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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1999
REGISTRATION NO. 333-83849
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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VITAMINSHOPPE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5961 22-3659179
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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444 MADISON AVENUE, SUITE 802
NEW YORK, NY 10022
(212)308-6730
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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KATHRYN H. CREECH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VITAMINSHOPPE.COM, INC.
444 MADISON AVENUE, SUITE 802
NEW YORK, NY 10022
(212) 308-6730
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY OF COMMUNICATIONS TO:
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NANCY E. FUCHS, ESQ. PATRICK J. RONDEAU, ESQ.
MARK S. SELINGER, ESQ. JAMES R. BURKE, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP HALE AND DORR LLP
425 PARK AVENUE 60 STATE STREET
NEW YORK, NY 10022 BOSTON, MA 02109
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
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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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER UNIT PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Class A common stock, par 5,227,273 shares $12.00 $62,727,276 $17,439
value $0.01 per share...
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(1) Includes 681,818 shares that the underwriters have an option to purchase
from the registrant to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for purposes of calculating the registration fee.
(3) $15,985 of this fee has been previously paid.
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1999
PROSPECTUS
[VITAMIN SHOPPE LOGO]
4,545,455 Shares
Class A Common Stock
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This is an initial public offering of the Class A common stock of
VitaminShoppe.com, Inc. We expect that the initial public offering price for the
Class A common stock will be between $10.00 and $12.00 per share.
We have applied to list the Class A common stock on the Nasdaq National Market
under the symbol "VSHP."
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INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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Per Share Total
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds $ $
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The underwriters have an option to purchase a maximum of 681,818 additional
shares of Class A common stock from us at the initial public offering price,
less the underwriting discount, to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THOMAS WEISEL PARTNERS LLC
WILLIAM BLAIR & COMPANY
PAINEWEBBER INCORPORATED
Prospectus dated , 1999
<PAGE> 3
[PHOTOGRAPHS OF OUR TARGET CUSTOMERS PURSUING ACTIVE LIFESTYLES]
[PHOTOGRAPHS OF OUR OPERATIONS, INCLUDING THE VITAMIN SHOPPE'S DISTRIBUTION
CENTERS]
[SCREEN SHOTS OF THE WWW.VITAMINSHOPPE.COM HOMEPAGE AND PRODUCT SCREENS]
[STRATEGIC RELATIONSHIPS AND PRODUCTS]
Except as otherwise indicated, all information in this prospectus:
- reflects a 1.539-to-1 split of our Class A common stock and Class B
common stock to be effected immediately prior to the effective date of
the registration statement of which this prospectus is a part;
- reflects the automatic conversion of all outstanding shares of our
preferred stock into shares of Class A common stock upon the closing of
this offering; and
- assumes that the underwriters will not exercise their over-allotment
option.
The information on our website is not a part of this prospectus. The Vitamin
Shoppe(R), Vitamin Shoppe.com(TM) and the Vitamin Shoppe Frequent Buyer
ProgramSM are the trademarks and service mark of Vitamin Shoppe Industries Inc.
This prospectus contains other product names, trade names, trademarks and
service marks of these and other organizations, all of which are the property of
their respective owners.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 43
Certain Transactions........................................ 50
Principal Stockholders...................................... 52
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 59
Underwriting................................................ 61
Legal Matters............................................... 63
Experts..................................................... 63
Where You Can Find More Information......................... 63
Index to Financial Statements............................... F-1
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PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus before making a decision to
invest.
VITAMINSHOPPE.COM
VitaminShoppe.com, Inc. is a leading online source for products and content
related to vitamins, nutritional supplements and minerals. Our
www.VitaminShoppe.com website, which was launched in April 1998, provides a
convenient and informative shopping experience for consumers desiring to
purchase products that promote healthy living. We offer an extensive selection
of over 18,000 quality items representing over 400 brands, including The Vitamin
Shoppe(R) premium brand, and a comprehensive line of herbal formulas,
homeopathic products, personal care items, body building supplements, healthcare
products and books on health and nutrition. We sell our entire line of products
at year-round discounts generally ranging from 20% to 40% off suggested retail
prices. Our website links consumers to our own health-related information
website, www.vitaminbuzz.com, as well as features from credible third-party
sources designed to assist consumers in making informed decisions. In addition,
our shopping experience offers customers reliable product delivery and superior
customer service.
Until July 1999, we operated as a division of Vitamin Shoppe Industries
Inc., a leading retail and catalog source that has done business as The Vitamin
Shoppe since it was established in 1977. Based in North Bergen, New Jersey, The
Vitamin Shoppe has over 60 retail stores within the Northeast and Mid-Atlantic
regions and a monthly catalog with an annual circulation of 12 to 14 million
copies. In 1998, The Vitamin Shoppe's total sales were $132 million. We have
entered into intercompany agreements under which The Vitamin Shoppe has licensed
its trademarks to us and provides product supply, fulfillment, promotional,
administrative and other services to us. Our strategy is to become the leading
online source for vitamins, nutritional supplements and minerals by combining
the core competencies and infrastructure of The Vitamin Shoppe with the
functionality, convenience and information resources of the Internet. We believe
that The Vitamin Shoppe's expertise and experience provide us with important
competitive advantages, including:
- management, purchasing and merchandising expertise, including strong
relationships with hundreds of vendors, which enhances our ability to
provide a comprehensive selection of products at competitive prices;
- full integration of order processing, product fulfillment and customer
service through The Vitamin Shoppe's distribution centers, which gives us
the fulfillment capability to support growth;
- the exclusive right to use The Vitamin Shoppe(R) logo and name in online
commerce, which provides the superior brand recognition that we believe
is a strong motivating factor for new customers; and
- direct marketing knowledge, including access to information regarding
more than 700,000 historical catalog and retail customers of The Vitamin
Shoppe, and the ability to conduct cross-marketing, co-promotions and
customer acquisition programs with The Vitamin Shoppe.
We believe that we deliver a compelling value proposition to customers. We
offer an extensive selection, attractive pricing, superior customer service,
convenience and expert information. Our website integrates advanced
transactional capabilities with easy access to health and nutrition information
from credible third-party sources. By offering quality products and content
through an intuitive and easy-to-use interface and by focusing on customer
service, we believe that we meet a broad spectrum of consumer needs and foster
customer loyalty. We believe that the combination of a wide array of products,
informative content and superior customer service positions VitaminShoppe.com as
a comprehensive resource for the consumer.
Our growth strategy focuses on maximizing the lifetime value of our
customers by establishing ourselves as a "trusted provider" of vitamins,
nutritional supplements and minerals and by creating long-term customer
relationships. We believe that this strategy will build customer loyalty,
encourage repeat
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purchases, increase average order size and produce recurring revenues. The key
elements of our growth strategy are:
- acquiring new customers through the acceleration of marketing
initiatives, as well as through the development of existing and new
strategic relationships; and
- promoting customer retention and growth by using our customer database
for target marketing and by enhancing the overall customer experience.
We believe that the combination of our business and growth strategies will
position us as a comprehensive online source for our products and health-related
information. The successful implementation of our business and growth strategies
involves significant risks, including establishing our brand in online commerce
and overcoming intense competition in the vitamin, nutritional supplement and
mineral market. You should carefully review "Risk Factors" for a discussion of
the risks relating to the implementation of our strategies.
The vitamin, nutritional supplement and mineral market is attractive due to
its growth and margin characteristics, which we believe are high relative to
other consumer product categories. According to industry research, domestic
sales of these products have grown at a 15% compounded annual rate between 1994
and 1998 to $8.9 billion. Through the efficiencies of online commerce and our
relationship with The Vitamin Shoppe, we believe that we have the opportunity to
capture market share and to improve the margins that we have experienced.
Between the April 1998 launch of our website and June 1999, more than 48,000
customers placed over 95,000 orders online. During this period, our average
order (excluding shipping charges) was approximately $74, which we believe
surpassed the online average for vitamins, nutritional supplements and minerals.
The average number of orders placed on our website each week grew from 381 in
April 1998 to 2,870 in June 1999. The average number of orders placed on our
website grew at a compounded monthly rate of 14% during the six months ended
June 30, 1999. We generated revenues of $2.9 million in 1998 and $4.3 million
during the six months ended June 30, 1999.
Our main offices are located at 444 Madison Avenue, Suite 802, New York,
New York 10022, and our telephone number is (212) 308-6730.
THE OFFERING
Class A common stock offered..... 4,545,455 shares
Class A common stock to be
outstanding upon the closing of
this offering.................... 7,277,574 shares
Class B common stock to be
outstanding upon the closing of
this offering.................... 13,081,500 shares
Use of proceeds.................. For enhancements to our website, capital
expenditures, advertising and marketing
activities, working capital, other general
corporate purposes and repayment of a note
due to The Vitamin Shoppe. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol........................... "VSHP"
The number of shares of Class A common stock to be outstanding upon the
closing of this offering excludes 818,509 shares of Class A common stock
issuable upon the exercise of stock options outstanding as of August 31, 1999 at
a weighted average exercise price of $5.44 per share, 32,703 shares issuable
upon the exercise of warrants at an as-converted exercise price of $9.15 per
share, 401,514 shares issuable upon the exercise of options to be granted upon
the closing of this offering at the initial public offering price, which is
assumed to be $11.00 per share, and 1,550,177 shares of Class A common stock
available for future grant under our stock option plans.
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SUMMARY FINANCIAL INFORMATION
You should read the following summary financial information in conjunction
with "Selected Financial Data," "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the financial statements and
notes to those statements included elsewhere in this prospectus. Although we
were not operating as a separate company until July 1999, the historical
financial information below presents the operations of The Vitamin Shoppe's
online business as if we had been a separate entity since October 1, 1997 (date
of inception). The historical financial information includes allocations for
supply, fulfillment, promotional, administrative and other expenses incurred by
The Vitamin Shoppe for services rendered to us. The pro forma statement of
operations data give retroactive effect to adjustments resulting from the
implementation of the trademark license agreement and the supply and fulfillment
agreement. See "Business -- Intercompany Agreements" for a summary of the
material terms of these agreements.
The number of shares used to compute pro forma per share amounts includes
(1) 13,081,500 shares of Class B common stock and (2) 2,732,119 shares of Class
A common stock issuable upon conversion of Series A convertible preferred stock
upon the closing of this offering, in each case as if all shares were
outstanding as of January 1, 1998. The pro forma balance sheet data reflect the
sale of Series A convertible preferred stock in July 1999 for net proceeds of
approximately $24 million and the conversion of these securities into 2,732,119
shares of Class A common stock upon the closing of this offering. Pro forma as
adjusted data reflect the sale of 4,545,455 shares of Class A common stock in
this offering at an assumed initial public offering price of $11.00 per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses and after applying a portion of the proceeds of the offering
to repay a note due to The Vitamin Shoppe.
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HISTORICAL PRO FORMA
-------------------------------------------------- ---------------------------
PERIOD FROM
OCTOBER 1, 1997
(DATE OF
INCEPTION) SIX MONTHS SIX MONTHS
THROUGH YEAR ENDED ENDED JUNE 30, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ----------------- DECEMBER 31, JUNE 30,
1997 1998 1998 1999 1998 1999
--------------- ------------ ------- ------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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STATEMENT OF OPERATIONS
DATA:
Net sales................. $ -- $ 2,861 $ 480 $ 4,303 $ 2,861 $ 4,303
Gross profit.............. -- 1,454 241 2,199 1,384 2,093
Loss from operations...... (349) (3,320) (661) (4,204) (4,210) (4,914)
Net loss.................. $ (353) $(3,440) $ (688) $(4,425) $ (4,360) $ (5,192)
Pro forma basic and
diluted net loss per
share................... $ (0.28) $ (0.33)
Shares used to compute pro
forma basic and diluted
net loss per share...... 15,813,619 15,813,619
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AS OF JUNE 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- --------- -----------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $24,086 $63,283
Working capital (deficiency)................................ (8,869) 15,217 60,217
Total assets................................................ 817 24,903 64,100
Note due to The Vitamin Shoppe.............................. 5,803 5,803 --
Stockholders' equity (deficit).............................. (8,133) 15,953 60,953
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RISK FACTORS
You should carefully consider the risks described below before investing in
the Class A common stock. The risks and uncertainties described below may not be
the only risks that we face. The factors discussed below may harm our business,
financial condition and results of operations and could result in a complete
loss of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY
VitaminShoppe.com is a new company in a new and volatile industry. Our
website was launched in April 1998, and our management team is new. We expect to
encounter difficulties as an early stage company in the rapidly evolving online
commerce industry. Our business strategy is unproven, and we may not be
successful in addressing early stage challenges, such as establishing our
position in the market and expanding our online presence and capabilities. To
implement our business plan, we must increase our marketing initiatives,
identify and enter into additional strategic relationships and incorporate rapid
technological advances.
WE HAVE NO HISTORY AS AN INDEPENDENT COMPANY
VitaminShoppe.com has no operating history as an independent company. Until
July 1999, The Vitamin Shoppe conducted our online business as one of its
divisions. We have entered into intercompany agreements under which The Vitamin
Shoppe has licensed its trademarks to us for use in online commerce and provides
supply, fulfillment, promotional, administrative and other services to us. We
expect to rely on The Vitamin Shoppe for supply, fulfillment and promotional
services for the foreseeable future. In addition, we expect to rely on The
Vitamin Shoppe through at least June 2000 for human resources, finance,
accounting, management information and other administrative support. If The
Vitamin Shoppe fails to provide adequate services and we do not develop systems
of our own, we will be unable to operate our business. The Vitamin Shoppe also
funded our operating losses until July 1999. Failure to obtain alternative
sources to fund our expected operating losses will limit our ability to make the
expenditures necessary to expand our business. See "Business -- Intercompany
Agreements" for a summary of the material terms of these agreements.
WE EXPECT TO GENERATE OPERATING LOSSES AND TO EXPERIENCE NEGATIVE CASH FLOW FOR
THE FORESEEABLE FUTURE
We have incurred a net loss in each quarter since inception and expect to
incur net losses for the foreseeable future. Our success depends on increasing
awareness of the VitaminShoppe.com(TM) brand, providing our customers with a
quality online shopping experience and investing in systems and technology that
will support increased traffic to our website. Accordingly, we intend to
increase our marketing and promotional expenditures dramatically, to make
additional payments in connection with strategic relationships and to make
capital expenditures to develop and maintain the quality of our website and
operating systems. Payments to The Vitamin Shoppe under the intercompany
agreements for the use of its trademarks and for supply, fulfillment and
promotional services will also require greater expenditures than when we
operated as a division of The Vitamin Shoppe.
WE MAY NEED ADDITIONAL CAPITAL
We require substantial capital to fund our business. Since our inception,
we have experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations for the foreseeable future. We
expect that the net proceeds of this offering, together with our available
funds, will be sufficient to meet our expected needs for working capital and
capital expenditures for at least the next 12 months. We may need to raise
additional funds prior to the end of this period. We cannot be certain that
additional financing will be available to us when required on favorable terms or
at all. Our inability to obtain adequate capital would limit our ability to
achieve the level of corporate growth that we believe to
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be necessary to succeed in our business. If we raise additional funds in the
future through the issuance of equity or debt securities, then these securities
may have rights, preferences or privileges senior to the rights of the Class A
common stock, and holders may experience additional dilution. See "Dilution."
WE MUST ESTABLISH OUR BRAND QUICKLY AND COST-EFFECTIVELY IN ONLINE COMMERCE TO
REMAIN COMPETITIVE
We must establish, maintain and enhance the VitaminShoppe.com(TM) brand to
attract more customers to our website and to generate revenues from product
sales. Brand recognition and customer loyalty will become increasingly important
as more companies with established brands in online services or vitamins,
nutritional supplements and minerals offer competing services on the Internet.
Development of the VitaminShoppe.com(TM) brand will depend largely on our
success in providing a quality online shopping experience supported by high
levels of customer service. We expect to increase our expenditures on programs
designed to create and maintain strong brand loyalty among customers, but we
cannot be certain that our efforts will be successful.
CONSUMERS MAY NOT ACCEPT AN ONLINE SOURCE FOR OUR PRODUCTS
Our success depends on attracting and retaining a high volume of online
customers at a reasonable cost. We may not be able to convert a large number of
consumers from traditional shopping methods to online shopping. Factors that
could prevent or delay the widespread consumer acceptance of purchasing
vitamins, nutritional supplements and minerals online, and consequently our
ability to increase our revenues, include:
- shipping charges, which do not apply to shopping at traditional retail
stores;
- delivery time associated with online orders, as compared to the immediate
receipt of products at a physical store;
- pricing that does not meet consumer expectations of finding "the lowest
price on the Internet";
- lack of consumer awareness of our online presence;
- customer concerns about the security of online transactions and the
privacy of their personal health information;
- product damage from shipping or shipments of wrong or expired products,
which may result in a failure to establish customer trust in purchasing
our products online;
- delays in responses to customer inquiries or in deliveries to customers;
and
- difficulty in returning or exchanging orders.
WE MAY FAIL TO HIRE, RETAIN AND INTEGRATE KEY PERSONNEL TO REMAIN COMPETITIVE IN
OUR INDUSTRY
Our success depends on hiring, retaining and integrating senior management
and skilled employees in order to expand our business. Our president and chief
executive officer, Kathryn H. Creech, joined us in May 1999, and several senior
management positions have not yet been filled. Loss of the services of Ms.
Creech or other members of senior management could slow the growth of our
business. Our senior management may not perform effectively as individuals or
work together as a team. In addition, competition for employees in our industry
is intense. We expect to experience difficulty in hiring and retaining skilled
employees.
WE FACE INTENSE COMPETITION
We compete with numerous resellers, manufacturers and wholesalers,
including other online companies as well as retail and catalog sources. Some of
our competitors may have greater access to capital than we do and may use these
resources to engage in aggressive advertising and marketing campaigns. The
current prevalence of aggressive advertising and promotion may generate pricing
pressures to which we must respond.
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We expect that competition will continue to increase because of the
relative ease with which new websites may be developed. The nature of the
Internet as an electronic marketplace may facilitate competitive entry and
comparison shopping and may also render online commerce inherently more
competitive than traditional retailing formats. Increased competition may reduce
our gross margins, cause us to lose market share and decrease the value of the
VitaminShoppe.com(TM) brand. See "Business -- Competition."
WE ARE HEAVILY DEPENDENT UPON ADVERTISING AND STRATEGIC RELATIONSHIPS TO
GENERATE SALES
We rely on advertising and strategic relationships to attract customers to
our website. We intend to increase our advertising and marketing expenditures
dramatically to promote the VitaminShoppe.com(TM) brand through online
advertising, through newspaper, television and radio advertising and through
promotional references in The Vitamin Shoppe print catalogs. Our online
advertising may include strategic relationships that require costly, long-term
commitments. This advertising may not attract a significant number of customers
to our website or generate a substantial amount of sales. In addition, software
is now or will soon be available that permits an Internet user to block online
banner advertising. If customers are able to block the viewing of banner
advertising, then our advertising investment may not generate the expected level
of sales.
EXTENSIVE GOVERNMENTAL REGULATION COULD LIMIT OUR SALES OR ADD SIGNIFICANT
ADDITIONAL COSTS TO OUR BUSINESS
Because the online market for vitamins, nutritional supplements and
minerals is relatively new, there is little common law or regulatory guidance
that clarifies the manner in which government regulation impacts online sales.
Governmental regulation may limit our sales or add significant additional costs
to our business. The two principal federal agencies that regulate dietary
supplements, including vitamins, nutritional supplements and minerals, are the
Food and Drug Administration and the Federal Trade Commission. Among other
matters, FDA regulations govern claims that assert the health or nutritional
value of a product. Many FDA and FTC remedies and processes, including imposing
civil penalties in the millions of dollars and commencing criminal prosecution,
are available under federal statutes and regulations if product claims violate
the law. Similar enforcement action may also result from noncompliance with
other regulatory requirements, such as FDA labeling rules. The FDA also reviews
some product claims that companies must submit for agency evaluation and may
find them unacceptable. State, local and foreign authorities may also bring
enforcement actions for violations of these laws. In addition, because we sell
products outside the United States, our business is also subject to the risks
associated with United States and foreign legislation and regulations relating
to exports. See "Business -- Government Regulation" for additional discussion of
the government regulations impacting our business.
THE SALE OF OUR PRODUCTS INVOLVES PRODUCT LIABILITY AND OTHER RISKS
Like any other distributor or manufacturer of products that are ingested,
we face an inherent risk of exposure to product liability claims if the use of
our products results in illness or injury. If we do not have adequate insurance
or contractual indemnification, product liability claims could have a material
adverse effect on our business. Manufacturers and distributors of vitamins,
nutritional supplements and minerals, including The Vitamin Shoppe, have been
named as defendants in product liability lawsuits from time to time. The
successful assertion or settlement of an uninsured claim, a significant number
of insured claims or a claim exceeding the limits of our insurance coverage
would harm us by adding additional costs to our business and by diverting the
attention of our senior management from the operation of our business.
Some of our products contain innovative ingredients or combinations of
ingredients, and there is little long-term experience with human consumption of
these ingredients or combinations in concentrated form. In addition,
interactions of these products with other similar products, prescription
medicines and over-the-counter drugs have not been fully explored. Although the
manufacturer may perform research and tests in connection with the formulation
and production of the products that we sell, there are no conclusive clinical
studies regarding many of our products.
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We depend upon customer perceptions about the safety and quality of our
products and similar products distributed by our competitors. The mere
publication of reports asserting that a particular product may be harmful may
substantially reduce or eliminate sales of the product, regardless of whether
the reports are scientifically supported and regardless of whether the harmful
effects would be present at recommended dosages.
Vitamins, nutritional supplements and minerals are subject to sharp
increases in consumer interest, which in some cases stems from discussion of
particular products in the popular press. A significant delay in or disruption
of the supply of products to The Vitamin Shoppe from suppliers and distributors
may increase our cost of goods and could result in a substantial reduction or
termination of sales of some products.
WE MAY BE UNABLE TO INCREASE OUR CAPACITY TO SUPPORT INCREASED TRAFFIC TO OUR
WEBSITE
Our success depends on generating a high volume of traffic to our website.
However, growth in the number of users accessing our website may strain or
exceed the capacity of our computer systems and lead to declines in performance
or systems failure. We believe that our present systems will not be adequate to
accommodate rapid growth in user demand. Increased sales volume as a result of
increased traffic may exceed our supply and fulfillment capabilities. Failure to
accommodate increased traffic may decrease levels of customer service and
satisfaction.
WE MAY EXPERIENCE A DROP IN SALES IF OUR WEBSITE AND SYSTEMS ARE NOT AS
CONVENIENT TO USE AS THE SITES OF OUR COMPETITORS
We must continually improve and enhance the functionality and performance
of our website, order tracking and other technical systems to provide a
convenient shopping experience. We must also introduce additional or enhanced
features and services from time to time to attract and retain customers. Failure
to improve these systems effectively or within a reasonable period of time may
cause customers to visit our website less frequently or not at all. New services
or features may contain errors, and we may need to modify the design of these
services to correct errors. If customers encounter difficulty with or do not
accept new services or features, they may buy from other online vendors and
cause our sales to decline.
OUR COMPUTER AND COMMUNICATIONS SYSTEMS MAY FAIL OR EXPERIENCE DELAYS
Our success, and in particular our ability to receive and fulfill orders
and provide quality customer service, depends on the efficient and uninterrupted
operation of our computer systems. Systems interruptions may result from fire,
power loss, water damage, telecommunications failures, vandalism and other
malicious acts and problems related to our equipment. Our website may also
experience disruptions or interruptions in service due to failures by
third-party communications providers. We depend on communications providers and
our website host to provide our customers with access to our website. In
addition, our customers depend on their own Internet service providers for
access to our website. Periodic systems interruptions will occur. These
occurrences may cause customers to perceive our website as not functioning
properly and therefore cause them to stop using our services.
WE DEPEND ON THIRD-PARTY SHIPPERS TO DELIVER OUR PRODUCTS IN A TIMELY MANNER
Our customers cannot visit physical stores to pick up our products. Our
product distribution relies instead on third-party delivery services, including
the United States Postal Service and United Parcel Service. Strikes and other
interruptions may delay the timely delivery of customer orders, and customers
may refuse to purchase our products because of this loss of convenience.
FAILURE OF OUR COMPUTER SYSTEMS TO RECOGNIZE THE YEAR 2000 COULD DISRUPT THE
OPERATION OF OUR BUSINESS AND TECHNICAL SYSTEMS
Many existing computer programs and systems use only two digits to identify
a year. These programs and systems were designed and developed without
considering the impact of the upcoming change in the
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century. If not corrected, these computer applications could fail or create
erroneous results by, at or beyond the year 2000. We use software, computer
technology and other services internally developed and provided by third-party
vendors, some of which may fail due to the year 2000 problem. In reasonably
likely worst case scenarios:
- failures or miscalculations could cause a total systemwide failure of our
website;
- we could experience increased expenses associated with stabilization of
operations after critical systems failure and execution of contingency
plans; or
- we could experience disruptions to our operations, including an inability
of our customers to access our website to make purchases and our
inability to process customers orders and deliver products.
These disruptions could also impact our ability to operate our website or engage
in similar ordinary business activities.
Our operations also depend on the performance of operating software and
systems used by our vendors and service providers. We cannot assure you that our
vendors and service providers have or will have operating software and systems
that are year 2000 compliant. Year 2000-related failures in the software or
systems of our vendors or third-party service providers could interrupt our
operations or require us to incur significant unexpected expenses. In addition,
disruptions caused by year 2000 problems could affect Internet usage generally.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" for additional information related to our
year 2000 compliance.
QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
As a result of our limited operating history, our future revenues and the
factors, such as seasonality, which may affect the timing of our revenues are
difficult to forecast. In addition, our revenues and operating results may vary
significantly from quarter to quarter due to a number of factors. Many of these
factors are outside our control and include:
- our ability to retain existing customers, to attract new customers at a
steady rate and to maintain customer satisfaction;
- our ability to maintain gross margins;
- changes in the growth rate of Internet usage and online user traffic
levels;
- the timing and amount of costs relating to the expansion of our
operations;
- improvements to our computer systems from time to time; and
- general economic and market conditions.
Most of our operating expenses are difficult to adjust in the short term. As a
result, quarterly comparisons of our results of operations are not necessarily
indicative of operating results for any future period.
RISKS RELATED TO OUR RELATIONSHIP WITH THE VITAMIN SHOPPE
THE VITAMIN SHOPPE CONTROLS VITAMINSHOPPE.COM
The Vitamin Shoppe owns all of the outstanding shares of our Class B common
stock. The Class A common stock being offered entitles its holders to one vote
per share, while the Class B common stock entitles The Vitamin Shoppe to six
votes per share. Consequently, The Vitamin Shoppe and some of its stockholders
will be able to elect all but one of the members of our board of directors and
will have a controlling vote in all matters requiring the approval of our
stockholders, including the approval of mergers and business combinations. The
Vitamin Shoppe's control of VitaminShoppe.com may decrease the value of the
Class A common stock and could delay or prevent a change in control of
VitaminShoppe.com.
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The Vitamin Shoppe may elect to sell all or a substantial portion of our
Class B common stock to one or more third parties. The Class B common stock will
convert into Class A common stock upon any sale to a person or entity not
affiliated with The Vitamin Shoppe. Although the third parties after such a sale
would have only one vote per share instead of the six votes per share that The
Vitamin Shoppe had, they may hold enough of the voting power of our capital
stock to control VitaminShoppe.com through the election of directors and in
matters requiring stockholder approval.
Under the agreements that govern The Vitamin Shoppe's bank credit facility,
all of our Class B common stock has been pledged by The Vitamin Shoppe as
security for its obligations. If The Vitamin Shoppe defaults under its bank
credit facility, its lender could take ownership of the Class B common stock,
which would then convert into Class A common stock. In that case, the lender may
be able to control VitaminShoppe.com through the election of directors and in
matters requiring stockholder approval.
OVERLAPPING MANAGEMENT AND BOARDS OF DIRECTORS COULD CAUSE CONFLICTS OF INTEREST
Jeffrey J. Horowitz is the chairman of the board of directors of
VitaminShoppe.com and the president and chief executive officer of The Vitamin
Shoppe. Larry M. Segall is the chief financial officer of both VitaminShoppe.com
and The Vitamin Shoppe. Jeffrey J. Horowitz, Martin L. Edelman, M. Anthony
Fisher, David S. Gellman and Stephen P. Murray are directors of both
VitaminShoppe.com and The Vitamin Shoppe. Serving as a director or officer of
VitaminShoppe.com and a director or officer of The Vitamin Shoppe could create
or appear to create potential conflicts of interest when those directors and
officers are faced with decisions that could have different implications for
VitaminShoppe.com and The Vitamin Shoppe. These decisions may relate, for
example, to the allocation of manpower resources, potential acquisitions of
businesses, the intercompany agreements, competition, the issuance or
disposition of securities, the election of new or additional directors, the
payment of dividends by VitaminShoppe.com and other matters. The inability to
resolve these disputes would harm our business. VitaminShoppe.com and The
Vitamin Shoppe have not instituted any formal plan or arrangement to address
potential conflicts of interest that may arise.
Messrs. Horowitz and Segall will be officers of both VitaminShoppe.com and
The Vitamin Shoppe and will expend a substantial amount of their professional
time and effort on behalf of The Vitamin Shoppe. In many instances, their work
for The Vitamin Shoppe will involve activities that are unrelated to, and in
some circumstances may be different than or adverse to, the interests of
VitaminShoppe.com. We have not established any minimum time that Messrs.
Horowitz and Segall will be required to spend on VitaminShoppe.com matters.
We expect that Mr. Horowitz will continue to be one of the principal
stockholders of both The Vitamin Shoppe and VitaminShoppe.com after the closing
of this offering. We expect that Mr. Segall will continue to hold the options to
acquire The Vitamin Shoppe capital stock that he has been granted. The ownership
interests in VitaminShoppe.com that Messrs. Horowitz and Segall hold might not
be equivalent to the ownership interests that they hold in The Vitamin Shoppe.
Differing ownership interests in VitaminShoppe.com and The Vitamin Shoppe may
present Messrs. Horowitz and Segall with incentives potentially adverse to the
interests of VitaminShoppe.com stockholders.
WE DEPEND ON THE VITAMIN SHOPPE'S TRADEMARKS AND ITS SUPPLY OF PRODUCTS AND
SERVICES
We have entered into intercompany agreements under which The Vitamin Shoppe
has licensed its trademarks to us and provides supply, fulfillment, promotional,
administrative and other services to us. These trademarks and services are
critical to our success. The agreements call for significant payments to The
Vitamin Shoppe for the foreseeable future. Termination of the intercompany
agreements or the failure of The Vitamin Shoppe to perform its obligations under
these agreements would materially harm our business. See
"Business -- Intercompany Agreements" for a summary of the material terms of
these agreements.
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We depend on trademarks licensed from The Vitamin Shoppe. Under the
trademark license agreement, The Vitamin Shoppe has licensed trademarks,
including The Vitamin Shoppe(R) logo and name, to us on an exclusive basis in
connection with our marketing and sale of products and services in online
commerce. If the trademark license agreement terminates, we may be required to
change the domain names of our websites and devote substantial resources to
building a new brand name. The trademark license agreement also contains
restrictions that may prevent us from marketing and selling products and
services as we would if we owned the trademarks ourselves. The Vitamin Shoppe
has the right to demand that we remove from our website any online content that
bears any trademark of The Vitamin Shoppe if The Vitamin Shoppe determines that
the content is detrimental to The Vitamin Shoppe's reputation.
We depend on The Vitamin Shoppe as a supplier. Under the supply and
fulfillment agreement, we will obtain substantially all of the products that we
sell from The Vitamin Shoppe at a cost to us equal to 105% of The Vitamin
Shoppe's product cost. If the supply and fulfillment agreement terminates, we
may not be able to find an alternative supplier capable of providing our
products on terms satisfactory or as favorable to us. As a result, our success
depends on the ability of The Vitamin Shoppe to obtain products from third-party
vendors at competitive prices, in sufficient quantities and of acceptable
quality. During 1998, eight manufacturers supplied 89% of The Vitamin Shoppe's
purchases of bulk vitamins, nutritional supplements and minerals for packaging
into The Vitamin Shoppe(R) brand products. Ten suppliers and four distributors
supplied 58% of the other branded products sold by The Vitamin Shoppe and us. No
other manufacturers, suppliers or distributors accounted for a material amount
of The Vitamin Shoppe's product requirements. The Vitamin Shoppe does not have
long-term contracts with any of its suppliers or distributors, and some of its
smaller sources have limited resources, production capacities and operating
histories. If key vendors fail to meet our product needs, if The Vitamin Shoppe
loses one or more key vendors or if The Vitamin Shoppe's vendor terms change,
The Vitamin Shoppe's cost and therefore our cost will likely increase. Any
increase in costs will be passed on to us, and we may not be able to pass the
increased costs to our customers because of competitive pricing pressures. If
The Vitamin Shoppe does not have sufficient capacity or is unable to satisfy our
increasing requirements on a timely basis, we may be unable to obtain products
to fill customer orders.
We depend on The Vitamin Shoppe for fulfillment. Under the supply and
fulfillment agreement, The Vitamin Shoppe will fulfill substantially all of our
sales orders at a cost to us equal to 105% of The Vitamin Shoppe's actual
average unit cost per package. The Vitamin Shoppe is obligated to use its best
efforts to cause the quality of its fulfillment services to be at least as high
as The Vitamin Shoppe provides when fulfilling orders for its catalog
operations. Our success depends on The Vitamin Shoppe's ability to fulfill our
orders in an accurate and timely manner.
We depend on promotions in The Vitamin Shoppe print catalogs and retail
stores. Under the co-marketing agreement, The Vitamin Shoppe will provide us
with promotional references and advertisements in The Vitamin Shoppe print
catalogs and retail stores. The Vitamin Shoppe makes no guarantee as to the
demographic composition of the target audience of its catalogs. If the
co-marketing agreement terminates, we believe that we would make fewer sales on
our website.
We depend on The Vitamin Shoppe for administrative services. Under the
administrative services agreement, The Vitamin Shoppe will provide human
resources, finance, accounting, management information and other administrative
services. We currently have no administrative infrastructure and rely completely
on The Vitamin Shoppe for these functions. If The Vitamin Shoppe fails to
provide these services satisfactorily, we will be required to perform these
services or to obtain these services from another source. We may incur
additional expenses to obtain these services or be unable to obtain these
services on commercially reasonable terms. If we were to perform these services
with internal resources, we may not perform them adequately. As a result, we may
fail to retain important personnel and customers.
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WE MAY BE LIABLE FOR THE VITAMIN SHOPPE'S TAX OBLIGATIONS
Under the tax allocation agreement between The Vitamin Shoppe and us, The
Vitamin Shoppe may elect to include us in its "consolidated group" for federal
income tax purposes with respect to taxable periods prior to the closing of this
offering during which The Vitamin Shoppe owned enough of our capital stock to
permit such an election. If such an election is made and thereafter The Vitamin
Shoppe or other members of the group fail to make any federal income tax
payments required by law for any period during which we were included in the
group, then we would be contingently liable for the shortfall. Similar
principles apply for state income tax purposes in many states. Under the tax
allocation agreement, for any taxable period during which we are included in The
Vitamin Shoppe's consolidated group, we will pay The Vitamin Shoppe a portion of
the income tax liability of the group computed as if we were a separate
taxpayer. Notwithstanding the tax allocation agreement, federal law provides
that each member of a consolidated group is liable for the tax obligation of the
entire group.
Prior to the closing of this offering, The Vitamin Shoppe has controlled
all tax decisions relating to us and has had sole authority to respond to and
conduct all tax proceedings, including audits, to file income tax returns on our
behalf and to determine the amount that The Vitamin Shoppe should pay under the
tax allocation agreement.
Under the intercompany indemnification agreement, The Vitamin Shoppe will
indemnify us for tax liabilities resulting from The Vitamin Shoppe's
relationship with us, including the costs of defending against any claims
against us directly. The Vitamin Shoppe may not be able to fulfill its
obligations under the intercompany indemnification agreement. Therefore, we may
not obtain indemnification for tax payments on The Vitamin Shoppe's behalf.
RISKS RELATED TO THE INTERNET AND ONLINE COMMERCE
WE DEPEND ON CONTINUED GROWTH IN USE OF THE INTERNET AND ONLINE COMMERCE
Our success depends upon the ability of the Internet infrastructure to
support increased use. The performance and reliability of the Internet may
decline as the number of online users grows or bandwidth requirements increase.
The Internet has experienced a variety of outages due to damage to portions of
its infrastructure. If outages or delays frequently occur in the future,
Internet usage and usage of our website could grow slowly or decline. Concerns
about inadequate Internet infrastructure, security, reliability, accessibility,
privacy and the availability of cost-effective, high-speed service also may
inhibit growth in Internet usage. Even if the necessary infrastructure or
technologies develop, we may incur significant costs to adapt our operating
strategy. Our success also depends upon acceptance and use of online commerce as
an effective medium of commerce. Widespread use of the Internet and online
commerce is a recent phenomenon. A large base of consumers may not adopt and
continue to use the Internet as a medium of commerce.
WE MAY BE UNABLE TO RESPOND TO RAPID CHANGE IN THE ONLINE COMMERCE INDUSTRY
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our website. Online commerce has
been characterized by rapid technological change, evolving industry standards,
changes in user and customer requirements and preferences, frequent new product
and service introductions embodying new technologies and the emergence of new
industry standards and practices that could render our website, technology and
systems obsolete. We must obtain licensed technologies useful in our business,
enhance our existing services, develop new services and technologies that
address sophisticated and varied consumer needs, respond to technological
advances and emerging industry standards and practices on a timely and
cost-effective basis and address evolving customer preferences. We may
experience difficulties that delay or prevent our being able to respond to these
changes.
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WE MAY BE SUED OR OUR BUSINESS MAY BE DISRUPTED DUE TO PRIVACY OR SECURITY
CONCERNS AND CREDIT CARD FRAUD
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To transmit confidential information securely, we rely on
encryption and authentication technology licensed to us by third parties. Events
or developments may result in a compromise or breach of the algorithms that we
use to protect customer transaction data. Any penetration of our network
security or misappropriation of our customers' personal or credit card
information could subject us to liability.
We may also be liable for claims based on unauthorized purchases with
credit card information, impersonation or other similar fraud claims. Under
current credit card practices, a merchant is liable for fraudulent credit card
transactions where, as is the case with the transactions we process, that
merchant does not obtain a cardholder's signature.
Furthermore, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to expend significant
additional capital and other resources to protect against a security breach or
to alleviate problems caused by any breaches. Our business may be harmed if our
security measures do not prevent security breaches.
Claims could also be based on other misuses of personal information, such
as for unauthorized marketing purposes. Websites typically place identifying
data "cookies" on a user's computer hard drive without the user's express
consent. Most currently available Internet browsers allow users to remove
cookies at any time or to prevent cookies from being stored on their computer
hard drives. Currently, our customers must set their computers to accept cookies
in order to purchase our products. We may use cookies for a variety of reasons,
including the collection of data derived from the user's online activity. Any
reduction or limitation in the use of cookies could limit the effectiveness of
our sales and marketing efforts. In addition, some commentators, privacy
advocates and governmental bodies have suggested that the use of cookies be
limited or eliminated. The Federal Trade Commission and several states have
investigated the use of personal information by online companies. We may incur
expense if regulations regarding the use of personal information are introduced
or if our privacy practices were investigated.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL BURDENS TO
DOING BUSINESS ONLINE
Online commerce is new and rapidly changing, and federal and state
regulations relating to the Internet and online commerce are relatively new and
evolving. Due to the increasing popularity of the Internet, it is possible that
laws and regulations may be enacted to address issues such as user privacy,
pricing, content, copyrights, distribution, antitrust matters and the quality of
products and services. The adoption of these laws or regulations could reduce
the rate of growth of the Internet, which could potentially decrease the usage
of our website and could otherwise harm our business. In addition, the
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, libel, obscenity
and personal privacy is uncertain. Most of these laws were adopted prior to the
advent of the Internet and do not contemplate or address the unique issues of
the Internet. New laws applicable to the Internet may impose substantial burdens
on companies conducting online commerce. In addition, the growth and development
of online commerce may prompt calls for more stringent consumer protection laws
in the United States and abroad. We also may be subject to regulation not
specifically related to the Internet, such as laws affecting catalog sellers.
Several telecommunications carriers have asked the Federal Communications
Commission to regulate telecommunications over the Internet. Due to the
increasing use of the Internet and the burden it has placed on the
telecommunications infrastructure, telephone carriers have requested the FCC to
regulate Internet and online service providers and to impose access fees on
those providers. If the FCC imposes access fees, the costs of using the Internet
could increase dramatically. In this event, our margins could be negatively
impacted.
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WE MAY BECOME LIABLE FOR SALES AND OTHER TAXES
Sales tax. Although our online transmissions and order fulfillment takes
place in New Jersey and New York, the governments of other states or foreign
countries may attempt to regulate our transmissions or levy sales or other taxes
relating to our activities. In accordance with current industry practice, we do
not collect sales or other taxes in respect of shipments of goods into states
other than New Jersey and New York. Neither New Jersey nor New York imposes
sales tax on any of the products that we sell, other than cosmetics and books.
However, one or more states or foreign countries may seek to impose sales or
other tax collection obligations on out-of-jurisdiction companies like us that
engage in online commerce. A successful assertion that we should collect sales
or other taxes on the sale of merchandise would increase the cost of our
products to customers. While we do not believe that our relationship with The
Vitamin Shoppe would subject us to sales or use taxes in every jurisdiction in
which The Vitamin Shoppe operates a retail store, a jurisdiction may seek to
impose a sales or use tax based on this relationship or some other basis. If
asserted, we may not be successful in any challenge to this assertion.
Other taxes. Recent federal legislation limits the imposition of state and
local taxes on the Internet. In 1998, Congress passed the Internet Tax Freedom
Act, which places a three-year moratorium on state and local taxes on (1)
Internet access, unless such tax was already imposed prior to October 1, 1998,
and (2) discriminatory taxes on online commerce. Congress may not renew this
legislation in 2001, in which case state and local governments would be free to
impose Internet-specific taxes on electronically purchased goods, in addition to
any other taxes that may otherwise be imposed on the transaction. Any such taxes
would harm our business. Due to the high level of uncertainty regarding the
imposition of new Internet-related taxes on online commerce, a number of states
and a Congressional advisory commission are reviewing appropriate tax treatment
for online commerce. We cannot predict the impact of additional laws or
regulations on our business.
WE MAY BE LIABLE FOR INFORMATION DISPLAYED ON AND COMMUNICATED THROUGH OUR
WEBSITE
We may be subjected to claims based on defamation, negligence, copyright or
trademark infringement or other theories relating to the information that we
publish on our website. These claims have been brought against online companies
as well as print publications in the past. Based on hyperlinks that we provide
to other websites, we may also be subjected to claims based upon online content
that we do not control but that is accessible from our website.
CHANGES IN REGISTRATION OF DOMAIN NAMES MAY RESULT IN THE LOSS OF OR CHANGE IN
OUR DOMAIN NAME AND A REDUCTION IN BRAND AWARENESS AMONG OUR CUSTOMERS
The Vitamin Shoppe has transferred the VitaminShoppe.com domain name to us.
Domain names are typically registered by regulatory bodies. The regulation of
domain names in the United States and abroad is subject to change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, we may not acquire or maintain the VitaminShoppe.com domain name in
every jurisdiction in which we conduct business. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. As a result, we could be unable to prevent third
parties from acquiring domain names that infringe upon or otherwise decrease the
value of our trademarks and other proprietary rights.
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION IN USE OF PROCEEDS OF THIS OFFERING
Our management has broad discretion in the use of proceeds of this offering
and may use the proceeds in ways with which our stockholders may not agree. We
intend to use a substantial portion of the net proceeds from the offering for
advertising and marketing activities, enhancements to our website,
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capital expenditures, working capital, other general corporate purposes and
repayment of a note due to The Vitamin Shoppe. See "Use of Proceeds."
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE A CHANGE IN CONTROL
Some of the provisions of our certificate of incorporation and bylaws and
Delaware law could have the effect of delaying or preventing a change in control
of VitaminShoppe.com, even if a change in control would be beneficial to some of
our stockholders. In addition, our certificate of incorporation permits us to
issue preferred stock, which may also be used to delay or prevent a change in
control. See "Description of Capital Stock -- Preferred Stock" and
"-- Anti-Takeover Provisions."
WE DO NOT INTEND TO PAY DIVIDENDS
We do not currently intend to pay any dividends on the Class A common stock
or the Class B common stock. Our ability to pay cash distributions may be
restricted by covenants in any future bank credit facility. See "Dividend
Policy."
WE MAY ISSUE PREFERRED STOCK WITH RIGHTS SENIOR TO THE CLASS A COMMON STOCK
Our certificate of incorporation authorizes the issuance of up to 5,000,000
shares of preferred stock without stockholder approval. These shares may have
dividend, voting, liquidation and other rights and preferences that are senior
to the rights of the Class A common stock. We have no existing plans to issue
shares of preferred stock. The rights and preferences of any such class or
series of preferred stock would be established by our board of directors in its
sole discretion. See "Description of Capital Stock -- Preferred Stock."
INVESTORS IN THIS OFFERING WILL EXPERIENCE SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price for the Class A common stock being
offered will be substantially higher than the net tangible book value per share
of the Class A common stock and the Class B common stock outstanding before this
offering. Investors in this offering will experience immediate and substantial
dilution. See "Dilution" for a discussion of the dilution that investors will
experience.
FUTURE SALES OF COMMON STOCK MAY DEPRESS OUR STOCK PRICE
Sales of the Class A common stock or the Class B common stock following
this offering could adversely affect the market price of the Class A common
stock. All of the shares of Class A common stock being offered will be freely
tradable in the open market. In addition, approximately 130,815 additional
shares of Class A common stock may be sold upon the exercise of stock options
after the expiration of 180-day lock-up agreements.
THE MARKET PRICE OF THE CLASS A COMMON STOCK MAY BE EXTREMELY VOLATILE, AS HAS
BEEN TYPICAL FOR INTERNET-RELATED COMPANIES
Prior to this offering, there has been no public market for the Class A
common stock. The initial public offering price will be determined by
negotiations between us and the representatives of the underwriters and may not
reflect prices that will prevail in the trading market. Some of the factors to
be considered in these negotiations will be our results of operations in recent
periods, estimates of our prospects and the industry in which we compete, an
assessment of our management, the general state of the securities markets at the
time of this offering and the prices of similar securities of generally
comparable companies.
The initial public offering price of the Class A common stock may have no
relation to the price at which the Class A common stock will trade after the
closing of this offering. An active public market for the Class A common stock
may not develop or be sustained after this offering. The market price of the
Class A common stock may be extremely volatile for many reasons, including
actual or anticipated
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variations in our revenues and operating results, announcements of the
development of improved technology, the use of new sales formats by us or our
competitors, changes in financial forecasts by securities analysts, new
conditions or trends in the Internet and online commerce and general market
conditions. In particular, the market price of the Class A common stock could be
materially adversely affected by reports by official or unofficial health and
medical authorities and the general media regarding the potential health
benefits or detriments of products that we sell or of similar products
distributed by other companies, regardless of whether such reports are
scientifically supported and regardless of whether our operating results are
likely to be affected by such reports, as well as by consumer perceptions
regarding the safety and efficacy of nutritional supplements and consumer
preferences generally.
In addition, the stock market in general has experienced wide price and
volume fluctuations in recent periods, and these fluctuations are often
unrelated to the operating performance of the specific issuers whose stock is
affected. The trading market price of the Class A common stock may decline below
the initial public offering price. Recently, market prices for Internet-based
companies have experienced extreme price and volume fluctuations, particularly
after initial public offerings. These fluctuations are often unrelated or
disproportionate to the operating performance of those companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the
company. The institution of class action litigation against us could result in
substantial costs to us and a diversion of our management's attention and
resources.
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FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" identified by the use
of words like "believes," "intends," "expects," "may," "will," "should" or
"anticipates," or the negative equivalents of those words or comparable
terminology, and by discussions of strategies that involve risks and
uncertainties.
We base all forward-looking statements upon estimates and assumptions about
future events that are derived from information available to us on the date of
this prospectus. Given the risks and uncertainties of our business, actual
results may differ materially from those expressed or implied by forward-looking
statements. Risks, uncertainties and assumptions that may affect our business,
financial condition and results of operations include our lack of operating
history, the rapidly changing nature of the Internet and online commerce,
changes in general economic conditions in the market for vitamins, nutritional
supplements and minerals and the risks discussed in "Risk Factors."
We cannot assure you that our future results, levels of activity and
achievements will occur as we expect, and neither we nor any person assumes any
responsibility for the accuracy and completeness of our forward-looking
statements.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 4,545,455 shares of
Class A common stock being offered will be approximately $45 million, at an
assumed initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us. If the underwriters exercise their over-allotment option in full,
we estimate that the net proceeds from this offering will be approximately $52
million.
We intend to use approximately $7.3 million of the proceeds of this
offering for enhancements to our website and other capital expenditures and
approximately $5.8 million for the repayment of a note due to The Vitamin
Shoppe. The note due to The Vitamin Shoppe is payable upon demand by The Vitamin
Shoppe and bears interest at The Vitamin Shoppe's cost of funds from time to
time under its bank credit facility, which was 8.75% on June 30, 1999.
We intend to use the remainder of the net proceeds of this offering to
increase significantly our advertising and marketing activities through the end
of the year 2000 and for working capital and other general corporate purposes. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such acquisition.
To the extent that we do not use the net proceeds of this offering immediately,
we intend to invest the funds in short-term, investment-grade, interest-bearing
obligations.
DIVIDEND POLICY
We currently intend to retain any earnings to finance the operations and
expansion of our business, and we do not anticipate paying any cash dividends on
our capital stock in the foreseeable future. We may incur indebtedness in the
future, the terms of which may prohibit or effectively restrict the payment of
dividends.
17
<PAGE> 23
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of VitaminShoppe.com as of June 30, 1999:
(1) on an actual basis;
(2) on a pro forma basis giving effect to:
(a) the issuance and sale of Series A convertible preferred stock in
July 1999 for proceeds of approximately $24 million, net of offering
costs and expenses; and
(b) the automatic conversion of Series A convertible preferred stock
into 2,732,119 shares of Class A common stock upon the closing of
this offering, which reflects a 1.539-to-1 split of the Class A
common stock; and
(3) on a pro forma as adjusted basis giving effect to the sale of the
4,545,455 shares of Class A common stock in this offering at an assumed
initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us, applying a portion of the proceeds to repay a
note due to The Vitamin Shoppe in the principal amount of approximately
$5.8 million as of June 30, 1999 and taking into account a charge
related to the accelerated vesting of options to purchase 130,815
shares of Class A common stock at an exercise price of $3.82 per share.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes to those statements included elsewhere in this prospectus.
The number of shares of Class A common stock excludes 818,509 shares of Class A
common stock issuable upon the exercise of stock options outstanding as of
August 31, 1999 at a weighted average exercise price of $5.44 per share, 32,703
shares issuable upon the exercise of warrants at an as-converted exercise price
of $9.15 per share, 401,514 shares issuable upon the exercise of options to be
granted upon the closing of this offering at the initial public offering price,
which is assumed to be $11.00 per share, and 1,550,177 shares of Class A common
stock available for future grant under our stock option plans. See
"Management -- Non-Employee Director Stock Option Plan," "-- Executive
Compensation," "-- Stock Option Plan," "Description of Capital Stock" and note 7
of notes to financial statements.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ -- $24,086 $63,283
======= ======= =======
Note due to The Vitamin Shoppe.............................. $ 5,803 $ 5,803 $ --
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per share; no shares
authorized, issued or outstanding (actual); 5,000,000
shares authorized, no shares issued or outstanding (pro
forma and pro forma as adjusted)....................... -- -- --
Class A common stock, par value $0.01 per share; no shares
authorized, issued or outstanding (actual); 30,000,000
shares authorized (pro forma and pro forma as
adjusted); 2,732,119 shares issued and outstanding (pro
forma); 7,277,574 shares issued and outstanding (pro
forma as adjusted)..................................... -- 27 73
Class B common stock, par value $0.01 per share; no shares
authorized, issued or outstanding (actual); 15,000,000
shares authorized, 13,081,500 shares issued and
outstanding (pro forma and pro forma as adjusted)...... 131 131 131
Additional paid-in capital.................................. (5,316) 18,743 63,697
Deferred stock-based compensation........................... (2,948) (2,948) (2,251)
Accumulated deficit......................................... -- -- (697)
------- ------- -------
Total stockholders' equity (deficit)...................... (8,133) 15,953 60,953
------- ------- -------
Total capitalization................................... $(2,330) $21,756 $60,953
======= ======= =======
</TABLE>
18
<PAGE> 24
DILUTION
The pro forma net tangible book value of VitaminShoppe.com as of June 30,
1999 was approximately $16 million, or $1.01 per share of common stock. Pro
forma net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Class A common
stock and Class B common stock outstanding as of June 30, 1999, after giving pro
forma effect to our initial capitalization and subsequent recapitalization and
the issuance of Series A convertible preferred stock and warrants to purchase
Series A convertible preferred stock in July 1999. After giving effect to the
issuance and sale of 4,545,455 shares of Class A common stock in this offering
at an assumed initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us, the pro forma net tangible book value of
VitaminShoppe.com as of June 30, 1999 would have been $61 million, or $2.99 per
share. This amount represents an immediate increase in pro forma net tangible
book value of $1.98 per share to existing stockholders and an immediate dilution
of $8.01 per share to new investors. The following table illustrates this
per-share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share at June 30,
1999................................................... $1.01
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.98
-----
Pro forma net tangible book value per share after
offering.................................................. 2.99
------
Dilution per share to new investors......................... $ 8.01
======
</TABLE>
This table summarizes, on a pro forma basis as of June 30, 1999 and after
giving pro forma effect to our initial capitalization and subsequent
recapitalization and the issuance of Series A convertible preferred stock and
warrants to purchase Series A convertible preferred stock in July 1999, the
differences between the number of shares of common stock purchased from
VitaminShoppe.com, the aggregate cash consideration paid and the average price
per share paid by existing stockholders and new investors purchasing shares of
Class A common stock in this offering, before deducting estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 15,813,619 77.1% $25,001,000 33.0% $ 1.58
Options exercisable after
offering..................... 130,815 0.6% 499,713 0.7% $ 3.82
Warrants exercisable after
offering..................... 32,703 0.2% 299,065 0.4% $ 9.15
New investors.................. 4,545,455 22.1% 50,000,005 65.9% $11.00
---------- ----- ----------- -----
Total..................... 20,522,592 100.0% $75,799,783 100.0% $ 3.69
========== ===== =========== =====
</TABLE>
The foregoing table and calculation assumes the exercise of outstanding
stock options and warrants to purchase an aggregate of 163,518 shares of Class A
common stock that will be exercisable upon the closing of this offering. As of
August 31, 1999, there were stock options outstanding to purchase 818,509 shares
of Class A common stock at a weighted average exercise price of $5.44 per share
and warrants outstanding to purchase an equivalent of 32,703 shares of Class A
common stock at an as-converted exercise price of $9.15 per share. Upon the
closing of this offering, we will grant options to purchase 401,514 shares of
Class A common stock at the initial public offering price, which is assumed to
be $11.00 per share. To the extent that any of these stock options or warrants
are exercised, there will be further dilution to new investors. See
"Capitalization," "Management -- Non-employee Director Stock Option Plan,"
"-- Executive Compensation," "-- Stock Option Plan," "Description of Capital
Stock" and note 7 of notes to financial statements.
19
<PAGE> 25
SELECTED FINANCIAL DATA
You should read the following selected historical and pro forma financial
data in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes to
those statements included elsewhere in this prospectus. Although we were not
operating as a separate company until July 1999, the historical financial
statements present the operations of The Vitamin Shoppe's online businesses as
if we had been a separate entity since October 1, 1997 (date of inception). The
historical statement of operations data presented below for the period from
October 1, 1997 (date of inception) to December 31, 1997 and for the year ended
December 31, 1998, and the historical balance sheet data as of December 31, 1997
and 1998, are derived from financial statements of VitaminShoppe.com that have
been audited by Deloitte & Touche LLP, independent auditors, and are included
elsewhere in this prospectus. Interim financial data as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 are unaudited but, in the opinion of
management, include all normal recurring adjustments necessary for a fair
presentation of the data. Results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for any other interim
period or for 1999 as a whole.
The historical financial information includes allocations for supply,
fulfillment, promotional, administrative and other expenses incurred by The
Vitamin Shoppe for services rendered to us. While we believe these allocations
to be reasonable, they do not necessarily indicate, and it is not practical for
us to estimate, the levels of expenses that would have resulted had we been
operating as an independent company. We have entered into several intercompany
agreements under which The Vitamin Shoppe has licensed its trademarks to us for
use on the Internet and provides supply, fulfillment, promotional,
administrative and other services to us. These agreements involve some charges
that we did not incur in the past. While the intercompany agreements were not
negotiated on an arms-length basis, we believe that their terms are no less
favorable to us than could have been obtained from unaffiliated third parties.
See "Business -- Intercompany Agreements" for a summary of the material terms of
the agreements.
The pro forma statement of operations data give retroactive effect to
adjustments resulting from the implementation of the trademark license agreement
and the supply and fulfillment agreement with The Vitamin Shoppe. The number of
shares used to compute the pro forma per share amounts includes (1) 13,081,500
shares of Class B common stock and (2) 2,732,119 shares of Class A common stock
issuable upon conversion of Series A convertible preferred stock upon the
closing of this offering, in each case as if all shares were outstanding as of
January 1, 1998. Historical and pro forma financial results are not necessarily
indicative of the operating results for any future period.
The pro forma balance sheet data reflect the sale of Series A convertible
preferred stock in July 1999 for net proceeds of approximately $24 million and
the conversion of these securities into 2,732,119 shares of Class A common stock
upon the closing of this offering.
Pro forma as adjusted balance sheet data reflect the sale of 4,545,455
shares of Class A common stock in this offering at an assumed initial public
offering price of $11.00 per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses and after applying a
portion of the proceeds of the offering to repay a note due to The Vitamin
Shoppe.
20
<PAGE> 26
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------- ---------------------------
PERIOD FROM
OCTOBER 1, 1997
(DATE OF INCEPTION) SIX MONTHS SIX MONTHS
THROUGH YEAR ENDED ENDED JUNE 30, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, --------------- DECEMBER 31, JUNE 30,
1997 1998 1998 1999 1998 1999
------------------- ------------ ----- ------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................. $ -- $ 2,861 $ 480 $ 4,303 $ 2,861 $ 4,303
Cost of goods sold........ -- 1,407 239 2,104 1,477 2,210
----- ------- ----- ------- ----------- -----------
Gross profit.............. -- 1,454 241 2,199 1,384 2,093
Operating expenses:
Marketing and sales..... -- 3,215 392 4,367 4,032 4,922
Product development..... 285 642 195 719 642 719
General and
administrative....... 64 917 315 1,317 920 1,366
----- ------- ----- ------- ----------- -----------
Total operating
expenses........... 349 4,774 902 6,403 5,594 7,007
----- ------- ----- ------- ----------- -----------
Loss from operations...... (349) (3,320) (661) (4,204) (4,210) (4,914)
Interest expense.......... 4 120 27 221 150 278
----- ------- ----- ------- ----------- -----------
Net loss.................. $(353) $(3,440) $(688) $(4,425) $ (4,360) $ (5,192)
===== ======= ===== ======= =========== ===========
Pro forma basic and
diluted net loss per
share................... $ (0.28) $ (0.33)
=========== ===========
Shares used to compute pro
forma basic and diluted
net loss per share...... 15,813,619 15,813,619
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
AS OF DECEMBER 31, -----------------------------------
------------------ PRO FORMA
1997 1998 ACTUAL PRO FORMA AS ADJUSTED
------ -------- ------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ -- $ -- $ -- $24,086 $63,283
Working capital (deficiency)............ (353) (4,278) (8,869) 15,217 60,217
Total assets............................ -- 614 817 24,903 64,100
Note due to The Vitamin Shoppe.......... 353 3,583 5,803 5,803 --
Stockholders' equity (deficit).......... (353) (3,793) (8,133) 15,953 60,953
</TABLE>
21
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
information included elsewhere in this prospectus. The following discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from the results contemplated by these
forward-looking statements as a result of many factors, including those
discussed below and elsewhere in this prospectus.
OVERVIEW
We began development of our online operations in October 1997 and launched
our website on April 7, 1998. For the period from inception through the launch
of our website, our primary activities consisted of:
- developing our business model;
- developing strategic relationships;
- designing and developing our website;
- recruiting and training employees;
- negotiating advertising contracts with several major web portals; and
- developing the VitaminShoppe.com(TM) brand.
Since the launch of our website, we have continued these operating
activities and have also focused on building sales momentum, promoting our
brand, enhancing the search and transactional features of our website, expanding
customer service operations and increasing the information content available to
our customers.
We have incurred net losses of $8.2 million from inception through June 30,
1999. We believe that we will continue to incur net losses for the foreseeable
future as our advertising and marketing expenditures increase and that the rate
at which we will incur such losses will increase significantly from current
levels.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the risks,
expenses and difficulties encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
online commerce. In view of our limited operating history and the rapidly
evolving nature of our business, we believe that period-to-period comparisons of
our operating results should not be relied upon as an indication of future
performance. See "Risk Factors -- Quarterly operating results may fluctuate
significantly."
Net sales. Net sales consist of product sales net of allowances for
product returns. We recognize revenues when the related product is shipped. In
the future, the level of our sales will depend on many factors, including:
- the number of customers that we are able to attract;
- the frequency of our customers' purchases;
- the quantity and mix of products that our customers purchase;
- the price that we charge for our products; and
- the level of customer returns that we experience.
Cost of goods sold. Cost of goods sold consists primarily of the costs of
products sold to customers. The Vitamin Shoppe will continue to supply our
inventory on an exclusive basis. Under the supply and fulfillment agreement, we
will pay The Vitamin Shoppe an amount equal to 105% of The Vitamin Shoppe's
product cost. Historically, The Vitamin Shoppe provided our inventory at 100% of
its product
22
<PAGE> 28
cost. As a result, we expect cost of goods sold as a percentage of sales to
increase in the future. We expect cost of goods sold to increase in absolute
dollars to the extent that our sales volume increases. We may in the future
expand or increase the discounts we offer to our customers and may otherwise
alter our pricing structures and policies. These changes would negatively affect
gross margins. Our gross margin will fluctuate based on many factors, including:
- the cost of our products, including the extent of purchase volume
discounts that The Vitamin Shoppe is able to obtain from suppliers;
- our pricing strategy relative to the cost of our products; and
- the mix of products that our customers purchase.
Marketing and sales expenses. Marketing and sales expenses consist
primarily of advertising and promotional expenditures, merchandising, customer
service, distribution expenses, including order processing and fulfillment
charges, net shipping costs, equipment and supplies, and payroll and related
expenses for personnel engaged in these activities. The Vitamin Shoppe will
continue to provide warehousing and fulfillment services for our customer orders
on an exclusive basis. Under the supply and fulfillment agreement, we will pay
The Vitamin Shoppe an amount equal to 105% of The Vitamin Shoppe's actual
average unit cost per package, multiplied by the number of packages shipped to
our customers, plus actual shipping costs that we do not pay directly.
Historically, The Vitamin Shoppe provided us with fulfillment services at 100%
of its cost. Because our fulfillment costs have historically been less than 3%
of sales, we do not believe that the supply and fulfillment agreement will have
a material effect on our results of operations. Under the trademark license
agreement, we have the exclusive right to use The Vitamin Shoppe's trademarks,
including The Vitamin Shoppe(R) logo and name, in connection with our marketing
and sale of products and services in online commerce. We will pay The Vitamin
Shoppe an annual royalty fee equal to $1 million plus a percentage, which ranges
from 5% to 1% depending upon volume, of our net sales of The Vitamin Shoppe(R)
brand products and other products identified by or branded with The Vitamin
Shoppe's trademarks. Historically, no royalty fee was charged by The Vitamin
Shoppe. We intend to continue to pursue an aggressive branding and marketing
campaign. As a result, we expect marketing and sales expenses to increase
significantly in absolute dollars. Marketing and sales expenses may also vary
considerably from quarter to quarter, depending on the timing of our advertising
campaigns.
Product development expenses. Product development expenses consist
primarily of consulting fees and payroll and related expenses for application
development and information technology personnel, licensing and service
agreements, website hosting and communications charges and website content
development and design expenses. We believe that continued investment in product
development is critical to attaining our strategic objectives. As a result, we
expect product development expenses to increase significantly in absolute
dollars.
General and administrative expenses. General and administrative expenses
consist primarily of payroll and related expenses for executive and
administrative personnel, corporate facility expenses, professional services
expenses, travel and other general corporate expenses. We expect general and
administrative expenses to increase in absolute dollars as we expand our staff
and incur additional costs related to the expected growth of our business.
Interest expense. Interest expense for all periods was allocated from The
Vitamin Shoppe at 8.75% per annum on The Vitamin Shoppe's advances to us. These
advances represent The Vitamin Shoppe's cumulative funding of our cash
requirements since inception.
Amortization of stock-based compensation. In June 1999, we granted options
to Kathryn H. Creech and Eliot D. Russman, two of our executive officers, to
purchase 569,045 shares of Class A common stock at an exercise price of $3.82
per share. These options were granted at an exercise price that was less than
the fair market value of the Class A common stock, based on the price at which
we sold the Series A convertible preferred stock that is convertible into Class
A common stock. Accordingly, VitaminShoppe.com has recorded deferred stock-based
compensation of approximately $3 million during the six months ended
23
<PAGE> 29
June 30, 1999. In addition, we will record deferred compensation expense of
approximately $697,000 upon the closing of this offering due to the accelerated
vesting of one of these options with respect to 130,815 shares of Class A common
stock. The remaining deferred compensation expense of approximately $2.3 million
will be amortized over the three-year vesting period.
Income taxes. Our operating results have been included in the consolidated
income tax returns of The Vitamin Shoppe. To date, The Vitamin Shoppe has not
allocated to us our share of income tax liabilities or benefits attributable to
our operating results. Our income tax provisions have been calculated on a
separate return basis and present the effect on operating results as if we had
not been included in the consolidated income tax return of The Vitamin Shoppe.
Because of our operating losses since inception and the uncertainty of future
recoverability, and because The Vitamin Shoppe has not allocated to us any tax
benefits, we have not provided for income tax benefits in our financial
statements.
The Vitamin Shoppe may elect to include us in its "consolidated group" for
federal income tax purposes with respect to taxable periods prior to the closing
of this offering. If such an election is made, then we will pay our
proportionate share of The Vitamin Shoppe's tax liability, computed as if we
were filing a separate return, and the value of any tax loss benefits
attributable to us will be refunded by The Vitamin Shoppe.
After the closing of this offering, we will not be part of The Vitamin
Shoppe's consolidated group and may not be able to realize the tax benefit of
future losses. Losses generated after we cease to be part of The Vitamin
Shoppe's consolidated group will be available to us to offset any future taxable
income for 20 years. Deferred tax assets normally recorded to reflect the future
benefit may or may not be recorded, depending on our ability to demonstrate the
likelihood of future profitability.
Intercompany agreements. We will incur costs associated with some of the
intercompany agreements. The impact of the trademark license agreement and the
supply and fulfillment agreement is discussed above. While the intercompany
agreements were not negotiated on an arms-length basis, we believe that their
terms are no less favorable to us than could have been obtained from
unaffiliated third parties. See "Business -- Intercompany Agreements" for a
summary of the material terms of these agreements.
QUARTERLY RESULTS OF OPERATIONS
Because we were a development stage company from October 1997 through April
7, 1998 and have a short operating history, we believe that period-to-period
comparisons prior to 1999 are less meaningful than an analysis of recent
quarterly operating results. Accordingly, this discussion and analysis of our
results of operations focuses on the five quarters ended June 30, 1999.
The following table sets forth unaudited quarterly statement of operations
data from inception through June 30, 1999. This unaudited quarterly information
has been derived from our unaudited financial statements but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information. Results for
any quarter are not necessarily indicative of the operating results for any
future period.
24
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1998 1998 1998 1998 1999 1999
------------ --------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ -- $ -- $ 480 $ 1,045 $ 1,336 $ 1,913 $ 2,390
Cost of goods sold.... -- -- 239 528 640 936 1,168
------- ------- ------- ------- ------- ------- -------
Gross profit........ -- -- 241 517 696 977 1,222
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Marketing and
sales............ -- -- 392 905 1,918 1,832 2,535
Product
development...... 285 84 111 78 369 517 344
General and
administrative... 64 67 248 291 311 416 759
------- ------- ------- ------- ------- ------- -------
Total operating
expenses....... 349 151 751 1,274 2,598 2,765 3,638
------- ------- ------- ------- ------- ------- -------
Loss from
operations.......... (349) (151) (510) (757) (1,902) (1,788) (2,416)
Interest expense...... 4 9 18 33 60 98 123
------- ------- ------- ------- ------- ------- -------
Net loss.............. $ (353) $ (160) $ (528) $ (790) $(1,962) $(1,886) $(2,539)
======= ======= ======= ======= ======= ======= =======
</TABLE>
Net sales. We launched our website on April 7, 1998. Prior to that date,
there were no sales. The increases in net sales for the subsequent five quarters
ended June 30, 1998, September 30, 1998, December 31, 1998, March 31, 1999 and
June 30, 1999 were attributable to a significant increase in the number of
orders. We believe that these increases were attributable to enhancements made
to the website to improve navigation and the overall user experience and to
increased advertising expenditures.
Cost of goods sold. Cost of goods sold has increased in absolute dollars
for the five quarters ended June 30, 1998, September 30, 1998, December 31,
1998, March 31, 1999 and June 30, 1999 due to the increased volume of goods
sold. As a percentage of sales, cost of goods sold was 49.8%, 50.5%, 47.9%,
48.9% and 48.9% for the five quarters ended June 30, 1998, September 30, 1998,
December 31, 1998, March 31, 1999 and June 30, 1999. The fluctuations primarily
resulted from changes in the monthly promotional discounts offered on sales of
our products.
Marketing and sales expenses. Marketing and sales expenses increased in
each of the five quarters ended June 30, 1998, September 30, 1998, December 31,
1998, March 31, 1999 and June 30, 1999 primarily due to expenses associated with
entering into strategic relationships with web portals and health-oriented
channels, including Ask Dr. Weil (April 1998), Infoseek (August 1998), Excite
(September 1998), Netscape (September 1998), Yahoo! (November 1998), drkoop.com
(March 1999) and InteliHealth (April 1999).
Product development expenses. Product development expenses increased in
each of the five quarters ended June 30, 1998, September 30, 1998, December 31,
1998, March 31, 1999 and June 30, 1999 primarily due to increased expenses
associated with the addition of product development personnel and additional use
of third-party service providers, consultants and contract labor.
General and administrative expenses. General and administrative expenses
increased in each of the five quarters ended June 30, 1998, September 30, 1998,
December 31, 1998, March 31, 1999 and June 30, 1999 primarily due to increased
expenses associated with the addition of general and administrative personnel
and additional professional fees.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our operations have not generated sufficient cash flow to
satisfy our current obligations. The Vitamin Shoppe has funded these obligations
to date.
As of June 30, 1999, we had accounts payable and accrued liabilities of
$3.1 million and amounts payable to The Vitamin Shoppe of $5.8 million. Our
principal commitments consisted of obligations outstanding under online
marketing agreements with web portals and strategic partners aggregating
25
<PAGE> 31
$6.2 million through December 31, 2000 and a sublease agreement for office space
aggregating $1.8 million through November 2003.
As of June 30, 1999, we issued to The Vitamin Shoppe a promissory note for
approximately $5.8 million payable upon demand by The Vitamin Shoppe. This
amount represented funds advanced to us by The Vitamin Shoppe for operating
losses and working capital requirements.
In July 1999, we issued, for net proceeds of approximately $24 million,
shares of our Series A convertible preferred stock, par value $0.01 per share,
that are convertible into an aggregate of 2,732,119 shares of Class A common
stock. Approximately $10 million of this amount was paid by the conversion of
promissory notes held by existing security holders of The Vitamin Shoppe and
their affiliates.
We expect a significant increase in expenditures for online, traditional
media and direct advertising to promote the VitaminShoppe.com(TM) brand and to
attract and retain customers. We expect a substantial increase in our capital
expenditures and lease commitments consistent with our expected growth in
operations, infrastructure and personnel. During the next six months, we intend
to redesign our website to enhance its functionality. We expect to spend
approximately $7.3 million for capital expenditures and expenses in connection
with the redesign project. In addition, at some point we may need to establish
our own fulfillment and distribution centers either to acquire greater control
over the distribution process or to provide adequate supplies of products for
our customers. This would require significant capital investments in facilities
and equipment.
We expect that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our expected needs for working
capital and capital expenditures for at least the next 12 months. We may need to
raise additional funds prior to the end of this period. If we raise additional
funds in the future through the issuance of equity or debt securities, then
these securities may have rights, preferences or privileges senior to the rights
of the Class A common stock, and holders may experience additional dilution. We
cannot be certain that additional financing will be available to us when
required on favorable terms or at all.
YEAR 2000 COMPLIANCE
Many existing computer programs and systems use only two digits to identify
a year. These programs and systems were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
these computer applications could fail or create erroneous results by, at or
beyond the year 2000. Directly or through The Vitamin Shoppe, we use software,
computer technology and other services internally developed and provided by
third-party vendors that may fail due to the year 2000 problem. For example, we
are dependent upon the financial institutions involved in processing our
customers' credit card payments for online services and a third party that hosts
our web servers. We are also dependent upon telecommunications vendors to
maintain our network and the United States Postal Service and other third-party
carriers to deliver products to our customers.
We are in the process of reviewing the year 2000 compliance of software,
computer technology and other services on which we rely. Since inception, we
have utilized third-party vendors to develop substantially all of the systems
for the operation of our website. These systems include the software used to
provide our online search and navigation capabilities, order entry, transaction
processing, fulfillment and customer service functions, as well as firewall,
security, monitoring and backup capabilities. As part of the assessment of the
year 2000 compliance of these systems, we have sought assurances from these
vendors that their software, computer technology and other services are year
2000 compliant. Based upon our assessment to date, we believe that the software
is year 2000 compliant. We are also assessing the year 2000 compliance of our
internally developed and purchased software, which include software for use in
order processing and fulfillment, including credit card processing and
distribution functions, accounting and database systems. We have expensed
approximately $300,000 incurred in connection with year 2000 assessment through
June 30, 1999.
We completed our assessment process during the summer of 1999. Based upon
the results of this assessment, we have developed and implemented a corrective
action plan with respect to internally
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developed software applications, third-party software, third-party vendors and
computer technology and services that may fail to be year 2000 compliant. We
expect to complete any required actions during the fall of 1999. At this time,
the expenses associated with this corrective action are expected to approximate
an additional $200,000. The failure of our software and computer systems or
those of our third-party suppliers to be year 2000 compliant could have a
material adverse effect on us.
The year 2000 compliance of the general infrastructure necessary to support
our operations is difficult to assess. For example, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations consists
of a network of computers and telecommunications systems located throughout the
world and operated by numerous unrelated entities and individuals, none of which
individually has the ability to control or manage the potential year 2000 issues
that may impact the entire infrastructure. Our ability to assess the reliability
of this infrastructure is limited and relies solely on generally available news
reports, surveys and comparable industry data. Based on these sources, we
believe that most entities and individuals that rely significantly on the
Internet are reviewing and attempting to address issues relating to year 2000
compliance, but it is not possible to predict whether these efforts will be
successful in reducing or eliminating the potential negative impact of year 2000
issues. A significant disruption in the ability of consumers to access the
Internet or portions of it or to use their credit cards would have an adverse
effect on demand for our products and services.
At this time, we have not yet developed a contingency plan to address
situations that may result if we or our vendors are unable to achieve year 2000
compliance. The cost of developing and implementing such a plan, if necessary,
could be significant. Any failure of our material systems, our vendors' material
systems, our customers' computers or the Internet to be year 2000 compliant
could have negative consequences for us. These consequences could include
difficulties in operating our website effectively, taking customer orders,
making product deliveries or conducting other fundamental parts of our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which is
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income. The
adoption of SFAS No. 130 as of January 1, 1998 did not have a material effect on
our financial statements or disclosures as we have no reconciling items.
Therefore, net loss and comprehensive loss are the same.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that public companies
report certain information about operating segments in their annual financial
statements and in subsequent condensed financial statements of interim periods
issued to shareholders. This statement also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate and their major customers. Adoption of this new
standard did not have an effect on our disclosures for all periods because we
currently operate as one segment.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities, which is effective for fiscal
years beginning after December 15, 1998. SOP 98-5 establishes accounting and
reporting standards for start-up activities and requires the costs of start-up
activities, including organization costs, to be expensed as incurred. We adopted
SOP 98-5 effective January 1, 1999, and its adoption did not have a material
effect on our financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires recognition of all
derivatives on the balance sheet at fair value. We have determined that the
adoption of this new standard will not have a material effect on our financial
statements or disclosures for all periods presented.
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BUSINESS
VITAMINSHOPPE.COM
VitaminShoppe.com is a leading online source for products and content
related to vitamins, nutritional supplements and minerals. Our
www.VitaminShoppe.com website, which was launched in April 1998, provides a
convenient and informative shopping experience for consumers desiring to
purchase products that promote healthy living. We offer an extensive selection
of over 18,000 quality items representing over 400 brands, including The Vitamin
Shoppe(R) premium brand, and a comprehensive line of herbal formulas,
homeopathic products, personal care items, body building supplements, healthcare
products and books on health and nutrition. We sell our entire line of products
at year-round discounts generally ranging from 20% to 40% off suggested retail
prices. Our website links consumers to our own health-related information
website, www.vitaminbuzz.com, as well as features from credible third-party
sources designed to assist consumers in making informed decisions. In addition,
our shopping experience offers customers reliable product delivery and superior
customer service.
Until July 1999, we operated as a division of The Vitamin Shoppe, a leading
retail and catalog source established in 1977. Based in North Bergen, New
Jersey, The Vitamin Shoppe has over 60 retail stores within the Northeast and
Mid-Atlantic regions and a monthly catalog with an annual circulation of 12 to
14 million copies. The Vitamin Shoppe's catalog operations, including
purchasing, design, customer service, warehousing, packaging and shipping, are
conducted from its New Jersey headquarters. In 1998, The Vitamin Shoppe's total
sales were $132 million. We have entered into intercompany agreements under
which The Vitamin Shoppe has licensed its trademarks to us and provides product
supply, fulfillment, promotional, administrative and other services to us.
Our strategy is to become the leading online source for vitamins,
nutritional supplements and minerals by combining the core competencies and
infrastructure of The Vitamin Shoppe with the functionality, convenience and
information resources of the Internet. We believe that The Vitamin Shoppe's
expertise and experience provide us with important competitive advantages,
including:
- management, purchasing and merchandising expertise, including strong
relationships with hundreds of vendors, which enhances our ability to
provide a comprehensive selection of products at competitive prices;
- full integration of order processing, product fulfillment and customer
service through The Vitamin Shoppe's distribution centers, which gives us
the fulfillment capability to support growth;
- the exclusive right to use The Vitamin Shoppe(R) logo and name in online
commerce, which provides the superior brand recognition that we believe
is a strong motivating factor for new customers; and
- direct marketing knowledge, including access to information regarding
more than 700,000 historical catalog and retail customers of The Vitamin
Shoppe, and the ability to conduct cross-marketing, co-promotions and
customer acquisition programs with The Vitamin Shoppe.
We believe that we deliver a compelling value proposition to our customers.
We offer an extensive selection, attractive pricing, superior customer service,
convenience and expert information. Our website integrates advanced
transactional capabilities with easy access to health and nutrition information
from credible third-party sources. By offering quality products and content
through an intuitive and easy-to-use interface and by focusing on customer
service, we believe that we meet a broad spectrum of consumer needs and foster
customer loyalty. We believe that the combination of a wide array of products,
informative content and superior customer service positions VitaminShoppe.com as
a comprehensive resource for vitamins, nutritional supplements and minerals.
The vitamin, nutritional supplement and mineral market is attractive due to
its growth and margin characteristics, which we believe are high relative to
other consumer product categories. According to industry research, domestic
sales of these products have grown at a 15% compounded annual rate between 1994
and 1998 to $8.9 billion. Through the efficiencies of online commerce and our
relationship with The
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Vitamin Shoppe, we believe that we have the opportunity to capture market share
and to improve the margins that we have experienced. Between the April 1998
launch of our website and June 1999, more than 48,000 customers placed over
95,000 orders online. During this period, our average order (excluding shipping
charges) was approximately $74, which we believe surpassed the online average
for vitamins, nutritional supplements and minerals. The average number of orders
placed on our website each week grew from 381 in April 1998 to 2,870 in June
1999. The average number of orders placed on our website grew at a compounded
monthly rate of 14% during the six months ended June 30, 1999. We generated
revenues of $2.9 million in 1998 and $4.3 million during the six months ended
June 30, 1999.
VitaminShoppe.com was incorporated in the State of Delaware in May 1999,
and we began to operate as a separate company in July 1999. Our main offices are
currently located at 444 Madison Avenue, Suite 802, New York, New York 10022,
and our telephone number is (212) 308-6730. Our e-commerce website is located at
www.VitaminShoppe.com.
INDUSTRY OVERVIEW
Vitamins, nutritional supplements and minerals. According to Packaged
Facts, an independent market research company, total domestic retail sales of
vitamins, nutritional supplements and minerals and similar products during 1998
were approximately $8.9 billion. The vitamin, nutritional supplement and mineral
market has grown at a 15% compounded annual rate for the last four years and is
expected to grow at a 13% compounded annual rate from 1998 to 2003. According to
Packaged Facts, this growth stems from the passage of the Dietary Supplement and
Health Education Act, a growing body of scientific research showing the benefits
of vitamins, the introduction of new types of nutritional supplements, increased
consumer interest in nutritional and alternative medicine and changing attitudes
within the medical community. Simmons Market Research Bureau estimates that, in
1998, 56% of adults in the United States used vitamins, nutritional supplements
and minerals, an increase from 43% in 1993. For more information about the
Dietary Supplement and Health Education Act, see "-- Government Regulation."
Channels of distribution. The vitamin, nutritional supplement and mineral
market is highly fragmented. Vitamin, nutritional supplement and mineral
products are sold through a number of channels, including retail, catalog/mail
order, direct selling and, more recently, online commerce. Each of these
channels offers a varying degree of convenience, selection, quality,
information, price and privacy. Retail is the largest of these channels,
accounting for 88% of sales during 1998, according to Packaged Facts. The retail
channel includes food stores, drugstores and mass merchandisers, which together
accounted for 50% of sales during 1998, and health/natural food stores, which
accounted for 39% of sales during 1998. Direct selling accounted for 10% of
sales during 1998, and catalog and online distribution accounted for the
remaining 2%.
Emergence of the Internet. The Internet plays an increasingly significant
role in communication, information and commerce. International Data Corporation,
an independent research company, estimates that the 97 million Internet users
worldwide at the end of 1998 will grow to 320 million users by the end of 2002.
The functionality of the Internet makes it an attractive commercial medium by
providing features and information that have been unavailable in the past.
International Data Corporation estimates that worldwide consumer online commerce
will grow from approximately $11 billion in 1998 to approximately $94 billion by
2002. In addition, International Data Corporation estimates that, as the number
of total Internet users grows, the number of online purchasers will grow at a
compounded annual rate of 46% from 28 million in 1998 to 128 million in 2002.
Baby boomers, which represent 49% of all Internet users, are an attractive
demographic group for online merchandisers.
The online opportunity. We believe that the Internet is uniquely qualified
to become the "channel of choice" for vitamins, nutritional supplements and
minerals. Using the Internet, we offer a highly efficient solution that allows
customers to research a large selection of products in the convenience and
privacy of their own homes so that informed purchase decisions may be made. In
addition, we believe that the privacy of the Internet enables consumers to feel
more comfortable in purchasing personal products, since
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the information conveyed is confidential. These benefits, together with the
convenience of being able to shop 24 hours per day, seven days per week, the
ability to reorder products easily and the availability of a large product
selection make the Internet an excellent distribution channel for these
products. In November 1998, Packaged Facts called the World Wide Web an "ideal
place" to market vitamins, nutritional supplements and minerals, due in part to
the low shipping cost relative to the value of the products, as well as the
capability of providing detailed information about a large number of products.
The number of online consumers is growing rapidly and includes baby boomers
who are concerned about health and nutrition and whose discretionary income is
relatively high. According to a Harris Poll featured in USA Today, nearly 70% of
Internet users have researched a disease or medical condition online. Cyber
Dialogue estimates that the number of adults in the United States searching
online for health and medical information will grow from approximately 17
million during the year ended July 1998 to approximately 30 million during the
year ending July 2000. In addition, 32% of Internet users shopped online for
health-related products during the six months ended February 1999, according to
Forrester Research. We believe that the demographics of those who use vitamins,
nutritional supplements and minerals and those who use the Internet are highly
correlated, with high income, a college degree and a professional occupation
being common traits.
BUSINESS STRATEGY
Our goal is to make VitaminShoppe.com a comprehensive online source for
products and information about vitamins, nutritional supplements and minerals.
We seek to become the leading online source for these products by delivering a
new value proposition to our customers that combines The Vitamin Shoppe's
existing infrastructure and 22 years of experience with the functionality,
convenience and information resources of the Internet. To achieve this goal, we
are focusing on the following objectives:
Offer a large selection of products. Our product selection includes over
18,000 items, representing over 400 brands, including The Vitamin Shoppe(R)
brand, which we believe offers an excellent value as a quality alternative to
other branded products. The Vitamin Shoppe stocks most of its suppliers' entire
product lines, and our product offerings are not constrained by the limitations
of shelf space. We provide year-round discounts generally ranging from 20% to
40% off suggested retail prices. The Vitamin Shoppe's 22 years of experience
provides us with exceptional knowledge about products and suppliers, as well as
insights into customer purchasing patterns.
Provide a convenient shopping experience. By offering an extensive
selection of quality products, together with access to product and
health-oriented information, we believe that we make our products accessible to
a wide range of consumers whose level of interest and knowledge ranges from
casual to sophisticated. The easy-to-use search capabilities of our website and
its flexible database structure allow customers to tailor the breadth of product
choice and depth of product information to their particular needs. We provide
consumers with the ability to shop 24 hours per day, seven days per week,
supported by online customer service and a toll-free number.
Deliver superior customer service. We have the ability to draw upon The
Vitamin Shoppe's 19 years of experience in catalog fulfillment and customer
service. We believe that The Vitamin Shoppe's order processing, fulfillment
operations and call center provide excellent efficiency, reliability and
customer service. The Vitamin Shoppe's efficient operations and high levels of
in-stock merchandise enable us to provide same-business-day shipping on
approximately 85% of online orders received by 5:00 p.m. Eastern time.
Leverage a proven platform and established infrastructure. We leverage the
existing operations of The Vitamin Shoppe(R) brand and The Vitamin Shoppe's
economies of scale in purchasing, supplier relationships, inventory management
and direct mail fulfillment. We believe that our intercompany agreements with
The Vitamin Shoppe provide key competitive advantages over some of our online
competitors. We believe that these advantages will enable us to deliver value to
our customers and provide the infrastructure to sustain rapid growth.
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Offer compelling content and information. We provide information about
vitamins, nutritional supplements and minerals through our companion website,
www.vitaminbuzz.com, and hyperlinks to credible third-party information sources
about health and nutrition on well-known health-related websites, such as
www.drkoop.com, www.drweil.com, www.InteliHealth.com and www.onhealth.com. Our
e-commerce website, www.VitaminShoppe.com, supports our product listings with
factual information, including an ingredient list for every product that we
carry. Information that could be construed as advisory or prescriptive in nature
is accessible from a variety of credible third-party information sources through
our companion health-related website, www.vitaminbuzz.com, in recognition of FDA
and FTC regulations concerning health claims and labeling. We believe that this
separation of our websites provides a strong sense of objectivity and builds
customer trust and loyalty.
GROWTH STRATEGY
Our growth strategy focuses on maximizing the lifetime value of our
customers by establishing ourselves as a "trusted provider" of vitamins,
nutritional supplements and minerals and by creating long-term customer
relationships. We believe that this strategy will build customer loyalty,
encourage repeat purchases, increase average order size and produce recurring
revenues. In order to maximize the lifetime value of our customers, we believe
that we must:
- generate high levels of interest and awareness of the
VitaminShoppe.com(TM) brand to encourage consumers to try online
purchasing;
- build customer trust in the VitaminShoppe.com(TM) brand;
- provide helpful product information to facilitate informed purchases; and
- reward customer loyalty.
We believe that the combination of our business and growth strategies will
position VitaminShoppe.com as a "trusted provider." The key elements of our
growth strategy include:
Acquire new customers. Our objective is to attract new customers through
aggressive marketing initiatives and strategic relationships that generate
awareness of the VitaminShoppe.com(TM) brand as a comprehensive online source
for both products and hyperlinks to credible third-party information sources. As
of August 31, 1999, we had over 58,000 customers who had purchased products at
least once on our website.
- Accelerate marketing initiatives. We plan to utilize a broad range of
advertising and marketing programs to build awareness of
VitaminShoppe.com as a comprehensive online source for products and
information. We will use these programs to communicate the value
proposition of our website and to encourage new customers to experience
online buying. Our marketing initiatives will include online and
traditional media, cross-promotions with The Vitamin Shoppe and others
and direct and database marketing.
- Build strategic relationships. We will use existing and new strategic
relationships to enhance the VitaminShoppe.com(TM) brand and expand our
customer base. In addition to our relationship with The Vitamin Shoppe,
we have entered into a number of relationships with credible
health-related content websites, such as www.drkoop.com and
www.drweil.com, and online portals, such as Yahoo! and Excite.
Promote customer retention and growth. Our goal is to maximize customer
retention and to increase order frequency and size across our customer base.
Through a combination of superior products, price and service, coupled with the
personalization capabilities of the Internet, we plan to build relationships
with our customers that will meet their lifetime purchasing needs for vitamins,
nutritional supplements and minerals. These lifetime relationships will be
enhanced through the Vitamin Shoppe Frequent Buyer
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Program(SM), which is The Vitamin Shoppe's successful loyalty program. We intend
to promote customer retention and growth by utilizing the following strategies:
- Utilize customer database for target marketing. We plan to target our
growing customer database with e-mail marketing messages designed to
stimulate repeat purchases and increased spending. Our database contains
detailed customer information about the preferences and purchasing
patterns of our online customers. We have also entered into a database
agreement with The Vitamin Shoppe, under which we will conduct marketing
analysis using the customer information in The Vitamin Shoppe's database
of over 700,000 historical retail and catalog customers. The Vitamin
Shoppe's database is unavailable to other online vitamin, nutritional
supplement and mineral sources.
- Enhance customer experience. To enhance the purchasing experience, we
intend to invest in technology, such as customization features, and to
increase our offerings. We will use customer feedback and transaction
histories to expand our product offerings and to pursue additional
revenue opportunities. In addition, we will utilize strategic
relationships and licensing arrangements to expand our content offerings.
Finally, we intend to address the individual interests of our customer
base by targeting specific groups, lifestyles or interests, such as
sports enthusiasts and expectant women.
THE VITAMINSHOPPE.COM ONLINE EXPERIENCE
We provide consumers with a comprehensive online source for vitamins,
nutritional supplements and minerals by integrating commerce, content and
service. We believe that our website offers attractive benefits to consumers,
including convenience, ease-of-use, privacy, broad product selection and
relevant product information.
Features and capabilities. We emphasize ease-of-use and efficiency. We
intend to provide a wide range of consumers -- from the casual to the
sophisticated consumer of vitamins, nutritional supplements and minerals -- with
immediate access to the products and information that will promote an informed
purchase. Our website features full keyword search functionality and other
capabilities that enable customers to search for and select products quickly and
reliably. Our database includes complete product listings, with detailed
information about ingredients. A keyword search permits efficient comparisons
within or across brands.
- Online ordering. We provide customers with the ability to place their
orders easily and to gather a variety of items in their online shopping
carts for rapid checkout. Website functionality allows customers to
compare the prices of various options and to select those that best meet
their personal criteria for price, brand and size. Customers earn
"points" in the Vitamin Shoppe Frequent Buyer Program(SM), which they may
redeem online or in The Vitamin Shoppe's retail stores or catalog
operations. We provide same-business-day shipping on approximately 85% of
online orders received by 5:00 p.m. Eastern time.
- Customer service. From the customer's initial experience with our
website through the order process to delivery of the product, we focus on
customer satisfaction. The Vitamin Shoppe's experienced customer service
representatives provide timely responses to customer inquiries by e-mail
or telephone. These inquiries typically involve questions about products
or order status and requests for general support as to use of the
website. We plan to add additional capabilities that will allow our
customers to check the status of orders online and that will enable us to
offer special product promotions that are correlated to previous
purchases.
Products. We offer consumers breadth and depth of quality products at
competitive prices. We sell over 18,000 items representing over 400 brands at
year-round discounts generally ranging from 20% to 40% off suggested retail
prices. By carrying both national brands and The Vitamin Shoppe(R) brand, we
believe that we meet the needs of casual, intermediate and sophisticated
consumers of vitamins, nutritional supplements and minerals, as well as both
brand-loyal and value-oriented customers. Our products come in
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various formulations and delivery forms, including tablets, capsules, soft gels,
liquids and powders. We carry almost every national and popular brand of
vitamin, nutritional supplement and mineral products, including TwinLabs(R),
Nature's Way(R) and Schiff(R), as well as The Vitamin Shoppe(R) brand and lesser
known specialty brands. The primary product categories include:
- Vitamins, nutritional supplements and minerals. Vitamins, nutritional
supplements and minerals are our largest category. Our extensive vitamin
line includes vitamins A, B, C, D, E and K in a variety of forms and
doses. We also feature all major and trace minerals, including calcium,
boron, zinc, selenium, chromium, magnesium and potassium. We offer
vitamins and minerals alone and in combinations to address the specific
lifestyle, age and gender needs of our customers. Our nutritional
supplement line includes glucosamine and chondroitin sulfate, coenzyme Q
10, essential fatty acids, carnitine, phosphatidylserine and numerous
antioxidants.
- Herbal products. Popular herbals include St. John's wort, ginkgo biloba,
echinacea and kava kava. Herbals may be sold as a single herb, in
combinations or as teas.
- Homeopathic products. These products draw on natural ingredients to aid
digestion, blood circulation and headaches, among other ailments.
- Personal care products. We offer natural alternatives to traditional
lines of soaps, shampoos, moisturizers, toners, massage oils and other
products.
- Books. Our well-balanced selection of books on health and nutrition
permit customers to educate themselves about health-related topics.
- Body building products. We offer a wide selection of products designed
to assist beginner and advanced athletes in achieving higher muscular
performance and endurance levels.
- Healthcare products. We recently added over 150 healthcare products and
accessories, such as massage products, posture and joint products and
magnet therapy products, that complement our diverse product offerings.
Content. We supplement the product information available on our website
with easy access to information on topics related to health and nutrition from
well-respected third-party sources. We have a companion informational website,
www.vitaminbuzz.com, and maintain strategic relationships with credible
health-related information sources.
- www.vitaminbuzz.com. Our companion website is a valuable resource for
online consumers of vitamins, nutritional supplements and minerals. It
offers information on health concerns, nutritional supplements, herbal
formulas, drug interactions, homeopathic medicine, diets and therapies.
The website also highlights topics of current interest and contains a
hyperlink to the FDA's Guide to Dietary Supplements website.
www.vitaminbuzz.com is sponsored and maintained by VitaminShoppe.com, but
all of its content is provided by independent third parties. Most of the
content is currently provided under a license from Health Notes Online, a
well-known online and CD-ROM encyclopedia of health and nutrition
information. We intend to increase significantly the information content
within www.vitaminbuzz.com and to add features that assist customers in
finding relevant information and products. We expect that the expansion
of content will be achieved primarily through licenses with third parties
and through strategic relationships.
- Third-party information sources. We have built relationships with
well-known third-party information sources, including www.drkoop.com,
www.drweil.com, www.InteliHealth.com and www.onhealth.com, that offer
balanced content related to health and nutrition. These information
sources provide additional research opportunities for customers to
stimulate informed purchase decisions.
We have entered into several online arrangements with Internet content
providers that establish us as the exclusive or preferred vendor of nutritional
products on the Internet websites of these providers. Under these agreements, we
pay advertising fees to the content providers in order to have access to their
audience
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of potential customers who are interested in health and wellness topics. Some of
these agreements also allow us to link our website to the websites of the
content providers. The agreements provide for fixed monthly or quarterly
payments by us and in some cases require us to share revenues upon the
attainment of stipulated revenue volumes. In addition, some of these agreements
require the Internet service provider to guarantee a minimum level of
impressions and to make up shortfalls in the level of impressions delivered. We
do not have the right to control the content offered on these websites. The
information contained on these websites is developed exclusively by third-party
sources and controlled by the Internet content providers.
MERCHANDISING STRATEGY
We carry every significant domestic brand of vitamins, nutritional
supplements and minerals, as well as many smaller and lesser known specialty
brands. Consistent with The Vitamin Shoppe's successful strategy, we sell most
of the suppliers' full product line. We also offer The Vitamin Shoppe(R) brand
products, a premium brand manufactured for The Vitamin Shoppe. The Vitamin
Shoppe(R) brand, which provides higher gross margins to us than other brands,
constituted 47% of our sales during 1998. We sell over 18,000 different items.
No single item has accounted for more than 2% of our sales. During 1998, our
online sales mix by product category was vitamins, nutritional supplements and
minerals (71.0%), herbals (16.1%), body building (7.8%), personal care (3.8%),
homeopathic (0.4%), books (0.3%) and all other (0.6%).
Our relationship with The Vitamin Shoppe enables us to offer the large
selection of merchandise carried by The Vitamin Shoppe without the investment in
inventory and the ongoing expense related to the management of inventory. In
addition, we generally do not take legal ownership of the inventory until the
customer order is taken, which reduces the risk of inventory obsolescence and
mark-downs. We enjoy the economic benefit of The Vitamin Shoppe's relationships
with a diverse group of hundreds of vendors, as well as the purchasing economies
enjoyed by The Vitamin Shoppe as a result of its size and The Vitamin Shoppe(R)
brand products. As a result, we believe that we are well positioned to continue
to enjoy favorable gross profit margins while providing our customers with a
broad selection of products.
ADVERTISING AND MARKETING
We intend to use a significant portion of the net proceeds from this
offering to pursue comprehensive advertising and marketing campaigns. We have
begun to implement an aggressive advertising and marketing campaign to increase
awareness of the VitaminShoppe.com(TM) brand and to acquire new customers
through multiple channels, including traditional and online advertising, direct
marketing and expansion and strengthening of our strategic relationships. We
believe that the use of multiple marketing channels reduces reliance on any one
source of customers, maximizes brand awareness and promotes customer
acquisition. In addition to the specific strategies discussed below, we will
seek to maximize the lifetime value of our customers by focusing on purchase
frequency and customer retention. We expect to benefit from the direct marketing
knowledge and expertise of our management team and, under the administrative
services agreement, personnel of The Vitamin Shoppe.
Traditional and online advertising. We intend to pursue a traditional
media-based advertising campaign that may include television, radio, print,
outdoor and event-based advertising. We may purchase advertising in the health
and nutrition magazines in which The Vitamin Shoppe has successfully advertised.
We intend to expand our activities to include targeted online advertising to
promote both the VitaminShoppe.com(TM) brand name and specific merchandising
opportunities. We also intend to purchase additional banner and other forms of
online advertising to create online awareness, reach new consumers and convert
current vitamin, nutritional supplement and mineral shoppers into our customers.
Our online advertising will include targeted websites oriented to appropriate
health and lifestyle groups, as well as broader campaigns on portals and mass
audience websites.
Cross promotion. Through the co-marketing agreement with The Vitamin
Shoppe, we expect to create significant brand awareness through cross-promotion
in The Vitamin Shoppe retail and catalog
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channels. The Vitamin Shoppe has over 60 retail stores, and in 1998
approximately 14 million copies of its monthly and bi-monthly catalogs were
distributed. See "-- Intercompany Agreements" for a description of the material
terms of the co-marketing agreement.
Direct marketing. We will apply direct marketing techniques aimed at
attracting and retaining customers and increasing order size. Direct mail
programs will include e-mail offers to targeted audience segments, including
special offers or promotions to current and prospective customers reached
through the rental of mailing lists.
Loyalty programs. Our intercompany agreements with The Vitamin Shoppe will
allow our customers to participate in the established Vitamin Shoppe Frequent
Buyer Program(SM), which we believe encourages repeat purchases. We will also
target special offers and promotions to purchasing habits reflected in
information that we obtain from The Vitamin Shoppe's and our own transactional
histories, and we will offer bonus incentives for the introduction of new
customers and the placement of repeat orders.
RELATIONSHIP WITH THE VITAMIN SHOPPE
Our business was conducted by The Vitamin Shoppe from our inception in
October 1997 until July 1999, when we began to operate as a separate company.
VitaminShoppe.com was incorporated in May 1999 to operate the business as a
separate company. The Vitamin Shoppe owns all of the outstanding Class B common
stock and is currently the principal stockholder of VitaminShoppe.com. We
believe that our relationship with The Vitamin Shoppe provides several important
benefits:
- management, purchasing and merchandising expertise, including strong
relationships with hundreds of vendors, which enhances our ability to
provide a comprehensive selection of products at competitive prices;
- full integration of order processing, product fulfillment and customer
service through The Vitamin Shoppe's distribution centers, which gives us
the fulfillment capability to support growth;
- the exclusive right to use The Vitamin Shoppe(R) logo and name in online
commerce, which provides the superior brand recognition that we believe
is a strong motivating factor for new customers; and
- direct marketing knowledge, including access to information regarding
more than 700,000 historical catalog and retail customers of The Vitamin
Shoppe, and the ability to conduct cross-marketing, co-promotions and
customer acquisition programs with The Vitamin Shoppe.
MANAGEMENT INFORMATION SYSTEMS
Our systems are designed to provide availability 24 hours per day, seven
days per week. Physical hosting and communications services are provided by a
nationally recognized firm, which provides redundant communications lines and
emergency power backup. Our systems have been designed based on industry
standard technologies and have been engineered to minimize system interruptions
in the event of outages or catastrophic occurrences. We have implemented load
balancing systems and redundant servers to provide for fault tolerance.
In response to growing capacity concerns and website development needs, we
have more than quadrupled the number of web servers that run our website since
we launched the website. We intend to invest in additional technologies that
will handle growth in online commerce traffic and website infrastructure to
enhance the functionality of our website.
In the first quarter of 2000, we intend to launch version 2.0 of our
website, which will offer improved ease-of-use to broaden our appeal as a
shopping destination. We also plan to enhance the functionality of the website
by adding advanced capabilities that support the personalization and
customization of product offerings and promotions. These features will enhance
our ability to market on a one-to-one basis to our customers. For example, we
may offer special promotions based on previous purchases or offer automatic
replenishment of products. We intend to engage a nationally recognized firm for
this work.
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ORDER PROCESSING AND FULFILLMENT
Processing of our orders is handled by The Vitamin Shoppe's fully
integrated systems, which include product sourcing, warehouse management,
inventory management, order processing and order fulfillment. Our website is
fully integrated with The Vitamin Shoppe's warehouse fulfillment system, which
monitors the in-stock status of each item ordered, processes the order and
generates warehouse selection tickets and packing slips for order fulfillment.
The Vitamin Shoppe processes and fulfills our customer orders through its
facilities totalling 72,000 square feet in North Bergen, New Jersey.
Access to The Vitamin Shoppe's order processing and fulfillment systems
enables us to retain greater control over the quality, timeliness and cost of
fulfilling our product orders than competitors that outsource these services. In
addition, the scale of The Vitamin Shoppe's operations enables it to keep a
large number of items in stock. During 1998, The Vitamin Shoppe shipped an
average of 22,000 packages weekly from its warehouse and distribution center.
The Vitamin Shoppe's efficient operations and high levels of in-stock
merchandise enable us to provide same-business-day shipping on approximately 85%
of online orders received by 5:00 p.m. Eastern time. Customers generally receive
orders within two to five business days after shipping.
COMPETITION
The vitamin, nutritional supplement and mineral market is highly fragmented
and competitive. In addition, the online commerce market in which we operate is
new, rapidly evolving and highly competitive. We expect competition to intensify
in the future because current and new competitors can launch websites at a
relatively low cost.
We compete with a variety of companies, including health/natural specialty
retailers, drugstores, supermarkets and grocery stores and mass merchant
retailers. Our competitors operate in one or more distribution channels,
including online commerce, retail stores, catalog operations or direct selling.
- Health/natural specialty retailers. This category is highly fragmented
and includes local, regional and national chains, as well as catalog
marketers and online retailers. The largest participant in this sector is
General Nutritional Centers, which has a nationwide presence and recently
launched a website. Another large competitor is NBTY, which sells
exclusively private-label products through its Puritan's Pride and
Nutrition Headquarters mail order catalogs and its Vitamin World retail
stores. NBTY also sells through separate Vitamin World and Puritan's
Pride websites. In addition, Rexall Sundown, a large manufacturer of
vitamins, nutritional supplements and minerals, sells directly to
consumers through both catalog and direct mail operations. Competitors
focusing exclusively on online operations include www.MotherNature.com
and www.GreenTree.com.
- Drugstores. This category is dominated by national chains, such as
Walgreen's, CVS and RiteAid. Most national chains have a limited online
presence, if any. Others have recently acquired an online presence, as
CVS did when it acquired www.soma.com and RiteAid did when it invested in
www.drugstore.com. Recent online entrants include www.drugstore.com and
www.planetRx.com. This category currently offers a moderate selection of
vitamins, nutritional supplements and minerals, focusing instead on
prescriptions and over-the-counter products.
- Supermarkets and grocery stores. This category includes traditional
supermarkets, such as Safeway and Kroger, and natural food markets, such
as Whole Foods and Wild Oats. Some of these companies have entered the
online market with a limited offering of vitamins, nutritional
supplements and minerals. Online grocery stores, such as www.Peapod.com
and www.netgrocer.com, also compete against us. This category generally
offers a limited selection of vitamins, nutritional supplements and
minerals and infrequent discounts.
- Mass merchant retailers. This category is dominated by companies such as
Wal-Mart, Kmart and Target, which have extensive retail locations but
limited online presence. These chains offer attractive pricing on
vitamins, nutritional supplements and minerals but have limited selection
at retail stores and offer little product information.
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Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do. Our competitors may
develop products or services that are equal or superior to our solutions and may
achieve greater market acceptance than we do. In addition, larger,
well-established and well-financed entities may acquire, invest in or form joint
ventures with online competitors or suppliers as the use of the Internet
increases.
GOVERNMENT REGULATION
The formulation, manufacturing, processing, packaging, labeling,
advertising, distribution and sale of dietary supplements are subject to
regulation by federal agencies. The principal governmental agencies that
regulate dietary supplements include the FDA and the FTC. Dietary supplements
are also regulated by governmental agencies for the states and localities in
which we sell our products. Among other matters, the FDA and FTC prohibit claims
with respect to a product that refer to the value of the product in treating or
preventing disease or other adverse health conditions. Because the Internet is
relatively new, there is little common law or regulatory guidance that clarifies
the manner in which government regulation impacts online sales of vitamins,
nutritional supplements and minerals. This lack of clarity lends uncertainty to
the laws regulating online promotional claims and website structure.
Governmental agencies, such as the FDA and FTC, have a variety of remedies
and processes available to them. They may initiate investigations, issue warning
letters and cease and desist orders, require corrective labels or advertising,
require that a company offer to repurchase products, seek injunctive relief or
product seizure, impose civil penalties or commence criminal prosecution. Some
state agencies have similar authority, as well as the authority to prohibit or
restrict the manufacture or sale of products within their jurisdictions. In the
past, these agencies have used their remedies to regulate industry participants,
and federal agencies have imposed civil penalties in the millions of dollars.
Increased sales and publicity of dietary supplements may result in increased
regulatory scrutiny of the industry.
The Dietary Supplement Health and Education Act of 1994 was enacted in
October 1994 as an amendment to the Federal Food, Drug and Cosmetic Act. We
believe that this statute is generally favorable to the industry. The statute
established a new statutory definition of "dietary supplements," which includes
vitamins, minerals, herbs, amino acids and other dietary ingredients for human
use to supplement the diet. With respect to all dietary ingredients already on
the domestic market as of October 15, 1994, the manufacturer or distributor is
not required to submit evidence of a history of use or other evidence of safety
establishing that a supplement containing only these dietary ingredients will
reasonably be expected to be safe. In contrast, a supplement that contains a new
dietary ingredient not on the domestic market on October 15, 1994 does require a
submission to the FDA of evidence of a history of use or other evidence of
safety. Among other things, the statute prevented the further regulation of
dietary ingredients as "food additives" and allowed the use of "statements of
nutritional support" on product labels.
In September 1997, the FDA issued final regulations to implement the
Dietary Supplement Health and Education Act. Among other things, these
regulations established a procedure for manufacturers and distributors of
dietary supplements to notify the FDA about the intended marketing of a new
dietary ingredient or about the use in labeling and advertising of statements of
nutritional support. The regulations also established a new format for
nutritional labeling on dietary supplements, which became effective on March 23,
1999 for products with labels attached after that date.
The Nutrition Labeling and Education Act of 1990, which amended the Federal
Food, Drug and Cosmetic Act, prohibits the use of any health claim, which
generally means any statement relating a substance to reducing the risk of
disease, for any foods, including dietary supplements, unless the health claim
is supported by "significant scientific agreement" and is preapproved by the
FDA. The FDA Modernization Act of 1997, which also amended the Federal Food,
Drug and Cosmetic Act, relaxed this prohibition somewhat by permitting health
claims based upon authoritative statements of specific scientific
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bodies without FDA preapproval, but only following notification of the FDA. To
date, the FDA has approved or accepted notification for only a limited number of
health claims for dietary supplements.
Dietary supplement manufacturers, marketers and distributors are allowed to
make statements of nutritional support. Under the Dietary Supplement Health and
Education Act, manufacturers and marketers must notify the FDA of any statements
of nutritional support no later than 30 days after the first marketing of a
supplement with the statement. Four types of statements of nutritional support
are permissible:
- a benefit related to a classical nutrient deficiency disease;
- the role of a nutrient or dietary ingredient that is intended to affect
the structure or function of the body;
- the documented mechanism by which a nutrient or dietary ingredient acts
to maintain a bodily structure or function; and
- general well-being from consuming a nutrient or dietary ingredient.
A statement of nutritional support developed by a manufacturer or distributor of
vitamins, nutritional supplements and minerals generally must carry a disclaimer
in the labeling, stating that the claim "has not been evaluated by the FDA" and
that the product "is not intended to diagnose, treat, cure or prevent any
disease."
In 1998, the FDA released proposed rules regarding the regulation of claims
with respect to dietary supplements that expressly or implicitly claim to
diagnose, treat, prevent or cure a disease. The dietary supplement that is the
basis of the claim would continue to be regarded as drugs and must meet the
safety and effectiveness standards of the Federal Food, Drug and Cosmetic Act.
Under the Dietary Supplement Health and Education Act, retailers are
allowed to use "third-party literature" to educate customers in connection with
product sales. The literature must be balanced, objective, scientific
information about the use of the product. The literature must not be misleading,
must be displayed or presented with other literature to present a balanced view,
must not promote a particular brand and, if in a store, must be physically
separate from the associated product. We believe that the relationship between
health and product information and the product listings on our website is
consistent with the provisions of this statute governing the use of third-party
literature.
The FDA currently proposes to regulate the sale of nonprescription products
containing ephedra, a natural product that contains a small percentage of the
ephedrine alkaloids that are used in some prescription and over-the-counter
stimulants and antihistamines. Less than 1% of The Vitamin Shoppe's 1998
revenues were derived from products that contain ephedra. We do not believe that
a complete loss of sales of these products or further restrictions in
jurisdictions in which these products may be sold would materially impact our
business.
Vitamins, nutritional supplements and minerals must also comply with
adulteration and misbranding provisions of laws administered by the FDA. In
addition, all ingredients must be safe and suitable for use. All mandatory label
information must be presented in accordance with governing regulations, and no
information may be false or misleading.
The FTC enforces against unfair acts or practices in commerce, including
false or deceptive advertising of dietary supplements. Under the Federal Trade
Commission Act and the policies published by the FTC to implement it, product
claims must be properly substantiated and stated in a nondeceptive manner.
INTELLECTUAL PROPERTY
Under the trademark license agreement, The Vitamin Shoppe has granted us an
exclusive license to use The Vitamin Shoppe's trademarks and service marks,
including The Vitamin Shoppe(R) logo and name, in connection with our marketing
and sale of products and services in online commerce. We believe that
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The Vitamin Shoppe(R) logo and name are currently the only trademarks that are
material to the conduct of our business, but we regard all of the licensed
trademarks and other proprietary rights as valuable assets. The Vitamin
Shoppe(R) logo is a federally registered trademark. Under the trademark license
agreement, The Vitamin Shoppe is required to register VitaminShoppe.com(TM) as a
trademark and to protect its legal rights concerning The Vitamin Shoppe(R)
trademark by appropriate legal action. The Vitamin Shoppe relies on common law
trademark rights to protect its unregistered trademarks and servicemarks, such
as the Vitamin Shoppe Frequent Buyer Program(SM). Common law trademark rights do
not provide the same level of protection as afforded by a United States federal
registration of a trademark. Common law trademark rights are limited to the
geographic area in which the trademark is actually used. With limited
exceptions, a United States federal registration enables the registrant to stop
unauthorized use by any third party anywhere in the United States, even if the
registrant has never used the trademark in the geographic area in which the
unauthorized use is being made. While we believe that The Vitamin Shoppe's
approach to protecting its trademarks is reasonable and customary, it may not be
adequate to protect our interest in The Vitamin Shoppe trademarks and service
marks.
INTERCOMPANY AGREEMENTS
In order to obtain the benefits of The Vitamin Shoppe's expertise and
infrastructure, we have entered into several intercompany agreements with The
Vitamin Shoppe, the material terms of which are summarized here. Complete copies
of these agreements have been filed with the Securities and Exchange Commission
as exhibits to the registration statement of which this prospectus is a part.
These agreements were not negotiated on an arms-length basis. However, we
believe that the terms of these agreements are no less favorable to us than
could have been obtained from unaffiliated third parties. In general, the
intercompany agreements do not have fixed terms.
As long as The Vitamin Shoppe owns at least 30% of the voting power of our
capital stock, the material terms of the intercompany agreements may not be
amended or waived without the approval of a majority of our directors who are
not directors, officers or more than 5% stockholders of The Vitamin Shoppe, or
the designee of a more than 5% stockholder. In addition, our bylaws prohibit us
from entering into other material agreements with The Vitamin Shoppe, as long as
The Vitamin Shoppe owns at least 30% of the voting power of our capital stock,
unless the agreements are approved by a majority of these directors. This
provision may be amended or rescinded only by a majority of these directors.
Trademark License Agreement. We have licensed The Vitamin Shoppe(R) logo
and name on an exclusive basis for use in connection with our marketing and sale
of products and services in online commerce. We will pay The Vitamin Shoppe an
annual royalty fee equal to $1 million plus a percentage of our net sales of The
Vitamin Shoppe(R) brand products and other products identified by or branded
with The Vitamin Shoppe's trademarks. This percentage declines from 5% of net
sales up to $25 million to 1% of net sales above $100 million. The trademark
license agreement contains restrictions with respect to our marketing of
products and services. For example, The Vitamin Shoppe has the right to demand
that we remove from our websites any online content that bears any The Vitamin
Shoppe trademark if The Vitamin Shoppe determines that the content is
detrimental to its reputation. In addition, unless we obtain the written
permission of The Vitamin Shoppe, we must provide it with prior written notice
if we intend to market and sell The Vitamin Shoppe(R) brand products at less
than The Vitamin Shoppe's monthly promotional prices in effect from time to
time. We may not use the trademark license to market and sell under The Vitamin
Shoppe's trademarks any products not supplied to us by The Vitamin Shoppe. We
have the right to terminate the trademark license agreement at any time upon 180
days prior written notice to The Vitamin Shoppe. Either party has the right to
terminate the trademark license agreement immediately if the other is in
material breach that is not cured within 20 days after written notice of such
breach, the other party is in bankruptcy, the business of the other party is
liquidated or terminated or the other party becomes insolvent. Termination of
the trademark license agreement causes the immediate termination of the supply
and fulfillment agreement.
The trademark license agreement also contains covenants not to compete. The
Vitamin Shoppe will not enter into the online vitamin, nutritional supplement
and mineral business. In addition, if The Vitamin
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Shoppe acquires a business that includes an online vitamin, nutritional
supplement and mineral business, it must offer to sell or license that portion
of the business to us. If we elect not to purchase that portion of the business
and The Vitamin Shoppe does not sell or license that portion of the business to
a third party within 90 days, The Vitamin Shoppe must cease to operate the
online portion of the business. We will not manufacture vitamin, nutritional
supplement and mineral products or market or distribute these products through
retail stores or print catalogs. In addition, if we acquire a business that
includes a retail store or print catalog business related to vitamins,
nutritional supplements and minerals, we must offer to sell or license that
portion of the business to The Vitamin Shoppe. If The Vitamin Shoppe elects not
to purchase that portion of the business and we do not sell or license that
portion of the business to a third party within 90 days, we must cease to
operate the retail or print catalog portion of the business. In addition, we
will not install an Internet kiosk within a one-half mile radius of any The
Vitamin Shoppe urban retail store or a five-mile radius of any The Vitamin
Shoppe suburban retail store. These covenants not to compete terminate two years
after the trademark license agreement terminates.
Supply and Fulfillment Agreement. The Vitamin Shoppe will supply
substantially all of the products that we sell, for which we will pay The
Vitamin Shoppe an amount equal to 105% of its product cost. As a result, our
success depends on the ability of The Vitamin Shoppe to obtain products from
third-party vendors at competitive prices, in sufficient quantities and of
acceptable quality. In addition, we will pay The Vitamin Shoppe $50,000 per
month, subject to annual adjustments on mutually agreeable terms, for
purchasing, merchandising, executive management and product development related
to the products that The Vitamin Shoppe supplies. We may sell products supplied
by The Vitamin Shoppe only in online commerce. The Vitamin Shoppe will have the
right to prohibit us from selling products not carried by The Vitamin Shoppe
that in The Vitamin Shoppe's reasonable judgment are not of comparable quality
to The Vitamin Shoppe(R) brand products or do not comply with applicable
governmental regulations. We must provide The Vitamin Shoppe with either 10 or
60 days prior written notice of our promotions, depending on their breadth and
duration, in order to allow The Vitamin Shoppe to adjust the amount of promoted
products that it carries in inventory. We assume inventory risk only for those
products that we have requested The Vitamin Shoppe to carry. In general, we may
terminate the supply services under the supply and fulfillment agreement upon
180 days prior written notice to The Vitamin Shoppe.
The Vitamin Shoppe will also provide warehousing and fulfillment services,
including receiving, quality control, storage, picking, packing and shipping of
customer orders and processing of customer returns, under the supply and
fulfillment agreement. We will pay The Vitamin Shoppe an amount equal to 105% of
its actual average unit cost per package, multiplied by the number of packages
shipped to our customers, plus actual shipping costs that we do not pay
directly. The Vitamin Shoppe's actual average unit cost will take into account
all warehousing and fulfillment costs, including overhead items such as rent,
depreciation and operating expenses. The Vitamin Shoppe is obligated to use its
best efforts to cause the quality of fulfillment services provided to us under
the agreement to be at least as high as The Vitamin Shoppe provides when
fulfilling orders for its catalog operations. If at any time we determine that
the quality of fulfillment services provided by The Vitamin Shoppe fails to meet
the standards required to remain competitive, we may solicit a proposal from a
third-party provider of fulfillment services. If The Vitamin Shoppe elects not
to provide fulfillment services on terms comparable to those specified in the
third-party proposal, we may engage the third-party provider to provide our
fulfillment services. If we engage a third-party provider for fulfillment, we
are required to provide The Vitamin Shoppe with 180 days prior written notice of
our termination of its fulfillment services. This notice period may be reduced
to 90 days provided that we purchase from The Vitamin Shoppe the amount of
product, on a one-for-one basis, that we had purchased over the prior 60 days.
After The Vitamin Shoppe ceases to handle our fulfillment, it will continue to
supply The Vitamin Shoppe(R) brand products under the agreement, but it will not
be required to supply other products, to fulfill orders for other products or
The Vitamin Shoppe(R) brand products or to process customer returns.
Either party has the right to terminate the supply and fulfillment
agreement immediately if the other is in material breach that is not cured
within 20 days after written notice of such breach, the other party is in
bankruptcy, the business of the other party is liquidated or terminated or the
other party becomes
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insolvent. The supply and fulfillment agreement will terminate immediately if
the trademark license agreement terminates.
Co-Marketing Agreement. Unless we otherwise notify The Vitamin Shoppe, The
Vitamin Shoppe will provide us with a full-page advertisement and with
promotional references in its print catalogs, for which we will pay $40 per
1,000 catalogs distributed. The Vitamin Shoppe will also provide us with
promotional references in its retail stores and on shopping bags, product labels
and store receipts, for which we will pay The Vitamin Shoppe $833 per urban
retail store and $417 per suburban retail store each month. The Vitamin Shoppe
will pay us $20,000 each year to list The Vitamin Shoppe's retail locations on
our website and to allow a website user to order The Vitamin Shoppe's catalog.
All payments under the co-marketing agreement are subject to annual consumer
price index adjustments. Customers of VitaminShoppe.com and The Vitamin Shoppe
may use "points" earned through the Vitamin Shoppe Frequent Buyer ProgramSM to
purchase merchandise from either VitaminShoppe.com or The Vitamin Shoppe. The
Vitamin Shoppe may not include other online advertisers of vitamins, nutritional
supplements and minerals in its catalogs. Either party has the right to
terminate the co-marketing agreement immediately if the other is in material
breach that is not cured within 20 days after written notice of such breach, the
other party is in bankruptcy, the business of the other party is liquidated or
terminated or the other party becomes insolvent. We have the right to terminate
the co-marketing agreement at any time after June 30, 2001 upon 90 days prior
written notice to The Vitamin Shoppe.
Administrative Services Agreement. The Vitamin Shoppe will provide general
and administrative services to us. The Vitamin Shoppe will bill us directly for
100% of the cost of employee benefits, such as medical and dental insurance,
until we establish or are directly billed for these benefits. Through June 30,
2000, we will pay The Vitamin Shoppe $55,000 per month for human resources,
management information, cash management, finance and accounting services. After
June 30, 2000, we may contract with The Vitamin Shoppe to receive these services
for mutually acceptable compensation.
At our request, The Vitamin Shoppe will handle routine customer service
issues, such as order tracking, and provide dedicated customer service for our
toll-free telephone number, for which we will pay 105% of The Vitamin Shoppe's
cost. We will provide online order tracking for The Vitamin Shoppe's print
catalogs. The Vitamin Shoppe is also obligated to assist us in building and
maintaining appropriate links between the computer systems utilized by The
Vitamin Shoppe and us. Either party has the right to terminate the
administrative services agreement immediately if the other is in material breach
that is not cured within 20 days after written notice of such breach, the other
party is in bankruptcy, the business of the other party is liquidated or
terminated or the other party becomes insolvent. We have the right to terminate
the services described in this paragraph on 90 days prior written notice, and
The Vitamin Shoppe may terminate the services at any time after June 30, 2000
upon 90 days prior written notice.
Database Agreement. On a nonexclusive, royalty-free basis, we and The
Vitamin Shoppe will share with each other available product and customer
information, including transaction histories, for analytical purposes. None of
the customer information exchanged may be used by The Vitamin Shoppe to solicit
customers who have only ordered online or by us to solicit The Vitamin Shoppe
customers who have not purchased from us online. Neither The Vitamin Shoppe nor
we may sell, lease or rent the other's customer information to a third party.
Either party has the right to terminate the database agreement immediately if
the other is in material breach that is not cured within 20 days after written
notice of such breach, the other party is in bankruptcy, the business of the
other party is liquidated or terminated or the other party becomes insolvent. We
have the right to terminate the database agreement at any time upon 180 days
prior written notice. The Vitamin Shoppe is entitled to terminate the database
agreement immediately upon the acquisition of the ownership of 30% or more of
the voting power of the capital stock of VitaminShoppe.com by any person or
entity that engages in the direct or indirect marketing or distribution through
retail or direct marketing channels of vitamins, minerals, nutritional
supplements or any other nutritional or nonprescription health-related product
anywhere in the world or of any other product produced, marketed or distributed
by The Vitamin Shoppe during the term of the database agreement.
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Intercompany Indemnification Agreement. We will indemnify The Vitamin
Shoppe for liabilities in respect of our business after the transfer of its
online business to us. The Vitamin Shoppe will indemnify us for liabilities in
respect of its businesses and any tax liabilities resulting from any election by
The Vitamin Shoppe to include us in its "consolidated group" for federal income
tax purposes.
EMPLOYEES
As of September 8, 1999, we had 17 employees who devoted all or
substantially all of their time to our business. From time to time, we employ
independent contractors to supplement our staff. In addition, many of The
Vitamin Shoppe's employees provide services to us. We believe that our relations
with our employees are good. We are not a party to any collective bargaining
agreements. Under the administrative services agreement, The Vitamin Shoppe
provides our employees with a benefit package that includes medical insurance,
dental insurance, life insurance and a contributory 401(k) plan.
FACILITIES
Our headquarters will consist of approximately 10,000 square feet of space
at 444 Madison Avenue, Suite 802, New York, New York 10022. The sublease for
this space expires in November 2003 and provides for an initial monthly rental
of $34,913. We believe that our facilities are adequate for our needs and that
additional suitable space will be available on acceptable terms as required. We
do not own any real estate.
LEGAL PROCEEDINGS
We are not a party to any legal proceeding that management believes would
have a material adverse effect on our business, results of operations or
financial condition.
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MANAGEMENT
This table sets forth information with respect to our directors and
executive officers on the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jeffrey J. Horowitz....................... 52 Chairman of the Board of Directors and a
Class III Director
Kathryn H. Creech......................... 47 President, Chief Executive Officer and a
Class I Director
Larry M. Segall........................... 44 Chief Financial Officer, Secretary and
Treasurer
Eliot D. Russman.......................... 43 Chief Marketing Officer
Joel Gurzinsky............................ 43 Vice President -- Operations
Lisa H. Kern.............................. 33 Vice President -- Business Development and
Sales
Michael C. Brooks......................... 54 Class II Director
Martin L. Edelman......................... 57 Class II Director
M. Anthony Fisher......................... 48 Class III Director
David S. Gellman.......................... 41 Class I Director
Woodson C. Merrell, M.D. ................. 51 Class III Director
Stephen P. Murray......................... 36 Class II Director
</TABLE>
Jeffrey J. Horowitz has been the chairman of our board of directors and a
director of VitaminShoppe.com since June 1999. Mr. Horowitz is the founder,
president and chief executive officer of The Vitamin Shoppe. Mr. Horowitz opened
the first Vitamin Shoppe(R) retail store in 1977 and launched the catalog
operations in 1981. Mr. Horowitz also serves as a director of The Vitamin
Shoppe.
Kathryn H. Creech has been president and chief executive officer and a
director of VitaminShoppe.com since June 1999. From 1994 to 1999, Ms. Creech was
general manager of The HomeArts.com Network, a division of the Hearst
Corporation, where she was responsible for building HomeArts into a leading
website for women. Previously, Ms. Creech was vice president of global marketing
services for The Dun & Bradstreet Corporation and held senior positions in the
cable television industry.
Larry M. Segall has been chief financial officer, secretary and treasurer
of VitaminShoppe.com since June 1999. Mr. Segall has been chief financial
officer of The Vitamin Shoppe since 1997. From 1985 to 1996, Mr. Segall held a
number of financial management positions and was vice president, treasurer and
controller of Tiffany & Co. In 1997, he was senior vice
president -- merchandising planning for Tiffany & Co. and was responsible for
worldwide strategic sales, merchandising, logistics and distribution resource
planning.
Eliot D. Russman has been chief marketing officer of VitaminShoppe.com
since June 1999. From 1998 to 1999, Mr. Russman served as vice president of
marketing for The HomeArts.com Network, a division of the Hearst Corporation
and, from 1997 to 1998, as executive vice president of business development and
client services for Freeride Media LLC, an online promotions company. From 1995
to 1997, he was director of client services for S.R.D.S., Inc., an advertising
agency. Prior to 1995, he was a partner at Ross Culbert Lavery & Russman, a
marketing communications design firm.
Joel Gurzinsky has been vice president -- operations of VitaminShoppe.com
since July 1999. Mr. Gurzinsky joined The Vitamin Shoppe in 1979 and has served
in a variety of positions, including retail store management, purchasing, direct
marketing management and distribution management. Before transferring to
VitaminShoppe.com, he was vice president of The Vitamin Shoppe's online
operations.
Lisa H. Kern has been vice president -- business development and sales of
VitaminShoppe.com since July 1999. From 1998 to 1999, Ms. Kern was most recently
director of sales for Warner Brothers Online. From 1997 to 1998, she was
director of business development for media.com, an interactive advertising
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agency. From 1996 to 1997, she was supervisor of retail operations for Sony
Online Ventures Inc., an online entertainment company. She was executive
assistant to the corporate secretary and director of investor relations for The
Seagram Company Ltd. from 1995 to 1996 and manager of councils and segment
services for The Direct Marketing Association from 1993 to 1994.
Michael C. Brooks has been a director of VitaminShoppe.com since July 1999.
Since January 1985, he has been a general partner of J. H. Whitney & Co. and a
managing member of the general partner of Whitney Equity Partners, L.P., two
venture capital investment partnerships. Mr. Brooks serves as a director of
Media Metrix, Inc., Pegasus Communications Corporation, SunGard Data Systems
Inc., USinternetworking, Inc. and several private companies.
Martin L. Edelman has been a director of VitaminShoppe.com since its
incorporation. Mr. Edelman was a partner in Battle Fowler LLP, a law firm, from
1972 to 1993 and has been of counsel to the firm since 1994. Mr. Edelman serves
as a director for Acadia Trust, Avis Rent A Car, Inc., Capital Trust and Cendant
Corp., as well as several privately held companies, including The Vitamin
Shoppe. As a member of the board of directors of Cendant Corp., Mr. Edelman has
been named as a defendant in one class action filed against the company and
several officers and directors of the company that asserts various claims under
the federal securities laws, state statutes and common law.
M. Anthony Fisher has been a director of VitaminShoppe.com since its
incorporation. Mr. Fisher has been a partner of Fisher Brothers, a real estate
development firm, since 1981 and a general partner of FdG Associates, a private
equity firm, since 1995. Mr. Fisher also serves as a director of Sunpark, Inc.
and The Vitamin Shoppe.
David S. Gellman has been a director of VitaminShoppe.com since its
incorporation. Mr. Gellman has been a managing director of FdG Associates, a
private equity firm, since 1995. From 1988 to 1995, he was an investment
professional with AEA Investors Inc., a private equity firm, with responsibility
for identifying, executing and/or managing private equity investments. Mr.
Gellman also serves as a director of Golf Galaxy, Inc., North American Training
Services, Inc. and The Vitamin Shoppe.
Woodson C. Merrell, M.D. has been a director of VitaminShoppe.com since
August 1999. Since 1993, Dr. Merrell has been the executive director of Beth
Israel Center for Health and Healing, a division of Continuum Health Partners, a
consortium of four hospitals. Dr. Merrell also maintains an active private
practice and is a frequent lecturer on health and wellness topics.
Stephen P. Murray has been a director of VitaminShoppe.com since June 1999.
Mr. Murray has been an investment professional at Chase Venture Capital
Associates, L.P., a private equity firm, since 1990. Mr. Murray also serves as a
director of Advantage Schools, American Floral Services, Cornerstone Brands,
Futurecall Telemarketing, Home Products International, La Petite Academy, LPA
Holdings Inc., Premier Systems Integrators, Regent Lighting Corporation and The
Vitamin Shoppe.
TERMS OF OFFICE; OFFICERS
Our certificate of incorporation provides that the board of directors will
be divided into three classes, with each class serving a staggered three-year
term. The Class I directors will stand for re-election at the 2000 annual
meeting of stockholders, the Class II directors will stand for re-election at
the 2001 annual meeting of stockholders, and the Class III directors will stand
for re-election at the 2002 annual meeting of stockholders.
All officers are appointed each year by the board of directors at its
annual meeting, which will be held immediately following our annual meeting of
stockholders. The chairman of our board is an executive officer and with the
board of directors oversees our president and chief executive officer.
STOCKHOLDER AGREEMENT; J. H. WHITNEY REPRESENTATIVE ON BOARD OF DIRECTORS
In July 1999, we entered into a stockholders agreement with all of our
existing stockholders, including The Vitamin Shoppe, J. H. Whitney III, L.P. and
Whitney Strategic Partners III, L.P., in connection with
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the sale of Series A convertible preferred stock. The agreement provides that
the parties will undertake to cause to be nominated and elected as a member of
our board of directors one individual designated by both of the Whitney
affiliates. The ability to designate ends when the Whitney affiliates no longer
collectively own at least 50% of the shares of Class A common stock issued to
them upon the conversion of their Series A convertible preferred stock. The
Whitney affiliates may designate for removal their representative on the board
of directors and may designate for election an individual to fill the new
vacancy. The parties to the agreement will undertake to remove the old director
and elect the new director as requested by the Whitney affiliates.
BOARD COMMITTEES
Our board of directors has established an audit committee and a
compensation committee. Messrs. Brooks, Gellman and Murray comprise our audit
committee, which is responsible for reviewing our audited financial statements
and accounting practices and for considering and recommending the employment of,
and approving the fee arrangements with, independent accountants for both audit
functions and advisory and other consulting services. Messrs. Brooks, Fisher,
Gellman and Murray comprise our compensation committee, which reviews and
approves the compensation and benefits for our key executive officers,
administer our stock option plan and make recommendations to the board of
directors regarding such matters. See "-- Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our board of directors has not had a compensation
committee, and all compensation decisions relating to our executive officers
have been made by the full board of directors. Upon the closing of this
offering, the compensation committee will make all compensation decisions
regarding our executive officers. In 1998, Messrs. Horowitz, Edelman, Fisher,
Gellman and Murray were members of The Vitamin Shoppe's board of directors. No
interlocking relationship exists between the compensation committee and the
board of directors or compensation committee of any other company, nor have any
such interlocking relationships existed in the past.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
This description is a summary of the material terms of our Stock Option
Plan for Non-Employee Directors dated as of August 1, 1999. This plan has been
filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part. Under the plan, we
may grant options to purchase an aggregate of 461,700 shares of Class A common
stock. The plan is administered by our board of directors, which may establish
from time to time regulations, provisions and procedures that are advisable in
its opinion for the administration of the plan.
Each of our directors who is not employed by us in any other capacity and
who was elected or appointed to our board of directors prior to August 1, 1999
will be granted an option to purchase 38,475 shares of Class A common stock upon
the closing of this offering. Each non-employee director who is elected or
appointed to our board of directors after August 1, 1999 will be granted an
option to purchase 38,475 shares of Class A common stock on the date of initial
election or appointment. Each of our non-employee directors will be granted an
additional option to purchase 7,695 shares of Class A common stock on the third
anniversary of any previous grant under the director plan. An option was granted
to Dr. Merrell under the plan in August 1999 to purchase 38,475 shares of Class
A common stock at an exercise price of $9.15 per share.
The exercise price of each option granted under the plan is the fair market
value of Class A common stock on the date of grant. Each option will become
exercisable in three equal yearly installments commencing on the first
anniversary of the date of its grant and will expire ten years after the date of
its grant. Each option granted under the director plan will be evidenced by a
written option agreement between us and the non-employee director.
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<PAGE> 51
If the board of directors determines that the non-employee director has
committed a felony or an act of embezzlement, fraud, dishonesty, moral
turpitude, fails to pay an obligation owed to us, breaches fiduciary duties owed
to us, makes an unauthorized disclosure of our trade secrets or confidential
information or engages in any conduct constituting unfair competition, all
unexercised options will terminate. If the non-employee director's service with
us terminates for any other reason, all exercisable but unexercised options will
remain exercisable until the termination of the exercise period. Upon our
dissolution or liquidation or a "change in control" as defined in the director
plan, all options will become exercisable, without regard to vesting schedules,
immediately prior to but not after the effective date of the dissolution,
liquidation or change in control. Options granted under the plan are not
assignable or transferable by the non-employee director, except by will or the
laws of descent and distribution.
EXECUTIVE COMPENSATION
Because VitaminShoppe.com was not incorporated until May 1999, none of its
officers or employees received total compensation, whether paid, deferred or
accrued, in excess of $100,000 during the year ended December 31, 1998 for
services rendered to VitaminShoppe.com. VitaminShoppe.com granted no options to
purchase shares of its capital stock during 1998.
STOCK OPTION PLAN
The following description of our stock option plan is a summary of the
material terms of the VitaminShoppe.com, Inc. Stock Option Plan dated as of July
1, 1999. The stock option plan has been filed with the Securities and Exchange
Commission as an exhibit to the registration statement of which this prospectus
is a part. Under the plan, we may grant options to purchase an aggregate of
2,308,500 shares of Class A common stock. The plan is administered by the
compensation committee of our board of directors, which may establish from time
to time regulations, provisions, procedures and conditions of awards that are
advisable in its opinion for the administration of the plan. The committee will
select which of our employees are eligible to participate in the plan.
The exercise price at which Class A common stock may be purchased under
options is the fair market value of Class A common stock on the date of grant.
After the closing of this offering, in general fair market value will mean the
average over ten business days of the last reported sale price for the Class A
common stock. Each option will expire ten years after the date of its grant.
Among other things, the date or dates upon which an option will become
exercisable will be specified in a written option agreement between us and the
employee.
If the employment of an employee terminates for "good cause," all
unexercised options will terminate. If employment terminates voluntarily or
other than for good cause, then all exercisable but unexercised options will
remain exercisable until the termination of the exercise period. In general,
"good cause" with respect to an employee includes willful or gross negligence,
intentional or habitual neglect of duties, theft or misappropriation from The
Vitamin Shoppe or us, felony conviction, drunkenness, drug addition or any other
definition of the term contained in an employment agreement between us and the
employee. Upon our dissolution or liquidation or a "change in control" as
defined in the plan, all options become exercisable, without regard to vesting
schedules, immediately prior to but not after the effective date of the
dissolution, liquidation or change in control. Options granted under the plan
are not assignable or transferable by the employee except by will or the laws of
descent and distribution.
As of August 31, 1999, we had granted options under the plan to purchase an
aggregate of 780,034 shares of Class A common stock at a weighted average
exercise price of $5.26 per share. These options generally vest in yearly
increments over a three-year period from the date of grant, although vesting of
the options will be accelerated with respect to 130,815 shares upon the closing
of this offering. Under the plan, 1,528,466 shares of Class A common stock are
currently available for future issuance.
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EMPLOYMENT AND SEVERANCE AGREEMENTS
As of June 14, 1999, we entered into an employment and noncompetition
agreement, pursuant to which Kathryn H. Creech will serve as a member of our
board of directors and as our president and chief executive officer, reporting
in this capacity to the chairman of our board of directors. We will initially
pay Ms. Creech $100,000 per year as base salary, a $200,000 annual bonus and, if
her performance so merits in the discretion of the board of directors, an annual
discretionary bonus. Ms. Creech is entitled to participate in employee benefit
plans available to The Vitamin Shoppe's or our senior executives.
This employment and noncompetition agreement terminates on June 14, 2001,
but it will be extended in one-year increments after that date unless either
party gives the other 180 days' written notice to the contrary. Severance
payments are provided if Ms. Creech's employment is terminated:
- by us other than for cause, in which case she will be entitled to receive
her base salary and annual bonus through the term of the agreement,
including any extensions of the term;
- by us upon her disability or death, for a period of 90 days after the
date of termination or death;
- by Ms. Creech if
- there is a material adverse change in her function, duties or
responsibilities without her written consent;
- she is required to change her principal place of business by more
than 40 miles outside Manhattan;
- we breach the agreement; or
- she is not elected or appointed as a member of our board of
directors or as our president and chief executive officer, in which
case she will be entitled to receive her base salary and annual
bonus through the term of the agreement, including any extensions of
the term; or
- if, following a change in control:
- there is a material adverse change in Ms. Creech's function, duties
or responsibilities and she elects to terminate her employment as a
result of the change; or
- the agreement is terminated or permitted to expire within 12 months
after the change in control, in which case Ms. Creech will receive
her base salary and annual bonus through the term of the agreement,
including any extensions of the term, plus an amount equal to one
year of base salary and annual bonus and continued participation for
12 months in our medical plan.
Ms. Creech has agreed, for two years after she receives her last payment
under the agreement:
- not to engage in any business activity that may reasonably be construed
to be competitive with The Vitamin Shoppe's or our principal business
anywhere in the world as conducted on the date of termination of her
employment; and
- not to solicit any of The Vitamin Shoppe's or our customers, business,
officers or employees.
In June 1999, we granted Ms. Creech an option to purchase 392,445 shares of
Class A common stock at an exercise price of $3.82 per share. The option
generally vests in equal yearly increments over three years from the date of
grant, although vesting of the option with respect to 130,815 shares will be
accelerated upon the closing of this offering. Upon the closing of the sale of
the Series A convertible preferred stock, Ms. Creech was granted an option to
purchase an additional 82,944 shares of Class A common stock at an exercise
price of $9.15 per share, which option vests in equal yearly increments over
three years from the date of grant. Upon the closing of this offering, we have
agreed to grant Ms. Creech an option to purchase 209,139 shares of Class A
common stock at the initial public offering price. This option will vest in
equal yearly increments over three years from the date of grant. In the future,
we may grant Ms. Creech additional options under the agreement or our stock
option plan. See "-- Stock Option Plan."
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As of June 4, 1999, we hired Eliot D. Russman as our chief marketing
officer at an annual salary of $215,000. Our offer of employment includes a
promise to continue to pay Mr. Russman's base salary in the event he is
terminated other than for cause, until the later to occur of June 3, 2000 and
six months after the date of termination. We also granted Mr. Russman an option
to purchase 176,600 shares of Class A common stock at an exercise price of $3.82
per share, which option vests in equal yearly increments over three years from
the date of grant.
As of July 26, 1999, we hired Lisa H. Kern as our vice
president -- business development and sales at an annual salary of $175,000. Our
offer of employment includes a promise to continue to pay Ms. Kern's base salary
in the event she is terminated other than for cause, until the later to occur of
July 25, 2000 and six months after the date of termination. We also granted Ms.
Kern an option to purchase 91,571 shares of Class A common stock at an exercise
price of $9.15 per share, which option vests in equal yearly increments over
three years from the date of grant.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY
Our bylaws provide that we may indemnify our directors and officers, to the
fullest extent permitted by law, against all costs and expenses, including
attorney fees, judgments, fines, amounts paid or to be paid in settlement and
other disbursements, that are actually and reasonably incurred in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding if the director or officer is or may be made a party to the action,
suit or proceeding because at our request he is or was at any time our director,
officer, employee or other agent or served in a similar capacity for any other
entity, including any employee benefit plan. In accordance with the General
Corporation Law of the State of Delaware, our bylaws permit us to indemnify a
director or officer before the final disposition of an action, suit or
proceeding as long as the director or officer agrees to repay all advanced
amounts if it is later determined that such director or officer is not entitled
to be indemnified.
The General Corporation Law requires that any indemnification of our
directors and officers be authorized:
- by a majority vote of the directors who are not parties to the action,
suit or proceeding, even though less than a quorum;
- by a committee of such directors designated by majority vote of such
directors, even though less than a quorum;
- if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion; or
- by the stockholders.
Both our bylaws and the General Corporation Law allow us to purchase and
maintain insurance on behalf of any person who is or was at any time our
director, officer, employee or other agent, or who serves or has served in a
similar capacity for another entity, including any employee benefit plan, at our
request, against any liability asserted against or incurred by the person,
whether or not we would have the power to indemnify him against such liability
under the General Corporation Law. Prior to the closing of this offering, we
intend to obtain director and officer insurance providing indemnification for
our directors, officers and some employees. We believe that these
indemnification provisions and insurance are necessary to attract and retain
qualified directors and executive officers.
The General Corporation Law of the State of Delaware authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages due to breaches of
directors' fiduciary duty of care. Our certificate of incorporation includes a
provision that
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<PAGE> 54
eliminates the personal liability of our directors for monetary damages as a
result of breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to VitaminShoppe.com or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the General Corporation Law regarding unlawful
dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought. We are
unaware of any threatened litigation that may result in claims for
indemnification.
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CERTAIN TRANSACTIONS
Since the inception of VitaminShoppe.com, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
we were or are a party in which the amount involved exceeds $60,000 and in which
any director, executive officer, holder of more than 5% of the Class A common
stock or the Class B common stock or immediate family member of any of these
persons had or will have a direct or indirect interest other than the
transactions described in this section. We believe that the terms of these
transactions are no less favorable to us than could have been obtained from
unaffiliated third parties.
ISSUANCE OF COMMON STOCK
On June 11, 1999, we issued 1,000 shares of our common stock, par value
$0.01 per share, to The Vitamin Shoppe for a purchase price of $1,000 in
connection with our initial capitalization. These shares were reclassified into
8,500,000 shares of Class B common stock on July 9, 1999 and will be split into
13,081,500 shares immediately prior to the effective date of the registration
statement of which this prospectus is a part.
ISSUANCE OF INTERCOMPANY NOTES
As of June 30, 1999, we issued to The Vitamin Shoppe a promissory note due
upon demand by The Vitamin Shoppe in the original principal amount of $5.8
million, which was equal to our payable to The Vitamin Shoppe on that date. This
amount represents funds advanced to us by The Vitamin Shoppe for operating
losses and working capital requirements. The promissory note bears interest at
The Vitamin Shoppe's cost of funds from time to time under its bank credit
facility, which was 8.75% on June 30, 1999. We intend to use a portion of the
net proceeds of this offering to repay this note, plus accrued interest, in
full.
SALE OF SERIES A CONVERTIBLE PREFERRED STOCK
In July 1999, we issued 1,775,260 shares of Series A convertible preferred
stock, par value $0.01 per share, which will automatically convert into
2,732,119 shares of Class A common stock upon the closing of this offering. The
gross proceeds of this private placement were $25 million. Of this amount, $10
million was paid through the conversion of promissory notes issued on July 9,
1999 and held by existing security holders of The Vitamin Shoppe and their
affiliates. J. H. Whitney III, L.P. and Whitney Strategic Partners III, L.P.,
which together hold 1.3% of the voting power of our capital stock prior to the
closing of this offering, acquired their interest in this private placement. See
"Principal Stockholders."
In connection with the offering and sale of the Series A convertible
preferred stock, we entered into a registration rights agreement with The
Vitamin Shoppe, J. H. Whitney III, L.P., Whitney Strategic Partners III, L.P.,
FdG Capital Partners LLC, FdG-Chase Capital Partners LLC, CB Capital Investors
L.P., Jeffrey and Helen Horowitz, Thomas Weisel Partners LLC and several
unaffiliated investors with respect to the Class A common stock. See
"Description of Capital Stock -- Registration Rights Agreement" for a summary of
the material terms of this agreement.
INCOME TAXES
The Vitamin Shoppe may elect, for federal income tax purposes, to include
us among an affiliated group of companies of which The Vitamin Shoppe is a
"common parent" within the meaning of section 1504(a) of the Internal Revenue
Code of 1986. This election is generally permitted for periods during which The
Vitamin Shoppe owned at least 80% of the voting power and value of our capital
stock. The effect of the election is to permit The Vitamin Shoppe to offset any
taxable income of the group against taxable losses that we expect to generate.
Immediately after the closing of this offering, The Vitamin Shoppe will no
longer continue to own the requisite amount of our capital stock. Under the tax
allocation agreement between The Vitamin Shoppe and us, for any period during
which we were included in the consolidated taxpayer group of The Vitamin Shoppe,
we will pay our proportionate share of The
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Vitamin Shoppe's tax liability, computed as if we were filing a separate return,
and the value of any tax loss benefits attributable to us will be refunded to us
by The Vitamin Shoppe. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview -- Income taxes."
HISTORICAL RELATIONSHIPS
As a division and then a subsidiary of The Vitamin Shoppe, we have received
and continue to receive various services from The Vitamin Shoppe, including
supply, fulfillment, promotional and administrative services. Our historical
financial information has reflected expense allocations for these services
rendered by The Vitamin Shoppe. We believe that these allocations have been made
on a reasonable and consistent basis. However, the allocations are not
necessarily indicative of, nor is it practicable for us to estimate, the level
of expenses that would have resulted had we been operating as an independent
company. In addition, we have relied on The Vitamin Shoppe to provide financing
for our cash flow. Our cash flows to date are therefore not necessarily
indicative of the cash flows that would have resulted had we been operating as
an independent company.
INTERCOMPANY AGREEMENTS
We have entered into several intercompany agreements with The Vitamin
Shoppe that were not negotiated on an arms-length basis. However, we believe
that the terms of these agreements are no less favorable to us than those that
could have been obtained from unaffiliated third parties. In general, the
intercompany agreements do not have fixed terms. As long as The Vitamin Shoppe
owns at least 30% of the voting power of our capital stock, the material terms
of the intercompany agreements may not be amended or waived without the approval
of a majority of our directors who are not directors, officers or more than 5%
stockholders of The Vitamin Shoppe, or the designee of a more than 5%
stockholder. In addition, our bylaws prohibit us from entering into other
material agreements with The Vitamin Shoppe or any of its subsidiaries, as long
as The Vitamin Shoppe owns at least 30% of the voting power of our capital
stock, unless those agreements are approved by a majority of these directors.
This provision may be amended or rescinded only by a majority of these
directors. See "Business -- Intercompany Agreements" for a summary of the
material terms of these agreements.
RELATIONSHIP WITH ONE OF THE VITAMIN SHOPPE'S SUPPLIERS
Jeffrey J. Horowitz, the chairman of our board of directors and the
president and chief executive officer of The Vitamin Shoppe, owned a 30%
interest in one of The Vitamin Shoppe's suppliers. During 1998, this supplier
provided approximately $4.9 million (7.4%) of the vitamins, nutritional
supplements and minerals sold to The Vitamin Shoppe. The contract between The
Vitamin Shoppe and this supplier was not negotiated on an arms-length basis.
However, we believe that the terms of this agreement were no less favorable to
The Vitamin Shoppe than could have been obtained from unaffiliated third
parties. The Vitamin Shoppe has informed us that it no longer purchases from
this supplier, although The Vitamin Shoppe continues to be obligated to accept
inventory covered by open purchase orders and back-orders. Mr. Horowitz has sold
his interest in the supplier.
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PRINCIPAL STOCKHOLDERS
The Vitamin Shoppe beneficially owns all shares of the Class B common stock
of VitaminShoppe.com outstanding as of the date of this prospectus. Upon the
closing of this offering, The Vitamin Shoppe will continue to own all of the
Class B common stock and, accordingly, will hold approximately 64% of the
outstanding common stock of VitaminShoppe.com in VitaminShoppe.com. Ownership of
all of the Class B common stock also gives The Vitamin Shoppe approximately 92%
of the voting power of our capital stock immediately after the closing of this
offering. If the underwriters were to exercise in full their option to purchase
up to 681,818 additional shares of Class A common stock, The Vitamin Shoppe
would hold approximately 62% of the outstanding common stock of
VitaminShoppe.com and 91% of the voting power of our capital stock immediately
after the closing of this offering. The Class B common stock owned by The
Vitamin Shoppe has been pledged as security under The Vitamin Shoppe's bank
credit facility. Each share of Class B common stock is entitled to six votes,
while Class A common stock is entitled to one vote per share. See "Description
of Capital Stock -- Common Stock."
This table sets forth information known to us with respect to the
beneficial ownership of Class A common stock as of the date of this prospectus
and after the offering by (1) each stockholder or group of stockholders known by
us to be the beneficial owner of more than 5% of our Class A common stock, (2)
each of our directors and executive officers and (3) all executive officers and
directors as a group. In this table, the Class A common stock beneficially owned
by The Vitamin Shoppe is the Class A common stock that would be issued if The
Vitamin Shoppe converted the shares of Class B common stock into Class A common
stock. See "Description of Capital Stock -- Common Stock."
<TABLE>
<CAPTION>
CLASS A SHARES BENEFICIALLY OWNED
------------------------------------------------------
PERCENTAGE OWNED VOTING POWER
------------------- -------------------
BEFORE AFTER BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING OFFERING OFFERING
------------------------ ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Vitamin Shoppe Industries Inc.(1).................. 13,081,500 82.7% 64.3% 96.6% 91.5%
J. H. Whitney III, L.P. and Whitney Strategic
Partners III, L.P.(2)............................ 1,092,849 40.0% 15.0% 1.3% 1.3%
FdG Capital Partners LLC and FdG-Chase Capital
Partners LLC(3).................................. 13,655,249 86.4% 67.1% 97.3% 92.2%
CB Capital Investors, L.P.(4)...................... 651,606 23.8% 9.0% * *
Jeffrey J. Horowitz and Helen Horowitz(5)(6)....... 13,409,354 84.8% 65.9% 97.0% 91.9%
Kathryn H. Creech(7)............................... 130,815 4.6% 1.8% * *
Larry M. Segall.................................... -- -- -- -- --
Eliot D. Russman................................... -- -- -- -- --
Joel Gurzinsky..................................... -- -- -- -- --
Lisa H. Kern....................................... -- -- -- -- --
Michael C. Brooks(8)............................... 1,092,849 40.0% 15.0% 1.3% 1.3%
Martin L. Edelman(5)............................... 13,081,500 82.7% 64.3% 96.6% 91.5%
M. Anthony Fisher(5)(9)............................ 13,655,249 86.4% 67.1% 97.3% 92.2%
David S. Gellman(5)(10)............................ 13,081,500 82.7% 64.3% 96.6% 91.5%
Woodson C. Merrell, M.D. .......................... -- -- -- -- --
Stephen P. Murray(5)(11)........................... 13,733,106 86.8% 67.5% 97.4% 92.3%
All directors and officers as a group (12
persons)......................................... 15,858,373 99.5% 77.4% 99.9% 94.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Its address is 4700 West Side Avenue, North Bergen, New Jersey 07047. The
Vitamin Shoppe currently holds no shares of Class A common stock. However,
if the Class B common stock held by The Vitamin Shoppe were converted into
Class A common stock, The Vitamin Shoppe would hold 82.7% of the then
outstanding shares of Class A common stock immediately prior to the closing
of this offering. VS Investors LLC owns 70% of the capital stock of The
Vitamin Shoppe, and Jeffrey J. Horowitz and his wife, Helen Horowitz,
directly or through trusts own or control the remaining 30%. The managing
member of VS Investors LLC is FdG Associates Acquisition L.P., which is
ultimately controlled in the aggregate by Charles de Gunzburg and M.
Anthony
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Fisher. Mr. de Gunzburg is a director of The Vitamin Shoppe, and Mr. Fisher
is a director of VitaminShoppe.com and The Vitamin Shoppe. FdG Capital
Partners LLC and FdG-Chase Capital Partners LLC, which are affiliates of VS
Investors LLC and Mr. Fisher, own 573,749 shares of Class A common stock in
the aggregate. See footnote 3. The Vitamin Shoppe expressly disclaims
beneficial ownership of the shares of Class A common stock held by FdG
Capital Partners LLC and FdG-Chase Capital Partners LLC.
(2) Their address is 177 Broad Street, Stamford, Connecticut 06901. The general
partner of both stockholders is J. H. Whitney Equity Partners III, LLC.
(3) Their address is 299 Park Avenue, New York, New York 10171. The managing
member of both limited liability companies is FdG Capital Associates LLC,
which is ultimately controlled by M. Anthony Fisher. FdG Capital Associates
LLC is an affiliate of VS Investors LLC. See footnote 1. As such, it and
these limited liability companies may be deemed to share voting power with
respect to the Class B common stock held by The Vitamin Shoppe and the
Class A common stock into which the Class B common stock may be converted.
Each of these entities expressly disclaims beneficial ownership of the
shares of Class B common stock owned by The Vitamin Shoppe. FdG Capital
Partners LLC and FdG-Chase Capital Partners LLC own 573,749 shares of Class
A common stock in the aggregate.
(4) Its address is 380 Madison Avenue, 12th Floor, New York, New York 10017.
(5) These individuals are directors of The Vitamin Shoppe. As such, they may be
deemed to share voting power with respect to the Class B common stock held
by The Vitamin Shoppe and the Class A common stock into which the Class B
common stock may be converted. Each of these individuals expressly
disclaims beneficial ownership of the shares of Class B common stock owned
or controlled by The Vitamin Shoppe.
(6) Mr. and Mrs. Horowitz's address is 4700 West Side Avenue, North Bergen, New
Jersey 07047. Mr. Horowitz is the president and chief executive officer of
The Vitamin Shoppe. Mr. and Mrs. Horowitz are also directors of The Vitamin
Shoppe. See footnote 1. Because of these relationships, Mr. and Mrs.
Horowitz may be deemed to share voting power with respect to the Class B
common stock held by The Vitamin Shoppe and the Class A common stock into
which the Class B common stock may be converted. Mr. and Mrs. Horowitz
expressly disclaim beneficial ownership of the shares of Class B common
stock owned by The Vitamin Shoppe. Directly or through trusts, Mr. and Mrs.
Horowitz own 30% of the capital stock of The Vitamin Shoppe. See footnote
1. Mr. and Mrs. Horowitz own 327,854 shares of Class A common stock
directly.
(7) Represents shares issuable upon the exercise of stock options.
(8) Mr. Brooks is affiliated with J. H. Whitney III, L.P. and Whitney Strategic
Partners III, L.P. As such, he may be deemed to share voting power with
respect to the Class A common stock owned by these limited partnerships.
Mr. Brooks expressly disclaims beneficial ownership of shares of the Class
A common stock owned by J. H. Whitney III, L.P. and Whitney Strategic
Partners III, L.P.
(9) See footnotes 1 and 3.
(10) Mr. Gellman is a managing director of FdG Associates, an affiliate of VS
Investors LLC, FdG Capital Partners LLC and FdG-Chase Capital Partners LLC.
See footnotes 1 and 3.
(11) Mr. Murray is a general partner of Chase Venture Capital Associates, L.P.,
an affiliate of CB Capital Investors, L.P. See footnote 4. Mr. Murray
expressly disclaims beneficial ownership of the shares of Class A common
stock owned by CB Capital Investors, L.P.
The number of shares of Class A common stock outstanding before this
offering consists of 2,732,119 shares. Shares of Class A common stock that an
individual or group has the right to acquire within 60 days after the date of
this prospectus pursuant to the exercise of options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage ownership of such person or group but are not deemed outstanding for
the purpose of computing the percentage ownership of any other person listed in
this table. Except as indicated in the footnotes to this table, we believe that
the named stockholders have sole voting and investment power with respect to all
of the shares shown to be beneficially owned by them, based on information
provided to us by the stockholders.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock is 30,000,000 shares of Class A common stock,
par value $0.01 per share, 15,000,000 shares of Class B common stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per
share. Immediately prior to the closing of this offering, we will have 11
stockholders, and we will have issued and outstanding 2,732,119 shares of Class
A common stock, assuming conversion of the Series A convertible preferred stock,
and 13,081,500 shares of Class B common stock.
The following descriptions of our capital stock and selected provisions of
our certificate of incorporation and bylaws are summaries. Complete copies of
our certificate of incorporation and bylaws have been filed with the Securities
and Exchange Commission as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
Voting rights. The holders of Class A common stock and Class B common
stock generally have identical voting rights. However, holders of Class A common
stock are entitled to one vote per share, while holders of Class B common stock
are entitled to six votes per share on matters to be voted on by stockholders.
In general, except as otherwise required by law, all matters to be voted on by
stockholders must be approved by a majority of the votes entitled to be cast by
all shares of the Class A common stock and the Class B common stock present in
person or represented by proxy, voting together as a single class. When electing
directors, those candidates receiving the most votes, even if not a majority of
the votes cast, will be elected. Holders of Class A common stock and Class B
common stock are not entitled to cumulate their votes in the election of
directors.
Except as otherwise provided by law, and after honoring any voting rights
granted to holders of any outstanding preferred stock, amendments to our
certificate of incorporation must be approved by a majority of the voting power
of all shares of Class A common stock and Class B common stock, voting together
as a single class. Any amendment to our certificate of incorporation to increase
or decrease the authorized shares of any class must be approved by the
affirmative vote of the holders of a majority of the voting power of all shares
of Class A common stock and Class B common stock, voting together as a single
class. Amendments to our certificate of incorporation that would alter or change
the powers, preferences or special rights of either the Class A common stock or
the Class B common stock so as to affect them adversely also must be approved by
the holders of a majority of the shares of the class affected by the amendment,
voting as a separate class. For purposes of these provisions, any provision for
the voluntary, mandatory or other conversion or exchange of the Class B common
stock for or into Class A common stock on a one-for-one basis will not be
considered as adversely affecting the rights of holders of the Class A common
stock.
Dividends. Holders of Class A common stock and Class B common stock will
share equally on a per-share basis in any dividend on common stock declared by
the board of directors, after honoring any preferential rights of outstanding
preferred stock. Dividends consisting of shares of Class A common stock or Class
B common stock may be paid only as follows:
- dividend shares of Class A common stock may be issued only to holders of
Class A common stock, and dividend shares of Class B common stock may be
issued only to holders of Class B common stock; and
- dividend shares will be issued proportionally with respect to each
outstanding share of Class A common stock and Class B common stock.
We may not subdivide or combine shares of either Class A common stock or
Class B common stock without at the same time proportionally subdividing or
combining shares of the other class.
Conversion. At the option of the holder, each share of Class B common
stock is convertible into one share of Class A common stock at any time. Each
share of Class B common stock automatically converts
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<PAGE> 60
into one share of Class A common stock upon any sale to a person or entity not
affiliated with The Vitamin Shoppe.
Other Rights. In the event of any merger or consolidation of
VitaminShoppe.com with or into another company in which shares of our common
stock are converted into or exchangeable for shares of stock, other securities,
cash or property of the other company, each share of Class A common stock and
Class B common stock will entitle its holder to receive the same kind and amount
of interest in the other company. Upon the liquidation, dissolution or
winding-up of VitaminShoppe.com, all holders of Class A common stock and Class B
common stock are entitled to share ratably in any assets available for
distribution, after payment in full of the amounts required to be paid to
holders of any preferred stock. No shares of Class A common stock or Class B
common stock are subject to redemption or have preemptive rights to purchase
additional shares of common stock. Upon the closing of this offering, all the
outstanding shares of Class A common stock and Class B common stock will be
validly issued, fully paid and non-assessable.
PREFERRED STOCK
Our board of directors is authorized, subject to limitations prescribed by
Delaware law but without any further vote or action by the stockholders, to
provide for the issuance of preferred stock in one or more series, to establish
from time to time the number of shares to be included in each such series, to
fix the rights, preferences and privileges of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon and to
increase or decrease the number of shares of any such series, but not below the
number of shares of such series then outstanding. Our board of directors may
authorize the issuance of preferred stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of Class
A common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of delaying, deferring or preventing a change in control of our
ownership. The issuance of preferred stock may also adversely affect the market
price of the Class A common stock and the voting and other rights of the holders
of Class A common stock. We have no existing plans to issue any preferred stock.
REGISTRATION RIGHTS AGREEMENT
We have entered into a registration rights agreement that covers (1) the
shares of Class A common stock issuable upon the automatic conversion of the
Series A convertible preferred stock at the closing of this offering or upon the
exercise of warrants to purchase Series A convertible preferred stock that
become exercisable for Class A common stock after the closing of this offering
and (2) the shares of Class A common stock into which the shares of Class B
common stock are convertible. The material terms of this agreement are
summarized here. A complete copy of this agreement has been filed with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this prospectus is a part. We will bear all registration expenses
incurred in connection with these registration rights. The stockholders who sell
in offerings commenced under the registration rights agreement will pay all
underwriting discounts, selling commissions and stock transfer taxes applicable
to the sale of Class A common stock owned by them. Rights under the registration
rights agreement will terminate when no shares of Class A common stock
registrable under the agreement remain outstanding.
The Vitamin Shoppe demand registration rights. Under the registration
rights agreement, at any time after 180 days after the closing of this offering,
The Vitamin Shoppe may demand that we file a registration statement under the
Securities Act of 1933 covering all or a portion of the Class A common stock
issuable to The Vitamin Shoppe and its permitted transferees upon conversion of
Class B common stock. If The Vitamin Shoppe demands that we file such a
registration statement, other holders who were stockholders prior to the closing
of this offering and their permitted transferees may require us to include all
or a portion of the Class A common stock that they own in this registration. The
Vitamin Shoppe may exercise no more than one demand during any 12-month period.
These registration rights will be limited by our right to delay the filing of a
registration statement in some circumstances. We may cause a delay no more than
once in any 12-month period and for no more than 90 days.
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<PAGE> 61
Other demand registration rights. At any time after 180 days after the
closing of this offering but prior to the date on which we become eligible to
register the registrable securities on Form S-3 or any successor form, holders
other than The Vitamin Shoppe of 50% of the then outstanding registrable shares
held by such holders may demand that we file a registration statement under the
Securities Act of 1933 covering all or a portion of their registrable shares, as
long as the shares to be registered have a fair market value on the date of
demand of at least $15 million. These holders may demand one registration under
this right. In addition, at any time after the closing of this offering but
prior to the third anniversary of the closing of this offering, if we are
eligible to utilize a registration statement on Form S-3 to register a resale of
our securities, then holders other than The Vitamin Shoppe of 25% of the then
outstanding registrable shares held by such holders other than The Vitamin
Shoppe may request that we file a registration statement covering all or a
portion of their registrable shares, as long as the shares to be registered have
a fair market value on the date of demand of at least $5 million. These holders
may exercise one demand during any 12-month period. These registration rights
will be limited by our right to delay the filing of a registration statement in
some circumstances. We may cause a delay no more than once in any 12-month
period and for no more than 90 days. However, the managing underwriter, if any,
of any offering will have limited rights to restrict the number of registrable
shares included in the registration statement.
Piggyback registration rights. In addition to the rights described above,
holders of registrable shares will have registration rights that apply if we
propose to file a registration statement for Class A common stock for our own
account, other than in connection with a dividend reinvestment program or in
connection with a merger, acquisition or similar corporate transaction or for
the account of any other holder of Class A common stock, including The Vitamin
Shoppe, or for the account of any holder of securities of the same type as the
registrable shares. In that case, the holders of registrable shares may require
us to include all or a portion of the Class A common stock that they own in this
registration statement. However, the managing underwriter, if any, of any
offering will have limited rights to restrict the number of registrable shares
included in the registration statement.
ANTI-TAKEOVER PROVISIONS
Upon the closing of this offering, we will be subject to the provisions of
section 203 of the General Corporation Law of the State of Delaware. Section 203
generally prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless:
- the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained that status;
- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding those shares owned by
affiliated persons; or
- on or subsequent to that date, the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
For these purposes, "business combinations" include mergers, asset sales and
other transactions resulting in a financial benefit to the "interested
stockholder." Generally, an "interested stockholder" is a person who, together
with his affiliates and associates, owns or within the prior three years did own
15% or more of the corporation's voting stock. The restrictions in this statute
would not apply to a "business combination" with The Vitamin Shoppe or any of
its subsidiaries, but they could prohibit or delay the accomplishment of mergers
or other takeover or change-in-control attempts with respect to us and therefore
discourage attempts to acquire us.
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In addition, some of the provisions of our certificate of incorporation and
bylaws may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider to be in his best interest, including those attempts
that might result in a premium over the market price for the Class A common
stock.
Classified board of directors. Our certificate of incorporation provides
that the board of directors will be divided into three classes, with each class
serving a staggered three-year term. The Class I directors will stand for
re-election at the 2000 annual meeting of stockholders, the Class II directors
will stand for re-election at the 2001 annual meeting of stockholders and the
Class III directors will stand for re-election at the 2002 annual meeting of
stockholders. As a result, approximately one-third of the members of our board
of directors will be elected each year. When coupled with the provision of our
certificate of incorporation authorizing the board of directors to fill vacant
directorships and to increase the size of the board of directors, these
provisions may prevent stockholders from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by the removals with their own nominees. In addition, under
Delaware law, directors of a corporation with a classified board may only be
removed for cause. For a description of the identity of the directors in each of
the classes, see "Management."
Special meetings of stockholders. Our certificate of incorporation
provides that special meetings of our stockholders can be called only by the
chairman of the board of directors, a vice chairman, the president or a majority
of the members of the board of directors.
Written consent. Under our certificate of incorporation and bylaws, our
stockholders will no longer be allowed to take action in writing without a
meeting of the stockholders on or after the date on which The Vitamin Shoppe no
longer beneficially owns at least 30% of the voting power of our capital stock.
Advance notice requirements for stockholder proposals and director
nominations. Our bylaws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 120 days nor more than 150 days prior
to the first anniversary of the date of our notice of annual meeting provided
with respect to the previous year's annual meeting of stockholders. If no annual
meeting of stockholders was held in the previous year or the date of the annual
meeting of stockholders has been changed to be more than 30 days earlier than or
60 days after this anniversary, notice will be timely if received before the
earlier of (1) 60 days prior to the annual meeting of stockholders or (2) the
close of business on the tenth day following the date on which notice of the
date of the meeting is given to stockholders or made public. Our bylaws also
specify requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from timely bringing matters before, or
from making nominations for directors at, an annual meeting of stockholders.
Authorized but unissued shares. The authorized but unissued shares of our
common stock and preferred stock are available for future issuance without
stockholder approval. We may use these additional shares for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and stock option plans. The existence of these
shares could discourage or make more difficult an attempt to obtain control of
VitaminShoppe.com by means of a proxy contest, tender offer, merger or
otherwise.
Limitation of liability and indemnification provisions. Our certificate of
incorporation and bylaws limit the monetary liability of our directors to the
corporation and our stockholders and provide for indemnification of our
directors and officers under specified circumstances. These provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
Such provisions may also reduce the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers in connection with
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these indemnification provisions. For additional discussion about these
indemnification provisions, see "Management -- Indemnification of Directors and
Officers; Limitation of Liability."
AMENDMENT OF CHARTER DOCUMENTS
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority in interest of the shares entitled to vote on any
matter is required to amend a corporation's certificate of incorporation or
bylaws, unless the certificate of incorporation or bylaws of the corporation
require a greater percentage. Following this offering, The Vitamin Shoppe, as
the owner of all of our outstanding Class B common stock, which will represent
approximately 92% of the voting power of our capital stock immediately after the
closing of this offering, will be able to cause us to amend our certificate of
incorporation and bylaws, subject to any limitations prescribed by law or our
bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A common stock is
ChaseMellon Shareholder Services LLC, located at 85 Challenger Road, Ridgefield
Park, New Jersey 07660.
LISTING
We have applied to list the Class A common stock on the Nasdaq National
Market under the symbol "VSHP."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Class A common
stock. We cannot assure you that a significant public market for the Class A
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of Class A common stock (including shares issued upon
exercise of outstanding options and warrants) in the public market after this
offering could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through the sale of equity securities.
As described below, no shares currently outstanding will be available for sale
immediately after this offering due to certain contractual restrictions on
resale. Sales of substantial amounts of Class A common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.
Upon the closing of this offering, we will have outstanding an aggregate of
7,277,574 shares of Class A common stock, assuming no exercise of outstanding
options or warrants. Of these shares, the shares sold in this offering will be
freely tradable without restrictions or further registration under the
Securities Act of 1933, unless these shares are purchased by one of our
"affiliates," as that term is defined in rule 144 under the Securities Act.
The remaining 2,732,119 shares of Class A common stock held by existing
stockholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
rule 144, rule 144(k) or rule 701 under the Securities Act of 1933. All of these
shares are subject to the lock-up agreements described below. These restricted
shares will be available for resale in the public market in reliance on rule 144
only after expiration of the holding period and other requirements of such sale.
In general, under rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned "restricted shares" of Class A common stock for at
least one year, including the holding period of any prior owner except an
affiliate, may sell within any three-month period a number of shares of Class A
common stock that does not exceed the greater of (1) 1% of the number of shares
of Class A common stock then outstanding, which will equal 72,776 shares
immediately after this offering, and (2) the average weekly trading volume of
the Class A common stock during the four calendar weeks preceding the filing of
a form 144 with respect to the sale. Sales under rule 144 are also subject to
requirements regarding the manner of sale, notice requirements and the
availability of current public information about us. Under rule 144(k), a person
who is not deemed to have been our affiliate at any time during the three months
preceding a sale, and who has beneficially owned the shares of Class A common
stock proposed to be sold for at least two years, including the holding period
of any prior owner except an affiliate, may sell the shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of rule 144.
Rule 701 under the Securities Act of 1933 permits resales of a limited
number of shares of Class A common stock that were acquired by our employees,
officers, directors or consultants under a written compensatory benefit plan or
contract prior to the consummation of this offering or that were acquired upon
the exercise of stock options granted prior to the closing of this offering.
Rule 701 provides that non-affiliates may sell rule 701 shares in reliance on
rule 144 without compliance with the holding period, public information, volume
limitation or notice provisions of rule 144. Affiliates may sell rule 701 shares
without complying with the one-year holding period requirement. No rule 701
shares may be sold until 90 days after the date of this prospectus. However, all
shares of Class A common stock eligible for sale pursuant to rule 701 are
subject to 180-day lockup agreements.
We have entered into an agreement with our existing stockholders, including
The Vitamin Shoppe, and Thomas Weisel Partners LLC that grants specified
registration rights applicable to the shares of common stock held by them. See
"Description of Capital Stock -- Registration Rights Agreement."
Prior to the expiration of the 180-day lock-up agreements, we intend to
file a registration statement under the Securities Act of 1933 covering
2,770,200 shares of Class A common stock reserved for issuance under our stock
option plans. Upon the expiration of the lock-up agreements described above,
130,815
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shares of Class A common stock will be subject to vested options. These shares
will be available for sale in the public market subject to rule 144
restrictions.
LOCK-UP ARRANGEMENTS
Except for sales of Class A common stock to the underwriters pursuant to
the underwriting agreement, for a period of 180 days after the date of this
prospectus, our executive officers, directors, existing stockholders and
existing option holders have agreed that, without the prior written consent of
Thomas Weisel Partners LLC, they will not offer, sell, agree to sell directly or
indirectly or otherwise dispose of any shares of Class A common stock or Class B
common stock. In addition, we have agreed that, without the prior written
consent of Thomas Weisel Partners LLC, we will not, during the period ending 180
days after the date of this prospectus, (1) offer, issue, pledge, sell, contract
to issue or sell, issue or sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, lend
or otherwise issue, transfer or dispose of, directly or indirectly, any shares
of Class A common stock or Class B common stock or any securities convertible
into or exercisable or exchangeable for Class A common stock or Class B common
stock or (2) enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of the Class
A common stock or Class B common stock, whether any such transaction described
in clause (1) or (2) above is to be settled by delivery of Class A common stock,
Class B common stock or other securities, in cash or otherwise. Thomas Weisel
Partners LLC, in its sole discretion at any time or from time to time and
without notice, may release for sale in the public market all or any portion of
the Class A common stock or Class B common stock subject to the lock-up
arrangements. See "Underwriting."
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UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, William Blair & Company, L.L.C. and
PaineWebber Incorporated, have each agreed to purchase from us the aggregate
number of shares of Class A common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Thomas Weisel Partners LLC..................................
William Blair & Company, L.L.C. ............................
PaineWebber Incorporated....................................
---------
Total............................................. 4,545,455
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to various conditions, such as approval of legal
matters by counsel. The nature of the underwriters' obligations is such that
they are committed to purchase and pay for all of the shares of Class A common
stock listed above if any are purchased.
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act of 1933 or will contribute to payments that the underwriters may be required
to make relating to these liabilities.
OVER-ALLOTMENT OPTION
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 681,818 additional shares of Class A common stock
at the public offering price, less underwriting discounts and commissions as set
forth on the cover page of this prospectus. If the underwriters exercise such
option in whole or in part, then each of the underwriters will be severally
committed, subject to conditions described in the underwriting agreement, to
purchase the additional shares of Class A common stock in proportion to their
respective purchase commitments set forth in the above table.
COMMISSIONS AND DISCOUNTS
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and at such price less a concession not in excess of $ per share
of Class A common stock to other dealers specified in a master agreement among
underwriters that are members of the National Association of Securities Dealers,
Inc. The underwriters may allow, and such dealers may reallow, concessions not
in excess of $ per share of Class A common stock to these other dealers.
After this offering, the offering price, concessions and other selling terms may
be changed by the underwriters. The Class A common stock is offered subject to
receipt and acceptance by the underwriters and to other conditions, including
the right to reject orders in whole or in part.
This table summarizes the compensation to be paid to the underwriters by us
and the expenses of approximately $1.5 million payable by us:
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions....... $ $ $
Expenses.....................................
</TABLE>
The underwriters do not expect to confirm sales of Class A common stock to
any accounts over which they exercise discretionary authority.
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RESERVED SHARES
The underwriters, at our request, have reserved for sale at the initial
public offering price up to 4% of the Class A common stock to be sold in this
offering for sale to persons designated by us. The number of shares available
for sale to the general public will be reduced to the extent that any reserved
shares are purchased. Any reserved shares not purchased in this manner will be
offered by the underwriters on the same basis as the other shares offered in the
offering.
NO SALES OF SIMILAR SECURITIES
All of our directors, officers, existing stockholders and existing option
holders have agreed that they will not offer, sell, agree to sell directly or
indirectly or otherwise dispose of any shares of Class A common stock or Class B
common stock without the prior written consent of Thomas Weisel Partners LLC for
a period of 180 days after the date of this prospectus.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell or otherwise dispose of any shares of our capital
stock, except for the shares of Class A common stock being offered and the
shares of Class A common stock issuable upon the exercise of options and
warrants outstanding on the date of this prospectus.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead manager or co-manager
on 63 filed public offerings of equity securities, of which 33 have been
completed, and has acted as a syndicate member in an additional 32 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
Thomas Weisel Partners LLC acted as our exclusive placement agent in
connection with our private placement of Series A convertible preferred stock in
July 1999. Thomas Weisel Partners LLC received customary placement fees in
connection with its services. In connection with the private placement, Thomas
Weisel Partners LLC received a warrant to purchase Series A convertible
preferred stock convertible into 32,703 shares of Class A common stock at an
exercise price of $9.15 per share of Class A common stock. The warrant may be
exercised at any time prior to July 2004. After the closing of this offering,
the warrant may be exercised only for Class A common stock.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for the Class A
common stock. The initial offering price will be determined by negotiations
between us and the representatives of the underwriters. Some of the factors to
be considered in these negotiations will be our results of operations in recent
periods, estimates of our prospects and the industry in which we compete, an
assessment of our management, the general state of the securities markets at the
time of this offering and the prices of similar securities of generally
comparable companies. We have applied for approval for listing of the Class A
common stock on the Nasdaq National Market under the symbol "VSHP." We cannot
assure you, however, that an active or orderly trading market will develop for
the Class A common stock or that the Class A common stock will trade in the
public market subsequent to this offering at or above the initial offering
price.
MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In order to facilitate this offering, persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Class A common stock during and after this
62
<PAGE> 68
offering. Specifically, the underwriters may over-allot or otherwise create a
short position in the Class A common stock for their own account by selling more
shares of Class A common stock than we have sold to them. The underwriters may
elect to cover any short position by purchasing shares of Class A common stock
in the open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the Class A common stock by bidding for or purchasing shares of Class A
common stock in the open market and may impose penalty bids. Under these penalty
bids, selling concessions that are allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if shares of Class A
common stock previously distributed in this offering are repurchased, usually in
order to stabilize the market. The effect of these transactions may be to
stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and may
be discontinued at any time after they are commenced.
LEGAL MATTERS
Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, New York will pass
upon the validity of the issuance of the Class A common stock being offered.
Hale and Dorr LLP, Boston, Massachusetts will pass upon certain legal matters in
connection with this offering for the underwriters.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for the
period from October 1, 1997 (date of inception) to December 31, 1997, for the
year ended December 31, 1998 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in its report appearing
elsewhere in this prospectus and have been so included in reliance upon the
report of that firm given upon its authority as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the Class
A common stock being offered. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information about us and
the Class A common stock, you should refer to the registration statement and its
exhibits and schedules.
You may inspect a copy of the registration statement and the exhibits and
schedules to the registration statement without charge at the offices of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549. You may obtain copies of all or any part of the
Registration Statement from the Public Reference Section of the Securities and
Exchange Commission, 450 Fifth Street, Washington, D.C. 20549, upon the payment
of the prescribed fees. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet
website (www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants like us that file electronically
with the Securities and Exchange Commission.
63
<PAGE> 69
VITAMINSHOPPE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-3
Statements of Operations for the period from October 1, 1997
(inception) to December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30,
1998 (unaudited) and 1999 (unaudited)..................... F-4
Statements of Stockholder's Equity (Deficit) for the period
from October 1, 1997 (inception) to December 31, 1997, for
the year ended December 31, 1998 and for the six months
ended June 30, 1999 (unaudited)........................... F-5
Statements of Cash Flows for the period from October 1, 1997
(inception) to December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30,
1998 (unaudited) and 1999 (unaudited)..................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
VitaminShoppe.com, Inc.
New York, New York
We have audited the accompanying balance sheets of VitaminShoppe.com, Inc.
(the "Company") as of December 31, 1997 and 1998, and the related statements of
operations, stockholder's equity (deficit) and cash flows for the period from
October 1, 1997 (inception) to December 31, 1997 and the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of VitaminShoppe.com, Inc. as of December 31,
1997 and 1998, and the results of its operations and its cash flows for the
period from October 1, 1997 (inception) to December 31, 1997 and the year ended
December 31, 1998 in conformity with generally accepted accounting principles.
New York, New York
June 16, 1999 [except as to Notes 6, 7 and 8 as to which the date is ,
1999]
The accompanying financial statements include the effects of the stock split of
the Company's common stock, approved by the Company's Board of Directors in
September 1999, to be effective immediately prior to the effective date of the
Registration Statement. The above opinion is in the form which will be signed by
Deloitte & Touche LLP upon consummation of the stock split, which is described
in Note 8 of the notes to financial statements, and assuming that, from
September 13, 1999 to the date of such stock split, no other events will have
occurred that would affect the accompanying financial statements and notes
thereto.
Deloitte & Touche LLP
New York, New York
September 13, 1999
F-2
<PAGE> 71
VITAMINSHOPPE.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30, 1999
----------------- ----------- ------------------------
PRO FORMA
1997 1998 1999 PRO FORMA AS ADJUSTED
------ ------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ -- $ -- $-- $24,086 $24,086
Accounts receivable........................ -- 35 50 50 50
Prepaid expenses........................... -- 94 31 31 31
------ ------- ------- ------- -------
Total current assets.................. -- 129 81 24,167 24,167
Property and equipment, net..................... -- 485 736 736 736
------ ------- ------- ------- -------
Total assets............................... $ -- $ 614 $ 817 $24,903 $24,903
====== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities... $ -- $ 824 $ 3,147 $ 3,147 $ 3,147
Due to The Vitamin Shoppe.................. 353 3,583 5,803 5,803 5,803
------ ------- ------- ------- -------
Total current liabilities............. 353 4,407 8,950 8,950 8,950
Stockholder's Equity (Deficit)
Series A Convertible Preferred Stock, $.01
par value, no shares authorized, issued
and outstanding at June 30, 1999;
1,775,260 shares outstanding on a pro
forma basis.............................. -- -- -- 24,000 --
Class A common stock, $.01 par value; no
shares authorized, issued and outstanding
at June 30, 1999; 30,000,000 shares
authorized, 2,732,119 shares outstanding
on a pro forma as adjusted basis......... -- -- -- -- 27
Class B common stock, $.01 par value;
15,000,000 shares authorized, 13,081,500
shares issued and outstanding at June 30,
1999..................................... -- -- 131 131 131
Additional paid in capital................. -- -- (5,316) (5,230) 18,743
Deferred stock-based compensation.......... -- -- (2,948) (2,948) (2,948)
Accumulated deficit........................ (353) (3,793) -- -- --
------ ------- ------- ------- -------
Total stockholder's equity
(deficit)........................... (353) (3,793) (8,133) 15,953 15,953
------ ------- ------- ------- -------
Total liabilities and stockholder's
equity (deficit).................... $ -- $ 614 $ 817 $24,903 $24,903
====== ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 72
VITAMINSHOPPE.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 1,
1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................. $ -- $ 2,861 $ 480 $ 4,303
Cost of goods sold.................... -- 1,407 239 2,104
----------- ----------- ----------- -----------
Gross profit.......................... -- 1,454 241 2,199
Operating expenses:
Marketing and sales expenses........ -- 3,215 392 4,367
Product development expenses........ 285 642 195 719
General and administrative
expenses......................... 64 917 315 1,317
----------- ----------- ----------- -----------
Total operating expenses......... 349 4,774 902 6,403
----------- ----------- ----------- -----------
Loss from operations.................. (349) (3,320) (661) (4,204)
Interest expense...................... 4 120 27 221
----------- ----------- ----------- -----------
Net loss.............................. $(353) $(3,440) $(688) $(4,425)
=========== =========== =========== ===========
Pro forma net loss.................... $(4,360) $(5,192)
=========== ===========
Pro forma basic and diluted net loss
per share........................... $(.28) $(.33)
=========== ===========
Weighted average shares outstanding
used to compute pro forma basic and
diluted net loss per share.......... 15,813,619 15,813,619
=========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 73
VITAMINSHOPPE.COM, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL DEFERRED
-------------------- ------------------- PAID IN STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
--------- -------- ---------- ------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1997
(inception)................. -- $ -- -- $ -- $ -- $ -- $ -- $ --
Net loss.................... -- -- -- -- -- -- (353) --
--------- -------- ---------- ---- ------- ------- ------- -----
Balance, December 31, 1997.... -- -- -- -- -- -- (353) --
Net loss.................... -- -- -- -- -- -- (3,440) --
--------- -------- ---------- ---- ------- ------- ------- -----
Balance, December 31, 1998.... -- -- -- -- -- -- (3,793) --
Net loss (unaudited)........ -- -- -- -- -- -- (4,425) --
Capitalization of the
Company by The Vitamin
Shoppe (unaudited)........ -- -- 13,081,500 131 (8,348) -- 8,218 --
Deferred stock-based
compensation
(unaudited)............... -- -- -- -- 3,032 (3,032) -- --
Amortization of deferred
stock-based compensation
(unaudited)............... -- -- -- -- -- 84 -- --
--------- -------- ---------- ---- ------- ------- ------- -----
Balance, June 30, 1999
(unaudited)................. -- $ -- 13,081,500 $131 $(5,316) $(2,948) $ --
========= ======== ========== ==== ======= ======= ======= =====
<CAPTION>
TOTAL
-------
<S> <C>
Balance, October 1, 1997
(inception)................. $ --
Net loss.................... (353)
-------
Balance, December 31, 1997.... (353)
Net loss.................... (3,440)
-------
Balance, December 31, 1998.... (3,793)
Net loss (unaudited)........ (4,425)
Capitalization of the
Company by The Vitamin
Shoppe (unaudited)........ 1
Deferred stock-based
compensation
(unaudited)............... --
Amortization of deferred
stock-based compensation
(unaudited)............... 84
-------
Balance, June 30, 1999
(unaudited)................. $(8,133)
=======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 74
VITAMINSHOPPE.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OCTOBER 1,
1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(353) $(3,440) $(688) $(4,425)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........ -- 21 5 62
Amortization of stock-based
compensation....................... -- -- -- 84
Changes in operating assets and
liabilities:
Accounts receivable..................... -- (35) -- (15)
Prepaid expenses........................ -- (94) -- 63
Accounts payable and accrued
liabilities.......................... -- 824 -- 2,323
----- ------- ----- -------
Net cash used in operating
activities......................... (353) (2,724) (683) (1,908)
----- ------- ----- -------
Cash flows from investing activities:
Capital expenditures.................... -- (506) (88) (313)
----- ------- ----- -------
Net cash used in investing
activities......................... -- (506) (88) (313)
----- ------- ----- -------
Cash flows from financing activities:
Due to The Vitamin Shoppe............... 353 3,230 771 2,220
Issuance of common stock................ -- -- -- 1
----- ------- ----- -------
Net cash provided by financing
activities........................... 353 3,230 771 2,221
----- ------- ----- -------
Net increase in cash and cash
equivalents............................. -- -- -- --
Cash and cash equivalents -- beginning of
period.................................. -- -- -- --
----- ------- ----- -------
Cash and cash equivalents -- end of
period.................................. $ -- $ -- $ -- $ --
----- ------- ----- -------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................. $ -- $ -- $ -- $ --
===== ======= ===== =======
Income taxes......................... $ -- $ -- $ -- $ --
===== ======= ===== =======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 75
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1997 (INCEPTION) TO DECEMBER 31, 1997, YEAR ENDED DECEMBER 31, 1998
AND (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 AND 1999
1. DESCRIPTION OF BUSINESS
VitaminShoppe.com, Inc. (the "Company") is a leading online source for
products and content related to vitamins, nutritional supplements and minerals.
Until July 1999, the Company was wholly owned by Vitamin Shoppe Industries Inc.
("The Vitamin Shoppe"). The Company commenced operations effective October 1,
1997 as a division of The Vitamin Shoppe and operated in the development stage
until April 1998, when it began sales through its website. The Company was
incorporated in Delaware in May 1999 and capitalized by The Vitamin Shoppe in
June 1999 (Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Since the Company's inception, The Vitamin Shoppe has provided the Company
with funding for working capital. The Company participates in The Vitamin
Shoppe's cash management system. As a part of The Vitamin Shoppe's central cash
management system, all cash generated from and cash required to support the
Company's operations are deposited and received through The Vitamin Shoppe's
corporate operating cash accounts. As a result, there are no separate bank
accounts or records for these transactions. Accordingly, the amounts represented
by the caption "Due to The Vitamin Shoppe" in the Company's balance sheets and
statements of cash flows represent the net effect of all cash transactions
between the Company and The Vitamin Shoppe. Effective with the financing
transactions described in Note 7, the Company opened its own bank accounts and
no longer participates in The Vitamin Shoppe's cash management system.
For all periods presented, certain expenses reflected in the financial
statements include allocations of expenses incurred by The Vitamin Shoppe. These
allocations take into consideration personnel, business volume and other
appropriate factors and generally include costs related to fulfillment,
marketing, administrative, general management and other services provided to the
Company by The Vitamin Shoppe. Interest expense shown in the financial
statements reflects interest at a rate of 8.75% per annum on the average amounts
due to The Vitamin Shoppe. Allocations of expenses are estimates based on
management's best assessment of actual expenses incurred on behalf of the
Company. It is management's opinion that the expenses charged to the Company are
reasonable.
The financial statements have been prepared as if the Company operated as a
stand-alone entity since inception. The financial information included herein
may not necessarily reflect the financial position, results of operations or
cash flows of the Company in the future or what the balance sheets, results of
operations or cash flows of the Company would have been if it had been a
separate, stand-alone entity.
Online Marketing Arrangements
The Vitamin Shoppe, on behalf of the Company, has entered into several
online marketing arrangements with Internet content providers whereby the
Company is established as the exclusive or preferred vendor of nutritional
products on the Internet websites of these providers. The agreements are for
terms of 12 to 24 months, provide for fixed monthly or quarterly payments by the
Company and in some cases contain revenue-sharing provisions upon the attainment
of stipulated revenue amounts. Certain agreements provide for guaranteed minimum
levels of impressions delivered by the Internet service providers and certain
make-good provisions in the event of a shortfall. At December 31, 1998, the
Company's remaining base payments under such arrangements were $6,381,000 and
$2,905,000 for the years ending December 31, 1999 and 2000, respectively. At
June 30, 1999, the Company's remaining base payments under such arrangements
were $3,245,000 and $2,905,000 for the years ending December 31,
F-7
<PAGE> 76
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999 and 2000, respectively. The Company's fixed payments under such
arrangements are recognized as expenses either on a straight-line basis over the
term of the agreement, or on an impression delivered basis, depending upon the
terms of the agreement. Expense accruals relating to revenue sharing provisions
are made when projections indicate that revenue thresholds will be attained.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation and
amortization. Software acquired, computers and equipment are depreciated using
the straight-line method over their estimated useful lives of three to ten
years. Effective January 1, 1999, the Company adopted the AICPA's Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Accordingly, direct internal and external costs
associated with the development of the features, content and functionality of
the Company's online store, transaction-processing systems, telecommunications
infrastructure and network operations, incurred during the application
development stage, are capitalized and are amortized over the estimated lives of
three years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to undiscounted pre-tax future net
cash flows expected to be generated by that asset. An impairment loss is
recognized for the amount by which the carrying amount of the assets exceeds the
fair value of the assets. To date, no such impairment has been recognized.
Revenue Recognition
Sales of products purchased from The Vitamin Shoppe are recognized, net of
discounts and estimated returns, at the time the products are shipped to
customers.
Advertising Costs
The costs of advertising for online marketing arrangements, magazines,
television, radio and other media are expensed the first time advertising takes
place. Advertising expense for the period from October 1, 1997 (inception) to
December 31, 1997 and the for year ended December 31, 1998 was $0 and
$2,959,000, respectively, and $375,000 and $3,898,000 for the six months ended
June 30, 1998 and 1999, respectively.
Income Taxes
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes, the Company uses the asset and liability
method to provide for all book/tax differences that are expected to reverse in
the future. This method requires that the effect of tax rate changes as well as
other changes in income tax laws be recognized in earnings for the period in
which such changes are enacted and that valuation allowances be established to
reduce deferred tax assets to amounts expected to be realized.
F-8
<PAGE> 77
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
VitaminShoppe.com, operating as a division of The Vitamin Shoppe, has been
included in The Vitamin Shoppe's income tax returns. As such, any benefit for
income taxes due to losses generated by VitaminShoppe.com were realized and
recognized by The Vitamin Shoppe. To date, The Vitamin Shoppe has not allocated
to VitaminShoppe.com its share of income tax benefits attributable to its
operating results.
Had the Company's income tax provisions been calculated on a separate
return or stand-alone basis, as required for the unaudited pro forma results
presented on the statements of operations, the Company would have established a
valuation allowance for its deferred tax assets (consisting of net operating
loss carryforwards) since it believes it is more likely than not that they would
not have been realized in the future. Therefore, given the uncertainty of the
future recoverability of operating losses incurred and the fact that The Vitamin
Shoppe has not allocated any tax benefits to the Company, the Company has not
provided for income tax benefits in its historical financial statements or its
unaudited pro forma results.
Start-Up Costs
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-5, Reporting on the Costs of Start-Up Activities. This SOP establishes
accounting and reporting standards for start-up activities and states that costs
of start-up activities, including organization costs, should be expensed as
incurred. The SOP is effective for fiscal years beginning after December 15,
1998. The Company adopted this statement effective January 1, 1999 and the
adoption did not have a material effect on the financial statements.
Concentrations
The Company's customers are consumers who utilize the Company's website and
purchase products. Financial instruments, which potentially subject the Company
to concentrations of credit risk, consist principally of accounts receivable
from credit card processors. As of December 31, 1997 and 1998, there were no
significant concentrations of accounts receivable or related credit risks.
Fair Value of Financial Instruments
Financial instruments, including accounts receivable, accounts payable and
accrued liabilities, are reflected in the financial statements at carrying or
contract value. Those values were not materially different from their fair
values.
Interim Financial Information
The financial statements and footnotes as of June 30, 1999 for the six
months ended June 30, 1998 and 1999 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been included. The results of operations for the six months ended
June 30, 1999 are not necessarily indicative of the results to be achieved for
the full fiscal year.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB
No. 25 provides that the compensation expense relative to the Company's employee
stock options is measured based on the intrinsic value of the stock option. SFAS
No. 123 requires companies that continue to follow APB No. 25
F-9
<PAGE> 78
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to provide a pro forma disclosure of the impact of applying the fair value
method of SFAS No. 123 (see Note 7).
Net Loss Per Share
Net loss per share for periods prior to the capitalization of the Company
are not presented as the entity operated as a division of The Vitamin Shoppe.
Pro Forma Net Loss and Net Loss Per Share
Pro forma net loss gives retroactive effect to adjustments resulting from
the implementation of the trademark license agreement and the supply and
fulfillment agreement (Note 4) as if such agreements had been in effect at the
beginning of the periods presented. The number of shares used to compute the pro
forma per share amounts includes (1) 13,081,500 shares of Class B common stock
issued upon the recapitalization of the Company in July 1999 (Note 7) and (2)
2,732,119 shares of Class A common stock issuable upon conversion of Series A
convertible preferred stock upon the closing of this offering, in each case as
if all shares were outstanding as of January 1, 1998.
For the unaudited six months ended June 30, 1999, there were 569,045 stock
options that were excluded from the computation of pro forma diluted net loss
per share as their effect was antidilutive. If the Company had reported net
income, the calculation of these per share amounts would have included the
dilutive effect of these common stock equivalents using the treasury stock
method.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income, which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income. The adoption of SFAS No. 130 as
of January 1, 1998 did not have a material effect on the Company's financial
statements or disclosure as the Company has no reconciling items. Therefore, net
loss and comprehensive loss are the same.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that public companies
report certain information about operating segments in their annual financial
statements and in subsequent condensed financial statements of interim periods
issued to shareholders. This statement also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate and their major customers. Adoption of this new
standard did not have an effect on the Company's disclosures for all periods
because the Company currently operates as one segment.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, which is effective for fiscal
years beginning after June 15, 2000, requires the Company to recognize all
derivatives on the balance sheet at fair value. The Company has determined that
adoption of this new standard will not have a material effect on the Company's
financial statements or disclosure.
F-10
<PAGE> 79
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LIQUIDITY
Operations since inception did not generate sufficient cash flow to satisfy
current obligations. The Vitamin Shoppe funded such obligations. At June 30,
1999, the Company issued to The Vitamin Shoppe a promissory note due upon demand
by The Vitamin Shoppe in the original principal amount of $5.8 million, which
was equal to the Company's payable to The Vitamin Shoppe on that date. This
amount represents funds advanced to the Company by The Vitamin Shoppe for
operating losses, capital expenditures and working capital requirements. The
promissory note bears interest at The Vitamin Shoppe's cost of funds from time
to time under its bank credit facility, which was 8.75% on June 30, 1999.
Amounts due to The Vitamin Shoppe reflected in the balance sheet include the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1997 1998 1999
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Amounts advanced to fund operating activities..... $353 $3,077 $4,984
Amounts advanced for capital expenditures......... -- 506 819
---- ------ ------
$353 $3,583 $5,803
==== ====== ======
</TABLE>
As described in Note 7, the Company sold 1,775,260 shares of Series A
convertible preferred stock in July 1999 for gross proceeds of $25 million.
4. RELATED PARTY TRANSACTIONS
All merchandise sold from inception through June 30, 1999 was purchased
from The Vitamin Shoppe at an amount equal to The Vitamin Shoppe's cost. The
Vitamin Shoppe charges the Company the costs associated with such purchases,
including the cost of freight.
As a subsidiary of The Vitamin Shoppe, the Company also receives and is
charged its proportionate share of various services from The Vitamin Shoppe,
including fulfillment, marketing, administrative, general management and other
services. Such charges were $49,000 and $816,000 for the period from October 1,
1997 (inception) to December 31, 1997 and for the year ended December 31, 1998,
respectively, and $281,000 and $786,000 for the six months ended June 30, 1998
and 1999 respectively. In the opinion of management, all allocations of such
costs have been made on a reasonable and consistent basis; however; they are not
necessarily indicative of, nor is it practical for management to estimate the
level of, expenses that might have been incurred had the Company been operating
as a separate, stand-alone entity.
In connection with the sale of Series A convertible preferred stock
described in Note 7, the Company and The Vitamin Shoppe entered into several
intercompany agreements. These agreements cover rights and obligations regarding
trademark licenses, supply, fulfillment, promotional activities, databases and
administrative services. The terms of these agreements contain provisions for
charges which have not been provided for historically.
The trademark license agreement will provide the Company with the exclusive
right to use The Vitamin Shoppe's trademarks in connection with its marketing
and sale of products and services in online commerce. The Company will pay The
Vitamin Shoppe an annual royalty fee equal to $1 million plus a percentage
(which ranges from 5% to 1% depending upon volume) of the Company's net sales of
The Vitamin Shoppe(R) brand products, and other products identified by or
branded with The Vitamin Shoppe's trademarks. Under the supply and fulfillment
agreement, The Vitamin Shoppe will supply inventory to the Company at a cost
equal to 105% of The Vitamin Shoppe's product cost and will fulfill customer
orders at a cost equal to 105% of The Vitamin Shoppe's actual average unit cost
per package, plus actual shipping costs not paid directly by the Company.
F-11
<PAGE> 80
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1997 1998 1999
---- ----- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Software.......................................... $-- $200 $252
Computer hardware................................. -- 268 524
Fixtures and equipment............................ -- 28 30
Leasehold improvements............................ -- 10 13
--- ---- ----
-- 506 819
Accumulated depreciation and amortization......... -- (21) (83)
--- ---- ----
$-- $485 $736
=== ==== ====
</TABLE>
6. COMMITMENTS
At June 30, 1999, the Company is obligated under online marketing
agreements with web portals and strategic partners for future payments
aggregating $6.2 million through December 2000.
In June 1999, the Company entered into an employment agreement with an
executive for an initial two-year term. Under the terms of this agreement, the
Company is committed to compensate this executive in the amount of $300,000
annually, unless the executive is dismissed for cause or upon disability or
death.
In August 1999, the Company entered into a noncancellable operating lease
for its corporate office facility and issued a standby letter of credit in the
amount of $600,000 as security for its lease commitment. Rental payments under
this lease for the period from September 1999 through November 2003 approximate
$35,000 per month and aggregate $1.8 million over the lease term.
7. STOCKHOLDERS' EQUITY
a. Recapitalization
In May 1999, the Company was incorporated, and in June 1999 was capitalized
through the issuance to The Vitamin Shoppe of 1,000 shares of common stock, par
value $0.01 per share for a purchase price of $1,000 and the contribution by The
Vitamin Shoppe of net liabilities of approximately $8.2 million. In July 1999,
the Company effected a recapitalization through the authorization of 30,000,000
shares of Class A common stock and 15,000,000 shares of Class B common stock and
the issuance of 13,081,500 shares of Class B common stock in exchange for the
1,000 shares of common stock previously issued to The Vitamin Shoppe. The
recapitalization has been retroactively reflected in the accompanying financial
statements. Prior to June 30, 1999, the Company was operated as a division of
The Vitamin Shoppe. On July 27, 1999, the Company filed a registration statement
with the Securities and Exchange Commission to offer shares of Class A common
stock to the public. In addition, the Company authorized 5,000,000 shares of
preferred stock. Holders of Class A common stock are entitled to one vote per
share, while holders of Class B common stock are entitled to six votes per
share.
On July 9, 1999, the Company issued $10 million in aggregate principal
amount of promissory notes due in June 2000. These notes were held by
stockholders of Vitamin Shoppe Industries Inc. or affiliates of such
stockholders. In July 1999, these notes were converted into Series A convertible
preferred stock.
On July 27, 1999, the Company issued 1,775,260 shares of Series A
convertible preferred stock, par value $0.01 per share, that are convertible
into 2,732,119 shares of Class A common stock ($9.15 fair value per share) for
gross proceeds of $25 million. The net proceeds (net of commissions and offering
costs) of this transaction were approximately $24 million. Of the gross
proceeds, $10 million was paid
F-12
<PAGE> 81
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
through the conversion of promissory notes referred to in the preceding
paragraph into Series A convertible preferred stock. The remaining shares were
sold to other private investors and the noteholders for cash consideration of
$15 million. The Company also issued warrants to purchase an equivalent of
32,703 shares of Class A common stock at a price of $9.15 per share to Thomas
Weisel Partners LLC in consideration for its services as placement agent in this
transaction. All shares of the Series A convertible preferred stock are
automatically convertible into an aggregate of 2,732,119 shares of the Class A
common stock upon the closing of the offering contemplated by the registration
statement. Such automatic conversion feature is contingent upon an offering
price that is not less than 120% of the conversion price ($9.15) and an
aggregate offering of not less than $30 million. The unaudited pro forma June
30, 1999 balance sheets reflect the sale of the Series A convertible preferred
stock for net proceeds of $24 million (pro forma) and the automatic conversion
into Class A common stock concurrently with the closing of the initial public
offering (pro forma as adjusted). The estimated fair value of the warrants
issued to the placement agent of approximately $86,000 was credited to
additional paid-in capital in the unaudited pro forma balance sheets.
b. Stock Options
In July 1999, the Company established the VitaminShoppe.com, Inc. Stock
Option Plan for Employees dated as of July 1, 1999 (the "Employee Plan"), which
provides for the granting of stock options, including incentive stock options
and non-qualified stock options, and reserved 2,308,500 shares of Class A common
stock for grant. Either the board of directors or the compensation committee of
the board of directors may determine the type of award, when and to whom awards
are granted, the number of shares and terms of the awards and the exercise
prices. Stock options are exercisable for a period not to exceed 10 years from
the date of grant and, to the extent determined at the time of grant, may be
paid for in cash or shares of Class A common stock, or by a reduction in the
number of shares issuable upon exercise of the option.
In August 1999, the Company established the VitaminShoppe.com, Inc. Stock
Option Plan for Nonemployee Directors (the "Director Plan") which provides for
the granting of options to purchase 38,475 shares of Class A common stock to
each elected or appointed nonemployee director, and reserved 461,700 shares of
Class A common stock for grant. In August 1999, the Company granted to one
director an option to purchase 38,475 shares at an exercise price of $9.15 per
share. Such option vests ratably over a period of three years and is exercisable
for a period not to exceed 10 years from date of grant. In connection with the
initial public offering, the Company will grant to five additional directors
options under the Director Plan to purchase 192,375 shares of Class A common
stock at the initial public offering price.
During June 1999, the Company granted to two employees options to purchase
569,045 shares of Class A common stock at an exercise price of $3.82 per share.
The options expire 10 years from the date of grant and vest ratably over a
period of three years. Under APB No. 25, no compensation expense is recognized
when the exercise price of the Company's employee stock options equals the fair
value of the underlying stock on the date of grant. Deferred stock-based
compensation is recorded for those situations where the exercise price of an
option was lower than the deemed fair value for financial reporting purposes of
the underlying common stock. The Company recorded aggregate deferred stock-based
compensation of $3,031,950 during the six months ended June 30, 1999. The
deferred stock-based compensation is being amortized over the vesting period of
the underlying options. Total amortization of stock-based compensation
recognized was $84,000 during the six months ended June 30, 1999. The Company
will record approximately $697,000 in expense upon the closing of the initial
public offering due to the accelerated vesting of 130,815 of those options. The
remaining deferred stock-based compensation will be amortized over the
three-year vesting period. During July and August 1999, the Company granted to
five employees options to purchase 210,989 shares of Class A common stock at an
exercise price of $9.15 per share. In connection with the initial public
offering, the Company will grant to one employee options to purchase 209,139
shares of Class A common stock at the initial public offering price. The options
expire 10 years from the date of grant and vest ratably over a period of three
years.
F-13
<PAGE> 82
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
c. SFAS No. 123 Disclosures
Had the stock-based compensation for the Company's stock option grants been
determined in accordance with SFAS No. 123 the Company's net loss would have
been adjusted to the following pro forma amount for the six months ended June
30, 1999 (in thousands):
<TABLE>
<S> <C>
Pro forma net loss -- as reported........................... $(5,192)
Incremental pro forma compensation expense under SFAS No.
123....................................................... $ (9)
-------
Net loss -- pro forma....................................... $(5,201)
=======
Pro forma basic and diluted net loss per share -- as
reported.................................................. $ (.33)
=======
Pro forma basic and diluted net loss per share -- pro
forma..................................................... $ (.33)
=======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, assuming no expected dividends and with
the following weighted average assumptions at June 30, 1999:
<TABLE>
<S> <C>
Average risk-free interest rate............................. 5.0%
Average expected life....................................... 3.0 years
Volatility.................................................. 33%
</TABLE>
For purposes of the pro forma disclosures, the estimated weighted average
fair value of the options granted, estimated to be $5.90 per share at the date
of grant, is amortized to expense over the options' vesting period. This amount
has been reduced by the amount of deferred stock-based compensation already
recorded in the accompanying financial statements of $5.33 per share.
d. Dividend Restrictions
The Vitamin Shoppe is a party to a credit agreement that imposes various
restrictions on The Vitamin Shoppe, including restrictions that limit the
incurrence of additional debt, and the payment of dividends, among other things,
as well as the ability of The Vitamin Shoppe to merge, consolidate or dispose of
substantial assets. In addition, substantially all of the assets of The Vitamin
Shoppe are pledged as security under the credit agreement. In July 1999, The
Vitamin Shoppe and the lenders amended the credit agreement to exclude the
Company from these terms and restrictions in exchange for The Vitamin Shoppe's
pledge of its shares in the Company and other monetary consideration.
8. SUBSEQUENT EVENT
On September 9, 1999, the Company's Board of Directors approved a 1.539 for
1 stock split of its Class A common stock and Class B common stock which will
become effective immediately prior to the effective date of the Registration
Statement. The respective share and per share amounts and conversion ratios
included in the financial statements reflect the stock split for all periods
presented.
* * *
F-14
<PAGE> 83
[EXAMPLES OF OUR MARKETING MATERIALS UTILIZED IN PRINT MEDIA]
<PAGE> 84
PROSPECTUS
[VITAMIN SHOPPE.COM LOGO]
4,545,455 Shares
Class A Common Stock
THOMAS WEISEL PARTNERS LLC
WILLIAM BLAIR & COMPANY
PAINEWEBBER INCORPORATED
Prospectus dated , 1999
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. Neither we
nor any underwriter has authorized anyone to provide you with information that
is different. This prospectus may only be used where it is legal to sell these
securities. The information in this prospectus may be accurate only on the date
of this prospectus, even if this prospectus is delivered to you or you buy our
Class A common stock after that date.
Until , 1999 (25 days after the commencement of this offering),
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the registrant in connection with the issuance
and distribution of the Class A common stock being offered.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- -------------
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,439.00
NASD filing fee............................................. 6,773.00
Nasdaq National Market listing fee.......................... 70,000.00
Blue sky fees and expenses.................................. 10,000.00
Printing and engraving expenses............................. 300,000.00
Legal fees and expenses..................................... 500,000.00
Accounting fees and expenses................................ 225,000.00
Transfer agent and registrar fee............................ 15,000.00
Miscellaneous............................................... 355,788.00
-------------
Total............................................. $1,500,000.00
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a court to award, or a corporation's board of directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933.
As permitted by the General Corporation Law, the second amended and
restated certificate of incorporation of the registrant includes a provision
that eliminates the personal liability of its directors to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
registrant or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the General Corporation Law (regarding unlawful dividends and
stock purchases) or (iv) for any transaction from which the director derived an
improper personal benefit.
As permitted by the General Corporation Law, the bylaws of the registrant
provide that (i) the registrant must indemnify its directors and officers to the
fullest extent permitted by the General Corporation Law, subject to limited
exceptions, (ii) the registrant may indemnify its other employees and agents as
set forth in the General Corporation Law, (iii) the registrant must advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the General
Corporation Law, subject to limited exceptions, and (iv) the rights conferred in
the bylaws are not exclusive. The indemnification provisions in the certificate
of incorporation and bylaws of the registrant may be sufficiently broad to
permit indemnification of the directors and executive officers of the registrant
for liabilities arising under the Securities Act of 1933.
There is no pending litigation or proceeding involving a director, officer
or employee of the registrant regarding which indemnification is sought, nor is
the registrant aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to section 8 of the form of underwriting agreement,
which provides for the indemnification of officers, directors and controlling
persons of the registrant against certain liabilities.
With the approval of its board of directors, the registrant expects to
obtain director and officer liability insurance.
II-1
<PAGE> 86
Reference is made to exhibits 1.1, 3.1, 3.2 and 3.4 to this registration
statement regarding relevant indemnification provisions described above and
elsewhere herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 11, 1999, the registrant issued 1,000 shares of Common Stock, par
value $0.01 per share, to Vitamin Shoppe Industries Inc. in connection with the
initial capitalization of the registrant. This sale of securities by the
registrant was intended to be exempt from registration pursuant to section 4(2)
of the Securities Act of 1933. These shares were reclassified into 8,500,000
shares of Class B Common Stock, par value $0.01 per share, as of July 9, 1999.
These shares will be split into 13,081,500 shares of Class B common stock
immediately prior to the effective date of this registration statement.
On July 9, 1999, the registrant issued $10 million in aggregate principal
amount of promissory notes due in June 2000. These notes are held by four
stockholders of Vitamin Shoppe Industries Inc. or affiliates of such
stockholders. This sale of securities by the registrant was intended to be
exempt from registration pursuant to section 4(2) of the Securities Act of 1933.
In July 1999, all of these notes were converted in the Series A convertible
preferred stock, par value $0.01 per share, of the registrant.
In June 1999, the registrant granted options to two employees to purchase
569,045 post-split shares of Class A common stock at a post-split exercise price
of $3.82 per share.
In July 1999, the registrant received $15 million in exchange for 1,053,156
shares of the Series A convertible preferred stock, par value $0.01 per share,
of the registrant to ten stockholders. As indicated in the preceding paragraph,
$10 million in aggregate principal amount of promissory notes were also
exchanged for 722,104 shares of Series A convertible preferred stock in the same
transaction. The registrant also issued warrants to purchase 21,250 shares of
Series A convertible preferred stock to Thomas Weisel Partners LLC in
consideration for its services as placement agent in this transaction. This sale
of securities by the registrant was intended to be exempt from registration
pursuant to section 4(2) of the Securities Act of 1933 and/or Rule 506 of
Regulation D promulgated thereunder. All shares of the Series A convertible
preferred stock will be automatically converted into shares of the Class A
common stock of the registrant upon the closing of the offering of Class A
common stock being offered pursuant to the registration statement. The
prospectus which forms a part of this registration statement assumes that such
conversion will have occurred.
In July 1999, the registrant granted to three employees options to purchase
186,057 post-split shares of Class A common stock at a post-split exercise price
of $9.15 per share.
In August 1999, the registrant granted to one director and two employees
options to purchase 63,406 post-split shares of Class A common stock at an
exercise price of $9.15 per share.
No underwriters were involved in the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Lock-up Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of
the registrant.*
3.2 Bylaws of the registrant.*
3.3 Certificate of Designation, Powers, Preferences and Rights
of Series A Convertible Preferred Stock of the registrant.
3.4 Form of Certificate of Amendment of Second Amended and
Restated Certificate of Incorporation of the registrant.
4.1 Specimen Class A common stock certificate.***
4.2 See exhibits 3.1, 3.2, 3.3 and 3.4 for the provisions of the
certificate of incorporation and bylaws of the registrant
that govern the rights of holders of the securities being
registered.
</TABLE>
II-2
<PAGE> 87
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S>
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP as to
the legality of the securities being registered.***
10.1 Assignment and Assumption of Contracts dated as of June 30,
1999 between the registrant and Vitamin Shoppe Industries
Inc.*
10.2 Bill of Sale dated as of June 30, 1999 between the
registrant and Vitamin Shoppe Industries Inc.*
10.3 Assignment of Domain Name dated as of June 30, 1999 between
the registrant and Vitamin Shoppe Industries Inc.*
10.4 Intercompany Note dated as of June 30, 1999 made by the
registrant and payable to Vitamin Shoppe Industries Inc.*
10.5 Convertible Subordinated Note Purchase Agreement dated as of
July 9, 1999 between the registrant and the purchasers named
therein.*
10.6 Form of Convertible Subordinated Note dated as of July 9,
1999 made by the registrant.*
10.7 Stock Purchase Agreement dated as of July 27, 1999 among the
registrant and the holders of Series A convertible preferred
stock, par value $0.01 per share, of the registrant.*
10.8 Stockholders Agreement dated as of July 27, 1999 among the
registrant, Vitamin Shoppe Industries Inc. and the holders
of Series A convertible preferred stock, par value $0.01 per
share, of the registrant.*
10.9 Registration Rights Agreement dated as of July 27, 1999
among the registrant, Vitamin Shoppe Industries Inc. and the
holders of Series A convertible preferred stock, par value
$0.01 per share, of the registrant.*
10.10 Series A Convertible Preferred Stock Purchase Warrant dated
as of July 27, 1999 of the registrant in favor of Thomas
Weisel Partners LLC.*
10.11 Trademark License Agreement dated as of July 1, 1999 between
the registrant and Vitamin Shoppe Industries Inc.*
10.12 Supply and Fulfillment Agreement dated as of July 1, 1999
between the registrant and Vitamin Shoppe Industries Inc.*
10.13 Co-Marketing Agreement dated as of July 1, 1999 between the
registrant and Vitamin Shoppe Industries Inc.*
10.14 Administrative Services Agreement dated as of July 1, 1999
between the registrant and Vitamin Shoppe Industries Inc.*
10.15 Database Agreement dated as of July 1, 1999 between the
registrant and Vitamin Shoppe Industries Inc.*
10.16 Intercompany Indemnification Agreement dated as of July 1,
1999 between the registrant and Vitamin Shoppe Industries
Inc.*
10.17 Tax Allocation Agreement dated as of July 1, 1999 between
the registrant and Vitamin Shoppe Industries Inc.*
10.18 Sublease Agreement dated as of July 14, 1999 between Yahoo!
Inc. and Vitamin Shoppe Industries Inc.*
10.19 Employment and Noncompetition Agreement dated as of June 14,
1999 between the registrant and Kathryn H. Creech.*
10.20 Consulting Agreement dated as of June 14, 1999 between the
registrant and Kathryn H. Creech.*
10.21 VitaminShoppe.com, Inc. Stock Option Plan for Employees
dated as of July 1, 1999.*
10.22 Nonqualified Stock Option Agreement dated as of July 1, 1999
between the registrant and Kathryn H. Creech.***
10.23 Nonqualified Stock Option Agreement dated as of July 1, 1999
between the registrant and Eliot D. Russman.***
10.24 Nonqualified Stock Option Agreement dated as of July 27,
1999 between the registrant and Kathryn H. Creech.***
10.25 Distribution Agreement dated as of August 17, 1998 between
Vitamin Shoppe Industries Inc. and Infoseek Corporation, as
amended by Amendment No. One thereto dated as of September
29, 1998.***
10.26 Sponsorship Agreement dated as of September 23, 1998 between
Vitamin Shoppe Industries Inc. and Excite, Inc.**
</TABLE>
II-3
<PAGE> 88
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S>
10.27 Advertising Insertion Order dated as of November 1, 1998
between Vitamin Shoppe Industries Inc. and Yahoo!**
10.28 NetGravity AdServer Network License Agreement dated as of
December 17, 1998 between Vitamin Shoppe Industries Inc. and
NetGravity, Inc.
10.29 Letter agreement dated as of December 17, 1998 between
Vitamin Shoppe Industries Inc. and Time Inc. New Media
related to Ask Dr. Weil website.**
10.30 Agreement dated as of February 1, 1999 between Vitamin
Shoppe Industries Inc. and Virtual Communities, Inc.
10.31 Sponsorship Agreement dated as of March 11, 1999 between
Vitamin Shoppe Industries Inc. and drkoop.com, inc.**
10.32 Sponsorship Agreement dated as of March 31, 1999 between
Vitamin Shoppe Industries Inc. and OnHealth Network
Company.**
10.33 Strategic Planning Services Agreements dated as of April 29,
1999 between Vitamin Shoppe Industries Inc. and Jupiter
Communications, L.L.C.
10.34 Letter agreement dated as of May 24, 1999 between Vitamin
Shoppe Industries Inc. and Time Inc. New Media related to
Dr. Bernie Siegel website.**
10.35 Sponsorship and Advertising Agreement dated as of April 16,
1999 between Vitamin Shoppe Industries Inc. and
InteliHealth, Inc.**
10.36 Memorandum of Engagement dated as of June 7, 1999 between
Compelling Content and the registrant.
10.37 License Agreement dated as of October 5, 1998 between
HealthNotes, Inc. and Vitamin Shoppe Industries Inc.**
10.38 Stock Option Plan for Non-employee Directors dated as of
August 1, 1999.***
10.39 Irrevocable Commitment to Convert by the holders of Series A
Convertible Preferred Stock of the registrant.***
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP is
included in its opinion filed as exhibit 5.1.
23.3 Consent of Michael C. Brooks.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** Confidential treatment requested. Confidential portions of this document
have been redacted and filed separately with the Securities and Exchange
Commission.
*** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes to provide to the underwriters, at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in item 14 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
Securities Act of 1933 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 director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will (unless in
the opinion of its counsel the matter has been settled by controlling precedent)
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
<PAGE> 89
The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
rule 430A under the Securities Act of 1933 and contained in a form of prospectus
filed by the registrant pursuant to rule 424(b)(1), 424(b)(4) or 497(h) under
the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-5
<PAGE> 90
The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities being offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on September 13, 1999.
VITAMINSHOPPE.COM, INC.
By: /s/ KATHRYN H. CREECH
------------------------------------
Name: Kathryn H. Creech
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Kathryn H.
Creech with full power of substitution and resubstitution, as his or her true
and lawful attorney-in-fact, to sign and file with the Securities and Exchange
Commission on his or her behalf all amendments and post-effective amendments to
the Registration Statement, with exhibits thereto, and other documents in
connection therewith.
<TABLE>
<CAPTION>
SIGNATURE NAME TITLE DATE
- --------- ---- ----- ----
<C> <S> <C> <C>
/s/ JEFFREY J. HOROWITZ Jeffrey J. Horowitz Chairman of the Board September 13, 1999
- ------------------------------------------ of Directors and a
Director
/s/ KATHRYN H. CREECH Kathryn H. Creech President, Chief September 13, 1999
- ------------------------------------------ Executive Officer
and a Director
/s/ LARRY M. SEGALL Larry M. Segall Chief Financial September 13, 1999
- ------------------------------------------ Officer, Secretary
and Treasurer
(Principal Financial
and Accounting
Officer)
/s/ MICHAEL C. BROOKS Michael C. Brooks Director September 13, 1999
- ------------------------------------------
/s/ MARTIN L. EDELMAN Martin L. Edelman Director September 13, 1999
- ------------------------------------------
/s/ M. ANTHONY FISHER M. Anthony Fisher Director September 13, 1999
- ------------------------------------------
/s/ DAVID S. GELLMAN David S. Gellman Director September 13, 1999
- ------------------------------------------
/s/ WOODSON C. MERRELL, M.D. Woodson C. Merrell, M.D. Director September 5, 1999
- ------------------------------------------
/s/ STEPHEN P. MURRAY Stephen P. Murray Director September 13, 1999
- ------------------------------------------
</TABLE>
II-6
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Lock-up Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of
the registrant.*
3.2 Bylaws of the registrant.*
3.3 Certificate of Designation, Powers, Preferences and Rights
of Series A Convertible Preferred Stock of the registrant.
3.4 Form of Certificate of Amendment of Second Amended and
Restated Certificate of Incorporation of the registrant.
4.1 Specimen Class A common stock certificate.***
4.2 See exhibits 3.1, 3.2, 3.3 and 3.4 for the provisions of the
certificate of incorporation and bylaws of the registrant
that govern the rights of holders of the securities being
registered.
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP as to
the legality of the securities being registered.***
10.1 Assignment and Assumption of Contracts dated as of June 30,
1999 between the registrant and Vitamin Shoppe Industries
Inc.*
10.2 Bill of Sale dated as of June 30, 1999 between the
registrant and Vitamin Shoppe Industries Inc.*
10.3 Assignment of Domain Name dated as of June 30, 1999 between
the registrant and Vitamin Shoppe Industries Inc.*
10.4 Intercompany Note dated as of June 30, 1999 made by the
registrant and payable to Vitamin Shoppe Industries Inc.*
10.5 Convertible Subordinated Note Purchase Agreement dated as of
July 9, 1999 between the registrant and the purchasers named
therein.*
10.6 Form of Convertible Subordinated Note dated as of July 9,
1999 made by the registrant.*
10.7 Stock Purchase Agreement dated as of July 27, 1999 among the
registrant and the holders of Series A convertible preferred
stock, par value $0.01 per share, of the registrant.*
10.8 Stockholders Agreement dated as of July 27, 1999 among the
registrant, Vitamin Shoppe Industries Inc. and the holders
of Series A convertible preferred stock, par value $0.01 per
share, of the registrant.*
10.9 Registration Rights Agreement dated as of July 27, 1999
among the registrant, Vitamin Shoppe Industries Inc. and the
holders of Series A convertible preferred stock, par value
$0.01 per share, of the registrant.*
10.10 Series A Convertible Preferred Stock Purchase Warrant dated
as of July 27, 1999 of the registrant in favor of Thomas
Weisel Partners LLC.*
10.11 Trademark License Agreement dated as of July 1, 1999 between
the registrant and Vitamin Shoppe Industries Inc.*
10.12 Supply and Fulfillment Agreement dated as of July 1, 1999
between the registrant and Vitamin Shoppe Industries Inc.*
10.13 Co-Marketing Agreement dated as of July 1, 1999 between the
registrant and Vitamin Shoppe Industries Inc.*
10.14 Administrative Services Agreement dated as of July 1, 1999
between the registrant and Vitamin Shoppe Industries Inc.*
10.15 Database Agreement dated as of July 1, 1999 between the
registrant and Vitamin Shoppe Industries Inc.*
10.16 Intercompany Indemnification Agreement dated as of July 1,
1999 between the registrant and Vitamin Shoppe Industries
Inc.*
10.17 Tax Allocation Agreement dated as of July 1, 1999 between
the registrant and Vitamin Shoppe Industries Inc.*
10.18 Sublease Agreement dated as of July 14, 1999 between Yahoo!
Inc. and Vitamin Shoppe Industries Inc.*
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
10.19 Employment and Noncompetition Agreement dated as of June 14,
1999 between the registrant and Kathryn H. Creech.*
10.20 Consulting Agreement dated as of June 14, 1999 between the
registrant and Kathryn H. Creech.*
10.21 VitaminShoppe.com, Inc. Stock Option Plan for Employees
dated as of July 1, 1999.*
10.22 Nonqualified Stock Option Agreement dated as of July 1, 1999
between the registrant and Kathryn H. Creech.***
10.23 Nonqualified Stock Option Agreement dated as of July 1, 1999
between the registrant and Eliot D. Russman.***
10.24 Nonqualified Stock Option Agreement dated as of July 27,
1999 between the registrant and Kathryn H. Creech.***
10.25 Distribution Agreement dated as of August 17, 1998 between
Vitamin Shoppe Industries Inc. and Infoseek Corporation, as
amended by Amendment No. One thereto dated as of September
29, 1998.***
10.26 Sponsorship Agreement dated as of September 23, 1998 between
Vitamin Shoppe Industries Inc. and Excite, Inc.**
10.27 Advertising Insertion Order dated as of November 1, 1998
between Vitamin Shoppe Industries Inc. and Yahoo!**
10.28 NetGravity AdServer Network License Agreement dated as of
December 17, 1998 between Vitamin Shoppe Industries Inc. and
NetGravity, Inc.
10.29 Letter agreement dated as of December 17, 1998 between
Vitamin Shoppe Industries Inc. and Time Inc. New Media
related to Ask Dr. Weil website.**
10.30 Agreement dated as of February 1, 1999 between Vitamin
Shoppe Industries Inc. and Virtual Communities, Inc.
10.31 Sponsorship Agreement dated as of March 11, 1999 between
Vitamin Shoppe Industries Inc. and drkoop.com, inc.**
10.32 Sponsorship Agreement dated as of March 31, 1999 between
Vitamin Shoppe Industries Inc. and OnHealth Network
Company.**
10.33 Strategic Planning Services Agreements dated as of April 29,
1999 between Vitamin Shoppe Industries Inc. and Jupiter
Communications, L.L.C.
10.34 Letter agreement dated as of May 24, 1999 between Vitamin
Shoppe Industries Inc. and Time Inc. New Media related to
Dr. Bernie Siegel website.**
10.35 Sponsorship and Advertising Agreement dated as of April 16,
1999 between Vitamin Shoppe Industries Inc. and
InteliHealth, Inc.**
10.36 Memorandum of Engagement dated as of June 7, 1999 between
Compelling Content and the registrant.
10.37 License Agreement dated as of October 5, 1998 between
HealthNotes, Inc. and Vitamin Shoppe Industries Inc.**
10.38 Stock Option Plan for Non-employee Directors dated as of
August 1, 1999.***
10.39 Irrevocable Commitment to Convert by the holders of Series A
Convertible Preferred Stock of the registrant.***
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP is
included in its opinion filed as exhibit 5.1.
23.3 Consent of Michael C. Brooks.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** Confidential treatment requested. Confidential portions of this document
have been redacted and filed separately with the Securities and Exchange
Commission.
*** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
VITAMINSHOPPE.COM, INC.
CLASS A COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
DATED SEPTEMBER __, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
1. Representations and Warranties of the Company........................... 2
(a) Effective Registration Statement...................... 2
(b) Contents of Registration Statement.................... 2
(c) Due Incorporation..................................... 3
(d) Subsidiaries.......................................... 3
(e) Underwriting Agreement................................ 3
(f) Description of Capital Stock.......................... 3
(g) Authorized Stock...................................... 3
(h) Validly Issued Shares................................. 3
(i) No Conflict........................................... 3
(j) No Material Adverse Change............................ 4
(k) Legal Proceedings; Exhibits; Agreements............... 4
(l) Compliance with Securities Act........................ 4
(m) Not an Investment Company............................. 4
(n) Compliance with Laws.................................. 4
(o) Compliance with Environmental Laws.................... 5
(p) No Environmental Costs................................ 5
(q) No Registration Rights................................ 5
(r) Absence of Material Charges........................... 5
(s) Good Title to Properties.............................. 5
(t) Intellectual Property Rights.......................... 6
(u) No Labor Disputes..................................... 6
(v) Insurance............................................. 6
(w) Governmental Permits.................................. 6
(x) Accounting Controls................................... 6
(y) Listing of Common Stock............................... 7
(z) Year 2000 Compliance.................................. 7
(aa) Directed Share Program................................ 7
2. Purchase and Sale Agreements............................................ 7
(a) Firm Shares........................................... 7
(b) Additional Shares..................................... 8
(c) Market Standoff Provision............................. 8
(d) Terms of Public Offering.............................. 8
3. Payment and Delivery.................................................... 9
(a) Firm Shares........................................... 9
(b) Additional Shares..................................... 9
(c) Delivery of Certificates.............................. 9
<PAGE> 3
4. Covenants of the Company................................................ 9
(a) Furnish Copies of Registration Statement
and Prospectus........................................ 9
(b) Notification of Amendments or Supplements............. 10
(c) Filings of Amendments or Supplements.................. 10
(d) Blue Sky Laws......................................... 10
(e) Earnings Statement.................................... 10
(f) Use of Proceeds....................................... 10
(g) Transfer Agent........................................ 10
(h) Periodic Reporting Obligations........................ 11
(i) Directed Share Program................................ 11
(j) Exchange Act Compliance............................... 11
5. Conditions to the Underwriters' Obligations............................. 11
(a) Effective Registration Statement...................... 11
(b) Rule 462 Registration Statement....................... 11
(c) Prospectus Filed with Commission...................... 11
(d) No Stop Order......................................... 12
(e) No NASD Objection..................................... 12
(f) No Debt Downgrading................................... 12
(g) No Material Adverse Change............................ 12
(h) Officer's Certificate................................. 12
(i) Opinion of Company Counsel............................ 12
(j) Opinion of Regulatory Counsel......................... 13
(k) Opinion of Underwriters Counsel....................... 13
(l) Accountant's Comfort Letter........................... 13
(m) Lock-Up Agreements.................................... 13
(n) Additional Documents.................................. 13
6. Expenses................................................................ 14
7. Indemnity and Contribution.............................................. 15
(a) Indemnification of the Underwriters................... 15
(b) Indemnification by the Underwriters................... 15
(c) Indemnification Procedures............................ 16
(d) Indemnification for Directed Share Program............ 17
(e) Contribution Agreement................................ 18
(f) Contribution Amounts.................................. 19
(g) Survival of Provisions................................ 19
8. Effectiveness........................................................... 19
9. Termination............................................................. 19
10.Defaulting Underwriters................................................. 20
<PAGE> 4
11.Counterparts............................................................ 21
12.Headings; Table of Contents............................................. 21
13.Notices................................................................. 21
14.Successors.............................................................. 22
15.Partial Unenforceability................................................ 22
16.Governing Law........................................................... 22
17.Entire Agreement........................................................ 22
18.Amendments.............................................................. 22
19.Sophisticated Parties................................................... 23
Exhibits
A Form of Legal Opinion of Company Counsel
B Form of Lock-Up Agreement
<PAGE> 5
September __, 1999
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Ladies and Gentlemen:
Introduction. VitaminShoppe.com, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A hereto (the "Underwriters") an aggregate of ____________ shares of
the Class A Common Stock, par value $.01 per share, of the Company (the "Firm
Shares").
The Company also proposes to issue and sell to the several Underwriters
not more than an additional ____________ shares of its Class A Common Stock, par
value $.01 per share (the "Additional Shares"), if and to the extent that you
shall have determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of common stock granted to the Underwriters in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares". The shares of Class A Common Stock, par value $.01
per share, of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Class A Common Stock".
Thomas Weisel Partners LLC and William Blair & Company, L.L.C. have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (file no. 333-_____),
including a prospectus, relating to the Shares. The registration statement as
amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"Securities Act"), is hereinafter referred to as the "Registration Statement";
the prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "Prospectus". If the Company has filed a registration
statement to register additional shares of Class A Common Stock pursuant to Rule
462(b) under the Securities Act (the "Rule 462 Registration Statement"), then
any reference herein to the term "Registration Statement" shall be deemed to
include such Rule 462 Registration Statement. All references in this Agreement
to the Registration Statement, the Rule 462 Registration Statement, a
preliminary prospectus, the Prospectus, or any
<PAGE> 6
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
As part of the offering contemplated by this Agreement, Thomas Weisel
Partners has agreed to reserve out of the Shares set forth opposite its name on
Schedule A to this Agreement, up to ______________ shares, for sale to the
Company's employees, officers, and directors and other parties associated with
the Company (collectively, "Participants"), as set forth in the Prospectus under
the heading "Underwriting" (the "Directed Share Program"). The Shares to be sold
by Thomas Weisel Partners pursuant to the Directed Share Program (the "Directed
Shares") will be sold by Thomas Weisel Partners pursuant to this Agreement at
the public offering price. Any Directed Shares not orally confirmed for purchase
by any Participants by the end of the first business day after the date on which
this Agreement is executed will be offered to the public by Thomas Weisel
Partners as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) Effective Registration Statement. The Registration
Statement has become effective; no stop order suspending the effectiveness of
the Registration Statement is in effect, and no proceedings for such purpose are
pending before or, to the best knowledge of the Company, threatened by the
Commission.
(b) Contents of Registration Statement. (i) The Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Due Incorporation. The Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company.
2
<PAGE> 7
(d) Subsidiaries. The Company has no subsidiaries.
(e) Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(f) Description of Capital Stock. The authorized capital stock
of the Company conforms as to legal matters to the description thereof contained
in the Prospectus.
(g) Authorized Stock. The shares of Class A Common Stock and
Class B Common Stock, par value $.01 per share, of the Company (the "Class B
Common Stock"; and together with the Class A Common Stock, the "Common Stock")
outstanding prior to the issuance of the Shares to be sold by the Company
hereunder have been duly authorized and are validly issued, fully paid and
non-assessable. All of the outstanding shares of Class B Common Stock are owned
by Vitamin Shoppe Industries, Inc. ("VSI").
(h) Validly Issued Shares. The Shares to be sold by the
Company hereunder have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(i) No Conflict. The execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other instrument
binding upon the Company that is material to the Company, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be required
by the securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(j) No Material Adverse Change. There has not occurred any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Company from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement).
(k) Legal Proceedings; Exhibits; Agreements. There are no
legal or governmental proceedings pending or, to the best knowledge of the
Company, threatened to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
3
<PAGE> 8
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required. All of the agreements and instruments described in the Prospectus
under "Business -- Intercompany Agreements" have been validly authorized,
executed and delivered by the Company and VSI.
(l) Compliance with Securities Act. Each preliminary
prospectus filed as part of the registration statement as originally filed or as
part of any amendment thereto, or filed pursuant to Rule 424 under the
Securities Act, complied when so filed in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder.
(m) Not an Investment Company. The Company is not and, after
giving effect to the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(n) Compliance with Laws. The Company is conducting its
business in compliance with all applicable federal, state and local laws, rules
and regulations of the jurisdictions in which it is conducting business,
including, without limitation, the Dietary Supplement Health and Education Act
of 1994, the Federal Food, Drug and Cosmetic Act, the Nutritional Labeling and
Education Act of 1990 and the Federal Trade Commission Act and all rules and
regulations promulgated thereunder.
(o) Compliance with Environmental Laws. The Company (i) is in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, individually or in the aggregate, have a
material adverse effect on the Company.
(p) No Environmental Costs. There are no costs or liabilities
associated with Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, individually or in the aggregate, have a material
adverse effect on the Company.
(q) No Registration Rights. There are no contracts, agreements
or understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to require the
Company to include such securities with the Shares registered pursuant to the
Registration Statement other than as described in the Registration
4
<PAGE> 9
Statement and as have been waived in writing in connection with the offering
contemplated hereby.
(r) Absence of Material Charges. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, (1) the Company has not incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (3) there has not been any
material change in the capital stock, short-term debt or long-term debt of the
Company, except in each case as described in the Prospectus.
(s) Good Title to Properties. The Company has good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company. VSI has sold and assigned to the Company
good and marketable title to all assets of VSI that were used primarily in the
Internet business of VSI.
(t) Intellectual Property Rights. The Company owns or
possesses, or can acquire on reasonable terms, all material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by it in connection with the business now operated by them, and the
Company has not received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse affect on the Company.
(u) No Labor Disputes. No material labor dispute with the
employees of the Company exists, or, to the knowledge of the Company, is
imminent; and the Company is not aware of any existing, threatened or imminent
labor disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could have a material adverse effect on the
Company.
(v) Insurance. The Company is insured by the insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and the Company has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a material adverse effect on the
Company.
5
<PAGE> 10
(w) Governmental Permits. The Company possesses all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct its business, and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
Company.
(x) Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(y) Listing of Common Stock. The Class A Common Stock
(including the Shares and the Directed Shares) is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and is listed on the Nasdaq National Market, subject to notice of issuance.
(z) Year 2000 Compliance. The Company has reviewed its
operations and that of any third parties with which the Company has a material
relationship to evaluate the extent to which the business or operations of the
Company will be affected by the Year 2000 Problem. As a result of such review,
the Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the Company or result in any
material loss or interference with the Company's business or operations. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data or
in the operation of mechanical or electrical systems of any kind will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
(aa) Directed Share Program. The Company represents and
warrants to Thomas Weisel Partners that (i) the Registration Statement, the
Prospectus and any preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or regulations of
foreign jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program, and that (ii) no authorization, approval, consent,
license, order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been obtained, is
necessary under the securities laws and regulations of foreign jurisdictions in
which the Directed Shares are offered outside the United States.
2. Purchase and Sale Agreements.
6
<PAGE> 11
(a) Firm Shares. The Company hereby agrees to sell to the
several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at $______ a share (the "Purchase Price") the number of Firm Shares set
forth in Schedule A hereto opposite the name of such Underwriter.
(b) Additional Shares. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
the Company agrees to sell to the Underwriters the Additional Shares, and the
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to _______________ Additional Shares at the Purchase Price. If you, on behalf
of the Underwriters, elect to exercise such option, you shall so notify the
Company in writing not later than thirty (30) days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten (10) business days after
the date of such notice. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.
(c) Market Standoff Provision. The Company hereby agrees that,
without the prior written consent of Thomas Weisel Partners, it will not, during
the period ending 180 days after the date of the Prospectus, (i) offer, issue,
pledge, sell, contract to issue or sell, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise issue, transfer or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder or (B) the
issuance by the Company of shares of Class A Common Stock upon the exercise of
options or warrants described in the Prospectus or the grant of options, in the
ordinary course of business, pursuant to plans described in the Prospectus.
(d) Terms of Public Offering. The Company is advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable.
3. Payment and Delivery.
(a) Firm Shares. Payment for the Firm Shares to be sold by the
Company
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shall be made to the Company in immediately available funds against delivery of
such Firm Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on ____________, 1999, or at such other time on
the same or such other date, not later than _________, 1999 [five business days
after scheduled closing date], as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "Closing Date".
(b) Additional Shares. Payment for any Additional Shares shall
be made to the Company in immediately available funds in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2(b) or at such other time on the same or on such
other date, in any event not later than _______, 1999 [40 days after date of
this Agreement], as shall be designated in writing by you. The time and date of
such payment are hereinafter referred to as the "Option Closing Date".
(c) Delivery of Certificates. Certificates for the Firm Shares
and Additional Shares shall be in definitive form and registered in such names
and in such denominations as you shall request in writing not later than one (1)
full business day prior to the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and Additional Shares
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
4. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) Furnish Copies of Registration Statement and Prospectus.
To furnish to you, without charge, four signed copies of the Registration
Statement (including exhibits thereto) and for delivery to each other
Underwriter a conformed copy of the Registration Statement (without exhibits
thereto) and to furnish to you in New York City, without charge, prior to 10:00
a.m. New York City time on the business day next succeeding the date of this
Agreement and during the period mentioned in Section 4(c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Notification of Amendments or Supplements. Before amending
or supplementing the Registration Statement or the Prospectus, to furnish to you
a copy of each such proposed amendment or supplement and not to file any such
proposed amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such rule.
(c) Filings of Amendments or Supplements. If, during such
period after the first date of the public offering of the Shares as in the
opinion of counsel for the Underwriters the
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Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish to
the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the Prospectus,
as amended or supplemented, will comply with law.
(d) Blue Sky Laws. To endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of each state of the United
States and such other such jurisdictions as you shall reasonably request.
(e) Earnings Statement. To make generally available to its
securityholders as soon as practicable, but in any event not later than eighteen
(18) months after the effective date of the Registration Statement (as defined
in Rule 158(c) under the Securities Act), an earnings statement of the Company
and its subsidiaries (which need not be audited) complying with Section 11(a) of
the Securities Act and the rules and regulations thereunder (including, at the
option of the Company, Rule 158).
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Class A Common Stock.
(h) Periodic Reporting Obligations. During the Prospectus
Delivery Period, the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the Commission
such information on Form 10-Q or Form 10-K as may be required by Rule 463 under
the Securities Act.
(i) Directed Share Program. That in connection with the
Directed Share Program, the Company will ensure that the Directed Shares will be
restricted if and to the extent required by the National Association of
Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three (3) months following
the date of the effectiveness of the Registration Statement. Thomas Weisel
Partners will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of
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time. Furthermore, the Company covenants with Thomas Weisel Partners that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
(j) Exchange Act Compliance. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner
and within the time periods required by the Exchange Act.
5. Conditions to the Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Shares on the Closing Date are subject
to the following conditions:
(a) Effective Registration Statement. The Registration
Statement shall have become effective not later than 5:00 p.m. (New York City
time) on the date hereof.
(b) Rule 462 Registration Statement. If the Company elects to
rely upon Rule 462(b), the Company shall file a Rule 462 Registration Statement
with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement, and the Company shall at the time of
filing either pay to the Commission the filing fee for the Rule 462 Registration
Statement or give irrevocable instructions for the payment of such fee pursuant
to Rule 111(b) under the Securities Act.
(c) Prospectus Filed with Commission. The Company shall have
filed the Prospectus with the Commission (including the information required by
Rule 430A under the Securities Act) in the manner and within the time period
required by Rule 424(b) under the Securities Act; or the Company shall have
filed a post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment shall
have become effective.
(d) No Stop Order. No stop order suspending the effectiveness
of the Registration Statement, any Rule 462 Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or threatened by the
Commission.
(e) No NASD Objection. The NASD shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements.
(f) No Debt Downgrading. There shall not have occurred any
downgrading, nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(g) No Material Adverse Change. There shall not have occurred
any change,
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<PAGE> 15
or any development involving a prospective change, in the condition, financial
or otherwise, or in the earnings, business or operations of the Company from
that set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
(h) Officer's Certificate. The Underwriters shall have
received on the Closing Date a certificate, dated the Closing Date and signed by
the Chief Executive Officer or President of the Company, to the effect set forth
in Sections 5(d) and 5(g) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct as of
the Closing Date and that the Company has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
(i) Opinion of Company Counsel. The Underwriters shall have
received on the Closing Date an opinion of Kaye, Scholer, Fierman, Hays &
Handler, LLP, counsel for the Company, dated the Closing Date, the form of which
is attached hereto as Exhibit A. The opinion shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(j) Opinion of Regulatory Counsel. The Underwriters shall have
received on the Closing Date an opinion of _________________, regulatory counsel
for the Company, dated the Closing Date, to the effect that the statements in
the Prospectus under the captions "Risk Factors -- Extensive governmental
regulation could add significant additional costs to our business," and
"Business -- Government Regulation," insofar as such statements constitute
summaries of the laws, regulations or legal matters referred to therein, fairly
summarize such laws, regulations and legal matters. The opinion shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.
(k) Opinion of Underwriters Counsel. The Underwriters shall
have received on the Closing Date an opinion of Hale and Dorr LLP, counsel for
the Underwriters, dated the Closing Date, covering the matters referred to in
Exhibit A, paragraphs (v), (vi), (viii) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters") and (xi).
With respect to paragraph (xii) of Exhibit A, such counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified.
(l) Accountant's Comfort Letter. The Underwriters shall have
received, on each of the date hereof and the Closing Date, a letter dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from Deloitte & Touche LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter delivered on
the Closing Date shall use a "cut-off date" not
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<PAGE> 16
earlier than the date hereof.
(m) Lock-Up Agreements. The "lock-up" agreements, each
substantially in the form of Exhibit B hereto, between you and the stockholders,
optionholders, officers and directors of the Company, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
(n) Additional Documents. On the Closing Date, the
Representatives and counsel for the Underwriters shall have received such
information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions or
agreements, herein contained.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction of each of the above conditions
on or prior to the Option Closing Date and to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
6. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or legal investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as contemplated by Section 4(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with such qualification and in connection with
the Blue Sky or legal investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares by
the NASD, (v) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Class A Common
Stock and all costs and expenses incident to listing the Shares on the Nasdaq
National Market, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or depositary,
(viii) the costs and expenses of the Company relating to investor presentations
on any "road show" undertaken in connection with the marketing of the offering
of the Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of
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<PAGE> 17
any consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, (ix) all
expenses in connection with any offer and sale of the Shares outside of the
United States, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with offers and sales outside of
the United States, (x) all reasonable fees and disbursements of counsel incurred
by the Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program and (xi) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 7 entitled
"Indemnity and Contribution", and the last paragraph of Section 10 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel and any advertising expenses connected with any
offers they may make.
7. Indemnity and Contribution.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except (i) insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein and (ii) that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage or
liability purchased Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant to
Section 4 and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
(b) Indemnification by the Underwriters. Each Underwriter
agrees, severally and not jointly, to indemnify and hold harmless the Company,
the directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who
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<PAGE> 18
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) Indemnification Procedures. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to this Section 7,
such person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (ii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing by
Thomas Weisel Partners. In the case of any such separate firm for the Company,
and such directors, officers and control persons of the Company, such firm shall
be designated in writing by the Company. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the
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<PAGE> 19
second and third sentences of this paragraph, the indemnifying party agrees that
it shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the specific terms of such
settlement at least 15 days prior to such settlement being effected, and (iii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if indemnity
may be sought pursuant to Section 7(e) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for Thomas
Weisel Partners for the defense of any losses, claims, damages and liabilities
arising out of the Directed Share Program, and all persons, if any, who control
Thomas Weisel Partners within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act.
(d) Indemnification for Directed Share Program. The Company
agrees to indemnify and hold harmless Thomas Weisel Partners and each person, if
any, who controls Thomas Weisel Partners within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act ("Thomas Weisel Partners
Entities"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the prospectus wrapper material prepared by or with the consent of
the Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant to pay
for and accept delivery of the shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company shall not
be responsible under this subparagraph (iii) for any losses, claim, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Thomas
Weisel Partners Entities.
(e) Contribution Agreement. To the extent the indemnification
provided for in this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or
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<PAGE> 20
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Shares (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate price at which the Shares are
sold to the public pursuant to this Agreement. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective number of Shares they have purchased hereunder, and not joint.
(f) Contribution Amounts. The Company and the Underwriters
agree that it would not be just or equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 7(e). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 7 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) Survival of Provisions. The indemnity and contribution
provisions contained in this Section 7 and the representations, warranties and
other statements of the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or the Company, its officers or
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<PAGE> 21
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
8. Effectiveness. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York, Delaware or California shall have been declared by
either federal or New York, Delaware or California state authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse, or (v) in the judgment of the Representatives, there shall
have occurred any material adverse change, or any development that could
reasonably be expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of business, of
the Company, and (b) in the case of any of the events specified in clauses
9(a)(i) through 9(a)(v), such event, individually or together with any other
such event, makes it, in your judgment, impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.
10. Defaulting Underwriters. If, on the Closing Date or the Option
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the Shares to be purchased on such
date, the other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective names in
Schedule A bears to the aggregate number of Firm Shares set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 10 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven (7) days, in
order that the required changes, if
17
<PAGE> 22
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
12. Headings; Table of Contents. The headings of the sections of this
Agreement and the table of contents have been inserted for convenience of
reference only and shall not be deemed a part of this Agreement.
13. Notices. All communications hereunder shall be in writing and shall
be mailed, hand delivered or telecopied and confirmed to the parties hereto as
follows:
If to the Representatives:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: Debra Somberg
with a copy to:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: David A. Baylor, Esq.
18
<PAGE> 23
If to the Company:
VitaminShoppe.com, Inc.
380 Lexington Avenue, Suite 1700
New York, New York 10168
Facsimile: ____________
Attention: President
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 7, and in each case their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
15. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
17. Entire Agreement. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
18. Amendments. This Agreement may only be amended or modified in
writing, signed by all of the parties hereto, and no condition herein (express
or implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit.
19
<PAGE> 24
19. Sophisticated Parties. Each of the parties hereto acknowledges that
it is a sophisticated business person who was adequately represented by counsel
during negotiations regarding the provisions hereof, including, without
limitation, the indemnification and contribution provisions of Section 7, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Section 7 hereto fairly allocate the risks
in light of the ability of the parties to investigate the Company, its affairs
and its business in order to assure that adequate disclosure has been made in
the Registration Statement, any preliminary prospectus and the Prospectus (and
any amendments and supplements thereto), as required by the Securities Act and
the Exchange Act.
[Remainder of page intentionally left blank]
20
<PAGE> 25
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
VitaminShoppe.com
By:_____________________________
Name:______________________
Title:_______________________
Accepted as of the date hereof
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
Acting severally on behalf of themselves and the several Underwriters named in
Schedule A hereto.
By: Thomas Weisel Partners LLC
By:_______________________________
Name:____________________________
Title:_____________________________
21
<PAGE> 26
SCHEDULE A
Underwriter Number of Firm
Shares
To Be Purchased
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
Total
22
<PAGE> 27
EXHIBIT A
Form of Legal Opinion of Company Counsel
THE FINAL OPINION IN DRAFT FORM SHOULD BE ATTACHED AS EXHIBIT A AT THE
TIME THIS AGREEMENT IS EXECUTED.
(i) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company.
(ii) To the knowledge of such counsel, the Company has no subsidiaries.
(iii) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(iv) The shares of capital stock of the Company outstanding immediately
prior to the issuance of the Shares to be sold by the Company hereunder have
been duly authorized and are validly issued, fully paid and non-assessable.
(v) The Shares to be sold by the Company hereunder have been duly
authorized and, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive or similar
rights.
(vi) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Underwriting Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
<PAGE> 28
(viii) The statements (A) in the Prospectus under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources", "Business - Intercompany
Agreements", "Management - Employee Benefits", "Management - Employment and
Severance Agreements", "Certain Transactions", "Description of Capital Stock"
and "Underwriting" and (B) in the Registration Statement in Items 14 and 15, in
each case insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein.
(ix) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(x) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(xi) Such counsel (A) is of the opinion that the Registration Statement
and Prospectus (except for financial statements and schedules and other
financial and statistical data included therein as to which such counsel need
not express any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
With respect to paragraph (xi) of Exhibit A, such counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified.
2
<PAGE> 29
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
<PAGE> 30
FORM OF LOCK-UP AGREEMENT
*
_____, 1999
Thomas Weisel Partners LLC
Salomon Smith Barney Inc.
*William Blair & Company
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
RE: LOCK-UP AGREEMENT ("AGREEMENT")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of
certain shares of Class A Common Stock, par value $0.01 per share (the "CLASS A
COMMON STOCK"), and/or shares of Class B Common Stock, par value $0.01 per share
(the "CLASS B COMMON STOCK, together with Class A Common Stock, the "CAPITAL
STOCK"), of VitaminShoppe.com, Inc., a Delaware corporation (the "COMPANY"), or
securities convertible into or exchangeable for or issuable upon the exercise of
stock options and warrants to purchase shares of Capital Stock. The undersigned
understands that you, as representatives (the "REPRESENTATIVES"), propose to
enter into an underwriting agreement (the "UNDERWRITING AGREEMENT") on behalf of
the several Underwriters named therein (collectively, the "UNDERWRITERS"), with
the Company providing for a public offering of shares of the Class A Common
Stock of the Company pursuant to a Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission (the "PUBLIC OFFERING"). The
undersigned recognizes that the Public Offering will benefit the undersigned and
the Company by, among other things, raising additional capital for the
operations of the Company. The undersigned acknowledges that you and the other
Underwriters are relying on the representations and agreements of the
undersigned contained in this Agreement in carrying out the Public Offering and
in entering into underwriting arrangements with the Company with respect to the
Public Offering.
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Thomas
Weisel Partners LLC ("THOMAS WEISEL PARTNERS") (which consent may be withheld in
its sole discretion), it will not, and will not publicly announce its intention
to, during the period commencing on the date hereof and ending 180 days after
the date of the final prospectus relating to the Public Offering (the
"PROSPECTUS"), (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of Capital Stock or any securities convertible into or
exercisable or exchangeable for Capital Stock or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Capital Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Capital Stock or such other securities, in cash or otherwise. In addition, the
undersigned agrees that, without the prior written consent of Thomas Weisel
Partners (which consent may be withheld in its sole discretion), it will not,
during the period commencing on the date hereof and ending 180 days after the
date of the Prospectus, make any demand for or exercise any right with respect
<PAGE> 31
to, the registration, offering or sale of any shares of Capital Stock or any
security convertible into or exchangeable for or issuable upon the exercise of
stock options and warrants to purchase shares of Capital Stock. With respect to
the Public Offering, the undersigned waives any registration rights relating to
registration under the Securities Act of 1933, as amended, of any offering or
sale of any Capital Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.
The foregoing restrictions are expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a sale or disposition of the
Capital Stock even if such Capital Stock would be disposed of by someone other
than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put option or put equivalent position or
call option or call equivalent position) with respect to any of the Capital
Stock or with respect to any security that includes, relates to, or derives any
significant part of its value from such Capital Stock.
Notwithstanding the foregoing, the undersigned may transfer
shares of Capital Stock or securities convertible into or exchangeable or
exercisable for Capital Stock (i) as a bona fide gift or gifts, provided that
the donee or donees thereof agree to be bound by the restrictions set forth
herein, (ii) to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, provided that the trustee of the
trust agrees to be bound by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value, (iii)
to any corporation, partnership, limited liability company or other business
entity that is wholly owned by the undersigned and/or its donees or assignees,
provided that any such transfer shall not involve a disposition for value and
any such transferee agrees to be bound by the restrictions set forth herein, or
(iv) to the Underwriters pursuant to the Underwriting Agreement. For purposes of
this Agreement, "immediate family" shall mean any relationship by blood,
marriage or adoption, not more remote than first cousin.
*
The undersigned understands that whether the Public Offering
actually occurs will depend on a number of factors, including stock market
conditions. The Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation among the Company and
the Underwriters.
The undersigned agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Capital Stock or securities convertible into or
exchangeable or exercisable for Capital Stock held by the undersigned except in
compliance with the foregoing restrictions.
This Agreement is irrevocable and shall be binding on the
undersigned and the respective successors, heirs, personal representatives and
assigns of the undersigned.
*
<PAGE> 32
This Agreement shall terminate if the Underwriting Agreement
(other than provisions that survive termination) shall terminate or be
terminated prior to the payment for the delivery of the shares of the Class A
Common Stock thereunder or if such agreement is not executed by each party
thereto on or prior to December 31, 1999.
Very truly yours,
*
-------------------------------------
Address:
----------------------------
----------------------------
----------------------------
<PAGE> 33
This Agreement shall terminate if the Underwriting Agreement
(other than provisions that survive termination) shall terminate or be
terminated prior to the payment for the delivery of the shares of the Class A
Common Stock thereunder or if such agreement is not executed by each party
thereto on or prior to December 31, 1999.
Very truly yours,
*
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 1.2
FORM OF LOCK-UP AGREEMENT
*
_____, 1999
Thomas Weisel Partners LLC
Salomon Smith Barney Inc.
*William Blair & Company
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
RE: LOCK-UP AGREEMENT ("AGREEMENT")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of
certain shares of Class A Common Stock, par value $0.01 per share (the "CLASS A
COMMON STOCK"), and/or shares of Class B Common Stock, par value $0.01 per share
(the "CLASS B COMMON STOCK, together with Class A Common Stock, the "CAPITAL
STOCK"), of VitaminShoppe.com, Inc., a Delaware corporation (the "COMPANY"), or
securities convertible into or exchangeable for or issuable upon the exercise of
stock options and warrants to purchase shares of Capital Stock. The undersigned
understands that you, as representatives (the "REPRESENTATIVES"), propose to
enter into an underwriting agreement (the "UNDERWRITING AGREEMENT") on behalf of
the several Underwriters named therein (collectively, the "UNDERWRITERS"), with
the Company providing for a public offering of shares of the Class A Common
Stock of the Company pursuant to a Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission (the "PUBLIC OFFERING"). The
undersigned recognizes that the Public Offering will benefit the undersigned and
the Company by, among other things, raising additional capital for the
operations of the Company. The undersigned acknowledges that you and the other
Underwriters are relying on the representations and agreements of the
undersigned contained in this Agreement in carrying out the Public Offering and
in entering into underwriting arrangements with the Company with respect to the
Public Offering.
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Thomas
Weisel Partners LLC ("THOMAS WEISEL PARTNERS") (which consent may be withheld in
its sole discretion), it will not, and will not publicly announce its intention
to, during the period commencing on the date hereof and ending 180 days after
the date of the final prospectus relating to the Public Offering (the
"PROSPECTUS"), (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of Capital Stock or any securities convertible into or
exercisable or exchangeable for Capital Stock or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Capital Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Capital Stock or such other securities, in cash or otherwise. In addition, the
undersigned agrees that, without the prior written consent of Thomas Weisel
Partners (which consent may be withheld in its sole discretion), it will not,
during the period commencing on the date hereof and ending 180 days after the
date of the Prospectus, make any demand for or exercise any right with respect
<PAGE> 2
to, the registration, offering or sale of any shares of Capital Stock or any
security convertible into or exchangeable for or issuable upon the exercise of
stock options and warrants to purchase shares of Capital Stock. With respect to
the Public Offering, the undersigned waives any registration rights relating to
registration under the Securities Act of 1933, as amended, of any offering or
sale of any Capital Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.
The foregoing restrictions are expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a sale or disposition of the
Capital Stock even if such Capital Stock would be disposed of by someone other
than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put option or put equivalent position or
call option or call equivalent position) with respect to any of the Capital
Stock or with respect to any security that includes, relates to, or derives any
significant part of its value from such Capital Stock.
Notwithstanding the foregoing, the undersigned may transfer
shares of Capital Stock or securities convertible into or exchangeable or
exercisable for Capital Stock (i) as a bona fide gift or gifts, provided that
the donee or donees thereof agree to be bound by the restrictions set forth
herein, (ii) to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, provided that the trustee of the
trust agrees to be bound by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value, (iii)
to any corporation, partnership, limited liability company or other business
entity that is wholly owned by the undersigned and/or its donees or assignees,
provided that any such transfer shall not involve a disposition for value and
any such transferee agrees to be bound by the restrictions set forth herein, or
(iv) to the Underwriters pursuant to the Underwriting Agreement. For purposes of
this Agreement, "immediate family" shall mean any relationship by blood,
marriage or adoption, not more remote than first cousin.
*
The undersigned understands that whether the Public Offering
actually occurs will depend on a number of factors, including stock market
conditions. The Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation among the Company and
the Underwriters.
The undersigned agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Capital Stock or securities convertible into or
exchangeable or exercisable for Capital Stock held by the undersigned except in
compliance with the foregoing restrictions.
This Agreement is irrevocable and shall be binding on the
undersigned and the respective successors, heirs, personal representatives and
assigns of the undersigned.
*
<PAGE> 3
This Agreement shall terminate if the Underwriting Agreement
(other than provisions that survive termination) shall terminate or be
terminated prior to the payment for the delivery of the shares of the Class A
Common Stock thereunder or if such agreement is not executed by each party
thereto on or prior to December 31, 1999.
Very truly yours,
*
-------------------------------------
Address:
----------------------------
----------------------------
----------------------------
<PAGE> 4
This Agreement shall terminate if the Underwriting Agreement
(other than provisions that survive termination) shall terminate or be
terminated prior to the payment for the delivery of the shares of the Class A
Common Stock thereunder or if such agreement is not executed by each party
thereto on or prior to December 31, 1999.
Very truly yours,
*
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION,
POWERS, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
VITAMINSHOPPE.COM, INC.
VitaminShoppe.com, Inc. (the "CORPORATION"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, hereby certifies, pursuant to the provisions of section 151 of the
General Corporation Law of the State of Delaware, that pursuant to a unanimous
written consent of directors executed on July 23, 1999, its board of directors
adopted the following resolution:
WHEREAS, the board of directors is authorized by the Amended and
Restated Certificate of Incorporation of the Corporation to issue up to
5,000,000 shares of preferred stock in one or more classes or series and, in
connection with the creation of any class or series, to fix by the resolution
providing for the issuance of such shares the designation, powers, preferences
and rights of such class or series and the qualifications, limitations or
restrictions thereof; and
WHEREAS, the board of directors desires, pursuant to such authority, to
authorize and fix the terms and provisions of a series of preferred stock and
the number of shares constituting such class;
NOW, THEREFORE, BE IT RESOLVED that a series of preferred stock be
hereby authorized on the terms and in accordance with the provisions set forth
on Annex A attached to this resolution.
/s/ Larry M. Segall
-----------------------------------
Name: Larry M. Segall
Title: Chief Financial Officer,
Treasurer and Secretary
<PAGE> 2
ANNEX A
SERIES A CONVERTIBLE PREFERRED STOCK
The designation, powers, preferences and relative, participating,
optional and other rights of the Series A Convertible Preferred Stock of
VitaminShoppe.com, Inc. (the "CORPORATION") shall be as follows:
1. DESIGNATION AND AMOUNT. This series of preferred stock shall be
designated as the "Series A Convertible Preferred Stock" (the "SERIES A
PREFERRED"). Shares of Series A Preferred shall have a par value of $0.01 per
share. The number of authorized shares constituting this series shall be
2,000,000 shares. Each share of Series A Preferred shall have a stated value of
$14.08 (the "STATED VALUE").
2. DIVIDENDS. (a) Holders of shares of Series A Preferred shall be
entitled to receive, when and as declared by the board of directors of the
Corporation and to the extent permitted by the General Corporation Law of the
State of Delaware, dividends at an annual rate equal to 8% of the Stated Value
per share for each of the then outstanding shares of Series A Preferred,
calculated on the basis of a 360-day year consisting of twelve 30 day months.
Such dividends shall be non-cumulative and shall be paid at the times and in the
manner set forth in this paragraph 2. Dividends, if declared and paid, shall be
calculated from the later of the date of issuance of the Series A Preferred or
the latest date as of which dividends shall have been previously declared on the
Series A Preferred.
(b) Any dividend payment made with respect to the Series A Preferred
shall be made, at the sole discretion of the board of directors, in cash out of
funds legally available for such purpose.
(c) No dividends shall be declared or paid on the Class A Common Stock,
par value $0.01 per share, of the Corporation (the "CLASS A COMMON STOCK") or on
the Class B Common Stock, par value $0.01 per share, of the Corporation (the
"CLASS B COMMON STOCK") unless and until dividends shall be declared and paid on
the Series A Preferred.
(d) Dividends shall be payable, when and as declared by the board of
directors, on the date established by the board of directors for payment
thereof; except that, if any such date is a Saturday, Sunday or legal holiday,
then such dividend shall be payable on the first immediately succeeding day
which is not a Saturday, Sunday or legal holiday. Each dividend shall be paid to
the holders of record of shares of Series A Preferred as they appear on the
books of the Corporation on a record date fixed by resolution of the board of
directors of the Corporation, which record date shall be not more than 45 days
nor fewer than 10 days preceding the date so established.
(e) Dividends declared on the Series A Preferred shall be payable
before any dividends or distributions or other payments shall be paid or set
aside for payment upon the
2
<PAGE> 3
common stock of the Corporation ("COMMON STOCK") or any other capital stock
ranking on liquidation or as to dividends or distributions junior to the Series
A Preferred (any such capital stock and such common stock being referred to as
"JUNIOR STOCK"), other than a dividend, distribution or payment paid solely in
shares of Junior Stock that is not Redeemable Stock or Convertible Stock (in
each case as defined below). If at any time dividends declared on the
outstanding shares of Series A Preferred shall not have been paid or set apart
for payment, the amount of the declared but unpaid dividends shall be fully paid
or set apart for payment, before any dividend, distribution or payment shall be
declared or paid upon or set apart for the shares of any other class or series
of Junior Stock or Parity Securities (as defined below), other than a dividend,
distribution or payment paid solely in shares of Junior Stock that is not
Redeemable Stock or Convertible Stock. For purposes of this document,
"REDEEMABLE STOCK" means any equity security that by its terms or otherwise is
required to be redeemed for cash at any time or is redeemable for cash at the
option of the holder thereof or the Corporation at any time. For purposes of
this document, "CONVERTIBLE STOCK" means any equity security that by its terms
or otherwise may be converted or exchanged for any other security of the
Corporation or its subsidiaries at the option of the holder thereof or the
Corporation at any time.
(f) If there shall be outstanding shares of any Parity Securities, no
dividends shall be declared or paid or set apart for payment on any such Parity
Securities for any period unless dividends (calculated from the later of the
date of issuance of the Series A Preferred or the latest date as of which
dividends shall have been previously declared on the Series A Preferred) have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A Preferred. In
no event shall any dividends be declared or paid on Parity Securities unless
dividends shall be declared and paid on the Series A Preferred. For purposes of
this document, "PARITY SECURITIES" means any class or series of capital stock
that is entitled to share ratably with the Series A Preferred in the payment of
dividends, including accumulations, if any, and, in the event that the amounts
payable thereon on liquidation are not paid in full, is entitled to share
ratably with the Series A Preferred in any distribution of assets. All dividends
paid with respect to shares of Series A Preferred shall be paid pro rata to the
holders entitled thereto, and, in the event of the payment of dividends on
Parity Securities, shall be paid pro rata to the holders of such Parity
Securities and Series A Preferred based upon the aggregate Liquidation
Preference of the outstanding shares.
3. LIQUIDATION PREFERENCE. In the event of any bankruptcy, liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, each holder of Series A Preferred then issued and outstanding
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or funds of the Corporation to the holders of shares of Junior
Stock by reason of their ownership of such stock, an amount per share of Series
A Preferred equal to 200% of the Stated Value of such share plus any dividends
declared but unpaid on such share on the date of liquidation. If the assets and
funds legally available for distribution among the holders of Series A Preferred
shall be insufficient to permit the payment in full of any such preference
amount, then the assets and funds shall be distributed ratably among holders of
shares of Series A Preferred in proportion to the number of shares of Series A
Preferred owned by each holder. If the assets and funds of the Corporation
available for distribution to stockholders shall be insufficient to permit the
payment in full of the aforesaid
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amount and any and all amounts payable in such event to holders of outstanding
Parity Securities, the holders of shares of Series A Preferred and the holders
of such other Parity Securities shall share ratably (as to cash, in-kind or
other distributions) in any distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which such shares are
entitled. The merger or consolidation of the Corporation into or with another
corporation, partnership or other business entity in which the Corporation is
not the surviving entity, or a transaction in which the holders of the issued
and outstanding voting securities of the Corporation outstanding immediately
prior to such transaction beneficially own or control less than a majority of
the voting securities of the Corporation or surviving entity immediately
following such transaction, shall be deemed a liquidation, dissolution or
winding up of the Corporation for purposes of this paragraph 3.
4. CONVERSION. (a) Upon the closing of a firm commitment underwritten
initial public offering of the Class A Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), other than a registration statement relating solely to an
employee benefit plan or transaction covered by Rule 145 of the Securities Act,
at an offering price per share of Class A Common Stock that is not less than
125% of the Conversion Price (as defined below) immediately prior to the
completion of such offering and which offering yields proceeds to the
Corporation (net of underwriting discounts and commissions) of not less than
$30,000,000 (a "QUALIFIED IPO"), each then outstanding share of the Series A
Preferred shall be automatically converted into one or more shares of Class A
Common Stock calculated by multiplying the number of shares of the Series A
Preferred to be so converted by the conversion rate (the "CONVERSION RATE") as
then in effect. For purposes hereof, (i) the "CONVERSION RATE" shall be
determined by dividing the Stated Value per share by the Conversion Price per
share, and (ii) the "CONVERSION PRICE" per share shall be $14.08, subject to
adjustment from time to time as provided herein. At any time prior to the
closing of a Qualified IPO, and subject to and upon compliance with the
provisions of this paragraph, the holder of any shares of the Series A Preferred
shall have the right, at its option, to convert, at the Conversion Rate, all or
any portion of its shares of the Series A Preferred into one or more shares of
Class A Common Stock by surrendering the shares to be converted, in the manner
provided below.
(b) (i) In order to exercise its conversion right, the holder of the
Series A Preferred to be converted shall surrender the certificate representing
such share to the conversion agent (which may be the Corporation itself), with a
notice of election to convert, duly completed and signed, at the principal
office of the conversion agent. Unless the shares issuable upon conversion are
to be issued in the same name as the name in which the share of the Series A
Preferred is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer duly executed by the holder or his duly
authorized attorney. If the Corporation fails to designate a conversion agent,
the conversion agent shall be the Corporation.
(ii) As promptly as practicable after the surrender by a
holder of the certificates for shares of the Series A Preferred and in any event
within five business days after such surrender, the Corporation shall issue and
deliver to the Person (as defined herein below)
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for whose account such Series A Preferred was surrendered, or to its nominee or
nominees (subject to compliance with applicable stockholders' agreements and
other applicable agreements restricting transfer), a certificate or certificates
for the number of full shares of Class A Common Stock or other securities
issuable upon the conversion of those shares and any fractional interest in
respect of a share of Class A Common Stock or other security arising upon the
conversion shall be settled as provided below. In the event that a holder of
Series A Preferred converts less than all of the shares of Series A Preferred
evidenced by the certificate(s) surrendered by such holder, the Corporation
shall, simultaneously with the issuance of certificates for the shares of Class
A Common Stock, issue and deliver to such holder (or in accordance with the
instructions of such holder) a new certificate for the balance of the shares of
Series A Preferred not so converted. For purposes of this paragraph 4, the term
"PERSON" shall mean any individual, firm, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of any such
entity.
(iii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which all of the
precedent conditions shall have been satisfied, and the Person or Persons in
whose name or names any certificate or certificates for shares of Class A Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Class A Common Stock or other
securities represented by those certificates at such time on such date and such
conversion shall be at the Conversion Price in effect at such time, unless the
stock transfer books of the Corporation shall be closed on the date, in which
event such Person or Persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, and such conversion shall be at the
Conversion Price in effect on the date such transfer books are open. All shares
of Class A Common Stock delivered upon conversion of the Series A Preferred will
upon delivery in accordance with the provisions hereof be duly and validly
issued and fully paid and nonassessable, free of all liens and charges and not
subject to any preemptive rights. Upon the surrender of certificates
representing shares of the Series A Preferred to be converted, the shares shall
no longer be deemed to be outstanding and all rights of a holder with respect to
the shares surrendered for conversion shall immediately terminate except the
right to receive the Class A Common Stock or other securities, cash or other
assets as herein provided.
(c) No fractional shares or securities representing fractional shares
of Class A Common Stock shall be issued upon conversion of the Series A
Preferred. Any fractional interest in a share of Class A Common Stock resulting
from conversion of a share of the Series A Preferred shall be paid in cash
(computed to the nearest cent) equal to such fraction multiplied by the fair
market value per share as determined by the Board of Directors in good faith. If
more than one certificate representing Series A Preferred shall be surrendered
for conversion at one time by the same holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of the Series A Preferred so surrendered for conversion.
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(d) The Conversion Price shall be subject to adjustment as follows if
any of the events listed below occur prior to the conversion of each share of
the Series A Preferred.
(i) In case the Corporation shall (A) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (B) subdivide or
reclassify its outstanding Common Stock into a greater number of shares, or (C)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such event shall be
adjusted so that the holder of any share of the Series A Preferred thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Class A Common Stock which it would have owned or have been entitled to receive
after the happening of such event had the share of the Series A Preferred been
converted immediately prior to the happening of such event. An adjustment made
pursuant to this paragraph shall become effective immediately after the record
date in the case of a dividend or distribution and shall become effective on the
effective date in the case of subdivision, combination or reclassification. If
any dividend or distribution is not paid or made, the Conversion Price then in
effect shall be appropriately readjusted.
(ii) In case the Corporation shall (A) sell or issue shares of
its Common Stock, (B) issue rights, options or warrants to subscribe for or
purchase shares of Common Stock or (C) issue or sell other rights for shares of
Common Stock or securities convertible or exchangeable into shares of Common
Stock, in the case of one or more of the events described in the immediately
preceding clauses (A), (B) and (C) (collectively, the "SECURITIES"), at a price
per share less than the Conversion Price on the date the Corporation fixes the
offering price of such Securities, then in each such case the Conversion Price
in effect immediately prior to the issuance of such Securities shall be adjusted
so that it shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the date of issuance of the Securities by a
fraction the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of the Securities plus the number
of shares of Common Stock which the aggregate consideration received for the
issuance of the Securities would purchase at the Conversion Price in effect
immediately prior to the issuance of such Securities, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of the Securities (after giving effect to the full exercise,
conversion or exchange, as applicable, of such Securities). The adjustment
provided for in this Subparagraph 4(d)(ii) shall be made successively whenever
any such Securities are issued (provided, however, that no further adjustments
in the Conversion Price shall be made upon the subsequent exercise, conversion
or exchange, as applicable of such Securities pursuant to the original terms of
such Securities) and shall become effective immediately, except as provided in
Subparagraph 4(d)(v) below, after such issuance. In determining whether any
Securities entitle the holders of the Common Stock to subscribe for or purchase
shares of Common Stock at less than the Conversion Price, and in determining the
aggregate offering price of the shares of Common Stock so offered, there shall
be taken into account any consideration received by the Corporation for such
Securities, any
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consideration required to be paid upon the exercise, conversion, or exchange, as
applicable, of such Securities and the value of all such consideration (if other
than cash) shall be determined by the Board of Directors (whose determination,
if made in good faith, shall be conclusive). If any or all of such Securities
are not so issued or expire or terminate without having been exercised,
converted or exchanged, the Conversion Price then in effect shall be
appropriately readjusted to the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such Securities been made upon the
basis of only the number of shares of Common Stock delivered pursuant to
Securities actually exercised, converted or exchanged. For purposes of this
Subparagraph 4(d)(ii), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Corporation or
by any Subsidiary of the Corporation.
(iii) In case the Corporation shall distribute to all holders
of its Common Stock any shares of capital stock of the Corporation (other than
Common Stock) or evidences of indebtedness or cash or other assets (excluding
regular cash dividends or distributions paid from retained earnings of the
Corporation and dividends or distributions referred to in Subparagraph 4(d)(i)
above) or rights, options or warrants to subscribe for or purchase any of its
securities (excluding those referred to in Subparagraph 4(d)(ii) above) then, in
each such case, the Conversion Price shall be adjusted so that it shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior to the date of the distribution by a fraction the numerator of which shall
be the Conversion Price in effect immediately prior to the date of the
distribution less the then fair market value (as determined by the Board of
Directors, whose determination, if made in good faith, shall be conclusive) of
the portion of the capital stock, cash or assets or evidences of indebtedness so
distributed, or of the subscription rights, options or warrants so distributed
or of such convertible or exchangeable securities, with respect to one share of
Common Stock, and the denominator of which shall be the Conversion Price in
effect immediately prior to the date of the distribution. Such adjustment shall
be made whenever any such distribution is made, and shall become effective
retroactive to the record date for the determination of stockholders entitled to
receive such distribution. If any such distribution is not made or if any or all
of such rights, options or warrants expire or terminate without having been
exercised, the Conversion Price then in effect shall be appropriately
readjusted.
(iv) (A) Notwithstanding the foregoing, the provisions of this
Section 4(d) shall not apply to the issuance of: (1) (x) up to 1,500,000 shares
of Class A Common Stock issuable upon the exercise of options granted or to be
granted pursuant to stock option plans approved by the Board of Directors of the
Corporation, or to the grant of options to purchase up to 1,500,000 shares of
Class A Common Stock pursuant to such stock option plans and (y) shares of Class
A Common Stock issuable upon the exercise of options to be granted to the
Company's directors pursuant to stock option plans approved by a majority of the
Board of Directors of the Corporation, including the affirmative vote of the
Series A Preferred Director (as defined below) or to the grant of options
pursuant to such stock option plans; (2) shares of Class A Common Stock issuable
upon conversion of the Series A Preferred; (3) shares issued to a holder of
Series A Preferred which are attributable solely to any adjustment made pursuant
to this Section 4(d); (4) capital stock issued as a dividend on the Series A
Preferred or in connection with a subdivision or combination of the Series A
Preferred Stock; (5) pursuant to a warrant (the "TWP
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WARRANT") to purchase 21,250 shares of Series A Preferred issued to Thomas
Weisel Partners LLC (or its registered assigns), of 21,250 shares of Series A
Preferred or an equivalent number of shares of Class A Common Stock (as the case
may be); (6) (x) capital stock (and options, warrants or other securities
directly or indirectly convertible into such capital stock and the Common Stock
issuable upon any such conversion) issued in connection with the establishment
of one or more strategic relationships approved by a majority of the Board of
Directors of the Corporation, including the affirmative vote of the Series A
Preferred Director and (y) up to 500,000 shares of Common Stock (and options,
warrants or other securities convertible into Common Stock and the Common Stock
issuable upon such conversion) issued in connection with other strategic
relationships approved by the Board of Directors and (7) capital stock of the
Corporation (and options, warrants or other convertible securities and capital
stock directly or indirectly issued upon such conversion and Common Stock
issuable upon such conversion) issued as consideration in connection with any
acquisition approved by a majority of the Board of Directors of the Corporation,
including the affirmative vote of the Series A Director.
(B) Notwithstanding any provision in Section 4(d) to the
contrary and without limitation to any other provision contained in Section
4(d), in the event any securities of the Corporation (other than the Series A
Preferred), including, without limitation those securities set forth as
exceptions in paragraph (A) above (collectively, the "SUBJECT SECURITIES"), are
amended or otherwise modified by operation of its terms or otherwise (including,
without limitation, by operation of such Subject Securities' anti-dilution
provisions) in any manner whatsoever that results in (1) the reduction of the
exercise, conversion or exchange price of such Subject Securities payable upon
the exercise for, or conversion or exchange into, Common Stock or other
securities exercisable for, or convertible or exchangeable into, Common Stock
and/or (2) such Subject Securities becoming exercisable for, or convertible or
exchangeable into (x) more shares or dollar amount of such Subject Securities
which are, in turn exercisable for, or convertible or exchangeable into, Common
Stock, or (y) more shares of Common Stock, then such amendment or modification
shall be treated for purposes of Section 4(d) as if the Subject Securities which
have been amended or modified have been terminated and new securities have been
issued with the amended or modified terms. The Corporation shall make all
necessary adjustments (including successive adjustments if required) to the
Conversion Price in accordance with Section 4(d), but in no event shall the
Conversion Price be greater than it was immediately prior to the application of
this Subsection to the transaction in question. On the expiration or termination
of any such amended or modified Subject Securities for which adjustment has been
made pursuant to the operation of the provisions of this Subsection under
Section 4(d), as the case may be, without such Subject Securities having been
exercised, converted or exchanged in full pursuant to their terms, the
Conversion Price shall be appropriately readjusted in the manner specified in
such Section.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a change of at least 1% in the Conversion
Price; provided, however, that any adjustments which by reason of this paragraph
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment; and provided, further, that adjustment shall be
required and made in accordance with the provisions of this paragraph 4(d)
(other than this Subparagraph 4(d)) not later than such time as may be required
in order to preserve the tax-free nature of a distribution to the holders of
shares of Class A Common Stock.
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All calculations shall be made to the nearest cent or to the nearest one
hundredth of a share.
(vi) Whenever the Conversion Price or Conversion Rate is
adjusted as herein provided, the Corporation shall promptly file with the
conversion agent an officers certificate setting forth the Conversion Price and
Conversion Rate after the adjustment and setting forth a brief statement of the
facts requiring the adjustment, which certificate shall be conclusive evidence
of the correctness of the adjustment. Promptly after delivery of the
certificate, the Corporation shall prepare a notice of the adjustment of the
Conversion Price and Conversion Rate setting forth the Conversion Price and
Conversion Rate and the date on which the adjustment becomes effective and shall
mail the notice of such adjustment of the Conversion Price and Conversion Rate
(together with a copy of the officers certificate setting forth the facts
requiring such adjustment) to the holder of each share of the Series A Preferred
at such holder's last address as shown on the stock books of the Corporation.
(vii) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any term of this
Certificate of Incorporation, but will at all times in good faith assist in
carrying out of all such terms and in taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of Series
A Preferred against dilution or other impairment. Without limiting the
generality of the foregoing, the Corporation (A) will not increase the par value
of any shares of stock receivable on the conversion of the Series A Preferred,
(B) will at all times reserve and keep available the maximum number of its
authorized shares of Class A Common Stock, free from all preemptive rights
therein, which will be sufficient to permit the full conversion of the Series A
Preferred, and (C) will take such action as may be necessary or appropriate in
order that all shares of Class A Common Stock as may be issued pursuant to the
conversion of the Series A Preferred will, upon issuance, be duly and validly
issued, fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issue thereof.
(e) In case at any time prior to the conversion of all of the Series A
Preferred:
(i) the Corporation shall authorize the granting to all the
holders of Common Stock of rights to subscribe for or purchase any shares of
stock of any class or of any other rights; or
(ii) there shall be any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of its outstanding
Common Stock); or
(iii) there shall be any capital reorganization by the
Corporation; or
(iv) there shall be a consolidation or merger involving the
Corporation or sale of all or substantially all of the Corporation's property
and assets; or
(v) there shall be voluntary or involuntary dissolution,
liquidation and winding up by the Corporation or dividend or distribution to
holders of Common Stock; or
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(vi) any other event which would cause an adjustment in the
Conversion Price or Conversion Rate;
then in any one or more of said cases, the Corporation shall cause to be
delivered to the holders of the Series A Preferred, at the earliest practicable
time (and, in any event, not less than 15 days before any record date or the
date set for definitive action), notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or notice of the date on which such
reorganization, sale, consolidation, merger, dissolution, liquidation or winding
up or other transaction shall take place, as the case may be. Such notice shall
also set forth such facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Conversion
Price and the kind and amount of the shares of stock and other securities and
property deliverable upon conversion of the Series A Preferred. Such notice
shall also specify the date, if known, as of which the holders of record of the
Class A Common Stock shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their shares of the Class A
Common Stock for securities or other property (including cash) deliverable upon
such reorganization, sale, consolidation, merger, dissolution, liquidation or
winding up or other transaction, as the case may be.
(f) (i) The Corporation shall at all times reserve and keep available,
out of the aggregate of its authorized but unissued shares of Class A Common
Stock, for the purpose of effecting conversions of the Series A Preferred, the
full number of shares of Class A Common Stock deliverable upon the conversion of
all outstanding shares of the Series A Preferred not theretofore converted. For
purposes of this paragraph, the number of shares of Class A Common Stock which
shall be deliverable upon conversion of all of the outstanding shares of the
Series A Preferred shall be computed as if, at the time of computation, all of
the outstanding shares were held by a single holder. The Corporation shall from
time to time, in accordance with the laws of the jurisdiction of its
incorporation, increase the authorized amount of its Class A Common Stock if at
any time the number of shares of Class A Common Stock remaining unissued shall
not be sufficient to permit the conversion of all the then outstanding shares of
the Series A Preferred.
(ii) Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any) of the shares of
Class A Common Stock deliverable upon conversion of the Series A Preferred, the
Corporation will take any corporate action which may be necessary in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of Class A Common Stock at the adjusted Conversion Price.
(iii) Except where registration is requested in a name other
than the name of the registered holder, the Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Class A Common Stock on conversion of the Series
A Preferred pursuant hereto.
(g) In case of any reclassification or change of outstanding shares of
Class A Common Stock (other than a change in par value, or as a result of a
subdivision or combination), or in case of any consolidation of the Corporation
with, or merger of the Corporation with or
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into, any other entity that results in a reclassification, change, conversion,
exchange or cancellation of outstanding shares of Class A Common Stock or any
sale or transfer of all or substantially all of the assets of the Corporation,
each holder of shares of the Series A Preferred then outstanding shall have the
right thereafter to convert the shares of the Series A Preferred held by the
holder into the kind and amount of securities, cash and other property which the
holder would have been entitled to receive upon such reclassification, change,
consolidation, merger, sale or transfer, if the holder had held the Class A
Common Stock immediately prior to the reclassification, change, consolidation,
merger, sale or transfer.
(h) Upon any conversion of shares of the Series A Preferred, the shares
so converted shall revert to the status of authorized but unissued shares of
Preferred Stock of the Corporation.
5. VOTING RIGHTS. (a) Each share of Series A Preferred shall be
entitled to a number of votes equal to the number of shares of Class A Common
Stock into which such share of Series A Preferred could be converted on the
record date fixed for determining the holders of Series A Preferred entitled to
vote at the meeting or to give the consent sought. Except as otherwise
specifically provided herein or as provided by law, holders of shares of Series
A Preferred shall vote with holders of Class A Common Stock and holders of Class
B Common Stock, voting together as a single class, on all matters brought before
the stockholders of the Corporation.
(b) In addition to the voting rights described in paragraphs 5(a) and 6
and any other voting rights granted to holders of shares of Series A Preferred
by contract or otherwise, holders of shares of Series A Preferred shall have the
voting rights provided by law and in the amended and restated certificate of
incorporation of the Corporation, as it may be further amended or restated from
time to time.
6. ELECTION OF DIRECTORS. (a) Subject to the terms hereof, as long as
at least 25% of the shares of Series A Preferred ever issued shall be
outstanding, the holders of the Series A Preferred shall have the right by the
vote of the holders of record of 65% of the outstanding shares of Series A
Preferred, voting as a single class in accordance with paragraph 6(d), to elect
one director, who shall be classified as a Class II director (the "SERIES A
PREFERRED DIRECTOR"), in addition to the directors elected by the holders of any
other capital stock of the Corporation.
(b) The initial term of the Series A Preferred Director shall commence
upon his election and shall expire at the annual meeting of stockholders of the
Corporation in 2001. Subject to paragraph 6(a), upon expiration of such initial
term or any succeeding term, the holders of Series A Preferred shall elect a
Series A Preferred Director to replace such director. Subject to paragraph 6(a),
upon the resignation of the Series A Preferred Director, the holders of the
Series A Preferred shall elect a Series A Preferred Director to replace the
resigning director. Subject to paragraph 6(d), the Series A Preferred Director
elected pursuant to the preceding sentence shall hold office for the remainder
of the term of the vacant director seat. Notwithstanding the foregoing, the
Series A Preferred Director shall serve until his successor shall be duly
elected and qualified or until his earlier removal, death or resignation. The
Series A Preferred Director may be removed by, and shall not be removed except
by, the vote of the holders of record of at least 65% of the then outstanding
shares of Series A Preferred, voting together as a single class. In the event a
vacancy shall occur, a replacement Series A Preferred
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Director shall be elected by the vote of the holders of record of at least 65%
of the shares of Series A Preferred, voting together as a single class.
(c) The Corporation shall at all times reserve and keep available a
sufficient number of vacant seats on its board of directors solely for the
purpose of enabling the holders of the Series A Preferred to elect one Series A
Preferred Director as provided in paragraph 6(a).
(d) On all matters on which the holders of Series A Preferred are
entitled to vote together as a single class pursuant to this paragraph 6 or
paragraph 7, each holder of Series A Preferred shall be entitled to one vote for
each share of Series A Preferred held by such holder. The rights of the holders
of Series A Preferred under this paragraph 6 may be exercised (i) at a meeting
of the holders of Series A Preferred or by written consent signed by the holders
entitled to vote therefor and delivered to the secretary or an assistant
secretary of the Corporation, (ii) at any meeting of stockholders of the
Corporation at which directors are elected or (iii) at a meeting of the holders
of Series A Preferred called for the purpose by the Corporation or by the
holders of record of 25% or more of the then outstanding shares of Series A
Preferred pursuant to requests delivered in writing to the secretary or an
assistant secretary of the Corporation. Unless the holders of 65% of the shares
of Series A Preferred then outstanding shall decide otherwise, any meeting of
the holders of Series A Preferred shall be conducted in accordance with the
bylaws of the Corporation applicable to meetings of stockholders. In the event
of a conflict or inconsistency between the bylaws and the certificate of
designation of which this Annex A is a part, the terms of the certificate of
designation shall prevail.
7. CERTAIN CORPORATE ACTIONS. As long as at least 40% of the shares of
Series A Preferred ever issued are outstanding, the Corporation shall not, and
shall not permit any of its affiliates:
(a) to authorize or issue any capital stock or any options, warrants or
other rights exchangeable or exercisable therefor, other than (i) shares of
Junior Stock that is not Redeemable Stock or Convertible Stock, or stock
options, warrants or other rights exchangeable or exercisable therefor, (ii) in
payment of dividends or distributions payable solely in shares of Junior Stock
that is not Redeemable Stock or Convertible Stock, or (iii) options issuable
pursuant to stock option plans approved by the Board of Directors and shares of
capital stock issuable upon exercise of such options;
(b) to amend, repeal, modify or supplement any provision of the
certificate of incorporation (including any certificate of designation forming a
part thereof) of the Corporation, the bylaws of the Corporation as in effect on
the date of issuance of the Series A Preferred or any other charter or bylaws
which may govern the Corporation or its subsidiaries, if such amendment, repeal,
modification or supplement would adversely affect the powers, preferences or
other rights of the Series A Preferred; or
(c) to declare or pay any dividends or distributions on any class of
common stock of the Corporation, except in accordance with paragraph 7(a)(ii);
12
<PAGE> 13
in each case without first obtaining the written consent of the holders of at
least 65% of the outstanding shares of Series A Preferred, voting as a single
class.
8. MISCELLANEOUS PROVISIONS.
(a) Except as otherwise expressly provided, whenever pursuant to this
Certificate of Designation notices or other communications are to be made,
delivered or otherwise given to holders of shares of the Series A Preferred
Stock, the notice or other communication shall be made in writing and shall be
by registered or certified first class mail, return receipt requested,
telecopier, courier service or personal delivery, addressed to the Persons shown
on the books of the Corporation as such holders at the addresses as they appear
in the books of the Corporation, as of a record date or dates determined in
accordance with the Corporation's Certificate of Incorporation and By-laws and
applicable law, as in effect from time to time. All such notices and
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five business days after being deposited in the U.S.
mail, postage prepaid, if mailed; and when receipt is acknowledged, if
telecopied.
(b) If any right, preference or limitation of the Series A Preferred
set forth herein (as amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public policy, all
other rights, preferences and limitations set forth herein (as so amended) which
can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation herein set forth shall be deemed dependant upon any
other such right, preference or limitation unless otherwise expressed herein.
13
<PAGE> 1
EXHIBIT 3.4
FORM OF CERTIFICATE OF AMENDMENT
OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VITAMINSHOPPE.COM, INC.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
VITAMINSHOPPE.COM, INC., a Delaware corporation (the "Corporation"), in
order to amend its Second Amended and Restated Certificate of Incorporation,
hereby certifies as follows:
FIRST: The name of the Corporation is: VitaminShoppe.com, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on May 19,
1999, which was amended and restated by an Amended and Restated
Certificate of Incorporation filed with the Secretary of State
of Delaware on July 9, 1999, which was amended and restated by a
Second Amended and Restated Certificate of Incorporation filed
with the Secretary of State of Delaware on July 23, 1999.
THIRD: The amendments to the Corporation's Second Amended and Restated
Certificate of Incorporation set forth herein were duly adopted
by the Corporation's Board of Directors and shareholders in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: The Corporation hereby amends its Second Amended and Restated
Certificate of Incorporation by deleting the second sentence of
Section Fifth thereof in its entirety and inserting in its place
the following:
"The number of directors in each class shall be the whole number
contained in the quotient arrived at by dividing the authorized
number of directors by three, and if a fraction is also
contained in such quotient, then if such fraction is one-third,
the extra director shall be a member of a class designated by
the Board of Directors and if the fraction is two thirds, each
extra director shall be a member of a different class, as
designated by the Board of Directors."
<PAGE> 2
FIFTH: The Corporation hereby amends its Second Amended and Restated
Certificate of Incorporation by deleting the Section Fifth(g)
thereof in its entirety and inserting in its place the
following:
"Intentionally Omitted."
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as the act and deed of the corporation, and affirms that the
statements made herein are true under the penalties of perjury, this day of
September, 1999.
VITAMINSHOPPE.COM, INC.
By:
------------------------------------
Name: Larry M. Segall
Title: Chief Financial Officer,
Treasurer and Secretary
2
<PAGE> 1
EXHIBIT 10.26
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 23rd day of September
1998 ("Effective Date"), by and between Excite, Inc., a Delaware corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Vitamin
Shoppe Industries Inc., a New York corporation, located at 4700 Westside
Avenue, North Bergen, New Jersey 07047 ("Client").
RECITALS
A. Excite maintains sites on the Internet at
http://www.excite.com (the "Excite Site"),
http://www.webcrawler.com (the "WebCrawler Site) and
http://www.excite.co.jp (the "Excite Japan Site"), and owns,
manages or is authorized to place advertising on affiliated
sites on the Internet worldwide (collectively, the "Excite
Network") which, among other things, allow its users to search
for and access content and other sites on the Internet. For
purposes of this Agreement, the parties hereby acknowledge
that the Excite Network does not include the site on the
Internet located at http://home.netscape.com and/or other URLs
or locations designated by Netscape Communications
Corporation.
B. Within the Excite Site and the WebCrawler Site, Excite
currently organizes certain content into topical channels (the
"Channels").
C. Client is engaged in the business of selling vitamins,
minerals, nutritional supplements, herbs, sports nutrition
formulae, homeopathic remedies and other health related
products ("Vitamins") at its site on the Internet located at
http://www.vitaminshoppe.com (the "Client Site").
D. Client wishes to promote its business to users of the Excite
Network through promotions and advertising in various portions
of the Excite Network.
Therefore, the parties agree as follows:
1. SPONSORSHIP ON THE WEBCRAWLER HEALTH CHANNEL
a) Client will be promoted as the preferred and dominant
reseller of Vitamins in the Health Channel on the
WebCrawler Site during the term of this Agreement. As
such, Excite may not display banner advertising and/or
promotional placements for any of Client's Competitors
that are, in the aggregate, of equal or greater
prominence and exposure than the aggregate of Client's
links, advertising banners and promotional placements
on the pages of the Health Channel on the WebCrawler
Site during the term of this Agreement. For purposes
of this Agreement, Client's Competitors means those
merchants identified in Exhibit D attached hereto.
Client may update
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
this list in writing not more than once every six (6)
months by adding other merchants whose primary
business is reselling Vitamins upon the mutual
agreement of Excite. Notwithstanding the foregoing,
Excite may display links to Excite's own products and
services anywhere in the Excite Network, and may
display links to Client's Competitors in results
pages of search services in response to user queries,
in general directories of Web sites, in classified
advertising listings and in results in the "Jango"
shopping search service throughout the Excite
Network. Client's preferred and dominant status as a
reseller of Vitamins will be extended on the terms
stated in this Section l(a) to its presence within
future departments within the WebCrawler Health
Channel, when launched, which may include, but are
not limited to, the alternative medicine and senior
living departments.
b) The parties will cooperate in good faith to identify
and implement appropriate promotional opportunities
for Client to be displayed in rotation on the home
page of the WebCrawler Health Channel during the term
of the Agreement.
c) A link to the Client Site (consistent with the format
used on similar links on the same page) will be
displayed in the Nutrition & Vitamins department of
the WebCrawler Health Channel during the term of the
Agreement. Excite estimates, but does not guarantee,
delivery of [*****] impressions of the Client
promotional placement described in this Section l(c)
during [*****] of the term of the Agreement and
[*****] such impressions during [*****] of the term
of the Agreement.
d) The parties will cooperate in good faith to identify
and implement other appropriate promotional
opportunities for Client on the WebCrawler Health
Channel including (if and when launched) but not
limited to, the alternative medicine and senior living
departments during the term of the Agreement. Excite
estimates, but does not guarantee, delivery of [*****]
impressions of the Client promotional placement
described in this Section 1(d) during [*****] of the
term of the Agreement and [*****] such impressions
during [*****] of the term of the Agreement.
e) Excite is in the process of developing a "Sponsorship
Strip" for the WebCrawler Health Channel consisting of
a row of graphic links to sponsors' Web sites. Excite
will display a graphic link to the Client Site on the
Sponsorship Strip (consistent with the format used on
similar links on the same strip) in the pages of the
WebCrawler Health Channel for the duration of the term
of the Agreement. Excite estimates, but does not
guarantee, delivery of [*****] impressions of the
Client promotional placement described in this Section
1(e) during [*****] of the term of the Agreement and
[*****] such impressions during [*****] of the term
of the Agreement.
f) Excite and Client acknowledge that neither party to
this Agreement possesses any right to control the
content or promotional programming displayed on any
third party
2
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
site. However, Excite will work with Client in good
faith to evaluate the display of any Excite
co-branded pages one level deep that directly link
from the WebCrawler Health Channel to determine
whether the non-banner display of modules related to
Client's Competitors on those pages materially and
adversely affect the aggregate value of Client's
promotional placements on the WebCrawler Health
Channel as described in this Agreement. Under such
circumstances, Excite will then exert commercially
reasonable efforts to modify such co-branded pages to
reduce such material and adverse effects.
2. SPONSORSHIP ON THE WEBCRAWLER SHOPPING CHANNEL
a) Client will be promoted as the preferred and dominant
reseller of Vitamins in the Shopping Channel on the
WebCrawler Site during the term of this Agreement. As
such, Excite may not display banner advertising and/or
promotional placements for any of Client's Competitors
that are, in the aggregate, of equal or greater
prominence and exposure than the aggregate of Client's
links, advertising banners and promotional placements
on the pages of the Shopping Channel or the WebCrawler
Site. Notwithstanding the foregoing, Excite may
display links to Excite's own products and services
anywhere in the Excite Network, and may display links
to Client's Competitors in results pages of search
services in response to user queries, in general
directories of Web sites, in classified advertising
listings and in results in the "Jango" shopping search
service throughout the Excite Network.
b) A link to the Client Site (consistent with the format
used on similar links on the same page) will be
displayed in rotation on the first page of the health
& fitness department of the WebCrawler Shopping
Channel during the term of the Agreement. Excite
estimates, but does not guarantee, delivery of [*****]
impressions of the Client promotional placement
described in this Section 2(b) during [*****] of the
term of the Agreement and [*****] such impressions
during [*****] of the term of the Agreement.
c) A link to the Client Site (consistent with the format
used on similar links on the same page) will be
displayed under the health foods category on the first
page of the health & fitness groceries department of
the WebCrawler Shopping Channel. Excite estimates, but
does not guarantee, delivery of [*****] impressions of
the Client promotional placement described in this
Section 2(c) during [*****] of the term of the
Agreement and [*****] such impressions during [*****]
of the term of the Agreement.
3
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
3. ADDITIONAL SPONSORSHIP
a) The parties will cooperate in good faith to identify
and implement selective sponsorship and promotional
opportunities for Client in the Nutrition & Vitamins
department of the Health Channel on the Excite Site.
Such opportunities may include sponsorship links,
sponsorship boxes and/or promotional boxes. The
parties hereby acknowledge that Client will be
sharing such opportunities in the Nutrition &
Vitamins department of the Excite Health Channel with
one other reseller of vitamins.
b) The parties will cooperate in good faith to identify
and implement selective sponsorship and promotional
opportunities for Client on the Excite Japan Site.
Such opportunities may include sponsorship links,
sponsorship boxes and/or promotional boxes. Excite
estimates, but does not guarantee, delivery of [*****]
impressions of the Client promotional placements
described in this Section 3(b) during [*****] of the
term of the Agreement and [*****] such impressions
during [*****] of the term of the Agreement.
c) Excite estimates, but does not guarantee, delivery of
a total of [*****] impressions of the Client
promotional placements described in Sections 3(a) and
3(b) during the term of this Agreement.
4. DeliverE MESSAGE PROMOTIONS
a) Excite and Client will cooperate in developing and
delivering MatchLogic DeliverE message campaigns
during the term of the Agreement as described in
Exhibit B. The MatchLogic DeliverE is an opt in email
service providing the opportunity to distribute
messages to highly targeted audiences on the Web via
email. All such message campaigns will comply with
Excite's then current privacy policy which is located
at http://www.excite.com/privacy_policy and is
subject to change from time to time. If the privacy
policy changes in a manner that has a material
adverse effect on the value, functionality or
implementation of the DeliverE message campaign for
Client, Excite will notify Client, which will then
have the option to cancel future DeliverE campaigns
and both parties will be relieved of their
obligations related to those canceled DeliverE
campaigns, if Client, in its sole but reasonable
discretion, finds such changed privacy policy
objectionable.
b) Excite estimates, but does not guarantee, delivery of
[*****] impressions of the email messages described in
this Section 4 during [*****] of the term of this
Agreement and [*****] impressions during [*****] of
the term of the Agreement.
4
<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
c) Excite and Client agree that Client may purchase
additional DeliverE messages during the term of this
Agreement at a rate of [*****] impressions ("CPM"),
subject to availability.
5. ADVERTISING ON THE EXCITE NETWORK
a) Excite will display Client's banner advertising on
[*****] in response to the keywords set forth in
Exhibit A as amended from time to time by Client, and
with additional keywords related to Vitamins, subject
to availability, during the term of the Agreement.
Excite estimates, but does not guarantee, the display
of [*****] impressions of the banner advertisements
described in this Section 5(a) during [*****] of the
term of the Agreement and [*****] such impressions
during [*****] of the term of the Agreement.
b) Excite will display Client's banner advertising in
[*****] during the term of the Agreement. Excite
estimates, but does not guarantee, the display of
[*****] impressions of the banner advertisements
described in this Section 5(b) during [*****] of the
term of the Agreement and [*****] such during [*****]
of the term of the Agreement.
c) Excite will display Client's banner advertising in
[*****] during the term of the Agreement. Excite
estimates, but does not guarantee, the display of
[*****] impressions of the banner advertisements
described in this Section 5(c) during [*****] of the
term of the Agreement and [*****] such impressions
during [*****] of the term of the Agreement.
d) Excite will display Client's banner advertising in
[*****] during the term of the Agreement. Excite
estimates, but does not guarantee, the display of
[*****] impressions of the banner advertisements
described in this Section 5(d) during [*****] of the
term of the Agreement and [*****] such impressions
during [*****] of the term of the Agreement.
6. LAUNCH DATE, RESPONSIBILITY FOR EXCITE NETWORK AND REPORTING
a) Client and Excite will use reasonable efforts to
implement the display of the promotional placements
and advertising described in the Agreement by October
1, 1998 (the "Scheduled Launch Date"). The parties
recognize that the Scheduled Launch Date can be met
only if Client provides final versions of all
graphics, text, keywords, banner advertising,
promotional placements, other promotional media and
valid URL links necessary to implement the
promotional placements and advertising described in
the Agreement (collectively, "Impression Material")
to Excite fourteen (14) days prior to Scheduled
Launch Date.
5
<PAGE> 6
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
b) In the event that Client fails to provide the
Impression Material to Excite fourteen (14) days in
advance of the Scheduled Launch Date, Excite may, at
its sole discretion (i) reschedule the Scheduled
Launch Date at the earliest practicable date
according to the availability of Excite's engineering
resources after delivery of the complete Impression
Material or (ii) commence delivery of Impressions
based on Impression Material in Excite's possession
at the time.
c) Client and Excite agree that the day the promotional
placements and advertising described in this
Agreement are first displayed on the Excite Network
will be the "Launch Date" for purposes of this
Agreement.
d) Excite will have sole responsibility for providing,
hosting and maintaining, at its expense, the Excite
Network. Excite will have sole control over the
"look and feel" of the Excite Network including, but
not limited to, the display, appearance and placement
of the parties' respective names and/or brands and
the promotional links, but such control shall not
permit Excite to modify Client's logos and trademarks
and it does not relieve Excite from its obligations
regarding Client's preferred and dominant sponsorship
status as set forth elsewhere in this Agreement.
e) Advertising banners will be served, tracked and
reported by Excite's subsidiary, MatchLogic, Inc.
("MatchLogic") as described in Exhibit B. MatchLogic
will also provide Client with feedback as to
comparisons of the performance of (i) the different
creative messages supplied by Client for the
advertising banners, (ii) the placements of those
advertising banners on the Excite Network as set
forth in this Agreement and (iii) through the
implementation of MatchLogic's Closed Loop
transaction reporting system on the Client Site, will
report on correlations between transaction activity
by users referred to the Client Site from the Excite
Network and the various promotional placements and
advertising displayed on the Excite Network, all as
described in Exhibit B. Promotional placements,
including text links, will be served, tracked and
reported by Excite. These promotional placements
will be tracked and reported by MatchLogic when this
implementation becomes available. Excite will
provide Client with monthly reports substantiating
the number of impressions of Client's advertising
banners and promotional placements displayed on the
Excite Network.
f) As soon as such third party auditing is available to
Excite, Excite will provide Client with monthly
reports, including certified reports by a third party
auditing firm substantiating the number of
impressions of Client's advertising banners and
promotional placements displayed on the Excite
Network. When available, such third party audit
reports will be at Excite's cost and expense.
6
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
7. FEES; REVENUE SHARE
a) Client will pay Excite sponsorship and advertising
fees of [*****] for the first twelve (12) month period
following the Launch Date ([*****]). These fees will
be paid in twelve (12) equal monthly installments of
[*****]. The first monthly payment for [*****] will be
due one month following the Launch Date. Subsequent
installments will be due on a monthly basis
thereafter.
b) Client will pay Excite sponsorship and advertising
fees of [*****] for the twelve (12) month period
following the first anniversary of the Launch Date
([*****]). These fees will be paid in equal monthly
installments of [*****]. The first monthly payment for
[*****] will be due one month following the first
anniversary of the Launch Date. Subsequent
installments will be due on a monthly basis
thereafter.
c) Separate and apart from the sponsorship and
advertising fees, Client will pay Excite MatchLogic
DeliverE fees of [*****] for [*****]. These fees will
be paid in equal monthly installments of [*****]. The
first monthly payment for [*****] will be due one
month following the Launch Date. Subsequent
installments will be due on a monthly basis.
d) Separate and apart from the sponsorship and
advertising fees, Client will pay Excite MatchLogic
DeliverE fees of [*****] for [*****]. These fees will
be paid in equal monthly installments of [*****]. The
first monthly payment for [*****] will be due one
month following the first anniversary of the Launch
Date. Subsequent installments will be due on a
monthly basis.
e) Separate and apart from the sponsorship and
advertising fees and the MatchLogic DeliverE fees,
Client will pay Excite MatchLogic banner and link
serving fees of [*****] for [*****]. These fees will
be paid in equal monthly installments of [*****]. The
first monthly payment for [*****] will be due one
month following the Launch Date. Subsequent
installments will be due on a monthly basis.
f) Separate and apart from the sponsorship and
advertising fees and the MatchLogic DeliverE fees,
Client will pay Excite MatchLogic banner and link
serving fees of [*****] for [*****]. These fees will
be paid in equal monthly installments of [*****]
7
<PAGE> 8
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
[*****]. The first monthly payment for [*****] will
be due one month following the first anniversary of
the Launch Date. Subsequent installments will be due
on a monthly basis.
g) Separate and apart from the sponsorship and
advertising fees, the MatchLogic DeliverE fees and the
MatchLogic banner and link serving fees, Client will
pay Excite [*****] recognized by Client on
transactions conducted by users referred to the Client
Site from the Excite Network during [*****]. Separate
and apart from the sponsorship and advertising fees,
the MatchLogic DeliverE fees and the MatchLogic banner
and link serving fees, Client will pay Excite [*****]
recognized by Client on transactions conducted by
users referred to the Client Site from the Excite
Network during [*****] of the term of the Agreement.
For purposes of this Agreement "Net Revenue" means
gross revenue recognized by Client on transactions
conducted by users referred to the Client Site from
the Excite Network minus sales tax, sales returns and
allowances. Client will pay Excite these revenue
share payments within thirty (30) days after the close
of the financial quarter in which Client recognizes
the Net Revenue on these transactions.
h) The fees and revenue share payments are net of any
agency commissions to be paid by Client.
i) Client will maintain accurate records with respect to
the calculation of all payments due under this
Agreement. Once per year, the parties will review
these records to verify the accuracy and appropriate
accounting of all payments made pursuant to the
Agreement. In addition, Excite may, upon no less
than thirty (30) days prior written notice to Client,
cause an independent Certified Public Accountant to
inspect the records of Client reasonably related to
the calculation of such payments during Client's
normal business hours. The fees charged by such
Certified Public Accountant in connection with the
inspection will be paid by Excite unless the payments
made to Excite are determined to have been less than
ninety-five percent (95%) of the payments actually
owed to Excite, in which case Client will be
responsible for the payment of the reasonable fees
for such inspection.
8. PUBLICITY
Unless required by law, neither party will make any public
statement, press release or other announcement relating to the
terms of or existence of this Agreement without the prior
written approval of the other. Notwithstanding the foregoing,
either party may issue an initial press release regarding the
relationship between Excite and Client, the timing and wording
of which will be mutually agreed upon, and nothing herein
shall preclude Client from promoting the Client Site.
8
<PAGE> 9
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
9. TERM AND TERMINATION
a) Unless terminated earlier in accordance with the
specific terms of this Agreement, the term of this
Agreement will begin on the Launch Date and will not
end until Excite displays a total of [*****]
impressions of the Client advertising banners and
promotional placements on the Excite Network as
described in this Agreement and pushes [*****]
emails using the email vehicles specified in Exhibit
B. Regardless of Excite's actual delivery of
impressions, the term of this Agreement will not be
shorter than [*****] after the Launch Date,
unless the Agreement is terminated earlier in
accordance with the specific terms of this Agreement.
b) Either party may terminate this Agreement if the
other party materially breaches its obligations
hereunder and such breach remains uncured for thirty
(30) days following the notice to the breaching party
of the breach.
c) All undisputed payments that have accrued prior to
the termination or expiration of this Agreement will
be payable in full within thirty (30) days thereof.
d) The provisions of Section 12 (Confidentiality and
User Data), Section 13 (Indemnity), Section 14
(Limitation of Liability) and Section 15 (Dispute
Resolution) will survive any termination or
expiration of this Agreement.
e) Excite guarantees to deliver the annual impressions
totals set forth in Exhibit C hereto. If Excite
fails to deliver the indicated number of impressions
required during any annual period, Client may suspend
(but not eliminate) its payments specified in Section
7 for a maximum of sixty (60) days (the "Make-Good
Period) during which Excite will deliver the
shortfall of such impressions. The parties agree to
cooperate in good faith to evaluate the quality and
performance of the placements used to deliver the
impressions during the Make-Good Period. Until such
shortfall is delivered, no impressions will be deemed
delivered for the next annual period. If Excite has
not achieved the required annual impression delivery
by the end of the Make-Good Period, Client may then
terminate this Agreement upon written notice within
ten (10) days following the end of the Make-Good
Period. Client's termination of the Agreement in
accordance with the previous sentence will not
relieve Excite of its obligation to deliver any
previously paid for but undelivered impressions. If
Excite achieves the annual impression delivery goal
at any time during the Make-Good Period, the term of
this Agreement will continue and Client shall
immediately resume payment of the sponsorship and
advertising fees specified in Section 7.
9
<PAGE> 10
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
10. TRADEMARK OWNERSHIP AND LICENSE
a) Client will retain all right, title and interest in
and to its trademarks, service marks and trade names
worldwide, subject to the limited license granted to
Excite hereunder.
b) Excite will retain all right, title and interest in
and to its trademarks, service marks and trade names
worldwide, subject to the limited license granted to
Client hereunder.
c) Each party hereby grants to the other a
non-exclusive, limited license to use its trademarks,
service marks or trade names only as specifically
described in this Agreement. All such use shall be
in accordance with each party's reasonable policies
regarding advertising and trademark usage as
established from time to time. Client agrees to
obtain Excite's written consent prior to use of
Excite's logo and trademarks.
d) Upon the expiration or termination of this Agreement,
each party will cease using the trademarks, service
marks and/or trade names of the other except:
i) As the parties may agree in writing; or
ii) To the extent permitted by applicable law.
11. OWNERSHIP
a) Client will retain all right, title and interest in
and to the Client Site worldwide including all
intellectual property rights, including but not
limited to copyright, trademark, trade secrets,
patents, moral rights or any derivative rights
thereof. Any intellectual property rights, including
but not limited to copyright, trademark, trade
secrets, patents, moral rights or any derivative
rights thereof, created by changes made by Excite to
Impression Materials are the sole property of Client.
b) Excite will retain all right, title, and interest in
and to the Excite Network worldwide including, but
not limited to, ownership of all copyrights, look and
feel and other intellectual property rights therein.
12. CONFIDENTIALITY AND USER DATA
a) For the purposes of this Agreement, "Confidential
Information" means information about the disclosing
party's (or its suppliers') business or activities
that is proprietary and confidential, which shall
include all business, financial, technical and other
information of a party marked or designated by such
party as "confidential or
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
"proprietary" or information which, by the nature of
the circumstances surrounding the disclosure, ought
in good faith to be treated as confidential.
b) Confidential Information will not include information
that (i) is in or enters the public domain without
breach of this Agreement, (ii) the receiving party
lawfully receives from a third party without
restriction on disclosure and without breach of a
nondisclosure obligation, (iii) the receiving party
knew prior to receiving such information from the
disclosing party or (iv) the receiving party develops
independent of any information originating from the
disclosing party.
c) Each party agrees (i) that it will not disclose to
any third party or use any Confidential Information
disclosed to it by the other except as expressly
permitted in this Agreement and (ii) that it will
take all reasonable measures to maintain the
confidentiality of all Confidential Information of
the other party in its possession or control, which
will in no event be less than the measures it uses to
maintain the confidentiality of its own information
of similar importance.
d) The usage reports provided by Excite to Client
hereunder will be deemed to be the Confidential
Information of Excite.
e) The terms and conditions of this Agreement will be
deemed to be Confidential Information and will not be
disclosed without the written consent of the other
party.
f) For the purposes of this Agreement, "User Data" means
all information submitted by users referred to the
Client Site from the Excite Network during the term
of the Agreement. Such User Data includes, but is
not limited to, the number of purchase requests
requested by such users, the number of purchase
requests completed, the number of purchases completed
and the dollar values of completed purchases The
parties acknowledge that any individual user of the
Internet could be a user of Excite, WebCrawler and/or
Client through activities unrelated to this Agreement
and that user data gathered independent of this
Agreement, even from individuals who are users of
both parties' services, will not be deemed to be
"User Data" for the purposes of this Agreement.
g) User Data will be owned by Client, and subject to the
limitations contained herein, Client grants to Excite
a non-exclusive license to use the User Data for the
purposes of this Agreement.
h) In order to facilitate optimization of Client's
sponsorship program, Client will make good faith
efforts to develop tracking and reporting
capabilities to correlate information regarding
transaction activity by users referred to the Client
Site from the Excite Network to the various
promotional placements and advertising banners
displayed on the Excite Network. Client will provide
to Excite all User Data and
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
user transaction reports collected by Client within
thirty (30) days following the end of each calendar
month during the term of this Agreement in a
mutually-determined electronic format.
i) Client will not use User Data to specifically target
any Excite and/or WebCrawler users, as distinct from
all users of the Client Site, for solicitations
(except as specifically provided in this Agreement),
either individually or in the aggregate, during the
term of this Agreement and for a period of twelve
(12) months following the expiration or termination
of this Agreement.
j) Neither party will sell, disclose, transfer or rent
any User Data which could reasonably be used to
identify a specific named individual ("Individual
Data") to any third party nor will either party use
Individual Data on behalf of any third party without
the express permission of the individual user. Where
user permission for dissemination of Individual Data
to third parties has been obtained, each party will
use commercially reasonable efforts to require the
third party recipients of Individual Data to provide
an "unsubscribe" feature in any email communications
generated by, or on behalf of, the third party
recipients of Individual Data.
k) Notwithstanding the foregoing, each party may
disclose Confidential Information or User Data (i) to
the extent required by a court of competent
jurisdiction or other governmental authority or
otherwise as required by law or (ii) on a
"need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants,
banks and other financing sources and their advisors.
13. INDEMNITY
a) Client will indemnify, defend and hold harmless
Excite, its affiliates, officers, directors,
employees, consultants and agents from any and all
third party claims, liability, damages and/or costs
(including, but not limited to, attorneys fees)
arising from:
i) Its breach of any representation or covenant
in this Agreement; or
ii) Any claim that Client's Impression Material
infringes or violates any third party's
copyright, patent, trade secret, trademark,
right of publicity or right of privacy or
contain any defamatory content; or
iii) Any claim that Client's Impression Material
and/or its display on the Excite Network
violates any federal, state or local laws,
regulations or statutes, including but not
limited to restrictions on the sale,
advertisement or promotion of vitamins,
nutritional supplements, drugs or other
health-related products; or
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
iv) Any claim of personal injury or product
liability with respect to products or
services sold, advertised or otherwise
offered to consumers or third parties through
display of Client's Impression Material on
the Excite Network or links to the Client
Site; or
v) Any claim arising from content displayed on
the Client Site.
Excite will promptly notify Client of any and all
such claims and will reasonably cooperate with Client
with the defense and/or settlement thereof; provided
that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Excite in any way
and such obligation, liability, prejudice or impact
can reasonably be expected to be material, then such
settlement shall require Excite's written consent
(not to be unreasonably withheld or delayed) and
Excite may have its own counsel in attendance at all
proceedings and substantive negotiations relating to
such claim.
b) Excite will indemnify, defend and hold harmless
Client, its affiliates, officers, directors,
employees, consultants and agents from any and all
third party claims, liability, damages and/or costs
(including, but not limited to, attorneys fees)
arising from:
i) Its breach of any representation or covenant
in this Agreement; or
ii) Any claim arising from the Excite Network
other than content or services provided by
Client.
Client will promptly notify Excite of any and all
such claims and will reasonably cooperate with Excite
with the defense and/or settlement thereof; provided
that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Client in any way
and such obligation, liability, prejudice or impact
can reasonably be expected to be material, then such
settlement shall require Client's written consent
(not to be unreasonably withheld or delayed) and
Client may have its own counsel in attendance at all
proceedings and substantive negotiations relating to
such claim.
c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT
MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ANY AND
ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
14. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 13(a) AND 13(b), IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT,
TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
EXCEPT UNDER SECTIONS 13(a) AND 13(b), THE LIABILITY OF EITHER
PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN
CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND
WILL NOT EXCEED, THE AMOUNTS TO BE PAID BY CLIENT TO EXCITE
HEREUNDER.
15. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the
parties' obligations regarding trademarks, service
marks or trade names, confidentiality and/or User
Data would result in irreparable injury for which
there is no adequate remedy at law. Therefore, in
the event of any breach or threatened breach of a
party's obligations regarding trademarks, service
marks or trade names or confidentiality, the
aggrieved party will be entitled to seek equitable
relief in addition to its other available legal
remedies in a court of competent jurisdiction.
b) In the event of disputes between the parties arising
from or concerning in any manner the subject matter
of this Agreement, other than disputes arising from
or concerning trademarks, service marks or trade
names, confidentiality and/or User Data, the parties
will first attempt to resolve the dispute(s) through
good faith negotiation. In the event that the
dispute(s) cannot be resolved through good faith
negotiation, the parties will refer the dispute(s) to
a mutually acceptable mediator.
c) In the event that disputes between the parties
arising from or concerning in any manner the subject
matter of this Agreement, other than disputes arising
from or concerning trademarks, service marks or trade
names, confidentiality and/or User Data, cannot be
resolved through good faith negotiation and
mediation, the parties will refer the dispute(s) to
the American Arbitration Association for resolution
through binding arbitration by a single arbitrator
pursuant to the American Arbitration Association's
rules applicable to commercial disputes.
16. GENERAL
a) Assignment. Neither party may assign this Agreement,
in whole or in part, without the other party's
written consent (which will not be unreasonably
withheld or delayed), except that no such consent
will be required in connection with (i) a merger,
reorganization or sale of all, or substantially all,
of such party's assets or its
14
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
Internet business assets (ii) either party's
assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned
subsidiary or affiliate or joint venture in which the
assigning party holds an interest. Any attempt to
assign this Agreement other than as permitted above
will be null and void.
b) Governing Law. This Agreement will be governed by
and construed in accordance with the laws of the
State of California, notwithstanding the actual state
or country of residence or incorporation of Excite or
Client.
c) Notice. Any notice under this Agreement will be in
writing and delivered by personal delivery, express
courier, confirmed facsimile, confirmed email or
certified or registered mail, return receipt
requested, and will be deemed given upon personal
delivery, one (1) day after deposit with express
courier, upon confirmation of receipt of facsimile or
email or five (5) days after deposit in the mail.
Notices will be sent to a party at its address set
forth in this Agreement or such other address as that
party may specify in writing pursuant to this
Section.
d) No Agency. The parties are independent contractors
and will have no power or authority to assume or
create any obligation or responsibility on behalf of
each other. This Agreement will not be construed to
create or imply any partnership, agency or joint
venture.
e) Force Majeure. Any delay in or failure of
performance by either party under this Agreement will
not be considered a breach of this Agreement and will
be excused to the extent caused by any occurrence
beyond the reasonable control of such party
including, but not limited to, acts of God, power
outages and governmental restrictions.
f) Severability. In the event that any of the
provisions of this Agreement are held to be
unenforceable by a court or arbitrator, the remaining
portions of the Agreement will remain in full force
and effect.
g) Entire Agreement. This Agreement is the complete and
exclusive agreement between the parties with respect
to the subject matter hereof, superseding any prior
agreements and communications (both written and oral)
regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a
written document executed by both parties.
h) Counterparts. This Agreement may be executed in
counterparts, each of which will serve to evidence
the parties' binding agreement.
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
<TABLE>
<CAPTION>
VITAMIN SHOPPE INDUSTRIES INC. EXCITE, INC.
<S> <C>
By: [SIG] By: [SIG]
-------------------------------- --------------------------------
Name: J. Howard Name: Robert C. Hood
------------------------------ ------------------------------
Title: President/CEO Title: EVP/CFO
----------------------------- -----------------------------
Date: 9/23/98 Date: 9/29/98
------------------------------ ------------------------------
4700 Westside Avenue 555 Broadway
North Bergen, New Jersey 07047 Redwood City, California 94063
650.568.6000 (voice)
650.568.6030 (fax)
</TABLE>
16
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT A
<TABLE>
<CAPTION>
KEYWORDS
<S> <C> <C> <C> <C>
acidophilus cholesterol greentree obesity medicine
acids chondroitin healing omega aromatherapy
adhd chromium picolinate health organic bodybuilding
aids co q 10 herb pinnacle diet
alternative medicine coenzyme q10 herb tea pms fitness
amino acids complimentary herbal pregnant herbs
andrew weil energy herbal extracts pregnancy health
andro complex enzymmatic herbal tea prenatal homeopathic
androstat therapy herbal teas prevention multivitamins
Androstat 100 essential oils herbs protein nutrition
androstat 6 ester hiv protein powders stress
Androstene exercise holistic ripped vitamins
androstenedione extract holistic healing rna vitamin
antioxidant fat holistic medicine saint john's wort wellness
antioxidants fatty acids homeopathic saw palmetto weightloss
anxiety fen phen homeopathic schiff
aphrodisiac phen fen natrol sex
aphrodisiacs fiber nature sexual enhancer
aroma fitness natural steroids
aromatherapy garry null natural food solaray
atkins ginkgo supplements source natural
bodybuilder ginkgo biloba natural healing sports nutrition
bodybuilders ginseng natural medicine st. johns wort
bodybuilding glucosamine natures way st john's wort
calcium green tea nature's way stress
cancer green tree nutrition sulfate
cats claw greentea nutritional alternative
</TABLE>
17
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
<TABLE>
<S> <C> <C>
medicine remedies
coq10 homeopathy supplement
country life iron supplements
creatine kal tablets
creatine kava teas
monohydrate
depression kava kava twinlab
diet lactose vegetarian
dietary magnesium vegetarians
dione melatonin viagra
disease mental alertness vitamin
dna MetRx vitamins
dr. andrew weil mother nature vitasave
dr. atkins mother's nature weight lifting
dr. weil msm weight loss
dr. wiel msm sulphur weightlifting
eas multivitamins weightloss
echinacea natrol wellness
yohimbe
</TABLE>
18
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT B
MATCHLOGIC SERVICES
AD MANAGEMENT, MEASUREMENT & OPTIMIZATION
Ad Management, Measurement and Optimization refers to the suite of services and
technologies to be used to measure and evaluate variables contributing to the
performance of client marketing messages within the Excite Network.
Descriptions of the services and technologies to be leveraged throughout the
optimization process are highlighted below.
CENTRALIZED AD SERVING
Through its proprietary centralized ad serving infrastructure, MatchLogic will
facilitate the trafficking, delivery, tracking and reporting of Client's
banners throughout the Excite Network. During the ad management process,
MatchLogic will employ TrueCount(sm) cache counting techniques as the
underlying measurement technology for the reporting of client campaign
performance data. Basic campaign performance data including primary
impressions, clicks, click %, cache impressions and total impressions will be
supplied to Client daily through an online interface.
TRUEFFECT(sm)
TruEffect(sm) refers to the process of establishing, tracking and communicating
the relationship between locations from which users have interacted with
Client's marketing messages and the activities they engaged in at the Client
Site as a result of these interactions. TruEffect(sm) measurement will allow
Client to directly relate user activity within the Client Site to marketing
messages within the Excite Network. As a result of these measurements, Client
will have the ability to optimize campaigns in order to drive actual user
activities or transactions. Client will be able to identify the number of
unique visitors coming to the Client Site or promotional areas, from which
message and area they originated, and the number of measurable transactions
these visitors performed. Additionally, measurements of reach and frequency
will accompany this analysis.
Upon successful implementation of TruEffect(sm), performance reporting will be
available to Client on a daily basis through an online interface.
LANDSCAPE(sm)
LandscapE(sm) demographic profile reports will afford Client an effective means
of understanding the visitor segments exposed to Client's messages or
interacting with Client sponsored content areas within the Excite Network. All
of the information contained within the demographic profiles is derived from
consumers who have been both exposed to an advertising campaign and are also
within MatchLogic's Digital 1:1(sm) database (MatchLogic's proprietary consumer
database). When a subset of unique visitors taken from all visitors exposed to
a Client's marketing message or content area are matched against the Digital
1:1(sm) database, demographic profiles are derived. The matched records create
a sample of visitors that are used to demographically represent and
statistically profile
19
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
each visitor segment. These profiles will allow Client to compare its
understanding of its customers offline to its customers online as a basis for
more effective segmenting and future targeting.
LandscapE(sm) reports are generated on a campaign basis and will include
measurements of campaign reach by Age, Gender, Age/Gender, Household Income,
and Household Income/Age. These reports will be made available to Client once
statistically significant profiles have been established.
TRUESELECT(sm)
TrueSelect(sm) is MatchLogic's centralized advertising targeting system.
TrueSelect(sm) enables MatchLogic to project demographics of users across the
Internet based on our Digital 1:1 database, user traffic and user search
patterns. The first implementation of this technology will be Virtual Keywords
slated for release in 4Q98. Virtual Keywords will allow MatchLogic to actively
target a user on the Excite Network based on the user's input of search terms
at a previous point in time. TrueSelect(sm) will be able to track and target
users by Virtual Keywords on both an inter-day and intra-day basis. Following
Virtual Keywords, TrueSelect(sm) capabilities will enable marketers to actively
target specific users based on predetermined demographic or lifestyle
information in real time.
Upon release of this technology, delivery of TrueSelect(sm) targeted messaging
for Client is highly dependent on a number of qualifying criteria. A critical
qualifier for the implementation of TrueSelect(sm) will be the establishment of
a significant behavioral profile target for Client's customers as highlighted
within the LandscapE(sm) services description above.
DELIVERE(sm)
DeliverE(sm), MatchLogic's email marketing service will be leveraged to deliver
email marketing campaigns on behalf of Vitamin Shoppe. The DeliverE(sm) team
will consult with Client to evaluate current business objectives (branding,
acquisition, retention, reactivation, etc.) and develop e-mail strategies that
meet these specific objectives. Once appropriate strategies have been
established, MatchLogic will target both MatchLogic and Excite registered users
for the facilitation of the Client's program. Performance results for these
campaigns will be provided to Client and assist in the development of
strategies for subsequent e-mail campaigns.
Projected delivery schedules for DeliverE(sm) services over the [*****]-year
term of this agreement are as follows.
20
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
are matched against the Digital 1:1(sm) database, demographic profiles are
derived. The matched records create a sample of visitors that are used to
demographically represent and statistically profile each visitor segment. These
profiles will allow Client to compare its understanding of its customers
offline to its customers online as a basis for more effective segmenting and
future targeting.
LandscapE(sm) reports are generated on a campaign basis and will include
measurements of campaign reach by Age, Gender, Age/Gender, Household Income,
and Household Income/Age. These reports will be made available to Client once
statistically significant profiles have been established.
TRUESELECT(sm)
TrueSelect(sm) is MatchLogic' centralized advertising targeting system.
TrueSelect(sm) enables MatchLogic to project demographics of users across the
Internet based on our Digital 1:1 database, user traffic and user search
patterns. The first implementation of this technology will be Virtual Keywords
stated for release in 4Q98. Virtual Keywords will allow MatchLogic to actively
target a user on the Excite Network based on the user's input of search terms
at a previous point in time. TrueSelect(sm) will be able to track and target
users by Virtual Keywords on both an inter-day and intra-day basis. Following
Virtual Keywords, TrueSelect(sm) capabilities will enable marketers to actively
target specific users based on predetermined demographic or lifestyle
information in real time.
Upon release of this technology, delivery of TrueSelect(sm) targeted messaging
for Client is highly dependent on a number of qualifying criteria. A critical
qualifier for the implementation of TrueSelect(sm) will be the establishment of
a significant behavioral profile target for Client's customers as highlighted
within the LandscapE(sm) services description above.
DELIVERE(sm)
DeliverE(sm), MatchLogic's email marketing service will be leveraged to deliver
email marketing campaigns on behalf of Vitamin Shoppe. The DeliverE(sm) team
will consult with Client to evaluate current business objectives (branding,
acquisition, retention, reactivation, etc.) and develop e-mail strategies that
meet these specific objectives. Once appropriate strategies have been
established, MatchLogic will target both MatchLogic and Excite registered users
for the facilitation of the Client's program. Performance results for these
campaigns will be provided to Client and assist in the development of
strategies for subsequent e-mail campaigns.
Projected delivery schedules for DeliverE(sm) services over the [*****]-year
term of this agreement are as follows.
<TABLE>
<CAPTION>
[*****]
TESTS INCLUSIONS VOLUME
- ----------------------------------------------------------------------------
<S> <C> <C>
12 Exclusive Offer 2 e-mail offer tests [*****]
Tests
Push against best offer [*****]
Target model creation [*****]
Model role-out [*****]
- ----------------------------------------------------------------------------
7 Prospecting Co-op Offer role-out to co-op [*****]
Tests file
- ----------------------------------------------------------------------------
[*****]
- ----------------------------------------------------------------------------
<CAPTION>
[*****]
TESTS INCLUSIONS VOLUME
- ----------------------------------------------------------------------------
<S> <C> <C>
12 Exclusive Offer 2 e-mail offer tests [*****]
Tests
Push against best offer [*****]
Target model creation [*****]
Model role-out [*****]
- ----------------------------------------------------------------------------
13 Prospecting Co-op Offer role-out to co-op [*****]
Tests file
- ----------------------------------------------------------------------------
[*****]
- ----------------------------------------------------------------------------
</TABLE>
Above listed DeliverE(sm) services are to be allocated to meet Client's needs
and overall production schedule.
21
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT C
ANNUAL IMPRESSION DELIVERY SCHEDULE
Vitamin Shoppe Industries
WC/Excite Placement Details *LINE ITEM PLACEMENTS AND IMPRESSIONS ARE
ESTIMATES ONLY AN WILL CHANGE OVER TIME
EXHIBIT C
<TABLE>
<CAPTION>
Products Description Item # [*****] Estimated [*****] Estimated TOTALS
in IMPS IMPS
Contract
<S> <C> <C> <C> <C> <C>
Excite Integrated Links
Excite Japan Sponsorship/Promotion Positions #3b [*****] [*****] [*****]
Excite Nutrition & Vitamins Sponsorship/Promotion Positions #3c [*****] [*****] [*****]
0
0
0
- ----------------------------------------------------------------------------------------------------------------------------
Excite Links, subtotal [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
Excite Banners
NONE
- ----------------------------------------------------------------------------------------------------------------------------
Excite Banner subtotal [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
Excite Links/Banner subtotal [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
WebCrawler Integrated Links
WC Health Home Page Home Page Rotation #1b [*****] [*****] [*****]
WC Nutrition & Vitamin Sub Channel Link #1c [*****] [*****] [*****]
WC Health Channel Promotional Opportunities, [*****] [*****] [*****]
i.e., alternative medicine #1d
WC Health Channel Sponsorship Strip #1e [*****] [*****] [*****]
WC Shopping Channel Under Health & Fitness Sub
Channel #2b [*****] [*****] [*****]
WC Shopping Channel Under Health & Fitness/
Groceries Sub Channel #2c [*****] [*****] [*****]
0
0
0
- ----------------------------------------------------------------------------------------------------------------------------
WebCrawler Links Subtotal [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
WebCrawler Banners
WC Keywords Search #5a [*****] [*****] [*****]
WC Health Channel Channel Rotation #5b [*****] [*****] [*****]
WC Health Channel Mutually determined departments #5c [*****] [*****] [*****]
WC General Rotation General Rotation across WC site #5d [*****] [*****] [*****]
0
- ----------------------------------------------------------------------------------------------------------------------------
WebCrawler Banner subtotal [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
WebCrawler Links/Banner subtotal [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
0
- ----------------------------------------------------------------------------------------------------------------------------
0
- -----------------------------------------------------------------------------------------------------------------------------------
0
- -----------------------------------------------------------------------------------------------------------------------------------
S&P Links Total [*****] [*****] [*****]
S&P Banner Total [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
Grand Total [*****] [*****] [*****]
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Vitamin Shoppe E Sponsorship Agr/bja
Version 980918
22
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
During the term of the Agreement, the parties agree to cooperate in good faith
and use commercially reasonable efforts to evaluate the quality and performance
of the placements used to deliver the impressions described in the Agreement
and to modify such placements in an effort to reach the objectives set forth in
this Agreement.
23
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT D
CLIENT'S COMPETITORS
Acta Pharmacal Nutritional Warehouse
All Vitamins Phillips Nutritional
Austin Nutritional Puritans Pride
BenSalem Naturals Reach4life
B-Vital Realtime
Chayas Chemical-Free S. Shiraishi Office, Inc.
Cherokee Naturals, Inc Shop Vitamins
Club Vitamin The Herb Shop
GNC The Herb Shoppe
Good Life Nutrition The Nickel and Thyme Shoppe
Green Tree The Vitamin Source
Green Turtle Bay Vitamin The Vitamin Tree
Greenshack Direct US Health Distributors, Inc
Health and Vitamin Express Vita Save
Health Depot VitaCare
Infinity 2 VitaFit
Jamieson Natural Sources Vital Life
Karemore Vitamin Company Vitamin Depot
Kava Systems Vitamin Express
L & H Vitamins Vitamin House
Life Plus Vitamins Vitamin House
MineralNet Vitamin Shack
Mother Nature's General Store Vitamin Warehouse, Inc.
Mountain Naturals Vitamins Vitamins for Life
My Vitamins Vitamins Online
Nature Sunshine Vitamins.com
Nature Sunshine Herb and Vitamins Vitanet
Noah's Ark Vitawise
Nutritional Direct Wholesale Vitamins
24
<PAGE> 1
EXHIBIT 10.27
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
Page 1 of Order 18394
YAHOO! Advertising Insertion Order
http://www.yahoo.com
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
ORDER # 18394 SALES CONTACT Chris Williams
REVISION 0 PHONE 212-508-0244
TYPE EMAIL [email protected]
DATE 9/28/98 FAX 212-750-5817
ADVERTISER THE VITAMIN SHOPPE
CAMPAIGN
URL www.vitaminshoppe.com AGENCY
ADDRESS 4700 Westside Ave ADDRESS
North Bergen, NJ 07047
CONTACT Miriam Neshewat CONTACT
PHONE 201.866.7711 FAX 201.583.1834 PHONE FAX
EMAIL [email protected] EMAIL
START DATE: [*****] END DATE: [*****] CONTRACT LENGTH: [*****] days BILL TO: Advertiser
- ------------------------------------------------------------------------------------------------------------------
POSITION TOTAL PAGE VIEWS TOTAL AMOUNT
---------------- ------------
MAIN SITE COST: [*****] [*****]
CATEGORIES [*****] [*****]
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
[*****] [*****] /directory/Health*
- ------------------------------------------------------------------------------------------------------------------
Other Instructions: TERMS: Net 30 Days
BILLING: Monthly
</TABLE>
MATERIALS: Banners; Banner requirements are posted at
http://www.yahoo.com/docs/advertising.
DELIVERY: ALL MATERIALS AND ANY CHANGES MUST BE DELIVERED AT LEAST 4 BUSINESS
DAYS IN ADVANCE TO THE EMAIL ADDRESS SPECIFIED FOR YOUR REGION AT:
HTTP://WWW.YAHOO.COM/DOCS/ADVERTISING/SUBMIT.HTML. A Yahoo! insertion order
number and flight dates must be referenced in all correspondence. Yahoo! will
not issue any credit or make good due to late or incorrectly submitted banners
and/or late or incomplete information.
TERMS AND CONDITIONS: This insertion order is subject to the terms and
conditions ("Standard Terms") attached hereto as Exhibit A of this Insertion
Order, and such Standard Terms are made a part of this insertion order by
reference. The signatory of this Insertion Order represents that he has read and
agrees to such Standard Terms.
This insertion order is valid for three (3) business days from the date of this
order. This agreement is non-cancelable.
AUTHORIZED BY: /s/ Larry M. Segall PHONE: 201-866-7711 DATE: 10/6/98
------------------- ---------- ---------------
PRODUCTION CONTACT: [SIGNATORY] PHONE: EMAIL:
---------------- ---------- ----------------
Please return to Yahoo Sales Operations Dept. Yahoo! Inc.
Fax # (408) 616-3751 3400 Central Expressway,
Suite 201
Santa Clara, CA 95051
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
Page 2 of Order 18394
YAHOO! Advertising Insertion Order
http://www.yahoo.com
<TABLE>
<CAPTION>
POSITION TOTAL PAGE VIEWS TOTAL AMOUNT
- -------- ---------------- ------------
<S> <C> <C>
[*****] [*****] /directory/Health*
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
[*****] [*****] /site/main
NETWORK COST: [*****] [*****]
SPACE GROUPS
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
[*****] [*****] run_network [*****] [*****]
NEWS COST: [*****] [*****]
CATEGORIES [*****] [*****]
[*****] [*****] /health
[*****] [*****] /health
[*****] [*****] /health
ORDER TOTAL [*****] [*****]
---------------------------
FREQUENCY DISCOUNT [*****] [*****]
SUBTOTAL [*****]
-------------
NET COST: [*****]
=============
</TABLE>
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
STANDARD TERMS AND CONDITIONS FOR YAHOO! ADVERTISING
The following terms and conditions (the "Standard Terms") shall be deemed to be
incorporated into the attached insertion order (the "Insertion Order"):
1. Terms of Payment. Advertiser must submit completed credit application to
determine terms of payment. If no credit application is submitted or the request
for credit is denied by Yahoo (in its sole discretion), the Insertion Order must
be paid in advance of the advertisement start date. Major credit cards (VISA,
M/C and American Express) are accepted. If Yahoo approves credit, Advertiser
will be invoiced on the first day of the contract period set forth on the
Insertion Order. Payment shall be made to Yahoo Inc. ("Yahoo") within thirty
(30) days from the date of invoice.. Amounts paid after such date shall bear
interest at the rate of one percent (1%) per month (or the highest rate
permitted by law, if less). In the event of any failure by Advertiser to make
payment, Advertiser will be responsible for all reasonable expenses (including
attorneys' fees) incurred by Yahoo in collecting such amounts.
2. Positioning. Except as otherwise expressly provided in the Insertion
Order, positioning of advertisements within the Yahoo properties or on any page
is at the sole discretion of Yahoo.
3. Usage Statistics. Unless specified in the Insertion Order, Yahoo makes no
guarantees with respect to usage statistics or levels of impressions for any
advertisement. Advertiser acknowledges that delivery statistics provided by
Yahoo are the official, definitive measurements of Yahoo's performance on any
delivery obligations provided in the Insertion Order. The processes and
technology used to generate such statistics have been certified and audited by
an independent agency. No other measurements or usage statistics (including
those of Advertiser or a third party ad server) shall be accepted by Yahoo or
have bearing on this Agreement.
3. Renewal. Except as expressly set forth in the Insertion Order, any
renewal of the Insertion Order and acceptance of any additional advertising
order shall be at Yahoo's sole discretion. Pricing for any renewal period is
subject to change by Yahoo from time to time.
4. No Assignment or Resale of Ad Space. Advertiser may not resell, assign or
transfer any of its rights hereunder, and any attempt to resell, assign or
transfer such rights shall result in immediate termination of this contract,
without liability to Yahoo.
5. Limitation of Liability. In the event that Yahoo fails to publish an
advertisement in accordance with the schedule provided in the Insertion Order,
in the event Yahoo fails to deliver the number of total page views specified in
the Insertion Order (if any), by the end of the specified period or in the
event of any other failure, technical or otherwise, of such advertisement to
appear as provided in the Insertion Order, the sole liability of Yahoo to
Advertiser shall be limited to, at Yahoo's sole discretion, a pro rata refund of
the advertising fee representing undelivered page views, placement of the
advertisement at a later time in a comparable position, or extension of the term
of the Insertion Order until total page views are delivered. In no event shall
Yahoo be responsible for
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
any consequential, special, lost profits or other damages arising from any
failure to timely publish any advertisement in accordance with the Insertion
Order. Without limiting the foregoing, Yahoo shall have no liability for any
failure or delay resulting from any governmental action, fire, flood,
insurrection, earthquake, power failure, riot, explosion, embargo, strikes
whether legal or illegal, labor or material shortage, transportation
interruption of any kind, work slowdown or any other condition beyond the
control of Yahoo affecting production or delivery in any manner.
6. Advertisers Representations; Indemnification. Advertisements are accepted
upon the representation that Advertiser has the right to publish the contents of
the advertisement without infringing the rights of any third party and without
violating any law. In consideration of such publication, Advertiser agrees, at
its own expense, to indemnify, defend and hold harmless Yahoo, and its
employees, representatives, agents and affiliates, against any and all expenses
and losses of any kind (including reasonable attorneys' fees and costs) incurred
by Yahoo in connection with any claims, administrative proceedings or criminal
investigations of any kind arising out of publication of the advertisement
(including without limitation, any claim of trademark or copyright infringement,
defamation, breach of confidentiality, privacy violation, false or deceptive
advertising or sales practices) and/or any material of Advertiser to which users
can link through the advertisement.
7. Provision of Advertising Materials. Advertiser will provide all materials
for the advertisement in accordance with Yahoo's policies in effect from time to
time, including (without limitation) the manner of transmission to Yahoo and the
lead-time prior to publication of the advertisement. Yahoo shall not be required
to publish any advertisement that is not received in accordance with such
policies and reserves the right to charge Advertiser, at the rate specified in
the Insertion Order, for inventory held by Yahoo pending receipt of acceptable
materials from Advertiser which are past due.
8. Right to Reject Advertisement. All contents of advertisements are subject
to Yahoo's approval. Yahoo reserves the right to reject or cancel any
advertisement, insertion order, space reservation or position commitment at any
time. In addition, Yahoo shall have the absolute right to reject any URL link
embodied within any advertisement.
9. Cancellations. Except as otherwise provided in the Insertion Order, the
Insertion Order is non-cancelable by Advertiser.
10. Construction. No conditions other than those set forth in the Insertion
Order or these Standard Terms shall be binding on Yahoo unless expressly agreed
to in writing by Yahoo. In the event of any inconsistency between the Insertion
Order and the Standard Terms, the Standard Terms shall control.
11. Miscellaneous. These Standard Terms, together with the Insertion Order,
(i) shall be governed by and construed in accordance with, the laws of the State
of California, without giving effect to principles of conflicts of law; (ii) may
be amended only by a written agreement executed
2
<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
by an authorized representative of each party; (iii) constitute the complete and
entire expression of the agreement between the parties, and shall supersede any
and all other agreements, whether written or oral, between the parties; and (iv)
Advertiser shall make no public announcement regarding the existence or content
of the Insertion Order without Yahoo's written approval, which may be withheld
at Yahoo's sole discretion.
3
<PAGE> 1
EXHIBIT 10.28
NETGRAVITY ADSERVER NETWORK LICENSE AGREEMENT
This Agreement is made and entered into as of this 17th day of December, 1998
("Effective Date") by and between NetGravity, Inc., a Delaware corporation,
having its principal place of business at 1700 S. Amphlett Blvd., Suite 350, San
Mateo, CA 94402 ("NetGravity") and the entity at the location listed on Exhibit
A hereto ("License").
RECITALS
A. NetGravity is the owner of proprietary Internet web site advertising
sales and management software products.
B. Licensee wishes to obtain a license to use such software on the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties hereby
agree as follows:
1. DEFINITIONS
The following terms shall have the following meanings:
1.1 "Software" means the proprietary Internet web site advertising sales and
management software program developed by NetGravity known as AdServer Network
which is comprised of the Program Components, in object code form only, and any
updates and upgrades as may be issued to Licensee by NetGravity after the
Effective Date.
1.2 "Program Component(s)" means the AdManager component, the AdServer
NetWork component, and the AdClient NetWork component, the AdConsole component,
and the AdInsight Server as further described on Exhibit A.
1.3 "Licensee's Service" shall mean an Internet web site advertising
management service provided by Licensee to independent third party customers.
1.4 "Licensee Servers" shall mean the computer hardware servers owned or
controlled by Licensee which host Licensee's Site and are used by Licensee in
connection with providing Licensee's Service.
1.5 "Site(s)" means Licensee's site or sites on the World Wide Web.
<PAGE> 2
2. GRANT OF RIGHTS
2.1 Grant of License. Subject to the terms and conditions of this Agreement,
NetGravity hereby grants to Licensee a perpetual, worldwide, nonexclusive
license to install and use the number of copies of each Program Component of the
Software indicated on Exhibit A to manage Licensee's advertising efforts on
Licensee's Site(s), on third party Websites and throughout the Internet
including, but without limitation, to manage advertising remotely from
Licensee's Servers for customers of Licensee's Service No license is granted to
Licensee to distribute the Software to its customers. Licensee may permit
limited access to the Software on Licensee's Servers and use of such Software by
customers of Licensee's Service only so long as such customers remain customers
of Licensee's Service and provided that such customers have acknowledged in
writing that the Software is licensed and their rights are limited to use on
Licensee's Servers and have agreed in writing not to download, copy, distribute
or attempt to make any other unauthorized use of the Software. Licensee may make
backup copies of the Software for archival or disaster recovery purposes.
2.2 Restrictions. The license granted herein is granted solely to the person
or entity set forth on Exhibit A, and not, by implication or otherwise, to any
parent, subsidiary or affiliate of such person or entity. All rights not
expressly granted hereunder are reserved to NetGravity. Licensee may not copy,
distribute, reproduce, use or allow access to the Software except as explicitly
permitted under this Agreement, and Licensee will not modify, adapt, translate,
prepare derivative works from, decompile, reverse engineer, disassemble or
otherwise attempt to derive source code from the Software or any internal data
files generated by the Software. Licensee shall not remove, obscure, or alter
NetGravity's copyright notice, trademarks, or other proprietary rights notices
affixed to or contained within the Software.
2.3 Ownership. NetGravity owns and shall retain all right, title, and
interest in and to the Software, including all copyrights, patents, trade secret
rights, trademarks and other intellectual property rights therein. Licensee
shall provide NetGravity with reasonable access to Licensee's facilities, at
reasonable times during Licensee's normal business hours and upon reasonable
notice, to verify Licensee's compliance with the terms of this Agreement.
3. DELIVERY OF THE SOFTWARE
3.1 Delivery. Within three (3) business days following the Effective Date,
NetGravity shall deliver the Software electronically or by other means mutually
agreed upon to Licensee at the location(s) set forth on Exhibit A.
3.2 Installation and Training. Following the delivery of the Software,
NetGravity will provide, at no additional charge, reasonable assistance to
Licensee by telephone and e-mail in installing the Software. Additionally,
NetGravity shall provide, at no additional charge, on-site installation
assistance and training ("SureStart") as listed on Exhibit A. During the
installation period Licensee shall cooperate with NetGravity and do all things
reasonably necessary to effectuate the completion of the installation of the
Software in accordance with the terms and conditions of this Agreement.
2
<PAGE> 3
The date that installation of the Software on Licensee's system is complete and
the Software is ready to be used on Licensee's system in accordance with the
documentation is referred to herein as the "Installation Date." The parties
shall work together in good faith towards an Installation Date of no later than
January 30, 1999.
4. FEES
4.1 License Fee. In consideration for the rights granted hereunder, Licensee
shall, subject to section 3.2 above, pay NetGravity license fees in the amounts
and on the payment terms set forth on Exhibit A.
4.2 Taxes. Licensee shall be responsible for all sales taxes, use taxes and
any other similar taxes imposed by any federal, state or local governmental
entity on the transactions contemplated by this Agreement, excluding taxes based
upon NetGravity's income. When NetGravity has the legal obligation to pay or
collect such taxes, the appropriate amount shall be invoiced to and paid by
Licensee unless Licensee provides NetGravity with a valid tax exemption
certificate authorized by the appropriate taxing authority.
4.3 U.S. Dollars. All fees quoted and payments made hereunder shall be in
U.S. Dollars.
5. NETGRAVITY SUPPORT
At Licensee's request, NetGravity will offer maintenance and technical support
with respect to the Software, in excess of the consulting services and the
SureStart listed on Exhibit A, under its then current standard Software
Maintenance Subscription and Support Agreement, a copy of which is attached as
Exhibit B.
6. WARRANTY AND DISCLAIMER
6.1 Functional Warranty. NetGravity warrants that for a period of sixty (60)
days following the Installation Date of the Software: (i) the Software shall
operate substantially in accordance with the then current documentation,
including the specific areas of the documentation attached as Exhibit D, for
such Software (ii) the Software shall schedule ads through the AdManager,
deliver ads to the webserver, and has the ability to count and report
impressions, clickthroughs, and yield and (iii) the media on which the Software
is furnished shall be free from defects in materials and faulty workmanship
under normal use. NetGravity does not warrant that the use of the Software will
be uninterrupted or free from minor errors.
6.2 Additional Warranties. NetGravity warrants that as of the Effective Date
(i) it has the right to grant the rights granted under this Agreement, and (ii)
the Software does not infringe any copyright, trademark, trade secret, patent or
other proprietary right of any third party.
6.3 Year 2000 Warranty. NetGravity further warrants that, provided (i)
Licensee uses the Software in accordance with its accompanying documentation,
the Software shall correctly process,
3
<PAGE> 4
provide and/or receive date data within and between the 20th and 21st centuries,
provided that all products used with the Software properly exchange date data
with the Software. This Year 2000 Warranty shall be for a period of sixty (60)
days beginning January 1, 2000. In the event NetGravity becomes aware that the
Software will not or does not process dates containing any date subsequent to
the year 1999 correctly, NetGravity shall immediately notify Licensee of that
fact.
6.4 Exclusive Remedy. Except with respect to a breach of the Intellectual
Property Warranty (Section 6.2) and the Year 2000 Warranty (Section 6.3),
Licensee's exclusive remedy and NetGravity's sole obligation with respect a
breach of any of the foregoing warranties shall be for NetGravity to use
reasonable efforts to correct any non-conforming performance or condition and if
the Software cannot be corrected to conform to the documentation to refund
License fees paid hereunder. In the event of a breach of the Intellectual
Property Warranty, Licensee's exclusive remedy and NetGravity's sole obligation
are defined in Section 7.1 of this Agreement. In the event of a breach of the
Year 2000 Warranty, Licensee's exclusive remedy and NetGravity's sole obligation
shall be to use reasonable efforts to correct any nonconformance and if the
Software cannot be corrected to conform to the documentation to, at Licensee's
sole discretion, replace it (if possible) or refund License fees paid hereunder.
If the Software is replaced pursuant to this Section 6.4, then the warranty in
Section 6.1 shall still apply to such replacement software for the sixty (60)
day period following the Installation of such replacement software.
Except as expressly provided herein, NETGRAVITY LICENSES THE SOFTWARE TO
LICENSEE ON AN "AS IS" BASIS. NETGRAVITY MAKES NO OTHER WARRANTY OF ANY KIND,
WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT.
7. INDEMNIFICATION
7.1 By NetGravity. NetGravity shall indemnify, defend and hold harmless
Licensee from any and all damages, liabilities, costs and expenses (including
reasonable attorneys' fees) incurred by Licensee as a result of any claim that
the Software, when used within the scope of this Agreement, infringes any
copyright, trademark, or trade secret of any third party; provided that Licensee
promptly notifies NetGravity in writing of any such claim and promptly tenders
the control of the defense and settlement of any such claim to NetGravity at
NetGravity's expense and with NetGravity's choice of counsel. Licensee shall
cooperate with NetGravity, at NetGravity's expense, in defending or settling
such claim and Licensee may join in defense with counsel of its choice at its
own expense. If the Software is, or in the opinion of NetGravity may become, the
subject of any claim for infringement or if it is adjudicatively determined that
the Software infringes then NetGravity may, at its option and expense, either
(i) procure for Licensee the right from such third party to use the Software or
(ii) replace or modify the Software with other suitable and reasonably
equivalent products so that the Software become noninfringing or (iii) if (i)
and (ii) are not practicable, terminate this Agreement. If NetGravity terminates
under subsection (iii) within the first two (2) years from the Effective Date,
NetGravity will refund a pro-rata portion of the license fees (the refundable
amount being determined by the total license fees reduced each month by 1/24th
of
4
<PAGE> 5
the total). If NetGravity terminates under subsection (iii) at any time after
the Effective Date, NetGravity will refund any prepaid subscription and support
fees applicable to the remaining period for which the services will be
terminated.
7.2 Exclusions. NetGravity shall have no liability for any infringement
arising from (i) the use of other than the then-current, commercially available
version of the Software, provided however, in the event that Licensee has not
purchased updates and upgrades under a separate NetGravity Support and
Subscription Agreement, and a previous version of the Software becomes
infringing, NetGravity will, provided that Licensee ceases to use the infringing
Software and installs the non-infringing version (a) make available the latest
non-infringing version of the Software to Licensee at no cost and (b) indemnify
Licensee for the period during which Licensee's use of the previous version of
the Software infringed upon a third party's rights; (ii) the use of the Software
other than as set forth in its accompanying documentation; (iii) the
modification of the Software unless such modification was made or authorized by
NetGravity, when such infringement would not have occurred but for such
modification; or (iv) the combination or use of the Software with other
software, hardware or other products not approved by NetGravity in advance or
not appearing on NetGravity's then current software documentation or External
Product Availability Matrix if such infringement would have been avoided by the
use of the Software not in such combination. THIS SECTION 7 STATES NETGRAVITY'S
ENTIRE OBLIGATION WITH RESPECT TO ANY CLAIM REGARDING THE INTELLECTUAL PROPERTY
RIGHTS OF ANY THIRD PARTY.
8. LIMITATION OF LIABILITY
EXCEPT IN REGARDS TO NETGRAVITY'S OBLIGATIONS UNDER SECTION 7.1 HEREIN, IN NO
EVENT WILL NETGRAVITY'S LIABILITY ARISING OUT OF THIS AGREEMENT OR THE USE OR
PERFORMANCE OF THE SOFTWARE EXCEED THE SUM OF THE LICENSE FEES ACTUALLY PAID BY
LICENSEE HEREUNDER. IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE
OTHER PARTY FOR ANY LOST PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES, OR FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED
AND UNDER ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE; PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL
NOT APPLY TO ANY BREACH BY LICENSEE OF THE LICENSE RESTRICTIONS OR ITS
CONFIDENTIALITY OBLIGATIONS. THE PARTIES AGREE THAT THIS SECTION 8 REPRESENTS A
REASONABLE ALLOCATION OF RISK.
9. CONFIDENTIALITY
9.1 Definition. The term "Confidential Information" shall mean any
information disclosed by one party to the other party in connection with this
Agreement which is disclosed in writing, orally or by inspection and is
identified as "Confidential" or "Proprietary" or which a party has reason to
believe is treated as confidential by the other party. Any information, in
whatever form, disclosed by NetGravity that relates to the Software and that is
not publicly known is "Confidential Information."
5
<PAGE> 6
9.2 Obligation. Each party shall treat as confidential all Confidential
Information received from the other party, shall not use such Confidential
Information except as expressly permitted under this Agreement, and shall not
disclose such Confidential Information to any third party without the other
party's prior written consent. Each party shall take reasonable measure to
prevent the disclosure and unauthorized use of Confidential Information of the
other party.
9.3 Exceptions. Notwithstanding the above, the restrictions of this Section
shall not apply to information that:
a) was independently developed by the receiving party without any use of
the Confidential Information of the other party and by employees or other agents
of (or independent contractors hired by) the receiving party who have not been
exposed to the Confidential Information;
b) becomes known to the receiving party, without restriction, from a
third party without breach of this Agreement and who had a right to disclose it;
c) was in the public domain at the time it was disclosed or becomes in
the public domain through no act or omission of the receiving party;
d) was rightfully known to the receiving party, without restriction, at
the time of disclosure; or
e) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, however, that the
receiving party shall provide prompt notice thereof to the other party and shall
use its reasonable best efforts to obtain a protective order or otherwise
prevent public disclosure of such information.
10. TERM AND TERMINATION
10.1 Term. The term of this Agreement shall commence on the Effective Date and
shall continue in force until terminated as follows:
10.2 If Licensee fails to make any payment not contested in good faith due
within thirty (30) days after receiving written notice from NetGravity that such
payment is delinquent, NetGravity may terminate this Agreement on written notice
to Licensee at any time following the end of such thirty (30) day period.
10.3 If Licensee materially breaches Section 2.2 or Section 9 of this
Agreement and fails to cure that breach within thirty (30) days after receiving
written notice of the breach, NetGravity may terminate this Agreement on written
notice at any time following the end of such thirty (30) day period.
6
<PAGE> 7
10.4 This Agreement shall terminate immediately upon notice in the event
Licensee becomes insolvent (i.e., becomes unable to pay its debts in the
ordinary course of business as they come due) or makes an assignment of this
Agreement for the benefit of creditors.
10.5 Survival. The following sections shall survive the termination, for any
reason, of this Agreement: 4, 6, 7, 8, 9, 10, and 12.
10.6 Remedies. Licensee acknowledges that its breach of Section 2.2 or 9 would
cause irreparable harm to NetGravity, the extent of which would be difficult to
ascertain. Accordingly, Licensee agrees that, in addition to any other remedies
to which NetGravity may be legally entitled, NetGravity shall have the right to
obtain immediate injunctive relief in the event of a breach of such sections by
Licensee or any of its officers, employees, consultants or other agents.
11. EXPORT REGULATIONS
Without affecting the scope of the license granted herein, in the event Licensee
is permitted to transfer the Software to any location outside the United States
under this Agreement, Licensee hereby agrees it will comply with all applicable
United States export laws and regulations.
12. MISCELLANEOUS
12.1 Assignment. Licensee may not assign any of its rights or delegate any of
its obligations under this Agreement, whether by operation of law or otherwise,
without the prior express written consent of NetGravity, provided, however, that
Licensee may assign its rights and obligations under this Agreement to any
wholly-owned subsidiary which operates the sites so long as such assignee is not
a direct competitor of NetGravity Subject to the foregoing, this Agreement will
bind and inure to the benefit of the parties, their respective successors and
permitted assigns.
12.2 Waiver and Amendment. No modification, amendment or waiver of any
provision of this Agreement shall be effective unless in writing and signed by
the party to be charged. No failure or delay by either party in exercising any
right, power, or remedy under this Agreement, except as specifically provided
herein, shall operate as a waiver of any such right, power or remedy.
12.3 Governing Law, Arbitration. This Agreement shall be governed by the laws
of the State of California, USA, excluding conflict of laws provisions and
excluding the 1980 United Nations Convention on Contracts for the International
Sale of Goods. Any disputes arising out of this Agreement shall be resolved by
binding arbitration in Santa Clara County California in accordance with the
rules of the American Arbitration Association. The arbitrator shall have the
power to grant injunctive relief.
12.4 Notices. All notices, demands or consents required or permitted under
this Agreement shall be in writing. Notice shall be considered effective on the
earlier of actual receipt or (a) the day following transmission if sent by
facsimile followed by written confirmation by registered overnight carrier or
certified United States mail; or (b) one (1) day after posting when sent by
registered private
7
<PAGE> 8
overnight carrier (e.g., DHL, Federal Express, etc.); or (c) five (5) days after
posting when sent by certified United States mail. Notice shall be sent to
NetGravity at the addresses set forth on the first page of this Agreement and to
Licensee at the address set forth on Exhibit A, or at such other address as
shall be given by either party to the other in writing. Notices to NetGravity
shall be addressed to the attention of Contracts Administrator.
12.5 Independent Contractors. The parties are independent contractors. Neither
party shall be deemed to be an employee, agent, partner or legal representative
of the other for any purpose and neither shall have any right, power or
authority to create any obligation or responsibility on behalf of the other.
12.6 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, such provision shall be changed
and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
12.7 Complete Understanding. This Agreement, including all Exhibits attached
hereto, constitutes the final, complete and exclusive agreement between the
parties with respect to the subject matter hereof, and supersedes any prior or
contemporaneous agreement.
12.8 Force Majeure. Neither party shall be liable to the other party for any
failure or delay in performance caused by reasons beyond its reasonable control.
12.9 Purchase Orders. This Agreement shall control Licensee's use of the
Software. All different or additional terms or conditions in any Licensee
purchase order or similar document shall be null and void.
12.10 Execution. The parties have shown their acceptance of this Agreement by
causing it to be executed below by their duly authorized representatives. This
agreement may be executed in counterparts which together shall constitute one
agreement and each party agrees that a copy of a counterpart executed by it and
sent to the other by any method including without limitation facsimile shall
constitute acceptance of this Agreement.
8
<PAGE> 9
NETGRAVITY
Signature: /s/ Chris J. Krook
-------------------------------------------------
Printed Name: Chris J. Krook
------------------------------------------------
Title: Corporate Controller
--------------------------------------------------------
Date Signed: 12/22/98
-------------------------------------------------
LICENSEE
Signature: /s/ J. Horowitz
---------------------------------------------------
Printed Name: J. Horowitz
--------------------------------------------------
Title: President
---------------------------------------------------------
Date Signed: 12/17/98
---------------------------------------------------
9
<PAGE> 10
EXHIBIT A
<TABLE>
<S> <C>
Licensee: Vitamin Shoppe
4700 Westside Ave
North Bergen, NJ 07046
Attention: [License Administrator]: Brian Griesbaum phone: 201-866-7711 x3l38
fax: 201-583-1840
</TABLE>
ADSERVER SOFTWARE LICENSED COMPONENTS:
Program Components Description:
The ad manager component contains the user interface and management
database and the adserver network is a server application responsible for
delivering advertisements remotely, and the ad client network component is the
technology that integrates with server software to receive ads from the ad
server. The AdConsole component serves as a report publishing platform to
advertisers and agencies.
<TABLE>
<CAPTION>
Program Component Licensed Number of Copies
<S> <C>
AdManager 1
AdServer Network 2
AdClient Network 2
AdConsole 1
AdInsight 1
</TABLE>
*Licensee shall have the right to copy the AdServer for AdInsight (reporting)
purposes. This additional copy of AdServer shall not be used for additional
adserving capability.
SureStart Deployment
<TABLE>
<S> <C>
Package Price (Software/Surestart): $139,602
NetGravity Consulting (7 days): $ 10,500*
-----------
Total Software and Consulting Fees: $150,102
*plus related travel and expenses
</TABLE>
Payment Terms:
Payment 1 due earlier of Net 30 days from the Effective Date or ten (10)
business days following the Installation Date: $119,811
Payment 2 due 10 business days after the completed Installation Date and in
no event later than March 10, 1999: $30,291
Licensee shall have the right to purchase NetGravity's GeoTargeting Database at
the list price as of the Effective Date through June 30, 1998.
10
<PAGE> 1
EXHIBIT 10.29
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
[Time Inc. Letterhead]
December 17,1998
VIA FEDERAL EXPRESS
Mr. Jeff Howard
Chief Executive Officer
THE VITAMIN SHOPPE
Westside Avenue
North Bergen, New Jersey 07047
Dear Jeff:
I am writing to formalize our agreement for the [*****] sponsorship of
the Ask Dr. Weil website by The Vitamin Shoppe for [*****]. As I hope
you know, I am very pleased to continue this relationship with you, and look
forward toward developing more ways to work together.
This letter sets out the [*****] sponsorship package for [*****] in its
entirety. As you will see, we have consolidated the language found in the
letters setting forth the agreed upon terms of the 1998 package and have
retained a substantial portion of the language we previously agreed upon. We
have made changes only where necessary to reflect the 1999 package and to
clarify issues left open or vague in the previous letters.
1. [*****] RATE
The cost of the total sponsorship package for the Ask Dr. Weil website
for the [*****] is [*****], as agreed to using the formula set out in the
February 1998 letter. The Vitamin Shoppe will be entitled to [*****] from the
cost of this sponsorship package. This renewal pricing covers sponsorship of the
same sections of the Ask Dr. Weil website that exist as of today's date and that
are specifically listed in Section 2 below. Additional content areas may be made
available on the Ask Dr. Weil website during 1999 and The Vitamin Shoppe's
opportunity to sponsor those is dealt with later in this letter.
2. THE PROGRAM
Currently, Time Inc. New Media expects to make the following areas of
the Ask Dr. Weil website publicly available on the World Wide Web of the
Internet during the [*****]:
Daily Q&A Vitamin Advisor
Editorial Links Page Vitamin Search
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
Archives Area Webcast Page*
Herbal Medicine Chest Weekly Newsletter
* We are considering discontinuing the Webcast Page from the Ask Dr.
Weil website.
In addition, The Vitamin Shoppe's role as the [*****] and [*****] banner
advertiser will extend to the Eight Week Program area of the Ask Dr. Weil
website, but only to the extent such area is made available to all users of the
Ask Dr. Weil website at no additional fee. However, this will not extend to any
"premium" offerings (i.e., made available for a fee and/or offered only to a
select group of users) of the Eight Week Program, including without limitation,
a "premium" e-mail offering of such program.
To underscore The Vitamin Shoppe's role as the [*****] and [*****]
banner advertiser of the Ask Dr. Weil website on the Pathfinder Network, we will
add the following tag line on the home page and each other page of the Ask Dr.
Weil website (where space is available): "Sponsored by The Vitamin Shoppe".
No other sponsors or banner advertisers will appear in those areas of
the Ask Dr. Weil website listed above after the [*****] sponsorship starts on
January 1, 1999. The Vitamin Shoppe will be the Ask Dr. Well website's sole
commerce partner for the sale of vitamins and supplements, although the Ask Dr.
Weil website may, from time to time during the calendar year 1999, include
commerce-based buttons that promote products or services other than vitamins and
supplements. In the event, however, that a third party with whom Time Inc. New
Media has a pre-existing relationship desires to have commerce-based buttons
that promote vitamins or supplements, such buttons shall be located [*****] or
more clicks away from the Ask Dr. Weil website.
Hyperlinks will be placed on the navigational frame that appears on
virtually all places of the Ask Dr. Weil website, and within the Vitamin
Advisor. We will also include a branded logo link on the navigational frame.
In the event the Ask Dr. Weil website contains within its editorial text
commerce-based hyperlinks (that are typically displayed in green and are to be
distinguished from editorial hyperlinks which are typically displayed in blue
and from commerce-based buttons) that point to third party websites, such
hyperlinks shall not directly point directly (i.e., upon one click) to a page
that promotes vitamins or supplements.
The Vitamin Shoppe will develop and maintain within its website a
customized page(s) which will feature and offer for sale only selected brands.
The customized area will consist of no fewer than one (1) page, after which a
visitor may be taken into the main portion of The Vitamin Shoppe website. Users
who click the tagline, a banner advertisement, marketing button or other
equivalent promotion of The Vitamin Shoppe while on the Ask Dr. Weil website
2
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
will be automatically linked to such customized page(s) as the initial page(s)
they view on The Vitamin Shoppe's website.
Time Inc. New Media will provide The Vitamin Shoppe with customized
research, based on two surveys of Ask Dr. Weil users to be conducted at times to
be mutually agreed upon by the parties.
3. NEW CONTENT/OPPORTUNITIES
The Vitamin Shoppe will have the right to a first look for the following
new and major areas of the Ask Dr. Weil website that Time Inc. New Media expects
to launch: Bernie Siegel Clinic and Women's Clinic. You will have a two week
period to review the cost and overall opportunity of such new areas. If The
Vitamin Shoppe passes on the opportunity (or if the two week period has run),
the Ask Dr. Weil website will have the right to market the opportunity to other
parties.
If the Ask Dr. Weil website chooses to lower the asking price for such
new areas that it takes to the marketplace, we will provide The Vitamin Shoppe
with an opportunity for a second look. The Vitamin Shoppe will then have four
business days to review the revised cost associated with sponsoring such new
areas. During this period of a second look, no other vitamin-related advertiser
will be pitched. If The Vitamin Shoppe passes again on sponsoring such new areas
of the Ask Dr. Weil website (or if the four business day period has run), the
Ask Dr. Weil website will have the right to market the opportunity to other
parties.
4. DR. WEIL DEATH AND OTHER ISSUES
As you know, the agreement between Time Inc. New Media and Dr. Weil
provides Time Inc. New Media with certain termination rights if Dr. Weil dies,
is incapacitated or commits certain inappropriate acts. If Time Inc. New Media
decides that it will no longer operate the website because of Dr. Weil's death
or the occurrence of one of these acts, you would have no further obligation to
Time Inc. New Media.
However, if Dr. Weil dies, and the Ask Dr. Weil website continues to
operate, The Vitamin Shoppe will have the option to cancel the agreement if Ad
Views (as defined below) drop below an average of 700,000 per week over a
consecutive four week period.
5. BANNER ROTATION AND CONTENT INFORMATION
Time Inc. New Media will deliver to The Vitamin Shoppe on a bimonthly
basis a list of upcoming editorial topics (to the extent that such a list is
available). This will better serve both The Vitamin Shoppe and the website with
banners that are relevant to the subjects being discussed.
3
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
6. SYSTEM FAILURE GUARANTEES
If the Ask Dr. Weil website does not technologically function properly
for a full 24 hour period (or more), we will provide you with a cash rebate for
the loss of the day (the amount to be prorated against the sponsorship cost). We
will keep records in the unlikely event that this happens more than once.
7. PROMOTION
The Vitamin Shoppe will have the right to include language such as, but
not limited to, "[*****] sponsor of the Ask Dr. Weil website," and the name and
likeness of Dr. Weil solely in the exact manner such name and likeness appear in
the Ask Dr. Weil website icon, so long as we approve each such use and so long
as you prominently and closely reference the Ask Dr. Weil website URL whenever
using such icon. In addition, we will create and place at no cost to The Vitamin
Shoppe, advertising in other Time Inc. New Media websites or Time Inc. print
products (as determined by us following consultation with you) equivalent in
value to four 1/3rd square advertisements in PEOPLE Weekly Magazine (the value
of which shall be determined by reference to the open rate as set forth in
PEOPLE Weekly Magazine's rate card as of the date of this letter). Such
advertising will promote the Ask Dr. Weil website and include a reference to,
"The Vitamin Shoppe as the [*****] sponsor of the Ask Dr. Weil website", or such
other wording as the parties may agree.
8. LINK CO-SPONSOR TAGLINE
The tagline featured under the Ask Dr. Weil icon will state the
following: "Sponsored by The Vitamin Shoppe". The Vitamin Shoppe name will be
linked so users can click directly on the company name. In return for this, we
request that you provide a link from The Vitamin Shoppe's home page to the Ask
Dr. Weil website.
9. WEEKLY TRAFFIC/SALES INFORMATION
Time Inc. New Media will provide you with weekly Ad View information and
click through numbers, via the Internet. We will review these figures with you
to assist The Vitamin Shoppe in receiving the highest yield possible. "Ad View"
shall mean each time that the sponsor tagline (as described above), a banner
advertisement, a marketing button or any other equivalent promotion of the
Vitamin Shoppe on the Ask Dr. Weil website (each of which shall be counted as a
separate Ad View) is viewed by a user.
You will provide us with weekly sales figures, along with the number of
catalogs ordered, from The Vitamin Shoppe's website. This will provide us with
an insight as to how the Ask Dr. Weil website is helping The Vitamin Shoppe and
will enable us to work with you knowledgeably to enhance our relationship.
4
<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
10. SPONSORSHIP PACKAGE [*****]
For continuation of The Vitamin Shoppe's sponsorship of the Ask Dr. Weil
website in the [*****], the Ask Dr. Weil website will require a written
statement by September 15, 1999 of your interest to begin negotiations. If we
receive your written statement by such date, then for the 30 day period starting
on September 15, 1999 and ending on October 15, 1999, we will negotiate with The
Vitamin Shoppe on an [*****] basis regarding the sponsorship opportunities on
the Ask Dr. Weil website for the [*****]. In the event that no agreement is
reached, we will be free to begin negotiations with third parties concerning the
sponsorship of all or any portion of the Ask Dr. Weil website.
11. OTHER AREAS OF DISCUSSION
The Vitamin Shoppe will be entitled to receive weekly Ad Views, and, to
the extent such information is made available by us to other third party
advertisers, unique user figures (which The Vitamin Shoppe acknowledges will be
estimated research), provided by the Ask Dr. Weil website.
12. ADDITIONAL BENEFITS / OPPORTUNITIES
Either party may issue its own press release announcing the
continuation of this strategic relationship, subject to other party's prior
written approval. Our Public Relations department will be responsible for
completing these tasks.
We will use The Vitamin Shoppe tagline in promotional and publicity
material we distribute concerning the Ask Dr. Weil website, including in any
print ads we run in Time Inc. magazines.
We will designate a contact person here who will be able to provide you
with information, reports or answers to questions. A monthly conference call or
in-person meeting can also be set up if you wish.
As you know, we represent one arm of the Dr. Weil franchise, which will
continue to grow and prosper as we enter the new millennium. We will explore
with Dr. Weil's representatives opportunities in other media that could benefit
The Vitamin Shoppe and will act as liaison to coordinate The Vitamin Shoppe's
involvement.
We will work with you to create materials to be distributed in your
stores that will benefit your customers.
5
<PAGE> 6
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
13. ADDITIONAL TERMS
The fees will be payable on a quarterly basis with each payment due on
or before the beginning of each quarter (except that the first payment will be
due on or before January 15, 1999).
The sponsorship opportunities we are offering in this letter relate
only to those areas of the Ask Dr. Weil website listed above as they appear in
the English language on the Pathfinder Network (as it is currently known),
targeted to users in the U.S. and Canada. We reserve the right to repurpose the
material on the Ask Dr. Weil website in other formats and other media, to
translate it into another language and display the translation in other media
or online, and to disaggregate the website material for license or syndication
online outside of the Pathfinder Network, in such cases without any obligation
to The Vitamin Shoppe.
The Vitamin Shoppe will be responsible for completing all aspects of
transactions sought by users of the Ask Dr. Weil site or the Pathfinder
Network, including order processing and security, fulfillment, catalog
distribution and customer service. In addition, The Vitamin Shoppe will comply
with appropriate privacy policies in handling customers' personally identifying
information. Specifically, The Vitamin Shoppe will prominently display, and
will strictly comply with, a privacy policy on its website that is
substantially similar to the privacy policy displayed on the Pathfinder
Network, and strictly adheres to the privacy guidelines and principles
promulgated by the Direct Marketing Association or the Online Privacy Alliance.
6
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
14. CONCLUSION
All of us here at Time Inc. New Media are very excited about continuing
the relationship between the Ask Dr. Weil website and The Vitamin Shoppe. By
combining the best that both companies have to offer, we will be able to offer
the consumer a unique experience that will serve both of our objectives.
Sincerely,
Steven Petrow
ACKNOWLEDGED AND AGREED:
THE VITAMIN SHOPPE
By: /s/ J. HOWARD
----------------------------------
Title: President & CEO
----------------------------------
cc. TIME INC. NEW MEDIA THE VITAMIN SHOPPE
Linda McCutcheon Larry Siegel
Mark Ellis Joel Gurzinsky
Christin Shanahan
Jean Cho
Jennifer Taylor
7
<PAGE> 1
EXHIBIT 10.30
AGREEMENT
This Agreement is made and entered into on the 1st day of February, 1999 by and
between Virtual Communities, Inc., 151 West 25th Street, New York, N.Y. 10001
("VCI") and Vitamin Shoppe Industries Inc. whose address is 4700 Westside
Avenue, North Bergen, New Jersey 07047 (the "Client").
Whereas VCI manages and operates the Internet World Wide Web ("Web") site known
as "Virtual Jerusalem", residing at www.virtualjerusalem.com (the "VJ Site");
and
Whereas in conjunction with the advertising campaign that VCI shall be operating
on behalf of the Client on the VJ Site, VCI shall create, maintain and host a
mini-web site (the "Client Site") which shall be hosted on VCI's server and
shall be accessible to Internet users worldwide through the navigational tools
on the VJ Site and shall be linked to the Client's main web site located at
www.vitaminshoppe.com (the "Main Site"); and
Whereas VCI has the necessary knowledge and experience to provide such services
to the Client and to fulfill its obligations as set forth herein;
Therefore the parties have stipulated and agreed as follows:
1. The preamble and the appendices to this Agreement constitute an integral
part hereof.
2. During the term of this Agreement, the Client shall be entitled to the
hosting and exposure services as set forth in Section 1 of Appendix A attached
hereto. Placement on the VCI server shall be according to the schedule set forth
in Section 3 of Appendix A. During the term of this Agreement, the Client may
obtain additional services according to VCI's then current Price Schedule.
3. VCI shall create the Client Site from material provided to it by the
Client ("Client Material") for the purpose of promoting and selling the Client's
products, including but not limited to high quality scans in electronic format
of Client products to be promoted on the Client Site. The Client Site shall be
comprised of up to seven (7) HTML pages which shall describe and promote the
Client's products and health information in connection thereto and shall provide
a link to the Client's Main Site. All Client Material to be included on the
Client Site shall be provided to VCI by the Client according to the schedule set
forth in Appendix A. Client Material shall be delivered to VCI in .txt, Word for
Windows or Dagesh for text and .tif, .eps, .ai, .cdr, or .gif for graphics or
other electronic format which may be specified by VCI, on disk or by File
Transfer Protocol or such other method of delivery as the parties shall agree
from time to time. VCI may not alter any Client Material without the Client's
prior written consent, and if any Client Material is altered without such
consent, such material shall no longer be Client Material under this Agreement.
Notwithstanding anything contained in this Agreement, the Client Site shall not
become accessible to users until it is approved in writing by the Client,
approval not to be unreasonably withheld.
<PAGE> 2
5. The Client represents and confirms that it owns or has the right to
license (or shall own or have the right to license at the time of delivery) all
of the right, title and interest in and to the Client Material contained on the
Client Site or has the right to use and license the Client Material in
accordance with the terms of this Agreement and subject to the license grant
below, shall retain all such rights throughout the term of this Agreement.
6. Except for any Client Material appearing on the VJ Site, including,
without limitation, on the Client Site, in accordance with the terms of this
Agreement, which will be the responsibility of the Client, each party will be
solely responsible for the development, operation and maintenance of its Site
and for all materials that appear on its Site, which responsibilities shall
include, but are not limited to: (i) the technical operation of its Site and all
related equipment; (ii) the accuracy and appropriateness of materials posted on
its Site; (iii) for ensuring that materials posted on its Site do not violate
any law, rule or regulation, or infringe upon the rights of any third party
(including, for example, copyright, trademarks, privacy or other personal or
proprietary rights); and (iv) for ensuring that materials posted on its Site are
not libelous or otherwise illegal. Each party disclaims all liability for such
matters with respect to the other party's Site. Additionally, each party hereby
agrees to indemnify and hold harmless the other party and its subsidiaries and
affiliates, and their respective directors, officers, employees, agents,
shareholders, partners, members and other owners, against any and all claims,
actions, demands, liabilities, losses, damages, judgments, settlements, costs
and expenses (including reasonable attorney's fees) (any or all of the foregoing
hereinafter referred to as "Losses") insofar as such Losses (or actions in
respect thereof) arise out of or are based on (i) any representation or warranty
made by it herein being untrue, (ii) any breach by it of any covenant or
agreement made by it herein; (iii) the use by it of any trademarks or Content
(as defined below) other than in accordance with the terms hereof; and (v) the
development, operation, maintenance and Content of its Site. For purposes
herein, "Content" shall mean, with respect to each party, the proprietary
content contained on such party's Site and shall include only that content
created by such party, its employees or other persons contractually bound to
such party to create such content, provided that the Client Material shall be
deemed to be Client Content.
7. During the term of the Agreement, the Client hereby grants to VCI a
non-transferable worldwide license to use, reproduce, promote and distribute the
Client Material on the Client Site in accordance with the terms of this
Agreement, provided however, that VCI shall not make any specific use of any
Client Material or Client trademarks without first submitting a sample of such
use to the Client and obtaining its prior written consent, which consent may not
be unreasonably withheld. Client acknowledges that due to the nature of the
Internet medium, Client Material may be downloaded by Internet users and
confirms that VCI shall have no liability for an infringement of the Client's
rights by an Internet user.
8. Each page of the Client Site shall include a navigation bar at the top of
the page and a button bar at the bottom of the page linking the Client Site to
the VJ Home Page. No such link shall, in any way, alter the look, feel or
functionality of the Main Site.
9. VCI MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE SUITABILITY OF THE
SERVICES PROVIDED HEREIN FOR ANY PARTICULAR PURPOSE.
2
<PAGE> 3
10. Payment to VCI shall be made in accordance with the Advertisement Order
Form dated December 17, 1998.
11. This Agreement shall continue in effect for a period of three (3) months
commencing the date the Client Site is placed on VCI's server and becomes
accessible by users on the Internet, which the parties anticipate to be on or
about , 1999 unless earlier terminated by either party for Cause
(pursuant to section 12 below).
12. Notwithstanding section 11 above, either party may terminate this
Agreement immediately upon the occurrence of one of the following (each of which
is defined as Cause): (a) the non-terminating party has materially breached this
Agreement and failed to remedy such breach within fourteen (14) days of its
receipt of written notice from the terminating party; (b) a receiver is
appointed for the non-terminating party or its property; (c) the non-terminating
party becomes insolvent or unable to pay its debts or makes an assignment for
the benefit of creditors; (d) any proceedings are commenced against the
non-terminating party under any bankruptcy, insolvency or debtor's relief law,
and such proceedings have not been vacated or set aside within thirty (30) days
from the date of the commencement thereof; or (e) the non-terminating party is
liquidated or dissolved.
13. Neither party hereto shall use or disclose to any person or entity except
as required by law, any confidential information of the other, during or after
the term of this Agreement, including, without limitation, any business,
financial, technical or other information of a confidential nature or
information which has been designated by the other party as confidential.
14. It is understood and agreed that the Client Site may be temporarily
inaccessible to users from time to time as a result of Internet connectivity
related problems which are not in VCI's control and/or for maintenance purposes
and that such inaccessibility shall not be deemed a breach of this Agreement and
shall not entitle the Client to any legal remedies.
15. This Agreement and the provisions hereof shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their successors
and permitted assigns; provided, however, that neither party shall have the
right to assign its rights or obligations hereunder to any other person or
entity without the prior written consent of the other party, provided, that each
party may assign its rights or obligations hereunder without such consent to a
wholly-owned subsidiary which operates its Web site, provided that the assigning
party remains jointly and severally liable with respect to such obligations.
Notwithstanding the foregoing, programming and production work if any, required
to be performed by VCI may be performed by non-related vendors at VCI's sole
discretion.
16. VCI's services have been retained by the Client as an independent
contractor and nothing contained herein shall create an employer-employee or a
joint-venture relationship between the parties.
3
<PAGE> 4
17. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to the conflict of law principles
thereof. Jurisdiction with respect to any controversy arising out of or in
connection with this Agreement shall be exclusively in the competent court in
New York.
18. This Agreement constitutes the entire understanding of the parties hereto
and shall replace and/or supercede any prior or contemporaneous written or oral
understanding that may have existed between the parties with respect to the
matter set forth herein. This Agreement may not be amended or altered except by
written agreement signed by both parties. A party's failure to enforce its
rights hereunder, in whole or in part, shall not constitute a waiver of rights
by such party. All representations and warranties contained in this Agreement as
well as section 6 and section 12 of this Agreement, shall survive the
termination of this Agreement 19 Any notice required or permitted to be
delivered to the Client or to VCI pursuant to this Agreement shall be delivered
in writing and shall be deemed received upon actual receipt of addressee at the
Client's and VCI's respective street address or facsimile numbers set forth on
the reverse.
20. All customers on the Main Site, including, without limitation, users
linked to the Main Site from the VJ Site, including, without limitation, the
Client Site, pursuant to the terms of this Agreement, will be deemed to be
customers of the Client. Accordingly, all rules, policies and operating
procedures of the Client concerning customer orders, customer service and sales
will apply to those customers and the Client shall be liable in respect thereto
in accordance with section 6 hereof. The Client may change its policies and
operating procedures at any time. The Client will determine the prices to be
charged for products and other merchandise sold on the Main Site in accordance
with its own pricing policies. Prices and availability on the Main Site may vary
from time to time. The parties hereby agree that title to any customer
information, including but not limited to the name, address and e-mail address
of the customer, shall be owned by the Client.
In Witness Whereof the parties signed this Agreement as follows:
Vitamin Shoppe Industries Inc. Virtual Communications, Inc.
By: /S/ J. Horowitz By: [SIGNATORY]
---------------------- ----------------------
Title: VP New Media
----------------------
4
<PAGE> 5
APPENDIX A
1. Hosting and Exposure Services: The Client shall be entitled to receive
the following services during the Term:
a. Creation of a Web Site of up to seven (7) HTML pages
b. Weekly statistics regarding Client Site traffic
c. Indexing on the Virtual Jerusalem Site
d. Client Site featured for ten (10) days on the VJ Living
Channel
e. Three (3) articles in the VJ news letter, each article to
be pre-approved in writing by the Client
f. Client shall be featured as the exclusive official sponsor
of the Health section on VJ living
g. One sweepstakes promotion
2. Fees: as set out in the Advertisement Order Form dated December 17, 1998.
3. Production and Placement Periods: Within ten (10) days following the
execution of this Agreement, the Client shall deliver to VCI, Client Material
required by VCI for VCI's use in the creation of the Client Site. VCI shall
produce a demo of the Client Site no later than two (2) weeks from its receipt
and acceptance of the Client Material and will produce the Client Site within
two (2) weeks from the date VCI receives final approval of the demo. The Client
shall be entitled to two (2) revisions to the demo produced by VCI. Approval of
either approval or revisions of the demo(s) shall be given to VCI within one (1)
week from the date when the demo is made available to the Client. The Client
Site shall not become accessible to users until it is approved in writing by the
Client, which approval may be withheld in the Client's sole discretion, acting
reasonably.
VCI shall notify the Client of any Client Material not delivered to VCI in the
format acceptable to VCI and in the Client's discretion, such material shall
either be converted by Client at its own expense or by VCI according to VCI's
then current Production Prices Schedule for the same.
5
<PAGE> 1
Exhibit 10.31
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
SPONSORSHIP AGREEMENT
This Sponsorship Agreement (the "Agreement") is entered into as of the
11th day of March, 1999 by and between drkoop.com, inc., a Delaware corporation,
located at 8920 Business Park Drive, Longhorn Suite, Austin, Texas 78759
("drkoop.com"), and Vitamin Shoppe Industries, Inc., a New Jersey corporation,
located at 4700 Westside Avenue, North Bergen, New Jersey 07047 ("Sponsor").
WHEREAS, drkoop.com develops, markets and maintains an integrated suite
of Internet enabled, consumer oriented software applications and services,
including but not limited to, drkoop.com. electronic data interchange services,
and advertising and promotional services on the Internet at the website
http://www.drkoop.com (together with any successor or replacement websites, the
"drkoop.com Website");
WHEREAS, Sponsor markets and sells vitamins and nutritional supplements
on the Internet at the website http://www.vitaminshoppe.com (together with any
successor or replacement websites, the "Sponsor Website"; and together with the
drkoop.com Website, the "Sites"); and
WHEREAS, Sponsor desires to have certain exclusive rights with respect
to vitamins and nutritional supplements on the drkoop.com Website and to be the
exclusive vitamin and nutritional supplement tenant in the E-Commerce area of
the drkoop.com Website and drkoop.com desires to promote Sponsor for vitamin and
nutritional supplements and to make Sponsor its' exclusive vitamin and
nutritional supplement tenant pursuant to the terms and conditions contained in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
EXCLUSIVE VITAMIN SPONSOR
I.1. EXCLUSIVE VITAMIN SPONSOR. Throughout the Term (as defined below),
Sponsor shall be the sole and exclusive vitamin and supplement sponsor of, and
the sole and exclusive vitamin and supplement advertiser on, the drkoop.com
Website, and in furtherance thereof, drkoop.com shall not (i) place any names,
trademarks, links, buttons, advertisements or content (other than editorial
content which does not contain links) of any Sponsor Competitor (as defined
below) (collectively, "Competitor Content"), or any links which link directly to
any Competitor Content, on any area of the drkoop.com Website; or (ii) other
than Sponsor banner advertisements, allow any banner advertisements for or
promoting the sale of vitamins or nutritional supplements to appear on the
drkoop.com site; provided, however, that the Greentree link which is currently
on the drkoop.com Website may continue in its current form until April 18, 1999.
For purposes of this Agreement the term "Sponsor Competitor" means: (i) any
entity set forth on EXHIBIT A attached hereto, which EXHIBIT A may be updated
from time to time
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by Sponsor, subject to the reasonable approval of drkoop.com; or (ii) any entity
which derives more than 67% of its revenues from the sale of vitamins and/or
nutritional supplements.
I.2. SPONSOR PLACEMENTS. During the Term, in no way limiting the
foregoing in Section 1.1, Sponsor will receive the following sponsorship and
promotional placements on the drkoop.com Website.
(i) Sponsor shall be the exclusive sponsor of the Nutrition
Center on the drkoop.com Website and each area (other than the "Daily Special"
area, the "Healthy Recipes" area and any other area which may be created in the
future which specifically relates to cooking or food recipes (collectively, the
"Excluded Areas")) within the Nutrition Center, including, the "Vitamins &
Supplements" area, the "Vitamins and Minerals" area, the "Nutrition News" area,
the "Nutrition for Healthy Living" area and the "Nutrition for your Condition"
area (collectively, the "Sponsor Areas"). In furtherance of the foregoing,
drkoop.com agrees that: (A) [*****]; (B) [*****]; and (C) [*****]; (D) only
Sponsor e-commerce tiles shall appear within the Sponsor Areas; and (E) Sponsor
links may link, in Sponsor's sole discretion, to either the Sponsor Website or
to Sponsor's Vitamin Buzz website ("Vitamin Buzz"). Sponsor shall be treated no
less favorably in Sponsor Areas than any other similarly situated sponsor of the
drkoop.com Website is treated within its sponsored areas of the drkoop.com
Website. The Excluded Areas may be sponsored by entities other than Sponsor,
provided, that no Sponsor Competitor, or any drugstore, including, without
limitation, Drugstore.com, Soma.com or PlanetRx.com may sponsor any of the
Excluded Areas. SCHEDULE 1.2(i) is a page shot mock-up of the Nutrition Center
home page and the home page of each major area within the Nutrition Center,
substantially as they will appear on their respective launch dates.
(ii) [*****]. Such logo shall contain a link to, in Sponsor's
sole discretion, either Sponsor's Website or the Vitamin Buzz. No logo of any
other similarly situated sponsor of the drkoop.com Website shall be more
prominently displayed on the home page of the drkoop.com Website, whether in
terms of size, placement or frequency.
(iii) From time to time, drkoop.com shall create content which
features vitamins and nutritional supplements. Sponsor's Advertising Content
shall be displayed on such pages which host vitamins and nutritional supplement
content to the same extent and subject to the same restrictions as such Sponsor
Advertising Content is displayed in the Sponsor Areas.
(iv) As used in this Section 1.2, the term exclusive with
respect to any area means that: (A) Sponsor shall be the sole and exclusive
vitamin and nutrition supplement provider in such area, and that no Competitor
Content, or links which link directly to any Competitor Content, shall appear in
such area where Sponsor has such exclusivity; and (B) other
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than Sponsor banner advertisements, no banner advertisements for or promoting
the sale of vitamins or nutritional supplements shall appear in such area.
Drkoop.com's obligations with respect to each area of the drkoop.com Website set
forth in this Section 1.2 shall also apply to all areas which are successors or
replacements to such areas and to all new vitamin and nutrition areas on the
drkoop.com Website launched on the drkoop.com Website after the date of this
Agreement. Only Sponsor may promote the sale of vitamins and supplements in the
Sponsor Areas.
I.3. IMPRESSIONS. Not including any permanent Sponsor links, banners or
buttons pursuant to Section 1.2, drkoop.com shall, during the Initial Term (as
defined below) provide at least [*****] advertising banner and e-commerce
tile impressions consisting of Sponsor Advertising Content, of which
approximately [*****] shall be delivered during each month of the Initial
Term. If by the end of the Initial Term drkoop.com has not delivered the
foregoing number of impressions, then, as Sponsor's sole remedy for such breach,
the Term of this Agreement shall be extended until drkoop.com has satisfied its
obligations under this Section.
I.4. DR. KOOP HEALTH LINKS. In addition to the fees specified in
Section 2.5.1, Sponsor shall pay [*****] to drkoop.com and in exchange therefore
shall have the right to use as many Dr. Koop Health Links as Sponsor, in its
sole discretion, wishes to use, all in accordance with the terms of the
drkoop.com Healthlinks Agreement, the form of which is attached hereto as
EXHIBIT B.
I.5. CONTENT LICENSE TO THIRD PARTIES. If drkoop.com wishes to allow
any area on the drkoop.com Website set forth in this Section 1 in which Sponsor
is the exclusive sponsor of vitamins and supplements to be displayed on any
website other than the drkoop.com Website (regardless of whether such other
website is owned by drkoop.com or not and regardless of whether such content is
served up by drkoop.com or by a third party) and if drkoop.com is able to
control the advertising placements within or sponsorship of such area on such
third party website, then drkoop.com shall, prior to contacting any other party
with respect to such advertisements or sponsorship, notify Sponsor in writing
prior to the launch of such area and shall negotiate in good faith with Sponsor
in order to allow Sponsor to be the exclusive advertiser on and sponsor of such
area on such third party website. If Sponsor and drkoop.com have not reached an
agreement on the principal terms of such agreement within 15 business days after
Sponsor is notified of such opportunity, drkoop.com shall be free to commence
negotiations with other parties with respect to such opportunities.
I.6. MODIFICATIONS. Each party reserves the right to modify the design,
organization, structure, look and feel, navigation and other elements of its
Site, provided, that drkoop.com may not, without the prior written consent of
Sponsor, substantially alter, change or modify the look, feel or functionality
of the Sponsor Areas of the drkoop.com Website, so as to materially change the
Sponsor's prominence or placements within such areas.
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ARTICLE II.
SPONSORSHIP POLICY
II.1. CONTENT. For each of the placements described in Section 1,
including all banner advertisements and e-commerce tiles, Sponsor shall provide
drkoop.com with all content including all trademarks, logos or banners (the
"Sponsor Advertising Content"), in accordance with the specifications set forth
on EXHIBIT C attached hereto, which will be displayed on the drkoop.com Website
and which will link, in Sponsor's discretion, to either the Sponsor Site or
Vitamin Buzz. The parties hereto agree to cooperate and work together in the
establishment of all links, buttons and banners placed pursuant to this
Agreement. Links from one party's Site to the other party's Site shall in no way
alter the look, feel or functionality of the linked Site.
II.2. CHANGES AND CANCELLATIONS. Any cancellations or change orders
must be made in writing and acknowledged by drkoop.com. Sponsor shall not be
required to change Sponsor Advertising Content more often than once per month.
Sponsor shall provide drkoop.com with Sponsor Advertising Content artwork at
least five business days in advance of the publication date.
II.3. STATISTICS. Drkoop.com shall provide Sponsor with Sponsor usage
reports on a monthly basis. Sponsor shall have the right to use such data for
its internal business purposes, but may not provide such data for use by third
parties. Such reports shall contain substantially the same types of information
delivered to other of drkoop.com's similarly situated partners, which reports
will include information regarding impressions, clickthroughs and any
information known about the users of such areas in aggregate form.
II.4. PUBLICATION ERROR. In the event of a publication error in the
Sponsor Advertising Content arising exclusively from the fault of drkoop.com,
Sponsor shall notify drkoop.com of such error and drkoop.com will use reasonable
efforts to promptly correct the error.
II.5. PAYMENT.
II.5.1. FEES. The fee for the placements and other rights
provided under this Agreement for the Initial Term (as defined below) is
[*****], of which [*****] is payable within 30 days of the date of this
Agreement, with the balance of such fee payable by Sponsor in 11 (eleven)
consecutive equal installments of [*****] each, payable by the 15th day of each
month of the Initial Tenn commencing on the month following the month of the
Launch Date (as defined below).
II.5.2. TAXES. Sponsor shall be responsible for the collection
of any and all value added, consumption, sales, use or similar taxes and fees
payable with respect to all sales made on the Sponsor Website.
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ARTICLE III.
OWNERSHIP OF DATA
III.1. USER DATA. Drkoop.com requests its users ("Individual Users"),
to provide personal information when they sign up for certain services including
requesting information on a specific disease, chat rooms and forums ("User
Data"). Such User Data is owned by each Individual User and drkoop.com does not
use or disclose any such User Data without the consent of the Individual User.
III.2. DATA RELEASE TO SPONSOR. Drkoop.com shall provide to Sponsor any
and all User Data for which the Individual User has specifically authorized
release to Sponsor. In the event that an Individual User grants rights to
Sponsor for use of his User Data, Sponsor shall use its best efforts to keep
User Data confidential and shall only use such data in an ethical manner.
Sponsor may use User Data for its owns purposes, but User Data may not be
disclosed, sold, assigned, leased or otherwise disposed of to third parties by
Sponsor.
III.3. DATA CONFIDENTIALITY. The User Data shall be drkoop.com
Confidential Information under Article 5 and shall in addition be subject to the
terms of this Article 3. Sponsor shall be liable for the conduct of its
employees, agents and representatives who in any way breach this Amendment.
Sponsor's obligations to treat the User Data as Confidential Information under
Article 5 and this Article 3 shall continue in perpetuity following termination
of this Amendment.
III.4. SPONSOR USER DATA. All users on the Sponsor Website, including,
users linked to the Sponsor Website from the drkoop.com Website, will be deemed
to be customers of Sponsor. Accordingly, all rules, policies and operating
procedures of Sponsor concerning customer orders, customer service and sales
will apply to those customers. Sponsor may change its policies and operating
procedures at any time. Sponsor will determine the prices to be charged for
products and other merchandise sold on the Sponsor Website in accordance with
its own pricing policies. Prices and availability on the Sponsor Website may
vary from time to time. Notwithstanding Section 3.3, the parties hereto hereby
agree that title to any user information of any users on the Sponsor Website,
including but not limited to the name, address and e-mail address of users,
obtained by Sponsor from such users shall be owned by the Sponsor. The parties
hereto agree that pursuant to this Section 3 they may each collect and own
similar information from and with respect to individuals who visit each of their
Sites.
ARTICLE IV.
LICENSES
IV.1. LICENSES.
4.1.1 Subject to the terms and conditions hereof, Sponsor
hereby represents and warrants that it has the power and authority to grant, and
does hereby grant to drkoop.com a non-exclusive, non-transferable, royalty-free,
worldwide license to reproduce and display all
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logos, trademarks, trade names and similar identifying material relating to
Sponsor (the "Sponsor Marks") solely in connection with the promotion, marketing
and distribution of the parties and the Sites in accordance with the terms
hereof, provided, however, that drkoop.com shall other than as specifically
provided for in this Agreement, not make any specific use of any Sponsor Mark
without first submitting a sample of such use to Sponsor and obtaining its prior
consent, which consent shall not be unreasonably withheld. The foregoing license
shall terminate upon the effective date of the expiration or termination of this
Agreement.
4.1.2 Subject to the terms and conditions hereof, drkoop.com
hereby represents that it has the power and authority to grant, and does hereby
grant to Sponsor a non-exclusive, non-transferable, royalty-free, worldwide
license to reproduce and display all logos, trademarks, trade names and similar
identifying material relating to drkoop.com and, solely as allowed pursuant to
this Agreement, to the Dr. C. Everett Koop name (collectively, the "drkoop.com
Marks") solely in connection with the promotion, marketing and distribution of
the parties and the Sites in accordance with the terms hereof, provided,
however, that Sponsor shall, other than as specifically provided for in Section
4.4 of this Agreement, not make any specific use of any drkoop.com Marks without
first submitting a sample of such use to drkoop.com and obtaining its prior
consent, which consent shall not be unreasonably withheld. The foregoing license
shall terrifinate upon the effective date of the expiration or termination of
this Agreement.
IV.2. INTELLECTUAL PROPERTY OWNERSHIP. Each party shall retain all
right, title, and interest (including all copyrights, patents, service marks,
trademarks and other intellectual property rights) in its Site. Except for the
license granted pursuant to this Agreement, neither party shall acquire any
interest in the other party's Site or any other services or materials, or any
copies or portions thereof, provided by such party pursuant to this Agreement.
IV.3. REMOVAL OF MATERIALS. Each party reserves the right to reject or
remove any content, information, data, logos, trademarks and other materials
(collectively, "Materials") provided by the other from its servers at any time
if, in its reasonable opinion, it believes that any such Materials infringe any
third-party intellectual property right, are libelous or invade the privacy or
violate other rights of any person, violate applicable laws or regulations, or
jeopardize the health or safety of any person. Each party will use reasonable
efforts to contact the other prior to removing any of its Materials from its
servers and will work with the other to resolve the issue as quickly as
possible.
IV.4. USE OF NAME AND LIKENESS. Sponsor shall not have any right to use
the name and/or likeness of Dr. C. Everett Koop or to make any statements,
whether written or oral, which state or otherwise imply, directly or indirectly,
any endorsement from or affiliation with Dr. C. Everett Koop in any manner
whatsoever without the prior written consent of drkoop.com, which consent may be
withheld in drkoop.com's sole discretion. Notwithstanding the foregoing, Sponsor
is hereby authorized during the Tenn to use the logo and tag lines set forth on
EXHIBIT D, on its Site, in its catalogs and in its stores in connection with its
marketing and promotion efforts, in each case in accordance with the terms of
this Agreement and subject to the reasonable
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approval of drkoop.com. Sponsor is hereby authorized to place such logo and any
one of such tag lines on its Site, in its stores and in its catalogs in
accordance with the terms of this Agreement.
ARTICLE V.
CONFIDENTIALITY
V.1. CONFIDENTIALITY. For the purposes of this Agreement, "Confidential
Information" means non-public information about the disclosing party's business
or activities that is proprietary and confidential, which shall include, without
limitation, all business, financial, technical and other information of a party
marked or designated "confidential" or by its nature or the circumstances
surrounding its disclosure should reasonably be regarded as confidential.
Confidential Information includes not only written or other tangible
information, but also information transferred orally, visually, electronically
or by any other means. Confidential Information will not include information
that (i) is in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation or
(iii) the receiving party knew prior to receiving such information from the
disclosing party or develops independently.
V.2. EXCLUSIONS. Each party agrees (i) that it will not disclose to any
third party or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar importance.
V.3. EXCEPTIONS. Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required by law,
provided, however, that with respect to filing obligations under the securities
laws, each party will, to the extent that it is required to file this Agreement,
file this Agreement in redacted form reasonably approved by the other party
prior to such filing or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants, banks and other financing
sources and their advisors. Except as set forth in this Section 5.3, the terms
and conditions of the Agreement will be deemed to be the Confidential
Information of each party and will not be disclosed without the prior written
consent of the other party.
V.4. SPONSOR ADVERTISING CONTENT. drkoop.com hereby confirms and agrees
that during the Term Sponsor shall be able to serve up its own advertising using
NetGravity software and tags, and that drkoop.com shall not do anything which
would interfere or hamper such serving. Notwithstanding anything in this
Agreement, all information regarding Sponsor Advertising Content (including
Sponsor banner advertisements and e-commerce tiles), including all users viewing
and clicking information with respect thereto, shall be deemed to be
Confidential Information of Sponsor (collectively, "Sponsor Confidential
Advertising Information"). To the extent that in connection with drkoop.com's
advertising efforts, or
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otherwise, any third party may or will receive any Sponsor Confidential
Advertising Information from or through drkoop.com, drkoop.com agrees that prior
to such third party receiving any such infomiation drkoop.com will enter into an
agreement with such third party pursuant to which such third party will agree to
keep any such Sponsor Confidential Advertising Information received by such
third party confidential to the same extent as drkoop.com is required to keep
such information confidential under the Agreement. To the extent that any third
party breaches any such agreement of confidentiality with drkoop.com, drkoop.com
hereby agrees to enforce its rights and pursue its remedies under such agreement
to the fullest extent permitted by law, including seeking equitable relief, and,
to the extent drkoop.com would not have otherwise sought to enforce such rights
or pursue such remedies, Sponsor shall reimburse drkoop.com for the reasonable
legal costs associated therewith which reimbursement shall be offset to the
extent drkoop.com receives any monetary damages in connection therewith.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
VI.1. SPONSOR WARRANTY. Sponsor represents and warrants for the benefit
of drkoop.com that the Sponsor Advertising Content and Sponsor Marks are true
and correct and do not and will not for the Term infringe upon or violate: (i)
any intellectual property rights, including any copyright or trademark rights,
of any third party and do not and will not constitute a defamation or invasion
of the rights of privacy or publicity of any kind of any third party, (ii) any
applicable law, regulation or non-proprietary third-party right. Sponsor further
represents and warrants for the benefit of drkoop.com that the Sponsor
Advertising Content does not contain any material which is unlawful, harmful,
abusive, hateful, obscene, threatening or defamatory and Sponsor is not an
entity or an affiliate of any entity which engages in the manufacture or
wholesale distribution of tobacco or tobacco products (such activities are
collectively referred to herein as "Tobacco Industry Affiliation").
VI.2. DRKOOP.COM WARRANTY. Drkoop.com represents and warrants for the
benefit of Sponsor that the drkoop.com Marks are true and correct and do not and
will not for the Term infringe upon or violate: (i) any intellectual property
rights, including any copyright or trademark rights, of any third party and do
not and will not constitute a defamation or invasion of the rights of privacy or
publicity of any kind of any third party, (ii) any applicable law, regulation or
non-proprietary third-party right. Drkoop.com further represents and warrants
for the benefit of Sponsor that the drkoop.com Marks do not contain any material
which is unlawful, harmful, abusive, hateful, obscene, threatening or
defamatory, and drkoop.com has the right to license the drkoop.com Marks,
including the Dr. C. Everett Koop name (to the extent licensed under this
Agreement), in accordance with the terms of this Agreement.
VI.3. INDEMNIFICATION. Each party hereby agrees to indemnify and hold
harmless the other party and its subsidiaries and affiliates, and their
respective directors, officers, employees, agents, shareholders, partners,
members and other owners, against any and all claims, actions, demands,
liabilities, losses, damages, judgments, settlements, costs and expenses
(including reasonable attorneys' fees) (any or all of the foregoing hereinafter
referred to as "Losses") insofar
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as such Losses (or actions in respect thereof) arise out of or are based on (i)
the breach of any representation or warranty set forth in Articles 4, 5 or 6,
(ii) any breach by it of the licenses granted by it hereunder; (iii) the use by
it of any trademarks or Content other than in accordance with the terms hereof;
(iv) any and all product liability claims arising from this Agreement; and (v)
the development, operation, maintenance and Content (as defined below) of its
Site. For purposes herein, "Content" shall mean, with respect to each party, the
proprietary content delivered by such party to the other party pursuant to this
Agreement, including, Sponsor Advertising Content, but only to the extent that
such content is not altered by the receiving party, and the proprietary content
contained on such party's Site, and shall include only that content created by
such party, its employees or other persons contractually bound to such party to
create such content. The foregoing obligations are contingent upon the
indemnified party: (i) promptly notifying the indemnifying party of any claim,
suit, or proceeding for which indemnity is claimed; (ii) cooperating reasonably
with the indemnifying party at the latter's expense; and (iii) allowing the
indemnifying party to control the defense or settlement thereof. The indemnified
party will have the right to participate in any defense of a claim and/or to be
represented by counsel of its own choosing at its own expense.
ARTICLE VII.
LIMITATION OF LIABILITY
VII.1. WARRANTY. Drkoop.com will use commercially reasonable efforts to
maintain the drkoop.com Website available and display the Sponsor Advertising
Content twenty four hours per day each day during the term of the Agreement.
Drkoop.com shall install and maintain a commercially acceptable system of
collecting information about impressions and other data relating to the use of
the Sponsor Advertising Content. Drkoop.com warrants to Sponsor that it will
make reasonable effort to perform under this agreement in a competent manner. If
despite drkoop.com's efforts, for any 24 hour period a majority of the Sponsor
promotions or placements, or the links contained therein, are not viewable or
operational (a "Blackout Period"), drkoop.com shall, as its sole remedy
hereunder for such event, provide Sponsor with a cash rebate equal to [*****] of
the total fee to be paid by Sponsor hereunder pursuant to Section 2.5.1 of this
Agreement and the Term shall be extended by an amount of time equal to the
Blackout Period, provide that if a Blackout Period continues for 72 consecutive
hours Sponsor may, at its option, terminate this Agreement without any liability
to Sponsor.
VII.2. DISCLAIMER. Each party will be solely responsible for the
development, operation and maintenance of its Site and for all materials that
appear on its Site. Such responsibilities include, but are not limited to: (i)
the technical operation of its Site and all related equipment; (ii) the accuracy
and appropriateness of materials posted on its Site; (iii) for ensuring that
materials posted on its Site do not violate any law, rule or regulation,
including all FDA requirements, or infringe upon the rights of any third party
(including, for example, copyright, trademarks, privacy or other personal or
proprietary rights); and (iv) for ensuring that materials posted on its Site are
not libelous or otherwise illegal. Each party disclaims all liability for all
such matters with respect to the other party's Site. Except for the foregoing,
or as otherwise specifically set forth in this Agreement, neither party makes
any representations, warranties or
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guarantees of any kind, either express or implied (including, without
limitation, any warranties of merchantability or fitness for a particular
purpose), with respect to their respective Sites, or the functionality,
performance or results of use thereof, or otherwise in connection with this
Agreement.
VII.3. EXCLUSION OF WARRANTY. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY IN CONNECTION
WITH THE SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ANY
AND ALL WARRANTIES WITH REGARD TO ITS SITE AND SERVICES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF NONINFRINGEMENT AND THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN
PARTICULAR, AND NOT BY WAY OF LIMITATION, NEITHER PARTY WARRANTS THAT ITS SITE
WILL OPERATE ERROR-FREE OR WITHOUT INTERRUPTION.
VII.4. DAMAGES. EXCEPT AS SET FORTH IN SECTION 6.3, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL
OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER
LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING NEGLIGENCE) STRICT LIABILITY
OR OTHERWISE AND IRRESPECTIVE OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. Notwithstanding the foregoing, except as
set forth in Section 6.3, in no event shall either party's cumulative liability
under this Agreement to the other party exceed the amount actually paid by
Sponsor to drkoop.com pursuant to this Agreement.
ARTICLE VIII.
TERM AND TERMINATION
VIII.1. TERM; TERMINATION.
8.1.1. The initial term (the "Initial Term"; and together with
all extensions and renewals, the "Term") will begin on the date set forth above
and expire on the [*****] of the date (the "Launch Date") on which: (i) each of
the Sponsor Areas of the drkoop.com Website are operational in accordance with
the terms of this Agreement (other than the e-commerce tile placements); and
(ii) the links to the Sponsor Website or Vitamin Buzz contained in the Sponsor
logos or the Sponsor banner advertisements are established in accordance with
the terms of this Agreement, subject to earlier termination as set forth in this
Agreement. If the Launch Date has not occurred by August 31, 1999, Sponsor
shall, in its sole discretion, be entitled to terminate this Agreement without
any liability and receive a full refund of all amounts paid by Sponsor to
drkoop.com pursuant to this Agreement prior to the date of such termination.
8.1.2. On the 95th day prior to the expiration of the initial
Term, drkoop.com shall deliver a written notice to Sponsor to notify Sponsor of
the commencement of the extension
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negotiation period. Between the 90th and 60th day prior to the expiration of the
initial Term, drkoop.com and Sponsor shall in good faith negotiate to extend the
term of this Agreement. If by the 30th day prior to the expiration of the
initial Term, drkoop.com and Sponsor shall have not agreed on mutually agreeable
terms for an extension of the Term of this Agreement, drkoop.com may commence
negotiations with third parties with respect to the sponsorship of the Sponsor
Areas, provided, that prior to entering into any agreement with any third party
regarding the sponsorship of the Sponsor Areas, drkoop.com must notify Sponsor
in writing of the material terms of such third party agreement ("Third Party
Terms"), and Sponsor shall have two business days from the receipt of such
notice to notify drkoop.com that Sponsor will accept such Third Party Terms, in
which case drkoop.com and Sponsor shall enter into an agreement for the
extension of the Term on substantially the terms set forth in the Third Party
Terms. If Sponsor does not respond to drkoop.com within such two business day
period, then on or after the next succeeding business day, drkoop.com may enter
into an agreement with such third party substantially upon the terms of the
Third Party Terms.
VIII.2. TERMINATION FOR TOBACCO INDUSTRY AFFILIATION. Upon commencing
any activities relating to Tobacco Industry Affiliation (as defined in Section
6.1), Sponsor shall promptly notify drkoop.com of its intent to undertake
Tobacco Industry Affiliation. Upon receipt of such notice or upon learning of
any such Tobacco Industry Affiliation from a third party, drkoop.com shall have
the right to terminate this Agreement immediately on written notice to Sponsor
without liability of any kind.
VIII.3. TERMINATION FOR GARNISHMENT. Notwithstanding anything else
contained in this Agreement, if, prior to the end of the Term, Dr. C. Everett
Koop shall be involved in any type of immoral, indecent or hypocritical scandal
Sponsor shall have the right to terminate this Agreement immediately upon
written notice to drkoop.com, and shall not have any obligation to drkoop.com,
whether monetary or otherwise, following the date of such termination.
Additionally, in the event that either party undertakes any action or fails to
undertake any action, which the other party reasonably believes tarnishes the
high quality of its name or trademarks, including, with respect to drkoop.com,
the "Dr. Koop" name, the other party shall have the right to terminate this
agreement upon ten (10) days' written notice to the other party, provided that
such action or inaction is not cured to the reasonable satisfaction of the
terminating party within such ten day period.
VIII.4. TERMINATION FOR CAUSE. Either party may terminate this
Agreement upon thirty (30) days' written notice of a breach by the other party,
provided such breach is not cured within such thirty-day period.
VIII.5. TERMINATION BY INSOLVENCY. Either party may terminate this
Agreement by providing written notice to the other party if the other party
ceases to function as a going concern, becomes insolvent, makes an assignment
for the benefit of creditors, files a petition in bankruptcy, permits a petition
in bankruptcy to be filed against it, or admits in writing its inability to pay
its debts as they mature, or if a receiver is appointed for a substantial part
of its assets.
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VIII.6. SURVIVAL. The following Sections shall survive termination of
this Agreement: Article 5 (Confidentiality), Article 6 (Representations,
Warranties and Indemnification), Article 7 (Limitation of Liability), and
Article 9 (General).
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ARTICLE IX.
GENERAL
IX.1. PUBLICITY. Except as may be required by applicable laws and
regulations or a court of competent jurisdiction, or as required to meet credit
and financing arrangements, or as required or appropriate in the reasonable
judgment of either party to satisfy the disclosure requirements of an applicable
securities law or regulation or any applicable accounting standard, neither
party shall make any public release respecting this Agreement and the terms
hereof without the prior consent of the other party.
IX.2. ARBITRATION. Any and all disputes, controversies and claims
arising out of or relating to this Agreement or concerning the respective fights
or obligations of the parties hereto shall be settled and determined by
arbitration in the defending parties home forum before one (1) arbitrator
pursuant to the Commercial Rules then in effect of the American Arbitration
Association. Each party shall have no longer than three (3) days to present its
position. Judgment upon the award rendered may be entered in any court having
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement. The parties agree that the arbitrators
shall have the power to award damages, injunctive relief and reasonable
attorneys' fees and expenses to any party in such arbitration.
IX.3. ASSIGNMENT. Neither party may assign this Agreement, in whole or
in part, without the other party's written consent, which consent will not be
unreasonably withheld, except that: (a) a party's rights and obligation
hereunder may be transferred to a successor of all or substantially all of the
business and assets of the party regardless of how the transaction or series of
related transactions is structured, provided, that the successor party agrees to
be bound by all of the terms and conditions of this Agreement; and (b) Sponsor
may assign its rights and obligations under this Agreement to any entity (i)
which operates the Sponsor Website and (ii) which agrees to bound by all of the
terms and conditions of this Agreement.
IX.4. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, but without giving effect to
its laws or rules relating to conflicts of laws.
IX.5. NOTICE. All notices, statements and reports required or permitted
by this Agreement shall be in writing and deemed to have been effectively given
and received: (i) five (5) business days after the date of mailing if sent by
registered or certified U.S. mail, postage prepaid, with return receipt
requested; (ii) when transmitted if sent by facsimile, provided a confirmation
of transmission is produced by the sending machine and a copy of such facsimile
is promptly sent by another means specified in this section; or (iii) when
delivered if delivered personally or sent by express courier service. Notices
shall be addressed as follows:
For drkoop.com: For Sponsor:
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<TABLE>
<S> <C> <C>
drkoop.com Vitamin Shoppe Industries, Inc.
Personal Medical Records, Inc. 4700 Westside Avenue
8920 Business Park Drive North Bergen, New Jersey 07047
Austin, TX 78759 Attn: Ms. Miriam Nesheiwat
Attn: Chief Financial Officer Fax: 201-583-1834
Fax: 512-726-5130 Email: [email protected]
Email: [email protected]
With a copy to:
H. Leigh Feldman
Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
32nd Floor
New York, NY 10104
Fax: 212-541-1492
Email: [email protected]
</TABLE>
Either party may change its address for the purpose of this paragraph by notice
given pursuant to this paragraph
IX.6. NO AGENCY. The parties are independent contractors and will have
no power or authority to assume or create any obligation or responsibility on
behalf of each other. This Agreement will not be construed to create or imply
any partnership, agency or joint venture.
IX.7. SEVERABILITY. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator, the remaining
portions of the Agreement will remain in full force and effect.
IX.8. ENTIRE AGREEMENT. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both written and oral)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties.
IX.9. COUNTERPARTS. This Agreement may be signed in counterparts which,
when signed, shall constitute one document.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
drkoop.com, inc.
By: /s/ Neil Longrin
--------------------
Name: Neil Longrin
Title: Senior VP, Sales
VITAMIN SHOPPE INDUSTRIES, INC.
By: [SIGNATORY]
--------------------
Name:
Title:
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SCHEDULE 1.2(I)
SCREEN SHOT MOCK-UPS
[ATTACHED]
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EXHIBIT A
DIRECT COMPETITORS
Acta Pharmacal Puritans Pride
All Vitamins Reach4life
Austin Nutritional Realtime
BenSalem Naturals S. Shiraishi Office, Inc.
B-Vital Shop Vitamins
Chayas Chemical-Free The Herb Shop
Cherokee Naturals, Inc The Herb Shoppe
Club Vitamin The Nickel and Thyme Shoppe
GNC The Vitamin Source
Good Life Nutrition The Vitamin Tree
Green Tree US Health Distributors, Inc
Green Turtle Bay Vitamin Vita Save
Greenshack Direct VitaCare
Health and Vitamin Express VitaFit
Health Depot Vital Life
Infinity 2 Vitamin Depot
Jamieson Natural Sources Vitamin Express
Karemore Vitamin Company Vitamin House
Kava Systems Vitamin House
L & H Vitamins Vitamin Shack
Life Plus Vitamins Vitamin Warehouse, Inc.
MineralNet Vitamins for Life
Mother Nature's General Store Vitamins Online
Mountain Naturals Vitamins Vitamins.com
My Vitamins Vitanet
Nature Sunshine Vitawise
Nature Sunshine Herb and Vitamins Wholesale Vitamins
Noah's Ark Vitamin Planet
Nutritional Direct Vitamin Research Products
Nature's Bounty Vitamin Discount Connection
Vitamin World Vitamin Plus
MotherNature.com Vitamins Network
Nutritional Warehouse Vitamin4Life.com
Phillips Nutritional
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EXHIBIT B
FORM OF HEALTHLINKS AGREEMENT
[ATTACHED]
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EXHIBIT C
ADVERTISING SPECIFICATIONS
File Formats
Naming Convention: (lowercase only, 8.3)
Alternate Text: Use ALT tag; ten words or less
Image Dimensions:
Sponsor Banner: 468 pixels by 60 pixels, 234 pixels by 60 pixels, 120 pixels by
60 pixels
Image File Format: [GIF/JPEG]
Image File Size: 12k maximum file size
File Names: Use Sponsor name.: [Sponsor].gif]
Delivery of GIFs
Email -- [email protected], cc: [email protected]
We accept [,CompactPro, zip, gzip, and UNIX tar or compress] format tiles. All
formats must be mailed in [ASCII encoding(uuencode, mmencode)].
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EXHIBIT D
DRKOOP.COM CORPORATE LOGO
[LOGO ATTACHED]
"The Vitamin Shoppe is the proud exclusive vitamin sponsor of drkoop.com."
"The Vitamin Shoppe is a proud sponsor of drkoop.com, the Trusted health
Network, led by Dr. C. Everett Koop."
The Vitamin Shoppe is a proud sponsor of drkoop.com, the Trusted Health Network,
led by Dr. Ce. Everett Koop
<PAGE> 1
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THE VITAMIN SHOPPE & ONHEALTH NETWORK COMPANY
SPONSORSHIP AGREEMENT
This agreement, dated as of March 31, 1999, describes the terms and conditions
of a sponsorship and advertising agreement between Vitamin Shoppe Industries,
Inc. ("Vitamin Shoppe"), which markets and sells vitamins and nutritional
supplements on the Internet at the website http://www.vitaminshoppe.com (or any
successor website, the "Vitamin Shoppe Website") and OnHealth Network Company
("OnHealth") which maintains a health-related site on the Internet at the
website http://www.onhealth.com (or any successor website, the "OnHealth
Website"; and together with the Vitamin Shoppe Website, the "Sites").
1. Advertising Placements.
a. Banner Impressions. During the Term (as defined below), OnHealth will
deliver [*****] Vitamin Shoppe impressions (at an intended rate of [*****] Q1,
[*****] Q2, [*****] Q3, [*****] Q4) through a combination of banner
advertisements; tile advertisements and Vitamin Shoppe logos, each of which will
consist of Vitamin Shoppe Advertising Content (as defined below) and each of
which shall contain a Vitamin Shoppe link, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
AD TYPE DETAILS CREATIVES/ESTIMATED
IMPRESSIONS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Run of Site [*****] [*****]
On Health Home Page [*****] [*****]
http://onhealth.com/ch1/index.asp
Keywords [*****] [*****]
ECommerce area [*****] [*****]
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
AD TYPE DETAILS CREATIVES/ESTIMATED
IMPRESSIONS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
"Storefront" top page [ * * * * * ] [*****]
"Vitamin and Herb" store page [ * * * * * ] [*****]
Alternative Health Column [ * * * * * ] [*****]
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
A "Vitamin Shoppe impression" shall mean the display of a Vitamin Shoppe
advertisement or promotional creative to an end user of the OnHealth Web site.
Vitamin Shoppe agrees and acknowledges that the term "similarly situated" will
take into consideration the volume of advertising purchase, CPM payments,
exclusivity, return promotional efforts, and other consideration offered by each
sponsor or advertiser to OnHealth.
b. Sponsored Areas. During the Term, in no way limiting the other
obligations OnHealth pursuant to the other subsections of this Section 1,
Vitamin Shoppe will receive the following sponsorship and promotional placements
on the OnHealth Website:
(i) Vitamin Shoppe shall be the exclusive vitamin retail
advertiser or sponsor of the Vitamin and Mineral Index area and the Herbal Index
area of the OnHealth Website (collectively, the "Vitamin Shoppe Areas"). That
is, OnHealth shall not place advertisements for any other online or offline
retailer who sell vitamins, minerals and dietary supplements. In furtherance of
the foregoing, OnHealth shall prominently promote the Vitamin Shoppe Website
through a combination of [*****], each of which will consist of Vitamin Shoppe
Advertising Content and each of which shall contain a Vitamin Shoppe link, as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
AD TYPE DETAILS CREATIVES/ESTIMATED
IMPRESSIONS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vitamin & Minerals Index [*****] [*****]
http://onhealth.com/ch1/resource/
vitamins/index.asp
Herbs Index [*****] [*****]
http://onhealth.com/ch1/resource/
herbs/index.asp
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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(ii) Vitamin Shoppe shall be treated no less favorably in
Vitamin Shoppe Areas than any other similarly situated sponsor of the OnHealth
Website is treated within its sponsored areas of the OnHealth Website.
OnHealth's obligations with respect to each Vitamin Shoppe Area of the OnHealth
Website set forth in this Section 1(b) shall also apply to all areas which are
successors or replacements to such areas and to all new vitamin, mineral and
herbal areas on the OnHealth Website launched on the OnHealth Website after the
date of this Agreement.
c. Vitamin and Herbs Section of Shopping Channel. During the Term,
OnHealth will at all times display Vitamin Shoppe Advertising Content,
including, without limitation, images of and specials on Vitamin Shoppe
products, in the Vitamin and Herbs Section of the Shopping Channel on the
OnHealth Website. OnHealth's obligations to the Vitamin Shoppe with respect to
the Vitamin and Herbs Section of the Shopping Channel on the OnHealth Website
set forth in this Section 1(c) shall also apply to all areas which are
successors or replacements to such areas and to all new areas for the online
sale of vitamin, mineral and herbal on the OnHealth Website launched on the
OnHealth Website after the date of this Agreement.
d. Newsletter Promotion. During the Term of this Agreement, OnHealth
will, once per month, include a text ad (or other Vitamin Shoppe Advertising
Content approved by Vitamin Shoppe) which shall contain a Vitamin Shoppe link in
OnHealth's weekly email Newsletter which OnHealth delivers to OnHealth users who
subscribe thereto.
e. Minimum Impressions. When OnHealth provides [*****] Vitamin Shoppe
impressions, OnHealth's requirement to provide rotating banners under Section
1.a cease, but sponsorship and Shopping Channel placements under Sections 1.b
and 1.c will continue persistently for the rest of the Term.
2. Exclusivity.
a. Category Exclusivity. During the Term, the Vitamin Shoppe will be
the sole and exclusive vitamin and supplement retail sponsor of, and the sole
and exclusive vitamin and supplement retail advertiser on, the OnHealth Website.
That is, OnHealth shall not place any advertisements, logos, promotional links,
buttons, branded content, or other promotions for any Vitamin Shoppe Competitor
on the OnHealth Website. Vitamin Shoppe recognizes that other advertisers may
have vitamins and supplements as part of this overall product line, but these
are not their primary focus. For purposes of this Agreement the term "Vitamin
Shoppe Competitor" means any online or offline specialty retailer whose primary
focus is vitamins and/or nutritional supplements. As of the Effective Date,
Vitamin Shoppe Competitors include without limitation the entities listed in
Exhibit A. The parties acknowledge and agree that some of the listed entities
may cease to be Vitamin Shoppe Competitors if they change their business during
the Term.
b. Vitamin, Herb and Supplement Advertisement Exclusivity. During the
Term, OnHealth shall not place any advertisements or other promotions for the
online or offline retail sale of any vitamin, herb or nutritional supplement
product for any advertiser, EXCEPT for then-current OnHealth Site ecommerce
partner for the "Drug Store" and "Health and Beauty" categories. The parties
acknowledge that initially drugstore.com is the ecommerce partner for the "Drug
Store" category, and "SelfCare" may be the initial ecommerce partner for the
"Health and Beauty" category.
3. Vitamin Shoppe Advertising Content.
a. For each of the promotional placements described in Section I
hereof, Vitamin Shoppe shall provide OnHealth with all content including all
trademarks, logos, banners and tile ads (the "Vitamin Shoppe Advertising
Content") which will be displayed on the OnHealth Website. The parties hereto
agree to cooperate and work together in the establishment of all links, buttons,
logos, tiles and banners placed pursuant to this Agreement. Links from one
party's Site to the other party's Site shall in no way alter the look, feel or
functionality of the linked Site.
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b. OnHealth hereby confirms and agrees that during the Term Vitamin
Shoppe shall be able to serve up its own advertising using Net Gravity software
and tags, and that OnHealth shall not do anything which would interfere or
hamper such serving. Notwithstanding anything in this Agreement, all non-public
information regarding end users' access to Vitamin Shoppe Advertising Content
(including Vitamin Shoppe banner advertisements and e-commerce tiles), including
the number of end users viewing and clicking information with respect thereto,
shall be deemed to be Confidential Information of Vitamin Shoppe (collectively,
"Vitamin Shoppe Confidential Advertising Information"). To the extent that in
connection with OnHealth's advertising efforts, or otherwise, any third party
may or will receive any Vitamin Shoppe Confidential Advertising Information from
or through OnHealth, OnHealth agrees that prior to such third party receiving
any such information OnHealth will enter into an agreement with such third party
pursuant to which such third party will agree to keep any such Vitamin Shoppe
Confidential Advertising Information received by such third party confidential
to the same extent as OnHealth is required to keep such information confidential
under the Agreement. Vitamin Shoppe agrees that OnHealth may include data from
Vitamin Shoppe Confidential Advertising Information as part of aggregated
information about the OnHealth Site without restriction, so long as the Vitamin
Shoppe Confidential Advertising Information is not specifically identified as
pertaining to Vitamin Shoppe.
c. Vitamin Shoppe links established hereby may link, in Vitamin
Shoppe's sole discretion after reasonable notice to OnHealth, to either the
Vitamin Shoppe Website or to Vitamin Shoppe's Vitamin Buzz Website ("Vitamin
Buzz").
4. Confidentiality.
a. Generally. For the purposes of this Agreement, "Confidential
Information" means non-public information about the disclosing party's business
or activities that is proprietary and confidential, which shall include, without
limitation, all business, financial, technical and other information of a party
marked or designated "confidential" or by its nature or the circumstances
surrounding its disclosure should reasonably be regarded as confidential.
- -Confidential Information includes not only written or other tangible
information, but also information transferred orally, visually, electronically
or by any other means. Confidential Information will not include information
that (i) is in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation or
(iii) the receiving party knew prior to receiving such information from the
disclosing party or develops independently.
b. Exclusions. Each party agrees (i) that it will not disclose to any
third party or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar importance.
c. Exceptions. Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required by law,
provided, however, that with respect to filing obligations under the securities
laws, each party will, to the extent that it is required to file this Agreement,
file this Agreement in redacted form reasonably approved by the other party
prior to such filing or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants, banks and other financing
sources and their advisors. Except as set forth in this Section 4(c), the terms
and conditions of the Agreement will be deemed to be the Confidential
Information of each party and will not be disclosed without the prior written
consent of the other party.
5. Vitamin Shoppe User Data.
a. All users on the Vitamin Shoppe Website, including, users linked
to the Vitamin Shoppe Website from the OnHealth Website, will be deemed to be
customers of the Vitamin Shoppe. Accordingly, all rules, policies and operating
procedures of Vitamin Shoppe concerning customer orders, customer service and
sales will apply to those customers. Vitamin Shoppe may change its policies and
operating procedures at any time. Vitamin Shoppe
4
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will determine the prices to be charged for products and other merchandise sold
on the Vitamin Shoppe Website in accordance with its own pricing policies.
Prices and availability on the Vitamin Shoppe Website may vary from time to
time. The parties hereto hereby agree that title to any user information of any
users of the Vitamin Shoppe Website, including but not limited to the name,
address and e-mail address of users, obtained by Vitamin Shoppe from such users
shall be owned by the Vitamin Shoppe.
b. All users on the OnHealth Website, including, users linked to the
OnHealth Website from the Vitamin Shoppe Website, will be deemed to be customers
of the OnHealth. Accordingly, all rules, policies and operating procedures of
OnHealth concerning customer orders, customer service and sales will apply to
those customers. OnHealth may change its policies and operating procedures at
any time. OnHealth will determine the prices to be charged for services,
products and other merchandise sold by OnHealth on the OnHealth Website in
accordance with its own pricing policies. The parties hereto hereby agree that
title to any user information of any users of the OnHealth Website, including
but not limited to the name, address and e-mail address of users, obtained by
OnHealth from such users shall be owned by the OnHealth.
c. The parties acknowledge and agree that each may separately collect
the same user data from its respective web site, in which case each party shall
have such rights in the data as dictated by the rules, policies and operating
procedures of its web site and applicable law.
6. OnHealth Branding on Linked Pages. Vitamin Shoppe shall, with the
assistance of OnHealth, activate on the Vitamin Shoppe Website, one reverse
link to the OnHealth Website, which shall be provided by OnHealth, which will
allow OnHealth users who link to the Vitamin Shoppe Website through a link
established hereby, to return to the OnHealth Website. Such reverse link will
appear above-the-fold on the initial Vitamin Shoppe Website page to which the
OnHealth user links. Also, Vitamin Shoppe shall include a link to the OnHealth
Website from the "thank you" page, or any successor or replacement page,
presented to OnHealth Customers on the Vitamin Shoppe Website. OnHealth
acknowledges that Vitamin Shoppe may wish to redesign the Vitamin Shoppe Website
during the Term, in which case the parties shall discuss in good faith
alternative placement and/or design of links to the OnHealth Website to provide
substantially the same benefit to OnHealth.
7. Licenses.
a. Generally. Subject to the terms and conditions hereof, Vitamin
Shoppe hereby represents and warrants that it has the power and authority to
grant, and does hereby grant to OnHealth a non-exclusive, non-transferable,
royalty-free, worldwide license to reproduce and display all logos, trademarks,
trade names and similar identifying material relating to Vitamin Shoppe (the
"Vitamin Shoppe Marks") solely in connection with the promotion, marketing and
distribution of the parties and the Sites in accordance with the terms hereof,
provided, however, that OnHealth shall, other than as specifically set forth in
this Agreement, not make any specific use of any Vitamin Shoppe Mark without
first submitting a sample of such use to Vitamin Shoppe and obtaining its prior
consent, which consent shall not be unreasonably withheld. The foregoing license
shall terminate upon the effective date of the expiration or termination of this
Agreement.
Subject to the terms and conditions hereof, OnHealth hereby represents
that it has the power and authority to grant, and does hereby grant to Vitamin
Shoppe a non-exclusive, non-transferable, royalty-free, worldwide license to
reproduce and display all logos, trademarks, trade names and similar identifying
material relating to OnHealth (the "OnHealth Marks") solely in connection with
the promotion, marketing and distribution of the parties and the Sites in
accordance with the terms hereof, provided, however, that Vitamin Shoppe shall,
other than as specifically set forth in this Agreement, not make any specific
use of any OnHealth Marks without first submitting a sample of such use to
OnHealth and obtaining its prior consent, which consent shall not be
unreasonably withheld. The foregoing license shall terminate upon the effective
date of the expiration or termination of this Agreement.
b. Intellectual Property Ownership. Each party shall retain all
right, title, and interest (including all copyrights, patents, service marks,
trademarks and other intellectual property rights) in its Site. Except for the
license granted pursuant to this Agreement, neither party shall acquire any
interest in the other party's Site or any other services or materials, or any
copies or portions thereof, provided by such party pursuant to this Agreement.
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c. Removal of Materials. Each party reserves the right (but does not
assume the obligation) to reject or remove any content, information, data,
logos, trademarks and other materials (collectively, "Materials") provided by
the other from its servers at any time if, in its reasonable opinion, it
believes that any such Materials infringe any third-party intellectual property
right, are libelous or invade the privacy or violate other rights of any person,
violate applicable laws or regulations, or jeopardize the health or safety of
any person. Each party will use reasonable efforts to contact the other prior to
removing any of its Materials from its servers and will work with the other to
resolve the issue as quickly as possible.
8. Term.
a. The initial term (the "Initial Term"; and together with all
extensions and renewals, the "Term") will begin on the date set forth above and
expire on the [*****] of the date (the "Launch Date") on which: (i) each of the
Vitamin Shoppe Areas of the OnHealth Website are operational; and (ii) the
banner advertisements are established in accordance with the terms of Section 1
of this Agreement, subject to earlier termination as set forth in this
Agreement. If the Launch Date has not occurred by August 31, 1999, Vitamin
Shoppe shall, in its sole discretion, be entitled to terminate this Agreement
without any liability and receive a refund of all amounts, other than the
initial nonrefundable [*****] set up fee, paid by Vitamin Shoppe to OnHealth
pursuant to this Agreement prior to the date of such termination.
b. On or before the 80th day prior to the expiration of the initial
Term, OnHealth shall deliver a written notice to Vitamin Shoppe to notify
Vitamin Shoppe of the commencement of the extension negotiation period. Between
the 75th and 60th day prior to the expiration of the initial Term, OnHealth and
Vitamin Shoppe shall in good faith negotiate to extend the term of this
Agreement on such terms as the parties may then agree.
9. Press Release. OnHealth and The Vitamin Shoppe will issue a joint press
release regarding the partnership by a mutually agreed upon date.
10. OnHealth Customers; Communication.
a. Vitamin Shoppe will provide OnHealth a monthly report of the
aggregate number of OnHealth users who have linked from the OnHealth Website to
the Vitamin Shoppe Website pursuant to a link established hereby and who during
such visit purchased, for the first-time ever, a product on the Vitamin Shoppe
Website (each, a "unique OnHealth Customer"). As used in the prior sentence,
"purchased" mean that a product from the Vitamin Shoppe Website was paid for,
shipped and has not been returned by the customer for a period of 30-days from
the date of shipment.
b. OnHealth Contacts: Julie Darnell, Commerce Manager
[email protected]
206-652-0329
Alexandra D'Anna, North Eastern Ad Director
[email protected]
212-297-6233
All creatives (ad units) Linda Villahoz, Production Manager
should be sent to: [email protected]
212-297-6229
OnHealth will provide required specifications for advertising banners and other
placements upon request.
6
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
11. Cost Structure.
a. The fee for the placements and other rights provided under this
Agreement for the Term is [*****], of which [*****] shall be paid within five
business days of the date of this Agreement, with the balance to be paid in
twelve payments of [*****] due by the last day of each month of the Term
commencing on the month of the Launch Date. The initial [*****] fee, in
consideration of the exclusivity granted hereunder and for the cost of setting
up the Vitamin Shoppe promotions on the OnHealth Website, shall be deemed earned
and due as of the Effective Date.
b. After OnHealth delivers [*****] OnHealth Customers, Vitamin Shoppe
will pay OnHealth [*****] for each additional unique OnHealth Customer delivered
to Vitamin Shoppe. Such payments, if any, shall be made by the last day of the
month following the month in which such payments arose.
c. Depending on availability, Vitamin Shoppe shall have the option to
purchase additional banner advertisements from OnHealth at a [*****], which
OnHealth represents is significantly lower than OnHealth's current published
rate. Should OnHealth's published rate [*****] Vitamin Shoppe may purchase such
additional banner advertisements at a cost [*****] of OnHealth's [*****].
d. On Health will use commercially reasonable efforts to maintain the
OnHealth Website and display the Vitamin Shoppe Advertising Content pursuant to
the terms of this Agreement twenty four hours per day each day during the Term.
OnHealth shall install and maintain a commercially acceptable system of
collecting information about impressions and other data relating to the use of
the Advertising Content. OnHealth warrants to Vitamin Shoppe that it will make
reasonable effort to perform under this agreement in a competent manner. If
despite OnHealth's efforts, for any 24 hour period a majority of the Vitamin
Shoppe promotions or placements, or the links contained therein, are not
viewable or operational (a "Blackout Period"), and by the end of the term
OnHealth has not delivered all impressions required above, OnHealth shall
provide Vitamin Shoppe with a [*****] to be paid by Vitamin Shoppe hereunder
pursuant to Section 11(a) of this Agreement and the Term shall be extended by an
amount of time equal to the Blackout Period. In the event a Blackout Period
lasts more than seventy-two (72) consecutive hours, Vitamin Shoppe's payment
obligations will be suspended until end of Blackout Period, and the Term shall
be suspended for the duration of such Blackout Period.
12. General.
a. Each party hereby agrees to indemnify and hold harmless the other
party and its subsidiaries and affiliates, and their respective directors,
officers, employees, agents, shareholders, partners, members and other owners,
against any and all claims, actions, demands, liabilities, losses, damages,
judgments, settlements, costs and expenses (including reasonable attorneys'
fees) (any or all of the foregoing hereinafter referred to as "Losses") insofar
as such Losses (or actions in respect thereof) arise out of or are based on (i)
any representation or warranty made by it herein being untrue, (ii) any breach
by it of any covenant or agreement made by it herein; (iii) the use by it of any
trademarks or Content other than in accordance with the terms hereof ; and (iv)
the development, operation, maintenance of its Site and Content (as defined
below). For purposes herein, "Content" shall mean, with respect to each party,
the content as delivered by such party to the other party pursuant to this
Agreement, and the content owned or licensed by such party and contained on such
party's Site. The foregoing obligations are contingent upon the indemnified
party: (i) promptly notifying the indemnifying party of any claim, suit, or
proceeding for which indemnity is claimed; (ii) cooperating reasonably with the
indemnifying party at the latter's expense; and (iii) allowing the indemnifying
party to control the defense or settlement thereof. The indemnified party will
have the right to participate in any defense of a claim and/or to be represented
by counsel of its own choosing at its own expense.
b. NEITHER PARTY SHALL HAVE ANY LIABILITY TO ANY PERSON FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES OF ANY DESCRIPTION, WHETHER ARISING
OUT OF WARRANTY OR CONTRACT, NEGLIGENCE OR OTHER TORT, OR OTHERWISE, INCLUDING,
WITHOUT LIMITATION, ANY DAMAGES RESULTING FROM LOST PROFITS OR LOST BUSINESS
OPPORTUNITY.
7
<PAGE> 8
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
c. No purported waiver of any provision hereof shall be binding
unless set forth in a writing signed by the party to be charged thereby. Any
waiver shall be limited to the circumstance or event specifically referenced in
the written waiver document and shall not be deemed a waiver of any other term
of this Agreement or of the same circumstance or event upon any recurrence
thereof.
d. Neither party shall assign, transfer or sell all or any part of
its rights or obligations hereunder, by operation of law or otherwise, without
the prior written approval of the other party, provided, that a party's rights
and obligation hereunder may be transferred to a successor of all or
substantially all of the business and assets of the party regardless of how the
transaction or series of related transactions is structured, provided, that the
successor party agrees to be bound by all of the terms and conditions of this
Agreement. Notwithstanding the foregoing, either party may assign this Agreement
to a wholly owned subsidiary that operates the party's respective website.
c. This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Washington without consideration or
application of its conflict of law provisions.
VITAMIN SHOPPE INDUSTRIES, INC. ONHEALTH NETWORK COMPANY
Name: /s/ K.H. Creech Name: [SIGNATORY]
---------------------------- ----------------------------
Title: CEO Title: North Eastern Ad Director
--------------------------- ---------------------------
Date: May 20, '99 Date: 5/20/99
---------------------------- ----------------------------
8
<PAGE> 9
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT A
VITAMIN SHOPPE COMPETITORS
Acta Pharmacal Puritans Pride
All Vitamins Reach4life
Austin Nutritional Realtime
BenSalem Naturals S. Shiraishi Office, Inc.
B-Vital Shop Vitamins
Chavas Chemical-Free The Herb Shop
Cherokee Naturals, Inc. The Herb Shoppe
Club Vitamin The Nickel and Thyme Shoppe
GNC The Vitamin Source
Good Life Nutrition The Vitamin Tree
Green Tree US Health Distributors, Inc
Green Turtle Bay Vitamin Vita Save
Greenshack Direct VitaCare
Health and Vitamin Express VitaFit
Health Depot Vital Life
Infinity 2 Vitamin Depot
Jamieson Natural Sources Vitamin Express
Karemore Vitamin Company Vitamin House
Kava Systems Vitamin House
L & H Vitamins Vitamin Shack
Life Plus Vitamins Vitamin Warehouse, Inc.
MineralNet Vitamins for Life
Mother Nature's General Store Vitamins Online
Mountain Naturals Vitamins Vitamins.com
My Vitamins Vitanet
Nature Sunshine Vitawise
Nature Sunshine Herb and Vitamins Wholesale Vitamins
Noah's Ark Vitamin Planet
Nutritional Direct Vitamin Research Products
Nature's Bounty Vitamin Discount Connection
Vitamin World Vitamin Plus
MotherNature.com Vitamins Network
Nutritional Warehouse Vitamin4Life.com
Phillips Nutritional
9
<PAGE> 1
EXHIBIT 10.33
JUPITER COMMUNICATIONS
627 BROADWAY
NEW YORK, NY 10012
PHONE: 212-780-6060
STRATEGIC PLANNING SERVICES (SPS) AGREEMENT FAX: 212-529-7156
IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN, THE PARTIES AGREE AS FOLLOWS:
CONTRACT TERM / NUMBER OF MONTHS 12 MONTHS MONTHS START DATE 4/30/99 END DATE
4/29/2000 INVESTMENT $60,000 PAYMENT TERMS: UPON RECEIPT
THIS CONTRACTS PRICING AND DETAILS ARE CONTINGENT UPON EXECUTION OF THE JUPITER
MINDSHARE CONTRACT OF THE SAME DATE
<TABLE>
<CAPTION>
<S> <C>
===========================================================================================================================
CLIENT INFORMATION: BILL TO:
Primary Contact: Jeff Howard Primary Contact:
----------------------------------- --------------------------------
Company/Organization: Vitamin Shoppe Company/Organization:
--------------------------------- ------------------------------
Address: 4700 Westside Ave. Address:
---------------------------------------------- ---------------------------------------
City, State and Zip: North Bergen, NJ 07047 City, State and Zip:
---------------------------------- ---------------------------
Phone: 201-866-7711 Fax: 201-866-1834
-------------------- ------------------------
Phone: Fax:
------------------- --------------
E-mail: [email protected] E-mail:
---------------------------------------------- --------------------------------------------
# OF POWER USERS: 3 # OF ONLINE USERS: 3 # OF FORUM PASSES: 6
-- -- --
# OF PRACTICES: 4 # OF MODULES: 2
-- --
Research Practices [ ] CONSUMER CONTENT STRATEGIES [ ] ONLINE ADVERTISING STRATEGIES [ ] SITE OPERATIONS STRATEGIES
[ ] DIGITAL COMMERCE STRATEGIES Market Modules [ ] SHOPPING [ ] HEALTH
============================================================================================================================
</TABLE>
SPS DELIVERABLES: THE RESEARCH PRACTICES AND MARKET MODULES YOU'VE SELECTED ARE
INDICATED ABOVE
Jupiter Communications, LLC ("Jupiter") agrees to provide Vitamin Shoppe ("The
Client") with the following deliverables:
1. Unlimited access to Jupiter's research online and one hardcopy per SPS Power
User. Jupiter's research schedule is outlined as follows:
- Practices - (MONTHLY ANALYST REPORTS, WEEKLY ANALYST NOTES, MONTHLY
JUP-TELS)
- Market Modules - (BI-ANNUAL ANALYST REPORTS, MONTHLY ANALYST NOTES)
2. Unlimited number of ANALYST INQUIRY sessions for the designated SPS POWER
USER only. Analyst Inquiry session is a 30-minute discussion relevant to the
Practice or Module's competency areas.
3. FORUM PASSES - (QUANTITY IS INDICATED ABOVE) Up to TWO of the client's
allotment of passes may be used per forum. Last minute registrations will be
accepted if space if available. Additional passes may be purchased at a
25% discount.
4. PARTICIPATION IN MONTHLY TELECONFERENCES for the designated SPS Power User
only. Power users may participate in the monthly "JupTel" for their selected
practices(s). A JupTel is a telephone conference call that outlines the key
findings from a recent Analyst Report. Participants are invited to ask
questions at the end of the presentation.
5. The JUPITER/NFO CONSUMER SURVEY on the behavior, attitudes and spending
habits of consumers delivered twice a year.
CONFIDENTIALITY AGREEMENT
6. Jupiter has a policy of protecting its clients' information from disclosure
to third parties. Jupiter will take reasonable steps to protect from
disclosure materials marked "confidential", provided such materials are kept
proprietary by Client, not generally available to the public, or
independently developed by others.
7. Intellectual Property Rights - Jupiter retains exclusive rights to its
research, analysts and other copyrighted works, which may not be used or
distributed contrary to the terms of this agreement. Jupiter also retains
exclusive rights to its trademarks, including but not limited to JUPITER(R),
Jupiter Communications(R), and SPS(TM).Jupiter Communications may use the
Client's name and logo in promotional materials.
BREACH AND LIABILITY OF JUPITER AND THE CLIENT
8. If either party commits a material breach of any term or provision of this
Agreement, the non-breaching party must provide the breaching party with
written notice of the breach. The breaching party then must remedy the
breach within 30-days following receipt of the written notice. If the
breaching party does not remedy the breach within the 30-day period, the
non-breaching party may terminate this Agreement reserving all rights in law
and equity. Any outstanding balance shall be paid within thirty days of
execution of this agreement. In the event that all fees are not collected by
Jupiter as specified, Jupiter may at its sole discretion, terminate this
agreement and seek damages, including interest, costs and reasonable
attorneys' fees.
9. The liability for any acts or omissions, arising out of or related to this
agreement and the Deliverables, by Jupiter Communications, and its
employees, subsidiaries licensees and assigns, is limited to the fees paid
by the client for deliverables in the most recent subscription period. Non
performance shall be excused to the extent that performance is rendered
impossible by strike, fire, flood, governmental acts, orders or restrictions
or any other reason where failure to perform is beyond the control and not
caused by the negligence of the non-performing party.
10. The Client understands that access to Jupiter's research is only available
to the designated Power or Online Users. Power or Online Users are
prohibited from sharing passwords, copying, reprinting, or otherwise
distributing Jupiter research to unauthorized persons. This includes sharing
Jupiter research with other employees at the Client who are not authorized
Power or Online users . Any type of sharing of Jupiter research without the
express consent of Jupiter Communications is a violation of Jupiter's
Copyright, constitutes a material breach of this agreement and is expressly
forbidden.
11. In the event that this agreement, by either party, in whole or in part, is
sold, assigned, pledged, or otherwise transferred or assumed by a third
party, the other party will agree to be bound by the terms and conditions of
the agreement and the other party will guarantee such third party's
compliance with the terms and conditions of this agreement. This guarantee
will survive termination.
12. This Agreement shall be deemed to have been executed in the City and State
of New York, U.S.A. and shall be interpreted in accordance with and governed
by the Federal Arbitration Act and the laws of the State of New York and the
Commercial Rules of the American Arbitration Association (Notice for
purposes of arbitration will be deemed effected when served in a manner
proscribed by the Commercial Rules of the American Arbitration Association.
Any controversy or dispute concerning any act relating to or arising out of
this Agreement, shall be finally settled by binding arbitration under the
Commercial Rules of the American Arbitration Association then in effect.
Parties to this Agreement, for purposes of arbitration, include but are not
limited to (i) signatories; (ii) guarantors; (iii) assigns; and (iv)
subsidiaries, divisions, and agents of parties.
<TABLE>
<CAPTION>
JUPITER COMMUNICATIONS LLC VITAMIN SHOPPE
- -------------------------- --------------
<S> <C>
Signed: [SIG] Signed: [SIG]
-------------------------------------- -------------------------------
Name: Kevin Muoio Name: Larry M. Segall
---------------------------------------- --------------------------------
Title: SPS Account Manager Title: CFO
--------------------------------------- --------------------------------
Date: 4/29/1999 Date: 4/29/99
---------------------------------------- ---------------------------------
</TABLE>
<PAGE> 2
JUPITER COMMUNICATIONS
627 BROADWAY
NEW YORK, NY 10012
MINDSHARE: THE JUPITER EXECUTIVE PROGRAM PHONE: 212-780-6060
STRATEGIC PLANNING SERVICES (SPS) AGREEMENT FAX: 212-529-7156
IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN, THE PARTIES AGREE AS FOLLOWS:
CONTRACT TERM / NUMBER OF MONTHS 12 MONTHS MONTHS START DATE 4/30/99 END DATE
4/29/2000 INVESTMENT $25,000 PAYMENT TERMS: UPON RECEIPT
THIS CONTRACTS PRICING AND DETAILS ARE CONTINGENT UPON EXECUTION OF THE JUPITER
SPS CONTRACT OF THE SAME DATE
<TABLE>
<CAPTION>
===========================================================================================================
<S> <C>
CLIENT INFORMATION: BILL TO:
Primary Contact: Jeff Howard Primary Contact:
------------------------------- --------------------------------
Company/Organization: Vitamin Shoppe Company/Organization:
--------------------------- ----------------------------
Address: 4700 Westside Ave. Address:
----------------------------------------- -----------------------------------------
City, State and Zip: North Bergen, NJ 07047 City, State and Zip:
----------------------------- -----------------------------
Phone: 201-866-7711 Fax: 201-583-1834
------------------- --------------------
Phone: Fax:
------------- --------------
E-mail: [email protected] E-mail:
-------------------------------------------- ------------------------------------------
===========================================================================================================
</TABLE>
MINDSHARE DELIVERABLES:
Jupiter Communications, LLC ("Jupiter") agrees to provide Vitamin Shoppe ("The
Client") with the following deliverables:
1. Unlimited access to Jupiter's Executive Research online and one hardcopy for
the MINDSHARE EXECUTIVE USER. Jupiter's research schedule is outlined as
follows:
- Quarterly Analyst Reports
- Monthly Analyst Notes
2. TWO MINDSHARE STRATEGY sessions presented at the client's site by a Jupiter
Mindshare Analyst. Strategy sessions are 3 to 4 hours in length and must be
scheduled at least one month in advance. Client will receive a summary of
the session as well as a follow up phone call from the presenting Jupiter
Mindshare Analyst two weeks after the Strategy Session. Two sessions may be
scheduled in one day. Travel and accommodation expenses for the sessions are
included in the contract price.
3. ONE PASS TO THE JUPITER EXECUTIVE FORUM - The Executive Forum pass is not
transferable without prior permission from Jupiter Communications.
CONFIDENTIALITY AGREEMENT
4. Jupiter has a policy of protecting its clients' information from disclosure
to third parties. Jupiter will take reasonable steps to protect from
disclosure materials marked "confidential", provided such materials are kept
proprietary by Client, not generally available to the public, or
independently developed by others.
5. Intellectual Property Rights - Jupiter retains exclusive rights to its
research, analysts and other copyrighted works, which may not be used or
distributed contrary to the terms of this agreement. Jupiter also retains
exclusive rights to its trademarks, including but not limited to JUPITER(R),
Jupiter Communications(R), and SPS(TM). Jupiter Communications may use the
Client's name and logo in promotional materials.
BREACH AND LIABILITY OF JUPITER AND THE CLIENT
6. If either party commits a material breach of any term or provision of this
Agreement, the non-breaching party must provide the breaching party with
written notice of the breach. The breaching party then must remedy the
breach within 30-days following receipt of the written notice. If the
breaching party does not remedy the breach within the 30-day period, the
non-breaching party may terminate this Agreement reserving all rights in law
and equity. Any outstanding balance shall be paid within thirty days of
execution of this agreement. In the event that all fees are not collected by
Jupiter as specified, Jupiter may at its sole discretion, terminate this
agreement and seek damages, including interest, costs and reasonable
attorneys' fees.
7. The liability for any acts or omissions, arising out of or related to this
agreement and the Deliverables, by Jupiter Communications, and its
employees, subsidiaries licensees and assigns, is limited to the fees paid
by the client for deliverables in the most recent subscription period. Non
performance shall be excused to the extent that performance is rendered
impossible by strike, fire, flood, governmental acts, orders or restrictions
or any other reason where failure to perform is beyond the control and not
caused by the negligence of the non-performing party.
8. The Client understands that access to Jupiter's research is only available
to the designated Mindshare Executive User. Clients are prohibited from
sharing passwords, copying, reprinting, or otherwise distributing Jupiter
research to unauthorized persons. This includes sharing Jupiter research
with other employees at the Client who are not authorized Mindshare
Executive users. Any type of sharing of Jupiter research without the express
consent of Jupiter Communications is a violation of Jupiter's Copyright,
constitutes a material breach of this agreement and is expressly forbidden.
9. In the event that this agreement, by either party, in whole or in part, is
sold, assigned, pledged, or otherwise transferred to or assumed by a third
party, the other party will agree to be bound by the terms and conditions of
the agreement and the other party will guarantee such third party's
compliance with the terms and conditions of this agreement. This guarantee
will survive termination.
10. This Agreement shall be deemed to have been executed in the City and State
of New York, U.S.A. and shall be interpreted in accordance with and governed
by the Federal Arbitration Act and the laws of the State of New York and the
Commercial Rules of the American Arbitration Association (Notice for
purposes of arbitration will be deemed effected when served in a manner
proscribed by the Commercial Rules of the American Arbitration Association.
Any controversy or dispute concerning any act relating to or arising out of
this Agreement, shall be finally settled by binding arbitration under the
Commercial Rules of the American Arbitration Association then in effect.
Parties to this Agreement, for purposes of arbitration, include but are not
limited to (i) signatories; (ii) guarantors; (iii) assigns; and (iv)
subsidiaries, divisions, and agents of parties.
<TABLE>
<CAPTION>
JUPITER COMMUNICATIONS LLC VITAMIN SHOPPE
- -------------------------- --------------
<S> <C>
Signed: [SIG] Signed: [SIG]
------------------------------------------------- -----------------------------------------
Name: Kevin Muoio Name: Larry M. Segall
--------------------------------------------------- -------------------------------------------
Title: SPS Account Manager Title: CFO
-------------------------------------------------- ------------------------------------------
Date: 4/29/1999 Date: 4/29/1999
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.34
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
TIME INC. TIME INC. NEW MEDIA
NEW MEDIA TIME & LIFE BUILDING
1271 AVENUE OF THE AMERICAS
NEW YORK, NY 10020
212-522-1212
May 24, 1999
VIA FEDERAL EXPRESS
Mr. Jeff Howard
Chief Executive Officer
THE VITAMIN SHOPPE
Westside Avenue
North Bergen, New Jersey 07047
Dear Jeff:
I am writing to formalize our agreement for the [*****] of the Dr. Bernie
Siegel online area (the "Siegel Site") to be located within a network of sites
operated by Time Inc. New Media (the "TINM Network") by The Vitamin Shoppe for
the period commencing on the date the Siegel Site first becomes publicly
available (the "Launch Date") and ending on [*****] (the "Term"). I am pleased
to begin this relationship with you.
1. RATE
The cost of the total sponsorship package for the Siegel Site for the
Term is [*****] (net). This amount includes the [*****] discount. In the event
the Launch Date occurs after June 10, 1999, such amount shall be prorated based
on the period remaining for the Term.
2. THE PROGRAM
The sponsorship package described in this letter will extend to all areas
of the Siegel Site that are made publicly available during the Term.
To underscore, The Vitamin Shoppe shall, during the Term, be the [*****].
Time Inc. New Media shall prominently display the following tag line on the home
page: "Sponsored by The Vitamin Shoppe". Time Inc. New Media shall prominently
display the same such tag line on each other page of the Siegel Site (where
space is available; provided that such space will be available on a
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
majority of such other pages of the Siegel Site). [*****].
During the Term, The Vitamin Shoppe will be the Siegel Site's sole and
exclusive commerce partner for the sale of vitamins and supplements, and [*****]
commerce-based buttons on the Siegel Site (other than those from The Vitamin
Shoppe) will themselves promote vitamins or supplements sold by a third party.
The Siegel Site may, however, from time to time during the Term, include
commerce-based buttons that promote the products or services of a third party
who sells vitamins or supplements; provided that any such commerce-based buttons
do not themselves promote vitamins or supplements and any commerce-based buttons
that do promote vitamins or supplements are located one or more clicks away from
the Siegel Site.
Hyperlinks to The Vitamin Shoppe's website will be placed prominently on
the navigational frame that appears on virtually all pages of the Siegel Site.
We will also prominently include a branded logo link on the navigational frame.
In the event the Siegel Site contains within its editorial text
commerce-based hyperlinks (that are typically displayed in green and are to be
distinguished from editorial hyperlinks which are typically displayed in blue
and from commerce-based buttons) [*****].
At Time Inc. New Media's written request, The Vitamin Shoppe will develop
and maintain within its website certain customized page(s) which will feature
and offer for sale selected brands, which brands shall be introduced with the
words "as discussed by" or "as seen on" or such other language as may be
designated by Time Inc. New Media in its sole discretion. The customized page(s)
will consist of no fewer than one (1) page, after which a visitor may be taken
into the main portion of The Vitamin Shoppe website. Users who click the
tagline, a banner advertisement, marketing button or other equivalent promotion
of The Vitamin Shoppe while on the Siegel Site will be automatically linked to
such customized page(s) as the initial page(s) they view on The Vitamin Shoppe's
website. The content of such customized pages shall be mutually agreed upon the
parties. Such customized pages will only be accessible by users who access The
Vitamin Shoppe website by way of a link from the Siegel Site.
3. SYSTEM FAILURE GUARANTEES
If the Siegel Site does not technologically function properly for a full
24 hour period (or more), we will provide you with a cash rebate for the loss of
the day (the amount to be prorated against the sponsorship cost). We will keep
records in the unlikely event that this happens more than once.
2
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
4. PROMOTION
The Vitamin Shoppe will have the right in its website, in its store and
in its catalogs to include language such as, but not limited to, "[*****]
sponsor of the Dr. Bernie Siegel Online website," and the name and likeness of
Dr. Bernie Siegel solely in the exact manner such name and likeness appear in
the Siegel Site icon, so long as we approve each such use and so long as you
prominently and closely reference the Siegel Site URL whenever using such icon.
All Time Inc. New Media advertising that promotes the Siegel Site will include
(where space is available) a reference to, "The Vitamin Shoppe as the [*****]
sponsor of the Dr. Bernie Siegel Online website", or such other wording as the
parties hereto may agree.
5. LINK CO-SPONSOR TAGLINE
The tagline featured under the Dr. Bernie Siegel icon on the Siegel Site
will state the following: "Sponsored by The Vitamin Shoppe". The Vitamin Shoppe
name will contain a link to The Vitamin Shoppe website so users on the Siegel
Site can click directly on the company name. In return for this, you will
provide a link from The Vitamin Shoppe's home page to the Siegel Site.
6. WEEKLY TRAFFIC/SALES INFORMATION
Time Inc. New Media will provide you with Weekly Ad View information and
click through numbers, via the Internet. We will review these figures with you
to assist The Vitamin Shoppe in receiving the highest yield possible. "Ad View"
shall mean each time that the sponsor tagline (as described above), a banner
advertisement, a marketing button or any other equivalent promotion of The
Vitamin Shoppe on the Siegel Site (each of which shall be counted as a separate
Ad View) is viewed by a user.
With respect to users who link to The Vitamin Shoppe website from the
Siegel Site, you will provide us with weekly sales figures, along with the
number of catalogs ordered, from The Vitamin Shoppe's website. This will provide
us with an insight as to how the Siegel Site is helping The Vitamin Shoppe and
will enable us to work with you knowledgeably to enhance our relationship.
7. SPONSORSHIP PACKAGE BEYOND TERM
Any continuation of The Vitamin Shoppe's sponsorship of the Siegel Site
shall be subject to the mutual written agreement of both parties and neither
party shall have any obligation to continue, or to negotiate the continuation
of, the relationship described herein.
3
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
8. OTHER AREAS OF DISCUSSION
The Vitamin Shoppe will be entitled to receive weekly Ad Views, and, to
the extent such information is made available by us to other third party
advertisers, unique user figures (which The Vitamin Shoppe acknowledges will be
estimated research), provided by the Siegel Site.
9. ADDITIONAL BENEFITS/OPPORTUNITIES
Either party may issue its own press release announcing the continuation
of this strategic relationship, subject to the other party's prior written
approval. Our Public Relations department will be responsible for completing
these tasks.
We will use The Vitamin Shoppe tagline in promotional and publicity
material we distribute concerning the Siegel Site.
We will designate a contact person here who will be able to provide you
with information, reports or answers to questions. A monthly conference call or
in-person meeting can also be set up if you wish.
As you know, we represent one arm of the Dr. Bernie Siegel franchise,
which will continue to grow and prosper as we enter the new millennium. We will
explore with Dr. Bernie Siegel's representatives opportunities in other media
that could benefit The Vitamin Shoppe and will act as liaison to coordinate The
Vitamin Shoppe's involvement.
We will work with you to create materials to be distributed in your
stores that will benefit your customers.
10. ADDITIONAL TERMS
The fees will be payable as follows: (a) [*****] shall be due on [*****];
(b) [*****] shall be due on [*****]; (c) [*****] shall be due on [*****]; and
(d) the remaining [*****] shall be due on [*****].
The sponsorship opportunities we are offering in this letter relate only
to those areas of the Siegel Site listed above as they appear in the English
language on the TINM Network (as it is currently known), targeted to users in
the U.S. and Canada (or any such successor website(s) that replace(s) the TINM
Network within which Time Inc. New Media operates the Siegel Site, in the
English language, targeted to users in the U.S. and Canada). We reserve the
right to repurpose the material on the Siegel Site in other formats and other
media, to translate it into another language and display the translation in
other media or online, and to disaggregate the website material for license or
syndication online outside of the TINM Network, in such cases without any
obligation to The Vitamin Shoppe; provided that Time Inc. New Media will not
operate a Mirror Site (as defined herein). A "Mirror Site" shall mean a site
that duplicates all of the content, format and "look and feel" of the Siegel
Site, is written in the English language, is
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ASTERISKS DENOTE OMISSIONS.
targeted to users in the U.S. and Canada, is publicly available on the World
Wide Web of the Internet, and is designed for narrowband display.
The Vitamin Shoppe will be responsible for completing all aspects of
transactions sought by users of the Siegel Site or the TINM Network, including
order processing and security, fulfillment, catalog distribution and customer
service. In addition, The Vitamin Shoppe will comply with appropriate privacy
policies in handling customers' personally identifying information.
Specifically, The Vitamin Shoppe will prominently display, and will strictly
comply with, a privacy policy on its website that is substantially similar to
the privacy policy displayed on the TINM Network, and strictly adheres to the
privacy guidelines and principles promulgated by the Direct Marketing
Association or the Online Privacy Alliance.
Each party hereby agrees to indemnify and hold harmless the other party
and its subsidiaries and affiliates, and their respective directors, officers,
employees, partners, members and other owners, against any and all claims,
actions, demands, liabilities, losses, damages, judgments, settlements, costs
and expenses (including reasonable attorneys' fees) resulting from third party
claims (any or all of the foregoing hereinafter referred to as "Losses") insofar
as such Losses (or third party actions in respect thereof) arise out of or are
based on the use by it of any trademarks belonging to the other party other than
in accordance with the terms hereof.
The Vitamin Shoppe hereby agrees to indemnify and hold harmless Time Inc.
New Media and its subsidiaries and affiliates, and their respective directors,
officers, employees, partners, members and other owners, against any and all
Losses insofar as such Losses (or third party actions in respect thereof) arise
out of or are based on the use by Time Inc. New Media of the Vitamin Shoppe
Trademarks in accordance with the terms hereof to the extent The Vitamin Shoppe
did not have the right to grant a license to Time Inc. New Media as set forth
below.
Time Inc. New Media hereby agrees to indemnify and hold harmless The
Vitamin Shoppe and its subsidiaries and affiliates, and their respective
directors, officers, employees, partners, members and other owners, against any
and all Losses insofar as such Losses (or third party actions in respect
thereof) arise out of or are based on the use by The Vitamin Shoppe of the
TINM/Dr. Siegel Trademarks in accordance with the terms hereof to the extent
Time Inc. New Media did not have the right to grant a license to The Vitamin
Shoppe as set forth below.
Subject to the terms and conditions hereof, the Vitamin Shoppe does
hereby grant to Time Inc. New Media a non-exclusive, worldwide, non-transferable
license to reproduce and display all logos, trademarks, trade names and similar
identifying material relating to the Vitamin Shoppe (the "Vitamin Shoppe
Trademarks") solely in connection with the promotion, marketing and distribution
of the Siegel Site and the Vitamin Shoppe and its website in accordance with the
terms hereof, provided, however, that Time Inc. New Media shall not make any
specific use of any Vitamin Shoppe Trademark without first submitting a sample
of such use to the Vitamin Shoppe and obtaining its prior consent, which consent
shall not be unreasonably withheld. Such license shall terminate upon the
effective date of the expiration or termination of this Agreement.
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Subject to the terms and conditions hereof, Time Inc. New Media does
hereby grant to the Vitamin Shoppe a non-exclusive, worldwide, non-transferable
license to reproduce and display all logos, trademarks, trade names and similar
identifying material relating to the Siegel Site (the "TINM/Dr. Siegel
Trademarks") solely in connection with the promotion, marketing and distribution
of the Siegel Site and the Vitamin Shoppe and its website in accordance with the
terms hereof, provided, however, that the Vitamin Shoppe shall not make any
specific use of any TINM/Dr. Siegel Trademark without first submitting a sample
of such use to Time Inc. New Media and obtaining its prior consent, which
consent shall not be unreasonably withheld. Such license shall terminate upon
the effective date of the expiration or termination of this Agreement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of law
principles thereof. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior agreement, written and oral, with respect thereto. No change,
amendment or modification of any provision hereof shall be valid unless set
forth in a written instrument signed by both parties. This Agreement does not
constitute either party an agent, legal representative, joint venturer, partner
or employee of the other for any purpose whatsoever and neither party is in any
way authorized to make any contract, agreement, warranty or representation or to
create any obligation, express or implied, on behalf of the other party hereto.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and together which shall constitute one and the same
instrument. This Agreement and the provisions hereof shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
successors and permitted assigns; provided, however, that neither party shall
have the right to assign its rights or obligations hereunder to any other person
or entity without the prior written consent of the other party, which shall not
be unreasonably withheld. Notwithstanding the foregoing sentence, either party
may assign this Agreement, and/or its rights or obligations hereunder, to an
affiliate of such party without the written consent of, but upon prior notice
to, the other party; provided that such affiliate continues to maintain or
operate the assigning party's site.
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11. CONCLUSION
All of us here at Time Inc. New Media are very excited about continuing
the relationship between the Siegel Site and The Vitamin Shoppe. By combining
the best that both companies have to offer, we will be able to offer the
consumer a unique experience that will serve both of our objectives.
Sincerely,
Steven Petrow
ACKNOWLEDGED AND AGREED:
THE VITAMIN SHOPPE
By: /s/ K. H. CREECH
-------------------------
Title: CEO
----------------------
cc. TIME INC. NEW MEDIA THE VITAMIN SHOPPE
Jean Cho Larry Siegel
Rosemary Ellis Joel Gurzinsky
Marjorie Rich
Christin Shanahan
Jennifer Taylor
<PAGE> 1
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SPONSORSHIP AND ADVERTISING AGREEMENT
Agreement, dated as of April 16, 1999, between InteliHealth, Inc.
("InteliHealth") and Vitamin Shoppe Industries, Inc. ("Company").
WHEREAS, InteliHealth owns and operates a site on the World Wide Web (the "Web")
portion of the Internet located at www.intelihealth.com (together with any
successor Web sites and any co-branded sites on www.intelihealth.com for which
InteliHealth controls the advertising and sponsorships, the "InteliHealth
Site");
WHEREAS, Company owns and operates a site on the Web located at
www.vitaminshoppe.com (together with any successor Web sites, the "Company
Site"; and together with the InteliHealth Site, the "Sites"); and
WHEREAS, Company desires to receive various sponsorship and promotional
placements on the InteliHealth Site and InteliHealth desires to receive certain
marketing and promotional services from Company, all as in accordance with the
terms of this Agreement.
NOW THEREFORE, for good and valuable consideration the parties hereto agree as
follows:
1. EXCLUSIVE VITAMIN SPONSORSHIPS AND ADVERTISING.
(a) Throughout the Term (as defined below), Company shall be the sole and
exclusive vitamin and supplement sponsor of, and, except as set forth in this
Agreement, the sole vitamin and supplement advertiser on, the InteliHealth Site,
and in furtherance thereof InteliHealth shall not place any names, trademarks,
links, buttons, advertisements or content of any Company Competitor (as defined
below), or any links which link directly to any Company Competitor
(collectively, "Competitor Content"), excluding content created by InteliHealth
or licensed from third parties other than any Company Competitor and any names,
trademarks links or buttons in any such content (collectively, "Permitted
Content"), on any area of the InteliHealth Site.
(b) For purposes of this Agreement the term "Company Competitor" mean any entity
set forth on Exhibit A attached hereto, which Exhibit A may be updated from time
to time by the Company, subject to InteliHealth's reasonable approval; or (ii)
any entity which, on the date of any agreement between InteliHealth and any such
entity, derives more than 51% of its revenues from the sale of vitamins and/or
nutritional supplements, provided that with respect to this clause (ii), if
InteliHealth, after using reasonable efforts to determine whether an entity
meets this condition, violates this clause (ii) it shall not be deemed to be a
breach of this Agreement, provided, further, that if InteliHealth is notified in
writing by Company that it has breached this clause (ii), then InteliHealth
shall have 60 days from such notification to remedy such breach before it shall
be deemed to have breached this Agreement. If InteliHealth is unable to remedy
this breach within such 30-day period after using reasonable efforts, then
Company's sole and exclusive remedy shall be to terminate this Agreement
(without any liability to Company arising out of such termination) and to
receive a prorata refund
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ASTERISKS DENOTE OMISSIONS.
of all prepaid amounts. To the extent other entities on the InteliHealth Site
which are not Company Competitors sell vitamins or supplements, they shall not,
except as set forth below, be able to promote the sale of vitamins or
supplements on the InteliHealth Site.
(c) Notwithstanding anything to the contrary contained in this Agreement, during
the terms of each of their current contracts with InteliHealth, but not for any
renewals or extensions thereof, each of [*****] and [*****] may run
advertisements in all areas of the InteliHealth Site other than the Company
Sponsored Zones (as defined below), including advertisements which promote the
sale of vitamins or nutritional supplements.
(a) Company acknowledges that, notwithstanding anything to the
contrary contained in this Agreement, the terms of this Agreement shall not
apply to (i) InteliHealth's Health SuperMall (or an equivalent site) or (ii)
InteliHealth's professional site located at ipn.intelihealth.com.
2. SPONSORSHIP PLACEMENTS.
(a) During the Term, in no way limiting the foregoing in Section 1, Company will
receive the following sponsorship and promotional placements on the InteliHealth
Site:
(i) Company Sponsored Zones on InteliHealth Site. Subject to the terms of
this Agreement, Company will: (A) be the exclusive vitamin and supplement
sponsor in the Vitamin and Nutrition Resource Center area of the
InteliHealth Site, the Ask the Nutritionist area of the InteliHealth Site
and the Alternative Health Zone of the InteliHealth Site (the "Company
Sponsored Zones"); (B) [*****] the first (top) anchor tenant position in
the Vitamin and Nutrition Resource Center and the Alternative Health
Zone, which position shall contain a link to, in Company's sole
discretion, either the Company Site or Company's Vitamin Buzz Web site
("Vitamin Buzz"); (C) place Company sponsorship buttons, badge placements
and banner advertisements, each of which shall contain links to, in
Company's sole discretion, either the Company Site or Vitamin Buzz, in
each Company Sponsored Zone, so that: (i) at least one Company sponsor
button, badge placement or banner advertisement appears on every page
view of every page of each Company Sponsored Zone; (ii) at least [*****]
of all sponsorship buttons appearing in each Company Sponsored Zone are
Company sponsorship buttons; (iii) at least [*****] of all badge
placements appearing in each Company Sponsored Zone are Company badge
placements; (iv) at least [*****] of all banner advertisements appearing
in each Company Sponsored Zone are Company banner advertisements. There
shall be only: (A) up to [*****] anchor tenant positions on the first
page of each of the Vitamin and Nutrition Resource Center and the
Alternative Health Zone; (B) [*****] sponsor button on each page of the
Company Sponsored Zones other than on the first page of each of the
Vitamin and Nutrition Resource Center and the Alternative Health Zone;
and (C) [*****] badge placement and [*****] banner advertisement on each
page of each Company Sponsored Zone. Exhibit B sets forth page shot
mock-ups of the first and second pages of a typical sponsored zone with
anchor tenant positions, substantially as they will appear on its launch
date. Company's placements in the Company Sponsored Zones will be as or
more prominent than
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ASTERISKS DENOTE OMISSIONS.
those contained in Exhibit B. Notwithstanding the foregoing, InteliHealth
may add additional links to the Company Sponsored Zones for
InteliHealth's own promotional use in a manner consistent with that done
in the other zones on the InteliHealth Site.
InteliHealth shall provide the Company Sponsored Zones at least the same,
treatment, prominence and integration throughout the InteliHealth Site
which it provides to all other "zones" on the InteliHealth Site.
Additionally, InteliHealth shall promote the Vitamin and Nutrition
Resource Center through permanent icons, rotating promotional links and
specials on America Online, CBS.com, AltaVista, CompuServe, PointCast and
its current and future InteliHealth distribution partners, subject to the
terms of Section 2(e) below. Until the launch of the Alternative Health
Zone area of the InteliHealth Site, Company will receive comparable
placements within the current alternative health area of the InteliHealth
Site. If InteliHealth removes the current alternative health area of the
InteliHealth Site, then InteliHealth will provide Company with similar
placements within a similar and mutually agreeable area of the
InteliHealth Site as a substitute. If the Alternative Health Zone is not
launched within [*****] of the date of this Agreement, then the
Company may elect to sponsor the weight management zone or any other zone
mutually agreed upon by the parties and shall receive placements therein
comparable to those that it would have received in the Alternative Health
Zone.
(ii) Additional Vitamin and Nutrition Sponsorships. In addition to the
foregoing, Company shall be the [*****] vitamin and nutritional
supplement sponsor of the following vitamin and nutrition specific areas:
(A) the A-Z Vitamins and Supplements Glossary on the InteliHealth Site;
(B) the interactive meal planning asset in the Vitamin and Nutrition
Resource Center; and (C) the InteliHealth recipe area in the Vitamin and
Nutrition Resource Center, and shall receive the same treatment and
placements in those areas as it receives in the Company Sponsored Zones.
(iii) Other Assets in the Vitamin and Nutrition Resource Center. To the
extent InteliHealth creates any other content assets within the Vitamin
and Nutrition Resource Center, Company will be the exclusive vitamin and
supplement sponsor of such assets to the same extent as set forth in
Section 2(a)(i) above.
(iv) Additional Sponsorships on InteliHealth Site. To the extent
InteliHealth creates any major content assets within the InteliHealth
Site the main topic of which is vitamins, nutritional supplements and/or
alternative health, Company will be the [*****] vitamin and supplement
sponsor of such assets to the same extent as set forth in Section 2(a)(i)
above. In addition, Company will be the exclusive vitamin and supplement
sponsor of the USDA Nutritional Database to the same extent as set forth
in Section 2(a)(i) above.
(v) Email Sponsorship. Company will be (A) the exclusive vitamin sponsor
of InteliHealth's weekly nutrition email and (B) one of the rotating
sponsors of InteliHealth's daily and weekly health emails, provided, that
Company shall be the sole and exclusive vitamin sponsor of all vitamin
and supplement emails. InteliHealth's obligations described in
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ASTERISKS DENOTE OMISSIONS.
Section l (a) above with respect to advertising shall also apply to all
emails generated by InteliHealth during the Term.
(vi) Sweepstakes. InteliHealth shall create vitamin and nutrition related
sweepstakes and Company shall, for no additional charge, be given the
option to sponsor each such sweepstake.
(vii) Search Terms. Company will be the [*****] vitamin sponsor of at
least [*****] "search terms," chosen by Company, subject to
InteliHealth's reasonable approval. Company may update such search terms
from time to time, subject to InteliHealth's reasonable approval.
(viii) Additional Advertising. Company will receive banner and badge
placements throughout the InteliHealth Site, which placements shall be
substantially the same as those received by every other
similarly-situated zone sponsor.
As used in this Section 2(a), the term "exclusive" with respect to each Company
Sponsored Zone means that: (A) Company shall be the sole and exclusive vitamin
and nutrition supplement sponsor of each Company Sponsored Zone, and, except for
Permitted Content or as otherwise provided in this Agreement, no Competitor
Content, or links directly to any Competitor Content shall appear in the Company
Sponsored Zones; and (B) other than (i) Company anchor tenant positions, sponsor
buttons, badge placements, banner advertisements or other Company promotions,
(ii) Permitted Content or (iii) as otherwise provided in this Agreement, no
content, including content in any anchor tenant, sponsor button, badge and
banner advertisement space, promoting the sale of vitamins or nutritional
supplements, whether by a Company Competitor or anyone else, shall appear in the
Company Sponsored Zones. For purposes of this paragraph, except for Permitted
Content or as otherwise provided in this Agreement, the term Competitor Content
shall include the content of all drugstores, including, without limitation, the
content of [*****], [*****] and [*****]. Notwithstanding anything in
this Agreement to the contrary, [*****] may, during the term of its agreement
with InteliHealth but not for any extensions or renewals thereof, occupy one of
the four remaining anchor tenant positions in the Vitamin and Nutrition Resource
Center, but shall not be allowed to promote the sale of specific vitamins or
nutrition supplements therein. InteliHealth's obligations with respect to each
area of the InteliHealth Site set forth in this Section 2(a) shall also apply to
all areas which are successors or replacements to such areas and to all new
vitamin and nutrition areas in the Vitamin and Nutrition Resource Center other
than those set forth in this Section 2(a).
(b) InteliHealth may not, without the prior written consent of Company (which
will not be unreasonably withheld), substantially alter, change or modify the
look, feel or functionality of any Company Sponsored Zone so as to materially
change or alter Company's prominence, in terms of either size, placement or
frequency, within such zone so that such prominence is no longer at least
equivalent to such prominence on its launch date.
(c) If InteliHealth wishes to allow any area on the InteliHealth Site set forth
in this Section 2 in which Company is the exclusive sponsor of vitamins and
supplements to be displayed on any other
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Web site, whether owned by InteliHealth or not, and if InteliHealth is able to
control the advertising placements within or sponsorship of such area on such
third party Web site, InteliHealth shall, prior to contacting any other party
with respect to such advertisements or sponsorship, notify Company in writing
prior to the launch of such area and shall negotiate in good faith with Company
to allow Company to be the exclusive advertiser and sponsor of such area on such
third party Web site.
(d) For each of the placements described in this Section 2, Company shall
provide InteliHealth with all trademarks, logos or banners which will be
displayed on the InteliHealth Site and which will link to the Company Site.
Where feasible, the placement may include mutually agreeable text. The parties
hereto agree to cooperate and work together in the establishment of all links
placed pursuant to this Agreement. Links from one party's Site to the other
party's Site shall in no way alter the look, feel or functionality of the linked
Site. The parties agree that, notwithstanding anything to the contrary contained
in this Agreement, all placements under this Agreement must comply with
InteliHealth's standard advertising guidelines which are contained in Exhibit C
hereto, which guidelines shall apply to all zones on the InteliHealth Site.
(e) Company acknowledges that the Ask the Nutritionist Button and other content
assets of InteliHealth may not be accepted by all of InteliHealth's distribution
partners' sites.
3. COMPANY PROMOTIONAL ACTIVITIES. Company will engage in the promotional
and marketing activities described on Exhibit D. In all such promotional
activities Company shall, during the Term, be able to state that Company is "a
proud Marquis sponsor of [the InteliHealth Web site] or [InteliHealth.com]" or
"exclusive category sponsor of the Vitamin and Nutrition Center on
InteliHealth.com," subject to InteliHealth's prior review and written approval
of all such uses; however, following such process InteliHealth may grant
approval for entire advertising campaigns or for general use guidelines for
specific advertisements. In addition, Company may display posters and other
in-store promotions offering the sale of Johns Hopkins products using the
tagline "InteliHealth, Home to Johns Hopkins Information" and the url
www.intelihealth.com as a source for comprehensive Health information, subject
to InteliHealth's prior review and written approval. Other than as explicitly
provided for in this Agreement, all other promotional activities relating to
this Agreement are subject to the prior approval of InteliHealth and Company.
4. FEES.
(a) Annual Fee. The fee for the placements and other rights provided under this
Agreement for the Initial Term (as defined below) is [*****]. Of this fee,
[*****] shall be payable on the date of this Agreement, and the balance of such
fee shall be paid in six (6) equal installments of [*****], with the first
installment (the "First Installment") due on the latter of (i) the Launch Date
(as defined below) and (ii) the 15th day of the fourth month of the Term
following the date of this Agreement, and the remaining five installments due on
the 15th day of each of the seventh, tenth, 13th, 17th and 20th months of the
Term following the date of this Agreement, provided that the first of such five
remaining installments (the "Second Installment") shall not be due until after
the First Installment has been paid. In the event the First Installment is paid
later than the seventh
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ASTERISKS DENOTE OMISSIONS.
month of the Term, the Second Installment shall be paid no later than three
months following the payment of the First Installment.
(b) Late Payment. In addition to InteliHealth's other rights under this
Agreement, InteliHealth may suspend all sponsorship and promotional placements
in the event any payment is late by more than five (5) business days.
5. REPORTING. InteliHealth will provide Company with monthly reports
containing substantially the same types of information delivered to other of its
similarly situated sponsors, which reports will include information regarding
impressions and click-throughs Company shall have the right to use such data
exclusively for its internal business purposes and shall treat such data as
confidential and proprietary information.
6. TERM.
(a) The initial term (the "Initial Term"; and together with all extensions and
renewals, the "Term") will begin on the date set forth above and expire on the
[*****] year anniversary of the date (the "Launch Date") on which (i) the
Vitamin and Nutrition Resource Center, the Ask the Nutritionist feature area,
and the placements in the current alternative health area on the InteliHealth
Site are operational and (ii) the links to the Company Site within each of the
Vitamin and Nutrition Resource Center and the Ask the Nutritionist feature area
on the InteliHealth Site are established all as in accordance with the terms of
this Agreement, subject to earlier termination as set forth in the General Terms
and Conditions. If the Launch Date has not occurred by [*****], Company shall,
in its sole discretion, be entitled to terminate this Agreement without any
liability and receive a full refund of all amounts paid by Company to
InteliHealth pursuant to this Agreement prior to the date of such termination.
(b) On or before the 95th day prior to the expiration of the Initial Term,
InteliHealth shall deliver a written notice to Company to notify Company of the
commencement of the extension negotiation period. Between the 90th and 60th day
prior to the expiration of the Initial Term, InteliHealth and Company shall in
good faith negotiate to extend the term of this Agreement. If by the 30th day
prior to the expiration of the Initial Term, InteliHealth and Company shall have
not agreed on mutually agreeable terms for an extension of the Term of this
Agreement, InteliHealth may commence negotiations with third parties with
respect to the sponsorship of the Company Sponsored Zones, provided, that prior
to entering into any agreement with any third party regarding the sponsorship of
the Company Sponsored Zones, [*****], and Company shall have five business days
from the receipt of such notice to notify InteliHealth in writing that Company
will accept such Third Party Terms, in which case InteliHealth and Company shall
enter into an agreement for the extension of the Term on substantially the terms
set forth in the Third Party Terms. If Company does not respond to InteliHealth
within such five business day period, then on or after the next succeeding
business day, InteliHealth may enter into an agreement with such third party
substantially upon the terms of the Third Party Terms.
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7. COMPANY ADVERTISING. InteliHealth hereby confirms and agrees that during
the Term Company shall be able to serve up its own advertising using NetGravity
software and tags, and that InteliHealth shall not do anything which would
unreasonably interfere or hamper such serving. Notwithstanding anything in this
Agreement, all information regarding Company advertising (including Company
banner advertisements), including all users viewing and clicking information
with respect thereto, shall be deemed to be confidential information.
(collectively, "Confidential Advertising Information"). To the extent that in
connection with InteliHealth's advertising efforts, or otherwise, any third
party may or will receive any Confidential Advertising Information from or
through InteliHealth, InteliHealth agrees that prior to such third party
receiving any such information InteliHealth will enter into an agreement with
such third party pursuant to which such third party will agree to keep any such
Confidential Advertising Information received by such third party confidential
to the same extent as InteliHealth is required to keep such information
confidential under this Agreement. Such agreement shall also state that Company
is a third party beneficiary of such agreement and as such may enforce its
rights and seek damages should such third party breach such agreement.
7. CONTACT INFORMATION.
Set forth below is the information for each party of the person responsible for
its activities under this agreement:
Name and Title: J.J. Howard President and CEO
-----------------------------------------------------------------
Address: 4200 Westside Avenue, North Bergen, NJ
------------------------------------------------------------------------
Phone: 201-866-7711 Fax: 201-866-5227 Email: [email protected]
--------------- --------------- ---------------------------
Name and Title: Ken Freirich, VP of Sales and Marketing
-----------------------------------------------------------------
Address: 9600 Harvest Drive, Blue Bell, PA 19422
------------------------------------------------------------------------
Phone: 215-775-6745 Fax:215-775-6826 Email: [email protected]
-------------- -------------- ----------------------------
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The attached Exhibit(s) and General Terms and Conditions are a part of this
Agreement. If the terms of this Agreement are acceptable to you, please have an
authorized representative of your organization sign below.
INTELIHEALTH, INC. VITAMIN SHOPPE INDUSTRIES, INC.
By: [SIG] By: [SIG]
--------------------------------- ----------------------------
Name: Ken Freirich Name: J.J. Howard
------------------------------- --------------------------
Title: VP of Sales and Marketing Title: President and CEO
------------------------------ ------------------------
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GENERAL TERMS AND CONDITIONS
1. Subject to the terms and conditions hereof, Company hereby represents and
warrants that it has the power and authority to grant, and does hereby
grant to InteliHealth a non-exclusive, non-transferable, royalty-free,
worldwide license to reproduce and display all logos, trademarks, trade
names and similar identifying material relating to Company (the "Company
Marks") solely in connection with the promotion, marketing and
distribution of Company and the Company Site in accordance with the terms
hereof, provided, however, that InteliHealth shall, other than as
specifically set forth in this Agreement, not make any specific use of
any Company Mark without first submitting a sample of such use to Company
and obtaining its prior consent, which consent shall not be unreasonably
withheld. Subject to the terms and conditions hereof, InteliHealth hereby
represents that it has the power and authority to grant, and does hereby
grant to Company a non-exclusive, non-transferable, royalty-free,
worldwide license to reproduce and display all logos, trademarks, trade
names and similar identifying material relating to InteliHealth (the
"InteliHealth Marks") solely in connection with the promotion, marketing
and distribution of InteliHealth and the InteliHealth Site in accordance
with the terms hereof, provided, however, that Company shall, other than
as specifically set forth in this Agreement, not make any specific use of
any InteliHealth Mark without first submitting a sample of such use to
InteliHealth and obtaining its prior consent, which consent shall not be
unreasonably withheld. The foregoing licenses shall terminate upon the
effective date of the expiration or termination of this Agreement. Except
as explicitly set forth in this Agreement, neither party grants to the
other any rights to any of its intellectual property.
2. Subject to Section 2(b) of the Agreement, each party reserves the right
to modify the design, organization, structure, look and feel, navigation
and other elements of its Site; provided that if any such modifications
by InteliHealth significantly affect Company's sponsorship placements,
the parties will work together in good faith to provide Company with a
comparable package of placements.
3. Each party reserves the right to reject or remove any content,
information, data, logos, trademarks and other materials (collectively,
"Materials") provided by the other from its servers at any time if, in
its sole opinion, it believes that any such Materials infringe any
third-party intellectual property right, are libelous or invade the
privacy or violate other rights of any person, violate applicable laws or
regulations, or jeopardize the health or safety of any person. Each party
will use reasonable efforts to contact the other prior to removing any of
its Materials from its servers and will work with the other to resolve
the issue as quickly as possible.
4. Each party will be solely responsible for the development, operation and
maintenance of its Site and for all materials that appear on its Site,
other than for any materials provided by the other party for which the
party providing such materials shall be solely responsible, to the extent
such materials are not altered by the receiving party. Such
responsibilities include, but are not limited to: (i) the technical
operation of its Site and all related equipment; (ii) the accuracy and
appropriateness of such materials; (iii) for ensuring that such materials
do not
<PAGE> 10
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
violate any law, rule or regulation, including all FDA requirements, or
infringe upon the rights of any third party (including, for example,
copyright, trademarks, privacy or other personal or proprietary rights);
and (iv) for ensuring that such materials are not libelous or otherwise
illegal. Each party disclaims all liability for all such matters with
respect to the other party's Site (except for such party's materials
which appear on such other party's Site). Except for the foregoing, or as
otherwise specifically set forth in this Agreement, neither party makes
any representations, warranties or guarantees of any kind, either express
or implied (including, without limitation, any warranties of
merchantability or fitness for a particular purpose), with respect to
their respective Sites, or the functionality, performance or results of
use thereof, or otherwise in connection with this Agreement.
5. Each party hereby agrees to indemnify, defend and hold harmless the other
party and its subsidiaries and affiliates, and their respective
directors, officers, employees, agents, shareholders, partners, members
and other owners, against any and all claims, actions, demands,
liabilities, losses, damages, judgments, settlements, costs and expenses
(including reasonable attorneys' fees) (any or all of the foregoing
hereinafter referred to as "Losses") insofar as such Losses (or actions
in respect thereof) arise out of or are based on (i) any representation
or warranty made by it herein being untrue, (ii) any breach by it of the
licenses granted by it hereunder or of any other covenant or agreement
made by it herein; (iii) the use by it of any trademarks, Materials or
Content (as defined below) of the indemnifying party other than in
accordance with the terms hereof; (iv) the marketing, use or distribution
of such party's products or services; (v) the development, operation, and
maintenance of its Site; and (vi) such party's Content or other
Materials. For purposes herein, "Content" shall mean, with respect to
each party, (A) the proprietary content delivered by such party to the
other party pursuant to this Agreement, but only to the extent that such
content is not altered by the receiving party and the Loss in question
would not have arisen but for such alteration, and (B) the proprietary
content contained on such party's Site other than the indemnified party's
Content or Materials. The foregoing obligations are contingent upon the
indemnified party: (i) promptly notifying the indemnifying party of any
claim, suit, or proceeding for which indemnity is claimed; (ii)
cooperating reasonably with the indemnifying party at the latter's
expense; and (iii) allowing the indemnifying party to control the defense
or settlement thereof. The indemnified party will have the right to
participate in any defense of a claim and/or to be represented by counsel
of its own choosing at its own expense.
6. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES, INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR LOSS OF REVENUE OR LOST PROFITS, ARISING
FROM ANY PROVISION OF THIS AGREEMENT, EVEN IF SUCH PARTY HAD BEEN ADVISED
ON THE POSSIBILITY OF SUCH DAMAGES. Except for the parties'
indemnification obligations above, each party's total liability for
monetary damages shall not exceed the total amount of fees paid to
InteliHealth hereunder. The foregoing limitations shall not apply to each
party's rights under applicable intellectual property laws.
2
<PAGE> 11
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
7. During the Term, and for a period of two years thereafter, each party
shall retain in confidence any information provided to it by the other
party and marked, labeled or otherwise designated as confidential or
proprietary, provided, that the terms and conditions of this Agreement
shall be deemed to be confidential information, unless the information
sought to be disclosed (i) is publicly known at the time of disclosure,
(ii) is lawfully received from a third party not bound in a confidential
relationship with the other party, (iii) is published or otherwise made
known to the public by the other party, (iv) was generated independently
without reference to the other party's confidential information, or (v)
is required to be disclosed under law or a court order, provided, however
that with respect to filing obligations under the securities laws, each
party will, to the extent that it is required to file this Agreement,
file this Agreement in redacted form reasonably approved by the other
party prior to such filing.
8. Either party may terminate this Agreement (i) at any time in the event of
a material breach by the other party that has not been cured within
thirty (30) days of written notice thereof or (ii) at any time upon sixty
(60) days written notice to the other party. InteliHealth will provide
Company with a prorata refund of all prepaid fees in the event this
Agreement is terminated by Company pursuant to clause (i) above or by
InteliHealth pursuant to clause (ii) above. In the event that this
Agreement is terminated by InteliHealth in accordance with clause (ii)
above, InteliHealth agrees that it shall not enter into any agreement or
arrangement with any other entity which is similar to the arrangement
which it has with Company pursuant to this Agreement, specifically
including allowing any other entity to be a vitamin or supplement sponsor
of the InteliHealth Site, within the six (6) month period following such
termination.
9. Neither party shall be responsible for any failure to perform its
obligations under this Agreement (other than obligations to pay money)
caused by an event reasonably beyond its control, including but not
limited to, the infrastructure of the Internet, wars, riots, labor
strikes, natural disasters or any law, regulation, ordinance or other act
or order of any court, government or governmental agency.
10. Neither party will issue any press release or other public statement
regarding this Agreement without the other party's prior written consent.
Notices delivered under this Agreement may be given in writing by letter,
facsimile or email (with hard copy confirmation) and will be effective
when received. This Agreement contains the entire understanding of the
parties with respect to the transactions and matters contemplated hereby,
supersedes all previous communications, understandings and agreements
(whether oral or written), and cannot be amended except by a writing
signed by both parties. This Agreement will be construed in accordance
with the laws of the Commonwealth of Pennsylvania, and all disputes
arising from or related to this Agreement shall be brought exclusively in
the Court of Common Pleas, Montgomery County, Pennsylvania, or the U.S.
District Court, Eastern District of Pennsylvania. The terms of Paragraphs
4 through 10 will survive expiration or termination of this Agreement.
This Agreement does not constitute either party an agent, legal
representative, joint venturer, partner or employee of the other for any
purpose whatsoever
3
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ASTERISKS DENOTE OMISSIONS.
and neither party is in any way authorized to make any contract,
agreement, warranty or representation or to create any obligation,
express or implied, on behalf of the other party hereto. This Agreement
may be executed in any number of counterparts, each of which shall be
deemed an original and together which shall constitute one and the same
instrument. This Agreement and the provisions hereof shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto
and their successors and permitted assigns; provided, however, that
neither party shall have the right to assign this Agreement, in whole or
in part, without the other party's prior written consent, which consent
will not be unreasonably withheld, except that Company may assign its
rights and obligations hereunder to any entity which owns and operates
the online business of Company (including, but not limited to, the
Company Site) and which is either controlled by Company or which
commences an initial public offering, provided that such entity agrees in
writing to be bound by all of the terms and conditions of this Agreement.
4
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT A
VITAMIN SHOPPE COMPETITORS
[*****]
<PAGE> 14
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT B
MOCK-UPS OF TYPICAL SPONSORED ZONE
See attached.
<PAGE> 15
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
INTELIHEALTH - RESOURCE CENTER
ADVERTISING SPECIFICATIONS
- --------------------------------------------------------------------------------
THE JOHNS HOPKINS HEALTH [INSIDER LOGO] FREE FOR A LIMITED TIME!
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[INTELIHEALTH LOGO] InteliHEALTH Home to
The Trusted Source Johns Hopkins
Health Information
- --------------------------------------------------------------------------------
ANCHOR TENANT
POSITION
BANNER ADVERTISEMENT
468 x 60 pixels (no more than 15 Kb)
(surrounded by dark blue: 0/0/102 or 40% blue or #000066)
If animated, 3 cycles max. Keep in mind, the animation
might stop at either the first or the last frame.
[LOGO] Healthcare
Professionals
go to ANCHOR TENANT POSITION
120 x 60 pixels (no more than 10Kb: no animations)
InteliHealth
Professional Network
BADGE ADVERTISEMENT
120 x 90 pixels (no more than 10Kb)
<PAGE> 16
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
INTELIHEALTH
ADVERTISING SPECIFICATIONS
- --------------------------------------------------------------------------------
THE JOHNS HOPKINS HEALTH [INSIDER LOGO] FREE FOR A LIMITED TIME!
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Take our
[INTELIHEALTH LOGO] InteliHEALTH Home to test
The Trusted Source Johns Hopkins for
Health Information depression
- --------------------------------------------------------------------------------
BANNER ADVERTISEMENT
468 x 60 pixels (no more than 15 Kb)
(surrounded by dark blue: 0/0/102 or 40% blue or #000066)
[LOGO] Healthcare
Professionals
go to BADGE - SPONSOR LOGO
120 x 60 pixels (no more than 10Kb)
InteliHealth
Professional Network
BADGE - SPONSOR MESSAGE
120 x 90 pixels (no more than 10Kb)
<PAGE> 17
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT C
COMPANY PROMOTIONAL ACTIVITIES
Company shall provide each of the following at least [*****] during the Term:
The promotion of InteliHealth in Vitamin Shoppe catalogs.
The promotion of InteliHealth at Vitamin Shoppe retail stores.
The promotion of InteliHealth on www.vitaminshoppe.com.
At Company's discretion, Space ads in print magazines and newspapers will
include InteliHealth.
Cross pollination of Company's catalog customers with InteliHealth
catalog or newsletter subscribers.
Press releases to industry and consumer levels of partnership.
Inserts of InteliHealth newsletter subscription cards as box stuffers.
Inserts of InteliHealth Healthy Home catalog requests as box stuffers.
Box stuffing of InteliHealth Healthy Home catalog.
Cooperative email promoting InteliHealth to the Vitamin Shoppe email
database of "opt-in" addresses.
Special promotion exclusive to InteliHealth, such as a free supplements
organizer with registration or purchase.
Offer the A-Z guide to supplements as a free premium to first time buyers
via InteliHealth email.
In an effort to at least partially address the issue of offering a
variety of choices to the consumer, the parties may agree to place
creative that promotes brand names such as TwinLab, Schiff, Natrol,
Nature's Way, etc., in place of the Vitamin Shoppe logo.
<PAGE> 18
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT D
INTELIHEALTH ADVERTISING AND SPONSORSHIP GUIDELINES
- - InteliHealth, in all cases, maintains complete editorial independence and
control over our content. We do not allow advertisers, licensees or third
party sponsors to make changes to any content without InteliHealth's
prior written consent.
- - It must be clear that all advertisements and sponsorships are not
editorial content.
- - All advertisements and sponsorships will be clearly separate from all
health content.
- - No advertising or sponsorships for firearms, alcohol, tobacco or
pornographic products or for any other products or services inconsistent
with the mission of InteliHealth will be allowed.
- - InteliHealth will not sell any information to a third party that would
allow it to identify an individual's medical condition(s). InteliHealth
reserves the right to sell data that does not identify individual users
and to use the information in connection with its own products and
services.
- - The Healthy Home online store is provided as a service of InteliHealth.
In accordance with our strict editorial policies, neither Johns Hopkins
nor any information providers endorse specific products on this service.
- - All promotional placements and content must be presented in a manner
which does not imply endorsement of any products or services or of any
sponsors, advertisers, licensees, or any other third parties.
- - Advertisements and sponsorships must not (1) diminish the reputation of
InteliHealth or its partners, (2) diminish the quality or integrity of
InteliHealth's content, products or services or those of its partners, or
(3) otherwise be inconsistent with the goals and mission of InteliHealth.
- - InteliHealth reserves the right to reject or remove any inappropriate
advertisements or other promotional placements in its reasonable
discretion, provided that promptly following any such rejection or
removal the parties will work together in good faith to rectify the
situation.
- - The text of all sponsorship messages must be corporate messages only
(i.e., no references to specific products) or other mutually-agreed upon
text (typically, "Sponsored by xxxxxxxx"). InteliHealth and the sponsor
must agree on the site to which a sponsorship button links.
- - The text of all anchor tenant placements must be corporate messages only
(i.e., no references to specific products) or other mutually-agreed upon
text. InteliHealth and the anchor tenant must agree on the site to which
the placement links.
<PAGE> 1
EXHIBIT 10.36
COMPELLING CONTENT
This Memorandum of Engagement is made on June 7, 1999 between VitaminShoppe.com
("Client"), whose offices are located at 380 Lexington Avenue, Suite 1764, New
York, NY 10168 and Compelling Content (Agency) whose offices are located at 104
Fifth Avenue, New York, NY 10011.
1. SERVICES TO BE PERFORMED. The Agency, acting as agent for
VitaminShoppe.com, will provide account services, strategic
development, online and offline creative development including banner,
email, broadcast and print advertising campaigns.
2. PAYMENT. In consideration of the Agency's performance of these
services, the Client agrees to pay the Agency a retainer of $45,000
per month, plus production charges which will be estimated and billed
separately.
3. EXPENSES. Client agrees to pay all of the Agency's expenses in
connection with this Engagement, including travel, equipment, and any
other third party expense relating to the Engagement. All such expenses
must be pre-authorized by client, before they can be incurred by
Agency.
4. STARTUP COSTS. It is understood that during the first several months of
this Engagement, the Agency will perform many of the functions that
will eventually be handled by the Client's Marketing, Art and Technical
Departments. It is anticipated that these services will exceed the
workload for which the retainer has been established, and the Agency
will invoice the Client for the added services on a monthly basis,
providing detailed support and backup.
5. INVOICES. The Agency will submit an invoice for the retainer of
$45,000 on the first of each month for payment within 15 days.
Invoices for expenses, production and other costs will be billed in a
timely fashion.
6. TERMINATION. This agreement can be terminated by either party by
providing the other with a 60 (sixty) day written notice.
Agreed to and accepted by:
[SIG] [SIG]
- --------------------------------------------------------------------------------
Marshall Karp Eliot Russman
Compelling Content VitaminShoppe.com
6/7/99 6/21/99
- --------------------------------------------------------------------------------
Date Date
<PAGE> 1
EXHIBIT 10.37
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
LICENSE AGREEMENT
This Agreement, dated as of October 5, 1998, is made and entered into by
and between HealthNotes, Inc. an Oregon corporation ("Licensor"), and The
VitaminShoppe Industries Inc., a New York corporation ("Licensee").
RECITALS
A. Licensor publishes and distributes an information database sometimes
known as HealthNotes(R) Online as more definitely described below (the
"Content").
B. Licensee maintains an Internet retailing web site as more definitely
described below (the "Licensee's Web Site").
C. Licensor desires to grant to Licensee and Licensee desires to acquire
from Licensor certain rights and licenses to distribute the Content by means of
the Licensee's Web Site, in each case, in accordance with and subject to the
terms of this License Agreement.
AGREEMENT
The Parties therefore agree as follows:
SECTION 1. DEFINITIONS
The following terms will have the meanings specified below whenever used in
this Agreement with initial letters capitalized:
1.1 "ARTICLE" means a discrete topic within the Content.
1.2 "CONTENT" means the Licensor's HealthNotes(R) Online information
database which, as of the date of this Agreement, includes the categories of (i)
Health Conditions, (ii) Nutritional Supplements, (iii) Herbal Remedies, (iv)
Homeopathic Remedies, (v) Drug Interactions and (vi) Diets and Therapies.
Content shall also mean, subject to the provisions of Section 2.3, all Updates
and Revisions to the Content.
1.3 "ENHANCEMENTS" mean any change in the HealthNotes(R) Online information
database which increases the scope or functionality beyond the current Content,
including any additional categories of information such as food recipes.
1.4 DELETED
-1-
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
1.5 "LICENSE FEE" means the sum of the annual license fee and the
incentive bonus, if any, for such year as determined in accordance with Section
3.
1.6 "LICENSEE'S WEB SITE" means the Internet retailing web site maintained
by Licensee under the domain name "www.vitaminbuzz" or, with the prior
written consent of Licensor (which will not be unreasonably withheld), such
other single similar alternative web site maintained by Licensee.
1.7 "PARTIES" means Licensee and Licensor, collectively.
1.8 "RETAINED RIGHTS" means all rights retained by Licensor as set forth
in Section 2.2.
1.9 "TERM" means the term of this Agreement as set forth in Section 5.
1.10 "UPDATES AND REVISIONS" mean updates of and revisions to the
information database contained in the Content but does not include Enhancements.
SECTION 2. LICENSED AND RETAINED RIGHTS
2.1 Grant of License. Subject to the terms and conditions set forth in
this Agreement, Licensor hereby grants to Licensee the following rights and
licenses.
2.1.1 Licensee shall have a [*****] year license (except as otherwise
provided in Section 5), non-exclusive world-wide right and license to
distribute and disseminate the Content by means of the Licensee's Web Site.
Each Article when viewed, printed or otherwise accessed by means of the
Licensee's Web Site will include the following copyright notice "(C)1998
HealthNotes, Inc." or such other similar notice as Licensor may hereafter
reasonably request in writing.
2.1.2 Licensee shall have a non-exclusive world-wide right and license
to distribute and disseminate the photographs included within the Content
by means of the Licensee's Web Site but only to the extent of using such
photographs in association with the applicable Articles of the Content.
Each such photograph when viewed, or otherwise accessed by means of the
Licensee's Web Site will include an appropriate copyright notice as
indicated by Licensor.
2.1.3 Licensee may elsewhere in the Licensee's Web Site refer to
Licensor and its authors and editors as contributors to the content of the
Licensee's Web Site. Such reference should read as follows "[Licensee's]
natural health information center has been researched and written by a team
of nationally known healthcare professionals, including [list of Licensor
authors and editors and their credentials]" or, with Licensor's prior
written consent (which will not be unreasonably withheld), substantially
similar language. For purposes of the foregoing, Licensor will, upon
request
-2-
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
of Licensee or more frequently in Licensor's sole discretion, provide
Licensee with a written list of those persons who act as authors or editors
for Licensor and the credentials of such persons. Within ten (10) days of
receipt of any such written list, Licensee shall conform any references in
the Licensee's Web Site to the names contained in Licensor's most recent
list.
2.1.4 Licensee may make minor, non-substantive modifications to the
Content with the prior written consent of Licensor (which will not be
unreasonably withheld). It is anticipated that such modifications will be
limited to those necessary for the linking and sorting of information.
2.1.5 Licensee may not sublicense, resell or, except as permitted by
Section 8.2, assign any of the foregoing rights.
2.2 RETAINED RIGHTS. Except for the rights expressly granted by Licensor
to Licensee under Section 2.1 of this Agreement, Licensor retains all
copyrights and all other intellectual property rights in and to the Content.
Without limiting the foregoing and notwithstanding any other provision of this
Agreement, Licensor retains and does not grant to Licensee any right (i) to use
the trademarks, trade names or assumed business names of Licensor (whether or
not registered), (ii) to use the graphical icons used by Licensor in its
HealthNotes(R) Online products, or (iii) to create derivative works, recreate or
reverse engineer any Article or any portion of the Content or to use the
Content in any manner to facilitate the creation of a similar information data
base. Without limiting the foregoing and notwithstanding any other provision of
this Agreement, Licensor retains the right (i) to grant to other persons
non-exclusive licenses to distribute and disseminate the Content in any manner
and (ii) to itself distribute and disseminate the Content in any manner.
2.3 UPDATES AND REVISIONS. Licensor will provide Licensee with Updates and
Revisions of the Content from time-to-time as such become available. Such
Updates and Revisions will be provided by Licensor to Licensee free of charge.
Licensor shall be excused from its obligation to provide such Updates and
Revisions to Licensee at any time at which Licensee is in default under this
Agreement provided that Licensor shall immediately ship such Update or Revision
to Licensee upon the curing of any such default by Licensee to the reasonable
satisfaction of Licensor. Licensor's obligation to provide Licensee with Updates
and Revisions shall cease upon Licensor's receipt of a termination notice from
Licensee pursuant to Section 5.2 and shall cease if Licensor, for whatever
reason, after two years from the date of this Agreement ceases to create and
publish Updates and Revisions.
SECTION 3. LICENSE FEES AND USAGE INFORMATION
3.1 LICENSE FEES. Licensee will pay Licensor an annual license fee
computed in accordance with the following schedule:
Initial Year $[*****]
Second Year $[*****]
Subsequent Years The amount will be negotiated at the end of the
term of this license.
-3-
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
The annual license fee is referred to herein as the License Fee for such year.
The License Fee for the initial year will be due and payable upon signing this
Agreement. The License Fee for all subsequent years will be due and payable in
advance upon the anniversary date of this Agreement. Licensee will pay the
License Fee due to Licensor under this Agreement at such address as Licensor may
specify in writing. All amounts due under this Agreement will be payable in the
currency of the United States. Any amounts due under this Agreement which are
not paid within thirty (30) days of their due date shall be subject to a late
payment charge of 1 1/2% and shall thereafter bear interest at a rate of 18% per
annum until paid.
3.2 THIRD PARTY LICENSING. Licensee shall be able to use the Content in
Licensee's role as "content provider" to third party Portal sites (such as
Yahoo, Excite, Lycos, Infoseek, etc.). Such contracts between the Licensee and
any third party that contemplate the use of the Content must be approved in
advance by Licensor. For each such third party site, Licensor will pay [*****]
of the annual licensee fee computed in Section 3.1 and in accordance with the
terms found in Section 3.1.
3.3 USAGE INFORMATION. Licensee shall provide Licensor with information
regarding the number of "hits" on specific Articles and categories within the
Content. For purposes of the foregoing, access to an Article or category within
the Content by a person using the Licensee's Web Site shall constitute a hit.
Such information will be provided on a monthly basis within ten (10) business
days after the end of each month in such format as the Parties may from
time-to-time determine to be reasonable. Such information shall be considered
"Confidential Information" of Licensee for purposes of Section 6.1 unless and
until such information has been aggregated with similar information from other
means of accessing the Content at which point the aggregated information shall
not be considered "Confidential Information" of Licensee.
SECTION 4. PRODUCT SUPPORT
4.1 SUPPORT BY LICENSOR. Licensor will, in the initial year, provide
Licensee with product support and assistance relating to the integration of the
Content onto the Licensee's Web Site. Such support shall be limited to up to
thirty (30) hours of time of a professional determined by Licensor in its
reasonable discretion and shall be provided by Licensor to Licensee without
charge except that Licensee shall pay all travel, lodging and other
out-of-pocket expenses reasonable incurred by the persons providing such
services. The travel time of the individuals shall be included in calculating
the hours of service provided by Licensor. If requested to do so by Licensee,
Licensor will also make reasonable efforts to facilitate the availability of
Licensor's employees, authors and editors to consult with Licensee on such
terms as Licensee, Licensor and such individual may determine.
-4-
<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
4.2 SUPPORT BY LICENSEE. If requested to do so by Licensor, Licensee
agrees use his reasonably best efforts to sell, feature, promote and recommend
Licensor's consumer products which, as of the date of this Agreement, include
"HealthNotes Online Personal Edition CD-ROM," the "HEALTHNOTES" newsletter and
the book published by Prima Health entitled "THE NATURAL PHARMACY."
SECTION 5. TERM
5.1 GENERAL. The Term shall commence when any portion of the Content
becomes available to the general public or on [*****], whichever comes
first and subject to Sections 5.2, 5.3 and 5.4, shall be for [*****] years.
5.2 TERMINATION AT OPTION OF LICENSEE. The Licensee shall have the right
at any time after [*****] years from the date of this Agreement to terminate
this Agreement in its sole discretion upon written notice to the Licensor
delivered at least ninety (90) days prior to the effective date of such
termination as set forth in such written notice.
5.3 TERMINATION FOR DEFAULT BY LICENSEE. If Licensee defaults in the
payment of any amounts due to Licensor under this Agreement or in any other way
materially breaches this Agreement, Licensor may terminate this Agreement by
giving Licensee written notice of such termination, provided that:
(a) Licensor will not give such notice of termination prior to the
expiration of thirty (30) days after Licensor gives Licensee written notice
specifying the default or breach (including, but not necessarily limited to,
the amount, if known, which Licensor believes has not been paid when due) and
Licensor's intention to terminate the Term if the default is not cured within
such thirty (30) day period;
(b) if Licensee gives Licensor written notice that Licensee disputes
any default or breach specified in Licensor's notice of such default or breach
under (a) above prior to Licensee's receipt of Licensor's notice of termination
under this Section 5.3, then Licensor will not give such notice of termination
prior to the expiration of ten (10) days after an arbitrator gives Licensee
written notice of an arbitrator's decision that Licensee is in default or
breach; and
(c) the termination will not be effective if Licensee cures the
default or breach prior to Licensee's receipt of Licensor's written notice of
termination given in accordance with this Section 5.3.
5.4 EFFECT OF TERMINATION. Upon any termination of the Term pursuant to
Section 5.2 or 5.3, this Agreement will terminate and Licensee will have no
further right or license under this Agreement. Licensee will not be entitled
to any refund or credit for License Fees paid with respect to the year in which
any termination occurs.
SECTION 6. PROTECTION OF CONFIDENTIAL AND PROPRIETARY INFORMATION
6.1 PROTECTION OF CONFIDENTIAL INFORMATION. During and after the term of
this Agreement, each Party agrees to not disclose any Confidential Information
it receives from the other Party to any person, firm, or corporation except
employees of and others providing services to the receiving Party who have a
need to know and who have been informed of the Party's obligations hereunder.
As used herein "Confidential Information" means all computer software and any
other information which (i) if disclosed in tangible form, bears a legend
indicating that it is confidential or proprietary information of disclosing
Party,
-5-
<PAGE> 6
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
or (ii) if disclosed orally or visually only, is identified as confidential or
proprietary at the time of disclosure. Information shall not be deemed
confidential or proprietary for purposes of this Agreement and the Party
receiving such information shall have no obligation with respect to any such
information which: (i) is already known to such Party at the time of its
receipt from the other Party; (ii) is or becomes publicly known through no
wrongful act of receiving Party; (iii) is received from a third party without
similar restrictions and without breach of this Agreement; (iv) is
independently developed by a Party; or (v) is lawfully required to be disclosed
to any governmental agency or is otherwise required to be disclosed by law and,
prior to such disclosure, the Party who is required to make such disclosure
gives reasonable notice to the other Party so as to enable such other Party to
seek appropriate protective orders or, if possible, challenge the requirement
of such disclosure. All Confidential Information disclosed by either Party
pursuant to this Agreement in tangible form (including, without limitation,
information incorporated in computer software) shall be and remain the property
of the disclosing Party, and all such Confidential Information shall be
promptly returned to the disclosing Party upon written request.
6.2 NON-INTERFERENCE WITH RETAINED RIGHTS AND BUSINESS RELATIONS.
Licensee shall not take any action which directly or indirectly interferes with
or impinges upon Licensor's Retained Rights. Licensee shall not take any action
which directly or indirectly interferes with or impinges upon Licensor's
employment, contract or other business relations with Licensor's employees,
authors, editors or other professionals.
SECTION 7. WARRANTIES AND LIMITATIONS ON LIABILITY
7.1 WARRANTIES. Licensor represents and warrants to Licensee that the
Content (and each and every portion thereof): (i) are Licensor's own and
original creation, except for information validly licensed for use by Licensor
or in the public domain; (ii) consist only of information that Licensor is
authorized to provide to Licensee and Licensee is authorized to use as
contemplated in this Agreement; and (iii) will not constitute a libel or
conflict with any copyright, right of privacy or other rights of any third
party. Licensor represents and warrants to Licensee that it has the full right
and authority to grant the rights granted to Licensee pursuant to this
Agreement.
7.2 INDEMNITY. Subject to the limitations set forth herein, each Party
hereby indemnifies and agrees to hold the other harmless from and against all
claims, costs, liabilities, judgments, expenses or damages (including
reasonable attorney's fees) arising out of or in connection with its breach of
any covenants, warranties or representations made herein. Without limiting the
generality of the foregoing, Licensor shall, subject to the limitations set
forth herein, indemnify and hold Licensee harmless from and against all claims,
costs, liabilities, judgments, expenses or damages (including reasonable
attorney's fees) arising out of or related to the content of the Content as
provided to Licensee by Licensor.
7.3 LIMITATIONS ON LIABILITY. The Content is provided by Licensor to
Licensee on an "AS-IS" basis. Licensor makes no representation or warranty to
Licensee, to Licensee's customers or to any person who may use the Licenses's
Web Site as to the accuracy or completeness of the information contained in the
Content. LICENSOR HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES (EXCEPT AS
EXPRESSLY PROVIDED HEREIN) INCLUDING THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. LICENSOR SHALL HAVE NO LIABILITY FOR
CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES RESULTING FROM OR OTHERWISE
ASSOCIATED WITH THE USE OF THE CONTENT. LICENSOR'S AGGREGATE LIABILITY FOR ANY
CLAIM ARISING IN CONNECTION WITH LICENSEE'S USE OF THE CONTENT SHALL BE LIMITED
TO THE AMOUNT OF LICENSE FEES PAID BY LICENSEE TO LICENSOR IN THE TWELVE (12)
MONTH PERIOD PRECEDING ANY CLAIM.
-6-
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
SECTION 8. MISCELLANEOUS
8.1 NOTICES. All notices pursuant to this Agreement shall be in writing
and shall either be mailed by prepaid first class U.S. mail or sent by overnight
courier service to the other Party at the following address:
If to Licensor: HealthNotes, Inc.
1125 S.E. Madison, Suite 209
Portland, Oregon 97214
Attn: Schuyler W. Lininger, Jr.
If to Licensee: -------------------------------
-------------------------------
-------------------------------
Attn:--------------------------
Either Party may change its address for purposes of this Agreement by giving the
other Party written notice of such change. Notice sent in accordance with the
foregoing shall be deemed received three (3) business days after it is mailed or
one (1) business day after it is sent by overnight courier service.
8.2 SUCCESSORS AND ASSIGNS. Neither Party will assign this Agreement, in
whole or in part, without the prior written consent of the other Party, which
consent will not be unreasonably withheld. Notwithstanding the foregoing, either
Party may assign this Agreement as part of a merger, sale of assets or other
corporate reorganization so long as persons who for the twelve (12) months
immediately prior to such assignment beneficially owned equity securities which
entitled such persons to elect or appoint a majority of the directors or
managers of such Party continue for at least twelve (12) months immediately
following such assignment to beneficially own equity securities which entitled
such persons to elect or appoint a majority of the directors or managers of such
Party. Subject to the foregoing, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by each of the Parties and their respective
successors and assigns.
8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the Parties with respect to the subject matter of this Agreement and supercedes
any and all prior understandings and agreements, whether written or oral,
between the Parties with respect to such subject matter.
8.4 AMENDMENT AND WAIVER. This Agreement may be amended only in writing
and signed by both Parties. Any provision of this Agreement may be waived by a
Party only in writing and signed by the Party waiving compliance. No waiver of
any provision of this Agreement shall constitute a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. The failure of any Party to enforce any provision of this Agreement
shall not operate as a waiver of such provision or of any other provision.
-7-
<PAGE> 8
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
8.5 GOVERNING LAW. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Oregon without reference
to its choice of law rules, except to the extent preempted by the laws of the
United States of America.
8.6 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or any breach thereof, (excluding only the collection of
license fees where the amount of fees owed is not in dispute) shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Any such
arbitration shall be held in Portland, Oregon.
8.7 VENUE. Subject to Section 8.6 above, venue in any suit or action
between the Parties arising out of or relating to this Agreement shall be in
either the Circuit or District Court for Multnomah County, Oregon or the United
States District Court for the District of Oregon in Portland, Oregon.
8.8 ATTORNEYS FEES. If any suit, action or arbitration is initiated by any
Party to enforce this Agreement or otherwise with respect to the subject matter
of this Agreement, the prevailing Party in such suit, action or arbitration
shall be entitled to recover reasonable attorneys fees incurred in the
preparation and prosecution or defense of such suit, action or arbitration as
such fees are fixed by the trial court or the arbitrator and, if any appeal is
taken from the decision of the trial court or arbitrator, reasonable attorneys
fees as fixed by the appellate court.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed effective as of the date written above.
Licensor:
HEALTHNOTES, INC.
By:
------------------------------------
Schuyler W. Lininger, Jr., President/CEO
Licensee:
By:
------------------------------------
------------------------------------
-8-
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of VitaminShoppe.com, Inc.
on Form S-1 of our report dated June 16, 1999 ( , 1999 as to
Notes 6, 7 and 8 of Notes to Financial Statements), appearing in the prospectus
which is a part of this registration statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such prospectus.
- --------------------------
DELOITTE & TOUCHE LLP
New York, New York
September 13, 1999
The accompanying financial statements include the effects of the stock split of
the Company's common stock approved by the Company's Board of Directors in
September 1999, to be effective immediately prior to the effective date of the
Registration Statement. The above consent is in the form which will be signed by
Deloitte & Touche LLP upon consummation of the stock split, which is described
in Note 8 of the notes to financial statements, and assuming that, from
September 13, 1999 to the date of such stock split, no other events will have
occurred that would affect the accompanying financial statements and notes
thereto.
Deloitte & Touche LLP
New York, New York
September 13, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF MICHAEL C. BROOKS
I consent to the use of my name in this Registration Statement of
VitaminShoppe.com, Inc. on Form S-1 appearing in the prospectus which is a part
of this registration statement under the headings "Management" and "Principal
Stockholders."
/s/ Michael C. Brooks
- --------------------------
Stamford, Connecticut
July 27, 1999
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