<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1999.
REGISTRATION NO. _______________
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RNETHEALTH.COM, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
COLORADO 7812 39-1731029
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
506 SANTA MONICA BLVD., SUITE 400
SANTA MONICA, CALIFORNIA 90401
(310) 393-3979
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
WILLIAM D. MOSES, PRESIDENT
RNETHEALTH.COM, INC.
506 SANTA MONICA BLVD., SUITE 400
SANTA MONICA, CALIFORNIA 90401
(310) 393-3979
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
BECKMAN, MILLMAN & SANDERS, LLP
116 JOHN STREET
NEW YORK, NEW YORK 10038
TELEPHONE: (212) 406-4700
TELECOPIER: (212) 406-3750
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK PAR VALUE $.01 PER SHARE ....... 1,180,649(1) $0.43(2) $507,679 $147.00
COMMON STOCK PAR VALUE $.01 PER SHARE ....... 900,000(3) $0.25 $225,000 $ 65.00
COMMON STOCK PAR VALUE $.01 PER SHARE ....... 200,000(4) $0.35 $ 70,000 $ 20.00
COMMON STOCK PAR VALUE $.01 PER SHARE ....... 61,591(5) $0.43(2) $ 4,844 $ 2.00
COMMON STOCK PAR VALUE $.01 PER SHARE ....... 1,500,000(6) $0.25 $375,000 $109.00
COMMON STOCK PAR VALUE $.01 PER SHARE ....... 260,333(7) $0.43(2) $111,943 $ 32.00
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REGISTRATION FEE $375.00
PREVIOUSLY PAID $ 0.00
PAID WITH THIS FILING $375.00
========================================================================================================================
</TABLE>
(1) Includes approximate no. of shares issued to certain investors pursuant to
the Restructuring Agreement dated September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for investment
by such Investors dated June 29, 1998, as amended by on October 27, 1998 and
pursuant to other subscription agreements dated March 18, 1999 and the
subscription agreement dated June 10, 1999 between the Company and Investors.
(2) Pursuant to Rule 457(c) of the Securities Act, calculated based upon the
average of the bid and asked price of the Common Stock as of October 18, 1999.
(3) Includes approximate no. of shares reserved for issuance upon the exercise
of warrants, priced at $0.01 and $0.25 per share (the "Warrants").
(4) Shares underlying warrants issued to placement agents in the June 29, 1999
Private Placement ("Placement Warrants").
(5) Shares of Common Stock issued to certain parties who served as placement
agents in the June 29, 1999 Private Placement ("Placement Shares").
(6) Includes 1,200,000 additional shares issued in consideration of termination
of all outstanding reset rights and 300,000 shares of common stock underlying
warrants.
(7) Includes 33,333 shares of Common Stock issued pursuant to an agreement
entered into between the Company and a consultant and 227,000 shares issued to
consultant in connection with a promissory note.
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 SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
4,102,573 Shares of
RNETHEALTH.COM, INC.
Common Stock
This Prospectus relates to an aggregate of 4,102,573 shares (the "Shares") of
Common Stock, $.01 par value per shares ("Common Stock"), of RnetHealth.com,
Inc. (the "Company") which may be offered and sold from time to time, by the
Selling Shareholders named herein (the "Selling Shareholders"), consisting of
(i) 1,180,649 shares of Common Stock issued to certain investors (the
"Investors") pursuant to the Restructuring Agreement dated September 28, 1999
(the "Restructuring Agreement") relating to subscription agreements entered into
by some of the Investors with the Company for investment by such Investors in
the securities of the Company dated June 29, 1998, as amended by Amendment No. 1
dated as of October 27, 1998 and pursuant to other subscription agreements dated
March 18, 1999 where certain of the Investors invested in an aggregate $100,000
of principal amount Convertible Notes of the Company and the subscription
agreement dated June 10, 1999 between the Company and Investors (collectively,
the "Subscription Agreements"); (ii) 900,000 shares of Common Stock reserved for
issuance to the Investors upon the exercise of warrants, exercisable at an
exercise price of $0.01 and $0.25 per share (the "Warrants"); (iii) an aggregate
of 61,591 shares of Common Stock issued to certain parties who served as
placement agents (the "Placement Agents") in the June 29, 1999 Private Placement
(as defined herein); (iv) an aggregate of 200,000 shares underlying warrants
issued to certain parties who served as placement agents in the June 29, 1999
Private Placement ("Placement Warrants"); and, (v) 1,200,000 issued to Investors
in consideration of termination of all outstanding reset rights and 300,000
shares of common stock underlying warrants, and (vi) includes 33,333 shares of
Common Stock issued pursuant to an agreement entered into between the Company
and a consultant and 227,000 shares issued to consultant in connection with a
promissory note. The Company will not receive any proceeds from the sale of the
Shares by the Selling Shareholders, except upon the exercise of the Warrants
under this offering. See "Selling Shareholders".
The Shares may be offered for sale from time to time by the Selling Shareholders
or their pledgees, donees, transferees or other successors in interest, in the
over-the-counter market, in privately negotiated transactions or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Shares may be sold
directly by the Selling Shareholders or through one or more broker-dealers. Such
broker-dealers may receive compensation in the form of commissions, discounts or
concessions from the Selling Shareholders and/or purchasers of Shares for whom
such broker-dealers may act as agent, or to whom they may sell as principal, or
both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Shareholders and such broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933
(the "Securities Act"), and any discounts, commissions and concessions and any
profits realized on any sale of the Shares may be deemed to be underwriting
compensation. See "Selling Shareholders" and "Plan of Distribution".
The Common Stock is listed on the Nasdaq Bulletin Board as RNET.OB.
-------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is November 5, 1999
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<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference includes, but is not
limited to, those discussed in "Risk Factors."
THE COMPANY
RnetHealth.com, Inc. (the "Company") is a digital media company
converging digital technologies of the Internet and the cable television network
to deliver behavioral health programming, products and services to a national
audience.
The Company will deliver, via converging multimedia platforms,
market-driven sponsorship, video rich content, and programming providing local,
national and personalized information, diagnostic/therapeutic tools and
community; via an integrated behavior health prevention and wellness package
with unique e-commerce and transactional applications.
The Company's primary market is individuals whose lives are impacted,
either directly or indirectly, by behavioral health issues (e.g., eating
disorders, depression, substance abuse, stress, anxiety, teen and domestic
violence), as well as by the chronic diseases associated with such behavioral
health issues, (including heart disease, hypertension, diabetes, hepatitis and
others). The Company provides action plans for traditional forms of treatment,
and as an adjunct to those traditional forms, clinically based alternative
health solutions.
Presently, the Company is preparing for the launch of its new Internet
site, which will provide a branded, integrated Web-based solution via a public
platform for consumers, as well as a platform for the behavioral healthcare
needs of individuals, employers, insurance companies, managed care
organizations, and health care organizations and providers, universities and
other organized communities. This new Internet site is expected to generate
various e-commerce opportunities and revenue for the Company.
The Company's broadband component, the Recovery Network cable television
programming service, is distributed nationally via a satellite agreement with
Group W Satellite Services, a division of CBS. The Recovery Network is currently
available in approximately Five million (5,000,000) cable television households
through agreements with multiple-system operators (MSOs), individual cable
systems, and government and educational institutions. Notable MSOs include:
Cablevision Systems, Telecommunications, Inc. (now an AT&T company), Time
Warner, Inc., Cox Communications, Cable One, Century Communications,
FrontierVisions, Knology and NCTC. The Recovery Television Network drives
traffic to the Company's web site, thereby enhancing the scope of web-based
community and providing subscription and e-commerce revenue generation
opportunities.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED BY THE SELLING
SHAREHOLDER............................. 4,102,573 shares(a)
COMMON STOCK OUTSTANDING BEFORE
AND AFTER THE OFFERING HEREBY........... 18,063,799 shares(b)
NASDAQ SYMBOL............................. RNET.OB
</TABLE>
- -------------------------
(a) Includes: (i) 1,180,649 shares of Common Stock issued to certain investors
(the "Investors") pursuant to the Restructuring Agreement dated September 28,
1999 (the "Restructuring Agreement") relating to subscription agreements entered
into by some of the Investors with the Company for investment by such Investors
in the securities of the Company dated June 29, 1998, as amended on October 27,
1998 and pursuant to other subscription agreements dated March 18, 1999 where
certain of the Investors invested in an aggregate $100,000 of principal amount
Convertible Notes of the Company and the subscription agreement dated June 10,
1999 between the Company and Investors (collectively, the "Subscription
Agreements"); (ii) 900,000 shares of Common Stock reserved for issuance to the
Investors upon the exercise of warrants, exercisable at an exercise price of
$0.01 and $0.25 per share (the "Warrants"); (iii) an aggregate of 61,591 shares
of Common Stock issued to certain parties who served as placement agents (the
"Placement Agents") in the June 29, 1999 Private Placement (as defined herein);
(iv) an aggregate of 200,000 shares underlying warrants issued to certain
parties who served as placement agents in the June 29, 1999 Private Placement
("Placement Warrants");
3
<PAGE> 4
and, (v) 1,200,000 issued to Investors in consideration of termination of all
outstanding reset rights and 300,000 warrants, and (vi) includes 33,333 shares
of Common Stock issued pursuant to an agreement entered into between the Company
and a consultant and 227,000 shares issued to consultant in connection with a
promissory note.
(b) Represents shares of Common Stock outstanding as of October 18, 1999. Does
not include: (i) 1,253,605 shares of Common Stock issuable upon exercise of
stock options granted to employees and consultants of the Company; (ii)
2,415,000 shares of Common Stock issuable upon exercise of the Redeemable
Warrants (as defined herein); (iii) 420,000 shares of Common Stock issuable upon
exercise of warrants granted to Whale Securities Co., L.P.; (iv) 515,498 shares
of Common Stock issuable upon exercise of warrants issued by the Company,
including 500,000 shares of Common Stock issuable upon exercise of the Financing
Warrants (as defined herein); (v) an indeterminable number of shares of Common
Stock issuable by the Company if it fails to register, or to maintain an
effective registration statement with respect to, the Financing Shares (as
defined herein), the shares of Common Stock issuable upon exercise of the
Financing Warrants; (vi) 157,096 share of Common Stock that are issuable to the
Subscribers but, pursuant to the rules of the Nasdaq SmallCap Market, may not be
issued by the Company without the approval of the Company's shareholders.
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below is derived from and should be
read in conjunction with the audited financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal year Ended June 30,
--------------------------------
1998 1999
---- ----
<S> <C> <C>
Net loss $(8,261,734) $(8,141,287)
Basic and diluted loss per share $(1.91) $(0.96)
Weighted average number of
shares outstanding 4,336,405 8,514,557
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
At June 30, 1999
---------------------------
Actual Pro Forma(a)
------ -------------
(unaudited)
<S> <C> <C>
Working capital $(1,263,901) $ (989,901)
Total assets $ 1,268,379 $ 1,542,379
Total liabilities $ 1,880,396 $ 1,880,396
Shareholders' equity $ (612,017) $ (338,017)
</TABLE>
- ---------
(a) Gives effect to the exercise of 1,400,000 shares of Common Stock by the
Warrant holders under this offering for net proceeds of approximately $274,000.
Does not give effect to any additional shares of Common Stock that may be
issuable pursuant to the exercise of any other outstanding options or warrants.
4
<PAGE> 5
RISK FACTORS
Before you invest in the Company's common stock, you should be aware
that there are various risks, including those described below. You should
carefully consider these risk factors, together with all the other information
included or incorporated by reference in this prospectus, before you decide
whether to purchase shares of our common stock.
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are typically
identified by the words "believe," "expect," "intend," "estimate" and similar
expressions. Those statements appear in a number of places in this report and
include statements regarding the intent, belief or current expectation of the
Company or its directors or officers with respect to, among other things, trends
affecting the Company's financial conditions and results of operations and the
Company's business and growth strategies. Such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected, expressed or implied in the
forward-looking statements as a result of various factors (such factors are
referred to herein as "Cautionary Statements"). The accompanying information
contained in this Prospectus, including the information set forth under "Plan of
Operation" and "Business" identifies important factors that could cause such
differences. Such forward-looking statements speak only as of the date of this
report, and the Company cautions potential investors not to place undue reliance
on such statements. The Company undertakes no obligation to update or revise any
forward-looking statements. All subsequent written or oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
LACK OF MEANINGFUL REVENUES; SIGNIFICANT AND CONTINUING LOSSES; EXPLANATORY
PARAGRAPH IN INDEPENDENT PUBLIC ACCOUNTANTS REPORT. The Company was organized in
1992, was reorganized in 1995 and was in the development stage until its
acquisition of Recovery Direct, Inc. (formerly FMS) in December 1997. Since its
inception, the Company has been primarily engaged in test broadcasting of
recovery television in limited markets (which was launched nationally in April
1997), affiliate marketing and development, acquisition and production of
programming, establishing Recovery Talk Radio and the Help Line and forming
relationships with individuals and organizations in the recovery field.
Accordingly, the Company has a limited relevant operating history upon which an
evaluation of the Company's performance and prospects can be made. Such
prospects must be considered in light of the numerous risks, expenses, problems,
and difficulties typically encountered in establishing a new business and
launching and expanding a cable television network. The Company has not
generated any meaningful revenues and does not expect to generate any meaningful
revenues for the foreseeable future. To date, the Company has incurred
significant net losses, including net losses for the fiscal year 1999 which were
$8,141,287 or $0.96 per share as compared to net losses of $8,261,734 or $1.91
per share in fiscal year 1998. The Company expects to incur substantial up-front
capital expenditures and operating costs in connection with the operation and
expansion of its business (including the Internet operations), satellite
transmission of its programming and the development and production of television
programming, which will result in significant losses for the foreseeable future.
There can be no assurance that the Company will ever generate significant
revenues or achieve profitable operations. The Company's independent public
accountants have included an explanatory paragraph in their report on the
Company's financial statements, stating that certain factors raise substantial
doubt about the Company's ability to continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
SIGNIFICANT CAPITAL REQUIREMENTS; CONTINUING NEED FOR ADDITIONAL FINANCING. The
Company's capital requirements have been and will continue to be significant,
and its cash requirements have been exceeding its cash flow from operations and
financing activities. The Company's operating expenses for the fiscal year 1999
were $9,250,551, which was 9% higher than operating expenses of $8,524,380 for
the fiscal year 1998. It is not anticipated that existing shareholders will
provide any portion of the Company's future financing requirements.
Consequently, there can be no assurance that any additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company, requiring it to curtail and possibly
cease its operations. In addition, any additional equity financing may involve
substantial dilution to the interests of the Company's then existing
shareholders. In addition, any additional equity financing may involve
substantial dilution to the interests of the Company's then existing
shareholders. In addition, the Company's equity is currently below the $2
million minimum required for the listing of the Company's shares on the NASDAQ
Small Cap Market and has been delisted. Unless the Company can demonstrate the
ability to raise the Company's equity to an amount in excess of $2 million, and
present a plan that will satisfy NASDAQ's other standards regarding
profitability and stock price stability maintaining minimum bid price over
$1.00, the Company's shares may not be registered on the NASDAQ Small Cap
Market.
NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE OF RNEHEALTH.COM BY INTERNET
USERS, SUBSCRIBERS AND ADVERTISERS; UNCERTAINTY OF ABILITY TO IMPLEMENT PLAN OF
OPERATION. The Company's proposed plan of operation and prospects will be
largely dependent on the success of its affiliate marketing efforts, including
its ability to enter into affiliation agreements with operators of local cable
systems with a significant number of subscribers or other arrangements for the
airing of Rnethealth.com, its ability to successfully operate under the
Transponder Contract, develop or acquire sufficient television programming to
enable the Company to expand its hours of broadcast, achieve significant viewer
loyalty, attract advertisers and develop or enter into arrangements for the
supply of products, such as videotapes, audio cassettes and books to
merchandise. The Company has limited experience in developing and operating a
cable television network and marketing recovery and prevention-related products
and services, and there is limited information available concerning the
potential performance or market acceptance of Recovery television and recovery
and prevention-related products and services. There can be no assurance that the
Company will be
5
<PAGE> 6
able to implement its business plan successfully or that unexpected expenses,
problems, or technical difficulties will not occur which would result in
material delays in its implementation. Rnethealth.com and the Company's recovery
and prevention-related products and services via the Internet involves a new
business concept. As is typical in the case of a new concept, demand and market
acceptance of Rnethealth.com and recovery and prevention-related products and
services are subject to a high level of uncertainty. To-date, the Company has
not conducted any independent market, concept feasibility studies or any
additional market testing activities, although it plans to. The Company's
prospects will be significantly affected by the success of its strategic efforts
to align the business with healthcare institutes and healthcare providers, the
acceptance of its Internet content by potential users and subscribers and its
ability to attract advertisers. Achieving market acceptance for Rnethealth.com
and the Company's recovery and prevention-related products and services will
require significant effort and expenditures by the Company to create awareness
and demand by Internet users, advertisers and other host that potentially will
utilize Rnethealth.com.
UNCERTAINTY OF CONTENT DEVELOPMENT AND CONTENT ACQUISITION. The Company will be
required to commit considerable time, effort, and resources to development and
acquire an expansive library of content, beyond the programming it already
posses. The Company's development and production efforts are subject to all of
the risks inherent in the development and acquiring of new content, including
unexpected delays, expenses, technical problems and difficulties, as well as the
possible insufficiency of funds to complete satisfactory development and
acquisitions, which could result in abandonment or substantial change in
content. There can be no assurance that the Company's development and
acquisition efforts will be successfully completed on a timely basis, or at all,
or that unexpected events will not occur which would result in increased costs
or material delays in development.
BROADCAST INTERRUPTIONS AND EQUIPMENT FAILURES. The Company is dependent upon
the Transponder Contract to provide the necessary services to enable
Rnethealth.com to broadcast its programming through cable systems with which the
Company directly enters into affiliation agreements. It is possible that the
Company could experience broadcast interruptions and equipment failures, which
could last for a significant period of time. Broadcast interruptions or
equipment failures affecting broadcasting of Rnethealth.com's programming could
adversely affect viewer perception of, and advertiser confidence in, The
Recovery Network and could result in loss of advertising revenue, which could
have a material adverse effect on the Company.
RISKS RELATING TO THE DEVELOPMENT AND SUPPLY OF RECOVERY RELATED PRODUCTS; RISKS
RELATED TO RECOVERY DIRECT; UNCERTAINTY OF COMMERCIAL ACCEPTANCE OF RECOVERY
RELATED PRODUCTS. The Company has just recently begun to enter into arrangements
for the supply of recovery and prevention-related products to market and to
offer them to the public. Net sales of $1,533,922 for the fiscal year 1999 were
71% higher than the net sales of $894,758 for the fiscal year 1998. The increase
is primarily attributable to the acquisition of Recovery Direct, Inc., the
Company's wholly owned merchandise and distribution subsidiary in December 1997;
as a result, the revenues for fiscal year 1998 include only six months' of
revenues from the subsidiary as compared to 12 months' revenues in fiscal year
1999. Development of such business is subject to all of the risks associated
with the development of a new line of business, including unexpected delays, as
well as insufficiency of funds to complete satisfactory development of products
and services. To the extent the Company enters into arrangements for the supply
of recovery and prevention-related products with third parties, the Company will
be dependent upon its suppliers to, among other things, satisfy the Company's
quantity and performance specifications and to dedicate sufficient production
capacity to meet the Company's scheduled delivery requirements. Additionally,
the Company has not conducted and does not intend to conduct any formal market
studies or feasibility studies for any potential products. Achieving market
acceptance for recovery and prevention-related products will require substantial
marketing efforts, expenditure of significant funds and use of commercial time
on Rnethealth.com and Recovery Talk Radio otherwise available for sale to
advertisers to inform potential customers of potential products. There can be no
assurance that the Company will continue to be able to develop or enter into
arrangements for the supply of recovery and prevention-related products or that
the Company's efforts will result in successful product commercialization or
initial or continued market acceptance for any potential recovery and
prevention-related products.
FACTORS AFFECTING CABLE TELEVISION INDUSTRY. The Company's business is
concentrated in the cable television industry, which is continually evolving,
and subject to rapid change. Recently, direct satellite services ("DSS") and
digital cable deployment and advances in signal compression/decompression
technologies have begun to create additional channel capacity and new
opportunities for television networks. There can be no assurance, however, that
DSS or such other technologies will be further developed or utilized to expand
channel capacity. The Company's growth strategy is based, in part, upon the
continued growth of the cable and DSS industries and the expected increased
availability of channel capacity. If the cable industry grows slower than
expected or ceases to grow or if channel capacity does not expand as rapidly as
expected, or ceases to grow, the Company may not be able to enter into a
sufficient number of affiliation agreements or other arrangements for the
carriage of Rnethealth.com, which would have a material adverse effect on the
Company.
6
<PAGE> 7
COMPETITION. Rnethealth.com competes with all other existing and planned
television networks and other television programming for available airtime,
channel capacity, advertiser revenue and revenue from license fees. Many of
these television networks and producers of television programming are well
established, have reputations for success in the development and operation of
television networks and/or development of television programming, have
established significant viewer loyalty and have significantly greater industry,
financial, marketing, programming, personnel and other resources than the
Company. In addition, if cable television channel capacity increases as the
Company expects, competition from smaller competitors and other start-up
television networks could increase significantly. Although the Company is not
aware of any television network with programming focusing principally on
Recovery Issues and Prevention Issues, there are an increasing number of
recently introduced or planned cable networks which focus on overall life-style,
self-improvement and health themes and there are numerous programs which address
Recovery Issues and Prevention Issues. Moreover, because Rnethealth.com's
programming is intended to provide information and support to persons facing
Recovery Issues and Prevention Issues, Rnethealth.com and the Company's recovery
and prevention-related products and services will compete with other products
and services which perform similar functions, such as support groups, self-help
videos, audio cassettes and books and helplines. There can be no assurance that
the Company will be able to successfully compete for airtime, channel capacity,
advertiser time or viewership.
UNCERTAINTY OF PROTECTION OF PROPRIETARY INFORMATION. The Company has pending
registration applications in the United States Patent and Trademark Office for
its trademarks. The Company uses the "Recovery Network" a registered trademark
in connection with its programming. The Company believes that its trademarks and
copyrights, including "The Recovery Network" trade name and the signature look
of the network, have significant value and are important to the marketing and
promotion of Rnethealth.com and the Company's recovery and prevention-related
products and services. Although the Company believes that its trademarks and
copyrights do not and will not infringe trademarks or violate proprietary rights
of others, it is possible that existing trademarks and copyrights may not be
valid or that infringement of existing or future trademarks or proprietary
rights may occur. In the event the Company's trademarks or copyrights infringe
trademarks or proprietary rights of others, the Company may be required to
change the name of its network, proposed television shows, radio talk show or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, on acceptable terms and conditions, or at all. Failure to
do any of the foregoing could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will have the financial or
other resources necessary to enforce or defend a trademark infringement or
proprietary rights violation action. Moreover, if the Company's trademarks or
copyrights infringe the trademarks or proprietary rights of others, the Company
could, under certain circumstances, become liable for damages, which could have
a material adverse effect on the Company.
The Company also relies on trade secrets and proprietary know-how and employs
various methods to protect its concepts, ideas and the documentation of its
television programming and concepts in development. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop similar know-how or obtain access to the Company's
know-how, concepts, ideas and documentation. Furthermore, although the Company
has and expects to have confidentiality and non-competition agreements with its
employees and appropriate consultants, there can be no assurance that such
arrangements will adequately protect the Company's trade secrets or that others
will not independently develop programming similar to that of the Company.
INSURANCE AND POTENTIAL LIABILITY. The operation of a television, radio and
interactive media business subjects the Company to possible liability claims
from others, including viewers, listeners and callers to the Help Line for
claims arising from the unauthorized use of name or likeness, invasion of
privacy, defamation and slander. The Company maintains general liability
insurance (with coverage in amounts of up to $1,000,000 per occurrence and
$1,000,000 per annum), including insurance relating to personal injury and
advertising injury, in amounts which the Company currently considers adequate.
Nevertheless, a partially or completely uninsured claim against the Company, if
successful, could have a material adverse effect on the Company.
CONTROL BY MANAGEMENT. The Company's current executive officers and directors in
the aggregate, beneficially own approximately 49% of the outstanding Common
Stock. Accordingly, such persons may have the ability to exert significant
influence over the election of the Company's Board of Directors and other
matters submitted to the Company's shareholders for approval.
DEPENDENCE ON KEY PERSONNEL; NEED FOR QUALIFIED PERSONNEL. The Company is highly
dependent on its executive officers and senior management, and it will likely
depend on the senior management of any significant business which the Company
will embark upon in the future. The loss of the services of any of our current
executive officers or key employees or any member of senior management of any
acquired business could have a material adverse effect on out business, results
of operations and financial condition.
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<PAGE> 8
NO DIVIDENDS. To date, the Company has not paid any cash dividends on the Common
Stock and does not expect to declare or pay dividends on the Common Stock in the
foreseeable future. In addition, the payment of cash dividends may be limited or
prohibited by the terms of future loan agreements or the future authorization
and issuance of Preferred Stock.
RISK OF LOW-PRICED STOCKS. Rules 15g-1 through 15g-9 promulgated under the
Securities Exchange Act of 1934 ("Exchange Act") impose sales practice and
disclosure requirements on certain brokers and dealers who engage in certain
transactions involving "a penny stock." Currently the Company's Common Stock is
considered a penny stock for purposes of the Exchange Act. The additional sales
practice and disclosure requirements imposed on certain brokers and dealers
could impede the sale of the Company's Common Stock in the secondary market. In
addition, the market liquidity for the Company's securities may be severely
adversely affected, with concomitant adverse effects on the price of the
Company's securities. Under the penny stock regulations, a broker or dealer
selling penny stock to anyone other than an established customer or "accredited
investor" (generally, an individual with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with his or her spouse)
must make a special suitability determination for the purchaser and must receive
the purchaser's written consent to the transaction prior to sale, unless the
broker or dealer or the transaction is otherwise exempt. In addition, the penny
stock regulations require the broker or dealer to deliver, prior to any
transaction involving a penny stock, a disclosure schedule prepared by the
Securities and Exchange Commission ("SEC") relating to the penny stock market,
unless the broker or dealer or the transaction is otherwise exempt. A broker or
dealer is also required to disclose commissions payable to the broker or dealer
and the registered representative and current quotation for the securities. In
addition, a broker or dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholders. However, upon the exercise of the warrants under this
offering, the Company may receive approximately $125,000. Further, on October
13, 1999, the Company finalized a debt restructuring and infusion of additional
capital with certain noteholders and shareholders, resulting in the following:
(1) conversion of all existing debt and accrued interest to equity (estimated at
approximately $756,000) at $0.25 per share; (2) commitment to receive an equity
infusion from key internal shareholders totaling up to $600,000 at $0.25 per
share; and (3) a 45-day option to noteholders to acquire additional equity at
$0.25 per share up to $756,000. This transaction will bring up to $1.3 million
in cash proceeds to the Company. The Company will use these proceeds and any
proceeds from the exercise of the warrants for operating expenses. The Company
projects that such additional cash will be sufficient to fund the Company's
operations and capital requirements until April 2000. There can be no assurance,
however, that such funds will not be expended prior thereto due to unanticipated
changes in economic conditions or other unforeseen circumstances. In the event
the Company's plans change or its assumptions change or prove to be inaccurate,
the Company could be required to seek additional financing sooner than currently
anticipated. The Company has no current arrangements with respect to, or
potential sources of, any additional financing, and it is not anticipated that
existing shareholders will provide any portion of the Company's future financing
requirements. Consequently, there can be no assurance that any additional
financing will be available to the Company when needed, on commercially
reasonable terms, or at all. Proceeds not immediately required for the purposes
described above will be invested principally in short-term bank certificates of
deposit, short-term securities, United States Government obligations, money
market instruments and/or other interest-bearing investments.
DIVIDEND POLICY
The Company has not paid dividend on its common stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain future earnings, if any, to finance the expansion of our operations and
for general corporate purposes. The declaration in the future of any cash or
stock dividends on the Common Stock will be at the discretion of the Board and
will depend upon a variety of factors, including the earnings, capital
requirements and financial position of the Company and general economic
conditions at the time in question. In addition, the payment of cash dividends
on the Common Stock in the future could be limited or prohibited by the terms of
financing agreements that may be entered into by the Company (e.g., a bank line
of credit or an agreement relating to the issuance of debt securities of the
Company) or by the terms of any Preferred Stock that may be authorized and
issued.
PLAN OF DISTRIBUTION
The Shares may be offered for sale from time to time by the Selling
Stockholder or their pledgees, donees, transferees or other successors in
interest, in the over-the-counter market, in privately negotiated transactions
or otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Shares may be sold
directly by the Selling Shareholders or through one or more broker-dealers. Such
broker-dealers may receive compensation in the form of
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<PAGE> 9
commissions, discounts or concessions from the Selling Shareholders and/or
purchasers of Shares for whom such broker-dealers may act as agent, or to whom
they may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Selling
Shareholders and such broker-dealers may be deemed to be underwriters within the
meaning of the of Securities Act, and any discounts, commissions and concessions
and any profit realized on any sales of the Shares may be deemed to be
underwriting compensation.
LEGAL PROCEEDINGS
On March 23, 1999, Michele LeBlanc filed a lawsuit against the Company
in United States District Court for the Central District of California, Western
Division. The complaint lists 10 separate counts including wrongful termination
and violation of Federal securities laws. Generally, the plaintiff seeks
unspecified compensatory damages, attorneys' fees and costs.
The Company believes that Ms. LeBlanc's claims are completely without
merit and intends to seek summary judgment as to all claims contained in Ms.
LeBlanc's complaint.
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<PAGE> 10
CAPITALIZATION
The following table sets forth (i) short-term debt and total
capitalization of the Company as of June 30, 1999, and (ii) the pro forma
capitalization at such date after giving retroactive effect to the exercise of
1,400,000 warrants by the warrant holders under this offering for shares of
Common Stock for total proceeds of $274,000.
Capitalization table
<TABLE>
<CAPTION>
ACTUAL PROFORMA
------ --------
<S> <C> <C>
Short-term debt, including current portion of capital
lease Obligation......................................... $ 500,832 $ 94,817
Long-term obligation debt................................ 0.0 0.0
Shareholders' equity:
Common Stock, $0.01 par value: 25,000,000 shares
authorized, 15,494,507 shares issued and outstanding
19,400,907 pro forma shares issued and outstanding....... 154,945 194,009
Additional paid in capital............................... 21,813,509 22,073,509
Pre-paid consulting cost................................. (230,331) (230,231)
Deficit.................................................. (22,300,140) (22,300,140)
----------- -----------
Total shareholders' deficit...................... (612,017) (67,998)
---------- -----------
Total capitalization............................. (612,017) (67,998)
========== ===========
</TABLE>
(a) Gives effect to the exercise of 1,400,000 shares of Common Stock by
the Warrant holders under this offering for net proceeds of approximately
$274,000. Does not give effect to any additional shares of Common Stock that may
be issuable pursuant to the exercise of any other outstanding options or
warrants. Also gives effect to the conversion of $406,017 of payable note (net
of unamortized debt discount) at June 30, 1999 into 2,506,400 shares of common
stock pursuant to the October 13, 1999 Restructuring Agreement.
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<PAGE> 11
PRICE RANGE OF COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
Prior to September 29, 1997, there was no market for the Company's
securities. From September 29, 1997 until January 7, 1998, one share of the
Company's Common Stock and one Redeemable Warrant (which entitled the holder to
purchase one share of Common Stock at a price of $5.50 per share through the
close of business on September 29, 2002, or an earlier redemption date) (each, a
"Redeemable Warrant" and collectively, the "Redeemable Warrants") traded as a
unit (each, a "Unit" and collectively, the "Units"). Beginning on January 9,
1998, shares of the Company's Common Stock and the Redeemable Warrants began
trading separately. In all cases, the Company's Units, Common Stock and
Redeemable Warrants traded on the NASDAQ SmallCap Market. On April 21, 1999, the
Company's stock was delisted and immediately began trading on bulletin board.
The table below sets forth the high and low closing bid prices for the Units,
the Common Stock and the Redeemable Warrants, as reported on the NASDAQ SmallCap
Market, during the period July 1, 1998 to April 21, 1999, and on the bulletin
board from April 22, 1999 through September 30, 1999. The quotations represent
inter-dealer quotations without adjustment for retail mark-ups, markdowns or
commissions and may not represent actual transactions:
<TABLE>
<CAPTION>
Common Stock Redeemable Warrants Units
--------------------- ------------------- --------------
High Low High Low High Low
------- ------- ------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended September 30, 1998 $ 2.63 $ 1.63 $0.625 $0.125 N/A N/A
Quarter Ended December 31, 1998 $ 1.50 $ 0.312 N/A N/A N/A N/A
Quarter Ended March 31, 1999 $ 0.875 $ 0.375 N/A N/A N/A N/A
Quarter Ended June 30, 1999 $ 0.49 $ 0.29 N/A N/A N/A N/A
Quarter Ended September 30, 1999 $0.2969 $0.2656 N/A N/A N/A N/A
</TABLE>
As of the October 18, 1999, the Company had outstanding 18,063,799
shares of Common Stock owned by approximately 128 holders of record, and
2,413,900 Redeemable Warrants owned by approximately 5 holders of record.
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1999
Net sales of $1,533,922 for the fiscal year 1999 were 71% higher than
the net sales of $894,758 for the fiscal year 1998. The increase is primarily
attributable the acquisition of FMS in December 1997; as a result, the revenues
for fiscal year 1998 include only six months' of revenues from the subsidiary as
compared to 12 months' revenues in fiscal year 1999.
Operating expenses of $9,250,551 for fiscal year 1999 were 9% higher
than the operating expenses of $8,524,380 for the fiscal year 1998. The increase
is primarily attributed to $2,674,453 of non-cash expenses for employees and
consultants related to stock issuances in 1999, offset by a decrease of
$1,599,150 in the loss on investment in joint venture related to the sale of
this investment in fiscal year 1999.
Interest expense of $489,552 for fiscal year 1999 was 37% lower than the
interest expense of $775,611 in fiscal year 1998. The decrease is primarily
attributed the reduction in average debt balances from fiscal year 1998 to
fiscal year 1999.
As a result of the above factors, net losses for the fiscal year 1999
were $8,141,287 or $0.96 per share as compared to net loss of $8,261,734 or
$1.91 per share in fiscal year 1998.
FINANCIAL POSITION
Total assets decreased from $3,784,920 at June 30, 1998 to $1,268,379 at
June 30, 1999. The decrease is primarily attributed to a reduction in cash of
$2,083,087 and in capitalized programming costs of $437,814. Cash decreases are
primarily due to the net loss, offset by cash infusions, as explained in more
detail below. Capitalized programming costs decreased due to amortization of
existing costs in excess of new costs incurred during the fiscal year 1999.
Total liabilities increased from $1,296,139 at June 30, 1998 to
$1,880,396 at June 30, 1999. The increase in primarily attributed to short-term
notes payable of $481,015, which are explained in more detail below.
Shareholders' equity (deficit) decreased from $2,488,781 at June 30,
1998 to $(612,017) at June 30, 1999. The decrease is primarily attributed to the
net loss of $8,141,287 in fiscal year 1999, offset by new issuances of stock,
warrants, and options to investors, employees and consultants.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in the next twelve months
will be to fund the costs of developing its Internet operations and to fund its
affiliate marketing efforts, satellite transponder costs, costs for uplink,
master control and transmission services, and other working capital expenses.
The Company's capital requirements have been and will continue to be
significant, and its cash requirements continue to exceed its cash flow from
operations. At June 30, 1999, the Company had a working capital deficit of
$1,263,901. Due to (among other things) the lack of meaningful revenues and
costs associated with program development and affiliate marketing efforts, the
Company has been substantially dependent upon various debt and equity private
placements and its initial public offering to fund its operations.
In fiscal 1999, the Company has obtained its liquidity from the
following sources: (i) exercise by option and warrant holders of their options
and warrants totaling 1,916,999 shares of $696,500; (ii) cash received from June
1998 private placement of $566,536 (after offering costs.); (iii) cash received
from June 1999 offering of $325,000 (after offering costs.); (iv) settled
accounts payable for stock, plus issued stock for services, freeing up cash for
other purposes totaling $2,674,453; (v) borrowed money from shareholders,
totaling $825,000; and, (vi) cash received of $850,000 from the sale of the
Company's interest in its joint venture.
After fiscal 1999, the Company has obtained liquidity from the following
sources: (i) borrowing from shareholders, totaling $225,000; and, (ii) cash
received from stock subscription, totaling $50,000.
On October 13, 1999, the Company finalized a debt restructuring and
infusion of additional capital with the noteholders and certain shareholders,
resulting in the following: (1) conversion of all existing debt and accrued
interest to equity (estimated at approximately $756,000) at $0.25 per share; (2)
commitment to receive an equity infusion from key internal shareholders totaling
up
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<PAGE> 13
to $600,000 at $0.25 per share; and (3) a 45-day option to noteholders to
acquire additional equity at $0.25 per share up to $756,000. This transaction
will bring up to $1.3 million in cash and an increase to equity of up to $2.1
million. The Company projects that such additional cash will be sufficient to
fund the Company's operations and capital requirements until April 2000. In
addition, the increase in equity will assist the Company in its efforts to
become re-listed on the NASDAQ Small Cap Market (see below). There are no
assurances that the Company will receive all the funds as contemplated in the
agreements or that such funds, if received, will not be expended prior to the
Company's projections due to unanticipated changes in economic conditions or
other unforeseen circumstances.
The Company has no current arrangements with respect to any additional
financing, and it is not anticipated that existing shareholders will provide any
substantial portion of the Company's future financing requirements.
Consequently, there can be no assurance that any additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. An inability to obtain additional financing when needed would have a
material adverse effect on the Company, requiring it to curtail and possibly
cease its operations. In addition, any additional equity financing may involve
substantial dilution to the interests of the Company's then existing
shareholders. In addition, the Company's equity is currently below the $2
million minimum required for the listing of the Company's shares on the
NASDAQ Small Cap Market and has been delisted. Unless the Company can
demonstrate the ability to raise the Company's equity to an amount in excess of
$2 million, and present a plan that will satisfy NASDAQ's other standards
regarding profitability and stock price stability maintaining minimum bid price
over $1.00, the Company's shares may not be registered on the NASDAQ Small Cap
Market.
Continued delisting from NASDAQ SmallCap hurts the marketability of the
Company's stock, and by extension, the market price of the Company's stock,
which would further hinder the Company's ability to raise additional capital.
The Company's independent public accountants have included a explanatory
paragraph in their report on the Company's June 30, 1999 Financial Statements,
stating that certain factors raise substantial doubt about the Company's ability
to continue as a going concern.
YEAR 2000 COMPLIANCE
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and date
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from the dates in the "1900's". These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that makes us of the date field.
STATE OF READINESS AND COST TO ADDRESS THE YEAR 2000 ISSUE
The Company's primary focus has been on its own internal systems. To
date, the Company is in the process of modifying or replacing software
components that it uses. The Company is also communicating with suppliers,
distributors, financial institutions and others with which it does business to
evaluate their Year 2000 compliance plans and state of readiness and to
determine the extent to which the Company will be affected by the failure of
others to remediate their own Year 2000 issues. There can be no assurance that
the systems of other companies on which the Company's systems rely will also be
timely converted or that any such failure to convert by another company would
not have an adverse effect on the Company's systems. Failure to complete the
system conversion in a timely manner could negatively impact the Company's
business, financial condition and results of operations. The cost for such
modifications and replacements is not expected to be material.
CONTINGENCY PLAN
Because the Company's Year 2000 conversion is expected to be completed
prior to any potential disruption to the Company's business, the Company has not
yet completed the development of a comprehensive Year 2000 specific contingency
plan. If the Company determines that its business or a portion thereof is at a
material risk of disrupting due to the Year 2000 issue, the Company will work to
enhance its contingency plan.
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<PAGE> 14
BUSINESS
GENERAL
RnetHealth.com, Inc. (the "Company") is a digital media company
converging digital technologies of the Internet and the cable television network
to deliver behavioral health programming, products and services to a national
audience.
The Company will deliver, via converging multimedia platforms,
market-driven sponsorship, video rich content, and programming providing local,
national and personalized information, diagnostic/therapeutic tools and
community; via an integrated behavior health prevention and wellness package
with unique e-commerce and transactional applications.
The Company's primary market is individuals whose lives are impacted,
either directly or indirectly, by behavioral health issues (e.g., eating
disorders, depression, substance abuse, stress, anxiety, teen and domestic
violence) as well as by the chronic diseases associated with such behavioral
health issues, (including heart disease, hypertension, diabetes, hepatitis and
others). The Company provides action plans for traditional forms of treatment,
and as an adjunct to those traditional forms, clinically based alternative
health solutions.
Presently, the Company is preparing for the launch of its new Internet
site, which will provide branded, integrated Web-based solution via a public
platform for consumers, as well as a platform for the behavioral healthcare
needs of individuals, employers, insurance companies, managed care
organizations, and health care organizations and providers, universities and
other organized communities. This new Internet site is expected to generate
various e-commerce opportunities and revenue for the Company.
The Company's broadband component, the Recovery Network cable television
programming service, is distributed nationally via a satellite agreement with
Group W Satellite Services, a division of CBS. Recovery Network Television (RNET
TV) is currently available in approximately Five million (5,000,000) cable
television households through agreements with multiple-system operators (MSOs),
individual cable systems, and government and educational institutions. Notable
MSOs include: Cablevision Systems, Telecommunications, Inc. (now an AT&T
company), Time Warner, Inc., Cox Communications, Cable One, Century
Communications, FrontierVisions, Knology and NCTC. The Recovery Television
Network drives traffic to the Company's web site, thereby enhancing the scope of
web-based community and providing subscription and e-commerce revenue generation
opportunities.
THE CABLE TELEVISION NETWORK
To date, Rnethealth.com's cable television programming service, Recovery
Network Television (RNET TV), has successfully secured approximately 5 million
homes for analog distribution of its 4 hour per day programming block without
paying any launch fees. The Company has distribution with Cablevision Systems,
Telecommunications Inc., Cox Communications, Cable One, Century, FrontierVision,
Knology, NCTC, and Time Warner. RNET TV's focus is on reality-based programming
and production , which is both informational and process-oriented, providing a
daily connection and support in the privacy of one's own home. The Company has
also identified and is targeting all local cable systems in the United States
with at least 50,000 subscribers and is engaged in a general marketing campaign
("Affiliate Marketing", discussed below) directed at gaining more viewers. The
Company intends to evolve into a full-time digital cable network, and in turn,
generate the traditional licensing fees from cable operators.
RNET TV will serve to market and drive traffic to RnetHealth.com, the
Company's website, where therein lie the Company's e-commerce revenue
opportunities through sales of books, tapes, herbs and vitamins, tele-counseling
services, and other behavioral health programming, services and products ideally
suited to its target audience. The Company's cable television network provides a
point of differentiation and competitive advantage for the RnetHealth.com
commercial product. The cable television network brands the interactive business
to television viewers and promotes the RnetHealth.com URL during all network
identifications. The television network provides grass roots marketing for the
interactive business to many powerful and influential community and civic
organizations. Traditionally it has been difficult to garner support from these
organizations (e.g. CADCA and National Guard). Yet, the Company has already
secured governmental support for a national branding and marketing initiative
called 24 STRAIGHT, a day of Prevention and Recovery sponsored by SAMHSA and
CSAT.
In May 1998, the Company entered into a five-year contract with Group W
Network Services, a division of CBS Corporation, to provide program origination,
master control operations, uplink and C-Band Satellite transponder services (the
"Transponder Contract"). The Transponder Contract allowed the Company to
broadcast 24 hours a day. On September 1, 1998, the
14
<PAGE> 15
Company began broadcasting a 4-hour block of programming that it repeated 6
times a day to 16 cable systems with approximately 3,000,000 subscribers. The
Company's programming schedule allowed cable operators the flexibility to
receive the Company's signal transmission at any time. In April 1999, the
Company and Group W amended the terms and conditions of their satellite services
agreement, thereby reducing the Company's monthly fees by 50%. The Transponder
Contract, however, does not provide the Company with access to subscribers as
did the Company's previous nesting contract. Therefore, in addition to its
current distribution, the Company is seeking 4 hours of broadcast time per day
in local cable systems in a large number of markets.
AFFILIATE MARKETING STRATEGY
The Company's strategy for obtaining affiliation agreements with cable
systems is based on the premises that cable systems are effectively monopolies
franchised by local governments, and in order to renew their franchises, many
cable systems will need to demonstrate a commitment to localism by providing
programming that benefits the local community, and that although it will be
difficult to obtain a full time dedicated channel for a new network until new
digital technologies expand channel capacity, more channel capacity will become
available over the next several years.
The first premise forms the basis for the Company's grassroots affiliate
marketing strategy. The Company believes that RNET TV's programming offers local
cable systems an opportunity to demonstrate their commitment to localism, which
provides cable operators a competitive advantage over other multi-channel
programming services. The Company's commitment to programming focusing on social
and behavioral health issues has helped to establish significant community
support for its programming. In addition, the formation by the Company of The
National Partnership for Recovery and Prevention (the "Partnership"), an
umbrella coalition of national recovery and prevention organizations, has helped
to establish Rnethealth.com's credibility and social significance. Based on such
successes, the Company believes that its ability to enter into affiliation
agreements has significantly improved. The Company is also seeking support from
other grassroots organizations, local politicians and law enforcement agencies
and officials, and believes that the socially responsible nature of RNET TV's
programming will help it obtain that support.
The Company believes that many cable systems are aware of the potential
benefits to them from airing Rnethealth.com's programming. Such benefits include
a demonstration of the cable system's support for localism and the political and
public relations benefits from offering socially responsible programming to its
viewers. With channel capacity currently so limited, however, the cost of
committing a dedicated, full time channel to RNET TV in order to receive those
benefits could be too high for some cable systems. Therefore, the Company is
asking cable systems to carry RNET TV for only 4 hours per day. Many cable
systems, including the 259 largest systems, have the capacity to provide those
hours. There can be no assurance, however, that such systems will continue to
have available channel capacity or otherwise be willing to air RNET TV. With the
support of local communities and politicians for socially responsible
programming, the Company believes, although there can be no assurance, it will
be able to enter into affiliation agreements for these initial 4 hours.
As demand increases, the Company expects to enter into additional
affiliation agreements with new cable systems. As digital channel capacity
increases, the Company believes it will be able to expand into a full time
digital network with associated license fees from cable operators. With its
programming now airing on a number of cable systems, the Company can concentrate
on generating e-commerce and advertising sales revenue through both the
television network and Internet business. The Company can also promote product
sales through Recovery Direct through the aforementioned media. There can be no
assurance, however, that the Company will be able to enter into additional
affiliation agreements with new cable systems or increase the number of daily
programming hours with existing affiliates or that the Company will be able to
expand into a full time digital network. There also can be no assurance that the
Company will be able to generate significant advertising or product sales.
The Company has secured distribution agreements with two MSOs, National
Cable Television Cooperative, Inc. ("NCTC") and Satellite Services, Inc.
("SSI"). The agreement with NCTC was entered into on May 18, 1998 (the "NCTC
Agreement"). NCTC represents over 8 million cable households comprising over
1,200 cable systems. Pursuant to the terms of the NCTC Agreement, the Company
has granted to NCTC the non-exclusive right to distribute the Company's
programming to its affiliate systems. The Company does not receive a license fee
for its programming. The NCTC Agreement has a term of five years.
The agreement with SSI was finalized on October 5, 1998 (the "SSI
Agreement", and collectively with the NCTC Agreement, the "MSO Agreements").
Pursuant to the terms of the SSI Agreement, the Company has granted to SSI the
non-exclusive right to distribute the Company's programming to systems owned by
Telecommunications, Inc. and partner systems. The SSI Agreement is effective for
an initial term of seven years and may be renewed for successive five-year
periods. The Company does not receive a license fee for its programming during
the initial term, but is entitled to negotiate for fees during any renewal
terms.
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<PAGE> 16
In addition to the foregoing, the Company has successfully negotiated
agreements with the following MSOs: Cablevision, Time Warner Cable, Bresnan,
Insight, Charter and Cable One. Although the Company has not signed a written
agreement with all of these MSOs, the Company's programming is currently carried
in approximately 1,600,000 households served by Cablevision. Since October 1998,
additional launches include Jones Intercable in Independence, Missouri; Knology
in Alabama, Florida and Georgia; Marcus Cable in Fort Worth, Texas; Time Warner
in El Paso, Texas, Jackson, Mississippi, and Indianapolis, Indiana;
Frontiervision; Comcast in Indianapolis, Indiana; Cable One in Modesto,
California; Tele-Communications, Inc. in Newark, California; Access TV in Carson
City, Nevada.
In 1999, the Network also launched on Denver Community Television (DCTV)
to approximately 112,000 cable households, and on Los Angeles City-controlled
Educational Access Cable Channel 36 to 600,000 homes.
The MSO Agreements represent terms, which have been agreed to between
the Company and the respective MSO. By reaching agreement with the MSOs, the
Company is now free to approach the affiliated local systems of NCTC and SSI
regarding the airing of its programming. Neither the MSOs nor the affiliated
local systems are required, pursuant to the MSO Agreements, to provide the
Company with any subscribers. The Company is initially seeking to enter into
short-term affiliation agreements with local cable systems with a term of one
year that provide for four hours of airing per day, with no license fees paid to
the Company, and have a 30-day termination clause. The agreements would also
provide that the programming can be aired on local origination and on public,
educational and government access channels or on other channels at the cable
system's discretion.
CONTENT AND MARKETING RELATIONSHIPS
Over the course of developing programming for RNET TV, the Company has
cultivated relationships with individuals and with organizations, which will
continue to play strategic roles in the further development of both the
television network and the Internet business. These include contributions in the
areas of content review and provision, service distribution and deployment,
market analysis, and community development.
Key elements of these relationships include:
The UNIVERSITY OF FLORIDA provides an academic affiliation for clinical
validation of information and programs. Under a grant for "alternative and
behavioral health Internet information", a wide range of contributions are
provided to the Company. Included is development of content, of electronic
models for delivering services, and of continuing professional on-line
education. Additionally, as an initial site for the company's Student Assistance
Program (SAP), University of Florida students will receive an alternative and
behavioral health care model, which is Internet based.
The NATIONAL PARTNERSHIP FOR RECOVERY AND PREVENTION (NPRP) consists of
more than 50 national recovery and prevention organizations representing over 40
million constituents. Providing information, advice, and communications, both to
and from, the organization's membership leverages established organizational
structures to further the goals of the organization and to promote the
distribution of the Company's media outlets.
THE BOARD OF ADVISORS provides professional and expert input to the
Company concerning editorial and content issues, current practices in clinical
environments, social and cultural viewpoints, and research perspectives. The
composition of the board includes highly respected individuals in the areas
associated with the Company's content.
Public/Private partnerships with government organizations such as the
NATIONAL CLEARINGHOUSE FOR ALCOHOL AND DRUG INFORMATION provide additional
resources in support of providing services under the RnetHealth.com banner.
Telephone information referral services, cross-site promotion links, and media
library services add to the reach and value of Rnethealth.com. The
community-based COPE program jointly developed with the "COMMUNITY ANTI-DRUG
COALITIONS OF AMERICA" extends the direct reach of the Company's media to the
local level. Examples of successful national programs include the "24 Straight"
initiative which was jointly developed by SAMHSA, THE NATIONAL GUARD, and
RnetHealth.com This program focused schools and local communities on issues of
substance abuse. Another example is the "Recovery Month" project, which targets
workplace issues of substance abuse in twenty cities. This year's conference is
"Addiction Treatment: Investing in People for Business Success" and is a
coproduction of the federal government's CENTER FOR SUBSTANCE ABUSE TREATMENT
(CSAT) , THE COMMUNITY ANTI-DRUG COALITIONS OF AMERICA (CADCA) and
RnetHealth.com.
RNET TV holds one of the largest libraries of behavioral health
programming in the world. Original productions by the Company and its Recovery
Direct subsidiary, and license agreements provide a resource for broadcast
operations. All electronic rights, including Internet distribution, are reserved
for original productions. Programs include celebrity talent such as Whoopi
Goldberg, Whitney Houston, Tom Selleck and John Bradshaw.
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THE INTERNET
The RnetHealth.com Web site, (URL www.rnethealth.com), will be designed
for both businesses and individual consumers. RnetHealth.com's web destination
will consist of two distinct Web sites -- a business-to-business site and a
public site directed to individuals via the Internet. The business-to-business
site will be supported by mass subscriptions through Employee Assistance
Programs ("EAP") suppliers whom serve employers, health plans, and various
government, university and other payers on a per month, per user basis. The
public site will emphasize community, chat forums, information and interaction
and is supported principally by ad revenue and e-commerce transactions.
RnetHealth.com will offer online services offering state-of-the-art
assessment tools, expert information sessions, and an extensive clinically
oriented library of information and treatment options.
BUSINESS-TO-BUSINESS. RnetHealth.com will be the single point of access
to electronic data interchange services, enhanced communications services, and
branded content and other Web-based offerings. For managed care companies,
insurance companies and employers, RnetHealth.com will augment current EAPs by
integrating multiple administrative, communications and research functions into
a single, easy to use Web-based solution.
The commercial site will be tailored to health plans and employers to
augment current EAPs. The site will be supported by mass subscriptions through
EAP suppliers who serve employers, health plans, and various government,
university and other payers on a per month, per user basis.
Increasing concern over the rising cost of healthcare in the United
States has caused a shift from fee-for-service reimbursement to managed care
forms of reimbursement such as capitation and fixed fees. These changes have led
many of the current EAPs in the United States to seek ways to improve
efficiency.
Many EAPs are intensive users of administrative, communications and
information services. The Company believes that a significant opportunity exists
for the EAPs to use the Internet to achieve measurable cost savings and improve
the quality of mental and behavioral health care.
Health and medical information is one of the fastest growing areas of
interest on the Internet. According to Media Metrix, an independent Web research
company, health care related content was the second most popular subject of
Web-based information retrieval searches in 1997. According to Cyber Dialogue,
an independent research company, approximately 70% of the persons searching for
health and medical information on the Internet believe the Internet empowers
them by providing them with information. Cyber Dialogue also indicates that
during the 12-month period ended July 1998, approximately 17 million adults in
the United States searched online for health and medical information, and
approximately 50% of these individuals made off-line purchases after seeking
information online.
Furthermore, Cyber Dialogue estimates that the number of adults in the
United States searching for online health and medical information will grow to
approximately 30 million in the year 2000, and they will spend approximately
$150 billion for all types of health-related products and services off-line.
An independent research company, Jupiter Communications, estimates that
expenditures for online health and medical advertising will grow to
approximately $265 million by 2002. The Company believes that RnetHealth.com
will have a significant opportunity to capitalize on multiple revenue
opportunities, including recurring subscription, advertising and sponsorship
revenue.
Key elements of RnetHealth.com's strategy will include being first to
market with an integrated solution for the administrative, communications and
information needs for EAPs, building recognition of our brand, leveraging our
strategic relationships and the sales forces of our strategic distribution
partners, enhancing RnetHealth.com offerings, engaging in complementary
acquisitions of technologies, products and services and capitalizing on multiple
revenue opportunities. RnetHealth.com believes that it has a competitive
advantage due to its strategic relationships and integrated Web-based solution.
RnetHealth.com plans on engaging in a marketing and advertising campaign to
increase awareness of the RnetHealth.com brand among EAPs and the public, as
well as entering into strategic relationships with behavioral, healthcare
providers and online market leaders to assist in rapidly distributing and
building RnetHealth.com's brand awareness.
RnetHealth.com also plans on providing access to premium behavioral and
healthcare content via relationships with various content providers. The Company
intends to introduce additional content and enhanced services, through strategic
relationships with other healthcare content providers.
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RnetHealth.com plans on becoming the leading national brand on the
Internet and corporate Intranets delivering the online provision of objective
information and high integrity resources for those in need help with work or
life related issues. RnetHealth.com will take advantage of the latest
developments in convergent technologies where the Internet and broadband
television provide access to online services. Recovery Network is the only
television network devoted to behavioral health programming. RnetHealth.com
features unique strengths with its partners including: a University affiliation
with the Brain Institute at the University of Florida; a recognized leader in
the Behavioral Health Industry in its Medical Director, Dr. Mark Gold; and a
pending relationship with the largest managed behavioral care company in the
country. Services will include an Internet/ Intranet site that augments
behavioral health benefit plans, which could be integrated into national health
plans as a gateway between medical benefits and behavioral health benefits. This
electronic Behavioral Health Benefit Plan will be supported by capitated monthly
subscriptions through behavioral health benefit providers who serve employers,
health plans and various government, university and other third party payers.
RnetHealth.com will provide Internet accessibility to a robust and
compelling database of information, educational materials and provider
resources, integrated as a supplemental mode of service delivery to our vendors.
Information is the important factor in helping employees and dependents
lead a more balanced and productive life at work and at home. RnetHealth.com
also offers a broad range of consulting and education resources that employees
and dependents can use to expand their personal expertise. These topics range
from child development, to emergency home repair, to conflict resolution in the
workplace. Online Internet access to skilled social workers with years of
experience in solving a unique range of personal, social and economic issues
will be available in the safety and security of the subscribers' homes.
RnetHealth.com will provide ongoing online support, resources and
counseling to help expatriate and foreign national employees and their families
adjust to international assignments. Special online services will be available
for companies that want to develop policies and systems to prevent crises in the
workplace. These services are designed to help reduce employee trauma and
related costs and therefore create a safer, healthier and more productive
workplace. RnetHealth.com will provide a broad selection of training programs
that address topics ranging from everyday personal issues to international
business practices. Training programs will also be designed specifically for
managers, supervisors and executives.
RnetHealth.com will provide online Internet assessments to match callers
with the most appropriate provider, based on individual needs. The client's
provider will manage individual cases. An alternative electronic EAP-driven
model that partners with a claims payer to avoid conflict of interest, which
could compromise sound clinical decisions will be an effective managed care
tool. RnetHealth.com will provide short and long-term online substance abuse
case management for all company-mandated referrals, including drug test
positive, DOT drug test positive and performance attendance behavior.
THE PUBLIC SITE. The public will have access to the RnetHealth.com web
site, which will include premium and proprietary health and behavioral content,
chat rooms, message boards, personalized healthcare information and e-mail
updates.
RnetHealth.com's objective is to become the Web's premium brand for
behavioral and health care related services.
Through heavy promotional rotation of the web address on the cable
television network, Rnethealth.com's cable television programming service will
market the Web site and web-based services. The public site emphasizes
community, chat, forums, information, and interaction. This site will be
supported principally by advertising revenue and e-commerce transactions.
For consumers, RnetHealth.com provides premium, branded content to
assist consumers in making informed decisions, personalized information about
specific health and behavioral conditions targeted according to the profiles of
individual consumers, and content-specific online communities that allow
consumers to participate in real-time discussions and support networks via the
Web.
RnetHealth.com has determined that the growing behavioral health needs
of the world's population can be met in a cost-effective manner through the
utilization of online electronic delivery systems. Globally more and more
consumers are increasingly interested in using online services and the Internet
to share information and ideas and discover "New Medicine" opportunities for the
treatment of and relief from a wide range of clinical problems in the behavioral
health area. RnetHealth.com is dedicated to creating a "Behavioral and
Alternative Health" consumer based Internet business that addresses all of these
issues. RnetHealth.com will specialize in the production of online forums with
the intent of assisting its members to make online activity a part of their
daily lives and communications. The Company believes that through engagement in
moderated chat sessions, online lectures (led by experts in the field of
behavioral and alternative health) and open forums, the Company will attract and
retain active members. The cornerstone of our efforts will be the strong
commitment to the most current clinical and editorial content. RnetHealth.com's
commitment to community will create extremely attractive, comfortable, and
interesting neighborhoods in the digital global village.
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RnetHealth.com currently targets the two fastest growing communities on
the Internet: Alternative and Behavioral Health. The consumer populations that
make up these communities are rapidly adopting the use of online services and
the Internet to build and enhance communication.
The Company's Internet business is in development stage and has not yet
generated any revenues. The Company believes that the generation of meaningful
revenues will depend on its ability to enter into license agreements with Health
Care Entities and upon further development of its products. The Company will
seek to generate revenues from its Internet business from advertising sales,
monthly subscriber fees generated from the web site, merchandising and from
Health Care Entities and employers for delivering mental and behavioral health
information and service to their members. Although the Company believes that the
Internet business will provide the Company with significant opportunities
relating to an interactive on-line business, there can be no assurance that it
will be commercially successful.
ECONOMIC BASIS OF BUSINESS ELEMENTS
The Company bases its profit centers on both its television network
and on its Internet activities. The Internet-related activities include two
major elements: a business-to-business application and a public/consumer
application.
HELP LINE. In March 1996, the Company commenced operations of a toll
free help-line and referral service for the viewers of RNET TV (the "Help
Line"). During the hours, which Rnethealth.com is airing, the Company displays a
toll-free telephone number for viewers to call for information about how to
obtain additional help in their communities. Telephone calls are answered seven
days a week during the hours of 6:30 to 7:30 a.m. (EST) and Mondays to Fridays
during the hours of 9:00 a.m. to 5:00 p.m. EST) by a trained crisis response
counselor provided to the Company by the Substance Abuse and Mental Health
Service Administration (SAMHSA) at no cost to the Company.
To the extent that the Company enters into affiliation agreements to air
RNET TV in additional communities, the Company expects to expand caller capacity
of the Help Line, as well as expand its existing national database of local
groups, treatment centers and other sources of help and information. The Company
also intends to use the projected expanded call center capacity to also offer
recovery and prevention-related products and services directly to its viewers.
The Company does not generate any revenues from the Help Line, and does
not receive any fees or commissions for this service, including from referrals
made by the Help Line. The Company operates the Help Line solely to provide
support to its viewers and as a community service. The Company also expects that
providing the toll-free Help Line will help build and maintain viewer loyalty
and support for RNET TV.
NATIONAL PARTNERSHIP FOR RECOVERY AND PREVENTION. National Partnership
for Recovery & Prevention (the "Partnership"), an umbrella coalition of national
recovery and prevention organizations, was formed in November 1996 to work in
conjunction with the Company to employ the Company's interactive media services
to develop and distribute effective and accurate information concerning
alcoholism and addiction. The Company's goal is to provide a Partnership of
prominent national prevention and recovery organizations, public figures who are
passionate about recovery and prevention, and corporations and institutions that
are willing to support the Company's mission.
To date, the Company has identified and partnered with more than 50
recovery and prevention organizations representing over 40 million constituents.
Member organizations of the Partnership currently include African American
Parents for Drug Prevention, Community Anti-Drug Coalitions of America, Dharma
Associates, Gateway Foundation, Hands Across Cultures, ISA Associates, National
Asian Pacific American Families Against Substance Abuse, National Association of
Addiction Treatment Providers, National Drug Prevention League, National
Families in Action, National Hispanic/Latino Community Prevention Network,
National Parents Resource Institute for Drug Education, National Treatment
Consortium, Physicians for Prevention, Prevention Intervention and Treatment
Coalition for Health, The Bralove Group, The Miami Coalition for a Safe and Drug
Free Community and The Village.
Depending on their interests and abilities, partners may have the
opportunity to review and comment on Rnethealth.com's television programming and
Internet content, provide ideas for programming and content that is of interest
to their constituencies and, in some cases, produce programming. Rnethealth.com
may also air public service messages from the partners and otherwise help them
disseminate information that is important to them.
With a national platform, the Partnership will seek to help focus the
attention of government and society on the issues of interest to the
Partnership's members and also foster better communication among its members,
their constituencies and the
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communities they are designed to serve. The Company believes that the member
organizations of the Partnership will be instrumental in helping the Company
demonstrate to cable operators a high level of community support for
Rnethealth.com and how carriage of the Company's programming can help the local
operator fulfill the promise of localism. The Company believes that the
individual constituents of the Partnership's member organizations will account
for a significant portion of the initial audience for Rnethealth.com's
programming, and the Company expects that the Partnership will communicate to
its constituents information about Rnethealth.com's programming schedule and
availability.
RECOVERY DIRECT. The Company believes that the market for products and
services addressing social and behavioral health issues is significant. The
Company also believes that, because it is attempting to create a nationwide
medium specifically targeting this market, if successful, it will be in a unique
position to offer such recovery and prevention-related products and services.
The Company has formed a subsidiary, Recovery Direct, through which it will seek
to develop recovery and prevention-related products and services to market on
Rnethealth.com and through RNET TV. The Company intends for Recovery Direct to
offer a variety of self-help and recovery and prevention-related products,
including videos of the Company's programming aired on Rnethealth.com. In
addition, the Company intends for Recovery Direct to offer tapes and videos by
other well-known individuals in the recovery field. Recovery Direct currently
sells recovery-related audio and videotapes to the institutional market under
the trade name Recovery Direct, Inc. (formerly FMS). The Company is expanding
Recovery Direct's offerings to consumers and simultaneously broadening its
traditional marketing and distribution (i.e. catalog and phone sales) to include
and emphasize on-line marketing and sales. The Company will also seek to enter
into arrangements with third parties to provide or develop recovery and
prevention-related products and services and to research opportunities for the
direct marketing of products advertised on Rnethealth.com through a toll-free
telephone number.
MEDIA SYNERGY
RNET TV provides an extremely valuable vehicle for driving traffic to
RnetHealth.com. Increasingly, non-Internet marketing tools are being cited as
providing highly effective techniques for driving traffic to a web site
(Forrester Research: Driving Site Traffic, 1999). Television ranks among the
most desirable methods for this marketing, but because of its high cost, it is
often employed on a limited basis or not employed at all. RnetHealth.com, with
its own television network, commands a highly valued asset for promotion of
visits to the web site.
Additionally, because of the targeted nature of Rnethealth.com
Television (RNET TV) viewer demographic, the synergy between the broadcast
medium and the web site is amplified and enhanced. Broadly addressed concerns
which are presented on television can be explored in depth on the web site.
Information customized for the individual viewer's circumstances can personalize
the television content. The converse of the relationships between the media is
also valid: television provides the media-rich delivery of audio and visual
information, which is currently constrained by the technology available to most
web users today. As broadband delivery becomes widely deployed, the television
content enjoys the role of a very valuable, exploitable asset.
COMPETITION
TELEVISION COMPETITION. RNET TV will compete with all other existing and
planned television networks and other television programming for available air
time, channel capacity, advertiser revenue and revenue from license fees. Many
of these television networks and producers of television programming are
well-established, have reputations for success in the development and operation
of television networks and/or development of television programming, have
established significant viewer loyalty and have significantly greater industry,
financial, marketing, programming, personnel and other resources than the
Company. In addition, if cable television channel capacity increases as the
Company expects competition from smaller competitors and other start-up
television networks could increase significantly.
Although the Company is not aware of any television network with
programming directed at social and behavioral health issues, there are an
increasing number of recently introduced or planned cable networks which focus
on overall life-style, self-improvement and health themes and there are numerous
programs which address social and behavioral health issues.
Such networks include, America's Health Network and Discovery Health,
which provide daily live programming and prerecorded programming relating to
health issues, The Health Channel, which provides programming about health,
medicine and wellness, Health-Net, an interactive health-related program aimed
at aging baby boomers, and Jones Health Network, which provides instruction to
persons seeking credentials or accreditation in the health field. Moreover,
because RNET TV's programming is intended to provide information and support to
persons facing social and behavioral health issues, RNET TV and the Company's
recovery and prevention-related products and services will compete with other
products and services which perform similar functions, such as support groups,
self-help videos, audio cassettes and books and helplines. There can be no
assurance that the Company will be able to successfully compete for airtime,
channel capacity, advertiser time or viewership.
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ONLINE COMPETITION. There are several potential competitors in the
Behavioral Health and CAM or alt.med. marketplace:
Healthshop.com is partnered with Lycos, and sells natural healthcare
products online. They carry over 6,000 brand-name items, offer a newsletter, and
have free shipping on offered products.
Naturemade.com sells products manufactured by Pharmvite Inc. Partnered
with national retailers, naturemade.com offers consumers in-store literature on
products and a toll-free number to call to determine their specific needs.
Founded in 1972, they are privately held.
PVSVitamins, a division of PharMor, has an anchor store at Shopnow.com;
there, this partner of Vitamin World and Rexall Sundown sells products from all
manufacturers. The emphasis is on advertising and marketing products rather than
providing content or community.
Mothernature.com, founded in 1995, they have raised $223 million in
1998-99 from venture capital. They have a keen awareness of the importance of
building a credible content site with varied resources and attempts at
community. They are well financed and well marketed.
Greentree Nutrition has raised more than $14 million in venture capital
and has recently purchased Acumin and VitaSave. They see their main rivals as
stores like GNC and online newcomers such as mothernature.com.
RnetHealth.com is able to compete successfully against these comparative
newcomers to the field, because RnetHealth's online platform provides a
multimedia approach and behavioral health and altmed has a continuing interest
in promotional opportunities surrounding our "Drug World" feature. The
credibility this will bring to the sales division as it launches will be
significant.
Other competitors to RnetHealth.com are poorly established or sparsely
attended. The 12-Step and recovery groups online are long established on
CompuServe, but the total monthly attendance is less than the projected average
week's attendance on RnetHealth.com, and ad sales are non-existent.
RnetHealth.com provides a significant Sponsorship opportunity. CompuServe's
fortunes have declined sharply in the past five years, and Prodigy has virtually
shut down though is now relaunching after a recent IPO.
The Internet has dozens of active informational sites, mail lists, and
newsgroups for both behavioral health, alternative medicine content and
addiction recovery. As yet, none of these Internet sites has a professional,
well supported, and well attended content structure and community. The strongest
offerings on the Internet may have a small amount of interesting content, but no
sense of community, and weak advertising draw.
GOVERNMENT REGULATION
CABLE TELEVISION. The Television industry is subject to extensive and
frequently changing federal, state and local laws and substantial regulation
under these laws by governmental agencies, including the Federal Communications
Commission ("FCC"). Regulations governing the rates that can be charged to
subscribers by cable systems not in markets subject to effective competition
from other multichannel video program distributors could adversely affect the
ability of cable systems with limited channel capacity to finance rebuilding or
upgrading efforts to increase channel capacity or otherwise restrict their
ability to add new programming such as Rnethealth.com.
In addition, federal "must-carry" rules requiring cable operators to
devote up to one-third of their channels to carriage of local commercial TV
broadcast stations (and additional channels for noncommercial educational TV
stations); commercial leased access rules designating 10% to 15% of system
channels for lease by unaffiliated programmers; and local regulatory
requirements mandating additional channel set-asides for public, governmental
and educational use could reduce channel availability, which might otherwise be
available for Rnethealth.com on many cable systems. Statutory provisions and FCC
rules governing relationships among cable systems and competing forms of
multichannel video program distribution, as well as the relationships between
the Company and its cable system affiliates could adversely affect the
marketability of the Company's programming and the ability of the Company to
enter into arrangements for the distribution of its programming.
In addition, the cable systems and radio stations that carry the
Company's programs are regulated by the FCC and, therefore, are subject to its
rules and policies, such as those relating to sponsorship identification,
broadcast of indecent language, provision of
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equal opportunities for political candidates and related measures pertaining to
program content and format. Failure of the Company's programs to comply with one
or more of these rules could subject the cable systems to FCC fines or other
sanctions, adversely affect the Company's relationship with such entities and
result in the discontinuation of carriage of the Company's programming by such
entities.
INTERNET. Internet and state regulation governing interactive or on-line
information services and potentially affecting the activities of the Internet
business is currently evolving. Regulations governing purchases of information
services via toll-free telephone calls and laws governing obscene, indecent, or
otherwise unlawful communications have been adopted, and there can be no
assurance whether such laws and regulations will be applied to, and therefore
affect, the business and operations of RnetHealth.com. Additional laws and
regulations are currently being considered by the federal government and many
state and local governments.
There can be no assurance that these or existing laws or regulations
will not be applied in a manner that will adversely affect the Company's
business or operations. Moreover, the FCC currently is considering proposals
that could increase the charges most individuals and entities pay to access
Internet and on-line services, which, if adopted, could adversely affect the
Company's business or operations.
The FCC does regulate common carriers whose services are used for
purchases of information services via toll-free telephone calls or pay-per-call
services, which regulation could affect RnetHealth.com. The Federal Trade
Commission also has jurisdiction over the provision of such services. Among the
FCC's regulations are disclosure requirements and other prerequisites to
charging calling parties for such services. The Communications Decency Act ("CD
Act") would make it unlawful to: (i) knowingly send to a minor or display in a
manner available to a minor "obscene", "indecent" or "patently offensive"
communications using a telecommunications device or on-line service, (ii) send
such a communication to anyone with the intent to annoy, threaten or harass; or
(iii) allow a telecommunications facility under one's control to be used for
such purpose. A preliminary injunction against enforcement of the CD Act with
respect to indecent or patently offensive communications has been affirmed by
the United States Supreme Court, which found the CD Act's provisions to violate
the First Amendment. Although it is unlikely that the enjoined provisions of the
CD Act will ever become effective, there can be no assurance that information
content made available on or through the RnetHealth.com's offerings, by the
Company or by users of those offerings would not violate the CD Act, if it were
to become effective, or similar legislation that Congress might enact in the
future, or that attempts to implement defenses to such legislation would not
adversely affect the Company's business or operations. Federal laws dealing with
obscenity and child pornography as well as various state laws similar to those
laws or to the CD Act may also apply to information content available on or
through the Internet business's offerings. There is no assurance that those laws
will not be applied in a manner that will adversely affect the Company's
business or operations.
Proposals for additional or revised statutory or regulatory requirements
are considered by Congress, the FCC and state and local governments from time to
time, and a number of such proposals are under consideration at this time. It is
possible that certain of the provisions and requirements described herein are
now, and in the future may be, the subject of federal or state legislation,
agency proceedings or court litigation. It is not possible to predict what
legislative, regulatory or judicial changes, if any, may occur or their impact
on the Company's business or operations.
PROPRIETARY INFORMATION
The Company has pending registration applications in the United States
Patent and Trademark Office for the trademarks. The Company uses the "Recovery
Network" a registered trademark in connection with its programming. The Company
believes that its trademarks and copyrights, including "Rnethealth.com" trade
name and the signature look of the network, have significant value and are
important to the marketing and promotion of Rnethealth.com and the Company's
recovery and prevention-related products and services. Although the Company
believes that its trademarks and copyrights do not and will not infringe
trademarks or violate proprietary rights of others, it is possible that existing
trademarks and copyrights may not be valid or that infringement of existing or
future trademarks or proprietary rights may occur. In the event the Company's
trademarks or copyrights infringe trademarks or proprietary rights of others,
the Company may be required to change the name of its network, proposed
television shows, radio talk show or obtain a license. There can be no assurance
that the Company will be able to do so in a timely manner, on acceptable terms
and conditions, or at all. Failure to do any of the foregoing could have a
material adverse effect on the Company. In addition, there can be no assurance
that the Company will have the financial or other resources necessary to enforce
or defend a trademark infringement or proprietary rights violation action.
Moreover, if the Company's trademarks or copyrights infringe the trademarks or
proprietary rights of others, the Company could, under certain circumstances,
become liable for damages, which could have a material adverse effect on the
Company.
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The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect its concepts, ideas and the documentation of
its television programming concepts in development. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop similar know-how or obtain access to the Company's
know-how, concepts, ideas and documentation. Furthermore, although the Company
has or expects to have confidentiality and non-competition agreements with its
employees, and appropriate consultants, there can be no assurance that such
arrangements will adequately protect the Company's trade secrets or that others
will not independently develop programming similar to that of the Company.
INSURANCE
The operation of a television, radio, Internet and interactive media
business subjects the Company to possible liability claims from others,
including viewers, listeners and callers to the Help Line for claims arising
from the unauthorized use of name or likeness, invasion of privacy, defamation
and slander. The Company maintains general liability insurance (with coverage in
amounts of up to $1,000,000 per occurrence and $1,000,000 per annum), including
insurance relating to personal injury and advertising injury, in amounts which
the Company currently considers adequate.
EMPLOYEES
The Company currently has 24 full time employees engaged in
affiliate/marketing sales, programming, accounting, and in general
administration. The Company also from time to time retains a number of marketing
and political consultants to support its grassroots marketing efforts nationwide
and in local communities.
PROPERTY
The Company leases offices of approximately 2,500 square feet in Santa
Monica, California pursuant to a five-year lease that expires in May 2001. The
monthly rental is currently $6,500 per month. The Company has an option to
extend the lease through May 2004 at a price to be negotiated by the parties
based upon then prevailing rental rates.
Our subsidiary Recovery Direct leases offices of approximately 2,805
square feet in Carpinteria, California, pursuant to a three-year lease that
expires November 2001. There is no renewable option with this lease, but a
renewed lease has been offered.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert Portrie 50 Chairman of the Board of Directors
George H. Henry 45 Chairman of the Executive Committee of the Board of Directors and Director
William D. Moses 37 Director and President
Charlotte Schiff Jones 58 Director
Kevin Wall 47 Director
Marc Guren 44 Director
Jay Handline 45 Director and Vice President of Health Care Services
Wendy Borow-Johnson 48 President of Health Care Services
Stacey Romm 31 Chief Financial Officer
Brad Parobek 35 Sr. Vice President, Affiliate Sales
</TABLE>
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<PAGE> 24
ROBERT E. PORTRIE has been Chairman of the Board of Directors since
October, 1999. Mr. Portrie is also a Managing Partner of RCM Technologies, Inc.,
a New Jersey based consulting and staffing company. Mr. Portrie is a former
President and CEO of InfoMation Publishing Corporation, a subsidiary of CMGI.
Mr. Portrie spent 23 years at AT&T, where he served as President and Chairman of
the Board of AT&T InView. At AT&T, Mr. Portrie also chaired the product
architecture committee responsible for developing and integrating network based
applications as part of the Large User Study Program under the auspices of the
Chairman's office at AT&T and developed the first network based Wide Area
Network (WAN) deployment in the United States.
GEORGE H. HENRY served as Chairman of the Board of Directors from May
1997 to November 1998, and has been a director of the Company since December
1995. Since April 1986, Mr. Henry has been President of G. Howard Associates,
Inc., a private investment firm. Prior to April 1986, Mr. Henry was a Vice
President in the Corporate Finance Department of the predecessor of Schroder &
Co. Incorporated, an investment banking firm. Mr. Henry is a director of
PhoneTel Technologies, Inc., a publicly traded telecommunications company. Mr.
Henry is also Chairman and Chief Executive Officer of Access Television Network
("ATN"). Mr. Henry is also a trustee of Mitchell College.
WILLIAM D. MOSES serves as President of the Company. Mr. Moses is
co-founder of the Company and has been a director of the Company since 1995. In
January 1993, Mr. Moses co-founded ATN and served as a director of ATN from June
1993 to June 1996. From July 1991 to December 1994, Mr. Moses was a managing
partner of Axiom Partners, a New York investment banking and brokerage firm.
From January 1992 to January 1994, Mr. Moses was a money manager for Oscar Gruss
& Co. From 1988 to 1991, Mr. Moses served as an independent financial
consultant. From 1986 through 1987, Mr. Moses was employed by Bear Stearns &
Co., Inc.
MARC D. GUREN has been a director of the Company since October, 1999.
Mr. Guren is also Manager and President of Acuity Capital, LLC, a venture
investment and advisory firm. Since 1984, Guren has been an independent business
and financial strategist and advisor for various computer and software companies
and Internet, online and healthcare companies, including BoxTop Interactive, iXL
Enterprises, and Personal Library Software. He was previously a Vice President
of the Roy Disney family's Shamrock Holdings, Inc. and subsequently worked with
media analyst Paul Kagan.
KEVIN WALL has been a director of the Company since October, 1999 and
Chairman of the Board of Advisors of RnetHealth.com since August, 1999. Mr. Wall
is Vice Chairman of the Board and Director of iXL Enterprises and served as
President of iXL-West and head of new ventures for iXL. Mr. Wall also founded
and served as President of BoxTop Interactive, which was acquired by iXL in
1997.
CHARLOTTE SCHIFF-JONES has been a director of the Company since July
1998. Since 1997, Ms. Schiff- Jones has been a consultant to the Company,
concentrating on affiliate marketing strategy and community outreach projects.
From 1995 to 1997, she was the president of Gamut Media, a strategic marketing
and creative services agency. From 1993 to 1995, she was a consultant to the
President and CEO of Time Warner Cable Programming; and from 1988 to 1993, she
was the president of Schiff-Jones Ltd., a consulting firm.
JAY HANDLINE serves as the Company's Executive Vice President and will
be overseeing the expansion of the Company's website and e-commerce move. Mr.
Handline successfully helped launch Lifescape 1to1, LLC (formerly
RecoveryNetInteractive, LLC) formed in August 1996, as a joint venture between
TCI Digital Health Group and RnetHealth.com, Inc. Prior to this, Mr. Handline
was involved in the start-up of the Company. In 1995, he served as Senior Vice
President of Business Development, in this capacity, Mr. Handline was able to
secure private equity capital and forge successful partnerships to aggregate
products, services and information from dozens of world-class partners.
WENDY BOROW-JOHNSON has been President, Health Care Services of
RnetHealth.com since October, 1999. Borow-Johnson is also President of Com-Med
Strategic Alliances, Inc. and was the former President and founder of Com-Med
Interactive, an electronic media packaging division for healthcare for
Medicus/DMB&B. Previously, Borow-Johnson was Vice President of Corporate
Relations and Consumer Affairs for the American Medical Association, founder and
President of American Medical Television, a joint venture of NBC and the AMA,
and Vice President of Marketing for Source Media's Interactive Channel.
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<PAGE> 25
STACEY ROMM joined the Company's Finance Department in September 1998.
She presently serves as the Chief Financial Officer. From 1995 to 1998, Ms. Romm
worked for International Home Improvement as the Financial Manager. Prior to
1995, Ms. Romm was in charge of the finance department for LaPlaya Plumbing.
BRAD PAROBEK serves as the Company's Senior Vice President of Affiliate
Sales. Mr. Parobek is a 13-year veteran of the Cable and Telecommunications
industry and served on numerous boards and committees throughout his tenure.
From 1989-1995, he was a member of the Board of Directors of the North Central
Cable and Telecommunications Association. He presently is a member of the Board
of Directors of Rocky Mountain Empire Venture and Nanny's Baby Wraps in Denver,
CO.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Non-employee directors
do not receive cash compensation for serving as directors. The Company
reimburses directors for reasonable travel expenses incurred in connection with
their activities on behalf of the Company. Each member of the Board of Directors
is eligible to participate in the Company's 1996 Board of Directors and Advisory
Board Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
In October 1996, the Company established a Finance and Compensation
Committee of the Board of Directors which reviews the compensation for all
officers and directors and affiliates of the Company. The Committee also
administers the 1996 Employee and Consultants Stock Option Plan, the 1996 Board
of Directors and Advisory Board Retainer Plan, the 1997 Management Bonus Plan,
and the 1998 Stock Option Plan. Mr. Henry is Chairman of the Finance and
Compensation Committee and Messrs. Moses and Masters (until his resignation in
May 1999) are also members of the Finance and Compensation Committee.
In May 1997, the Company established an Audit Committee of the Board of
Directors that meets with management and the Company's independent public
accountants to review the adequacy of internal controls and other financial
reporting matters. Mr. Henry is the Chairman of the Audit Committee.
In October 1996, the Company established an Executive Committee of the
Board of Directors which is responsible for overseeing strategic planning and
operations for the Company. Mr. Henry is the Chairman of the Executive Committee
and Messrs. Moses and Masters (until his resignation in May 1999) are also
members of the Executive Committee.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to executive officers that received compensation in excess of $100,000 (the
"Named Executive Officers") during fiscal 1998 and 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
YEAR ENDED SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION JUNE 30, SALARY($) BONUS($) OPTIONS(#) COMPENSATION
--------------------------- ---------- ---------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
William D. Moses, Chief Executive Officer 1998 $182,765 -- 50,000 --
1999 $336,037 -- 316,667 --
John Wheeler, Sr. Vice President of Operations 1998 $182,373 -- 50,000 --
1999 $186,349 $22,420(a)(b) 5,000 85,179(f)
Gary Horowitz, President 1999 $155,099(c) -- 267,915 --
Gregory Richey, Chief Financial Officer 1998 $163,335(d) -- 50,000 --
Donald Masters, Executive Vice President 1998 $148,420(e) -- 50,000 --
</TABLE>
- ------------
(a) Bonus paid to Mr. Wheeler pursuant to contact terms of employment
agreement, wherein Mr. Wheeler received commission per subscriber at
$0.01 per subscriber.
(b) Includes accrued but unused vacation paid to Mr. Wheeler upon expiration
of his employment agreement. Mr. Wheeler's employment agreement was not
renewed.
(c) Mr. Howoritz resigned from the Company in April 1999.
(d) Mr. Richey resigned from the Company effective September 18, 1998.
(e) Mr. Masters resigned from the Company effective May 1, 1999.
(f) Compensation paid for vacation pay owed per Mr. Wheeler's contract
which expired in May 1999 and compensation for letter agreement dated
January 26, 1999 disclosed in Item II Section III paid in unregistered
shares.
The following table sets forth information concerning the grant of stock
options to the Named Executive Officers during fiscal 1999:
25
<PAGE> 26
<TABLE>
<CAPTION>
OPTION GRANTS DURING LAST FISCAL YEAR
NAME NUMBER OF SHARES % OF TOTAL OPTIONS EXERCISE PRICE ($ EXPIRATION DATE
UNDERLYING OPTIONS GRANTED TO EMPLOYEES PER SHARE)
GRANTED IN FISCAL YEAR
<S> <C> <C> <C> <C>
William Moses 200,000 13% $0.31 05/11/02
50,000 4% $1.625 08/03/02
66,667 5% $1.56 08/03/02
John Wheeler 5,000 1% $0.59 01/12/04
Gary Horowitz 200,000 13% $0.43 01/02/04
5,000 1% $0.59 01/12/04
12,915 1% $1.81 10/19/03
50,000 4% $1.625 08/03/02
</TABLE>
No options of the Company were exercised by such persons during fiscal
1999.
OPTION REPRICING
In April 1998, the Board of Directors of the Company voted to approve
the repricing of options to purchase 435,986 shares granted under the Management
Bonus Plan and the 1998 Stock Plan, including options to purchase 62,915, 62,915
and 50,000 shares granted to Messrs. Moses, Masters and Richey, respectively.
Such repricing was effected by offering to exchange new options with an exercise
price of $1.56 per share, which was the fair market value of the Common Stock on
the date of repricing, for the options then held by such optionees. The new
options otherwise would have identical terms and conditions as the current
options. By repricing such options, the Company intends to reward key employees,
including the named executive officers, holding such options for their
contributions to the Company. In April 1999, approximately 655,925 options
previously granted under the 1997 Plan and 1998 Plan were canceled. These
options may or may not be re-issued at a later date.
EMPLOYMENT AGREEMENTS
Effective December 1, 1996, the Company entered into an employment
agreement with William D. Moses, the Company's Chief Executive Officer, which
expired on September 30, 1998. The employment agreement provided for a base
compensation payable to Mr. Moses of $12,000 per month through September 30,
1998. Pursuant to the agreement, Mr. Moses was entitled to participate in any
employee benefit plans and arrangements when and as implemented by the Company.
In the event of termination of Mr. Moses' employment by the Company, without
"good cause" (as defined in the employment agreement), Mr. Moses was entitled to
severance compensation equal to the lesser of his base salary and vacation
compensation due through September 30, 1998 and his base salary and vacation
compensation for one year, payable one-half upon termination and the balance
ratably over the following six months. In the event of termination of the
employment agreement by mutual agreement of the Company and Mr. Moses, Mr. Moses
was entitled to such compensation as is mutually agreed on between the Company
and Mr. Moses but in no event to exceed the amount of severance compensation
payable in the event of termination without "good cause." Mr. Moses agreed not
to compete with the Company during the term of the employment agreement and for
a period of two years after termination of his employment relationship with the
Company in the development or provision of media services or any other line of
business which the Company is engaged in or forms the intention to engage in
during this period. In the event of a "change in control" (as defined in the
employment agreement), Mr. Moses would have been deemed to have been terminated
without "good cause", and the covenant not to compete would have had no further
effect.
Effective December 1, 1996, the Company entered into an employment
agreement with Donald J. Masters, the Executive Vice President of the Company,
which expired on November 30, 1998. The employment agreement provided for a base
compensation payable to Mr. Masters of $10,000 per month through November 30,
1998. Pursuant to the agreement, Mr. Masters was entitled to participate in any
employee benefit plans and arrangements when and as implemented by the Company.
In the event of termination of Mr. Master's employment by the Company, without
"good cause" (as defined in the employment agreement), Mr. Masters was entitled
to severance compensation, equal to his base salary and vacation compensation,
at the option of the Company, for such period of time between one year and two
years that the non-compete covenant described below is in effect and such
severance compensation shall be payable one-half on the date of termination and
the balance shall be payable ratably over six months following the date of
termination. In the event of termination of the employment agreement by mutual
agreement of the Company and Mr. Masters, Mr. Masters was entitled to such
compensation as mutually agreed on between the Company and Mr. Masters but in no
event to exceed the amount of severance compensation payable in the event of
termination without "good cause." In addition, Mr. Masters agreed under certain
circumstances not to compete with the Company during the term of the employment
agreement and for up to two years after termination of his employment
relationship with the Company in any media business whose programming, content
or services address or relate to Recovery Issues or in any organization whose
primary business is offering products and services relating to Recovery Issues.
Effective May 13, 1997, the Company entered into an employment agreement
with John Wheeler, the Company's Senior Vice President of Sales and Marketing,
which expired on May 31, 1999. The employment agreement provided for a base
compensation payable to Mr. Wheeler of $12,000 per month through May 13, 1999.
In addition to the base salary, Mr. Wheeler
26
<PAGE> 27
received a commission payable quarterly in the amount of $.01 for each
additional subscriber household in excess of one million subscriber households
to which an affiliated cable system service delivers a minimum of two hours of
the Company's programming, so long as the household subscriber did not already
receive the programming through the Company's Nesting Contract or through any
other agreement under which the Company purchases carriage rights. Pursuant to
the agreement, Mr. Wheeler was entitled to participate in any employee benefits
plans and arrangements when and as implemented by the Company. In the event of
termination of Mr. Wheeler's employment by the Company, without "good cause" (as
defined in the employment agreement), Mr. Wheeler was entitled to severance
compensation equal to the lesser of his base salary and vacation compensation
due through March 13, 1999 and his base salary and vacation compensation for
ninety days, payable one-half upon termination and the balance ratably
semi-monthly over the compensation reference period. In the event of termination
of the employment agreement by mutual agreement of the Company and Mr. Wheeler,
Mr. Wheeler was entitled to such compensation as is mutually agreed on between
the Company and Mr. Wheeler but in no event to exceed the amount of severance
compensation payable in the event of termination without "good cause." Mr.
Wheeler agreed not to compete with the Company during the term of the employment
agreement for a period of one year after termination of his employment
relationship with the Company in the development or provision of recovery media
services or any other line of recovery media services which the Company is
engaged in or forms the intention to engage in during this period. Mr. Wheeler's
employment agreement expired on May 31, 1999. Mr. Wheeler was terminated upon
the expiration of his employment contract.
Effective May 1, 1997, the Company entered into an employment agreement
with Bill Megalos, the Company's Vice President of Production, which expired on
November 30, 1998. The employment agreement provided for a base compensation
payable to Mr. Megalos of $10,000 per month through November 30, 1998. Pursuant
to the agreement, Mr. Megalos was entitled to participate in any employee
benefit plans and arrangements when and as implemented by the Company. In the
event of termination of Mr. Megalos's employment by the Company, without "good
cause" (as defined in the employment agreement), Mr. Megalos was entitled to
severance compensation equal to his base salary and vacation compensation for 90
days, payable ratably over such 90 day period. In the event of termination of
the employment agreement by mutual agreement of the Company and Mr. Megalos, Mr.
Megalos was entitled to such compensation as is mutually agreed on between the
Company and Mr. Megalos but in no event to exceed the amount of severance
compensation payable in the event of termination without "good cause." Mr.
Megalos agreed not to compete with the Company during the term of the employment
agreement and for a period of one year after termination of his employment
relationship with the Company in the development or provision of recovery media
services or any other line of recovery media services which the Company is
engaged in or in which the Company forms the intention to engage with the active
participation of Mr. Megalos during this period.
Effective May 11, 1999, the Company entered into an employment agreement
with Jay Handline, the Company's Executive Vice President, for a term of three
years. The employment agreement provides for a base compensation payable to Mr.
Handline of $12,000 per month through May 11, 2002. In addition to the base
salary, Mr. Handline shall receive an option to purchase 400,000 shares of the
Company's common stock exercisable at the closing bid price on May 11, 1999. The
Option vests 1/4th upon execution of the agreement, 1/4th at the end of year 1,
1/4th at the end of year 2, and 1/4th at the end of year 3. Pursuant to the
agreement, Mr. Handline is entitled to participate in any employee benefit plans
and arrangements when and as implemented by the Company. In the event of
termination of Mr. Handline's employment by the Company without cause, Mr.
Handline is entitled to severance compensation equal to six (6) months salary if
terminated within the first year, nine (9) months salary if terminated within
the second year, and twelve (12) months salary if terminated within the third
year. In the event of termination of Mr. Handline's employment by Mr. Handline
without cause, Mr. Handline is not entitled to severance allowance. Mr. Handline
agrees, during or after the term of his employment, not to reveal confidential
information, or trade secrets to any person, firm, corporation or entity. For a
period of two (2) years after the end of employment, Mr. Handline shall not
control, consult to or be employed by any business similar to that conducted by
the Company.
STOCK OPTION PLANS
The Company has adopted six stock option plans: the 1996 Employee and
Consultants Stock Option Plan (the "Employee and Consultants Plan"), the 1996
Board of Directors and Advisory Board Stock Option Plan (the "Directors and
Advisory Board Plan"), the 1997 Management Bonus Plan (the "Management Bonus
Plan"), the 1998 Stock Option Plan (the "Stock Plan"), the 1999 Stock
Compensation Plan and the 1999 Stock Option Plan (the "1999 Option Plan"). The
Company has reserved an aggregate of 1,932,876 shares of Common Stock for future
issuance under these plans. All options granted or to be granted under these
plans are non-qualified stock options ("NQSOs") or incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as amended. The Management
Bonus Plan and the Stock Plan also provide for non-option awards, such as stock
appreciation rights and restricted stock awards.
PURPOSE. The purpose of the plans is to grant incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code and
non-qualified stock options as a means to provide an incentive to selected
directors, officers, employee and consultants to acquire a proprietary interest
in RnetHealth.com, Inc., to continue in their positions with us and to increase
their efforts on our behalf.
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<PAGE> 28
ADMINISTRATION. The plans are administered by the board or a committee
appointed by the board. Under the plans, the plan administrator has the
authority to, among other things: (a) select the eligible persons to whom
options will be granted, (b) determining the size, type and the terms of each
option granted, (c) adopted, amend and rescind rules and regulation for the
administration of the plans, and (d) decide all questions and settle all
controversies and disputes of general applicability that may arise in connection
with the plans.
OPTIONS. Each option granted under the plans is evidenced by an
agreement that states the terms and conditions of the grant. The exercise price
of an option granted under any of the plans shall not be less than 100% of the
fair market value of the stock at the time of grant. Each option plan granted
under the plans will be exercisable at the times and in the amounts determined
in accordance with the agreements. In addition the board, in its discretion, may
accelerate the exercisability of any option under any of the plans.
Options granted under the plans are not transferable and are only
exercisable by the grantee during the grantee's lifetime. Each option shall
terminate at the time specified in the agreements.
STOCK COMPENSATION PLAN
Effective February 19, 1999, the Company established the 1999 Employee
and Consultant's Stock Compensation Plan (the "Plan"). The purpose of the Plan
is to compensate employees and certain consultants of the Company for services
by issuing to them stock in lieu of cash payments. An aggregate of 1,500,000
shares of Common Stock are reserved for issuance under the Plan.
In June 1999, the Company established the Employee Stock Compensation
Plan (the "Employee Stock Plan") the purpose of the Employee Stock Plan is to
provide employees with an incentive to maintain the long-term performance and
profitability of the Company. A maximum of 1,300,000 shares may be issued
under the Employee Stock Plan.
NON-PLAN STOCK OPTIONS
The Company has granted 1,138,207 non-plan stock options to acquire
shares of Common Stock, which are outstanding as of June 30, 1999 and
exercisable at prices ranging from $0.28 to $5.00 per share.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The articles of incorporation of the Company provide for the
indemnification of the Company's directors and officers to the fullest extent
permitted by law. Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers or controlling persons of
the Company pursuant to the articles of incorporation and the corporation law of
the State of Colorado, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in such Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
As permitted by the Colorado Business Corporation Act, the Articles of
Incorporation provide that directors and officers of the Company will not be
personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for breach of a
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 7-108-403 of the Colorado statute relating
to unlawful distributions or (iv) for any transaction from which the director
derived an improper personal benefit. The Articles of Incorporation also provide
(subject to certain exceptions) that the Company shall, to the maximum extent
permitted from time to time under the law of the State of Colorado, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent permitted under such law as it may from time to time be in effect. The
Company's bylaws require the Company to indemnify, to the full extent permitted
by law, any director, officer, employee or agent of the Company for acts which
28
<PAGE> 29
such person reasonably believes are not in violation of the Company's corporate
purposes as set forth in the Articles of Incorporation. As a result of these
provisions, shareholders may be unable to recover damages against the directors
and officers of the Company for actions taken by them which constitute
negligence, gross negligence, or a violation of their fiduciary duties, which
may reduce the likelihood of shareholders instituting derivative litigation
against directors and officers and may discourage or deter shareholders from
suing directors, officers, employees and agents of the Company for breaches of
their duty of care, even though such an action, if successful, might otherwise
benefit the Company and its shareholders.
ADVISORY BOARD
The Board of Directors of the Company has established a Board of
Advisors (the "Advisory Board") to assist the Company in the development and
implementation of its long-term strategy and goals and to propose, adopt and
audit compliance by the Company with programming and business standards that are
consistent with the delivery of effective, non-exploitative, and non-biased
recovery based services. The Advisory Board will recommend to the Company's
Board of Directors the adoption of standards and practices to provide guidance
for the Company's employees in determining appropriate programming and online
content, advertising, and merchandise sales. The Advisory Board will advise on
technical matters and also serve as an independent voice for the recovery
community.
The Company has enlisted the membership of seven noted professionals in
the field of recovery, with nationally recognized expertise for their commitment
and contributions in the treatment of alcoholism and drug addiction, child
welfare issues, and the treatment and recovery field generally to serve on the
Advisory Board. The following persons serve on the Advisory Board:
DAVID BRALOVE is the founder of a law firm representing substance abuse
and behavioral care providers nation-wide, and is Board President of The
National Treatment Consortium.
DR. MARK GOLD is a Professor of Neuroscience, Psychiatry and Community
Health and Family Medicine at the University of Florida College of Medicine. Dr.
Gold has been a national leader in the field for 25 years leading treatment and
the general public toward a greater understanding of the nature of addiction and
its successful treatment. Dr. Gold has done pioneering research in tobacco,
alcohol, cocaine and opiate addictions and has been granted several patents for
his discoveries. Dr. Gold is widely recognized by his peers, the government, the
business community and the general public as a best selling author and addiction
expert.
EARNIE LARSEN is a nationally known lecturer on managing personal
relationships and overcoming dysfunctional behaviors, and an author and producer
of over 55 motivational self-help books and videos. He is the originator of the
process known as "Stage II Recovery" where one attempts to resolve life issues,
which often impede spiritual growth.
ROBERT LINDSEY is a veteran of over 20 years in the field of alcoholism
and drug addiction treatment. Mr. Lindsey is currently the Vice President of
Longview Associates, Inc., a consulting firm specializing in the design and
implementation of employee assistance programs. Prior to this, Mr. Lindsey
served as the Community Relations Director at the Betty Ford Center and as the
Executive Director of the New York State Council on Alcoholism and Other Drug
Addictions.
FATHER JOSEPH MARTIN is the founder of Ashley, Inc., a non-profit center
dedicated to the treatment of the chemically addicted. He is an internationally
recognized speaker and creator of the film "Chalk Talk", the principal
educational vehicle on alcoholism for most treatment centers in the country.
JOSEPH A PURSCH, M.D. is a nationally recognized psychiatrist involved,
since 1962, in the treatment and rehabilitation of individuals with addictive
behaviors. Dr. Pursch is the former Director of Alcohol Rehabilitation Service
at the Naval Regional Medical Center at Long Beach, California. An author and
syndicated columnist, Dr. Pursch has supervised drug-testing programs for
numerous sports events and has treated many public figures. Dr. Pursch has been
on the President's Commission on Alcohol and Drugs since 1979.
DAVID SMITH, M.D. is the founder and president of the Haight-Ashbury
free clinics. A specialist in the field of addiction medicine and clinical
toxicology, Dr. Smith is also the founder and executive editor of the Journal of
Psychoactive Drugs and is the president of the American Society of Addiction
Medicine (ASAM). He is a leader in the areas of treatment of addictive disease,
the psychopharmacology of drugs, and new strategies in the management of drug
abuse problems.
The Advisory Board meets semi-annually on a formal basis, and deals with
individual issues as they arise. Advisors serve terms of three years, are
compensated for meetings attended, and are eligible to participate in the
Company's 1996 Board of Directors
29
<PAGE> 30
and Advisory Board Retainer Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 26, 1998, Mr. Henry entered into an agreement with Recovery
Interactive. Pursuant to such agreement, Mr. Henry is entitled to a percentage
of any proceeds from a "change of control" (as defined in the agreement) of
Recovery Interactive which exceeds a base amount.
Charlotte Schiff-Jones, a director of the Company, provides consulting
services in the areas of affiliate marketing and strategic business development.
During the fiscal year ending June 30, 1998, Ms. Schiff-Jones received $58,314
as compensation for such services.
On June 29, 1998, the Company entered into certain subscription
agreements (the "Agreements") with seven investors (collectively, the
"Subscribers"). Such Agreements were amended in October 1998. Pursuant to the
Agreements, the Company is entitled to aggregate proceeds of up to $5,500,000
(the "Private Placement"). The Private Placement provides for the issuance by
the Company of (i) 1,250,000 shares (the "Shares") of Common Stock for
$2,500,000, or $2.00 per share, (ii) additional shares of Common Stock to the
Subscribers pursuant to certain other provisions of the Agreements, including
shares issuable for no additional consideration pursuant to the Reset Rights in
the Agreements and shares issuable for up to $3,000,000 pursuant to a "put"
provision in the Agreements (the "Additional Shares"), and (iii) 500,000 shares
of Common Stock upon the exercise of warrants (the "Warrants"). The Warrants
were exercisable at exercise prices between $4.00 and $6.00 per share and were
subsequently repriced to $0.43 per share in September 1999.
On December 7, 1998, the Company entered into an agreement with G.
Howard Associates, Inc. ("Howard") wherein Howard would represent the Company,
on an exclusive basis with respect to certain investors in connection with
raising capital for the Company. For its services, Howard would receive a cash
fee equal to 6% of the total consideration received by the Company and to
reimburse Howard for its out-of-pocket expenses. The fee is due at the closing
of a said transaction. Such agreement with Howard was amended in April 1999. The
amendment expanded Howard's representation to include (a) the sale of the
Company's 20% ownership in RecoveryNetInteractive; (b) the settlement with
certain creditors identified; and, (c) assistance in raising $300,000 of
additional capital. Pursuant to this amendment, Howard would receive 900,000
newly issued shares of the Common Stock and warrants held by Howard and/or
George Henry were cancelled.
In December 1998, in connection with $725,000 notes payable by the
Company, the Company granted warrants to purchase 500,000 unregistered shares at
$0.01 per share to a group of shareholders (the "Noteholders"). In April 1999,
the Company renegotiated the terms of the $725,000 notes payable to certain
shareholders. In exchange for extending the due date to October 1999 (six
months), the Company granted another 1,000,000 warrants at $0.01 per share.
Approximately 999,999 shares to date have been exercised.
On January 7, 1999 the Company engaged Ms. Jones, member of the Board of
Directors to act as a "Special Agent" to help the Company secure financing.
Pursuant to Ms. Jones proposal Ms. Jones received 50,000 shares of unregistered
common stock and is entitled to 5% of the first one million of value, 4% of the
second one million value, 3% of the third one million value, 2% of the fourth
one million value and 1% on all amounts of value excess of five million dollars
upon closing.
On January 26, 1999 the Company engaged Mr. Wheeler Executive in the
Company as a Agent to help secure financing . Pursuant to the Letter of
Agreement Mr. Wheeler will received 75,000 shares of unregistered common stock
and is entitled to a cash fee equal to four percent (4%) of the total financing
apon closing.
Beginning in February 1999, executive officers and other employees of
the Company have received stock in lieu of salaries. To-date, the Company has
issued 527,657 number of shares in lieu of salaries.
In March 1999, in connection with an aggregate $100,000 investment by
certain investors, the Company agreed to issue notes convertible into Common
Stock of the Company.
In April 1999, the Company entered into an agreement with third parties
to sell its interest in Recovery Interactive and to receive its web-site back
from Recovery Interactive.
On June 11, 1999, entered into a Subscription Agreement (the
"Agreement") with certain Subscribers (the "Private Placement"). The Private
Placement provides for the issuance upon closing by the Company of (i) 350,000
shares (the "Shares") of Common Stock for $350,000, or $1.00 per share, (ii)
additional shares of Common Stock to the Subscribers pursuant to certain other
provisions of the Agreements, including shares issuable for no additional
consideration pursuant to the Reset Rights in the Agreements and shares issuable
for up to $1,500,000 pursuant to a "put" provision in the Agreement (the
"Additional Shares"), and (iii) 35,000 shares of Common Stock and 175,000
placement warrants exercisable at $0.35 per common share, as partial
compensation to the placement agents in the Private Placement.
30
<PAGE> 31
In September 1999, the Company entered undertook to restructure existing
transactions relating to (i) the Subscription Agreement entered into by
Investors with the Company for investment by such Investors in the securities of
the Company dated June 29, 1998, as amended by Amendment No. 1 dated as of
October 27, 1998; (ii) the subscription agreements dated March 18, 1999 where
certain of the Investors invested in an aggregate $100,000 of principal amount
Convertible Notes of the Company; and, (iii) the Subscription Agreement dated
June 10, 1999 between the Company and Investors (see above). On September 28,
1999, the Company entered into a Restructuring Agreement with the Investors to
the above-mentioned transactions, wherein, among other things, upon issuance of
additional shares (i) there would be no further resets pursuant to the June 29,
1998 investment; (ii) any further resets, if any, in connection with the June
1999 investment would be determined based on a purchase price of $0.50 per
shares; and (iii) Convertible Notes issued on March 1999 would be converted at
the conversion price of $0.50.
On October 13, 1999, the Company finalized a debt restructuring and
infusion of additional capital with certain noteholders and shareholders,
resulting in the following: (1) conversion of all existing debt and accrued
interest to equity (estimated at approximately $756,000) at $0.25 per share; (2)
commitment to receive an equity infusion from key internal shareholders totaling
up to $600,000 at $0.25 per share; and (3) a 45-day option to noteholders to
acquire additional equity at $0.25 per share up to $756,000.
The Company believes that all of the foregoing transactions and
arrangements with affiliates were fair and reasonable to the Company and were
and are on terms no less favorable than could have been obtained from
unaffiliated third parties. There can be no assurance, however, that future
transactions or arrangements between the Company and affiliates will continue to
be advantageous to the Company, that conflicts of interest will not arise with
respect thereto, or that if conflicts do arise, they will be resolved in a
manner favorable to the Company. Any such future transactions will be on terms
no less favorable to the Company than could be obtained from unaffiliated
parties and will be approved by the Company's Finance and Compensation
Committee.
31
<PAGE> 32
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of September 29,
1999, relating to the beneficial ownership of shares of Common Stock by: (i)
each person or entity who is known by the Company to own beneficially five
percent or more of the outstanding Common Stock, (ii) each of the Company's
directors and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NO. OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(a) BENEFICIALLY OWNED(b) PERCENTAGE OF CLASS
- --------------------------------------- -------------------- -------------------
<S> <C> <C>
William D. Moses 2,457,676 (c) 13.6%
George Henry(d) 2,241,970 (e) 12.4%
Donald Masters(f) 294,074 (g) 1.6%
Continental Capital(h) 600,000 (i) 3.3%
John Wheeler(j) 122,951 (k) *
Charlotte Schiff Jones(l) 67,915 (m) *
Robert Portrie(n) 1,015,000 (o) 5.7%
Stacey Romm(p) 50,000 (q) *
Marc Guren(r) 1,015,000 (s) 5.7%
Jay Handline(t) 224,484(u) 1.25%
Kevin Wall(v) 1,015,000(w) 5.7%
All directors and executive officers
as a group (10 persons or entities) 49%
</TABLE>
- -------------
* Less than 1%.
(a) Unless otherwise indicated, the address for each named individual or group
is in care of RnetHealth.com, Inc., 506 Santa Monica Blvd., Suite 400, Santa
Monica, California 90401.
(b) Each beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such person
(but not those held by any other person) and which are exercisable within 60
days of September 29, 1999 and those that have been exercised and converted.
Pursuant to a "change of control" provision, which defines a "change of
control" to have occurred if individuals who are directors at the beginning
of a 24-month period fail to constitute at least two-thirds of all directors
of the Company during such period, in the various stock option contracts
issued to certain of the beneficial owners, all stock options beneficially
owned by such person are currently exercisable. Assumes a base of 18,063,799
shares of Common Stock before any consideration is given to outstanding
options, warrants or convertible securities.
(c) Includes (i) options to purchase 503,295 shares of Common Stock.
(d) The address of the beneficial owner is 6860 Sunrise Court, Coral Gables, FL
33133.
(e) Includes (i) options to purchase 272,542 shares of Common Stock.
(f) The address of the beneficial owner is 333 Adams St., Denver, CO 80206.
(g) Includes (i) options to purchase 142,496 shares of Common Stock, (ii) 37,212
shares of Common Stock held jointly by Mr. Masters and his spouse, (iii)
14,259 shares of Common Stock held in the name of trusts for the benefit of
the children of Mr. Masters and his spouse (Mr. Masters disclaims beneficial
ownership of the shares of Common Stock held in trust) and (iv) warrants to
purchase 6,250 shares of Common Stock held jointly by Mr. Masters and his
spouse.
(h) The address of the beneficial owner is 195 Wekiva Springs Road, Suite 200,
Longwood, Florida 32779.
(i) Includes an option to purchase 200,000 shares of Common Stock.
(j) The address of the beneficial owner is 2628 Yellowwood Drive, Westlake
Village, California 91631.
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<PAGE> 33
(k) Includes an option to purchase 22,601 shares of the Common Stock.
(l) The address of the beneficial owner is 1687 Brickell Ave., #601, Miami, FL
33129.
(m) Includes options to purchase 17,915 shares of the Common Stock.
(n) The address of the beneficial owner is 8010 Mergaser Drive, Ponte Vedra, FL
32082.
(o) Includes a warrant to purchase 1,015,000 shares of the Common Stock.
(p) The address of the beneficial owner 19759 Schoolcraft Street, Winnetka,
California 91306
(q) Includes an option to purchase 50,000 shares of the Common Stock.
(r) The address of the beneficial owner is 12011 San Vicente Blvd., Suite 606,
Los Angeles, CA 90049.
(s) Includes a warrant to purchase 1,015,000 shares of the Common Stock.
(t) The address of the beneficial owner is 105 Tides Edge Place, Ponte Vedra
Beach, FL 32082.
(u) Includes options to purchase 211,569 shares of the Common Stock.
(v) The address of the beneficial owner is 10880 Wilshire Boulevard,
Suite 1400, Los Angeles, CA 90024.
(w) Included a warrant to purchase 1,015,000 shares of the Common Stock.
33
<PAGE> 34
SELLING SHAREHOLDERS
RELATIONSHIP OF SELLING SHAREHOLDERS WITH THE COMPANY
None of the Selling Shareholders currently has, or within the past three
years has had, any position, office, or other material relationship with the
Company or any predecessor or affiliate of the Company.
SALES OF OUTSTANDING SHARES BY SELLING SHAREHOLDERS
None of the Selling Shareholders have advised the Company, and the
Company is unable to predict, if, when, the extent to which they intend to sell
the Shares being registered hereunder for their respective accounts.
Notwithstanding the foregoing, for purposes of the following Selling
Shareholders Table, all of the Shares are deemed to be offered hereby by the
Selling Shareholders for sale to the public. Based upon the foregoing
assumption, the following table sets forth information, as at June 30, 1999,
with respect to (i) each Selling Shareholder's beneficial ownership of the
Company's Common Stock prior to the offering of any Shares hereunder by such
Selling Shareholder, (ii) the number of Shares which may be offered for sale
hereunder and (iii) the number shares of the Company's Common Stock to be
beneficially owned by each Selling Shareholder after the offering (assuming the
sale of all Shares being offered hereunder).
There can be no assurance that any of the Selling Shareholders will
offer for sale any or all of the Common Stock offered by them pursuant to this
Prospectus.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK TO SHARES OF COMMON STOCK
OWNED PRIOR TO THE BE OFFERED BENEFICIALLY OWNED
NAME OF SELLING SHAREHOLDER OFFERING HEREUNDER AFTER OFFERING
- --------------------------- ------------------ ----------------- ----------------------
<S> <C> <C> <C>
INVESTORS(a)
Austost Anstalt Schaan 478,348 698,348 698,348
Balmore Funds, S.A. 450,049 668,049 668,049
Zakeni Ltd. 43,965 264,118 264,118
BL Squared Foundation 134,664 67,996 67,996
The Sargon Fund, L.P. 76,837 163,918 163,918
TLG Realty 34,221 22,221 22,221
Martin Chopp 392,165 95,999 95,999
Guarantee & Finance Corp. 50,000 150,000 150,000
Nesher, Inc. 50,000 100,000 100,000
WARRANT HOLDERS(a)
Pnina Bak 0 100,000 100,000
Elliott Birnbaum 0 200,000 200,000
Lynn Chopp 0 200,000 200,000
Austost Anstalt Schaan 478,348 225,000 225,000
Balmore Funds, S.A. 450,049 225,000 225,000
Zakeni Ltd. 43,965 100,000 100,000
Amro, International S.A. 0 75,000 75,000
Nesher, Inc. 50,000 37,500 37,500
Guarantee & Finance Corp. 50,000 37,500 37,500
PLACEMENT AGENTS(b)
Amro International S.A. 0 250,000 250,000
Talbiya B. Investments Ltd. 10,000 50,000 50,000
Libra Finance, S.A. 38,148 111,591 111,591
CONSULTANT
Martin Chopp 392,165 260,333 260,333
</TABLE>
- -------------
(a) Shares deemed beneficially owned prior to the offering include shares issued
or issuable to the Selling Shareholder pursuant to the Restructuring Agreement
(including shares issuable pursuant to any provision of the Agreements,
including but not limited to those shares issuable pursuant to certain Reset
Rights and Put Rights in the Agreements) and shares reserved for issuance upon
exercise of the Warrants.
(b) Shares deemed beneficially owned prior to the offering include shares issued
to the Selling Shareholder as partial compensation for services as placement
agent of the Shares and the Warrants.
34
<PAGE> 35
DESCRIPTION OF SECURITIES
GENERAL
The aggregate number of shares that the Company is authorized to issue
is 25,000,000 shares of Common Stock, par value $.01 per share. As of the date
of this Prospectus, the Company had outstanding 18,063,799 shares of Common
Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record in the election of directors of the Company and in all other
matters to be voted on by the shareholders. There is no cumulative voting with
respect to the election of directors, with the result that the holders of more
than 50 percent of the shares voting for the election of directors can elect all
of the directors. Holders of Common Stock are entitled (i) to receive such
dividends as may be declared from time to time by the board of directors out of
funds legally available for such purpose, and (ii) in the event of the
liquidation, dissolution, or winding up of the Company, to share ratably in all
assets remaining after payment of liabilities and after provision has been made
for each class of stock, if any, having preference over the Common Stock. All of
the outstanding shares of Common Stock are validly issued, fully paid, and
nonassessable. Holders of Common Stock have no preemptive right to subscribe for
or purchase additional shares of any class of the Company's capital stock.
On June 11, 1999, the Company entered into Subscription Agreements (the
"Agreements") with certain Subscribers. Pursuant to the Agreements, the Company
is entitled to receive proceeds up to $500,000 upon the closing of this
transaction (the "Private Placement"). To-date, the Company has received
$350,000, less placement fees, legal fees, and other applicable fees, and in
exchange the Company issued 350,000 shares of Common Stock, valued at $1.00 to
the investors and 35,000 shares of Common Stock and 175,000 placement warrants
exercisable at $0.35 per common share, as partial compensation to the placement
agents in the Private Placement. Pursuant to the Agreements, the Subscribers
received certain reset rights (the "Reset Rights") that may require the Company
to issue additional shares of Common Stock to the Subscribers in the future
(the "Reset Shares"). The Subscribers are entitled to additional shares of
Common Stock, without the payment of additional consideration, to account for a
decrease in the market value of the Common Stock after the Subscription Date.
In addition to the proceeds received in the Private Placement, the Company may
receive $1.5 million pursuant to a "put" provision in the Agreements that is
subject to various conditions, including those relating to re-listing on NASDAQ
and timing.
In September 1999, the Company undertook to restructure existing
transactions including, the June 29, 1999 Private Placement. On September 28,
1999, the Company entered into a Restructuring Agreement with certain Investors,
wherein, among other things, upon issuance of additional shares (i) there would
be no further resets pursuant to the June 29, 1998 investment; (ii) any further
resets, if any, in connection with the June 1999 investment would be determined
based on a purchase price of $0.50 per shares; and (iii) Convertible Notes
issued on March 1999 would be converted at the conversion price of $0.50.
On October 13, 1999, the Company finalized a debt restructuring and
infusion of additional capital with certain noteholders and shareholders,
resulting in the following: (1) conversion of all existing debt and accrued
interest to equity (estimated at approximately $756,000) at $0.25 per share; (2)
commitment to receive an equity infusion from key internal shareholders totaling
up to $600,000 at $0.25 per share; and (3) a 45-day option to noteholders to
acquire additional equity at $0.25 per share up to $756,000. This transaction
will bring up to $1.3 million in cash and an increase to equity of up to $2.1
million.
WARRANTS
Warrant previously issued pursuant to the June 29, 1999 Private
Placement entitles the holder thereof (the "Warrant Holders") to purchase one
share of Common Stock at a price of $0.35, subject to adjustment in certain
circumstances, through and including June 10, 2002.
The Warrant Holders shall have the right to exercise their Warrants
until the close of business on June 10, 2002.
The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at prices below the exercise price of the Warrants. Reference is made to
the Warrant (which has been filed as an exhibit to this Registration Statement)
for a complete description of the terms and conditions therein (the description
herein contained being qualified in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant on or prior
to the expiration date to the Company at its principal office or at the office
of the Warrant agent appointed by the Company in accordance with the terms of
the Warrant, with the subscription form attached thereto completed and executed
as indicated, accompanied by full payment of the exercise price (in cash or by
certified check or official bank check payable to the order of the Company) for
the number of Warrants being exercised. The Warrant Holders do not have the
right or privileges of holders of Common Stock.
REDEEMABLE WARRANTS
Each Redeemable Warrant outstanding entitles the registered holder
thereof (the "Redeemable Warrant Holders") to purchase one share of Common Stock
at a price of $5.50, subject to adjustment in certain circumstances, through and
including September 29, 2002.
35
<PAGE> 36
Each Redeemable Warrant is redeemable by the Company at any time, upon
notice of not less than 30 days, at a price of $.10 per Redeemable Warrant,
provided that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third day prior to the day on which the Company gives notice
(the "Call Date") has been at least 150% (currently, $8.25, subject to
adjustment) of the then effective exercise price of the Redeemable Warrants and
the Company obtains the written consent of Whale Securities Co., L.P., the
underwriter in the Company's initial public offering (the "Underwriter") to such
redemption prior to the Call Date. The Redeemable Warrant Holders shall have the
right to exercise their Redeemable Warrants until the close of business on the
date fixed for redemption.
The Redeemable Warrants are issued in registered form under a warrant
agreement by and among the company, American Stock Transfer & Trust Company, as
warrant agent (the "Redeemable Warrant Agent"), and the Underwriter (the
"Redeemable Warrant Agreement"). The exercise price and number of shares of
Common Stock or other securities issuable on exercise of the Redeemable Warrants
are subject to adjustment in certain circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation of the
Company. However, the Redeemable Warrants are not subject to adjustment for
issuances of Common Stock at prices below the exercise price of the Redeemable
Warrants. Reference is made to the Redeemable Warrant Agreement (which has been
filed as an exhibit to the Company's Registration Statement on Form SB-2, as
amended (File No. 333-27787)) for a complete description of the terms and
conditions therein (the description herein contained being qualified in its
entirety by reference thereto).
No Redeemable Warrant will be exercisable unless, at the time of
exercise, the Company has filed a current registration statement with the
Commission covering the shares of Common Stock issuable upon exercise of such
Redeemable Warrant and such shares have been registered or qualified or deemed
to be exempt from registration or qualification under the securities laws of the
state of residence of the holder of such Redeemable Warrant. The Company will
use its best efforts to have all such shares so registered or qualified on or
before the exercise date and to maintain a current prospectus relating thereto
until the expiration of the Redeemable Warrants, subject to the terms of the
Redeemable Warrant Agreement. While it is the Company's intention to do so,
there can be no assurance that the Company will be able to do so.
REGISTRATION RIGHTS
In March and April 1997, the Company completed a private financing (the
"Private Financing") pursuant to which the Company issued and sold to 21
"accredited investors" an aggregate of 40 units (the "Financing Units")
consisting of an aggregate of (i) $2,000,000 principal amount of unsecured
non-negotiable promissory notes (the "Financing Notes") which bear interest at
the rate of 9% per annum and are due on the earlier of the consummation of this
offering or March 6, 1998; (ii) 400,000 shares of Common Stock (the "Financing
Shares"); and (iii) warrants (the "Financing Warrants") to purchase an aggregate
of 500,000 shares of Common Stock at an exercise price of $5.50 per share. In
connection with the Private Financing, the Company agreed to include the 400,000
Financing Shares and the 500,000 shares issuable upon exercise of the Financing
Warrants (the "Financing Warrant Shares") in a registration statement which the
Company will prepare and file with, and use its best efforts to have declared
effective by, the Commission so as to permit the public trading of the Financing
Shares and Financing Warrant Shares pursuant thereto. If such registration
statement is not declared effective by the Commission within 15 months following
the consummation of the Company's initial public offering, then commencing on
the first day of the 16th month following the consummation of this offering, the
Company shall issue to each holder of Financing Shares and Financing Warrant
Shares, on the first day of each month a registration statement continues not to
have declared effective by the Commission, such number of additional shares of
Common Stock as is equal to 10% of the number of Financing Shares and Financing
Warrant Shares issued to and held by such holder and such number of additional
warrants as is equal to 10% of the number of Financing Warrants issued to and
held by such holder. The holders of the Financing Shares and Financing Warrants
have agreed not to sell or otherwise dispose of any of such securities for a
period of 24 months following the effective date of the Company's Registration
Statement on Form SB-2, as amended (File No. 333-27787).
The Company has granted certain "demand" and "piggyback" registration
rights to the holders of additional 433,223 shares of Common Stock. The demand
registration rights are exercisable, under certain circumstances, commencing
September 29, 1998.
In connection with its initial public offering, the Company has agreed
to grant to the Whale Securities Co., L.P. certain demand and piggyback
registration rights in connection with the 400,000 shares of Common Stock
issuable upon exercise of certain warrants and the additional warrants included
therein.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock are American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
36
<PAGE> 37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement (Registration No. 333- ) under the Securities Act with
respect to the Shares (the "Registration Statement"). As permitted by the rules
of the Commission, this Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Shares offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus, and in any document
incorporated herein by reference, as to the contents of any contract or any
other document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such document, each such statement
being qualified in all respects by such reference. A copy of the Registration
Statement may be inspected without charge at the Commission's principal office,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the Registration Statement may be obtained from
such office upon the payment of the fees prescribed by the Commission. The
Registration Statement has been filed through EDGAR and is publicly available
through the Commission's Web site (http://www.sec.gov).
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained
at prescribed rates from the Public Reference Section of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information electronically filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
The Common Stock is currently quoted on The NASD OTC Bulletin Board and such
reports and other information can also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C.
20006.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Beckman,
Millman & Sanders, New York, New York.
EXPERTS
The audited 1999 financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statements as of June 30, 1999 for
the year through October 18, 1999 have been audited by Corbin & Wertz,
independent public accountants, and for the year ended June 30, 1998 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. Reference is made to
said reports which include explanatory paragraphs regarding the Company's
ability to continue as a going concern.
37
<PAGE> 38
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports........................................... F-2
Report of Independent Public Accountants................................ F-3
Consolidated Balance Sheet as of June 30, 1999.......................... F-4
Consolidated Statements of Operations for the Years Ended
June 30, 1998 and 1999.............................................. F-5
Consolidated Statements of Shareholders' (Deficit) Equity
for the Years Ended June 30, 1998 and 1999.......................... F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998 and 1999.............................................. F-8
Notes to Consolidated Financial Statements.............................. F-9
</TABLE>
<PAGE> 39
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
INDEPENDENT AUDITORS' REPORT
To Board of Directors and Shareholders of
Rnethealth.com, Inc.:
We have audited the accompanying consolidated balance sheet of Rnethealth.com,
Inc. (formerly known as The Recovery Network, Inc.) (the "Company") as of June
30, 1999, and the related consolidated statements of operations, shareholders'
(equity)(deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rnethealth.com, Inc.
as of June 30, 1999, and the results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has negative working capital,
reduced cash levels, recurring losses from operations and limited operating
revenues that raise substantial doubt about its ability to continue as a going
concern. The ability of the Company to continue operating as a going concern is
dependent upon its ability (1) to obtain sufficient additional debt or equity
capital, (2) to distribute its programming and services through multimedia
channels, (3) to achieve a critical mass of viewers to attract advertisers and
healthcare providers and (4) to acquire and develop appropriate content for its
multimedia channels. The Company plans to raise additional working capital
through private and public offerings. The success of future activities cannot be
determined at this time and there are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
CORBIN & WERTZ
Irvine, California
October 9, 1999
F-2
<PAGE> 40
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rnethealth.com, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' (deficit) equity and cash flows for the year ended June 30, 1998
of Rnethealth.com, Inc. (formerly known as The Recovery Network, Inc.) (the
"Company"). 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Rnethealth.com, Inc. for the year ended June 30, 1998, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has recurring losses from
operations that raises substantial doubt about its ability to continue as a
going concern. The ability of the Company to operate as a going concern is
dependent upon its ability (1) to obtain sufficient additional capital, (2) to
distribute its programming and services through multimedia channels, (3) to
achieve a critical mass of viewers to attract advertisers and healthcare
providers and (4) to acquire and develop appropriate programming for broadcast.
The Company plans to raise additional working capital through private and public
offerings. The success of future activities cannot be determined at this time
and there are no assurances that if achieved, the Company will have sufficient
funds to execute its intended business plan or generate positive operating
results. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Los Angeles, California
September 23, 1998
F-3
<PAGE> 41
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 136,058
Accounts receivable, net of allowance for doubtful accounts
of $32,000 256,499
Current portion of capitalized programming costs, net 98,000
Inventory 55,593
Prepaid expenses 70,345
----------------
Total current assets 616,495
Capitalized programming costs, net 421,648
Furniture and equipment, net 177,550
Other 52,686
----------------
Total assets $ 1,268,379
================
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C>
Current liabilities:
Short-term notes payable, net of unamortized debt discount
of $181,318 $ 481,015
Accounts payable 442,085
Accrued payroll and benefits 139,086
Other accrued liabilities 295,256
Accrued royalty expense 503,137
Current portion of capital lease obligations 19,817
----------------
Total current liabilities 1,880,396
----------------
Commitments
Shareholders' equity (deficit):
Common stock, $.01 par value; 25,000,000 shares authorized; 15,494,507
shares issued and outstanding 154,945
Additional paid-in capital 21,813,509
Prepaid consulting (230,331)
Common stock subscription receivable (50,000)
Accumulated deficit (22,300,140)
-----------------
Total shareholders' equity (deficit) (612,017)
----------------
Total liabilities and shareholders' equity (deficit) $ 1,268,379
================
</TABLE>
<PAGE> 42
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------------- ---------------
<S> <C> <C>
Domestic sales $ 894,758 $ 1,533,922
--------------- ----------------
Operating expenses:
Salaries and consulting 3,346,720 4,819,488
General and administrative 2,326,807 2,659,700
Programming 1,543,997 2,172,385
Marketing 497,467 105,862
Loss (gain) on investment in joint venture 592,500 (1,006,650)
Cost of video and publication 216,889 499,766
--------------- ----------------
Total operating expenses 8,524,380 9,250,551
--------------- ----------------
Loss from operations (7,629,622) (7,716,629)
Other income (expense):
Interest 775,611 489,552
Other income (146,044) (65,694)
--------------- -----------------
Loss before provision for income taxes (8,259,189) (8,140,487)
Provision for income taxes 2,545 800
--------------- ----------------
Net loss $ (8,261,734) $ (8,141,287)
=============== =================
Loss per share information:
Basic and diluted loss per share $ (1.91) $ (0.96)
=============== ================
Weighted average number of common and common
equivalent shares outstanding 4,336,405 8,514,557
=============== ================
</TABLE>
<PAGE> 43
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
------------------------------------ PAID-IN SUBSCRIPTION
SHARES AMOUNT CAPITAL RECEIVABLE
------------------ -------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1997 2,521,250 $ 25,212 $ 4,176,708 $ -
Initial public offering of common
stock and warrants, net of offering
costs of $2,174,743 2,415,000 24,151 10,117,606 -
Issuance of common stock and
warrants for cash, net of offering costs
of $205,000 and including 30,601
shares issued for placement services 808,377 8,083 1,536,917 -
Services to be received in exchange
for options and shares of common
stock not yet issued - - 1,009,000 -
Purchase of FMS 44,000 440 208,560 -
Exercise of options 2,867 29 2,178 -
Amortization of prepaid consulting
costs - - - -
Net loss - - - -
------------- ------------ ------------- -------------
Balance, June 30, 1998 5,791,494 57,915 17,050,969 -
Issuance of common stock for cash,
net of offering costs of $150,000,
including 35,000 shares issued for
placement services 3,795,150 37,951 853,585 -
</TABLE>
<TABLE>
<CAPTION>
PREPAID
CONSULTING ACCUMULATED
COSTS DEFICIT TOTAL
--------------- --------------- --------------
<S> <C> <C> <C>
Balance, July 1, 1997 $ (5,625) $ (5,897,119) $ (1,700,824)
Initial public offering of common
stock and warrants, net of offering
costs of $2,174,743 -- -- 10,141,757
Issuance of common stock and
warrants for cash, net of offering co
of $205,000 and including 30,601
shares issued for placement services -- -- 1,545,000
Services to be received in exchange
for options and shares of common
stock not yet issued (1,009,000) -- --
Purchase of FMS -- -- 209,000
Exercise of options -- -- 2,207
Amortization of prepaid consulting
costs 553,375 -- 553,375
Net loss -- (8,261,734) (8,261,734)
------------ ------------ ------------
Balance, June 30, 1998 (461,250) (14,158,853) 2,488,781
Issuance of common stock for cash,
net of offering costs of $150,000,
including 35,000 shares issued for
placement services -- -- 891,536
</TABLE>
Continued
F-6
<PAGE> 44
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
------------------------------------ PAID-IN SUBSCRIPTION
SHARES AMOUNT CAPITAL RECEIVABLE
------------------ -------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Shares issued for cash to be
received, including 5,000 shares
issued for placement services 55,000 550 49,450 (50,000)
Exercise of options and warrants 1,916,999 19,170 677,330 -
Issuance of common stock for
compensation and services 3,935,864 39,359 1,828,928 -
Common stock to be issued for
compensation and services - - 415,577 -
Issuance of detachable warrants
with short-term notes payable - - 598,000 -
Issuance of options and warrants
for services - - 964,670 -
Cancellation of options related to
settlement of prior consulting
agreement - - (625,000) -
Amortization of prepaid
consulting costs - - - -
Net loss - - - -
------------- ------------ ------------- -------------
Balance, June 30, 1999 15,494,507 $ 154,945 $ 21,813,509 $ (50,000)
============= ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
PREPAID
CONSULTING ACCUMULATED
COSTS DEFICIT TOTAL
--------------- --------------- --------------
<S> <C> <C> <C>
Shares issued for cash to be
received, including 5,000 shares
issued for placement services - - -
Exercise of options and warrants - - 696,500
Issuance of common stock for
compensation and services (130,331) - 1,737,956
Common stock to be issued for
compensation and services - - 415,577
Issuance of detachable warrants
with short-term notes payable - - 598,000
Issuance of options and warrants
for services (100,000) - 864,670
Cancellation of options related to
settlement of prior consulting
agreement 281,250 - (343,750)
Amortization of prepaid
consulting costs 180,000 - 180,000
Net loss - (8,141,287) (8,141,287)
------------ -------------- -------------
Balance, June 30, 1999 $ (230,331) $ (22,300,140) $ (612,017)
============= ============== =============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 45
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,261,734) $ (8,141,287)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock, options and warrants
for compensation and services - 2,674,453
Amortization of notes payable discount 479,568 416,682
Amortization of prepaid consulting costs 553,375 180,000
Amortization of deferred financing costs 130,529 -
Amortization of capitalized programming costs 230,360 692,814
Note issued for payment of services - 75,000
Depreciation and other amortization 166,956 89,446
Provision for doubtful accounts 16,000 -
Loss (gain) on investment in joint venture 592,500 (1,006,650)
Changes in operating assets and liabilities:
Accounts receivable (194,678) (1,749)
Inventory 25,325 31
Prepaid expenses (33,365) (11,125)
Other assets (3,887) (17,156)
Capitalized programming costs (565,783) (255,000)
Accounts payable, accrued payroll and benefits
and other accrued liabilities (317,545) 157,573
Accrued royalty expense 157,569 180,507
Deferred compensation (51,672) -
Due to shareholders and directors (65,751) -
--------------- ----------------
Net cash used in operating activities (7,142,233) (4,966,461)
--------------- -----------------
Cash flows from investing activities:
Proceeds from sale of investment in joint venture - 850,000
Cash paid for purchase of FMS Productions,Inc. (34,383) -
Purchases of furniture and equipment (206,569) (63,807)
Investment in joint venture (368,000) (67,850)
--------------- -----------------
Net cash provided by (used in) investing activities (608,952) 718,343
--------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings 574,990 825,000
Payments on borrowings (2,605,250) (237,667)
Payments on capital lease obligation (17,175) (10,338)
Proceeds from the issuance of common stock,
warrants and stock subscriptions 12,332,547 1,588,036
Deferred offering and financing costs incurred (343,558) -
--------------- ----------------
Net cash provided by financing activities 9,941,554 2,165,031
--------------- ----------------
</TABLE>
Continued
F-8
<PAGE> 46
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------------- ---------------
<S> <C> <C>
Net increase (decrease) in cash 2,190,369 (2,083,087)
Cash, beginning of year 10,883 2,219,145
Cash from acquisition of FMS 17,893 -
--------------- ----------------
Cash, end of year $ 2,219,145 $ 136,058
=============== ================
</TABLE>
NOTE 1 - ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS
ORGANIZATION AND LINE OF BUSINESS
Rnethealth.com, Inc. (formerly known as The Recovery Network, Inc.) (the
"Company"), a Colorado corporation, is a digital media company drawing on the
converging digital technologies of the Internet and cable television to deliver
alternative and behavioral health programming products and services to a
national audience. The Company was incorporated in May 1992 and commenced
operations in February 1993.
ACQUISITIONS AND JOINT VENTURE
RECOVERY INTERACTIVE
The Company owned a 50% interest in Recovery Interactive ("RI"), a joint venture
with TCI Online Recovery Net Holdings, Inc. ("TCIR"), an affiliate of
Tele-Communications, Inc. ("TCI"), formed on August 1, 1996 to commence a
business to provide behavioral health care products and services to managed care
organizations and other organizations offering or providing health care
services, as well as to provide information, interaction and support regarding
recovery issues and prevention issues, through an integrated multimedia
platform. During 1998 and 1999, the Company and TCI each made capital
contributions to RI and incurred expenses on RI's behalf aggregating to
approximately $368,000 and $67,850, respectively. The Joint Venture agreement
was to continue through December 31, 2044. The Company's investment in the Joint
Venture was accounted for under the equity method of accounting. The Company
recorded a loss on investment in the joint venture for its entire investment of
$592,500 in 1998 which included amounts to be paid to RI for operating losses
incurred by RI through June 30, 1998.
In April 1999, the Company entered into an agreement with third parties to sell
its interest in RI for $850,000. The Company recognized a gain on this sale of
its investment of approximately $1,006,650, which is reflected in the
accompanying consolidated statement of operations.
FMS PRODUCTIONS
On December 10, 1997, the Company acquired 100 percent of the issued and
outstanding common stock of FMS Productions, Inc . ("FMS") for total
consideration of $225,490. Consideration included 44,000 shares of the Company's
common stock valued at $209,000 ($4.75 per share) and a cash payment totaling
$34,383, less $17,893 of cash received from FMS.
Continued
F-9
<PAGE> 47
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 1 - ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS,
Prior to the FMS acquisition, the Company was classified as a development stage
company, due to the lack of significant operating revenues. Effective for the
first quarter after the FMS acquisition (quarter ended March 31, 1998), the
Company emerged from the development stage as a result of the revenues generated
from FMS's operations subsequent to the purchase date.
The unaudited pro forma results of operations for the year ended June 30, 1998
(reflecting all adjustments which, in the opinion of management, are necessary
for a fair presentation) as if the FMS acquisition was consummated on July 1,
1998, respectively, are as follows:
<TABLE>
<S> <C>
Pro forma total revenues $ 1,593,000
===========
Pro forma net loss $(8,354,000)
===========
Pro forma weighted average number
of common shares 4,356,055
===========
Pro forma loss per common share $ (1.92)
===========
</TABLE>
SIGNIFICANT BUSINESS RISKS
GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has negative working capital,
reduced cash levels, recurring losses from operations and has limited operating
revenues, that raise substantial doubt about the Company's ability to continue
as a going concern. The ability of the Company to operate as a going concern is
dependent upon its ability (1) to obtain sufficient additional debt and equity
capital from public and private sources, (2) to distribute its programming and
services through multimedia channels, (3) to achieve a critical mass of viewers
to attract advertisers and healthcare providers and (4) to acquire and develop
appropriate content for internet and cable broadcastors. The Company plans to
raise additional working capital through private and public offerings. To
achieve this, the Company has embarked on a definitive plan to (1) get relisted
on the Nasdaq Smallcap Exchange; (2) convert certain debt to equity; (3) appoint
new members to the management team and board of advisors; and (4) receive an
equity infusion from board members and other shareholders (see Note 11). The
successful outcome of future activities cannot be determined at this time and
there are no assurances that if achieved, the Company will have sufficient funds
to execute its intended business plan or generate positive operating results.
Continued
F-10
<PAGE> 48
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
Note 1 - ORGANIZATION, LINE OF BUSINESS AND SIGNIFICANT BUSINESS RISKS,
CONTINUED
The financial statements do not include any adjustments related to the
recoverability and classification of assets carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
GOVERNMENT REGULATIONS
The cable television industry is subject to extensive and frequently changing
federal, state and local laws and substantial regulation under these laws by
governmental agencies, including the Federal Communications Commission (the
"FCC"). Regulations governing the rates that can be charged to subscribers by
cable systems not in markets subject to effective competition from other
multichannel video program distributors could adversely affect the ability of
cable systems with limited channel capacity to finance rebuilding or upgrading
efforts to increase channel capacity or otherwise restrict their ability to add
new programming such as the Company's program offerings. In addition, federal
"must-carry" rules requiring cable operators to devote up to one-third of their
channels to carriage of local commercial TV broadcast stations (and additional
channels for noncommercial education TV stations); commercial leased access
rules designating 10 to 15 percent of system channels for lease by unaffiliated
programmers; and local regulatory requirements mandating further channel
set-asides for public, governmental and educational use could reduce channel
availability which might otherwise be available for the Company on many cable
systems. Statutory provisions and FCC rules governing relationships among cable
systems and competing forms of multichannel video program distribution, as well
as the relations between the Company and its cable system affiliates could
adversely affect the marketability of the Company's programming and the
flexibility of the Company in its business dealings with outlets for its
programming.
In addition, the Internet industry is subject to constantly evolving federal and
state regulation. It is possible that certain legislation or pending legislation
may adversely impact the Company's Internet operations.
DEPENDENCE UPON GROUP W NETWORK SERVICES
In May 1998, the Company entered into a five-year contract with Group W Network
Services, a division of CBS Corporation, to provide program origination, master
control operations, uplink and C-Band Satellite transponder services (the
"Transponder Contract"). It is possible that Group W Network Services or Company
affiliates could experience broadcast interruptions and equipment failures,
which could last for a significant period of time. The Transponder Contract, as
amended in April 1999 (see Note 10), allows the Company to broadcast 9 hours per
day.
Through June 30, 1998, substantially all the households which received broadcast
of The Recovery Network's programming were provided under the terms of the prior
transponder contract with ATN (see Note 7). Starting September 1, 1998, the
Company is entirely dependent on its own affiliate marketing efforts to obtain
affiliate agreements with cable operators.
Continued
F-11
<PAGE> 49
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated statement of operations for 1998 includes the
operating results of FMS from December 10, 1997 (the acquisition date) to June
30, 1998. For 1999, the consolidated statement of operations includes the
operating results of FMS for the entire fiscal year. All intercompany
transactions and accounts between the Company and FMS have been eliminated in
consolidation.
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts or revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Advertising revenues are recognized when the advertisements are broadcast. Video
and publications revenues are recognized when the goods are shipped or later
when accepted by the customer if acceptance is required. During 1998, the
Company recorded approximately $695,000, $150,000 and $50,000 of video and
publications, advertising and other revenues, respectively. During 1999, the
Company recorded approximately $1,466,000, $26,000 and $41,000 of video and
publications, advertising and other revenues, respectively.
CASH
At times, the Company maintains cash balances over the Federal Depository
Insurance Corporation insurable limited of $100,000 per customer per financial
institution.
Continued
F-12
<PAGE> 50
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
FURNITURE AND EQUIPMENT
Furniture and equipment is depreciated or amortized over the estimated useful
lives of the assets using straight-line and accelerated methods. Estimated
useful lives range from 3 to 7 years.
Furniture and equipment, at cost, consist of the following at June 30, 1999:
Computer equipment $ 364,982
Leasehold improvements 10,000
Office furniture 58,275
---------
433,257
Less accumulated depreciation and amortization (255,707)
---------
$ 177,550
=========
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS 109"), "Accounting for Income Taxes." Under SFAS
109, deferred income tax assets and liabilities are computed based on the
temporary difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal income tax rate in effect for
the year in which the differences are expected to reverse. Deferred income tax
expenses and credits are based on the changes in deferred income tax assets and
liabilities from period to period.
DEFERRED OFFERING COSTS
Costs associated with offerings of The Company common shares are initially
capitalized and then netted with the proceeds received from the sale of the
common shares when the offering is completed. If the intended offering is
terminated, these costs are charged to operations. At June 30, 1999, the Company
has no deferred offering costs.
DEFERRED FINANCING COSTS
Debt issuance costs are initially capitalized as deferred financing costs and
amortized over the terms of the notes using the effective interest rate method.
In the event the notes are repaid prior to their original maturity, any
unamortized portion of the debt issuance costs capitalized will be charged to
operations. At June 30, 1999, the Company has no deferred financing costs.
Continued
F-13
<PAGE> 51
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
CAPITALIZED PROGRAMMING COSTS
Capitalized programming costs include direct costs of production, production
overhead and costs to acquire distribution rights. Production costs are
accumulated by each series produced or licensed. Production overhead is
allocated proportionately to each series produced based on the direct production
costs incurred for each series produced.
The costs are charged to earnings as the series are broadcast based on the
estimated number of future showings in accordance with SFAS No. 63, "Financial
Reporting by Broadcasters." Capitalized programming cost are stated at the lower
of unamortized costs or estimated net realizable value on a series-by-series
basis. A series estimated net realizable value is periodically reviewed by
management and revised downward when warranted by changing conditions. Once
adjusted, the new estimated realizable value establishes a new unamortized cost
basis.
PREPAID CONSULTING COSTS
The value of common stock and options issued for consulting services is recorded
as prepaid consulting costs as a component of shareholders' (deficit) equity.
Such amounts are amortized, using the straight-line method, over the life of the
consulting agreements.
NON-MONETARY EXCHANGES
Accounting for the transfer or distribution of non-monetary assets or
liabilities is based on the fair value of the assets or liabilities received or
surrendered, which ever is more clearly evident. Where the fair value of the
non-monetary assets received or surrendered cannot be determined with reasonable
accuracy, the recorded book value of the non-monetary assets are used.
STATEMENT OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under SFAS No. 95, "Statement of Cash Flows." Required cash and non-cash
transaction disclosures are as follows:
During 1998, deferred offering costs of $573,508 were recorded against proceeds
from the Initial Public Offering. Deferred offering costs of $40,000, paid to
the underwriters, were credited toward a two-year consulting agreement and
recorded in other assets. The Company common stock of 44,000 shares was issued
in connection with the acquisition of FMS.
The Company made cash payments of $2,545 in 1998 and $2,322 in 1999 for state
income taxes. During 1998 and 1999, cash payments for interest expense were
approximately $166,000 and $18,000, respectively.
Continued
F-14
<PAGE> 52
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. SFAS 130 has no impact on the financial
statements of the Company as it has no additional items of comprehensive income.
SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues and its major customers. Company management has represented
that the Company currently operates in only one segment (i.e., the cable
television segment); therefore SFAS 131 has no impact on the financial
statements of the Company.
LOSS PER SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share" ("EPS"), effective
for the quarter ending December 31, 1997 and has restated its earnings per share
disclosure for all prior periods presented to comply with SFAS No. 128. Under
SFAS No. 128, primary EPS is replaced by "Basic" EPS, which excludes dilution
and is computed by dividing income/loss available to common shareholders by the
weighted average number of common shares outstanding for the period. "Diluted"
EPS, which is computed similarly to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. When dilutive, stock options are
included as share equivalents in computed diluted earnings per share using the
Treasury stock method.
Dilutive securities of 7,003,976 and 4,477,170 shares are not included in the
calculation of diluted EPS in the years ending June 30, 1999 and 1998,
respectively, because they are antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of
Financial Instruments." SFAS 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value. The
carrying amount of the Company's cash, receivables, trade payables and accrued
Expenses approximates their estimated fair values due to the short-term
maturities of those financial instruments. The fair value of short-term notes
payable is not determinable as these borrowings are with related parties or the
carrying amount approximates fair values due to the short-term maturity of the
notes (see Note 4).
Continued
F-15
<PAGE> 53
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
at their fair value. This statement, as amended by SFAS 137, is effective for
financial statements for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company does not expect the adoption of this standard to have
a material impact on its results of operations, financial position or cash flows
as it currently does not engage in any derivative or hedging activities.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 ("SOP 98-5"), "Reporting the Costs of Start-Up
Activities." SOP 98-5 requires that all non-governmental entities expense the
costs of start-up activities, including organization costs as those costs are
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company does not expect the adoption of
this standard to have a material effect on its results of operations, financial
position or cash flows.
YEAR 2000
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company and its business partners will not be fully
determinable until the Year 2000 and thereafter. If Year 2000 modifications are
not properly completed either by the Company or entities with which the Company
Conducts business, the Company's revenues and financial condition could be
adversely impacted.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of," which requires that long-lived assets and
certain indentifiable intangibles 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. In accordance with the
provisions of SFAS 121, the Company regularly reviews long-lived assets and
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Based on
its analysis, the Company believes that no impairment of the carrying value of
its long-lived assets existed at June 30, 1999.
Continued
F-16
<PAGE> 54
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," which defines a fair
value based method of accounting for stock-based compensation. However, SFAS 123
allows an entity to continue to measure compensation cost related to stock and
stock options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
method of APB 25 must make proforma disclosures of net Income (loss), as if the
fair value method of accounting defined in SFAS 123 has been applied. The
Company has elected to account for its stock-based compensation to employees
under APB 25.
RECLASSIFICATIONS
Certain 1998 financial statement amounts have been reclassified to conform to
the 1999 presentation.
NOTE 3 - CAPITALIZED PRODUCTION COSTS
Capitalized production costs, net of amortization, are as follows:
Produced programs $ 691,274
FMS film library acquired 376,762
Licensed films 493,575
-----------
1,561,611
Less accumulated amortization (1,041,963)
-----------
Net capitalized production costs $ 519,648
Based on the Company's estimates of future showings, approximately 90 percent of
the remaining unamortized costs will be amortized within the next three years.
Continued
F-17
<PAGE> 55
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 4 - NOTES PAYABLE
Notes payable consist of the following at June 30, 1999:
<TABLE>
<S> <C> <C>
Unsecured notes payable to shareholders, interest at 10%,
principal and interest due October 1999, net of
unamortized debt discount of $181,318 $306,015
Convertible notes payable to shareholders, interest at
12%, principal and interest due March 2000 100,000
Unsecured note payable to Group W Network Services,
interest at 10%, principal and interest due December 1999 75,000
--------
$481,015
========
</TABLE>
The Company originally borrowed $725,000 under unsecured notes payable to
shareholders, due April 1999. These notes had 500,000 detachable warrants at
$0.01 per share, which were valued at $326,000 (based on a Black-Scholes
computation under SFAS No. 123) and recorded as a debt discount. This discount
was amortized as additional interest expense through the maturity of the
original notes in April 1999. Upon maturity, the Company negotiated an extension
of $487,333 of the notes (along with accrued interest on the entire original
note balance totaling approximately $25,000) through October 1999 in exchange
for an additional 950,000 detachable warrants at $0.01 per share. The new
warrants were valued at $272,000 (based on a Black-Scholes computation under
SFAS No. 123) and recorded as a debt discount, which is being amortized as
additional interest expense through the maturity of the new notes. Through June
30, 1999, the Company recorded a total debt discount of $598,000, of which
$416,862 has been amortized to interest expense.
The convertible notes payable to shareholders are convertible at any time into
common stock at the lower of (1) 70% of the average closing bid price for the
common stock for the five days immediately preceding the conversion date; or (2)
$0.50. These notes are in default due to the Company's de-listing from the
NASDAQ SmallCap exchange under the terms of the agreements. The Company has
negotiated the conversion of most notes with the note holders at $0.50 per
share, which will be completed in early fiscal year 2000.
Continued
F-18
<PAGE> 56
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 5 - INCOME TAXES
The components of the net deferred income tax asset at June 30, 1999 are as
follows:
Carryforward of net operating losses $ 6,894,000
Development costs capitalized for tax purposes 403,000
Other temporary differences 131,000
-----------
7,428,000
Valuation allowance (7,428,000)
-----------
Deferred income tax asset $ --
===========
The provision for income taxes of $2,545 and $800 for the fiscal years ended
June 1998 and 1999, respectively, consist only of the current state provision.
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended June 30, 1998 and 1999 are
as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------------- -----------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income tax benefit at federal
statutory rate $(2,808,124) (34.00)% $(2,768,038) (34.00)%
State taxes, net of federal income
tax effect 2,545 0.03 800 0.00
Net operating losses and other
deferred income tax assets not
benefited 2,808,124 34.00 2,768,038 34.00
----------- ------- ----------- -------
$ 2,545 0.03% $ 800 0.00%
=========== ========= =========== =======
</TABLE>
As of June 30, 1999, the Company had approximately $18,700,000 of federal net
operating loss carryforwards, which will expire in fiscal years ending 2008 to
2013. As of June 30, 1999, the Company had approximately $9,300,000 of
California state net operating loss carryforwards, which will expire in fiscal
years ending 2001 to 2004. Under SFAS No. 109, the Company has recorded
valuation allowances against the realization of its deferred tax assets. The
valuation allowance is based on management's estimates and analysis, which
include the impact of tax laws which may limit the Company's ability to utilize
its tax loss carryforwards.
Additionally, pursuant to Internal Revenue Service code section 382, the
Company's existing net operating loss carryforwards, and other deferred tax
assets and liabilities, may be unavailable for future use due to significant
ownership changes of the Company's common stock.
Continued
F-19
<PAGE> 57
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 6 - CAPITAL STOCK TRANSACTIONS
Initial Public Offering
On October 3, 1997, the Company consummated its Initial Public Offering pursuant
to which it issued 2,415,000 units. Each unit consisted of one share of common
stock and one warrant to purchase one share of common stock at $5.50 per share.
The units were sold for $5.10 each for net proceeds of approximately
$10,142,000.
1998 PRIVATE PLACEMENT
In June 1998, the Company issued (i) 808,377 shares of common stock for net
proceeds of approximately $1,545,000, and (ii) warrants to purchase 70,000
shares of common stock at an exercise price of $5.50 per share through June 29,
2001 (the "1998 Private Placement"). The shares were issued at a 25 percent
discount when compared to current public trading prices at the time of the
Placement. The Company placed 346,449 shares of common stock into escrow, which
were released in fiscal year 1999 (along with a warrant to purchase 30,000
shares at $5.50 per share through 2001) once shareholder approval was obtained,
for net proceeds of approximately $720,000.
The 1998 Private Placement also provides for additional shares of common stock
to be issued pursuant to certain other provisions of the 1998 Private Placement
agreement, including shares issuable for no additional consideration pursuant to
certain reset rights (as defined in the agreement) and shares issuable for up to
$3,000,000 pursuant to the put rights (as defined in the agreement).
The 1998 Private Placement was amended twice in fiscal 1999. After the
amendments and shares issued under the reset rights through June 1999, the
transaction can be summarized as follows: net cash proceeds were approximately
$2,111,536 for 4,218,527 shares, with warrants to purchase another 100,000
shares of common stock at $5.50 per share, and 500,000 shares of common stock at
$0.01 per share (418,000 shares were exercised in Fiscal year 2000) exercisable
through June 2001. In May 1999, the Company issued additional warrants to
purchase 500,000 shares of common stock at $0.25 per share in exchange for a 90
day deferral of any further reset rights. The Company is negotiating The
termination of the reset rights; however, there can be no assurances that this
negotiation will be successful.
ACQUISITION OF FMS
As discussed in Note 1, during fiscal 1998 the Company issued 44,000 shares to
shareholders of FMS in connection with the acquisition of FMS.
Continued
F-20
<PAGE> 58
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 6 - CAPITAL STOCK TRANSACTIONS, CONTINUED
JUNE 1999 PRIVATE PLACEMENT
In June 1999, the Company issued 385,000 shares pursuant to a private placement
in exchange for $325,000 (net of offering costs). The Company issued another
55,000 shares to an escrow agent until the additional $50,000 in committed cash
was received, which occurred after June 30, 1999. In connection with this
private placement, 385,000 warrants were issued to the investors and placement
agents at $0.35 per share, exercisable through June 2002. The Company has a put
option in connection with this offering to the investor group for an additional
$1,500,000 in exchange for 1,500,000 shares exercisable within two weeks after
the Company gets re-listed on the NASDAQ SmallCap exchange, contingent upon
numerous other items as outlined in the agreement. If the put option is
exercised, additional warrants and shares will be issued to investors and
placement agents as defined in the agreement. The agreement also includes reset
rights for the investors after an initial 90 day waiting period, as referred in
the agreement.
ISSUANCE OF STOCK FOR COMPENSATION AND SERVICES
During fiscal 1999, the Company issued 3,935,864 shares of common stock to
employees, directors, and consultants in connection with amounts owed to these
parties for compensation and other services rendered. Based on the trading price
of the stock on the dates of issuance (discounted up to 15% for restricted
shares issued), the Company recorded total expense of approximately $1,737,956
in salaries and consultant expense, with an additional $100,000 being recorded
as a prepaid to be amortized to expense through April 2000. In addition, the
Company recorded an additional expense amount of $415,577 in fiscal 1999 for
shares issued after June 30, 1999 related to services performed through June 30,
1999.
EXERCISE OF OPTIONS AND WARRANTS
In fiscal 1998 and 1999, holders of options and warrants exercised 2,867 and
1,916,999 shares of common stock, respectively, for proceeds of $2,207 and
$696,500, respectively
OTHER STOCK TRANSACTIONS
During April 1998, the Company entered into a consulting agreement whereby
consulting services were to be rendered in exchange for 200,000 shares of common
stock and options to purchase 200,000 shares of common stock. The securities are
to vest through September 1998. No securities were issued under the agreement
through June 30, 1998 as the Company was negotiating to equity or cancel the
agreement, however, approximately 106,000 shares of common stock had vested
under the terms of the original agreement of June 30, 1998. In 1998, the Company
has recorded compensation expense of approximately $522,000 related to this
agreement. In 1999, the agreement was cancelled and a new agreement was Executed
for only 200,000 options. As a result of the cancellation, $343,750 of
previously recognized consulting expense, was reversed along with a
corresponding amount in shareholders' equity (deficit).
In management's opinion, all of the above transactions have been recorded at the
estimated fair market value of the Company's common stock at the date of grant.
Continued
F-21
<PAGE> 59
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 7 - RELATED PARTY TRANSACTIONS
COMPENSATION
During fiscal years 1998 and 1999, cash payments of approximately $660,000 and
$0, respectively, were made to shareholders and directors, including affiliated
companies, for compensation in connection with services rendered.
SHARES ISSUED TO RELATED PARTIES
In April 1999, the Company issued 900,000 restricted shares to a director as
compensation for services rendered on behalf of the Company. The shares were
valued at approximately $287,000, which was recorded to salaries and consulting
expense in the accompanying consolidated statement of operations.
Beginning in December 1998, the Company issued shares to employees and directors
for a portion of their compensation and expense reimbursement. The total shares
issued to employees and directors (excluding the 900,000 shares referred to
above) was approximately 2,410,000, valued at approximately $1,031,000, which
was recorded to salaries and consulting expense in the accompanying consolidated
statement of operations.
ATN SATELLITE NESTING CONTRACT
In April 1997, the Company entered into the Nesting Contract with ATN (a related
company) under which ATN will provide the Company with satellite uplink, master
control and other related services on its satellite transponder for two hours of
broadcast time per day. The Nesting Contract expired on August 31, 1998.
During 1998 and 1999, the Company made cash payments of $57,000 and $0,
respectively, to ATN.
NOTES PAYABLE
See Note 4 for a discussion of these transactions.
Continued
F-22
<PAGE> 60
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 8 - EMPLOYMENT AGREEMENTS
The Company has two employment agreements with employees, which provide for base
salary and bonuses through fiscal 2003. The bonuses are payable annually and are
primarily calculated based on revenues of the subsidiary, as defined in the
agreements. The future minimum payments under these agreements are as follows:
Years Ending
June 30,
------------
2000 $ 368,000
2001 368,000
2002 356,000
2003 112,000
----------
$1,072,000
==========
The employment agreements contain certain non-compete and severance pay clauses,
as defined in the agreements. Upon termination for cause, the agreements will be
cancelled with no additional amounts owing to the terminated party.
NOTE 9 - OPTIONS AND WARRANTS
STOCK OPTIONS
The Company has the following stock option plans: the 1996 Employee and
Consultants Stock Option Plan, the 1996 Board of Directors and Advisory Board
Retainer Stock Option Plan, the 1997 Management Bonus Plan, the 1998 Stock Plan,
the 1999 Stock Compensation Plan and the 1999 Stock Option Plan. A total of
2,890,251 shares of common stock are reserved for issuance, pursuant to options
granted and to be granted under these plans. 1,932,876 shares are available for
grant under the plans as of June 30, 1999. Options pursuant to the 1996 and 1997
plans have fully vested as of June 30, 1998, resulting from change of control
provisions being activated due to changes in the Board of Directors of the
Company. Options under the 1998 and 1999 plans both generally vest over three
years. All plan options generally expire in four to five years.
The plans provide for option grants at exercise prices not less than the fair
market value on the date of grant. All options granted under the 1996 plans were
at an exercise price of $5.00 per share. All grants under the 1997 and 1998
plans were repriced, effective August 3, 1998, as the Board of Directors of the
Company approved the repricing of options to purchase 806,746 shares granted
under these two plans, certain non-plan options and an option granted after June
30, 1998. Such repricing was effected by offering to exchange new options with
an exercise price of $1.56 per share, which was the fair market value of the
common stock on the date of repricing, for the options then held by such
optionees. The new options otherwise have identical terms and conditions as the
current original options.
Continued
F-23
<PAGE> 61
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
As of April 1999, certain employee options were canceled in anticipation of
being reissued in early fiscal 2000 at a reduced price of $0.43 per share (the
issuance has not yet occurred).
During 1998 and 1999, non-plan options to purchase 109,833 and 2,286,830
shares, respectively, of common stock were granted. The options' exercise prices
ranged from $1.56 to $3.00 per share in 1998 and $0.23 and $5.00 per share in
1999. The vesting and expiration of these options vary. During 1998, 1,000 of
these options were cancelled upon termination of employment of an optionee.
Options granted to non-employees,(totaling 1,577,915 shares) during fiscal 1999
were valued under SFAS No. 123 using the Black-Scholes option pricing model (see
below), totaling $434,670 in fiscal 1999.
The following is a summary of all options granted to employees, directors and
consultants to acquire the Company's common stock as of June 30, 1998 and 1999:
<TABLE>
<CAPTION>
Shares Subject Price
To Option Exercisable Range
-------------- ------------- -------------
<S> <C> <C> <C>
Balance, July 1, 1997 280,627 $1.30 - $5.00
Granted 890,209 $1.56 - $5.00
Exercised (2,867) $ 1.30
Canceled/expired (99,546) $1.56 - $5.00
---------
Balance, June 30, 1998 1,068,423 $1.56 - $5.00
Granted 2,724,665 $0.23 - $5.00
Exercised (917,000) $0.38 - $2.00
Canceled/expired (1,142,113) $0.38 - $3.00
----------
Balance, June 30, 1999 1,733,975 1,039,685 $0.23 - $5.00
========== ============= =============
</TABLE>
Continued
F-24
<PAGE> 62
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 9 - OPTIONS AND WARRANTS, CONTINUED
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------- --------------------------
Weighted Weighted Weighted
Range of Total Average Average Average
Exercise Options Remaining Exercise Options Exercise
Price Outstanding Life Price Outstanding Price
- ------------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.23 - $0.75 1,271,000 2 $ 0.39 596,002 $ 0.47
$1.00 - $1.56 210,853 3 1.42 210,312 1.42
$1.81 - $2.50 126,292 2 2.20 107,541 2.24
$3.00 - $5.00 125,830 2 3.85 125,830 3.85
--------- ---------
1,733,975 1,039,685
========= =========
</TABLE>
If the Company had elected to recognize compensation cost based on the fair
value of the options granted to employees as prescribed by SFAS No. 123, net
loss and loss per share would have been increased to the pro forma amounts
indicated in the table below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1999
--------- ---------
<S> <C> <C>
Net loss - as reported $ (8,262) $ (8,141)
Net loss - pro forma $ (8,532) $ (8,539)
Loss per share - as reported $ (1.91) $ (0.96)
Loss per share - pro forma $ (1.97) $ (1.00)
</TABLE>
Continued
F-25
<PAGE> 63
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 9 - OPTIONS AND WARRANTS, CONTINUED
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1999
-------- ------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 72% 30 - 214%
Risk free interest rate 6.0% 6.5%
Expected life of options 5 years 1 - 4 years
</TABLE>
The weighted average fair value of options granted during fiscal year 1998 is
$1.00. During 1999, the weighted average fair value of options granted to
employees was $0.41.
STOCK WARRANT
The following is a summary of all warrants granted to shareholders, consultants
and others to acquire the Company's common stock as of June 30, 1998 and 1999:
<TABLE>
<CAPTION>
Shares Subject Price
To Warrants Exercisable Range
-------------- ------------- -------------
<S> <C> <C> <C>
Balance, July 1, 1997 515,498 -- $3.87 - $5.50
Granted 2,835,000 -- $5.50 - $9.08
----------
Balance, June 30, 1998 3,350,498 -- $3.87 - $9.08
Granted 2,935,000 -- $0.01 - $5.50
Exercised (999,999) -- $ 0.01
Canceled/expired (15,498) -- $ 3.87
----------
Balance, June 30, 1999 5,270,001 5,270,001 $0.01 - $9.08
========== ========== =============
</TABLE>
Continued
F-26
<PAGE> 64
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
The following table summarizes information about stock warrants outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------- --------------------------
Weighted Weighted Weighted
Total Average Average Average
Exercise Warrants Remaining Exercise Warrants Exercise
Price Outstanding Life Price Outstanding Price
- ------------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 950,001 2 $ 0.01 950,001 $ 0.01
0.25 500,000 3 0.25 500,000 0.25
0.35 385,000 3 0.35 385,000 0.35
5.50 3,015,000 3 5.50 3,515,000 5.50
9.08 420,000 3 9.08 420,000 9.08
--------- ---------
5,270,001 5,270,001
========= =========
</TABLE>
In connection with the granting of these warrants, the Company recorded
additional consulting expense of $0 and $430,000 in fiscal 1998 and 1999,
respectively. The value of the fiscal year warrants are estimated on the date of
grant using the Black-Scholes pricing model with the following assumptions:
1999
-----------
Expected dividend yield 0%
Expected stock price volatility 133 - 214%
Risk free interest rate 6.5%
Expected life of warrants 1 - 3 years
Continued
F-27
<PAGE> 65
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 10 - COMMITMENTS
OPERATING LEASES
The Company has operating lease agreements for its facilities that expire at
various dates through 2001. Under one of the agreements, the Company has an
option to extend the lease through May 2004. The leases require that the Company
also pay for certain insurance coverages and common area charges throughout the
term of the lease. The aggregate minimum future commitments under operating
leases are as follows:
Years Ending
June 30,
------------
2000 $138,000
2001 132,000
2002 20,000
--------
$290,000
========
Rent expenses charged to operations in fiscal 1998 and 1999 were approximately
$79,600 and $232,400, respectively.
CAPITAL LEASES
The Company leases certain office equipment under a capital lease. At June
30,1999, minimum lease payments under the terms of the lease agreement are as
follows:
Years Ending
June 30,
------------
2000 $19,817
=======
Continued
F-28
<PAGE> 66
RNETHEALTH.COM, INC.
(FORMERLY KNOWN AS THE RECOVERY NETWORK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
NOTE 10 - COMMITMENTS, CONTINUED
TRANSPONDER CONTRACT
In May 1998, the Company entered into a five year contract with Group W Network
Services to provide program origination, master control operations, uplink and
C-Band Satellite transponder services. The contract requires the Company to make
monthly payments of approximately $85,000.
In April 1999, the Company negotiated a settlement of its accounts payable
balance owing to Group W Network Services as follows: payment of $150,000 in
cash, issuance of 500,000 of the Company's restricted common stock valued at
$159,000, and a note payable for $75,000 with an interest rate of 10% due in
December 1999. Future payment obligations were reduced to $50,000 per month in
advance in exchange for a reduction in daily broadcasting to nine hours per day
(see Note 1).
CONSULTING AGREEMENTS
The Company is a party to various consulting agreements related to marketing,
website generally design, corporate development, strategic partnering,
technology, etc. These agreements range in term from 30 days to 2 years and
require varying amounts of cash and stock payments. Total estimated expenses to
be recognized under these contracts is $600,000, most of which will be
recognized in fiscal 2000. Total estimated shares and options/warrants to be
granted in the future under these agreements is approximately 450,000 shares and
1,115,000 shares, respectively.
UNIVERSITY OF FLORIDA GRANT
The Company entered into an agreement to provide funding for an unrestricted
educational grant of $120,000 during fiscal 2000 to the University of Florida
for research and development of a web site to provide alternative and behavioral
health and wellness assistance.
NOTE 11 - SUBSEQUENT EVENTS
Since year end, the Company has issued an additional 2,427,595 shares of stock,
primarily for the exercise of 418,000 warrants at $0.01 per share, employee
compensation, reimbursable employee expenses, consulting expense and debt
discount (on shareholder loans totaling $225,000).
In addition, certain shareholders have loaned the Company $225,000. The loans
bear interest at 10%, with principal and interest due on the earlier of (1)
January 2000 or (2) immediately upon the closing of a debt or equity financing.
The notes are convertible to stock at $0.50 per share.
Company management is currently negotiating with noteholders and key internal
shareholders to raise additional capital by the following: (1) convert all
existing debt and accrued interest to equity (estimated at approximately
$756,000 at $0.25 per share; (2) receive an equity infusion from key internal
shareholders totaling $600,000 at $0.25 per share; and (3) offer noteholders an
opportunity to buy additional $756,000 of equity at $0.25 per share. There are
no assurances that management will be successful in negotiating this transaction
as contemplated.
Continued
F-29
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The articles of incorporation of the Registrant provide for the
indemnification of the Registrant's directors and officers to the fullest extent
permitted by law. Insofar as indemnification for liabilities under the
Securities Act of 1933 may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the articles of incorporation and the
corporation law of the State of Colorado, the Registrant has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
As permitted by the Colorado Business Corporation Act, the Articles of
Incorporation provide that directors and officers of the Registrant will not be
personally liable to the Registrant or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for breach of a
director's duty of loyalty to the Registrant or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 7-108-403 of the Colorado statute
relating to unlawful distributions or (iv) for any transaction from which the
director derived an improper personal benefit. The Articles of Incorporation
also provide (subject to certain exceptions) that the Registrant shall, to the
maximum extent permitted form time to time under the law of the State of
Colorado, indemnify, and upon request shall advance expenses to, any director or
officer to the extent permitted under such law as it may from time to time be in
effect. The Registrant's bylaws require the Registrant to indemnify, to the full
extent permitted by law, any director, officer, employee or agent of the
Registrant for acts which such person reasonably believes are not in violation
of the Registrant's corporate purposes as set forth in the Articles of
Incorporation. As a result of these provisions, shareholders may be unable to
recover damages against the directors and officers of the Registrant for actions
taken by them which constitute negligence, gross negligence, or a violation of
their fiduciary duties, which may reduce the likelihood of shareholders
instituting derivative litigation against directors and officers and may
discourage or deter shareholders from suing directors, officers, employees and
agents of the Registrant for breaches of their duty of care, even though such an
action, if successful, might otherwise benefit the Registrant and its
shareholders.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, which will be paid
by the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the registration fee and the
NASD filing fee, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee
Nasdaq listing expenses fee 0
Blue Sky fees and expenses (including legal and filing fees) 0
Printing expenses (other than stock certificates $ 1,000.00
Legal fees and expenses (other than Blue Sky) $ 5,000.00
Accounting fees and expenses $10,000.00
Miscellaneous expenses $ 2,000.00
----------
Total $18,000.00
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In June 1998, the Registrant issued (i) 1,111,110 shares of Common
Stock, valued at $2.25 per share, to 7 "accredited investors" and (ii) warrants
to purchase 100,000 shares of Common Stock at an exercise price of $5.50 per
share (the "Private Placement"). In issuing such securities, the Registrant
relied on the exemption provided by Rule 506 of Regulation D promulgated under
the Securities Act.
In June 1998, the Registrant issued 43,716 shares of Common Stock as
partial compensation to the placement agents in the Private Placement. In
issuing such securities, the Registrant relied on the exemption provided by
Section 4(2) of the Securities Act.
<PAGE> 68
In October 1998, the Registrant issued a total of 58,000 shares of
Common Stock, options to purchase 400,000 shares of Common Stock, 50,000 of
which are exercisable at $2.50 per share and 350,000 of which are exercisable at
$2.00 per share, in connection with various consulting and service agreements.
If all options and warrants were exercised, proceeds from the exercise of the
stock options and warrants would be $825,000. As of June 30, 1999, a total of
$775,000 of the options had been exercised
On December 7, 1998, the Company entered into an agreement with G.
Howard Associates, Inc. ("Howard") wherein Howard would represent the Company,
on an exclusive basis with respect to certain investors in connection with
raising capital for the Company. For its services, Howard would receive a cash
fee equal to 6% of the total consideration received by the Company and to
reimburse Howard for its out-of-pocket expenses. The fee is due at the closing
of a said transaction. Such agreement with Howard was amended in April 1999. The
amendment expanded Howard's representation to include (a) the sale of the
Company's 20% ownership in Recovery Interactive; (b) the settlement with certain
creditors identified; and, (c) assistance in raising $300,000 of additional
capital. Pursuant to this amendment, Howard received 900,000 newly issued shares
of the Common Stock valued at $287,000 and a reduction in warrants held by
Howard and/or Mr. Henry.
In December 1998, in connection with $725,000 notes payable by the
Company, the Company granted warrants to purchase 500,000 unregistered shares at
$0.01 per share to a group of shareholders (the "Noteholders"). In April 1999,
the Company renegotiated the terms of the $725,000 notes payable to certain
shareholders. In exchange for extending the due date to October 1999 (six
months), the Company granted another 1,000,000 warrants at $0.01 per share.
Approximately 999,999 shares to date have been exercised.
On January 7, 1999 the Company engaged Ms. Jones, member of the Board of
Directors to act as a "Special Agent" to help the Company secure financing.
Pursuant to Ms. Jones' proposal, Ms. Jones received 50,000 shares of
unregistered common stock and is entitled to 5% of the first one million of
value, 4% of the second one million value, 3% of the third one million value, 2%
of the fourth one million value and 1% on all amounts of value in excess of five
million dollars upon closing.
On January 26, 1999 the Company engaged Mr. Wheeler, Executive in the
Company, as an Agent to help secure financing. Pursuant to the Letter of
Agreement, Mr. Wheeler will receive 75,000 shares of unregistered common stock
and is entitled to a cash fee equal to four percent (4%) of the total financing
upon closing.
Beginning in February 1999, executive officers and other employees of
the Company have received stock in lieu of salaries. To-date, the Company has
issued 527,657 number of shares in lieu of salaries.
In March 1999, in connection with an aggregate $100,000 investment by
certain investors, the Company agreed to issue notes convertible into Common
Stock of the Company.
In April 1999, the Company entered into an agreement with third
parties to sell its interest in Recovery Interactive and to receive it web-site
back from Recovery Interactive.
On June 11, 1999, the Company entered into a Subscription Agreement
(the "Agreement") with certain Subscribers (the "Private Placement"). The
Private Placement provides for the issuance upon closing by the Company of (i)
350,000 shares (the "Shares") of Common Stock for $350,000, or $1.00 per share,
(ii) additional shares of Common Stock to the Subscribers pursuant to certain
other provisions of the Agreements, including shares issuable for no additional
consideration pursuant to the Reset Rights in the Agreements and shares
issuable for up to $1,500,000 pursuant to a "put" provision in the Agreement
(the "Additional Shares"), and (iii) 35,000 shares of Common Stock and 175,000
placement warrants exercisable at $0.35 per common share, as partial
compensation to the placement agents in the Private Placement.
In September 1999, the Company entered undertook to restructure
existing transactions relating to (i) the Subscription Agreement entered into by
Investors with the Company for investment by such Investors in the securities of
the Company dated June 29, 1998, as amended by Amendment No. 1 dated as of
October 27, 1998; (ii) the subscription agreements dated March 18, 1999 where
certain of the Investors invested in an aggregate $100,000 of principal amount
Convertible Notes of the Company; and, (iii) the Subscription Agreement dated
June 10, 1999 between the Company and Investors (see above). On September 28,
1999, the Company entered into a Restructuring Agreement with the Investors to
the above-mentioned transactions, wherein, among other things, upon issuance of
additional shares (i) there would be no further resets pursuant to the June 29,
1998 investment; (ii) any further resets, if any, in connection with the June
1999 investment would be determined based on a purchase price of $0.50 per
shares; and (iii) Convertible Notes issued on March 1999 would be converted at
the conversion price of $0.50.
On October 13, 1999, the Company finalized a debt restructuring and infusion of
additional capital with certain noteholders and shareholders, resulting in the
following: (1) conversion of all existing debt and accrued interest to equity
(estimated at approximately $756,000) at $0.25 per share; (2) commitment to
receive an equity infusion from key internal shareholders totaling up to
$600,000 at $0.25 per share; and (3) a 45-day option to noteholders to acquire
additional equity at $0.25 per share up to $756,000. This transaction will bring
up to $1.3 million in cash and an increase to equity of up to $2.1 million.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Number Description of Exhibit
- ------ ----------------------
<S> <C>
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
2.5 Agreement and Plan of Merger dated as of December 10, 1997 among
the Registrant, Recovery Direct, Inc., FMS Productions, Inc. and
each of John Frederick, P. Randall Frederick, Jan Smithers, Joe C.
Wood, Jr., Sharon R. Irish and Charles S. Sapp. ++
2.7 Convertible Note issued to Austost Anstalt Schaan, Balmore Funds,
The Sargon Fund, L.P., and Martin Chopp dated March 22, 1999
2.9 Restructuring Agreement dated September 28, 1999
3.1 Articles of Incorporation of Registrant. **
3.2 By-laws of Registrant. **
4.1 Specimen Certificate of the Registrant's Common Stock. **
4.2 Form of Redeemable Warrant Agent Agreement (including Form of
Redeemable Warrant). **
4.3 Form of Underwriter's Warrant Agreement (including Form of
Underwriter's Warrant). **
4.4 1996 Employee and Consultants Stock Option Plan. **
4.5 Amendment to 1996 Employee and Consultants Stock Option Plan. **
4.6 1996 Board of Directors and Advisory Board Stock Option Plan. **
4.7 Amendment to 1996 Board of Directors and Advisory Board Stock
Option Plan. **
4.8 1997 Management Bonus Plan. **
4.9 Amendment to 1997 Management Bonus Plan. **
4.10 Form Stock Option Contract. **
4.11 Form of Promissory Note issued by the Registrant on July 2, 1997
(included in Exhibit 10.19)
4.12 1998 Stock Plan. +
4.13 1999 Stock Plan
4.14 Form of Warrant.
4.15 Form of Registration Rights Agreement dated December 10, 1997
between the Registrant and each of the Sellers.++
5.1 Opinion of Beckman, Millman and Sanders, LLP
10.1 Operating Agreement of RecoveryNet Interactive, L.L.C. dated as of
August 1, 1996. *
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
10.2 Channel Nesting Agreement between the Registrant and Access
Television Network, Inc. dated as of April 10, 1997. **
10.3 Employment Agreement between the Registrant and William D. Moses
effective as of December 1, 1996. **
10.4 Non-Disclosure and Inventions Agreement between the Registrant and
William Moses dated as of January 30, 1997. **
10.5 Employment Agreement between the Registrant and Donald Masters
Effective as of December 1, 1996. **
10.6 Non-Disclosure and Inventions Agreements between the Registrant
and Donald Masters dated as of February 3, 1997. **
10.7 Employment Agreement between the Registrant and John Wheeler dated
as of May 13, 1997. **
10.8 Employment Agreement between the Registrant and William Magellan
dated as of May 1, 1997. **
10.9 Employment Agreement between the Registrant and Jay Handling dated
as of May 11, 1999.
10.10 License Agreement between RecoveryNet Interactive, L.L.C. and
Merit Behavioral Care Corporation dated as of May 1, 1997. **
10.11 Services Agreement dated as of April 1, 1998, as amended on
October 27, 1998 and April 15, 1999, by and between Registrant and
Group W Network Services.
10.12 Letter Agreement between Registrant and G. Howard Associates, Inc.
dated December 7, 1998, as amended on April 11, 1999.
10.13 Engagement Proposal between Registrant and Charlotte Schiff Jones
dated January 7, 1999.
10.14 Letter Agreement between Registrant and John Wheeler
dated January 26, 1999.
10.16 Agreement and General Releases dated as of April 15, 1999 between
the Registrant and TCI Online RN Holdings, Inc. FHC Internet
Services, LC and Lifescape 1 to 1, LLC.
10.17 Settlement Agreement and General Release and Common Stock Purchase
Warrant between the Registrant and Michael Lennon dated January
1999.
10.18 Settlement Agreement and General Release and Common Stock Purchase
Warrant between the Registrant and George Henry dated October 26,
1998.
10.19 Promissory Note between Registrant and William Moses and George
Henry dated May 27, 1999
10.20 Promissory Notes between Registrant and George Henry, George Henry
III, Nicole Cox, William Moses, Martin Chopp and Michael Clurman
dated July 23, 1999
10.21 Promissory Note between Registrant and George Henry dated
September 10, 1999
10.22 Form of Debt Restructuring Agreement dated October 13, 1999
relating to $725,000 debt and $100,000 debt
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
16 Letter regarding Change in Certifying Accountant. +++
21.1 List of Subsidiaries. **
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Corbin & Wertz
23.3 Consent of Beckman, Millman and Sanders, LLP (included in
Exhibit 5.1)
27.1 Financial Data Schedule.
</TABLE>
* Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement on Form SB-2, file number 333-61421.
** Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement on Form SB-2, file number 333-27787.
*** Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement on Form SB-2, file number 333-82299.
+ Incorporated by Reference to Exhibit A to the Registrant's Definitive Proxy
Statement on Schedule 14A filed by the Registrant on April 29, 1998.
++ Incorporated by Reference to Exhibit 2.1 to the Registrant's December 15,
1997 Form 8-K.
++ Incorporated by Reference to Exhibit 4.1 to the Registrant's December 15,
1997 Form 8-K.
+++ Incorporated by Reference to Exhibit 16 to the Registrant's August 31, 1999
Form 8-K/A.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales 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;
(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) do not apply if the registration statement
is on Form S-3, Form S-8, and the Information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Company pursuant to
Section 13 or 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 herein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(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 this offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") 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 the payment by the
Registrant of expenses incurred or paid by a
<PAGE> 72
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserting 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 73
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in Santa Monica County,
State of California, on the 5th day of November, 1999.
THE RECOVERY NETWORK, INC.
By: /s/ WILLIAM D. MOSES
---------------------------
William D. Moses
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William D. Moses, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all amendments (including
post-effective amendments) to this registration statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT PORTRIE
- -------------------------------- Chairman of the Board of Directors November 5, 1999
Robert Portrie
/s/ GEORGE HENRY Chairman of the Executive November 5, 1999
- -------------------------------- Committee of the Board of Directors
George Henry
/s/ WILLIAM D. MOSES President and Director
- -------------------------------- November 5, 1999
William D. Moses
/s/ STACEY ROMM Chief Financial Officer
- -------------------------------- November 5, 1999
Stacey Romm
/s/ MARC GUREN
- -------------------------------- Director November 5, 1999
Marc Guren
/s/ JAY HANDLINE
- -------------------------------- Director November 5, 1999
Jay Handline
/s/ CHARLOTTE SCHIFF JONES
- -------------------------------- Director November 5, 1999
Charlotte Schiff Jones
/s/ KEVIN WALL
- -------------------------------- Director November 5, 1999
Kevin Wall
</TABLE>
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.5 Agreement and Plan of Merger dated as of December 10, 1997 among
the Registrant, Recovery Direct, Inc., FMS Productions, Inc. and
each of John Frederick, P. Randall Frederick, Jan Smithers, Joe C.
Wood, Jr., Sharon R. Irish and Charles S. Sapp. ++
2.7 Convertible Note issued to Austost Anstalt Schaan, Balmore Funds,
The Sargon Fund, L.P., and Martin Chopp dated March 22, 1999
2.9 Restructuring Agreement and dated September 28, 1999
3.1 Articles of Incorporation of Registrant. **
3.2 By-laws of Registrant. **
4.1 Specimen Certificate of the Registrant's Common Stock. **
4.2 Form of Redeemable Warrant Agent Agreement (including Form of
Redeemable Warrant). **
4.3 Form of Underwriter's Warrant Agreement (including Form of
Underwriter's Warrant). **
4.4 1996 Employee and Consultants Stock Option Plan. **
4.5 Amendment to 1996 Employee and Consultants Stock Option Plan. **
4.6 1996 Board of Directors and Advisory Board Stock Option Plan. **
4.7 Amendment to 1996 Board of Directors and Advisory Board Stock
Option Plan. **
4.8 1997 Management Bonus Plan. **
4.9 Amendment to 1997 Management Bonus Plan. **
4.10 Form Stock Option Contract. **
4.11 Form of Promissory Note issued by the Registrant on July 2, 1997
(included in Exhibit 10.19)
4.12 1998 Stock Plan. +
</TABLE>
<PAGE> 75
<TABLE>
<S> <C>
4.13 1999 Stock Plan
4.14 Form of Warrant.
4.15 Form of Registration Rights Agreement dated December 10, 1997
between the Registrant and each of the Sellers.++
5.1 Opinion of Beckman, Millman and Sanders, LLP
10.1 Operating Agreement of RecoveryNet Interactive, L.L.C. dated as of
August 1, 1996. *
10.2 Channel Nesting Agreement between the Registrant and Access
Television Network, Inc. dated as of April 10, 1997. **
10.3 Employment Agreement between the Registrant and William D. Moses
effective as of December 1, 1996. **
10.4 Non-Disclosure and Inventions Agreement between the Registrant and
William Moses dated as of January 30, 1997. **
10.5 Employment Agreement between the Registrant and Donald Masters
Effective as of December 1, 1996. **
10.6 Non-Disclosure and Inventions Agreements between the Registrant
and Donald Masters dated as of February 3, 1997. **
10.7 Employment Agreement between the Registrant and John Wheeler dated
as of May 13, 1997. **
10.8 Employment Agreement between the Registrant and William Magellan
dated as of May 1, 1997. **
10.9 Employment Agreement between the Registrant and Jay Handline dated
as of May 11, 1999.
10.10 License Agreement between RecoveryNet Interactive, L.L.C. and
Merit Behavioral Care Corporation dated as of May 1, 1997. **
10.11 Services Agreement dated as of April 1, 1998, as amended on
October 27, 1998 and April 15, 1999, by and between Registrant and
Group W Network Services.
10.12 Letter Agreement between Registrant and G. Howard Associates, Inc.
dated December 7, 1998, as amended on April 11, 1999.
10.13 Engagement Proposal between Registrant and Charlotte Schiff Jones
dated January 7, 1999.
10.14 Letter Agreement between Registrant and John Wheeler
dated January 26, 1999.
10.16 Agreement and General Releases dated as of April 15, 1999 between
the Registrant and TCI Online RN Holdings, Inc. FHC Internet
Services, LC and Lifescape 1 to 1, LLC.
10.17 Settlement Agreement and General Release and Common Stock Purchase
Warrant between the Registrant and Michael Lennon dated January
1999.
10.18 Settlement Agreement and General Release and Common Stock Purchase
Warrant between the Registrant and George Henry dated October 26,
1998.
10.19 Promissory Note between Registrant and William Moses and George
Henry dated May 27, 1999
</TABLE>
<PAGE> 76
<TABLE>
<S> <C>
10.20 Promissory Notes between Registrant and George Henry, George Henry
III, Nicole Cox, William Moses, Martin Chopp and Michael Clurman
dated July 23, 1999
10.21 Promissory Note between Registrant and George Henry dated
September 10, 1999
10.22 Form of Debt Restructuring Agreement dated October 13, 1999
relating to $725,000 debt and $100,000 debt
16 Letter regarding Change in Certifying Accountant. +++
21.1 List of Subsidiaries. **
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Corbin & Wertz
23.3 Opinion of Beckman, Millman and Sanders (included in Exhibit 5.1)
27.1 Financial Data Schedule.
</TABLE>
* Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement on Form SB-2, file number 333-61421.
** Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement on Form SB-2, file number 333-27787.
*** Incorporated by reference to the same numbered exhibit to the Registrant's
Registration Statement on Form SB-2, file number 333-82299.
+ Incorporated by Reference to Exhibit A to the Registrant's Definitive Proxy
Statement on Schedule 14A filed by the Registrant on April 29, 1998.
++ Incorporated by Reference to Exhibit 2.1 to the Registrant's December 15,
1997 Form 8-K.
++ Incorporated by Reference to Exhibit 4.1 to the Registrant's December 15,
1997 Form 8-K.
+++ Incorporated by Reference to Exhibit 16 to the Registrant's August 31, 1999
Form 8-K/A.
<PAGE> 1
EXHIBIT 2.7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
(hereinafter called "Borrower"), hereby promises to pay to AUSTOST ANSTALT
SCHAAN, 7440 Fuerstentum, Lichenstein Landstrasse 163, Fax No.:
011-431-534532895 (the "Holder") or order, without demand, the sum, of
$30,000.00, with simple interest accruing at the annual rate of 12%, an March
__, 2000 (the "Maturity Date"), as such date may be extended by agreement of the
parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges shall remain in
full force and effect as set forth in Article II and until the Note principal
and interest are paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or the Maturity Date,
accelerated or otherwise, the Borrower shall pay interest at the annual rate of
12% per annum.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
1
<PAGE> 2
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this ____ day of March, 1999.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
WITNESS:
- ----------------------------------------
6
<PAGE> 3
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer an this ___ day of March, 1999.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
WITNESS:
- ----------------------------------------
6
<PAGE> 4
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer an this ____ day of March, 1999.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
WITNESS:
- ----------------------------------------
6
<PAGE> 5
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer an this ____ day of March, 1999.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
WITNESS:
- ----------------------------------------
6
<PAGE> 6
provisions, the Company may withdraw any registration statement referred to in
this Section 10.1(ii) without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account, such written request shall
be deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by
such written request shall be governed by Section 10.1(ii) except that the
Company or underwriter, if any, may not withdraw such registration or limit the
amount of Registrable Securities included in such registration.
(iv) The Company shall file with the Commission no later than April
15, 1999 (the "Filing Date"), and use its reasonable commercial efforts to cause
to be declared effective a Form S-3 registration statement (or such other form
that it is eligible to use) on or before June 15, 1999 in order to register the
Registrable Securities for resale and distribution under the Act. The
registration statement described in this paragraph must be declared effective by
the Commission on or before June 15, 1999 ("Effective Date"). The Company will
register not less than 64,000 shares of Common Stock in the aforedescribed
registration statement for each $10,000 of Note principal subscribed for and one
share of Common Stock for each Commission Share. The Registrable Securities
shall be reserved and set aside exclusively for the benefit of the Subscriber
and Placement Agents, as the case may be, and not issued, employed or reserved
for anyone other than the Subscriber and Placement Agents, as the case may be.
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities.
10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings;
13
<PAGE> 7
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
Dated: March ________, 1999
The undersigned Subscriber waives the provision by the Company on the Closing
Date of the legal opinion referred to in Section 3 hereof.
Accepted:
AUSTOST ANSTALT SCHAAN - Subscriber
(A Lichenstein corporation)
7440 Fuerstentum
Lichenstein Landstrasse 163
Fax: 011-431-534532895
By:
---------------------------------------
Dated as of March _________, 1999
Principal Amount of Note: $30,000.00
21
<PAGE> 8
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
Dated: March ________, 1999
The undersigned Subscriber waives the provision by the Company on the Closing
Date of the legal opinion referred to in Section 3 hereof.
Accepted:
BALMORE FUNDS S.A. - Subscriber
(A B.V.I. corporation)
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
By:
---------------------------------------
Dated as of March _________, 1999
Principal Amount of Note: $30,000.00
22
<PAGE> 9
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
Dated: March ________, 1999
The undersigned Subscriber waives the provision by the Company on the Closing
Date of the legal opinion referred to in Section 3 hereof.
Accepted:
THE SARGON FUND, L.P. - Subscriber
(A New York corporation)
20 Adele Road
Cedarhurst, New York 11516
Fax: 516-371-6999
By:
---------------------------------------
Dated as of March _________, 1999
Principal Amount of Note: $30,000.00
23
<PAGE> 10
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------------------
Dated: March ________, 1999
The undersigned Subscriber waives the provision by the Company on the Closing
Date of the legal opinion referred to in Section 3 hereof.
Accepted:
MARTIN CHOPP - Subscriber
1129 East 22nd Street
Brooklyn, New York 11210
Fax: 718-854-3342
By:
---------------------------------------
Dated as of March _________, 1999
Principal Amount of Note: $10,000.00
<PAGE> 1
EXHIBIT 2.9
RESTRUCTURING AGREEMENT
This Restructuring Agreement dated as of the 28th day of September, 1999
between The Recovery Network, Inc. (the "Company") and the parties identified
on Schedule A hereto (the "Investor" or "Investors"):
WHEREAS on June 29, 1998 some of the Investors had entered into a
subscription agreement with the Company, as amended by Amendment No. 1 dated as
of October 27, 1998 and as further amended by Agreement dated May 27, 1999
relating to the investment by such Investors in securities of the Company (a
"Subscription Agreement"); and
WHEREAS on March 18, 1999 pursuant to other subscription agreements
("Subscription Agreements") , certain of the Investors identified on Schedule A
invested in an aggregate $100,000 of principal amount Convertible Notes of the
Company; and
WHEREAS on June 10, 1999, certain of the Investors identified on
Schedule A invested in common stock of the Company pursuant to other
subscription agreements ("Subscription Agreements"); and
WHEREAS pursuant to the various Subscription Agreements and other
agreements with the Company, the Investors have certain reset rights ("Reset
Rights") and registration rights ("Registration Rights"), and conversion rights
("Conversion Rights"); and
WHEREAS the Company is in default of various obligations to the
Investors, and the Company and Investors are desirous of restructuring the
various transactions among them;
A. Annexed hereto as Schedule A is a schedule of Common Stock of the
Company held by the Investors and the amount of such Common Stock that is
presently not included in a currently effective registration statement.
B. Annexed hereto as Schedule B is a schedule identifying Investors who
are holders of common stock purchase warrants of the Company ("Warrants"),
exercise prices, underlying common shares included in a presently effective
registration statement and underlying shares not included in a presently
effective registration statement.
C. Capitalized terms employed in this Restructuring Agreement shall have
the same meanings as attributed to them in the Subscription Agreements and
other documents referred to therein and herein.
1
<PAGE> 2
D. Except as modified herein, the Subscription Agreements and other
documents referred to therein and herein, and all their terms and conditions
remain in full force and effect.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is acknowledged, the
parties agree as follows:
1. In lieu of all further Reset Rights granted to the Investors in
connection with the June 29, 1998 investment, each Investor accepts and the
Company agrees to issue to the Investor the amount of Common Shares of the
Company designated on Schedule C hereto ("1998 Reset Shares"), after which there
shall be no further Resets pursuant to the June 29, 1998 investment, except as
otherwise provided herein.
2. The Company agrees to issue to the Investors the amount of common
shares designated on Schedule C hereto ("1999 Reset Shares") as an initial Reset
of the Purchase Price of the Common Shares purchased pursuant to the June 10,
1999 Subscription Agreements. After such issuance, all further Resets, if any,
in connection with the June 10, 1999 investment will be determined based on a
Purchase Price of $.50 per common share.
3. The 1998 Reset Shares and 1999 Reset Shares must be delivered to the
Investors within five days of the date of this Restructuring Agreement.
4. The Company agrees to register with the Securities and Exchange
Commission all common stock of the Company held by the Investors and not
included in a currently effective Registration Statement, and the 1998 Reset
Shares and the 1999 Reset Shares and all common stock issuable upon exercise of
the Warrants not already included in an effective Registration Statement. In
respect of these common shares, the Investors and Warrantholders are granted the
same registration rights described in Section 10 of the Subscription Agreement
relating to the June 10, 1999 investment except that the Effective Date shall
be September 30, 1999. The Company further acknowledges its obligation to
maintain the effectiveness of the currently effective registration statements or
file such further registration statements pursuant to the Subscription
Agreements so that the common shares to be resold pursuant to such registration
statements will be included in an effective registration statement for a period
of riot less than two years from the date of this Restructuring Agreement.
5. The Investors who hold Convertible Notes issued March 18, 1999 agree
that for a period of ninety (90) days commencing on the date of this
Restructuring Agreement, the Conversion Price as
2
<PAGE> 3
described in Section 2.1(a) of the Convertible Note shall be $.50
6. (a) The Company and Investors who hold in the aggregate, 500,000
common stock purchase warrants of the Company issued on May 27, 1999 which are
exercisable until May 30, 2002 at a Purchase Price (as defined in such warrant)
of $.01 per common share, agree that the Purchase Price shall be increased to
$.25.
(b) The following shall be deemed included as Section 14 in and be a
part of the common stock purchase warrants described in Paragraph 6(a) above:
"14. Call Option. The Company shall have the option to
"call" the Warrants (the "Warrant Call"), in accordance
with and governed by the following:
(a) The Company shall exercise the Warrant Call by
giving to each Warrant Holder a written notice of call
(the "Call Notice") during the period in which the Warrant
Call may be exercised.
(b) The Company's right to exercise the Warrant
Call shall commence the first trading day after the
Company's Common Stock shall have had a closing bid price
on the NASD OTC Bulletin Board of $.75 per share or more
for five consecutive trading days (such trading price to
be adjusted in the same manner and for the same reasons as
the Purchase Price) and, thereafter, shall be coterminous
with the exercise period of the Warrants for all or part
of the Common Stock issuable upon the exercise of the
Warrants (the "Warrant Shares"), provided, that the
Warrant Shares are included in a registration statement
effective at the date the Call Notice is given and through
the period ending 14 business days thereafter. In no event
may the Company exercise the Warrant Call at any time
unless the Warrant Shares to be delivered upon exercise of
the Warrant, will be upon delivery, immediately resalable,
without restrictive legend and upon such resale freely
transferable on the transfer books of the Company.
3
<PAGE> 4
(c) Unless otherwise agreed to by the Warrant
Holders, the Call Notices must be given to all Warrant
Holders in proportion to the amounts of Common Stock which
can be purchased by the respective Warrant Holders in
accordance with the respective Warrant held by each.
(d) The respective Warrant Holders may exercise
their Warrant rights and purchase the appropriate Warrant
Shares and pay for same all within 21 business days of the
date of the Call Notice. Thereafter the Warrant will no
longer be exercisable."
7. In the event that (i) the 1998 Reset Shares or 1999 Reset Shares are
not timely delivered to the Investors as described above; or (ii) if the
Registration Statement described in Paragraph 4 above is not declared effective
on or before the Effective Date, or upon the occurrence of any other
Non-Registration Event; or (iii) if a Significant Event as described in
Paragraph 10 below does not "timely" occur (as defined in Paragraph 10 below)
then the Company shall not he relieved of its obligations hereunder.
Furthermore, except as otherwise described in Paragraph 8 below, (x) the
Investors shall be restored to their Reset Rights, (x) the Conversion Price
referred to in Paragraph 5 above shall be restored to the Conversion Price as
described in Section 2.1(a) of the March 18, 1999 Convertible Notes, (y) the
Purchase Price described in Paragraph 6 above shall be restored to $.01, and (z)
the Company shall no longer have the right to give a Call Notice in connection
with the common stock purchase warrants described in Paragraph 6 above.
8. Provided the 1998 Reset Shares are timely delivered and the
Registration Statement described in Paragraph 4 above is declared effective on
or before the Effective Date and a Non-Registration Event does not occur, then
the Investors' Reset Rights relating to tile June 29, 1998 investment shall not
be restored whether or not a Significant Event occurs.
9. Absent any default by the Company hereunder, neither the Company nor
the Investors will exercise Reset Rights in connection with the June 10, 1999
investment until 91 days after the date of this Agreement. In the event the
Company is not in default of any of its obligations to the Investor hereunder or
pursuant to any other agreement with the Investor and (i) the 1999 Reset Shares
are timely delivered; (ii) the Registration Statement described in Paragraph 4
above is declared effective on or before the Effective Date and a
Non-Registration Event does not occur; and (iii) the
4
<PAGE> 5
Significant Event occurs "timely", then the Investor shall have no
further Reset Rights in connection with the June 10, 1999 investment.
10. A Significant Event shall mean either (i) the obtention by the
Company of a binding written commitment from a strategic investor, for such
investor to invest not less than $3,000,000 for not more than 19.9% of the
equity of the Company with the actual receipt by the Company of such $3,000,000
within thirty days of the execution of such binding written commitment; or (ii)
the entry into a binding agreement by the Company and a major media entity for
such entity to distribute the company's programming, thereby substantially
increasing the number of households actually receiving the company's
programming, from 5,000,000 households currently to 10,000,000 households. As
employed in Paragraph 7 above, "timely" shall mean within ninety (90) days of
the date of this Restructuring Agreement.
11. The Company, on behalf of itself and its successors, assigns
administrators and representatives (the "RELEASORS"), hereby releases, remises,
acquits and discharges forever, irrevocably and unconditionally the investors
and their respective representative affiliates, successors and assigns (the
"RELEASEES"), from, against and with respect to any and all claims which any of
the Releasors has, ever had or may hereafter against the Releasees arising on or
prior to the date of this Restructuring Agreement or on account of or arising
out of any matter, cause or event occurring on or prior to the date of this
agreement; provided, however, that nothing in this Section 11 will operate to
release any obligation of the Investors arising under this agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK)
5
<PAGE> 6
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 7
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 8
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 9
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
/s/ [Signature Illegible] /s/ MARTIN CHOPP
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 10
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 11
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 12
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
6
<PAGE> 13
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------- -------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------- -------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------- -------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------- -------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------- -------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------- -------------------------------
TLG REALTY THE SARGON FUND, L.P.
/s/ [Signature Illegible]
- ------------------------------
ZAKENI, LTD.
6
<PAGE> 14
SCHEDULE A
<TABLE>
<CAPTION>
================================================================================
INVESTORS JUNE, 1998 JUNE, 1999 JUNE, 1999
COMMON SHARES COMMON SHARES COMMON SHARES
-------------- -------------- --------------
NOT REGISTERED REGISTERED NOT REGISTERED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTOST ANSTALT SCHAAN 378,348 100,000 100,000
- --------------------------------------------------------------------------------
BALMORE FUNDS, S.A. 348,049 100,000 100,000
- --------------------------------------------------------------------------------
ZAKENI LTD. 264,118 -- --
- --------------------------------------------------------------------------------
BL SQUARED FOUNDATION 67,996 -- --
- --------------------------------------------------------------------------------
THE SARGON FUND, L.P. 43,918 -- --
- --------------------------------------------------------------------------------
TLG REALTY 22,221 -- --
- --------------------------------------------------------------------------------
MARTIN CHOPP 55,999 -- --
- --------------------------------------------------------------------------------
AMRO INTERNATIONAL S.A. -- 100,000 100,000
- --------------------------------------------------------------------------------
NESHER, INC. -- 50,000 50,000
- --------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. -- 10,000 --
- --------------------------------------------------------------------------------
LIBRA FINANCE, S.A. -- 130,929 11,591
- --------------------------------------------------------------------------------
GUARANTEE & FINANCE CORP. -- -- 100,000
================================================================================
</TABLE>
7
<PAGE> 15
SCHEDULE B
<TABLE>
<CAPTION>
================================================================================
WARRANTHOLDER COMMON SHARES PURCHASE PRICE AMOUNT OF
ISSUABLE UPON UNDERLYING
EXERCISE SHARES NOT
INCLUDED IN
REG. STATEMENT
& DATE OF REG.
STATEMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTOST ANSTALT SCHAAN 150,000 $.01 150,000
160,000 * $.25 * 160,000
- --------------------------------------------------------------------------------
BALMORE FUNDS, S.A. 150,000 $.01 150,000
160,000 * $.25 * 160,000
- --------------------------------------------------------------------------------
ZAKENI LTD. 100,000 $.01 100,000
85,000 $.25 * 85,000
- --------------------------------------------------------------------------------
BL SQUARED FOUNDATION 40,000 * $.25 * 40,000
- --------------------------------------------------------------------------------
THE SARGON FUND, L.P. 50,000 50,000
30,000 $.25 * 30,000
- --------------------------------------------------------------------------------
TLG REALTY 10,000 $.25 * 10,000
- --------------------------------------------------------------------------------
MARTIN CHOPP 15,000 $.25 * 15,000
- --------------------------------------------------------------------------------
AMRO INTERNATIONAL S.A. 50,000 $.35 50,000
- --------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. 50,000 $.35 50,000
- --------------------------------------------------------------------------------
LIBRA FINANCE, S.A. 100,000 $.35 100,000
================================================================================
</TABLE>
* Pursuant to Section 6 of Restructuring Agreement
8
<PAGE> 16
SCHEDULE C
<TABLE>
<CAPTION>
================================================================
INVESTORS 1998 RESET 1999 RESET
SHARES SHARES
- ----------------------------------------------------------------
<S> <C> <C>
AUSTOST ANSTALT SCHAAN 150,000 100,000
- ----------------------------------------------------------------
BALMORE FUNDS, S.A. 160,000 100,000
- ----------------------------------------------------------------
ZAKENI LTD. 95,000
- ----------------------------------------------------------------
BL SQUARED FOUNDATION 40,000
- ----------------------------------------------------------------
THE SARGON FUND, L.P. 30,000
- ----------------------------------------------------------------
TLG REALTY 10,000
- ----------------------------------------------------------------
MARTIN CHOPP 15,000
- ----------------------------------------------------------------
AMRO INTERNATIONAL S.A. 100,000
- ----------------------------------------------------------------
NESHER, INC. 50,000
- ----------------------------------------------------------------
GUARANTEE & FINANCE CORP. 50,000
- ----------------------------------------------------------------
TOTALS 500,000 400,000
================================================================
</TABLE>
9
<PAGE> 17
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 18
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 19
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 20
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 21
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 22
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
/s/ [Signature Illegible] /s/ MARTIN CHOPP
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 23
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 24
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
/s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 25
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
/s/ [Signature Illegible] /s/ [Signature Illegible]
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
- -----------------------------------
ZAKENI, LTD.
<PAGE> 26
AMENDMENT NO. 1 TO RESTRUCTURING AGREEMENT
This Amendment No. 1 to the Restructuring Agreement is dated as of the
28th day of September, 1999 between The Recovery Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
WHEREAS, the Company and the Investors have entered into a Restructuring
Agreement dated on or about September 28, 1999 relating to subscription
agreements entered into by some of the Investors with the Company for
investment by such Investors in the securities of the Company dated June 29,
1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as further
amended by Agreement dated May 27, 1999 and pursuant to other subscription
agreements dated March 18, 1999 where certain of the Investors invested in an
aggregate $100,000 of principal amount Convertible Notes of the Company
("Subscription Agreements").
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The term Effective Date as it appears in Paragraph 4 of the
Restructuring Agreement shall be amended to mean October 25, 1999.
2. Except as modified herein, the Subscription Agreements, the
Restructuring Agreement and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
This agreement may be executed in multiple counterparts, and by facsimile
signature and may be delivered via telecopier.
- ----------------------------------- -----------------------------------
THE RECOVERY NETWORK, INC. AMRO INTERNATIONAL, S.A.
- ----------------------------------- -----------------------------------
AUSTOST ANSTALT SCHAAN BALMORE FUNDS, S.A.
- ----------------------------------- -----------------------------------
BL SQUARED FOUNDATION MARTIN CHOPP
- ----------------------------------- -----------------------------------
GUARANTEE & FINANCE CORP. LIBRA FINANCE, S.A.
- ----------------------------------- -----------------------------------
NESHER, INC. TALBIYA B. INVESTMENTS LTD.
- ----------------------------------- -----------------------------------
TLG REALTY THE SARGON FUND, L.P.
/s/ [Signature Illegible]
- -----------------------------------
ZAKENI, LTD.
<PAGE> 1
EXHIBIT 4.13
THE RECOVERY NETWORK, INC.
1999 STOCK OPTION BONUS PLAN
ARTICLE I
INTRODUCTION
1.1 ESTABLISHMENT. THE RECOVERY NETWORK, INC., a Colorado corporation,
hereby establishes the 1999 Stock Option Plan, which permits the grant of stock
options, restricted stock awards, stock appreciation rights, stock units, and
other stock grants to certain directors and key employees of RNET.
1.2 PURPOSES. The purpose of the Plan is to provide employees with an
incentive to maintain the long term performance and profitability of the
Company.
1.3 EFFECTIVE DATE. The effective date of the Plan shall be the Effective
Date, which is the date on which it was approved by the Board of Directors of
RNET in accordance with section 422 of the Code.
ARTICLE II
DEFINITIONS
Throughout the Plan, except when the context indicates otherwise, the
masculine gender shall include the feminine, and the use of any term in the
singular shall include the plural. The following terms shall have the meanings
set forth:
"Affiliated Corporation" shall mean any corporation or other entity
(including without limitation a partnership) that is affiliated with RNET
through stock ownership or otherwise and is treated as a common employer under
sections 414(b) and 414(c) of the Code, including without limitation means any
parent or subsidiary of RNET as defined in section 424 of the Code.
"RNET" shall mean The Recovery Network, Inc., a Colorado corporation,
and any Affiliated Corporation.
"Award" shall mean an Option, a Restricted Stock Award, a Stock
Appreciation Right, a Stock Unit, a grant of Shares pursuant to article XI, or
another issuance of Shares hereunder.
"Board" shall mean the board of directors of RNET.
"Code shall mean the Internal Revenue Code of 1986, as amended from time
to time.
<PAGE> 2
"Committee" shall mean members of the Finance & Compensation Committee
of the Board who are empowered hereunder to take action in the administration of
the Plan, except that, the full Board shall act as the Committee with respect to
any matter in its sole discretion.
"Disabled" or "Disability" shall have the meaning set forth in section
22(e)(3) of the Code.
"Effective Date" shall mean May 11, 1999.
"Eligible Parties" shall mean employees of RNET.
"Fair Market Value" of a Share shall mean its fair market value as
determined by the Committee in good faith in accordance with section 422 of the
Code.
"Incentive Option" shall mean an Option designated as such and granted
in accordance with section 422 of the Code.
"Non-Qualified Option" shall mean any Option other than an Incentive
Option.
"Option" shall mean a right to purchase Shares at a stated or formula
price for a specified period of time and shall be either an Incentive Option or
a Non-Qualified Option.
"Option Certificate" shall mean a written stock option certificate
issued by RNET in the name of the Option Holder and in such form as may be
approved by the Committee. An Option Certificate shall incorporate and conform
to the conditions set forth in section 7.2 and other terms and conditions
consistent with the Plan as the Committee may deem appropriate.
"Option Holder" shall mean a Participant who has been granted one or
more Options.
"Option Price" shall mean the price at which Shares subject to an
Option may be purchased, as determined in accordance with section 7.2(b).
"Participant" shall mean an Eligible Party designated by the Committee
from time to time during the term of the Plan to receive one or more Awards.
"Plan" shall mean this 1999 Stock Option Plan.
"Restricted Stock Award" shall mean an Award of Shares granted pursuant
to article VIII that is subject to restrictions imposed in article VIII.
"Share" shall mean a share of the Common Stock, par value $0.01 per
share, of RNET.
"Stock Appreciation Right" shall mean the right, granted by the
Committee pursuant to the Plan, to receive a payment equal to the increase in
the Fair Market Value of a Share subsequent to the grant of such right. A Stock
Appreciation Right may entitle a Participant to
2
<PAGE> 3
receive a number of Shares (without any payment to RNET, except for applicable
withholding taxes), cash, or Shares and cash, as determined by the Committee in
accordance with section 10.3.
"Stock Unit" shall mean a measurement component equal to the Fair Market
Value of a Share on the date of determination.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Board or a Committee of the Board.
Consistent with the Plan, the Committee in its sole discretion shall select
Participants from among the Eligible Parties, shall determine Awards, the number
of Stock Units, Stock Appreciation Rights, or Shares to be subject to Awards,
and the time at which Awards are to be made, shall fix the Option Price and the
period and manner in which an Option becomes exercisable, and shall establish
the duration and nature of the restrictions in Restricted Stock Awards, the
terms and conditions applicable to Stock Units, and such other terms and
requirements of the compensation incentives under the Plan as the Committee may
deem necessary or desirable. The Committee shall determine the form or forms of
the agreements with Participants that evidence the particular provisions, terms,
conditions, rights, and duties of RNET and the Participants with respect to
Awards, which provisions need not be identical except as may be provided herein.
The Committee may from time to time adopt such rules and regulations to carry
out the purposes of the Plan as it may deem proper and in the best interests of
RNET. The Committee in its sole discretion may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it deems expedient. No member of
the Committee shall be liable for any action or determination made in good
faith. The determinations, interpretations, and other actions of the Committee
pursuant to the Plan shall be binding and conclusive for all purposes.
3
<PAGE> 4
ARTICLE IV
SUBJECT SHARES
4.1 NUMBER. The number of Shares that are authorized for issuance under
the Plan shall not exceed 450,000. This number may be increased from time to
time by the Board, with the approval of the shareholders of RNET if, in the
opinion of counsel to RNET, shareholder approval is required. Shares that may be
issued upon exercise of Options or Stock Appreciation Rights or that are issued
with respect to Stock Units or as Restricted Stock Awards, incentive
compensation, or other grants under the Plan shall reduce the number of Shares
available for issuance under the Plan. RNET shall at all times during the term
of the Plan and while any Options or Stock Units are outstanding reserve as
authorized but unissued at least the number of Shares from time to time required
under the Plan. Any Shares subject to an Option that expires or is terminated
before exercise shall become available for issuance under the Plan.
4.2 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If at any time
RNET increases or decreases the number of Shares outstanding or changes the
rights and privileges of such Shares through the payment of a stock dividend,
the making of any other distribution payable in Shares, a stock split,
subdivision, consolidation, or combination of Shares, or a reclassification or
recapitalization involving the Shares, then the numbers, rights, and privileges
of Shares as to which Awards may be granted and Shares then subject to an Award
shall be increased, decreased, or changed in like manner as if such Shares had
been issued and outstanding.
4.3 OTHER DISTRIBUTIONS AND CHANGES. If at any time (a) RNET distributes
with respect to the Shares assets or securities of persons other than RNET
(excluding cash or distributions described in section 4.3), or (b) RNET grants
to the holders of its Shares generally rights to subscribe pro rata for
additional Shares or other securities of RNET, or (c) any other change (except
as described in section 4.2) occurs in the number or kind of outstanding Shares
or other securities into which the Shares are changed or for which they are
exchanged, and if the Committee in its discretion determines that such event
equitably requires an adjustment in the number or kind of Shares subject to an
Award, an adjustment in an Option Price, or the taking of other action by the
Committee, including without limitation the setting aside of property for
delivery to the Participant upon the exercise of an Option or the full vesting
of an Award, then such adjustments shall be made and such other action shall be
taken by the Committee and shall be effective for all purposes and on each
outstanding Award affected. Notwithstanding the foregoing and pursuant to
section 8.3, a Participant holding Shares received as a Restricted Stock Award
shall have the right to receive all amounts, including cash and property of any
kind, distributed with respect to the Shares upon becoming a holder of record of
the Shares.
4.5 GENERAL ADJUSTMENT RULES. No adjustment or substitution provided for
in this article IV shall require RNET to issue a factional Share, and the total
substitution or adjustment with respect to each Award shall be limited by
deleting any Fractional Share. In such case, the total Option Price for Shares
then subject to an Option shall remain unchanged, but the Option Price per Share
shall be equitably adjusted by the Committee to reflect the greater or lesser
number of Shares or other securities into which the Shares subject to the Option
may have been
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changed. Appropriate adjustments shall be made to other Awards to reflect any
such substitution or adjustment. All adjustments under this article IV shall be
made by the Committee, whose determination shall be final and binding upon all
parties.
ARTICLE V
CORPORATE REORGANIZATION
5.1 REORGANIZATION. Upon the occurrence of any of the following events, if
the notice provided in section 5.2 has been given, the Plan and all outstanding
Options shall terminate and be of no further force and effect, and all other
outstanding Awards shall be treated in accordance with sections 5.2 and 5.3,
without the necessity for any additional action by the Board or RNET:
(a) the merger or consolidation of RNET with or into another
corporation or other reorganization (other than a reorganization under
the United States Bankruptcy Code) of RNET (other than a consolidation,
merger, or reorganization in which RNET is the surviving corporation and
which does not result in any reclassification or change of outstanding
Shares);
(b) the sale or conveyance of the property of RNET as an entirety
or substantially as an entirety (other than a sale or conveyance in
which RNET continues as holding company of an entity or entities that
conduct the business or business formerly conducted by RNET); or
(c) the dissolution or liquidation of RNET.
5.2 REQUIRED NOTICE. At least 30 days' written notice of an event
described in section 5.1 shall be given by RNET to each Option Holder and
Participant unless (a) in the case of events described in sections 5.1(a) and
5.1(b), RNET or the successor or purchaser shall make adequate provision for
the assumption of the outstanding Options or the substitution of new options on
comparable terms, except that an Option Holder shall have the right thereafter
to purchase the kind and amount of securities or property or cash receivable
upon such event by a holder of the number of Shares that would have been
received upon exercise of the Option immediately prior to the occurrence of such
event (assuming that such holder failed to exercise any rights of election and
received per Share the kind and amount of property received per Share by the
holders of a majority of the non-electing Shares) or (b) RNET or the successor
or purchaser shall make adequate provision for the adjustment of outstanding
Awards other than Options so that such Awards shall entitle the Participant to
receive the kind and amount of securities or property or cash receivable upon
such event by a holder of the number of Shares that would have been received
with respect to such Award immediately prior to the occurrence of such event
(assuming that such holder failed to exercise any rights of election and
received per share the kind and amount of property received per Share by the
holders of a majority of the non-electing Shares). This article V shall
similarly apply to successive mergers, consolidations, reorganizations, sales,
or conveyances. Notice shall be deemed to have been given when
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delivered personally to a Participant or when mailed to a Participant by
certified mail, postage prepaid, at such Participant's address last known to
RNET.
5.3 ACCELERATION OF EXERCISE. Participants notified in accordance with
section 5.2 may exercise their Options at any time before the occurrence of the
event requiring the giving of notice (but subject to occurrence of such event),
regardless of whether all conditions of exercise relating to length of service,
attainment of financial performance goals, or otherwise have been satisfied.
Upon the giving of notice in accordance with section 5.2, all restrictions with
respect to Restricted Stock Awards and other Awards shall lapse immediately, all
Stock Units shall become payable immediately, and all Stock Appreciation Rights
shall become exercisable. Any Options, Stock Appreciation Rights, or Stock Units
that are not assumed or substituted under section 5.2(a) or 5.2(b) and that have
not been exercised prior to the event described in section 5.1 shall
automatically terminate upon the occurrence of such event.
5.4 LIMITATION ON PAYMENTS. If this article V would result in the
receipt by any Participant of a payment within the meaning of section 2806 of
the Code and the regulations promulgated thereunder and if the receipt of such
payment by any Participant would, in the opinion to counsel to RNET, result in
the payment by such Participant of any excise tax provided for in sections 2806
and 4999 of the Code, then the amount of such payment shall be reduced to the
extent required, in the opinion of independent tax counsel, to prevent the
imposition of such excise tax, except that the Committee, in its sole
discretion, may authorize the payment of all or part of the amount of such
reduction to the Participant.
ARTICLE VI
PARTICIPATION
Participants shall be those Eligible Parties who, in the judgment of the
Committee, are performing, or during the term of their incentive arrangement
will perform, vital services in the management, operation, and development of
RNET or an Affiliated Corporation and contribute significantly, or are expected
to contribute significantly, to the achievement of long-term corporate economic
objectives. Participants may be granted from time to time one or more Awards,
except that the grant of each Award shall be separately approved by the
Committee, and receipt of one Award shall not result in automatic receipt of any
other Award. Upon determination by the Committee that an Award is to be granted
to a Participant, written notice shall be given specifying the terms,
conditions, rights, and duties related thereto. Each Participant shall, if
required by the Committee, enter into an agreement with RNET, in such form as
the Committee shall determine consistent with the Plan specifying such terms,
conditions, rights, and duties. Awards shall be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date shall be the
date of any related agreement with the Participant. In the event of any
inconsistency between the Plan and any such agreement, the provisions of the
Plan shall govern.
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ARTICLE VII
OPTIONS
7.1 GRANT OF OPTIONS. Coincident with or following designation for
participation in the Plan, a Participant may be granted one or more Options. The
Committee in its sole discretion shall designate whether an Option is an
Incentive Option or a Non-Qualified Option. The Committee may grant both an
Incentive Option and a Non-Qualified Option to a Participant at the same time or
at different times. Incentive Options and Non-Qualified Options, whether granted
at the same time or at different times, shall be deemed to have been awarded in
separate grants and shall be clearly identified, and in no event shall the
exercise of one Option affect the right to exercise any other Option or affect
the number of Shares for which any other Option may be exercised, except as
provided in section 7.2(b).
7.2 OPTION CERTIFICATE. Each Option granted under the Plan shall be
evidenced by an Option Certificate, incorporating and conforming to the
following:
(a) Number of Shares. Each Option Certificate shall state that it
covers a specified number of Shares, as determined by the Committee. The maximum
number of Shares subject to Options granted to any one Participant during the
term of the Plan shall be 500,000 Shares.
(b) Price. The price at which each Share may be purchased shall be
determined in each case by the Committee and set forth in the Option
Certificate, but in no event shall the price be less than 100 percent of the
Fair Market Value of the Shares on the date of grant.
(c) Duration of Options; Restrictions on Exercise. Each Option
Certificate shall state the period, as determined by the Committee, within which
the Option may be exercised. Such period shall end no more than ten years from
the date the Option is granted. The Option Certificate shall also set forth such
restrictions on exercise of the Option during such period, if any, as may be
determined by the Committee. No Option may be exercised for at least six months
after the date of grant. Each Option shall become exercisable over such period
of time, if any, or upon such events, as may be determined by the Committee.
(d) Termination of Service, Death, Disability, etc. The Committee
may specify the period, if any, after which an Option may be exercised following
termination of the Option Holder's employment or service as a director. The
effect of this section 7.2(d) shall be limited to determining the consequences
of a termination, and nothing in this section 7.2(d) shall restrict or otherwise
interfere with RNET's discretion with respect to the termination of any
individual's employment or the shareholders' discretion with respect to the
election of directors. If the Committee does not otherwise specify, the
following shall apply:
(i) If the employment or service of the Option Holder
terminates for any reason other than death or Disability within six
months after the date the Option is granted or if the employment or
service of the Option Holder is terminated within the
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Option Period for "cause," as determined by RNET, the Option shall
thereafter be void for all purposes. As used in this section 7.2(d),
"cause" shall mean a gross violation, as determined by RNET, of RNET's
established policies and procedures or willful misconduct.
(ii) The Option may be exercised by the Option Holder if he
becomes Disabled, and the Option may by the persons specified in section
7.2(d)(iv) if the Option Holder dies, within one year following his
Disability (except that exercise shall occur during the duration of the
Option) but not thereafter. In any such case, the Option may be
exercised only as to Shares as to which it had become exercisable on or
before the date of the termination of the Option Holder's employment
because of Disability or death.
(iii) If the Option Holder is no longer a director of RNET
or employed by RNET or an Affiliated Corporation during the duration of
the Option for any reason other than "cause," Disability or death, and
such termination occurs more than six months after the Option is
granted, the Option may be exercised by the Option Holder within three
months following the date of such termination (except that such exercise
shall occur during the duration of the Option) but not thereafter. In
any such case, the Option may be exercised only as to the shares as to
which the Option had become exercisable on or before the date of
termination of employment.
(iv) If the Option Holder dies during the duration of the
Option while still employed or within the one-year period referred to in
section 7.2(d)(ii) or the three-month period referred to in section
7.2(d)(iii), the Option may be exercised by those entitled to do so
under the Option Holder's will or by the laws of descent and
distribution.
(e) Transferability. No Option shall be transferable by the Option
Holder except by will or the laws of descent and distribution. Each Option is
exercisable during the Option Holder's lifetime only by him, or in the event of
Disability or incapacity, by his guardian or legal representative.
(f) Consideration for Grant of Option. Each Option Holder agrees to
remain in the service of RNET as a director or in the employment of RNET, at the
pleasure of RNET, for a continuous period of at least one year after the date
the Option is granted, and in the case of an employee at the salary rate in
effect on the date of the Option Certificate or at such changed rate as may be
fixed from time to time by RNET. Nothing in this paragraph shall limit or impair
RNET's right to terminate the employment of any employee or the shareholders'
rights with respect to the election of directors.
(g) Manner of Exercise. An Option shall be exercised by delivery to
RNET of written notice specifying the number of Shares with respect to which
such Option is exercised. The purchase of such Shares shall take place at the
principal offices of RNET within 30 days following delivery of such notice, at
which time the Option Price of the Shares with respect to which the Option is
exercised shall be paid in full by any of the methods set forth below or a
combination thereof. Except as set forth in the next sentence, the Option shall
be exercised when
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the Option-Price for the number of Shares as to which the Option is exercised is
paid to RNET in full. If the Option Price is paid by means of a broker's loan
transaction as described in section 7.2(h)(iv), in whole or in part, the closing
of the purchase of the Shares under the Option shall take place (and the Option
shall be treated as exercised) on the date on which, and only if, the sale of
Shares upon which the broker's loan was based has been closed and settled,
unless the Option Holder makes an irrevocable written election at the time of
exercise of the Option to have the exercise treated as fully effective for all
purposes upon receipt of the Option Price by RNET, regardless of whether the
sale of the Shares by the broker is closed and settled. A properly executed
certificate or certificates representing the Shares shall be delivered to or at
the direction of the Option Holder upon payment therefor. If Options on less
than all Shares subject to an Option are exercised, RNET shall deliver a new
Option Certificate evidencing the Option on the remaining Shares.
(h) Payment. The Option Price for the Shares as to which the Option
is exercised shall be paid by any of the following methods or any combination of
the following methods at the election of the Option Holder, or by any other
method approved by the Committee upon the request of the Option Holder:
(i) in cash;
(ii) by certified, cashier's check, or other check
acceptable to RNET, payable to the order of RNET;
(iii) by delivery of certificates representing a number of
Shares then owned by the Option Holder, the Fair Market Value of
which on the date of delivery of the certificates at least equals
the Option Price for the Shares as to which the Option is
exercised, properly endorsed for transfer to RNET, except that no
Option may be exercised by delivery to RNET of certificates
representing Shares held by the Option Holder for less than six
months; or
(iv) by delivery of a properly executed notice of exercise,
together with irrevocable instructions to a broker to deliver to
RNET promptly the amount of the proceeds of the sale of all or
part of the Shares or of a loan from the broker to the Option
Holder in an amount sufficient to pay the Option Price for the
Shares as to which the Option is exercised.
(i) Date of Grant. An Option shall be deemed to be granted on
the date specified in the grant resolution of the Committee.
(j) Issuance of Additional Option. If an Option Holder pays all
or part of the exercise price of an Option with Shares, or pays all or any part
of the applicable withholding taxes with respect to the exercise of an Option
with Shares that has been held by the Option Holder for more than a period (no
shorter than six months) to be determined by the Committee, the Committee in its
sole discretion may grant to such Option Holder a new Option covering the number
of shares of Shares used to pay such exercise price or withholding tax. The new
Option
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shall have an Option Price per Share equal to the Fair Market Value of a Share
on the date of exercise of the exercised Option and shall encompass the same
terms and conditions as the exercised option, except as otherwise provided by
the Committee in its sole discretion.
7.3 RESTRICTIONS ON INCENTIVE OPTIONS. The aggregate Fair Market Value of
the Shares with respect to which Incentive Options are exercisable for the first
time by an Option Holder in any calendar year, under the Plan or otherwise,
shall not exceed $100,000. For this purpose, the Fair Market Value of the Shares
shall be determined as of the date of grant of the Option. Incentive Options
granted to an Option Holder who is the holder of record of 10 percent or more of
the outstanding capital stock of RNET shall have an Option Price equal to 110
percent of the Fair Market Value of the Shares on the date of grant of the
Option, and the Option Period for any such Option shall not exceed five years.
7.4 SHAREHOLDER PRIVILEGES. No Option Holder shall have any rights as a
shareholder with respect to any Shares subject to an Option until the Option
Holder becomes the holder of record of such Shares. No adjustments shall be made
for dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of record
of such Shares, except as provided in article IV.
ARTICLE VIII
RESTRICTED STOCK AWARDS
8.1 GRANT. Coincident with or following designation for participation in
the Plan, the Committee may grant a Participant one or more Restricted Stock
Awards as may be determined by the Committee.
8.2 RESTRICTIONS. A Restricted Stock Award shall be subject to such
restrictions, including without limitation a Participant's continuous service as
a director or continuous employment by RNET or an Affiliated Corporation for a
restriction period specified by the Committee or the attainment of specified
performance goals and objectives determined by the Committee with respect to
such Award. The Committee in its sole discretion may require different periods
of employment or different performance goals and objectives with respect to
different Participants, to different Restricted Stock Awards, or to separate,
designated portions of the Shares comprising a Restricted Stock Award. In the
event of the death or Disability of a Participant, or the retirement of a
Participant in accordance with RNET's established retirement policy, all
employment period and other restrictions applicable to a Restricted Stock Award
shall lapse with respect to a pro rata portion of such Restricted Stock Award
based on the ratio between the number of full months of employment completed at
the time of termination of employment from the grant of the Restricted Stock
Award and the total number of months of employment required for such Restricted
Stock Award to be fully nonforfeitable, and such portion of the Restricted Stock
Award shall become fully nonforfeitable. The remaining portion of such
Restricted Stock Award shall be forfeited and immediately returned to RNET. In
the event of a Participant's termination of employment for any other reason, any
Restricted Stock Awards as to which the employment period or other restrictions
have not been satisfied (or
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waived or accelerated as provided herein) shall be forfeited, and all Shares
related thereto shall be immediately returned to RNET.
8.3 PRIVILEGES OF A SHAREHOLDER; TRANSFERABILITY. A Participant shall have
all voting, dividend, liquidation, and other rights with respect to Shares
received a Restricted Stock Award under this article VII upon his becoming the
holder of record of such Shares, except that the Participant's right to sell,
encumber, or otherwise transfer such Shares shall be subject to the limitations
of section 13.2.
8.4 ENFORCEMENT OF RESTRICTIONS. The Committee shall cause a legend to be
placed on the certificates evidencing Shares issued pursuant to a Restricted
Stock Award referring to the restrictions provided by sections 8.2 and 8.3 and,
in addition, may in its sole discretion require the Participant to keep the
certificates evidencing such Shares, duly endorsed, in the custody of RNET or a
third party while the restrictions remain in effect.
ARTICLE IX
STOCK UNITS
Coincident with or following designation for participation in the Plan,
the Committee may grant a Participant one or more Stock Units as may be
determined by the Committee. The number of Stock Units, the goals and objectives
to be satisfied with respect to each grant of Stock Units, the time and manner
of payment for each Stock Unit, and the other terms and conditions applicable to
a grant of Stock Units shall be determined by the Committee.
ARTICLE X
STOCK APPRECIATION RIGHTS
10.1 GRANT. Coincident with or following designation for participation in
the Plan, the Committee may grant a Participant one or more Stock Appreciation
Rights as may be determined by the Committee. The Committee shall determine at
the time of grant the period during which the Stock Appreciation Right may be
exercised, which period may not commence until six months after the date of
grant.
10.2 EXERCISE. If a Stock Appreciation Right is issued in tandem with an
Option, except as may otherwise be provided by the Committee, the Stock
Appreciation Right shall be exercisable during the period that its related
Option is exercisable. A Participant desiring to exercise a Stock Appreciation
Right shall give written notice stating the proportion of Shares and cash that
the Participant desires to receive pursuant to the Stock Appreciation Right
exercised. Within 30 days after receipt of the notice, RNET shall deliver to the
Participant a certificate or certificates for Shares and/or a cash payment in
accordance with section 10.3. The date on which RNET receives the written notice
shall be deemed the exercise date.
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10.3 NUMBER OF SHARES OR AMOUNT OF CASH. Subject to the discretion of the
Committee to substitute cash for Shares or Shares for cash, the number of Shares
to be issued pursuant to the exercise of a Stock Appreciation Right shall be
determined by dividing (a) the total number of Shares as to which the Stock
Appreciation Right is exercised, multiplied by the amount by which the Fair
Market Value of a Share on the exercise date exceeds the Fair Market Value of a
Share on the date of grant of the Stock Appreciation Right, by (b) the Fair
Market Value of a Share on the exercise date. Fractional shares shall not be
issued, and in lieu thereof a cash adjustment shall be paid. In lieu of issuing
Shares upon the exercise of a Stock Appreciation Right, the Committee in its
sole discretion may elect to pay the cash equivalent of the Fair Market Value of
the Shares on the exercise date for any or all Shares that would otherwise be
issuable upon exercise of the Stock Appreciation Right.
10.4 EFFECT OF EXERCISE. If a Stock Appreciation Right is issued in tandem
with an Option, the exercise of the Stock Appreciation Right or the related
Option shall result in an equal reduction in the number of corresponding Stock
Appreciation Rights and Shares subject to the related Option.
10.5 TERMINATION OF EMPLOYMENT. Upon a Participant's termination of
service as a director or employment, any Stock Appreciation Rights then held by
such Participant shall be exercisable within the time periods, and upon the same
conditions with respect to the reasons for termination of employment, as are
specified in section 7.2(d) with respect to Options.
ARTICLE XI
OTHER STOCK GRANTS
From time to time during the duration of this Plan, the Committee in its
sole discretion may adopt one or more incentive compensation arrangements for
Participants pursuant to which the Participants may acquire shares of Shares by
purchase, outright grant, or otherwise. Any such arrangements shall be subject
to the general provisions of this Plan, and all Shares issued pursuant to such
arrangements shall be issued under this Plan.
ARTICLE XII
RIGHTS OF PARTICIPANTS
12.1 EMPLOYMENT. Nothing contained in the Plan or any Award shall confer
upon any Participant any right with respect to the continuation of his
employment by RNET or an Affiliated Corporation, or interfere in any way with
the right of RNET or an Affiliated Corporation, subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the Participant from
the rate in existence at the time of the grant of an Award. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute a termination of employment shall be determined by the Committee at
the time.
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12.2 TRANSFERABILITY. No right or interest of any Participant in an Award
shall be assigned or transferred during the lifetime of the Participant,
voluntarily or involuntarily, or subjected to any lien, directly or indirectly,
by operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge, or bankruptcy. In the event of a Participant's death, his
rights and interests in Awards shall, to the extent provided in the Plan, be
transferable by will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options may be
made by, the Participant's legal representatives, heirs, or legatees. If in the
opinion of the Committee a person entitled to payments or to exercise rights
with respect to the Plan is disabled from caring for his affairs because of
mental condition, physical condition, or age, payment due such person may be
made to, and such rights shall be exercised by, such person's guardian,
conservator, or other legal personal representative upon furnishing the
Committee with evidence satisfactory to the Committee of such status.
12.3 NO PLAN FUNDING. Obligations to Participants under the Plan shall not
be funded, trusteed, insured, or secured in any manner. Participants shall have
no security interest in any assets of RNET or any Affiliated Corporation and
shall be only general creditors of RNET.
ARTICLE XIII
GENERAL
13.1 INVESTMENT REPRESENTATIONS. RNET may require any Participant, as a
condition of exercising an Option or a Stock Appreciation Right or receiving a
Restricted Stock Award, Stock Unit, or grant of Shares, to give written
assurances in substance and form satisfactory to RNET that he is acquiring the
Shares for his own account for investment purposes and not with a present
intention of selling or otherwise distributing the same and to such other effect
as RNET deems necessary or appropriate in order to comply with applicable
securities laws.
13.2 SECURITIES LAWS. (a) Each Award shall be subject to the requirement
that, if at any time RNET determines that the listing, registration, or
qualification of the Shares subject to such Award upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of or in connection
with the issuance or purchase of Shares thereunder, such Award may not be
accepted or exercised in whole or in part unless such listing, registration,
qualification, consent, or approval has been effected or obtained on conditions
acceptable to the Committee. Nothing herein shall be deemed to require RNET to
apply for or to obtain such listing, registration, or qualification.
(b) If a Participant is an officer or director of RNET within the
meaning of section 16 of the Securities Exchange Act of 1934, then to the extent
that section 16 is applicable, Awards shall be subject to all conditions
required under Rule 16b-3 or any successor rule to qualify the Award for an
exception from the provisions of section 16(b). Such conditions shall be set
forth in the agreement with the Participant which describes the Award.
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13.3 CHANGES IN ACCOUNTING RULES. Notwithstanding any other provision of
the Plan to the contrary, if, during the term of the Plan, any changes in the
financial or tax accounting rules applicable to Awards occurs which, in the sole
judgment of the Committee, may have a material adverse effect on the reported
earnings, assets, or liabilities of RNET, the Committee shall have the right and
power to modify as necessary any then outstanding Awards as to which the
applicable employment or other restrictions have not been satisfied.
13.4 OTHER EMPLOYEE BENEFITS. The amount of any compensation deemed to be
received by a Participant as a result of the exercise of an Option or Stock
Appreciation Right, the sale of shares received upon such exercise, the vesting
of any Restricted Stock Award, distributions with respect to Stock Units, or the
grant of Shares shall not constitute "earnings" or "compensation" with respect
to which any other employee benefits of such Participant are determined,
including without limitation benefits under any pension, profit sharing, life
insurance, or salary continuation plan.
13.5 PLAN AMENDMENT, MODIFICATION, AND TERMINATION. The Committee may at
any time terminate, and from time to time may amend or modify the Plan, except
that no amendment or modification may become effective without approval of the
shareholders if shareholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if RNET on the advice of
counsel determines that shareholder approval is otherwise necessary or
desirable. No amendment, modification, or termination of the Plan shall
adversely affect any Award theretofore granted without the consent of the
Participant holding such Award.
13.6 WITHHOLDING. (a) Requirement. RNET's obligation to deliver Shares
upon the exercise of any Option or Stock Appreciation Right, the vesting of any
Restricted Stock Award, payment with respect to Stock Units, or a grant of
Shares shall be subject to the Participant's satisfaction of all applicable
federal, state, and local income and other tax withholding requirements.
(b) Withholding with Shares. At the time an Award is granted, the
Committee in its sole discretion may grant the Participant an election to pay
all or part of such tax withholding by electing to transfer to RNET, or to have
RNET withhold from Shares otherwise issuable to the Participant, Shares having a
Fair Market Value on the date of withholding equal to the amount required to be
withheld or such lesser amount as may be elected by the Participant. All
elections shall be subject to the approval or disapproval of the Committee. Any
such election by a Participant (a) shall be made prior to the date of
withholding, (b) shall be irrevocable, and (c) if the Participant is an officer
or director of RNET within the meaning of section 16 of the Securities Exchange
Act of 1934, then to the extent that section 16 is applicable the Participant
shall satisfy the requirements of section 16 and any applicable rules
thereunder.
(c) Withholding for Non-Qualified Options. Upon exercise of a
Non-Qualified Option, the Option Holder shall make appropriate arrangements with
RNET to provide for the amount of additional withholding required by sections
3102 and 3402 of the Code and
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applicable state income tax laws, including payment of such taxes through
delivery of Shares or by withholding Shares to be issued under the Option.
(d) Withholding for Incentive Options. If an Option Holder makes a
disposition (as defined in section 424(c) of the Code) of any Shares acquired
pursuant to the exercise of an Incentive Option before the expiration of two
years from the date on which the Incentive Option was granted or prior to the
expiration of one year from the date on which the Option was exercised, the
Option Holder shall send written notice to RNET at its principal office of the
date of such disposition, the number of Shares disposed of, the amount of
proceeds received from such disposition, and any other information relating to
such disposition as RNET may reasonably request. The Option Holder shall then
make appropriate arrangements with RNET to provide for the amount of additional
withholding, if any, required by sections 3102 and 3402 of the Code and
applicable state income tax laws.
13.7 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado.
13.8 DURATION. Unless sooner terminated by the Board, the Plan shall
terminate on May 11, 2003, and no Award shall be made after such termination.
Awards outstanding at the time of Plan termination may continue to be exercised,
or become free of restrictions, or be paid in accordance with their terms.
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EXHIBIT 4.14
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 100,000 Shares of Common Stock of The
Recovery Network, Inc. (subject to adjustment as
provided herein)
COMMON STOCK PURCHASE WARRANT
No. 1 June 10, 1999
The Recovery Network, Inc., a corporation organized under the laws of the
State of Colorado (the "Company"), hereby certifies that, for value received,
LIBRA FINANCE S.A., or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after June 10, 1999 at any time or from
time to time before 5:00 p.m., New York time, on June 10, 2002 (the "Expiration
Date"), up to 100,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $.01 par value per share, of the Company, at a purchase
price of $0.35 per share (such purchase price per share as adjusted from time
to time as herein provided is referred to herein as the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include The Recovery Network, Inc. and any
corporation which shall succeed or assume the obligations of The Recovery
Network, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.01 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities
described
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in (a) or (b) may be converted or exchanged pursuant to a plan or
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, the number of shares of Common Stock of the
Company identified on Page 1 hereof, subject to adjustment pursuant to
Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common
stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange
or is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or
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last sale price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree
or in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event
of such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 10 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or
such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of
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Common Stock (or Other Securities) to which such holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1 Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 5.
3.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause
to be delivered the stock and other securities and property (including cash,
where applicable) receivable by the holders of the Warrants, if exercised,
after the effective date of such dissolution pursuant to this Section 3 to a
bank or trust company having its principal office in New York, NY, as trustee
for the holder or holders of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities
and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 5.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the
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happening of such event, be adjusted by multiplying the then Purchase Price by
a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after
such event, and the product so obtained shall thereafter be the Purchase Price
then in effect. The Purchase Price, as so adjusted, shall be readjusted in the
same manner upon the happening of any successive event or events described
herein in this Section 4. The number of shares of Common Stock that the holder
of this Warrant shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive shall be increased to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for
the provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Purchase Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the
Purchase Price in effect on the date of such exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable by the
Company for any additional shares of Common Stock (or Other Securities) issued
or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and
(c) the Purchase Price and the number of shares of Common Stock to be received
upon exercise of this Warrant, in effect immediately prior to such adjustment
or readjustment and as adjusted or readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the holder of
the Warrant and any Warrant agent of the Company (appointed pursuant to Section
10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely
for issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to
the holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, and delivery of such representations and warranties
as shall reasonably be requested by the Company, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") with respect to any or all of the Shares. On the surrender for
exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form"), to the Company,
the Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form
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(each a "Transferee"), calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock called for on the face or faces of the
Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
holder of this Warrant at or about the issue date of this Warrant. The terms of
the Subscription Agreement are incorporated herein by this reference.
10. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent having an office in New York, NY for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating
to this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
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IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
THE RECOVERY NETWORK, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------------
Title: Chairman
-----------------------------------
Witness:
[SIGNATURE ILLEGIBLE]
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THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase 50,000 Shares of Common
Stock of The Recovery Network, Inc. (subject
to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2 June 10, 1999
The Recovery Network, Inc., a corporation organized under the laws of the
State of Colorado (the "Company"), hereby certifies that, for value received,
AMRO INTERNATIONAL, S.A., or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company after June 10, 1999 at any time or
from time to time before 5:00 p.m., New York time, on June 10, 2002 (the
"Expiration Date"), up to 50,000 fully paid and nonassessable shares of Common
Stock (as hereinafter defined), $.01 par value per share, of the Company, at a
purchase price of $0.35 per share (such purchase price per share as adjusted
from time to time as herein provided is referred to herein as the "Purchase
Price"). The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include The Recovery Network, Inc. and any
corporation which shall succeed or assume the obligations of The Recovery
Network, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.01 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities
described
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in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, the number of shares of Common Stock of the
Company identified on Page 1 hereof, subject to adjustment pursuant to
Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the holder
on such partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock designated by the holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise,
the Company, at its expense, will forthwith issue and deliver to or upon the
order of the holder hereof a new Warrant of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes), may request, the number of shares of Common Stock for which
such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or
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last sale price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree
or in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 10 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or
such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of
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Common Stock (or Other Securities) to which such holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 5.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants, if exercised, after the
effective date of such dissolution pursuant to this Section 3 to a bank or trust
company having its principal office in New York, NY, as trustee for the holder
or holders of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 5.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combined its outstanding shares of the Common
stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the
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happening of such event, be adjusted by multiplying the then Purchase Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Purchase Price then
in effect. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein in
this Section 4. The number of shares of Common Stock that the holder of this
Warrant shall thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive shall be increased to a number determined by multiplying the
number of shares of Common Stock that would otherwise (but for the provisions of
this Section 4) be issuable on such exercise by a fraction of which (a) the
numerator is the Purchase Price that would otherwise (but for the provisions of
this Section 4) be in effect, and (b) the denominator is the Purchase Price in
effect on the date of such exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common stock to be received upon exercise of the
Purchase Price and the number of shares of Common Stock to be received upon
exercise of this Warrant, in effect immediately prior to such adjustment or
readjustment and as adjusted or readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the holder of the
Warrant and any Warrant agent of the Company (appointed pursuant to Section 10
hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, and delivery of such representations and warranties
as shall reasonably be requested by the Company, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") with respect to any or all of the Shares. On the surrender for
exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form"), to the Company,
the Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form
-5-
<PAGE> 13
(each a "Transferee"), calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock called for on the face or faces of the
Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
holder of this Warrant at or about the issue date of this Warrant. The terms of
the Subscription Agreement are incorporated herein by this reference.
10. Warrant Agent. The Company may, by written notice to each holder of
the Warrant, appoint an agent having an office in New York, NY for the purpose
of issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to section 7, and
replacing this Warrant pursuant to section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
-6-
<PAGE> 14
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
THE RECOVERY NETWORK, INC.
By: /s/ [Signature Illegible]
--------------------------------
Title: Chairman
-----------------------------
Witness:
/s/ ANNE YARD
- ----------------------------
-7-
<PAGE> 15
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: The Recovery Network, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, __________ shares of
Common Stock of The Recovery Network, Inc. and herewith makes payment of
$________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ____________________ whose address is
______________________________________________ .
Dated: ____________________
____________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
____________________________________________
(Address)
-8-
<PAGE> 16
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of The Recovery Network, Inc. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the
books of The Recovery Network, Inc. with full power of substitution in the
premises.
<TABLE>
<CAPTION>
Percentage Number
Transferees Transferred Transferred
- ----------- ----------- -----------
<S> <C> <C>
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
</TABLE>
Dated: ___________, 19__ ____________________________
(Signature must conform
to name of holder as
specified on the face
of the warrant)
Signed in the presence of:
- ----------------------- ------------------------------
(Name) (address)
------------------------------
(address)
ACCEPTED AND AGREED:
[TRANSFEREE]
- -----------------------
(Name)
-9-
<PAGE> 17
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase 25,000 Shares of Common Stock of The
Recovery Network, Inc. (subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 3 June 10, 1999
The Recovery Network, Inc., a corporation organized under the laws of the
State of Colorado (the "Company"), hereby certifies that, for value received,
TALBIYA B. INVESTMENTS LTD., or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company after June 10, 1999 at any time or
from time to time before 5:00 p.m., New York time, on June 10, 2002 (the
"Expiration Date"), up to 25,000 fully paid and nonassessable shares of Common
Stock (as hereinafter defined), $.01 par value per share, of the Company, at a
purchase price of $0.35 per share (such purchase price per share as adjusted
from time to time as herein provided is referred to herein as the "Purchase
Price"). The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include The Recovery Network, Inc. and any
corporation which shall succeed or assume the obligations of The Recovery
Network, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.01
par value per share, as authorized on the date of the Agreement, (b) any other
capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even if the right so to vote
has been suspended by the happening of such a contingency) and (c) any other
securities into which or for which any of the securities described
-1-
<PAGE> 18
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, the number of shares of Common Stock of the
Company identified on Page 1 hereof, subject to adjustment pursuant to Section
4.
1.2. Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription attached as
Exhibit A hereto (the "Subscription Form") duly executed by such holder, to the
Company at its principal office or at the office of its Warrant agent (as
provided in Section 11), accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price (as hereinafter defined) then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not for
a fractional share) by surrender of this Warrant in the manner and the place
provided in subsection 1.2. except that the amount payable by the holder on
such partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock designated by the holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise,
the Company, at its expense, will forthwith issue and deliver to or upon the
order of the holder hereof a new Warrant of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes), may request, the number of shares of Common Stock for which
such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common stock as of
a particular date (the "Determination Date") shall mean the Fair Market Value
of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") National Market System or the NASDAQ SmallCap Market, then the
closing or
-2-
<PAGE> 19
last sale price, respectively, reported for the last business day immediately
preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree
or in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event
of such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.1, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall
be deemed to be issued to the holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of
-3-
<PAGE> 20
Common Stock (or Other Securities) to which such holder shall be entitled on
such exercise plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In the case at any
time or from time to time, the Company shall (a) affect a reorganization, (b)
consolidate with or merger into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 5.
3.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause
to be delivered the stock and other securities and property (including cash,
where applicable) receivable by the holders of the Warrants, if exercised,
after the effective date of such dissolution pursuant to this Section 3 to a
bank or trust company having its principal office in New York, NY, as trustee
for the holder or holders of the Warrants.
3.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities
and property receivable on the exercise of this Warrant after the dissolution
following any such transfer, as the case may be, and shall be binding upon the
issuer of any such stock or other securities, including, in the case of any
such transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 5.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the
-4-
<PAGE> 21
happening of such event, be adjusted by multiplying the then Purchase Price by
a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after
such event, and the product so obtained shall thereafter be the Purchase Price
then in effect. The Purchase Price, as so adjusted, shall be readjusted in the
same manner upon the happening of any successive event or events described
herein in this Section 4. The number of shares of Common Stock that the holder
of this Warrant shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive shall be increased to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for
the provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Purchase Price that would otherwise (but for
the provisions of Section 4) be in effect, and (b) the denominator is the
Purchase Price in effect on the date of such exercise.
5. Chief Financial Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrants, the Company at its expense
will promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock,etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise
of the Warrant. This Warrant entitles the holder hereof to receive copies of
all financial and other information distributed or required to be distributed
to the holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, and delivery of such representations and warranties
as shall reasonably be requested by the Company, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") with respect to any or all of the Shares. On the surrender for
exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form"), to the Company,
the Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form
-5-
<PAGE> 22
(each a "Transferee"), calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock called for on the face or faces of the
Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and the initial
holder of this Warrant at or about the issue date of this Warrant. The terms of
the Subscription Agreement are incorporated herein by this reference.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent having an office in New York, NY for
the purpose of issuing Common Stock (or Other Securities) on the exercise of
this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section
7,and replacing this Warrant pursuant to Section 8, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
-6-
<PAGE> 23
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
THE RECOVERY NETWORK, INC.
By: [SIGNATURE ILLEGIBLE]
---------------------------
Title: Chairman
------------------------
Witness:
[SIGNATURE ILLEGIBLE]
- ---------------------
-7-
<PAGE> 24
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: The Recovery Network, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, _________ shares of
Common Stock of The Recovery Network, Inc. and herewith makes payments of
$______ therefor, and requests that the certificates for such shares be issued
in the name of, and delivered to ________ whose address is____________________.
Dated:______________
-------------------------------------
(Signature must conform to name of
holder as specified on the face of the
Warrant)
-------------------------------------
(Address)
-8-
<PAGE> 25
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number
of shares of Common Stock of The Recovery Network, Inc. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the
books of The Recovery Network, Inc. with full power of substitution in the
premises.
================================================================================
Transferees Percentage Number
Transferred Transferred
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Dated: __________, 19____ _________________________________________
(Signature must conform to name of holder
as specified on the face of the warrant)
Signed in the presence of:
_________________________________ _________________________________
(Name) (address)
ACCEPTED AND AGREED: _________________________________
[TRANSFEREE] (address)
_________________________________
(Name)
-9-
<PAGE> 1
EXHIBIT 5.1
November 5, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: RNETHEALTH.COM, INC. REGISTRATION ON STATEMENT ON FORM SB-2
FILE NO. 333-
Gentlemen:
We have acted as counsel to The Recovery Network, Inc., a Colorado corporation
(the "Company") in connection with the registration by the Company under the
Securities Act of 1933 (the "Act") pursuant to the Company's Registration
Statement on Form SB-2 (File No. 333- ) and Prospectus contained therein,
to be filed with the Securities and Exchange Commission (the "Commission") on
or about the date of this letter (the "Registration Statement") of up to
3,625,573 shares of the Company's common stock, par value $.01 ("Shares"). In
connection with this opinion, we have examined originals or copies, certified
or otherwise, to our satisfaction, of the Certificate of Incorporation of the
Company, as amended to date, by-laws as Directors and such other documents,
instruments and records; and have made such other investigations, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Page Two of Two
We have assumed the legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents. In making our examinations of documents executed by parties
other than the Company, we have assumed that such parties had the power,
corporate or otherwise, to enter into and perform their respective obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or otherwise, and the execution and delivery by such parties of such
documents and the validity and binding effect thereof. As to any facts material
to the opinions expressed herein, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and others.
<PAGE> 2
Based upon and subject to the foregoing, we are of the opinion that the Shares,
when issued, sold and delivered in the manner and or the consideration stated
in the Prospectus included in the Registration Statement, will be duly
authorized and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as Exhibit
5.2 to the Registration Statement. We also consent to the reference to our firm
under the caption "Legal Matters" in the Prospectus included in the
Registration Statement.
Very truly yours,
BECKMAN, MILLMAN & SANDERS, LLP
/s/ STEVEN A. SANDERS
Steven A. Sanders
<PAGE> 1
EXHIBIT 10.9
[LOGO]
EMPLOYMENT AGREEMENT
This Employment Agreement, by and between THE RECOVERY NETWORK, INC. (the
"Company") and JAY HANDLINE (the "Employee").
For good consideration, the Company employees the Employee on the following
terms and conditions:
1. Term of Employment. Subject to the provisions for termination set
forth below this agreement will begin on May 11, 1999, and continue thereafter
for a term of three (3) years, unless sooner terminated.
2. Salary. $12,000 per month. The Company shall pay Employee twice month
in accordance with the Company's standard payroll procedure.
3. Stock Options. Employee shall receive an option to purchase Four
Hundred Thousand (400,000) shares of the Company's common stock (the "Option")
exercisable at the closing bid price on May 11, 1999, the date of execution of
this agreement. The Option shall vest, as follows:
1/4th (100,000) upon execution of this Agreement
1/4th (100,000) at the end of year 1
1/4th (100,000) at the end of year 2
1/4th (100,000) at the end of year 3
If Employee's employment relationship with the Company is terminated for
any reason other than for cause or Employee's refusal to carry out his duties,
dishonesty or criminal conduct, then Employees Option shall fully vest, as of
the date of termination.
4. Duties and Position. The Company hires the Employee in the capacity
of Executive Vice President. Employee shall oversee the Company's Internet
activities. The Employee's duties may be reasonably modified at the Company's
discretion from time to time.
Company shall use its best effort to provide to Employee office space
located in Florida and an Executive Assistant.
5. Employee to Devote Full Time to Company. The Employee will
devote full time, attention, and energies to the business of the Company, and,
during this employment, will not engage in any other business activity,
regardless of whether such activity is pursued for profit, gain, or other
pecuniary advantage. Employee is not prohibited from making personal investments
in any other businesses provided those investments do not require active
involvement in the operation of said companies.
1411 5th Street, Suite 200, Santa Monica, CA 90401
t 310 393 3979 f 310 393 5749
www.recoverynetwork.com
<PAGE> 2
6. Confidentiality or Proprietary Information. Employee agrees, during
or after the term of this employment, not to reveal confidential information, or
trade secrets to any person, firm, corporation, or entity. Should Employee
reveal or threaten to reveal this information, the Company shall be entitled to
an injunction restraining the Employee from disclosing same, or from rendering
any services to any entity to whom said information has been or is threatened to
be disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Employee for a breach
or threatened breach of this condition, including the recovery of damages from
the Employee.
7. Reimbursement of Expenses. The Employee may incur reasonable expenses
for furthering the Company's business, including expenses for entertainment,
travel, and similar items. The Company shall reimburse Employee for all
reasonable business expenses after the Employee presents an itemized account of
expenditures, pursuant to Company policy.
8. Vacation. The Employee shall be entitled to a yearly vacation of 4
weeks at full pay.
9. Benefits. Employee will participate in the Company's benefits
program. Employee will receive enrollment forms and other benefits information
upon acceptance of the terms of this Agreement.
10. Termination of Agreement. Without cause, the Company may terminate
this agreement at any time upon thirty (30) days written notice to the Employee.
If the Company requests, the Employee will continue to perform his/her duties
and may be paid his/her regular salary up to the date of termination. In
addition, the Company will pay the Employee the following:
If Employee is terminated within the first year of the term of
employment a severance allowance equal to Six (6) months salary less taxes and
social security required to be withheld.
If Employee is terminated within the second year of the term of
employment a severance allowance equal to Nine (9) months salary less taxes and
social security required to be withheld.
If Employee is terminated within the third year of the term of
employment a severance allowance equal to Twelve (12) months salary less taxes
and social security required to be withheld.
Without cause, the Employee may terminate employment upon thirty (30)
days' written notice to the Company. Employee may be required to perform his or
her duties and will be paid the regular salary to date of termination but shall
not receive severance allowance. Notwithstanding anything to the contrary
contained in this agreement, the
<PAGE> 3
Company may terminate the Employee's employment upon thirty (30) days' notice
to the Employee should any of the following events occur;
a) The sale of substantially all of the Company's assets to a single
purchaser or group of associated purchasers; or
b) The sale, exchange, or other disposition, in one transaction of the
majority of the Company's outstanding corporate shares; or
c) The Company's decision to terminate its business and liquidate its
assets;
d) The merger or consolidation of the Company with another company.
e) Bankruptcy or chapter 11 reorganization.
11. Restriction on Post Employment Compensation. For a period of two (2)
years after the end of employment, the Employee shall not control, consult to or
be employed by any business similar to that conducted by the company, either by
soliciting any of its accounts or by operating within Employer's general trading
area.
Notwithstanding the foregoing, this restriction shall not apply, in the
event that Company terminates Employee with or without cause or in the event any
of the enumerated conditions in Section 10 shall occur.
12. Assistance in Litigation. Employee shall upon reasonable notice,
furnish such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is, or may
become, a party either during or after employment.
13. Effect or Prior Agreements. This Agreement supersedes any prior
agreement between the Company and any predecessor of the Company and the
Employee, except that this agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Employee of a kind elsewhere provided and
not expressly provided in this agreement.
14. Settlement by Arbitration. Any claim or controversy that arises out of
or relates to this agreement, or the breach of it, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered may be entered in any court with
jurisdiction.
15. Limited Effect of Waiver by Company. Should Company waive breach of
any provision of this agreement by the Employee, that waiver will not operate or
be construed as a waiver of further breach by the Employee.
16. Severability. If, for any reason, any provision of this agreement is
held invalid,
<PAGE> 4
all other provisions of this agreement shall remain in effect. If this agreement
is held invalid or cannot be enforced, then to the full extent permitted by law
any prior agreement between the Company (or any predecessor thereof) and the
Employee shall be deemed reinstated as if this agreement had not been executed.
17. Assumption of Agreement by Company's Successors and Assignees. The
Company's rights and obligations under this agreement will inure to the benefit
and be binding upon the Company's successors and assignees.
18. Oral Modifications Not Binding. This instrument is the entire agreement
of the Company and the Employee. Oral changes have no effect. It may be altered
only by a written agreement signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
Signed this 11 day of May 1999.
THE RECOVERY NETWORK, INC. JAY HANDLINE
/s/ [Signature Illegible] /s/ JAY HANDLINE
- ------------------------- -------------------------
Company Employee
<PAGE> 1
EXHIBIT 10.11
Services Agreement
-between-
Group W Network Services
-and-
Recovery Network, Inc.
dated as of April 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Services ....................................................1
2. Additional Services .........................................1
3. Term ........................................................1
4. Charges and Payment .........................................2
5. Termination .................................................2
6. Representations and Warranties ..............................3
7. Indemnification .............................................5
8. Notices .....................................................5
9. Confidentiality: Public Announcement ........................6
10. Employee Matters ............................................7
11. Subject to Law ..............................................8
12. Limitation of Liability .....................................8
13. Assignment ..................................................8
14. Force Majeure ...............................................8
15. General .....................................................9
16. Certain Definitions ........................................10
Exhibit 1 - Master Control/Playback Services ...............12
Exhibit 2 - Traffic Services ...............................15
Exhibit 3 - Compressed Satellite Space Segment,
Uplink and Encryption Services .................17
Exhibit 4 - Consumable Goods ...............................19
Exhibit 5 - Service Fees ...................................20
Exhibit 6 - New York-Stamford Interconnect/Earth
Station Facilities .............................21
</TABLE>
-i-
<PAGE> 3
SERVICES AGREEMENT ("Agreement") dated as of April 1, 1998 (the
"Effective Date") by and between Group W Network Services, a division of Group W
Broadcasting, Inc., a Delaware corporation, with offices at 250 Harbor Drive,
Stamford, Connecticut 06904 ("GWNS") and Recovery Network, Inc., a Colorado
corporation with offices at 1411 5th Street, Suite 250, Santa Monica, California
90401 ("Customer").
WHEREAS, GWNS provides traffic, playback, uplink and compressed satellite
space segment services, facilities and equipment to support television
programming; and
WHEREAS, Customer owns the "Recovery Network" program service
("Network"); and
WHEREAS, Customer desires to purchase, and GWNS desires to provide
Customer, certain Services to be used in Customer's operation of Network;
NOW, THEREFORE, GWNS and Customer hereby agree as follows:
1. Services.
Subject to all of the terms and conditions of this Agreement, GWNS agrees
to provide for Customer, and Customer agrees to obtain from GWNS, the following
services ("Services") 24 hours per day, 7 days per week:
1.1. Master Control/Playback Services as described in Exhibit I hereto.
1.2. Traffic Services as described in Exhibit 2 hereto.
1.3. Compressed Satellite Space Segment, Uplink and Encryption Services
as described in Exhibit 3 hereto.
2. Additional Services; Consumable Goods.
In addition to the Services set forth in Section 1, GWNS shall provide such
other services, facilities and equipment as may from time to time be agreed upon
between Customer and GWNS ("Additional Services"). Consumables may be purchased
on a non-exclusive basis as described in Exhibit 4 hereto.
3. Term.
3.1. This Agreement shall be effective and enforceable as of the
Effective Date and shall continue in full force and effect for a
period of five (5) years from the Commencement Date (as defined
below) (the "Term"), unless the Agreement is sooner terminated or
extended in accordance
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<PAGE> 4
with its terms. The Services shall commence at the earliest on
July 1, 1998 and at the latest on September 1, 1998 (the
"Commencement Date"). Customer shall select the Commencement Date
and notify GWNS in writing forty-five (45) days in advance of the
Commencement Date it selects. If Customer does not select a
Commencement Date, then for purposes of payment the Commencement
Date shall be deemed to be September 1, 1998.
3.2. GWNS shall have a right of first negotiation and a right to match
any third party offer to provide services similar to the Services
for the Network and Customer's other networks, if any, upon
expiration of the Term.
4. Charges and Payment.
4.1. In consideration of the Services to be performed by GWNS during
the Term, from the Commencement Date Customer shall pay to GWNS
the amounts described in Exhibit 5 hereto, as adjusted in
accordance with Section 4.2. All one-time, monthly and other fees
shall be due and payable thirty (30) days in advance, except to
the extent indicated otherwise in this Agreement.
4.2. Past due payments shall incur a late payment charge of 1.5%
thereof per month (or the maximum permitted by law, if less). Any
costs, including legal fees and disbursements, incurred by GWNS in
enforcing this Agreement shall be paid by Customer. Billing
disputes shall be submitted in writing to GWNS (to the attention
of "Vice President, Finance - Group W Network Services") within
thirty (30) days of Customer's receipt of the applicable invoice.
5. Termination.
5.1. Either party may terminate this Agreement in whole but not in part
(a) upon at least thirty (30) days' prior written notice by the
terminating party specifying that the other party has breached any
of its material obligations or any representation or warranty
hereunder, if such breach is not cured within thirty (30) days
after delivery of such notice or (b) upon prior written notice by
the terminating party if (i) the other party files a petition in
bankruptcy or if such a petition is filed against such party, (ii)
the other party takes advantage of any insolvency law, (iii) the
other party generally fails to pay its debts as such debts become
due, (iv) the other party makes an assignment for the benefit of
-2-
<PAGE> 5
creditors or (v) a receiver, liquidator or trustee is appointed in
respect of all or a substantial portion of the other party's
property or affairs.
5.2. Without limitation of the provisions of Section 5. 1, GWNS may
terminate this Agreement in whole but not in part upon prior
written notice to Customer, if Customer fails to pay any amount
otherwise due and payable hereunder within thirty (30) days of
notice from GWNS that such amount has not been paid.
5.3. Without limitation of the provisions of Section 5. 1, Customer may
terminate this Agreement in whole but not in part upon at least
one hundred and twenty (120) days prior written notice to GWNS.
5.4. In the event that Customer terminates this Agreement as described
in Section 5.3, or GWNS terminates this Agreement as described in
Section 5.1 or Section 5.2, Customer shall pay to GWNS (without
limitation to any other amounts due or payable to GWNS under this
Agreement, at law or in equity) (a) all amounts owing to GWNS but
unpaid as of the effective date of termination and (b) as further
consideration for the provision of Services and Additional
Services by GWNS hereunder and not as a penalty, the applicable
"Termination Liability" set forth on Exhibit 5 hereto, adjusted in
accordance with this Section 5.4, and (c) a "Cancellation Charge,
equal to twice the applicable monthly Services and Additional
Services fees under this Agreement as of the effective date of
termination. The Termination Liability shall decrease on a
prorated basis between annual permitted termination dates. Any
amount required to be paid pursuant to this Section 5.4 shall be
due and payable within thirty (30) days following the effective
date of termination of this Agreement.
6. Representations
6.1. Each of Customer and GWNS represents and warrants to the other
that:
6.1.1. It has the right, power and authority to enter into and to
fully perform this Agreement;
6.1.2. When executed and delivered, this Agreement shall
constitute a valid and binding obligation of such party;
6.1.3. It has not entered and shall not enter into any agreement
or arrangement that could reasonably be expected to limit
the
-3-
<PAGE> 6
performance of its obligations, or diminish or impair the
rights of the other party, hereunder;
6.1.4. Except as previously disclosed, there are no liens,
encumbrances, actions, suits or proceedings pending before
any Governmental Authority (as defined in Section 11) or,
to the knowledge of such party, threatened against it, that
could reasonably be expected to limit the performance of
its obligations, or to diminish or impair the rights of the
other party, hereunder;
6.1.5. It is, and during the Term shall remain, in full compliance
with all applicable treaties and other international
agreements, laws, statutes, rules, regulations, ordinances
and orders (collectively, "Laws");
6.1.6. No approvals, consents, authorizations, permissions,
licenses, certificates or permits (collectively,
"Approvals") of any third party are needed for the
performance of its obligations hereunder that have not been
obtained and do not remain in full force and effect as of
the execution hereof, and
6.1.7. As of the Effective Date of this Agreement, (a) it has
neither sought nor has any intention voluntarily to seek
the protection of any bankruptcy law; (b) it has no reason
to believe that any of its creditors has caused or intends
to cause it to become the subject of any proceedings under
any bankruptcy law; and (c) it has no knowledge of any
state of facts which, if known to its creditors, (i) would
cause it voluntarily to seek the protection of any
bankruptcy law or (ii) might reasonably cause any such
creditor to cause it to become the subject of any
proceeding under any bankruptcy law.
Except as expressly set forth above, GWNS makes no representation or
warranty to Customer and hereby expressly disclaims all other
warranties, express or implied, including but not limited to any
warranty of merchantability or fitness for a particular purpose.
6.2. Customer represents and warrants to GWNS that:
6.2.1. The content of all Customer programming produced or
postproduced by GAINS or on GWNS's facilities or
transmitted by GWNS hereunder ("Customer Programming")
shall not violate or infringe any Law, civil right,
property right, right of privacy,
-4-
<PAGE> 7
right of publicity, copyright, trademark right, or other
right of any person, firm or corporation, or constitute
defamation, obscenity or indecency; and
6.2.2. Customer has all rights in and to all Customer Programming
hereunder.
7. Indemnification.
7.1. Each of GWNS and Customer agrees to indemnify, defend and hold the
other party, its parent and affiliated entities, and the officers,
directors, employees and agents of each of the foregoing, harmless
from and against any and all claims, demands, damages,
liabilities, costs and expenses (including reasonable attorneys'
fees and disbursements) arising out of or caused by the breach of
any representation, warranty or undertaking made by such party
hereunder.
7.2. The party seeking indemnification hereunder shall notify the
indemnifying party in writing of any claim or action to which such
indemnification applies. The indemnifying party may, at its
option, undertake the defense of any such claim or action and
permit the party seeking indemnification to participate therein at
its own expense. The settlement of any such claim or action by the
party seeking indemnification without the indemnifying party's
prior written consent (which shall not be unreasonably withheld)
shall release the indemnifying party from its obligations
hereunder with respect to the claim or action so settled. The
settlement of any such claim or action by the indemnifying party
shall not, without the indemnified party's consent, require the
indemnified party to render any performance, other than the
payment of money.
7.3. The provisions of Sections 7.1 and 7.2 shall survive the
expiration or earlier termination of this Agreement.
8. Notices.
8.1. Any notice which a party hereto is required to give or may desire
to give in connection with this Agreement shall be in writing and
delivered by hand; by overnight delivery service; independently
confirmed telecopy; or by certified or registered mail, return
receipt requested, postage and charges prepaid; addressed as
follows:
-5-
<PAGE> 8
If to GWNS:
Group W Network Services
Attention: Altan C. Stalker
President
250 Harbor Drive
Stamford, CT 06904
Facsimile: 203-965-6320
with a copy to:
Group W Network Services
Attention: Law Department
250 Harbor Drive
Stamford, CT 06904
Facsimile: 203-965-6020
If to Customer:
Recovery Network
Attention: John Wheeler.
Vice President of Operations
1411 5th Street, Suite 250
Santa Monica, California 90401
Facsimile: (310) 393-5749
with a copy-to:
Recovery Network
Attention: Greg Richey
General Counsel
1411 5th Street, Suite 250
Santa Monica, California 90401
Facsimile: (310) 393-5749
8.2. Either party may change its address for notice purposes by
notifying the other party in accordance with Section 8.1.
9. Confidentiality, Public Announcement.
9.1. Each party hereto agrees that it shall not, without the prior
written consent of the other, disclose or communicate to any third
party any Information (as defined in this Section 9. 1) that is
disclosed to it by the other party, and the party receiving such
Information shall use reasonable efforts (which
-6-
<PAGE> 9
need not include the commencement of any action or proceeding
against any unauthorized user of such Information) to prevent the
unauthorized disclosure or communication of such Information. For
purposes of this Agreement, the term "Information" shall mean
information that is conspicuously identified as being confidential
or proprietary. All information shall remain the property of the
party furnishing same. Nothing contained herein shall be construed
as restricting or creating any liability for, the disclosure,
communication or use of Information that (a) is or becomes
publicly known through no wrongful act of the receiving party,
(b) is received from a third party without restriction and without
breach of this Agreement; (c) is independently developed by the
receiving party, or (d) is disclosed pursuant to governmental or
judicial requirement.
9.2. Neither party hereto shall disclose to any third party (other than
its respective employees, in their capacity as such) any
information with respect to the financial provisions of this
Agreement except (a) to the extent necessary to comply with
applicable Laws or appropriate Governmental Authorities, in which
case the party making such disclosure shall so notify the other
and shall seek confidential treatment of such information; (b) as
part of its normal reporting or review procedure to its parent
companies, auditors or attorneys, provided, however, that such
parent companies, auditors or attorneys agree to be bound by the
provisions of this Section 9.2; or (c) in order to enforce its
rights pursuant to this Agreement.
9.3. Any press release or other publicity materials concerning this
Agreement shall be issued only with the mutual consent of the
parties; provided, however, that neither party shall be prohibited
from stating, in the normal course of its business, that it does
business with the other and the general nature of such business.
10. Employee Matters.
Neither party's employees shall be deemed to be employees or agents of
the other party for any purpose, and shall not be entitled to receive any
benefits or to participate in any employee benefits plan of the other
party. Customer and GWNS shall be solely responsible for payment of all
salaries, benefits, worker's compensation and all related costs with
respect to their respective employees and agents, and each party shall
indemnify the other party for any costs incurred in connection with any
of the foregoing.
-7-
<PAGE> 10
11. Subject to Law.
This Agreement is subject to an applicable Laws of all international
foreign United States, state and local governmental authorities,
regulatory bodies and courts having jurisdiction (collectively,
"Governmental Authorities"). The Performance of this Agreement by both
parties hereto is expressly contingent upon, and subject to, the
obtaining and continuance of such Approvals from such Governmental
Authorities as may be required or necessary for the purposes hereof and
such terms and conditions as may be imposed therein. Each party shall use
all reasonable efforts (and the other party shall cooperate with such
party) to obtain in a timely manner, and maintain in effect, any
Approvals that may hereafter be required by any Governmental Authority
having jurisdiction with respect to such party's obligations hereunder.
12. Limitation of Liability.
12.1. Notwithstanding any other provision of this Agreement, under no
circumstances shall (a) GWNS be liable to Customer or to any third
party for any loss of revenue, lost profits, lost capital,
overhead, claims of third parties for service interruption, or any
special, indirect, incidental or consequential damages of any type
or (b) GWNS's total liability in connection with the performance
of this Agreement exceed the aggregate sum of all fees actually
paid by Customer to GWNS pursuant to this Agreement.
12.2. GWNS shall not be liable or responsible for (a) any interception,
or damages caused by interception, of a scrambled signal or (b)
any Customer Programming signal outside the points where such
signal enters into or departs from GWNS's transmission system.
13. As Assignment.
Neither party may assign or otherwise transfer any of its rights or
obligations under this Agreement without the prior written consent of the
other. Consent will not be unreasonably withheld or delayed.
14. Force Majeure.
Notwithstanding any other provision of this Agreement, neither party
shall have any liability to the other for any failure to fulfill its
obligations hereunder if such failure is due to any labor dispute, delays
caused by equipment suppliers, fire, flood, Law, political action, act of
God or any other cause beyond the
-8-
<PAGE> 11
reasonable control of the party unable to perform. In the event of any
such occurrence, the time period for performance under this Agreement
shall be correspondingly extended.
15. General.
15.1. Nothing contained herein shall be deemed to create, and the
parties do not intend to create, any relationship of partners or
joint venturers or agent and principal, and neither party shall
represent the contrary to any third party.
15.2. A waiver by either party of any of the terms or conditions of this
Agreement in any one instance or a waiver by either party of a
breach of this Agreement shall not be deemed or construed to be a
waiver of such terms or conditions for the future or a waiver of
any subsequent breach.
15.3. All remedies contained in this Agreement shall be in addition to
other remedies available at law or in equity, by statute or
otherwise, except as herein otherwise provided.
15.4. This Agreement and all matters or issues collateral hereto shall
be interpreted in accordance with the laws of the State of New
York applicable to agreements made and performed wholly therein.
15.5. The Exhibits annexed to this Agreement are an integral part hereof
and are incorporated herein by this reference.
15.6. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and may
be modified only by a writing executed by both of the parties
hereto. Any purchase order or similar order or request for the
provision of Services or Additional Services hereunder shall be
subject to this Agreement.
15.7. The titles of the sections of this Agreement are for convenience
only and shall not in any manner affect the interpretation of any
section of this Agreement.
15.8. Nothing contained in this Agreement shall be construed so as to
require the commission of any act contrary to law, and wherever
there is any conflict between any provision of this Agreement and
any Law, such Law shall prevail; provided, however, that in such
event the provision(s) of this Agreement so affected shall be
curtailed and limited only to the extent necessary to permit
compliance with the minimum legal requirement, no
-9-
<PAGE> 12
other provisions of this Agreement shall be affected thereby and
all of such other provisions shall continue in full force and
effect.
15.9. The provisions of this Agreement are only for the benefit of the
parties hereto, and no third party may seek to enforce or benefit
from such provisions.
15.10. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and all such counterparts together
shall constitute but one and the same instrument.
16. Certain Definitions.
Except as specified otherwise, when used in this Agreement or any
Exhibits or amendments hereto, the following terms shall have the
meanings specified in the respective sections cited below. Defined terms
shall include both the singular and the plural, as the context requires.
"Additional Services" is as defined in Section 2.
"Agreement" is as defined in the recitals.
"Approvals" is as defined in Section 6.1.6.
"Cancellation Charger is as defined in Section 5.4.
"Commencement Date" is as defined in Section 3.1.
"Customer" is as defined in the recitals.
"Customer Programming!" is as defined in Section 6.2.1.
"Effective Date" is as defined in the recitals.
"Governmental Authorities" is as defined in Section 1.1.
"GWNS" is as defined in the recitals.
"Information" is as described in Section 9.1.
"ISCR" is as defined in Exhibit 2.
"Laws" is as defined in Section 6.1.5.
-10-
<PAGE> 13
"Network" is as defined in the recitals.
"Renewal Date" is as defined in Section 4.3.
"Services" is as defined in Section 1.
"Technical Specifications" is as defined in Exhibit 3.
"Term" is as defined in Section 3. 1.
"Termination Liability" is as defined in Section 5.4.
IN WITNESS WHEREOF, the parties have entered into this Agreement
as of the date first set forth above.
GROUP W NETWORK SERVICES RECOVERY NETWORK, INC.
By: /s/ ALTAN C. STALKER By: /s/ JOHN R. WHEELER
-------------------------- ---------------------------
Name: Altan C. Stalker Name: John R. Wheeler
------------------------ -------------------------
Title: President Title: Sr. V.P. of Operations
----------------------- ------------------------
Date signed: 5/21/98 Date signed: May 21, 1998
----------------- ------------------
-11-
<PAGE> 14
EXHIBIT I - MASTER CONTROL/PLAYBACK SERVICES
The master control function designed for Customer provides a facility which
produces both high quality dual channel (stereo) audio and video. The master
control will be operated by a master control operator who will be responsible
for loading program material into an automated playback system (a shift
supervisor will also be on duty at all times who will supervise the operations
of the Network and other GWNS clients). The operator's primary responsibility
will be the playback of program material via an automated system. The playback
system will provide a system for both the preparation of the daily program logs
and needed program certifications, as well as assisting the operator in actual
switching.
The master control facility will also have full access to the "house" router
system. Having access to the central router allows the control room operation
access to such areas as the studio operation, video tape rooms, GWNS's satellite
receiving capability and the ability to access GWNS's terrestrial interconnect
system into many points in New York City including The Switch, Waterfront
Communications and AT&T "NR". Attached as Exhibit 6 is a schematic diagram of
the GWNS Stamford complex indicating antenna and terrestrial facilities.
As stated above, the master control area will contain an automated playback
system for the playback of programming. Primary programming, commercial and
interstitial material originate from five (5) betacam SP units controlled by the
automated system. The basic complement of equipment used in the control room is
the following:
5- Sony PVW 2800 betacam SP units
1- Automated control unit
1- Playback room video and audio monitoring system
In addition to the facilities stated above, equipment such as audio and video
test generators, patch panels, and WWV synchronization are included in the
overall master control equipment complement.
The playback facility hardware design is based on the premise that primary
programming material will be supplied on betacam SP video tape and be nominally
between 30 minutes and 60 minutes in length and be ready for playback to air.
The playback facility will transition consistent with GWNS's overall client
transition plan from a tape playback to a file server based system during the
Term of this Agreement. Customer will continue to supply GWNS betacam SP tapes
or materials in other standard industry formats as mutually agreed, during and
after the transition.
-12-
<PAGE> 15
GWNS shall use an equipment configuration in the provision of Master
Control/Playback Services to Customer substantially as follows:
A. An automated switcher with audio follow video and manual backup
capability with downstream keying capability.
B. An automated playback system with five(5) beta SP tape machines for air
play.
C. Associated synchronization equipment conforming to broadcast EIA-RS-170A
standards, including sync generators, signal generators, and time base
correctors.
D. Associated audio/video distribution and routing equipment, racks,
consoles and test equipment.
E. Comprehensive monitoring system to view outgoing and return signals to
monitor the signal at various points throughout the transmission path.
F. Sufficient uninterrupted (UPS) and back-up generator power and HVAC for
all technical and equipment areas.
G. Equipment providing output signals, per channel, of discrete stereo audio
and standard NTSC video for delivery to its compression and/or
transmission facility in accordance with the technical specifications.
All origination equipment shall meet manufacturer's specifications in effect at
the time of GWNS's purchase. Unless specific brand type or model or equipment is
specified above GWNS shall have the right to use such equipment as GWNS deems
appropriate to perform the services.
GWNS will execute the delivery of the Customer signal according to schedules
based on a program log supplied by Customer. The programming will consist of
videotape elements supplied to GWNS in advance of the air date. Occasional five
feeds may be required, but shall be treated on a project-by-project basis
separate from this Agreement, with responsibility for delivering the feed to
GWNS antenna or terrestrial interconnections assumed by Customer.
In addition to program signal, GWNS will transmit DTMF cue tones or other
signaling elements according to times and specifications provided by Customer.
GWNS will provide facilities for down-stream keying of the network
identification bug and will insert as directed on the program log.
-13-
<PAGE> 16
GWNS shall monitor all programming distributed and provide Customer with an "as
aired" log. Included in this report, on an element-by-element basis, will be
details of any deviation from the program log, and details indicating the actual
programming which was transmitted. This report will include a description of the
deviation from the scheduled log and any corrective action taken by GWNS.
GWNS will monitor the transmission path, including downlink returns, to verify
transmission integrity. Any service interruption, transmission signal
degradation, or failure of the distribution will be documented and reported in
writing to Customer. Reports will contain details including, but not limited to:
time, duration, nature of interruption or degradation. Notice of problems shall
take place as expediently as possible and complete reports shall be submitted
within forty-eight (48) hours of the occurrence.
GWNS will designate a management level person as a contact who will address all
business and contractual issues including the "on-air look" to insure that
Customer's reasonable expectations for Network operations are being met.
GWNS will provide authorization and deauthorization services for commercial
(cable headend) decoders for Network affiliates of Customer. Required actions
will be executed in a timely manner upon written or verbal communication from
designated Customer personnel.
-14-
<PAGE> 17
EXHIBIT 2 - TRAFFIC SERVICES
The traffic operation will have the responsibility to prepare the daily program
log in accordance with a "run sheet" (log instructions in electronic form)
provided by Customer. GWNS will accept and return all video tape (any shipping
charges are billable to Customer). GWNS will also maintain a reasonable tape
library consisting of up to 1,000 hours of program content to support the
Network.
Customer will have the following obligations in respect of the traffic
function:
A Customer will be responsible for securing and shipping all programming
material that will be used in programming the Network to GWNS.
B. All programming delivered on video tape will be delivered on beta SP
stock. Upon mutual agreement other formats may be used.
C. All video tape will arrive at GWNS's facility a minimum of 72 hours
prior to air. Shorter lead times will occasionally be accommodated with
time sensitive material.
D. All programming will be delivered in the NTSC analog format. Upon mutual
agreement other formats may be used.
The fees in Exhibit 5 are based on the foregoing and may be raised, if
necessary, to compensate for Customer's failure to perform any of such
obligations in a timely manner.
GWNS will electronically accept the data comprising the log for Customer's
programming elements. GWNS will convert this information into a format required
by GWNS's traffic management/real time controller or functionally equivalent
automation system.
GWNS will cross-reference Customer's log elements against the GWNS database by
the following: Industry Standard Commercial Identification (ISCR) numbers, house
number, element duration, and other traffic management codes as appropriate GWNS
will confirm that all elements required by the Customer log are in-house,
active, and properly prepared for playback. Missing elements or other problems
will be flagged and appropriate actions to resolve the problem will be taken in
an expedient manner.
Log events will be monitored on a real-time basis during playback to air. A
Certified feedback, or "as aired," report will be generated and returned to
Customer within twenty four (24) hours of actual airdate. This report will be
transferred electronically in a format specified by Customer in order to
seamlessly confirm the distribution of programming elements. The electronic
reporting will conform to specifications and requirements of the traffic and
billing computer and information systems utilized by Customer. Hard copy logs
and reports related to the transmission of the Network may also be required.
-15-
<PAGE> 18
GWNS shall provide one (1) full-time traffic assistant. Traffic will be
accomplished on a system operated by technicians, provided by GWNS.
Source tapes for primary and back-up programming promotional and interstitial
material supplied to GWNS by customer shall be beta SP video tape stock and
shall be manufactured in accordance with NTSC broadcast standards. All tape
stock shall be supplied by and shall remain the property of Customer. Customer
acknowledges that it is directly responsible for arranging for and paying the
costs of the following: (i) costs for shipping of its tape material to and from
the origination facility (currently in Irvine, CA); (ii) the delivery of any
satellite turnaround programming to the origination facility, and (iii) any
third party-provided fiber optic, transponder or microwave transport. GWNS will
provide climatically-controlled storage for library video tapes, not to exceed
1,000 hours.
-16-
<PAGE> 19
EXHIBIT 3 - COMPRESSED SATELLITE SPACE SEGMENT, UPLINK AND ENCRYPTION SERVICES
GWNS will provide a digitally compressed uplink service via a
transponder-protected transponder on the Galaxy VII satellite, for distribution
of the Network on a twenty-four (24) hour basis.
This compressed transponder capacity utilizes Scientific Atlanta PowerVu
compression technology which GWNS has purchased, installed, operates and
maintains. This compression hardware is physically located at the GWNS Glenbrook
earth station facility where uplinking to the Galaxy VII satellite will occur.
The satellite transmission facility shall consist of a 9.0 meter antenna or its
equivalent or larger, that complies with 20 spacing,
GWNS shall provide a protected microwave and/or fiber path from its origination
facility, if inter-facility transport is required, with equipment meeting the
Technical Specifications. One or more redundant paths shall be provided and
switched into service if a failure occurs in the primary paths.
Appropriate testing will be conducted by GWNS prior to the distribution of
specific services in order to ensure that the facilities provided by GWNS meet
the following "Technical Specifications":
A. There will be a full-time channel with video exciter or upconverter and
HPA in a fully automatic 1:1 switching configuration. There will be one
(1) primary and one (1) protection HPA, upconverter or exciter protecting
the programmer's services.
B. Sufficient uninterrupted (UPS) and back-up generator power and HVAC for
all technical and equipment areas shall be provided.
C. The design goal for analog services shall be broadcast quality standard
EIA RS-250B satellite relay from the input of the protection-switch,
including a satellite loop using a 9.0 meter or larger antenna, to the
output of the receive monitoring switch. The loop performance is subject
to the transponder used meeting minimum. performance specifications as
specified by PanAmSat.
D. The design goal for compressed services, if any, shall be video and audio
performance as specified by the compression system manufacturer. Industry
standards for compressed video services are not available and
manufacturer specifications shall be used until appropriate standards
have been accepted.
-17-
<PAGE> 20
E. The maintenance limits of the analog system, and where appropriate the
compression system, shall be:
Video channel signal to noise (>10KHz) 52.0db
Video channel differential gain 10%
Video channel differential phase 4%
Video channel chrominance to luminance delay 60nS
Audio channel signal to noise (>1KHz)54.0 dB
Audio channel harmonic distortion (1KHz) 1%
(Audio channels shall be tested at peak program level of +I 8dBm)
F. The microwave and/or fiber optic facility used to transport the channels
from the origination facility to the compression/transmission facility,
if any, shall be protected, including automatic protection switching.
The design goal for microwave systems shall be ANSI T1.502 - 1988 short
haul and the maintenance limit shall be ANSI T1.502-1988 medium haul
performance. The design goal for fiber optics systems shall be ANSI
TI.502-1988 medium haul and the maintenance limit shall be as follows:
(Audio channels shall be tested at peak program level of + 1 dBm)
Video channel signal to noise (>10KHz) 50.0 dB
Video channel differential gain 8%
Video channel differential phase 2%
Video channel chrominance to luminance delay 50 nS
Audio channel signal to noise (>1KHz) 54.0 dB
Audio channel harmonic distortion (1KHz)%
In the case of the digitally compressed channel, baseband video and associated
audio will be fed into the input of the compression equipment. One (1) video and
up to four (4) audio subcarriers, can be accommodated. The output of the
PowerVu equipment will consist of a single data stream which will carry
Network's signal and those of other GWNS clients. This combined data stream will
be transmitted into the exciter and HPA uplink chain through to Galaxy VII
transponder #9. The compressed satellite space segment will consist of a data
channel not less than 6.7 Mbps.
GWNS will also provide encryption management services for the authorization of
Network affiliates' decoders. Customer represents that it has approximately 300
affiliates, as of December 1997.
The entire transmission path is made up of redundant hardware for maximum "stern
reliability. The Glenbrook facility is staffed on a full-time basis with both
fully qualified operations and engineering personnel (who provide service to
both Customer and other GWNS clients).
-18-
<PAGE> 21
EXHIBIT 4 - CONSUMABLE GOODS
Consumables have not been included in the service pricing. Major consumables are
video tape stock and shipping. In the case of video tape stock, GWNS will
invoice Customer its cost plus a 20% administrative fee. Since the price of
consumables cannot be projected over the course of a five (5) year service
contract, GWNS will invoice Customer on a monthly basis for any consumables.
Payment for consumables is due net thirty (30) days from the receipt of invoice.
-19-
<PAGE> 22
EXHIBIT 5 - SERVICE FEES
1. Monthly Service Fee and annual cost escalation for Master
Control/Playback, Traffic, Uplink, Encryption and Compressed Satellite
Space Segment Services:
<TABLE>
<CAPTION>
Year Monthly Service Fee Annual Cost Escalation
<S> <C> <C>
1 $83,500.00 0%
2 $83,500.00 0%
3 $85,170.00 2%
4 $87,725.00 3%
5 $90,795.00 3.5%
</TABLE>
2. Termination Liability(1): $150,000.00
3. Cancellation Charge: In the event that
contracted service is
canceled, an additional
charge equal to two (2)
months service fee will
be added to the relevant
Termination Liability.
4. Payment:
Service Fee: Payable monthly, 30 days
in advance.
Consumables: Payable net 30 days.
- ---------------------
(1) In the event that the contracted service is canceled prior to the conclusion
of a sixty (60) month service commitments a termination charge equal to 1/60 of
the Termination Liability will be assessed for each unused month, or fraction
thereof, out of the sixty (60) month commitment.
-20-
<PAGE> 23
[DIAGRAM]
<PAGE> 24
THE RECOVERY NETWORK, INC.
1411 5TH STREET, SUITE 250
SANTA MONICA, CALIFORNIA 90401
October 27, 1998
Group W Network Services
Attention: Altan C. Stalker, President
250 Harbor Drive
Stamford, CT 06904
Facsimile: 203-965-6320
Group W Network Services
Attention: Law Department
250 Harbor Drive
Stamford, CT 06904
Facsimile: 203-965-6020
Re: Services Agreement dated as of April 1, 1998 (the "Agreement")
between Group W Network Services ("Group W"), a division of
Group W Broadcasting Inc. and The Recovery Network. Inc,
("Recovery").
Ladies and Gentlemen:
All capitalized terms used but not defined in this side letter
(including the Schedule hereto) shall have the meaning assigned to such terms in
the Agreement.
Exhibit 5 and each reference thereto in the Agreement is hereby deleted.
In lieu of each reference to Exhibit 5, each such reference in the Agreement is
hereby amended to refer to "the Side Letter," which shall mean this letter and
Schedule 1 hereto (the "Side Letter").
The fees, charges and/or payments under the Agreement are as set forth
at Schedule 1 hereto.
Section 9 of the Agreement shall apply to this Side Letter and Schedule
1 hereto.
Except as amended hereby, the Agreement is ratified and confirmed in all
respects by the parties hereto. Nothing herein shall confer or be deemed to
confer any right, remedy, benefit or
<PAGE> 25
Group W Network Services
Altan C. Stalker October 27, 1998
Page 2
entitlement on any third-party. This amendment shall be construed pursuant to
and in accordance with the laws of the State of New York, without regard to
conflict of laws principles, and may be executed in counterparts, including by
telecopy, each of which shall be deemed an original, all of which taken together
shall constitute one and the same amendment.
Very truly yours,
THE RECOVERY NETWORK, INC.
/s/ JOHN WHEELER
-----------------------------------------
By: John Wheeler
Title: Vice President of Operations
ACCEPTED AND AGREED
this 27th day of October, 1998
GROUP W NETWORK SERVICES
- -------------------------------
By:
Title:
<PAGE> 26
SCHEDULE 1
1. Monthly Service FEE and annual cost escalation for Master
Control/Playback, Traffic, Uplink, Encryption and Compressed Satellite
Space Segment Services:
<TABLE>
<CAPTION>
Year Monthly Service Fee Annual Cost Escalation
<S> <C> <C>
1 $83,500.00 0%
2 $83,500.00 0%
3 $85,170.00 2%
4 $87,725.00 3%
5 $90,795.00 3.5%
</TABLE>
2. Termination Liability(1): $150,000.00
3. Cancellation Charge: In the event that contracted
service is canceled, an
additional charge equal to two
(2) months service fee will be
added to the relevant
Termination Liability.
4. Payment:
Service Fee: Payable monthly, 30 days in advance.
Consumables: Payable net 30 days.
- ---------------------
(1) In the event that the contracted service is canceled prior to the conclusion
of a sixty (60) month service commitment, a termination charge equal to 1/60 of
the Termination Liability will be assessed for each unused month, or fraction
thereof out of the sixty (60) month commitment
<PAGE> 27
[GROUP W NETWORK SERVICES LETTERHEAD]
As of May 1, 1999
The Recovery Network, Inc.
Attention: Mr. William D. Moses
President
Recovery Network
506 Santa Monica Boulevard, Suite 4
Santa Monica, CA 90401
Re: Services Agreement between Group W Network Services, a business unit of
CBS Corporation ("GWNS"), and The Recovery Network, Inc. ("Recovery")
dated as of April 1, 1998, as amended by Side Letter dated October 27,
1998 (the "Agreement")
Dear Bill:
This letter sets forth certain terms and conditions modifying the referenced
Agreement. By way of background: by notice dated February 9, 1999 GWNS
terminated the Agreement effective March 12, 1999 based on Recovery's breach of
its payment obligations. By subsequent letters GWNS extended the effective date
of termination while the parties discussed terms and conditions pursuant to
which the Agreement might be modified. Having concluded such discussions to
their mutual satisfaction, Recovery and GWNS hereby agree to modify the
Agreement on the terms and conditions set forth below.
1. GWNS hereby withdraws its termination notice.
2. The parties to the Agreement hereby ratify the letter agreement dated
April 15, 1999, proffered by the undersigned to Mr. George H. Henry and
countersigned by Mr. Henry, as an effective and legally binding
modification of the Agreement. A copy of such letter agreement as
executed is annexed hereto as Exhibit A and incorporated herein by this
reference.
3. Recovery represents to GWNS that the 500,000 shares of its stock
transferred pursuant to the above letter agreement's penultimate
paragraph represent less that 4.9% of its total outstanding shares.
<PAGE> 28
4. Recovery acknowledges that free transferability of Recovery's shares
transferred to GWNS as contemplated in the above letter agreement is
material in order for GAINS to realize the benefit of its bargain
hereunder. GWNS shall have the right to request registration thereof
(but not more than one (1) such registration every twelve months),
including effectuation of all appropriate related notices,
qualifications and compliances, at Recovery's sole cost and expense, in
order to permit or facilitate the sale thereof Recovery shall effect
such registration and related matters promptly upon receipt of GWNS's
request. In addition, should Recovery determine to register any of its
securities, it shall so notify GWNS and include in such registration and
in any underwriting involved therein, such of GWNS's shares in Recovery
as GWNS shall have specified by written request(s) made within twenty
(20) days after GWNS's receipt of Recovery's notice. Recovery shall
indemnify and hold harmless GWNS, its affiliates and their officers and
directors with respect to all claims, losses, expenses, damages, and
liabilities arising out of any untrue or allegedly untrue statement of a
material fact contained in any prospectus, offering circular or other
document incident to any such registration, qualification or compliance,
or omission of a material fact therefrom.
5. The promissory note contemplated by point number 5 of the above letter
agreement (the "Note") is executed and delivered contemporaneously
herewith. Recovery hereby represents to GWNS that Recovery has no
indebtedness or obligation which is superior in right or time to the
Note and that there exists no mortgage, pledge, lien, or other security
interest of any kind upon any of Recovery's property or assets of any
character, whether now owned or hereafter acquired, in respect of any
indebtedness or obligation of Recovery, except as disclosed herein.
Recovery has outstanding certain Secured Promissory Notes dated April
13, 1999 (the "Secured Notes") which Secured Notes are secured by the
company's website RecoveryNetwork.com. The principal balance of the
Secured Notes is $725,000; such principal and all accrued interest
thereon is due and payable in full October 31, 1999.
6. Recovery hereby reiterates specifically with application to the
Agreement and this amendment each of the representations and warranties
made by it in Section 6.1 of the Agreement.
Capitalized terms used and not defined in this amendment shall have the meanings
assigned to such terms in the Agreement. The parties acknowledge that the above
letter agreement is written in a vernacular that does not uniformly utilize
capitalized
<PAGE> 29
terms defined in the Agreement and agree that such vernacular shall not be
grounds for any dispute or argument concerning construction or interpretation of
the Agreement.
The Agreement as amended hereby is ratified and confirmed in all respects.
Nothing herein shall confer or be deemed to confer any right, remedy, benefit or
entitlement on any third party. This amendment shall be construed pursuant to
and in accordance with the laws of the State of New York, without regard to
conflict of laws principles, and may be executed in counterparts, each of which
shall be deemed an original, all of which taken together shall constitute one
and the same instrument.
Sincerely yours,
/s/ ALTAN C. STALKER
- ------------------------------
Altan C. Stalker
Enclosure
Ratified and Agreed:
THE RECOVERY NETWORK, INC.
By: /s/ WILLIAM MOSES
---------------------------
Name: William Moses
Title: President
<PAGE> 30
NON-SUBORDINATED PROMISSORY NOTE
$75,000 Dated: May 1, 1999
FOR VALUE RECEIVED, THE RECOVERY NETWORK, INC. ("Maker"), a Colorado corporation
with its principal offices at 1411 5th Street, Suite 250, Santa Monica,
California 90401 UNCONDITIONALLY PROMISES TO PAY to GROUP W NETWORK SERVICES, a
business unit of CBS Corporation ("Holder"), the principal amount of
Seventy-Five Thousand Dollars ($75,000), together with interest as set forth
below. Principal and interest shall be payable in lawful money of the United
States of America to Holder at its office at 250 Harbor Drive, Post Office Box
10210, Stamford, Connecticut 06904-22 1 0 or at such other address as may be
designated by Holder in writing to Maker.
1. Payment of Principal and Interest. The principal balance of
this Note, together with interest thereon, shall be due and payable on December
30, 1999.
2. Interest Rate. The principal amount shall bear interest at the
fixed rate of ten percent (10%) per annum, based on a 360-day year.
3. Default. If any default hereunder shall have occurred and be
continuing, Holder may proceed to protect and enforce its rights either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted pursuant to this Note, or may proceed to enforce any other legal
or equitable right as the holder of this Note. No remedy is intended to be
exclusive and each remedy shall be cumulative. If Maker shall default in the
payment of principal of or interest on this Note, it will pay to Holder further
amounts, to the extent lawful, as shall be sufficient to pay the reasonable
costs and expenses of collection, including reasonable lawyers' fees,
disbursements and other charges.
4. Covenants. Maker hereby agrees that, so long as any principal
amount of this Note remains outstanding and unpaid or any other amount is owing
to Holder hereunder:
(a) Financial Statements. Maker shall furnish to Holder:
(i) As soon as available, but in any event within 90
days after the end of each fiscal year of Maker, a copy of the audited balance
sheet of Maker as at the end of such year and the related audited statements of
income and statements of stockholders' equity and cash flow for such year,
setting forth in each case in comparative form the corresponding figures for the
previous year; and
<PAGE> 31
2
(ii) As soon as available, but in any event within 45
days after the end of each of the first three quarterly periods of each fiscal
year of Maker, the unaudited balance sheet of Maker as at the end of such
quarter and the related unaudited statements of income and statements of
stockholders' equity and of cash flows of Maker for such quarter and the portion
of the fiscal year through the end of such quarter, setting forth in each case
in comparative form the corresponding figures for the previous year, if the
financial statements described in this subsection 4 (a) (ii) are audited by
Maker's certified public accountants, Maker shall furnish to Holder such audited
financial statements;
all such financial statements to be certified by a responsible officer of Maker
as fairly stating the financial position of Maker at the dates and for the
periods referred to therein and as having been prepared in accordance with
generally accepted accounting principles consistently applied (subject, in the
case of quarterly financial statements, to normal yearend audit adjustments and
the absence of footnotes).
(b) Certificates. Maker shall furnish to Holder,
concurrently with the delivery of the financial statements referred to in
Subsection 4(a)(i) and (ii) above, a certificate of a responsible officer of
Maker stating that, to the best of such officer's knowledge, during the period
since the delivery of the previous such certificate (or if no such certificate
has been previously delivered, since May 1, 1999) Maker has observed or
performed in all material respects all of its covenants and other agreements
contained in this Note, and that such officer has obtained no knowledge of any
default except as specified in such certificate.
(c) No Superior Obligation. Maker shall not incur or suffer
to be incurred any obligation to which this Note would be subordinate.
(d) Restriction on Liens. Maker will not directly or
indirectly create or incur, or suffer to be created or incurred or to exist, any
mortgage, pledge, lien, or other security interest of any kind upon any of its
property or assets of any character, whether now owned or hereafter acquired, in
respect of any, indebtedness or obligation of Maker.
(e) When Maker May Merge, Etc. Maker shall not consolidate
with or merge into, or transfer all or substantially all of its assets to, a
third party unless:
(i) such third party is a corporation organized
under the laws of the United States, one of the
States thereof or the District of Columbia;
<PAGE> 32
3
(ii) the resulting, surviving or transferee third
party assumes all the obligations of Maker under
this Note, and
(iii) immediately before and after giving effect to
such transaction, no default shall have occurred
and be continuing under this Note.
(f) Substitution of Successor: Maker Not Released. Upon any
consolidation or merger, or any transfer of all or substantially all of the
assets, of Maker in accordance with Subsection 4(d), the successor third party
formed by such consolidation or into which Maker is merged or to which such
transfer is made shall succeed to, and be substituted for and may exercise every
right and power of, Maker under this Note with the same effect as if such
successor third party had been named as Maker herein, provided Maker shall not
be released from its obligation under this Note.
5. Obligation of Maker Unconditional. Nothing herein is intended to
or shall impair the obligation of Maker, which is absolute and unconditional, to
pay to Holder the principal of and interest on this Note as and when the same
shall become due and payable in accordance with its terms, nor shall anything
herein prevent Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note.
6. Waiver. Maker hereby waives presentment for payment, demand,
notice of dishonor and protest, and all other demands or notices in connection
with the delivery, performance, default or enforcement of this Note. No failure
on the part of the Holder to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right.
7. Prepayment. The Maker may prepay all or part of the indebtedness
(principal and interest) evidenced by this Note at any time without penalty.
8. Binding Effect. This Note shall be the binding and valid legal
obligation of the Maker and its legal representatives, executors, heirs,
successors and assigns.
9. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York.
10 Waiver of Trial by Jury. THE MAKER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN CONNECTION WITH ANY MATTERS ARISING OUT OF THIS TRANSACTION.
<PAGE> 33
4
11. Jurisdiction. THIS NOTE SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. THE MAKER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, AND THE MAKER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL
COURT. THE MAKER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE
MAKER, VIA REGISTERED OR CERTIFIED MAIL, AT ITS ADDRESS SPECIFIED IN THIS NOTE.
THE MAKER AGREES THAT A FINAL, UNAPPEALABLE, JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE
<PAGE> 34
5
MAKER FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO
AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS.
THE RECOVERY NETWORK, INC.
By: /s/ TRACY R. NEAL
-----------------------------------
Name: Tracy R. Neal
Title: In-House counsel
STATE OF CALIFORNIA )
) ss: May 1999
COUNTY OF LOS ANGELES )
------------- )
On this the 20 day of July, 1999, before me /s/ BARBARA J. O'SULLIVAN , the
--------------------------
( Name of Notary )
undersigned officer, personally appeared /s/ TRACY R. NEAL , who acknowledged
-------------------
(Name of Officer)
himself to be the IN-HOUSE COUNSEL of The Recovery Network, Inc., a corporation,
----------------
(Title of Officer)
and that he as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as such officer.
In witness whereof I hereunto set my hand.
[NOTARY SEAL]
/s/ BARBARA J. O'SULLIVAN
-----------------------------------
Notary Public
My Commission Expires: 12/12/02
<PAGE> 1
EXHIBIT 10.12
G. HOWARD ASSOCIATES, INC.
800 Fifth Avenue
New York, NY 10021
Mr. Gary Horowitz
The Recovery Network
1411 5th Street Suite 200
Santa Monica, CA 90401
December 7, 1998
Dear Gary:
We are writing this letter (the "Letter Agreement") to confirm our
understanding that G. Howard Associates, Inc. ("Howard") has been retained by
The Recovery Network ("RNet" or the "Company") to represent the Company, on an
exclusive basis with respect to certain investors Howard has identified
("Howard's Investors"), in connection with capital raising for RNet. Howard will
act as RNet's financial advisor for a period of one year, in all negotiations
leading to the possible purchase of a portion of RNet's capital stock or
otherwise by Howard's Investors (the "Transaction").
For purposes of this Letter Agreement, RNet shall be subject to a fee
(the "Fee"), payable to Howard in the event of a Transaction with Howard's
Investors. Howard's Investors currently include: Grady & Hatch; Liberty Media;
George Soros; Time Warner; Paul Allen's Vulcan Venturess and the Mashantucket
Pequots. Howard and RNet agree that Howard may present, in writing, additional
investors to RNet for inclusion as Howard's Investors and upon acceptance by
RNet will be subject to a Fee.
In November of 1998, RNet initiated discussions with Howard concerning
their interest in and their willingness, to represent RNet in the Transaction.
Howard has met on several occasions with RNet, and has produced a list of
Howard's Investors for the placement of the Transaction. Howard will act as
RNet's financial advisor during the period to place the equity interest in RNet
with Howard's Investors. In their capacity as financial advisor to RNet, Howard
will assist, as needed in all matters necessary to result in a successful
closing of the Transaction.
For our services, it is agreed that RNet will pay, or cause to be paid,
a cash Fee equal to the 6% (six percent) of the total consideration received by
RNet and to reimburse Howard for its out-of-pocket expenses.
The Fee shall be payable to Howard in cash upon closing of any portion
of the Transaction.
<PAGE> 2
G. HOWARD ASSOCIATES, INC.
Mr. Gary Horowitz
December 7, 1998
page two
The aggregate consideration shall be deemed to be the total amount
received by RNet upon consummation of the Transaction. The aggregate
consideration paid shall be deemed to include those amounts paid in cash, notes,
stock or other evidence of indebtedness, in connection with the Transaction.
Should a portion of the aggregate consideration be in the form of an "earn-out",
Howard agrees that only the initial face value paid in consideration of the
earn-out shall be subject to the Fee. In the event that the consideration is
paid in whole or in part in the form of securities, the value of such
securities, for purposes of calculating our Fee, shall be the face value
thereof.
This authorization may be terminated by the Company or Howard, at any
time with or without cause, upon written advice to that effect to the other
party. Howard shall be entitled to its full compensation that would have been
payable under this Letter Agreement in the event a Transaction between the
Company is consummated prior to the expiration of two years after termination of
this authorization.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the duplicate of this Letter
Agreement enclosed.
Sincerely,
By: /s/ GEORGE H. HENRY
-------------------------------
George H. Henry
G. Howard Associates, Inc.
Agreed to and Accepted:
The Recovery Network
/s/ GARY HOROWITZ Date: 12-14-98
------------------------------- -------------------
By: Gary Horowitz
<PAGE> 3
G. HOWARD ASSOCIATES, INC.
800 Fifth Avenue
New York, NY 10021
Mr. William D. Moses
Chairman
The Recovery Network
1411 5th Street Suite 200
Santa Monica, CA 90401
April 11, 1999
Dear Bill:
We are writing this letter (the "Letter Agreement") to confirm our
understanding that G. Howard Associates, Inc. ("Howard") has been retained by
The Recovery Network ("RNet" or the "Company") to represent the Company, on an
exclusive basis with respect to; a) the sale of the Company's 20% ownership in
RecoveryNet Interactive ("RI Sale"); and b) the settlement with certain
creditors identified by the Company, ("Howard's Creditors"), in connection with
RI Sale and the settling of RNet's obligations to Howard's Creditors ("RNet's
Debts") and; c) assistance, on a best efforts basis, in raising $300,000 of
additional capital. Howard will act as RNet's financial advisor for a period of
two months, in all negotiations leading to the possible settlement of all, or a
portion, of RNet's Debts owed Howard's Creditors by full payment, payment in
part, forgiveness and, or the issuance of capital stock (collectively a
"Transaction").
For purposes of this Letter Agreement, RNet shall be subject to a fee
(the "Fee), payable to Howard in the event of a Transaction with Howard's
Creditors. The current list of Howard's Creditors are listed in the attached
Exhibit A. Howard and RNet agree that Howard may be given additional creditors
by RNet for inclusion as Howard's Creditors.
During April 1999 Howard has been in discussion with a prospective buyer
concerning the purchase of RI Sale which has resulted in an $850,000 cash offer.
The Company has expressed interest in accepting such an offer, contingent on a
satisfactory resolution, with Howard's Creditors. On April 9, 1999, RNet and
Howard have produced a list of Howard's Creditors for the Transaction (see
Exhibit A attached). Howard will act as RNet's financial advisor during the next
two month period to settle RNet's Debts and accept the purchase of RI Sale. In
their capacity as financial advisor to RNet, Howard will assist, as needed in
all matters necessary to result in a successful closing of a Transaction.
For our services, it is agreed that RNet will pay, or cause to be paid,
a Fee of; 1) 900,000 newly issued common shares of RNet common stock; 2) reduce
all warrants held by Howard, and, or George H. Henry, to $.43 per warrant,
("Warrant Reduction") and; 3) will reimburse Howard for its out-of-pocket
expenses.
<PAGE> 4
G. HOWARD ASSOCIATES, INC.
Mr. William D. Moses
April 11, 1999
page two
The Warrant Reduction shall be made upon acceptance of this Letter
Agreement. The Fee shall be paid to Howard in RNet common stock at the closing
of the Transaction. The Company will reimburse Howard for any out-of-pocket cash
expenses.
This authorization may be terminated by the Company or Howard, at any
time with or without cause, upon written advice to that effect to the other
party. Howard shall be entitled to its full compensation that would have been
payable under this Letter Agreement in the event a Transaction between the
Company is consummated prior to the expiration of six months after termination
of this authorization.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the duplicate of this Letter
Agreement enclosed.
Sincerely,
By: /s/ GEORGE H. HENRY
-------------------------------
George H. Henry
G. Howard Associates, Inc.
Agreed to and Accepted:
The Recovery Network
/s/ WILLIAM D. MOSES Date: 4/15/99
------------------------------- -------------------
By: William D. Moses
<PAGE> 5
G. HOWARD ASSOCIATES, INC.
EXHIBIT A
1. American Express
2. Arthur Andersen
3. Bowne
4. Bradshaw Cassettes
5. Business Wire
6. Cahners Business Information
7. Co-op Temporary Services
8. Colonial Pacifid Leasing
9. CS Associates
10. CT & C
11. CyberMotion
12. Dystar Television, Inc.
13. Excelsior
14. Flower Box
15. Galanty & Company, Inc.
16. Geneen Roth & Associates, Inc.
17. Great North International, Inc.
18. Greenberg, Glusker, Fields, Claman & Machtinge
19. Group W Network Services
20. Hall Dickler Kent Friedman & Wood LLP
21. Holme Roberts & Owen, LLP
22. Horizon Consulting Group
23. Horizon Film and Video
24. Kaleidoscope Entertainment, Inc.
25. KCSA
26. Kinkos
27. Levine Thall Plotkin & Menin, LLP
28. MCI-LD
29. Micro System Warehouse
30. Millennium Broadway
31. NASDAQ Stock Market
32. Omni Offices
33. OTOL
34. Parker, Chapin, Flattau, & Klimpl, LLP
35. Planet Pictures
36. Printing Palace
37. R.R. Bowker
38. Rubenstein Associates. Inc.
39. Sahn, Mitchell
40. Santa Monica Video, Inc.
41. Scientific Atlanta
42. Sovereign Ventures
43. Sprint
44. Stapleton Communications, Inc.
45. University of Florida
46. Varied Directions, Inc.
47. VCI Communications, Inc.
48. Wyland Group
49. Zia Film Distribution, LLC
50. Autost Anstalt Schaan
51. Balmore Funds
52. Zakeni Ltd
53. Sargon Fund
54. William Moses Marital Trust II
55. Peter Graf
56. Highborough
57. Stephen Richmond
58. Gerhardt Waldschudt
59. Janice Gold
60. Rob Gordon
<PAGE> 1
EXHIBIT 10.13
[RECOVERY NETWORK LETTERHEAD]
January 7, 1999
Ms. Charlotte Schiff-Jones
Special Advisor, The Recovery Network, Inc.
1627 Brickell Avenue, Suite 601
Miami, FL 33129
Re: ENGAGEMENT PROPOSAL
Dear Charlotte:
We are pleased to confirm by this Letter Agreement (the "Agreement") the terms
and conditions upon which The Recovery Network, Inc. (the "Company") has engaged
you ("Special Advisor") to assist us in the financing generally described as the
"Cable TV Industry Proposal" (the "financing"). The Company agrees to engage you
upon the terms and conditions set forth below.
1. THE SERVICES
Special Advisor shall render the following services (hereinafter, "Services") to
the Company and provide written reports to the Company with respect thereto as
requested by the Company at reasonable benchmarks throughout the term hereof.
a. Special Advisor will use her best efforts to assist and represent the
Company in obtaining both long term financing.
b. Special Advisor agrees to use her best efforts to assist in the
introduction to, and negotiation of the financing with certain potential
investors, subject to the prior approval of the Company. Such investors
("Investors"), shall be those listed on Exhibit A attached hereto, as
accepted by the Company at its sole discretion, and as updated from time to
time, and this Agreement applies only to such Investors.
c. Special Advisor shall render the services described above, with direct
supervision by the Company and at such time and in such manner as
Consultant and the Company may deem appropriate.
2. COMPENSATION, FEES AND EXPENSES
a. Special Advisor shall be paid, as follows:
(i.) In the event that the introduction by Agent to Investors results in a
financing, the Company agrees to pay to Special Advisor an incentive fee
equal to the "Lehman Formula" of any cash or equivalent value received
by the Company as a direct result of
<PAGE> 2
Engagement Proposal
Page 2
such introduction, earned and payable to you at the time and in the
manner set forth in subparagraph (b) below. The incentive fee described
in the preceding sentence shall be payable in cash.
(ii.) The Board of Directors of the Company or a representative selected by
the Board of Directors, reserves the right to negotiate whatever
financing terms it deems are in its best interest and shall be under no
obligation to accept any financing or offers from any Investors.
(iii.) The Lehman Formula shall mean an incentive fee equal to 5% of the first
$1 million of value; 4% of the second $1 million of value; 3% of the
third $1 million of value; 2% of the fourth $1 million of value; and 1%
on all amounts of value in excess of $5 million.
b. Payment of the incentive fee shall be earned only upon receipt by the
Company of some or all of the financing amount from Investors, and accepted
by the Company, and such payment shall be made at the Closing of such
financing. If there are multiple Closings, payment shall be made at each
such Closing in an amount equal to the applicable incentive fee relating to
the value of the financing involved at such Closing.
c. All expenses, approved in advance, incurred by you in connection with
your performance of this agreement shall be immediately payable upon
submission by you of an expense report accompanied by appropriate receipts.
Upon mutual agreement, arrangements will be made to provide you with an
advance on expenses, on the condition, that expense reports will be
promptly submitted by you in the customary format of the Company relating
to such advances.
d. Notwithstanding anything else to the contrary herein, as additional
compensation for your efforts to introduce and participate in negotiations
with the Investors, the Company agrees to issue and deliver to you 50,000
shares of The Recovery Network, Inc. Common Stock, immediately upon your
acceptance of this Agreement.
3. TERM
Either party may terminate this Agreement and the Services provided hereunder.
In the event, that the Company terminates this Agreement and the Services
provided hereunder, and within one (1) year from the date of such termination
the Company effects a financing or sale of the assets or completes a transaction
with Investors introduced to the Company by you, the Company shall pay to you
the incentive fees payable with respect to such financing or sale of assets or
completed transaction, as the case may be, upon the Closing of such financing or
sale, or completed transaction.
4. GENERAL TERMS
This Letter Agreement (i) constitutes the entire agreement between the parties
and may be amended only in writing executed by both parties; (ii) shall be
governed in accordance with the
<PAGE> 3
Engagement Proposal
Page 3
laws of the state of Colorado without giving effect to the principles of
conflicts of laws; and (iii) shall be effective as of the date hereof.
Enclosed are two copies of this Letter Agreement executed by the Company. Please
sign and return one copy to the Company to acknowledge acceptance of its terms,
and retain one copy for yourself. Each copy shall constitute a duplicate
original execution.
Sincerely,
THE RECOVERY NETWORK, INC.
/s/ GARY HOROWITZ
Gary Horowitz
President & CEO
Accepted and Agreed this 25th day of January, 1999.
SPECIAL ADVISOR
/s/ CHARLOTTE SCHIFF-JONES
- -----------------------------------
Charlotte Schiff-Jones
<PAGE> 4
Engagement Proposal
Page 4
EXHIBIT A
INVESTORS
INVESTOR RNET APPROVAL
TIME WARNER, JERRY LEVIN AND AFFILIATES YES
JEFFREY MARCUS, CHARTER CABLE AND AFFILIATES YES
LEONARD TOW, CENTURY CABLE AND AFFILIATES YES
MARC NATHANSON, FALCON CABLE AND AFFILIATES YES
WILLIAM BRESNAN, BRESNAN COMMUNICATIONS AND AFFILIATES YES
OTHER NAMES MAY BE ADDED UPON MUTUAL CONSENT.
INITIALED:
/s/ CSJ
- ------------------------
CHARLOTTE SCHIFF-JONES
/s/ GH
- ------------------------
GARY HOROWITZ
<PAGE> 1
EXHIBIT 10.14
[RECOVERY NETWORK LETTERHEAD]
January 26, 1999
John Wheeler
The Recovery Network, Inc.
1411 Fifth Street, Suite 200
Santa Monica, California 90401
Re: Letter Agreement
Dear John:
We are pleased to confirm by this Letter Agreement (the "Agreement") the terms
and conditions upon which The Recovery Network, Inc. (the "Company") has engaged
agent ("Agent") to assist us in the financing generally described as the "Cable
TV Industry Proposal" (the "Financing"). The Company engages Agent upon the
terms and conditions set forth below.
1. THE SERVICES
Agent shall render the following services (hereinafter, "Services") to the
Company and provide written reports to the Company with respect thereto as
requested by the Company at reasonable benchmarks throughout the term hereof.
a. Agent will use his best efforts to assist and represent the Company in
obtaining long term financing.
b. Agent agrees to use his best efforts to assist in the introduction to,
and negotiation of the financing with certain potential investors
("Investors"). Said Investors are listed on Exhibit A, attached hereto.
This Agreement applies only to these Investors.
c. Agent shall render the services described above, under direct
supervision by the Company and at such time and in such manner as Agent
and the Company may deem appropriate.
2. COMPENSATION, FEES AND EXPENSES
a. Agent shall be paid, as follows:
(i.) A cash fee ("Fee") equal to Four percent (4%) of the total
financing received by the Company.
(ii.) The Board of Directors of the Company or a representative
selected by the Board of Directors, reserves the right to
negotiate whatever financing terms it deems are in its best
interest and shall be under no obligation to accept any
financing or offers from any Investors.
b. Payment of the Fee shall be due only upon receipt by the Company of some
or all of the financing amount from Investors, and accepted by the
Company, and such payment shall be made at the time of closing of such
financing. If there are multiple closings, payment shall be made at each
such closing in an amount equal to the applicable Fee relating to the
value of the financing involved at such closing.
<PAGE> 2
Letter Agreement
Page 2
c. All expenses, approved in advance, incurred by Agent in connection with
your performance of this agreement shall be immediately payable upon
submission by Agent of an expense report accompanied by appropriate
receipts. Upon mutual agreement, arrangements will be made to provide
Agent with an advance on expenses, on the condition, that Agent will
promptly submit expense reports in the customary format of the Company
relating to such advances.
d. Notwithstanding the foregoing, as additional compensation for Agent's
efforts to introduce and participate in negotiations with the Investors,
the Company agrees to issue and deliver to Agent Seventy-five Thousand
(75,000) shares of Company Common Stock, immediately upon acceptance of
this Agreement.
3. TERM
Either party may terminate this Agreement and the Services provided hereunder.
In the event, that the Company terminates this Agreement and the Services
provided hereunder, and within one (1) year from the date of such termination
the Company effects a financing or sale of the assets or completes a transaction
with Investors introduced to the Company by Agent, the Company shall pay to
Agent the incentive fees payable with respect to such financing or sale of
assets or completed transaction, as the case may be, upon the Closing of such
financing or sale, or completed transaction.
4. GENERAL TERMS
This Letter Agreement (i) constitutes the entire agreement between the parties
and may be amended only in writing executed by both parties; (ii) shall be
governed in accordance with the laws of the state of Colorado without giving
effect to the principles of conflicts of laws; and (iii) shall be effective as
of the date hereof.
Enclosed are two copies of this Letter Agreement executed by the Company. Please
sign and return one copy to the Company to acknowledge acceptance of its terms,
and retain one copy for your records. Each copy shall constitute a duplicate
original execution.
Sincerely,
THE RECOVERY NETWORK, INC.
/s/ GARY HOROWITZ
Gary Horowitz
President & CEO
Accepted and Agreed this 29 day of January, 1999.
AGENT
/s/ John Wheeler
- ------------------------------------
John Wheeler
<PAGE> 3
Letter Agreement
Page 3
Exhibit A
<TABLE>
<CAPTION>
Investor(s) RNet Approval
- ----------- -------------
<S> <C>
Cablevision - Dolan Yes
Insight Communications Yes
Sutton/Waller Fund Yes
Adelphia Yes
Steeplechase Yes
Microsoft Yes
Bill Daniels Yes
</TABLE>
*Other names may be added upon mutual consent.
Initialed:
[INITIALS}
- ---------------
John Wheeler
- ---------------
Gary Horowitz
<PAGE> 1
EXHIBIT 10.16
AGREEMENT AND GENERAL RELEASES
This Agreement and General Releases ("Agreement") is made and entered into
as of the 15th day of April, 1999 by and among RECOVERY NETWORK, Inc., a
Colorado corporation ("RTV"), TCI ONLINE RN HOLDINGS, INC. ("TCI"), FHC INTERNET
SERVICES, LC, a Virginia limited liability company ("FHC"), and LIFESCAPE 1 TO
1, LLC, a Delaware limited liability f/k/a RecoveryNet Interactive, LLC ("RI")
with reference to the following facts:
A. RTV, TCI and FHC are parties to (i) that certain Amended and Restated
Operating Agreement of RecoveryNet Interactive, LLC dated as of October 26, 1998
("Operating Agreement") pursuant to which they agreed to be, and are, the
members of RI, and (ii) that certain Adjustment Agreement dated October 26, 1998
("Adjustment Agreement").
B. RTV and RI are parties to that certain Services Agreement dated as of
October 26, 1998 ("Services Agreement").
C. RTV has asserted in a letter dated March 24, 1999 from its legal
counsel, that it has various claims against TCI and FHC (collectively "RTV's
Claims"). TCI and FHC deny that RTV's Claims have any merit.
D. Despite good faith efforts, TCI and FHC, on the one hand, and RTV, on
the other hand, are unable to resolve certain differences concerning the
operation and management of RI.
E. Solely to avoid time consuming and expensive litigation and to resolve
the current differences concerning the operation and management of RI, the
parties to this Agreement have agreed, as set forth below, that in exchange for
a cash payment, the transfer of RI's interest in a certain website, and the
release of any and all claims any of TCI, FHC and RI, asserts it has against
RTV, RTV will transfer its interest in RI to TCI, FHC, RTV will release any and
all claims RTV asserts it has against TCI, FHC and RI, and the parties hereto
will terminate certain agreements to which RTV is a party.
F. RTV and RI or TCI may be parties to other agreements not named in
these recitals. The parties intend by this Agreement to terminate only the
Services Agreement and the Adjustment Agreement, and to acknowledge the fact
that RTV will have no rights related to RI or RI's business upon the
consummation of the transactions described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party, the parties hereto agree as follows:
1. Conveyance of Interest by RTV.
RTV hereby conveys its membership interest in RI and all of its rights,
titles and
<PAGE> 2
interests, of all types, in and to RI and RI's assets (collectively, the
"Interest") to TCI and to FHC in equal shares. The Interest is the same twenty
percent interest originally acquired by RTV under the Operating Agreement. From
and after the date hereof, RTV shall have no rights of any kind related to RI or
RI's business, subject to the performance by TCI and FHC of their obligations
under this Agreement. To the extent that this conveyance, or the procedure for
accomplishing this conveyance, is different from, inconsistent with, or contrary
to, any provision of the Operating Agreement, the parties agree that the
provisions of this Agreement supersede the Operating Agreement.
2. Termination of Agreements; Return of RTV Website to RTV.
2.1 The parties agree that the Adjustment Agreement and the Services
Agreement are hereby terminated, and shall have no further force or effect.
2.2 RI hereby conveys to RTV, without warranty except as otherwise set
forth in this Agreement, all of RI's right, title and interest in and to the
Internet website known as "www.recoverynetwork.com", and in and to the Uniform
Resource Locators "www.recoverynetwork.com" and "www.recoverynet.com." Each
party shall have the unrestricted right to engage in any business and to compete
against the other. RTV acknowledges and agrees that RI will continue to use the
URL "recovery1to1", and RTV agrees to remove all references to RTV from the
"recovery1to1" website as quickly as reasonably possible following the execution
of this Agreement.
3. Payment.
Within ten (10) business days following the execution and delivery of this
Agreement by all parties, TCI and FHC shall pay to RTV an aggregate sum of Eight
Hundred Fifty Thousand Dollars ($850,000.00) by federal funds wire transfer to
the account which RTV designates to TCI and FHC in writing upon execution of
this Agreement. Such payment is, together with the provisions of Article 2 and
the release set forth in Article 6 of this Agreement, the entire consideration
due to RTV under this Agreement or otherwise. The parties acknowledge and agree
that said sum is fair and adequate consideration for the settlement of the
disputes between them and for all of the transactions described in this
Agreement.
4. Representations and Warranties of RTV.
4.1 RTV hereby makes the representations and warranties set forth in
Sections 4.2 through 4.5 below to each of the other parties to this Agreement.
The complete truth of all of such representations and warranties are conditions
to the obligation of the other parties to perform their obligations under this
Agreement, as well as covenants of RTV. All of such representations and
warranties shall survive the consummation of the transactions contemplated by
this Agreement.
2
<PAGE> 3
4.2 RTV has the full right, power and authority to enter into, and perform
its obligations under, this Agreement without the consent of, or payment of any
money or other consideration to, any person or entity. This Agreement has been
duly executed and delivered by RTV, and constitutes a legal, valid and binding
obligation on RTV. There is no legal basis known to RTV for any person to
object to the terms of this Agreement, and this Agreement is enforceable
against RTV in accordance with its terms, except as enforceability may be
limited or affected by applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the rights of
creditors. The execution, delivery and performance of this Agreement by RTV and
the consummation of the transactions contemplated hereby: (i) do not and will
not conflict with, or result in a breach, default, violation or loss of any
benefit under any agreement, mortgage, lease, license or other instrument or
obligation of RTV; (ii) do not require the consent or permission of any person
or governmental agency; and (iii) will not violate any law, rule or regulation
of any agency or governmental body to which RTV is subject. No registration,
declaration or filing with any governmental or administrative authority is
required on the part of RTV or any officer, director or shareholder of RTV
in connection with the execution, delivery and performance of this Agreement.
RTV has received independent legal advice from attorneys of its own choice with
respect to the advisability of entering into this Agreement. Prior to the
execution of this Agreement, RTV's attorneys reviewed this Agreement at length
and made all desired changes. TCI, FHC and RI and their attorneys have made
various statements and representations to the other parties and their attorneys
during negotiations leading to this Agreement. Nevertheless, RTV specifically
does not rely upon any statement, representation, legal opinion, or promise of
any other party or its counsel in executing this Agreement or in making the
settlement provided for herein, except as expressly stated in this Agreement.
RTV, together with its attorneys, has made such investigation of the facts and
the law pertaining to this settlement and this Agreement, and of all the matters
pertaining thereto, as it deems necessary. RTV forever waives all rights to
assert that this Agreement was the result of a mistake in law or in fact. RTV
is the sole and lawful owner of all right, title and interest in and to every
claim and other matter which it releases through this Agreement, and that it has
not assigned or transferred, or purported to assign or transfer to any person
or entity any claims or other matters released through this Agreement. RTV has
not filed against TCI, FHC and/or RI any complaints, charges, demands, causes
of action, or other claims in any jurisdiction or before any dispute resolution
entity.
4.3 RTV is the sole owner, beneficially and of record, of the entire
Interest. RTV has not entered into any agreement with any person regarding the
sale, transfer or other disposition of all or any part of the Interest.
4.4 Upon the execution of this Agreement, FHC and TCI will collectively
hold good and valid title to the entire Interest free and clear of all liens,
claims, charges or other encumbrances of any nature whatsoever.
3
<PAGE> 4
5. Representations and Warranties of TCI, FHC and RI.
5.1 TCI, FHC and RI hereby represent and warrant to RTV as set forth in
Section 5.2 below. The complete truth of all of such representations and
warranties are conditions to the obligations of RTV to perform its obligations
under this Agreement as well as covenants of FHC, TCI and RI. All of such
representations and warranties shall survive the consummation of the
transactions contemplated by this Agreement. Each of TCI, FHC, and RI is making
the representations solely as to itself and shall not be responsible for the
truth or untruth of any representation made by the others.
5.2 TCI, FHC and RI each has the full right, power and authority to enter
into, and perform its obligations under, this Agreement without the consent of,
or payment of any money or other consideration to, any person or entity. This
Agreement has been duly executed and delivered by RI, TCI and FHC, and
constitutes a legal, valid and binding obligation on each of TCI, FHC and RI.
There is no legal basis known to TCI, FHC or RI for any person to object to the
terms of this Agreement, and this Agreement is enforceable against each of them
in accordance with its terms, except as enforceability may be limited or
affected by applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the rights of creditors. The
execution, delivery and performance of this Agreement by TCI, FHC and RI, and
the consummation of the transactions contemplated hereby: (i) do not and will
not conflict with, or result in a breach, default, violation or loss of any
benefit under any agreement, mortgage, lease, license or other instrument or
obligation of TCI, FHC or RI; (ii) do not require the consent or permission of
any person or governmental agency; and (iii) will not violate any law, rule or
regulation of any agency or governmental body to which TCI, FHC or RI is
subject. No registration, declaration or filing with any governmental or
administrative authority is required on the part of RI, FHC or TCI in
connection with the execution, delivery and performance of this Agreement. TCI,
FHC and RI have received independent legal advice from attorneys of its own
choice with respect to the advisability of entering into this Agreement. Prior
to the execution of this Agreement, the attorneys for TCI, FHC and RI,
respectively, have reviewed this Agreement at length and made all desired
changes. RTV and its attorneys have made various statements and representations
to the other parties and their attorneys during negotiations leading to this
Agreement. Nevertheless, TCI, FHC and RI specifically do not rely upon any
statement, representation, legal opinion, or promise of any other party or its
counsel in executing this Agreement or in making the settlement provided for
herein, except as expressly stated in this Agreement. TCI, FHC and RI, together
with their attorneys, have made such investigation of the facts and the law
pertaining to this settlement and this Agreement, and of all the matters
pertaining thereto, as it deems necessary. TCI, FHC and RI forever waive all
rights to assert that this Agreement was the result of a mistake in law or in
fact. TCI, FHC and RI are the sole and lawful owners of all right, title and
interest in and to every claim and other matter which each is releasing through
this Agreement, and that they have not assigned or transferred, or purported to
assign or transfer to any person or entity any claims or other matters released
through this Agreement. TCI, FHC and RI have not filed
4
<PAGE> 5
against RTV any complaints, charges, demands, causes of action, or other claims
in any jurisdiction or before any dispute resolution entity.
5.3 Although TCI, FHC and RI agree that the consideration being given
to RI under this Agreement is fair and adequate consideration for the settlement
of the disputes between them and for all of the transactions described in this
Agreement (which transactions include, but are not limited to, the conveyance of
the Interest as described herein); however, TCI, FHC and RI make no
representations to RTV concerning the value of the Interest. No sale of any
interest in RI to any third party following the date of this Agreement,
regardless of the sum paid by such third party for its interest, shall affect
the parties' agreement that the sum being paid to RTV under this Agreement is
fair and adequate consideration for the transactions described in this
Agreement.
5.4 RI makes no representation or warranty regarding the
recoverynetwork.com website (there being no website for recoverynet.com; such
Uniform Resource Locator being only a link to the recoverynetwork.com website)
except that RI made no changes to, and did not transfer to any person any
interest in, the recoverynetwork.com website following the date that RTV
originally conveyed said website to RI, other than changes made with the
knowledge and consent of RTV.
6. Released by RTV.
Subject to the performance by RI, TCI and FHC of their obligations under
this Agreement, RTV, for itself and on behalf of its respective present and
former officers, directors, shareholders, employees, agents, attorneys,
representatives, successors, and assigns, hereby releases, waives and discharges
each of RI, TCI and FHC, and each of their respective parents, subsidiaries, or
otherwise affiliated corporations, partnerships or business enterprises, and
each of their respective present and former officers, directors, shareholders,
employees, agents, attorneys, representatives, successors, and assigns, from any
and all causes of action, claims, charges, demands, losses, damages,
compensation, costs, agreements, attorneys' fees and liabilities of any kind
that it or they may have or claim to have, whether known or unknown, suspected
or unsuspected, in any way relating to or arising out of any act or omission
from the beginning of time through the date of the execution of this Agreement
arising out of or concerning RI or RTV's involvement with RI, including, without
limitation, RTV's Claims.
7. Releases by RI, TCI and FHC.
Subject to the performance by RTV of its obligations under this Agreement,
each of RI, TCI and FHC, for itself and on behalf of its officers, directors,
shareholders, employees, agents, successors, and assigns, hereby releases,
waives and discharges RTV and its parents, subsidiaries, or otherwise affiliated
corporations, partnerships or business enterprises, and each of its respective
present and former officers, directors, shareholders, employees, agents,
attorneys, representatives, successors and assigns, from any and all causes of
action, claims, charges, demands, losses, damages, compensation, costs,
agreements, attorneys' fees and
5
<PAGE> 6
liabilities of any kind that it or they may have or claim to have, whether known
or unknown, suspected or unsuspected, in any way relating to or arising out of
any act or omission from the beginning of time through the date of the execution
of this Agreement arising out of or concerning RI or RTV's involvement with RI.
Notwithstanding the generality of the previous sentence, the release set forth
in this Article 7 is not intended to release, and does not release, any cause of
action, claim, charge, demand, loss, damage, compensation, costs, agreements,
defenses, counterclaims, setoffs, attorneys' fees and liabilities against any
person, who was, is, or hereafter may be, employed in any manner by RI who at
any time may have been an employee, agent or representative of RTV who asserts a
claim against RI, TCI, FHC or any of their respective affiliates.
8. Waiver of "Section 1542"-type statutes.
Notwithstanding the fact that this Agreement is governed by Colorado law,
and not California law, the parties wish to emphasize their intent with respect
to unknown causes of action as follows: It is the intention of each party in
executing this Agreement that this Agreement shall be effective as a bar to each
and every claim, demand or cause of action described above to be so barred. In
furtherance of this intention, each party hereby expressly waives any and all
rights and benefits which might be conferred upon it by the provisions of
Section 1542 of the California Civil Code (if such law were applicable to this
Agreement), and any similar law in any state which might be found to be
applicable to this Agreement, notwithstanding the express choice of Colorado law
by the parties. Section 1542 of the California Civil Code provides:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known to him must have materially
affected his settlement with the debtor."
Each party providing a release under this Agreement hereby acknowledges the
foregoing waivers of the provisions of Section 1542 of the California Civil
Code, and similar provisions in the law of any state which might be found
applicable to this Agreement notwithstanding the express choice of Colorado law
by the parties, was separately bargained for.
9. Miscellaneous.
9.1 This Agreement sets forth the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, discussions, understandings, negotiations and
commitments of any kind between the parties. This Agreement may not be amended
or supplemented, nor may any rights hereunder be waived, except in a writing
signed by all of the parties hereto.
9.2 The section and paragraph headings in this Agreement are included for
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<PAGE> 7
convenience only, are not a part of this Agreement and shall not be used in
construing it.
9.3 The parties intend that the provisions of this Agreement not be
severable.
9.4 The validity, interpretation, enforceability, and performance of this
Agreement shall be governed by and construed in accordance with the law of the
State of Colorado without regard to Colorado's conflicts of law principles. The
parties agree that any and all claims concerning this Agreement must be brought
in, and the parties agree to submit to the jurisdiction of the United States
Federal District Court for the District of Colorado, unless that court cannot
exercise jurisdiction over such claim or claims, in which case the parties agree
that such claims must be brought in, and the parties agree to submit to the
jurisdiction of, the District Court for the City and County of Denver, Colorado.
The terms of this Agreement shall not be construed against any party by reason
of that party's having drafted, or having contributed language to the drafting
of, this Agreement.
9.5 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.6 Each party will execute such other and further documents reasonably
requested by the other parties to carry out the purposes of this Agreement.
9.7 This Agreement effectuates the settlement of claims which are
contested. Nothing in this Agreement shall constitute or be construed as an
admission of liability or wrongdoing by any party.
9.8 The parties agree to keep confidential all of the terms of this
Agreement (other than the fact that RTV is no longer a member of RI and conveyed
its Interest to the other members), and shall not disclose the terms of this
Agreement to any person other than their
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<PAGE> 8
respective legal and financial advisors, and except for disclosure of the
minimum information required under federal and state securities laws applicable
to RTV.
9.9 The parties shall, on the next business day following the execution
of this Agreement by all parties, release the press release attached hereto as
Exhibit "A".
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TCI ONLINE RN HOLDINGS, INC. RECOVERY NETWORK, INC.
By: By:
--------------------------- -------------------------
Name: Name:
Title: Title:
FHC INTERNET SERVICES. L.C. LIFESCAPE 1 TO 1, LLC
By: By:
--------------------------- -------------------------
Name: Name:
Title: Title:
8
<PAGE> 9
EXHIBIT "A"
Text of Press Release
9
<PAGE> 1
EXHIBIT 10.17
SETTLEMENT AGREEMENT AND GENERAL RELEASE
In consideration of (i) the sum of $25,000.00 full and complete receipt
of which is hereby acknowledged, and (ii) the execution and delivery by
Recovery Network, Inc. of a Warrant Agreement in the form attached hereto as
Exhibit "A", the receipt of which is hereby acknowledged, MICHAEL LENNON
("Releasor") hereby releases and discharges RECOVERYNET INTERACTIVE, LLC
("RNI") and RNI's members, directors, officers, employees, attorneys,
designees, successors and assigns (collectively, "Releasees") from any and all
claims, demands and causes of action of whatever kind or nature, whether known
or unknown, or suspected or unsuspected by Releasor which Releasor ever had,
now has, or hereafter may have, against Releases arising out of or connected
with that certain Shadow Equity Agreement dated May 14, 1998 between Releasor
and RNI ("Shadow Equity Agreement").
It is the intention of Releasor in executing this Release, that this
Release shall be effective as a bar to each and every claim, demand or cause of
action described above to be so barred. In furtherance of this intention,
Releasor hereby expressly waives any and all rights and benefits conferred upon
her by the provisions of Section 1542 of the California Civil Code, which are as
follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known
to him must have materially affected his settlement with
the debtor."
Releasor hereby acknowledges the foregoing waiver of the provisions of Section
1542 of the California Civil Code was separately bargained for.
Nothing herein is intended to, nor shall it be deemed to, cancel or change
in any way any party's obligations under (i) that certain Settlement Agreement
and Release dated May 14, 1998 between Releasor and RNI ("First 1998 Settlement
Agreement") other than those relating to the Shadow Equity Agreement, or (ii)
that certain Non-Qualified Stock Option Agreement dated March 21, 1996 between
Releasor and Recovery Network, Inc. The Shadow Equity Agreement is, by virtue
of this Settlement Agreement and Release, terminated and of no force or effect,
ab initio. Releasor acknowledges and agrees that all sums due to Releasor under
the First Settlement Agreement to the date of this Release have been paid in
full.
This Release may be executed in two or more counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument. This Release shall be binding upon and inure to the benefit of
Releasor, Releasees, and their respective heirs, representatives, successors
and assigns. This Release shall be governed by the law of the State of
California without regard to California's conflicts of law principles.
This Release shall be effective immediately upon the receipt by Releasor
of the payment set forth at the beginning of this Release.
IN WITNESS WHEREOF, Releasor has executed this General Release this ____
day of February, 1999.
-----------------------------
Name: Michael Lennon
<PAGE> 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAW.
THE RECOVERY NETWORK, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance. For good and valuable consideration, the receipt of which
is hereby acknowledged by the RECOVERY NETWORK, INC., a Colorado corporation
(the "Company"), MICHAEL LENNON ("Lennon") is hereby granted the right to
purchase at any time commencing two (2) days following the date hereof and
until 5:00 P.M., New York City time, on May 15, 2003 (the "Expiration Date"),
Thirty Five Thousand (35,000) duly issued, fully-paid and nonassessable shares
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
free of all taxes, liens and other encumbrances (other than whatever
encumbrances encumber the publicly traded shares of Common Stock, if any), and
without issuance tax. The exercise price for such shares shall be $2.125
("Exercise Price"). The shares of the Company's Common Stock which are the
subject of this Warrant are hereinafter referred to as "the Shares". The
Company shall register the Shares (at the Company's cost) and shall use its
best efforts to register the Shares within ninety (90) days following the
issuance of this Warrant. Upon such registration, the Shares shall be
publicly-tradeable by the holder of this Warrant on the exchange where the
Common Stock of the Company is normally traded. Lennon shall be deemed a record
holder of the Shares as to which he exercises his right hereunder as of the
date he exercises such rights and pays for the Shares.
2. Exercise of Warrant. This Warrant is exercisable, in a maximum of
three exercises only, as to any or all of the Shares at the Exercise Price per
Share payable hereunder, payable only in cash or by certified or official bank
check or such other form of payment as may be acceptable to the Company, in its
sole discretion. Upon surrender of this Warrant Certificate with the annexed
Notice of Exercise Form duly executed, together with payment of the Exercise
Price for the Shares of Common Stock purchased, Lennon shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased.
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3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant. The Company shall use its
best efforts and all due diligence to increase the number of shares of Common
Stock so reserved to cure any deficiencies, and, if necessary, to obtain
approval of its stockholders therefor, including authorization of such
additional number of shares of Common Stock as may be required in excess of the
number so reserved.
4. Mutilation or Loss of Warrant. Upon receipt by the Company of a
sworn affidavit of Lennon of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender
and cancellation of this Warrant the Company, at the Company's expense, will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.
5. Rights of Lennon. Lennon shall not, by virtue hereof, be entitled to
any rights of a stockholder in the Company, either at law or equity, and the
rights of Lennon are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
6. Adjustments of Exercise Price and Number of Shares.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, Lennon shall be entitled to purchase such
number of shares of Common Stock as will cause (i) the total number of shares
of Common Stock Lennon is entitled to purchase pursuant to this Warrant (after
such adjustment) multiplied by the adjusted Exercise Price to equal (ii) the
total number of shares of Common Stock Lennon was entitled to purchase before
such adjustment multiplied by the Exercise Price before the adjustment.
6.2 Capital Adjustments. In case of any stock split or combination,
stock dividend, reclassification of the Common Stock, recapitalization, or like
capital adjustment affecting the Common Stock of the Company, the Exercise
Price shall be proportionately adjusted in a fair, equitable and reasonable
manner so as to give effect, as nearly as reasonably practicable to the
purposes hereof.
6.3 Merger, Sale of Assets, Etc. If at any time while this Warrant,
or any portion hereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a stock split or combination, stock dividend,
reclassification, or like capital adjustment of shares otherwise provided for
herein), (ii) a merger or consolidation of the Company with or into another
corporation or other entity including a merger or consolidation in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are
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<PAGE> 4
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, or (iii) a sale or transfer of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then as a part of such reorganization, merger, consolidation, sale or transfer
lawful provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and payment of the Exercise Price then in effect, the
number of shares of stock or other securities or property resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 6. The foregoing provisions of this Section 6 shall similarly
apply to successive reorganization, consolidations, mergers, sales and transfers
and to the stock or securities of any other corporation or other entity that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable for shares in connection with any such transactions is in
a form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors. In all events, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of Lennon
after the transaction, to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably practicable, in relation to
any shares or other property deliverable after that event upon exercise of this
Warrant.
6.4 Merger with End of Company's Existence. In case of any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another entity (including any exchange effectuated
in connection with a merger of any other corporation with the Company other than
a merger in which the Company is the continuing corporation) Lennon shall have
the right thereafter to exercise such Warrant for the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had this Warrant been exercised immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section 6 with
respect to the rights and interests thereafter of Lennon to the end that the
provisions set forth in this Section 6 shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
or other securities or property thereafter deliverable on the exercise of this
Warrant. The above provisions of this Subsection 6.4 shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances of
property as an entirety or substantially as an entirety. Notice or any
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<PAGE> 5
such consolidation, merger, statutory exchange, sale or conveyance, and of said
provisions so proposed to be made, shall be mailed to Lennon not less than 20
days prior to such event. A sale of all or substantially all of the assets of
the Company for a consideration consisting primarily of securities shall be
deemed a consolidation or merger for the foregoing purposes.
6.5 DeMinimus Adjustment. No adjustment in the Exercise Price shall
be required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock, provided, however, that any adjustments
which by reason of this Subsection 6.5 are not required to be made shall be
carried forward and taken into account in any subsequent adjustments and
provided further, however, that adjustments shall be required and made in
accordance with the provisions of this Section 6 (other than this Subsection
6.5) not later than such time as may be required in order to preserve the
tax-free nature of a distribution to Lennon of Common Stock. All calculations
under this Section 6 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be. Anything in this Section 6 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
per share Exercise Price, in addition to those required by this Section 6, as it
in its discretion shall deem to be advisable in order that any stock dividend,
subdivision of shares or distribution of rights to purchase stock or securities
convertible or exchangeable for stock hereafter made by the Company to its
shareholders shall not be taxable.
6.6 Notice. Whenever the Exercise Price is adjusted as provided in
this Section 6 and upon any modification of the rights of Lennon in accordance
with this Section 6, the Company shall, at its own expense, within ten (10) days
of such adjustment or modification, deliver to the holder of this Warrant a
certificate of the Principal Financial Officer of the Company setting forth the
unaudited Exercise Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same. If the
Board of Directors of the Company shall declare any dividend or other
distribution in cash with respect to the Common Stock, other than out of earned
surplus, the Company shall mail notice thereof of Lennon not less than 10 days
prior to the record date fixed for determining shareholders entitled to
participate in such dividend or other distribution.
6.7 Payment Deferment. In the event of the exercise of all or part
of this Warrant after the record date for any event described in Subsection 6.2
or 6.3 but prior to the effective date therefor, the Company may defer until the
effective or payment date issuing (and, in case of any stock combination or
reclassification that would result in Lennon being entitled to fewer shares of
Common Stock, the Company need not issue) to Lennon any shares or property in
addition to (or in excess of) that which Lennon would be entitled to own prior
to such payment or effective date had Lennon exercised this Warrant (or portion
thereof exercised) immediately prior to such record date.
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<PAGE> 6
6.8 Form of Consideration. If the consideration received or to be
received by the Company with respect to any Common Stock, rights, options,
warrants or securities convertible into Common Stock (including any future
consideration which may be received): (i) is cash, the amount thereof shall be
the amount of cash to be received and/or (ii) is a consideration other than
cash, the amount of such other consideration shall be deemed to be the fair
market value of such consideration as determined by the Board of Directors of
the Company, in the case of (i) and/or (ii) without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or concessions paid
or allowed by the Company.
7. Transfer to Comply with the Securities Act. This Warrant has not been
registered under the Securities Act and has been issued to Lennon for investment
purposes and not with a view to the distribution of either the Warrant or the
Shares. Neither this Warrant nor any of the Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the
Securities Act relating to such security or an opinion of counsel reasonably
satisfactory to the Company that registration is not required under the
Securities Act. Each certificate for the Warrant, the Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a legend
on the fact thereof, in form and substance satisfactory to counsel for the
Company, setting forth the restrictions on transfer contained in this Section.
8. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon confirmed delivery by a standard
overnight carrier or when delivered by hand, addressed at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Company, to:
The Recovery Network, Inc.
1411 5th Street, Suite 200
Santa Monica, California 90401
Attention: Mr. William D. Moses
With a copy to:
Richard Posell, Esq.
Greenberg, Glusker, Fields, Claman & Machtinger, LLP
1900 Avenue of the Stars
Los Angeles, California 90067
(b) if to Lennon, to:
Michael Lennon
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<PAGE> 7
13940 Esworthy Road
Darnestown, Maryland 20874
with a copy to:
Floria Lasky, Esq.
Fitelson, Lasky & Aslin
551 Fifth Avenue, Suite 614
New York, New York 10176
7. Supplements and Amendments: Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the Company
and Lennon. This Warrant contains the full understanding of the parties hereto
with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understanding of the parties hereto
with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
8. Governing Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of Colorado without regard to
principles of conflicts or choice of law (or any other law that would make any
substantive laws of any state other than the State of Colorado applicable
hereto).
9. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, THE RECOVERY NETWORK, INC. has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary as of the ____ day of January, 1999.
THE RECOVERY NETWORK, INC.
By: /s/ GARY HOROWITZ
----------------------------
Name: Gary Horowitz
Title: President & Chief Executive Officer
Attest: /s/ [SIGNATURE]
-------------------------
6
<PAGE> 1
EXHIBIT 10.18
SETTLEMENT AGREEMENT AND GENERAL RELEASE
In consideration of (i) the sum of One Hundred Thousand Dollars
($100,000.00), full and complete receipt of which is hereby acknowledged, (ii)
the issuance of Twenty Five Thousand (25,000) fully paid and non assessable
shares of the common stock of Recovery Network, Inc. (without cost to
Releasor), full and complete receipt of which is hereby acknowledged, and (iii)
the execution and delivery by Recovery Network, Inc. of a Warrant Agreement in
the form attached hereto as Exhibit "A", the receipt of which is hereby
acknowledged, GEORGE HENRY ("Releasor") hereby releases and discharges
RECOVERYNET INTERACTIVE, LLC ("RNI") and RNI's members, directors, officers,
employees, attorneys, designees, successors and assigns (collectively,
"Releasees") from any and all claims, demands and causes of action of whatever
kind or nature, whether known or unknown, or suspected or unsuspected by
Releasor which Releasor ever had, now has, or hereafter may have, against
Releasees arising out of or connected with that certain Shadow Equity Agreement
dated November __, 1997 between Releasor and RNI ("Shadow Equity Agreement").
Releasor acknowledges that the shares which are referred to in clause (ii)
above, and the shares which are described in the Warrant Agreement referred to
in clause (iii) above, are not now registered, cannot be traded until they are
registered, and that Company shall use its best efforts to register all such
shares (at Company's cost) within ninety (90) days following the date of this
Release. Upon registration, such shares will be publicly-tradeable on the
exchange where the shares of Recovery Network, Inc. are normally traded.
It is the intention of Releasor in executing this Release, that this
Release shall be effective as a bar to each and every claim, demand or cause of
action described above to be so barred. In furtherance of this intention,
Releasor hereby expressly waives any and all rights and benefits conferred upon
her by the provisions of Section 1542 of the California Civil Code, which are
as follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known to him must have
materially affected his settlement with the debtor."
Releasor hereby acknowledges the foregoing waiver of the provisions of Section
1542 of the California Civil Code was separately bargained for.
This Release may be executed in two or more counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument. This Release shall be binding upon and inure to the benefit of
Releasor, Releasees, and their respective heirs, representatives, successors and
assigns. This Release shall be governed by the law of the State of California
without regard to California's conflicts of law principles.
This Release shall be effective immediately upon the receipt by Releasor
of the payment set forth at the beginning of this Release.
IN WITNESS WHEREOF, Releasor has executed this General Release this 26th
day of October, 1998.
/s/ GEORGE HENRY
---------------------------
Name: George Henry
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<PAGE> 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLE, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAW.
THE RECOVERY NETWORK, INC.
COMMON STOCK PURCHASE WARRANT
TRNW-1001
1. Issuance. For good and valuable consideration, the receipt of which
is hereby acknowledge by THE RECOVERY NETWORK, INC., a Colorado corporation (the
"Company"), GEORGE HENRY ("Henry") is hereby granted the right to purchase at
any time commencing two (2) days following the date hereof and until 5:00 P.M.,
New York City time, on May 15, 2003 (the "Expiration Date"), One Hundred
Thousand (100,000) fully-paid and nonassessable shares of the Company's publicly
tradable Common Stock, par value $.01 per share (the "Common Stock"). The
exercise price for such shares shall be $2.125 ("Exercise Price"). The shares of
the Company's Common Stock which are the subject of this Warrant are hereinafter
referred to as "the Shares". The Company shall register the Shares (at the
Company's cost) and shall use its best efforts to register the Shares within
ninety (90) days following the issuance of this Warrant. Upon such registration,
the Shares shall be publicly-tradeable by the holder of this Warrant on the
exchange where the Common Stock of the Company is normally traded.
2. Exercise of Warrant. This Warrant is exercisable, in a maximum of
three exercises only, as to any or all of the Shares at the Exercise Price per
Share payable hereunder, payable only in cash or by certified or official bank
check or such other form of payment as may be acceptable to the Company, in its
sole discretion. Upon surrender of this Warrant Certificate with the annexed
Notice of Exercise Form duly executed, together with payment of the Exercise
Price for the Shares of Common Stock purchased, Henry shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant. The Company shall use its
best efforts and all
1
<PAGE> 3
due diligence to increase the number of shares of Common Stock so reserved to
cure any deficiencies, and, if necessary, to obtain approval of its stockholders
therefor, including authorization of such additional number of shares of Common
Stock as may be required in excess of the number so reserved.
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of Henry. Henry shall not, by virtue hereof, be entitled to
any rights of a stockholder in the Company, either at law or equity, and the
rights of Henry are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
6. Adjustments of Exercise Price and Number of Shares.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, Henry shall be entitled to
purchase such number of shares of Common Stock as will cause (i) the total
number of shares of Common Stock Henry is entitled to purchase pursuant to this
Warrant (after such adjustment) multiplied by the adjusted Exercise Price to
equal (ii) the total number of shares of Common Stock Henry was entitled to
purchase before such adjustment multiplied by the Exercise Price before the
adjustment.
6.2 Capital Adjustments. In case of any stock split or
combination, stock dividend, reclassification of the Common Stock,
recapitalization, or like capital adjustment affecting the Common Stock of the
Company, the Exercise Price shall be proportionately adjusted in a fair,
equitable and reasonable manner so as to give effect, as nearly as reasonably
practicable to the purposes hereof.
6.3 Merger, Sale of Assets, Etc. If at any time while this
Warrant, or any portion hereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a stock split or combination, stock dividend,
reclassification, or like capital adjustment of shares otherwise provided for
herein), (ii) a merger or consolidation of the Company with or into another
corporation or other entity including a merger or consolidation in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then as a part of such
reorganization, merger, consolidation, sale or transfer lawful provision shall
be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of
2
<PAGE> 4
this Warrant, during the period specified herein and payment of the Exercise
Price then in effect, the number of shares of stock or other securities or
property resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon exercise of this Warrant
would have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 6. The foregoing provisions of
this Section 6 shall similarly apply to successive reorganization,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation or other entity that are at the time receivable upon the
exercise of this Warrant. If the per-share consideration payable for shares in
connection with any such transactions is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Company's Board of Directors. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant with respect to the rights
and interests of Henry after the transaction, to the end that the provisions of
this Warrant shall be applicable after that event, as near as reasonably
practicable, in relation to any shares or other property deliverable after that
event upon exercise of this Warrant.
6.4 Merger with End of Company's Existence. In case of any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another entity (including any exchange effectuated
in connection with a merger of any other corporation with the Company other than
a merger in which the Company is the continuing corporation) Henry shall have
the right thereafter to exercise such Warrant for the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had this Warrant been exercised immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section 6 with
respect to the rights and interests thereafter of Henry to the end that the
provisions set forth in this Section 6 shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
or other securities or property thereafter deliverable on the exercise of this
Warrant. The above provisions of this Subsection 6.4 shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances of
property as an entirety or substantially as an entirety. Notice or any such
consolidation, merger, statutory exchange, sale or conveyance, and of said
provisions so proposed to be made, shall be mailed to Henry not less than 20
days prior to such event. A sale of all or substantially all of the assets of
the Company for a consideration consisting primarily of securities shall be
deemed a consolidation or merger for the foregoing purposes.
3
<PAGE> 5
6.5 DeMinimus Adjustment. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease
of at least $0.05 per share of Common Stock, provided, however, that any
adjustments which by reason of this Subsection 6.5 are not required to be made
shall be carried forward and taken into account in any subsequent adjustments
and provided further, however, that adjustments shall be required and made in
accordance with the provisions of this Section 6 (other than this Subsection
6.5) not later than such time as may be required in order to preserve the
tax-free nature of a distribution to Henry of Common Stock. All calculations
under this Section 6 shall be made to the nearest cent or the nearest 1/100th
of a share, as the case may be. Anything in this Section 6 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
per share Exercise Price, in addition to those required by this Section 6, as it
in its distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its shareholders shall
not be taxable.
6.6 Notice. Whenever the Exercise Price is adjusted as provided
in this Section 6 and upon any modification of the rights of Henry in accordance
with this Section 6, the Company shall, at its own expense, within ten (10) days
of such adjustment or modification, deliver to the holder of this Warrant a
certificate of the Principal Financial Officer of the Company setting forth the
unaudited Exercise Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same. If the
Board of Directors of the Company shall declare any dividend or other
distribution in cash with respect to the Common Stock, other than out of earned
surplus, the Company shall mail notice thereof of Henry not less than 10 days
prior to the record date fixed for determining shareholders entitled to
participate in such dividend or other distribution.
6.7 Payment Deferment. In the event of the exercise of all or
part of this Warrant after the record date for any event described in
Subsection 6.2 or 6.3 but prior to the effective date therefor, the Company may
defer until the effective or payment date issuing (and, in case of any stock
combination or reclassification that would result in Henry being entitled to
fewer shares of Common Stock, the Company need not issue) to Henry any shares or
property in addition to (or in excess of) that which Henry would be entitled to
own prior to such payment or effective date had Henry exercised this Warrant (or
portion thereof exercised) immediately prior to such record date.
6.8 Form of Consideration. If the consideration received or to
be received by the Company with respect to any Common Stock, rights, options,
warrants or securities convertible into Common Stock (including any future
consideration which may be received): (i) is cash, the amount thereof shall be
the amount of cash to be received and/or (ii) is a consideration other than
cash, the amount of such other consideration shall be deemed to be the fair
market value of such
4
<PAGE> 6
consideration as determined by the Board of Directors of the Company, in the
case of (i) and/or (ii) without deduction therefrom of any expenses incurred or
any underwriting commissions, discounts or concessions paid or allowed by the
Company.
7. Transfer to Comply with the Securities Act. This Warrant has not
been registered under the Securities Act and has been issued to Henry for
vestment purposes and not with a view to the distribution of either the Warrant
or the Shares. Neither this Warrant nor any of the Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Securities Act relating to such security or an opinion of counsel
reasonably satisfactory to the Company that registration is not required under
the Securities Act. Each certificate for the Warrant, the Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a legend
on the fact thereof, in form and substance satisfactory to counsel for the
Company, setting forth the restrictions on transfer contained in this Section.
8. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (i) the transmitter's confirmation of the
receipt of a facsimile transmission or (ii) confirmed delivery by a standard
overnight carrier or when delivered by hand, addressed at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Company, to:
The Recovery Network, Inc.
1411 5th Street, Suite 200
Santa Monica, California 90401
Attention: Mr. William D. Moses
Telecopier: (310) 393-5749
With a copy to:
Richard Posell, Esq.
Greenberg, Glusker, Fields, Claman & Machtinger, LLP
1900 Avenue of the Stars
Los Angeles, California 90067
Telecopier: (310) 553 0687
(b) if to Henry, to:
with a copy to:
5
<PAGE> 7
7. Supplements and Amendments: Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the Company
and Henry. This Warrant contains the full understanding of the parties hereto
with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understanding of the parties hereto
with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or, understandings other than expressly
contained herein and therein.
8. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Colorado without regard to principles
of conflicts or choice of law (or any other law that would make any substantive
laws of any state other than the State of Colorado applicable hereto).
9. Descriptive Headings. Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, THE RECOVERY NETWORK, INC. has caused this Warrant
to be signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary as of the ____ day of October, 1998.
THE RECOVERY NETWORK, INC.
By:_________________________________
Name:
Title:
Attest:_____________________________
6
<PAGE> 8
EXHIBIT "A"
FORM OF NOTICE OF EXERCISE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of the attached Warrant ("Warrant") irrevocably
exercises this Warrant for the purchase of ________ shares of Common Stock of
Recovery Network, Inc. purchasable with this Warrant, and herewith makes payment
therefor, at the price and on the terms and conditions specified in this
Warrant.
DATED:__________________
Signature of Registered Owner:______________
Print Name:______________
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
$50,000 SANTA MONICA, CALIFORNIA May 27, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., promises to pay to GEORGE HENRY
and WILLIAM MOSES, in the aggregate, the principal sum of FIFTY THOUSAND
DOLLARS, ($50,000.00), Twenty-five Thousand Dollars payable to Mr. Henry and
Twenty-five Thousand Dollars payable to Mr. Moses, with interest from date above
first written at the rate of TEN percent (10%) per annum on the balance from
time to time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
PAYABLE IMMEDIATELY UPON THE COMPANY'S RECEIVING OF AUSTIAN FUNDING.
By: /s/ WILLIAM MOSES
---------------------------------
The Recovery Network, Inc.
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
$50,000 SANTA MONICA, CALIFORNIA July 23, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
("Maker"), promises to pay to WILLIAM MOSES ("Holder"), the principal sum of
FIFTY THOUSAND DOLLARS, ($50,000.00), with interest from date above first
written at the rate of TEN percent (10%) per annum on the balance from time to
time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 23, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By: /s/ WILLIAM MOSES
------------------------------- --------------------------------
The Recovery Network, Inc. William Moses
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 2
PROMISSORY NOTE
$45,000 SANTA MONICA, CALIFORNIA July 23, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
("Maker"), promises to pay to GEORGE HENRY ("Holder"), the principal sum of
FORTY-FIVE THOUSAND DOLLARS, ($45,000.00), with interest from date above first
written at the rate of TEN percent (10%) per annum on the balance from time to
time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 23, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By: /s/ GEORGE HENRY
------------------------------- --------------------------------
The Recovery Network, Inc. George Henry
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 3
PROMISSORY NOTE
$2,500 SANTA MONICA, CALIFORNIA July 23, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
("Maker"), promises to pay to NICOLE COX ("Holder"), the principal sum of TWO
THOUSAND, FIVE HUNDRED DOLLARS, ($2,500.00), with interest from date above first
written at the rate of TEN percent (10%) per annum on the balance from time to
time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 23, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By: /s/ NICOLE COX
------------------------------- --------------------------------
The Recovery Network, Inc. Nicole Cox
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 4
PROMISSORY NOTE
$2,500 SANTA MONICA, CALIFORNIA July 23, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
("Maker"), promises to pay to GEORGE H. HENRY, III, ("Holder"), the principal
sum of TWO THOUSAND, FIVE HUNDRED DOLLARS, ($2,500.00), with interest from date
above first written at the rate of TEN percent (10%) per annum on the balance
from time to time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 23, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By: /s/ GEORGE HENRY
------------------------------- --------------------------------
The Recovery Network, Inc. George H. Henry, III
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 5
PROMISSORY NOTE
$50,000 SANTA MONICA, CALIFORNIA July 23, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
("Maker"), promises to pay to MARTIN CHOPP ("Holder"), the principal sum of
FIFTY THOUSAND DOLLARS, ($50,000.00), with interest from date above first
written at the rate of TEN percent (10%) per annum on the balance from time to
time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 23, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By: /s/ MARTIN CHOPP
------------------------------- --------------------------------
The Recovery Network, Inc. Martin Chopp
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 6
PROMISSORY NOTE
$25,000 SANTA MONICA, CALIFORNIA July 23, 1999
For VALUE RECEIVED, THE RECOVERY NETWORK, INC., a Colorado corporation
("Maker"), promises to pay to MICHAEL CLURMAN ("Holder"), the principal sum of
TWENTY-FIVE THOUSAND DOLLARS, ($25,000.00), with interest from date above first
written at the rate of TEN percent (10%) per annum on the balance from time to
time remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 23, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By:
------------------------------- --------------------------------
The Recovery Network, Inc. Michael Clurman
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 1
EXHIBIT 10.21
PROMISSORY NOTE
No. 2
$55,000 SANTA MONICA, CALIFORNIA
For VALUE RECEIVED, RNETHEALTH.COM, INC., a Colorado corporation ("Maker"),
promises to pay to GEORGE HENRY ("Holder"), the principal sum of FIFTY-FIVE
THOUSAND DOLLARS, ($55,000.00), with interest from the date above first written
at the rate of TEN percent (10%) per annum on the balance from time to time
remaining unpaid.
The said principal and interest shall be payable in lawful money of the United
States of America at SANTA MONICA, CALIFORNIA or at such place as may hereafter
be designated by written notice from the holder to the maker hereof, on the date
and in the manner following:
The principal balance of this Note and all accrued interest thereon shall be due
and payable, in full (the "Maturity Date"), on the earlier of either of (i)
January 31, 2000, or (ii) immediately upon the closing by Maker of a debt and/or
equity financing.
MAKER HOLDER
By: By: /s/ GEORGE HENRY
------------------------------- -------------------------------
RnetHealth.com, Inc. George Henry
1411 Fifth Street, Suite 200
Santa Monica, California 90401
(310) 393-3979
<PAGE> 1
EXHIBIT 10.22
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the ______ day of
October 1999 between RnetHealth.com, Inc. (the "Company") and Peter Graf
(the "Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 288,152 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $72,038.05
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 288,152 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 2
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
2
<PAGE> 3
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totaling $600,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ PETER GRAF
- ------------------------------ -----------------------------------
RnetHealth.com, Inc. Peter Graf
3
<PAGE> 4
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the ______ day of
October 1999 between RnetHealth.com, Inc. (the "Company") and Gerhardt
Waldschutz (the "Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 144,082 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $36,020.49
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 144,082 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 5
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
2
<PAGE> 6
7. Debt conversion will only be acknowledged upon the receipt of subscription
agreements totaling $600,000 to purchase common stock from the Company. The
closing of the conversion of the debt and the receipt of the subscription
agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ GERHARD WALDSCHUTZ
- ------------------------------ -----------------------------------
RnetHealth.com, Inc. Gerhard Waldschutz
3
<PAGE> 7
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the ______day of
October 1999 between RnetHealth.com, Inc. (the "Company") and Stephen Richmond
(the "Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 144,082 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $36,020.49
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 144,082 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 8
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
2
<PAGE> 9
7. Debt conversion will only be acknowledged upon the receipt of subscription
agreements totaling $600,000 to purchase common stock from the Company. The
closing of the conversion of the debt and the receipt of the subscription
agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ STEPHEN RICHMOND
- ------------------------------ -----------------------------------
RnetHealth.com, Inc. STEPHEN RICHMOND
3
<PAGE> 10
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 12th day of October
1999 between RnetHealth.com, Inc. (the "Company") and William D. Moses Marital
Family Trust, No. 2 (the "Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 576,293 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $144,073.15
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 576,293 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 11
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
2
<PAGE> 12
7. Debt conversion will only be acknowledged upon the receipt of subscription
agreements totaling $600,000 to purchase common stock from the Company. The
closing of the conversion of the debt and the receipt of the subscription
agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ DANIEL SHAPIRA, TRUSTEE
- ------------------------------ -----------------------------------
RnetHealth.com, Inc. William D. Moses Marital
Family Trust, No. 2
Daniel Shapira, Trustee
3
<PAGE> 13
Schedule A
COMMON STOCK PURCHASE AGREEMENT
FORM OF SUBSCRIPTION
(TO BE SIGNED AND DELIVERED TOGETHER WITH PAYMENT TO EXERCISE
ON OR BEFORE NOVEMBER 19, 1999)
TO: RnetHealth.com, Inc.
The undersigned pursuant to the Debt Restructuring Agreement is granted the
right to purchase an amount of shares equal to the amount to the amount of
shares to be issued to Investor, upon conversion.
The undersigned hereby elects to purchase ____________, shares of common stock
of RnetHealth.com, Inc. at $0.25 per share and herewith makes payment of
$_________________ therefore, and requests that the certificate for such shares
be issued in the name of _______________________________________________, and
delivered to the following address:
The undersigned acknowledges that the right to purchase said common shares may
be freely transferred, subject to (i) the prior consent of the Company, which
consent may be withheld in the Company's discretion, and (ii) delivery of Form
of Transferor Endorsement attached as Schedule B.
The undersigned further acknowledges that the common shares are not registered
and the Company does not intend to register such shares, however, the
undersigned may freely transfer the shares after a period of one (1) year has
elapsed, for purposes of Rule 144 under the Securities Act of 1933, as amended.
Dated: ____________________
By: _______________________
4
<PAGE> 14
Schedule B
FORM OF TRANSFEROR ENDORSEMENT
(TO BE SIGNED ONLY UPON TRANSFER AND DELIVERED TO COMPANY
TOGETHER WITH FORM OF SUBSCRIPTION)
For value received, the undersigned hereby sells, assigns, and transfers unto
the person(s) named below under the heading "Transferees" the right represented
by the Debt Restructuring Agreement to purchase the number of shares of Common
Stock of RNETHealth.com, Inc. to which the Common Stock Purchase Agreement
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
RNETHealth.com, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
Percentage Number
Transferees Transferred Transferred
----------- ----------- -----------
<S> <C> <C>
</TABLE>
Dated: ___________________________ By: ________________________________
Signed in the presence of: _________________________________
__________________________________
(Name)
__________________________________
(Address)
__________________________________
(City, State, Zip)
ACCEPTED AND AGREED:
[TRANSFEREE]
Dated: ___________________________ By: ________________________________
5
<PAGE> 15
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 12 day of October 1999
between RnetHealth.com, Inc. (the "Company") and Nicole Cox (the "Investor"):
WHEREAS on July 23, 1999, Investors invested an aggregate $125,000 of
principal amount pursuant to delivery of certain Promissory Notes; and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 11,389 shares of common stock
of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $2,847.29
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 11,389 shares
for a period Of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the investor may not freely transfer his or her shares
within a one (1) year;
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
<PAGE> 16
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12.
1999.
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totaling $600,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ NICOLE COX
- --------------------------------- ---------------------------------
RnetHealth.com, Inc. Nicole Cox
2
<PAGE> 17
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 12 day of October 1999
between RnetHealth.com, Inc. (the "Company") and George Henry (the "Investor"):
WHEREAS on July 23, 1999, certain Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 183,452 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $45,863.10
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 183,452 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may not freely transfer his or her shares
within a one (1) year;
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
<PAGE> 18
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totaling $600,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ GEORGE HENRY
- --------------------------------- ---------------------------------
RnetHealth.com, Inc. George Henry
2
<PAGE> 19
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 12th day of October
1999 between RnetHealth.com, Inc. (the "Company") and George Henry. III (the
"Investor"):
WHEREAS on July 23, 1999, certain Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A, is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 11,389 shares of common stock
of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $2,847.29
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 11,389 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may not freely transfer his or her shares
within a one (1) year;
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
<PAGE> 20
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented
that it will register the shares under the Act or comply with any requirements
for exemption therefrom, nor does it contemplate any future registration under
or eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totaling $600,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999
COMPANY INVESTOR
/s/ GEORGE HENRY, III
- --------------------------------- ---------------------------------
RnetHealth.com, Inc. George Henry, III
2
<PAGE> 21
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 12th day of October
1999 between RnetHealth.com, Inc. (the "Company") and George Henry (the
"Investor"):
WHEREAS on September 10, 1999, Investor invested an aggregate $55,000
pursuant to delivery of certain Promissory Notes, and
WHEREAS the Company and Investor are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 251,484 shares of common
stock of the Company at $0.22 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $55,271.26
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, investor is herein granted the right to purchase 251,484 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.22 per share.
3. The Investor, by acceptance hereof, hereby:
(1) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the investor may not freely transfer his or her shares
within a one (1) year;
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available
<PAGE> 22
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed an Schedule A.
S. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totaling $900,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ GEORGE HENRY
- --------------------------------- ---------------------------------
RnetHealth.com, Inc. George Henry
2
<PAGE> 23
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the _____ day of October
1999 between RnetHealth.com, Inc. (the "Company") and Martin Chopp (the
"Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 203,836 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $50,959.00
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 203,836 shares
for a period of 45 days from the date hereof, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 24
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the Investors
pursuant to this Debt Restructuring Agreement, this Agreement is executed in
full and final settlement of any and all outstanding debts owed to the Investors
listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates successors and assigns
(the "Releases"), from, against and with respect to any and all claims which
any of the Releasers has, ever had or may hereafter against the Releases arising
on or prior to the date of this Debt Restructuring Agreement or on account of
any matter arising out of any matter, cause or event occurring on or prior to
the date of this agreement; provided, however that nothing in this Section 5
will operate to release any obligation of the Investors arising under this
Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 p.m. Tuesday, October 12,
1999.
2
<PAGE> 25
7. Debt conversion will only be acknowledged upon the receipt of subscription
agreements totaling $600,000 to purchase common stock from the Company. The
closing of the conversion of the debt and the receipt of the subscription
agreements will occur on October 13, 1999.
COMPANY INVEST
/s/ MARTIN CHOPP
- --------------------------------- ---------------------------------
RnetHealth.com, Inc. Martin Chopp
3
<PAGE> 26
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 7th day of October 1999
between RnetHealth.com, Inc. (the "Company") and Highborough Services (the
"Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in a
Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 216,111 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $54,027.80
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 216,111
shares for a period of 45 days from the date here of, the amount of shares
equal to the amount owed to Investor which has been herein converted at $0.25
per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are
exercised in a timely manner, the Investor may not freely transfer his or her
shares within a one (1) year period under Rule 144 of the Securities Act of
1933, as amended;
<PAGE> 27
(ii) acknowledges and understands that the Investor may not transfer the
shares unless they are registered under the Act, or an exemption from
registration is available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented
that it will register the shares under the Act or comply with any requirements
for exemption therefrom, nor does it contemplate any future registration under
or eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk
of investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the
Investors pursuant to this debt Restructuring Agreement, this Agreement is
executed in full and final settlement of any and all outstanding debts owed to
the Investors listed on Schedule A.
5. The Investor, on behalf of itself and its successors, assigns,
administrators and representatives (the "Releasers") hereby releases, remises,
acquits and discharges forever, irrevocably and unconditionally the Company and
its respective affiliates, successors and assigns (the "Releases"), from,
against and with respect to any and all claims which any of the Releasers has,
ever had or may hereafter have against the Releases arising on or prior to the
date of this Debt Restructuring Agreement on account of any matter relating to
repayment of debt pursuant to the December Note Offering out of any matter,
cause or event occurring on or prior to the date of this agreement; provided,
however, that nothing in this Section 5 will operate to release any obligation
of the Investors arising under this Agreement.
6. This Agreement shall be executed in multiple counterparts, and by
facsimile signature, when applicable, and shall be delivered by via telecopier
or overnight courier to the Company on or before 5:00 PM Tuesday October 12,
1999.
2
<PAGE> 28
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totalling $600,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ P. BERLIN
- --------------------------- --------------------------------
RnetHealth.com. Inc. Highborough Services, Ltd.
By: Peter Berlin, Director
3
<PAGE> 29
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the ____ day of October
1999 between RnetHealth.com, Inc. (the "Company") and William D. Moses (the
"Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 203,836 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $50,959.00
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 203,836 shares
for a period of 45 days from the date here of, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 30
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the
Investors pursuant to this Debt Restructuring Agreement, this Agreement is
executed in full and final settlement of any and all outstanding debts owed to
the Investors listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and
by facsimile signature, when applicable, and shall be delivered by via
telecopier or overnight courier to the Company on or before 5:00 p.m. Tuesday,
October 12, 1999.
2
<PAGE> 31
7. Debt conversion will only be acknowledged upon the receipt of
subscription agreements totaling $600,000 to purchase common stock from the
Company. The closing of the conversion of the debt and the receipt of the
subscription agreements will occur on October 13, 1999.
COMPANY INVEST
/s/ WILLIAM MOSES
- --------------------------- --------------------------------
RnetHealth.com, Inc. William D. Moses
3
<PAGE> 32
Schedule A
----------
COMMON STOCK PURCHASE AGREEMENT
FORM OF SUBSCRIPTION
(TO BE SIGNED AND DELIVERED TOGETHER WITH PAYMENT TO EXERCISE
ON OR BEFORE NOVEMBER 19, 1999)
TO: RnetHealth.com, Inc.
The undersigned pursuant to the Debt Restructuring Agreement is granted the
right to purchase an amount of shares equal to the amount to the amount of
shares to be issued to Investor, upon conversion.
The undersigned hereby elects to purchase ___________ shares of common stock of
RnetHealth.com, Inc. at $0.25 per share and herewith makes payment of $
therefore, and requests that the certificate for such shares be issued in the
name of _______________________________, and delivered to the following address:
________________________________________
________________________________________
________________________________________
The undersigned acknowledges that the right to purchase said common shares may
be freely transferred, subject to (i) the prior consent of the Company, which
consent may be withheld in the Company's discretion, and (ii) delivery of Form
of Transferor Endorsement attached as Schedule B.
The undersigned further acknowledges that the common shares are not registered
and the Company does not intend to register such shares, however, the
undersigned may freely transfer the shares after a period of one (1) year has
elapsed, for purposes of Rule 144 under the Securities Act of 1933, as amended.
Dated:________________________
By:___________________________
4
<PAGE> 33
Schedule B
----------
FORM OF TRANSFEROR ENDORSEMENT
(TO BE SIGNED ONLY UPON TRANSFER AND DELIVERED TO COMPANY
TOGETHER WITH FORM OF SUBSCRIPTION)
For value received, the undersigned hereby sells, assigns, and transfers unto
the person(s) named below under the heading "Transferees" the right represented
by the Debt Restructuring Agreement to purchase the number of shares of Common
Stock of RNETHealth.com, Inc. to which the Common Stock Purchase Agreement
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
RNETHealth.com, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
<S> <C> <C> <C>
</TABLE>
Dated:___________________ By:____________________________________
Signed in the presence of:_____________________________
_________________________________
(Name)
_________________________________
(Address)
_________________________________
(City, State, Zip)
ACCEPTED AND AGREED:
[TRANSFEREE]
Dated:___________________ By:___________________________________
5
<PAGE> 34
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the 11th day of October
1999 between RnetHealth.com, Inc. (the "Company") and Michael Clurman (the
"Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory Notes;
and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 101,918 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $25,479.50
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 101,918 shares
for a period of 45 days from the date here of, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may not freely transfer his or her shares
within a one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 35
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the
Investors pursuant to this Debt Restructuring Agreement, this Agreement is
executed in full and final settlement of any and all outstanding debts owed to
the Investors listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and
by facsimile signature, when applicable, and shall be delivered by via
telecopier or overnight courier to the Company on or before 5:00 p.m. Tuesday,
October 12, 1999.
2
<PAGE> 36
7. Debt conversion will only be acknowledged upon the receipt of subscription
agreements totaling $600,000 to purchase common stock from the Company. The
closing of the conversion of the debt and the receipt of the subscription
agreements will occur on October 13, 1999.
COMPANY INVEST
/s/ MICHAEL CLURMAN
- --------------------------- ------------------------------
RnetHealth.com, Inc. Michael Clurman
3
<PAGE> 37
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement dated as of the ____ day of October
1999 between RnetHealth.com, Inc. (the "Company") and Janice Gold (the
"Investor"):
WHEREAS on or about December 11, 1998 certain Investors participated in
a Note Offering with the Company, as amended on April 13, 1999, relating to an
investment by such Investors in an amount equal to $725,000 (the "December Note
Offering"); and
WHEREAS on July 23, 1999, certain other Investors invested an aggregate
$125,000 of principal amount pursuant to delivery of certain Promissory
Notes; and
WHEREAS the Company and Investors are desirous of restructuring various
transactions among them and converting all outstanding debt to equity;
Annexed hereto as Schedule A is a Common Stock Purchase Agreement.
NOW THEREFORE, for the mutual promises contained herein and other good
and valuable mutual consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. The Company agrees to issue to Investor 80,688 shares of common
stock of the Company at $0.25 per share, the amount equal to the debt owed to
Investor, and Investor agrees to accept such common stock in lieu of $20,171.95
representing remaining payments on the outstanding debt to Investor.
2. Pursuant to the Common Stock Purchase Agreement on Schedule A
attached hereto, Investor is herein granted the right to purchase 80,688 shares
for a period of 45 days from the date here of, the amount of shares equal to the
amount owed to Investor which has been herein converted at $0.25 per share.
3. The Investor, by acceptance hereof, hereby:
(i) acknowledges and understands that if Investor exercises his or her right to
purchase additional shares pursuant to the Common Stock Purchase Agreement or
transfers such right and an aggregate amount of $756,000 of rights are exercised
in a timely manner, the Investor may freely transfer his or her shares within a
one (1) year under Rule 144 of the Securities Act of 1933, as amended;
<PAGE> 38
(ii) acknowledges and understands that the Investor may not transfer the shares
unless they are registered under the Act, or an exemption from registration is
available;
(iii) acknowledges that the certificates representing the shares will bear a
legend, and that the stock transfer books of the Company will be noted, to the
foregoing effect;
(iv) recognizes that the Company does not represent and has not represented that
it will register the shares under the Act or comply with any requirements for
exemption therefrom, nor does it contemplate any future registration under or
eligibility for exemption from registration under the Act. As a result, the
Investor acknowledges that the Investor is prepared to bear the economic risk of
investment in the shares for an indefinite period of time.
4. Absent any failure by the Company to deliver shares to the
Investors pursuant to this Debt Restructuring Agreement, this Agreement is
executed in full and final settlement of any and all outstanding debts owed to
the Investors listed on Schedule A.
5. The Investors, on behalf of himself or herself and his or her
successors, assigns, administrators and representatives (the "Releasers") hereby
releases, remises, acquits and discharges forever, irrevocably and
unconditionally the Company and its respective affiliates, successors and
assigns (the "Releases"), from, against and with respect to any and all claims
which any of the Releasers has, ever had or may hereafter against the Releases
arising on or prior to the date of this Debt Restructuring Agreement or on
account of any matter arising out of any matter, cause or event occurring on or
prior to the date of this agreement; provided, however, that nothing in this
Section 5 will operate to release any obligation of the Investors arising under
this Agreement.
6. This Agreement shall be executed in multiple counterparts, and
by facsimile signature, when applicable, and shall be delivered by via
telecopier or overnight courier to the Company on or before 5:00 p.m. Tuesday,
October 12, 1999.
2
<PAGE> 39
7. Debt conversion will only be acknowledged upon the
receipt of subscription agreements totaling $600,000 to purchase Common stock
from the Company. The closing of the conversion of the debt and the receipt of
the subscription agreements will occur on October 13, 1999.
COMPANY INVESTOR
/s/ JANICE GOLD
- ---------------------------- ------------------------------
RnetHealth.com, Inc.
3
<PAGE> 40
Schedule A
----------
COMMON STOCK PURCHASE AGREEMENT
FORM OF SUBSCRIPTION
(TO BE SIGNED AND DELIVERED TOGETHER WITH PAYMENT TO EXERCISE
ON OR BEFORE NOVEMBER 19, 1999)
TO: RnetHealth.com, Inc.
The undersigned pursuant to the Debt Restructuring Agreement is granted the
right to purchase an amount of shares equal to the amount to the amount of
shares to be issued to Investor, upon conversion.
The undersigned hereby elects to purchase shares of common stock of
RnetHealth.com, Inc. at $0.25 per share and herewith makes payment of $
therefore, and requests that the certificate for such shares be issued in the
name of ________________________________and delivered to the following address:
________________________________________
________________________________________
________________________________________
The undersigned acknowledges that the right to purchase said common shares may
be freely transferred, subject to (i) the prior consent of the Company, which
consent may be withheld in the Company's discretion, and (ii) delivery of Form
of Transferor Endorsement attached as Schedule B.
The undersigned further acknowledges that the common shares are not registered
and the Company does not intend to register such shares, however, the
undersigned may freely transfer the shares after a period of one (1) year has
elapsed, for purposes of Rule 144 under the Securities Act of 1933, as amended.
Dated:___________________________
By:______________________________
4
<PAGE> 41
Schedule B
----------
FORM OF TRANSFEROR ENDORSEMENT
(TO BE SIGNED ONLY UPON TRANSFER AND DELIVERED TO COMPANY TOGETHER WITH FORM OF
SUBSCRIPTION)
For value received, the undersigned hereby sells, assigns, and transfers unto
the person(s) named below under the heading "Transferees" the right represented
by the Debt Restructuring Agreement to purchase the number of shares of Common
Stock of RNETHealth.com, Inc. to which the Common Stock Purchase Agreement
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
RNETHealth.com, Inc, with full power of substitution in the premises.
<TABLE>
<CAPTION>
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
<S> <C> <C> <C>
</TABLE>
Dated:__________________________ By:______________________________________
Signed in the presence of:_______________________________
__________________________________
(Name)
__________________________________
(Address)
__________________________________
(City, State, Zip)
ACCEPTED AND AGREED:
[TRANSFEREE]
Dated:_____________________________ By:______________________________________
5
<PAGE> 42
The undersigned holder ("Holder") of a Promissory Note issued by The
Recovery Network, Inc., a Colorado corporation ("RNET") on the date and in the
principal amount indicated below hereby agrees to surrender such Promissory
Note in exchange for the number of common shares ($.01 par value) of RNET set
forth below ("Exchange Shares").
As further consideration for the surrender of the Promissory Note, RNET
agrees to sell to the Holder up to a like number of Exchange Shares at the
written election of the Holder made within forty-five (45) days of the date
hereof at a per share price of $.25.
The above described surrender of the Promissory Note is contingent on
RNET having actually received funds of $600,000 on or before October __, 1999
from the sale of RNET common shares ($.01 par value) at a sales price of $.25
per share.
Promissory Note Principal Amount: $36,020.49
Promissory Note Date: DEC. 11/98
Exchange Shares: 144,082
Dated: October __, 1999
HOLDER
ZAKENI LIMITED
-----------------------------------
Print Name
By:
--------------------------------
THE RECOVERY NETWORK, INC.
By:
--------------------------------
Its:
-------------------------------
<PAGE> 43
The undersigned holder ("Holder") of a Promissory Note issued by The
Recovery Network, Inc., a Colorado corporation ("RNET") on the date and in the
principal amount indicated below hereby agrees to surrender such Promissory
Note in exchange for the number of common shares ($.01 par value) of RNET set
forth below ("Exchange Shares").
As further consideration for the surrender of the Promissory Note, RNET
agrees to sell to the Holder up to a like number of Exchange Shares at the
written election of the Holder made within forty-five (45) days of the date
hereof at a per share price of $.25.
The above described surrender of the Promissory Note is contingent on
RNET having received subscription agreements on or before October __, 1999 for
the sale of 2,400,000 RNET common shares ($.01 par value) at a sales price of
$.25 per share, which sale shall actually close on or before ____________, 1999.
Promissory Note Principal Amount: $17,445.98
Promissory Note Date: 12/10/98
Exchange Shares: 69,784
Dated: October 13, 1999
HOLDER
The SARGON FUND
-----------------------------
Print Name
By: [signature illegible]
--------------------------
THE RECOVERY NETWORK, INC.
By:
--------------------------------
Its:
-------------------------------
<PAGE> 44
The undersigned holder ("Holder") of a Promissory Note issued by The
Recovery Network, Inc., a Colorado corporation ("RNET") on the date and in the
principal amount indicated below hereby agrees to surrender such Promissory
Note in exchange for the number of common shares ($.01 par value) of RNET set
forth below ("Exchange Shares").
As further consideration for the surrender of the Promissory Note, RNET
agrees to sell to the Holder up to a like number of Exchange Shares at the
written election of the Holder made within forty-five (45) days of the date
hereof at a per share price of $.25.
The above described surrender of the Promissory Note is contingent on
RNET having received subscription agreements on or before October __, 1999 for
the sale of 2,400,000 RNET common shares ($.01 par value) at a sales price of
$.25 per share, which sale shall actually close on or before ___________, 1999.
Promissory Note Principal Amount: $54,027.80
Promissory Note Date: December 11, 1998
Exchange Shares: 216,111
Dated: October 12, 1999
HOLDER
BALMORE FUNDS S.A.
--------------------------------
Print Name
By: /s/ FRANCOIS MOROUX
-----------------------------
Francois Moroux, Director
THE RECOVERY NETWORK, INC.
By:
--------------------------------
Its:
-------------------------------
<PAGE> 45
The undersigned holder ("Holder") of a Promissory Note issued by The
Recovery Network, Inc., a Colorado corporation ("RNET") on the date and in the
principal amount indicated below hereby agrees to surrender such Promissory
Note in exchange for the number of common shares ($.01 par value) of RNET set
forth below ("Exchange Shares").
As further consideration for the surrender of the Promissory Note, RNET
agrees to sell to the Holder up to a like number of Exchange Shares at the
written election of the Holder made within forty-five (45) days of the date
hereof at a per share price of $.25.
The above described surrender of the Promissory Note is contingent on
RNET having received subscription agreements on or before October __, 1999 for
the sale of 2,400,000 RNET common shares ($.01 par value) at a sales price of
$.25 per share, which sale shall actually close on or before ____________, 1999.
Promissory Note Principal Amount: $54,027.80
Promissory Note Date: December 11, 1998
Exchange Shares: 216,111
Dated: October 12, 1999
HOLDER
ANSTOST ANSTALT SCHAAN
--------------------------------
Print Name
By: /s/ THOMAS HACKL
-----------------------------
Thomas Hackl, Representative
THE RECOVERY NETWORK, INC.
By:
--------------------------------
Its:
-------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to use of our
report included in or made reference to in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
November 5, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
To The Board of Directors of
Rnethealth.com, Inc.
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated October 9, 1999 relating to the consolidated financial statements
of Rnethealth.com, Inc. and subsidiary, appearing in the Prospectus, which is a
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
CORBIN & WERTZ
Irvine, California
November 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM SB-2 DATED NOVEMBER 5,
1999.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 136,058
<SECURITIES> 0
<RECEIVABLES> 288,499
<ALLOWANCES> (32,000)
<INVENTORY> 55,539
<CURRENT-ASSETS> 616,495
<PP&E> 433,257
<DEPRECIATION> (255,707)
<TOTAL-ASSETS> 1,268,379
<CURRENT-LIABILITIES> 1,880,396
<BONDS> 481,015
0
0
<COMMON> 154,945
<OTHER-SE> (766,962)
<TOTAL-LIABILITY-AND-EQUITY> 1,268,379
<SALES> 1,533,922
<TOTAL-REVENUES> 1,533,922
<CGS> 499,766
<TOTAL-COSTS> 9,250,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489,552
<INCOME-PRETAX> (8,140,487)
<INCOME-TAX> 800
<INCOME-CONTINUING> (8,141,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,141,287)
<EPS-BASIC> (0.96)
<EPS-DILUTED> (0.96)
</TABLE>
