperate with GKF to effect the replacement of the Equipment or the repair of the Equipment (including, without limitation, providing full access to the Site) following the damage or destruction thereof. 7 8 13. [Intentionally omitted.] 14. Financing of Equipment by GKF. GKF, in its sole discretion, may finance the Equipment. Financing may be in the form of an installment loan, a capitalized lease or other commercially available debt or financing instrument. If GKF finances the Equipment through an installment loan, GKF shall be required to provide the Equipment as collateral for the loan. If GKF finances the Equipment through a capitalized lease, title shall vest with the lessor until such time as GKF exercises its buy-out option under the lease, if any. If required by the lender, lessor or other financing entity (the "Lender"), GKF may assign its interest under this Agreement as security for the financing. Hospital's interest under this Agreement shall be subject to the interests of the Lender and Hospital shall execute such documentation as the Lender shall reasonably require in furtherance of this Section 14. 15. Equipment Operational Costs. Except as otherwise expressly provided in this Agreement, Hospital shall be responsible and liable for all costs and expenses incurred, directly or indirectly, in connection with the operation and use of the Equipment during the Term, including, without limitation, the costs and expenses required to provide trained physicians, professionals, and technical and support personnel, supplies and other items required to properly operate the Equipment and perform Gamma Knife procedures. GKF shall be responsible for all costs and expenses for all utilities required for the operation and use of the Equipment. Between Hospital and GKF, Hospital shall be fully liable for all negligent, intentional or wrongful acts or omissions of such physicians, professional, technical and support personnel. 16. Taxes. GKF shall pay all sales or use taxes imposed or assessed in connection with the purchase of the Equipment and all personal property taxes imposed, levied or assessed on the ownership and possession of the Equipment during the Term. All other taxes, assessments, licenses or other charges imposed, levied or assessed on the Equipment during the Term shall be paid by Hospital before the same shall become delinquent, whether such taxes are assessed or would ordinarily be assessed against GKF or Hospital; provided, however, Hospital shall not be required to pay any federal, state or local income, franchise, corporation or excise taxes imposed upon GKF's net income realized from the lease of the Equipment. In case of a failure by Hospital to pay any taxes, assessments, licenses or other charges when and as required under this Section, GKF may (in GKF's sole and absolute discretion) pay all or any part of such taxes, in which event the amount paid by GKF shall be immediately payable by Hospital to GKF upon written request; provided that, if GKF is not repaid in full by Hospital within sixty (60) days after GKF's request therefor, in addition to the repayment of the amounts paid by GKF, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower 8 9 and lender, if less) and costs incurred by GKF in collecting such amount from Hospital (other than attorneys' fees). 17. No Warranties by GKF. Hospital warrants that as of the First Procedure Date, it shall have (a) thoroughly inspected the Equipment, (b) determined that the Equipment is consistent with the size, design, capacity and manufacture selected by it, and (c) satisfied itself that to the best of its knowledge the Equipment is suitable for Hospital's intended purposes and is good working order, condition and repair. GKF SUPPLIES THE EQUIPMENT UNDER THIS AGREEMENT IN ITS "AS IS" CONDITION. GKF, NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE MANUFACTURER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE. As between GKF and Hospital, Hospital shall bear all risks with respect to the foregoing warranties. GKF shall not be liable for any direct, indirect and consequential losses or damages suffered by Hospital or by any other person, and Hospital expressly waives any right to hold GKF liable hereunder for, any claims, demands and liabilities arising out of or in connection with the design, manufacture, possession or operation of the Equipment, including injury to persons or property resulting from the failure of, defective or faulty design, operation, condition, suitability or use of the Equipment, or with the accuracy, completeness or suitability of the Site Planning Criteria, including GKF's good faith compliance therewith. All warranty or other similar claims with respect to the Equipment or the Site Planning Criteria shall be made by Hospital solely and exclusively against persons other than GKF, including Elekta or any other manufacturers or suppliers. In this regard and with prior written approval of GKF, Hospital may, in GKF's name, but at Hospital's sole cost and expense, enforce all warranties, agreements or representations, if any, which may have been made by Elekta or manufacturers, suppliers or other third parties regarding the Equipment to GKF or Hospital. GKF shall not be responsible for the delivery, installation or operation of the Equipment or for any delay or inadequacy of any or all of the foregoing. 18. Termination for Economic Justification. 18.1 If, following the initial eighteen (18) months after the First Procedure Date and following each subsequent 12 month period thereafter during the Term, based upon the utilization of the Equipment and other factors considered relevant by GKF in the exercise of its discretion, within a reasonable period of time after GKF's written request, Hospital does not provide GKF with a reasonable economic justification to continue this Agreement and the provision of Gamma Knife services at the Hospital, then and in that event, GKF shall have the option to terminate this Agreement by giving a 9 10 written notice thereof to Hospital not less than ninety (90) days prior to the effective date of the termination designated in GKF's written notice. 18.2 Notwithstanding the provisions of Section 18.1, if at any time during the term of this Agreement, Hospital is suspended or terminated from participation in the Medicare program, GKF shall have the option to terminate this Agreement immediately by giving written notice thereof to Hospital. 18.3 As a result of any termination of this Agreement pursuant to this Section 18, GKF may enter upon the Site and remove the Equipment and any improvements made by GKF to the Site without liability of any kind or nature for so doing or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at GKF's sole cost and expense. Notwithstanding the foregoing, Hospital may elect in its sole discretion to purchase GKF's Site improvements by giving GKF notice of Hospital's election within five (5) days following the receipt by Hospital of GKF's written notice of termination. The purchase price (the "TI Purchase Price") for such Site improvements shall be equal to the actual cost of such improvements incurred by GKF which are then unamortized as of the effective date of such termination. Amortization shall be straight-line over a period of fifteen (15) years corresponding with the Term of this Agreement. As an example, if GKF elected to terminate this Agreement pursuant to Section 18.1 on the date which is five years after the First Procedure Date, then the TI Purchase Price on such termination would be 10/15s of the actual cost of the Site improvements. The costs of such improvements shall be evidenced by invoices and other documentation, and shall include any financing charges or costs. Within five (5) days following GKF's receipt of Hospital's election to purchase the Site improvements, GKF shall inform Hospital of the amount of the TI Purchase Price as determined in accordance with this Section 18.3, and shall provide Hospital upon request with supporting documentation therefor. Payment of the TI Purchase Price shall be made by Hospital to GKF within five (5) days following GKF's determination of the TI Purchase Price. 19. Options to Extend Agreement. As of the end of the Term, Hospital shall have the option either to: 19.1 Extend the Term of this Agreement for a specified period of time and upon such other terms and conditions as may be agreed upon by GKF and Hospital taking into account the use (e.g., number of Gamma Knife procedures, etc.) of the Equipment at the Site during the initial Term and other factors deemed relevant by the parties; 19.2 Purchase the Equipment from GKF for cash (or other immediately available federal funds) at its then fair market value (based upon the "in use" value of the Equipment); or 10 11 19.3 Terminate this Agreement as of the expiration of the Term. Hospital shall exercise one (1) of the three (3) options referred to above by giving an irrevocable written notice thereof to GKF at least nine (9) months prior to the expiration of the initial Term. Any such notice shall be sufficient if it states in substance that Hospital elects to exercise its option and states which of the three (3) options referred to above Hospital is exercising. If Hospital fails to exercise the option granted herein at least nine (9) months prior to the expiration of the initial Term, the option shall lapse and this Agreement shall expire as of the end of the initial Term. Further, if Hospital exercises the option specified in Section 19.1 above and the parties are unable to mutually agree upon the length of the extension of the Term or any other terms or conditions applicable to such extension prior to the expiration of the Term, this Agreement shall expire as of the end of the initial Term. 20. Events of Default by Hospital and Remedies. 20.1 The occurrence of any one of the following shall constitute an event of default under this Agreement (an "Event of Default"): 20.1.1 Hospital fails to pay any Lease Payment when due pursuant to Paragraph 8 above and such failure continues for a period of thirty (30) days after written notice thereof is given by GKF or its assignee to Hospital; however, if Hospital cures the payment default within the applicable thirty (30) day period, such default shall not constitute an Event of Default. 20.1.2 Hospital attempts to remove, sell, transfer, encumber, assign, sublet or part with possession of the Equipment or any items thereof, except as expressly permitted herein. 20.1.3 Hospital fails to observe or perform any of its covenants, duties or obligations arising under this Agreement or the LGK Agreement and such failure continues for a period of thirty (30) days after written notice thereof by GKF to Hospital; however, if Hospital cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, Hospital commences to cure the default during the initial thirty (30) day period and Hospital diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default. 20.1.4 Hospital ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a 11 12 petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation 20.1.5 Within sixty (60) days after the commencement of any proceedings against Hospital seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Hospital's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated. 20.2 Upon the occurrence of an Event of Default with respect to Hospital, GKF may at its option do any or all of the following: 20.2.1 By written notice to Hospital, immediately terminate this Agreement as to the Equipment, wherever situated. As a result of the termination, GKF may enter upon the Site and remove the Equipment and any improvements made by GKF to the Site without liability of any kind or nature for so doing or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at Hospital's sole cost and expense. 20.2.2 Recover damages from Hospital as may be awarded by a court of competent jurisdiction for the loss of the bargain represented by this Agreement. For purposes of determining such damages, the parties agree that the following methodology shall be used: (a) the amount of such damages shall be equal to the present value of the unpaid estimated future Lease Payments to be made by Hospital to GKF through the end of the Term discounted at the rate of nine percent (9%); and (b) the unpaid estimated future Lease Payments shall be based on the historical trend of payments made by Hospital to GKF hereunder taking into account known factors which could impact the historical trend through the end of the Term. Hospital and GKF acknowledge that the methodology set forth in this Section 20.2.2 constitutes a reasonable method to calculate GKF's damages resulting from an Event of Default under the circumstances existing as of the date of this Agreement. GKF shall use reasonable commercial efforts to mitigate its damages by attempting to sell or lease the Equipment; provided that (i) GKF shall not be obligated to give preference to the sale or lease of the Equipment over the sale, lease or other disposition of similar equipment or improvements owned or leased by GKF, (ii) GKF shall have no obligation to sell or lease any improvements made by GKF to the Site, and (iii) GKF's inability in good faith to mitigate damages shall not limit or otherwise affect the foregoing methodology for determining damages as set forth in this Section. 12 13 20.2.3 Sell, dispose of, hold, use or lease the Equipment or any improvements made by GKF to the Site, as GKF in its sole and absolute discretion may determine (and GKF shall not be obligated to give preference to the sale, lease or other disposition of the Equipment or improvements over the sale, lease or other disposition of similar Equipment or improvements owned or leased by GKF). Notwithstanding the foregoing, Hospital may elect in its sole discretion to purchase GKF's Site improvements by giving GKF notice of Hospital's election within five (5) days following the receipt by Hospital of GKF's written notice of termination. The purchase price for such Site improvements shall be equal to the TI Purchase Price (as defined and calculated in accordance with Section 18.3 above). Within five (5) days following GKF's receipt of Hospital's election to purchase the Site improvements, GKF shall inform Hospital of the amount of the TI Purchase Price and shall provide Hospital upon request with supporting documentation therefor. Payment of the TI Purchase Price shall be made by Hospital to GKF within five (5) days following GKF's determination of the TI Purchase Price. The TI Purchase Price shall be in addition to any other damages, rights or remedies which GKF may be entitled to as a result of such termination. 20.2.4 Exercise any other right or remedy which may be available to GKF under the Uniform Commercial Code or any other applicable law or proceed by appropriate court action, without affecting GKF's title or right to possession of the Equipment or improvements, to enforce the terms hereof or to recover damages for the breach hereof or to cancel this Agreement as to the Equipment. In addition to the foregoing remedies, Hospital shall be liable to GKF for all costs and expenses incurred by GKF as a result of the Event of Default or the exercise of GKF's remedies (other than attorneys' fees). 20.3 Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or available under applicable law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums owing under this Agreement. Hospital shall in any event remain fully liable for all damages as may be provided by law and for all costs and expenses incurred by GKF on account of such default, including but not limited to, all court costs. The rights and remedies afforded GKF under this Agreement shall be deemed cumulative and not exclusive, and shall be in addition to any other rights or remedies to GKF provided by law or in equity. 21. Events of Default by GKF and Remedies. 21.1 The occurrence of any one of the following shall constitute an Event of Default hereunder: 21.1.1 GKF shall fail to observe or perform any of its covenants, duties or obligations arising under this Agreement and such failure shall continue for a 13 14 period of thirty (30) days after written notice thereof is given by Hospital to GKF; however, if GKF cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, GKF commences to cure the default during the initial thirty (30) day period and GKF diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default. 21.1.2 GKF ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation. 21.1.3 Within sixty (60) days after the commencement of any proceedings against GKF seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without GKF's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated. 21.2 Upon the occurrence of an Event of Default involving GKF, Hospital may at its option do any or all of the following: 21.2.1 By written notice to GKF, immediately terminate this Agreement as to the Equipment and, in such event, GKF shall remove the Equipment, the Cobalt and any improvements made by GKF to the Site, at GKF's sole cost and expense or, in the absence of removal by GKF within a reasonable period of time after a written request therefor, Hospital may remove the Equipment, the Cobalt and such improvements with all due care and store the same at GKF's sole cost and expense. 21.2.2 Seek to recover from GKF such loss as may be realized by Hospital in the ordinary course of events as a result of the Event of Default. 21.3 GKF shall in any event remain fully liable for reasonable damages as provided by law and for all costs and expenses incurred by GKF on account of such default, including but not limited to, all court costs (other than attorneys' fees). However, GKF shall not in any manner be or become liable to Hospital for any consequential or incidental damages that may be suffered by Hospital which arise out of or result from the 14 15 Event of Default. The rights and remedies afforded Hospital under this Agreement shall be deemed cumulative to include the purchase option contained in section 18.3 and not exclusive and shall be in addition to any other rights or remedies to Hospital provided by law or in equity. 21.4 Notwithstanding the occurrence of an Event of Default with respect to GKF (including any claim which would otherwise be in the nature of a set-off), Hospital shall fully perform and pay its obligations hereunder (including payment of all Lease Payments) without set-off or defense of any kind. Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or applicable law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums owing under this Agreement when and as due. 22. Removal of Equipment. Upon expiration of the Term, GKF, at its cost and expense, shall remove the Equipment from the Site not more than ninety (90) days following the last day of the Term; provided that all of GKF's right, title and interest in and to the improvements made by GKF to the Site pursuant to Section 6 above shall thereupon transfer to Hospital. 23. Insurance. 23.1 During the Term, GKF shall, at its cost and expense, purchase and maintain in effect an all risk property and casualty insurance policy covering the Equipment. The all risk property and casualty insurance policy shall be for an amount not less than the replacement cost of the Equipment. The all risk property and casualty insurance policy maintained by GKF shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by GKF to Hospital upon request following the commencement of this Agreement and as of each annual renewal of such policy during the Term. 23.2 During the Term, Hospital shall, at its cost and expense, purchase and maintain in effect professional liability insurance covering the use or operation of the Equipment by Hospital's physicians. The professional liability insurance policies shall provide coverage in amounts not less than One Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) annual aggregate. The policies to be maintained by Hospital hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by Hospital to GKF no later than the First Procedure Date and as of each annual renewal of such policies during the Term. 23.3 During the construction of the Site and prior to the First Procedure Date, GKF, at its cost and expense, shall purchase and maintain a general liability insurance policy which conforms with the coverage amounts and other requirements 15 16 described in Section 23.2 above and which names Hospital as an additional insured party. The policy to be maintained by GKF hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by GKF to Hospital prior to the commencement of any construction at the Site. 23.4 During the Term, Hospital shall purchase and maintain all workers compensation insurance to the maximum extent required by applicable law. 24. [Intentionally omitted.] 25. Miscellaneous. 25.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as provided under Section 14, neither party shall assign this Agreement nor any of its respective rights hereunder and Hospital shall not sublease the Equipment without the prior written consent of the other party, which consent shall not be unreasonably withheld. An assignment or sublease shall not relieve the assigning party or sublessor of any liability for performance of this Agreement during the remainder of the Term. Any purported assignment or sublease made without the other party's prior written consent shall be null, void and of no force or effect. 25.2 Agreement to Perform Necessary Acts. Each party agrees to perform any further acts and execute and deliver any further documents which may be reasonably necessary or otherwise reasonably required to carry out the provisions of this Agreement. 25.3 Validity. If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any court or other tribunal of competent jurisdiction, then the application of such clause or provision in contexts or to situations, circumstances or persons other than that in or to which it is held unenforceable, invalid or in violation of law shall not be affected thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect. 25.4 Attorney's Fees and Costs. In the event of any action, arbitration or other proceedings between or among the parties hereto with respect to this Agreement, each party shall pay for their own attorneys' fees and related costs and expenses, irrespective of which party is deemed to be the prevailing party. 25.5 Entire Agreement; Amendment. This Agreement together with the Exhibits attached hereto constitutes the full and complete agreement and understanding between the parties hereto concerning the subject matter hereof and shall supersede any 16 17 and all prior written and oral agreements with regard to such subject matter. This Agreement may be modified or amended only by a written instrument executed by all of the parties hereto. 25.6 Number and Gender. Words in the singular shall include the plural, and words in a particular gender shall include either or both additional genders, when the context in which such words are used indicates that such is the intent. 25.7 Effect of Headings. The titles or headings of the various paragraphs hereof are intended solely for convenience or reference and are not intended and shall not be deemed to modify, explain or place any construction upon any of the provisions of this Agreement. 25.8 Counterparts. This Agreement may be executed in one or more counterparts by the parties hereto. All counterparts shall be construed together and shall constitute one agreement. 25.9 Governing Law. This Agreement shall be interpreted and enforced in accordance with the internal laws, and not the law of conflicts, of the State of Arkansas applicable to agreements made and to be performed in that State. 25.10 Exhibits. All exhibits attached hereto and referred to in this Agreement are hereby incorporated by reference herein as though fully set forth at length. 25.11 Ambiguities. The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to such ambiguous provision. 25.12 Representations. Each of the parties hereto represents (a) that no representation or promise not expressly contained in this Agreement has been made by any other party hereto or by any of its agents, employees, representatives or attorneys; (b) that this Agreement is not being entered into on the basis of, or in reliance on, any promise or representation, expressed or implied, other than such as are set forth expressly in this Agreement; (c) that it has been represented by counsel of its own choice in this matter or has affirmatively elected not to be represented by counsel; (d) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (e) it has full power and authority to execute, deliver and perform this Agreement, and (f) the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other similar action. 25.13 Non-Waiver. No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, or to exercise any right, power or remedy hereunder or under law or consequent upon a breach 17 18 hereof or thereof shall constitute a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party from exercising any such right, power or remedy at any later time or times. 25.14 Notices. All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered to the party to whom notice is to be given either (a) by personal delivery (in which case such notice shall be deemed to have been duly given on the date of delivery), (b) by next business day air courier service (e.g., Federal Express or other similar service) (in which case such notice shall be deemed given on the business day following deposit with the air courier service), or (c) by United States mail, first class, postage prepaid, registered or certified, return receipt requested (in which case such notice shall be deemed given on the third (3rd) day following the date of mailing), and properly addressed as follows: To GKF: Craig K. Tagawa Chief Executive Officer GK Financing, LLC Four Embarcadero Center Suite 3620 San Francisco, CA 94111 To Hospital: University of Arkansas Hospital 4301 W. Markham Little Rock, Arkansas 72205 Attn: Chief Executive Officer A party to this Agreement may change his, her or its address for purposes of this Section by giving written notice to the other parties in the manner specified herein. 25.15 Special Provisions Respecting Medicare and Medicaid Patients 25.15.1 Hospital and GKF shall generate such records and make such disclosures as may be required, from time to time, by the Medicare, Medicaid and other third party payment programs with respect to this Agreement in order to meet all requirements for participation and payment associated with such programs, including but not limited to the matters covered by Section 1861(v)(1)(I) of the Social Security Act. 25.15.2 For the purpose of compliance with Section 1861(v)(1)(I) of the Social Security Act, as amended, and any regulations promulgated pursuant thereto, both parties agree to comply with the following statutory requirements (a) Until the expiration of four (4) years after the termination of this Agreement, both parties shall make available, upon written request to the Secretary of Health and Human Services or, upon request, to the Comptroller General of the United States, or any of their 18 19 duly authorized representatives, the contract, and books, documents and records of such party that are necessary to certify the nature and extent of such costs, and (b) if either party carries out any of the duties of the contract through a subcontract with a value or cost of $10,000 or more over a twelve month period, with a related organization, such subcontract shall contain a clause to the effect that until the expiration of four (4) years after the furnishing of such services pursuant to such subcontract, the related organization shall make available, upon written request to the Secretary, or upon request to the Comptroller General, or any of their duly authorized representatives the subcontract, and books, documents and records of such organization that are necessary to verify the nature and extent of such costs. 25.16 Force Majeure. Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under this Agreement directly or indirectly caused by conditions beyond its reasonable control, including, without limitation, fires, floods, earthquakes, snow, ice, disasters, acts of God, accidents, riots, wars, operation of law, strikes, governmental action or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. Notwithstanding the foregoing, all parties shall make good faith efforts to perform under this Agreement in the event of any such circumstance. Further, once such an event is resolved, the parties shall again perform their respective obligations under this Agreement. 25.17 Independent Contractor Status. With respect to the performance of the duties and obligations arising under this Agreement, nothing in this Agreement is intended nor shall be construed to create a partnership, an employer/employee relationship, a joint venture relationship, or a lease or landlord/tenant relationship between GKF and Hospital. [SIGNATURES CONTINUED ON NEXT PAGE] 19 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above. "GKF" GK FINANCING, LLC, a California limited liability company By: /s/ Craig Tagawa ------------------------------------ Craig Tagawa, Chief Executive Officer "HOSPITAL" BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ON BEHALF OF THE UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES By: /s/ Harry P. Ward ------------------------------------ Name: Harry P. Ward Title: Chancellor 20 21 EXHIBIT 8.1 HOSPITAL'S * Registered nurse * Recovery room * Hospital daily charge * Hospital, including ventilator daily charge * MRI procedure * CT procedure * Angiography procedure * Physicist * 21 EX-10.24 6 FIRST AMENDMENT TO LEASE AGREEMENT - GAMMA KNIFE 1 EXHIBIT 10.24 FIRST AMENDMENT TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT This First Amendment to Lease Agreement for a Gamma Knife Unit ("Amendment") is made and entered into effective as of the 2nd day of August, 1999, by and between GK Financing, LLC, a California limited liability company ("GKF") and Tenet HealthSystem Hospitals, Inc., a Delaware corporation, formerly known as NME Hospitals, Inc., and doing business as USC University Hospital ("Hospital"). THIS AMENDMENT is made and entered into with reference to the following facts: A. Hospital and American Shared Hospital Services, a California corporation ("ASHS") entered into that certain Lease Agreement for a Gamma Knife Unit dated as of January 27, 1993 ("Agreement") which sets forth their respective rights, obligations and duties regarding the ASHS's lease of a Leksell Stereotactic Gamma Unit to Hospital; B. Pursuant to that certain Assignment and Assumption Agreement ("Assignment") dated as of February 1, 1996, by and between Ernest A. Bates, M.D., an individual, former Chairman and CEO of ASHS, and successor in interest to ASHS ("Assignor"), and GKF, Assignor assigned to GKF and GKF assumed from Assignor, all of Assignor's right, title and interest under, in and to the Agreement; C. Hospital and GKF desire to amend the Agreement subject to and in accordance with the covenants, terms and conditions set forth in this Amendment; and D. Hospital and GKF desire to enter into this Amendment to provide a clear and comprehensive statement of their respective rights, duties and obligations with respect to the subject matter hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and notwithstanding any contrary provisions of the Agreement, the Agreement is hereby amended as follows: 1. Term and Termination. Notwithstanding the execution date of this Amendment, the term of the Agreement is hereby extended for a period of one (1) month, commencing on August 2, 1999, and shall thereafter automatically be extended on a month-to-month basis until the first to occur of: (i) Hospital notifies GKF of Hospital's election to purchase the Equipment as set forth in Section 14 hereunder, or (ii) either party, at least fifteen (15) days prior to the expiration of the one month term then in effect, notifies the other party in writing of its election not to extend the term of the Agreement upon the expiration of the term then in effect. If the Agreement is, for whatever reason, not extended and Hospital does not exercise its option to purchase the Equipment, as hereinafter set forth, GKF shall remove the Equipment from Hospital's 1 2 premises within a mutually agreed upon period, utilizing best efforts after the expiration of the Agreement. 2. Section 14 of the Agreement, entitled "Options to Extend Agreement" is hereby deleted in its entirety and is superseded by the following: "14. Option to Purchase. At any time prior to the expiration of the term of this Agreement, upon written notice to GKF, Hospital shall have the right to purchase the Equipment for a sum equal to *. In the event Hospital exercises its right to purchase hereunder, Hospital will tender full payment in cash or cash equivalent to GKF within thirty (30) days after the date of Hospital's notice of its election to purchase, and GKF shall deliver to Hospital a Bill of Sale and General Conveyance sufficient to vest title to the Equipment in Hospital free and clear of any liens or encumbrances." 3. Meanings. Terms used and not otherwise defined in this Amendment shall have the respective meanings assigned to them in the Agreement. 4. Conflicts. Whenever the terms or conditions of the Agreement and this Amendment are in conflict, the terms of this Amendment shall control. 5. Modifications. Expect as specifically modified by the terms of this Amendment, all of the covenants, terms and conditions of the Agreement shall remain in full force and effect. 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. EXECUTION PAGE TO FOLLOW 2 3 IN WITNESS WHEREOF, the parties have executed this Addendum effective as of the day and year first written above. "GKF" GK Financing, LLC, a California limited liability company By /s/ Craig K. Tagawa ------------------------------------- Craig K. Tagawa, CEO "HOSPITAL" Tenet HealthSystem Hospitals, Inc., a Delaware corporation d/b/a USC University Hospital /s/ Ted Schreck ---------------------------------------- Ted Schreck, CEO 3 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OF AMERICAN SHARED HOSPITAL SERVICES ("COMPANY") EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998 (AUDITED) AND FROM THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN PART I, ITEM 1 OF THE COMPANY'S REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 11,033 0 1,395 0 0 12,744 27,587 6,250 34,310 3,085 18,142 0 0 10,105 3,231 34,310 5,269 5,269 0 1,494 1,505 0 846 1,508 (283) 1,791 0 0 0 1,791 .45 .32
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