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EXHIBIT 10.26
[RNETHEALTH.COM LETTERHEAD]
August 16, 2000
VIA FACSIMILE (310) 822-2331
Arthur Ulene, M.D.
13160 Mindanao Way, Suite 270
Marina Del Ray, CA 90292
Dear Art:
Pursuant to our review of your memorandum with our attorney, we would
propose to clarify our proposal for the formation of these separate lines of
business between RnetHealth and Black Diamond Associates LLC ("BDA"). As we
have agreed, they are 1) Affinity Club which will incorporate the Wellness
Challenge and other campaigns; 2) Short Form Third Party Marketing; and 3) Long
Form Art Ulene Sponsored or Identified Informercials.
Concerning each business, we would propose the following structure:
Affinity Club
1) RnetHealth will form a new Limited Liability Company ("LLC") in the United
States, which will be taxable as a partnership and the ownership of which
will be evidenced by two classes of Membership Interest Class A and Class
B. The LLC will be named Health Challenge, LLC ("HC"). The Class A
Membership Interest shall be owned 10% (ten percent) by RnetHealth and 90%
(ninety percent) by BDA. We understand, at present, Art Ulene owns 60% of
BDA; Kukla Vera owns 20% of BDA; and Jamie McDowell owns the remaining 20%
of BDA. The Class B Membership Interest of HC shall be owned 51% (fifty-one
percent) by RnetHealth and 49% (forty-nine percent) BDA. The purpose of
forming HC is to promote a health campaign known as the Wellness Challenge.
BDA will provide services, going forwared, to HC.
2) The Class A Membership Interest shall be entitled to annual cash
distributions equal to 100% of the net cash flow generated by HC during the
preceding fiscal year. RnetHealth will capitalize HC with a $300,000 ($US)
line of credit ("Credit") reflected as a credit to RnetHealth's Class B
Membership Interest, to be drawn upon by HC based upon a mutually agreed
upon development schedule for the completion of HC. Our current
understanding is that approximately $50,000 ($US) monthly, will be needed
to be paid to your staff and outside vendors to complete HC over the next
few months.
3) HC will make mandatory distributions, in cash, of any income tax due on the
income of HC at the time such tax is due. In the event HC is unable to
make such cash payments, RnetHealth agrees to contribute the cash to
satisfy the tax obligation on the condition that no cash distributions are
made to HC Members until after the date on which RnetHealth has been repaid
for said amounts in full.
4) As a holder of the Class A Membership Interest, BDA shall have the right to
accept distributions, other than for payment of income taxes, made by HC in
cash, or in an
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Arthur Ulene, M.D.
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equivalent number of common shares of RnetHealth. In the event common
shares of RnetHealth are to be accepted as payment, the number of shares
issued to BDA will be based upon the prior five-day average trading price
of RnetHealth, sufficient to equal 115% of the amount of the distribution.
5) Pursuant to this transaction RnetHealth shall be granted a call option on
BDA's Class A Membership Interest and BDA will be granted a put with
respect to this same interest. Within 45 days following the conclusion of
the second, third, and fourth anniversary of HC, RnetHealth shall have
notified BDA of its intentions to acquire BDA's Class A Membership
Interest. The purchase price shall be equal to 3.3x times the prior year's
distribution payable in an equivalent number of common share of RnetHealth.
Should RnetHealth not elect to exercise the option, BDA may put their Class
A Membership Interest to RnetHealth through written notice. The purchase
price shall be equal to 3.0x times the prior year's distribution payable in
an equivalent number of common shares of RnetHealth. The parties will work
together in satisfying any capital gain taxes due upon the exercise of the
call or put option. Specifically, RnetHealth agrees to lend to BDA cash in
an amount equal to the tax obligation, to be secured against the value of
said amount in RnetHealth common stock.
6) BDA and Art Ulene shall devote their services to HC, on a reasonable
priority, non-exclusive basis. Nothing in this agreement shall restrict or
prohibit BDA and/or Art Ulene from rendering any services to any third
parties pursuant to existing or future consulting agreements, talent
agreements, or otherwise. BDA and Art Ulene agree not to directly compete
with HC in connection with a product or service which is substantially
similar in content, has identical advertisers, and has identical target
purchaser as any product or service that is actually produced and
distributed by HC pursuant to this agreement. Such non-compete undertaking
by BDA and Art Ulene shall immediately expire in the event of HC's or
RnetHealth's material breach, or 12 months following the actual release of
the HC product or service, whichever shall occur first. RNET and HC agree
not to compete, without the prior approval of BDA, in the sale of vitamins.
7) In return for a five-year option to acquire 1,100,000 common shares of
RnetHealth, at a purchase price of $.50 per share, BDA will assist in
providing services to create sponsorship for the Wellness Challenge, and
any successor campaign of HC. The option shall be fully vested and
exercisable as of the execution of this agreement.
8) RnetHealth recognizes that Feeling Fine LLC holds the exclusive right to
the name and likeness of Art Ulene. HC may not use the name or the likeness
of Art Ulene without the expressed written consent of BDA.
Short Form Third Party Marketing
1) RnetHealth will enter into a Third Party Marketing Agreement for a period
of three years, with BDA for the purpose of attracting advertising and
sponsorship revenues to RnetHealth, in the traditional form of spot ads not
to exceed 120 seconds in length.
2) BDA shall provide a list of their current and prior advertisers to
RnetHealth ("BDA List"). In the event, any advertiser identified in the BDA
List purchases advertising, or sponsorship, from RnetHealth, excluding
purchases made for HC, BDA shall receive a payment for services rendered.
BDA shall receive 30% of the net proceeds from such
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Arthur Ulene, M.D.
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revenue payable in cash, and equivalent number of common shares or
options, or a payment encompassing both a cash and equity component, at
BDA's election, at the time RnetHealth receives such payment. Any option
granted to BDA shall be fully vested and exercisable as of the date of
grant.
3) For any and all future advertisers not identified pursuant to the BDA List
which purchases advertising or sponsorship from RnetHealth, excluding
purchases made for HC, BDA shall receive payment for services rendered. BDA
shall receive 10% of the net proceeds from such revenue payable in cash, or
an equivalents number of common shares or options, or a payment
encompassing both a cash and equity component, at their election, at the
conclusion of the airing. An option granted to BDA shall be fully vested
and exercisable as of the date of grant.
4) In the event common shares of RnetHealth are to be accepted as payment, the
number of shares issued to BDA will be based upon the prior five-day
average trading price of RnetHealth, sufficient to equal 115% of the amount
of the cash distribution.
5) In the event options of RnetHealth are elected as payment, RnetHealth shall
issue to BDA, a five-year option to acquire common shares of RnetHealth at
an exercise price of $.50 per share. The equivalent number of common shares
shall be based upon the prior five-day average trading price of RnetHealth,
less the exercise price of $.50 per share sufficient to equal the amount of
the cash distribution. The option shall be fully vested and exercisable as
of the execution of the grant.
6) RnetHealth shall issue BDA 250,000 five year options to acquire
RnetHealth's common shares at an exercise price of $.50 per share in return
for providing services, going forward, pursuant to the Third Party
Marketing Agreement. The option shall be fully vested and exercisable as of
the execution of this agreement.
Long Form BDA Sponsored or Identified Informercials
1) RnetHealth and BDA agree to form a joint venture ("JV") for three years,
for the purpose of attracting advertisers to use long form informercial
advertising. In addition, it is envisioned that BDA may produce
informercial programming for the JV. Any participation as an "on-air
talent" by Art Ulene is purely voluntary and subject to his approval on a
program-by-program and product-by-product basis and subject to compensation
minimums as required by AFTRA. RnetHealth and BDA shall own the JV equally.
Any original programming produced by the JV shall be owned jointly by BDA
and RnetHealth.
2) For purposes of calculating profitability, the JV will recognize all of the
costs associated with the airing of programming including the costs of its
affiliates for carriage, fulfillment of orders, and any direct production
costs in calculating the profit of the JV. RnetHealth reserves the right
not to air programming in which the anticipated revenues do not exceed 160%
of the cost its affiliates charge for carriage. The parties agree to seek
competitive bidding for any production costs or distribution costs. The
lowest cost obtained by the parties shall be the rate at which the JV is
charged in the event RnetHealth or BDA provides a service to the JV. At the
conclusion of the fiscal year, 50% of the profits of the JV shall be
distributed, at BDA's election in cash, or an equivalent number of common
shares or options, or as a payment encompassing both a
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Arthur Ulene, M.D.
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cash and equity component. Any option granted to BDA shall be fully
vested and exercisable as of the date of grant.
3) In the event common shares of RnetHealth are elected as payment, the
number of shares issued to BDA will be based upon the prior five-day
average trading price of RnetHealth, sufficient to equal 115% of the
amount of the cash distribution.
4) In the event options of RnetHealth are elected for any payment to be made
as outlined above, RnetHealth shall issue to BDA, a five-year option to
acquire common shares of RnetHealth at an exercise price of $.50 per
share. The equivalent number of common shares shall be based upon the
prior five-day average trading price of RnetHealth, less the exercise
price of $.50 per share sufficient to equal the amount of the cash
distribution. The option shall be fully vested and exercisable as of the
date of the grant.
5) RnetHealth shall issue to BDA 350,000 five year options to acquire its
common shares at a purchase price of $.50 per share in return for
providing services, going forward, to the JV. The option shall be fully
vested and exercisable as of the execution of this agreement.
The underlying shares to be issued under the various conditions as
outlined above will be subject to customary piggyback registration rights and
are further saleable under Rule 144. Of course, this proposal is subject to
final documentation.
We are excited about the prospects of this new venture. Please acknowledge
your acceptance of this agreement and faxing back to me an executed copy. I am
working on the draft press release for your approval, which I will forward to
you shortly.
I can not tell you how pleased I am to be working with you again.
Sincerely,
/s/ WENDY BOROW JOHNSON
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Wendy Borow Johnson
President and CEO
Agreed to and Accepted:
By: /s/ ARTHUR ULENE
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Arthur Ulene, M.D.
Black Diamond Associates, LLC
Dated: August 17, 2000
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cc: Ken Browning, Esq. (via facsimile at 310-247-1827)
