-----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, PvU100FWwdBo+Vhxx0JLOr+Mb+vqaMVetNso2hxzLtYirD5P4/L2RmhjOV0sseLT RXbezPf4Y0FxfIdFVGvxMQ== 0000950133-99-002348.txt : 19990702 0000950133-99-002348.hdr.sgml : 19990702 ACCESSION NUMBER: 0000950133-99-002348 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US NEUROSURGICAL INC CENTRAL INDEX KEY: 0001089815 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521842411 FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-26575 FILM NUMBER: 99658110 BUSINESS ADDRESS: STREET 1: 2400 RESEARCH BLVD STREET 2: SUITE 325 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012088998 MAIL ADDRESS: STREET 1: 2400 RESEARCH BLVD STREET 2: SUITE 325 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-12G 1 U S NEUROSURGICAL INC FORM 10 1 AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON JULY 1, 1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 U.S. NEUROSURGICAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 52-1842411 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2400 RESEARCH BOULEVARD, SUITE 325 ROCKVILLE, MARYLAND 20850 (Address of principal executive offices) (Zip Code)
(301) 208-8998 Registrant's Telephone Number, Including Area Code Securities to be Registered Pursuant to Section 12(b) Of the Act: Name of each exchange on which Title of each class to be registered: each class is to be registered: NONE NOT APPLICABLE
Securities to be Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class) 2 U.S. NEUROSURGICAL, INC. CROSS REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10 ITEM 1. BUSINESS The information required by this item is contained under "Summary"; "The Spin-off of U.S. NeuroSurgical, Inc."; "Businesses of GHS and USN After The Spin-off" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of USN" of the Information Statement (the "Information Statement") attached hereto as Exhibit 99.1. Those sections are incorporated herein by reference. ITEM 2. FINANCIAL INFORMATION The information required by this item is contained under "Summary"; "Selected USN and USNP Combined Financial Data"; and "Management's Discussion and Analysis of Financial Condition and Results of Operations of USN" of the Information Statement. Those sections are incorporated herein by reference. ITEM 3. PROPERTIES The information required by this item is contained under "Businesses of GHS and USN After The Spin-off - Properties" of the Information Statement. That section is incorporated herein by reference. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained under "Security Ownership of Certain Beneficial Owners and Management" of the Information Statement. That section is incorporated herein by reference. ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS The information required by this item is contained under "Management of USN Following the Spin-off" of the Information Statement. That section is incorporated herein by reference. ITEM 6. EXECUTIVE COMPENSATION The information required by this item is contained under "Management of USN Following the Spin-off" of the Information Statement. That section is incorporated herein by reference. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained under "Certain Relationships and Related Party Transactions" and "The Spin-off of U.S. NeuroSurgical, Inc." of the Information Statement. Those sections are incorporated herein by reference. ITEM 8. LEGAL PROCEEDINGS The information required by this item is contained under "Businesses of GHS and USN After The Spin-off - Legal Proceedings" and "Certain Relationships and Related Party Transactions" of the Information Statement. Those sections are incorporated herein by reference. R-2 3 ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is contained under "Summary"; "The Spin-off of U.S. NeuroSurgical, Inc."; and "Description of GHS and USN Capital Stock" of the Information Statement. Those sections are incorporated herein by reference. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES The only securities of U.S. NeuroSurgical, Inc. ("USN") that are outstanding were issued to GHS, Inc. ("GHS") in connection with the organization of USN in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. Certain information required by this item is contained under "The Spin-off of U.S. NeuroSurgical, Inc." ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED The information required by this item is contained under "Description of GHS and USN Capital Stock" of the Information Statement. That section is are incorporated herein by reference. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS The information required by this item is contained under "Liability and Indemnification of Officers and Directors" of the Information Statement. That section is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is contained under "Summary"; "Selected USN and USNP Combined Financial Data"; "Management's Discussion and Analysis of Financial Condition and Results of Operations of USN"; and "Index to Financial Statements" of the Information Statement. Those sections are incorporated herein by reference. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information required by this item is not applicable. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS (a) See "Index to Financial Statements" on page F-1 of the Information Statement (1) Financial Statement Schedules: None (b) Exhibits (1) See "Index to Exhibits" on page R-5 of this Form 10 R-3 4 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. NEUROSURGICAL, INC. (Registrant) By: /s/ Alan Gold ---------------------- Alan Gold, President Date: July 1, 1999 R-4 5 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBITS 3.1 Form of Amended and Restated Certificate of Incorporation of U.S. NeuroSurgical, Inc. ("USN") 3.2 Form of Amended and Restated Bylaws of USN 4.1 Form of Stock Certificate of Common Stock 10.1 Distribution Agreement dated May 27, 1999 between GHS, Inc. ("GHS") and USN 10.2 Tax Matters Agreement dated May 27, 1999 between GHS and USN 10.3 Assignment and Assumption Agreement dated May 27, 1999 between GHS and USN 10.4 Employment Agreement dated December 14, 1984 between USN and Alan Gold, as amended March 7, 1986 (incorporated by reference to Exhibit 10.3 of GHS's Registration Statement No. 33-4532-W on form S-18) 10.5 Gamma Knife Neuroradiosurgery Equipment Agreement dated August, 1993 between Research Medical Center and USN (incorporated by reference to Exhibit 10h to GHS's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). 10.6 Ground Lease Agreement dated August, 1993 between Research Medical Center and USN (incorporated by reference to Exhibit 10j to GHS's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). 10.7 LGK Agreement dated July 12, 1993 between Elekta Instruments, Inc. and USN (incorporated by reference to Exhibit 10k to GHS's Quarterly Report or Form 10-Q for the quarter ended September 30, 1993). 10.8 Agreement dated December 29, 1993, between USN. and Elekta Instruments, Inc. (incorporated by reference 10o to GHS's 1994 Annual Report on Form 10-K). 10.9 Agreement dated August 1, 1996 between USN and DVI, Inc. (incorporated by reference 10j to GHS's 1997 Annual Report on Form 10-K). 10.10 Gamma Knife Neuroradiosurgery Equipment Agreement dated as of November 26, 1996 between New York University on behalf of New York University Medical Center and USN. 21.1 List of Subsidiaries 23.1 Consent of Richard A. Eisner & Company, LLP 99.1 Schedule 14C Information Statement of GHS, Inc. (filed herewith) R-5 EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF U.S. NEUROSURGICAL, INC. It is hereby certified that: 1. The present name of the Corporation (hereinafter referred to as the "Corporation") is U.S. NeuroSurgical, Inc. which is the name under which the Corporation was originally incorporated; and the date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was Jul 15, 1993. 2. The Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety as hereinafter set forth in the Amended and Restated Certificate of Incorporation hereinafter provided for. 3. The Amended and Restated Certificate of Incorporation hereinafter provided for has been duly adopted by the directors in accordance with the provisions of Section 242, 141 and 245 of the General Corporation Law of the State of Delaware (the "Corporation Law"). 4. The Amended and Restated Certificate of Incorporation has been approved by the stockholders of the Corporation in accordance with Section 228 of the Corporation Law, and written notice of such approval has been given to all stockholders in accordance with Section 228 of the Corporation Law. 5. The Amended and Restated Certificate of Incorporation, among other things, increases the number of shares of authorized stock. 6. The Certificate of Incorporation of the Corporation, as amended and restated herein, shall at the effective time of this Amended and Restated Certificate of Incorporation, read as follows: FIRST: The name of the corporation (hereinafter referred to as the "Corporation") is U.S. NeuroSurgical, Inc. SECOND: The address, including street, number, city and county of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, 19805-1297; and the name of the registered agent of the Corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. 2 THIRD: The nature of the business and the purpose to be conducted and promoted by the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The aggregate number of shares of stock which the Corporation shall have the authority to issue is Twenty-Six Million (26,000,000) shares, which are divided into Twenty-Five Million (25,000,000) shares of Common Stock, $.01 par value per share (the "Common Stock"), and One Million (1,000,000) shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"). Preferred Stock. The Corporation may divide and issue Preferred Stock in series. Preferred Stock of each series when issued shall be designated to distinguish them from shares of other series of Preferred Stock. The Board of Directors of the Corporation is hereby expressly vested with the authority to divide the class of Preferred Stock into series and fix and determine the relative rights and preferences of the shares of any such series so established to the full extent permitted by the laws of the State of Delaware in respect of the following: 1. The number of shares to constitute such series, and the distinctive designations thereof; 2. The rate and preference of dividends, if any, the time of payment of dividends, whether dividends are cumulative and the date from which any dividends shall accrue; 3. Whether shares may be redeemed and, if so, the redemption price and the terms and conditions of redemption; 4. The amount payable upon shares in the event of voluntary and involuntary liquidation; 5. Sinking fund or other provisions, if any, for the redemption or purchase of shares; 6. The terms and conditions on which shares may be converted; 7. Voting rights, if any; and 8. Variations in the relative rights and preferences as between the series, including, without limitation, any restriction on an increase in the number of shares of any series theretofore authorized, any rights of Preferred Stock shareholders to receive dividends in the form of Common Stock or Preferred Stock, and any limitation or restriction of rights or powers to which shares of any future series shall be subject. FIFTH: The Corporation is to have perpetual existence. SIXTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its 2 3 stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after July 15, 1993 to authorize corporate action further eliminating or limiting the personal liability of directors, the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware. EIGHTH: The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, judgments, fines, amounts paid in settlement, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification of expenses may be entitled under any by-laws, agreements, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 3 4 TENTH: In furtherance and not in limitation of the powers conferred by statute, the by-laws of the Corporation may be made, altered, amended or repealed by the stockholders of the Corporation or by a majority of the entire Board of Directors of the Corporation. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed and attested this ___th day of ____________, 1999. ------------------------------ President Attest: - ---------------------------- Secretary 258514 4 EX-3.2 3 AMENDED AND RESTATED BYLAWS OF USN 1 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF U.S NEUROSURGICAL, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES Section 1. Registered Office. The registered office shall be established and maintained at The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Dover, Delaware. The Prentice-Hall Corporation System Inc. shall be the registered agent of this corporation in charge thereof. Section 2. Other Offices. The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETING OF STOCKHOLDERS Section 1. Annual Meetings. Annual meetings of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. Section 2. Other Meetings. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. Section 3. Voting. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but not proxy shall be voted after three years from its date unless such proxy provides for a longer period. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting, shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware. 2 A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be opened to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 4. Quorum. Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally notice shall be entitled to vote at any adjournment or adjournments thereof. Section 5. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called by the President or Secretary, or by resolution of the directors. Section 6. Notice of Meetings. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten nor more than sixty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat. Section 7. Action Without Meeting. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 2 3 ARTICLE III DIRECTORS Section 1. Number and Term. The number of directors of the Corporation initially shall be three, but in no event shall the number of directors be less than one nor more than fifteen. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his successor shall be elected and qualified. Directors need not be stockholders. Section 2. Removal. Any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose, and the vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote. Section 3. Increase of Number. The number of directors may be increased by amendment of these by-laws by the affirmative vote of a majority of the directors, though less than a quorum, or, by the affirmative vote of a majority in interest of the stockholders, at the annual meeting or at a special meeting called for that purpose, and by like vote the additional directors may be chosen at such meeting to hold office until the next annual election and until their successors shall have been elected and qualified. Section 4. Powers. The Board of Directors shall exercise all of the powers of the corporation except such as are by law or by the Certificate of Incorporation of the corporation or by these By-Laws conferred upon or reserved to the stockholders. Section 5. Committees. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee or committees. The member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to amend the Certificate of Incorporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the 3 4 stockholders a dissolution of the corporation or a revocation of a dissolution, or to amend the By-Laws of the corporation; and, unless the resolution, these By-Laws, or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Section 6. Meetings. The newly elected directors shall hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent in writing of all the directors. Regular meetings of the directors may be held without notice at such places and times as shall be determined from time to time by resolution of the directors. Special meetings of the Board may be called by the President or the Secretary on the written request of any two directors on at least two days' notice to each director and shall be held at such place or places as may be determined by the directors, or as shall be stated in the call of the meeting. Section 7. Quorum. A majority of the total number of directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. Section 8. Compensation. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the Board of Directors a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. Section 9. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. Section 10. Participation by Conference Telephone. Members of the Board of Directors of the corporation, or any committee designated by such Board may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting shall constitute presence in person at such meeting. 4 5 ARTICLE IV OFFICERS Section 1. Officers. The officers of the corporation shall be a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect a Chairman, one or more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as they may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. More than two offices may be held by the same person. Section 2. Other Officers and Agents. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 3. Chairman. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors. Section 4. President. The President shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation. He shall preside at all meetings of the stockholders if present thereat, and, in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts on behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer. Section 5. Vice-President. Each Vice-President shall have such powers and shall perform such duties as shall be assigned to him by the directors. Section 6. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all monies and other valuables in the name and to the credit of the corporation in such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements. He shall 5 6 render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the Board of Directors shall prescribe. Section 7. Secretary. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same. Section 8. Assistant Treasurers and Assistant Secretaries. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors. ARTICLE V MISCELLANEOUS Section 1. Resignations. Any director, member of a committee or corporate officer may, provided the same would not result in a breach of any contract to which said person is a party, resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. Section 2. Vacancies. If the office of any director, member of a committee or corporate officer becomes vacant, by reason of death, disability or otherwise, the remaining directors in office, though less than a quorum, by a majority vote may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his successor shall be duly chosen. Section 3. Certificates of Stock. Certificates of stock, signed by the Chairman of the Board of Directors, or the President or any Vice President, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. When such certificates are countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, the signatures of such officers may be facsimiles. 6 7 Section 4. Lost Certificates. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock represented by such certificate, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate. Section 5. Transfer of Shares. The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be canceled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. Section 6. Stockholders Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation. Section 8. Seal. The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. Section 9. Fiscal Year. The fiscal year of the corporation shall be determined by 7 8 resolution of the Board of Directors. In the absence of such determination, the fiscal year shall be the calendar year. Section 10. Checks. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 11. Notice and Waiver of Notice. Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute. Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI INDEMNIFICATION To the full extent permitted by law, the corporation may indemnify any person or his heirs, distributees, next of kin, successors, appointees, executors, administrators, legal representatives and assigns who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, domestic or foreign, against expenses, attorneys' fees, court costs, judgments, fines, amounts paid in settlement and other losses actually and reasonably incurred by him in connection with such action, suit or proceeding. ARTICLE VII AMENDMENTS These By-laws may be altered or repealed and By-Laws may be made at any annual meeting of the stockholders or at any special meeting thereof by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or 8 9 at any special meeting of the Board of Directors. 9 10 I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the Amended and Restated By-Laws of U.S. NeuroSurgical, Inc., a Delaware corporation, as in effect on the date hereof. WITNESS my hand and seal of the Corporation. U.S. NEUROSURGICAL, INC. /s/ Alan Gold -------------------------- Name: Alan Gold Title: President Dated: May 20, 1999 258517 10 EX-4.1 4 STOCK CERTIFICATE OF COMMON STOCK 1 EXHIBIT 4.1 COMMON STOCK COMMON STOCK Number Shares U.S. NEUROSURGICAL, INC. Incorporated under the Laws of the State of Delaware CUSIP 90336K 10 1 THIS IS TO CERTIFY THAT is the owner of FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER SHARE OF - ---------------------------U.S. NEUROSURGICAL, INC.---------------------------- transferable on the books of the corporation by the holder hereof, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal and the facsimile signatures of its duly authorized officers. Dated See additional information on reverse side [SEAL] U.S. NEUROSURGICAL, INC. INCORPORATED JULY 15, 1993 DELAWARE /s/ Susan Greenwald Gold /s/ Alan Gold SECRETARY PRESIDENT COUNTERSIGNED AND REGISTERED AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE 2 U.S. NEUROSURGICAL, INC. The Corporation is authorized to issue two classes of stock, Common Stock and Preferred Stock. The Board of Directors of the Corporation has the authority to fix the number of shares and the designation of any series of any Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any unissued series of Preferred Stock. Any shareholder may obtain from the principal office of the Corporation, upon request and without charge, a statement of the number of shares constituting each class or series of stock and the designation thereof, and a copy of the rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes or series of stock and upon the holders thereof. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TENCOM - as tenants in common TENENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ___________ Custodian _____________ (Cust) (Minor) Under Uniform Gifts to Minors Act --------------------------------- (State) Additional abbreviations may also be used though not in the above list. For value received, _____________________ hereby sell, assign and transfer unto Please insert social security or other identifying number of assignee - ------------------- - ---------------------------------------------------------------------------- (Please print to typewrite name and address, including zip code of assignee) - ---------------------------------------------------------------- - ---------------------------------------------------------------- ________________________________________________________ Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint 3 ________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ____________________ ------------------------------------- NOTICE the signature to this assignment must correspond with the name as written upon the face of the certificate in every particular without alteration or enlargement or any change whatever SIGNATURE(S) GUARANTEED:_______________________________________ The signature(s) should be guaranteed by an eligible guarantor institution (banks stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program) pursuant to S.E.C. Rule 17Ad-15 260088 EX-10.1 5 DISTRIBUTION AGREEMENT BETWEEN GHS AND USN 1 EXHIBIT 10.1 AGREEMENT AND PLAN OF DISTRIBUTION BETWEEN GHS, INC. AND U.S. NEUROSURGICAL, INC. 2 AGREEMENT AND PLAN OF DISTRIBUTION THIS AGREEMENT AND PLAN OF DISTRIBUTION ("Agreement") is made as of May 27, 1999 by and between GHS, INC., a Delaware corporation (the "Company"), and U.S. NeuroSurgical, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("USN"). RECITALS (i) The Company, via its wholly owned subsidiary, USN, provides management and financing services to the health care industry; (ii) The Company has determined that it is in its own and its shareholders' long-term best interests that the Company be restructured into two publicly held companies: (1) the Company, which will, following the Effective Date (as defined below), provide internet related services; and (2) USN, which will continue to own and operate stereotactic radiosurgery centers, utilizing the Gamma Knife technology, including the two Gamma Knife centers it currently owns and operates (the "Gamma Knife Business"); (iii) To accomplish the restructuring, the Company desires to distribute (the "Distribution") to each shareholder of the Company one share of the common stock, $.01 par value, of USN (the "USN Common Stock") for each one share of the Common Stock, $.01 par value, of the Company (the "Company Common Stock") owned by such shareholder. (iv) The Company and USN desire to provide in this Agreement for the Distribution of USN Common Stock. (v) The Company and USN also desire to allow for certain other transactions, and to make provision for certain on-going relationships between them concerning delivery of services, indemnification and other matters. AGREEMENT NOW, THEREFORE, the parties agree as follows: 1. THE PLAN OF DISTRIBUTION. 1.1 Transactions Prior to Distribution. 1.1.1 Assets and Liabilities of USN; Other Transactions. On or prior to date hereof, the Company has transferred to USN all assets and liabilities of the Company related to the Gamma Knife Business and transferred certain other assets and liabilities of the Company to USN pursuant to the Assignment and Assumption Agreement, dated as of May 27, 1999, between USN and the Company (the "Assignment and Assumption Agreement"). 3 1.1.2 The Information Statement. The Company will prepare for distribution to its shareholders, in accordance with the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules and regulations thereunder, a registration or information statement, as the case may be, required to be delivered thereunder (the "Statement"), identifying and describing the Distribution and the reasons therefor. The Statement will be sent to all Company shareholders on the date established by the Company's Board of Directors (the "Company Board"), pursuant to Section 1.1.3 (the "Record Date"), and will provide that the Distribution will be effective as of a certain date (the "Effective Date"). 1.1.3 Record Date. The Company Board, or, if so directed by resolution of the Company Board, a Committee appointed for such purposes (the "Committee") shall set the Record Date on which a record of the Company shareholders shall be taken so as to determine which shareholders shall be provided the Statement and receive the Distribution. 1.1.4 Stock Split. The Board of Directors of USN (the "USN Board") shall take all actions necessary to cause a stock split, in the form of a stock dividend, the effect of which will be that as of the Record Date the number of shares of USN Common Stock held by the Company will equal exactly the number of shares of Company Common Stock held by all shareholders of the Company. 1.1.5 Effective Date. The Company Board shall establish the Effective Date upon which the Distribution shall take place and the spin off shall be effective, provided that such date shall be identified in the Information Statement and shall be no fewer than 20 days following the Record Date. In the event for any reason that the Company Board determines to postpone the spin off, the Effective Date shall be the date rescheduled by the Company Board to be the date upon which the Distribution shall take place. 1.2 The Distribution. 1.2.1 Distribution of USN Common Stock. The Company shall as soon as practical after the Effective Date distribute to the Company shareholders who held Company Common Stock on the Record Date certificates representing the shares of USN Common Stock held by the Company in accordance with Section 1.1.4 above on the basis of one share of USN Common Stock for each one share of the Company Common Stock held by such shareholder. 1.2.2 Conditions. The consummation of this Agreement is subject to the following conditions: (a) The Company and USN shall have obtained all orders, rulings, consents or approvals, governmental or otherwise, necessary to permit them to perform this Agreement in accordance with its terms. (b) On the Effective Date, each party shall furnish to the other all such documents and certificates, including assignments and conveyances, as shall, in the opinion of counsel, be required to consummate this Agreement. (c) The USN Common Stock shall have been registered under the 1934 Act. 2 4 1.3 Termination and Amendment. Notwithstanding the approval of this Agreement by the Company Board and the USN Board, at any time prior to the Effective Date, this Agreement may be terminated, or the Effective Date may be delayed, by the Company Board acting in its sole discretion, and the terms hereof may be amended by the mutual consent of the Company Board and the USN Board. 2. PROVISION OF SERVICES AND SPECIFICATION OF ON-GOING RELATIONSHIPS. 2.1 Services. The following terms hereof shall apply with respect to the services to be provided between and among the parties (collectively, "Services"). 2.1.1 General Assistance. From and after the Effective Date for a period of two (2) years, the Company and USN shall generally make their respective employees available to each other as necessary to support the respective activities of each party in areas including, without limitation, (a) advice and services relating to legal matters, (b) accounting, (c) taxation and financial services, and (d) human resources. 2.1.2 Exceptions to Requirement to Provide Services. Neither the Company nor USN shall be obliged to provide Services to the other if: 2.1.2.1 doing so would unreasonably interfere with the performance by any employee of services for his employer or otherwise cause unreasonable burden on the party otherwise obliged to provide Services; 2.1.2.2 it is not in a position to provide such Services by reason of an absence of past participation, involvement or familiarity with such matters or the absence of personnel competent to perform such services; or 2.1.2.3 the performance of such Service presents an unavoidable conflict of interest between the Company and USN. 2.1.3 Payment for Services. Each party shall be entitled to receive payment from the other party for the reasonable costs and expenses of providing such services. 2.2 Access to Information and Witnesses. Subsequent to the Distribution, each of the Company and USN may have in its possession or under its control (or the control of persons or firms which have rendered services to or otherwise done business with it) books, records, contracts, instruments, data and other information (collectively, "Information") which may prove necessary to the other in connection with the other's business. Accordingly, at all times subsequent to the Record Date, (i) the Company agrees to provide to USN, and USN agrees to provide to the Company, upon the other's request, at all reasonable times, full and complete access to (including access to persons or firms possessing Information), and duplication rights with respect to, any and all such Information as the other may reasonably request and require in the conduct of its business; and (ii) the Company agrees to use its best efforts to make available to USN, and USN agrees to use its best efforts to make available to the Company, upon the other's request, their respective officers, directors, employees and agents as witnesses to the extent 3 5 that such persons may reasonably be required in connection with any legal, administrative or other proceedings in which USN or the Company, as the case may be, may from time to time be involved. "Information" shall include without limitation information sought for audit, accounting, regulatory filing, claims, litigation and tax purposes as well as for purposes of fulfilling disclosure and reporting obligations under federal and state securities laws. The party providing Information or making witnesses available shall be entitled to receive from the other party, upon the presentation of invoices therefor, payment as calculated in Section 2.1.3 above. This provision is intended for the convenience of the parties in administrative matters, and all information that is by its nature privileged or confidential will be subject to release only in the event a confidentiality agreement reasonably acceptable to the releasing party is executed at the time of the release. 2.3 Mail and Other Items. Subsequent to the Distribution, each of the Company and USN may receive mail, deliveries, faxes, email, packages and other communications properly belonging to the other. Accordingly, at all times subsequent to the Record Date, each of the Company and USN authorizes the other to receive and open mail, deliveries, faxes, email, packages and other communications received by it and not unambiguously intended for the other party or any of the other party's officers and/or directors specifically in their capacities as such, and to retain the same to the extent that they relate to the business of the receiving party. To the extent that they do not relate to the business of the receiving party and do relate to the business of the other party, or to the extent that they relate to both businesses, the receiving party shall promptly contact the other party for delivery instructions and such mail, telegrams, packages or other communications (or, in case the same relate to both businesses, copies thereof) shall promptly be forwarded to the other party in accordance with its delivery instructions. The provisions of this Section 2.3 are not intended to and shall not be deemed to constitute an authorization by either the Company or USN to permit the other to accept service of process on its behalf and neither party is nor shall be deemed to be the agent of the other for service of process purposes. 2.4 Indemnification. 2.4.1 USN shall be liable for all liabilities and obligations retained or assumed by USN pursuant to the Assignment and Assumption Agreement (collectively, the "USN Liabilities"); provided that liabilities and obligations in respect of taxes shall be governed by the terms of the Tax Matters Agreement (as defined in Section 3.1). The Company shall be liable for all liabilities and obligations retained or assumed by the Company pursuant to the Assignment and Assumption Agreement (collectively, the "Company Liabilities"); provided that liabilities and obligations in respect of taxes shall be governed by the terms of the Tax Matters Agreement. USN shall each be responsible for all "Distribution Liabilities" (defined as expenses, costs, or liabilities directly related to the Distribution) which are incurred or accrued prior to or following the Effective Date; provided that liabilities and obligations in respect of taxes shall be governed by the Tax Matters Agreement. 2.4.2 USN agrees to indemnify, defend and hold harmless the Company and its officers, directors, employees, agents and affiliates from and against any and all losses, liabilities, claims, damages, costs and expenses (including without limitation reasonable attorneys' fees) arising out of or related in any manner to the USN Liabilities. 2.4.3 The Company agrees to indemnify, defend and hold harmless USN and its officers, directors, employees, agents and affiliates from and against any and all losses, liabilities, claims, 4 6 damages, costs and expenses (including without limitation reasonable attorneys' fees) arising out of or related in any manner to the Company Liabilities. 2.4.4 If any action is brought or any claim is made against a party or controlling person with respect to which indemnity may be sought (the "Indemnified Party"), the Indemnified Party shall, with reasonable promptness after the receipt of information indicating that an action has been or is likely to be instituted or a claim has been or is likely to be made, notify the party from whom indemnification is to be sought (the "Indemnifying Party") in writing of such action or claim and the Indemnifying Party shall have the obligation to assume the defense of such action or claim, including the employment of counsel reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party shall not-be entitled to settle such action or claim on behalf of the Indemnified Party without the prior written consent of the Indemnified Party, (which consent shall not unreasonably be withheld, if, but only if, such settlement would not, in addition to the payment of money, impose an unreasonable and material burden on the Indemnified Party, such as a consent judgment or injunction). Such Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such action or claim or the Indemnifying Party shall not have employed counsel to take charge of the defense of such action or claim or such Indemnified Party shall have reasonably concluded that there may be defenses available to it which are different from or in addition to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct any different or additional defense of such action or claim on behalf of the Indemnified Party), in any of which events such fees and expenses shall be borne by the Indemnifying Party. Except as expressly provided above, the Indemnifying Party shall not be liable to any Indemnified Party for legal or other expenses incurred by such Indemnified Party in investigating, preparing or defending against such action or claim subsequent to such time as the Indemnifying Party assumes the defense of such action or claim. Anything in this Section 2.4 to the contrary notwithstanding, no Indemnifying Party shall be liable for any settlement of any such claim or action effected without its written consent. In the event that any actions or claims could result in both parties being liable to the other under these indemnification provisions, the parties shall endeavor, acting reasonably and in good faith, to agree upon a manner of conducting the defense and/or settlement of such action or claim with a view to minimizing the legal expenses and associated costs that might otherwise be incurred by the parties under the provisions of this Section 2.4.4. 2.4.5 For purposes of this Section 2.4, losses, liabilities, claims, damages, costs and expenses of past, present or future officers, directors, employees, agents or subsidiaries of the Company or USN shall be deemed to have been suffered by the Company or USN, as the case may be. 2.4.6 The indemnification provided for in this Section 2.4 shall be subject to the following provisions: 2.4.6.1 Any amounts payable from the Company to USN and from USN to the Company shall first be offset against each other with any net balance then payable upon demand; 2.4.6.2 The indemnification provisions hereof shall survive the Effective Date and any investigation made at any time by either of the parties. In addition, actual prior 5 7 knowledge by the Indemnified Party with respect to any matter as to which indemnification may be sought shall not constitute a defense to the Indemnifying Party or otherwise affect the Indemnified Party's rights to indemnification pursuant to the provisions hereof; and 2.4.6.3 Subject to the provisions of Section 2.4.6.1 and 2.4.6.2 above, the indemnification provisions of this Section 2.4 are made for the sole benefit of the Company and USN and shall not, except to the extent expressly stated otherwise herein, inure to the benefit of any third party. 2.5 Pending Litigation and Significant Obligations. 2.5.1 With respect to all pending litigation and proceedings (the "Proceedings") relating to the Gamma Knife Business to which the Company has heretofore been a party and the liability for which will be assumed by USN pursuant to this Agreement and the Assignment and Assumption Agreement, USN shall assume and have the sole and exclusive right to direct the defense, prosecution and/or settlement of the claims involved, including the employment of counsel (which counsel may be the counsel heretofore used by the Company for such purpose), and USN shall pay all expenses related thereto. To the extent that any such expenses are paid by the Company, USN shall promptly reimburse the Company therefor. 2.5.2 With respect to all significant outstanding contracts, licenses, guarantees and other obligations relating to the Gamma Knife Business to which the Company has heretofore been a party and the liability for which will be assumed by USN pursuant to this Agreement, the parties will endeavor, to the extent not already provided for, to have USN substituted in the place of and for the Company (and to have the Company removed) as a party as promptly as is reasonably practicable. 3. SPECIFIC AGREEMENTS BETWEEN THE PARTIES. 3.1 Tax Matters Agreement. Exhibit 3.1, the Tax Matters Agreement, dated May 27, 1999 (the "Tax Matters Agreement") contains terms that establish the parties respective rights and obligations concerning tax aspects of the Distribution. 4. MISCELLANEOUS PROVISIONS OF GENERAL APPLICABILITY. 4.1 Entire Agreement. All prior or contemporaneous oral agreements, contracts, promises, representations and statements, if any, among the parties hereto, or their representatives, are merged into this Agreement and this Agreement, together with the Assignment and Assumption Agreement and the Tax Matters Agreement, shall constitute the entire agreement and understanding among them with respect to the subject matter hereof. No modification or waiver of the terms hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. 4.2 Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors; provided, however, that this Agreement is not assignable, in whole or in part, 6 8 directly or indirectly, by either party hereto without the written consent of the other which consent shall not be unreasonably withheld. 4.3 Further Documents; Compliance; Governmental Approvals. Both the Company and USN shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Both the Company and USN shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, (i) comply with all applicable laws, regulations, orders and decrees, (ii) obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority, and (iii) promptly provide the other with all such information as the other may reasonably request in order to be able to comply with the provisions of this section. 4.4 Notices. All communications hereunder shall be in writing and shall be either personally delivered or sent by first class mail, national courier services or facsimile. 4.5 Attorneys' Fees. In the event that any party maintains or defends any cause of action against another party to this Agreement, the prevailing party shall be entitled to recover all reasonable attorneys' fees and costs of litigation and arbitration. 4.6 Governing Law. The provisions of this Agreement shall be governed by and construed in accordance with the laws of the state of New York. 4.7 Headings. The captions appearing in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope and intent of this Agreement or any of the provisions hereof. 7 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year set forth below. GHS, INC. By: /s/ Alan Gold ------------------------------------- Name: Alan Gold Title: President U.S. NEUROSURGICAL, INC. By: /s/ Alan Gold ------------------------------------- Name: Alan Gold Title: President 8 EX-10.2 6 TAX MATTERS AGREEMENT BETWEEN GSH AND USN 1 EXHIBIT 10.2 TAX MATTERS AGREEMENT between GHS, INC. and U.S. NEUROSURGICAL, INC. 2 TAX MATTERS AGREEMENT This Agreement is entered into as of May 27, 1999 by and between GHS, INC., a Delaware corporation ("GHS"), and U.S. NEUROSURGICAL, INC., a Delaware corporation ("USN") and a direct, wholly-owned subsidiary of GHS. GHS and USN are sometimes collectively referred to herein as the "Companies". Capitalized terms used in this Agreement are defined in Section 1 below. Unless otherwise indicated, all "Section" references in this Agreement are to sections of this Agreement. RECITALS WHEREAS, as of the date hereof, GHS is the common parent of an affiliated group of corporations, including USN, which has elected to file consolidated Federal income tax returns; and WHEREAS, the Companies have entered into a Distribution Agreement setting forth the corporate transactions pursuant to which GHS will distribute all of the outstanding shares of common stock of USN to GHS shareholders in a transaction which will be taxable under the Code; and WHEREAS, as a result of the Distribution, USN and its subsidiaries will cease to be members of the affiliated group of which GHS is the common parent, effective as of the Distribution Date; and WHEREAS, the Companies desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the transactions contemplated by the Distribution Agreement, and to provide for and agree upon other matters relating to Taxes; NOW THEREFORE, in consideration of the mutual agreements contained herein, the Companies hereby agree as follows: SECTION 1. Definition of Terms. For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings: "Accounting Cutoff Date" means, with respect to USN, any date as of the end of which there is a closing of the financial accounting records for such entity. "Accounting Firm" shall have the meaning provided in Section 13. "Adjustment Request" means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) any amended Tax return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, or (b) any claim for refund or credit of Taxes previously paid. 3 "Affiliate" means any entity that directly or indirectly is "controlled" by the person or entity in question. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise. Except as otherwise provided herein, the term Affiliate shall refer to Affiliates of a person as determined immediately after the Distribution. "Agreement" shall mean this Tax Matters Agreement. "Allocated Federal Tax Liability" shall have the meaning provided in Section 5.01(b)(i). "Carryback" means any net operating loss, net capital loss, excess tax credit, or other similar Tax item which may or must be carried from one Tax Period to another Tax Period under the Code or other applicable Tax Law. "Code" means the U.S. Internal Revenue Code of 1986, as amended, or any successor law. "Companies" means GHS and USN, collectively, and "Company" means any one of GHS and USN. "Concept Transaction" means the acquisition of Concept Development, Inc. ("Concept") pursuant to an Agreement and Plan of Reorganization, dated as of May 27, 1999, by and among the Company, Concept and certain other parties, and the related transactions contemplated therein. "Consolidated or Combined Income Tax" means any Income Tax computed by reference to the assets and activities of members of more than one Group. "Consolidated or Combined State Income Tax" means any State Income Tax computed by reference to the assets and activities of members of more than one Group. "Consolidated Tax Liability" means, with respect to any GHS Federal Consolidated Return, the "tax liability of the group as that term is used in Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest, additions to the tax, additional amounts, and penalties as provided in the Code), adjusted as follows: (i) such tax liability shall be treated as including any alternative minimum tax liability under Code Section 55; and (ii) in the case of the Tax Period which includes the Distribution Date, the Consolidated Tax Liability shall be computed as if the Distribution Date were the last day of the Tax Period. 2 4 "Cumulative Federal Tax Payment" shall have the meaning provided in Section 5.01(b)(ii). "CYL Transaction" means the acquisition by the Company of all of the membership interests of Change Your Life.com, LLC ("CYL") pursuant to a Contribution and Exchange Agreement, dated as of May 20, 1999, by and among the Company, CYL and the members of CYL, and the related transactions contemplated therein. "CYL/Concept Closing Date" means the earlier to occur of the closing date of the CYL Transaction or the Concept Transaction. "Distribution Agreement" means the agreement, as amended from time to time, setting forth the corporate transactions required to effect the distribution to GHS shareholders of USN Common Shares, and to which this Tax Matters Agreement is attached as an exhibit. "Distribution Date" means the date determined by the Board of Directors of GHS as of which the Distribution shall be effected. "Distribution" means the distribution to GHS shareholders on the Distribution Date of all of the outstanding stock of USN owned by GHS "Federal Income Tax" means any Tax imposed by Subtitle A or F of the Code. " "Foreign Income Tax" means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulation Section 1.901-2. "GHS Adjustment" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent GHS would be exclusively liable for any resulting Tax under this Agreement and exclusively entitled to receive any resulting Tax Benefit under this Agreement. "GHS Federal Consolidated Return" means any United States federal Tax Return for the affiliated group (as that term is defined in Code Section 1504) that includes GHS as the common parent and includes any member of the USN Group or GHS "GHS Group" means GHS and its Affiliates, excluding any entity that is a member of the USN Group. "Group" means the GHS Group or the USN Group, as the context requires. 3 5 "Income Tax" means any Federal Income Tax, State Income Tax, or Foreign Income Tax. "Joint Adjustment" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest which is neither a USN Adjustment nor a GHS Adjustment. "Payment Date" means (i) with respect to any GHS Federal Consolidated Return, the due date for any required installment of estimated taxes determined under Code Section 6655, the due date (determined without regard to extensions) for filing the return determined under Code Section 6072, and the date the return is filed, and (ii) with respect to any Tax Return for any Consolidated or Combined State Income Tax, the corresponding dates determined under the applicable Tax Law. "Post-CYL/Concept Closing Period" means the period beginning after the CYL/Concept Closing Date. "Post-Distribution Period" means any Tax Period beginning after the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Distribution Date. "Pre-CYL/Concept Closing Period" means the period ending on the CYL/Concept Closing Date. "Pre-Distribution Period" means any Tax Period ending on or before the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Distribution Date. "Prime Rate" means the base rate on corporate loans charged by Citibank, N.A., New York, New York from time to time, compounded daily on the basis of a year of 365 or 366 (as applicable) days and actual days elapsed. "Responsible Company" means, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement. "Separate Company Tax" means any Tax computed by reference to the assets and activities of a member or members of a single Group. "Straddle Period" means any Tax Period that begins on or before and ends after the Distribution Date. "State Income Tax" means any Tax imposed by any State of the United States or by any political subdivision of any such State which is imposed on or measured 4 6 by net income, including state and local franchise or similar Taxes measured by net income. "Tax" or "Taxes" means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing. "Tax Authority" means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision. "Tax Benefit" means any refund, credit, or other reduction in otherwise required Tax payments (including any reduction in estimated tax payments). "Tax Contest" means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes of any of the Companies or their Affiliates (including any administrative or judicial review of any claim for refund) for any Tax Period ending on or before the Distribution Date or any Straddle Period. "Tax Contest Committee" shall have the meaning provided in Section 9.02(b). "Tax Item" means, with respect to any Income Tax, any item of income, gain, loss, deduction, and credit. "Tax Law" means the law of any governmental entity or political subdivision thereof relating to any Tax. "Tax Period" means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law. "Tax Records" means Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests, and any other books of account or records required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority. "Tax Return" means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Code or other Tax 5 7 Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing. "Transactions" means the transactions contemplated by the Distribution Agreement. "Treasury Regulations" means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period. "USN Adjustment" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent USN would be exclusively liable for any resulting Tax under this Agreement and exclusively entitled to receive any resulting Tax Benefit under this Agreement. "USN Group" means USN and its Affiliates as determined immediately after the Distribution. SECTION 2. Allocation of Tax Liabilities. The provisions of this Section 2 are intended to determine each Company's liability for Taxes with respect to Pre-Distribution Periods. Once the liability has been determined under this Section 2, Section 5 determines the time when payment of the liability is to be made, and whether the payment is to be made to the Tax Authority directly or to the other Company. SECTION 2.01. General Rule (a) GHS Liability. GHS shall be liable for, and shall indemnify and hold harmless the USN Group from and against any liability for, Taxes which are allocated to GHS under this Section 2. (b) USN Liability. USN shall be liable for, and shall indemnify and hold harmless the GHS Group from and against any liability for, Taxes which are allocated to USN under this Section 2. SECTION 2.02 Allocation of Transaction and Other Taxes (a) USN Liability. Except as otherwise provided in this Section 2.02, USN shall be liable for, and shall indemnify and hold harmless the GHS Group from and against any liability for: (i) all Taxes resulting from the Transactions, including (A) any sales and use, gross receipts, or other transfer Taxes imposed on the transfers occurring pursuant to the Transactions, (B) any Tax resulting from any income or gain recognized under Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any corresponding provisions of other applicable Tax Laws) as a result of the 6 8 Transactions; and (C) any Tax resulting from any income or gain recognized as a result of any of the transactions contemplated by the Distribution Agreement; (ii) all Taxes resulting from the operations of the GHS Group for the Pre-CYL/Concept Closing Period; and (iii) all Taxes resulting from the operations of the USN Group for the Pre-Distribution Period and the Post-Distribution Period. (b) GHS Liability. Except as otherwise provided in this Section 2.02, GHS shall be liable for, and shall indemnify and hold harmless the USN Group from and against any liability for: (i) all Taxes resulting from the Concept Transaction or the CYL Transaction; and (ii) all Taxes resulting from the operations of the GHS Group for the Post-CYL/Concept Closing Period. SECTION 2.03. Allocation of Other Taxes. All Taxes other than those specifically allocated pursuant to Section 2.02 shall be allocated based on the legal entity on which the legal incidence of the Tax is imposed. As between the parties to this Agreement, USN shall be liable for all Taxes imposed on any member of the USN Group. The Companies believe that there is no Tax not specifically allocated pursuant to Section 2.02 which is legally imposed on more one legal entity (e.g., joint and several liability); however, if there is any such Tax, it shall be allocated in accordance with past practices as reasonably determined by the affected Companies, or in the absence of such practices, in accordance with any allocation method agreed upon by the affected Companies. SECTION 3. Proration of Taxes for Straddle Periods SECTION 3.01 General Method of Proration. In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Distribution Periods and Post-Distribution Periods in accordance with the principles of Treasury Regulation Section 1.1502-76(b) as reasonably interpreted and applied by the Companies. No election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items). If the Distribution Date is not an Accounting Cutoff Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items) for the month which includes the Distribution Date. SECTION 3.02 Transaction Treated as Extraordinary Item. In determining the apportionment of Tax Items between Pre-Distribution Periods and Post- 7 9 Distribution Periods, any Tax Items relating to the Transactions shall be treated as extraordinary items described in Treasury Regulation Section 1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and any Taxes related to such items shall be treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall be allocated to Pre-Distribution Periods. SECTION 4. Preparation and Filing of Tax Returns SECTION 4.01 General. Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed when due (including extensions) by the person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperate with one another in accordance with Section 7 with respect to the preparation and filing of Tax Returns, including providing information required to be provided in Section 7. As used in this Section 4, the terms "domestic" and "foreign" have the meanings ascribed to such terms in Code Section 7701. SECTION 4.02 GHS's Responsibility. GHS has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed: (a) GHS Federal Consolidated Returns for any Periods ending on, before or after the Distribution Date. (b) Tax Returns for State Income Taxes (including Tax Returns with respect to State Income Taxes that are Separate Company Taxes) which the Companies reasonably determine, in accordance with GHS's past practices, are required to be filed by the Companies or any of their Affiliates for Tax Periods ending on or before the Distribution Date other than Tax Returns with respect to State Income Taxes that are Separate Company Taxes of the USN Group for Tax Periods beginning on or after the Distribution Date. SECTION 4.03 USN Responsibility. USN shall prepare and file, or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to members of the USN Group other than those Tax Returns which GHS is required to prepare and file under Section 4.02. The Tax Returns required to be prepared and filed by USN under this Section 4.03 shall include (a) the USN Federal Consolidated Return for Tax Periods ending after the Distribution Date and (b) Tax Returns for Consolidated or Combined State Income Taxes which the Companies reasonably determine, in accordance with GHS's past practices, are required to be filed by the Companies or any of their Affiliates for Tax Periods ending after the Distribution Date. 8 10 SECTION 4.04 Tax Accounting Practices (a) General Rule. Except as otherwise provided in this Section 4.04, any Tax Return for any Pre-Distribution Period or any Straddle Period, and any Tax Return for any Post-Distribution Period to the extent items reported on such Tax Return might reasonably affect items reported on any Tax Return for any Pre-Distribution Period or any Straddle Period, shall be prepared in accordance with past Tax accounting practices used with respect to the Tax Returns in question (unless such past practices are no longer permissible under the Code or other applicable Tax Law), and to the extent any items are not covered by past practices (or in the event such past practices are no longer permissible under the Code or other applicable Tax Law), in accordance with reasonable Tax accounting practices selected by the Responsible Company. (b) Reporting of Transaction Tax Items. The tax treatment reported on any Tax Return of Tax Items relating to the Transactions shall be consistent with the treatment of such item as the Companies shall agree to in good faith. For this purpose, the tax treatment of such Tax Items on a Tax Return shall be determined by the Responsible Company with respect to such Tax Return and shall be agreed to by the other Company unless either (i) there is no reasonable basis for such tax treatment, or (ii) such tax treatment is inconsistent with the tax treatment previously agreed to by the Companies. Such Tax Return shall be submitted for review pursuant to Section 4.06(a), and any dispute regarding such proper tax treatment shall be referred for resolution pursuant to Section 13, sufficiently in advance of the filing date of such Tax Return (including extensions) to permit timely filing of the return. SECTION 4.05 Consolidated or Combined Returns. The Companies will elect and join, and will cause their respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns, to the extent each entity is eligible to join in such Tax Returns, if the Companies reasonably determine that the filing of such Tax Returns is consistent with past reporting practices, or in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns. SECTION 4.06 Right to Review Tax Returns (a) General. The Responsible Company with respect to any Tax Return shall make such Tax Return and related workpapers available for review by the other Companies, if requested, to the extent (i) such Tax Return relates to Taxes for which the requesting party may be liable, (ii) such Tax Return relates to Taxes for which the requesting party may be liable in whole or in part for any additional Taxes owing as a result of adjustments to the amount of Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the requesting party 9 11 may have a claim for Tax Benefits under this Agreement, or (iv) the requesting party reasonably determines that it must inspect such Tax Return to confirm compliance with the terms of this Agreement. The Responsible Company shall use its reasonable best efforts to make such Tax Return available for review as required under this paragraph sufficiently in advance of the due date for filing such Tax Returns to provide the requesting party with a meaningful opportunity to analyze and comment on such Tax Returns and have such Tax Returns modified before filing, taking into account the person responsible for payment of the tax (if any) reported on such Tax Return and the materiality of the amount of Tax liability with respect to such Tax Return. The Companies shall attempt in good faith to resolve any issues arising out of the review of such Tax Returns. (b) Execution of Returns Prepared by Other Party. In the case of any Tax Return which is required to be prepared and filed by one Company under this Agreement and which is required by law to be signed by another Company (or by its authorized representative), the Company which is legally required to sign such Tax Return shall not be required to sign such Tax Return under this Agreement if there is no reasonable basis for the tax treatment of any material items reported on the Tax Return. SECTION 4.07 Claims for Refund, Carrybacks, and Self-Audit Adjustments ("Adjustment Requests") (a) Consent Required for Adjustment Requests Related to Consolidated or Combined Income Taxes. Except as provided in paragraph (b) below, each of the Companies hereby agrees that, unless each of the other Companies consents in writing, which consent shall not be unreasonably withheld, (i) no Adjustment Request with respect to any Consolidated or Combined Income Tax for a Pre-Distribution Period shall be filed, and (ii) any available elections to waive the right to claim in any Pre-Distribution Period with respect to any Consolidated or Combined Income Tax any Carryback arising in a Post-Distribution Period shall be made, and no affirmative election shall be made to claim any such Carryback. Any Adjustment Request which the Companies consent to make under this Section 4.07 shall be prepared and filed by the Responsible Company under Section 4.02 for the Tax Return to be adjusted. The Company requesting the Adjustment Request shall provide to the Responsible Company all information required for the preparation and filing of such Adjustment Request in such form and detail as reasonably requested by the Responsible Company. (b) Exception for Adjustment Requests Related to Audit Adjustments. USN shall be entitled, without the consent of GHS, to require GHS to file an Adjustment Request to take into account any net operating loss, net capital loss, deduction, credit, or other adjustment attributable to USN or any member of its Group corresponding to any adjustment resulting from any audit by the Internal 10 12 Revenue Service or other Tax Authority with respect to Consolidated or Combined Income Taxes for any Pre-Distribution Tax Period. For example, if the Internal Revenue Service requires USN to capitalize an item deducted for the taxable year 1998, USN shall be entitled, without the consent of GHS, to require GHS to file an Adjustment Request for the taxable year 1999 (and later years) to take into account any depreciation or amortization deductions in such years directly related to the item capitalized in 1998. (c) Other Adjustment Requests Permitted. Nothing in this Section 4.07 shall prevent any Company or its Affiliates from filing any Adjustment Request with respect to Income Taxes which are not Consolidated or Combined Income Taxes or with respect to any Taxes other than Income Taxes. Any refund or credit obtained as a result of any such Adjustment Request (or otherwise) shall be for the account of the person liable for the Tax under this Agreement. (d) Payment of Refunds. Any refunds or other Tax Benefits received by any Company (or any of its Affiliates) as a result of any Adjustment Request which are for the account of another Company (or member of such other Company's Group) shall be paid by the Company receiving (or whose Affiliate received) such refund or Tax Benefit to such other Company in accordance with Section 6. SECTION 5. Tax Payments and Intercompany Billings SECTION 5.01 Payment of Taxes With Respect to GHS Federal Consolidation Returns Filed After the Distribution Date. In the case of any GHS Federal Consolidated Return the due date for which (including extensions) is after the Distribution Date: (a) Computation and Payment of Tax Due. At least three business days prior to any Payment Date, the Responsible Company shall compute the amount of Tax required to be paid to the Internal Revenue Service (taking into account the requirements of Section 4.04 relating to consistent accounting practices) with respect to such Tax Return on such Payment Date and, if GHS is not the Responsible Company with respect to such Tax Return, shall notify GHS in writing of the amount of Tax required to be paid on such Payment Date. GHS will pay such amount to the Internal Revenue Service on or before such Payment Date. (b) Computation and Payment of USN Liability With Respect to Tax Due. Within 30 days following any Payment Date, USN will pay to GHS the excess (if any) of-- (i) the Consolidated Tax Liability determined as of such Payment Date with respect to the applicable Tax Period allocable to the USN 11 13 Group as determined by the Responsible Company in a manner consistent with Section 2.02 (the "Allocated Federal Tax Liability"), over (ii) the cumulative net payment with respect to such Tax Return prior to such Payment Date (the "Cumulative Federal Tax Payment"). If the USN Group Cumulative Federal Tax Payment is greater than the USN Group Allocated Federal Tax Liability as of any Payment Date, then GHS shall pay such excess to USN within 30 days of GHS's receipt of the corresponding Tax Benefit (i.e., through either a reduction in GHS's otherwise required Tax payment or a refund of prior tax payments). (c) Interest on Intergroup Tax Allocation Payments. In the case of any payments to GHS required under paragraphs (b) of this subsection 5.01, USN shall also pay to GHS an amount of interest computed at the Prime Rate on the amount of the payment required based on the number of days from the applicable Payment Date to the date of payment. In the case of any payments by GHS required under paragraphs (b) of this subsection 5.01, GHS shall also pay to USN an amount of interest computed at the Prime Rate on the amount of the payment required based on the number of days from the date of receipt of the Tax Benefit to the date of payment of such amount to USN SECTION 5.02 Payment of Federal Income Tax Related to Adjustments (a) Adjustments Resulting in Underpayments. GHS shall pay to the Internal Revenue Service when due any additional Federal Income Tax required to be paid as a result of adjustment to the Tax liability with respect to any GHS Federal Consolidated Return for any Pre-Distribution Period. The Responsible Company shall compute the amount attributable to the USN Group in accordance with Section 2.02 and USN shall pay to GHS any amount due GHS under Section 2.02 within 30 days from the later of (i) the date the additional Tax was paid by GHS or (ii) the date of receipt by USN of a written notice and demand from GHS for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. Any payments required under this Section 5.02(a) shall include interest computed at the Prime Rate based on the number of days from the date the additional Tax was paid by GHS to the date of the payment under this Section 5.02(a). (b) Adjustments Resulting in Overpayments. Within 30 days of receipt by GHS of any Tax Benefit resulting from any adjustment to the Consolidated Tax Liability with respect to any GHS Federal Consolidated Return for any Pre- 12 14 Distribution Period, GHS shall pay to USN the amounts due from GHS as determined by the Responsible Company in accordance with Section 2.02. Any payments required under this Section 5.02(b) shall include interest computed at the Prime Rate based on the number of days from the date the Tax Benefit was received by GHS to the date of payment to USN under this Section 5.02(b). SECTION 5.03 Payment of State Income Tax With Respect to Returns Filed After the Distribution Date (a) Computation and Payment of Tax Due. At least three business days prior to any Payment Date for any Tax Return with respect to any State Income Tax, the Responsible Company shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 4.04 relating to consistent accounting practices) with respect to such Tax Return on such Payment Date and-- (i) If such Tax Return is with respect to a Consolidated or Combined State Income Tax, the Responsible Company shall, if GHS is not the Responsible Company with respect to such Tax Return, notify GHS in writing of the amount of Tax required to be paid on such Payment Date. GHS will pay such amount to such Tax Authority on or before such Payment Date. (ii) If such Tax Return is with respect to a Separate Company Tax, the Responsible Company shall, if it is not the Company liable for the Tax reported on such Tax Return, notify the Company liable for such Tax in writing of the amount of Tax required to be paid on such Payment Date. The Company liable for such Tax will pay such amount to such Tax Authority on or before such Payment Date. (b) Computation and Payment of USN Liability With Respect To Tax Due. Within 120 days following the due date (including extensions) for filing any Tax Return for any Consolidated or Combined State Income Tax (excluding any Tax Return with respect to payment of estimated Taxes or Taxes due with a request for extension of time to file), (i) USN shall pay to GHS the tax liability allocable to the USN Group as determined by the Responsible Company under the provisions of Section 2.02, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the due date (including extensions) to the date of payment by USN to GHS, and (ii) the Responsible Company shall notify GHS (if GHS is not the Responsible Company with respect to such Tax Return). SECTION 5.04 Payment of State Income Taxes Related to Adjustments 13 15 (a) Adjustments Resulting in Underpayments. GHS shall pay to the applicable Tax Authority when due any additional State Income Tax required to be paid as a result of any adjustment to the tax liability with respect to any Tax Return for any Consolidated or Combined State Income Tax for any Pre-Distribution Period. USN shall pay to GHS its respective share of any such additional Tax payment determined by the Responsible Company in accordance with Section 2.02 within 120 days from the later of (i) the date the additional Tax was paid by GHS or (ii) the date of receipt by USN of a written notice and demand from GHS for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. USN shall also pay to GHS interest on its respective share of such Tax computed at the Prime Rate based on the number of days from the date the additional Tax was paid by GHS to the date of its payment to GHS under this Section 5.04(a). (b) Adjustments Resulting in Overpayments. Within 120 days of receipt by GHS of any Tax Benefit resulting from any adjustment to the tax liability with respect to any Tax Return for any Consolidated or Combined State Income Tax for any Pre-Distribution Period, GHS shall pay to USN its respective share of any such Tax Benefit determined by the Responsible Company in accordance with Section 2.02. GHS shall also pay to USN interest on its respective share of such Tax Benefit computed at the Prime Rate based on the number of days from the date the Tax Benefit was received by GHS to the date of payment to USN under this Section 5.04(b). SECTION 5.05 Payment of Separate Company Taxes. Each Company shall pay, or shall cause to be paid, to the applicable Tax Authority when due all Separate Company Taxes owed by such Company or a member of such Company's Group. SECTION 5.06 Indemnification Payments. If any Company (the "payor") is required to pay to a Tax Authority a Tax that another Company (the "responsible party") is required to pay to such Taxing Authority under this Agreement, the responsible party shall reimburse the payor within 30 days of delivery by the payor to the responsible party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 5.06. SECTION 6. Tax Benefits SECTION 6.01 General Rule. If a member of one Group receives any Tax Benefit with respect to any Taxes for which a member of another Group is liable hereunder, the Company receiving such Tax Benefit shall make a payment to the 14 16 Company who is liable for such Taxes hereunder within 30 days following receipt of the Tax Benefit in an amount equal to the Tax Benefit (including any Tax Benefit realized as a result of the payment), plus interest on such amount computed at the Prime Rate based on the number of days from the date of receipt of the Tax Benefit to the date of payment of such amount under this Section 6.01. SECTION 7. Assistance and Cooperation SECTION 7.01 General. After the Distribution Date, each of the Companies shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other's agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Companies and their Affiliates including (i) preparation and filing of Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making all information and documents in their possession relating to the other Companies and their Affiliates available to such other Companies as provided in Section 8. Each of the Companies shall also make available to each other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. Any information or documents provided under this Section 7 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. SECTION 7.02. Income Tax Return Information. Each Company will provide to each other Company information and documents relating to their respective Groups required by the other Companies to prepare Tax Returns. The Responsible Company shall determine a reasonable compliance schedule for such purpose in accordance with GHS's past practices. Any additional information or documents the Responsible Company requires to prepare such Tax Returns will be provided in accordance with past practices, if any, or as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns timely. SECTION 8. Tax Records SECTION 8.01 Retention of Tax Records. Except as provided in Section 8.02, each Company shall preserve and keep all Tax Records exclusively relating to the assets and activities of their respective Groups for Pre-Distribution Tax Periods, 15 17 and GHS shall preserve and keep all other Tax Records relating to Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitation, and (ii) seven years after the Distribution Date. If, prior to the expiration of the applicable statute of limitation and such seven-year period, a Company reasonably determines that any Tax Records which it is required to preserve and keep under this Section 8 are no longer material in the administration of any matter under the Code or other applicable Tax Law, such Company may dispose of such records upon 90 days prior notice to the other Company. Such notice shall include a list of the records to be disposed of describing in reasonable detail each file, book, or other record accumulation being disposed. The notified Company shall have the opportunity, at its cost and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records. SECTION 8.02 State Income Tax Returns. Tax Returns with respect to State Income Taxes and workpapers prepared in connection with preparing such Tax Returns shall be preserved and kept, in accordance with the guidelines of Section 8.01, by the Company responsible for preparing and filing the applicable Tax Return. SECTION 8.03 Access to Tax Records. The Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records in their possession to the extent reasonably required by the other Company in connection with the preparation of Tax Returns, audits, litigation, or the resolution of items under this Agreement. SECTION 9. Tax Contests SECTION 9.01 Notice. Each of the parties shall provide prompt notice to the other parties of any pending or threatened Tax audit, assessment or proceeding or other Tax Contest of which it becomes aware related to Taxes for Tax Periods for which it is indemnified by other party hereunder. Such notice shall contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If an indemnified party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such party fails to give the indemnifying party prompt notice of such asserted Tax liability, then (i) if the indemnifying party is precluded from contesting the asserted Tax liability in any forum as a result of the failure to give prompt notice, the indemnifying party shall have no obligation to indemnify the indemnified party for any Taxes arising out of such asserted Tax liability, and (ii) if the indemnifying party is not precluded from contesting the asserted Tax liability in any forum, but such failure to give prompt notice results in a monetary detriment to the indemnifying party, then any amount which the indemnifying party is otherwise required to pay the 16 18 indemnified party pursuant to this Agreement shall be reduced by the amount of such detriment. SECTION 9.02 Control of Tax Contests (a) Separate Company Taxes. In the case of any Tax Contest with respect to any Separate Company Tax, the Company having liability for the Tax shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability. (b) Consolidated or Combined Income Taxes. In the case of any Tax Contest with respect to any Consolidated or Combined Income Tax, (i) GHS shall control the defense or prosecution of the portion of the Tax Contest, and be responsible for the expenses, directly and exclusively related to any GHS Adjustment, including settlement of any such GHS Adjustment and (ii) USN shall control the defense or prosecution of the portion of the Tax Contest, and be responsible for the expenses, directly and exclusively related to any USN Adjustment, including settlement of any such USN Adjustment, and (iii) the Tax Contest Committee shall control the defense or prosecution of Joint Adjustments and any and all administrative matters not directly and exclusively related to any GHS Adjustment or USN Adjustment. The Tax Contest Committee shall be comprised of two persons, one person selected by GHS (as designated in writing to USN) and one person selected by USN (as designated in writing to GHS). Each person serving on the Tax Contest Committee shall continue to serve unless and until he or she is replaced by the party designating such person. Any and all matters to be decided by the Tax Contest Committee shall require the unanimous approval of both persons serving on the committee. In the event the Tax Contest Committee shall be deadlocked on any matter, the provisions of Section 13 of this Agreement shall apply. A Company shall not agree to any Tax liability for which another Company may be liable under this Agreement, or compromise any claim for any Tax Benefit which another Company may be entitled under this Agreement, without such other Company's written consent (which consent may be given or withheld at the sole discretion of the Company from which the consent would be required). SECTION 10. Survival of Obligations. The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time. SECTION 11. Employee Matters. Each of the Companies agrees to utilize, or cause its Affiliates to utilize, the alternative procedure set forth in Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting. SECTION 12. Treatment of Payments; Tax Gross Up 17 19 SECTION 12.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of any change in tax treatment under the Code or other applicable Tax Law, (a) any Tax indemnity payments made by a Company under Section 5 shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the distribution of the USN Common Shares to GHS shareholders on the Distribution Date, but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws), and (b) any Tax Benefit payments made by a Company under Section 6, shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the distribution of USN Common Shares to GHS shareholders on the Distribution Date, but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws). SECTION 12.02. Tax Gross Up. If notwithstanding the manner in which Tax indemnity payments and Tax Benefit payments were reported, there is an adjustment to the Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive pursuant to this Agreement. SECTION 12.03 Interest Under This Agreement. Anything herein to the contrary notwithstanding, to the extent one Company ("Indemnitor") makes a payment of interest to another Company ("Indemnitee") under this Agreement with respect to the period from the date that the Indemnitee made a payment of Tax to a Tax Authority to the date that the Indemnitor reimbursed the Indemnitee for such Tax payment, or with respect to the period from the date that the Indemnitor received a Tax Benefit to the date Indemnitor paid the Tax Benefit to the Indemnitee, the interest payment shall be treated as interest expense to the Indemnitor (deductible to the extent provided by law) and as interest income by the Indemnitee (includible in income to the extent provided by law). The amount of the payment shall not be adjusted under Section 12.02 to take into account any associated Tax Benefit to the Indemnitor or increase in Tax to the Indemnitee. 18 20 SECTION 13. Disagreements. If after good faith negotiations the parties cannot agree on the application of this Agreement to any matter, then the matter will be referred to a nationally recognized accounting firm acceptable to each of the parties (the "Accounting Firm"). The Accounting Firm shall furnish written notice to the parties of its resolution of any such disagreement as soon as practical, but in any event no later than 45 days after its acceptance of the matter for resolution. Any such resolution by the Accounting Firm will be conclusive and binding on all parties to this Agreement. In accordance with Section 15, each party shall pay its own fees and expenses (including the fees and expenses of its representatives) incurred in connection with the referral of the matter to the Accounting Firm. All fees and expenses of the Accounting Firm in connection with such referral shall be shared equally by the parties affected by the matter. SECTION 14. Late Payments. Any amount owed by one party to another party under this Agreement which is not paid when due (after giving effect to the periods provided herein to make such payments) shall bear interest at the Prime Rate plus two percent, compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Section 14 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Section 14 or the interest rate provided under such other provision. SECTION 15. Expenses. Except as provided in Section 13, each party and its Affiliates shall bear their own expenses incurred in connection with preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement. SECTION 16. General Provisions SECTION 16.01. Addresses and Notices. Any notice, demand, request or report required or permitted to be given or made to any party under this Agreement shall be in writing and shall be deemed given or made when delivered in party or when sent by first class mail or by other commercially reasonable means of written communication (including delivery by an internationally recognized courier service or by facsimile transmission) to the party at the party's address as follows: If to GHS: 704 Broadway New York, NY 10003 Attention: Chief Executive Officer Facsimile No.: (212) 358-4099 19 21 If to USN: 2400 Research Boulevard Rockville, MD 20850 Attention: Mr. Alan Gold Facsimile No.: (301) 208-3254 A party may change the address for receiving notices under this Agreement by providing written notice of the change of address to the other parties. SECTION 16.02 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. SECTION 16.03 Waiver. No failure by any party to insist upon the strict performance of any obligation under this Agreement or to exercise any right or remedy under this Agreement shall constitute waiver of any such obligation, right, or remedy or any other obligation, rights, or remedies under this Agreement. SECTION 16.04 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not be affected thereby. SECTION 16.05 Further Action. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Section 9. SECTION 16.06 Integration. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter of this Agreement and supersedes all prior agreements and understandings pertaining thereto. In the event of any inconsistency between this Agreement and the Distribution Agreement or any other agreements relating to the transactions contemplated by the Distribution Agreement, the provisions of this Agreement shall control. SECTION 16.07 Construction. The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any party. SECTION 16.08 No Double Recovery; Subrogation. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any 20 22 costs, damages, or other amounts for which the damaged party has been fully compensated under any other provision of this Agreement or under any other agreement or action at law or equity. Unless expressly required in this Agreement, a party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement. Subject to any limitations provided in this Agreement (for example, the limitation on filing claims for refund in Section 4.07), the indemnifying party shall be subrogated to all rights of the indemnified party for recovery from any third party. SECTION 16.09 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. SECTION 16.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed in and to be performed in that State. 21 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by the respective officers as of the date set forth above. GHS, INC. By: /s/ Alan Gold ------------------------------ Its: Preident U.S. NEUROSURGICAL, INC. By: /s/ Alan Gold ------------------------------ Its: President ------------------------------ 22 EX-10.3 7 ASSIGNMENT AND ASSUMPTION AGREEMENT 1 EXHIBIT 10.3 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement") is dated as of May 27, 1999, by and between GHS Inc., a Delaware corporation (the "Company"), and U.S. NeuroSurgical, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("USN"). R E C I T A L S: A. Pursuant to an Agreement and Plan of Distribution to be entered into by the Company and USN (the "Distribution Agreement"), the Company and USN desire to accomplish a spin-off restructuring, pursuant to which the Company will distribute (the "Distribution") to each shareholder of the Company one share of the common stock, $.01 par value, of USN (the "USN Common Stock") for each one share of the Common Stock, $.01 par value, of the Company (the "Company Common Stock") owned by such shareholder. B. Pursuant to a Contribution and Exchange Agreement, dated as of May 20, 1999, by and among the Company, Change Your Life.com, LLC ("CYL") and the members of CYL, the Company has agreed to acquire CYL by acquiring all of the membership interests in CYL (the "CYL Transaction"). C. Pursuant to an Agreement and Plan of Reorganization, dated as of May 27, 1999, by and among the Company, Concept Development, Inc.("Concept") and certain other parties, the Company has agreed to acquire Concept through a subsidiary merger (the "Concept Transaction"). D. In connection with the Distribution, the Company has approved the assignment to USN of certain assets and liabilities of the Company on the terms provided herein, to be effective as of the close of business on May 27, 1999 (the "Effective Time"). E. USN agrees to accept such assignment from the Company upon the terms and conditions set forth herein. 2 A G R E E M E N T: ARTICLE I ASSIGNMENT OF ASSETS 1.1 Assigned Assets. (a) the Company hereby contributes, assigns and delivers to USN all of the Company's right, title and interest in and to the following assets of the Company at the Effective Time: (i) All tangible and intangible assets in the name of or held by the Company, if any, used, held or related exclusively or primarily in USN's business of owning and operating stereotactic radiosurgery centers, utilizing the Gamma Knife technology, including the two Gamma Knife centers it currently owns and operates (the "USN Business"); (ii) All accounts receivable of the Company and each of its subsidiaries arising through the Effective Time; (iii) All intercompany receivables due from USN to the Company at the Effective Time, which contribution shall be deemed a capital contribution from the Company to USN; (iv) All prepaid expenses and deposits made by the Company prior to the Effective Time; (v) All refunds payable to the Company for business conducted by the Company prior to the Effective Time; (vi) The capital stock of U.S. Neurosurgical Physics, Inc., a Missouri corporation and a wholly owned subsidiary of the Company ("USNP"); (vii) cash in the amount of $374,144.71; and (viii) the other assets listed on Schedule 1.1, if any (all of the above that are being transferred hereby to USN are hereinafter collectively referred to as the "Assigned Assets"). (b) USN hereby acknowledges, confirms and agrees that, exce pt for the warranty of good title, the Assigned Assets are transferred to USN "as is" "where is" and with all faults, and that no other warranty or representation, express or implied, as 2 3 to condition, merchantability, operation, fitness for use, or as to any other matter whatsoever is made by the Company. (c) To the extent the consent of any third party is necessary to effect the assignment of any Assigned Asset to USN, USN hereby acknowledges, confirms and agrees that it will seek all such required consents and that it will assume as of the Effective Time all of the economic benefits and obligations of any such Assigned Asset. 1.2 Excluded Assets. Except for the Assigned Assets specifically contributed, assigned and delivered to USN pursuant to Section 1.1(a) hereof, the Company shall not contribute, assign or deliver any other assets of the Company, whether tangible or intangible, real, personal or mixed (the "Excluded Assets"). The Excluded Assets include without limitation the following assets of the Company: (i) cash and cash equivalents (a) held by the Company's as of the Effective Time, other than the cash referred in Section 1.1(a)(vii) , (b) raised in the New Financing (as defined in the CYL Agreement) and (c) which comes into the Company's possession following the Effective Time; (ii) the capital stock of the Company's subsidiaries owned by the Company, other than USNP; and (iii) all tangible and intangible assets of the Company acquired in connection with the CYL Transaction and the Concept Transaction or acquired by the Company following the Effective Time. ARTICLE II ASSUMPTION OF LIABILITIES; EXCLUDED LIABILITIES 2.1 Assumed Liabilities. Subject to Section 2.3, upon the terms and subject to the conditions of this Agreement, USN hereby agrees to assume, pay, perform and discharge when due and indemnify the Company and hold the Company harmless from and against the following liabilities of the Company: (i) all claims, liabilities and obligations which are attributable to any of the Assigned Assets; (ii) all claims, liabilities or litigation arising out of any event, occurrence, action or omission relating to the Company and its subsidiaries taken or occurring prior to the Effective Time, of any kind or nature, whether absolute, contingent, accrued, known or unknown, except to the extent they are specifically included in the Excluded Liabilities pursuant to Section 2.2; and 3 4 (iii) the other liabilities set forth on Schedule 2.1, if any (all of the above liabilities that are being assumed hereby by USN are hereinafter collectively referred to as the "Assumed Liabilities"). 2.2 Excluded Liabilities. Subject to Section 2.3, at all times at and after the Effective Date, the Company will retain and be solely responsible for, and the Company hereby agrees to pay, perform and discharge when due and indemnify USN and hold USN harmless from and against the liabilities set forth below (the "Excluded Liabilities"): (i) all claims, liabilities and obligations which are attributable to any of the Excluded Assets; (ii) the obligations of the Company to issue the Company Common Stock pursuant to options, warrants and commitments to issue capital stock outstanding at the Effective Time, as well as the Company's obligations under the Company's 1997 Stock Option Plan; (iii) the obligations of the Company to pay the consideration, fees, expenses and other costs arising in connection with the CYL Transaction and the Concept Transaction; (iv) all claims, liabilities or litigation arising out of any event, occurrence, action or omission relating to the Company and its subsidiaries taken or occurring following the Effective Time, of any kind or nature, whether absolute, contingent, accrued, known or unknown; and (v) the other liabilities set forth on Schedule 2.2, if any. 2.3 Tax Matters. All liabilities and obligations in respect of taxes shall be governed by the Tax Matters Agreement, dated as of May 27, 1999 between the Company and USN. ARTICLE III ACCEPTANCE OF TRANSFER 3.1 Acceptance. USN hereby accepts from the Company the assignment of the Assigned Assets and assumes the Assumed Liabilities. 4 5 ARTICLE IV INDEMNIFICATION 4.1 Indemnification. (a) In accordance with Section 2.4 of the Distribution Agreement, the Company agrees to indemnify and hold harmless USN and its directors, officers, employees, affiliates, agents and assigns from and against any and all Losses (as hereinafter defined), directly or indirectly, as a result of, or based upon or arising from any liability or obligation of, or claims against, the Company related to the Excluded Assets or the Excluded Liabilities. (b) In accordance with Section 2.4 of the Distribution Agreement, USN agrees to indemnify and hold harmless the Company and its directors, officers, employees, affiliates, agents and assigns from and against any and all Losses, directly or indirectly, as a result of, or based upon or arising from any liability or obligation of, or claims against, USN related to the Assigned Assets and the Assumed Liabilities. (c) "Loss" means any action, cost, damage, disbursement, expense, liability, loss deficiency, diminution in value, obligation, penalty or settlement of any kind or nature, whether foreseeable or unforeseeable, including without limitation interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims at trial and on appeal and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by the specified person. ARTICLE V GENERAL 5.1 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of USN and the Company and their respective successors and assigns. 5.2 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without reference to conflicts of law principles. 5.3 Entire Agreement. This Agreement, together with the exhibits attached hereto and any documents specifically referred to herein and therein, constitute the entire agreement and understanding of the parties and supersede any prior oral or written agreement, understanding, representation, warranty, promise or document relating to the subject matter of this Agreement. 5 6 5.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.5 Waiver. No admission or delay by any party in exercising any right, power or privilege hereunder shall impair the exercise of any such right, power or privilege or be construed to be a waiver hereof or of any default or to be any acquiescence therein, and any single or partial exercise of any such right, power or privilege shall not preclude other or further exercises thereof or the exercise of any other right, power or privilege. No waiver shall be valid unless in writing and signed by the party to be charged, and then only to the extent therein specified. 5.6 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall be effective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 5.7 Further Assurances. Each of the parties hereby agrees to execute and deliver all of the agreements, documents and instruments required to be executed and delivered by it in this Agreement and to execute and deliver such additional agreements, documents and instruments and to take such additional actions as may reasonably be required from time to time in order to effectuate the assignment and conveyance of the Assigned Assets to USN, the assumption by USN of the Assumed Liabilities, and the other transactions contemplated by this Agreement, on and after the date hereof. 6 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. GHS, INC. By: /s/ Alan Gold -------------------------- Name: Alan Gold Title: President U.S. NEUROSURGICAL, INC. By: /s/ Alan Gold -------------------------- Name: Alan Gold Title: President 7 8 SCHEDULE 1.1 OTHER ASSIGNED ASSETS 1. Lease dated March 5, 1998 between the Company and Research Grove Associates, relating to the lease of the premises located at 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850 (the "Maryland Lease"). 8 9 SCHEDULE 2.1 OTHER ASSUMED LIABILITIES 1. The obligations of the Company under the employment agreement dated November 14, 1984, as amended, with Alan Gold. 2. The obligations of the Company under the Maryland Lease. 9 10 SCHEDULE 2.2 OTHER EXCLUDED LIABILITIES 1. The Company obligations under the Warrant Certificate, dated November 30, 1993, as amended, issued to Allen & Company Incorporated 2. The Company's obligations under that certain Settlement Agreement, dated as of March 22, 1999 by and among, the Company, USN and the other parties thereto. 10 EX-10.10 8 GAMMA KNIFE NEURORADIOSURGERY EQUIPMENT AGREEMENT 1 EXHIBIT 10.10 GAMMA KNIFE NEURORADIOSURGERY EQUIPMENT AGREEMENT THIS AGREEMENT is made and entered into this 26th day of November, 1996 by and between NEW YORK UNIVERSITY on behalf of NEW YORK UNIVERSITY MEDICAL CENTER (hereinafter referred to as "NYU"), a New York education corporation, whose Medical Center's principal offices are located at 550 First Avenue, New York, New York, and U.S. NEUROSURGICAL, INC., a Delaware corporation with its principal office at 1350 Piccard Drive, Suite 360, Rockville, Maryland 20850 (hereinafter referred to as "U.S. Neuro"). W I T N E S S E T H: WHEREAS, U.S. Neuro has entered into the LGK Purchase Agreement, dated as of December 29, 1993 (the "Purchase Agreement"; all capitalized terms used herein without definition shall have the respective meanings set forth in the Purchase Agreement), pursuant to which U.S. Neuro has agreed to purchase from Elekta Instruments, Inc. ("Elekta") a "Leksell Gamma Knife" (including the cobalt supply therefor) which meets the specifications set forth in Exhibit A attached hereto and made a part hereof and to otherwise provide the equipment described on Exhibit A (hereinafter, collectively, referred to as the "Gamma Knife Equipment"); WHEREAS, U.S. Neuro has assigned its right to purchase the Gamma Knife Equipment under the Purchase Agreement to DVI Financial Services Inc. ("DVI") and Elekta has consented to such assignment; WHEREAS, U.S. Neuro and DVI have entered into the Master Equipment Lease Agreement, dated as of August 1, 1996 (the "DVI Lease Agreement"), pursuant to which (i) DVI has agreed to take title to the Gamma Knife Equipment and lease it to U.S. Neuro and (ii) U.S. Neuro has agreed to lease the Gamma Knife Equipment from DVI and make certain fixed rental payments therefor, all in accordance with the terms and conditions of the DVI Lease Agreement; WHEREAS, U.S. Neuro and NYU desire to provide for (i) the installation of the Gamma Knife Equipment at NYU for use by NYU in the treatment of its patients, (ii) maintenance, insurance and other matters with respect to U.S. Neuro's leasehold interest in the Gamma Knife Equipment to be the responsibility of U.S. Neuro and (iii) the fees payable by NYU for patient procedures undertaken using the Gamma Knife Equipment; 2 - 2 - NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained and intending to be legally bound, the parties agree as follows: ARTICLE I 1.01 CON; Licenses. NYU and U.S. Neuro will work cooperatively to prepare and file (i) with the Department of Health of the State of New York an application for a Certificate of Need supporting the installation and use in patient care of the Gamma Knife Equipment at NYU and any amendments or supplements thereto that may be necessary (the "CON") and (ii) with New York City an application for all necessary permits, licenses and/or permissions for the use of radioactive materials for medical purposes in connection with the Gamma Knife Equipment. The parties acknowledge that the preparation of such applications is dependent upon the cooperation of Elekta and DVI and receipt of all information and documentation necessary to complete such applications. The costs associated with preparation and submission of such applications shall be paid by U.S. Neuro. 1.02 Conditions Precedent; Preparation of Facility. (a) Upon: (i) obtaining the CON; (ii) delivery to NYU of an agreement of Elekta (a) to provide maintenance services for the Gamma Knife Equipment including, without limitation, the replenishment of the cobalt installed in the Gamma Knife Equipment at such time as is required in accordance with law and the operating procedures in place with respect to the Gamma Knife Equipment and the removal and disposal of any such cobalt and (b) consenting to the assignment by U.S. Neuro to NYU of all of the warranties, licenses and other rights with respect to the Gamma Knife Equipment and any related software or documentation available to the "purchaser" under the Purchase Agreement, all in form and substance reasonably satisfactory to NYU and U.S. Neuro; (iii) DVI having (A) taken title to the Gamma Knife Equipment and leased such Equipment to U.S. Neuro under the DVI Lease Agreement and (B) delivered to NYU an agreement of DVI consenting to the terms of this Agreement and offering to NYU the right to assume the DVI Lease Agreement upon the occurrence of an event of default on the part of U.S. Neuro, all in form and substance reasonably satisfactory to NYU and U.S. Neuro; (iv) U.S. Neuro and NYU obtaining all necessary permits, licenses and approvals with respect to the use of the 3 - 3 - Gamma Knife Equipment as contemplated by this Agreement from New York City and any other relevant governmental authority; (v) U.S. Neuro providing to NYU, at the sole expense of U.S. Neuro, all necessary sublicenses and other rights necessary to enable NYU to possess and operate the Gamma Knife Equipment including, without limitation, all software licenses; (vi) delivery to NYU of a copy of the Test Report delivered by Elekta under the Purchase Agreement showing compliance of the Gamma Knife Equipment with the Specifications; (vii) compliance by U.S. Neuro with all of the conditions precedent to delivery of the Gamma Knife Equipment under the Purchase Agreement; (viii) U.S. Neuro causing to be established (x) an escrow account with a bank satisfactory to NYU in the amount of $825,000 and (y) a firm commitment on the part of DVI or other third party satisfactory to NYU to fund an additional $100,000, in each case to fund the cost of constructing the Neuroradiosurgery Facility in accordance with the terms of this Agreement (including, without limitation, the infrastructure expenses referred to in Section 1.02(b)), all on terms and conditions satisfactory to NYU; and (ix) delivery to NYU of the construction drawings and specifications for the Neuroradiosurgery Facility (as defined below) issued by Albert Schunkewitz & Partners ("Schunkewitz") on July 3, 1996; U.S. Neuro shall take, or shall cause third persons to take, all steps which may be necessary or requested by NYU to have prepared, constructed and made ready NYU's facility located at 530 First Avenue, Cellar Level, New York, New York (the "Neuroradiosurgery Facility") for installation of the Gamma Knife Equipment in compliance with the terms of the Purchase Agreement, the drawings and specifications delivered pursuant to Section 1.02(a)(ix) and all applicable law and regulations including, without limitation, any construction or alteration of the physical premises, wiring, working with NYU to prepare a safety plan, providing any temporary and permanent shielding for the Charging of the Gamma Knife Equipment and its use, building foundations for the Gamma Knife Equipment, shielding, walls, alignment of the facility, installation of radiation monitoring equipment, the performance of any testing required by applicable law and regulations and any resulting modifications or alterations to the Gamma Knife Equipment and the Neuroradiosurgery Facility. As between U.S. Neuro and NYU, U.S. Neuro shall bear all costs and expenses of such preparation and any liability 4 - 4 - associated therewith; provided that U.S. Neuro shall not bear liability for any action or failure to act on the part of NYU which constitutes willful misconduct or negligence. (b) U.S. Neuro shall construct the Neuroradiosurgery Facility in a timely manner and in accordance with applicable law and regulations, the requirements of the Purchase Agreement and the drawings and specifications issued by Schunkewitz on July 3, 1996. All construction, architecture, engineering and other work conducted in connection with the construction of the Neuroradiosurgery Facility shall be performed by third-party contractors selected by U.S. Neuro and satisfactory to NYU. U.S. Neuro shall contract with such third-party contractors pursuant to NYU's standard form contracts for such services modified to reflect the relevant parties and appropriate insurance coverage for NYU and, in each case, such contracts shall be satisfactory to NYU. U.S. Neuro shall be solely responsible for payment of all amounts owing to the third-party contractors under the contracts entered into by U.S. Neuro. U.S. Neuro shall, at its sole cost, hire a contractor to work on-site to supervise and administer the construction of the Neuroradiosurgery Facility and coordinate such construction with other construction projects at NYU. In addition to reporting to U.S. Neuro, the on-site contractor shall report regularly to the Vice President for Facilities Management of NYU on the progress of construction and any outstanding issues relating thereto, and shall consult with such Vice President as to all decision-making with respect to the construction. U.S. Neuro shall deliver to NYU copies of all documentation relating to the construction received by it or prepared by it and NYU shall at all times retain final authority over all decision-making by U.S. Neuro with respect to the construction. U.S. Neuro shall reimburse NYU for a portion of the cost of certain infrastructure work being undertaken by NYU to support the Neuroradiosurgery Facility and other facilities of NYU located nearby consisting of the installation of a new HVAC unit and related construction. The actual portion for which U.S. Neuro shall be responsible shall be determined by Schunkewitz and shall be binding upon both U.S. Neuro and NYU. Within five (5) business days following delivery by Schunkewitz to U.S. Neuro and NYU of an allocation of such costs between U.S. Neuro and NYU, U.S. Neuro shall pay the amount so allocated to it in immediately available funds to NYU. In the event that U.S. Neuro does not pay such amounts when due, such amounts shall accrue interest at the rate of 12% per annum from the date on which such payment was due to and including the date on which such payment is actually made. NYU may in addition to other remedies hereunder, but shall not be under any obligation to, offset such amounts against any amounts then payable by NYU to U.S. Neuro under this Agreement 5 - 5 - and apply such amounts to reimburse itself for the payment of such expenses. (c) Notwithstanding the provisions of Section 1.02(a), in the event that construction of the Neuroradiosurgery Facility is begun prior to all of the conditions precedent to such construction having been satisfied in full, such conditions shall not be deemed to have been waived or modified and U.S. Neuro shall use its best efforts to satisfy each such condition in full on the earliest possible date. In the event that (i) all conditions precedent set forth in Section 1.02(a) shall not have been met by June 30, 1997 or (ii) construction of the Neuroradiosurgery Facility shall not have been completed in accordance with the terms of this Agreement, then in each case, this Agreement shall automatically, without notice or other action, terminate and be of no further force or effect and U.S. Neuro shall, subject to applicable law and regulations, provide for any work performed on the Neuroradiosurgery Facility to be dismantled, any Gamma Knife Equipment to be removed and the premises to be restored to their original condition, in each case at the sole cost, expense and liability of U.S. Neuro. In the event that applicable law and regulations prevent the closing of the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Facility may be closed in accordance with applicable law and regulations. (d) In the event that NYU determines that amounts are (i) owed to contractors employed by U.S. Neuro to construct the Neuroradiosurgery Facility and such contractors are likely to either cease work on the Facility or impose a lien or other encumbrance upon any property or asset of NYU or (ii) required to be expended in order to complete the Neuroradiosurgery Facility in accordance with Section 1.02(b) and U.S. Neuro has not made provision for such expenditures in a manner that is reasonably satisfactory to NYU, then NYU may (but shall not be under any obligation to), in addition to its other remedies hereunder, pay such amounts itself and offset such amounts against any amounts then payable by NYU to U.S. Neuro under this Agreement. If there are no payments owing under this Agreement for NYU to offset against, upon written notice from NYU, U.S. Neuro shall immediately reimburse NYU for the amount of such payment, together with interest thereon at the rate of 12% per annum from the date on which NYU made the payment to and including the date on which NYU is actually reimbursed therefor. 1.03 Delivery; Installation. Upon completion of the Neuroradiosurgery Facility to the extent necessary for installation of the Gamma Knife Equipment, to the satisfaction of NYU, U.S. Neuro shall take all steps necessary to deliver, or cause third persons to deliver, the Gamma Knife Equipment, together with all related software and user manuals, to the NYU facility 6 - 6 - and to undertake all procedures and tasks as are necessary to enable the Gamma Knife Equipment to be properly subjected to the Acceptance Tests, including Charging the Gamma Knife Equipment with its Cobalt Supply. As between U.S. Neuro and NYU, U.S. Neuro shall bear all costs and expenses of such delivery and installation and any liability associated therewith. 1.04 Acceptance Testing. (a) Promptly upon completion of the installation of the Gamma Knife Equipment in accordance with the terms of this Agreement and the Purchase Agreement, U.S. Neuro shall cause Elekta to perform the Acceptance Tests in the presence of U.S. Neuro and NYU and under the supervision of such radiation safety personnel as may be required by applicable law. U.S. Neuro shall be deemed to have accepted the Gamma Knife Equipment under the Purchase Agreement upon the completion of the Acceptance Tests and the demonstration that the Gamma Knife Equipment complies with the Specification. (b) NYU shall have the option of (but shall be under no obligation to) performing an inspection or causing a third party to perform an inspection on its behalf to confirm that the Gamma Knife Equipment and the Neuroradiosurgery Facility satisfy NYU's requirements under this Agreement. Any such inspection shall be fully supervised by U.S. Neuro and shall occur promptly following the testing conducted by Elekta. (c) Upon satisfactory completion of the inspection conducted by Elekta and any inspection conducted by or on behalf of NYU, NYU shall accept the Gamma Knife Equipment under this Agreement. 1.05 Documentation. U.S. Neuro shall promptly forward to NYU copies of all reports, documentation, notices, certificates, diagrams and other materials prepared by or on behalf of U.S. Neuro or Elekta relating to the delivery, installation and testing of the Gamma Knife Equipment. Upon any termination of this Agreement other than a termination resulting from NYU's exercise of its right to purchase the Gamma Knife Equipment or its right to terminate this Agreement pursuant to Section 8.01(b), NYU shall, upon written request of U.S. Neuro, return to U.S. Neuro all such documentation. ARTICLE II 2.01 Term. The term of NYU's possession and use of the Gamma Knife Equipment under this Agreement (the "Term") shall begin on the date on which NYU accepts the Gamma Knife Equipment pursuant to Section 1.04(c) and shall terminate on the seventh anniversary of such date, unless earlier terminated pursuant to this Agreement. 7 - 7 - 2.02 Renewal Option. Upon the expiration of the Term in accordance with Section 2.01 and upon the expiration of any Renewal Term (as defined below), NYU shall have the option, exercisable by giving written notice to U.S. Neuro within 90 days prior to the expiration of the Term, of extending the Term for successive three year periods (each, a "Renewal Term"). 2.03 Purchase Option. (a) At the end of the Term and at the end of each Renewal Term, NYU shall have the option of purchasing the Gamma Knife Equipment at a price equal to the then fair market value of the Gamma Knife Equipment as established by an appraiser chosen by NYU and reasonably satisfactory to U.S. Neuro. Any such sale shall be pursuant to instruments and documentation satisfactory to NYU including, without limitation, an express retention by U.S. Neuro of all liability for the installation, testing, maintenance and operation of the Gamma Knife Equipment prior to such transfer, other than liability in connection with the operation of the Gamma Knife Equipment resulting from action or inaction on the part of NYU which constitutes willful misconduct or negligence. NYU may exercise such option no later than 120 days prior to the end of the Term or any Renewal Term by notifying U.S. Neuro thereof in writing. (b) Notwithstanding clause (a) of this Section 2.03, within 10 days after delivery to U.S. Neuro of an appraisal pursuant to clause (a), U.S. Neuro may deliver written notice to NYU that it elects to in good faith negotiate the purchase price with NYU. In such event, U.S. Neuro shall bear half of the costs associated with the obtaining of the appraisal and the parties shall in good faith negotiate a purchase price for the Gamma Knife Equipment. Upon failure of the parties to agree to a purchase price prior to the end of the Term or such Renewal Term, U.S. Neuro may request that the Neuroradiosurgery Facility be closed. Upon receipt of a request of U.S. Neuro to close the Neuroradiosurgery Facility, NYU and U.S. Neuro shall negotiate in good faith to close the Facility subject to applicable law and regulations, provide for the Neuroradiosurgery Facility to be dismantled, the Gamma Knife Equipment to be removed and the premises to be restored to their original condition, in each case at the sole cost, expense and liability of U.S. Neuro. In the event that applicable law and regulations prevent the closing of the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Facility may be closed in accordance with applicable law and regulations. ARTICLE III 3.01 The NYU Facility. The Neuroradiosurgery Facility shall be available for patient care and staffed by NYU personnel during NYU's normal hospital business hours. NYU acknowl- 8 - 8 - edges that the availability of the Gamma Knife Equipment for patient care is subject to preventive maintenance work and unavoidable equipment failures. The Neuroradiosurgery Facility shall at all times be under the sole control of NYU and NYU may institute such policies and procedures concerning access to the Facility or otherwise as it may deem necessary or appropriate. 3.02 Personnel; Training. The Neuroradiosurgery Facility shall be staffed with physicists, nurses, technologists and clerical personnel as may be deemed necessary by NYU for the operation of the Neuroradiosurgery Facility. U.S. Neuro shall provide, or shall cause Elekta to provide, to the staff designated on Exhibit B hereto the training necessary for the proper operation of the Gamma Knife Equipment including, without limitation, all initial, upgrade and refresher training which is provided by Elekta. Such training shall be at the sole expense of U.S. Neuro except that U.S. Neuro shall not be responsible for payment of the travel and living expenses of NYU personnel incurred in connection with such training. 3.03 Physician and Physicist Training. U.S. Neuro shall provide, or shall cause Elekta to provide, comprehensive training on the use of the Gamma Knife Equipment for the physicians and physicists designated on Exhibit B hereto. Such training shall be at the sole expense of U.S. Neuro, except that U.S. Neuro shall not be responsible for payment of the travel and living expenses of NYU personnel incurred in connection with such training, and shall be provided at clinically operating sites which utilize equipment comparable to the Gamma Knife Equipment. 3.04 Medical and Office Supplies. U.S. Neuro shall purchase and maintain sufficient inventories of Gamma Knife Equipment supplies as may be necessary to ensure continuous availability of the Gamma Knife Equipment during the business hours of the Neuroradiosurgery Facility. U.S. Neuro shall not be responsible hereunder for the purchase of expendable supplies used in the operation of the Neuroradiosurgery Facility (e.g. sponges, office supplies, medications and solutions). 3.05 Physician Relationships. NYU shall direct and administer all physician services provided at the Neuroradiosurgery Facility. U.S. Neuro shall have no oversight or other role in directing or administering such physician services or the operation of the Neuroradiosurgery Facility. NYU shall provide to U.S. Neuro a copy of the curriculum vitae of each physicist and physician operating the Gamma Knife Equipment. 3.06 Information. U.S. Neuro and NYU shall cooperate in an effort to provide information to the general public about the Gamma Knife Equipment and the Neuroradiosurgery Facility. The cost of materials produced pursuant to this Section 3.06 shall be shared equally by U.S. Neuro and NYU. 9 - 9 - ARTICLE IV 4.01 Maintenance of Gamma Knife Equipment. (a) U.S. Neuro shall, at its sole cost and expense, be responsible for (i) the maintenance, repair and insuring of the Gamma Knife Equipment in accordance with the terms of this Agreement, the Purchase Agreement, the DVI Lease Agreement, applicable law and regulations and any directives issued by Elekta, and otherwise in good, safe and efficient operating repair, appearance and condition including, without limitation, keeping all components properly calibrated and aligned and making all required adjustments, replacements and repairs (except that (A) NYU shall perform such daily and routine calibration, alignment and cleaning with respect to which U.S. Neuro has provided training to the staff of the Neuroradiosurgery Facility pursuant to Section 3.02 and 3.03 and (B) U.S. Neuro shall not bear the cost of, but shall otherwise be responsible for, repairs resulting from action on the part of NYU which constitutes willful misconduct or negligence), and (ii) full compliance with all of the terms and conditions of the Purchase Agreement and the DVI Lease Agreement, and, in each case, NYU hereby expressly disclaims any such responsibility. At a minimum, U.S. Neuro shall purchase a preventive maintenance contract from Elekta or from a vendor approved by Elekta, which contract shall provide for a remote service diagnostic program, replenishment of radioactive cobalt 60 as necessary for the proper operation of the Gamma Knife Equipment and removal and disposal of such cobalt, and updating/upgrading of computer software as new updates/upgrades which are clinically efficacious and financially feasible become available. (b) NYU shall have no duty to inspect the Gamma Knife Equipment or perform any maintenance or other tasks described in Section 4.01(a) (except the daily and routine calibration, alignment and cleaning referred to therein) and U.S. Neuro shall perform such regular inspections of the Gamma Knife Equipment as it shall deem necessary to comply with its obligations under Section 4.01(a). However, in the event that a maintenance or other problem is brought to the attention of NYU, NYU shall promptly notify U.S. Neuro thereof and U.S. Neuro shall immediately take all steps which may be required to ensure compliance with Section 4.01(a). (c) All repairs and preventive maintenance will be performed during regular business hours and pursuant to a schedule agreed upon by U.S. Neuro and NYU to minimize delays, interruptions and disruptions of service to patients of the Neuroradiosurgery Facility and its medical staff. Emergency maintenance and repairs will be performed by U.S. Neuro at such times as U.S. Neuro and NYU may agree. 10 - 10 - 4.02 Updates, upgrades and enhancements. U.S. Neuro will purchase and arrange for installation of all hardware and software updates to the Gamma Knife Equipment at its sole cost and expense. U.S. Neuro shall notify NYU in writing promptly upon receipt of notice from Elekta of the availability of any optional and/or mandatory upgrades or enhancements of the Gamma Knife Equipment (other than the hardware and software contained therein) and NYU and U.S. Neuro shall mutually determine whether acquisition of such upgrade or enhancement is necessary for the Neuroradiosurgery Facility to remain competitive with other neuroradiosurgery facilities. If purchase and installation of such upgrade or enhancement is determined to be necessary for the Neuroradiosurgery Facility to remain competitive with other neuroradiosurgery facilities, then U.S. Neuro will purchase and arrange for installation of such upgrade and/or enhancement. If any such upgrade or enhancement is not determined to be necessary for the Neuroradiosurgery Facility to continue to be competitive but NYU requests in writing that U.S. Neuro acquire such upgrade or enhancement, then (a) U.S. Neuro shall purchase and arrange for installation of such upgrade or enhancement and such upgrade or enhancement shall, upon installation, become part of the Gamma Knife Equipment covered by this Agreement and (b) the schedule of charges set forth in Section 5.01 shall be increased by an amount sufficient for U.S. Neuro to recover the cost of such upgrade or enhancement over a period of time together with a reasonable profit, such increases and payment schedule to be acceptable to NYU and U.S. Neuro. 4.03 Uptime. U.S. Neuro shall use its best efforts to obtain an uptime guaranty for the benefit of U.S. Neuro and NYU from Elekta which assures that the Gamma Knife Equipment will be fully operational for patient use at all times except such times which, in the aggregate, do not exceed 5% of the total business hours of the Neuroradiosurgery Facility in any calendar year. 4.04 Purchase Agreement. U.S. Neuro shall, at its sole expense, exercise all rights as "purchaser" under the Purchase Agreement, or shall cause DVI to exercise such rights, and obtain all benefits with respect to the Gamma Knife Equipment thereunder, as may be required in order for U.S. Neuro to comply with its obligations under this Agreement or as may be requested in writing by NYU in connection with the operation of the Gamma Knife Equipment or the Neuroradiosurgery Facility or the performance by NYU of its obligations under this Agreement. 4.05 Risk of Loss. As between U.S. Neuro and NYU, U.S. Neuro shall exclusively bear all risk of loss, requisition, damage, theft or destruction with respect to the Gamma Knife Equipment, except that U.S. Neuro shall not bear any such risks which result from any action or failure to act on the part of NYU which constitutes willful misconduct or negligence. 11 - 11 - 4.06 Removal of Equipment. If, for any reason other than an exercise of remedies by NYU pursuant to Section 8.01(b), the Gamma Knife Equipment is to be removed from the Neuroradiosurgery Facility, NYU shall be given at least 90 days advance written notice of such proposed removal, together with a written plan describing the steps to be taken to remove the Equipment, to restore the Neuroradiosurgery Facility to its original condition and to cover the costs of such removal including, without limitation, appropriate insurance and indemnification of NYU. NYU shall have the right to review and give its prior approval (such approval not to be unreasonably withheld or delayed) of any such plan and the work to be taken pursuant to such plan. Any removal of the Gamma Knife Equipment from the Neuroradiosurgery Facility shall be (a) subject to applicable law and regulations and (b) at the sole cost and liability of U.S. Neuro. In the event that applicable law and regulations prevent the removal of the Gamma Knife Equipment from the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Equipment may be removed in accordance with applicable law and regulations. ARTICLE V 5.01 U.S. Neuro Compensation. As U.S. Neuro's sole compensation for the provision of the Gamma Knife Equipment for the Neuroradiosurgery Facility and all related services provided hereunder, NYU agrees to pay to U.S. Neuro a fee based on the number of patient procedures performed with the Gamma Knife Equipment in accordance with the following schedule:
Consecutive Number of Patient Procedures Fee per Procedure - ---------------------------------------- ----------------- first through 150th (inclusive) patient procedures $10,000 151st through 200th (inclusive) patient procedures $ 8,000 200th and subsequent patient procedures $ 7,000;
provided that (a) with respect to any patient procedure using the Gamma Knife Equipment for which NYU is not reimbursed for the full DRG inpatient amount: (i) because NYU and U.S. Neuro have both participated in an agreement by NYU with a third-party or the New York State governmental authorities that determine DRG reimburse- 12 - 12 - ment (the "Governmental Authorities") to a negotiated fee that is lower than the full DRG inpatient reimbursement, NYU shall be required to pay to U.S. Neuro the percentage of the actual amount received by NYU as payment for such patient procedure agreed by NYU and U.S. Neuro; (ii) because NYU has, without participation by U.S. Neuro, agreed with a third-party or with the Governmental Authorities to a negotiated fee that is lower than the full DRG inpatient reimbursement, NYU shall be required to pay to U.S. Neuro the full fee set forth above; (iii) because NYU has determined in its sole discretion to provide charity care using the Gamma Knife Equipment to a patient, NYU shall be required to pay to U.S. Neuro 50% of the actual amount received by NYU, if any, as payment for such patient procedure; and (iv) because a determination has been made by a third party or the Governmental Authorities to reimburse NYU with respect to such patient procedure at a rate applicable to ambulatory surgery procedures or "short-stay" hospital procedures, NYU shall be required to pay to U.S. Neuro 50% of the actual amount received by NYU as payment for such patient procedure; and (b) any patient procedure using the Gamma Knife Equipment for which NYU is not reimbursed for the full DRG inpatient amount (other than pursuant to clause (ii) of the proviso to this Section 5.01) shall not be counted for purposes of calculating the consecutive number of patient procedures referenced above; provided, further, that (x) in the event the number of patient procedures for which NYU is not reimbursed for the full DRG inpatient amount for the reason specified in clause (iii) of the immediately preceding proviso during any calendar quarter exceeds 10% of all patient procedures performed using the Gamma Knife Equipment during such calendar quarter, U.S. Neuro may request that U.S. Neuro and NYU consult in good faith as to appropriate adjustments to the provisions of Section 5.01 covering such procedures and (y) in the event the number of patient procedures for which NYU is not reimbursed for the full DRG inpatient amount for the reasons specified in clauses (iii) and (iv) of the immediately preceding proviso during any calendar quarter exceeds 40% of all patient procedures performed using the Gamma Knife Equipment during such calendar quarter, U.S. Neuro shall have the option, exercisable upon delivery of written notice to NYU, to request that the Neuroradiosurgery Facility be closed. Upon receipt of a request of U.S. Neuro to close the Neuroradiosurgery Facility, NYU and U.S. Neuro shall negotiate in good faith to either (I) substitute a revised payment scheme taking into account the actual number of reduced-fee patient procedures or (II) subject to applicable law and regulations, provide for the 13 - 13 - Neuroradiosurgery Facility to be dismantled, the Gamma Knife Equipment to be removed and the premises to be restored to their original condition, in each case at the sole cost, expense and liability of U.S. Neuro. In the event that applicable law and regulations prevent the closing of the Neuroradiosurgery Facility, this Agreement shall continue on the same terms and conditions until the earliest date upon which the Facility may be closed in accordance with applicable law and regulations. U.S. Neuro acknowledges and agrees that (a) its participation in any negotiations with third parties or the Governmental Authorities as to reimbursement for Gamma Knife procedures may occur indirectly through NYU and U.S. Neuro agrees to use reasonable efforts to consult with NYU in a timely manner with respect to any such negotiations and (b) ultimately, NYU shall have the right to make agreements with such third parties and the Governmental Authorities as NYU shall deem necessary or appropriate and if U.S. Neuro shall not have participated in the negotiation of any such agreement, the fee payable to U.S. Neuro shall be determined in accordance with clause (a) (ii) of the first proviso to Section 5.01. NYU and U.S. Neuro agree that, in the event the Governmental Authorities implement changes to the DRG reimbursement scheme that materially effect the reimbursement rates for patient procedures using the Gamma Knife Equipment, NYU and U.S. Neuro will negotiate in good faith to substitute a revised payment scheme corresponding to such changes and maintaining, to the extent possible, the allocation of amounts received as reimbursement between NYU and U.S. Neuro set forth in Section 5.01. 5.02 Billing and Collection. NYU shall be the only party entitled to bill and collect from third party payors and patients for patient procedures using the Gamma Knife Equipment and for the use of the Neuroradiosurgery Facility. Physicians who perform patient procedures using the Gamma Knife Equipment shall be responsible for billing and collection of fees for their services to patients, and U.S. Neuro shall have no interest in such fees. 5.03 Payment Procedures. (a) Payment Procedure. Within ten (10) days after the end of each month in which patient procedures are performed by NYU using the Gamma Knife Equipment in the Neuroradiosurgery Facility (the "Current Month"), NYU shall pay to U.S. Neuro an amount equal to (i) the number of patient procedures performed by NYU during the Current Month for which NYU expects to receive full DRG reimbursement multiplied by the appropriate fee or fees stated in 5.01 above for such procedures plus (ii) with respect to patient procedures performed by NYU during the Current Month or prior months for which NYU did not receive the full DRG 14 - 14 - inpatient reimbursement amount, the amount, if any, determined to be payable by NYU pursuant to the first proviso to Section 5.01 (and which are not covered by fees payable pursuant to clause (i) of this Section 5.03). (b) Right of Set Off. Notwithstanding the provisions of Section 5.03(a) and in addition to any other offset rights contained in this Agreement, in the event that NYU makes a payment to U.S. Neuro in error or based on a reimbursement payment which is later denied, rescinded, revoked or in an amount less than originally expected by NYU, NYU shall have the right to offset the amount of such erroneous payments against any amounts due and payable to U.S. Neuro under Section 5.03(a). If, for any reason, there are no payments under Section 5.03(a) against which NYU may offset such amounts, U.S. Neuro will pay such amounts to NYU in immediately available funds promptly upon receipt of a written statement from NYU therefor. 5.04 Taxes. Any taxes or other similar charges with respect to the Gamma Knife Equipment shall be payable by U.S. Neuro. Upon written request of U.S. Neuro, NYU will provide to U.S. Neuro a copy of any applicable exemption certificate for sales, use or similar taxes which may otherwise be assessable. 5.05 Patient Procedure Record; Inspection. (a) NYU shall maintain a record in which NYU shall list the number of patient procedures at the Neuroradiosurgery Facility using the Gamma Knife Equipment. Such record shall be available for inspection by duly authorized representatives of U.S. Neuro during normal business hours of the Neuroradiosurgery Facility upon advance written notice to NYU delivered at least 5 business days prior to the proposed date of inspection; provided that any such inspection shall not interfere with the normal operations of the Neuroradiosurgery Facility. (b) On no more than two occasions per calendar year, U.S. Neuro shall have the right to perform an audit of NYU's books and records pertaining to NYU's reimbursement for patient procedures performed using the Gamma Knife Equipment to verify NYU's compliance with Article V of this Agreement. Any such audit shall be conducted during NYU's normal business hours upon advance written notice to NYU delivered at least 30 days prior to the proposed date of audit; provided that any such audit shall not interfere with the normal operations of the Neuroradiosurgery Facility or NYU. (c) Any inspection or audit performed pursuant to this Section 5.05 shall be subject to such limitations and procedures as NYU shall deem necessary or appropriate to protect the confidentiality of information concerning NYU's patients and proprietary information of NYU in accordance with all applicable laws and NYU policies. 15 - 15 - ARTICLE VI INDEMNITY AND INSURANCE 6.01 Indemnification. (a) U.S. Neuro shall protect, indemnify, defend and hold NYU, its employees and trustees harmless from and against any and all cost, loss, damage, liability, obligation, penalty, claim, action, suit and/or expense including, but not limited to, reasonable attorneys fees, (whether or not on the basis of negligence, strict or absolute liability, liability in tort or otherwise) in any way arising out of or resulting from (i) the design and construction of the Neuroradiosurgery Facility, (ii) the design, manufacture, maintenance, purchase, acceptance, condition or operation of the Gamma Knife Equipment, (iii) this Agreement, the Purchase Agreement, the DVI Lease Agreement or any other agreement entered into by U.S. Neuro, any affiliate of U.S. Neuro, DVI and/or NYU relating to lease or other financing or securitization arrangements made with respect to the Gamma Knife Equipment and/or the construction of the Neuroradiosurgery Facility or (iv) any failure by the Neuroradiosurgery Facility or the Gamma Knife Equipment to comply with applicable laws and regulations. (b) NYU shall protect, indemnify, defend and hold U.S. Neuro and its employees harmless from and against any and all cost, loss, damage, liability, obligation, penalty, claim, action, suit which is solely and directly the result of (i) negligence on the part of NYU or (ii) a breach by NYU of its obligations under this Agreement. (c) The terms of this Section 6.01 shall survive the termination of this Agreement. 6.02 General Liability. Throughout the term of this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall cause each subcontractor to maintain) a policy or policies of insurance providing coverage against all liability resulting from injury to persons or property attributable to the Gamma Knife Equipment and/or U.S. Neuro personnel or agents on which U.S. Neuro and NYU are named as additional insureds. Such insurance shall include products/completed operations liability as well as broad form blanket contractual liability coverage and professional liability coverage. Coverage under such insurance shall be in the amount of $5,000,000 per occurrence/ $5,000,000 aggregate and shall be underwritten by insurance companies reasonably acceptable to NYU's Director of Insurance. 6.03 Fire and Extended Coverage Insurance. Throughout the term of this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall cause each subcontractor to maintain), fire and extended coverage insurance underwritten by insurance 16 - 16 - companies authorized to do business in the State of New York on the Gamma Knife Equipment to the extent of its full replacement value protecting against loss by fire, the elements, and other casualties customarily covered by standard fire and extended coverage insurance policies within the State of New York. 6.04 Automobile Liability Insurance. If U.S. Neuro will be using automobiles (including vans, buses or similar vehicles) in connection with its performance of services under this Agreement, U.S Neuro shall procure and maintain at its cost (and shall cause each subcontractor to procure and maintain), during the life of this Agreement, Automobile Liability Insurance in an amount not less than $1,000,000 for bodily injury or death resulting therefrom for each occurrence, and property damage in an amount not less than $1,000,000 for each occurrence. This insurance shall apply to all owned, non-owned, leased or hired vehicles. 6.05 Construction. The contracts covering the construction of the Neuroradiosurgery Facility which are executed by U.S. Neuro shall require certain types and amounts of insurance to be procured and maintained by U.S. Neuro and the subcontractors thereunder at the cost of U.S. Neuro and/or such subcontractor, including, without limitation, blanket explosion, collapse and underground coverage, professional liability coverage, general and commercial liability coverage (including, without limitation, premises operations liability, occurrence bodily injury and broad form property damage liability, broad form contractual liability and independent contractors liability coverage). All such insurance shall be satisfactory to NYU in all respects. 6.06 Other Insurance. Throughout the term of this Agreement, U.S. Neuro shall procure and maintain at its cost (and shall cause any subcontractor to procure and maintain), insurance coverage mandated by law for worker's compensation, occupational diseases, and employer's liability. Such insurance shall be underwritten by companies authorized to do business in the State of New York. 6.07 Insurance Policies; Certificates. All insurance policies (except worker' compensation) shall be endorsed (i) to include NYU as an additional insured, (ii) to provide that each underwriter thereof agrees that it shall have no right of recovery or subrogation against NYU, (iii) to provide that any "other insurance provisions" in any such policy shall not apply to NYU, (iv) to provide that such insurance companies shall have no recourse against NYU for payment of any premium or for assessments under any mutual form of policy and (v) that any and all deductibles in such insurance policies shall be assumed by, for the account of, and at the sole risk of U.S. Neuro (or the relevant subcontractor). NYU shall be furnished on an annual 17 - 17 - basis upon renewal or expiration of each policy, and upon request at any time, a current certificate evidencing each such policy or policies and all additions and amendments thereto, and all policies shall bear endorsements to the effect that the insurer will notify NYU not less than 60 days prior to any modification or cancellation thereof. U.S. Neuro shall cause NYU to be furnished with complete copies of any policies referred to in this Article upon request of NYU. ARTICLE VII 7.01 Exclusive Rights. The Purchase Agreement contains a provision for the benefit of U.S. Neuro which prevents Elekta, for a period of twelve months following delivery of the Gamma Knife Equipment to the Neuroradiosurgery Facility, from delivering any gamma knife equipment to any third person for installation in any of the four following boroughs of New York City: Manhattan, Bronx, Brooklyn and Queens; and Westchester County; without having first given U.S. Neuro a right of first refusal to purchase such equipment. U.S. Neuro acknowledges and agrees that NYU is intended to be a third-party beneficiary of such agreement. In the event that Elekta offers to U.S. Neuro the right to purchase a gamma knife (as described above), U.S. Neuro shall within twenty-four hours thereafter notify NYU in writing thereof and shall provide to NYU such details relating to the gamma knife, the proposed sale to a third person and the terms of U.S. Neuro's right of first refusal as NYU may request. At the election of NYU, U.S. Neuro and NYU shall negotiate in good faith to structure and consummate a transaction involving the purchase or lease (and financing, if applicable) of such gamma knife equipment by U.S. Neuro and an agreement for its use at NYU or, if the demand for gamma knife procedures is significantly greater at another location within such area, at such location as NYU and U.S. Neuro shall agree; provided that in the event that NYU and U.S. Neuro shall have negotiated in good faith during the period that is twenty days following delivery of notice by U.S. Neuro to NYU hereunder and no agreement on the basic terms of the transaction have been reached (x) U.S. Neuro shall request that Elekta extend the period during which the right of first refusal may be exercised and (y) if Elekta refuses such request or upon the expiration of one-half of the period of any extension granted by Elekta beyond the original thirty-day period offered by Elekta to U.S. Neuro under the Purchase Agreement, the parties shall have no further obligation to continue negotiating and U.S. Neuro may proceed to effect such a transaction without involvement of NYU. 7.02 Representations and Warranties. U.S. Neuro represents and warrants that (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction 18 - 18 - of its organization, and is qualified and in good standing to do business wherever necessary to carry on its present business and operations, including New York State, (ii) it has the power to enter into the Purchase Agreement, the DVI Lease Agreement and this Agreement and the other instruments and documents executed by U.S. Neuro in connection therewith and herewith (the "Transactional Documents") and to pay and perform its obligations under this Agreement and the other Transactional Documents), (iii) this Agreement and the other Transactional Documents have been duly authorized, executed and delivered by U.S. Neuro, and constitute the valid, legal and binding obligations of U.S. Neuro enforceable in accordance with their terms, (iv) no vote or consent of, or notice to, the holders of any class of stock of U.S. Neuro is required, or if required, such vote or consent has been obtained or given, to authorize the execution, delivery and performance of this Agreement and the other Transactional Documents by U.S. Neuro, (v) neither the execution and delivery by U.S. Neuro of this Agreement or the other Transactional Documents, nor the consummation by U.S. Neuro of the transactions contemplated hereby or thereby, nor compliance by U.S. Neuro with the provisions hereof or thereof, conflicts with or results in a breach of any of the provisions of any Certificate of Incorporation or Bylaw or partnership or trust agreement or certificate of U.S. Neuro, or of any applicable law, judgment, order, writ, injunction, decree, award, rule or regulation of any court, administrative agency or other governmental authority, or of any indenture, mortgage, deed of trust, lease, equipment purchase agreement or other agreement or instrument of any nature to which U.S. Neuro is a party or by which it or its property is bound or affected or pursuant to which it is constituted, or constitutes a default under any thereof or will result in the creation of any lien, charge, security interest or other encumbrance upon the Gamma Knife Equipment other than the interests therein of DVI and Elekta, or upon any other right or property of U.S. Neuro, (vi) no consent, approval, withholding of objection or other authorization of or by any court, administrative agency, other governmental authority or any other person is required, except such consents, approvals or other authorizations which have been duly obtained and are in full force and effect and copies of which have been furnished to NYU, in connection with the execution, delivery or performance by U.S. Neuro, or the consummation by U.S. Neuro, of the transactions contemplated by this Agreement and the other Transactional Documents, (vii) there are no actions, suits or proceedings pending, or, to the knowledge of U.S. Neuro, threatened, in any court or before any administrative agency or other governmental authority against or affecting U.S. Neuro, which, if adversely decided would or could, individually or in the aggregate, materially and adversely affect the financial or other condition, business, operations, properties, assets or prospects of U.S. Neuro or the ability of U.S. Neuro to perform any of its obligations under this Agreement or under the other Transactional Documents, except for any such actions, suits 19 - 19 - or proceedings that U.S. Neuro has described in writing to NYU, (viii) no event of default or event or condition which upon the passage of time, the giving of notice, or both, would constitute an event of default hereunder or under any Transactional Document, exists or is continuing, (ix) there has been no material adverse change or threatened change in U.S. Neuro's financial or other condition, business, operations, properties, assets or prospects since the date of U.S. Neuro's most recent financial statements reported on by an independent public accounting firm prior to the date of this Agreement, or from the written information that has been supplied to NYU by U.S. Neuro and (x) all information supplied to NYU by U.S. Neuro is correct and does not omit any statement necessary to make the information supplied not misleading. ARTICLE VIII 8.01 Default by U.S. Neuro; Remedies. (a) Event of Default Defined. If any of the following events occurs, then such event shall be considered an "Event of Default" with respect to U.S. Neuro under this Agreement: (i) Failure to Perform. If (A) U.S. Neuro fails to observe or perform any of the covenants, terms or conditions set forth in this Agreement or (B) DVI or any bank or other third party fails to observe or perform its obligations with respect to U.S. Neuro's lease or other financing of the Gamma Knife Equipment or the construction of the Neuroradiosurgery Facility, and in each case such failure continues for a period of thirty (30) days after written notice thereof is given by NYU to U.S. Neuro (unless such failure cannot reasonably be cured within such 30-day period and U.S. Neuro commences to cure such failure within such 30-day period and continues diligently without interruption to pursue the curing of the same until completed); or (ii) Breach of Representations. If any representation or warranty of U.S. Neuro contained in this Agreement shall be incorrect or false in any material respect; or (iii) Bankruptcy of U.S. Neuro. U.S. Neuro shall consent to the appointment of or taking possession by a receiver, assignee, custodian, sequestrator, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or U.S. Neuro shall admit in writing its inability to pay its debts generally as they come due or shall fail generally to pay its debts as they become due or shall make a general assignment for the benefit of its creditors, or U.S. Neuro shall file a voluntary petition in bankruptcy or a voluntary petition or answer seeking or consenting to liquidation, reorganization or 20 - 20 - other relief with respect to itself or its debts under the Federal bankruptcy laws, as now or hereafter constituted or any other applicable Federal or State bankruptcy, insolvency or other similar law, or shall consent to the entry of an order for relief in an involuntary case under any such law or U.S. Neuro shall file an answer admitting the material allegations of a petition filed against it in any such proceeding, or otherwise seek relief or consent to the granting of relief under the provisions of any existing or future Federal or State bankruptcy, insolvency or other similar law providing for the reorganization or winding-up of corporations, or providing for an arrangement, agreement, composition, extension or adjustment with its creditors, or U.S. Neuro shall take or publicly announce its intention to take corporate action in furtherance of any of the foregoing; or (iv) Default in Other Agreements. If a default occurs under any agreement between U.S. Neuro and any third party providing equipment, services or financing to U.S. Neuro in connection with the Gamma Knife Equipment, which default is not cured within the applicable cure period set forth under such agreement. (b) Remedies. Upon the occurrence of an Event of Default as defined in Section 8.01(a), NYU shall be entitled without any further notice to U.S. Neuro, to elect to exercise one or more remedies then available including, without limitation (i) exercising one or more of its options under any separate agreement between DVI and NYU, (ii) terminating this Agreement and requiring U.S. Neuro to remove the Gamma Knife Equipment from the Neuroradiosurgery Facility, or (iii) exercising any remedies which may be available to NYU under applicable law, and/or to seek any other remedies to which it may be entitled at law or equity. Further, if the Event of Default is bankruptcy of U.S. Neuro, then NYU shall be entitled to relief from any automatic stay imposed by Section 362 of Title 11 of the U.S. Code, as amended, or otherwise, on or against the exercise of the rights and remedies otherwise available to NYU. In the event of any bankruptcy filing by or against U.S. Neuro, U.S. Neuro agrees that neither U.S. Neuro nor the debtor in possession nor the bankruptcy trustee shall seek to assume nor shall any of them be entitled to assume this Agreement and in such event NYU may immediately seek to exercise any of its rights and remedies under this Agreement. 8.02 Default by NYU; Remedies. (a) Event of Default Defined. If any of the following events occurs, then such event shall be considered an "Event of Default" with respect to NYU under this Agreement. 21 - 21 - (i) Nonpayment. If NYU fails to make any payment within forty-five (45) days of the date such payment was due to U.S. Neuro hereunder, and such failure of payment continues for more than fifteen (15) days following written notice from U.S. Neuro; or (ii) Failure to Perform. If NYU fails to observe or perform any of the covenants, terms or conditions set forth in this Agreement and such failure continues for a period of thirty (30) days after written notice thereof is given by U.S. Neuro to NYU (unless such failure cannot reasonably be cured within such 30-day period and NYU commences to cure such failure within such 30-day period and continues diligently without interruption to pursue the curing of the same until completed); or (iii) Bankruptcy of NYU. NYU shall consent to the appointment of or taking possession by a receiver, assignee, custodian, sequestrator, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or NYU shall admit in writing its inability to pay its debts generally as they come due or shall fail generally to pay its debts as they become due or shall make a general assignment for the benefit of its creditors, or NYU shall file a voluntary petition in bankruptcy or a voluntary petition or answer seeking or consenting to liquidation, reorganization or other relief with respect to itself or its debts under the Federal bankruptcy laws, as now or hereafter constituted or any other applicable Federal or State bankruptcy, insolvency or other similar law, or shall consent to the entry of an order for relief in an involuntary case under any such law or NYU shall file an answer admitting the material allegations of a petition filed against it in any such proceeding, or otherwise seek relief or consent to the granting of relief under the provisions of any existing or future Federal or State bankruptcy, insolvency or other similar law providing for the reorganization or winding-up of corporations, or providing for an arrangement, agreement, composition, extension or adjustment with its creditors, or NYU shall take or publicly announce its intention to take corporate action in furtherance of any of the foregoing. (b) Remedies. Upon the occurrence of an Event of Default as defined in Section 8.02(a), U.S. Neuro shall be entitled, without any further notice to NYU, to terminate this Agreement, to remove the Gamma Knife Equipment from the Neuroradiosurgery Facility in accordance with Section 4.06, to exercise any remedies which may be available to U.S. Neuro under this Agreement, and to seek any other remedies to which it may be entitled at law or equity. 22 - 22 - ARTICLE IX 9.01 Notices. All notices under this Agreement shall be delivered in hand or sent by registered mail or certified mail, return receipt requested, postage prepaid, addressed as follows: If to NYU: New York University Medical Center 550 First Avenue New York, NY 10016 Attn: Vice President for Finance If to U.S. Neuro: U.S. Neurosurgical, Inc. Attn: President 1350 Piccard Drive Suite 360 Rockville, MD 20850 or to such other addresses as may from time to time be designated by any party by like notice. ARTICLE X 10.01 Waiver. A waiver by either party of any breach or breaches, default or defaults, of the other party hereunder shall not be deemed or construed to be a continuing waiver of such breach or default, nor as a waiver or permission, express or implied, of any subsequent breach or default, unless such waiver be in writing. 10.02 Remedies Cumulative. NYU's and U.S. Neuro's rights and remedies shall be cumulative and may be exercised and enforced concurrently. Any right or remedy conferred upon either party under this Agreement shall not be deemed to be exclusive of any other right or remedy it may have. 10.03 Compliance with Laws, Etc. Each party shall comply with all laws and regulations applicable to the performance of its obligations hereunder and U.S. Neuro shall make available to NYU requested data or information necessary to comply with requirements of regulatory agencies (including, but not limited to, Medicare, Medicaid, the Nuclear Regulatory Commission, and the New York State Department of Health), and the Joint Commission on the Accreditation of Health Care Organization and other accrediting bodies, as applicable. 23 - 23 - 10.04 No Practice of Medicine by U.S. Neuro. Neither U.S. Neuro nor any of its personnel shall in any way undertake the practice of medicine, render medical opinions or services, or in any way deal with patients in connection with the operation of the Gamma Knife Equipment or the Neuroradiosurgery Facility hereunder, other than to provide those specific ancillary and technical services required for proper operation of the Gamma Knife Equipment. Further, U.S. Neuro covenants that it will not, directly or indirectly, employ or contract for use or operation of the Gamma Knife Equipment by any physician, group of physicians, physician organization or organization providing physician services. 10.05 Assignment. (a) By NYU. NYU may, without consent or approval by U.S. Neuro, assign this Agreement to (i) a parent, subsidiary, affiliate or related entity to NYU; (ii) an entity that acquires substantially all of the ownership interests or assets of NYU or the NYU Medical Center (or any successor to the foregoing) or (iii) an entity formed by NYU or NYU Medical Center (or any successor to the foregoing) and other institutions, and upon delivering notice of any such assignment, NYU shall be released from any further obligation to U.S. Neuro hereunder, except for payment for services rendered through the date of assignment. Except as provided in the preceding sentence, NYU may assign this Agreement only with the prior written consent of U.S. Neuro, which consent will not be unreasonably withheld or delayed. U.S. Neuro may condition its consent upon reasonable assurances of performance received from NYU's assignee. Unless U.S. Neuro's consent to assignment specifically releases NYU, no such assignment shall release NYU from liability to U.S. Neuro under this Agreement for periods prior to such assignment. (b) By U.S. Neuro. U.S. Neuro may assign this Agreement only with prior written consent of NYU. (c) Subcontracts. U.S. Neuro may not assign, delegate or subcontract any of its obligations under this Agreement to a third person without obtaining the prior written consent of NYU. 10.06 HHS Requirements. Pursuant to the provisions of Section 952, Section 1861(v)(1) of the United States Social Security Act as amended, U.S. Neuro agrees for a period of up to four (4) years after furnishing service under this Agreement, to make this Agreement and certain of its books, documents, and records available, upon written request of the Secretary of the United States Department of Health and Human Services, or upon the written request of the United States Controller General, or their representatives, for the purpose of determining the nature and extent of the reasonable cost under this Agreement. U.S. Neuro further agrees that should it be permitted to subcontract 24 - 24 - any of the services it performs under this Agreement, U.S. Neuro will require its subcontractors to agree to a similar provision to make available books, documents and records until the expiration of four (4) years after furnishing such services under this Agreement in the same manner as set forth above. 10.07 Partial Invalidity. If any term, covenant, condition or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, all other provisions of this Agreement, or the application of such terms or provisions to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each and every other term, covenant, condition and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 10.08 Successors. All rights and liabilities herein given to or imposed upon the respective parties hereto shall, except as may be otherwise herein restricted, prohibited or provided, extend to and bind the respective successors and permitted assigns of the parties. 10.09 No Partnership or Agency. In connection with the rights, obligations and performance of this Agreement, NYU shall in no event be construed or held to be a partner, associate, principal or agent of U.S. Neuro in the conduct of U.S. Neuro's business or otherwise, or a joint venturer or a member of a joint enterprise with U.S. Neuro, nor shall NYU be liable for any debts incurred by U.S. Neuro in the conduct of U.S. Neuro's business, but it is understood and agreed that the relationship between the parties hereto is and at all times shall remain that of independent contractors. 10.10 Delay in Performance due to Force Majeure. In the event either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of fire, catastrophe, acts of God or the public enemy, government agency (including New York State Health Systems Agency), prohibitions or delays in approval, strikes, lockouts, civil commotions, inability to obtain materials or labor, governmental regulations or prohibitions, failure of power or other utilities, or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this Agreement, then performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. 10.11 Governing Law. This Agreement shall be governed exclusively by the provisions hereof and by the laws of the State of New York, as the same may from time to time exist. By its 25 - 25 - execution of this Agreement, U.S. Neuro subjects itself to the jurisdiction of, and consents to be sued by NYU in, any court of the City or State of New York or of the United States of America located in the Borough of Manhattan, City and State of New York, with respect to any matter arising from this Agreement. U.S. Neuro agrees that the filing in any such court of a true copy of this Agreement by NYU shall constitute conclusive evidence of such consent, and that any summons, complaint or other document required by NYU to commence any lawsuit in any such court may be served upon it by messenger or mailed by prepaid registered or certified first class mail, return receipt requested, to its address set forth in Section 9.01. 10.12 Captions. The captions, section numbers and article numbers appearing in this Agreement in no way define, limit, construe or describe the scope or intent of such sections or articles of this Agreement. 10.13 Entire Agreement. This Agreement, together with all attached exhibits, set forth all the covenants, promises, agreements, conditions and understandings between NYU and U.S. Neuro concerning the subject matter hereof. There are no oral agreements or understandings between the parties hereto affecting this Agreement, and this Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements and understandings, if any, between the parties hereto with respect to the subject matter hereof. Except as herein otherwise expressly provided, no subsequent alteration, amendment, change or addition to this Agreement shall be binding upon NYU or U.S. Neuro unless reduced to writing and signed by them. 10.14 Confidentiality. Each of U.S. Neuro and NYU understands that this Agreement and any information provided to or made available to the other party which has been marked "confidential" and, with respect to U.S. Neuro, all information and data concerning patients of NYU, any patient procedure using the Gamma Knife Equipment and the business affairs of NYU, is considered by U.S. Neuro and NYU to be privileged and confidential. Each of U.S. Neuro and NYU agrees that it will treat this Agreement and any such information and data as privileged and confidential and will not, without the prior written consent of the other party, disclose or cause to be disclosed the terms hereof or thereof to any person, except as may be required by applicable law or by the terms of this Agreement. 26 IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be duly executed in multiple counterpart copies, each of which shall be deemed an original, but together shall constitute one and the same instrument, as of the date first set forth above. NEW YORK UNIVERSITY By: --------------------------- Title: ------------------------ U.S. NEUROSURGICAL, INC. By: --------------------------- Title: ------------------------ 27 EXHIBIT A GAMMA KNIFE HARDWARE SPECIFICATIONS TREATMENT PLANNING SYSTEM Leksell GanmmaPlan High End, 735/125 To Include: 1)128 MB RAM 2) Codonics Printer in addition to standard HP Laserjet 5MP printer Back-Up software $10,000.00 CALIBRATION EQUIPMENT a. Electrometer - CNMC Model 206 $4,000.00 b. Chamber - Capentec PR-05P (0.07cc) $1,188.00 c. Cable $260.00 d. Barometer - Thommen PB1 $375.00 e. Thermometer - T- lA $75.00 QUALITY CONTROL AND RADIATION SAFETY EQUIPMENT a. Thermoluminescence (prior to 11/1/96) $11,150.00 Dosimeter - Bicron Corp.(after to 11/1/96) $12,900.00 b. TLD oven $2,840.00 c. Survey Meter - Victoreen 450 $1,500.00 d. Area monitor - Primalert 10 $1,600.00 e. TLD measurement by Standards Laboratory $450.00 per year 28 EXHIBIT B TRAINING OF PERSONNEL At a minimum, U.S. Neuro shall arrange for the following personnel to be trained in use of the Gamma Knife in accordance with Section 3.02 and 3.03: 2 Neurosurgeons 3 Physicians 2 Physicists 2 Nurses. Initial Off-Site Training U.S. Neuro shall arrange for the personnel referred to above to receive initial clinical training on use of the Gamma Knife at Karolinska Hospital in Stockholm, Sweden, the University of Virginia Hospital in Charlottesville, Virginia, or Presbyterian University Hospital in Pittsburgh, Pennsylvania. The actual facility will be chosen by U.S. Neuro and NYU based on availability, accessibility and cost. Initial On-Site Training U.S. Neuro shall provide or arrange for an aggregate of forty hours of on-site training in the technical operation and maintenance of the Gamma Knife for the personnel referred to above and at least two Registered Therapy Technologists. Additional initial on-site training will be provided by U.S. Neuro upon request of NYU at reasonable rates to be agreed by the parties. 29 IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be duly executed in multiple counterpart copies, each of which shall be deemed an original, but together shall constitute one and the same instrument, as of the date first set forth above. NEW YORK UNIVERSITY By: [SIG] -------------------------------------- Title: Vice President for Finance ----------------------------------- New York University Medical Center U.S. NEUROSURGICAL, INC. By: [SIG] -------------------------------------- Title: Controller ----------------------------------- 30 IN WITNESS WHEREOF, NYU and U.S. Neuro have caused this Agreement to be duly executed in multiple counterpart copies, each of which shall be deemed an original, but together shall constitute one and the same instrument, as of the date first set forth above. NEW YORK UNIVERSITY By: ------------------------------ Title: --------------------------- U.S. NEUROSURGICAL, INC. By: [SIG] ------------------------------ Title: CONTROLLER --------------------------- EX-21.1 9 LIST OF THE SUBSIDIARIES 1 Exhibit 21.1 U.S. NeuroSurgical, Inc. List of Subsidiaries Name State of Incorporation U.S. Neurosurgical Physics, Inc. Missouri EX-23.1 10 CONSENT OF RICHARD A EISNER & CO LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We hereby consent to the incorporation by reference in the Form 10 of U.S. NeruoSurgical, Inc. of our report dated January 20, 1999, relating to the consolidated financial statements of GHS, Inc. and subsidiaries appearing in GHS, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. We also consent to the inclusion in the Form 10 of U.S. NeruoSurgical, Inc. of our report dated January 20, 1999 (May 31, 1999 with respect to Note A[1] and June 9, 1999 with respect to Note G) relating to the combined financial statements of U.S. NeuroSurgical Inc. and U.S. NeuroSurgical Physics, Inc. and to the reference to our firm under the headings "Selected USN and USNP Combined Financial Data" and "Independent Accountants". Richard A. Eisner & Company, LLP /s/ Richard A. Eisner & Company, LLP New York, New York July 1, 1999 EX-99.1 11 SCHEDULE 14C INFORMATION STATEMENT OF GHS INC 1 SCHEDULE 14C INFORMATION INFORMATION STATEMENT PURSUANT TO SECTION 14(c) of the Securities Exchange Act of 1934 Check the appropriate box: [X] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) [ ] Definitive Information Statement
GHS, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Charter) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. (1) Title of each class of securities to which transaction applies: COMMON STOCK, PAR VALUE $.01 PER SHARE - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: 7,316,685 - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): $0.11 -- THIS AMOUNT IS BASED ON THE BOOK VALUE PER SHARE OF USN COMMON STOCK AT MARCH 31, 1999 AND ON AN ESTIMATED 7,316,685 SHARES OF USN COMMON STOCK ISSUABLE IN THE SPIN-OFF DESCRIBED HEREIN - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: $789,000 - -------------------------------------------------------------------------------- (5) Total fee paid: $220 - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 GHS, INC. 704 Broadway, New York, New York 10003 INFORMATION STATEMENT SPIN-OFF OF U.S. NEUROSURGICAL, INC. We are sending this Information Statement to you and all other holders of GHS common stock in connection with the "spin-off" of our 100% owned subsidiary, U.S. NeuroSurgical, Inc. (USN). As part of the spin-off, we will distribute to you one share of USN common stock for each share of GHS common stock that you own on the record date for the spin-off. If you are a holder of GHS common stock of record at the close of business on , 1999, you will receive as a dividend one share of USN common stock for each share of GHS common stock you hold. We expect to mail the stock certificates for the USN common stock on or about , 1999. After the spin-off, USN will be a separate company, no longer owned in any way by GHS. Should you have any questions regarding this Information Statement or the spin-off, please contact the Investor Relations Department, U.S. NeuroSurgical, Inc., 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850, at telephone number (301) 208-8998. In reviewing this Information Statement, you should note the following: - We are not asking you for a proxy, and we request that you do not send us a proxy. - In assessing the impact of the spin-off on you, as a GHS stockholder, you should review the matters set forth under the caption "Risk Factors" beginning on page 3. - Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved our spin-off of USN. The Securities and Exchange Commission has not passed upon the fairness or merits of the spin-off of USN or upon the accuracy or adequacy of the information contained in this Information Statement. Please note that the Board of Directors of GHS has unanimously approved the spin-off, as it believes that the spin-off is in the best interests of GHS and its stockholders. You will not need to pay any consideration or surrender or exchange your GHS common stock in order to receive your USN common stock. After the spin-off distribution, we expect that the USN common stock will be traded on the OTC Bulletin Board. The date of this Information Statement is , 1999. We mailed this Information Statement to GHS stockholders on or about , 1999. 3 TABLE OF CONTENTS
PAGE ---- SUMMARY..................................................... 1 RISK FACTORS................................................ 3 THE SPIN-OFF OF U.S. NEUROSURGICAL, INC..................... 6 BUSINESSES OF GHS AND USN AFTER THE SPIN-OFF................ 14 MANAGEMENT OF USN FOLLOWING THE SPIN-OFF.................... 19 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS........ 20 SELECTED USN AND USNP COMBINED FINANCIAL DATA............... 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF USN.......................... 23 DESCRIPTION OF GHS AND USN CAPITAL STOCK.................... 25 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT................................................ 29 INDEPENDENT ACCOUNTANTS..................................... 30 LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS..... 30 DOCUMENTS INCORPORATED BY REFERENCE......................... 31 ADDITIONAL INFORMATION...................................... 31 INDEX TO COMBINED FINANCIAL STATEMENTS...................... F-1
4 SUMMARY The following summary answers certain questions you may have with respect to GHS's spin-off of USN and highlights selected information from this Information Statement that is important to you. We encourage you to read this entire Information Statement. Q: WHAT WILL HAPPEN IN THE SPIN-OFF? A: In the spin-off, GHS will distribute to its stockholders its 100% interest in USN by distributing one share of USN common stock for each share of GHS common stock owned by a stockholder. After the spin-off, USN will be a separate company, no longer owned in any way by GHS. Q: WHAT IS U.S. NEUROSURGICAL, INC.? A: USN was organized in 1993 to own and operate stereotactic radiosurgery centers, utilizing the Gamma Knife technology. It currently owns and operates two such Gamma Knife centers (the "USN Gamma Knife Business"). See "Businesses of GHS and USN After the Spin-off -- The Business of USN" beginning on page 15 for a further description of USN's business. Q: WHY ARE WE UNDERTAKING THE SPIN-OFF? A: GHS intends to develop and pursue business opportunities (further described herein) which will have, as compared to the business currently carried out through USN, differences with respect to markets and capital requirements and will require a different business plan. Your Board of Directors believes that separating USN's Gamma-Knife Business from the other of GHS's intended businesses will allow each company to more readily expand its business, as well as pursue strategies and focus on objectives appropriate to its business. For a more detailed discussion of our reasons for the spin-off, see page 6. Please note that USN's business will not substantially change as a result of the spin-off. Q: WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN GHS'S PLANNED BUSINESS AND USN'S BUSINESS? A: After certain recent acquisitions, GHS's business involves the creation of an online network to focus on personal and professional improvement. In contrast, USN owns and operates two stereotactic radiosurgery centers, utilizing the Gamma Knife technology. Q: WHAT WILL I RECEIVE IN THE SPIN-OFF? A: We are making a pro rata distribution to all holders of GHS common stock. Accordingly, for every one share of GHS common stock you own on the record date of the spin-off, you will receive one share of USN common stock. Shortly after we complete the spin-off, holders of record will receive USN stock certificates which represent ownership in USN. Q: DO I HAVE TO PAY FEDERAL INCOME TAXES ON THE RECEIPT OF USN COMMON STOCK? A: You will be required to pay Federal income taxes on receipt of your USN Common Stock. As a result of the Spin-off, each holder of GHS Common Stock will be considered to receive a taxable dividend includable in income in an amount equal to the fair market value of the shares of USN Common Stock received in the Spin-off. Management currently estimates that such value will be $.42 per GHS share. However the actual value will be determined based on an appraisal to be prepared by Scott & Stringfellow Inc. as of the date of the Spin-off. See "The Spin-off of U.S NeuroSurgical, Inc. -- Material Federal Income Tax Consequences of the Spin-off to GHS and Its Stockholders." Q: WHERE WILL USN COMMON STOCK BE TRADED? A: We expect that the USN common stock will be traded on the OTC Bulletin Board. GHS common stock will continue to be traded on the OTC Bulletin Board under the symbol "GHSI". 1 5 Q: WHEN WILL THE SPIN-OFF OCCUR? A: If you are a holder of GHS common stock of record at the close of business on , 1999, you will receive as a dividend one share of USN common stock for each share of GHS common stock you hold. We expect to mail the stock certificates for the USN common stock on or about , 1999. Q: WHAT WILL GHS'S BUSINESS BE AFTER THE SPIN-OFF? A: Following the Spin-off, GHS's sole business will involve the continued development of an online network to focus on personal and professional improvement. In May 1999, GHS consummated the acquisition of ChangeYourLife.com, LLC, a company founded by Anthony J. Robbins that is engaged in the development of a web site for personal and professional improvement. ChangeYourLife.com, LLC has an agreement with Anthony J. Robbins and his operating company, Robbins Research International Inc. that makes GHS the exclusive online source for Robbins' training, courses, content and publications. In addition, in May 1999, GHS completed its acquisition of Brainfuel.com, the online arm of The Learning Annex and has the option to purchase The Learning Annex's traditional offline business. As a result of this acquisition, GHS has exclusive online access to educational content and materials covering a wide range of topics. GHS's ultimate objective is to make its online network the leader in online personal and professional improvement content, services, communities, and interactive sales. GHS is a Delaware corporation. Its principal executive offices are located at 704 Broadway, New York, New York 10003, and its telephone number is (212) 358-4028. Q: WHAT WILL USN'S BUSINESS BE AFTER THE SPIN-OFF? A: USN will be a separate public company continuing to own and operate stereotactic radiosurgery centers, utilizing the Gamma Knife technology. USN currently owns and operates two Gamma Knife centers, one on the premises of Research Medical Center in Kansas City, Missouri and one on the premises of New York University Medical Center (NYU) in New York, New York. USN intends to continue to explore opportunities to open additional Gamma Knife Centers. USN's business strategy is to provide a mechanism whereby hospitals, physicians, and patients can have access to Gamma Knife treatment capability, a high capital cost item. USN provides the Gamma Knife to medical facilities on a "cost per treatment" basis. USN owns the Gamma Knife units, and is reimbursed by the facility where it is housed, based on utilization. Following the spin-off, USN's principal executive offices will be located at 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850, and its telephone number will be (301) 208-8998. Q: WILL USN COMPETE WITH GHS AFTER THE SPIN-OFF? A: Due to the differing lines of business that each company plans to pursue, there will be no direct competition between them. 2 6 RISK FACTORS In assessing the impact of the spin-off on you, as a GHS stockholder, you should be aware of the following risks relating to the spin-off and USN's operations: WITHOUT ADEQUATE FINANCING, USN WILL NOT BE ABLE TO GROW USN has financed its Gamma Knife installations through capital lease financing. With each Gamma Knife center costing approximately $3,500,000, USN's development of new Gamma Knife centers is dependent on its ability to secure favorable financing. Neither GHS nor USN can guarantee that such financing (or any other funds necessary to continue and/or expand operations) will be available on satisfactory terms or in adequate amounts to accomplish USN's objectives. SIGNIFICANT COMPETITION IN THE MARKETPLACE MAY HINDER USN'S GROWTH The health care industry, in general, is highly competitive and GHS and USN each expects USN to have substantial competition from other independent organizations, as well as from hospitals in establishing future Gamma Knife centers. There are other companies that provide the Gamma Knife on a "cost per treatment basis". In addition, larger hospitals may be expected to install Gamma Knife technology as part of their regular inpatient services. Many of these competitors have greater financial and other resources than USN. Principal competitive factors include quality and timeliness of test results, ability to develop and maintain relationships with referring physicians, facility location, convenience of scheduling and availability of patient appointment times. Each of GHS and USN believes that cost containment measures will encourage hospitals to seek companies that are providing the technology, instead of incurring the capital cost of establishing their own Gamma Knife centers. LACK OF A CURRENT PUBLIC MARKET FOR USN COMMON STOCK MAKES THE FUTURE PERFORMANCE OF USN COMMON STOCK DIFFICULT TO PREDICT There is no current public market for USN common stock, and we cannot make any assurance as to the prices at which USN common stock will trade after the spin-off. Until USN common stock is distributed and an orderly market develops, the price at which USN common stock trades may fluctuate significantly. We expect that the USN common stock will be traded on the OTC Bulletin Board. THE COMBINED TRADING PRICE OF GHS AND USN COMMON STOCK AFTER THE SPIN-OFF IS UNCERTAIN As a result of the spin-off, you will own shares of GHS which will be traded on the OTC Bulletin Board and shares of USN which we expect will be traded on the OTC Bulletin Board. The combined trading price of the GHS and USN common stock may be greater than, less than or equal to the trading price of GHS common stock immediately prior to the spin-off. USN HAS A LIMITED OPERATING HISTORY WITH OPERATING LOSSES AND NEGATIVE CASH FLOW AND MAY NOT BE PROFITABLE USN sustained operating losses of approximately $1,011,000 in 1998 and $53,000 in 1997. At December 31, 1998, USN had an accumulated deficit of $1,777,000. Although USN is currently generating positive cash flow, USN may incur operating losses and generate negative cash flow from operating activities during the next several years while it continues to develop its Gamma Knife operations and builds a customer base. USN cannot assure you that it will achieve or sustain profitability or positive cash flow from operating activities in the future or that it will generate sufficient cash flow to service its future debt requirements. 3 7 THE HEALTH CARE INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, ANY CHANGE IN WHICH COULD AFFECT USN'S FINANCIAL PERFORMANCE The levels of revenues and profitability of companies involved in the health services industry, such as USN, may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of health care through various means. Although neither GHS nor USN believes that the business activities of USN will be materially affected by changes in the regulatory environment, it is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. Neither GHS nor USN can predict the effects healthcare reform may have on USN's business, and no assurance can be given that any such reforms will not have a material effect on it. In addition, the provision of medical services in the United States is dependent on the availability of reimbursement to consumers from third party payors, such as government and private insurance companies. Although patients are ultimately responsible for services rendered, each of GHS and USN expects that the majority of USN's revenues will be derived from reimbursements by third party payors. Medicare has authorized reimbursement for Gamma Knife treatment. However, over the last several years, such third party payors are increasingly challenging the cost effectiveness of medical products and services and taking other cost-containment measures. Therefore, although treatment costs using the Gamma Knife compare favorably to traditional invasive brain surgery, it is unclear how this trend among third party payors and future regulatory reforms affecting governmental reimbursement will affect procedures in the higher end of the cost scale. In the future, USN may establish additional Gamma Knife centers. Completion of future centers would require approvals and arrangements with hospitals, health care organizations, or other third parties, including certain regulatory authorities. The Food and Drug Administration has issued the requisite pre-market approval for the Gamma Knife to be utilized by USN. In addition, many states require hospitals to obtain a Certificate of Need (CON) before they can acquire a significant piece of medical equipment. Should USN enter into future ventures such "need" will be demonstrable, but it can have no assurance that Certificates of Need will be granted. In addition, the Nuclear Regulatory Commission (NRC) must issue a permit to USN to permit loading the Cobalt at each Gamma Knife site. While each of GHS and USN believes that USN can obtain a NRC permit for any future Gamma Knife machine, there is no assurance that it will. USN'S LOSS OF ITS SOURCE OF SUPPLY WOULD AFFECT ITS ABILITY TO MAINTAIN OPERATIONS Currently the only company that manufactures, sells, and services the Gamma Knife is Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm, Sweden. Any interruption in the supply or services from Elekta would adversely affect USN's ability to maintain its Gamma Knife treatment centers. NEW TECHNOLOGY COULD RENDER USN'S GAMMA KNIFE TECHNOLOGY OBSOLETE Gamma Knife technology may be subject to technological change. Consequently, USN will have to rely on the Gamma Knife's manufacturer, Elekta, to introduce improvements or upgrades in order to keep pace with technological change. Any such improvements or upgrades which USN may be required to introduce will require additional financing. In addition, newly developed techniques and devices for performing brain surgery may render the Gamma Knife less competitive or obsolete. USN'S LOSS OF ANY MEMBER OF ITS MANAGEMENT TEAM COULD AFFECT ITS FINANCIAL PERFORMANCE USN is dependent on the services of current management, including Mr. Alan Gold as Chairman of the Board and President. Losing the services of Mr. Gold or other members of management could have a significant negative effect on its business. Qualified replacements may be difficult or impossible to find or retain. 4 8 A TAKE-OVER OF USN MAY BE DIFFICULT, IRRESPECTIVE OF WHETHER IT IS BENEFICIAL TO USN SHAREHOLDERS USN anticipates that certain principal stockholders of USN, including certain officers and directors of USN, will beneficially own in excess of 50% of the outstanding shares of the USN common stock. This anticipated voting control and certain provisions of Delaware law affecting acquisitions and business combinations applicable to USN may discourage certain transactions involving an actual or potential change of control of USN, including transactions in which USN stockholders might receive a premium for their shares over the then-prevailing market price. Such voting control and provisions of Delaware law may also have a depressive effect on the market price for USN common stock. THE SPIN-OFF WILL RESULT IN TAXABLE INCOME TO THE GHS STOCKHOLDERS As a result of the Spin-off, each holder of shares of GHS Common Stock will be deemed to have received, to the extent of GHS's current and accumulated earnings and profits, a taxable dividend includable in income in an amount equal to the value of USN Common Stock received in the Spin-off. In addition, GHS will be required to recognize taxable gain to the extent of the excess, if any, of the fair market value of the USN Common Stock distributed over GHS's adjusted basis in those shares. Management currently estimates that such value will be $.42 per GHS share. However the actual value will be determined based on an appraisal to be prepared by Scott & Stringfellow as of the date of the Spin-off. See "The Spin-off of U.S NeuroSurgical, Inc. -- Material Federal Income Tax Consequences of the Spin-off to GHS and Its Stockholders." POTENTIAL RESPONSIBILITY FOR LIABILITIES NOT EXPRESSLY ASSUMED The Distribution Agreement, the Assignment and Assumption Agreement and the Tax Matters Agreement allocate between GHS and USN responsibility for various indebtedness, liabilities and obligations. See "The Spin-off of U.S. NeuroSurgical, Inc." -- "Agreement And Plan Of Distribution; Relationship Between GHS And USN After The Spin-off "; -- "Assignment and Assumption Agreement"; and -- "Tax Matters Agreement". It is possible that a court would disregard this contractual allocation of indebtedness, liabilities and obligations between the parties and require GHS or USN or their respective subsidiaries to assume responsibility for obligations allocated to the other party, particularly if such other party were to refuse or was unable to pay or perform any of its allocated obligations. POTENTIAL INDEMNIFICATION LIABILITIES Under the terms of the Distribution Agreement, the Assignment and Assumption Agreement and the Tax Matters Agreement, each of GHS and USN has agreed to indemnify the other (and certain related persons) from and after consummation of the Spin-off with respect to certain indebtedness, liabilities and obligations, which indemnification obligations could be significant. The availability of such indemnities will depend upon the future financial strength of the companies. No assurance can be given that the relevant company will be in a position to fund such indemnities. See "The Spin-off of U.S. NeuroSurgical, Inc." -- "Agreement And Plan Of Distribution; Relationship Between GHS And USN After The Spin-off "; -- "Assignment and Assumption Agreement"; and -- "Tax Matters Agreement". THIS INFORMATION STATEMENT INCLUDED FORWARD-LOOKING STATEMENTS AND WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS Statements contained in this Information Statement that are not historical facts may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties including, without limitation, the payment, timing and ultimate collectability of accounts receivable for Gamma Knife procedures from different payor groups such as Medicare and private payors; competition; technological obsolescence; government regulation; and malpractice liability. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or 5 9 suggested may be identified from time to time in GHS's and USN's filings with the Securities and Exchange Commission (SEC) and GHS's and USN's public announcements, copies of which are available from the SEC or from the applicable company upon request. GIVEN THESE UNCERTAINTIES, WE CAUTION PROSPECTIVE INVESTORS NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. USN disclaims any obligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments. THE SPIN-OFF OF U.S. NEUROSURGICAL, INC. GENERAL GHS, Inc. ("GHS") intends to "spin-off " its 100% interest in its subsidiary, U.S. NeuroSurgical, Inc. ("USN"). In the spin-off transaction (the "Spin-off "), GHS will distribute to its stockholders one share of common stock, $.01 par value per share, of USN (the "USN Common Stock") for each share of common stock, $.01 par value per share, of GHS (the "GHS Common Stock") owned by each stockholder as of the record date for the Spin-off. After the Spin-off, USN will be a separate company, no longer owned in any way by GHS. CONDITIONS TO THE SPIN-OFF The Spin-off is conditioned upon the satisfaction of certain conditions necessary to consummate the Spin-off. In particular, (a) GHS and USN must have obtained all orders, rulings, consents or approvals, governmental or otherwise, necessary to consummate the Spin-off; (b) GHS and USN must furnish to the other all documents and certificates, including assignments and conveyances, necessary to consummate the Spin-off; and (c) the USN Common Stock shall have been registered under the 1934 Act. The GHS Board of Directors has the right to cancel or defer the Spin-off, in its sole discretion, even if the conditions to the Spin-off are met. MANNER OF EFFECTING THE SPIN-OFF Following the Spin-off, each stockholder of record on , 1999 (the "Record Date") will receive a USN stock certificate which represents the USN Common Stock owned by such stockholder. Shareholders that hold through brokerage and "street name" accounts should expect to receive an account statement from their brokerage firm reflecting the number of shares of USN Common Stock received by such stockholder in the Spin-off. Following the Spin-off, stockholders who hold through brokerage accounts may request physical certificates for their shares of USN Common Stock. GHS expects to mail such stock certificates to stockholders on , 1999 (the "Spin-off Payment Date"). No holder of GHS Common Stock will be required to pay any cash or other consideration for shares of USN Common Stock received in the Spin-off or to surrender or exchange shares of GHS Common Stock in order to receive shares of USN Common Stock. However, holders will be required to pay income taxes as a result of the Spin-off. See "-- Material Federal Income Tax Consequences of the Spin-off to GHS and Its Stockholders." REASONS FOR THE SPIN-OFF GHS intends to develop and pursue business opportunities which will have, as compared to the business currently carried out through USN, differences with respect to markets and capital requirements and will require a different business plan. As a result of GHS's recent acquisitions of Change Your Life.com, LLC and Brainfuel.com and its agreement with The Learning Annex (see "Businesses of GHS and USN After the Spin-off -- The Business of GHS"), GHS's sole business will involve the continued development of an online network to focus on personal and professional improvement (the "Self-Improvement Business"). GHS's ultimate objective is to make its online network the leader in online personal and professional improvement 6 10 content, services, communities, and interactive sales. Both companies believe that separating USN's Gamma-Knife Business from GHS's Self-Improvement Business will allow each company to more readily expand its business, as well as pursue strategies and focus on objectives appropriate to its business. The Board of Directors approved the Spin-off for the following principal reasons: Management Focus. GHS's Self-Improvement and Gamma Knife Businesses have different dynamics and business cycles, serve different marketplaces and customer bases, are subject to different competitive forces and must be managed with different long-term and short-term strategies and goals. GHS believes that separating its businesses into independent public companies, each with its own management team and board of directors, is necessary to address current and future management issues and considerations that result from operating these diverse businesses within a single company. The separation will enable the management of each business to manage that business, and to adopt and implement strategies for that business, solely with regard to the needs and objectives of that business. In addition, as a result of the separation, the management of each business will be able to devote its full attention to managing that business. Capital Structure. GHS believes that the Spin-off will allow each of the companies to organize its capital structure and allocate its resources to support the very different needs and goals of the particular business. Capital borrowings can be tailored to the specific needs of the various business units. Each business will be able to allocate its resources without considering the needs of the other businesses. Attracting and Retaining Key Employees. GHS's management believes that the ability to attract and retain key personnel is fundamental to its ability to establish a leadership position in its Self-Improvement Business. The Spin-off would enable each company to establish focused equity-based compensation programs that should enable each of them to better attract and retain key personnel. Investor Understanding. Debt and equity investors and securities analysts should be able to better evaluate the financial performance of each company and their respective strategies, thereby enhancing the likelihood that each will achieve appropriate market recognition. The stock of each of the two companies will also appeal to investors with differing investment objectives and risk tolerance, and will allow potential investors to focus their investments more directly to the areas of their primary interest. Cost Savings. Each company should be able to rationalize better its organizational structure after the Spin-off. AGREEMENT AND PLAN OF DISTRIBUTION: RELATIONSHIP BETWEEN GHS AND USN AFTER THE SPIN-OFF USN and GHS have entered into an Agreement and Plan of Distribution (the "Distribution Agreement") which, in general, outlines the anticipated relationship between the two companies after the Spin-off. The following sets forth a summary of the material terms and provisions of the Distribution Agreement. ADMINISTRATIVE SERVICES GHS and USN expect to provide their own administrative services after the Spin-off. However, for a period of up to two years after the Spin-off, GHS and USN will generally make their employees available to each other as necessary to support the activities of each party in areas including, without limitation, accounting, tax and legal advice and services and human resources. The party rendering these services will be entitled to receive from the other payment for its reasonable costs and expenses incurred in providing such services. INDEMNIFICATION Pursuant to the Distribution Agreement, other than liabilities and obligations in respect of taxes, which shall be governed by the terms of the Tax Matters Agreement (described below) (a) USN shall be liable for all claims, liabilities and obligations attributable to the USN Gamma Knife business or any of the other assets assigned by GHS to USN pursuant to the Assignment and Assumption Agreement described below 7 11 (collectively, the "USN Liabilities"); (b) GHS shall be liable for all claims, liabilities and obligations retained or assumed by GHS pursuant to the Assignment and Assumption Agreement (collectively, the "GHS Liabilities"); and (c) USN shall be responsible for "Distribution Liabilities" (defined as expenses, costs, or liabilities directly related to the Spin-off) which are incurred or accrued prior to or following May 27, 1999. USN will indemnify GHS and its officers, directors, employees, agents and affiliates from and against any and all losses, liabilities, claims, damages, costs and expenses arising out of or related in any manner to the USN Liabilities. GHS will indemnify USN similarly, with respect to the GHS Liabilities. OTHER PROVISIONS The Distribution Agreement also includes provisions relating to: (i) allocating liability with respect to pending litigation and other potentially significant obligations; and (ii) continued cooperation between GHS and USN with respect to post-Spin-off matters. ASSIGNMENT AND ASSUMPTION AGREEMENT Pursuant to the Assignment and Assumption Agreement, USN shall accept the assignment from GHS to USN of the following assets (collectively, the "Assigned Assets"): (i) All assets of GHS related exclusively or primarily to the USN Gamma Knife Business; (ii) All accounts receivable of GHS and each of its subsidiaries arising through May 27, 1999; (iii) All intercompany accounts due from USN to GHS at May 27, 1999, which contribution shall be deemed a capital contribution from GHS to USN; (iv) All prepaid expenses and deposits made by GHS prior to May 27, 1999; (v) All refunds payable to GHS for business conducted by GHS prior to May 27, 1999; (vi) The capital stock of U.S. Neurosurgical Physics, Inc., a wholly owned subsidiary of GHS ("USNP"); (vii) cash in the amount of $374,144.71; and (viii) Lease dated March 5, 1998 between GHS and Research Grove Associates, relating to the lease of the premises located at 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850 (the "Maryland Lease"). The following assets of GHS are specifically excluded from the assignment from GHS to USN (collectively, the "Excluded Assets"): (i) cash and cash equivalents (a) held by GHS as of May 27, 1999, other than the cash included in the Assigned Assets above , (b) raised in GHS's May 1999 private placement of its Series B Preferred Stock and (c) which come into GHS's possession following May 27, 1999; (ii) the capital stock of GHS's subsidiaries owned by GHS, other than USNP; and (iii) all assets of GHS acquired in connection with the CYL Transaction and the Brainfuel Transaction (as described below under "Business of GHS") or acquired by GHS following May 27, 1999. In addition, USN shall assume, be liable for and shall indemnify GHS with respect to all claims, liabilities and obligations which are attributable to the following (collectively, the "Assumed Liabilities"): (i) any of the Assigned Assets; (ii) any event, occurrence, action or omission relating to GHS and its subsidiaries taken or occurring prior to May 27, 1999, except to the extent they are specifically included in the Excluded Liabilities; 8 12 (iii) the obligations of GHS under the employment agreement dated November 14, 1984, as amended, with Alan Gold; (iv) the obligations of GHS under the Maryland Lease; and (v) the obligations of GHS to Allen & Company Incorporated for the payment of fees in respect of financial advisory services rendered to GHS in connection with the CYL Transaction and Brainfuel Transaction. See "Certain Relationships and Related Party Transactions." GHS shall retain, be liable for and shall indemnify USN with respect to all claims, liabilities and obligations set forth below (collectively, the "Excluded Liabilities"): (i) all claims, liabilities and obligations which are attributable to any of the Excluded Assets; (ii) the obligations of GHS to issue GHS Common Stock pursuant to options, warrants and commitments to issue capital stock outstanding at May 27, 1999, as well as GHS's obligations under its 1997 Stock Option Plan; (iii) the obligations of GHS to pay the consideration, fees, expenses and other costs arising in connection with the CYL Transaction and the Brainfuel Transaction; (iv) all claims, liabilities or litigation arising out of any event, occurrence, action or omission relating to GHS and its subsidiaries taken or occurring following May 27, 1999; (v) GHS's obligations under the Warrant Certificate, dated November 30, 1993, as amended, issued to Allen & Company Incorporated; and (vi) GHS's obligations under that certain Settlement Agreement dated as of March 22, 1999 by and among GHS, USN and the other parties thereto. TAX MATTERS AGREEMENT GHS and USN will enter into a tax matters agreement (the "Tax Matters Agreement") that defines the parties' rights and obligations with respect to federal, state, foreign and other income or franchise taxes relating to GHS's and USN's businesses for tax periods prior to, including and following the Spin-off and with respect to certain other tax matters. In general, USN will be responsible for all taxes of GHS and USN and any of their respective subsidiaries through May 27, 1999 and all taxes of USN subsequent to May 27, 1999. Taxes resulting from the Spin-off will be the responsibility of USN. GHS will be responsible for all taxes resulting from the CYL Transaction or the Brainfuel Transaction and all taxes resulting from the operations of GHS and its subsidiaries (other than USN) following May 27, 1999. BOARD AND SHAREHOLDER APPROVAL: APPRAISAL RIGHTS The GHS Board of Directors has unanimously approved the Spin-off after careful consideration. GHS will not hold a meeting or solicit proxies for the Spin-off, as no approval of the GHS stockholders is required under Delaware law. Additionally, under Delaware law, GHS stockholders have no right to an appraisal of the value of their shares in connection with the Spin-off. OUTSIDE CONSULTANTS Neither GHS nor USN has engaged a consultant or other outside party to prepare a report, opinion or appraisal with respect to the Spin-off, except that GHS retained Scott & Stringfellow, Inc., an investment banking firm, to prepare an appraisal of USN in connection with the Spin-off. See "-- Appraisal of USN." APPRAISAL OF USN Scott & Stringfellow, Inc. ("S&S") was retained by GHS to appraise the fair market value of USN as of the date of its Spin-off to serve as a basis for establishing the amount of any taxable gain to GHS and the 9 13 USN dividend value to stockholders resulting from the Spin-off. S&S, as a customary part of its investment banking business, is regularly engaged in the appraisal of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and appraisals for estate, corporate and other purposes. Charles H. Merriman, who is a director of GHS and will serve as a director of USN after the Spin-off, is Senior Vice President of S&S. For purposes of the appraisal, dated June 17, 1999, the term "fair market value" was defined as the amount at which the USN capital stock in aggregate on a majority interest basis would change hands between a willing buyer and willing sellers, all having reasonable knowledge of all relevant facts and none being under any compulsion to act, with equity to all. Furthermore, for purposes of the appraisal, S&S assumed that, after the Spin-off, the outstanding shares of USN Common Stock will have been fully distributed, the USN Common Stock will be trading on an established market, and information concerning USN of the type normally available concerning publicly-traded companies will have been widely disseminated. The full text of the written appraisal of S&S, dated June 17, 1999, is set forth as Appendix A to this Information Statement and describes the assumptions made, matters considered and limits on the review undertaken. GHS stockholders are urged to read the appraisal carefully and in its entirety. The summary of the appraisal of S&S set forth in this Information Statement is qualified in its entirety by reference to the full text of such opinion. The preparation of a corporate appraisal is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary, without considering the analysis as a whole, could create an incomplete view of the processes underlying the appraisal. In arriving at its appraisal conclusions, S&S considered the result of all such analyses. The analyses were prepared for the purposes of enabling S&S to render its appraisal of USN to GHS for purposes of establishing the amount of taxable gain, if any, arising from the Spin-off. Analyses based upon forecasts of future results are not necessarily indicative of actual future values, which may be significantly more or less favorable than suggested by such analyses, nor should they be viewed as predictions of potential future trading prices for shares of USN Common Stock. In connection with the appraisal, S&S made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances, including, among other things, the following: (i) meetings with certain members of the senior management of GHS to discuss the operations, financial condition, prospects and projected operations and performance of USN; (ii) visits to certain facilities and business offices of GHS; (iii) GHS's annual reports to stockholders and annual reports on Form 10-K for the five fiscal years ended December 31, 1998; (iv) the unaudited pro forma financial statements for the USN business for the five years ended December 31, 1998; (v) the forecasts and projections prepared by GHS's management with respect to USN for the five years ended December 31, 2003; (vi) the historical market prices and trading volume for GHS stock; (vii) certain publicly available financial data for certain companies that S&S deemed comparable to USN; (viii) the Preliminary Information Statement pursuant to Section 14(c) of the Securities Exchange Act of 1934 of GHS, Inc. with respect to the Spin-off to be filed with the Securities and Exchange Commission; and (ix) such other studies, analyses and inquiries as S&S deemed appropriate. The financial forecasts and projections prepared by GHS's management with respect to USN for the five years ending December 31, 2003, were based upon the historical financial results of the USN business while a part of GHS and the material assumptions set forth below. Revenues were projected to increase each year by 8% and salaries and benefits were projected to increase each year by 6%. No new investment in Gamma Knife facilities were contemplated, accordingly, depreciation expense was reduced in year 2001 and thereafter due to the Kansas City facility becoming fully depreciated in year 2001. Operating expenses were projected to approximate historical levels with the exception of management's estimates of the additional general and administrative expenses expected to be incurred as a result of USN operating as a stand-alone company. The combined federal and state income tax rate was estimated to be 40%. S&S relied upon the financial forecasts and projections provided to it and assumed, without independent verification, that those financial forecasts and projections had been reasonably prepared and reflected the best 10 14 currently available estimates of the future financial results and condition of USN and that there had been no material change in the assets, financial condition, business or prospects of USN since the date of the most recent financial statements made available to it. S&S did not independently verify the accuracy and completeness of the information supplied to it with respect to USN and does not assume any responsibility with respect thereto. S&S did not make any independent appraisal of any of the properties or assets of USN. As part of its analysis, S&S analyzed the trading volume of GHS's publicly traded common stock, both before and after the announcement of the Spin-off. GHS's Common Stock traded in the range of $5/32 to $18 1/4 per share in the year prior to such announcement. While S&S considered this trading activity in its analysis, S&S utilized an independent valuation analysis to determine the aggregate fair market value on a majority interest basis of the capital stock of USN that will be outstanding after the Spin-off. In determining the aggregate fair market value on a majority interest basis of the USN Common Stock that will be outstanding after the Spin-off, S&S considered generally accepted valuation methodologies and, after such due consideration, utilized primarily the capitalization of funds generated from operations and discounted cash flow approaches. The capitalization of funds generated from operations approach is a method of determining the fair market value of a company by determining the level of funds generated from operations which is considered to be representative of the future operating performance of the company and capitalizing this level at a selected multiple. Such comparable public companies as are available are selected for comparison purposes and a risk analysis is performed. The selection of appropriate multiples for the company is made based on this comparative risk analysis and a thorough analysis of the comparable market multiples. Capitalizing the representative levels at the selected multiple determines the company's total enterprise value. Certain adjustments for non-operating assets and interest-bearing debt are made to determine the fair market value of the company's equity. The discounted cash flow approach is another method of determining the value of an operating enterprise. This approach entailed determining the appropriate cash flows, based upon projected financial information for the enterprise. An appropriate discount rate for the enterprise projections is selected based upon an analysis of alternative investments. The terminal value, which is the value of the enterprise at the end of the projected period, is determined by using the capitalization of earnings approach. The summation of the discounted value for the projected period and the discounted value of cash flow for the terminal value determines the company's total enterprise value. Similarly, to determine the fair market value of the Company's equity, adjustments for non-operating assets and interest-bearing debt are made. In the capitalization of funds generated from operations, S&S capitalized USN's earnings before interest and taxes ("EBIT") and earnings before interest, taxes, depreciation and amortization ("EBITDA"). USN's actual 1998 EBIT and EBITDA figures were capitalized and for 1999 "annualized" EBIT and EBITDA figures were employed based on 4X the actual results achieved in the quarter ended March 31, 1999. The highest Total Enterprise Values ("TEV") were developed using the 1999 annualized figures which are $952,000 for EBIT and $2,068,000 for EBITDA. S&S determined that the market-driven TEV of American Shared Hospital Services ("AMS") reflects a 3.65X multiple of annualized EBIT and 2.34X multiple of annualized EBITDA based on AMS's results for the first quarter ended March 31, 1999 annualized. AMS operates five (5) Gamma Knives. Its operations are virtually identical to USN's except larger and AMS is over-capitalized with excess liquidity on its balance sheet. Operationally, AMS is a compelling market-driven proxy for USN. S&S rounded the AMS multiples up to 4X for projected 1999 EBIT and 3X for EBITDA. TEV for USN employing 4X projected EBIT for 1999 produced a figure less than the total of USN's deficit working capital and term debt. Accordingly, the EBIT capitalization was discarded. USN employs rapid depreciation of its facilities to the extent that depreciation and amortization for 1999 total approximately $1.1 million which in combination with projected earnings after tax is insufficient to service the principal amortization and interest expense associated with the capital leases supporting the Gamma Knives. This cash generation short-fall is projected for both fiscal 1999 and 2000. Internally generated fund flows that are insufficient to service debt are of relatively low value to equity holders and for that reason S&S considered the multiple of 3X 1999 EBITDA to be reasonable. 3X annualized EBITDA produced a TEV of $6,204,000. 11 15 After subtracting from this TEV figure the total of a deficit working capital of $820,000 added to long term liabilities of $2,990,000, the minority interest equity value produced is $2,394,000. This figure is divided by .70 to adjust for the median premium over the past ten (10) years offered over market prices for majority interest. The majority interest capitalized in this fashion for USN is $3,420,000. In the discounted cash flow analysis, S&S determined USN's minority interest equity capitalization value by adding (1) the present value of projected discretionary cash flow for the five years ended December 31, 2003 net of debt service and anticipated capital expenditures, and (2) the net present value of the terminal value after five years. The projected cash flows for the years 1999 through 2003 were based upon the financial projections provided by USN's management. S&S discounted these cash flows at a ratio of 20%. The selected discount rate reflects the rate of return that S&S estimates would be reasonably required by providers of capital to USN to compensate such providers for the time value of their money, as well as the risks inherent in their investment. The terminal value was determined by multiplying the projected discretionary cash flow for fiscal 2003 times 5. This multiple was selected after an analysis of the market capitalization on a minority interest basis of the discretionary cash flow projected to be generated by AMS based on its first quarter 1999 results. In arriving at the multiple of 5X, we attributed $1.00 per share of market capitalization, 35% of the actual per share cash balance, or $3,909,000 of the total AMS market capitalization of $9,772,500 to the cash on the balance sheet totaling $11,071,000. Employing 5X as the multiple for calculating USN's terminal value in the discounted discretionary cash flow analysis resulted in an aggregate equity capitalization on a minority interest basis of $2,128,761. S&S factored this finding by .70 to adjust minority interest capitalization to majority interest which generated a value of $3,041,084, rounded to $3,040,000. In their filings with the SEC, both USN and AMS state that direct cost of a new Gamma Knife is approximately $3 million. Assuming a 10% administrative burden to bring an opportunity from conception through all the associated regulatory approvals and construction risks to completion would suggest a replacement cost value approximating $3.3 million per knife or a total of $6.6 million for USN's two facilities. Reducing this figure by $3.81 million, total liabilities less current assets, produces a net value to equity of $2,790,000 as a base price with no attribution of value for the fact that USN is a going concern. This reference to replacement cost serves to support S&S's findings. For further comfort, S&S analyzed the effect on AMS of acquiring USN for $3,040,000 worth of its common stock, 1,216,000 shares at today's market price, and determined to its satisfaction that at this price the acquisition would be reasonably accretive to AMS on a per share EBIT, and EBITDA basis, and only marginally dilutive to earnings per share ("EPS"). AMS was considered for this test because of its similarity in virtually all operational respects to USN, because of its stated intent to expand through acquisition and de novo installations and because it has excess cash as well as a marketable security to use in such an acquisition. A price to AMS of $3,040,000 would represent a premium of 9% over the replacement cost calculation S&S made which seems reasonable. Alternatively, the $3,420,000 equity capitalization derived from the EBITDA calculation would represent a 22.6% premium when debt assumed is included over what S&S estimates AMS would have to spend to build two new Gamma Knife facilities. This would appear to be more than is reasonable, furthermore, in an exchange of securities at today's price for AMS common, the transaction would dilute EPS by more than 10%, accordingly, S&S selected the $3,040,000 majority interest appraisal in preference to the $3,420,000 calculation. Appraisal Summary and Conclusion Based on the foregoing analysis, S&S determined that the discretionary cash flow model discounted at 20% and factored for majority interest produced a reasonable approximation of USN's aggregate majority interest equity capitalization at this time. Based upon the investigation, premises, provisos, and analyses outlined above, as of June 17, 1999 S&S appraised the fair market value of the capital stock of USN to be reasonably stated in the amount of $3,040,000 or $0.43 per share based on 7,047,828 shares of Common Stock issued and outstanding after the Spin-off. If necessary, S&S will update its appraisal of the fair market value of the USN Common Stock received in the Spin-off as of the Spin-off Payment Date. In accordance with its engagement letter, S&S has addressed its report solely to the Board of Directors of GHS for their use in connection with their review and evaluation of the Spin-off. Neither the report nor the underlying financial analysis may be relied upon by any person other than the members of the Board of 12 16 Directors of GHS without the prior written consent of S&S. Accordingly, under the terms of the engagement letter and the report, no GHS or USN shareholder or any other person may rely or allege reliance on S&S's report or analysis in any manner. Pursuant to its engagement letter, S&S will receive a fee of $20,000 upon the delivery of its appraisal and GHS has agreed to indemnify S&S for certain liabilities which may arise out of the rendering of S&S's appraisal. ACCOUNTING TREATMENT As part of the Spin-off, GHS will restate its consolidated financial statements to reflect USN as a discontinued operation. Because the Spin-off is comprised of an ongoing business, the distribution will be recorded at book value rather than at market value. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF TO GHS AND ITS STOCKHOLDERS The following discussion summarizes the material U. S. federal income tax consequences of the Spin-off that affect GHS and its stockholders and does not address all of the aspects of federal income taxation that may be relevant to GHS and its stockholders. This discussion is based on current provisions of the Internal Revenue Code of 1986 (the "Code"), existing, temporary and proposed Treasury Regulations promulgated thereunder and current administrative rulings and court decisions, all of which are subject to change. No assurance can be given that future legislation, regulations, administrative rulings and court decisions will not significantly change these authorities, possibly with retroactive effect. Stockholders should note that this discussion is not binding on the Internal Revenue Service ("IRS") or the courts and that GHS has not sought, and does not intend to seek, a ruling from the IRS as to any of the federal income tax consequences to either GHS or its stockholders of the Spin-off, and no opinion of counsel has been, or will be, rendered to GHS or its stockholders with respect to any of the federal income tax consequences of the Spin-off. The following discussion summarizes the material U. S. federal income tax issues raised by the Spin-off and does not reflect either the special circumstances that may be relevant to a particular stockholder or the effect of the Spin-off under the tax laws of any state, local or foreign jurisdiction. As previously discussed, GHS has authorized the Spin-off of USN to its stockholders. GHS will be required to recognize gain on the Spin-off to the extent of the excess, if any, of the fair market value of the USN Common Stock over its adjusted basis in the hands of GHS. In order to determine such fair market value for this purpose, an appraisal of USN will be made by Scott & Stringfellow as of the date of the Spin-off. Scott & Stringfellow has provided an appraisal of USN as of June 17, 1999 of $3,040,000, or $.43 per share based on 7,047,828 shares of USN Common Stock outstanding after the Spin-off (which is based on such same number of shares of GHS Common Stock outstanding on June 17, 1999). See "--Appraisal of USN." As of June 30, 1999, 7,316,685 shares of GHS Common Stock were outstanding; therefore, based on the S&S appraisal, the fair market value of USN would be $.42 per share. The final per share value of the USN Common Stock will be determined as of the Spin-off Payment Date and will depend on the actual number of shares of USN Common Stock issued in the Spin-off. If necessary, S&S will update its appraisal of the fair market value of the USN Common Stock received in the Spin-off as of the Spin-off Payment Date. As a result of the Spin-off, each holder of GHS Common Stock will be considered to receive, to the extent of GHS's current and accumulated earnings and profits, a taxable dividend includable in income in an amount equal to the fair market value of the USN Common Stock received in the Spin-off. The fair market value of the USN shares distributed to the GHS stockholders will be reported to each stockholder by way of an IRS Form 1099-DIV (the "Form 1099-DIV") reflecting the appraisal made by Scott & Stringfellow. The portion of the Spin-off to each GHS stockholder that is taxable as a dividend will be reported as "ordinary dividends" in Box #1 of the stockholder's Form 1099-DIV. GHS stockholders that are corporations generally will qualify for the 70% intercorporate dividends-received deduction subject to satisfaction of the requisite minimum holding period (generally, the GHS Common Stock must be held for at least 46 days within the 90 day period of time beginning 45 days before the GHS Common Stock becomes ex-dividend) and other applicable requirements. If the dividend is an "extraordinary dividend," as defined by Section 1059(c) of the Code, a corporate stockholder generally will be required to reduce its basis in its GHS Common Stock by the amount of the dividends-received deduction it was allowed. An "extraordinary dividend" with respect to 13 17 common stock is one in which the amount of such dividend equals or exceeds 10% of the stockholder's adjusted basis in its GHS Common Stock and the corporate stockholder had not held the GHS Common Stock for more than two years as of April 26, 1999 (the date the Spin-off was first announced publicly.) GHS's management anticipates that the value of the distributed USN Common Stock will not exceed GHS's accumulated earnings and profits. If the value of the distributed USN Common Stock was to exceed GHS's accumulated earnings and profits, the portion of the Spin-off to each stockholder that exceeds GHS's accumulated earnings and profits would be reported as a "nontaxable distribution" in Box #3 of the Form 1099-DIV received by the stockholder. Any such excess would be treated as a non-taxable return of capital to a recipient stockholder and each recipient stockholder would reduce his or her adjusted basis in his or her shares of GHS Common Stock in an amount equal to such excess. To the extent that the non-taxable portion of the Spin-off exceeds a stockholder's basis in his or her GHS Common Stock, the excess would be treated as capital gain. A stockholder thus would recognize capital gain to the extent the amount shown in Box #3 of the Form 1099-DIV exceeds the stockholder's adjusted basis in his or her GHS Common Stock. Gain or loss would be determined separately for each block of GHS common stock (i.e., GHS Common Stock acquired at the same cost in a single transaction) and this gain would be short-term or long-term depending on how long the stockholder has held the shares of GHS Common Stock. Each stockholder's basis in the shares of USN Common Stock he or she receives will be equal to the fair market value of these shares on the date of the Spin-off. Each stockholder's holding period for these shares will begin on the day after the date of the Spin-off. Payments to a stockholder in connection with the Spin-off may be subject to "backup withholding" at a rate of 31%, unless the stockholder is a (1) corporation or comes within certain exempt categories and, when required, demonstrates this fact, or, (2) provides a correct tax identification number ("TIN") to the payor, certifies as to no loss of exemption from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. A stockholder who does not provide a correct TIN may be subject to penalties imposed by the IRS. Any amount withheld as backup withholding does not constitute an additional tax and will be creditable against the stockholder's federal income tax liability provided the required information is provided to the IRS. The summary of the material U. S. federal income tax consequences set forth above may not be applicable to shareholders who received their shares of GHS Common Stock through the exercise of an employee stock option or otherwise as compensation, who do not hold their shares as capital assets within the meaning of Section 1221 of the Code, who are not citizens or residents of the United States, or who are otherwise subject to special treatment under the Code. Accordingly, because individual circumstances may differ, each stockholder should consult such stockholder's own tax advisor to determine the applicability of the rules discussed above and the particular tax effects to such stockholder of the Spin-off, including the application and effect of state, local, foreign and other income tax laws and changes thereto. REASONS FOR FURNISHING THE INFORMATION STATEMENT TO GHS STOCKHOLDERS This Information Statement is being furnished by GHS solely to provide information to GHS stockholder who will receive the USN Common Stock in the Spin-off. It is not, and is not to be construed as, an inducement or encouragement to buy or sell and securities of GHS or USN. The information contained in this Information Statement is believed by GHS and USN to be accurate as of the date set forth on its cover. Changes may occur after that date, and neither GHS nor USN will update the information except in the normal course of their respective public disclosure practices. BUSINESSES OF GHS AND USN AFTER THE SPIN-OFF After the Spin-off, GHS and USN will operate as separate businesses. GHS will, among other things, pursue certain business opportunities in the personal and professional improvement industry. USN will continue to operate its USN Gamma Knife Business. 14 18 THE BUSINESS OF GHS Following the Spin-off, GHS's sole business will involve the continued development of an online network to focus on personal and professional improvement. In May 1999, GHS consummated the acquisition of ChangeYourLife.com, LLC, a company founded by Anthony J. Robbins that is engaged in the development of a web site for personal and professional improvement (the "CYL Transaction"). ChangeYourLife.com, LLC has an agreement with Anthony J. Robbins and his operating company, Robbins Research International Inc. that makes GHS the exclusive online source for Robbins' training, courses, content and publications. In addition, in May 1999, GHS completed its acquisition of Brainfuel.com, the online arm of The Learning Annex and has the option to purchase The Learning Annex's traditional offline business (the "Brainfuel Transaction"). As a result of this acquisition, GHS has exclusive online access to educational content and materials covering a wide range of topics. GHS's ultimate objective is to make its online network the leader in online personal and professional improvement content, services, communities, and interactive sales. THE BUSINESS OF USN GENERAL USN was organized in July 1993 to own and operate stereotactic radiosurgery centers, utilizing the Gamma Knife technology. USN currently owns and operates two Gamma Knife centers, one on the premises of Research Medical Center ("RMC") in Kansas City, Missouri and one on the premises of New York University Medical Center ("NYU") in New York, New York. USN intends to continue to explore opportunities to open additional Gamma Knife centers. USN's business strategy is to provide a mechanism whereby hospitals, physicians, and patients can have access to Gamma Knife treatment capability, a high capital cost item. USN provides the Gamma Knife to medical facilities on a "cost per treatment" basis. USN owns the Gamma Knife units, and is reimbursed by the facility where it is housed, based on utilization. USN's principal target market is medical centers in major health care catchment areas that have physicians experienced with and dedicated to the use of the Gamma Knife. USN seeks cooperative ventures with these facilities. USN believes that, as of December 31, 1998, there were approximately forty Gamma Knife treatment centers in the United States. As a result of the Assignment and Assumption Agreement, U.S. Neurosurgical Physics, Inc. ("USNP") is the sole subsidiary of USN USNP administers the billing and collection of the fees charged by the physicist who operates the Kansas City Gamma Knife. GAMMA KNIFE TECHNOLOGY The Leksell Gamma Knife is a unique stereotactic radiosurgical device used to treat brain tumors and other malformations of the brain without invasive surgery. The Gamma Knife delivers a single, high dose of ionizing radiation emanating from 201 cobalt-60 sources positioned about a hemispherical, precision machined cavity. The lesion is first targeted with precision accuracy using advanced imaging and three dimensional treatment planning techniques such as CT Scans, MR Scans, conventional X-rays, or angiography. Each individual beam is focused on a common target producing an intense concentration of radiation at the target site, destroying the lesion while spreading the entry radiation dose uniformly and harmlessly over the patient's skull. The mechanical precision at the target site is +/- 0.1mm (1/10 of 1 millimeter). Because of the steep fall-off in the radiation intensity surrounding the target, the lesion can be destroyed, while sparing the surrounding tissue. The procedure, performed in a single treatment, sharply reduces hospital stay times and eliminates post-surgical bleeding and infection. When compared with conventional neurosurgery, Gamma Knife treatment is less expensive. However, not all patients are candidates for radiosurgery since the decision to use the Gamma Knife depends on the type, size, and location of the lesion. 15 19 KANSAS CITY AND NEW YORK CENTERS In July 1993, USN purchased its first Leksell Gamma Knife from Elekta Instruments, Inc. (Elekta), for the purpose of installing it at RMC in Kansas City, Missouri. USN paid approximately $3,000,000 for the Gamma Knife through a capital lease financing. USN opened its first Gamma Knife Center on the premises of RMC in September 1994. RMC is part of Health Midwest, a consortium of eleven hospitals and numerous affiliates. USN formed a cooperative venture with RMC in September, 1993. Per an agreement with RMC, GHS sold 500,000 shares of GHS Common Stock for $500,000 to RMC to secure additional working capital in order to enable USN to develop and construct a Gamma Knife Facility. USN installed the Gamma Knife in the facility, where it is being utilized by neurosurgeons credentialled by RMC. USN is reimbursed for use of the Gamma Knife by RMC based on a percentage of the fees collected by RMC for Gamma Knife procedures. Pursuant to a ground lease agreement, RMC leased to USN the land on which to build the Gamma Knife facility. USN opened its second treatment center in July 1997 on the campus of NYU in New York, New York. Construction of the Gamma Knife suite was completed in July 1997. The Gamma Knife cost and the cost of the facility improvements totaled approximately $4,700,000. In July 1997 GHS commenced its lease for the NYU Gamma Knife. DVI Financial Services, Inc. (DVI) provided the capital lease financing for the NYU facility. The term is six years with incremental payments for the first year and fixed payments thereafter. The interest rate for such capital lease is 12%. GHS has retained a marketing representative to help introduce the technology to neurosurgeons in the New York tri-state region. In March 1997, USN refinanced the lease on the RMC Gamma Knife with DVI. The effects of this transaction were to lower its interest costs to 10.4 % per annum and provide proceeds to pay for the buildout of the NYU Gamma Knife suite. USN also commenced loans with DVI of $188,000 to finance the remainder of the buildout. The terms of these loans are three years and they bear interest between 12% and 12.9% per annum. REGULATORY ENVIRONMENT The levels of revenues and profitability of companies involved in the health services industry, such as USN, may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of health care through various means. Although neither GHS nor USN believes that the business activities of USN will be materially affected by changes in the regulatory environment, it is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. Neither GHS nor USN can predict the effects healthcare reform may have on USN's business, and no assurance can be given that any such reforms will not have a material effect on USN. In addition, the provision of medical services in the United States is dependent on the availability of reimbursement to consumers from third party payors, such as government and private insurance companies. Although, patients are ultimately responsible for services rendered, each of GHS and USN expects that the majority of USN's revenues will be derived from reimbursements by third party payors. Medicare has authorized reimbursement for Gamma Knife treatment. Over the last several years, such third party payors are increasingly challenging the cost effectiveness of medical products and services and taking other cost-containment measures. Therefore, although treatment costs using the Gamma Knife compare favorably to traditional invasive brain surgery, it is unclear how this trend among third party payors and future regulatory reforms affecting governmental reimbursement will affect procedures in the higher end of the cost scale. In the future, GHS may establish additional Gamma Knife centers. Completion of future centers would require approvals and arrangements with hospitals, health care organizations, or other third parties, including certain regulatory authorities. The Food and Drug Administration has issued the requisite pre-market approval for the Gamma Knife to be utilized by USN. In addition, many states require hospitals to obtain a Certificate of Need (CON) before they can acquire a significant piece of medical equipment. Should USN enter into 16 20 future ventures such "need" will be demonstrable, but it can have no assurance that Certificates of Need will be granted. In addition, the Nuclear Regulatory Commission must issue a permit to USN to permit loading the Cobalt at each Gamma Knife site. While USN believes that it can obtain a NRC permit for any future Gamma Knife machine, there is no assurance that it will. LIABILITY INSURANCE Although USN does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. USN believes that its insurance is adequate for providing treatment facilities and non-medical services although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future. COMPETITION The health care industry, in general, is highly competitive and USN expects to have substantial competition from other independent organizations, as well as from hospitals in establishing future Gamma Knife centers. There are other companies that provide the Gamma Knife on a "cost per treatment basis". In addition, larger hospitals may be expected to install Gamma Knife technology as part of their regular inpatient services. Many of these competitors have greater financial and other resources than USN. Principal competitive factors include quality and timeliness of test results, ability to develop and maintain relationships with referring physicians, facility location, convenience of scheduling and availability of patient appointment times. USN believes that cost containment measures will encourage hospitals to seek companies that are providing the technology, instead of incurring the capital cost of establishing their own Gamma Knife centers. GAMMA KNIFE SUPPLY AND SERVICING Currently the only company that manufactures, sells, and services the Gamma Knife is Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm, Sweden. Any interruption in the supply or services from Elekta would adversely affect USN's ability to maintain its Gamma Knife treatment centers. GAMMA KNIFE FINANCING USN has secured capital lease financing from DVI for both its first Gamma Knife installation at the RMC site and its second Gamma Knife in New York. The Gamma Knife is an expensive piece of equipment presently costing approximately $3,500,000. Therefore, USN's development of new Gamma Knife centers is dependent on its ability to secure favorable financing. Each of GHS and USN believes that USN will continue to be successful in obtaining financing but can give no absolute assurance that it will. NEW TECHNOLOGY/POSSIBLE OBSOLESCENCE Gamma Knife technology may be subject to technological change. Consequently, USN will have to rely on the Gamma Knife's manufacturer, Elekta, to introduce improvements or upgrades in order to keep pace with technological change. Any such improvements or upgrades which USN may be required to introduce will require additional financing. In addition, newly developed techniques and devices for performing brain surgery may render the Gamma Knife less competitive or obsolete. EMPLOYEES USN has five full-time employees and one part-time employee. Of these employees, two are engaged in sales and marketing, one technical, and three in administration and office support. PROPERTIES USN's base facility, from which it conducts substantially all of its operations, is located in Rockville, Maryland and occupies approximately 1,300 square feet. The rent is approximately $32,000 per year. USN 17 21 occupies approximately 1,600 square feet in its RMC facility. This facility is located on the campus of RMC in Kansas City, Missouri. USN also occupies about 2,000 square feet at the NYU Medical Center in New York, New York. LITIGATION USN is not currently a party to any material legal proceeding. USN has recently settled a litigation in which it, GHS and certain other parties had been involved. See "Certain Relationships and Related Party Transactions." 18 22 MANAGEMENT OF USN FOLLOWING THE SPIN-OFF DIRECTORS AND OFFICERS After the Spin-off, the following officers and directors shall serve USN:
NAME POSITION ---- -------- Alan Gold President, Chief Executive Officer & Director William F. Leimkuhler Director Charles H. Merriman, III Director Howard Grunfeld Vice President -- Finance, Treasurer and Chief Financial Officer Susan Greenwald Gold Vice President and Secretary
Each of the officers and directors of USN had held similar positions with GHS prior to the consummation of the CYL Transaction. Set forth below is certain biographical information on such officers and directors: ALAN GOLD served as President and a director of GHS since its formation. Mr. Gold has also been a director of USN since its formation in 1993 and its President since 1996. Mr. Gold, 54, was one of the founders of Global Health Systems, the predecessor of GHS, serving as its President since its formation in July 1983. From 1981 to 1983 he served as Executive Vice-President of Libra Group, a company located in Rockville, Maryland, engaged in health care automation, where he was President of Global Health Foundation and Libra Research and Executive Vice President of Libra Technology. From July 1997 through March 1998, Mr. Gold was also an employee of Health Management Systems. WILLIAM F. LEIMKUHLER served as director of GHS since its incorporation in 1984 and was appointed a director of USN in May 1999. Since January 1994, Mr. Leimkuhler, 47, has been a Vice President of Allen & Company Incorporated, an investment banking firm. From 1984 to December, 1993, Mr. Leimkuhler was a partner with the law firm of Werbel & Carnelutti, which has served as counsel to GHS on various matters since GHS's formation. CHARLES H. MERRIMAN, III served as a director of GHS since October 1997 and was appointed a director of USN in May 1999. Mr. Merriman, 64. is a Managing Director of the Investment Banking and Corporate Finance Department of Scott & Stringfellow, an investment banking firm where he has been employed since 1972. Mr. Merriman has extensive knowledge of USN's primary focus on healthcare and technology. HOWARD GRUNFELD served as Controller of GHS since 1990 and as Treasurer of USN since 1993. Mr. Grunfeld, 38, was appointed Vice President -- Finance and Chief Financial Officer of USN in May 1999. Mr. Grunfeld served as the Controller of Global Health Systems from 1990 through July 1997. From July 1997 through February 1998, Mr. Grunfeld was an employee of Health Management Systems, Inc. (HMS). SUSAN GREENWALD GOLD served as Vice President of Marketing Communications and as Secretary of GHS since its formation. Ms. Gold, 54, was one of the founders of Global Health Systems, the predecessor of GHS, and served as its Vice President of Marketing Communications since 1983. From 1981 through 1983 she was the Proposal Manager for Libra Technology and Global Health Foundation, sister companies engaged in Federal contracting and private enterprise, respectively, in the healthcare information technology business. From July 1997-February 1998, Ms. Gold was an employee of Health Management Systems, Inc. (HMS). Ms. Gold is the wife of Alan Gold. Pursuant to USN's Bylaws, USN's Board of Directors will elected by stockholders at each annual meeting to serve until the next annual meeting or until their successors are elected and qualified. In the case of a vacancy, a director will be appointed by a majority of the remaining directors then in office to serve the remainder of the term left vacant. Directors will not receive any fees for attending Board meetings. Directors are entitled to receive reimbursement for travelling costs and other out-of-pocket expenses incurred in attending Board meetings. USN does not have a standing audit, nominating or compensation committee. 19 23 Pursuant to USN's Bylaws, officers of USN hold office until the first meeting of directors following the next annual meeting of stockholders and until their successors are chosen and qualified. EXECUTIVE COMPENSATION The following table sets forth the compensation for the years ended December 31, 1998, 1997 and 1996 for the Chief Executive Officer of USN. All such compensation was paid by GHS for services performed for GHS and USN prior to the Spin-off. Following the Spin-off, the compensation of USN's officers and other employees will be paid solely by USN. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION NAME AND ------------------- ---------------------- PRINCIPAL POSITION YEAR SALARY($) OPTIONS/SARS ------------------ ---- ------------------- ---------------------- Alan Gold, President & Director................ 1998 $207,500 1997 $115,000 100,000 1996 $150,000
EMPLOYMENT AGREEMENTS In connection with the Spin-off, USN is assuming the employment agreement between Mr. Gold and GHS. Mr. Gold's annual compensation will be set by USN's Board of Directors. Such employment agreement gives either USN or Mr. Gold the option to terminate the agreement by giving the other party 6 months written notice. STOCK OPTION PLANS Immediately following the Spin-off, USN will not have an formal stock option plans. If the Board of Directors deems it advisable, USN may, in the future, adopt a stock option plan in accordance with all applicable legal requirements. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In 1993, pursuant to an agreement (the "USN Agreement") between GHS and A. Hyman Kirshenbaum, M.D. ("Kirshenbaum") and Jerry Brown, Ph.D ("Brown") , GHS, among other things, granted an aggregate 20% interest in USN to Brown and Kirshenbaum. In addition, following the execution of the USN agreement, Kirshenbaum was appointed as an officer of USN and Brown was appointed to GHS's Board of Directors and executed an employment agreement with USN. Under the terms of the USN Agreement, GHS possessed the right to repurchase for cash or GHS Common Stock such 20% interest during each of the third through sixth full fiscal years of the USN Agreement at a value to be calculated by GHS in accordance with the terms of the USN Agreement. GHS exercised its right to repurchase the 20% interest in USN in November 1996 at a value of $38,781.40, which value was disputed by Brown and Kirshenbaum. In June 1997, GHS instituted an action (the "Declaratory Action") in the United States District Court of Maryland, Southern Division against Kirshenbaum and Brown seeking a declaration from the Court that its repurchase of Brown's and Kirshenbaum's 20% interest in USN for $38,781.40 was fair and equitable. In response to the Declaratory Action, Brown and Kirshenbaum filed a counterclaim and third party claim against GHS, USN, Alan Gold and Allen & Company Incorporated, a significant stockholder of GHS, citing various claims including causes of action for breach of contract and fraud. USN filed a counterclaim against Brown and Kirshenbaum alleging various torts claims arising out of the business relationship. In addition to the above described federal court action, Brown filed a state court action in the District Court in and for Montgomery County, Maryland against USN and other parties seeking breach of contract damages for lost salary, unreimbursed expenses and for consequential damages and costs arising out of what he claims to be an improper termination from USN. 20 24 On May 25, 1999, the parties to the above-described actions settled all of above-described legal proceedings pursuant to an Agreement and Plan of Settlement dated March 22, 1999 between Brown, Kirshenbaum, GHS, USN, Alan Gold and Allen & Company. As part of the closing of such settlement, GHS issued in the aggregate 68,688 additional shares of GHS Common Stock to Brown and Kirshenbaum and delivered $200,000 in cash to them. In addition, USN delivered to Brown and Kirshenbaum promissory notes (the "Settlement Notes") in the aggregate amount of $450,000, bearing interest at the rate of 6% per annum, and payable over a four-year period as follows: $100,000 on the first, third and fourth anniversaries of such closing and $150,000 on the second anniversary of such closing. USN will be solely responsible for the payment of the Settlement Notes. The Settlement Notes are secured by a second-priority security interest in USN's receivables from its Kansas City and New York Gamma Knife centers. On June 9, 1999, the Declaratory Action was dismissed with prejudice by the parties, and said dismissal was approved by the District Court judge. As consideration for financial advisory services rendered by Allen & Company Incorporated ("Allen") to GHS in connection with the CYL Transaction and Brainfuel Transaction through May 27, 1999, GHS agreed to pay Allen a financial advisory fee of $400,000, payable in installments of $100,000 on each of August 1, 1999, August 1, 2000, September 1, 2000 and October 1, 2000. As a result of the Assignment and Assumption Agreement entered into between GHS and USN, USN will be solely responsible for the payment of such fees because such fees relate to events occurring prior to May 27, 1999. Allen will be the beneficial holder of approximately 27% of the USN Common Stock following the Spin-off and William F. Leimkuhler, a director of GHS and USN, is a Vice President of Allen. In May 1999, GHS retained Scott & Stringfellow, an investment banking firm, to prepare an appraisal of USN in connection with the Spin-off. Mr. Charles H. Merriman III, a director of GHS and USN, is a Managing Director of Scott & Stringfellow. See "The Spin-off of U.S. NeuroSurgical, Inc. -- Appraisal of USN." 21 25 SELECTED USN AND USNP COMBINED FINANCIAL DATA The following table sets forth certain selected combined financial and operating data for USN and USNP as of and for each of the five years in the period ended December 31, 1998. Balance sheet data as of December 31, 1998 and 1997 and statement of operations data for each of the three years in the period ended December 31, 1998, have been derived from USN's and USNP's combined financial statements and notes thereto that have been audited by Richard A. Eisner & Company, LLP, independent public accountants. The financial data as of December 31, 1996, 1995 and 1994 and for the two years ended December 31, 1995 and the financial data as of and for the three-month periods ended March 31, 1999 and 1998 have been derived from unaudited financial statements and contain all adjustments necessary for a fair presentation of such financial information. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 1999. All the data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of USN" and USN's and USNP's combined financial statements and notes thereto. (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ---------------------------------------------------- ---------------- 1998 1997 1996 1995 1994 1999 1998 ------ ------ ------ ----------- ----------- ------ ------- (UNAUDITED) (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Operating Revenue............... $2,332 $1,830 $1,452 $1,283 $ 381 $ 940 $ 588 Expenses: Patient expense............... 1,221 843 574 545 177 343 333 General and administrative.... 1,148 585 417 279 253 323 151 Interest expense.............. 555 485 302 499 308 116 152 Net Income (loss)............... (1,011) (53) 95 (40) (357) 98 (48) Pro forma basic and diluted income (loss) per common share (1)........................... $(0.16) $(0.01) $ 0.01 $(0.01) $(0.05) $0.01 $(0.01)
DECEMBER 31, ---------------------------------------------------------- MARCH 31, 1998 1997 1996 1995 1994 1999 ------- ------ ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents..... $ 21 $ 60 $ 14 $ 0 $ 9 $ 223 Total assets.................. 5,811 6,836 6,604 3,636 3,955 5,895 Long-term obligations......... 3,514 4,667 5,659 3,347 3,246 3,116 Stockholders deficiency....... (1,043) (657) (712) (486) (392) (945)
NOTES: (1) Pro forma basic and diluted income (loss) per common share is calculated assuming that the Spin-off and the stock-split of USN Common Stock required to effect the Spin-off had occurred as of January 1, 1994. 22 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF USN The following discussion should be read in conjunction with USN's and USNP's Combined Financial Statements and Notes set forth elsewhere in this Information Statement. RESULTS OF OPERATIONS FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998 Patient revenue increased 60% to $940,000 in the quarter ended March 31, 1999 from $588,000 for the quarter ended March 31, 1998. The increase was due to an increase in the number of Gamma Knife procedures at Research Medical Center in Kansas City and the NYU Gamma Knife Center in New York. Patient expenses increased 3% to $343,000 from $333,000 a year earlier. Selling, general and administrative expense increased to $323,000 from $151,000 for the quarter ended March 31, 1998. The increase was due to the effects of salaries and related office costs incurred for employees who were not employed by USN during the first quarter of 1998. Interest expense decreased 31% to $116,000 from $152,000 in the same period a year earlier. The decrease was due to increased principal payments on the Company's Gamma Knife properties. For the quarter ended March 31 1999, income from continuing operations was $98,000 as compared to a loss of $48,000 for the same period a year earlier. 1998 COMPARED TO 1997 Patient revenue increased 27% to $2,332,000 in 1998 from $1,830,000 in 1997. The increase was due to added revenue from the NYU Gamma Knife which completed its first calendar year of service. Patient expenses increased 45% to $1,221,000 from $843,000 in 1997. The increase was due to a full year of depreciation to the NYU Gamma Knife as well as amortization for the NYU leasehold improvements. Selling, general and administrative expense (S, G & A) increased 96% to $1,148,000 from $585,000 in 1997. The increase was due to the legal expenses incurred in connection with proceedings described in "Certain Relationships and Related Party Transaction" herein and in the Combined Financial Statements and the effects of salaries and related office costs incurred for employees who were employed by USN for a greater period in 1998 than for 1997. For the year ended 1998, loss from operations was $971,000 as compared to income from operations of $402,000 in 1997. The loss reflects an estimated cost of $934,000 to settle the legal proceedings described in "Certain Relationships and Related Party Transactions" herein. Interest expense increased 14% to $555,000 from $485,000 in the previous year. The increase was due to a full year of debt service on the NYU Gamma Knife in 1998 as compared to 1997 when $178,000 of interest was capitalized, prior to the opening of the Center. USN had an income tax benefit of $511,000 in 1998 as compared to an income tax benefit of $8,000 in 1997. As a result of these factors, USN had a loss from continuing operations of $1,011,000 in 1998 and a loss of $53,000 in 1997. 1997 COMPARED TO 1996 Patient revenue increased 26% to $1,830,000 in 1997 from $1,452,000 in 1996. The increase was due to two factors. The Gamma Knife at the RMC Gamma Knife Center (Kansas City Center) continued to increase its patient treatments. The other increase was due to the fact that USN opened its second center and the first in New York City. This center commenced operations in the second half of 1997. Patient expenses increased 47% to $843,000 from $574,000 in 1996. The increase was due to increased depreciation to the New York Gamma Knife and due to the amortization for the New York improvements. Selling, general and administrative expense (S, G & A) increased 40% to $585,000 in 1997 from $417,000 in 1996. The increase was due to increased insurance costs for the two Gamma Knives and legal fees related to the legal proceedings described in "Certain Relationships and Related Party Transaction" herein and in the Combined Financial Statements. For the year ended December 31, 1997, income from operations was $402,000 as compared to income from operations of $461,000 in 1996. There was a 60% increase in interest expense to $485,000 in 1997 from $302,000 in 1996. The increase in interest expense was due to the opening of the second Gamma Knife Center 23 27 at NYU in July 1997. Prior to the opening, interest on the progress payments of the Gamma Knife and the demand loan for the leasehold improvements at NYU had been capitalized. Interest capitalized was $178,000 for 1997 and $249,000 for 1996. With the commencement of the NYU Gamma Knife Center, the second equipment lease started replacing the progress payments, leasehold improvements of $487,000 were financed over three years and the capitalized interest cost began to be amortized over seven years. As a result of these factors, USN had a loss from continuing operations of $53,000 in 1997. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999 USN had a working capital deficit of $2,995,000 as compared to a working capital deficit of $2,974,000 at December 31, 1998. Included in such deficits are $1,855,000 and $1,651,000, respectively, of amounts payable to GHS, which amounts have since been contributed to the capital of USN. Cash and cash equivalents at March 31, 1999 were $223,000 as compared with $21,000 at December 31, 1998. Net cash provided by operating activities was $550,000 as compared with $283,000 for the same period, a year earlier. Depreciation and amortization was $280,000 for the quarter ended March 31, 1999 as compared to $282,000 in the same period, one year earlier. There was an increase in receivables of $161,000 during the quarter. For the year ended December 31, 1998 net cash provided by operating activities amounted to $475,000 as compared to net cash used of $494,000 in 1997. Depreciation and amortization was $1,121,000 in 1998, a 43% increase from the $784,000 in 1997. This increase was due to the NYU Gamma Knife being in service for a full calendar year. Accounts payable and accrued expenses increased by $657,000 from 1997 to 1998 as a result of an accrual of $650,000 made for settlement of a lawsuit. Net cash used in financing activities for the quarter ended March 31, 1999 was $348,000 as compared to $325,000 for the same period a year earlier, as USN paid down the principal on its capitalized leases. Net cash used in financing activities was $491,000 in 1998 compared to $211,000 in 1997. USN made lease repayments of $1,195,000 in 1998 versus $486,000 in 1997. There was no cash used in or provided by investing activities for the first three months of 1999. USN's net cash used in investing activities was $23,000 in 1998 compared to $241,000 in 1997. There were purchases of property and equipment of $20,000 in 1998 as compared to $1,102,000 in 1997 when USN completed construction of the NYU Gamma Knife facility. The annual capital lease payments for the Gamma Knife at RMC in Kansas City total $827,000. At December 31, 1998 USN had one and one-half years remaining on this capital lease. The capital leases for the NYU equipment and improvements require annual payments of $792,000 and $221,000 respectively. In addition, as part of the settlement of a litigation involving GHS and USN in May 1999, USN issued promissory notes in the aggregate amount of $450,000, bearing interest at the rate of 6% per annum, and payable over a four-year period as follows: $100,000 on the first, third and fourth anniversaries of closing of the settlement and $150,000 on the second anniversary of such closing. USN will be solely responsible for the payment of these promissory notes. After giving effect to the CYL Transaction, the Company had $1,132,000 in current assets and $6,250,000 of total assets, reflecting approximately $374,000 in cash transferred from GHS to USN pursuant to the Distribution Agreement. In addition, after giving effect to the CYL Transaction, current liabilities in the amount of $1,960,000 gave USN negative working capital of $828,000. Management believes that the capital resources derived through internally generated funds from operations and current cash balances will be sufficient to satisfy USN's operating and capital needs for the foreseeable future. YEAR 2000 COMPLIANCE USN relies on computer technology throughout its business to effectively carry out its day-to-day operations. In addition, the Gamma Knife relies on computer technology in its operations. The software used in connection with the Gamma Knives operating at the RMC and NYU centers has been or is being upgraded to ensure Year 2000 compliance. The costs of such upgrades are included in USN's normal maintenance contract with the Gamma Knife equipment manufacturer and will result in no additional cost to USN. USN 24 28 has assessed all of its other computer systems to ensure that they are Year 2000 compliant. USN is in the process of completing its Year 2000 project and does not expect to incur any material costs in connection with this project. This process should be completed in a timely manner. However, there can be no assurance that the systems of other companies on which USN may rely also will be converted in a timely manner or that such failure to convert by another company would not have an adverse effect on USN's systems. The cost to USN of such changes is difficult to estimate but is not expected to have a material financial impact. Actual results could differ materially from USN's expectations due to unanticipated technological difficulties, vendor delays and vendor cost overruns. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Statements contained in this Information Statement that are not historical facts may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties including, without limitation, the payment, timing and ultimate collectability of accounts receivable for Gamma Knife procedures from different payor groups such as Medicare and private payors; competition; technological obsolescence; government regulation; and malpractice liability. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested may be identified from time to time in GHS's and USN's filings with the Securities and Exchange Commission (SEC) and GHS's and USN's public announcements, copies of which are available from the SEC or from the applicable company upon request. DESCRIPTION OF GHS AND USN CAPITAL STOCK DESCRIPTION OF GHS CAPITAL STOCK The authorized capital stock of GHS consists of 25,000,000 shares of Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01 per share (the "GHS Preferred Stock"). As of June 30, 1999, there were 7,316,685 shares of GHS Common Stock outstanding, with 77 holders of record. As of June 30, 1999, there were approximately 308,621 shares of GHS Preferred Stock outstanding which were convertible into 33,051,665 shares of GHS Common Stock. The foregoing numbers do not include the number of stockholders whose shares are held of record by a broker or clearing agency, but do include each such broker or clearing agency as one record holder. In addition, as of June 1, 1999, GHS had outstanding (a) options to acquire 175,000 shares of its Common Stock, which options had been granted under GHS's 1986 and 1997 stock option plans, and (b) warrants to purchase 200,000 shares of GHS Common Stock. GHS has never declared a cash dividend with respect to its capital stock and does not anticipate paying any dividends on its capital stock in the foreseeable future. The declaration and payment of dividends by GHS are subject to the discretion of GHS's Board of Directors. Any determination as to the payment of dividends in the future will depend upon results of operations, capital requirements, restrictions in loan agreements, if any, and such other factors as GHS's Board of Directors may deem relevant. GHS COMMON STOCK The GHS Common Stock has one vote per share. Holders of GHS Common Stock have no cumulative voting rights and no preemptive, subscription or sinking fund rights. Subject to preferences that may be applicable to any then-outstanding GHS Preferred Stock, holders of GHS Common Stock will be entitled to receive ratably such dividends as may be declared by the GHS Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of GHS, holders of GHS Common Stock will be entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then-outstanding GHS Preferred Stock. 25 29 GHS PREFERRED STOCK Pursuant to its Certificate of Incorporation, GHS is authorized to issue 1,000,000 shares of GHS Preferred Stock, which may be issued from time to time in one or more classes or series or both upon authorization by the GHS Board of Directors. The GHS Board of Directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to each class or series of GHS Preferred Stock. The issuance of GHS Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of GHS Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of GHS, discourage bids for GHS Common Stock at a premium or otherwise adversely affect the market price of the GHS Common Stock. As of June 30, 1999, GHS has outstanding (a) 99,059.338 shares of Series A Preferred Stock convertible into 30,708,395 shares of GHS Common Stock, (b) 178,582 shares of Series B Preferred Stock convertible into 1,785,820 shares of GHS Common Stock, and (c) 55,745 shares of Series C Preferred Stock convertible into 557,450 shares of GHS Common Stock. The holders of GHS's outstanding Preferred Stock will not be entitled to the Spin-off dividend of USN Common Stock. DESCRIPTION OF USN CAPITAL STOCK As of the Record Date, the authorized capital stock of USN will consist of 25,000,000 shares of Common Stock, par value $.01 per share (the "USN Common Stock") and 1,000,000 shares of preferred stock, par value $.01 per share (the "USN Preferred Stock"). There is no USN Preferred Stock outstanding. As a result of a 73,166.85-for-1 stock split, to be effected prior to the Record Date in the form of a stock dividend, there will be 7,316,685 shares of USN Common Stock outstanding, with 1 holder of record, GHS (100%). On the Record Date, all 7,316,685 shares held by GHS will be distributed to its stockholders. There are no other rights outstanding to acquire USN stock. USN has never declared a cash dividend with respect to its capital stock and does not anticipate paying any dividends on its capital stock in the foreseeable future. USN's debt facilities contain certain restrictions on USN's ability to declare and pay dividends on its capital stock. The declaration and payment of dividends by USN are subject to the discretion of USN's Board of Directors. Any determination as to the payment of dividends in the future will depend upon results of operations, capital requirements, restrictions in loan agreements or agreements issued in connection with the sale of USN's securities, if any, and such other factors as USN's Board of Directors may deem relevant. USN COMMON STOCK The USN Common Stock has one vote per share. Holders of USN Common Stock have no cumulative voting rights and no preemptive, subscription or sinking fund rights. Subject to preferences that may be applicable to any then outstanding USN Preferred Stock, holders of USN Common Stock will be entitled to receive ratably such dividends as may be declared by the USN Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of USN, holders of USN Common Stock will be entitled to share ratably in all remaining assets after payment of liabilities and the liquidation preference of any then-outstanding USN Preferred Stock. USN PREFERRED STOCK Pursuant to its Certificate of Incorporation, USN will be authorized to issue 1,000,000 shares of USN Preferred Stock, which may be issued from time to time in one or more classes or series or both upon authorization by USN's Board of Directors. USN's Board of Directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to each class or series of USN Preferred Stock. The issuance of USN Preferred Stock, while 26 30 providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of USN Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of USN, discourage bids for USN Common Stock at a premium or otherwise adversely affect the market price of the USN Common Stock. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW USN is subject to the provisions of Section 203 of the Delaware General Corporation Law ("DGCL"). Subject to certain exceptions, Section 203 of the DGCL prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. A "business combination" includes (1) mergers, consolidations and sales or other dispositions of 10% or more of the assets of a corporation to or with an interested stockholder, (2) certain transactions resulting in the issuance or transfer to an interested stockholder of any stock of such corporation or its subsidiaries, and (3) other transactions resulting in a disproportionate financial benefit to an interested stockholder. The restrictions of Section 203 of the Delaware General Corporation Law do not apply where: (1) the business combination or the transaction in which the stockholder becomes interested is approved by the corporation's Board of Directors prior to the date the interested stockholder acquired its shares; (2) the interested stockholder acquired at least 85% of the outstanding voting stock of the corporation in the transaction in which the stockholder became an interested stockholder excluding, for determining the number of shares outstanding, shares owned by persons who are directors as well as officers and by employee stock plans in which participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (3) the business combination is approved by the Board of Directors and the affirmative vote of two-thirds of the outstanding voting stock not owned by the interested stockholder at an annual or special meeting. The business combinations provisions of Section 203 of the DGCL may have the effect of deterring merger proposals, tender offers or other attempts to effect changes in control of USN that are not negotiated with and approved by the Board of Directors. TRANSFER AGENT The transfer agent and registrar for the USN Common Stock and the GHS Common Stock is American Stock Transfer & Trust Company, New York, New York. MARKET PRICE OF GHS COMMON STOCK The High/Low prices of GHS Common Stock on June 24, 1999 were $14.38 and $13.75, respectively. LISTING AND TRADING OF GHS COMMON STOCK AND USN COMMON STOCK After the Spin-off, the GHS Common Stock will continue to be traded on the OTC Bulletin Board under the symbol GHSI. GHS expects that the USN Common Stock will also be traded on the OTC Bulletin Board. The combined trading prices of GHS Common Stock and USN Common Stock may be greater than, less than or equal to the trading price of GHS Common Stock immediately prior to the Spin-off. 27 31 USN initially will have approximately 77 stockholders of record based upon the number of stockholders of record of GHS as of June 30, 1999. The prices at which the USN Common Stock will trade will be determined by the marketplace and may be influenced by many factors, including, among others, the depth and liquidity of the market for the USN Common Stock, investor perception of USN and the healthcare industry, USN's dividend policy and general economic and market conditions. Shares of USN Common Stock distributed to GHS stockholders in the Spin-off will be freely transferable, except for securities received by persons who may be deemed to be "affiliates" of USN pursuant to the Securities Act. Persons who may be deemed to be "affiliates" of USN after the Spin-off generally include individuals or entities that control, are controlled by, or are under common control with, USN and may include certain officers and directors of USN as well as principal stockholders of USN. Persons who are affiliates of USN will be permitted to sell their shares of USN Common Stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act. 28 32 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Because the Spin-off will be on the basis of one share of USN Common Stock for each share of GHS Common Stock owned on the Record Date, each GHS stockholder will own, following the Spin-off, the same percentage of the issued and outstanding USN Common Stock as such stockholder owns of GHS Common Stock. In connection with the Spin-off, no options or warrants will be issued to holders of GHS options or warrants as of the Record Date. In addition, although the holders of GHS's Preferred Stock have the right to vote such shares on an as converted basis, they will not be entitled to receive the Spin-off dividend of USN common stock. The following table sets forth certain information regarding the anticipated beneficial ownership of USN Common Stock following the Spin-off by (i) each person anticipated by GHS to own beneficially 5% or more of the USN Common Stock; (ii) each director of USN; (iii) each executive officer USN; and (iv) all directors and officers of USN as a group. The information in the table is based upon the actual holdings of GHS Common Stock as of June 30, 1999 and such information is derived based upon the hypothetical assumption that the Record Date and the Spin-off Payment Date were June 30, 1999, so as to inform the reader what the beneficial ownership of USN Common Stock would have been at that time. Actual ownership on the Spin-off Payment Date may vary from that shown in the table. Unless otherwise indicated, all persons listed have sole voting power and investment power with respect to such shares, subject to community property laws, where applicable, and the information contained in the notes to the table.
SHARES OF USN PERCENT TO BE COMMON STOCK TO BE BENEFICIALLY BENEFICIALLY OWNED OWNED FOLLOWING FOLLOWING NAME AND ADDRESS THE SPIN-OFF(1) THE SPIN-OFF(1) ---------------- ------------------ --------------- Alan Gold................................................. 630,246(2) 8.6% President, Chief Executive Officer and Director 2400 Research Blvd Rockville, MD 20850 William F. Leimkuhler..................................... 0 0% Director 711 Fifth Avenue New York, NY 10022 Charles H. Merriman III................................... 30,672 * Director C/O Scott & Stringfellow PO Box 1575 Richmond, VA 23218 Howard Grunfeld........................................... 40,900 * Vice President - Finance, Treasurer, and Chief Financial Officer 2400 Research Blvd Rockville, MD 20850 Stanley S. Shuman......................................... 1,051,250(3) 14.4% 711 Fifth Avenue New York, NY 10022
29 33
SHARES OF USN PERCENT TO BE COMMON STOCK TO BE BENEFICIALLY BENEFICIALLY OWNED OWNED FOLLOWING FOLLOWING NAME AND ADDRESS THE SPIN-OFF(1) THE SPIN-OFF(1) ---------------- ------------------ --------------- Allen & Company Incorporated.............................. 1,902,000(4) 26.0% 711 Fifth Avenue New York, NY 10022 Research Medical Center................................... 375,000 5.1% 2316 East Meyer Blvd Kansas City, MO 64132 All Directors and Executive Officers of USN as a group 701,818 9.6% (four persons) (2)......................................
- --------------- * Less than one percent. (1) Unless otherwise indicated, all shares are beneficially owned and sole voting and investment power is held by the person named above. (2) Includes 630,246 shares held jointly by Mr. Gold and his wife, Susan Gold, as joint tenants with right of survivorship. (3) Includes 210,250 shares held in certain trusts for the benefit of Mr. Shuman's children, of which shares Mr. Shuman disclaims beneficial interest. Does not include shares owned by Allen & Company Incorporated ("Allen"), of which Mr. Shuman is a Managing Director, and as to which shares Mr. Shuman disclaims beneficial ownership. (4) Does not include outstanding shares owned by persons, including Mr. Shuman, who are officers and directors of Allen or relatives of the foregoing, as to which shares Allen disclaims beneficial ownership. INDEPENDENT ACCOUNTANTS The Board of Directors of USN has selected Richard A. Eisner & Company, LLP to audit USN's financial statements for the year ending December 31, 1999. Richard A. Eisner & Company, LLP has served as independent accountants for USN (and GHS) for the calendar years covered by the financial statements included in this Information Statement. LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 145 of the Delaware General Corporation law empowers a Delaware corporation to indemnify its officers and directors and certain other persons to the extent and under the circumstances set forth therein. The form of the Amended and Restated Certificate of Incorporation of USN and the Amended and Restated By-laws of USN provide for indemnification of officers and directors of the Registrant and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. The above discussion of the Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Section 145 of the Delaware General Corporation Law is not intended to be exhaustive and is qualified in its entirety by the forms of such Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws, and statute. 30 34 DOCUMENTS INCORPORATED BY REFERENCE The following documents filed with the Securities and Exchange Commission (the "SEC") by GHS (SEC File No. 0-15586) are incorporated by reference in this Information Statement: 1. GHS's Annual Report on Form 10-K for the year ended December 31, 1998. 2. GHS's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. 3. GHS's Current Reports on Form 8-K, as amended on Form 8-K/A, dated April 26, 1999 and May 27, 1999. All documents filed by GHS pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this Information Statement and prior to the completion of the Spin-off shall be deemed to be incorporated by reference into this Information Statement and to be a part hereof from the date of filing of such document. Any statement contained herein or in a document all or a portion of which is incorporated or deemed incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Information Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Information Statement. GHS hereby undertakes to provide without charge to each person to whom this Information Statement has been delivered, upon the written or oral request of any such person, a copy of any and all of the foregoing documents incorporated herein by reference (other than exhibits to such documents which are not specifically incorporated by reference in such documents). GHS shall deliver the requested information by first class mail or other equally prompt means within one business day of receipt of such request. Written or telephone requests should be directed to Investor Relations Department, GHS, Inc., 704 Broadway, New York, New York 10003, at telephone number (212) 358-4028 or Investor Relations Department, U.S. NeuroSurgical, Inc., 2400 Research Boulevard, Rockville, Maryland 20850, at telephone number (301) 208-8998. ADDITIONAL INFORMATION GHS is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, GHS files reports, proxy statements and other information with the SEC. The reports, proxy statements and other information can be inspected and copied at the public reference facilities that the SEC maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the SEC at the principal offices of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed electronically by means of the SEC's home page on the Internet at http://www.sec.gov. 31 35 INDEX TO COMBINED FINANCIAL STATEMENTS USN AND USNP COMBINED FINANCIAL STATEMENTS
PAGE ---- AUDITED FINANCIAL STATEMENTS: Report of Independent Accountants........................... F- 2 Combined Balance Sheet as of December 31, 1998 and 1997..... F- 3 Combined Statement of Operations for the fiscal years ended December 31, 1998, 1997 and 1996.......................... F- 4 Combined Statement of Cash Flows for the fiscal years ended December 31, 1998, 1997 and 1996.......................... F- 6 Combined Statement of Stockholders' Equity for the fiscal years ended December 31, 1998, 1997 and 1996.............. F- 5 Notes to Combined Financial Statements...................... F- 7 UNAUDITED FINANCIAL STATEMENTS: Unaudited Combined Balance Sheet as of March 31, 1999 and 1998...................................................... F-13 Unaudited Combined Statement of Operations for the three months ended March 31, 1999 and 1998...................... F-14 Unaudited Combined Statement of Cash Flows for the three months ended March 31, 1999 and 1998...................... F-15 Notes to Unaudited Combined Financial Statements............ F-16
F-1 36 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders U.S. NeuroSurgical, Inc. and U.S. Neurosurgical Physics, Inc. Rockville, Maryland We have audited the accompanying combined balance sheets of U.S. NeuroSurgical, Inc. and U.S. Neurosurgical Physics, Inc. as of December 31, 1998 and 1997, and the related combined statements of operations, changes in stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the combined financial position of U.S. NeuroSurgical, Inc. and U.S. Neurosurgical Physics, Inc. as of December 31, 1998 and 1997, and the combined results of their operations and their combined cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles. RICHARD A. EISNER & COMPANY, LLP New York, New York January 20, 1999 With respect to Note A[1] May 31, 1999 With respect to Note G June 9, 1999 F-2 37 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. COMBINED BALANCE SHEETS
DECEMBER 31, ------------------------ 1998 1997 ----------- ---------- ASSETS Current assets: Cash and cash equivalents................................. $ 21,000 $ 60,000 Accounts receivable....................................... 238,000 209,000 Deferred tax asset........................................ 80,000 Other current assets...................................... 27,000 24,000 ----------- ---------- Total current assets.............................. 366,000 293,000 ----------- ---------- Property and equipment: Gamma Knives (net of accumulated depreciation of $2,560,000 in 1998 and $1,636,000 in 1997)............. 3,906,000 4,830,000 Leasehold improvements (net of accumulated amortization of $395,000 in 1998 and $198,000 in 1997)................. 1,447,000 1,624,000 ----------- ---------- Total property and equipment...................... 5,353,000 6,454,000 ----------- ---------- Cash held in escrow......................................... 92,000 89,000 ----------- ---------- $ 5,811,000 $6,836,000 =========== ========== LIABILITIES Current liabilities: Accounts payable and accrued expenses..................... $ 66,000 $ 59,000 Accrued litigation settlement............................. 200,000 Obligations under capital lease and loans payable -- current portion............................. 1,423,000 1,195,000 Due to GHS, Inc........................................... 1,651,000 1,572,000 ----------- ---------- Total current liabilities......................... 3,340,000 2,826,000 Accrued litigation settlement............................... 450,000 Deferred tax liability...................................... 270,000 450,000 Obligations under capital lease and loans payable -- net of current portion........................................... 2,794,000 4,217,000 ----------- ---------- 6,854,000 7,493,000 ----------- ---------- Commitments, litigation and other matters STOCKHOLDERS' EQUITY (DEFICIENCY) Common stock -- U.S. NeuroSurgical, Inc. par value $.01; 3,000 shares authorized; 100 shares issued and outstanding............................................... Common stock -- U.S. Neurosurgical Physics, Inc. -- par value $1; 30,000 shares authorized; 100 shares issued and outstanding............................................... Additional paid-in capital.................................. 734,000 109,000 Accumulated deficit......................................... (1,777,000) (766,000) ----------- ---------- (1,043,000) (657,000) ----------- ---------- $ 5,811,000 $6,836,000 =========== ==========
See notes to financial statements F-3 38 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 ----------- ---------- ---------- Revenue: Patient revenue....................................... $ 2,332,000 $1,830,000 $1,452,000 ----------- ---------- ---------- Costs and expenses: Patient expenses...................................... 1,221,000 843,000 574,000 Selling, general and administrative................... 1,148,000 585,000 417,000 Litigation settlement................................. 934,000 ----------- ---------- ---------- 3,303,000 1,428,000 991,000 ----------- ---------- ---------- Income (loss) from operations........................... (971,000) 402,000 461,000 ----------- ---------- ---------- Interest expense........................................ (555,000) (485,000) (302,000) Interest income......................................... 4,000 22,000 ----------- ---------- ---------- (551,000) (463,000) (302,000) ----------- ---------- ---------- Income (loss) before income tax......................... (1,522,000) (61,000) 159,000 Income tax (benefit) provision.......................... (511,000) (8,000) 64,000 ----------- ---------- ---------- NET INCOME (LOSS)....................................... $(1,011,000) $ (53,000) $ 95,000 =========== ========== ========== PRO FORMA BASIC AND DILUTED NET INCOME (LOSS) PER SHARE................................................. $ (.16) $ (.01) $ .01 =========== ========== ========== PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.... 6,479,160 6,479,160 6,479,160 =========== ========== ==========
See notes to financial statements F-4 39 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. U.S. NEUROSURGICAL, NEUROSURGICAL INC. PHYSICS, INC. --------------- --------------- COMMON STOCK COMMON STOCK --------------- --------------- NUMBER NUMBER ADDITIONAL OF OF PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ------ ------ ---------- ----------- ----------- BALANCE -- JANUARY 1, 1996.......... 100 $0 100 $0 $ 1,000 $ (808,000) $ (807,000) Net income for the year ended December 31, 1996................. 95,000 95,000 --- -- --- -- -------- ----------- ----------- BALANCE -- DECEMBER 31, 1996........ 100 0 100 0 1,000 (713,000) (712,000) Selling, general and administrative services contributed by GHS, Inc............................... 108,000 108,000 Net loss for the year ended December 31, 1997.......................... (53,000) (53,000) --- -- --- -- -------- ----------- ----------- BALANCE -- DECEMBER 31, 1997........ 100 0 100 0 109,000 (766,000) (657,000) Selling, general and administrative services contributed by GHS, Inc............................... 341,000 341,000 Portion of litigation settlement paid by GHS, Inc.................. 284,000 284,000 Net loss for the year ended December 31, 1998.......................... (1,011,000) (1,011,000) --- -- --- -- -------- ----------- ----------- BALANCE -- DECEMBER 31, 1998........ 100 $0 100 $0 $734,000 $(1,777,000) $(1,043,000) === == === == ======== =========== ===========
See notes to financial statements F-5 40 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 ----------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................. $(1,011,000) $ (53,000) $ 95,000 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization..................... 1,121,000 784,000 450,000 Deferred income tax (benefit) provision........... (260,000) 106,000 Changes in: Accounts receivable............................. (29,000) (115,000) 95,000 Other current assets............................ (3,000) 40,000 27,000 Accounts payable and accrued expenses........... 7,000 (268,000) (25,000) Accrued litigation settlement................... 650,000 ----------- ----------- ---------- Net cash provided by operating activities.... 475,000 494,000 642,000 ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment............................... (20,000) (1,102,000) Refundable deposits.................................. 43,000 290,000 (Increase) decrease in cash held in escrow........... (3,000) 818,000 (880,000) Refunds on Gamma Knife............................... 22,000 ----------- ----------- ---------- Net cash used in investing activities........ (23,000) (241,000) (568,000) ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of capital lease and loan obligations...... (1,195,000) (486,000) (522,000) Cash received on refinancing of capital lease........ 100,000 Selling, general and administrative services contributed by GHS, Inc........................... 341,000 108,000 Portion of litigation settlement paid by GHS, Inc.... 284,000 Increase in due to GHS, Inc.......................... 79,000 67,000 41,000 Repayment of notes payable........................... (100,000) Proceeds from loan payable -- Gamma Knife............ 525,000 ----------- ----------- ---------- Net cash used in financing activities........ (491,000) (211,000) (56,000) ----------- ----------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (39,000) 42,000 18,000 Cash and cash equivalents -- beginning of year......... 60,000 18,000 ----------- ----------- ---------- CASH AND CASH EQUIVALENTS -- END OF YEAR............... $ 21,000 $ 60,000 $ 18,000 =========== =========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest.......................................... $ 555,000 $ 485,000 $ 316,000 Income taxes...................................... $ 290,000 $ 13,000 SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES: Property acquired under capital lease obligations and through loans payable............................. $ 3,327,000 Progress payments and related loans payable for Gamma Knife............................................. $(2,610,000) $1,450,000 Refinancing of loans payable and capital lease obligation with new capital lease obligation...... $ 2,172,000 Refinancing of progress payment obligation with capital lease..................................... $ 3,139,000 Loans payable to finance property acquisitions....... $ 188,000
See notes to financial statements F-6 41 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 NOTE A -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES [1] BASIS OF PREPARATION: U.S. NeuroSurgical, Inc. ("U.S. Neuro") owns and operates stereotactic radiosurgery centers, utilizing the Gamma Knife technology. U.S. Neurosurgical Physics, Inc. ("USNP") administers the billing and collection of the fees charged by the Physicist who operates the Kansas City gamma knife. U.S. Neuro and USNP are wholly owned subsidiaries of GHS, Inc. ("GHS"), a publicly owned company. U.S. Neuro and USNP are collectively referred to herein as the Company. Effective May 27, 1999, GHS transferred its investment in USNP to US Neuro. On May 20, 1999 the Board of Directors of US Neuro authorized a stock split of US Neuro's common stock which would result in the number of outstanding shares of U.S. Neuro common stock equaling the number of shares of GHS common stock outstanding on the date of the spin-off, and the Board of Directors of GHS resolved to distribute such common shares to its own stockholders on a one-for-one basis in a spin-off transaction. Immediately following the spin-off, U.S. Neuro will be a publicly held company. The combined financial statements include the accounts of U.S. Neuro and USNP. All intercompany transactions and balances have been eliminated. Prior to the spin-off the Company was financed by GHS. As of December 31, 1998 the Company had a working capital deficit of $2,974,000. In 1999, GHS paid the Company's $200,000 current litigation settlement liability, contributed $375,000 in cash to the Company and contributed its entire receivable from the Company (amounting to approximately $1,300,000 at May 31, 1999) to the capital of the Company. In addition, the Company assumed a $400,000 liability of GHS, payable $100,000 in August 1999 and $300,000 in three equal installments from August 2000 to October 2000. In addition, U.S. agreed to indemnify GHS with respect to liabilities and claims attributable to any events occurring before May 27, 1999. Management of the Company believes that its cash from operations plus cash on hand as of the date of the spin-off will be sufficient to fund its cash requirements through at least January 1, 2000, although there can be no assurances that this will be the case. [2] REVENUE RECOGNITION: Patient revenue is recognized when the Gamma Knife procedure is rendered. [3] LONG-LIVED ASSETS: Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." FAS 121 requires that long-lived assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Adoption of this statement had no impact on the Company's financial position, results of operations, or liquidity. [4] DEPRECIATION AND AMORTIZATION: The Gamma Knives are being depreciated on the straight-line method over an estimated useful life of seven years. Leasehold improvements are being amortized on the straight-line method over 7 to 20 years, the life of the leases. F-7 42 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) [5] PRO FORMA NET LOSS PER SHARE: Pro forma net loss per share is calculated assuming that the proposed stock split and spin-off had occurred as of January 1, 1996. [6] STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. [7] ESTIMATES AND ASSUMPTIONS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [8] FAIR VALUES OF FINANCIAL INSTRUMENTS: The estimated fair value of financial instruments has been determined based on available market information and appropriate valuation methodologies. The carrying amounts of cash, certificates of deposit, accounts receivable, other current assets and accounts payable approximate fair value at December 31, 1998 and 1997 because of the short maturity of these financial instruments. The carrying value of the obligations under capital leases and loans payable approximate fair value because the interest rates on these instruments approximate the market rates at December 31, 1998 and 1997. The fair value estimates were based on information available to management as of December 31, 1998 and 1997. NOTE B -- AGREEMENTS WITH RESEARCH MEDICAL CENTER ("RMC") [1] GAMMA KNIFE NEURORADIOSURGERY EQUIPMENT AGREEMENT: U.S. Neuro entered into a neuroradiosurgery equipment agreement (the "equipment agreement") with RMC for a period of 21 years which commenced with the completion of the neuroradiosurgery facility (the "facility") in September 1994. The equipment agreement, among other matters, requires U.S. Neuro to provide (i) the use of the Gamma Knife equipment (the "equipment") to RMC, (ii) the necessary technical personnel for the proper operation of the equipment, (iii) sufficient supplies for the equipment, (iv) the operation, maintenance and repair of the equipment, (v) all basic hardware and software updates to the equipment and, (vi) an uptime guarantee. In return, RMC pays U.S. Neuro 80% of RMC's fees for the use of the equipment and the facility. The agreement also provides for U.S. Neuro to establish for the benefit of RMC an escrow account funded with an amount equal to one month's average of the compensation payable to U.S. Neuro. U.S. Neuro is the owner of and entitled to the income from the escrow account so long as no event of default has occurred. As of December 31, 1998, the escrow account had a balance of $92,000. The equipment agreement terminates automatically upon termination of the ground lease agreement (see Note B[2]) and may be terminated by mutual agreement in the sixth year of the ground lease term. [2] GROUND LEASE AGREEMENT: U.S. Neuro constructed a facility in Kansas City, Missouri on property which the Company leases from RMC. The lease term is for a period of 21 years commencing September 1994. Rental expense is $3,600 per annum. The terms of the lease include escalation clauses for increases in certain operating expenses and for payment of real estate taxes and utilities. Title to all improvements upon the land vests in RMC. F-8 43 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- AGREEMENT WITH NEW YORK UNIVERSITY ON BEHALF OF NEW YORK UNIVERSITY MEDICAL CENTER ("NYU") During November 1996, U.S. Neuro entered into a neuroradiosurgery equipment agreement ("NYU agreement") with NYU for a period of seven years ("the term"), which gives NYU the option of extending the term for successive three year periods or purchasing the Gamma Knife equipment at an appraised market value price. U.S. Neuro may negotiate the purchase price and upon failure of the parties to agree may request that the facility be closed. All costs associated with closing and restoring the facility to its original condition will be the liability of U.S. Neuro. The equipment agreement, among other matters, requires U.S. Neuro to provide (i) the use of the Gamma Knife equipment to NYU, (ii) training necessary for the proper operation of the Gamma Knife equipment, (iii) sufficient supplies for the equipment, (iv) the repair and maintenance of the equipment, (v) all basic hardware and software upgrades to the equipment and, (vi) an uptime guarantee. In return, NYU will pay U.S. Neuro a scheduled fee based on the number of patient procedures performed. NOTE D -- OBLIGATION UNDER CAPITAL LEASE AND LOANS PAYABLE In a prior year, U.S. Neuro acquired a Gamma Knife ("Knife 1") from Elekta Instruments ("Elekta") for $2,900,000. The acquisition was financed by Financing for Science International ("FFSI") under a five year capital lease, bearing interest at approximately 12.7% per annum. During September 1996, Finova Capital Corp. ("Finova") bought out FFSI and became the lessor. During March 1997, U.S. Neuro refinanced this lease with DVI Financial Services, Inc. ("DVI") for $2,272,000 under a 39 month capital lease which bears interest at approximately 10.4%. In connection with the refinancing, DVI paid to Finova $1,647,000 in settlement of the lease obligations, the Company's demand loan of $525,000 payable to DVI was repaid, and DVI paid U.S. Neuro $100,000. On December 6, 1994, U.S. Neuro entered into an additional agreement with Elekta to acquire a second Gamma Knife ("Knife 2") for $2,900,000 for which it made a deposit of $290,000 in 1994. The construction of the knife initially was financed by FFSI through funding of progress payments made to Elekta; however, during 1996, the Company refinanced the progress payments with DVI at which time the Company's deposit was returned. In July 1997, upon completion of construction, the progress payments were converted into a capital lease obligation for $3,139,000. The lease payments provide for interest at the higher of 12.0% or that rate adjusted for any increase in the thirty month Treasury Note rate. In addition, the Company entered into two (2) three-year loans with DVI in the amounts of $325,000 and $163,000 to finance the leasehold improvements required to install the Gamma Knife at New York University Medical Center. The loans bear interest at 12.0% to 12.9% per annum. The leases and loans payable are collateralized by all the assets of U.S. Neuro and subsidiaries. The obligations under the capital lease and loans payable are as follows:
DECEMBER 31, ----------------------- 1998 1997 ---------- ---------- Capital leases -- Gamma Knife........................ $3,983,000 $4,999,000 Loans payable -- leasehold improvements.............. 234,000 413,000 ---------- ---------- 4,217,000 5,412,000 Less current portion................................. 1,423,000 1,195,000 ---------- ---------- $2,794,000 $4,217,000 ========== ==========
F-9 44 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- OBLIGATION UNDER CAPITAL LEASE AND LOANS PAYABLE (CONTINUED) Future payments as of December 31, 1998 on the equipment leases and loans are as follows:
CAPITAL LEASE LOANS PAYABLE YEAR ENDING ----------------------- ------------------------- DECEMBER 31, KNIFE 1 KNIFE 2 LEASEHOLD 1 LEASEHOLD 2 TOTAL ------------ ---------- ---------- ----------- ----------- ---------- 1999................................ $ 827,000 $ 792,000 $156,000 $65,000 $1,840,000 2000................................ 482,000 792,000 32,000 1,306,000 2001................................ 792,000 792,000 2002................................ 792,000 792,000 2003................................ 462,000 462,000 ---------- ---------- -------- ------- ---------- 1,309,000 3,630,000 156,000 97,000 5,192,000 Less interest....................... 106,000 850,000 10,000 9,000 975,000 ---------- ---------- -------- ------- ---------- Present value of net minimum obligation........................ $1,203,000 $2,780,000 $146,000 $88,000 $4,217,000 ========== ========== ======== ======= ==========
During the years ended December 31, 1997 and 1996, the Company capitalized interest cost amounting to approximately $177,000 and $249,000, respectively, relating to the construction of the Gamma Knife project. NOTE E -- CONCENTRATIONS For the years ended December 31, 1998 and 1997, the Company derived substantially all its patient revenue from two hospitals, one of which accounted for 60% and 90%, respectively of the Company's revenue. For the year ended December 31, 1996 one hospital accounted for all of the Company's patient revenue. The Company has been dependent on one manufacturer who sells, supplies and services the Gamma Knife. NOTE F -- TAXES The components of the income tax provision (benefit) are the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- ------- Current: Federal............................................ $(201,000) $(112,000) $50,000 State.............................................. (50,000) (2,000) 14,000 --------- --------- ------- (251,000) (114,000) 64,000 --------- --------- ------- Deferred: Federal............................................ (208,000) 106,000 State.............................................. (52,000) --------- --------- (260,000) 106,000 --------- --------- Income tax (benefit) provision....................... $(511,000) $ (8,000) $64,000 ========= ========= =======
F-10 45 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE F -- TAXES (CONTINUED) A reconciliation of the tax provision (benefit) calculated at the statutory federal income tax rate with amounts reported follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1998 1997 1996 --------- ------- ------- Income tax benefit at the federal statutory rate....... $(517,000) $(6,000) $54,000 State income tax benefit, net of federal taxes......... (80,000) (2,000) 10,000 Permanent difference for portion of accrued litigation settlement........................................... 114,000 Other.................................................. (28,000) --------- ------- ------- Income tax provision (benefit)......................... $(511,000) $(8,000) $64,000 ========= ======= =======
Items which give rise to deferred tax assets and liabilities are as follows:
DECEMBER 31, --------------------- 1998 1997 --------- --------- Deferred tax asset: Litigation settlement accrued for financial reporting purposes............................................... $ 260,000 $ 0 Deferred tax liability: Excess of tax depreciation over book depreciation......... (450,000) (450,000) --------- --------- Net deferred tax liability.................................. $(190,000) $(450,000) ========= =========
In 1998, no valuation allowance was provided for the deferred tax asset because management believes that it is more likely than not that the benefit will be realized through future taxable income. NOTE G -- LITIGATION In 1993, pursuant to an agreement (the "USN Agreement") between GHS and A. Hyman Kirshenbaum, M.D. ("Kirshenbaum") and Jerry Brown, Ph.D ("Brown"), GHS, among other things, granted an aggregate 20% interest in U.S. Neuro to Brown and Kirshenbaum. In addition, following the execution of the USN Agreement, Kirshenbaum was appointed as an officer of U.S. Neuro and Brown was appointed to GHS's Board of Directors and executed an employment agreement with U.S. Neuro. Under the terms of the USN Agreement, the Company possessed the right to repurchase for cash or common stock such 20% interest during each of the third through sixth full fiscal years of the USN Agreement. GHS exercised its right to repurchase the 20% interest in U.S. Neuro in September 1996 at a value of $38,781 which value was calculated by GHS in accordance with the terms of the USN Agreement and in 1997, GHS paid the purchase price through the issuance of shares of its common stock valued at $31,332 plus offsetting a receivable of $7,450 from Brown against the purchase price. Such valuation was disputed by Brown and Kirshenbaum. In June 1997, GHS instituted an action (the "Declaratory Action") in the United States District Court of Maryland, Southern Division against Kirshenbaum and Brown seeking a declaration from the Court that its repurchase of Brown's and Kirshenbaum's 20% interest in U.S. Neuro for $38,781 was fair and equitable. Because of the dispute between GHS and Brown and Kirshenbaum on the valuation of their 20% interest in U.S. Neuro, GHS filed the Declaratory Action to determine: (1) whether GHS's repurchase is proper; (2) whether the valuation of Brown's and Kirshenbaum's 20% interest in U.S. Neuro is just and fair; and (3) whether Brown's and Kirshenbaum's valuation of their 20% interest in U.S. Neuro is improper. F-11 46 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- LITIGATION (CONTINUED) In response to the Declaratory Action, Brown and Kirshenbaum filed a counterclaim and third party claim against GHS, U.S. Neuro and others. The counterclaim against GHS and third party claim against U.S. Neuro and the other parties was purportedly for violations of: (1) the RICO statutes; (2) various causes of action for fraud; and (3) various causes of action for breach of contract. The United States District Court of Maryland dismissed the RICO claims against U.S. Neuro and GHS. The fraud counts sought damages of not less than $9 million per count and the imposition of treble damages for punitive damages for the fraud counts. The breach of contract counts ranged from $250,000 to $600,000. The claims of fraud arose out of an alleged conspiracy between GHS and other parties to misappropriate a business concept allegedly created by Brown and Kirshenbaum. The remainder of Brown's and Kirschenbaum's claims were in the nature of a breach of contract between GHS, U.S. Neuro and Brown and Kirshenbaum. In addition to the above-described federal court action, Brown filed a state court action in the District Court in and for Montgomery County, Maryland against U.S. Neuro and other parties seeking breach of contract damages for lost salary, unreimbursed expenses and for consequential damages and costs arising out of what he claimed to be an improper termination from U.S. Neuro. Brown sought approximately $381,000 for lost salary and $36,000 for unreimbursed expenses in addition to the consequential damages and treble damages under the various counts of his compliant. On May 25, 1999, the parties to the above-described actions settled all of above-described legal proceedings pursuant to an agreement and plan of settlement dated March 22, 1999. As part of the closing of such settlement, GHS issued in the aggregate 68,688 additional shares of GHS common stock to Brown and Kirshenbaum and delivered $200,000 in cash to them. In addition, USN delivered to Brown and Kirshenbaum promissory notes (the "Settlement Notes") in the aggregate amount of $450,000, bearing interest at the rate of 6% per annum, and payable over a four-year period as follows: $100,000 on the first, third and fourth anniversaries of such closing and $150,000 on the second anniversary of such closing. USN will be solely responsible for the payment of the Settlement Notes. The Settlement Notes are secured by a second-priority security interest in USN's receivables from its Kansas City and New York Gamma Knife centers. $934,000 was charged to expense in 1998 for this settlement including the value of the stock issued by GHS. On June 9, 1999 the Declaratory Action was dismissed with prejudice by the parties. F-12 47 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. UNAUDITED COMBINED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 223,000 $ 21,000 Accounts receivable....................................... 399,000 238,000 Deferred tax asset........................................ 80,000 80,000 Other current assets...................................... 27,000 27,000 ----------- ----------- Total current assets.............................. 729,000 366,000 Gamma Knife (net of accumulated depreciation of 2,791,000 in 1999 and 2,560,000 in 1998)............................... 3,675,000 3,906,000 Leasehold improvements (net of accumulated amortization of 444,000 in 1999 and 395,000 in 1998)...................... 1,398,000 1,447,000 ----------- ----------- Total property and equipment...................... 5,073,000 5,353,000 Cash held in escrow......................................... 93,000 92,000 ----------- ----------- Total............................................. $ 5,895,000 $ 5,811,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 196,000 $ 66,000 Accrued litigation settlement............................. 200,000 200,000 Obligations under capital lease and loans payable -- current portion............................. 1,473,000 1,423,000 Due to GHS, Inc........................................... 1,855,000 1,651,000 ----------- ----------- Total current liabilities......................... 3,724,000 3,340,000 Accrued litigation settlement............................... 450,000 450,000 Deferred tax liability...................................... 270,000 270,000 Obligations under capital lease and loans payable net of current portion.................................... 2,396,000 2,794,000 ----------- ----------- Total liabilities................................. 6,840,000 6,854,000 ----------- ----------- Stockholders' equity: Common stock Additional paid-in capital................................ 734,000 734,000 Accumulated deficit....................................... (1,617,000) (1,777,000) ----------- ----------- Total stockholders' equity (deficiency)........... (945,000) (1,043,000) ----------- ----------- Total............................................. $ 5,895,000 $ 5,811,000 =========== ===========
The accompanying notes to financial statements are an integral part hereof. F-13 48 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. UNAUDITED COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, --------------------- 1999 1998 --------- --------- (UNAUDITED) Revenue: Patient Revenue........................................... $ 940,000 $ 588,000 --------- --------- Expenses: Patient Expenses.......................................... 343,000 333,000 Selling, General and Administrative....................... 323,000 151,000 --------- --------- Total............................................. 666,000 484,000 --------- --------- Operating income (loss)..................................... 274,000 104,000 Interest expense............................................ (116,000) (152,000) Interest income............................................. 2,000 1,000 --------- --------- Income (loss) before income tax............................. 160,000 (48,000) Income tax provision........................................ 62,000 -- --------- --------- Net Income (loss)........................................... $ 98,000 $ (48,000) ========= ========= Pro forma basic and diluted income (loss) per share......... $ .01 $ (.01) ========= =========
The accompanying notes to financial statements are an integral part hereof. F-14 49 U.S. NEUROSURGICAL, INC. AND U.S. NEUROSURGICAL PHYSICS, INC. UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, --------------------- 1999 1998 --------- --------- Cash flows from operating activities: Net income (loss)......................................... $ 98,000 $ (48,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization:......................... 280,000 282,000 Changes in operating assets and liabilities: (Increase) decrease in cash held in escrow........... (1,000) (1,000) (Increase) decrease in receivables................... (161,000) 42,000 (Decrease) increase in payables and accrued expenses............................................ 130,000 (46,000) Increase in due to GHS, Inc.......................... 204,000 54,000 --------- --------- Net cash provided by operating activities......... 550,000 283,000 Cash flows from investing activities: Cost Incurred with Leasehold improvements................. -- (7,000) --------- --------- Net cash provided by (used in) investing activities......... -- (7,000) Cash flows from financing activities: Payment of capital lease obligations...................... (348,000) (325,000) --------- --------- Net cash (used in) financing activities..................... (348,000) (325,000) Net increase (decrease) in cash and cash equivalents........ 202,000 (49,000) Cash and cash equivalents -- beginning of period............ 21,000 60,000 --------- --------- CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 223,000 $ 11,000 ========= ========= Supplemental disclosures of cash flow information: Cash paid for Interest.................................... 116,000 152,000
The accompanying notes to financial statements are an integral part hereof. F-15 50 U.S. NEUROSURGICAL, INC. AND SUBSIDIARY NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE A -- BASIS OF PREPARATION The accompanying financial statements at March 31, 1999, and for the three months ended March 31, 1999 and 1998, are unaudited. However, in the opinion of management, such statements include all adjustments necessary for a fair statement of the information presented therein. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date appearing in this Information Statement. Pursuant to accounting requirements of the Securities and Exchange Commission applicable to interim financial statements, the accompanying financial statements and these notes do not include all disclosures required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with the Company's most recent annual financial statements. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. Pro forma income (loss) per share is calculated assuming that the proposed stock-split and spin-off had occurred as of January 1, 1998. F-16 51 APPENDIX A June 17, 1999 The Board of Directors GHS, Inc. 1350 Piccard Drive, Suite 360 Rockville, Maryland 20850 Gentlemen: This will serve to respond to your request that we appraise the Fair Market Value of U.S. NeuroSurgical, Inc. ("USN" or the "Company") as of today's date. You have advised us that GHS, Inc. ("GHS") will distribute to its stockholders its 100% interest in USN by distributing one share of USN Common Stock for each share of GHS Common Stock owned by a stockholder (the "Spin-off"). It is our understanding that our appraisal of USN will be one of the factors to be considered in establishing the value for tax purposes of the capital stock of USN distributed in the Spin-off. After the Spin-off, USN will continue its business of owning and operating sterotactic radiosurgery centers utilizing the Gamma Knife technology. USN currently owns and operates two Gamma Knife centers, one on the premises of Research Medical Center in Kansas City, Missouri, and one on the premises of New York University Medical Center in New York, New York. The Company will own its Gamma Knife centers subject to capital lease financing. The aggregate original cost of the two centers was approximately $8.2 million. USN is paid by the medical facilities where the Gamma Knives are housed based on utilization on a "cost per treatment" basis. Development and maintenance of mutually satisfactory relationships with referring physicians is essential to the utilization of the units. Subject to the exercise of outstanding options and warrants, ownership of USN will be represented by 7,047,828 shares of Common Stock, $.01 par value, issued and outstanding as of the date of the Spin-off. The term "Fair Market Value", as used herein, is defined as the amount at which the USN capital stock in aggregate on a majority interest basis would change hands between a willing buyer and willing sellers, all having reasonable knowledge of all relevant facts, none being under any compulsion to act, with equity to all. Furthermore, we have assumed that the USN capital stock has been fully distributed to the Company's stockholders and that it is trading on an established market and that information concerning USN has been widely disseminated. In appraising the fair market value of USN, we have reviewed and analyzed the following unaudited internally generated financials of the Company: - Operating statements and end of year balance sheets for the five (5) years ended December 31, 1998; - Operating statements for the four (4) months ended April 30, 1999 and estimates of operations for 1999 through May 27; - Proforma balance sheet of the Company as of May 27, 1999 reflecting adjustments to be made in connection with the Spin-off; and, - Management's plan and budget for the five (5) years to end December 31, 2003. In addition, in connection with this appraisal, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have: - Met with senior management of the Company to discuss the operations, financial condition, future prospects and projected operations and performance of USN; - Reviewed the reports on Form 10-K filed with the Securities and Exchange Commission ("SEC") by GHS for the five (5) years ended December 31, 1998 and GHS's report on Form 10-Q for the quarter ended March 31, 1999; A-1 52 - Reviewed the historical market prices and trading volumes of the publicly traded Common Stock of GHS and of the publicly traded equity securities of certain companies which we deem comparable to the Company; - Reviewed certain publicly available financial data for certain companies that we deem comparable to the Company; - Reviewed the Information Statement pursuant to Section 14(C) of the Securities Exchange Act of 1934 to be filed by GHS with the SEC with respect to, among other things, the Spin-off; and, - Conducted such other studies, analysis and inquiries as we have deemed appropriate. We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of USN, and that there has been no material change in the assets, financial condition, business or prospects of USN since the date of the most recent financial statements made available to us. We have not independently verified the accuracy and completeness of the information supplied to us with respect to USN and do not assume any responsibility with respect to it. We have not made any physical inspection or independent appraisal of any of the properties or assets of USN. In our analysis of USN, we have taken into consideration the income- and cash-generating capability of the Company. Typically, an investor contemplating an investment in a company with income- and cash-generating capability similar to USN will evaluate the risks of and returns on its investment on a going- concern basis. Accordingly, after due consideration of other appropriate and generally accepted valuation methodologies, the value of the common stock of USN has been determined primarily on the basis of capitalization of funds generated from operations and discounted cash flow approaches. Furthermore, we appraised USN as a going-concern, meaning that the underlying tangible assets of the Company are presumed, in the absence of a qualified appraisal of such assets, to attain their highest values as integral components of a business entity in continued operation and that liquidation of said assets would likely diminish the value of the whole to the shareholders and creditors of USN. All appraisal methodologies that estimate the worth of an enterprise as a going-concern are predicated on numerous assumptions pertaining to prospective economic and operating conditions. Our appraisal is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us as of today. Unanticipated events and circumstances may occur and actual results may vary from those assumed. The variations may be material. Based upon the investigation, premises, provisos, and analyses outlined above, as of today we appraise the fair market value of the capital stock of USN to be reasonably stated in the amount of $3,040,000 or $0.43 per share based on 7,047,828 shares of Common Stock issued and outstanding after the Spin-off. Our appraisal is advisory in nature only and our fee for this service is not contingent upon the findings of our appraisal. Scott & Stringfellow, Inc., as a customary part of its investment banking business, is regularly engaged in the appraisal of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and appraisals for estate, corporate and other purposes. We will receive a fee upon the delivery of this appraisal and the Company has agreed to indemnify us for certain liabilities arising out of the rendering of it. In the ordinary course of our business, we and our affiliates may actively trade or hold the securities of the Company for our own account or for the account of our customers and, accordingly, may at any time hold a long or short position in such securities. A Managing Director of Scott & Stringfellow's Corporate Finance Department has served as a director of GHS since October 1997 and was appointed a director of USN in May 1999. A-2 53 This report is provided solely to the Board of Directors of the Company for their use in connection with their review and evaluation of the Spin-off. Neither this report nor the underlying financial analysis may be relied upon by any person other than the members of the Board of Directors without our prior written consent. Very truly yours, SCOTT & STRINGFELLOW, INC. A-3 54 PRINCIPAL EXECUTIVE OFFICES OF THE COMPANIES GHS, INC. 704 Broadway New York, New York 10003 U.S. NEUROSURGICAL, INC. 2400 Research Boulevard, Suite 325 Rockville, Maryland 20850 INDEPENDENT AUDITORS FOR THE COMPANIES Richard A. Eisner & Company, LLP 575 Madison Avenue New York, New York TRANSFER AGENT FOR THE COMPANIES American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 -----END PRIVACY-ENHANCED MESSAGE-----