<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2000
REGISTRATION NO. 333-94083
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDEMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
dreamlife, inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 52-1373960
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
425 WEST 15TH ST., FLOOR 3R
NEW YORK, NEW YORK 10011
(212) 313-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
----------
BETH POLISH
PRESIDENT AND CHIEF OPERATING OFFICER
dreamlife, inc.
425 WEST 15TH ST., FLOOR 3R
NEW YORK, NEW YORK 10011
(NAME AND ADDRESS OF
AGENT FOR SERVICE)
(212) 313-9400
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
MARTIN H. LEVENGLICK, ESQ.
RUBI FINKELSTEIN, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
(212) 506-5000 (PHONE) (212) 506-5151 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [__]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [__]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [__]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [__]
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
===============================================================================
<PAGE>
PROSPECTUS
1,843,270 SHARES
DREAMLIFE, INC.
COMMON STOCK
-----------------
The selling stockholders identified in this prospectus are offering up
to 1,843,270 shares of common stock of dreamlife, inc. Our shares are traded on
the OTC Bulletin Board under the symbol "DLIF." The last reported sale price for
the shares on the OTC Bulletin Board on January 27, 2000 was $13.00 per share.
We will not receive any proceeds from the sale of shares of common
stock by the selling stockholders. We are not offering any shares for sale
under this prospectus. See "Selling Stockholders" starting on page 13 for a
list of the selling stockholders. See "Plan of Distribution" starting on page
18 for a description of how the shares can be sold.
-----------------
INVESTING IN THE SHARES INCLUDES RISKS. FOR MORE INFORMATION, PLEASE
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
The date of this prospectus is January 28, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary..........................................................................................................3
Risk Factors.....................................................................................................4
Forward-Looking Statements......................................................................................12
Use of Proceeds.................................................................................................12
Selling Stockholders............................................................................................13
Plan of Operation...............................................................................................15
Plan of Distribution............................................................................................18
Description of Securities to be Registered......................................................................20
Legal Matters...................................................................................................20
Experts.........................................................................................................20
Where You Can Find More Information.............................................................................21
Incorporation of Documents by Reference.........................................................................21
Index to Financial Statements..................................................................................F-1
</TABLE>
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. The shares are not being offered in any state where
the offer is not permitted. You should not assume that the information in this
prospectus or any supplement is accurate after the date of such document.
2
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SUMMARY
dreamlife, inc. is developing a network that will focus on personal and
professional self-improvement for individuals. We intend to use the Internet to
offer self-improvement courses, seminars, live audio and video appearances by
experts, chat rooms and an electronic commerce web site at dreamlife.com. Our
objective is to become the leader in the delivery of personal and professional
self-improvement content, services and interactive sales.
Our principal executive offices are located at 425 West 15th Street,
Floor 3R, New York, New York 10011. Our telephone number is (212) 313-9400. Our
web site is currently under development. The information included on our web
site is not intended to be part of this prospectus.
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RISK FACTORS
In this section, we highlight the significant risks associated with
dreamlife's business and operations. Investing in our common stock involves a
high degree of risk. You should be able to bear a complete loss of your
investment. To understand the level of risk, you should carefully consider the
following risk factors, as well as the other information found in this
prospectus, when evaluating an investment in the shares.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS. We will
require additional financing before the end of the third quarter of 2000. We may
not be able to obtain the financing or obtain it on terms acceptable to us.
Without additional financing, we may be forced to delay, scale back or eliminate
some or all of our product development, marketing and other corporate programs.
Our business, operating results and financial condition may be materially harmed
if revenues do not develop, grow slower than we anticipate, or if operating
expenses exceed our expectations or cannot be reduced accordingly, or if we
cannot obtain additional financing.
WE FACE DIFFICULTIES TYPICALLY ENCOUNTERED BY DEVELOPMENT STAGE
COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS BECAUSE OF OUR NEW INTERNET
INITIATIVE. We have just recently begun developing an online network that will
initially focus on personal and professional self-improvement. An investor
purchasing our common stock must therefore consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, such as online commerce. These risks include our ability to:
- develop our web site;
- acquire rights to content for our web site;
- create a customer base;
- respond to changes in a rapidly evolving and unpredictable
business environment;
- maintain current and develop new strategic relationships;
- manage growth;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
We cannot assure you that any services or products developed by dreamlife,
independently or with collaborative partners, will achieve market acceptance
with customers.
WE LACK REVENUES AND EXPECT SIGNIFICANT CONTINUING LOSSES, WHICH COULD
DECREASE THE VALUE OF YOUR shares. We have not yet generated revenues from our
proposed Internet business and expect to continue to incur significant operating
losses and net losses for at least the next several years. We expect that our
operating expenses will increase substantially as we continue
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to expand our business. As a result, we will need to generate significant
revenues to achieve profitability. We may not be able to do so.
WE DO NOT YET HAVE A WEB SITE THAT IS OPERATIONAL. We are in the
process of building an online network that will focus on personal and
professional self-improvement for individuals. Our initial web site is currently
in the development stage and significant additional infrastructure and
programming is necessary before we can bring our fully functional web site to
market. Until our web site is fully operational, we will not generate any
revenues from our proposed Internet business.
WE DEPEND ON ANTHONY ROBBINS, OUR CHAIRMAN, TO PROVIDE CONTENT FOR OUR
WEB SITE. We have an agreement with Mr. Robbins, an internationally recognized
leader in peak performance and results coaching, and Robbins Research
International, Inc., a company controlled by Mr. Robbins, that provides us with
content for use on our web site and allows us to use related intellectual
property on our web site.
The agreement with the Robbins group may be terminated
- if, after the tenth anniversary of the launch of the web site on
which Robbins content is offered, we do not meet financial
benchmarks specified in the agreement by such time;
- if, beginning after the eleventh anniversary of the launch date,
dreamlife does not meet specified promotional criteria on an
annual basis;
- if a material term of specified agreements between dreamlife and
the Robbins group is breached without cure; or
- if we become insolvent, are liquidated, dissolved, or the subject
of specified bankruptcy proceedings.
If our agreement with the Robbins group is terminated, our business
will be materially adversely affected.
WE DEPEND ON A CO-MARKETING ARRANGEMENT WITH THE LEARNING ANNEX. We
have an agreement with The Learning Annex, the leading provider of continuing
education courses in five cities in the United States and Canada, that gives us
the exclusive right to use The Learning Annex's intellectual property online and
to sell certain of The Learning Annex's merchandise online. If our agreement
with The Learning Annex is terminated due to our inability to pay the license
fee, or otherwise, our business will be materially adversely affected.
CONTENT ON OUR WEB SITE MAY NOT ATTRACT SUFFICIENT NUMBERS OF CUSTOMERS
AND ADVERTISERS. dreamlife's future success will depend upon our ability to
create, license and deliver compelling Internet self-improvement-related content
to attract users to our web site to purchase services and related merchandise
and to attract advertisers to our web site. We cannot assure you that
dreamlife's content will be attractive to a sufficient number of users to
generate significant revenues. We cannot assure you that dreamlife will be able
to anticipate, monitor and successfully respond to rapidly changing consumer
tastes and preferences so as to continually
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attract large numbers of users to our web site. If we are unable to develop
Internet content that allows us to attract, retain and expand a loyal user base,
our business, operating results and financial condition will be materially
adversely affected.
WE WILL RELY, IN PART, ON LICENSED THIRD-PARTY CONTENT FOR USE ON OUR
WEB SITE. We plan to license self-improvement content for our web site in order
to attract and retain users and advertisers. If we are unable to obtain
desirable content from our current licensors or from new licensors, it will
affect the number of visits to our web site, which could materially harm our
business. In addition, if we are unable to obtain content at an acceptable cost,
it could materially harm our ability to compete and our operating results and
financial condition.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL. Our success is substantially
dependent on the ability and experience of our senior management and other key
personnel, particularly Beth Polish, our President and Chief Operating Officer,
and Anthony Robbins, our Chairman of the Board and provider of content for use
on our web site. We do not have any employment contracts with members of our
senior management or other key personnel. If one or more members of our
management team become unable or unwilling to continue in their present
positions, our business could be materially harmed.
Our senior management team will be assembled in a very short period.
These individuals will likely not have previously worked together. The ability
of our senior managers to work together effectively as a team is critical to
successfully managing our growth. In addition, to manage our anticipated growth,
we must hire more employees. Competition for personnel, particularly those
having software development and other technical expertise, is intense. If we are
unable to hire additional qualified employees, our growth could be impaired.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF ONLINE COMMERCE. Use of
the Internet by consumers is in its early stages and, as a result, the degree of
acceptance of the Internet as a medium for commerce is uncertain. If online
commerce does not continue to grow or grows more slowly than expected, our
business will be materially harmed. A number of factors could slow the growth of
online commerce, including the following:
- the network infrastructure required to support a substantially
larger volume of transactions may not be developed;
- government regulation may increase;
- telecommunications capacity problems may result in slower
response times; and
- consumers may have concerns about the security of online commerce
transactions.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS. dreamlife's success will depend upon our ability to attract
customers by providing high-quality content and value-added services. dreamlife
must also attract significant sources of revenues from paid advertisements and
sponsorships on our web site. The market for personal and professional
improvement industry products and services is intensely competitive. In
addition, the online commerce market for these products and services is new,
rapidly evolving and
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competitive. If we are unable to successfully compete, our business, operating
results and financial condition would be materially harmed.
Many of our competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we have.
RAPID GROWTH MAY PLACE A SIGNIFICANT STRAIN ON OUR RESOURCES. We
anticipate rapid expansion of our operations as we develop and launch our web
site. If we are unable to manage our growth effectively, our business could be
materially harmed. Our rapid expansion may place a significant strain on our
ability to manage our growth, including our ability to monitor operations, bill
customers, control costs and maintain effective quality controls. Our
anticipated future expansion will increase this strain.
WE COULD EXPERIENCE SYSTEM FAILURES THAT INTERFERE WITH CUSTOMERS'
ACCESS TO OUR WEB SITE AND RELATED SERVICES. Our business will depend on the
efficient and uninterrupted operation of our computer and communications,
hardware and software systems. Systems interruptions that cause our web site to
be unavailable or that reduce our ability to process transactions could
materially harm our business, operating results and financial condition.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events. We expect some interruptions in
the future. We have not yet established a formal disaster recovery plan. Any
failure to provide reliable service could impair customer satisfaction, lead to
a loss of customers or increase our costs.
IF WE FAIL TO KEEP PACE WITH RAPID CHANGES INVOLVING THE INTERNET, IT
COULD MATERIALLY HARM OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS. Internet
technology, commercial applications and online uses are all rapidly evolving. If
we do not successfully respond to rapid changes involving the Internet, our
business will be materially harmed. In this regard, we must continue to develop,
enhance and improve the responsiveness and features of our web site and develop
new features to meet customer needs. We also must respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS. We
regard our trademarks, trade secrets and similar intellectual property as
important to our success. We have applied for the registration of some of our
trademarks and service marks in the United States and in selected foreign
jurisdictions. We have also entered into licensing agreements. However, our
efforts to establish and protect our intellectual property rights may be
inadequate to prevent misappropriation or infringement of our intellectual
property rights. If we are unable to safeguard our intellectual property rights,
it could materially harm our business, operating results and financial
condition.
WE MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Although
we believe that our use of third-party material on our web site is permitted
under current provisions of copyright law, some aspects of Internet content and
commerce law are not clearly settled. We may therefore be the subject of alleged
infringement claims of the trademarks and other intellectual property rights of
third parties. If we become subject to these types of claims, our business could
be materially harmed, even if we successfully defend against the claims. In
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addition, we may be unable to maintain rights to information we plan to
disseminate via the Internet.
WE COULD FACE LIABILITY FOR THE INTERNET CONTENT WE PUBLISH. Because
material may be downloaded from our web site and then distributed to others,
there is potential that claims will be made against dreamlife for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of such material. Such claims have been brought, and
sometimes successfully pressed, against online services in the past. In
addition, we could be exposed to liability with respect to the material that may
be accessible through our branded products and web site. For example, claims
could be made against dreamlife if we provide information or advice that results
in harm to a user. dreamlife's insurance may not cover potential claims of this
type or may not be adequate to cover all costs incurred in defense of potential
claims or to indemnify dreamlife for all liability that may be imposed. Any
costs or imposition of liability that is not covered by insurance or in excess
of insurance coverage could have a material adverse effect on dreamlife's
business, operating results and financial condition.
THE PROTECTION OF OUR DOMAIN NAMES IS UNCERTAIN BECAUSE THE REGULATION
OF DOMAIN NAMES IS SUBJECT TO CHANGE. We currently hold various web domain names
relating to our brand, including dreamlife.com, dreamlife.net and dreamlife.org.
The acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees. The regulation of domain names in the
United States and in foreign countries is expected to change in the near future.
As a result, we may be unable to acquire or maintain relevant domain names in
all countries in which we may conduct business. If our ability to acquire or
maintain domain names is limited, it could materially harm our business,
operating results and financial condition.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL LIABILITIES THAT MAY
BE COSTLY AND MAY INTERFERE WITH OUR ABILITY TO CONDUCT BUSINESS ON THE
INTERNET. Laws and regulations directly applicable to online commerce or
Internet communications are becoming more prevalent. These laws and regulations
could expose us to compliance costs and substantial liability, which could
materially harm our business, operating results and financial condition. In
addition, the growth of the Internet, coupled with publicity regarding Internet
fraud, may lead to the enactment of more stringent consumer protection laws.
These laws would also be likely to impose additional burdens on our business.
WE MAY BE SUBJECT TO LIABILITY FOR SALES AND OTHER TAXES. We do not
plan to collect sales or other similar taxes in most states. Our business could
be materially harmed if additional sales and similar taxes are imposed on us, or
if penalties are assessed on us for past nonpayment of these taxes. Recently
adopted legislation provides that, prior to October 2001, a state cannot impose
sales taxes on products sold on the Internet unless these taxes could be charged
on non-Internet transactions involving the products. During this moratorium, it
is possible that taxing mechanisms may be developed that would, following the
moratorium, impose increasing sales and similar tax burdens on us. If these
burdens are placed on us, our business could be materially harmed and there
could be a material adverse effect on our operating results and financial
condition.
ONE OF OUR STOCKHOLDERS CURRENTLY OWNS MORE THAN 50% OF OUR VOTING
SECURITIES AND HAS SPECIAL RIGHTS AFFECTING CORPORATE GOVERNANCE; HIS INTERESTS
MAY CONFLICT WITH YOURS.
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Anthony Robbins, our Chairman of the Board, owns more than 57% of dreamlife's
voting securities, personally and through Robbins Research International. Mr.
Robbins and Robbins Research International have agreed in a stockholders'
agreement with a stockholder that controls over 19% of the voting stock of
dreamlife, to vote their shares (i) for the recommendation of the Board of
Directors on matters submitted to a vote of the stockholders and (ii) for the
election of specified nominees to the Board of Directors of dreamlife. Mr.
Robbins would be able to control the outcome of any matter requiring stockholder
approval that is not submitted to a vote of the stockholders pursuant to a
recommendation of the Board of Directors.
Mr. Robbins has elected three of the eight contemplated members of the
Board of Directors of dreamlife pursuant to the stockholders' agreement and
dreamlife's bylaws. He has also agreed with dreamlife and the over 19%
stockholder on the election of an additional three members. With respect to
directors elected in the future, while Mr. Robbins or any of his affiliates hold
at least 10% of the outstanding shares of common stock or common stock
equivalents of dreamlife, the stockholders' agreement and dreamlife's bylaws
provide that the Board of Directors shall consist of the following persons:
(i) three persons to be designated by Robbins or his affiliates;
(ii) four persons nominated by a nominating committee consisting of
the directors of dreamlife (other than the three direct Robbins
designees and the Chief Executive Officer of dreamlife) and their
respective successors; and
(iii) the Chief Executive Officer of dreamlife.
In addition, Robbins has the right to approve the Board's selection of
a Chief Executive Officer of dreamlife during the term of the Content Provider
Agreement and License effective as of April 23, 1999 among dreamlife, the over
19% stockholder, Robbins and Robbins Research International.
Mr. Robbins' interests may be different than yours.
WE MAY EXPERIENCE PROBLEMS FROM COMPUTER SYSTEMS THAT DO NOT
PROPERLY PROCESS INFORMATION ASSOCIATED WITH THE YEAR 2000. Many existing
software programs may not accurately process dates arising in the year 2000
and after because they use only two digits to identify a year and assume that
the two missing digits are "19." We have not yet completed a thorough review
of our important computer systems and related products and software to assess
for any damage resulting from the year 2000 problem. If we encounter a
problem, we may experience difficulty in properly managing our web site and
operations and face the possibility of business interruptions, financial loss,
reputational harm and legal liability. Any of these could materially harm our
business, operating results and financial condition.
Our business will depend upon the operations and technology of
various Internet sites, credit card issuers, as well as other third parties.
Our business, operating results and financial condition may be materially
harmed if these or other third parties experience problems from the year 2000
issue. We have not developed any contingency plans to address the worst case
scenario
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that might if occur if year 2000 issues make the Internet or our web site
unavailable. See "Plan of Operation--Year 2000 compliance."
WE HAVE ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION OF
OUR BUSINESS AT A PREMIUM PRICE. Some of the provisions of our certificate of
incorporation and bylaws could discourage, delay or prevent an acquisition of
our company at a premium price or at all. For example, these provisions:
- provide, so long as Anthony Robbins or any of his affiliates hold
at least 10% of the outstanding shares of common stock or common
stock equivalents of dreamlife, that the Board shall consist of
(i) three persons to be designated by Robbins or his affiliates;
(ii) four persons nominated by a nominating committee consisting
of the directors of dreamlife (other than the three direct
Robbins designees and the Chief Executive Officer of dreamlife)
and their respective successors; and (iii) the Chief Executive
Officer of dreamlife;
- provide that at least two-thirds of our Board of Directors
approve a merger or consolidation with another entity or a sale
of all or substantially all of our assets, or acquisition by us
of all or substantially all of the stock or assets of another
entity;
- authorize the issuance of preferred stock in one or more series;
and
- limit the persons who may call special meetings of stockholders;
In addition, Section 203 of the Delaware General Corporation Law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock.
OUR STOCK PRICE MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL
YOUR SHARES AT ATTRACTIVE PRICES. The market price of our common stock may be
highly volatile. The market prices of securities of other technology-based
companies, particularly Internet-related companies, currently are highly
volatile. Factors that could cause volatility in our stock price include:
- fluctuations in our quarterly operating results;
- deviations in our results of operations from the estimates of
securities analysts;
- changes in the market valuations of other Internet companies and
stock market price and volume fluctuations generally;
- economic conditions specific to online commerce and the personal
improvement industry;
- announcements by us or our competitors relating to new services
or technologies, significant acquisitions, strategic
relationships, joint ventures or capital commitments;
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- regulatory developments; and
- additions or departures of our key personnel.
SALES OF SHARES ELIGIBLE FOR FUTURE SALE COULD IMPAIR OUR STOCK PRICE.
As of December 15, 1999, there were 40,368,351 shares of our common stock
outstanding, of which 33,952,951 were restricted securities as that term is
defined by Rule 144 under the Securities Act of 1933, including the 1,843,270
shares registered in this offering. Such shares will be eligible for public sale
only if registered under the Securities Act or sold in accordance with Rule 144.
The market price of our common stock could drop due to the sale of a large
number of shares of our common stock, such as the shares sold under this
prospectus or under Rule 144, or the perception that these sales could occur.
These factors could also make it more difficult to raise funds through future
offerings of common stock.
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FORWARD-LOOKING STATEMENTS
This prospectus, and the other reports we have filed from time to time
with the Commission, contain 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. Forward-looking statements deal with our current plans,
intentions, beliefs and expectations and statements of future economic
performance. Statements containing terms like "believes," "does not believe,"
"plans," "expects," "intends," "estimates," "anticipates," and other phrases of
similar meaning are considered to imply uncertainty and are forward-looking
statements.
Forward-looking statements involve known and unknown risks and
uncertainties that may cause our actual results in future periods to differ
materially from what is currently anticipated. We make cautionary statements
throughout this prospectus, including under "Risk Factors." You should read
these cautionary statements as being applicable to all related forward-looking
statements wherever they appear in this prospectus, the materials referred to in
this prospectus, the materials incorporated by reference into this prospectus
and our press releases.
We cannot guarantee our future results, levels of activity, performance
or achievements. Neither we nor any other person assumes responsibility for the
accuracy and completeness of these statements.
We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
USE OF PROCEEDS
The net proceeds from the sale of the securities will be received by
the selling stockholders. We will not receive any of the proceeds from the sale
of the securities by the selling stockholders.
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SELLING STOCKHOLDERS
The table below sets forth information regarding ownership of our
common stock by the selling stockholders on December 15, 1999 and the number of
securities to be sold by them under this prospectus.
We have filed with the Commission, under the Securities Act of 1933, a
registration statement on Form S-3, of which this prospectus forms a part, with
respect to the resale of the securities from time to time on the OTC Bulletin
Board or in privately-negotiated transactions and have agreed to prepare and
file such amendments and supplements to the registration statement as may be
necessary to keep the registration statement effective until the earlier of such
time as the securities are no longer required to be registered for the sale
thereof by the selling stockholders and May 27, 2001.
<TABLE>
<CAPTION>
Securities Owned Prior to Offering Securities After Offering
------------------------------------------------------- ----------------------------------
Shares of Number of
Shares of Common Stock Percent of Shares of Percent of
Name of Selling Stockholder Common Stock Offered Hereby Common Stock Common Stock Common Stock
- ---------------------------------- ---------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Andre Agassi 27,770 27,770 * 0 *
Berrard Holdings Limited 100,000 100,000 * 0 *
Partnership
Tom Brokaw 22,220 22,220 * 0 *
Charleston Invest. Ltd. 222,220 222,220 * 0 *
Chilton Opportunity 110,000 110,000 * 0 *
International, L.P.
Vincent Farrell, Jr. 27,780 27,780 * 0 *
David L. and Maxine B. Ficksman 6,000 6,000 * 0 *
JTWROS
Joseph H. Flom 5,550 5,550 * 0 *
FG-CYL 111,110 111,110 * 0 *
Sam Georges 2,000 2,000 * 0 *
Mary M. Glorfield 5,000 5,000 * 0 *
Greyhawk Investments Inc. 12,000 12,000 * 0 *
GSI Global Shipping Inc. 5,550 5,550 * 0 *
John W. Gildea 28,000 28,000 * 0 *
Marty Glick 3,000 3,000 * 0 *
Bryant C. Gumbel 15,000 15,000 * 0 *
Hathaway Partners Investment LP 20,000 20,000 * 0 *
Debora I. Hinz 5,550 5,550 * 0 *
Steven D. Holzman 11,110 11,110 * 0 *
Richard A. Horstmann 25,000 25,000 * 0 *
Huizenga Investments Limited 222,220 222,220 * 0 *
Partnership
Jersey Properties Inc. 27,770 27,770 * 0 *
Nathaniel Kramer 11,110 11,110 * 0 *
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<CAPTION>
<S> <C> <C> <C> <C> <C>
Laurel Mountain Partners, 50,000 50,000 * 0 *
Investments, LLC
Joseph McClendon III 2,000 2,000 * 0 *
Mercantile CYL, L.L.C. 111,110 111,110 * 0 *
Miles Spencer Nadal 33,330 33,330 * 0 *
Mosley Contractors Corporation 111,110 111,110 * 0 *
Standing Pat Inc. Profit Sharing 11,110 11,110 * 0 *
Plan
William P. O'Donnell 5,560 5,560 * 0 *
Ana Faxas Pinkerton 4,440 4,440 * 0 *
Seligman Greer Communication 57,450 57,450 * 0 *
Resources, Inc.
James B. Tananbaum and Dana 3,000 3,000 * 0 *
Shonfeld Tananbaum Family Trust
Samuel D. Waksal 66,660 66,660 * 0 *
Carl E. Warden 56,000 56,000 * 0 *
David Wetherell 111,110 111,110 * 0 *
Westfield Technology Fund L.P. 27,770 27,770 * 0 *
Robert C. Wright 55,550 55,550 * 0 *
Zeke, L.P. 111,110 111,110 * 0 *
</TABLE>
- -------------------
* Less than one percent
The information provided in the table above with respect to the selling
stockholders has been obtained from such selling stockholders.
Except as otherwise disclosed above or in documents incorporated herein
by reference, the selling stockholders have not within the past three years had
any position, office or other material relationship with us or any of our
predecessors or affiliates. Because the selling stockholders may sell all or
some portion of the shares of common stock beneficially owned by them, only an
estimate (assuming the selling stockholders sell all of the shares offered
hereby) can be given as to the number of shares of common stock that will be
beneficially owned by the selling stockholders after this offering. In addition,
the selling stockholders may have sold, transferred or otherwise disposed of, or
may sell, transfer or otherwise dispose of, at any time or from time to time
since the dates on which they provided the information regarding the shares
beneficially owned by them, all or a portion of the shares beneficially owned by
them in transactions exempt from the registration requirements of the Securities
Act of 1933.
14
<PAGE>
PLAN OF OPERATION
OVERVIEW
The financial statements included in this prospectus reflect the
financial condition and operations of our business before we acquired Change
Your Life.com, LLC on May 27, 1999. Our business before May 27, 1999 was
conducted primarily by our then wholly-owned subsidiary, U.S. NeuroSurgical,
Inc. U.S. NeuroSurgical owns and operates stereotactic radiosurgery centers
using the Gamma Knife technology. U.S. NeuroSurgical is now a separate company
no longer owned in any way by us.
Starting on May 27, 1999, when we acquired Change Your Life, our
financial statements began to reflect the financial condition and operations of
Change Your Life because Change Your Life was treated as our acquirer for
accounting purposes. Change Your Life operates an Internet business focusing on
personal and professional improvement.
On May 27, 1999, in addition to our acquisition of Change Your Life,
we also
- acquired the right to use content and related intellectual
property on our web site from Anthony Robbins, our Chairman and
an internationally recognized leader in peak performance and
results coaching;
- entered into an agreement with The Learning Annex, a leading
provider of continuing education courses in five cities in the
United States and Canada, for the exclusive online use of its
intellectual property and sale of its merchandise over the
Internet and for certain co-marketing and co-promotion
activities;
- obtained an option to buy The Learning Annex;
- acquired Concept Development Inc., which was formed in September
1996 to provide general-interest continuing education courses on
the Internet; and
- completed a private placement of equity securities resulting in
approximately $15.1 million of net proceeds to us.
We believe that a period to period comparison of our historical results
would not be helpful because of our recent change in business.
PLAN OF OPERATION
During the next twelve months, we anticipate that we will establish an
online learning destination featuring an integrated offering of content,
services, communities and interactive sales. We believe our online 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. We will attempt to deliver to consumers the emotional and
motivational power of branded personalities, companies and institutions in the
personal and
15
<PAGE>
professional improvement industry in a unified online experience. Distribution
of our products and services will be done primarily over the Internet through a
branded web site.
Our plan is to derive revenues from our activities in the form of
sponsorships, electronic commerce, advertising and fees for interactive products
and services. Our web site is currently in the development stage and additional
infrastructure and programming is necessary to bring our fully functional web
site to market. Our ability to develop our web site and related functionalities
will directly affect the timing of future revenues. We launched the first stage
of our web site, consisting of a platform for the distribution of newsletters to
members, in the third quarter of 1999. We anticipate that we will begin to
generate revenues through sponsorship and third-party product sales with the
launch of the second stage of our web site. The second stage of our web site is
anticipated to include course communities with newsletters, chat events and
product sales. The second stage of our web site is planned to launch by the end
of the first quarter of 2000.
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 a new century. As a result, many computer
software applications are subject to failure and may create erroneous
results. We are at risk if the information technology systems or
non-information technology systems on which we are dependent to conduct our
operations were not adequately prepared for this problem, i.e., are not "year
2000 compliant." We have not yet completed a thorough review of our important
computer systems and related products and software to assess for any damage
resulting from the year 2000 problem. Our potential areas of exposure include
products purchased from third parties and computers, software, telephone
systems and other equipment used internally.
Since our operations began in May 1999, we have required all vendors
supplying computer hardware and software to provide us with statements of
their products' compliance with the year 2000 issue. We have not acquired any
software or equipment that has not been represented to be year 2000
compliant. We are 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 we have not yet determined the system to be used to process our
Internet commerce transactions, we will undertake to ensure that it is year
2000 compliant. We expect to begin processing Internet commerce in the first
quarter of 2000. We have obtained a year 2000 compliance representation from
the third party processing our internal payroll and from the provider of our
financial software and have not yet identified any problems.
If production and operational facilities that support our systems are
not year 2000 compliant, our web site may become unavailable. For instance, we
depend on the integrity and stability of the Internet to provide our services.
We also depend on the year 2000 compliance of the computer systems and financial
services used by customers. Thus, the infrastructure necessary to support our
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 would have an adverse
effect on demand for our services and would have a material adverse effect on
us.
16
<PAGE>
If our present efforts to address the year 2000 compliance issues
are not successful, or if distributors, suppliers and other third parties
with which we conduct business do not successfully address such issues, our
business, operating results and financial position could be materially and
adversely affected.
We believe that our dependence on the widespread and unrelated
entities that maintain the Internet's infrastructure make it impossible to
develop or implement an adequate contingency plan and, accordingly we do not
plan to develop one. We have discussed year 2000 readiness with our current
content providers and have 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 us.
17
<PAGE>
PLAN OF DISTRIBUTION
This prospectus covers the sale of shares of common stock by the
selling stockholders. As used herein, "selling stockholders" includes donees,
pledgees, transferees or other successors in interest selling shares received
from a selling stockholder after the date of this prospectus as a gift, pledge,
partnership distribution or other non-sale related transfer. Any distribution of
any such securities by the selling stockholders in interest may be effected from
time to time in one or more of the following transactions:
- to underwriters who will acquire securities for their own account
and resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices determined at the time of sale (any public offering price
and any discount or concessions allowed or reallowed or paid to
dealers may change from time to time);
- through brokers, acting as principal or agent, in transactions
(which may involve block transactions) on the OTC Bulletin Board
or on such other market or exchange on which the securities are
then listed, in special offerings, exchange distributions
pursuant to the rules of the applicable exchanges or in the
over-the-counter market or otherwise, at market prices prevailing
at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices;
- directly or through brokers or agents in private sales at
negotiated prices; o
- in face-to-face transactions between sellers and purchasers
without a broker or dealer;
- through the writing of options; or
- by any other legally available means.
We will not receive any proceeds from the sale of the shares. The
aggregate proceeds to the selling stockholders from the securities offered
hereby will be the offering price less applicable commissions or discounts, if
any. We do not know if the selling stockholders will sell any of the securities
offered hereby or transfer, devise or gift securities by other means not
described in this prospectus.
The selling stockholders and any such underwriters, brokers, dealers or
agents who participate in the distribution of the securities may be
underwriters, and any profits on the sale of the securities by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents might be underwriting discounts and commissions under
the Securities Act of 1933. To the extent the selling stockholders may be
underwriters, they may be subject to statutory liabilities and requirements of
the Securities Act, including Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Securities Exchange Act of 1934. For example, to the extent
the selling stockholders are underwriters within the meaning of Section 2(a)(11)
of the Securities Act, the selling stockholders would be required to deliver a
prospectus to their purchasers.
18
<PAGE>
Selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such rule.
The selling stockholders and any other person participating in such
distribution must comply with the Securities Exchange Act of 1934 and the rules
and regulations. These rules include Regulation M, which may limit the timing of
purchases and sales of any of the securities by the selling stockholders and any
other such person. Furthermore, Regulation M may prohibit persons engaged in the
distribution of the securities from simultaneously engaging in market making
activities with respect to the particular securities. In addition, Regulation M
would prohibit such persons from engaging in market making activities for a
period of up to five business days (or such other applicable period as
Regulation M may provide) before the commencement of such distribution. All of
the foregoing may affect the marketability of the securities and the ability of
any person or entity to engage in market making activities with respect to the
securities.
At the time a particular offering of securities is made, to the extent
required, a prospectus supplement will be distributed which will set forth the
number of securities being offered and the terms of the offering, including the
purchase price or the public offering price, the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriters for
securities purchased from the selling stockholders, any discounts, commissions
and other items constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers. In addition, in certain
states the securities may not be sold unless the securities have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and the conditions of such exemption have been
satisfied.
We have agreed that we will bear all costs, expenses and fees in
connection with the registration or qualification of the shares of common stock
under federal and state securities laws. Any commissions, discounts or other
fees payable to broker-dealers in connection with any sale of the securities
will be borne by the selling stockholders selling such securities. We and each
selling stockholder have agreed to indemnify each other and certain other
persons against certain liabilities in connection with the offering of the
securities, including liabilities arising under the Securities Act.
19
<PAGE>
DESCRIPTION OF SECURITIES TO BE REGISTERED
GENERAL
dreamlife is authorized to issue 100,000,000 shares of common stock and
1,000,000 shares of preferred stock, each with a par value $0.01 per share.
Under our certificate of incorporation, our Board of Directors is authorized,
without stockholder approval, to issue preferred stock into series with such
voting rights, designations, preferences, limitations and special rights as may
be designated by our Board of Directors from time to time.
Shares of our common stock are being registered under this registration
statement. The following is a summary description of our outstanding common
stock and is qualified in its entirety by reference to our certificate of
incorporation and bylaws, which are incorporated by reference in the
registration statement of which this prospectus is a part.
COMMON STOCK
The dreamlife common stock has one vote per share. Holders of dreamlife
common stock have no cumulative voting rights and no preemptive, subscription or
sinking fund rights. Subject to preference that may be applicable to any
then-outstanding preferred stock, holders of dreamlife common stock will be
entitled to receive ratably such dividends as may be declared by our Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of dreamlife, holders of common stock
will be entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then-outstanding dreamlife
preferred stock.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for dreamlife by Orrick, Herrington & Sutcliffe LLP.
EXPERTS
The audited consolidated financial statements of GHS, Inc. (now
dreamlife, inc.), as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998 have been included in this
prospectus, and the audited financial statements of U.S. Neurosurgical, Inc. as
of December 31, 1998 and 1997 have been incorporated by reference from our
Definitive Information Statement on Form 14C dated September 8, 1999, each in
reliance on the reports of Richard A. Eisner & Company, LLP, independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
With respect to our unaudited consolidated interim financial
information for the period from April 21, 1999 (our inception for accounting
purposes) to June 30, 1999, incorporated by reference in this prospectus,
Richard A. Eisner & Company, LLP has reported that it has applied limited
procedures in accordance with professional standards for a review of such
information. However, its separate report, included in our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, which is incorporated by
reference herein, states that it did not audit and it does not express an
opinion on that interim financial information. Accordingly, the degree of
20
<PAGE>
reliance on its report on such information should be restricted considering the
limited nature of the review procedures applied. The independent auditors are
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the registration statement prepared
or certified by the auditors within the meaning of Sections 7 and 11 of the
Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes a part of a registration statement
on Form S-3 filed by us with the Securities and Exchange Commission under the
Securities Act, omits certain of the information set forth in the registration
statement. Reference is hereby made to the registration statement and to the
exhibits thereto for further information with respect to dreamlife and the
securities offered hereby. Copies of the registration statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described below or via the Commission's
web site described below.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, accordingly, file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549, and at the Commission's Regional Offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such documents may also be obtained from the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549,
at prescribed rates. Information regarding the operation of the Public Reference
Room may be obtained by calling the Commission at 1-800-SEC-0330. The Commission
maintains a web site (http://www.sec.gov) that contains material regarding
issuers who file electronically with the Commission.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Commission allows dreamlife to "incorporate by reference"
information into this prospectus. This means we can disclose important
information to you by referring you to another document filed by us with the
Commission. Information incorporated by reference is deemed to be part of this
prospectus, except for any information superseded by the information in this
prospectus.
The following documents are incorporated by reference herein:
1. Our Annual Report on Form 10-K for the year ended December 31, 1998,
except for items 7 and 8 of the Form 10-K, which are replaced by the information
required by such items included in this prospectus.
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 (as amended on July 8, 1999), June 30, 1999 and September 30, 1999.
21
<PAGE>
3. Our Current Reports on Form 8-K dated April 26, 1999, May 27, 1999
(as amended by filings with the Commission on June 11, 1999, June 14, 1999,
August 10, 1999 and August 24, 1999), August 25, 1999, September 16, 1999 and
December 3, 1999 (as amended on December 15, 1999).
4. Our Definitive Information Statement on Form 14C dated September 8,
1999, filed with the Commission on August 25, 1999, for the spin-off of
dreamlife's 100% owned subsidiary, U.S. NeuroSurgical, Inc.
5. Our Definitive Information Statement on Form 14C dated October 12,
1999, filed with the Commission on October 12, 1999, for the increase in
authorized shares of our common stock and the adoption of three new stock option
plans.
6. Our Definitive Information Statement on Form 14C dated November 4,
1999, filed with the Commission on November 4, 1999, for the election of a
majority of new directors.
7. Our Definitive Information Statement on Form 14C dated November 22,
1999, filed with the Commission on November 22, 1999, for a change in corporate
name.
8. Our Definitive Information Statement on Form 14C dated January
18, 2000, filed with the Commission on January 18, 2000, for an amendment to
a stock option plan.
In addition, all documents we have filed or subsequently file under
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934,
before the termination of this offering, are incorporated by reference.
dreamlife will provide without charge to any person (including any
beneficial owner) to whom this prospectus has been delivered, upon the oral or
written request of such person a copy of any document incorporated by reference
in the registration statement (not including exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that the registration statement incorporates), of
which this prospectus forms a part. Such requests should be directed to Philicia
G. Levinson, Chief Financial Officer, Senior Vice President, Secretary and
Treasurer, dreamlife, inc., 425 West 15th St., Floor 3R, New York, New York
10011. Our telephone number at that location is (212) 313-9400.
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent auditor's report..................................................................... F-2
Financial Statements:
Consolidated balance sheets as of December 31, 1998 and 1997............................ F-3
Consolidated statement of operations for the years ended
December 31, 1998, 1997 and 1996............................................... F-4
Consolidated statement of changes in stockholders' equity
for the years ended December 31, 1998, 1997 and 1996........................... F-5
Consolidated statement of cash flows for the years ended
December 31, 1998, 1997 and 1996............................................... F-6
Notes to financial statements.................................................................... F-7
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF RICHARD A. EISNER & COMPANY, LLP]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
GHS, Inc.
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of GHS, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of GHS, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
New York, New York
January 20, 1999
With respect to Note L[2], [3], [4] and [5]
May 27, 1999
With respect to Note L[1]
September 16, 1999
F-2
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,063,000 $ 3,466,000
Certificates of deposit - at cost which approximates market 1,305,000 400,000
Accounts receivable 238,000 209,000
Receivable from sale of discontinued operation 494,000
Other current assets 110,000 51,000
Net current assets - discontinued operations 43,000
------------- ---------------
Total current assets 4,210,000 4,169,000
------------- ---------------
Property and equipment:
Gamma Knives (net of accumulated depreciation of $2,560,000 in 1998 and
$1,636,000 in 1997) 3,906,000 4,830,000
Leasehold improvements (net of accumulated amortization of $395,000 in 1998 and
$198,000 in 1997) 1,447,000 1,624,000
Furniture and equipment (net of accumulated depreciation of $9,000 in 1998) 56,000
------------- ---------------
Total property and equipment 5,409,000 6,454,000
------------- ---------------
Deferred tax asset 260,000
Deposits 3,000
Cash held in escrow 92,000 89,000
------------- ---------------
355,000 89,000
------------- ---------------
$ 9,974,000 $ 10,712,000
============= ===============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 182,000 $ 149,000
Accrued litigation settlement 934,000
Obligations under capital lease and loans payable - current portion 1,423,000 1,195,000
Income taxes payable 67,000
------------- ---------------
Total current liabilities 2,606,000 1,344,000
Deferred tax liability 450,000 450,000
Obligations under capital lease and loans payable - net of current portion 2,794,000 4,217,000
Common stock - par value $.01; 500,000 shares issued with put option 500,000 500,000
------------- ---------------
6,350,000 6,511,000
------------- ---------------
Commitments, litigation and other matters
STOCKHOLDERS' EQUITY
Preferred stock - 1,000,000 shares authorized; none issued
Common stock - par value $.01; 25,000,000 shares authorized; 6,479,160 issued and
outstanding 65,000 65,000
Additional paid-in capital 3,114,000 3,114,000
Retained earnings 445,000 1,022,000
------------- ---------------
3,624,000 4,201,000
------------- ---------------
$ 9,974,000 $ 10,712,000
============= ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-3
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Patient revenue $ 2,332,000 $ 1,830,000 $ 1,452,000
--------------- ------------- -------------
Costs and expenses:
Patient expenses 1,221,000 843,000 574,000
Selling, general and administrative 1,148,000 585,000 417,000
Litigation settlement 934,000
--------------- ------------- -------------
3,303,000 1,428,000 991,000
--------------- ------------- -------------
Income (loss) from operations (971,000) 402,000 461,000
--------------- ------------- -------------
Interest expense (555,000) (485,000) (302,000)
Interest income 166,000 64,000
--------------- ------------- -------------
(389,000) (421,000) (302,000)
--------------- ------------- -------------
Income (loss) from continuing operations before income tax
provision (benefit) and minority interest (1,360,000) (19,000) 159,000
Income tax (benefit) (451,000) (8,000) (402,000)
--------------- ------------- -------------
Income (loss) from continuing operations before minority interest (909,000) (11,000) 561,000
Minority interest (16,000)
--------------- ------------- -------------
Income (loss) from continuing operations (909,000) (11,000) 545,000
--------------- ------------- -------------
Discontinued operations:
Income (loss) from operations of discontinued subsidiaries less
applicable income tax expense (benefit) of $22,000 in 1998,
($225,000) in 1997 and ($82,000) in 1996 34,000 (520,000) (513,000)
Equity in income (loss) of investee less applicable income tax
(benefit) of ($65,000) in 1997 and $21,000 in 1996 (97,000) 136,000
Gain on sale of equity investee less applicable income tax
of $197,000 in 1998 and $916,000 in 1997 298,000 1,389,000
Gain on sale of assets of subsidiaries less applicable income
taxes of $565,000 in 1997 1,311,000
--------------- ------------- -------------
Income (loss) from discontinued operations 332,000 2,083,000 (377,000)
--------------- ------------- -------------
NET INCOME (LOSS) $ (577,000) $ 2,072,000 $ 168,000
=============== ============= =============
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Continuing operations $(0.14) $0.00 $ 0.07
Discontinued operations 0.05 0.30 (0.05)
------- ------ -------
NET INCOME (LOSS) PER SHARE $(0.09) $0.30 $ 0.02
====== ===== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,479,160 6,967,786 6,947,828
========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-4
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock *
------------------------
Number Additional Retained
of Paid-in Earnings
Shares Amount Capital (Deficit) Total
------------ ---------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1996 6,447,828 $ 65,000 $ 3,082,000 $ (1,218,000) $ 1,929,000
Net income for the year ended
December 31, 1996 168,000 168,000
------------ ---------- ------------- --------------- -------------
BALANCE - DECEMBER 31, 1996 6,447,828 65,000 3,082,000 (1,050,000) 2,097,000
Purchase of minority interest 31,332 32,000 32,000
Net income for the year ended
December 31, 1997 2,072,000 2,072,000
------------ ---------- ------------- --------------- -------------
BALANCE - DECEMBER 31, 1997 6,479,160 65,000 3,114,000 1,022,000 4,201,000
Net loss for the year ended
December 31, 1998 (577,000) (577,000)
------------ ---------- ------------- --------------- -------------
BALANCE - DECEMBER 31, 1998 6,479,160 $ 65,000 $ 3,114,000 $ 445,000 $ 3,624,000
============ ========== ============= =============== =============
</TABLE>
* Excluding shares with put option
SEE NOTES TO FINANCIAL STATEMENTS F-5
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (909,000) $ (11,000) $ 545,000
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,130,000 784,000 450,000
Deferred income tax (benefit) (260,000) (402,000)
Other 32,000
Minority interest in net loss of consolidated subsidiary 16,000
Changes in:
Accounts receivable - net (28,000) (115,000) 104,000
Other current assets (59,000) 13,000 26,000
Accounts payable and accrued expenses 967,000 (96,000) (41,000)
Income taxes payable (152,000)
Cash provided by (used in) discontinued operations 99,000 (703,000) 37,000
-------------- ------------- -------------
Net cash provided by (used in) operating activities 788,000 (96,000) 735,000
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment (85,000) (1,102,000)
Refundable deposits (3,000) 43,000 290,000
(Increase) decrease in cash held in escrow (3,000) 818,000 (880,000)
Refunds on Gamma Knife 22,000
Proceeds from the sale of discontinued operation 2,100,000
Proceeds from the sale of equity investee 2,330,000
Purchase of certificates of deposit (905,000) (400,000)
Cash used in discontinued operations (89,000)
-------------- ------------- -------------
Net cash (used in) provided by investing activities (996,000) 3,789,000 (657,000)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease and loan obligations (1,195,000) (486,000) (522,000)
Cash received on refinancing of capital lease 100,000
Loan payable - officer (20,000)
Notes payable - other (100,000)
Loan payable - Gamma Knife 525,000
-------------- ------------- -------------
Net cash used in financing activities (1,195,000) (386,000) (117,000)
-------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,403,000) 3,307,000 (39,000)
Cash and cash equivalents - beginning of period 3,466,000 159,000 198,000
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,063,000 $ 3,466,000 $ 159,000
============== ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 555,000 $ 485,000 $ 316,000
Income taxes $ 290,000 $ 13,000
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Property acquired under capital lease obligations and through loans
payable $ 3,327,000
Issuance of common stock for purchase of minority interest $ 32,000
Increase (decrease) in progress payments and related loans payable
for Gamma Knife $ (2,610,000) $ 1,450,000
Refinancing of loans payable and capital lease obligation with new
capital lease obligation $ 2,172,000
Refinancing of progress payment obligation with capital lease $ 3,139,000
Loans payable to finance property acquisitions $ 188,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-6
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
[1] BASIS OF PREPARATION:
GHS, Inc. (the "Company") through its subsidiary, U.S. Neuro Surgical, Inc.
("U.S. Neuro" or "USN") owns and operates stereotactic radiosurgery
centers, utilizing the Gamma Knife technology. During 1995, the Company
formed a subsidiary, U.S. Neurosurgical Physics, Inc. ("USNP") to
administer the billing and collection of the Physicist's fee for operating
the Gamma Knife.
In July 1997 the Company sold substantially all the assets except accounts
receivable of two of its subsidiaries, Web Health Inc. (formerly Global
Health Systems, Inc.) and Kachina Ventures, Inc. (formerly GHS Management
Services, Inc.) to Health Management Systems, Inc. The sales price was
$2,100,000 subject to certain closing adjustments. These subsidiaries
develop, install and maintain computerized processing systems for managed
care, public health and ambulatory care facilities.
In December 1997 the Company sold its 20% investment in Florida Specialty
Network ("FSN"), a computerized processing systems provider which operates
in the United States to CMSF, Inc. ("Buyer") and Magellan Health Services,
Inc., parent of the Buyer. The Company received proceeds of approximately
$2,330,000 net of expenses and recorded a gain on sale of $2,143,000. In
addition, the Company had the opportunity to earn additional consideration
upon the achievement by FSN of certain performance milestones. In December
1998 the Company agreed to accept $494,000 in exchange for this right.
The consolidated financial statements include the accounts of GHS, Inc. and
its wholly owned subsidiaries. The results of operations of Web Health,
Inc. and Kachina Ventures Inc. and the equity in the operating results of
FSN have been reported separately as discontinued operations. In addition,
the net assets of such entities have been segregated in the accompanying
balance sheets.
[2] REVENUE RECOGNITION:
Patient revenue is recognized when the Gamma Knife procedure is rendered.
[3] LONG-LIVED ASSETS:
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), "Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of." FAS 121
requires that long-lived assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Adoption of this statement had no impact on the Company's financial
position, results of operations, or liquidity.
[4] DEPRECIATION AND AMORTIZATION:
The Gamma Knives are being depreciated on the straight-line method over an
estimated useful life of seven years. Leasehold improvements are being
amortized on the straight-line method over 7 to 20 years, the life of the
leases. Furniture and equipment are being depreciated on the straight-line
method over an estimated useful life of five years.
F-7
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] INCOME (LOSS) PER SHARE:
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("Statement No. 128"). Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share is based on the weighted average number of common shares
outstanding and excludes any dilutive effects of options and warrants.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all years
have been presented to conform to the Statement No. 128 requirements.
Outstanding options and warrants were not included in the computation of
diluted earnings per share because to do so would have been antidilutive
for the years presented.
[6] STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
[7] ESTIMATES AND ASSUMPTIONS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
[8] FAIR VALUES OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined based
on available market information and appropriate valuation methodologies.
The carrying amounts of cash, certificates of deposit, accounts receivable,
other current assets and accounts payable approximate fair value at
December 31, 1998 and 1997 because of the short maturity of these financial
instruments. The carrying value of the obligations under capital leases and
loans payable approximate fair value because the interest rates on these
instruments approximate the market rates at December 31, 1998 and 1997. The
fair value estimates were based on information available to management as
of December 31, 1998 and 1997.
[9] STOCK-BASED COMPENSATION:
Pursuant to Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), companies can
either expense the estimated fair value of employee stock options or
continue to 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. The Company has
elected to continue to apply APB 25 in accounting for its employee stock
option incentive plans (see Note F[1]).
F-8
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE B - AGREEMENTS WITH RESEARCH MEDICAL CENTER ("RMC")
[1] GAMMA KNIFE NEURORADIOSURGERY EQUIPMENT AGREEMENT:
U.S. Neuro entered into a neuroradiosurgery equipment agreement (the
"equipment agreement") with RMC for a period of 21 years which commenced
with the completion of the neuroradiosurgery facility (the "facility") in
September 1994. The equipment agreement, among other matters, requires U.S.
Neuro to provide (i) the use of the Gamma Knife equipment (the "equipment")
to RMC, (ii) the necessary technical personnel for the proper operation of
the equipment, (iii) sufficient supplies for the equipment, (iv) the
operation, maintenance and repair of the equipment, (v) all basic hardware
and software updates to the equipment and, (vi) an uptime guarantee. In
return, RMC pays U.S. Neuro 80% of RMC's fees for the use of the equipment
and the facility. The agreement also provides for U.S. Neuro to establish
for the benefit of RMC an escrow account funded with an amount equal to one
month's average of the compensation payable to U.S. Neuro. U.S. Neuro is
the owner of and entitled to the income from the escrow account so long as
no event of default has occurred. As of December 31, 1998, the escrow
account had a balance of $92,000. The equipment agreement terminates
automatically upon termination of the ground lease agreement (see Note
B[2]) and may be terminated by mutual agreement in the sixth year of the
ground lease term.
[2] GROUND LEASE AGREEMENT:
U.S. Neuro constructed a facility in Kansas City Missouri on property which
the Company leases from RMC. The lease term is for a period of 21 years
commencing September 1994. Rental expense is $3,600 per annum. The terms of
the lease include escalation clauses for increases in certain operating
expenses and for payment of real estate taxes and utilities. Title to all
improvements upon the land vests in RMC.
NOTE C - AGREEMENT WITH NEW YORK UNIVERSITY ON BEHALF OF NEW YORK UNIVERSITY
MEDICAL CENTER ("NYU")
During November 1996 U.S. Neuro entered into a neuroradiosurgery equipment
agreement ("NYU agreement") with NYU for a period of 7 years ("the term") with
the option of NYU extending the term for successive three year periods or
purchasing the Gamma Knife equipment at an appraised market value price. U.S.
Neuro may negotiate the purchase price and upon failure of the parties to agree
may request the facility be closed. All costs associated with closing and
restoring the facility to its original condition will be the liability of U.S.
Neuro. The equipment agreement, among other matters, requires U.S. Neuro to
provide (i) the use of the Gamma Knife equipment to NYU (ii) training necessary
for the proper operation of the Gamma Knife equipment (iii) sufficient supplies
for the equipment, (iv) the repair and maintenance of the equipment (v) all
basic hardware and software upgrades to the equipment and, (vi) an uptime
guarantee. In return, NYU will pay U.S. Neuro a scheduled fee based on the
number of patient procedures performed.
NOTE D - OBLIGATION UNDER CAPITAL LEASE AND LOANS PAYABLE
In a prior year U.S. Neuro acquired a Gamma Knife ("Knife 1") from Elekta
Instruments ("Elekta") for $2,900,000. The acquisition was financed by Financing
for Science International ("FFSI") under a five year capital lease bearing
interest at approximately 12.7% per annum. During September 1996, Finova Capital
Corp. ("Finova") bought out FFSI and became the lessor. During March 1997 U.S.
Neuro refinanced this lease with DVI Financial Services, Inc. ("DVI") for
$2,272,000 under a 39 month capital lease which bears interest at approximately
10.4%. In connection with the refinancing, DVI paid to Finova $1,647,000 in
settlement of the lease obligations, the Company's demand loan of $525,000
payable to DVI was repaid and DVI paid U.S. Neuro $100,000.
F-9
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE D - OBLIGATION UNDER CAPITAL LEASE AND LOANS PAYABLE (CONTINUED)
On December 6, 1994, U.S. Neuro entered into an additional agreement with Elekta
to acquire a second Gamma Knife ("Knife 2") for $2,900,000 for which it made a
deposit of $290,000 in 1994. The construction of the knife initially was
financed by FFSI through funding of progress payments made to Elekta, however,
during 1996 the Company refinanced the progress payments with DVI at which time
the Company's deposit was returned. In July 1997, upon completion of
construction, the progress payments were converted into a capital lease
obligation for $3,139,000. The lease payments provide for interest at the higher
of 12.0% or that rate adjusted for any increase in the thirty month Treasury
Note rate.
In addition, the Company entered into two (2) three year loans with DVI in the
amounts of $325,000 and $163,000 to finance the leasehold improvements required
to install the Gamma Knife at New York University Medical Center. The loans bear
interest at 12.0% - 12.9% per annum. The leases and loans payable are
collateralized by all the assets of GHS, Inc. and subsidiaries.
The obligations under the capital lease and loans payable are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Capital leases - Gamma Knife $ 3,983,000 $ 4,999,000
Loans payable - leasehold improvements 234,000 413,000
------------- -------------
4,217,000 5,412,000
Less current portion 1,423,000 1,195,000
------------- -------------
$ 2,794,000 $ 4,217,000
============= =============
</TABLE>
Future payments on the equipment leases and loans are as follows:
<TABLE>
<CAPTION>
Capital Lease Loans Payable
Year Ending ---------------------------------------------------------------------------------
December 31, Knife 1 Knife 2 Leasehold 1 Leasehold 2 Total
------------------------- ------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1999 $ 827,000 $ 792,000 $ 156,000 $ 65,000 $ 1,840,000
2000 482,000 792,000 32,000 1,306,000
2001 792,000 792,000
2002 792,000 792,000
2003 462,000 462,000
------------- -------------- ------------- ------------ -------------
1,309,000 3,630,000 156,000 97,000 5,192,000
Less interest 106,000 850,000 10,000 9,000 975,000
------------- -------------- ------------- ------------ -------------
Present value of net
minimum obligation $ 1,203,000 $ 2,780,000 $ 146,000 $ 88,000 $ 4,217,000
============== ============== ============= =========== =============
</TABLE>
During the year ended December 31, 1997, the Company capitalized interest cost
amounting to approximately $177,000 relating to the construction of the Gamma
Knife project.
F-10
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE E - COMMON STOCK ISSUED WITH PUT OPTION
In a prior year the Company issued 500,000 shares of its common stock for $1.00
per share to RMC. If the fair market value ("FMV") of the shares is equal to or
less than $1.25 per share, RMC has the right to resell the shares to GHS, Inc.
at $1.00 per share. If the FMV exceeds $1.25, GHS, Inc. has the right of first
refusal to repurchase the shares at a price equal to 80% of the FMV
("Transaction Price"). If GHS, Inc. elects not to exercise its right of first
refusal and RMC is unable to obtain a buyer for the shares at the Transaction
Price, RMC has the right to resell the shares to GHS, Inc. at a purchase price
equal to the greater of $1.00 per share or the Transaction Price.
However, in no event shall the Company be required to purchase shares of stock
after the earlier of 2003 or such time as U.S. Neuro, Inc. no longer occupies
the RMC premises (see Note B[2]).
NOTE F - STOCKHOLDERS' EQUITY
[1] STOCK OPTIONS:
Effective October 23, 1997, the Company adopted a 1997 Stock Option Plan
(the "Plan") for officers, directors, consultants and other key personnel
of the Company. This plan replaces the 1986 Stock Option Plan which had
expired. Options outstanding from the 1986 Option Plan are 99,000 at
December 31, 1998. The Plan authorizes the granting of incentive stock
options ("ISO") and nonqualified stock options to purchase up to 750,000
shares of the Company's common stock at a price not less than 100% (110% in
the case of ISO's granted a person who owns stock possessing more than 10%
of the voting power of the Company) of the fair market value of the common
stock on the date of grant and provides that no portion of the option may
be exercised beyond ten years from that date (five years in the case of
ISO's granted to a 10% stockholder). At December 31, 1998, 390,000 options
were available for grants.
All options outstanding granted to employees of the Company shall terminate
immediately upon the termination of employment of the employee by the
Company or its subsidiaries or its parent.
Listed below is information as to options granted and exercisable.
<TABLE>
<CAPTION>
Weighted
Period Ended Average Period Ended Period Ended
December 31, 1998 Remaining December 31, 1997 December 31, 1996
----------------- Life in ----------------- -----------------
Years At Average Average
Exercise December 31, Exercise Exercise
Shares Price 1998 Shares Price Shares Price
----------- -------- ------------ ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the year 491,500 $1.00 360,000 $1.00 430,000 $1.00
Granted 35,000 $1.00 325,000 $1.00
Cancelled (67,500) (8,500)
Expired (185,000) (70,000)
---------- -------- --------
Options outstanding at
end of the period 459,000 $1.00 8.67 491,500 $1.00 360,000 $1.00
========== ======== =======
Options exercisable at
end of the year 459,000 $1.00 8.67 491,500 $1.00 338,375 $1.00
========== ======= =======
</TABLE>
No compensation expense relating to the stock option grants was recorded in 1998
and 1997 as the option exercise prices were greater than the fair market value
of the stock at date of grant. There were no options granted during 1996.
F-11
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[1] STOCK OPTIONS: (CONTINUED)
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 the Company 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 issued during 1998
and 1997 and 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 60%, risk free interest rates of 6.09% and
5.50% and expected life of 10 years.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Loss from continuing operations:
As reported $ (909,000) $ (11,000)
Pro forma (935,000) (210,000)
Basic and diluted loss per share from continuing operations:
As reported $(.14) $.00
Pro forma (.14) (.03)
</TABLE>
[2] PREFERRED STOCK:
The Company has authorized 1,000,000 shares of preferred stock, none of
which is issued. The rights and preferences of preferred stock are
established at the discretion of the Board of Directors upon issuance.
[3] ISSUANCE OF WARRANTS:
On November 30, 1993, the Company granted warrants to a stockholder to
purchase 200,000 shares of the Company's common stock at a purchase price
of $1.00 per share, which equaled fair value at the date of grant. Such
warrants were granted as consideration for services rendered in connection
with a private placement of securities. The warrants contain registration
and certain anti-dilution rights and expire on November 30, 2003.
NOTE G - COMMITMENTS AND OTHER MATTERS
[1] LEASE AGREEMENT:
On March 5, 1998 the Company entered into a lease for office premises which
expires March 31, 2003. The terms of the lease include an escalation clause
beginning January 1, 1999 for payment of a pro rata share of certain
operating expenses.
F-12
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE G - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[1] LEASE AGREEMENT: (CONTINUED)
Minimum future obligations under the operating lease are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-------------
<S> <C>
1999 $ 32,000
2000 32,000
2001 32,000
2002 32,000
Thereafter 8,000
</TABLE>
Rent expense was $21,000 for 1998. No rent was paid in connection with
continuing operations during 1997 or 1996.
[2] CONCENTRATIONS:
For the years ended December 31, 1998 and 1997 the Company derived
substantially all its patient revenue from two hospitals, one of which
accounted for 60% and 90%, respectively of the Company's revenue. For the
year ended December 31, 1996 one hospital accounted for all of the
Company's patient revenue.
The Company has been dependent on one manufacturer who sells, supplies and
services the Gamma Knife.
NOTE H - TAXES
The components of the income tax provision (benefit) applicable to continuing
operations is comprised of the following:
<TABLE>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ (153,000) $ (112,000) $ 0
State (38,000) (2,000) 0
------------ ------------ ------------
(191,000) (114,000) 0
------------ ------------ ------------
Deferred:
Federal (208,000) 106,000 (353,000)
State (52,000) 0 (49,000)
------------ ------------ ------------
(260,000) 106,000 (402,000)
------------ ------------ ------------
Income tax provision (benefit) $ (451,000) $ (8,000) $ (402,000)
============ ============ ============
</TABLE>
F-13
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE H - TAXES (CONTINUED)
A reconciliation of the tax provision (benefit) calculated at the statutory
federal income tax rate with amounts reported in the statements of operations
applicable to continuing operations follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
---------- -------- ------------
<S> <C> <C> <C>
Income tax provision (benefit) at the federal
statutory rate $ (462,000) $ (6,000) $ 54,000
State income tax provision (benefit), net of federal
taxes (75,000) (2,000) 7,000
Permanent difference for portion of accrued
litigation settlement 114,000
Change in valuation allowance (463,000)
Other (28,000)
---------- -------- ------------
Income tax provision (benefit) $ (451,000) $ (8,000) $ (402,000)
========== ======== ============
</TABLE>
Items which give rise to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Litigation settlement accrued for financial reporting
purposes $ 260,000
Net operating loss carryforward $ 1,013,000
Allowance for doubtful accounts 64,000
Excess of tax depreciation over book depreciation (450,000) $ (450,000) (344,000)
Valuation allowance (270,000)
------------ ------------ ------------
Deferred tax asset (liability) - net $ (190,000) $ (450,000) $ 463,000
============ ============ ===========
</TABLE>
The valuation allowance decreased by $270,000 in 1997 and $348,000 in 1996. The
1997 decrease was reflected as a tax benefit in discontinued operations. The
1996 decrease was reflected as a tax benefit of $463,000 in continuing
operations. The $115,000 net difference was related to the net operating loss
attributable to discontinued operations. In 1998 no valuation allowance was
provided for the deferred tax asset because management believes that it is more
likely than not that the benefit will be realized through future taxable income.
NOTE I - DISCONTINUED OPERATIONS
On July 15, 1997, the Company sold substantially all the assets of two of its
subsidiaries, Web Health Inc. (formerly Global Health Systems, Inc.) and Kachina
Ventures, Inc. (formerly GHS Management Services, Inc.) to Health Management
Systems, Inc. (see Note A[1]).
In addition, in December 1997 the Company sold its 20% investment in FSN to
CMSF, Inc. (see Note A[1]).
F-14
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE I - DISCONTINUED OPERATIONS (CONTINUED)
Net assets of discontinued operations included in the consolidated balance sheet
as of December 31, 1997 consist of accounts receivable of $43,000.
The condensed statement of loss from discontinued operations attributable to
subsidiaries whose net assets were sold is presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ------------- -------------
<S> <C> <C> <C>
Revenue $ 56,000 $ 1,202,000 $ 2,780,000
Costs and expenses 1,947,000 3,375,000
----------- ------------- -------------
Income (loss) from operations before income tax (benefit) 56,000 (745,000) (595,000)
----------- ------------- -------------
Income tax (benefit):
Current 22,000 (70,000)
Deferred (155,000) (82,000)
----------- ------------- -------------
22,000 (225,000) (82,000)
----------- ------------- -------------
Income (loss) from discontinued operations $ 34,000 $ (520,000) $ (513,000)
=========== ============= =============
</TABLE>
NOTE J - PURCHASE OF MINORITY INTEREST AND RELATED LITIGATION
In 1993, pursuant to an agreement (the "USN Agreement") between the Company and
A. Hyman Kirshenbaum, M.D. ("Kirshenbaum") and Jerry Brown, Ph.D ("Brown"), the
Company, 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 the
Company's Board of Directors and executed an employment agreement with USN.
Under the terms of the USN Agreement, the Company possessed the right to
repurchase for cash or common stock such 20% interest during each of the third
through sixth full fiscal years of the USN Agreement. The Company exercised its
right to repurchase the 20% interest in USN in September 1996 at a value of
$38,781.40, which value was calculated by the Company in accordance with the
terms of the USN Agreement and in 1997 the Company paid the purchase price
through the issuance of shares of common stock valued at $31,332 plus offsetting
a receivable of $7,450 from Brown against the purchase price. Such valuation was
disputed by Brown and Kirshenbaum.
In June 1997, the Company 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.
Because of the dispute between the Company and Brown and Kirshenbaum on the
valuation of their 20% interest in USN, the Company filed the Declaratory Action
to determine: (1) whether the Company's repurchase is proper; (2) whether the
valuation of Brown's and Kirshenbaum's 20% interest in USN is just and fair; and
(3) whether Brown's and Kirshenbaum's valuation of their 20% interest in USN is
improper. If successful in this action, the Company will be entitled to purchase
Brown's and Kirshenbaum's 20% interest for $38,781.40. If unsuccessful, and
Brown's and Kirshenbaum's valuation is determined to be correct, the Company may
be required to purchase Brown's and Kirshenbaum's interests in USN for
approximately $584,497.
F-15
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE J - PURCHASE OF MINORITY INTEREST AND RELATED LITIGATION (CONTINUED)
In response to the Declaratory Action, Brown and Kirshenbaum filed a
counterclaim and third party claim against the Company, USN and others. The
counterclaim against the Company and third party claim against USN and the other
parties is purportedly for violations of: (1) the RICO statutes; (2) various
causes of action for fraud; and (3) various causes of action for breach of
contract. The United States District Court of Maryland dismissed the RICO claims
against USN and the Company. The fraud counts seek damages of not less than $9
million per count and also seek the imposition of treble damages for punitive
damages for the fraud counts. The breach of contract counts range from $250,000
to $600,000. The claims of fraud arise out of an alleged conspiracy between the
Company and other parties to misappropriate a business concept allegedly created
by Brown and Kirshenbaum. The remainder of Brown's and Kirschenbaum's claims are
in the nature of a breach of contract between the Company, USN and Brown and
Kirshenbaum.
In addition to the above-described federal court action, Brown has filed a state
court action in the District Court in and for Montgomery County, Maryland
against USN and other parties seeking breach of contract damages for lost
salary, unreimbursed expenses and for consequential damages and costs arising
out of what he claims to be an improper termination from USN. Brown seeks
approximately $381,000 for lost salary and $36,000 for unreimbursed expenses in
addition to the consequential damages and treble damages he seeks under his
various counts of his compliant. USN has and continues to vigorously defend this
action. Because the case is in the initial pleading stages, no evaluation of the
likelihood of an unfavorable outcome can be made at this time.
In January 1999 the parties participated in a settlement conference and reached
a tentative agreement to settle all of the claims currently pending between the
parties. While no formal settlement agreement has been signed to date, the
parties have agreed to administratively close the Declaratory Action,
counterclaim and third party claim for a period of sixty (60) days in order to
finalize the settlement documentation. A $934,000 liability was established at
December 31, 1998 for this proposed settlement.
NOTE K - EMPLOYEES' 401(K) PLAN
During 1997 the Company established a 401(k) plan covering substantially all its
employees, which includes employer participation, in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The plan allows
participants to make pretax contributions and the Company may, at its
discretion, match certain percentages of the employee contribution. All amounts
contributed to the plan are deposited into a trust fund administered by
independent trustees. The Company's discretionary matching 401(k) contributions
for 1998 and 1997 were $13,000 and $2,200, respectively.
NOTE L - SUBSEQUENT EVENTS
[1] SPIN-OFF OF USN:
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 owned 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.
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, on September 16, 1999, GHS distributed to holders
of its Common Stock one share of USN common stock for each share of Common
Stock of GHS owned. After the USN Spin-Off, USN is a separate company which
owns and operates stereotactic radiosurgery centers, utilizing the Gamma
Knife technology. Accordingly, substantially all activities included in
these financial statements became discontinued operations in 1999.
F-16
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE L - SUBSEQUENT EVENTS
[2] REVERSE ACQUISITION OF CHANGE YOUR LIFE.COM, LLC ("CYL"):
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, 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 were automatically convertible
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 increased 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 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
was 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 consolidated financial statements of the Company in future
filings will be the historical financial statements of CYL and will include
the operations of GHS from May 27, 1999.
[3] CONCEPT DEVELOPMENT ACQUISITION:
On May 27, 1999, GHS acquired all of the outstanding capital stock of
Concept Development Inc. ("Concept Development" or "CDI"). 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
newly-designated Series C Preferred Stock to the sole stockholder of
Concept Development (the "Merger Shares"), in exchange for all of the
outstanding capital stock of Concept Development. The shares of Series C
Preferred Stock issued in the CDI Merger are automatically convertible 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). GHS has the right to repurchase the merger shares upon
certain circumstances. The acquisition of Concept Development was accounted
for as a purchase with the purchase price allocated to the intangible
assets underlying a related employment agreement including certain
noncompete 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.
F-17
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE L - SUBSEQUENT EVENTS (CONTINUED)
[4] OPTION AGREEMENT:
On May 27, 1999, GHS entered into an Option Agreement with The Learning
Annex pursuant to which, among other things, GHS obtained the option to
acquire The Learning Annex. The Learning Annex is a provider of continuing
education courses. 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 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 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.
[5] PRIVATE PLACEMENT:
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 was
automatically convertible into 10 shares of Common Stock on the next
business day following the record date for the USN Spin-Off, and was
entitled to vote on an as converted basis with the Common Stock. 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.
F-18
<PAGE>
DREAMLIFE, INC.
1,843,270 SHARES OF
COMMON STOCK
January 28, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses of the
sale and distribution of the securities being registered, all of which are being
borne by us.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission filing fee.....................................$7,543
Printing expenses.................................................................10,000
Legal, accounting and other professional services.................................50,000
Miscellaneous.....................................................................10,000
-------
Total..........................................................................$77,543
=======
</TABLE>
All of the amounts shown are estimates except for the fee payable to
the Securities and Exchange Commission.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law authorizes us to grant indemnities
to directors and officers in terms sufficiently broad to permit indemnification
of such persons under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933.
In addition, we have obtained Directors' and Officers' Liability Insurance,
which insures officers and directors against certain liabilities such persons
may incur in their capacities as our officers or directors.
Article Nine of our certificate of incorporation provides as follows:
The corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Article Nine of our bylaws provides in relevant part as follows:
The corporation shall indemnify, in the manner and to the full extent
permitted by law, any person (or the estate of any person) who was or is a party
to, or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
corporation, and whether civil or criminal, administrative, investigative or
otherwise, by
II-1
<PAGE>
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. Where required
by law, the indemnification provided for herein shall be made only as authorized
in the specific case upon a determination, in the manner provided by law, that
indemnification of the director, officer, employee or agent is proper in the
circumstances.
The corporation may, to the full extent permitted by law, purchase and
maintain insurance on behalf of any such person against any liability which may
be asserted against such person. To the full extent permitted by law, the
indemnification provided herein shall include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, and, in the manner
provided by law, any such expenses shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding. The indemnification
provided herein shall not be deemed to limit the right of the corporation to
indemnify any other person for such expenses to the full extent permitted by
law, nor shall it be deemed exclusive of any other rights to which any person
seeking indemnification from the corporation may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office. Such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
II-2
<PAGE>
ITEM 16. EXHIBITS
The following is a list of exhibits filed as part of this registration
statement.
<TABLE>
<CAPTION>
Exhibit
Number Description and Method of Filing
--------- ----------------------------------------
<S> <C>
2(a) Contribution and Exchange Agreement dated as of May 20, 1999 among the
registrant, 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 the registrant, 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)
5 Opinion of Orrick, Herrington & Sutcliffe LLP
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 the registrant, Debbie Dworkin and
State Street Bank and Trust Company (1) (2)
10(c) Repurchase Agreement dated as of May 27, 1999 between the registrant and
Debbie Dworkin (1) (2)
10(d) Employment Agreement dated as of May 27, 1999 between the registrant and
William Zanker (1)
10(e) Exclusive License and Marketing Agreement dated as of May 27, 1999 among the
registrant, Seligman Greer Communication Resources, Inc., 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 the registrant, 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 the
registrant listed therein (1) (2)
10(g) Registration Rights Agreement dated as of May 27, 1999 among the registrant,
Anthony J. Robbins, Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
II-3
<PAGE>
<CAPTION>
<S> <C>
10(h) Stockholders Agreement dated as of May 27, 1999 among the registrant, Anthony
J. Robbins, Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
10(i) Lease for 425 West 15th Street, Floor 3R, New York, New York dated May 21,
1999 between the registrant and CFG/AGSB Chelsea Ninth, L.L.C. (3)
10(j) Distribution Agreement dated May 27, 1999 between the registrant and USN (4)
10(k) Tax Matters Agreement dated May 27, 1999 between the registrant and USN (4)
10(l) Assignment and Assumption Agreement dated May 27, 1999 between the registrant
and USN (4)
10(m) 1997 Stock Option Plan (5)
10(n) 1999 Employee Stock Option Plan (6)
10(o) 1999 Outside Directors Stock Option Plan (6)
10(p) 1999 Consultants Stock Option Plan (6)
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in opinion filed as Exhibit 5)
23.2 Consent of Richard A. Eisner & Company LLP (previously filed)
24 Power of Attorney (previously filed)
</TABLE>
- -------------------------
(1) Incorporated by reference from the identically numbered exhibit to the
registrant'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 to Exhibit 10(i) to the registrant's Quarterly
Report on Form 10-Q for the period from April 21, 1999 through June 30,
1999.
(4) Incorporated by reference to exhibits to U.S. Neurosurgical, Inc.'s (a
former subsidiary of the registrant) Form 10 as filed with the Securities
and Exchange Commission on July 1, 1999.
(5) Incorporated by reference to Exhibit 10(k) to the registrant's 1997 Annual
Report on Form 10-K.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
A. RULE 415 OFFERING
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sale; are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if
the registration statement is on Form S-3, and the information required to
be, included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange
II-5
<PAGE>
Act of 1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
C. INCORPORATED ANNUAL AND QUARTERLY REPORTS
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
D. REQUEST FOR ACCELERATION OF EFFECTIVE DATE
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by the final adjudication
of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, dreamlife
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York on January 28, 2000.
DREAMLIFE, INC.
By: /s/ Beth Polish
---------------------------------
Beth Polish
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title of Capacities Date
--------- ------------------- ----
<S> <C> <C>
/s/ Beth Polish President and Chief Operating Officer January 28, 2000
- ----------------------------------------
Beth Polish
/s/ Philicia G. Levinson Senior Vice President, Chief Financial January 28, 2000
- ---------------------------------------- Officer, Secretary & Treasurer
Philicia G. Levinson
/s/ * Director January 28, 2000
- ----------------------------------------
Anthony J. Robbins
/s/ * Director January 28, 2000
- ----------------------------------------
W. Grant Gregory
/s/ * Director January 28, 2000
- ----------------------------------------
H. Peter Guber
/s/ * Director January 28, 2000
- ----------------------------------------
Peter A. Lund
/s/ * Director January 28, 2000
- ----------------------------------------
Charles D. Peebler, Jr.
/s/ * Director January 28, 2000
- ----------------------------------------
Fredric D. Rosen
/s/ * Director January 28, 2000
- ----------------------------------------
Bruce L. Stein
* /s/ Philicia G. Levinson
- ----------------------------------------
Philicia G. Levinson, by power of attorney
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description and Method of Filing
--------- ----------------------------------------
<S> <C>
2(a) Contribution and Exchange Agreement dated as of May 20, 1999 among the
registrant, 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 the registrant, 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)
5 Opinion of Orrick, Herrington & Sutcliffe LLP
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 the registrant, Debbie Dworkin and
State Street Bank and Trust Company (1) (2)
10(c) Repurchase Agreement dated as of May 27, 1999 between the registrant and
Debbie Dworkin (1) (2)
10(d) Employment Agreement dated as of May 27, 1999 between the registrant and
William Zanker (1)
10(e) Exclusive License and Marketing Agreement dated as of May 27, 1999 among the
registrant, Seligman Greer Communication Resources, Inc., 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 the registrant, 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 the
registrant listed therein (1) (2)
10(g) Registration Rights Agreement dated as of May 27, 1999 among the registrant,
Anthony J. Robbins, Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
<PAGE>
<CAPTION>
<S> <C>
10(h) Stockholders Agreement dated as of May 27, 1999 among the registrant, Anthony
J. Robbins, Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
10(i) Lease for 425 West 15th Street, Floor 3R, New York, New York dated May 21,
1999 between the registrant and CFG/AGSB Chelsea Ninth, L.L.C. (3)
10(j) Distribution Agreement dated May 27, 1999 between the registrant and USN (4)
10(k) Tax Matters Agreement dated May 27, 1999 between the registrant and USN (4)
10(l) Assignment and Assumption Agreement dated May 27, 1999 between the registrant
and USN (4)
10(m) 1997 Stock Option Plan (5)
10(n) 1999 Employee Stock Option Plan (6)
10(o) 1999 Outside Directors Stock Option Plan (6)
10(p) 1999 Consultants Stock Option Plan (6)
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in opinion filed as Exhibit 5)
23.2 Consent of Richard A. Eisner & Company LLP (previously filed)
24 Power of Attorney (previously filed)
</TABLE>
- --------------------------
(1) Incorporated by reference from the identically numbered exhibit to the
registrant'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 to Exhibit 10(i) to the registrant's Quarterly
Report on Form 10-Q for the period from April 21, 1999 through June 30,
1999.
(4) Incorporated by reference to exhibits to U.S. Neurosurgical, Inc.'s (a
former subsidiary of the registrant) Form 10 as filed with the Securities
and Exchange Commission on July 1, 1999.
(5) Incorporated by reference to Exhibit 10(k) to the registrant's 1997 Annual
Report on Form 10-K.
<PAGE>
Exhibit 5
[LETTERHEAD OF ORRICK, HERRINGTON & SUTCLIFFE LLP]
January 28, 2000
dreamlife, inc.
425 West 15th St., Floor 3R
New York, New York 10011
Re: dreamlife, inc.
REGISTRATION STATEMENT ON FORM S-3
We have acted as counsel to dreamlife, inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 1,843,270 shares of common
stock of the Company, par value $0.01 per share (the "Shares"), proposed to be
sold from time to time by the selling stockholders named in the Registration
Statement (the "Selling Stockholders") on Form S-3 (the "Registration
Statement").
We have reviewed the Company's charter documents, the
corporate proceedings taken by the Company in connection with the issuance
and sale of the Shares and a certificate of an officer of the Company dated
the date hereof. Based on such review, we are of the opinion that the Shares,
when sold by the selling stockholders in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We consent to the filing of this opinion letter as Exhibit 5
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
