SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
|_| Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 0-15586
GHS, INC.
---------
(Exact name of registrant as specified in its charter)
Delaware 52-1373960
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
65 Broadway, 7th Floor, New York, New York 10006
------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(212) 430-6430
--------------
Issuer's telephone number, including area code
----------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
The number of shares outstanding of each of the issuer's classes of common
equity as of August 13, 1999 was as follows: 7,316,685 shares of common stock
1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
[Letterhead of Richard A. Eisner & Company LLP]
575 Madison Avenue, New York, NY 10022-2597
Board of Directors and Stockholders
GHS, Inc.
New York, New York
We have reviewed the accompanying consolidated balance sheet of GHS, Inc. and
subsidiaries (a development stage company) as of June 30, 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from April 21, 1999 (date of inception) to June 30, 1999. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company LLP
New York, New York
August 13, 1999
<PAGE>
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 15,223
Prepaid expenses 202
Cash held in escrow 125
--------
Total current assets 15,550
Non current assets
Computer equipment (net of accumulated depreciation of $ 3) (Note 4) 67
Intangible assets (net of accumulated amortization of $ 198) (Note 3) 6,928
Security deposit 271
========
Total assets $ 22,816
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 319
Obligations under capital lease, current portion 35
--------
Total current liabilities 354
Long term liabilities
Obligation under capital lease, net of current portion 35
Stockholders' equity
Convertible Preferred Stock Series A - $.01 par value - 100,000 shares
authorized; 99,059 shares issued and outstanding. Liquidation 1
preference $99,059
Convertible Preferred Stock Series B - $.01 par value - 178,582 shares
authorized, issued and outstanding. Liquidation preference $178,582 2
Convertible Preferred Stock Series C - $.01 par value - 55,745 shares
authorized, issued and outstanding. Liquidation preference $55,745 1
Common Stock $.01 par value - 25,000,000 shares authorized;
7,316,685 shares issued and outstanding 73
Additional-paid-in capital 34,363
Distribution of discontinued operation to common stockholders (Note 2) (1,239)
Unearned portion of compensatory stock options (6,136)
Accumulated deficit (4,638)
--------
Total stockholders' equity 22,427
--------
Total liabilities and stockholders' equity $ 22,816
========
</TABLE>
The accompanying notes to financial statements are an integral part thereof
2
<PAGE>
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(Unaudited)
For the period from
April 21, 1999
(date of inception) to
June 30, 1999
-----------
Expenses:
Non-cash compensation expense $ 3,982
Amortization of intangible assets 198
General and administrative 521
-----------
Total operating expenses 4,701
Other income
Interest 63
-----------
Net loss $ (4,638)
===========
Net loss per share - basic and diluted $ (0.66)
Weighted average number of common shares outstanding 7,065,561
The accompanying notes to financial statements are an integral part thereof
3
<PAGE>
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 21, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Common stock Convertible Preferred Stock Series A
Par value $.01 Par value $.01
-------------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of shares pursuant to merger of GHS Inc., and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2) 7,047,828 $ 70
Issuance of shares to members of CYL pursuant to
merger (Note 2) 99,059 $ 1
Issuance of shares in private placement, net of expenses
Issuance of shares to acquire Concept Development Inc.
(Note 3)
Issuance of shares pursuant to an exclusive content
agreement (Note 3)
Exercise of stock options 268,857 3
Issuances of common stock options (Note 5)
Amortization of compensatory stock options
Net loss for the period from April 21, 1999 (date of
inception) to June 30, 1999
-------------------------------------------------------------------
Balance at June 30, 1999 7,316,685 $ 73 99,059 $ 1
===================================================================
<CAPTION>
Convertible Preferred Stock Series B
Par value $.01
----------------------------------------
Shares Amount
----------------------------------------
<S> <C> <C>
Issuance of shares pursuant to merger of GHS Inc., and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2)
Issuance of shares to members of CYL pursuant to
merger (Note 2)
Issuance of shares in private placement, net of expenses 178,582 $ 2
Issuance of shares to acquire Concept Development Inc.
(Note 3)
Issuance of shares pursuant to an exclusive content
agreement (Note 3)
Exercise of stock options
Issuances of common stock options (Note 5)
Amortization of compensatory stock options
Net loss for the period from April 21, 1999 (date of
inception) to June 30, 1999
----------------------------------------
Balance at June 30, 1999 178,582 $ 2
========================================
<CAPTION>
Convertible Preferred Stock Series C
Par value $.01 Additional
-------------------------------------- Paid-in
Shares Amount Capital
--------------------------------------------------------
<S> <C> <C> <C>
Issuance of shares pursuant to merger of GHS, Inc. and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2) $ 4,169
Issuance of shares to members of CYL pursuant to
merger (Note 2) (1)
Issuance of shares in private placement, net of expenses 15,064
Issuance of shares to acquire Concept Development Inc. 50,000 $ 1 4,499
(Note 3)
Issuance of shares pursuant to an exclusive content 5,745 517
agreement (Note 3)
Exercise of stock options (3)
Issuances of common stock options (Note 5) 10,118
Amortization of compensatory stock options
Net loss for the period from April 21, 1999 (date of
inception) to June 30, 1999
--------------------------------------------------------
Balance at June 30, 1999 55,745 $ 1 $ 34,363
========================================================
<CAPTION>
Distribution of
discontinued operation Unearned portion of
to common compensatory Accumulated
stockholders stock options deficit Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of shares pursuant to merger of GHS, Inc. and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2) $ (1,239) $ 3,000
Issuance of shares to members of CYL pursuant to
merger (Note 2) --
Issuance of shares in private placement, net of expeneses 15,066
Issuance of shares to acquire Concept Development Inc.
(Note 3) 4,500
Issuance of shares pursuant to an exclusive content
agreement (Note 3) 517
Exercise of stock options --
Issuances of common stock options (Note 5) $(10,118) --
Amortization of compensatory stock options 3,982 3,982
Net loss for the period from April 21, 1999 (date of
inception) to June 30, 1999 $ (4,638) (4,638)
---------------------------------------------------------------------
Balance at June 30, 1999 $ (1,239) $ (6,136) $ (4,638) $ 22,427
=====================================================================
</TABLE>
The accompanying notes to financial statements are an integral part thereof
4
<PAGE>
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the period from
April 21, 1999
(date of inception) to
June 30, 1999
--------------
<S> <C>
Cash flows from operating activities:
Loss from continuing operations $ (4,638)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash compensation expense 3,982
Depreciation and amortization 202
Changes in:
Prepaid expenses (202)
Cash held in escrow (125)
Accounts payable and accrued expenses 319
--------------
Net cash used in continuing operations (462)
--------------
Cash flows from investing activities:
Acquisition of Concept Development Inc. (2,110)
Payment for security deposit (271)
--------------
Net cash used in investing activities (2,381)
--------------
Cash flows from financing activities:
Net proceeds from private placement of Series B Convertible Preferred Stock 15,066
Cash acquired pursuant to merger of GHS, Inc. and Change Your Life.com 3,000
--------------
Net cash provided by financing activities 18,066
--------------
Net increase in cash and cash equivalents and balance at end of period $ 15,223
==============
Supplemental information of non-cash investing and financing activities:
Computer equipment acquired under capital lease $ 70
Issuance of Series C Convertible Preferred Stock in Concept Development Inc.
acquisition (Note 3) $ 4,500
Stock issued for license acquired under exclusive content agreement (Note 3) $ 517
Distribution of discontinued operation to common stockholders (Note 2) $ 1,239
</TABLE>
The accompanying notes to financial statements are an integral part thereof
5
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying consolidated financial statements represent the historical
financial statements of Change Your Life.com, LLC ("CYL") which was formed on
April 21, 1999 and include the assets acquired in a reverse acquisition of CYL
by GHS, Inc. ("GHS") which occurred on May 27, 1999, as described in Note 2.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Note 2: GHS, Inc. Reverse Acquisition of Change Your Life.com, LLC
On April 25, 1999, GHS announced an Internet initiative that included plans for
an online network to focus on personal and professional improvement. On May 20,
1999, GHS entered into a Contribution and Exchange Agreement (the "Exchange
Agreement") pursuant to which on May 27, 1999, GHS issued 99,059.338 shares of a
newly-designated Series A Convertible Preferred Stock, par value $0.01 per share
(the "Series A Preferred Stock"), to the members of CYL in exchange for 100% of
the membership interests in CYL. The shares of Series A Preferred Stock have
voting rights on an as converted basis, a liquidation preference of $1 per share
and will automatically convert into an aggregate of 30,708,395 shares of common
stock of GHS, par value $0.01 per share (the "Common Stock"), on the later of
(i) the next business day following the date of filing of a certificate of an
amendment to GHS's Restated Certificate of Incorporation that increases the
number of authorized shares of Common Stock to a number sufficient to permit the
conversion of all of the then outstanding shares of Series A Preferred Stock
into shares of the Common Stock or (ii) the next business day following the
record date for the planned spin-off of U.S. Neurosurgical, Inc. ("USN"). As a
result of this transaction, the members of CYL obtained voting control of GHS;
accordingly, for accounting purposes, the transaction is treated as a reverse
acquisition with CYL as the acquirer. In addition, as the only assets of GHS at
the time of the transaction were cash and the assets of the discontinued
operations of USN, the transaction is accounted for as a recapitalization of CYL
with the issuance of Common Stock and options and warrants to purchase Common
Stock to the pre-transaction common stockholders of GHS in exchange for cash.
Accordingly, the accompanying consolidated financial statements are the
historical financial statements of CYL and include the operations of GHS from
May 27, 1999.
6
<PAGE>
CYL was formed on April 21, 1999 with membership interests held by Anthony J.
Robbins ("Robbins"), Robbins Research International Inc. ("RRI") and CYL
Development Holdings, LLC ("Development Holdings"). In exchange for their
membership interests, the members contributed the right and license to use
(subject to certain limitations) the Robbins name in connection with CYL's
Internet business as set forth in the Content Provider Agreement and License
dated as of April 23, 1999, all goodwill attached to the Robbins name and
likeness for use in CYL's Internet business, the existing Internet activities
and business of RRI, the exclusive license to use RRI trademarks, tradenames,
goodwill attached thereto, and the right to use existing programs, recordings,
videos, CD-ROMs, proprietary software packages, and seminars owned by RRI in
CYL's Internet business. Also contributed were various URLs, an on-line
self-help pilot program and a business plan. The contributed intangible assets
were not ascribed a value by CYL since there was no book value for these assets
in the contributing companies books and records. CYL did not conduct operations
prior to the acquisition. The terms of the Content Provider Agreement and
License provide that CYL will share revenues with Robbins and RRI from the
on-line sale of Robbins or RRI or CYL products. There are also additional
amounts due for off-line sales of Robbins or RRI products.
At June 30, 1999, after giving effect to the issuance of the Series A Preferred
Stock, the issuance of the Series B Convertible Preferred Stock, par value $0.01
per share (the "Series B Preferred Stock"), and the Series C Convertible
Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"),
(each as described in Note 3) and the exercise of certain stock options of GHS,
GHS had 7,316,685 shares of Common Stock outstanding and shares of preferred
stock which are convertible into 33,051,665 shares of Common Stock. As a result,
on an as converted basis at June 30, 1999, Robbins and his affiliates owned
approximately 57.1% of the voting power of GHS, Development Holdings owned
approximately 19.0% and the pre-transaction common stockholders of GHS owned
approximately 18.1%.
On May 27, 1999, GHS entered into an Agreement and Plan of Distribution
("Distribution Agreement") and an Assignment and Assumption Agreement (the
"Assignment Agreement") between GHS and USN. GHS owns 100% of the outstanding
capital stock of USN, a Delaware corporation. Under the Assignment Agreement,
the majority of the assets and liabilities of GHS and its subsidiaries were
assigned and transferred to USN. The assets remaining in GHS and its
subsidiaries after the assignment were $3.0 million of cash and the net assets
of the discontinued business, USN. The remaining obligations of GHS were a $0.4
million obligation relating to a Common Stock put option which was cancelled on
June 3, 1999. Under the Distribution Agreement, GHS will distribute to holders
of Common Stock on the record date to be set by the Board of Directors of GHS
one share of USN common stock for each share of Common Stock of GHS owned (the
"USN Spin-Off"). After the USN Spin-Off, USN will be a separate company. USN
owns and operates stereotactic radiosurgery centers, utilizing the Gamma Knife
technology. The net assets of USN are comprised of cash, patient accounts
receivable, property and equipment, less accounts payable, capital lease
obligations, litigation settlement payable and other long-term debt. No
significant loss is anticipated for the discontinued operation during the phase
out period (the period commencing on the date that the decision to effect the
USN Spin-
7
<PAGE>
Off was made through the estimated date of completion of the USN Spin-Off). GHS
believes that the USN Spin-Off will be completed by the end of September 1999.
The book value of net assets of the discontinued operations of USN have been
reflected as an offset to stockholders' equity and will be netted against
paid-in capital when the shares of USN are distributed to the common
stockholders of GHS.
Note 3: Other Transactions
On May 27, 1999, GHS acquired all of the outstanding capital stock of Concept
Development Inc. ("Concept Development") pursuant to an Agreement and Plan of
Reorganization dated as of May 27, 1999 among GHS, Concept Development, Concept
Acquisition Corporation, a wholly-owned subsidiary of GHS, William Zanker
("Zanker") and Debbie Dworkin ("Dworkin") (the "CDI Merger"). Concept
Development was formed in September 1996 to provide on-line general-interest
continuing education courses. Concept Development did not conduct operations
prior to the merger and had assets of $1,000. GHS paid $2.0 million in cash and
issued an aggregate of 50,000 shares of a newly-designated Series C Preferred
Stock to Dworkin, the sole stockholder of Concept Development (the "Merger
Shares"), in exchange for all of the outstanding capital stock of Concept
Development. Concurrently, GHS entered into a three-year employment agreement
with Zanker (Dworkin's husband.) The shares of Series C Preferred Stock issued
in the CDI Merger will automatically convert into an aggregate of 500,000 shares
of the Common Stock on the next business day following the record date for the
USN Spin-Off, and vote on an as converted basis with the Common Stock. The fair
value of the Merger Shares was $90 per preferred share (aggregating $4,500,000),
based on the price paid for similar preferred shares issued in a contemporaneous
private placement (described below.)
On May 27, 1999, in connection with the CDI Merger, GHS entered into a
Repurchase Agreement with Dworkin (the "Repurchase Agreement"). Pursuant to the
Repurchase Agreement, GHS has the right to repurchase the Merger Shares (the
"Repurchase Option") issued to Dworkin in connection with the CDI Merger if
Zanker ceases to be employed by GHS, unless due to a Termination Without Cause
(as defined in the Employment Agreement dated as of May 27, 1999 between GHS and
Zanker) or in connection with a change in control of GHS after the change in
control described above. Commencing August 31, 1999, the number of Merger Shares
subject to the Repurchase Option will be reduced, in equal quarterly increments
ending in the quarter ending May 31, 2002, ultimately to zero.
The acquisition of Concept Development is accounted for as a purchase with the
purchase price allocated to the intangible assets underlying the Zanker
employment agreement including certain non-compete restrictions which agreement
has a three year term and to the license agreement entered into with The
Learning Annex (described below.) The resulting intangible assets are being
amortized over three years.
On May 27, 1999, GHS entered into an Option Agreement (the "Option Agreement")
with The Learning Annex (as defined below) pursuant to which, among other
things, GHS obtained the option to acquire The Learning Annex (the "Option").
The Learning Annex is a leading provider of continuing education courses in five
cities in the United States and Canada. The Option is exercisable, on the terms
and subject to the conditions in the Option Agreement, at any time from May 27,
1999 through May 27, 2004 at an exercise price based on a pre-negotiated price
structure. GHS paid $75,000 on May 27, 1999 for the first year of the Option and
is required to pay $125,000, $200,000, $500,000 and $750,000, respectively, to
maintain the Option in each of
8
<PAGE>
the subsequent four years. In addition, GHS entered into a license agreement
with The Learning Annex for the exclusive on-line use of
its intellectual property and sale of certain of its merchandise over the
Internet as well as certain co-marketing and co-promotion activities. As
consideration for the license, GHS issued certain equity securities of GHS to
The Learning Annex and is required to pay an annual license fee. "The Learning
Annex" consists of Seligman Greer Communication Resources, Inc., a California
corporation (d/b/a The Learning Annex of San Francisco), SGS Communication
Resources, Inc., a California corporation (d/b/a The Learning Annex of Los
Angeles), Seligman Greer Sandberg Enterprises, Inc., a California corporation
(d/b/a The Learning Annex of San Diego), SGC Communication Resources LLC, a
Delaware limited liability company (d/b/a The Learning Annex of New York), and
Learning Annex Interactive LLC, a Delaware limited liability company
(collectively "The Learning Annex"). The value of the stock issued is recorded
as an intangible asset and is being amortized over the initial term of the
license. The annual fee is charged to expense as incurred.
On May 27, 1999, GHS completed a private placement of 178,582 shares (the
"Shares") of a newly-designated class of Series B Preferred Stock at a purchase
price of $90 per share, resulting in net proceeds of approximately $15.1 million
to GHS. Each share of Series B Preferred Stock is automatically convertible into
10 shares of Common Stock on the next business day following the record date for
the USN Spin-Off, and vote on an as converted basis with the Common Stock. The
holders of the Series B Preferred Stock will hold approximately 4.4% of the
Common Stock upon full conversion of all outstanding shares of preferred stock.
GHS plans to use the proceeds from the private placement to finance ongoing
operations and for general corporate purposes. GHS has agreed to file a
registration statement under the Securities Act of 1933 as promptly as
practicable following the closing of the private placement covering the shares
of Common Stock underlying the Series B Preferred Stock. The Shares were sold
pursuant to an exemption from the registration requirements of the Securities
Act of 1933.
Note 4: Summary of Significant Accounting Policies
Start-up Costs:
All costs and expenses associated with the start-up of the Internet initiative
have been expensed as incurred.
Depreciation and Amortization:
GHS has recently acquired computers through leases which are accounted for as
capital leases. The cost of the equipment is being depreciated over the lease
period, which is two years. GHS will be acquiring additional computer equipment
and will generally assign a useful life of the shorter of the lease term or
three years.
Loss Per Share:
Basic loss per share excludes dilution and is computed by dividing the loss
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if potentially dilutive
9
<PAGE>
securities such as convertible preferred stock, stock options and warrants were
exercised or converted into Common Stock. Basic and dilutive earnings per share
were the same for the period April 21, 1999 (inception) through June 30, 1999
since the effect of all potential dilutive common share equivalents was
anti-dilutive. As of June 30, 1999, there were outstanding preferred shares
convertible into 33,051,665 shares of Common Stock and options and warrants
exercisable into 1,675,000 shares of Common Stock.
Stock Options:
Pursuant to Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), companies can either expense the
estimated fair value of employee stock options or follow the intrinsic value
method set forth in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), but disclose the pro forma effects on net
loss and net loss per share had the fair value of the options been expensed. GHS
has elected to apply APB 25 in accounting for its employee stock option
incentive plans.
Income Taxes:
Deferred tax assets have not been provided for the value of the net operating
loss for the period from April 21, 1999 (inception) through June 30, 1999 as
their future utilization is uncertain.
Note 5: Stock Option Plans
Effective on the date of the reverse acquisition, the Board of Directors of GHS
authorized the grant to an executive officer of GHS of 300,000 options at an
exercise price of $4.50 per share which vested immediately and expire in May
2009. In addition, the Board of Directors of GHS authorized the grant to the
executive officer of 1,000,000 additional options which will vest in increments
over four years from the date of grant and have exercise prices of $9.00 per
share for 225,000 shares which vest at the end of year 1, $9.00 per share for
225,000 shares which vest at the end of year 2, $10.00 per share for 250,000
shares which vest monthly during year 3 and $12.00 per share for 300,000 shares
which vest monthly during year 4. Compensation expense related to these options
was $3,982,000 during the period April 21, 1999 (inception) through June 30,
1999.
A summary of the status of GHS's stock options as of June 30, 1999, and changes
during the preiod from April 21, 1999 (date of inception) to June 30, 1999 is
presented below:
<TABLE>
<CAPTION>
Weighted
average
Number exercise price
-----------------------------------
<S> <C> <C>
Options assumed pursuant to merger of GHS and CYL 459,000 $ 0.75
Granted 1,300,000 $ 8.85
Exercised (284,000) $ (0.75)
-----------------------------------
Outstanding at end of period 1,475,000 $ 7.89
===================================
Options exercisable at period end 475,000 $ 3.12
Weighted average fair value of options granted during the period $ 14.05
</TABLE>
The following table summarizes information related to options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------------- ---------------------------------
Number Weighted-average Weighted-average Number Weighted-average
Range outstanding at remaining average exercisable at average
Exercise prices June 30, 1999 contractual life exercise price June 30, 1999 exercise price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.75-$4.50 475,000 9.28 $ 3.12 475,000 $ 3.12
$9.00-$12.00 1,000,000 9.92 $ 10.15 - -
---------------------------------------------------------------------------------------
$0.75-$12.00 1,475,000 9.71 $ 7.89 475,000 $ 3.12
=======================================================================================
</TABLE>
10
<PAGE>
Pro forma information regarding net income (loss) and basic and diluted income
(loss) per share is required by SFAS No. 123, and has been determined as if GHS
had accounted for its employee stock options under the fair value method of that
statement. The following pro forma information gives effect to fair value for
those options granted during 1999, which was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield 0%, volatility of 100%, risk free interest rate of
5.9% and an expected life of 5 years.
For the period
from April 21,
1999 (inception)
through
June 30, 1999
---------------
Net loss from continuing operations:
As reported ($4,638)
Pro forma ($5,817)
Basic and diluted loss per share:
As reported ($0.66)
Pro forma ($0.82)
Note 6: Warrants
A total of 200,000 warrants granted prior to the reverse acquisition remain
oustanding at June 30, 1999. The warrants provide for the purchase of common
stock at $0.75 per share. The warrants contain registration and certain
anti-dilution rights and expire on November 30, 2003.
Note 7: Commitments:
In May 1999, GHS entered into a lease for office space in New York, New York.
The lease required a $0.3 million security deposit which is returnable at the
conclusion of the lease on August 31, 2004. The annual cost of the lease is
$0.4 million for the term. Under the lease, the landlord is providing GHS with
funds to improve the space. In addition to these funds, GHS estimates that it
will spend $0.2 million on such improvements. GHS has granted a security
interest in all of the leasehold improvements and building systems to the
landlord.
Note 8: Subsequent Events:
GHS is in the process of implementing new stock option plans for its employees,
directors and consultants and obtaining required approvals for increased
authorized shares to accommodate such plans and the conversion of outstanding
preferred stock. Information Statements relating to these plans will be filed
shortly.
11
<PAGE>
GHS, Inc. and Subsidiaries
Pro forma Unaudited Financial Information
The following pro-forma unaudited consolidated statement of operations reflects
the acquisition of Concept Development, the USN Spin-off, the license and option
agreements with The Learning Annex and the issuance of stock options to an
executive officer of GHS. The acquisition of Concept Development is accounted
for as a purchase. The costs associated with the execution of The Learning Annex
license agreement are being amortized over the term of the agreement.
The pro forma statement of operations gives effect to the transactions as if
they had occurred at January 1, 1999.
In the opinion of management of GHS, all adjustments necessary to present fairly
such pro-forma unaudited financial statements have been made. The pro-forma
unaudited financial statements are not necessarily indicative of what the actual
results of operations would have been had the transactions occurred on the dates
indicated above, nor do they purport to represent the future results of
operations of the Company.
GHS, Inc. and subsidiaries
Pro Forma Unaudited Consolidated Statement of Operations
for the six months ended June 30, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Pro Forma Adjustments
------------------------------------------------------
GHS, Inc. and The Learning
subsidiaries Concept Annex
As reported Development Inc. License and Executive Pro Forma
June 30, 1999 Acquisition (1) Purchase Option (2) compensation (3) June 30, 1999
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
General and administrative 4,701 1,020 195 1,662 7,578
-------------------------------------------------------------------------------------------
Total operating expenses 4,701 1,020 195 1,662 7,578
-------------------------------------------------------------------------------------------
Interest income 63 63
-------------------------------------------------------------------------------------------
Loss from continuing operations (4,638) (1,020) (195) (1,662) (7,515)
-------------------------------------------------------------------------------------------
Net loss $ (4,638) $ (1,020) $ (195) $ (1,662) $ (7,515)
===========================================================================================
Basic and fully diluted loss per share $ (0.66) $ (1.06)
Weighted average shares outstanding 7,065,561 7,065,561
============== ================
</TABLE>
Notes to pro-forma statement of operations
[1] Reflects the amortization of the intangible assets acquired in the CDI
Merger as described in Note 3 to the accompanying financial statements and
salary expense and employee benefits at an estimate of 20% of salary for the
former President of Concept Development who is now employed by GHS, pursuant to
an employment agreement.
[2] Reflects the amortization of the intangible assets relating to The Learning
Annex license and option agreements as described in Note 3 to the accompanying
financial statements.
[3] Reflects the issuance of compensatory stock options to an executive officer
of GHS and salary expense and employee benefits at an estimate of 20% of salary.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
As a result of the following, the discussion and analysis of GHS's financial
condition and results of operations for the period ending June 30, 1999
primarily reflect the operations of GHS's Internet initiative for the period
commencing on May 27, 1999, the date of the reverse acquisition of CYL by GHS
(See Notes 1, 2 and 3 to GHS's Unaudited Consolidated Financial Statements):
(i) CYL was the acquiror of GHS for accounting purposes in the reverse
acquisition;
(ii) GHS is in the process of effecting the USN Spin-Off, which includes
the spin-off of GHS's subsidiary, USN, and its business related
assets; USN's operations are treated as discontinued operations of
GHS for accounting purposes as of May 20, 1999, the date the Board
of Directors of GHS approved the USN Spin-Off; and
(iii) CYL was formed on April 21, 1999 and had not conducted significant
operations prior to the reverse acquisition on May 27, 1999.
In addition to the reverse acquisition of CYL by GHS, resulting in GHS's
acquisition of CYL's Internet business focused on personal and professional
improvement, GHS completed the following transactions:
o On May 27, 1999, GHS acquired the right and license to use (subject
to certain limitations) the Robbins name in connection with CYL's
Internet business, all goodwill attached to the Robbins name and
likeness for use in CYL's Internet business, the existing Internet
activities and business of RRI, the exclusive license to use RRI
trademarks, tradenames, goodwill attached thereto, and the right to
use existing programs, recordings, videos, CD-ROMs, proprietary
software packages, and seminars owned by RRI in CYL's Internet
business as well as various URLs, an on-line self-help pilot program
and a business plan. See Note 2 to GHS's Unaudited Consolidated
Financial Statements.
o On May 27, 1999, GHS acquired Concept Development, which was formed
in September 1996 to provide on-line general-interest continuing
education courses. See Note 3 to GHS's Unaudited Consolidated
Financial Statements.
o On May 27, 1999, GHS entered into a license agreement with The
Learning Annex, a leading provider of continuing education courses
in five cities in the United States and Canada, for the exclusive
on-line use of its intellectual property and sale of certain of its
merchandise over the Internet and for certain co-marketing and
co-promotion activities. See Note 3 to GHS's Unaudited Consolidated
Financial Statements.
o On May 27, 1999, GHS obtained the option to acquire The Learning
Annex. See Note 3 to GHS's Unaudited Consolidated Financial
Statements.
o On May 27, 1999, GHS completed a private placement of Series B
Preferred Stock resulting in net proceeds of approximately $15.1
million to GHS. See Note
13
<PAGE>
3 to GHS's Unaudited Consolidated Financial Statements and Item 2 of
Part II of this Form 10-Q.
Plan of Operation
As described above, GHS has changed its business from that of USN, which
provided access to stereotactic radiosurgery centers using the Gamma Knife
technology, to an Internet initiative that includes plans for an on-line
learning network to focus on personal and professional improvement.
During the next twelve months, GHS anticipates that it will establish an online
learning destination featuring an integrated offering of content, services,
communities and interactive sales. GHS believes that its on-line content and
services will consist mainly of interactive, expert-instructed courses;
community tools; expert live audio and video appearances; and other expert-based
content and services. GHS will attempt to deliver to consumers the emotional and
motivational power of branded personalities, companies and institutions in the
personal and professional improvement industry in a unified online experience.
Distribution of GHS's products and services will be done primarily over the
Internet through a branded web site.
GHS plans to derive revenues from its activities in the form of sponsorships,
electronic commerce, advertising and fees for interactive products and services.
GHS's web site is currently in the development stage and additional
infrastructure and programming is necessary to bring the web site to market.
GHS's ability to develop the web site and related functionalities will directly
affect the timing of future revenues. GHS plans to launch the first stage of its
web site, consisting of newsletters by the end of 1999. GHS anticipates that it
will begin to generate revenues through sponsorship and third-party product
sales with the launch of the third stage of its web site that is anticipated to
include course communities with newsletters, chat events and product sales and
is planned to launch by the end of the first quarter of 2000. There can be no
assurance that the launch of GHS's web site will proceed as planned. As with any
development stage enterprise, unforeseen difficulties may arise.
Results of Operation for the period from April 21, 1999 (inception) through June
30, 1999
No comparison of prior periods is presented below as CYL was formed on April 21,
1999 and did not conduct operations prior to May 27, 1999.
Revenues
GHS did not generate revenues during the period from inception through June 30,
1999. GHS believes that it will begin to generate revenues through sponsorship
and third-party product sales with the launch of the third stage of its web
site, anticipated by the end of the first quarter of 2000. GHS anticipates that
the third stage of its website will include course communities with newsletters,
chat events and product sales.
Interest
14
<PAGE>
GHS earned interest of approximately $0.063 million on cash balances acquired in
the CYL acquisition and raised in the May 27, 1999 private placement.
Expenses
General and administrative expenses for the period from inception to June 30,
1999 totaled $4.7 million, of which $4.2 million relates to non-cash items
including $4.0 million of compensation expense for the compensatory stock
options granted to an executive officer of GHS and $0.2 million relating to the
amortization of intangible assets acquired in the Concept Development and The
Learning Annex transactions (see Note 3 to GHS's Unaudited Consolidated
Financial Statements). The remaining $0.5 million of expenses consist primarily
of legal expense relating to the CYL transactions and general corporate matters,
expenses relating to web site design and expenses related to prospective content
acquisitions. GHS believes that the cost relating to compensatory stock options
will decline in future periods but that the amortization of intangibles may
increase depending on the amount and nature of future content acquisitions. GHS
believes that the general and administrative expenses will significantly
increase as GHS continues to acquire staff and equipment.
Net loss
GHS incurred a net loss of approximately $4.7 million from the period from
inception through June 30, 1999. The net loss is primarily a result of the
operating expenses offset by interest income on cash obtained in the reverse
acquisition of CYL and through the May 1999 private placement.
Liquidity and Capital Resources
GHS had $15.2 million in cash and cash equivalents at June 30, 1999.
For the period from inception through June 30, 1999, cash used in operating
activities was $0.5 million, of which legal expenses totaled $0.2 million and
web site development and content acquisition expenses totaled $0.3 million.
For the period from inception through June 30, 1999, cash used in investing
activities was $2.4 million including $2.1 million of cash paid (and related
legal fees) in the Concept Development acquisition (see Note 3 to GHS's
Unaudited Consolidated Financial Statements) and $0.3 million paid as a security
deposit on the New York, New York office lease (see Note 7 to GHS's Unaudited
Consolidated Financial Statements).
Cash provided by financing activities was approximately $18.1 million,
consisting of net proceeds of approximately $15.1 million from the private
placement of Series B Preferred Stock and $3.0 million cash acquired
in the acquisition of CYL.
GHS believes that it will continue to incur operating losses through at least
2001. GHS expects that cash and cash equivalents at June 30, 1999 will
adequately fund initial significant technology hardware and software
expenditures necessary to develop its business and allow GHS to meet its
operating needs for at least the next eight months. GHS also expects to
significantly
15
<PAGE>
increase the number of employees devoted to its Internet business from six at
June 30, 1999 to approximately 140 at March 31, 2000 and believes existing cash
will fund related increased costs for that period of time. To the extent that
such increased costs exceed existing resources and the acquisition or
development of content and/or marketing requires significant cash consideration,
GHS anticipates the need to obtain additional financing. There can be no
assurance that GHS will be able to secure additional financing or that such
financing, if any, will be available on favorable terms.
In addition to the employment agreement discussed above, GHS's current material
commitments consist of annual rent for its office space in New York, New York of
$361,000 and annual premiums under various insurance policies totaling
approximately $400,000.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year, such as
"99" for "1999." These programs were designed and developed without addressing
the impact of the arrival of a new century. If not corrected, many computer
software applications could fail or create erroneous results by, at or beyond
the year 2000. GHS is at risk if the information technology systems or non-IT
systems on which it is dependent to conduct its operations do not address this
problem, i.e., are not "year 2000 compliant." GHS's potential areas of exposure
include products purchased from third parties and computers, software, telephone
systems, and other equipment used internally.
As GHS has only begun operations in May 1999, it is requiring all vendors
supplying computer hardware and software to provide statements of their products
compliance with the year 2000 issue. GHS has not acquired any software or
equipment that has not been represented to be year 2000 compliant. GHS is also
dependent on the year 2000 compliance of third parties. Examples include credit
card processing, server hosting and delivery of goods by the United States
Postal Service or other third party carriers. While GHS has not yet determined
the system to be used to process its Internet commerce transactions, it will
ensure that it is year 2000 compliant. GHS does not expect to begin processing
Internet commerce before the end of the first quarter of 2000. GHS has obtained
a year 2000 compliance representation from the third party processing our
internal payroll and from the provider of our financial software. GHS does not,
however, have any information regarding the infrastructure systems available at
its New York offices and their year 2000 readiness. GHS has requested such
information from its landlord.
If production and operational facilities that support GHS's systems are not year
2000 compliant, some or all of our web sites may become unavailable. For
instance, GHS depends on the integrity and stability of the Internet to provide
its services. GHS also depends on the year 2000 compliance of the computer
systems and financial services used by customers. Thus, the infrastructure
necessary to support GHS's operations consists of a network of computers and
telecommunications systems located throughout the world and operated by numerous
unrelated entities and individuals, none of which individually has the ability
to control or manage the potential year 2000 issues that may impact the entire
infrastructure. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards
16
<PAGE>
would have an adverse effect on demand for GHS's services and would have a
material adverse effect on GHS.
If GHS's web hosting facilities are not year 2000 compliant, its web sites would
be unavailable and GHS would not be able to deliver services to its users. If
GHS's present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with which it
conducts business do not successfully address such issues, our business,
operating results and financial position could be materially and adversely
affected.
Although GHS is currently assessing potential contingency plans, it has
developed no contingency plans to address the worst case scenario that might
occur if year 2000 issues make the Internet or GHS's web sites unavailable. In
such case, our dependence on the widespread and unrelated entities, which
maintain the Internet's infrastructure, makes it impossible to develop or
implement an adequate contingency plan and, accordingly GHS does not plan to
develop one. GHS has discussed year 2000 readiness with its current content
providers and has obtained representations that their internal systems are year
2000 compliant and that year 2000 issues relating to their internal systems are
not anticipated. There remains the risk that factors outside of their internal
systems may cause significant business interruption and would therefore have a
material adverse effect on GHS.
Forward Looking Statements
THIS QUARTERLY REPORT, INCLUDING THE DISCUSSION OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF GHS, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. GHS'S ACTUAL RESULTS AND TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THOSE FACTORS DESCRIBED ELSEWHERE
IN THIS QUARTERLY REPORT AND IN OTHER FILINGS MADE BY GHS WITH THE COMMISSION.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
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. Mr. Brown is no longer
a member of GHS's Board of Directors. Under the terms of the USN Agreement, GHS
possessed the right to repurchase for cash or Common
17
<PAGE>
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 claimed to be an improper termination from USN.
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 68,668 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.
Item 2. Changes in Securities.
Series A Convertible Preferred Stock
On May 27, 1999, GHS issued an aggregate of 99,059.338 shares of
newly-designated Series A Preferred Stock in connection with the reverse
acquisition of CYL by GHS. The shares of Series A Preferred Stock were issued to
the holders of membership interests in CYL (Robbins, RRI and Development
Holdings) in exchange for all the membership interests in CYL. The issuance of
Series A Preferred Stock was made in a transaction not involving a public
offering pursuant to the exemption afforded by Section 4(2) of the Securities
Act of 1933 (the "Securities Act").
As a result of the reverse acquisition of CYL by GHS, the former members of CYL
obtained voting control of
18
<PAGE>
GHS. The shares of Series A Preferred Stock issued in the reverse acquisition of
CYL by GHS are convertible into an aggregate of 30,708,395 shares of Common
Stock and vote on an as converted basis with the Common Stock. The Series A
Preferred Stock will automatically convert on the later of (i) the next business
day following the date of filing of a certificate of an amendment to GHS's
Restated Certificate of Incorporation that increases the number of authorized
shares of Common Stock to a number sufficient to permit the conversion of all of
the then outstanding shares of Series A Preferred Stock into shares of Common
Stock or (ii) the next business day following the record date for the USN
Spin-Off. GHS is in the process of spinning-off its USN subsidiary to the
holders of the Common Stock, and is taking such actions as are required to
increase the authorized shares of Common Stock.
As part of the reverse acquisition of CYL by GHS, the Board amended and restated
the By-Laws of GHS (the "Restated By-Laws"). The Restated By-Laws provide that
the Board shall consist of eight members and the initial members of the Board
following GHS's acquisition of CYL shall be elected within 45 days of the CYL
closing date, provided that the three-person Board existing prior to the closing
date shall continue to exist until such time as all actions are taken which are
required by applicable law to effect such provisions. With respect to such
initial directors and at each subsequent election of directors and for so long
as Robbins or any of his affiliates shall hold in the aggregate at least 10% of
the outstanding shares of Common Stock or Common Stock equivalents, (i) Robbins
or such affiliates shall have the right to nominate three persons as directors
of GHS (the "Robbins Directors"), and (ii) a Nominating Committee consisting of
the directors (other than the Robbins Directors and the Chief Executive Officer
of GHS) and their respective successors shall have the right to nominate four
persons as directors of GHS and (iii) the eighth director shall be the Chief
Executive Officer of GHS. If any director is unable to serve or, once having
commenced to serve, is removed or withdraws from the Board, the replacement of
such director on the Board will be nominated in accordance with the
above-described procedures. In addition, the Restated By-Laws provide that
during the term of the Content Provider Agreement referred to above, Robbins
will have the right to approve of the selection of the Chief Executive Officer
of GHS by the Board, provided that said right will expire if the entire interest
in GHS (or successor thereto) obtained by Robbins and RRI in connection with the
Exchange Agreement is transferred to any other party on an involuntary basis,
e.g., through bankruptcy proceedings or pursuant to a court order. Pursuant to a
Stockholders Agreement, dated May 27, 1999, Robbins, RRI and Development
Holdings have agreed to vote their shares in favor of the nominees for director
appointed pursuant to the provisions of the Restated By-Laws. GHS plans to
deliver an Information Statement to GHS stockholders in connection with the
appointment of new nominees for director contemplated by the Restated By-Laws.
Series B Convertible Preferred Stock
On May 27, 1999, GHS issued 178,582 shares of newly-designated Series B
Preferred Stock in a private placement for a purchase price of $90 per share. In
the private placement, GHS raised approximately $16.1 million in gross proceeds,
paid approximately $1.0 million in commissions to Allen & Company Incorporated,
the placement agent in the private placement, and received net proceeds of
approximately $15.1 million. GHS has used, and plans to continue using, the
proceeds from the private placement to finance ongoing operations of GHS and for
general corporate
19
<PAGE>
purposes. The private placement was made to "accredited investors" (as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act) and was
conducted pursuant to the exemption from registration afforded by Section 4(2)
of the Securities Act.
Each share of Series B Preferred Stock is automatically convertible into 10
shares of Common Stock on the day following the record date for the USN
Spin-Off. GHS has agreed to file a registration statement under the Securities
Act as promptly as practicable following the closing of the private placement
covering the shares of Common Stock underlying the Series B Preferred Stock.
Series C Convertible Preferred Stock
On May 27, 1999, GHS paid $2,000,000 in cash and issued an aggregate of 50,000
shares of a newly-designated Series C Preferred Stock in connection with the
acquisition of Concept Development. The shares of Series C Preferred Stock were
issued to Debbie Dworkin, the sole stockholder of Concept Development, in
exchange for all the outstanding capital stock of Concept Development. Pursuant
to the Repurchase Agreement, GHS has the right to repurchase the 50,000 shares
of Series C Preferred Stock under certain circumstances (see Note 3 to GHS's
Unaudited Consolidated Financial Statements). Concept Development was formed in
September 1996 to provide on-line general-interest continuing education courses.
The Series C Preferred Stock was issued in a transaction not involving a public
offering pursuant to the exemption from registration afforded by Section 4(2) of
the Securities Act.
The shares of Series C Preferred Stock issued to Dworkin are convertible into an
aggregate of 500,000 shares of the Common Stock and vote on an as converted
basis with the Common Stock. Each share of Series C Preferred Stock is
automatically convertible into 10 shares of Common Stock on the day following
the record date for the USN Spin-Off.
Other Issuance
On May 27, 1999, GHS entered into a license agreement with The Learning Annex
for the exclusive on-line use of its intellectual property, and the sale of
certain of its merchandise and for certain co-marketing and co-promotion
activities. As partial consideration for the license, GHS issued certain equity
securities of GHS. Such securities were issued in a transaction not involving a
public offering pursuant to the exemption from registration afforded by Section
4(2) of the Securities Act.
20
<PAGE>
Effect of Preferred Stock Issuances
As of June 30, 1999, on an as converted basis, Robbins and his affiliates owned
approximately 57.1% of the voting power of GHS, Development Holdings owned
approximately 19.0% and the pre-transaction common stockholders of GHS owned
approximately 18.1%.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Description
-------- -----------
2(a) Contribution and Exchange Agreement dated as of May 20, 1999
among GHS, Change Your Life.com, LLC, Anthony J. Robbins,
Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
2(b) Agreement and Plan of Reorganization dated as of May 27, 1999
among GHS, Concept Acquisition Corporation, Concept
Development, Inc., William Zanker and Debbie Dworkin (1) (2)
2(c) Agreement of Merger dated as of May 27, 1999 between Concept
Acquisition Corporation and Concept Development, Inc. (1) (2)
3(i)(a) Restated Certificate of Incorporation (3)
3(i)(b) Certificate of Amendment to Certificate of Incorporation dated
June 18, 1987 (4)
3(i)(c) Certificate of Amendment to Certificate of Incorporation dated
November 17, 1989 (5)
3(i)(d) Certificate of Designations for Series A Preferred Stock (1)
3(i)(e) Certificate of Designations for Series B Preferred Stock (1)
3(i)(f) Certificate of Designations for Series C Preferred Stock (1)
3(ii) Amended and Restated By-Laws (1)
10(a) Content Provider Agreement and License effective as of April
23, 1999 between Change Your Life.com, LLC, Anthony J. Robbins
and Research International Inc. (1) (2)
10(b) Escrow Agreement dated as of May 27, 1999 among GHS, Debbie
Dworkin and State Street Bank and Trust Company (1) (2)
10(c) Repurchase Agreement dated as of May 27, 1999 between GHS and
Debbie Dworkin (1) (2)
10(d) Employment Agreement dated as of May 27, 1999 between GHS and
Wiliam Zanker (1)
10(e) Exclusive License and Marketing Agreement dated as of May 27,
1999 among GHS, Seligman Greer Communication Resources, Inc.
21
<PAGE>
("Seligman"), SGS Communications Resources, Inc., Seligman
Greer Sandberg Enterprises, Inc., SGC Communication Resources
LLC and Learning Annex Interactive LLC (1) (2)
10(f) Option Agreement dated as of May 27, 1999 among GHS, Seligman
Greer Communication Resources, Inc., SGS Communication
Resources, Inc., Seligman Greer Sandberg Enterprises, Inc.,
SGC Communication Resources LLC and Learning Annex Interactive
LLC and certain shareholders and members, as applicable, of
such entities other than GHS listed therein (1) (2)
10(g) Registration Rights Agreement dated as of May 27, 1999 among
GHS, Anthony J. Robbins, Robbins Research International Inc.
and CYL Development Holdings, LLC (1)
10(h) Stockholders Agreement dated as of May 27, 1999 among GHS,
Anthony J. Robbins, Robbins Research International Inc. and
CYL Development Holdings, LLC (1)
10(i) Lease for 65 Broadway, 7th Floor, New York, New York dated May
21, 1999 between GHS and CFG/AGSB Chelsea Ninth, L.L.C.
27 Financial Data Schedule
99(a) Press Release issued May 28, 1999 (1)
-----------------------------------------------------------------------
(1) Incorporated by reference from the identically numbered
exhibit to GHS's Form 8-K/A dated May 27, 1999 and filed with
the Securities and Exchange Commission as of June 11, 1999.
(2) Confidential treatment has been requested for certain portions
of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(3) Incorporated by reference from Exhibit 3.1 to GHS's
Registration Statement No. 33-4532-W on Form S-18.
(4) Incorporated by reference from Exhibit 3(b) to the GHS's 1987
Annual Report on Form 10-K.
(5) Incorporated by reference to Exhibit 3(c) to the GHS's 1988
Annual Report on Form 10-K.
(b) Reports on Form 8-K
On April 27, 1999, GHS filed a report on Form 8-K dated April 26, 1999 covering
Item 5 (Other Events) with respect to GHS's announcement of an Internet
initiative.
On June 11, 1999, GHS filed a report on Form 8-K dated May 27, 1999 covering
Items 1 (Changes in Control of the Registrant); 2 (Acquisition or Disposition of
Assets); 5 (Other Events); and 7 (Financial Statements and Exhibits).
22
<PAGE>
As of June 11, 1999 GHS filed a report on Form 8-K/A dated May 27, 1999 amending
the Form 8-K filed on June 11, 1999 to add additional exhibits under Item 7.
On August 10, 1999 GHS filed a report on Form 8-K/A dated May 27, 1999 amending
the Form 8-K filed on June 11, 1999 to include pro forma unaudited consolidated
financial statements of GHS giving effect to the reverse acquisition of CYL by
GHS, the acquisition of CDI by GHS and the related private placement of
preferred stock and license and option agreements with The Learning Annex.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GHS, INC.
Date: August 16, 1999 By: /s/ Beth Polish
--------------------------------------
Beth Polish
President, Chief Operating Officer
and Acting Principal Financial Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2(a) Contribution and Exchange Agreement dated as of May 20, 1999
among GHS, Change Your Life.com, LLC, Anthony J. Robbins,
Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
2(b) Agreement and Plan of Reorganization dated as of May 27, 1999
among GHS, Concept Acquisition Corporation, Concept
Development, Inc., William Zanker and Debbie Dworkin (1) (2)
2(c) Agreement of Merger dated as of May 27, 1999 between Concept
Acquisition Corporation and Concept Development, Inc. (1) (2)
3(i)(a) Restated Certificate of Incorporation (3)
3(i)(b) Certificate of Amendment to Certificate of Incorporation dated
June 18, 1987 (4)
3(i)(c) Certificate of Amendment to Certificate of Incorporation dated
November 17, 1989 (5)
3(i)(d) Certificate of Designations for Series A Preferred Stock (1)
3(i)(e) Certificate of Designations for Series B Preferred Stock (1)
3(i)(f) Certificate of Designations for Series C Preferred Stock (1)
3(ii) Amended and Restated By-Laws (1)
10(a) Content Provider Agreement and License effective as of April
23, 1999 between Change Your Life.com, LLC, Anthony J. Robbins
and Research International Inc. (1) (2)
10(b) Escrow Agreement dated as of May 27, 1999 among GHS, Debbie
Dworkin and State Street Bank and Trust Company (1) (2)
10(c) Repurchase Agreement dated as of May 27, 1999 between GHS and
Debbie Dworkin (1) (2)
10(d) Employment Agreement dated as of May 27, 1999 between GHS and
Wiliam Zanker (1)
10(e) Exclusive License and Marketing Agreement dated as of May 27,
1999 among GHS, Seligman Greer Communication Resources, Inc.
("Seligman"), SGS Communications Resources, Inc., Seligman
Greer Sandberg Enterprises, Inc., SGC Communication Resources
LLC and Learning Annex Interactive LLC (1) (2)
10(f) Option Agreement dated as of May 27, 1999 among GHS, Seligman
25
<PAGE>
Greer Communication Resources, Inc., SGS Communication
Resources, Inc., Seligman Greer Sandberg Enterprises, Inc.,
SGC Communication Resources LLC and Learning Annex Interactive
LLC and certain shareholders and members, as applicable, of
such entities other than GHS listed therein (1) (2)
10(g) Registration Rights Agreement dated as of May 27, 1999 among
GHS, Anthony J. Robbins, Robbins Research International Inc.
and CYL Development Holdings, LLC (1)
10(h) Stockholders Agreement dated as of May 27, 1999 among GHS,
Anthony J. Robbins, Robbins Research International Inc. and
CYL Development Holdings, LLC (1)
10(i) Lease for 65 Broadway, 7th Floor, New York, New York dated May
21, 1999 between GHS and CFG/AGSB Chelsea Ninth, L.L.C.
27 Financial Data Schedule
99(a) Press Release issued May 28, 1999 (1)
-----------------------------------------------------------------------
(1) Incorporated by reference from the identically numbered
exhibit to GHS's Form 8-K/A dated May 27, 1999 and filed with
the Securities and Exchange Commission as of June 11, 1999.
(2) Confidential treatment has been requested for certain portions
of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(3) Incorporated by reference from Exhibit 3.1 to GHS's
Registration Statement No. 33-4532-W on Form S-18.
(4) Incorporated by reference from Exhibit 3(b) to the GHS's 1987
Annual Report on Form 10-K.
(5) Incorporated by reference to Exhibit 3(c) to the GHS's 1988
Annual Report on Form 10-K.
26
L-3/86
------------------------------------------------------
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
(C) Copyright 1962. All rights Reserved.
Reporduction in whole or in part prohibited.
------------------------------------------------------
AGREEMENT OF LEASE, made as of this 21 day of May, 1999, between CFG/AGSCB
CHELSEA NINTH, L.L.C, having an office c/o ATC Management, L.L.C., 88 Tenth
Avenue, New York, New York 10011 party of the first part, hereinafter referred
to as "Landlord" or "Owner," and GHS, INC., party of the second part, a New York
corporation, having an office at 704 Broadway, Second Floor, New York, New York
10036, hereinafter referred to as "Tenant".
WITNESSETH: Owner hereby leases Tenant and Tenant hereby hires from Owner a
portion of the third (3rd) Floor (the "Demised Premises") as shown on Exhibit A
attached hereto, in the series of buildings comprising the square block bound to
the north by 16th Street, to the south of 15th Street, to the east by Ninth
Avenue and to the west by Tenth Avenue, which series of buildings is known as
and by the street addresses 75 Ninth Avenue/88 Tenth Avenue, New York, New York
(herein, collectively called the "Building") for the term and rental set forth
in Articles 41 and 42 hereof.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Occupancy: 1. Tenant shall pay the rent as above and as hereinafter
provided.
Use: 2. Tenant shall use and occupy demised premises for the Permitted
Use provided such use is in accordance with, the Certificate
of Occupancy for the building, if any, and for no other
purpose.
Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
at its expense, before making any alterations, additions, installations or
improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense, by payment or filing the bond required by law or otherwise.
All fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner on Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's right thereto and to have them removed
by Tenant, in which event the same shall be removed from the demised premises by
Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in
this Article shall be construed to give Owner title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Owner, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed abandoned
and may, at the election of Owner, either be retained as Owner's property or
removed from the premises by Owner, at Tenant's expense.
Repairs:
4. Owner shall maintain and repair the exterior of and the public portions of
the building. Tenant shall, throughout the term of this lease, take good care of
the demised premises including the bathrooms and lavatory facilities (if the
demised premises encompass the entire floor of the building) and the windows and
window frames and, the fixtures and appurtenances therein and at Tenant's sole
cost and expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant
shall give Owner prompt notice of any defective condition in any plumbing up to
the point where the same serves solely the demised premises, Building-wide
heating system or electrical lines of the Building leading up to the pull box
serving the demised premises and following such notice, Owner shall remedy the
condition with due diligence, but at the expense of Tenant, if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesaid. Except as specifically
provided in Article 9 or elsewhere in this lease, there shall be no allowance to
the Tenant for a diminution of rental value and no liability on the part of
Owner by reason of inconvenience, annoyance or injury to business arising from
Owner, Tenant or others making or failing to make any repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. The
provisions of this Article 4 with respect to the making of repairs shall not
apply in the case of fire or other casualty with regard to which Article 9
hereof shall apply.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the New York State Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Lease:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter, Tenant shall, at Tenant's sole cost and expense,
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, or the
Insurance Services Office, or any similar body which shall impose any violation,
order or duty upon Owner or Tenant with respect to the demised premises, whether
or not arising out of Tenant's use or manner of use thereof, or, with respect to
the building, if arising out of Tenant's use or manner of use of the demised
premises of the building (including the use permitted under the
<PAGE>
lease). Except as provided in Article 30 hereof, nothing herein shall require
Tenant to make structural repairs or alterations unless Tenant has, by its
manner of use of the demised premises or method of operation therein, violated
any such laws, ordinances, orders, rules, regulations or requirements with
respect thereto. Tenant shall not do or permit any act or thing to be done in or
to the demised premises which is contrary to law, or which will invalidate or be
in conflict with public liability, fire or other policies of insurance at any
time carried by or for the benefit of Owner. Tenant shall not keep anything in
the demised premises except as now or hereafter permitted by the Fire
Department, Board of Fire Underwriters, Fire Insurance Rating Organization and
other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the insurance
rate for the building or any property located therein over that in effect prior
to the commencement of Tenant's occupancy. If by reason of failure to comply
with the foregoing the fire insurance rate shall, at the beginning of this lease
or at any time thereafter, be higher than it otherwise would be, then Tenant
shall reimburse Owner, as additional rent hereunder, for that portion of all
fire insurance premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" or rate for the building or demised
premises issued by a body making fire insurance rates applicable to said
premises shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rates then applicable to said
premises. Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law. Owner reserves the right to prescribe the weight and
position of all safes, business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant, at Tenant's expense, in
settings sufficient, in Owner's judgement, to absorb and prevent vibration,
noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Property -- Loss, Damage, Reimbursement, Indemnity:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage in
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agent, servant or employees; Owner or
its agents shall not be liable for any damage caused by other tenants or persons
in, upon or about said building or caused by operations in connection of any
private, public or quasi public work. If at any time any windows of the demised
premises are temporarily closed, darkened or bricked up (or permanently closed,
darkened or bricked up, if required by law) for any reason whatsoever including,
but not limited to Owner's own acts, Owner shall not be liable for any damage
Tenant may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorney's fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant or condition of this lease,
or the carelessness, negligence or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees or licensees. Tenant's liability under
this lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided. (d) If the demised premises are rendered
wholly unusable or (whether or not the demised premises are damaged in whole or
in part) if the building shall be so damaged that Owner shall decide to demolish
it or to rebuild it, then, in any of such events, Owner may elect to terminate
this lease by written notice to Tenant, given within 90 days after such fire or
casualty, specifying a date for the expiration of the lease, which date shall
not be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Owner's rights and remedies against Tenant under
the lease provisions in effect prior to such termination, and any rent owing
shall be paid up to the date and any payments of rent made by Tenant which were
on account of any period subsequent to such date shall be returned to Tenant.
Unless Owner shall serve a termination notice as provided for herein, Owner
shall make the repairs and restorations under the conditions of (b) and (c)
hereof, with all reasonable expedition, subject to delays due to adjustment of
insurance claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (c) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
each party shall look first to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Owner and Tenant each hereby
releases and waives all right of recovery against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefitting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from date of
title vesting in such proceeding and Tenant shall have no claim for the value of
any unexpired term of said lease.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
prior written consent of Owner in each instance. Transfer of the majority of the
stock of a corporate Tenant shall be deemed an assignment. If this lease be
assigned, or if the demised premises or any part thereof be underlet or occupied
by anybody other than Tenant, Owner may, after default by Tenant, collect rent
from the assignee, under-tenant or occupant, and apply the net amount collected
to the rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric Current:
[GRAPHIC OMITTED]
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building of the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to any portion
of the building or which Owner may elect to perform in the premises after
Tenant's failure to make repairs or perform any work which Tenant is obligated
to perform under this lease, or for the purpose of complying with laws,
regulations and other directions of governmental authorities. Tenant shall
permit Owner to use and maintain and replace pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided,
wherever possible, they are within walls or otherwise concealed. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants and may, during said six month period, place upon the demised premises
the usual notices "To Let" and "For Sale" which notices Tenant shall permit to
remain thereon without molestation. If Tenant is not present to open and permit
an entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected. If during the last month
of the term Tenant shall have removed all or substantially all of Tenant's
property therefrom. Owner may immediately enter, alter, renovate or redecorate
the demised premises without limitation or abatement of rent, or incurring
liability to Tenant for any compensation and such act shall have no effect on
this lease or Tenant's obligations hereunder.
<PAGE>
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and
additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised without molestation or disturbance
by the Landlord, subject, nevertheless, to the terms and conditions of this
lease including, but not limited to, Article 34 hereof and to the ground leases,
underlying leases and mortgages hereinbefore mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the date of
the commencement of the term hereof, because of the holding-over or retention or
possession of any Tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or if Owner has
not completed any work required to be performed by Owner, or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
any work required) until after Owner shall have given Tenant notice that Owner
is able to deliver possession in the condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to time
date specified as the commencement of the term of this lease, Tenant covenants
and agrees that such occupancy shall be deemed to be under all the terms,
covenants, conditions and provisions of this lease, except as to the covenant to
payment. The provisions of this article are intended to constitute "an express
provision to the contrary" within the meaning of Section 223-a of the New York
Real Property Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of the original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach and no provision of this lease shall be deemed to have
been waived by Owner unless such waiver be in writing signed by Owner. No
payment by Tenant on receipt by Owner of a lesser amount than the monthly rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this lease provided. All checks tendered to Owner as and for the rent of the
demised premises shall be deemed payments for the account of Tenant. Acceptance
by Owner of rent from anyone other than Tenant shall not be deemed to operate as
an attornment to Owner by the payor of such rent or as a consent by Owner to any
assignment or subletting by Tenant of the demised premises to such payor, or as
a modification of the provisions of this lease. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties thereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any summary proceeding for possession for
possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of the obligations under this lease or to supply or is
delayed in supplying any service expressly or implicitly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever beyond Owner's sole control including,
but no limited to, government preemption in connection with a National Emergency
or by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
Bills and Notices:
28. Except as otherwise in this lease provided, a bill statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Water Charges:
29. It Tenant requires, uses or consumes water for any purpose (of which fact
Tenant constitutes Owner to be the sole judge) Owner may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant shall
pay Owner for the cost of the meter and the cost of the installation, thereof
and throughout the duration of Tenant's occupancy Tenant shall keep said meter
and installation equipment in good working order and repair at Tenant's own cost
and expense in default of which Owner may cause such meter and equipment to be
replaced or repaired and collect the cost thereof from Tenant, as additional
rent. Tenant agrees to pay for water consumed, as shown on said meter as and
when bills are rendered, and on default in making such payment Owner may pay
such charges and collect the same from Tenant, as additional rent. Tenant
covenants and agrees to pay, as additional rent, the sewer rent, charge or any
other tax, rent, levy or charge which now or hereafter is assessed, imposed or a
lien upon the demised premises or the realty of which they are part pursuant to
law, order or regulation made or issued in connection with the use, consumption,
maintenance or supply of water, water system or sewage or sewage connection or
system. If the building or the demised premises or any part there is supplied
with water through a meter through which water is also supplied to other
premises Tenant shall pay to Owner, as additional rent, on the first day of each
month, [CLIP ART OMITTED] % ($[CLIP ART OMITTED]) of the total meter charges as
Tenant's portion. Independently of and in addition to any of the remedies
reserved to Owner hereinabove or elsewhere in this lease, Owner may sue for and
collect any monies to be paid by Tenant or paid by Owner for any of the reasons
or purposes hereinabove set forth.
Sprinklers:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the New
York Board of Fire Underwriters or the New York Fire Insurance Exchange or any
bureau, department or official office federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system
installations, modifications, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in fire insurance rate
set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
$[CLIP ART OMITTED], of on the first day of each month during the term of this
lease, as Tenant's portion of the contract price for sprinkler supervisory
service.
Elevators, Heat, Cleaning:
31. As long as Tenant is not in default under any of the covenants of this
lease, Owner shall: (a) provide necessary passenger elevator facilities on
business days from 8 a.m to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.: (b)
if freight elevator service is provided, same shall be provided only on regular
business days Monday through Friday inclusive, and on those days only between
the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat
through the existing facilities serving the Demised Premises, water and other
services supplied by Owner to the demised premises, when and as required by law,
on business days from 8 a.m. to 6 p.m. and on Saturdays from a.m. to 1 p.m.; (d)
clean the public halls and pubic portions of the building which are used in
common by all tenants. Tenant shall, at Tenant's expense, keep the demised
premises, including the windows, clean and in order, to the satisfaction of
Owner, and for that purpose shall employ the person or persons, or corporation
approved by Owner. Tenant shall pay the cost of removal of any of Tenant's
refuse and rubbish from the building. Tenant shall, independently contract for
the removal of such rubbish and refuse. The removal of such refuse and rubbish
by others shall he subject to such rules and regulations as, in the judgment of
Owner, are necessary for the proper operation of the building. Owner reserves
the right to stop service of the heating, elevator, plumbing and electric
systems, when necessary, by reason of accident, or emergency, or for repairs,
alterations, replacements or improvements, in the judgment of Owner desirable or
necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner may
proceed with alterations necessary to substitute automatic control elevator
service upon ten (10) days written notice to Tenant without in any way affecting
the obligations of Tenant hereunder, provided that the same shall be done with
the minimum amount of Inconvenience to Tenant, and Owner pursues with due
diligence the completion of the alterations.
Security:
[CLIP ART]
32. Tenant has deposited with Owner the sum of the Security Deposit as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all the
terms, provisions, covenants and conditions of this lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the demised premises to Owner. In the event of
a sale of the land and building or leasing of the building, of which the demised
premises form a part, Owner shall have the right to transfer the security to the
vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look to the new
Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Captions:
33. The Captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this lease nor the intent
of any provision thereof.
Definitions:
34. The term "Owner" or "Landlord" as used in this lease means only the owner of
the fee or of the leasehold of the building, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the building
or of the land and building) of which the demised premises form a part, so that
in the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums which
shall be due to Owner from Tenant under this lease, in addition to the annual
rental rate. The term "business days" as used in this lease, shall exclude
Saturdays (except such portion thereof as is covered by specific hours in
Article 31 hereof), Sundays and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
Adjacent Excavation--Shoring:
35. If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
Rules and Regulations:
36. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
annexed hereto and such other and further reasonable Rules and Regulations as
Owner or Owner's agents may from time to time adopt. Notice of any additional
rules or regulations shall be given in such manner as Owner may elect. In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
determination shall be final and conclusive upon the parties hereto. The right
to dispute the reasonableness of any additional Rule or Regulation upon Tenant's
part shall be deemed waived unless the same shall be asserted by service of a
notice, in writing upon Owner within ten (10) days after the giving of notice
thereof. Nothing in this lease contained shall be construed to impose upon Owner
any duty or obligation to enforce the Rules and Regulations or terms, covenants
or conditions in any other lease, as against any other tenant and Owner shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
Glass:
37. Owner shall replace, at the expense of the Tenant, any and all plate and
other glass damaged or broken from any cause whatsoever in and about the demised
premises. Owner may insure, and keep insured, at Tenant's expense, all plate and
other glass in the demised premises for and in the name of Owner. Bills for the
premiums therefor shall be rendered by Owner to Tenant at such times as Owner
may elect, and shall be due from, and payable by, Tenant when rendered, and the
amount thereof shall be deemed to be, and be paid, as additional rent.
Estoppel Certificate:
38. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), stating the dates to which the rent and additional rent have
been paid, and stating whether or not there exists any default by Owner under
this Lease, and, if so, specifying each such default.
Directory Board Listing:
39. If, at the request of and as accommodation to Tenant, Owner shall place upon
the directory board in the lobby of the building, one or more names of persons
other than Tenant, such directory board listing shall not be construed as the
consent by Owner to an assignment or subletting by Tenant to such person or
persons.
Successors and Assigns:
40. The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
- ----------
[CLIP ART] Space to be filled in or deleted.
In Witness Whereof, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
LANDLORD: CFG/AGSCB CHELSEA NINTH, L.L.C.
By: ATC Management, L.L.C. as
agent for CFG/AGSCB Chelsea Ninth, LLC
Witness for Owner: -------------------------------------
By: /s/ Irwin B. Cohen
- ------------------------------------ -------------------------------------
Irwin B. Cohen, Mgr.
Witness for Tenant TENANT: GHS, INC.
By: /s/ Alan Gold
- ------------------------------------ -------------------------------------
President
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
Alan Gold, President, GHS, Inc to me known, who being by me duly sworn, did
depose and say that he resides
in Potomac, MD
that he is the President of GHS, Inc
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
/s/ Alan Gold
------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me
personally came
to be known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that
he executed the same.
------------------------------------------------
[CLIP ART] IMPORTANT - PLEASE READ [CLIP ART]
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS
LEASE IN ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any animals, or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same as visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at
all hours on Sundays and legal holidays all persons who do not present a pass to
the building signed by Owner. Owner will furnish passes to persons for whom any
Tenant requests same in writing. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Owner for all acts
of such persons. Notwithstanding the foregoing, Owner shall not be required to
allow Tenant or any person to enter or remain in the building, except on
business days from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to
1:00 p.m.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive fluid, material,
chemical or substance, or cause or permit any odors or cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs
or interferes with other Tenants in the beneficial use of their premises.
<PAGE>
---------------------------------------
STANDARD REAL ESTATE TAX AND
OPERATING COST ESCALATION CLAUSE RIDER
for use with
THE REAL ESTATE BOARD OF NEW YORK, INC.
OFFICE & STORE LEASE FORMS
---------------------------------------
Rider No. 1, attached to and made a part of Lease dated May 21, 1999
between CFG/AGSCB CHELSEA NINTH, L.L.C.
as Owner and GHS, INC.
as Tenant
A. TAXES
Tenant agrees to pay as additional rent Tenant's proportionate share % of any
and all increases in Real Estate Taxes above the Real Estate Taxes for the "Base
Tax Year" imposed on the Property with respect to every Tax Year or part thereof
during the term of this lease, whether any such increase results from a higher
tax rate or an increase in the assessed valuation of the property, or both.
"Property" shall mean the land and building including any "air rights", of which
the demised premises are a part. "Real Estate Taxes" shall mean taxes and
assessments imposed upon the Property including any special assessment imposed
thereon for any purpose whatsoever and also including taxes payable by Owner to
a ground lessor with respect thereto, and unmetered water taxes and sewer rents,
if due to a change in the method of taxation any franchise, income, profit, or
other tax, however designated, shall be levied against Owner's interest in the
property in whole or in part for or in lieu of any tax which would otherwise
constitute Real Estate Taxes, such change in method of taxation shall be
included in the term "Real Estate Taxes" for purposes hereof. "Tax Year" shall
mean each period of twelve months commencing on the first day of July subsequent
to the Base Tax Year, in which occurs any part of the term of this lease or such
other period of twelve months occurring during the term of this lease as
hereafter may be duly adopted as the fiscal year for real estate tax purposes of
the City of New York. All such payments shall be appropriately pro-rated for any
partial Tax Years occurring during the first and last years of the term of this
lease. A copy of the Tax Bill of the City of New York shall be sufficient
evidence of the amount of Real Estate Taxes and for calculation of the amount to
be paid by Tenant.
Only Owner shall be eligible to institute tax reduction or other
proceedings to reduce the assessed valuation. Should Owner be successful in any
such reduction proceedings and obtain a rebate for periods during which Tenant
has paid Tenant's share of increases, Owner shall, after deducting Owner's
expenses in connection therewith including without limitation attorney's fees
and disbursements, return to Tenant Tenant's pro-rata share of such rebate
except that Tenant may not obtain any portion of the benefits which may accrue
to Owner from any reduction in Real Estate Taxes for any Tax Year below those
imposed in the Base Tax Year.
B. OPERATING EXPENSES
For purposes of this article only, the following words and terms have the
following meaning:
(1) "BASE OPERATION YEAR" -- shall have the meaning provided in Article
41.
(2) "OPERATION YEAR" -- shall mean each calendar year in which occurs any
part of the term of this lease. If the lease term shall commence or terminate on
a date other than January 1, or December 31 of an Operation Year, any increase
or decrease in additional term by reason hereof shall be apportioned.
(3) "OPERATING EXPENSES" -- shall mean any or all of the following
incurred by Owner with respect to the building of which the demised premises
form a part: salaries, wages, hospitalization, medical, surgical and general
welfare benefits (including group insurance) and pension payments of employees
of Owner engaged in the operation and maintenance of the building of which the
demised premises are a part, payroll taxes, workmen's compensation insurance,
gas, oil, or other fuel, electricity, steam, together with any taxes thereon,
utility taxes, water, (including sewer rental), rent, casualty and liability and
other insurance covering Owner, Owner's agent, mortgagee and any portion of
Owner's property, repairs and maintenance, building and cleaning supplies,
uniforms and dry cleaning, window cleaning, management fees, service contracts
with independent contractors, telephone, telegraph, stationery, advertising, and
all other expenses paid in connection with the operation of said premises
properly chargeable against income, including but not limited to accounting
expenses for all statements with respect to Owner's Property, including
statements required under this Article and any work in connection with any
governmental entity, and attorney's fees and fees to professionals for services
rendered in connection with the maintenance, repair and operation of Owner's
Property and in respect of real estate taxes payable on Owner's Property; dues
and fees for trade and industry associations and costs of their related
activities, all relating to Owner's Property; and home office administration
costs for the proportionate share of any salaries of Owner's employees engaged
in Property management and for bookkeeping and telephone. Owner's Operating
Expenses shall not include any item otherwise properly constituting an operating
expense to the extent payment of reimbursement therefore it actually received by
Owner from space occupants for services rendered or performed directly for the
account of such space occupants and for which Owner makes a separate charge, or
for electrical energy for which Tenants pay under an electrical rent inclusion
or submetering plans provided, however, that the foregoing exclusion shall be
only to the extent of the actual cost to Owner of the service rendered to each
space occupant, nor real estate taxes, mortgage interest and amortization,
brokerage or other costs in connection with leasing or mortgages, rent under a
superior lease, depreciation, nor the cost of any term required under good
accounting and tax practice to be capitalized (Other than those which under
generally applied real estate practice are expense or regarded as deferred
expenses and other than capital expenditures made by reason of legal
requirements or insurance requirements, in any of which cases the cost thereof
shall be included in Operating Expenses for the Operational Year in which the
costs are incurred and subsequent Operational Years, amortized on a
straight-line basis over an appropriate period not exceeding fifteen years,
including interest at the prime interest rate charged by Owner's first
institutional mortgagee at the time of Owner's having made such expenditure or
in the absence thereof by Citibank N.A.) If Owner shall eliminate the payment of
any of the salaries, wages, benefits or other payments to employees and the
payroll taxes and workmen's compensation insurance premiums relating thereto as
the result of the installation of labor-saving devices or by other means, in
computing the additional rent payable under this paragraph (B), the
corresponding terms of said salaries, wages, benefits and other payments to
employees and of said taxes and premiums relating thereto in the base year shall
be deducted from the operating expenses for the base year and there shall be
included in Operating Costs the cost and expense of such labor-saving device as
amortized over the useful life thereof, or the amount of the reduction in
Operating costs, whichever is the lesser.
(4) In the event that the Operating Expenses incurred by Owner during any
Operation Year shall be greater than the Operating Expenses incurred by Owner
during the Base Operation Year, Tenant shall pay to Owner as additional rent for
the Operation Year in question an amount equal to Tenant's proportionate share %
of the increase.
The amounts due under subdivision A. "TAXES" and B. "OPERATING EXPENSE"
hereunder shall be collected as additional rent without set off or deduction,
and shall be paid in the following manner.
(A) Any adjustment in rent occurring by reason of subdivision A. "TAXES"
shall be effective as of the first day of the Tax Year concerned and, after
Owner shall have furnished Tenant with a statement setting forth the Real Estate
Taxes for the Base Tax Year and the Real Estate Taxes for the Tax Year
concerned, all monthly installments of rent shall reflect 1/12th of the annual
amount of such adjustment until a new adjustment becomes effective pursuant to
the provisions of said subdivision A. Any adjustments in rent payable pursuant
to this Rider by reason of changes in the Real Estate Taxes for the Base Year or
any Tax Year prior to the then current Tax Year, if any, shall be paid by Tenant
to Owner within thirty (30) days after the statement covering such period is
delivered to Tenant or a credit given by Owner towards the next ensuing rent
installments until the credit is exhausted, as the case may be.
B) For the first Operation Year and each subsequent Operation Year Owner
shall furnish Tenant with an operating expense statement. Tenant shall pay the
amount of additional rent shown thereon, if any, within thirty (30) days after
rendition of such statement. Tenant shall be given a credit on such statement
for payments made during the Operating Year on account of the amount due and in
case of an overpayment Tenant shall receive a credit. In order to provide for
current payment of additional rent which may be payable upon the rendering of
the next Operating Expense Statement, all monthly installments of rent following
the rendition of any such statement shall reflect one-twelfth of the annualized
amount of the additional rent shown on the most recent statement and 1/12th of
the amount, if any, by which the amount due under such most recent statement
increased over the most previous statement without respect to credits for
advanced payments. In all events Tenant's tax escalation payments shall be made
so that they are due and payable at least thirty (30) days prior to the date
payments are due either to the taxing authority or to any first institutional
mortgagee under a real estate tax escrow requirement.
The statements of Operating Expenses to be furnished by Owner hereunder
shall be prepared in reasonable detail by a Certified Public Accountant (who may
be a CPA employed by Owner for the audit of Owner's accounts). Said CPA may rely
on Owner's allocations and estimates provided such CPA determines that there is
a reasonable basis for such allocations and estimates. The statements thus
furnished to Tenant shall constitute the final determination as between Owner
and Tenant of the Operating Expenses for the period covered thereby. If any such
Tax or Operating Expenses statement is furnished to Tenant after the
commencement of the effective date of any such adjustment, there shall be
promptly paid by Tenant to Owner an amount equal to the portion of such
adjustment allocable to that part of the Operation of Tax Year, as the case may
be, which shall have elapsed prior to the first day of the calendar month next
succeeding the calendar month in which said statement was furnished to Tenant.
Owner's failure during the lease term to prepare and deliver any of the
foregoing tax bills, statements or bills, or Owner's failure to make a demand,
shall not in any way waive or cause Owner to forfeit or surrender Owner's rights
to collect any of the foregoing items of additional rent which may have become
due during the term of this lease. Tenant's liability for the amounts due under
this article shall survive the expiration of the term.
In no event shall any rent adjustment hereunder result in a decrease in
the fixed annual rent.
INITIAL HERE
---------------------------------
Owner Tenant
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
<PAGE>
SUPPLEMENTAL RIDER TO LEASE
DATED AS OF MAY 21, 1999 BETWEEN
CFG/AGSCB CHELSEA NINTH, L.L.C., LANDLORD, AND
GHS, INC., TENANT.
41. Definitions: The following terms, wherever used in this lease, shall have
the meanings herein specified. Where the meaning of any term is defined as
"None", the provisions of this lease utilizing such term shall be disregarded
and of no force or effect.
"Base Operation Year": the 1999 calendar year.
"Base Tax Year": the fiscal year from July 1, 1999, to June 30, 2000,
both dates inclusive.
"Commencement Date": the sooner to occur of (i) May 21, 1999 or (ii) the
date Tenant takes possession of the Demised Premises
for the conduct of its business.
"Demised Premises": a portion of the third (3rd) floor of the Building, as
shown on Exhibit A attached hereto and made a part
hereof.
"Expiration Date": August 31, 2004 or such earlier date upon which the
term of this lease may expire or be cancelled or
terminated pursuant to any of the provisions,
conditions or covenants of this lease or pursuant to
law.
"Fixed Rental": ($30,057.50 per month).
"Permitted Use": As used herein, the "Permitted Use" of the Demised
Premises shall mean the production of Change Your Life
media property including software with ancillary
offices.
"Tenant's Proportionate 1.6902%.
Share:
"Security Deposit": $270,512.50
42. TERM AND RENTAL:
42.01 The term of this lease shall commence on the Commencement Date and
end on the Expiration Date, both dates inclusive.
42.02 Tenant covenants to pay to Landlord, at the address hereinabove set
forth or at such other address as Landlord shall designate, the following sums:
(a) the Fixed Rental set forth in Article 41 hereof, which shall be
payable in equal monthly installments, in advance, without previous demand
therefor and without any setoff or deduction whatsoever, on the first day of
each and every calendar month throughout the term of this lease, except that the
first monthly installment of Fixed Rental shall be paid upon the execution and
delivery of this lease by Tenant; and
<PAGE>
(b) "Additional Rental", consisting of all such other sums of money
as shall become due from and payable by Tenant to Landlord (for default in
payment of which Landlord shall have the same remedies as for a default in the
payment of Fixed Rental).
42.03 Tenant shall pay the Fixed Rental and Additional Rental herein
reserved promptly as and when the same shall become due and payable, without
demand therefor and without any abatement deduction or setoff whatsoever except
as expressly provided in this lease.
42.04 If the Commencement Date occurs on a day other than the first day of
a calendar month or the Expiration Date occurs on a day other than the last day
of a calendar month, the Fixed Rental for such calendar month shall be prorated
based upon the number of days remaining in said month divided by thirty (30) and
with respect to the first month, the balance of the first months Fixed Rental
theretofore paid shall be credited against the next monthly installment of Fixed
Rental then due under this Lease.
43. AS-IS POSSESSION:
43.01 Tenant acknowledge that it has made a full and complete inspection
of the Demised Premises. Tenant agrees to accept same on the Commencement Date
in its then "as is" condition. Tenant acknowledges that neither Landlord,
Landlord's agent or any broker, has made any representations or promises in
regard to the Demised Premises for the term herein demised. The taking of
possession of the Demised Premises by Tenant shall be conclusive evidence that
the Demised Premises complied with the condition in which the Demised Premises
were to be delivered to Tenant under this lease.
43.02 All installations, materials or work which may be necessary or
desirable to prepare, equip, decorate or furnish, the Demised Premises for
Tenant's occupancy (hereinafter referred to as "Tenant's Work") shall be
performed by Tenant, at its sole cost and expense, in accordance with all the
terms, covenants and conditions of this lease, including without limitation,
Article 3 hereof. Upon request by Landlord, Tenant shall furnish Landlord with
such information as Landlord may reasonably request to evidence the cost of, and
payment for, Tenant's Work, including without limitation, copies of all
contracts, subcontracts, purchase orders and other information evidencing the
amount(s) paid by Tenant for Tenant's Work and cancelled checks and lien waivers
evidencing payment therefor.
43.03 All lighting, electrical, heating, ventilating, air-conditioning and
plumbing equipment, installations and fixtures now or hereafter installed or
located at or in the Demised Premises by or on behalf of Tenant shall, upon
installation, become the property of Landlord and shall remain upon and be
surrendered to Landlord upon the expiration or termination of this lease,
subject to Landlord's right to require Tenant to remove the same as provided in
Article 3.
44. UTILITIES AND SERVICES:
44.01 Tenant agrees to make its own arrangements with the public utility
company servicing the Demised Premises for the furnishing of, and payment of all
charges for electricity, water (hot and cold), gas and all other utilities
consumed by Tenant in the Demised Premises. In no event shall Landlord be
responsible for charges for electricity, water (hot or cold), gas or any other
utilities or for the furnishing of any heat, water (hot or cold),
air-conditioning or any other services. All meters at the Demised Premises for
the purpose of measuring Tenants consumption and demand of the respective
utilities (electricity, gas, water, etc.) shall be installed by Tenant, at its
sole
2
<PAGE>
cost and expense, prior to opening for business in the Demised Premises (or if
Landlord so elects, shall be installed by landlord at Tenants expense to be
reimbursed to Landlord upon demand) and shall thereafter be maintained by
Tenant, at Tenant's sole cost and expense, in good working order and condition.
45. ADDENDUM TO ARTICLE 6:
45.01 Without limiting the generality of the provisions of Article 6,
Tenant shall comply in all respects with all "Environmental Laws" relating to
Tenant's conduct of its business at the Demised Premises. For the purpose of
this paragraph, the term "Environmental Laws" shall mean any federal, state or
local laws statutes, ordinances, rules, regulations or any judicial or
administrative decisions now in effect or hereinafter enacted relating to
hazardous materials, health and safety or pollution or protection of the
environment insofar as the aforesaid relate to Tenant, Tenant's operations or
Tenant's use of the Demised Premises.
45.02 Tenant will not use or suffer or permit any person to use the
Demised Premises for any unlawful purpose and Tenant, at its sole cost and
expense, will obtain and maintain all licenses and permits from any and all
governmental authorities having jurisdiction over either the Demised Premises or
the conduct of Tenant's business therein to the extent necessary for the conduct
of Tenant's business in the Demised Premises, including without limitation, the
Permitted Use.
45.03 Without limiting the generality of Article 6, Tenant, at its sole
cost and expense, shall comply with all applicable Laws, orders, rules,
regulations, codes or recommendations of any governmental or quasi-governmental
authority or insurance carrier or rating agency requiring or recommending the
installation, upgrading and/or maintenance of any fire safety or protection
system(s) (other tan a sprinkler system) in the Demised Premises and shall
connect any and all said system(s) to any Building-wide system which may be now
or hereafter installed by Landlord.
46. PLEDGE OF TENANT'S FIXTURES
46.01 Tenant hereby grants to Landlord a first security interest in all of
"Tenant's Fixtures" (as hereinafter defined) as security for the full and
faithful performance and observance by Tenant of all of the terms, agreements,
covenants and conditions of this lease, including the payment of all of the
rents herein reserved. Landlord shall be entitled to all of the rights and
remedies of a "secured party" under the Uniform Commercial Code of the State of
New York with respect to such security interest. This Section 46.0l is intended
by the parties to constitute a "security agreement" for all purposes of the
Uniform Commercial Code. Tenant agrees that it shall own all of Tenant's
Fixtures in fee simple absolute, free of all leases, pledges, mortgages,
encumbrance, grants or any other further security interests in all or any part
of Tenant's Fixtures, whether superior or subordinate to Landlord's interest. At
all times Landlord's security interest shall be a valid and perfected first
security interest in Tenants Fixtures. Tenant, at its sole cost and expense,
shall indemnify and hold Landlord harmless from all claims, damages, costs and
expenses from any party asserting any leasehold interest (whether as, lessor or
lessee), pledge, mortgage, encumbrance or security interest in Tenant's
Fixtures, whether superior or subordinate so Landlord's interest, and Tenant
shall take such further actions to perfect and preserve Landlord's interest as a
valid and perfected first security interest. As used herein, the term "Tenant's
Fixtures" shall mean all lighting, electrical, heating, ventilating,
air-conditioning and plumbing equipment, installations and fixtures now or
hereafter installed or located at the Demised Premises by or on behalf of
Tenant, any replacements thereof and all rents, issues, profits and proceeds of
any of the foregoing, irrespective of whether any such property shall be affixed
to the realty.
3
<PAGE>
46.02 Tenant shall, from time to time, within ten (10) days after
Landlord's written request therefor, execute and deliver to Landlord any
financing statements, financing continuation statements, security agreements
and/or any other documents that Landlord shall consider necessary or desirable
under the Uniform Commercial Code to create, confirm to creation of, perfect,
renew, re-perfect, or renew the perfection of Landlord's security interest. To
the fullest extent permitted by the Uniform Commercial Code, Tenant hereby
authorizes Landlord to sign and file, from time to time, without the necessity
of obtaining the signature of Tenant thereon, any financing statement(s) and/or
financing continuation statement(s) that Landlord shall consider necessary or
desirable in connection therewith. Further, Landlord may, from time to time,
search the public records so determine if any further security interests have
been filed against Tenant's Fixtures. Tenant shall reimburse Landlord within ten
(10) days of demand, as Additional Rental, for the cost of all filings and
searches referred so in this Section 46.02.
47. INDEMNITY-LIABILITY INSURANCE:
47.01 Supplementing and without limiting the provisions of Article 8 of
this lease, Tenant covenants and agrees to indemnify and save Landlord harmless
from and against any and all claims for damages or injuries so goods, wares,
merchandise and property and/or for any personal injury or loss of life in, upon
or about the Demised Premises except to the extent caused by Landlord or its
agents, employees or contractors and, to the extent arising from the acts or
negligence of Tenant or its agents, employees, contractors or invitees, the
Building.
47.02 Dollars of combined single limit comprehensive broad form coverage
on a per occurrence basis; and (b) Fire and extended coverage, vandalism,
malicious mischief, water damage and special extended coverage insurance in an
amount adequate to cover the cost of replacement of all fixtures, decorations
and improvements in the Demised Premises. Such policies are to be written by
good and solvent insurance companies reasonably satisfactory to Landlord with a
Best's rating not less than A,8 and shall name as additional insureds the
Landlord, Landlord's managing agent and such other parties as Landlord shall
notify Tenant in writing. Such insurance may be carried under a blanket of
policy covering the Dented Premises and other locations of Tenant, if any,
provided such blanket policy contains a designated aggregate limit of liability
coverage for the Demised Premises alone of not less than $3,000,000 and Tenant
delivers to Landlord evidence thereof.
47.03 Prior so the time such insurance is first required so be carried by
Tenant and thereafter, at least thirty (30) days prior to the expiration of any
such policy, Tenant agrees to deliver to Landlord either a duplicate original of
the aforesaid policies or a certificate evidencing such insurance, provided said
certificate or policies contain an endorsement that such insurance may not be
cancelled or modified except upon thirty (30) days' notice to Landlord together
with evidence of payment for the policy. Tenant's failure to provide and keep in
force the aforementioned insurance shall be regarded as a material default
hereunder, entitling Landlord to exercise any or all of the remedies as provided
in this lease in the event of Tenant's default.
4
<PAGE>
48. BROKER:
48.01 Tenant covenants, warrants and represents to Landlord that Tenant
has not utilized the services of, been introduced to the Demised Premises or
Building by, nor been represented by any broker or finder in connection with any
of the conversations or negotiations or the renting of the Demised Premises or
this lease. Tenant shall indemnify, defend and hold and save Landlord harmless
against any and all liability from any claims of any broker claiming to have
introduced Tenant to the Demised Premises or the Building or represent Tenant in
connection with any conversations, negotiations or otherwise leading up or
relating to the renting of the Demised Premises or this lease (including,
without limitation, the cost of counsel fees in connection with the defense of
any such claims in connection with the renting of the Demised Premises).
49. EXCULPATORY CLAUSE:
49.01 Tenant shall look solely to the estate and property of Landlord in
the Building, for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default or breach by Landlord with respect to any of the
terms, covenants and conditions of the lease to be observed and/or performed by
Landlord, and no other property or assets of Landlord or any partner, member,
officer or director thereof, disclosed or undisclosed, shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of Landlord and
Tenant hereunder, or Tenant's use and occupancy of the Demised Premises. Without
limiting the foregoing, it is further understood that under no event or
circumstance shall Landlord be held responsible for the acts of any third
parties, including without limitation, any other tenants or occupants of the
Building or their guests, employees, agents, contractors or invitees, it being
expressly understood and agreed that Landlord's liability for any default in the
Landlord's obligations under this lease are expressly limited to the acts and
omissions of the Landlord and its agents and employees.
50. OPERATING COVENANTS:
50.01 Cleaning: The entire Demised Premises, are to be kept clean by
Tenant, at its sole cost and expense, in a manner satisfactory to Landlord.
Tenant, at its expense, shall maintain and repair all damage to the common areas
of the building to the extent caused by the acts or negligence of Tenant or its
agents, employees, contractors or invitees.
50.02 Removal of Garbage: Tenant agrees that it shall independently
contract, at its sole cost and expense, for the removal of all rubbish, refuse
and waste from the Demised Premises, utilizing contractors and subcontractors
approved (in writing, in advance) by Landlord. The removal of such rubbish,
refuse, garbage shall be subject to such rules and regulations as, in the
reasonable judgment of Landlord, are necessary for the proper operation of the
Building. Tenant shall comply with all applicable requirements, if any, of the
Department of Health and Sanitation of the City of New York relating to the
separation and/or treatment of such rubbish prior to its placement for disposal.
Tenant shall accumulate garbage for collection in concealed and enclosed metal
containers located solely in the Demised Premises. Tenant further agrees not to
permit the accumulation (unless in concealed and enclosed metal containers) of
any rubbish or garbage in, on or about any part of the Demised Premises, and not
to permit any garbage or rubbish so be collected or disposed of from the Demised
Premises during the hours of 8:30 a.m. to 12 Midnight, except in strike and
emergency situations.
5
<PAGE>
50.03 Extermination: Tenant, at its expense, shall keep the Demised
Premises and the areas adjacent to the Demised Premises, free from vermin, rats,
mice and insects, and, prior to the opening of the Demised Premises for
business, obtain and maintain at all times during the term of this lease a
service contract, with a person or company approved by Landlord (which approval
shall not be unreasonably withheld or delayed), for the extermination of vermin,
rats, mice and insects in and about the Demised Premises, such service contract
and all renewals or replacements thereof to be in form reasonably approved by
Landlord, and a copy thereof to be delivered to Landlord prior to the opening of
the Demised Premises for business or, in the case of renewal or replacement
contracts, prior to the termination or expiration of the prior contract
50.04 No Obstruction: Tenant shall not encumber or obstruct, or permit to
be encumbered or obstructed, any portion of the sidewalk, entrances or common
and public areas of the Building. Tenant shall not use, or permit to be used,
any area or space outside the Demised Premises for the conduct of Tenant's
business and shall not permit Tenant's employees, agents, contractors or
invitees to linger, loiter or assemble outside the Demised Premises.
50.05 Deliveries: Tenant agrees that Tenant's deliveries to the Demised
Premises shall be subject so Landlord's rules and regulations as shall be
promulgated from time to time throughout the term of this lease. Under no
circumstances shall any portion of the lobby or concourse of the Building be
used for Tenant's deliveries.
50.06 Obnoxious Odors: Tenant will not permit any obnoxious odors to
emanate from the Demised Premises. Tenant will, within three (3) business days
after written notice from Landlord, install or commence to install, at its own
cost and expense, reasonable control devices or procedures so eliminate such
odors, if any, and will complete such installations as expeditiously as possible
thereafter. In the event such condition is not promptly remedied, Landlord may,
at its discretion, cure such condition and thereafter add the cost and expense
incurred by Landlord therefor to the next monthly rental to become due and
Tenant shall pay said amount as Additional Rental.
50.07 Plumbing: Tenants may install and connect all of its utility waste
lines so those now existing in the Building, sidewalk or street, but agrees not
to use the plumbing for any purpose other than that for which it was constructed
and agrees, further, not to permit any food, waste or other foreign substance to
be thrown or drawn into the pipes. Tenant agrees to maintain the plumbing that
is installs in good order, repair and condition and to repair any damage
resulting from any violation of this Article. Tenant further agrees to make any
repairs to the plumbing of the Building if the damage thereto is caused by
Tenant's use of such plumbing. Notwithstanding anything in this lease to the
contrary, all such repairs shall be conducted by contractors and subcontractors
satisfactory to Landlord in its sole discretion.
50.08 No Excessive Noise or Vibration: Tenant agrees that it will perform
all of its work required or permitted hereunder and conduct its business in the
Demised Premises throughout the term of this lease in such a manner tso as not
to create any excessive noise or vibration, which disturbs any of the other
tenants or occupants of the Building.
50.09 Material Inducement: The provisions of this Article 50 are a
material inducement for Landlord to execute and deliver this lease. Any failure
by Tenant to comply with the requirements of this Article 50 shall be deemed a
material breach of this lease, for which Landlord shall be entitled to any and
all of its remedies in accordance with the terms, conditions and covenants of
this lease.
6
<PAGE>
51. ADDENDUM TO ARTICLE 7 (SUBORDINATION):
51.01 (a) Tenant hereby agrees that Tenant will recognize as its landlord
under this lease and shall attorn to any person succeeding to the interest of
Landlord (herein sometimes referred to as a "successor landlord") in respect of
the land and the Buildings on or in which the Demised Premises is contained upon
any foreclosure of any mortgage or deed of trust upon such land or Building or
upon the execution of any deed in lieu of such foreclosure in respect of such
mortgage or deed of trust or the termination of any ground or underlying lease,
except that the successor landlord shall not:
(i) be liable for any previous act or omission of Landlord under
this lease,
(ii) be subject to any offset, not expressly provided for in this
lease, which shall have theretofore accrued to Tenant against Landlord,
(iii) be bound by any previous modification of this lease, not
expressly provided for in this lease, or by any previous prepayment of
more than one month's Fixed Rental, unless such modification or prepayment
shall have been expressly approved in writing by the lessor of the
superior lease or the holder of the superior mortgage through or by reason
of which the successor landlord shall have succeeded to the rights of
Landlord under this lease.
(b) The foregoing provisions shall inure to the benefit of any such
successor landlord, shall apply so the tenancy of Tenant notwithstanding that
this lease may terminate upon the foreclosure of any superior mortgage or
termination of any superior lease. The foregoing provisions shall be
self-operative without requiring any further instrument to give effect to said
provisions, but Tenant shall nevertheless execute the agreement referred to in
Section (a) above, if so requested. Nothing contained in this paragraph shall be
construed to impair any right, privilege or option of the holder of any superior
mortgage or lessor under any superior lease.
51.02 In the event any provision of this lease shall conflict with the
provisions of Article 7, as supplemented by this Article 51, then the provisions
of Article 7, as hereby supplemented, shall be deemed to be paramount, supersede
such conflicting provisions and shall control.
52. ADDENDUM TO ARTICLE 17 (DEFAULT):
52.01 Such late charges shall be due with any such late payment.
52.02 If Tenant is late in making any payment due to Landlord under this
lease for thirty (30) or more days, then interest shall become due and owing to
Landlord on such payment from the date when it was due computed at the following
rates:
(i) for an individual or partnership tenant, computed at the
maximum legal rate of interest;
(ii) for a corporate tenant, computed at the _______________
25/100 _______________ or (B)
7
<PAGE>
Such interest shall be due with any such late payment and shall be
in addition to the late charge set forth in Section 52.01 hereof.
53. PORNOGRAPHIC USE PROHIBITED:
53.01 Without limiting the generality of Articles 2 and 45 hereof, Tenant
agrees that it will not use, or permit the use of, the Demised Premises, or any
portion thereof, for any pornographic or obscene purposes, nor for any
commercial sex establishment, nor for any pornographic, obscene, nude or
semi-nude performances, modeling, materials, activities or sexual conduct in or
thereon. In the event of any violation by Tenant of the provisions of this
Article 53, Tenant shall, immediately upon notice from Landlord, cease the
objectionable conduct. The parties agree that in such instance, Landlord will
suffer irreparable harm for which money damages will be an insufficient remedy.
For that reason, in the event Tenant fails to cease such objectionable conduct
as aforesaid, Landlord, in addition to any rights otherwise available to it
under this lease and pursuant so law and equity, shall have the right to a court
order granting an injunction against Tenants objectionable conduct as aforesaid,
application for such injunction to be made without notice.
54. MISCELLANEOUS:
54.01 Conflict of Terms: In the event any term, covenant, condition or
agreement contained in this Rider shall conflict or be inconsistent with any
term, covenant, condition or agreement contained in the printed portion of this
lease, then the parties agree that the Rider provision shall prevail.
54.02 Governing Law: This lease shall be governed in all respects by the
laws of the State of New York.
54.03 Saving Provision; If any provision of this lease, or its application
to any situation shall be invalid or unenforceable to any extent, the remainder
to this lease, or the application thereof to situations other than that as to
which it is invalid or unenforceable, shall not be affected thereby, and every
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
54.04 Lease Not Binding Unless Executed: Submission by Landlord of the
within lease for execution by Tenant, shall confer no rights nor impose any
obligations on either party unless and until both Landlord and Tenant shall have
executed this lease and duplicate originals thereof shall have been delivered so
the respective parties.
54.05 No Recording: Neither this lease nor any memorandum hereof shall be
recorded without the Landlord's prior written consent and any attempted
recordation hereof by the Tenant shall be void and shall constitute a material
default by Tenant hereunder.
54.06 Entire Agreement, Successors and Assigns: This lease constitutes and
incorporates the entire agreement between the parties hereto and no earlier
statement or prior written or verbal matter shall have any force or effect, all
of which are superseded in their entirety by this lease. Tenant agrees that it
is not relying on any representations or agreement other than those contained in
this lease. This agreement shall not be modified or cancelled except by a
written agreement signed by both parties. The covenants, conditions and
agreements contained in this lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, executors,
administrators, successors and except as otherwise provided in this lease, their
assigns.
8
<PAGE>
55. ADDENDUM TO ARTICLE 32 - SECURITY DEPOSIT:
55.01 In lieu of depositing the entire Security Deposit in cash, Tenant
may elect to deposit a portion thereof, not to exceed $180,345.00, by letter of
credit as hereinafter provided (herein, the "Letter of Credit"). If Tenant so
elects, Tenant may deliver to Landlord a clean, irrevocable and unconditional
Letter of Credit issued by and drawn upon any commercial bank which is a member
of the New York Clearing House Association (hereinafter referred to as the
"Issuing Bank" with offices for banking purposes in the City of New York and
having a net worth of not less than One Hundred Million and 00/100
($100,000,000.00) Dollars, which Letter of Credit shall have a term of not less
than one year, be in form and content satisfactory to Landlord, be for the
account of Landlord and be in an amount selected by Tenant to comprise the
difference between the Security Deposit designated in Article 41 and the portion
thereof deposited in cash; but which Letter of Credit shall in no event exceed
$180,345.00. The Letter of Credit shall provide that:
(i) The Issuing Bank shall pay to Landlord or its duly
authorized representative an amount up to the face amount of the Letter of
Credit upon presentation of the Letter of Credit and a sight draft in the amount
to be drawn;
(ii) The Letter of Credit shall be deemed to be automatically
renewed, without amendment, for two (2) consecutive periods of one (1) year each
during the term of this Lease, unless the Issuing Bank sends written notice
(hereinafter referred to as the "Non-Renewal Notice") so Landlord by certified
or registered mail, return receipt requested, not less than thirty (30) days
next preceding the then expiration date of the Letter of Credit, that it elects
not to have such Letter of Credit renewed;
(iii) Landlord, within twenty (20) days of its receipt of the
Non-Renewal Notice, shall have the right, exercisable by a sight draft to
receive the monies represented by the Letter of Credit (which moneys shall be
held by Landlord as a cash deposit pursuant to the terms of this pending the
replacement of such Letter of Credit or Tenants default hereunder) as provided
in this Article 55); and
(iv) Upon Landlord's transfer of Landlord's interest in the
Building, the Letter of Credit shall be transferable by Landlord.
55.02 As used in Article 32 of this lease, reference to "security" shall
be deemed also to refer to the Letter of Credit. If the Issuing Bank shall
impose any fee or charge for a transfer of any Letter of Credit, such fee or
charge shall be paid by Tenant.
55.03 In the event that at any time during the term of this lease,
Landlord believes (i) that the net worth of the Issuing Bank shall be less than
the minimum amount specified in this Article 55, or (ii) that circumstances have
occurred indicating that the Issuing Bank may be incapable of, unable to, or
prohibited from honoring the then existing Letter of Credit (hereinafter
referred so as the "Existing L/C") in accordance with the terms thereof, then,
upon the happening of either of the foregoing. Owner may send written notice to
Tenant (hereinafter referred to as the "Replacement Notice") requiring Tenant
within twenty (20) days to replace the Existing L/C with a new letter of credit
(hereinafter referred to as the "Replacement L/C") from an Issuing Bank meeting
the qualifications described in this Article 55. In the event that (i) a
Replacement L/C meeting the qualifications of this Article 55 is not received by
Landlord within the time specified or (ii) Landlord believes an emergency
exists, then in either event, the Existing L/C may be presented for payment by
Landlord and the proceeds thereof shall be held by Landlord in accordance with
the provisions of Article 32 hereof.
9
<PAGE>
55.04 In the event of any monetary default by Tenant which has not been
cured within applicable cure periods Landlord may draw down on the Letter of
Credit in the amount to cure said default.
56. ADDENDUM TO ARTICLE 11:
56.01 Landlord agrees that the Tenant may assign this lease to Change Your
Life, LLC Tenant's subsidiary, provided and subject to the following conditions:
(i) Tenant shall not then be in breach or default of any of Tenant's
obligations under this lease after the giving of any required notice
and expiration of any applicable grace or cure period;
(ii) Tenant shall give Landlord at least twenty (20) days prior written
notice of such assignment;
(iii) such assignment shall not be for the purpose of circumventing the
assignment, subletting and/or transfer restrictions contained in
this lease; and
(iv) Tenant shall continue to remain liable for all obligations under
this lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this lease as
of the day and year first written above.
WITNESS: LANDLORD:
ATC Management, L.L.C. as agent for
CFG/AGSCB CHELSEA NINTH, L.L.C.
By: /s/ Irwin B. Cohen
- --------------------------- --------------------------------------
Name: Irwin B. Cohen
Title: Mgr.
TENANT:
WITNESS: GHS, INC.
/s/ [ILLEGIBLE] By: /s/ Alan Gold, President
- --------------------------- --------------------------------------
Name: Alan Gold
Title: President
10
<PAGE>
STATE OF MARYLAND )
: ss
COUNTY OF MONTGOMERY )
On this 20 day of May, 1999, before me personally came Alan Gold, to
me known and known to me did depose and say that (s)he resides at Potomic MD,
that (s)he is the President of GHS, Inc., and that (s)he signed (her) his name
thereto by order of the Board of Directors of said corporation.
/s/ Anne Roy
-----------------------------------------
Notary Public
ANNE ROY
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires April 1, 2000
11
<PAGE>
EXHIBIT A
Floor Plan
[Graphic omitted]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GHS,
INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-21-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,223
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,548
<PP&E> 0
<DEPRECIATION> 3
<TOTAL-ASSETS> 24,030
<CURRENT-LIABILITIES> 354
<BONDS> 0
0
4
<COMMON> 73
<OTHER-SE> 23,564
<TOTAL-LIABILITY-AND-EQUITY> 24,030
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,638)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,638)
<DISCONTINUED> (25)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,663)
<EPS-BASIC> (.66)
<EPS-DILUTED> (.66)
</TABLE>
