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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1999
REGISTRATION NO. 333-83849
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
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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<S> <C> <C>
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. [ ]
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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 OCTOBER 1, 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]
<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.................................................... 29
Management.................................................. 44
Certain Transactions........................................ 51
Principal Stockholders...................................... 53
Description of Capital Stock................................ 55
Shares Eligible for Future Sale............................. 60
Underwriting................................................ 62
Legal Matters............................................... 64
Experts..................................................... 64
Where You Can Find More Information......................... 64
Index to Financial Statements............................... F-1
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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;
- 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 logo is a registered trademark of Vitamin Shoppe Industries Inc. The
Vitamin Shoppe name and the Vitamin Shoppe Frequent Buyer Program are the
trademark and service mark of Vitamin Shoppe Industries Inc. VitaminShoppe.com
is the trademark and service mark of VitaminShoppe.com, 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.
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This page intentionally left blank.
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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 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 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 our reliance on The Vitamin Shoppe, our
reliance upon advertising and strategic relationships to generate sales and
revenues and our future need to obtain additional capital to fund our working
capital and capital expenditure requirements, to hire and retain key personnel,
to establish our brand in online commerce and to overcome 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, and incurred net losses of $3.4
million and $4.4 million, respectively, during these periods.
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 1,102,510 shares of Class A common stock
issuable upon the exercise of stock options outstanding as of September 22, 1999
at a weighted average exercise price of $6.40 per share, 32,703 shares issuable
upon the exercise of warrants at an as-converted exercise price per share equal
to the initial public offering price, 401,514 shares issuable upon the exercise
of options to be granted upon the closing of this offering at the initial public
offering price and 1,266,176 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, the
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 ON WHICH YOU MAY ASSESS OUR
FINANCIAL PERFORMANCE
VitaminShoppe.com has no operating history as an independent company and
has been and will continue to be substantially dependent upon The Vitamin Shoppe
to provide a number of services. 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. 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.
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 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 TO FUND OUR EXPECTED NEEDS FOR WORKING CAPITAL
AND CAPITAL EXPENDITURES
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
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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 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 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 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.
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.
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 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;
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- delays in responses to customer inquiries or in deliveries to customers;
and
- difficulty in returning or exchanging orders.
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 brand. See "Business -- Competition."
WE MAY EXPEND MORE ON ADVERTISING AND STRATEGIC RELATIONSHIPS THAN WE GAIN IN
INCREASED SALES
We rely on advertising and strategic relationships to attract customers to
our website. This advertising may not attract a significant number of customers
to our website or generate a substantial amount of sales. We intend to increase
our advertising and marketing expenditures dramatically to promote the
VitaminShoppe.com 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. 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 further 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.
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In addition, interactions of these products with other similar products,
prescription medicines and over-the-counter drugs have not been fully explored.
Although the manufacturers 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.
We depend upon customer perceptions about the safety and quality of our
products and of 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 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.
OUR PRESENT SYSTEMS ARE INADEQUATE TO SUPPORT RAPID GROWTH IN USER DEMAND
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 system 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. System 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 system 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.
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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 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 customer 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
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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.
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. These conflicts or
potential conflicts of interest could hinder or delay our management's ability
to make timely decisions regarding significant matters relating to 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 from 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
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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 ability to obtain the products that
we sell, to fill customer orders, to promote our business and to handle
administrative matters efficiently. See "Business -- Intercompany Agreements"
for a summary of the material terms of these agreements.
We depend on trademarks licensed from The Vitamin Shoppe. Under the
trademark license agreement, The Vitamin Shoppe has licensed trademarks,
including The Vitamin Shoppe 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 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
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services on commercially reasonable terms. If we perform these services with
internal resources, we may not perform them adequately. As a result, we may fail
to retain important personnel and customers.
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 obligations 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 may 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
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customer preferences. We may experience difficulties that delay or prevent our
being able to respond to these changes.
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 BRING 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 result in our selling fewer products. 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
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access fees, the costs of using the Internet could increase dramatically. In
this event, our margins could be negatively impacted.
WE MAY BECOME LIABLE FOR SALES AND OTHER TAXES
Sales tax. Although our online transmissions and order fulfillment take
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 make our business more costly to operate. 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.
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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
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."
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."
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 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
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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 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. 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 net 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 approximately $30 million of the net proceeds of this
offering to increase significantly our advertising and marketing activities
through the end of the year 2000 and the balance 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.
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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 1,102,510 shares of Class
A common stock issuable upon the exercise of stock options outstanding as of
September 22, 1999 at a weighted average exercise price of $6.40 per share,
32,703 shares issuable upon the exercise of warrants at an as-converted exercise
price per share equal to the initial public offering price of the Class A common
stock, 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 1,266,176 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% 359,733 0.4% $11.00
New investors.................. 4,545,455 22.1% 50,000,005 65.9% $11.00
---------- ----- ----------- -----
Total..................... 20,522,592 100.0% $75,860,451 100.0% $ 3.70
========== ===== =========== =====
</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
September 22, 1999, there were stock options outstanding to purchase 1,102,510
shares of Class A common stock at a weighted average exercise price of $6.40 per
share and warrants outstanding to purchase an equivalent of 32,703 shares of
Class A common stock at an as-converted exercise price per share equal to the
initial public offering price of the Class A common stock. 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, the date of inception.
The historical statement of operations data presented below for the period from
October 1, 1997, the date of inception, to December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30, 1999, and the historical
balance sheet data as of December 31, 1997 and 1998 and as of June 30, 1999, 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 for the six months ended June 30, 1998 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 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 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 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. During the third quarter of 1999, we granted options to one
director and 14 employees to purchase an aggregate of 311,975 shares of Class A
common stock at an exercise price of $9.15 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 assumed initial public offering price of $11.00.
Accordingly, VitaminShoppe.com will record deferred stock-based compensation of
approximately $577,000 during the three months ended September 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 funded these obligations
through July 1999.
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. As of
June 30, 1999, our principal commitments consisted
25
<PAGE> 31
of obligations outstanding under online marketing agreements with web portals
and strategic partners aggregating $6.2 million through December 31, 2000 and a
sublease agreement for office space aggregating $1.8 million through November
2003. As of September 30, 1999, our obligations outstanding under online
marketing agreements with web partners and strategic partners aggregated
approximately $16.0 million (unaudited) through February 2001.
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 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 includes software for use in
order processing and fulfillment, including credit card processing and
distribution functions, accounting and
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database systems. We have expended approximately $300,000 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 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.
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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 vitamins, nutritional supplements and minerals 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 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 Vitamin Shoppe, we believe that we have the opportunity to
capture market share and to improve the
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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
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, who 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 the information conveyed
is confidential. These benefits, together with the convenience of being able to
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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 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
provide 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 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
brand to encourage consumers to try online purchasing;
- build customer trust in the VitaminShoppe.com 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 brand as a comprehensive online source for
both products and hyperlinks to credible third-party information sources. As of
June 30, 1999, we had over 48,000 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 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, 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 mothers.
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, 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 introduce 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 a broad and deep complement of quality
products at competitive prices. Our year-round discount generally ranges from
20% to 40% off suggested retail prices. By carrying both national brands and The
Vitamin Shoppe 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
various formulations and delivery
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forms, including tablets, capsules, soft gels, liquids and powders. We carry
almost every national and popular brand of vitamins, nutritional supplements and
minerals, including TwinLabs(R), Nature's Way(R)and Schiff(R), as well as The
Vitamin Shoppe brand and less well-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 ailments like headaches.
- 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
permits 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 to aid customers in
making 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 less well-known specialty
brands. Consistent with The Vitamin Shoppe's successful strategy, we sell most
of the suppliers' full product lines. We also offer The Vitamin Shoppe brand
products, a premium brand manufactured for The Vitamin Shoppe. The Vitamin
Shoppe 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
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 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. Consistent with this plan, we recently
embarked into an online marketing agreement with America Online, Inc. 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 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.
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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 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, 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 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
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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.
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.
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- 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.
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
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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 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 a drug 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 impair 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.
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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 logo and name, in connection with our marketing and
sale of products and services in online commerce. We believe that The Vitamin
Shoppe 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 logo is a federally
registered trademark. Under the trademark license agreement, The Vitamin Shoppe
is required to register VitaminShoppe.com as a trademark and to protect its
legal rights concerning The Vitamin Shoppe trademark by appropriate legal
action. The Vitamin Shoppe relies on common law trademark rights to protect its
unregistered trademarks and service marks, such as the Vitamin Shoppe Frequent
Buyer Program. Common-law trademark rights do not provide the same level of
protection as that 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 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 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 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, the other party is in bankruptcy, the
business of the other party is liquidated or terminated or the other party
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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 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 urban retail store or a five-mile radius of any suburban
retail store of the Vitamin Shoppe. 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 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
products, 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 brand products under the agreement,
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but it will not be required to supply other products, to fulfill orders for
other products or The Vitamin Shoppe 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, the other party is in bankruptcy, the
business of the other party is liquidated or terminated or the other party
becomes 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 Program 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, 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, 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, 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
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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.
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 22, 1999, we had 18 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 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
Philip H. Teplitzky....................... 50 Chief Technology 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
Barbara S. Feigin......................... 61 Class I 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 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.
Philip H. Teplitzky will become our chief technology officer in September
1999. From 1995 to 1999, Mr. Teplitzsky was a vice president of Citibank, N.A.
in its consumer bank division, where he designed and implemented several
technical and functional areas of an Internet consumer bank initiative. From
1992 to 1995, he was director and then managing director of technology for SHL
Systemhouse, a software development company.
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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
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 also 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 a 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.
Barbara S. Feigin has been a director of Vitamin Shoppe since September
1999. Since 1999, Ms. Feigin has been a consultant to Grey Advertising Inc., an
advertising and marketing communications firm. From 1983 to 1999, she served as
executive vice president and worldwide director of strategic services for Grey
Advertising. Ms. Feigin also serves as a director of Circuit City and VF
Corporation.
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.
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<PAGE> 51
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 of directors 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 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,
administers our stock option plan and makes recommendations to the board of
directors regarding such matters. See "-- Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee, or in the past our board of directors, has made
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
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<PAGE> 52
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. Options
have been granted to Dr. Merrell and Ms. Feigin under the plan in August and
September 1999 to purchase an aggregate of 76,950 shares of Class A common stock
at an exercise price of $9.15 per share.
Under the plan, the exercise price of each option 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.
If the board of directors determines that the non-employee director has
committed a felony or an act of embezzlement, fraud, dishonesty or moral
turpitude, has failed to pay an obligation owed to us, has breached fiduciary
duties owed to us, has made an unauthorized disclosure of our trade secrets or
confidential information or has engaged 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
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<PAGE> 53
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 September 22, 1999, we had granted options under the plan to purchase
an aggregate of 1,025,560 shares of Class A common stock at a weighted average
exercise price of $6.19 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, 1,073,801 shares of Class A common stock are
currently available for future issuance.
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.
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<PAGE> 54
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."
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 that 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 that 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.
As of September 24, 1999, we hired Philip H. Teplitzky as our chief
technology officer at an annual salary of $250,000. Our offer of employment
includes a promise to continue to pay Mr. Teplitzky's base salary in the event
that he is terminated other than for cause, until the later to occur of
September 23, 2000 and six months after the date of termination. We also granted
Mr. Teplitzky an option to purchase 180,000 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.
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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. We also have obtained 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 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 account 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. 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................................... -- -- -- -- --
Philip H. Teplitzky................................ -- -- -- -- --
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%
Barbara S. Feigin.................................. -- -- -- -- --
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 (14
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
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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 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. Directly or through trusts, Mr. and Mrs. Horowitz own 30% of the
capital stock 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. Mr. and Mrs. Horowitz
own directly 327,854 shares of Class A common stock.
(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 Capital Partners, 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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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> 62
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 may 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 will
own 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. As a result, The Vitamin Shoppe 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, which is 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, has 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 equal to the initial public offering price of the 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
63
<PAGE> 69
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 June 30, 1999
and for the period from October 1, 1997, the date of inception, to December 31,
1997, for the year ended December 31, 1998 and for the six months ended June 30,
1999 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, N.W.,
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, N.W., 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.
64
<PAGE> 70
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...................................................... 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................................. 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....................................... 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................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
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 June 30, 1999, 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, the year
ended December 31, 1998 and the six months ended June 30, 1999. 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 June 30, 1999, and the results of its operations and its cash
flows for the period from October 1, 1997 (inception) to December 31, 1997, the
year ended December 31, 1998 and the six months ended June 30, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 19, 1999 [except as to Notes 6, 7 and 8 as to which the date is September
23, 1999]
F-2
<PAGE> 72
VITAMINSHOPPE.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30, 1999
----------------- -------- ------------------------
PRO FORMA
1997 1998 1999 PRO FORMA AS ADJUSTED
------ ------- -------- --------- -----------
(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> 73
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)
(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> 74
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.................... -- -- -- -- -- -- (4,425) --
Capitalization of the
Company by The Vitamin
Shoppe.................... -- -- 13,081,500 131 (8,348) -- 8,218 --
Deferred stock-based
compensation.............. -- -- -- -- 3,032 (3,032) -- --
Amortization of deferred
stock-based
compensation.............. -- -- -- -- -- 84 -- --
--------- -------- ---------- ---- ------- ------- ------- -----
Balance, June 30, 1999........ -- $ -- 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.................... (4,425)
Capitalization of the
Company by The Vitamin
Shoppe.................... 1
Deferred stock-based
compensation.............. --
Amortization of deferred
stock-based
compensation.............. 84
-------
Balance, June 30, 1999........ $(8,133)
=======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 75
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)
(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> 76
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1997 (INCEPTION) TO DECEMBER 31, 1997, YEAR ENDED DECEMBER 31, 1998
AND SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) 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> 77
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 for the 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> 78
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 for the six months ended June 30,
1998 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> 79
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 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> 80
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
---- ------ --------
<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 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> 81
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
---- ----- ------------
(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. At September 30, 1999, the
Company's obligations with respect to such agreements aggregated approximately
$16.0 million (unaudited) through February 2001.
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 $.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 $.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 proceeds (net of commissions and offering costs) of
this
F-12
<PAGE> 82
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
transaction were approximately $24 million. Of the gross proceeds, $10 million
was paid 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 to Thomas Weisel Partners LLC warrants to
purchase an equivalent of 32,703 shares of Class A common stock at a price per
share equal to the initial public offering price of the Class A common stock 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 balance sheet as of June 30, 1999
reflects 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, the Company granted to one
director and 5 employees options to purchase 199,215 shares of Class A common
stock at an exercise price of $9.15 per share. During September 1999, the
Company granted to one director and 12 employees
F-13
<PAGE> 83
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
options to purchase 295,775 shares of Class A common stock at an exercise price
of $9.15 per share. The Company will record additional deferred stock-based
compensation of approximately $577,000 during the quarter ended September 30,
1999. The deferred stock-based compensation will be amortized over the
three-year vesting period. In connection with the initial public offering, the
Company will grant to one employee an option 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.
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 was effective on September 22, 1999. 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> 84
[EXAMPLES OF OUR MARKETING MATERIALS UTILIZED IN PRINT MEDIA]
<PAGE> 85
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> 86
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> 87
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
183,015 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 a director and two employees
options to purchase 54,675 post-split shares of Class A common stock at an
exercise price of $9.15 per share.
In September 1999, the registrant granted to one director and 12 employees
options to purchase 295,775 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.*
</TABLE>
II-2
<PAGE> 88
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S>
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.*
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 Form of Nonqualified Stock Option Agreement dated as of July
1, 1999 between the registrant and Kathryn H. Creech.
10.23 Form of Nonqualified Stock Option Agreement dated as of July
1, 1999 between the registrant and Eliot D. Russman.
10.24 Form of Nonqualified Stock Option Agreement dated as of July
27, 1999 between the registrant and Kathryn H. Creech.
10.25 Intentionally blank.
10.26 Sponsorship Agreement dated as of September 23, 1998 between
Vitamin Shoppe Industries Inc. and Excite, Inc.*/**
</TABLE>
II-3
<PAGE> 89
<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.*
10.40 Form of Nonqualified Stock Option Agreement dated as of July
26, 1999 between the registrant and Lisa H. Kern.
10.41 Form of Non-Employee Director Stock Option Agreement dated
as of August 6, 1999 between the registrant and Woodson
Merrell, M.D.
10.42 Form of Nonqualified Stock Option Agreement dated as of
September 15, 1999 between the registrant and Joel
Gurzinsky.
10.43 Form of Nonqualified Stock Option Agreement dated as of
September 15, 1999 between the registrant and Philip H.
Teplitzsky.
10.44 Form of Non-Employee Director Stock Option Agreement dated
as of September 20, 1999 between the registrant and Barbara
S. Feigin.
10.45 AOL Advertising Insertion Order dated as of August 27, 1999
between the registrant and America Online, Inc.**
10.46 Form of Amendment No. 1 dated as of September 22, 1999 to
the Series A Preferred Stock Purchase Warrant A-1 of the
registrant in favor of Thomas Weisel Partners LLC.
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.
II-4
<PAGE> 90
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.
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> 91
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. 3 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 October 1, 1999.
VITAMINSHOPPE.COM, INC.
By: /s/ KATHRYN H. CREECH
------------------------------------
Name: Kathryn H. Creech
Title: President and Chief Executive
Officer
II-6
<PAGE> 92
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.*
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
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 Form of Nonqualified Stock Option Agreement dated as of July
1, 1999 between the registrant and Kathryn H. Creech.
10.23 Form of Nonqualified Stock Option Agreement dated as of July
1, 1999 between the registrant and Eliot D. Russman.
10.24 Form of Nonqualified Stock Option Agreement dated as of July
27, 1999 between the registrant and Kathryn H. Creech.
10.25 Intentionally blank.
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.
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
10.39 Irrevocable Commitment to Convert by the holders of Series A
Convertible Preferred Stock of the registrant.*
10.40 Form of Nonqualified Stock Option Agreement dated as of July
26, 1999 between the registrant and Lisa H. Kern.
10.41 Form of Non-Employee Director Stock Option Agreement dated
as of August 6, 1999 between the registrant and Woodson
Merrell, M.D.
10.42 Form of Nonqualified Stock Option Agreement dated as of
September 15, 1999 between the registrant and Joel
Gurzinsky.
10.43 Form of Nonqualified Stock Option Agreement dated as of
September 15, 1999 between the registrant and Philip H.
Teplitzsky.
10.44 Form of Non-Employee Director Stock Option Agreement dated
as of September 20, 1999 between the registrant and Barbara
S. Feigin.
10.45 AOL Advertising Insertion Order dated as of August 27, 1999
between the registrant and America Online, Inc.**
10.46 Form of Amendment No. 1 dated as of September 22, 1999 to
the Series A Preferred Stock Purchase Warrant A-1 of the
registrant in favor of Thomas Weisel Partners LLC.
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.
<PAGE> 1
Exhibit 1.1
VITAMINSHOPPE.COM, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
DATED _________________, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Representations and Warranties of the Company................................................ 2
(a) Effective Registration Statement........................................... 2
(b) Contents of Registration Statement......................................... 2
(c) Due Incorporation.......................................................... 2
(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................................................. 3
(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 Changes................................................ 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........................................................ 7
(y) Listing of Common Stock.................................................... 7
(z) Year 2000 Compliance....................................................... 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
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
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(d) Blue Sky Laws.............................................................. 10
(e) Earnings Statement......................................................... 10
(f) Use of Proceeds............................................................ 10
(g) Transfer Agent............................................................. 11
(h) Periodic Reporting Obligations............................................. 11
(i) 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.............................................................. 11
(e) No NASD Objection.......................................................... 12
(f) No Material Adverse Change................................................. 12
(g) Officer's Certificate...................................................... 12
(h) Opinion of Company Counsel................................................. 12
(i) Opinion of Regulatory Counsel.............................................. 12
(j) Opinion of Underwriters Counsel............................................ 12
(k) Accountant's Comfort Letter................................................ 13
(l) Lock-Up Agreements......................................................... 13
(m) Additional Documents....................................................... 13
6. Expenses..................................................................................... 13
7. Indemnity and Contribution................................................................... 15
(a) Indemnification of the Underwriters........................................ 15
(b) Indemnification by the Underwriters........................................ 15
(c) Indemnification Procedures................................................. 16
(d) Contribution Agreement..................................................... 17
(e) Contribution Amounts....................................................... 18
(f) Survival of Provisions..................................................... 18
8. Effectiveness................................................................................ 18
9. Termination....................................................................................18
10. Defaulting Underwriters........................................................................19
11. Counterparts...................................................................................20
12. Headings; Table of Contents....................................................................20
13. Notices........................................................................................20
14. Successors.....................................................................................21
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
15. Partial Unenforceability.......................................................................21
16. Governing Law..................................................................................22
17. Entire Agreement...............................................................................22
18. Amendments.....................................................................................22
19. Sophisticated Parties..........................................................................22
</TABLE>
Exhibits
A Form of Legal Opinion of Company Counsel
B Form of Lock-Up Agreement
<PAGE> 5
____________________, 1999
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
PaineWebber Incorporated
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 4,545,455 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 618,818 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, William Blair & Company, L.L.C. and PaineWebber
Incorporated 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. 333-83849),
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
<PAGE> 6
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 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").
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 as a foreign corporation
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.
(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,
<PAGE> 7
moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles (regardless
of whether enforcement is sought in a proceeding of law or in equity).
(f) Description of Capital Stock. The authorized capital
stock of the Company conforms in all material respects 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, and no facts or circumstances have come to the
Company's attention which could reasonably be expected to result in a 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 the knowledge of the
Company, 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 described in the Registration Statement or the Prospectus or
to be filed as exhibits to the
<PAGE> 8
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. Except as otherwise disclosed
in the Prospectus, 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, except where the failure to so comply would not, individually or in
the aggregate, have a material adverse effect on the Company.
(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
(excluding laws and regulations covered by the preceding paragraph), 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.
<PAGE> 9
(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 Statement
and as have been waived in writing in connection with the offering contemplated
hereby.
(r) Absence of Material Changes. 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 owns no real
property and has good and marketable title to all personal property owned by
it 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 it under valid, subsisting leases, which are enforceable against the
Company and, to the Company's knowledge, the other parties thereto, 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,
possesses or has a license to use, 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
<PAGE> 10
have a material adverse effect on the Company.
(v) Insurance. Through its parent, VSI, the Company is
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary for companies
operating businesses that sell vitamins, nutritional supplements and minerals to
retail customers; and the Company has no reason to believe that Parent will not
be able to renew its existing insurance coverage for the Company as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary for the Company to continue its business at a cost that would not
have a material adverse effect on the Company.
(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,
except where the failure to possess such certificates, authorizations and
permits would not, individually or in the aggregate, have a material adverse
effect on the Company, and the Company has not received any written 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, through
its Parent, 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 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 to evaluate the extent to which the business or operations of the
Company will be affected by the Year 2000 Problem. The Company's analysis of the
effect that the Year 2000 Problem may have on it is set forth in the Prospectus
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Compliance". 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
<PAGE> 11
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.
2. Purchase and Sale Agreements.
(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 681,818 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
<PAGE> 12
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 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
[three 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 [30 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
<PAGE> 13
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
reasonable opinion of counsel for the Underwriters the 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 reasonable
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
<PAGE> 14
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, for a period of five years from the date
the Registration Statement becomes effective, 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) 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 Material Adverse Change. There shall not have
occurred any change, 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
<PAGE> 15
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.
(g) 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(f) 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.
(h) 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.
(i) 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 limit our sales or 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.
(j) 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.
(k) 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
<PAGE> 16
earlier than the date hereof.
(l) 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.
(m) 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
<PAGE> 17
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 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 (with any such expenses incurred jointly by the Company and the
Underwriters to be allocated between the Company and the Underwriters on a pro
rata basis or other equitable basis agreed to between the Company and the
Underwriters), (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
<PAGE> 18
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 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
<PAGE> 19
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 second and third
sentences of this paragraph and the indemnifying party shall have breached its
obligation thereunder to do so, 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 as required by this paragraph 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.
(d) 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 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
<PAGE> 20
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.
(e) 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(d). 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.
(f) 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 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,
<PAGE> 21
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 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
<PAGE> 22
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.
If to the Company:
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, New York 10022
<PAGE> 23
Facsimile: ____________
Attention: President and Chief Executive Officer
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Attention: Mark S. Selinger, Esq.
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, the parties hereto shall negotiate in good faith
to effect such minor changes (and only such minor changes) hereto 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. 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
<PAGE> 24
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]
<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, Inc.
By:-------------------------------
Name:------------------------
Title:---------------------
Accepted as of the date hereof
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
PaineWebber Incorporated
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule A hereto.
By: Thomas Weisel Partners LLC
By:-------------------------------
Name:---------------------------
Title:-----------------------
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Shares
Underwriter To Be Purchased
<S> <C>
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
PaineWebber Incorporated
---------
Total 4,545,455
=========
</TABLE>
<PAGE> 1
Exhibit 5.1
[KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP LETTERHEAD]
September 28, 1999
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, New York 10022
Re: VitaminShoppe.com, Inc.--Registration Statement on Form S-1
(Registration No. 333-83849)
Ladies and Gentlemen:
We have acted as counsel to VitaminShoppe.com, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of the
above-referenced Registration Statement on Form S-1 and the amendments thereto
filed with the Securities and Exchange Commission pursuant to the provisions of
the Securities Act of 1933, relating to the issuance and sale of up to 4,545,455
shares of Company's Class A common stock, par value $0.01 per share, to the
Underwriters named in Schedule A to the Underwriting Agreement proposed to be
entered into among the Company, Thomas Weisel Partners LLC, William Blair &
Company, L.L.C. and PaineWebber Incorporated (the "Underwriting Agreement").
In rendering the opinion set forth below, we have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records, certificates of public officials and other
instruments as we have deemed necessary or advisable for the purpose of
rendering this opinion.
Based on and subject to the foregoing, it is our opinion that
the shares of Class A common stock to be sold by the Company pursuant to the
Registration Statement 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. Our opinion expressed above is limited to
the laws of the State of Delaware.
We hereby consent to the use of this opinion as exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters." In giving such opinion, we do not thereby admit that we are
acting within the category of persons whose consent is required under section 7
of the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
<PAGE> 1
Exhibit 10.22
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of July 1, 1999, effective as of June 14,
1999 (the "Date of Grant") between VitaminShoppe.com, Inc., a Delaware
corporation (hereinafter referred to as the "Corporation"), and Kathryn H.
Creech (hereinafter referred to as the "Employee").
W I T N E S S E T H
WHEREAS, the Corporation desires, in connection with the
employment of the Employee and in accordance with its Stock Option Plan for
Employees, effective as of June 14, 1999 (the "Plan"), to provide the Employee
with an opportunity to acquire Shares of the Corporation on favorable terms and
thereby increase her proprietary interest in the continued progress and success
of the business of the Corporation;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Employee hereby agree as follows:
1. Definitions. Any capitalized term not defined herein shall
have the meaning set forth in the Employee's employment agreement.
2. Grant of Option. The Corporation hereby issues to the
Employee the right and option to purchase from the Corporation 255,000 shares of
the Corporation's Class A Common Stock, par value $.01 per share (the "Shares")
at an exercise price of $5.88 per share. In addition, the Employee shall have
the anti-dilution protection specified in Section 2(D)(3)(a) of her employment
agreement, as in effect on the date hereof. The Option is not intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall (A) become exercisable at a rate
of one-third (33-1/3%) on each of the first three anniversaries of the Date of
Grant, and (B) become exercisable earlier than in (A) above upon a Change in
Control, IPO of the Corporation or Employee's death or Disability to the extent
provided in the Employee's employment agreement, as in effect on the date
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. All Options, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the Date of Grant. The holder of the Option shall not have any rights to
dividends or any other rights of a stockholder with respect to any Shares
subject to the Option until such Shares shall have been issued to her (as
evidenced by the appropriate entry on the books of a duly
<PAGE> 2
authorized transfer agent of the Corporation), provided that the date of
issuance shall not be earlier than the date this Option is exercised and payment
of the full purchase price of the Shares (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-Transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event, provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the Employee
at any time ceases to be an employee of the Corporation and of any Parent or
Subsidiary by reason of her discharge for Good Cause, at the time of such
termination of employment, the Option (whether or not then exercisable to any
extent) shall terminate and the Employee shall forfeit all rights hereunder. If,
however, the Employee ceases to be an Employee for any other reason (other than
death), any outstanding portion of an Option that has not become exercisable
shall terminate on the date of such termination of employment (unless provided
otherwise by the Board or the Committee, in its sole discretion, as applicable).
In no event, however, may the Option be exercised after the expiration of the
term provided in Section 4 hereof. Notwithstanding the foregoing provisions of
this Section 6, so long as there has not been an IPO, the Corporation shall have
the right in its sole discretion to purchase during the one year period
following the date of the Employee's termination of employment, and the Employee
shall have the obligation to sell to the Corporation during such period (i) any
outstanding exercisable Option at its then Fair Market Value (which in all cases
shall be the difference between the Fair Market Value of each Share under such
Option and the exercise price) and (ii) any Shares purchased by the Employee
through the exercise of an Option at their then Fair Market Value.
(b) The Option shall not be affected by any change of
duties or position of the Employee so long as she continues to be an Employee
except as described in Section 7 of the Plan; notwithstanding the foregoing, if
Employee elects to receive additional options pursuant to Section 2(D)(3)(b)(ii)
of her employment agreement she will be deemed to have irrevocably waived her
right to have the vesting of her Options accelerate pursuant to Section 7B of
the Plan. If the Employee is granted a temporary leave of absence, such leave of
absence shall be deemed a continuation of her employment by the Corporation or
of any Parent or Subsidiary thereof for the purposes of this Agreement, but only
if and so long as the employing corporation consents thereto.
7. Exercise Upon Death. If the Employee dies while she is
employed by the Corporation or by any Parent or Subsidiary and on or after the
first date upon which she would have
2
<PAGE> 3
been entitled to exercise the Option under the provisions of Section 3 hereof,
the Option may, but only to the extent exercisable (and not exercised) on the
date of her death, be exercised by the estate of the Employee (or by the person
or persons who acquire the right to exercise the Option by written designation
of the Employee) for the remainder of its original term, at the end of which
period the Option, to the extent not then exercised, shall terminate and the
estate or other beneficiaries shall forfeit all rights thereunder. So long as
there has been no Initial Public Offering, and subject to any restrictions or
conditions set forth in applicable credit and other financing agreements of the
Corporation, (i) with respect to any outstanding Option exercisable by the
estate or beneficiary of a deceased Participant, such estate or beneficiary
shall have the right to sell to the Corporation during the one year period
following the date of death of the Participant, and the Corporation shall have
the obligation to purchase, such Option at its then Fair Market Value; and (ii)
with respect to shares of Common Stock held of record or beneficially by the
estate or beneficiary of a deceased Participant through the exercise of such
Option, such estate or beneficiary shall have the right to sell to the
Corporation during the one year period following the date of death of the
Participant, and the Corporation shall have the obligation to purchase, such
Shares at their then Fair Market Value. Notwithstanding the foregoing provisions
of this Section 7, at any time during the one year period following the date of
death of the Employee, the Corporation shall have the right in its sole
discretion to purchase, and the estate or beneficiary of the Employee shall have
the obligation to sell to the Corporation (i) any outstanding Option exercisable
by the estate or beneficiary for an amount equal to the Fair Market Value of a
Share minus the exercise price of such Option and (ii) any Shares held of record
or beneficially by the estate or beneficiary through the exercise of an Option
at their then Fair Market Value.
8. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
9. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by written notice
to the Secretary of the Corporation (the "Notice") with provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the Option and the
number of Shares with respect to which it is being exercised;
(ii) contain a representation and agreement as to
investment intent, if required by counsel to the Corporation with
respect to such Shares, in a form satisfactory to such counsel;
(iii) be signed by the Employee or the person or
persons entitled to exercise the Option and, if the Option is being
exercised by any person or persons other than the Employee, be
accompanied by proof, satisfactory to counsel to the Corporation, of
the right of such other person or persons to exercise the Option;
3
<PAGE> 4
(iv) include payment of the full purchase price for
the shares of Common Stock to be purchased pursuant to such exercise of
the Option; and
(v) be received by the Corporation on or before the
date of the expiration of this Option. In the event the date of
expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office, such written Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the exercise price of an Option shall
be made (i) by delivering to the Corporation a certified or bank cashier's check
payable to the order of the Corporation, (ii) by delivering to the Corporation
properly endorsed certificates of shares of Common Stock (or certificates
accompanied by an appropriate stock power) with signature guaranties by a bank
or trust company, (iii) by having withheld from the total number of shares of
Common Stock to be acquired upon the exercise of this Option a specified number
of such shares of Common Stock, (iv) by any form of "cashless" exercise, or (v)
by any combination of the above.
(c) The Option shall be deemed to have been exercised
on the date the Notice was received by the Corporation with respect to any
particular shares of Common Stock if, and only if the preceding, provisions of
this Section 9 and the provisions of Section 10 hereof shall have been complied
with, and any Notice shall be void and of no effect if all of the provisions of
Section 9 and of Section 10 shall not have been complied with.
(d) The certificate or certificates for shares of
Common Stock as to which an Option is exercised will be registered in the name
of the Employee (or in the name of the Employee's estate or other beneficiary),
or if the Option is exercised by the Employee and the Employee so requests in
the Notice exercising the Option, will be registered in the name of the Employee
and another person jointly, with right of survivorship, and will be delivered as
soon as practicable after the date the Notice is received by the Corporation
(accompanied by full payment of the exercise price), but only upon compliance
with all of the provisions of this Agreement.
(e) If the Employee fails to accept delivery of and
pay for all or any part of the number of Shares specified in such Notice, her
right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to issue or
deliver any certificate or certificates for shares of its Common Stock purchased
upon the exercise of any part of this Option prior to the payment to the
Corporation, upon its demand, of any amount requested by the Corporation for the
purpose of satisfying its liability, if any, to withhold state or local income
or earnings tax or any other applicable tax or assessment (plus interest or
penalties thereon, if any, caused by a delay in making such payment) incurred by
reason of the exercise of this Option or the transfer of Shares thereupon. Such
payment shall be made by the Employee in cash or, with the consent of the
Corporation, by tendering to the Corporation shares of Common Stock equal in
value
4
<PAGE> 5
to the amount of the required withholding. In the alternative, the Corporation
may, at its option, satisfy such withholding requirements by withholding from
the Shares to be delivered to the Employee pursuant to an exercise of this
Option the number of Shares equal in value to the amount of the required
withholding.
10. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act and the Exchange Act, and the rules and
regulations thereunder, and the requirements of any stock exchange upon which
the Common Stock may then be listed.
11. Resale of Common Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Common Stock purchased upon
exercise of the Option, the Employee shall deliver to the Corporation an opinion
of counsel satisfactory to the Corporation to the effect that either (i) the
Common Stock to be sold or transferred has been registered under the Securities
Act, and that there is in effect a current prospectus meeting the requirements
of Section 10(a) of the Securities Act which is being or will be delivered to
the purchaser or transferee at or prior to the time of delivery of the
certificates evidencing the Common Stock to be sold or transferred, or (ii) such
Common Stock may then be sold without violating Section 5 of said Act.
(b) The Shares issued upon exercise of an Option
shall bear the following legend, if required by counsel for the Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
12. Reservation of Shares. Unless the Shares are readily
tradable on a generally recognized securities market, the Corporation shall at
all times during the term of the Option reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of this Agreement.
13. Confidential Information. During the employment of the
Employee by the Corporation and thereafter, the Employee shall not disclose to
anyone else, directly or indirectly, any proprietary or business sensitive
information concerning the business of the Corporation, its Parent or
Subsidiary, or use, or permit or assist, by acquiescence or otherwise, anyone
else to use, directly or indirectly, any such information. Such information
shall include all information to the extent not generally known to the public
which, if released to unauthorized persons, could be detrimental to
5
<PAGE> 6
the reputation or business interests of the Corporation, its Parent or
Subsidiary. Notwithstanding any provision in this Agreement to the contrary, the
right of the Employee to exercise the Option shall terminate upon a
determination by the Committee, in its sole discretion, that the Employee has
engaged in the foregoing conduct. The provisions of this Section 13 shall not
apply to such disclosure where the Employee is legally required to do so.
14. Employment. Nothing contained in this Agreement shall be
construed (a) as a contract of employment between the Employee and the
Corporation or any Parent or Subsidiary, (b) as a right of the Employee to be
continued in the employ of the Corporation or of any Parent or Subsidiary, or
(c) as a limitation of the right of the Corporation or of any Parent or
Subsidiary to discharge the Employee at any time, with or without cause.
15. Limitation of Action. The Employee and the Corporation
each acknowledges that every right of action accruing to her or it, as the case
may be, and arising out of or in connection with this Agreement against the
Corporation or a Parent or Subsidiary, on the one hand, or against the Employee,
on the other hand, shall, irrespective of the place where an action may be
brought, cease and be barred by the expiration of three years from the date of
the act or omission in respect of which such right of action arises.
16. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., c/o Vitamin Shoppe Industries,
Inc., 4700 Westside Avenue, North Bergen, New Jersey, Attn: President. All
notices to the Employee shall be addressed to (a) the Employee at 31 Cooper
Beech Road, Greenwich, Connecticut 06830 and (b) Louis L. Broudy, Esq., Broudy &
Associates, P.C., 230 Park Avenue, Suite 2400, New York, New York 10169. Anyone
to whom a notice may be given under this Agreement may designate a new address
by notice to that effect.
17. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Employee and all rights granted to the Corporation
under this Agreement shall be binding upon the Employee's heirs, legal
representatives, successors and assigns.
18. Severability. In the event that any one or more provisions
of this Agreement shall be deemed to be illegal or unenforceable, such
illegality or unenforceability shall not affect the validity and enforceability
of the remaining legal and enforceable provisions hereof, which shall be
construed as if such illegal or unenforceable provision or provisions had not
been inserted.
19. Governing Law. This Agreement will be construed and
governed in accordance with the laws of the State of New York.
20. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference, and in the event of any conflict or
inconsistency between the provision of this Agreement
6
<PAGE> 7
and the Plan, the Plan shall govern. Notwithstanding the foregoing, in the event
of any conflict between the terms and provisions hereof and the terms and
provisions of the Employee's employment agreement (as in effect on the date
hereof), the terms of such employment agreement shall control.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name and its corporate seal to be hereunto affixed and the
Employee has hereunto set her hand all as of the date, month and year first
above written.
VitaminShoppe.com, Inc.
By:
----------------------------------
Name: Jeffrey Horowitz
Title: Chairman of the Board of Directors
-----------------------------------------
Kathryn H. Creech
-----------------------------------------
Social Security Number
7
<PAGE> 1
EXHIBIT 10.23
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT")
dated as of July 1, 1999, effective as of June 30, 1999, between
VITAMINSHOPPE.COM, INC., a Delaware Corporation (the "CORPORATION"), and
Eliot D. Russman, residing at _________, _______, _____ _____ (the
"PARTICIPANT").
W I T N E S S E T H:
WHEREAS, the Corporation desires, in connection with the
Participant's employment with the Corporation and in accordance with its Stock
Option Plan for Employees, effective as of July 1, 1999 (the "PLAN"), to provide
the Participant with an opportunity to acquire shares of the Corporation's Class
A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and
thereby increase his proprietary interest in the continued progress and success
of the business of the Corporation. Unless otherwise defined herein, all
capitalized terms used herein shall have the same definitions as set forth under
the Plan.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Participant hereby agree as follows:
1. Confirmation of Grant of Option. The Corporation, subject
to the terms of the Plan and this Agreement, hereby grants to the Participant as
a matter of separate inducement and agreement, and in addition to and not in
lieu of salary or other compensation for services, the right to purchase
(hereinafter referred to as the "OPTION") an aggregate of 114,750 shares of
Class A Stock, subject to adjustment as provided in the Plan (such shares, as
adjusted, hereinafter being referred to as the "SHARES"). The Option not
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $5.88 per Share, which equals the Fair
Market Value of such Shares on the June 30, 1999 (the "DATE OF GRANT"), subject
to adjustment as provided in the Plan.
<PAGE> 2
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to 38,250 Shares on or after June 30,
2000;
(ii) as to 38,250 Shares on or after June
30, 2001; and
(iii) as to 38,250 Shares on or after June
30, 2002.
(b) The Option may be exercised pursuant to the
provisions of this Section 3, by notice and payment (including, but not limited
to, by a "cashless" exercise) to the Corporation as provided in Section 10
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the Date of Grant. The Participant shall not have any rights to dividends or
any other rights of a stockholder with respect to any shares of Class A Stock
subject to the Option until such shares shall have been issued to him (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Corporation) provided that the date of issuance shall not be
earlier than the date this Option is exercised and payment of the full purchase
price of the shares of Class A Stock (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the
Participant's service with the Corporation is terminated by reason of a
Qualifying Termination, each Option granted
2
<PAGE> 3
to the Participant shall remain exercisable by him until the end of the exercise
period under such Option, but only to the extent exercisable (and not exercised)
on the date of such Qualifying Termination, and all Options not exercisable on
the date of such Qualifying Termination shall be forfeited and canceled. If the
Participant's service with the Corporation is terminated by reason of a
Non-Qualifying Termination, all outstanding unexercised Options shall be
forfeited or canceled, as the case may be, as of the date of such Non-Qualifying
Termination. Notwithstanding the foregoing provisions of this Section 6(a), so
long as there has been no Initial Public Offering, the Corporation shall have
the right in its sole discretion to purchase during the one year period
following the date of Qualifying Termination of the Participant, and the
Participant shall have the obligation to sell to the Corporation (i) any
outstanding Option exercisable by the Participant at the then Fair Market Value
of a share of Class A Stock less the exercise price; and (ii) any shares of
Class A Stock held of record or beneficially by the Participant through the
exercise of an Option at their Fair Market Value.
(b) Except as otherwise specifically provided herein
or in the Plan, the Option shall not be affected by any change of duties or
position of the Participant so long as he continues to be an Participant of the
Corporation or of any Parent or Subsidiary thereof. If the Participant is
granted a temporary leave of absence, such leave of absence shall be deemed a
continuation of his employment by the Corporation or of any Parent or Subsidiary
thereof for the purposes of this Agreement, but only if and so long as the
employing corporation consents thereto.
7. Exercise Upon Death. If the Participant dies while holding
an outstanding Option, such Option, to the extent exercisable (and not
exercised) on the date of his death, shall remain so exercisable by his estate
(or other beneficiaries, as designated in writing by such Participant) until the
end of the exercise period under the Option, unless the Committee shall
otherwise provide at the time of the grant of the option. So long as there has
been no Initial Public Offering and subject to any restrictions or conditions
set forth in applicable credit and other financing agreements of the Corporation
and to applicable law: (i) with respect to any outstanding Option exercisable by
the estate or beneficiary of the deceased Participant, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such Option at the then Fair Market Value of a
share of Class A Stock less the exercise price; and (ii) with respect to shares
of Class A Stock held of record or beneficially by the estate or beneficiary of
the deceased Participant through the exercise of such Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value.
Notwithstanding the foregoing provisions of this Section 7, at any time during
the one year period following the date of death of the Participant, the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the obligation to
sell to the Corporation (i) any outstanding Option exercisable by the estate or
beneficiary at the then Fair Market Value of a share of Class A Stock less the
exercise price; and (ii) any shares of Class A Stock held of record
3
<PAGE> 4
or beneficiary by the estate or beneficiary through the exercise of an Option at
their then Fair Market Value.
8. Merger, Consolidation or Change in Control of Corporation.
(a) Upon the occurrence of a Liquidity Event, the Participant shall have the
right immediately prior to the effective date of such Liquidity Event (or, if
later, within 10 days of the Participant's notification of such event) to
exercise any Option granted and still outstanding (and not otherwise expired) in
whole or in part without regard to any installment or vesting provision of this
Agreement, provided that all conditions precedent to the exercise of such
Options, other than the passage of time, have occurred. The Corporation, to the
extent practicable, shall give advance notice to the Participant of any such
Liquidity Event. All such Options which are not so exercised shall be canceled
and forfeited as of the effective time of any such Liquidity Event (or, if
later, at the end of the applicable 10-day notice period). If the Corporation
engages in a Business Combination which is not a Liquidity Event, the
Corporation may, in connection with such transaction, at its option elect one of
the following: provide for (i) the continuance of the Option granted hereunder
(either by express provision or, if the Corporation is the surviving corporation
in the Business Combination, as a consequence of the failure to address the
treatment of options in the applicable agreements), (ii) the substitution of new
options for the Option granted hereunder (which new options grant the
Participant the right to purchase the securities they would have received had
they held Class A Stock immediately prior to the Business Combination) or (iii)
acceleration of any outstanding Options in which case such Business Combination
will be deemed a "Liquidity Event" and Options treated in accordance with the
preceding sentences of this Section 9(a).
(b) In the event that the Participant terminates his
employment with the Corporation or the surviving corporation in a Qualifying
Business Combination for Good Reason, or the Participant's employment is
terminated by the Corporation or such surviving corporation without Good Cause,
in either case within one year of such Qualifying Business Combination, the
Options granted hereunder shall immediately become exercisable without regard to
any installment or vesting provision of this Agreement, provided that all
conditions precedent to the exercise of such Options, other than the passage of
time, have occurred.
9. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
10. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the
Option and the number of Shares with respect to which it is being
exercised;
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<PAGE> 5
(ii) contain a representation and agreement
as to investment intent, if required by the Committee with respect to
such Shares, in a form satisfactory to the Committee;
(iii) be signed by the Participant or the
person or persons entitled to exercise the Option and, if the Option is
being exercised by any person or persons other than the Participant, be
accompanied by proof satisfactory to the Committee of the right of such
other person or persons to exercise the Option;
(iv) include payment of the full purchase
price for the shares of Class A Stock to be purchased pursuant to such
exercise of the Option; and
(v) be received by the Corporation on or
before the date of the expiration of this Option. In the event the date
of expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office then such Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the purchase price of any shares of
Class A Stock, in respect of which the Option shall be exercised, shall be made
by the Participant or such person or persons at the place specified by the
Corporation on the date the Notice is received by the Corporation (i) by
delivering to the Corporation a certified or bank cashier's check payable to the
order of the Corporation, (ii) by delivering to the Corporation properly
endorsed certificates of shares of Class A Stock (or certificates accompanied by
an appropriate stock power) with signature guaranties by a bank or trust
company, (iii) by having withheld from the total number of shares of Class A
Stock to be acquired upon the exercise of this Option a specified number of such
shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any
combination of the above.
(c) The Option shall be deemed to have been exercised
on the date the Notice was received by the Corporation with respect to any
particular shares of Class A Stock if, and only if, the preceding provisions of
this Section 11 and the provisions of Section 12 hereof shall have been complied
with. Anything in this Agreement to the contrary notwithstanding, any Notice
given pursuant to the provisions of this Section 11 shall be void and of no
effect if all of the preceding provisions of this Section 11 (including this
subsection (c)) and the provisions of Section 12 shall not have been complied
with.
(d) The certificate or certificates for shares of
Class A Stock as to which the Option shall be exercised will be registered in
the name of the Participant (or in the name of the Participant's estate or other
beneficiary, if the Option is exercised after the Participant's death), or if
the Option is exercised by the Participant and if the Participant so requests in
the Notice exercising the Option, will be registered in the name of the
Participant and another person jointly, with right of survivorship, and will be
delivered as soon as practical after
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<PAGE> 6
the date the Notice is received by the Corporation (accompanied by full payment
of the exercise price), but only upon compliance with all of the provisions of
this Agreement.
(e) If the Participant fails to accept delivery of
and pay for all or any part of the number of Shares specified in such Notice,
his right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to issue or
deliver any certificate or certificates for shares of its Class A Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Participant in cash or, with the consent of
the Corporation, by tendering to the Corporation shares of Class A Stock equal
in value to the amount of the required withholding. In the alternative, the
Corporation may, at its option, satisfy such withholding requirements by
withholding from the shares of Class A Stock to be delivered to the Participant
pursuant to an exercise of this Option, a number of shares of Class A Stock
equal in value to the amount of the required withholding.
11. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Class A Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Class A Stock may then be
listed.
12. Resale of Class A Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Class A Stock purchased upon
exercise of the Option, the Participant shall deliver to the Corporation an
opinion of counsel satisfactory to the Corporation to the effect that either (i)
the Class A Stock to be sold or transferred has been registered under the
Securities Act of 1933, and that there is in effect a current prospectus meeting
the requirements of Section 10(a) of the Securities Act which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Class A Stock to be sold or transferred, or
(ii) such Class A Stock may then be sold without violating Section 5 of said
Act.
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<PAGE> 7
(b) The Class A Stock issued upon exercise of the
Option shall bear the following legend if required by counsel for the
Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
13. Reservation of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of the Class A Stock as will be sufficient to satisfy the requirements of this
Agreement.
14. Nonguarantee of Employment. Nothing contained in this
Agreement shall be construed as a right of the Participant to be continued as an
Participant of the Corporation (or of any Parent or Subsidiary), or as a
limitation on the right of the Corporation or any Parent or Subsidiary to remove
the Participant, with or without cause.
15. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to the
Participant shall be addressed to the Participant or such other person or
persons at the Participant's address above specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to that
effect.
16. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Participant and all rights granted to the
Corporation under this Agreement shall be binding upon the Participant's heirs,
legal representatives, successors and assigns.
17. Severability. In case any provision of this Agreement
shall be held illegal or void, such illegality or invalidity shall not affect
the remaining provisions of this Agreement, but shall be fully severable, and
this Agreement shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
18. Governing Law. All questions pertaining to the validity,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of New York.
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<PAGE> 8
19. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name by its President and its corporate seal to be
hereunto affixed and attested by its Secretary or its Assistant Secretary and
the Participant has hereunto set his hand all as of the date, month and year
first above written.
VitaminShoppe.com, Inc.
By:
-----------------------------
Name: Kathryn H. Creech
Title: President and Chief Executive
ATTEST: Officer
- --------------------------------- ---------------------------------
Secretary Eliot D. Russman
---------------------------------
Social Security Number
<PAGE> 9
EXHIBIT A
NONQUALIFIED STOCK OPTION EXERCISE FORM
____________________
Date
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, NY 10022
Attention: Secretary
Dear Sirs:
Pursuant to the provisions of the Nonqualified Stock Option
Agreement dated July 1, 1999, effective as of June 30, 1999, whereby you have
granted to me a nonqualified stock option to purchase 114,750 shares of the
Class A Common Stock (the "CLASS A STOCK") of VitaminShoppe.com, Inc. (the
"CORPORATION"), I hereby notify you that I elect to exercise my option to
purchase ______________ of the shares covered by such Option at the exercise
price specified thereon. In full payment of the price for the shares being
purchased hereby:
1. I am delivering to you herewith:
(a) a certified or bank cashier's check payable to
the order of the Corporation in the amount of $_________; $_________ of this
amount is the purchase price of the shares, and the balance represents payment
of withholding taxes as follows: Federal $_________, State $_________ and Local
$_________. OR
(b) a certificate or certificates for [ ]
shares of Class A Stock of the Corporation, which have a Fair Market Value as of
the date hereof at least equal to the option exercise price, and a certified or
bank cashier's check, payable to the order of the Corporation, in the amount of
$_________, which represents payment of withholding taxes as follows: Federal
$_________, State $_________ and Local $_________. Any such stock certificate or
certificates are endorsed, or accompanied by an appropriate stock power, to the
order of the Corporation, with my signature guaranteed by a bank or trust
company or by a member firm of the Nations Association of Securities Dealers,
Inc.
<PAGE> 10
(c) OR
(d) Please retain __________ shares of Class A Stock
of the Corporation covered by the Option which have a Fair Market Value as of
the date hereof at least equal to the option exercise price. I am delivering to
you herewith a certified or bank cashier's check, payable to the order of the
Corporation, in the amount of $_________ which represents payment of withholding
taxes as follows: Federal $_________, State $_________ and Local $_________.
In the event the amounts designated above are insufficient for
the withholding of federal, state and local taxes, I hereby authorize the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to me the balance of any taxes required to be withheld by
the Corporation under federal, state or local law as a result of my election
herein. Further, I acknowledge that I am purchasing these shares for investment
purposes only and not for resale.
Very truly yours,
---------------------------------
Eliot D. Russman
Address for notices, reports, dividend checks
and other communications to stockholders:
[ ]
[ ]
<PAGE> 11
VITAMINSHOPPE.COM, INC.
Stock Option Plan for Employees
NONQUALIFIED STOCK OPTION
Granted To
ELIOT D. RUSSMAN
Participant
114,750 $5.88
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: June 30, 1999 EXPIRATION DATE: June 29, 2009
<PAGE> 1
EXHIBIT 10.24
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of July 27, 1999 (the "Date of Grant")
between VitaminShoppe.com, Inc., a Delaware corporation (hereinafter referred to
as the "Corporation"), and Kathryn H. Creech (hereinafter referred to as the
"Employee").
W I T N E S S E T H
WHEREAS, the Corporation desires, in connection with the
employment of the Employee and in accordance with its Stock Option Plan for
Employees, effective as of June 14, 1999 (the "Plan"), to provide the Employee
with an opportunity to acquire Shares of the Corporation on favorable terms and
thereby increase her proprietary interest in the continued progress and success
of the business of the Corporation;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Employee hereby agree as follows:
1. Definitions. Any capitalized term not defined herein shall
have the meaning set forth in the Employee's employment agreement.
2. Grant of Option. The Corporation hereby issues to the
Employee the right and option to purchase from the Corporation 87,687 shares of
the Corporation's Class A Common Stock, par value $.01 per share (the "Shares")
at an exercise price of $14.08 per share. In addition, the Employee shall have
the anti-dilution protection specified in Section 2(D)(3)(a) of her employment
agreement, as in effect on the date hereof. The Option is not intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall (A) become exercisable at a
rate of one-third (33-1/3%) on each of the first three anniversaries of the
Date of Grant, and (B) become exercisable earlier than in (A) above upon a
Change in Control, IPO of the Corporation or Employee's death or Disability to
the extent provided in the Employee's employment agreement, as in effect on the
date hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. All Options, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the Date of Grant. The holder of the Option shall not have any rights to
dividends or any other rights of a stockholder with respect to any Shares
subject to the Option until such Shares shall have been issued to her (as
evidenced by the appropriate entry on the books of a duly
<PAGE> 2
authorized transfer agent of the Corporation), provided that the date of
issuance shall not be earlier than the date this Option is exercised and payment
of the full purchase price of the Shares (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-Transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event, provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the Employee
at any time ceases to be an employee of the Corporation and of any Parent or
Subsidiary by reason of her discharge for Good Cause, at the time of such
termination of employment, the Option (whether or not then exercisable to any
extent) shall terminate and the Employee shall forfeit all rights hereunder. If,
however, the Employee ceases to be an Employee for any other reason (other than
death), any outstanding portion of an Option that has not become exercisable
shall terminate on the date of such termination of employment (unless provided
otherwise by the Board or the Committee, in its sole discretion, as applicable).
In no event, however, may the Option be exercised after the expiration of the
term provided in Section 4 hereof. Notwithstanding the foregoing provisions of
this Section 6, so long as there has not been an IPO, the Corporation shall have
the right in its sole discretion to purchase during the one year period
following the date of the Employee's termination of employment, and the Employee
shall have the obligation to sell to the Corporation during such period (i) any
outstanding exercisable Option at its then Fair Market Value (which in all cases
shall be the difference between the Fair Market Value of each Share under such
Option and the exercise price) and (ii) any Shares purchased by the Employee
through the exercise of an Option at their then Fair Market Value.
(b) The Option shall not be affected by any
change of duties or position of the Employee so long as she continues to be an
Employee except as described in Section 7 of the Plan; notwithstanding the
foregoing, if Employee elects to receive additional options pursuant to Section
2(D)(3)(b)(ii) of her employment agreement she will be deemed to have
irrevocably waived her right to have the vesting of her Options accelerate
pursuant to Section 7B of the Plan. If the Employee is granted a temporary leave
of absence, such leave of absence shall be deemed a continuation of her
employment by the Corporation or of any Parent or Subsidiary thereof for the
purposes of this Agreement, but only if and so long as the employing corporation
consents thereto.
7. Exercise Upon Death. If the Employee dies while she is
employed by the Corporation or by any Parent or Subsidiary and on or after the
first date upon which she would have
2
<PAGE> 3
been entitled to exercise the Option under the provisions of Section 3 hereof,
the Option may, but only to the extent exercisable (and not exercised) on the
date of her death, be exercised by the estate of the Employee (or by the person
or persons who acquire the right to exercise the Option by written designation
of the Employee) for the remainder of its original term, at the end of which
period the Option, to the extent not then exercised, shall terminate and the
estate or other beneficiaries shall forfeit all rights thereunder. So long as
there has been no Initial Public Offering, and subject to any restrictions or
conditions set forth in applicable credit and other financing agreements of the
Corporation, (i) with respect to any outstanding Option exercisable by the
estate or beneficiary of a deceased Participant, such estate or beneficiary
shall have the right to sell to the Corporation during the one year period
following the date of death of the Participant, and the Corporation shall have
the obligation to purchase, such Option at its then Fair Market Value; and (ii)
with respect to shares of Common Stock held of record or beneficially by the
estate or beneficiary of a deceased Participant through the exercise of such
Option, such estate or beneficiary shall have the right to sell to the
Corporation during the one year period following the date of death of the
Participant, and the Corporation shall have the obligation to purchase, such
Shares at their then Fair Market Value. Notwithstanding the foregoing provisions
of this Section 7, at any time during the one year period following the date of
death of the Employee, the Corporation shall have the right in its sole
discretion to purchase, and the estate or beneficiary of the Employee shall have
the obligation to sell to the Corporation (i) any outstanding Option exercisable
by the estate or beneficiary for an amount equal to the Fair Market Value of a
Share minus the exercise price of such Option and (ii) any Shares held of record
or beneficially by the estate or beneficiary through the exercise of an Option
at their then Fair Market Value.
8. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
9. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by written notice
to the Secretary of the Corporation (the "Notice") with provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the Option
and the number of Shares with respect to which it is being exercised;
(ii) contain a representation and agreement as to
investment intent, if required by counsel to the Corporation with
respect to such Shares, in a form satisfactory to such counsel;
(iii) be signed by the Employee or the person or
persons entitled to exercise the Option and, if the Option is being
exercised by any person or persons other than the Employee, be
accompanied by proof, satisfactory to counsel to the Corporation, of
the right of such other person or persons to exercise the Option;
3
<PAGE> 4
(iv) include payment of the full purchase price for
the shares of Common Stock to be purchased pursuant to such exercise of
the Option; and
(v) be received by the Corporation on or before the
date of the expiration of this Option. In the event the date of
expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office, such written Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the exercise price of an Option
shall be made (i) by delivering to the Corporation a certified or bank cashier's
check payable to the order of the Corporation, (ii) by delivering to the
Corporation properly endorsed certificates of shares of Common Stock (or
certificates accompanied by an appropriate stock power) with signature
guaranties by a bank or trust company, (iii) by having withheld from the total
number of shares of Common Stock to be acquired upon the exercise of this Option
a specified number of such shares of Common Stock, (iv) by any form of
"cashless" exercise, or (v) by any combination of the above.
(c) The Option shall be deemed to have been
exercised on the date the Notice was received by the Corporation with respect to
any particular shares of Common Stock if, and only if the preceding, provisions
of this Section 9 and the provisions of Section 10 hereof shall have been
complied with, and any Notice shall be void and of no effect if all of the
provisions of Section 9 and of Section 10 shall not have been complied with.
(d) The certificate or certificates for shares
of Common Stock as to which an Option is exercised will be registered in the
name of the Employee (or in the name of the Employee's estate or other
beneficiary), or if the Option is exercised by the Employee and the Employee so
requests in the Notice exercising the Option, will be registered in the name of
the Employee and another person jointly, with right of survivorship, and will be
delivered as soon as practicable after the date the Notice is received by the
Corporation (accompanied by full payment of the exercise price), but only upon
compliance with all of the provisions of this Agreement.
(e) If the Employee fails to accept delivery of
and pay for all or any part of the number of Shares specified in such Notice,
her right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to
issue or deliver any certificate or certificates for shares of its Common Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of Shares thereupon.
Such payment shall be made by the Employee in cash or, with the consent of the
Corporation, by tendering to the Corporation shares of Common Stock equal in
value
4
<PAGE> 5
to the amount of the required withholding. In the alternative, the Corporation
may, at its option, satisfy such withholding requirements by withholding from
the Shares to be delivered to the Employee pursuant to an exercise of this
Option the number of Shares equal in value to the amount of the required
withholding.
10. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act and the Exchange Act, and the rules and
regulations thereunder, and the requirements of any stock exchange upon which
the Common Stock may then be listed.
11. Resale of Common Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Common Stock purchased upon
exercise of the Option, the Employee shall deliver to the Corporation an opinion
of counsel satisfactory to the Corporation to the effect that either (i) the
Common Stock to be sold or transferred has been registered under the Securities
Act, and that there is in effect a current prospectus meeting the requirements
of Section 10(a) of the Securities Act which is being or will be delivered to
the purchaser or transferee at or prior to the time of delivery of the
certificates evidencing the Common Stock to be sold or transferred, or (ii) such
Common Stock may then be sold without violating Section 5 of said Act.
(b) The Shares issued upon exercise of an Option
shall bear the following legend, if required by counsel for the Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
12. Reservation of Shares. Unless the Shares are readily
tradable on a generally recognized securities market, the Corporation shall at
all times during the term of the Option reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of this Agreement.
13. Confidential Information. During the employment of the
Employee by the Corporation and thereafter, the Employee shall not disclose to
anyone else, directly or indirectly, any proprietary or business sensitive
information concerning the business of the Corporation, its Parent or
Subsidiary, or use, or permit or assist, by acquiescence or otherwise, anyone
else to use, directly or indirectly, any such information. Such information
shall include all information to the extent not generally known to the public
which, if released to unauthorized persons, could be detrimental to
5
<PAGE> 6
the reputation or business interests of the Corporation, its Parent or
Subsidiary. Notwithstanding any provision in this Agreement to the contrary, the
right of the Employee to exercise the Option shall terminate upon a
determination by the Committee, in its sole discretion, that the Employee has
engaged in the foregoing conduct. The provisions of this Section 13 shall not
apply to such disclosure where the Employee is legally required to do so.
14. Employment. Nothing contained in this Agreement shall be
construed (a) as a contract of employment between the Employee and the
Corporation or any Parent or Subsidiary, (b) as a right of the Employee to be
continued in the employ of the Corporation or of any Parent or Subsidiary, or
(c) as a limitation of the right of the Corporation or of any Parent or
Subsidiary to discharge the Employee at any time, with or without cause.
15. Limitation of Action. The Employee and the Corporation
each acknowledges that every right of action accruing to her or it, as the case
may be, and arising out of or in connection with this Agreement against the
Corporation or a Parent or Subsidiary, on the one hand, or against the Employee,
on the other hand, shall, irrespective of the place where an action may be
brought, cease and be barred by the expiration of three years from the date of
the act or omission in respect of which such right of action arises.
16. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., c/o Vitamin Shoppe Industries,
Inc., 4700 Westside Avenue, North Bergen, New Jersey, Attn: President. All
notices to the Employee shall be addressed to (a) the Employee at 31 Cooper
Beech Road, Greenwich, Connecticut 06830 and (b) Louis L. Broudy, Esq., Broudy &
Associates, P.C., 230 Park Avenue, Suite 2400, New York, New York 10169. Anyone
to whom a notice may be given under this Agreement may designate a new address
by notice to that effect.
17. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Employee and all rights granted to the Corporation
under this Agreement shall be binding upon the Employee's heirs, legal
representatives, successors and assigns.
18. Severability. In the event that any one or more provisions
of this Agreement shall be deemed to be illegal or unenforceable, such
illegality or unenforceability shall not affect the validity and enforceability
of the remaining legal and enforceable provisions hereof, which shall be
construed as if such illegal or unenforceable provision or provisions had not
been inserted.
19. Governing Law. This Agreement will be construed and
governed in accordance with the laws of the State of New York.
20. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference, and in the event of any conflict or
inconsistency between the provision of this Agreement
6
<PAGE> 7
and the Plan, the Plan shall govern. Notwithstanding the foregoing, in the event
of any conflict between the terms and provisions hereof and the terms and
provisions of the Employee's employment agreement (as in effect on the date
hereof), the terms of such employment agreement shall control.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name and its corporate seal to be hereunto affixed and the
Employee has hereunto set her hand all as of the date, month and year first
above written.
VitaminShoppe.com, Inc.
By:
----------------------------------------
Name: Jeffrey Horowitz
Title: Chairman of the Board of Directors
-------------------------------------------
Kathryn H. Creech
-------------------------------------------
Social Security Number
7
<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 exclusive 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 exclusive 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 sole sponsor and exclusive
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 sole sponsor and
exclusive 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 exclusive 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, "exclusive 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 exclusive 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 exclusive 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 10.32
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
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 General run of site, rotating at the top of each page, * 468x60 pixel banner
at least 25% of which will appear in the Vitamin and * 234x60 banners
Mineral Section and the Herb Section. * 120x60 tiles
* [*****] impressions
On Health Home Page Rotating top of page placement banner advertisement * 468x60 banners
http://onhealth.com/ch1/ which shall be at least as favorable with respect to * [*****] impressions
index.asp size, frequency, duration or placement as that of
other similarly situated sponsors/advertisers on the
OnHealth Website.
Keywords Pages returned when specified keywords are searched * banner (469x60 OR
will display a banner advertisement and a sidebar 234x60 depending on
tile ad. The parties will mutually agree on up to section the return
20 vitamin specific key words, which may be updated is in)
from time to time upon ten (10) business days notice * sidebar tile ad
by Vitamin Shoppe, subject to the then-current * [*****] impressions
availability of the requested words.
ECommerce area Top page banner advertisement on a rotating basis. * 234x60 banners
* [*****] impressions
from banners
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
AD TYPE DETAILS CREATIVES/ESTIMATED
IMPRESSIONS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
"Storefront" top page Rotating appearance of products in "Promo Cell" * in Promo Cell section,
section. Rotating appearance in the "Featured Vitamin Shoppe
Partner" section. Rotating appearance in the products
"Feature Section". In the case of Promo Cell * In Featured Partner
Featured Partner and Feature Section displays, the section, Vitamin
size, frequency, duration and placement of such Shoppe logo
displays shall be at least as favorable as that of * In Feature Section,
other similarly situated sponsors/advertisers on Vitamin Shoppe name
the OnHealth WebSite. Up to two impressions may be * [*****] impressions
counted per page, pending Vitamin Shoppe product from "Storefront" top
promos each day. page
"Vitamin and Herb" store page Daily rotation of product specials. No more than Featured "Vitamin Shoppe"
two impressions to be counted per page. logo
Featured product cell
[*****] impressions
Alternative Health Column Rotating, above the fold tile advertisements. 120x60 tiles on side of
content
[*****] impressions
- ------------------------------------------------------------------------------------------------------------------------
</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 above-the-fold persistent banner advertisements and
side bar advertisements, 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 Continuous, persistent, prominent placement * Sidebar ads (120x60)
http://onhealth.com/ch1/resource/ of Vitamin Shoppe Advertising Content [*****] impressions
vitamins/index.asp
Herbs Index Continuous, persistent prominent placement * Sidebar ads
http://onhealth.com/ch1/resource/ of Vitamin Shoppe Advertising Content [*****] impressions
herbs/index.asp
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
(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.
3
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
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
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ASTERISKS DENOTE OMISSIONS.
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.
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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.
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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
---------------------------- ----------------------------
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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
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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 exclusive sponsorship 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 sole
sponsor and exclusive banner advertiser of the Siegel Site on the TINM Network.
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
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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.
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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, "exclusive
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 exclusive
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.
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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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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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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
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
EXHIBIT 10.35
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
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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WITH THE SECURITIES AND EXCHANGE COMMISSION.
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
2
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
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 exclusive 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 exclusive 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
3
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
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 exclusive 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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ASTERISKS DENOTE OMISSIONS.
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
5
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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.
6
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
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]
-------------- -------------- ----------------------------
7
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WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
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
------------------------------ ------------------------
8
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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
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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.
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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
<PAGE> 12
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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
<PAGE> 13
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT A
VITAMIN SHOPPE COMPETITORS
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 14
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
EXHIBIT B
MOCK-UPS OF TYPICAL SPONSORED ZONE
See attached.
<PAGE> 15
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
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
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
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
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
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 10.38
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS OF
VITAMINSHOPPE.COM, INC.
EFFECTIVE AS OF AUGUST 1, 1999
<PAGE> 2
INTRODUCTION
VitaminShoppe.com, Inc., a corporation organized under the
laws of the State of Delaware (the "Corporation"), hereby adopts this Stock
Option Plan for Non-Employee Directors of VitaminShoppe.com, Inc. The purposes
of this Plan are to further the growth, development and financial success of the
Corporation by providing additional incentives to its Non-Employee Directors by
offering them options to purchase the Corporation's Class A Common Stock and
thus aligning the interests of such directors with those of the Corporation's
shareholders.
<PAGE> 3
SECTION 1
DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates otherwise:
A. "Business Combination" shall mean a merger, consolidation,
exchange offer or other business combination involving the Corporation and
another corporation.
B. "Change in Control" shall occur (x) when any person
(including any individual, firm, partnership or other entity) together with all
Affiliates and Associates (as defined under Rule 12b-2 of the General Rules and
Regulations promulgated under the Exchange Act) of such person, but excluding
(i) any person or any Affiliate or Associate thereof who is a direct or indirect
shareholder of the Corporation as of the effective date of the Plan, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Corporation or any subsidiary of the Corporation, or (iii) the Corporation
or any Subsidiary, becomes the beneficial owner (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Corporation representing a majority of the combined voting power of the
Corporation's then outstanding securities, other than by reason of a Business
Combination, (y) upon a Business Combination if the shareholders of the
Corporation (or Affiliates or Associates thereto) immediately prior to such
Business Combination do not, as of the date of such Business Combination (after
giving effect thereto), own a beneficial interest, directly or indirectly, in
shares of voting securities of the corporation surviving such Business
Combination having at least a majority of the combined voting power of such
surviving corporation's then outstanding securities or (z) upon a sale by the
Corporation of all or substantially all of its assets; provided that in the case
of (x), (y) or (z) shareholders of the Corporation receive cash in the event
giving rise to such Change of Control equal to at least 30% of the value of
their shares in the Corporation.
C. "Class A Stock" shall mean the Class A common stock, $.01
par value of the Corporation.
D. "Class B Stock" shall mean the Class B common stock, $.01
par value of the Corporation.
E. "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder.
F. "Committee" shall mean the Board of Directors of the
Corporation or a committee appointed by the Board of Directors for purposes of
administration, operation and application of the Plan.
G. "Corporation" shall mean VitaminShoppe.com, Inc., a
Delaware corporation.
H. "Disability" shall have the same meaning as the term
"permanent and total disability" under Section 22(e)(3) of the Code.
<PAGE> 4
I. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
J. "Fair Market Value" With respect to the Corporation's Class
A Stock shall mean: (i) in the event the Corporation's Class A Stock is not
publicly traded, the fair market value of such Class A Stock, as determined by
the Committee in good faith; (ii) in the event the Corporation's Class A Stock
is publicly traded, the average over the ten business days ending on a Trading
Day of the last reported sale price for Class A Stock on each day or, in case no
such reported sale takes place during such period, the average of the closing
bid and asked prices for the Class A Stock on each day during such period ending
on such Trading Day, in either case on the principal securities exchange on
which the Class A Stock is listed or admitted to trading, or if the Class A
Stock is not listed or admitted to trading on any securities exchange, but is
traded in the over-the-counter market, the average over the ten business days
ending on a Trading Day of the last reported sale price of the Class A Stock on
each day or, if no sale is publicly reported during such period, the average of
the closing bid and asked quotations for the Class A Stock on each day during
such period ending on such Trading Day, as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or any comparable
system or, if the Class A Stock is not listed on NASDAQ or a comparable system,
the average over the ten business days ending on a Trading Day of the last
reported sale price of the Class A Stock on each day or, if no sale is publicly
reported, the average of the closing bid and asked prices for the Class A Stock
on each day during such period ending on such Trading Day, as furnished by two
members of the National Association of Securities Dealers, Inc. who make a
market in the Class A Stock selected from time to time by the Corporation for
that purpose; and (iii) in connection with an Option issued upon the
commencement of an Initial Public Offering, the public offering price of Class A
Stock in such Initial Public Offering. In addition, for purposes of this
definition, a "Trading Day" shall mean, if the Class A Stock is listed on any
securities exchange, a business day during which such exchange was open for
trading or, if the Class A Stock is not listed on any national securities
exchange but is traded in the over-the-counter market, a business day during
which the over-the-counter market was open for trading.
K. "Initial Public Offering" shall mean the closing of the
first firm commitment underwritten public offering of shares of the
Corporation's Class A Stock pursuant to a registration statement on Form S-1 (or
any successor form) filed with the Securities and Exchange Commission.
L. "Non-Employee Director" shall mean a director of the
Corporation who is not an employee of the Corporation or a Subsidiary and has
not, within one year immediately preceding the determination of such director's
eligibility, received any award under any plan of the Corporation or a
Subsidiary that entitles the participants therein to acquire stock, stock
options or stock appreciation rights of any such company (other than any other
plan under which participants' entitlements are governed by provisions meeting
the requirements of Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act).
2
<PAGE> 5
M. "Option" shall mean an option to purchase shares of the
Corporation's Class A Stock pursuant to the Plan. Options granted under the Plan
are not intended to be "incentive stock options" within the meaning of Section
422 of the Code.
N. "Option Agreement" shall mean an Option Agreement to be
entered into between the Corporation and a Participant which shall set forth the
terms and conditions of the Options granted to such Participant and shall be
substantially in the form attached hereto as Exhibit A.
O. "Parent" shall mean a parent corporation of the Corporation
within the meaning of Section 424(e) of the Code.
P. "Participant" shall mean a Non-Employee Director who is
granted an Option under the Plan.
Q. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
R. "Subsidiary" shall mean a subsidiary corporation of the
Corporation within the meaning of Section 424(f) of the Code.
SECTION 2
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee may establish from time to time such
regulations, provisions and procedures relating to the Plan and shall make all
determinations necessary or advisable for the administration of the Plan;
provided, however, that the Committee shall have no discretion with respect to
the selection of directors to receive Options under the Plan, the number of
shares subject to any Option, the exercise price of any Options (other than the
determination of Fair Market Value as provided herein), the date upon which any
Option shall become exercisable or the timing of grants of Options under the
Plan. A majority of the Committee shall constitute a quorum, and, subject to the
provisions of Section 5 of the Plan, the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by a majority of the Committee, shall be the acts of the Committee.
3
<PAGE> 6
SECTION 3
SHARES AVAILABLE
Subject to adjustment as provided for in Section 7 of the
Plan, the maximum aggregate number of shares for which Options may be granted
under the Plan shall not exceed 300,000 shares of the Corporation's Class A
Stock. Shares of Class A Stock subject to Options granted under the Plan shall
be counted against the maximum number of shares for which Options may be
granted, but only to the extent that the option remains exercisable or has been
exercised. Stock Options awarded under the Plan may be fulfilled in accordance
with the terms of the Plan with either authorized and unissued shares of Class A
Stock, issued shares of Class A Stock held in the Corporation's treasury or
shares of Class A Stock acquired on the open market.
SECTION 4
ELIGIBILITY; GRANT OF STOCK OPTIONS
Any individual who is a Non-Employee Director on the date of
adoption of this Plan shall be granted an Option to purchase 25,000 shares of
Class A Stock upon the commencement of an Initial Public Offering by the
Corporation. Any individual who is elected or appointed to serve as a
Non-Employee Director after the date of adoption of this Plan shall be granted
an Option to purchase 25,000 shares of Class A Stock as of the date of such
election or appointment. In addition, each Non-Employee Director shall be
granted an Option to purchase 5,000 shares of Class A Stock on the third
anniversary of his previous grant under the Plan.
SECTION 5
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the direction of,
the Committee, which shall have plenary authority to make all determinations
specified in or permitted by the Plan or deemed necessary or desirable for its
administration or for the conduct of the Committee's business and all actions
and decisions of the Committee shall be final and binding on all parties. All
interpretations and determinations of the Committee may be made in its sole
discretion and shall be final, conclusive and binding on all interested parties.
The authority of the Committee shall include, without limitation, the right to
the following:
A. Procedures for Exercise of Option. The establishment of
procedures for a Participant (i) to exercise an Option by payment of cash or any
other property acceptable to the Committee, (ii) to have withheld from the total
number of shares of Class A Stock to be acquired upon the exercise of an Option
that number of shares having a Fair Market Value, which, together with such cash
as shall be paid in respect of fractional shares, shall equal the option
exercise price of the total number of shares of common stock to be acquired,
(iii) to exercise all or a portion of an Option by delivering that number of
shares of Class A Stock already owned by him having a Fair Market Value equal to
the exercise price in the aggregate for the portion exercised and, in cases
where an Option is not exercised in its entirety, to permit the Participant to
deliver the shares of
4
<PAGE> 7
Class A Stock thus acquired by him in payment of shares of Common Stock to be
received pursuant to the exercise of additional portions of such Option, the
effect of which shall be that a Participant can in sequence utilize such newly
acquired shares of Class A Stock in payment of the exercise price of the entire
Option, together with such cash as shall be paid in respect of fractional
shares, and (iv) to engage in any form of "cashless" exercise; and
B. Procedures for Sale or Purchase of Class A Stock or
Options. The establishment of procedures for the sale or purchase of Class A
Stock or Options pursuant to Section 6 hereof.
SECTION 6
EXERCISABILITY OF STOCK OPTIONS
A. General Provisions. Subject to the terms and conditions of
this Section 6 and of Section 7, the exercise price of the shares of Class A
Stock covered by each Option shall be the Fair Market Value of such shares on
the date of the grant. Each Option granted under the Plan shall become
exercisable as follows: (i) one-third upon the first anniversary of the date of
grant; (ii) one-third upon the second anniversary of the date of grant; and
(iii) one-third upon the third anniversary of the date of grant.
B. Term of Option. The date or dates on which such Options
shall become exercisable as to the number of shares of Class A Stock covered
thereby shall be set forth in the Option Agreement and each Option shall expire
ten (10) years from its date of grant.
C. Participant's Death. If a Participant dies while holding an
outstanding Option, such Option, to the extent exercisable (and not exercised)
on the date of his death (including Options which have vested and become
non-forfeitable pursuant to Section 7C below), shall remain so exercisable by
his estate (or other beneficiaries, as designated in writing by such
Participant) until the end of the exercise period under the Option, unless the
Committee shall otherwise provide at the time of the grant of the Option. So
long as there has been no Initial Public Offering and subject to any
restrictions or conditions set forth in applicable credit and other financing
agreements of the Corporation and to applicable law: (i) with respect to any
outstanding Option exercisable by the estate or beneficiary of a deceased
Participant (including Options which have vested and become non-forfeitable
pursuant to Section 7C below), such Participant's estate or beneficiary shall
have the right to sell to the Corporation during the one year period following
the date of death of the Participant, and the Corporation shall have the
obligation to purchase, such Option at the then Fair Market Value of a share of
Class A Stock less the exercise price; and (ii) with respect to shares of Class
A Stock held of record or beneficially by the estate or beneficiary of a
deceased Participant through the exercise of such Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value.
Notwithstanding the foregoing provisions of this Section 6C, at any time during
the one year period following the date of death of the Participant , the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the
5
<PAGE> 8
obligation to sell to the Corporation (i) any outstanding Option exercisable by
the estate or beneficiary (including Options which have vested and become
non-forfeitable pursuant to Section 7C below) at the then Fair Market Value of a
share of Class A Stock less the exercise price and (ii) any shares of Class A
Stock held of record or beneficially by the estate or beneficiary through the
exercise of an Option at their then Fair Market Value.
D. Participant's Termination. Except as otherwise set forth in
Section 7C below, if a Participant's service is terminated for any reason other
than as described in Sections 6C above or 6E below, or if such Participant is
not re-elected to his or her position, any then exercisable Option (including
Options which have vested and become non-forfeitable pursuant to Section 7C
below) shall remain exercisable until the end of the exercise period under such
Option and all Options not exercisable on the date of such termination shall be
forfeited and canceled. Notwithstanding the foregoing provisions of this Section
6D, so long as there has been no Initial Public Offering, the Corporation shall
have the right in its sole discretion to purchase during the one year period
following the date a Participant's service with the Corporation is terminated as
described in the preceding sentence, and the Participant shall have the
obligation to sell to the Corporation (i) any outstanding Option exercisable by
the Participant at the then Fair Market Value of a share of Class A Stock less
the exercise price and (ii) any shares of Class A Stock held of record or
beneficially by the Participant through the exercise of an Option at their Fair
Market Value.
E. Misconduct by Participant. If the Board of Directors
(excluding the Participant accused of such misconduct) determines a Participant
has committed a felony or an act of embezzlement, fraud, dishonesty, moral
turpitude, nonpayment of an obligation owed to the Corporation, breach of
fiduciary duty or deliberate disregard of the Corporation's rules resulting in
loss, damage or injury to the Corporation, or if a Participant makes an
unauthorized disclosure of the Corporation's trade secrets or confidential
information, engages in any conduct constituting unfair competition, induces any
of the Corporation's customers to breach a contract with the Corporation or
induces any principal for whom the Corporation acts as agent to terminate such
agency relationship, neither the Participant nor his estate shall be entitled to
exercise any Option whatsoever. In making such determination, the Board of
Directors shall provide the Participant an opportunity to appear and present
evidence on the Participant's behalf at a hearing before the Board of Directors
or a committee of the Board of Directors.
6
<PAGE> 9
SECTION 7
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
A. Recapitalization, Etc. In the event there is any change in
the Class A Stock of the Corporation by reason of a reorganization,
recapitalization, stock conversion, stock split, stock dividend or otherwise,
there shall be (i) substituted for or added to each share of Class A Stock
thereafter subject, or which may become subject, to any Option, the number and
kind of shares of stock or other securities into which each outstanding share of
Class A Stock shall be so changed or for which each such share shall be
exchanged, or to which each such share shall be entitled, as the case may be,
and the per share exercise price thereof also shall be proportionately adjusted,
but only to the extent such adjustment is appropriate, and (ii) an appropriate
and proportionate adjustment in the maximum aggregate number of shares for which
Options may be granted pursuant to Section 3 of the Plan. The Committee shall
also make appropriate adjustments, if any, in the event there is any change in
the Class B Stock of the Corporation by reason of a reorganization,
recapitalization, stock conversion, stock split, stock dividend or otherwise
without corresponding changes to the Class A Stock.
B. Merger, Consolidation or Change in Control of Corporation.
Upon (i) the dissolution or liquidation of the Corporation or (ii) a Change in
Control (each event described in (i) and (ii), a "Liquidity Event"), the
Participant shall have the right immediately prior to the effective date of such
Liquidity Event (or, if later, within 10 days of the Participant's notification
of such event) to exercise any Option granted and still outstanding (and not
otherwise expired) in whole or in part without regard to any installment or
vesting provision that may have been made part of the terms and conditions of
such Option(s), provided that all conditions precedent to the exercise of such
Options, other than the passage of time, have occurred. The Corporation, to the
extent practicable, shall give advance notice to affected Participants of any
such Liquidity Event. All such Options which are not so exercised shall be
canceled and forfeited as of the effective time of any such Liquidity Event (or,
if later, at the end of the applicable 10-day notice period). If the Corporation
engages in a Business Combination which is not a Liquidity Event, the
Corporation may, in connection with such transaction, at its option elect one of
the following: provide for (i) the continuance of the options granted hereunder
(either by express provision or, if the Corporation is the surviving corporation
in the Business Combination, as a consequence of the failure to address the
treatment of options in the applicable agreements), (ii) the substitution of new
options for Options granted hereunder (which new options grant Participants the
right to purchase the securities they would have received had they held Class A
Stock immediately prior to the Business Combination) or (iii) acceleration of
outstanding Options in which case such Business Combination will be deemed a
"Liquidity Event" and Options treated in accordance with the preceding sentences
of this Section 7B; provided that if in connection with such Business
Combination, all of the outstanding stock options previously granted by the
Corporation under any other non-director plan adopted by the Corporation are
accelerated, then such Business Combination will be deemed a "Liquidity Event"
and Options will be treated in accordance with the preceding sentences of this
Section 7B.
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<PAGE> 10
C. In the event that any Participant's service as a director
of the Corporation is terminated for any reason in connection with, or within
one year after a Qualifying Business Combination (as defined below),
notwithstanding any other provision of this Plan, such Participant's Options
shall immediately vest and become non-forfeitable, but shall remain exercisable
in accordance with the time periods set forth in Section 6A above. A "Qualifying
Business Combination" is (x) when any person (including any individual, firm,
partnership or other entity) together with all Affiliates and Associates (as
defined under Rule 12b-2 of the General Rules and Regulations promulgated under
the Exchange Act) of such person, but excluding (i) any person or any Affiliate
or Associate thereof who is a direct or indirect shareholder of the Corporation
as of the effective date of the Plan, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or any subsidiary
of the Corporation, or (iii) the Corporation or any subsidiary of the
Corporation, becomes the beneficial owner (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing a majority of the combined voting power of the
Corporation's then outstanding securities, other than by reason of a Business
Combination or (y) a Business Combination, in either case, which is not
otherwise treated as a Liquidity Event for purposes of this Section 7C but in
which shareholders of the Corporation (or their Affiliates or Associates)
immediately prior to the Business Combination cease to own a majority of the
voting securities of the surviving corporation.
SECTION 8
MISCELLANEOUS PROVISIONS
A. Assignment or Transfer. No grant or award of any Option
under the Plan or any rights or interests therein shall be assignable or
transferable by a Participant except by will or the laws of descent and
distribution. During the lifetime of a Participant, Options granted hereunder
shall be exercisable only by the Participant.
B. Investment Representation. Upon the exercise of an Option,
the Committee may require, as a condition of receiving Class A Stock, that the
Participant furnish to the Corporation such written representations and
information as the Committee deems appropriate to permit the Corporation, in
light of the existence or nonexistence of an effective registration statement
under the Securities Act, to deliver such securities in compliance with the
provisions of the Securities Act.
C. Costs and Expenses. The costs and expenses of administering
the Plan shall be borne by the Corporation and shall not be charged against any
Option granted under the Plan or to any Participant.
D. Plurals and Gender. Where appearing in the Plan, masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
E. Headings. The headings and sub-headings in this Plan are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
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<PAGE> 11
F. Severability. In case any provision of this Plan shall be
held illegal or void, such illegality or invalidity shall not affect the
remaining provisions of this Plan, but shall be fully severable, and the Plan
shall be construed and enforced as if said illegal or invalid provisions had
never been inserted herein.
G. Cooperation of Parties. All parties of this Plan and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Plan or any of its provisions.
H. Governing Law. All questions pertaining to the validity,
construction and administration of the Plan shall be determined in accordance
with the laws of the State of New York.
I. Nonguarantee. Nothing contained in this Plan shall be
construed to confer any right with respect to continuation of service as a
director of the Corporation or nomination to serve as a director of the
Corporation, nor shall it interfere in any way with any rights which the
Non-Employee Director or the Corporation may have to terminate his directorship
at any time.
J. Notices. Each notice relating to this Plan shall be in
writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to it at: VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to
Participants, former Participants, beneficiaries or other persons acting for or
on behalf of such persons shall be addressed to such person at the last address
for such person maintained on the Committee's records.
K. Written Agreements. Each Option granted under the Plan
shall be evidenced by a signed written Stock Option Agreement between the
Corporation and the Participant containing the terms and conditions of the
Option.
L. Conflict. In the event of any conflict between the terms of
this Plan and any Option Agreement, the terms hereof shall control.
SECTION 9
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have the right
to amend, suspend or terminate the Plan at any time, provided, however, that any
amendments requiring shareholder approval under any applicable rule of the
Securities and Exchange Commission, any stock exchange, the NASDAQ National
Market or other regulatory body shall be subject to approval by the shareholders
of the Corporation in the manner required by such rule. Except as otherwise
provided herein, no amendment, suspension or termination of the Plan shall alter
or impair any Options previously granted under the Plan, without the consent of
the holder thereof.
9
<PAGE> 12
SECTION 10
TERM OF PLAN
The Plan shall remain in effect until July 31, 2009, which is
the day prior to the tenth anniversary of the effective date of the Plan, unless
sooner terminated by the Board of Directors of the Corporation. No Options may
be granted under the Plan subsequent to the termination of the Plan.
10
<PAGE> 1
EXHIBIT 10.40
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT"),
dated as of July 26, 1999, between VITAMINSHOPPE.COM, INC., a Delaware
Corporation (the "CORPORATION"), and Lisa H. Kern, residing at _________,
_______, _____ _____ (the "PARTICIPANT").
W I T N E S S E T H:
WHEREAS, the Corporation desires, in connection with the
Participant's employment with the Corporation and in accordance with its Stock
Option Plan for Employees, effective as of July 1, 1999 (the "PLAN"), to provide
the Participant with an opportunity to acquire shares of the Corporation's Class
A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and
thereby increase her proprietary interest in the continued progress and success
of the business of the Corporation. Unless otherwise defined herein, all
capitalized terms used herein shall have the same definitions as set forth under
the Plan.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Participant hereby agree as follows:
1. Confirmation of Grant of Option. Pursuant to a
determination by the Committee, which is authorized to administer the Plan, made
on July 26, 1999 (the "DATE OF GRANT"), the Corporation, subject to the terms of
the Plan and this Agreement, hereby grants to the Participant as a matter of
separate inducement and agreement, and in addition to and not in lieu of salary
or other compensation for services, the right to purchase (hereinafter referred
to as the "OPTION") an aggregate of 59,500 shares of Class A Stock, subject to
adjustment as provided in the Plan (such shares, as adjusted, hereinafter being
referred to as the "SHARES"). The Option not intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $14.08 per Share, which equals the Fair
Market Value of such Shares on the Date of Grant, subject to adjustment as
provided in the Plan.
<PAGE> 2
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to 19,833 Shares on or after July 26,
2000;
(ii) as to 19,833 Shares on or after July
26, 2001; and
(iii) as to 19,834 Shares on or after July
26, 2002.
(b) The Option may be exercised pursuant to the
provisions of this Section 3, by notice and payment (including, but not limited
to, by a "cashless" exercise) to the Corporation as provided in Section 10
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the Date of Grant. The Participant shall not have any rights to dividends or
any other rights of a stockholder with respect to any shares of Class A Stock
subject to the Option until such shares shall have been issued to her (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Corporation) provided that the date of issuance shall not be
earlier than the date this Option is exercised and payment of the full purchase
price of the shares of Class A Stock (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the
Participant's service with the Corporation is terminated by reason of a
Qualifying Termination, each Option granted
2
<PAGE> 3
to the Participant shall remain exercisable by her until the end of the exercise
period under such Option, but only to the extent exercisable (and not exercised)
on the date of such Qualifying Termination, and all Options not exercisable on
the date of such Qualifying Termination shall be forfeited and canceled. If the
Participant's service with the Corporation is terminated by reason of a
Non-Qualifying Termination, all outstanding unexercised Options shall be
forfeited or canceled, as the case may be, as of the date of such Non-Qualifying
Termination. Notwithstanding the foregoing provisions of this Section 6(a), so
long as there has been no Initial Public Offering, the Corporation shall have
the right in its sole discretion to purchase during the one year period
following the date of Qualifying Termination of the Participant, and the
Participant shall have the obligation to sell to the Corporation (i) any
outstanding Option exercisable by the Participant at the then Fair Market Value
of a share of Class A Stock less the exercise price; and (ii) any shares of
Class A Stock held of record or beneficially by the Participant through the
exercise of an Option at their Fair Market Value.
(b) Except as otherwise specifically provided herein
or in the Plan, the Option shall not be affected by any change of duties or
position of the Participant so long as she continues to be a Participant of the
Corporation or of any Parent or Subsidiary thereof. If the Participant is
granted a temporary leave of absence, such leave of absence shall be deemed a
continuation of her employment by the Corporation or of any Parent or Subsidiary
thereof for the purposes of this Agreement, but only if and so long as the
employing corporation consents thereto.
7. Exercise Upon Death. If the Participant dies while holding
an outstanding Option, such Option, to the extent exercisable (and not
exercised) on the date of her death, shall remain so exercisable by her estate
(or other beneficiaries, as designated in writing by such Participant) until the
end of the exercise period under the Option, unless the Committee shall
otherwise provide at the time of the grant of the option. So long as there has
been no Initial Public Offering and subject to any restrictions or conditions
set forth in applicable credit and other financing agreements of the Corporation
and to applicable law: (i) with respect to any outstanding Option exercisable by
the estate or beneficiary of the deceased Participant, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such Option at the then Fair Market Value of a
share of Class A Stock less the exercise price; and (ii) with respect to shares
of Class A Stock held of record or beneficially by the estate or beneficiary of
the deceased Participant through the exercise of such Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value.
Notwithstanding the foregoing provisions of this Section 7, at any time during
the one year period following the date of death of the Participant, the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the obligation to
sell to the Corporation (i) any outstanding Option exercisable by the estate or
beneficiary at the then Fair Market Value of a share of Class A Stock less the
exercise price; and (ii) any shares of Class A Stock held of record
3
<PAGE> 4
or beneficiary by the estate or beneficiary through the exercise of an Option at
their then Fair Market Value.
8. Merger, Consolidation or Change in Control of Corporation.
(a) Upon the occurrence of a Liquidity Event, the Participant shall have the
right immediately prior to the effective date of such Liquidity Event (or, if
later, within 10 days of the Participant's notification of such event) to
exercise any Option granted and still outstanding (and not otherwise expired) in
whole or in part without regard to any installment or vesting provision of this
Agreement, provided that all conditions precedent to the exercise of such
Options, other than the passage of time, have occurred. The Corporation, to the
extent practicable, shall give advance notice to the Participant of any such
Liquidity Event. All such Options which are not so exercised shall be canceled
and forfeited as of the effective time of any such Liquidity Event (or, if
later, at the end of the applicable 10-day notice period). If the Corporation
engages in a Business Combination which is not a Liquidity Event, the
Corporation may, in connection with such transaction, at its option elect one of
the following: provide for (i) the continuance of the Option granted hereunder
(either by express provision or, if the Corporation is the surviving corporation
in the Business Combination, as a consequence of the failure to address the
treatment of options in the applicable agreements), (ii) the substitution of new
options for the Option granted hereunder (which new options grant the
Participant the right to purchase the securities they would have received had
they held Class A Stock immediately prior to the Business Combination) or (iii)
acceleration of any outstanding Options in which case such Business Combination
will be deemed a "Liquidity Event" and Options treated in accordance with the
preceding sentences of this Section 9(a).
(b) In the event that the Participant terminates his
employment with the Corporation or the surviving corporation in a Qualifying
Business Combination for Good Reason, or the Participant's employment is
terminated by the Corporation or such surviving corporation without Good Cause,
in either case within one year of such Qualifying Business Combination, the
Options granted hereunder shall immediately become exercisable without regard to
any installment or vesting provision of this Agreement, provided that all
conditions precedent to the exercise of such Options, other than the passage of
time, have occurred.
9. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
10. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the
Option and the number of Shares with respect to which it is being
exercised;
4
<PAGE> 5
(ii) contain a representation and agreement
as to investment intent, if required by the Committee with respect to
such Shares, in a form satisfactory to the Committee;
(iii) be signed by the Participant or the
person or persons entitled to exercise the Option and, if the Option is
being exercised by any person or persons other than the Participant, be
accompanied by proof satisfactory to the Committee of the right of such
other person or persons to exercise the Option;
(iv) include payment of the full purchase
price for the shares of Class A Stock to be purchased pursuant to such
exercise of the Option; and
(v) be received by the Corporation on or
before the date of the expiration of this Option. In the event the date
of expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office then such Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the purchase price of any shares of
Class A Stock, in respect of which the Option shall be exercised, shall be made
by the Participant or such person or persons at the place specified by the
Corporation on the date the Notice is received by the Corporation (i) by
delivering to the Corporation a certified or bank cashier's check payable to the
order of the Corporation, (ii) by delivering to the Corporation properly
endorsed certificates of shares of Class A Stock (or certificates accompanied by
an appropriate stock power) with signature guaranties by a bank or trust
company, (iii) by having withheld from the total number of shares of Class A
Stock to be acquired upon the exercise of this Option a specified number of such
shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any
combination of the above.
(c) The Option shall be deemed to have been exercised
on the date the Notice was received by the Corporation with respect to any
particular shares of Class A Stock if, and only if, the preceding provisions of
this Section 11 and the provisions of Section 12 hereof shall have been complied
with. Anything in this Agreement to the contrary notwithstanding, any Notice
given pursuant to the provisions of this Section 11 shall be void and of no
effect if all of the preceding provisions of this Section 11 (including this
subsection (c)) and the provisions of Section 12 shall not have been complied
with.
(d) The certificate or certificates for shares of
Class A Stock as to which the Option shall be exercised will be registered in
the name of the Participant (or in the name of the Participant's estate or other
beneficiary, if the Option is exercised after the Participant's death), or if
the Option is exercised by the Participant and if the Participant so requests in
the Notice exercising the Option, will be registered in the name of the
Participant and another person jointly, with right of survivorship, and will be
delivered as soon as practical after
5
<PAGE> 6
the date the Notice is received by the Corporation (accompanied by full payment
of the exercise price), but only upon compliance with all of the provisions of
this Agreement.
(e) If the Participant fails to accept delivery of
and pay for all or any part of the number of Shares specified in such Notice,
his right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to issue or
deliver any certificate or certificates for shares of its Class A Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Participant in cash or, with the consent of
the Corporation, by tendering to the Corporation shares of Class A Stock equal
in value to the amount of the required withholding. In the alternative, the
Corporation may, at its option, satisfy such withholding requirements by
withholding from the shares of Class A Stock to be delivered to the Participant
pursuant to an exercise of this Option, a number of shares of Class A Stock
equal in value to the amount of the required withholding.
11. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Class A Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Class A Stock may then be
listed.
12. Resale of Class A Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Class A Stock purchased upon
exercise of the Option, the Participant shall deliver to the Corporation an
opinion of counsel satisfactory to the Corporation to the effect that either (i)
the Class A Stock to be sold or transferred has been registered under the
Securities Act of 1933, and that there is in effect a current prospectus meeting
the requirements of Section 10(a) of the Securities Act which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Class A Stock to be sold or transferred, or
(ii) such Class A Stock may then be sold without violating Section 5 of said
Act.
6
<PAGE> 7
(b) The Class A Stock issued upon exercise of the
Option shall bear the following legend if required by counsel for the
Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
13. Reservation of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of the Class A Stock as will be sufficient to satisfy the requirements of this
Agreement.
14. Nonguarantee of Employment. Nothing contained in this
Agreement shall be construed as a right of the Participant to be continued as an
Participant of the Corporation (or of any Parent or Subsidiary), or as a
limitation on the right of the Corporation or any Parent or Subsidiary to remove
the Participant, with or without cause.
15. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to the
Participant shall be addressed to the Participant or such other person or
persons at the Participant's address above specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to that
effect.
16. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Participant and all rights granted to the
Corporation under this Agreement shall be binding upon the Participant's heirs,
legal representatives, successors and assigns.
17. Severability. In case any provision of this Agreement
shall be held illegal or void, such illegality or invalidity shall not affect
the remaining provisions of this Agreement, but shall be fully severable, and
this Agreement shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
18. Governing Law. All questions pertaining to the validity,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of New York.
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<PAGE> 8
19. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name by its President and its corporate seal to be
hereunto affixed and attested by its Secretary or its Assistant Secretary and
the Participant has hereunto set his hand all as of the date, month and year
first above written.
VitaminShoppe.com, Inc.
By:
-----------------------------
Name: Kathryn H. Creech
Title: President and Chief Executive
ATTEST: Officer
- -------------------------- ---------------------------------
Secretary Lisa H. Kern
---------------------------------
Social Security Number
<PAGE> 9
EXHIBIT A
NONQUALIFIED STOCK OPTION EXERCISE FORM
--------------------
Date
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, NY 10022
Attention: Secretary
Dear Sirs:
Pursuant to the provisions of the Nonqualified Stock Option
Agreement dated July 26, 1999, whereby you have granted to me a nonqualified
stock option to purchase 59,500 shares of the Class A Common Stock (the "CLASS A
STOCK") of VitaminShoppe.com, Inc. (the "CORPORATION"), I hereby notify you that
I elect to exercise my option to purchase ______________ of the shares covered
by such Option at the exercise price specified thereon. In full payment of the
price for the shares being purchased hereby:
1. I am delivering to you herewith:
(a) a certified or bank cashier's check payable to
the order of the Corporation in the amount of $_________; $_________ of this
amount is the purchase price of the shares, and the balance represents payment
of withholding taxes as follows: Federal $_________, State $_________ and Local
$_________. OR
(b) a certificate or certificates for [ ] shares of
Class A Stock of the Corporation, which have a Fair Market Value as of the date
hereof at least equal to the option exercise price, and a certified or bank
cashier's check, payable to the order of the Corporation, in the amount of
$_________, which represents payment of withholding taxes as follows: Federal
$_________, State $_________ and Local $_________. Any such stock certificate or
certificates are endorsed, or accompanied by an appropriate stock power, to the
order of the Corporation, with my signature guaranteed by a bank or trust
company or by a member firm of the Nations Association of Securities Dealers,
Inc.
<PAGE> 10
(c) OR
(d) Please retain __________ shares of Class A Stock
of the Corporation covered by the Option which have a Fair Market Value as of
the date hereof at least equal to the option exercise price. I am delivering to
you herewith a certified or bank cashier's check, payable to the order of the
Corporation, in the amount of $_________ which represents payment of withholding
taxes as follows: Federal $_________, State $_________ and Local $_________.
In the event the amounts designated above are insufficient for
the withholding of federal, state and local taxes, I hereby authorize the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to me the balance of any taxes required to be withheld by
the Corporation under federal, state or local law as a result of my election
herein. Further, I acknowledge that I am purchasing these shares for investment
purposes only and not for resale.
Very truly yours,
---------------------------------
Lisa H. Kern
Address for notices, reports, dividend checks
and other communications to stockholders:
[ ]
[ ]
<PAGE> 11
VITAMINSHOPPE.COM, INC.
Stock Option Plan for Employees
NONQUALIFIED STOCK OPTION
Granted To
LISA H. KERN
Participant
59,500 $14.08
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: July 26, 1999 EXPIRATION DATE: July 25, 1999
<PAGE> 1
EXHIBIT 10.41
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
This NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this
"AGREEMENT") dated as of August 6, 1999, between VITAMINSHOPPE.COM, INC., a
Delaware Corporation (the "CORPORATION"), and Woodson C. Merrell, M.D.,
residing at _________, _______, _____ _____ (the "PARTICIPANT").
W I T N E S S E T H:
WHEREAS, the Corporation desires, in connection with the
Participant's service as a Non-Employee Director of the Corporation, and in
accordance with the Stock Option Plan for Non-Employee Directors of
VitaminShoppe.com, Inc., effective as of August 1, 1999 (the "PLAN"), to provide
the Participant with an opportunity to acquire shares of the Corporation's Class
A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and
to thereby align his interest in the continued progress and success of the
Corporation's business with those of the Corporation's shareholders. Unless
otherwise defined herein, all capitalized terms used herein shall have the same
definitions as set forth under the Plan.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Participant hereby agree as follows:
1. Confirmation of Grant of Option. Subject to the terms of
the Plan and this Agreement, the Corporation hereby grants to the Participant
the right to purchase (hereinafter referred to as the "OPTION") an aggregate of
25,000 shares of Class A Stock, subject to adjustment as provided in the Plan
(such shares, as adjusted, hereinafter being referred to as the "SHARES"). The
Option is not intended to qualify as an incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $14.08 per Share, which equals the Fair
Market Value of such Shares on the date such Options are deemed granted pursuant
to the Plan, subject to adjustment as provided in the Plan.
<PAGE> 2
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to 8,333 Shares on or after August 6,
2000;
(ii) as to 8,333 Shares on or after August 6,
2001; and
(iii) as to 8,334 Shares on or after August
6, 2002.
(b) The Option may be exercised pursuant to the
provisions of this Section 3, by notice and payment (including, but not limited
to, by a "cashless" exercise) to the Corporation as provided in Section 12
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the date hereof, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the date hereof. The Participant shall not have any rights to dividends or
any other rights of a stockholder with respect to any shares of Class A Stock
subject to the Option until such shares shall have been issued to him (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Corporation) provided that the date of issuance shall not be
earlier than the date this Option is exercised and payment of the full purchase
price of the shares of Class A Stock (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Death. If the Participant dies while holding
an exercisable Option, such Option shall remain exercisable by his estate (or
other beneficiaries, as designated
2
<PAGE> 3
in writing by such Participant) until the end of the exercise period under the
Option, unless the Committee shall otherwise provide at the time of the grant of
the Option. So long as there has been no Initial Public Offering and subject to
any restrictions or conditions set forth in applicable credit and other
financing agreements of the Corporation and to applicable law: (i) with respect
to the exercisable portion of any Option, the deceased Participant's estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such Option at the then Fair Market Value of a
share of Class A Stock less the exercise price; and (ii) with respect to shares
of Class A Stock held of record or beneficially by the estate or beneficiary of
the deceased Participant through the exercise of an Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value. At
any time during the one year period following the Participant's death, the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the obligation to
sell to the Corporation (i) any outstanding Option exercisable by the estate or
beneficiary at the then Fair Market Value of a share of Class A Stock less the
exercise price and (ii) any shares of Class A Stock held of record or
beneficially by the estate or beneficiary through the exercise of an Option at
their then Fair Market Value.
7. Exercise Upon Disability; Voluntary Termination. If the
Participant's service is terminated by reason of (i) Disability or (ii)
voluntary discontinuance of service, any then exercisable Option shall remain
exercisable until the end of the exercise period under such Option and all
Options not exercisable on the date of such termination shall be forfeited and
canceled. Notwithstanding the foregoing provisions of this Section 7, so long as
there has been no Initial Public Offering, the Corporation shall have the right
in its sole discretion to purchase during the one year period following the date
the Participant's service with the Corporation is terminated as described in (i)
or (ii) of the preceding sentence, and the Participant shall have the obligation
to sell to the Corporation (i) any outstanding Option exercisable by the
Participant at the then Fair Market Value of a share of Class A Stock less the
exercise price and (ii) any shares of Class A Stock held of record or
beneficially by the Participant through the exercise of an Option at their Fair
Market Value.
8. Misconduct by Participant. If the Board of Directors
(excluding the Participant accused of such misconduct) determines that the
Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment
of an obligation owed to the Corporation, breach of fiduciary duty or deliberate
disregard of the Corporation's rules resulting in loss, damage or injury to the
Corporation, or if the Participant makes an unauthorized disclosure of the
Corporation's trade secrets or confidential information, engages in any conduct
constituting unfair competition, induces any of the Corporation's customers to
breach a contract with the Corporation or induces any principal for whom the
Corporation acts as agent to terminate such agency relationship, neither the
Participant nor his estate shall be entitled to exercise any Option whatsoever.
In making such determination, the Board of Directors shall provide the
Participant an opportunity to appear and present evidence on the Optionee's
behalf at a hearing before the Board of Directors or a committee of the Board of
Directors.
3
<PAGE> 4
9. Exercise Upon Other Termination of Service. In the event
the Participant ceases to serve as a director of the Corporation for any reason
other than as described in Sections 6, 7 or 8 above, within ninety (90) days
after such cessation, the Participant may exercise his Option to the extent that
it was exercisable on the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after the term set forth in
Section 4 has expired. To the extent an Option was not exercisable at the date
of such termination, or the Participant does not exercise such Option within the
time specified above, the Option shall be forfeited and canceled.
10. Merger, Consolidation or Change in Control of Corporation.
(a) Upon the occurrence of a Liquidity Event or a Change in Control, the
Participant shall have the right immediately prior to the effective date of such
Liquidity Event (or, if later, within 10 days of the Optionee's notification of
such event) to exercise any Option granted and still outstanding (and not
otherwise expired) in whole or in part without regard to any installment or
vesting provision of this Agreement, provided that all conditions precedent to
the exercise of such Options, other than the passage of time, have occurred. The
Corporation, to the extent practicable, shall give advance notice to the
Participant of any such Liquidity Event. All such Options which are not so
exercised shall be canceled and forfeited as of the effective time of any such
Liquidity Event (or, if later, at the end of the applicable 10-day notice
period). If the Corporation engages in a Business Combination which is not a
Liquidity Event, the Corporation may, in connection with such transaction, at
its option elect one of the following: provide for (i) the continuance of the
Option granted hereunder (either by express provision or, if the Corporation is
the surviving corporation in the Business Combination, as a consequence of the
failure to address the treatment of options in the applicable agreements), (ii)
the substitution of new options for the Option granted hereunder (which new
options grant the Participant the right to purchase the securities they would
have received had they held Class A Stock immediately prior to the Business
Combination) or (iii) acceleration of any outstanding Options in which case such
Business Combination will be deemed a "Liquidity Event" and Options treated in
accordance with the preceding sentences of this Section 10.
11. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
12. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the
Option and the number of Shares with respect to which it is being
exercised;
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<PAGE> 5
(ii) contain a representation and agreement
as to investment intent, if required by the Committee with respect to
such Shares, in a form satisfactory to the Committee;
(iii) be signed by the Participant or the
person or persons entitled to exercise the Option and, if the Option is
being exercised by any person or persons other than the Participant, be
accompanied by proof satisfactory to the Committee of the right of such
other person or persons to exercise the Option;
(iv) include payment of the full purchase
price for the shares of Class A Stock to be purchased pursuant to such
exercise of the Option; and
(v) be received by the Corporation on or
before the date of the expiration of this Option. In the event the date
of expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office then such Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the purchase price of any shares of
Class A Stock, in respect of which the Option shall be exercised, shall be made
by the Participant or such person or persons at the place specified by the
Corporation on the date the Notice is received by the Corporation (i) by
delivering to the Corporation a certified or bank cashier's check payable to the
order of the Corporation, (ii) by delivering to the Corporation properly
endorsed certificates of shares of Class A Stock (or certificates accompanied by
an appropriate stock power) with signature guaranties by a bank or trust
company, (iii) by having withheld from the total number of shares of Class A
Stock to be acquired upon the exercise of this Option a specified number of such
shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any
combination of the above.
(c) The Option shall be deemed to have been exercised
on the date the Notice was received by the Corporation with respect to any
particular shares of Class A Stock if, and only if, the preceding provisions of
this Section 12 and the provisions of Section 13 hereof shall have been complied
with. Anything in this Agreement to the contrary notwithstanding, any Notice
given pursuant to the provisions of this Section 12 shall be void and of no
effect if all of the preceding provisions of this Section 12 (including this
subsection (c)) and the provisions of Section 13 shall not have been complied
with.
(d) The certificate or certificates for shares of
Class A Stock as to which the Option shall be exercised will be registered in
the name of the Participant (or in the name of the Participant's estate or other
beneficiary, if the Option is exercised after the Participant's death), or if
the Option is exercised by the Participant and if the Participant so requests in
the Notice exercising the Option, will be registered in the name of the
Participant and another person jointly, with right of survivorship, and will be
delivered as soon as practical after
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<PAGE> 6
the date the Notice is received by the Corporation (accompanied by full payment
of the exercise price), but only upon compliance with all of the provisions of
this Agreement.
(e) If the Participant fails to accept delivery of
and pay for all or any part of the number of Shares specified in such Notice,
his right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to issue or
deliver any certificate or certificates for shares of its Class A Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Participant in cash or, with the consent of
the Corporation, by tendering to the Corporation shares of Class A Stock equal
in value to the amount of the required withholding. In the alternative, the
Corporation may, at its option, satisfy such withholding requirements by
withholding from the shares of Class A Stock to be delivered to the Participant
pursuant to an exercise of this Option, a number of shares of Class A Stock
equal in value to the amount of the required withholding.
13. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Class A Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Class A Stock may then be
listed.
14. Resale of Class A Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Class A Stock purchased upon
exercise of the Option, the Participant shall deliver to the Corporation an
opinion of counsel satisfactory to the Corporation to the effect that either (i)
the Class A Stock to be sold or transferred has been registered under the
Securities Act of 1933, and that there is in effect a current prospectus meeting
the requirements of Section 10(a) of the Securities Act which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Class A Stock to be sold or transferred or
(ii) such Class A Stock may then be sold without violating Section 5 of said
Act.
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<PAGE> 7
(b) The Class A Stock issued upon exercise of the
Option shall bear the following legend if required by counsel for the
Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
15. Reservation of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of the Class A Stock as will be sufficient to satisfy the requirements of this
Agreement.
16. Nonguarantee. Nothing contained in this Agreement shall be
construed to confer any right with respect to continuation of service as a
director of the Corporation or nomination to serve as a director of the
Corporation, nor shall it interfere in any way with any rights which the
Participant or the Corporation may have to terminate his directorship at any
time.
17. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to the
Participant shall be addressed to the Participant or such other person or
persons at the Participant's address above specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to that
effect.
18. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Participant and all rights granted to the
Corporation under this Agreement shall be binding upon the Participant's heirs,
legal representatives, successors and assigns.
19. Severability. In case any provision of this Agreement
shall be held illegal or void, such illegality or invalidity shall not affect
the remaining provisions of this Agreement, but shall be fully severable, and
this Agreement shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
20. Governing Law. All questions pertaining to the validity,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of New York.
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<PAGE> 8
21. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name by its President and its corporate seal to be
hereunto affixed and attested by its Secretary or its Assistant Secretary and
the Participant has hereunto set his hand all as of the date, month and year
first above written.
VitaminShoppe.com, Inc.
By:
------------------------------------
Name: Kathryn H. Creech
Title: President and Chief Executive
Officer
ATTEST:
- ------------------------ ----------------------------------------
Secretary Woodson C. Merrell, M.D.
----------------------------------------
Social Security Number
<PAGE> 9
EXHIBIT A
NON-EMPLOYEE DIRECTOR STOCK OPTION EXERCISE FORM
--------------------
Date
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, NY 10168
Attention: Secretary
Dear Sirs:
Pursuant to the provisions of the Non-Employee Director Stock
Option Agreement, dated August 6, 1999, whereby you have granted to me a stock
option to purchase 25,000 shares of the Class A Common Stock (the "CLASS A
STOCK") of VitaminShoppe.com, Inc. (the "CORPORATION"), I hereby notify you that
I elect to exercise my option to purchase ______________ of the shares covered
by such Option at the exercise price specified thereon. In full payment of the
price for the shares being purchased hereby:
1. I am delivering to you herewith:
(a) a certified or bank cashier's check payable to
the order of the Corporation in the amount of $_________; $_________ of this
amount is the purchase price of the shares, and the balance represents payment
of withholding taxes as follows: Federal $_________, State $_________ and Local
$_________. OR
(b) a certificate or certificates for [ ] shares of
Class A Stock of the Corporation, which have a Fair Market Value as of the date
hereof at least equal to the option exercise price, and a certified or bank
cashier's check, payable to the order of the Corporation, in the amount of
$_________, which represents payment of withholding taxes as follows: Federal
$_________, State $_________ and Local $_________. Any such stock certificate or
certificates are endorsed, or accompanied by an appropriate stock power, to the
order of the Corporation, with my signature guaranteed by a bank or trust
company or by a member firm of the National Association of Securities Dealers,
Inc.
<PAGE> 10
(c) OR
(d) Please retain __________ shares of Class A Stock
of the Corporation covered by the Option which have a Fair Market Value as of
the date hereof at least equal to the option exercise price. I am delivering to
you herewith a certified or bank cashier's check, payable to the order of the
Corporation, in the amount of $_________ which represents payment of withholding
taxes as follows: Federal $_________, State $_________ and Local $_________.
In the event the amounts designated above are insufficient for
the withholding of federal, state and local taxes, I hereby authorize the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to me the balance of any taxes required to be withheld by
the Corporation under federal, state or local law as a result of my election
herein. Further, I acknowledge that I am purchasing these shares for investment
purposes only and not for resale.
Very truly yours,
---------------------------------
Woodson C. Merrell, M.D.
Address for notices, reports, dividend checks
and other communications to stockholders:
[ ]
[ ]
[ ]
<PAGE> 11
Stock Option Plan for Non-Employee Directors of
VitaminShoppe.com, Inc.
NON-EMPLOYEE DIRECTOR STOCK OPTION
Granted To
WOODSON C. MERRELL, M.D.
Participant
25,000 $14.08
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: August 6, 1999 EXPIRATION DATE: August 5, 2009
<PAGE> 1
Exhibit 10.42
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT"),
dated as of September ____, 1999, effective as of September 15, 1999, between
VITAMINSHOPPE.COM, INC., a Delaware Corporation (the "CORPORATION"), and
Joel Gurzinsky, residing at _________, _______, _____ _____ (the "PARTICIPANT").
W I T N E S S E T H:
WHEREAS, the Corporation desires, in connection with the
Participant's employment with the Corporation and in accordance with its Stock
Option Plan for Employees, effective as of July 1, 1999 (the "PLAN"), to provide
the Participant with an opportunity to acquire shares of the Corporation's Class
A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and
thereby increase his proprietary interest in the continued progress and success
of the business of the Corporation. Unless otherwise defined herein, all
capitalized terms used herein shall have the same definitions as set forth under
the Plan.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Participant hereby agree as follows:
1. Confirmation of Grant of Option. Pursuant to a
determination by the Committee, which is authorized to administer the Plan, made
on September 15, 1999 (the "DATE OF GRANT"), the Corporation, subject to the
terms of the Plan and this Agreement, hereby grants to the Participant as a
matter of separate inducement and agreement, and in addition to and not in lieu
of salary or other compensation for services, the right to purchase (hereinafter
referred to as the "OPTION") an aggregate of 52,300 shares of Class A Stock,
subject to adjustment as provided in the Plan and Section 9 of this Agreement
(such shares, as adjusted, hereinafter being referred to as the "SHARES"). The
Option not intended to qualify as an incentive stock option under Section 422 of
the Internal Revenue Code of 1986, as amended.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $9.15 per Share, which equals the Fair
Market Value of such Shares on the Date of Grant, subject to adjustment as
provided in the Plan.
<PAGE> 2
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to 17,433 Shares on or after July 1,
2000;
(ii) as to 17,433 Shares on or after July 1,
2001; and
(iii) as to 17,434 Shares on or after July
1, 2002.
(b) The Option may be exercised pursuant to the
provisions of this Section 3, by notice and payment (including, but not limited
to, by a "cashless" exercise) to the Corporation as provided in Section 11
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the Date of Grant. The Participant shall not have any rights to dividends or
any other rights of a stockholder with respect to any shares of Class A Stock
subject to the Option until such shares shall have been issued to him (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Corporation) provided that the date of issuance shall not be
earlier than the date this Option is exercised and payment of the full purchase
price of the shares of Class A Stock (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the
Participant's service with the Corporation is terminated by reason of a
Qualifying Termination, each Option granted
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<PAGE> 3
to the Participant shall remain exercisable by him until the end of the exercise
period under such Option, but only to the extent exercisable (and not exercised)
on the date of such Qualifying Termination, and all Options not exercisable on
the date of such Qualifying Termination shall be forfeited and canceled. If the
Participant's service with the Corporation is terminated by reason of a
Non-Qualifying Termination, all outstanding unexercised Options shall be
forfeited or canceled, as the case may be, as of the date of such Non-Qualifying
Termination. Notwithstanding the foregoing provisions of this Section 6(a), so
long as there has been no Initial Public Offering, the Corporation shall have
the right in its sole discretion to purchase during the one year period
following the date of Qualifying Termination of the Participant, and the
Participant shall have the obligation to sell to the Corporation (i) any
outstanding Option exercisable by the Participant at the then Fair Market Value
of a share of Class A Stock less the exercise price; and (ii) any shares of
Class A Stock held of record or beneficially by the Participant through the
exercise of an Option at their Fair Market Value.
(b) Except as otherwise specifically provided herein
or in the Plan, the Option shall not be affected by any change of duties or
position of the Participant so long as he continues to be a Participant of the
Corporation or of any Parent or Subsidiary thereof. If the Participant is
granted a temporary leave of absence, such leave of absence shall be deemed a
continuation of his employment by the Corporation or of any Parent or Subsidiary
thereof for the purposes of this Agreement, but only if and so long as the
employing corporation consents thereto.
7. Exercise Upon Death. If the Participant dies while holding
an outstanding Option, such Option, to the extent exercisable (and not
exercised) on the date of his death, shall remain so exercisable by his estate
(or other beneficiaries, as designated in writing by such Participant) until the
end of the exercise period under the Option, unless the Committee shall
otherwise provide at the time of the grant of the option. So long as there has
been no Initial Public Offering and subject to any restrictions or conditions
set forth in applicable credit and other financing agreements of the Corporation
and to applicable law: (i) with respect to any outstanding Option exercisable by
the estate or beneficiary of the deceased Participant, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such Option at the then Fair Market Value of a
share of Class A Stock less the exercise price; and (ii) with respect to shares
of Class A Stock held of record or beneficially by the estate or beneficiary of
the deceased Participant through the exercise of such Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value.
Notwithstanding the foregoing provisions of this Section 7, at any time during
the one year period following the date of death of the Participant, the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the obligation to
sell to the Corporation (i) any outstanding Option exercisable by the estate or
beneficiary at the then Fair Market Value of a share of Class A Stock less the
exercise price; and (ii) any shares of Class A Stock held of record
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<PAGE> 4
or beneficiary by the estate or beneficiary through the exercise of an Option at
their then Fair Market Value.
8. Merger, Consolidation or Change in Control of Corporation.
(a) Upon the occurrence of a Liquidity Event, the Participant shall have the
right immediately prior to the effective date of such Liquidity Event (or, if
later, within 10 days of the Participant's notification of such event) to
exercise any Option granted and still outstanding (and not otherwise expired) in
whole or in part without regard to any installment or vesting provision of this
Agreement, provided that all conditions precedent to the exercise of such
Options, other than the passage of time, have occurred. The Corporation, to the
extent practicable, shall give advance notice to the Participant of any such
Liquidity Event. All such Options which are not so exercised shall be canceled
and forfeited as of the effective time of any such Liquidity Event (or, if
later, at the end of the applicable 10-day notice period). If the Corporation
engages in a Business Combination which is not a Liquidity Event, the
Corporation may, in connection with such transaction, at its option elect one of
the following: provide for (i) the continuance of the Option granted hereunder
(either by express provision or, if the Corporation is the surviving corporation
in the Business Combination, as a consequence of the failure to address the
treatment of options in the applicable agreements), (ii) the substitution of new
options for the Option granted hereunder (which new options grant the
Participant the right to purchase the securities they would have received had
they held Class A Stock immediately prior to the Business Combination) or (iii)
acceleration of any outstanding Options in which case such Business Combination
will be deemed a "Liquidity Event" and Options treated in accordance with the
preceding sentences of this Section 9(a).
(b) In the event that the Participant terminates his
employment with the Corporation or the surviving corporation in a Qualifying
Business Combination for Good Reason, or the Participant's employment is
terminated by the Corporation or such surviving corporation without Good Cause,
in either case within one year of such Qualifying Business Combination, the
Options granted hereunder shall immediately become exercisable without regard to
any installment or vesting provision of this Agreement, provided that all
conditions precedent to the exercise of such Options, other than the passage of
time, have occurred.
9. Stock Split; Initial Public Offering. Notwithstanding
anything to the contrary contained in the Plan or this Agreement, no adjustment
shall be made to the number of shares subject to the Option granted hereunder
or to the exercise price by reason of a change in the Class A Stock by reason
of a 1.539 to 1 stock split, 0.539 per share stock dividend or similar
transaction which is authorized by the Corporation on September 9, 1999 and
effectuated by the Corporation on September 22, 1999.
10. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
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<PAGE> 5
11. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the
Option and the number of Shares with respect to which it is being
exercised;
(ii) contain a representation and agreement
as to investment intent, if required by the Committee with respect to
such Shares, in a form satisfactory to the Committee;
(iii) be signed by the Participant or the
person or persons entitled to exercise the Option and, if the Option is
being exercised by any person or persons other than the Participant, be
accompanied by proof satisfactory to the Committee of the right of such
other person or persons to exercise the Option;
(iv) include payment of the full purchase
price for the shares of Class A Stock to be purchased pursuant to such
exercise of the Option; and
(v) be received by the Corporation on or
before the date of the expiration of this Option. In the event the date
of expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office then such Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the purchase price of any shares of
Class A Stock, in respect of which the Option shall be exercised, shall be made
by the Participant or such person or persons at the place specified by the
Corporation on the date the Notice is received by the Corporation (i) by
delivering to the Corporation a certified or bank cashier's check payable to the
order of the Corporation, (ii) by delivering to the Corporation properly
endorsed certificates of shares of Class A Stock (or certificates accompanied by
an appropriate stock power) with signature guaranties by a bank or trust
company, (iii) by having withheld from the total number of shares of Class A
Stock to be acquired upon the exercise of this Option a specified number of such
shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any
combination of the above.
(c) The Option shall be deemed to have been exercised
on the date the Notice was received by the Corporation with respect to any
particular shares of Class A Stock if, and only if, the preceding provisions of
this Section 11 and the provisions of Section 12 hereof shall have been complied
with. Anything in this Agreement to the contrary notwithstanding, any Notice
given pursuant to the provisions of this Section 11 shall be void and of no
effect if all of the preceding provisions of this Section 11 (including this
subsection (c)) and the provisions of Section 12 shall not have been complied
with.
5
<PAGE> 6
(d) The certificate or certificates for shares of
Class A Stock as to which the Option shall be exercised will be registered in
the name of the Participant (or in the name of the Participant's estate or other
beneficiary, if the Option is exercised after the Participant's death), or if
the Option is exercised by the Participant and if the Participant so requests in
the Notice exercising the Option, will be registered in the name of the
Participant and another person jointly, with right of survivorship, and will be
delivered as soon as practical after the date the Notice is received by the
Corporation (accompanied by full payment of the exercise price), but only upon
compliance with all of the provisions of this Agreement.
(e) If the Participant fails to accept delivery of
and pay for all or any part of the number of Shares specified in such Notice,
his right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to issue or
deliver any certificate or certificates for shares of its Class A Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Participant in cash or, with the consent of
the Corporation, by tendering to the Corporation shares of Class A Stock equal
in value to the amount of the required withholding. In the alternative, the
Corporation may, at its option, satisfy such withholding requirements by
withholding from the shares of Class A Stock to be delivered to the Participant
pursuant to an exercise of this Option, a number of shares of Class A Stock
equal in value to the amount of the required withholding.
12. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Class A Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Class A Stock may then be
listed.
13. Resale of Class A Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Class A Stock purchased upon
exercise of the Option, the Participant shall deliver to the Corporation an
opinion of counsel satisfactory to the Corporation to the effect that either (i)
the Class A Stock to be sold or transferred has been registered under the
Securities Act of 1933, and that there is in effect a current prospectus meeting
the requirements of Section 10(a) of the Securities Act which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Class A Stock to be sold or transferred, or
(ii) such Class A Stock may then be sold without violating Section 5 of said
Act.
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<PAGE> 7
(b) The Class A Stock issued upon exercise of the
Option shall bear the following legend if required by counsel for the
Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
14. Reservation of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of the Class A Stock as will be sufficient to satisfy the requirements of this
Agreement.
15. Nonguarantee of Employment. Nothing contained in this
Agreement shall be construed as a right of the Participant to be continued as an
Participant of the Corporation (or of any Parent or Subsidiary), or as a
limitation on the right of the Corporation or any Parent or Subsidiary to remove
the Participant, with or without cause.
16. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to the
Participant shall be addressed to the Participant or such other person or
persons at the Participant's address above specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to that
effect.
17. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Participant and all rights granted to the
Corporation under this Agreement shall be binding upon the Participant's heirs,
legal representatives, successors and assigns.
18. Severability. In case any provision of this Agreement
shall be held illegal or void, such illegality or invalidity shall not affect
the remaining provisions of this Agreement, but shall be fully severable, and
this Agreement shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
19. Governing Law. All questions pertaining to the validity,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of New York.
7
<PAGE> 8
20. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name by its President and its corporate seal to be
hereunto affixed and attested by its Secretary or its Assistant Secretary and
the Participant has hereunto set his hand all as of the date, month and year
first above written.
VitaminShoppe.com, Inc.
By:
------------------------------------
Name: Kathryn H. Creech
ATTEST: Title: President and Chief Executive
Officer
- ---------------------------- ----------------------------------------
Secretary Joel Gurzinsky
----------------------------------------
Social Security Number
<PAGE> 9
EXHIBIT A
NONQUALIFIED STOCK OPTION EXERCISE FORM
--------------------
Date
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, NY 10022
Attention: Secretary
Dear Sirs:
Pursuant to the provisions of the Nonqualified Stock Option
Agreement, dated as of September ____, 1999, effective as of September 15, 1999,
whereby you have granted to me a nonqualified stock option to purchase 52,300
shares of the Class A Common Stock (the "CLASS A STOCK") of VitaminShoppe.com,
Inc. (the "CORPORATION"), I hereby notify you that I elect to exercise my option
to purchase ______________ of the shares covered by such Option at the exercise
price specified thereon. In full payment of the price for the shares being
purchased hereby:
1. I am delivering to you herewith:
(a) a certified or bank cashier's check payable to
the order of the Corporation in the amount of $_________; $_________ of this
amount is the purchase price of the shares, and the balance represents payment
of withholding taxes as follows: Federal $_________, State $_________ and Local
$_________, OR
(b) a certificate or certificates for [ ] shares of
Class A Stock of the Corporation, which have a Fair Market Value as of the date
hereof at least equal to the option exercise price, and a certified or bank
cashier's check, payable to the order of the Corporation, in the amount of
$_________, which represents payment of withholding taxes as follows: Federal
$_________, State $_________ and Local $_________. Any such stock certificate or
certificates are endorsed, or accompanied by an appropriate stock power, to the
order of the Corporation, with my signature guaranteed by a bank or trust
company or by a member firm of the National Association of Securities Dealers,
Inc.
<PAGE> 10
(c) OR
(d) Please retain __________ shares of Class A Stock
of the Corporation covered by the Option which have a Fair Market Value as of
the date hereof at least equal to the option exercise price. I am delivering to
you herewith a certified or bank cashier's check, payable to the order of the
Corporation, in the amount of $_________ which represents payment of withholding
taxes as follows: Federal $_________, State $_________ and Local $_________.
In the event the amounts designated above are insufficient for
the withholding of federal, state and local taxes, I hereby authorize the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to me the balance of any taxes required to be withheld by
the Corporation under federal, state or local law as a result of my election
herein. Further, I acknowledge that I am purchasing these shares for investment
purposes only and not for resale.
Very truly yours,
---------------------------------
Joel Gurzinsky
Address for notices, reports, dividend checks
and other communications to stockholders:
[ ]
[ ]
<PAGE> 11
VITAMINSHOPPE.COM, INC.
Stock Option Plan for Employees
NONQUALIFIED STOCK OPTION
Granted To
JOEL GURZINSKY
Participant
52,300 $9.15
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: September 15, 1999 EXPIRATION DATE: September 14, 2009
<PAGE> 1
Exhibit 10.43
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT"),
dated as of September ____, 1999, effective as of September 15, 1999, between
VITAMINSHOPPE.COM, INC., a Delaware Corporation (the "CORPORATION"), and Philip
H. Teplitzky, residing at _________, _______, _____ _____ (the "PARTICIPANT").
W I T N E S S E T H:
WHEREAS, the Corporation desires, in connection with the
Participant's employment with the Corporation and in accordance with its Stock
Option Plan for Employees, effective as of July 1, 1999 (the "PLAN"), to provide
the Participant with an opportunity to acquire shares of the Corporation's Class
A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and
thereby increase his proprietary interest in the continued progress and success
of the business of the Corporation. Unless otherwise defined herein, all
capitalized terms used herein shall have the same definitions as set forth under
the Plan.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Participant hereby agree as follows:
1. Confirmation of Grant of Option. Pursuant to a
determination by the Committee, which is authorized to administer the Plan, made
on September 15, 1999 (the "DATE OF GRANT"), the Corporation, subject to the
terms of the Plan and this Agreement, hereby grants to the Participant as a
matter of separate inducement and agreement, and in addition to and not in lieu
of salary or other compensation for services, the right to purchase (hereinafter
referred to as the "OPTION") an aggregate of 180,000 shares of Class A Stock,
subject to adjustment as provided in the Plan and Section 9 of this Agreement
(such shares, as adjusted, hereinafter being referred to as the "SHARES"). The
Option not intended to qualify as an incentive stock option under Section 422 of
the Internal Revenue Code of 1986, as amended.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $9.15 per Share, which equals the Fair
Market Value of such Shares on the Date of Grant, subject to adjustment as
provided in the Plan.
<PAGE> 2
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to 60,000 Shares on or after
September 24, 2000;
(ii) as to 60,000 Shares on or after
September 24, 2001; and
(iii) as to 60,000 Shares on or after
September 24, 2002.
(b) The Option may be exercised pursuant to the
provisions of this Section 3, by notice and payment (including, but not limited
to, by a "cashless" exercise) to the Corporation as provided in Section 11
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the Date of Grant. The Participant shall not have any rights to dividends or
any other rights of a stockholder with respect to any shares of Class A Stock
subject to the Option until such shares shall have been issued to him (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Corporation) provided that the date of issuance shall not be
earlier than the date this Option is exercised and payment of the full purchase
price of the shares of Class A Stock (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the
Participant's service with the Corporation is terminated by reason of a
Qualifying Termination, each Option granted
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<PAGE> 3
to the Participant shall remain exercisable by him until the end of the exercise
period under such Option, but only to the extent exercisable (and not exercised)
on the date of such Qualifying Termination, and all Options not exercisable on
the date of such Qualifying Termination shall be forfeited and canceled. If the
Participant's service with the Corporation is terminated by reason of a
Non-Qualifying Termination, all outstanding unexercised Options shall be
forfeited or canceled, as the case may be, as of the date of such Non-Qualifying
Termination. Notwithstanding the foregoing provisions of this Section 6(a), so
long as there has been no Initial Public Offering, the Corporation shall have
the right in its sole discretion to purchase during the one year period
following the date of Qualifying Termination of the Participant, and the
Participant shall have the obligation to sell to the Corporation (i) any
outstanding Option exercisable by the Participant at the then Fair Market Value
of a share of Class A Stock less the exercise price; and (ii) any shares of
Class A Stock held of record or beneficially by the Participant through the
exercise of an Option at their Fair Market Value.
(b) Except as otherwise specifically provided herein
or in the Plan, the Option shall not be affected by any change of duties or
position of the Participant so long as he continues to be a Participant of the
Corporation or of any Parent or Subsidiary thereof. If the Participant is
granted a temporary leave of absence, such leave of absence shall be deemed a
continuation of his employment by the Corporation or of any Parent or Subsidiary
thereof for the purposes of this Agreement, but only if and so long as the
employing corporation consents thereto.
7. Exercise Upon Death. If the Participant dies while holding
an outstanding Option, such Option, to the extent exercisable (and not
exercised) on the date of his death, shall remain so exercisable by his estate
(or other beneficiaries, as designated in writing by such Participant) until the
end of the exercise period under the Option, unless the Committee shall
otherwise provide at the time of the grant of the option. So long as there has
been no Initial Public Offering and subject to any restrictions or conditions
set forth in applicable credit and other financing agreements of the Corporation
and to applicable law: (i) with respect to any outstanding Option exercisable by
the estate or beneficiary of the deceased Participant, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such Option at the then Fair Market Value of a
share of Class A Stock less the exercise price; and (ii) with respect to shares
of Class A Stock held of record or beneficially by the estate or beneficiary of
the deceased Participant through the exercise of such Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value.
Notwithstanding the foregoing provisions of this Section 7, at any time during
the one year period following the date of death of the Participant, the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the obligation to
sell to the Corporation (i) any outstanding Option exercisable by the estate or
beneficiary at the then Fair Market Value of a share of Class A Stock less the
exercise price; and (ii) any shares of Class A Stock held of record
3
<PAGE> 4
or beneficiary by the estate or beneficiary through the exercise of an Option at
their then Fair Market Value.
8. Merger, Consolidation or Change in Control of Corporation.
(a) Upon the occurrence of a Liquidity Event, the Participant shall have the
right immediately prior to the effective date of such Liquidity Event (or, if
later, within 10 days of the Participant's notification of such event) to
exercise any Option granted and still outstanding (and not otherwise expired) in
whole or in part without regard to any installment or vesting provision of this
Agreement, provided that all conditions precedent to the exercise of such
Options, other than the passage of time, have occurred. The Corporation, to the
extent practicable, shall give advance notice to the Participant of any such
Liquidity Event. All such Options which are not so exercised shall be canceled
and forfeited as of the effective time of any such Liquidity Event (or, if
later, at the end of the applicable 10-day notice period). If the Corporation
engages in a Business Combination which is not a Liquidity Event, the
Corporation may, in connection with such transaction, at its option elect one of
the following: provide for (i) the continuance of the Option granted hereunder
(either by express provision or, if the Corporation is the surviving corporation
in the Business Combination, as a consequence of the failure to address the
treatment of options in the applicable agreements), (ii) the substitution of new
options for the Option granted hereunder (which new options grant the
Participant the right to purchase the securities they would have received had
they held Class A Stock immediately prior to the Business Combination) or (iii)
acceleration of any outstanding Options in which case such Business Combination
will be deemed a "Liquidity Event" and Options treated in accordance with the
preceding sentences of this Section 9(a).
(b) In the event that the Participant terminates his
employment with the Corporation or the surviving corporation in a Qualifying
Business Combination for Good Reason, or the Participant's employment is
terminated by the Corporation or such surviving corporation without Good Cause,
in either case within one year of such Qualifying Business Combination, the
Options granted hereunder shall immediately become exercisable without regard to
any installment or vesting provision of this Agreement, provided that all
conditions precedent to the exercise of such Options, other than the passage of
time, have occurred.
9. Stock Split; Initial Public Offering. Notwithstanding
anything to the contrary contained in the Plan or this Agreement, no adjustment
shall be made to the number of shares subject to the Option granted hereunder
or to the exercise price by reason of a change in the Class A Stock by reason
of a 1.539 to 1 stock split, 0.539 per share stock dividend or similar
transaction which is authorized by the Corporation on September 9, 1999 and
effectuated by the Corporation on September 22, 1999.
10. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
4
<PAGE> 5
11. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the
Option and the number of Shares with respect to which it is being
exercised;
(ii) contain a representation and agreement
as to investment intent, if required by the Committee with respect to
such Shares, in a form satisfactory to the Committee;
(iii) be signed by the Participant or the
person or persons entitled to exercise the Option and, if the Option is
being exercised by any person or persons other than the Participant, be
accompanied by proof satisfactory to the Committee of the right of such
other person or persons to exercise the Option;
(iv) include payment of the full purchase
price for the shares of Class A Stock to be purchased pursuant to such
exercise of the Option; and
(v) be received by the Corporation on or
before the date of the expiration of this Option. In the event the date
of expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office then such Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the purchase price of any shares of
Class A Stock, in respect of which the Option shall be exercised, shall be made
by the Participant or such person or persons at the place specified by the
Corporation on the date the Notice is received by the Corporation (i) by
delivering to the Corporation a certified or bank cashier's check payable to the
order of the Corporation, (ii) by delivering to the Corporation properly
endorsed certificates of shares of Class A Stock (or certificates accompanied by
an appropriate stock power) with signature guaranties by a bank or trust
company, (iii) by having withheld from the total number of shares of Class A
Stock to be acquired upon the exercise of this Option a specified number of such
shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any
combination of the above.
(c) The Option shall be deemed to have been exercised
on the date the Notice was received by the Corporation with respect to any
particular shares of Class A Stock if, and only if, the preceding provisions of
this Section 11 and the provisions of Section 12 hereof shall have been complied
with. Anything in this Agreement to the contrary notwithstanding, any Notice
given pursuant to the provisions of this Section 11 shall be void and of no
effect if all of the preceding provisions of this Section 11 (including this
subsection (c)) and the provisions of Section 12 shall not have been complied
with.
5
<PAGE> 6
(d) The certificate or certificates for shares of
Class A Stock as to which the Option shall be exercised will be registered in
the name of the Participant (or in the name of the Participant's estate or other
beneficiary, if the Option is exercised after the Participant's death), or if
the Option is exercised by the Participant and if the Participant so requests in
the Notice exercising the Option, will be registered in the name of the
Participant and another person jointly, with right of survivorship, and will be
delivered as soon as practical after the date the Notice is received by the
Corporation (accompanied by full payment of the exercise price), but only upon
compliance with all of the provisions of this Agreement.
(e) If the Participant fails to accept delivery of
and pay for all or any part of the number of Shares specified in such Notice,
his right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to issue or
deliver any certificate or certificates for shares of its Class A Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Participant in cash or, with the consent of
the Corporation, by tendering to the Corporation shares of Class A Stock equal
in value to the amount of the required withholding. In the alternative, the
Corporation may, at its option, satisfy such withholding requirements by
withholding from the shares of Class A Stock to be delivered to the Participant
pursuant to an exercise of this Option, a number of shares of Class A Stock
equal in value to the amount of the required withholding.
12. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Class A Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Class A Stock may then be
listed.
13. Resale of Class A Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Class A Stock purchased upon
exercise of the Option, the Participant shall deliver to the Corporation an
opinion of counsel satisfactory to the Corporation to the effect that either (i)
the Class A Stock to be sold or transferred has been registered under the
Securities Act of 1933, and that there is in effect a current prospectus meeting
the requirements of Section 10(a) of the Securities Act which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Class A Stock to be sold or transferred, or
(ii) such Class A Stock may then be sold without violating Section 5 of said
Act.
6
<PAGE> 7
(b) The Class A Stock issued upon exercise of the
Option shall bear the following legend if required by counsel for the
Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
14. Reservation of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of the Class A Stock as will be sufficient to satisfy the requirements of this
Agreement.
15. Nonguarantee of Employment. Nothing contained in this
Agreement shall be construed as a right of the Participant to be continued as an
Participant of the Corporation (or of any Parent or Subsidiary), or as a
limitation on the right of the Corporation or any Parent or Subsidiary to remove
the Participant, with or without cause.
16. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to the
Participant shall be addressed to the Participant or such other person or
persons at the Participant's address above specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to that
effect.
17. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Participant and all rights granted to the
Corporation under this Agreement shall be binding upon the Participant's heirs,
legal representatives, successors and assigns.
18. Severability. In case any provision of this Agreement
shall be held illegal or void, such illegality or invalidity shall not affect
the remaining provisions of this Agreement, but shall be fully severable, and
this Agreement shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
19. Governing Law. All questions pertaining to the validity,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of New York.
7
<PAGE> 8
20. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name by its President and its corporate seal to be
hereunto affixed and attested by its Secretary or its Assistant Secretary and
the Participant has hereunto set his hand all as of the date, month and year
first above written.
VitaminShoppe.com, Inc.
By:
------------------------------------
Name: Kathryn H. Creech
ATTEST: Title: President and Chief Executive
Officer
- -------------------------- ----------------------------------------
Secretary Philip H. Teplitzky
----------------------------------------
Social Security Number
<PAGE> 9
EXHIBIT A
NONQUALIFIED STOCK OPTION EXERCISE FORM
--------------------
Date
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, NY 10022
Attention: Secretary
Dear Sirs:
Pursuant to the provisions of the Nonqualified Stock Option
Agreement, dated as of September ____, 1999, effective as of September 15, 1999,
whereby you have granted to me a nonqualified stock option to purchase 180,000
shares of the Class A Common Stock (the "CLASS A STOCK") of VitaminShoppe.com,
Inc. (the "CORPORATION"), I hereby notify you that I elect to exercise my option
to purchase ______________ of the shares covered by such Option at the exercise
price specified thereon. In full payment of the price for the shares being
purchased hereby:
1. I am delivering to you herewith:
(a) a certified or bank cashier's check payable to
the order of the Corporation in the amount of $_________; $_________ of this
amount is the purchase price of the shares, and the balance represents payment
of withholding taxes as follows: Federal $_________, State $_________ and Local
$_________, OR
(b) a certificate or certificates for [ ] shares of
Class A Stock of the Corporation, which have a Fair Market Value as of the date
hereof at least equal to the option exercise price, and a certified or bank
cashier's check, payable to the order of the Corporation, in the amount of
$_________, which represents payment of withholding taxes as follows: Federal
$_________, State $_________ and Local $_________. Any such stock certificate or
certificates are endorsed, or accompanied by an appropriate stock power, to the
order of the Corporation, with my signature guaranteed by a bank or trust
company or by a member firm of the National Association of Securities Dealers,
Inc.
<PAGE> 10
(c) OR
(d) Please retain __________ shares of Class A Stock
of the Corporation covered by the Option which have a Fair Market Value as of
the date hereof at least equal to the option exercise price. I am delivering to
you herewith a certified or bank cashier's check, payable to the order of the
Corporation, in the amount of $_________ which represents payment of withholding
taxes as follows: Federal $_________, State $_________ and Local $_________.
In the event the amounts designated above are insufficient for
the withholding of federal, state and local taxes, I hereby authorize the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to me the balance of any taxes required to be withheld by
the Corporation under federal, state or local law as a result of my election
herein. Further, I acknowledge that I am purchasing these shares for investment
purposes only and not for resale.
Very truly yours,
---------------------------------
Philip H. Teplitzky
Address for notices, reports, dividend checks
and other communications to stockholders:
[ ]
[ ]
<PAGE> 11
VITAMINSHOPPE.COM, INC.
Stock Option Plan for Employees
NONQUALIFIED STOCK OPTION
Granted To
PHIL TEPLITZKY
Participant
175,000 $9.15
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: September 15, 1999 EXPIRATION DATE: September 14, 2009
<PAGE> 1
EXHIBIT 10.44
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
This NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this
"AGREEMENT") dated as of September 20, 1999, between VITAMINSHOPPE.COM, INC., a
Delaware Corporation (the "CORPORATION"), and Barbara S. Feigin, residing at
_________, _______, _____ _____ (the "PARTICIPANT").
W I T N E S S E T H:
WHEREAS, the Corporation desires, in connection with the
Participant's service as a Non-Employee Director of the Corporation, and in
accordance with the Stock Option Plan for Non-Employee Directors of
VitaminShoppe.com, Inc., effective as of August 1, 1999 (the "PLAN"), to provide
the Participant with an opportunity to acquire shares of the Corporation's Class
A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and
to thereby align her interest in the continued progress and success of the
Corporation's business with those of the Corporation's shareholders. Unless
otherwise defined herein, all capitalized terms used herein shall have the same
definitions as set forth under the Plan.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Corporation and the Participant hereby agree as follows:
1. Confirmation of Grant of Option. Subject to the terms of
the Plan and this Agreement, the Corporation hereby grants to the Participant
the right to purchase (hereinafter referred to as the "OPTION") an aggregate of
25,000 shares of Class A Stock, subject to adjustment as provided in the Plan
(such shares, as adjusted, hereinafter being referred to as the "SHARES"). The
Option is not intended to qualify as an incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended. The number of shares of Class
A Stock subject to the Option shall be adjusted to reflect the stock dividend
authorized by the board of directors on September 9, 1999 and payable to
stockholders of record on September 22, 1999.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $14.08 per Share, which equals the Fair
Market Value of such Shares on the date such Options are deemed granted pursuant
to the Plan, subject to adjustment as provided in the Plan.
<PAGE> 2
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable as to
the following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to 8,333 Shares on or after
September 20, 2000;
(ii) as to 8,333 Shares on or after
September 20, 2001; and
(iii) as to 8,334 Shares on or after
September 20, 2002.
(b) The Option may be exercised pursuant to the
provisions of this Section 3, by notice and payment (including, but not limited
to, by a "cashless" exercise) to the Corporation as provided in Section 10
hereof.
4. Term of Option. The term of the Option shall be a period of
ten (10) years from the date hereof, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the tenth anniversary
of the date hereof. The Participant shall not have any rights to dividends or
any other rights of a stockholder with respect to any shares of Class A Stock
subject to the Option until such shares shall have been issued to her (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Corporation) provided that the date of issuance shall not be
earlier than the date this Option is exercised and payment of the full purchase
price of the shares of Class A Stock (with respect to which this Option is
exercised) is made to the Corporation.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions of
the Plan, or any levy of execution, attachment or other process attempted upon
the Option, will be null and void and without effect. Any attempt to make any
such assignment, transfer, pledge, hypothecation or other disposition of the
Option or any attempt to make any such levy of execution, attachment or other
process will cause the Option to terminate immediately upon the happening of any
such event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Corporation or any Parent or Subsidiary may have under this Agreement
or otherwise.
6. Exercise Upon Death. If the Participant dies while holding
an exercisable Option, such Option shall remain exercisable by her estate (or
other beneficiaries, as designated
2
<PAGE> 3
in writing by such Participant) until the end of the exercise period under the
Option, unless the Committee shall otherwise provide at the time of the grant of
the Option. So long as there has been no Initial Public Offering and subject to
any restrictions or conditions set forth in applicable credit and other
financing agreements of the Corporation and to applicable law: (i) with respect
to the exercisable portion of any Option, the deceased Participant's estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such Option at the then Fair Market Value of a
share of Class A Stock less the exercise price; and (ii) with respect to shares
of Class A Stock held of record or beneficially by the estate or beneficiary of
the deceased Participant through the exercise of an Option, such estate or
beneficiary shall have the right to sell to the Corporation during the one year
period following the date of death of the Participant, and the Corporation shall
have the obligation to purchase, such shares at their then Fair Market Value. At
any time during the one year period following the Participant's death, the
Corporation shall have the right in its sole discretion to purchase, and the
estate or beneficiary of the deceased Participant shall have the obligation to
sell to the Corporation (i) any outstanding Option exercisable by the estate or
beneficiary at the then Fair Market Value of a share of Class A Stock less the
exercise price and (ii) any shares of Class A Stock held of record or
beneficially by the estate or beneficiary through the exercise of an Option at
their then Fair Market Value.
7. Exercise Upon Disability; Voluntary Termination. If the
Participant's service is terminated by reason of (i) Disability or (ii)
voluntary discontinuance of service, any then exercisable Option shall remain
exercisable until the end of the exercise period under such Option and all
Options not exercisable on the date of such termination shall be forfeited and
canceled. Notwithstanding the foregoing provisions of this Section 7, so long as
there has been no Initial Public Offering, the Corporation shall have the right
in its sole discretion to purchase during the one year period following the date
the Participant's service with the Corporation is terminated as described in (i)
or (ii) of the preceding sentence, and the Participant shall have the obligation
to sell to the Corporation (i) any outstanding Option exercisable by the
Participant at the then Fair Market Value of a share of Class A Stock less the
exercise price and (ii) any shares of Class A Stock held of record or
beneficially by the Participant through the exercise of an Option at their Fair
Market Value.
8. Misconduct by Participant. If the Board of Directors
(excluding the Participant accused of such misconduct) determines that the
Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment
of an obligation owed to the Corporation, breach of fiduciary duty or deliberate
disregard of the Corporation's rules resulting in loss, damage or injury to the
Corporation, or if the Participant makes an unauthorized disclosure of the
Corporation's trade secrets or confidential information, engages in any conduct
constituting unfair competition, induces any of the Corporation's customers to
breach a contract with the Corporation or induces any principal for whom the
Corporation acts as agent to terminate such agency relationship, neither the
Participant nor his estate shall be entitled to exercise any Option whatsoever.
In making such determination, the Board of Directors shall provide the
Participant an opportunity to appear and present evidence on the Optionee's
behalf at a hearing before the Board of Directors or a committee of the Board of
Directors.
3
<PAGE> 4
9. Exercise Upon Other Termination of Service. In the event
the Participant ceases to serve as a director of the Corporation for any reason
other than as described in Sections 6, 7 or 8 above, within ninety (90) days
after such cessation, the Participant may exercise his Option to the extent that
it was exercisable on the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after the term set forth in
Section 4 has expired. To the extent an Option was not exercisable at the date
of such termination, or the Participant does not exercise such Option within the
time specified above, the Option shall be forfeited and canceled.
10. Merger, Consolidation or Change in Control of Corporation.
(a) Upon the occurrence of a Liquidity Event or a Change in Control, the
Participant shall have the right immediately prior to the effective date of such
Liquidity Event (or, if later, within 10 days of the Optionee's notification of
such event) to exercise any Option granted and still outstanding (and not
otherwise expired) in whole or in part without regard to any installment or
vesting provision of this Agreement, provided that all conditions precedent to
the exercise of such Options, other than the passage of time, have occurred. The
Corporation, to the extent practicable, shall give advance notice to the
Participant of any such Liquidity Event. All such Options which are not so
exercised shall be canceled and forfeited as of the effective time of any such
Liquidity Event (or, if later, at the end of the applicable 10-day notice
period). If the Corporation engages in a Business Combination which is not a
Liquidity Event, the Corporation may, in connection with such transaction, at
its option elect one of the following: provide for (i) the continuance of the
Option granted hereunder (either by express provision or, if the Corporation is
the surviving corporation in the Business Combination, as a consequence of the
failure to address the treatment of options in the applicable agreements), (ii)
the substitution of new options for the Option granted hereunder (which new
options grant the Participant the right to purchase the securities they would
have received had they held Class A Stock immediately prior to the Business
Combination) or (iii) acceleration of any outstanding Options in which case such
Business Combination will be deemed a "Liquidity Event" and Options treated in
accordance with the preceding sentences of this Section 10.
11. Registration. The Corporation may register or qualify the
shares covered by the Option for sale pursuant to the Securities Act of 1933, as
amended, at any time prior to or after the exercise in whole or in part of the
Option.
12. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to
the Corporation in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the
Option and the number of Shares with respect to which it is being
exercised;
4
<PAGE> 5
(ii) contain a representation and
agreement as to investment intent, if required by the Committee with
respect to such Shares, in a form satisfactory to the Committee;
(iii) be signed by the Participant or the
person or persons entitled to exercise the Option and, if the Option is
being exercised by any person or persons other than the Participant, be
accompanied by proof satisfactory to the Committee of the right of such
other person or persons to exercise the Option;
(iv) include payment of the full purchase
price for the shares of Class A Stock to be purchased pursuant to such
exercise of the Option; and
(v) be received by the Corporation on or
before the date of the expiration of this Option. In the event the date
of expiration of this Option falls on a day which is not a regular
business day at the Corporation's executive office then such Notice
must be received at such office on or before the last regular business
day prior to such date of expiration.
(b) Payment of the purchase price of any shares
of Class A Stock, in respect of which the Option shall be exercised, shall be
made by the Participant or such person or persons at the place specified by the
Corporation on the date the Notice is received by the Corporation (i) by
delivering to the Corporation a certified or bank cashier's check payable to the
order of the Corporation, (ii) by delivering to the Corporation properly
endorsed certificates of shares of Class A Stock (or certificates accompanied by
an appropriate stock power) with signature guaranties by a bank or trust
company, (iii) by having withheld from the total number of shares of Class A
Stock to be acquired upon the exercise of this Option a specified number of such
shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any
combination of the above.
(c) The Option shall be deemed to have been
exercised on the date the Notice was received by the Corporation with respect to
any particular shares of Class A Stock if, and only if, the preceding provisions
of this Section 12 and the provisions of Section 13 hereof shall have been
complied with. Anything in this Agreement to the contrary notwithstanding, any
Notice given pursuant to the provisions of this Section 12 shall be void and of
no effect if all of the preceding provisions of this Section 12 (including this
subsection (c)) and the provisions of Section 13 shall not have been complied
with.
(d) The certificate or certificates for shares
of Class A Stock as to which the Option shall be exercised will be registered in
the name of the Participant (or in the name of the Participant's estate or other
beneficiary, if the Option is exercised after the Participant's death), or if
the Option is exercised by the Participant and if the Participant so requests in
the Notice exercising the Option, will be registered in the name of the
Participant and another person jointly, with right of survivorship, and will be
delivered as soon as practical after
5
<PAGE> 6
the date the Notice is received by the Corporation (accompanied by full payment
of the exercise price), but only upon compliance with all of the provisions of
this Agreement.
(e) If the Participant fails to accept delivery
of and pay for all or any part of the number of Shares specified in such Notice,
his right to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion of the Committee. The Option may be exercised
only with respect to full Shares.
(f) The Corporation shall not be required to
issue or deliver any certificate or certificates for shares of its Class A Stock
purchased upon the exercise of any part of this Option prior to the payment to
the Corporation, upon its demand, of any amount requested by the Corporation for
the purpose of satisfying its liability, if any, to withhold state or local
income or earnings tax or any other applicable tax or assessment (plus interest
or penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Participant in cash or, with the consent of
the Corporation, by tendering to the Corporation shares of Class A Stock equal
in value to the amount of the required withholding. In the alternative, the
Corporation may, at its option, satisfy such withholding requirements by
withholding from the shares of Class A Stock to be delivered to the Participant
pursuant to an exercise of this Option, a number of shares of Class A Stock
equal in value to the amount of the required withholding.
13. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Class A Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Class A Stock may then be
listed.
14. Resale of Class A Stock. (a) If so requested by the
Corporation, upon any sale or transfer of the Class A Stock purchased upon
exercise of the Option, the Participant shall deliver to the Corporation an
opinion of counsel satisfactory to the Corporation to the effect that either (i)
the Class A Stock to be sold or transferred has been registered under the
Securities Act of 1933, and that there is in effect a current prospectus meeting
the requirements of Section 10(a) of the Securities Act which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Class A Stock to be sold or transferred or
(ii) such Class A Stock may then be sold without violating Section 5 of said
Act.
6
<PAGE> 7
(b) The Class A Stock issued upon exercise of
the Option shall bear the following legend if required by counsel for the
Corporation:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER
IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT.
15. Reservation of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of the Class A Stock as will be sufficient to satisfy the requirements of this
Agreement.
16. Nonguarantee. Nothing contained in this Agreement shall be
construed to confer any right with respect to continuation of service as a
director of the Corporation or nomination to serve as a director of the
Corporation, nor shall it interfere in any way with any rights which the
Participant or the Corporation may have to terminate his directorship at any
time.
17. Notices. Each notice relating to this Agreement shall be
in writing and delivered in person, by air courier or by certified mail to the
proper address. All notices to the Corporation or the Committee shall be
addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New
York, NY 10022, Attn: President and Chief Executive Officer. All notices to the
Participant shall be addressed to the Participant or such other person or
persons at the Participant's address above specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to that
effect.
18. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Participant and all rights granted to the
Corporation under this Agreement shall be binding upon the Participant's heirs,
legal representatives, successors and assigns.
19. Severability. In case any provision of this Agreement
shall be held illegal or void, such illegality or invalidity shall not affect
the remaining provisions of this Agreement, but shall be fully severable, and
this Agreement shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
20. Governing Law. All questions pertaining to the validity,
construction and administration of this Agreement shall be determined in
accordance with the laws of the State of New York.
7
<PAGE> 8
21. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed in its name by its President and its corporate seal to be
hereunto affixed and attested by its Secretary or its Assistant Secretary and
the Participant has hereunto set his hand all as of the date, month and year
first above written.
VitaminShoppe.com, Inc.
By:
------------------------------------
Name: Kathryn H. Creech
Title: President and Chief Executive
ATTEST: Officer
- ------------------------- ----------------------------------------
Secretary Barbara S. Feigin
----------------------------------------
Social Security Number
<PAGE> 9
EXHIBIT A
NON-EMPLOYEE DIRECTOR STOCK OPTION EXERCISE FORM
--------------------
Date
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, NY 10168
Attention: Secretary
Dear Sirs:
Pursuant to the provisions of the Non-Employee Director Stock
Option Agreement, dated September 20, 1999, whereby you have granted to me a
stock option to purchase 25,000 shares of the Class A Common Stock (the "CLASS A
STOCK") of VitaminShoppe.com, Inc. (the "CORPORATION"), I hereby notify you that
I elect to exercise my option to purchase ______________ of the shares covered
by such Option at the exercise price specified thereon. In full payment of the
price for the shares being purchased hereby:
1. I am delivering to you herewith:
(a) a certified or bank cashier's check payable to
the order of the Corporation in the amount of $_________; $_________ of this
amount is the purchase price of the shares, and the balance represents payment
of withholding taxes as follows: Federal $_________, State $_________ and Local
$_________. OR
(b) a certificate or certificates for [ ] shares of
Class A Stock of the Corporation, which have a Fair Market Value as of the date
hereof at least equal to the option exercise price, and a certified or bank
cashier's check, payable to the order of the Corporation, in the amount of
$_________, which represents payment of withholding taxes as follows: Federal
$_________, State $_________ and Local $_________. Any such stock certificate or
certificates are endorsed, or accompanied by an appropriate stock power, to the
order of the Corporation, with my signature guaranteed by a bank or trust
company or by a member firm of the National Association of Securities Dealers,
Inc.
<PAGE> 10
(c) OR
(d) Please retain __________ shares of Class A Stock
of the Corporation covered by the Option which have a Fair Market Value as of
the date hereof at least equal to the option exercise price. I am delivering to
you herewith a certified or bank cashier's check, payable to the order of the
Corporation, in the amount of $_________ which represents payment of withholding
taxes as follows: Federal $_________, State $_________ and Local $_________.
In the event the amounts designated above are insufficient for
the withholding of federal, state and local taxes, I hereby authorize the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to me the balance of any taxes required to be withheld by
the Corporation under federal, state or local law as a result of my election
herein. Further, I acknowledge that I am purchasing these shares for investment
purposes only and not for resale.
Very truly yours,
___________________________
Barbara S. Feigin
Address for notices,
reports, dividend checks
and other communications to
stockholders:
[ ]
[ ]
[ ]
<PAGE> 11
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF
VITAMINSHOPPE.COM, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION
Granted To
BARBARA S. FEIGIN
Participant
25,000 $14.08
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: September 20, 1999 EXPIRATION DATE: September 19, 2009
<PAGE> 1
EXHIBIT 10.45
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
AOL ADVERTISING INSERTION ORDER
Contract #:
AOL Salesperson: Brandon Bergmark Credit approval received
Sales Coordinator: Alex Thiesen
Date: 8-27-99
<TABLE>
<CAPTION>
ADVERTISER ADVERTISING AGENCY
---------- ------------------
<S> <C> <C>
Contact Person Eliot Russman Ginny Cooper, VP General Manager
Company Name VitaminShoppe.com, Inc. USWeb CKS
Address - Line 1 444 Madison Avenue 8th Floor 410 Townsend Street
Address - Line 2 New York, NY 10022 San Francisco, CA 94107
Phone # 212-308-6254 (415) 369-6509
Fax # 212-308-6186
Email [email protected] [email protected]
SIC Code
Advertiser IAB Category
</TABLE>
<TABLE>
<CAPTION>
BILLING INFORMATION
-------------------
<S> <C> <C>
Send Invoices to (choose one): ADVERTISER AGENCY
Advertiser or Agency Billing
Contact Person
Company Name
Billing Address - Line 1
Billing Address - Line 2
Billing Phone #
Billing Fax #
Billing Email Address
P.O. #, if applicable
</TABLE>
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
1. PAYMENTS
A. PAYMENT SCHEDULE: Advertiser shall pay AOL a non-refundable guaranteed
payment of [******] Dollars (US $[******]), payable as follows:
(1) [******] (US$[******]) on the date hereof.
(2) [******] (US$[******]) on each of the [******], [******], [******],
[******] and [******] month, [******] month anniversaries of the date
hereof.
B. LATE PAYMENTS; WIRED PAYMENTS. All amounts owed hereunder not paid when
due and payable will bear interest from the date such amounts are due
and payable at the prime rate in effect at such time. In the event of
nonpayment, AOL reserves the right to immediately terminate this
Insertion Order Agreement with written notice to Advertiser. All
payments required hereunder will be paid in immediately available,
non-refundable U.S. funds wired to the "America Online" account,
Account Number [*****] at [*****], [*****], [*****]. In the
event of nonpayment, AOL reserves the right to immediately terminate
this Insertion Order Agreement with written notice to Advertiser.
INVENTORY TYPE (CHOOSE ONE): AOL SERVICE ONLY AOL AFFILIATE ONLY (E.G., AOL.COM)
AOL SERVICE & AOL AFFILIATE
AOL SERVICE
INVENTORY
<TABLE>
<CAPTION>
DISPLAY DISPLAY # OF AD
AOL INVENTORY/DEMOGRAPHIC* START STOP AD TYPE SLOTS TOTAL GROSS TOTAL
PURCHASED DATE DATE PURCHASED PRICE IMPRESSIONS
<S> <C> <C> <C> <C> <C> <C>
SEE EXHIBIT E
TOTAL
* Attach completed AOL Demographic TOTALS:
Profile Worksheet
</TABLE>
ART
All necessary artwork and active URL's must be provided by advertiser 3 business
days prior to start date.
ARTWORK REQUIRED FROM ADVERTISER/AGENCY:
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
<TABLE>
<S> <C> <C>
234x60 IAB Standard /7k Max 120x60 Shopping/5k Max 175x45 Chat/Mail in-box/5k Max
Special_____
</TABLE>
* ANIMATION IS ONLY AVAILABLE ON SELECTED SCREENS. PLEASE CONTACT YOUR
AOL SALESPERSON FOR ADDITIONAL INFORMATION. *
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be:
http://(must be filled in)
PLEASE SEND ARTWORK AND URL TO (CHOOSE ONE):
[email protected] [email protected] [email protected]
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked to the
Advertisement.
AOL AFFILIATE (E.G., AOL.COM)
INVENTORY
<TABLE>
<CAPTION>
DISPLAY DISPLAY # OF AD
AOL AFFILIATE INVENTORY/DEMOGRAPHIC* START STOP AD TYPE SLOTS TOTAL GROSS TOTAL
PURCHASED DATE DATE PURCHASED PRICE IMPRESSIONS
<S> <C> <C> <C> <C> <C> <C>
SEE EXHIBIT E
* See attached package description for TOTALS:
any AOL.com package purchases
</TABLE>
ART
All necessary artwork and active URL's must be provided by
advertiser 3 business days prior to start date.
<TABLE>
<CAPTION>
ARTWORK REQUIRED FROM ADVERTISER/AGENCY :
<S> <C>
468x60 NF Reviews, Search Terms, My News & Hometown/12k Max/animation OK
100x70 AOL.com Home Page/3k Max/No animation 120x60 NF Home Page/2k Max/No animation
234x60 NF Kids Only & Hometown/5k Max/animation OK 120x60 Instant Messenger/7.5k Max/animation OK
</TABLE>
LINKING URL: THE HTTP/URL ADDRESS TO BE CONNECTED TO THE ADVERTISEMENT SHALL BE:
http:// ________________(MUST BE FILLED IN)
PLEASE SEND ARTWORK AND URL TO
(CHOOSE ONE):
[email protected] [email protected] [email protected]
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked to the
Advertisement.
ADVERTISING PURCHASE SUMMARY
<TABLE>
<CAPTION>
TOTAL PRICE TOTAL IMPRESSIONS CPM
<S> <C> <C> <C>
AOL Networks SEE EXHIBIT E
AOL Affiliate
Total Purchase Price
[(Less Agency Discount)]
US$[******]
NET PURCHASE PRICE TOTAL IMPRESSIONS
</TABLE>
2. IMPRESSIONS COMMITMENT. In the event AOL delivers the impression
commitment provided for hereunder prior to the Display Stop Date, AOL
may, at its option, discontinue display at such earlier time. Any
guarantees are to impressions (as measured by AOL in accordance with
its standard methodologies and protocols), not "click-throughs." In the
event there is (or will be in
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
AOL's reasonable judgment) a shortfall in impressions as of the end of
a display period (a "Shortfall"), such Shortfall shall not be
considered a breach of this Agreement by AOL: instead, AOL will provide
Advertiser, as its sole remedy, with "makegood" impressions through
comparable advertisement placements (e.g., in terms of demographics,
reach, vertical category, etc.) on the AOL Network which have a total
value, based on AOL's then-current advertising rate card, equal to the
value of the Shortfall. To the extent impressions commitments are
identified without regard to specific placements, such placements will
be as mutually agreed upon by AOL and Advertiser during the course of
the display period. AOL reserves the right to alter Advertiser flight
dates to accommodate trafficking needs or other operational needs. In
such cases, AOL will make available to Advertiser reasonably equivalent
flight(s).
3. NAVIGATION. Advertiser shall provide continuous navigational ability
for AOL or users to return to an agreed-upon point on the AOL Network
(for which AOL shall supply the proper address) from the Affiliated
Advertiser Site (e.g., the point on the AOL Network from which the
Affiliated Advertiser Site is linked), which, at AOL's option, may be
satisfied through the use of a hybrid browser format. Advertiser will
ensure that navigation back to the AOL Network, whether through a
particular pointer or link, the "back" button on an Internet browser,
the closing of an active window, or any other return mechanism, shall
not be interrupted by Advertiser through the use of any intermediate
screen or other device not specifically requested by the user,
including without limitation through the use of any html popup window
or any other similar device. Additionally, in cases where an AOL user
performs a search for Advertiser or any Advertiser product through any
search or navigational tool or mechanism that is accessible or
available through the AOL Network (e.g., promotions, keyword search
terms, or any other promotions or navigational tools), AOL shall have
the right to direct such AOL user to the Affiliated Advertiser Site, or
any other Advertiser interactive site determined by AOL in its
reasonable discretion.
4. STANDARD TERMS AND CONDITIONS. This Insertion Order incorporates by
reference AOL's standard advertising terms and conditions (the
"Standard Terms"), including terms related to advertising material,
payment modifications, cancellation rights, usage data, limitations of
liability, disclaimers, indemnification, use of AOL member information
and miscellaneous legal terms. Among other things, the Standard Terms
provide AOL the right to cancel this Insertion Order upon thirty (30)
days notice to Advertiser (or upon such shorter notice as may be
designated by AOL in the event that AOL believes that further display
of the Advertisement will expose AOL to liability or other adverse
consequences), in which case Advertiser shall only be responsible for
the pro-rata portion of payments attributable to the period preceding
such termination. The Standard Ad Terms appear at keyword "Standard Ad
Terms4" on the U.S.-based America Online brand service and at
"http://mediaspace.aol.com/adterms4.html." A hard copy of the Standard
Ad Terms will be provided to advertiser upon request. ADVERTISER
ACKNOWLEDGES THAT IT HAS BEEN PROVIDED AN OPPORTUNITY TO REVIEW THE
STANDARD TERMS AND AGREES TO BE BOUND BY THEM.
5. EXHIBITS. Exhibits A through E are each hereby made part of this
Insertion Order.
<PAGE> 5
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AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order, their duly authorized
representatives have signed their names below on the dates indicated. This
Insertion Order (including the Standard Terms incorporated by reference) shall
be binding on both parties when signed on behalf of each party and delivered to
the other party (which delivery may be accomplished by facsimile transmission of
the signature pages hereto).
AMERICA ONLINE, INC. VITAMINSHOPPE.COM, INC.
By: ________________________________ By: ________________________________
Print Name: ________________________ Print Name: _________________________
Title: _____________________________ Title: _____________________________
Date: ______________________________ Date: ______________________________
<PAGE> 6
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
EXHIBIT A
ADDITIONAL TERMS
1. ADVERTISER PRODUCTS AND CONTENT OF ADVERTISER AFFILIATED SITE. The
products and/or services to be offered or promoted by Advertiser in the
Advertisements are as follows: vitamins, nutritional supplements,
minerals, herbs and personal health-related products (e.g., creams,
lotions, massage therapy products) (collectively, the "Advertiser
Products"). The Advertisements will only promote the Advertiser
Products; provided, however, that no such Advertisements shall contain
any reference to any Interactive Service, nor to any entity or third
party that could reasonably be construed to be in competition with any
exclusive or premier partner of AOL. Additionally, the Affiliated
Advertiser Site will only offer the Advertiser Products and content
related thereto (except to the extent otherwise mutually agreed upon by
the parties). For the avoidance of doubt, Advertiser shall have the
right to offer (but not promote, market or advertise on the main screen
to the Affiliated Advertiser Site) health-related books, health-related
videos and aromatherapy products (the "Limited Advertiser Products");
provided, however, that the Advertisements shall not contain any
reference to the Limited Advertiser Products; provided, further, that
the Limited Advertiser Products shall not (in the aggregate) constitute
more than [******] of the annual gross revenues generated by the
Affiliated Advertiser Site during any twelve (12) month period of the
Term. Notwithstanding the foregoing restrictions, Advertiser shall have
the right to promote health related books within the Affiliated
Advertiser Site, so long as the book is offered as a free promotional
item in connection with the purchase of Advertiser Products (e.g.,
"spend $100 w/ VitaminShoppe and get a free copy of 'Vitamin Tips' from
Dr. Smith"); provided, however, that AOL shall have the right to
require Advertiser to remove (and Advertiser, promptly following notice
from AOL shall remove) any such promotions in the event that in the
sole discretion of AOL, such promotions conflict with any then-existing
exclusive or premier relationship between AOL and any AOL partner.
Advertiser will ensure that the prices, terms and conditions for the
Advertiser Products in the Affiliated Advertiser Site are no less
favorable than the prices, terms and conditions on which the Advertiser
Products or substantially similar products are offered by or on behalf
of Advertiser through any other distribution channels.
2. THIRD PARTY ADVERTISEMENTS WITHIN THE AFFILIATED SITE. In the event
that Advertiser desires to include third party advertisements on the
Affiliated Site, as soon as reasonably practical following notification
to AOL of such desire, the parties will mutually agree upon a written
advertising program (the "Ad Program") whereby both AOL and Advertiser
will, in coordination with each other, establish advertising inventory
space within and sell promotions, advertisements, links, pointers or
similar services or rights through the Affiliated Advertiser Site to
Advertiser's vendors ("Advertisements"). All sales of Advertisements by
Advertiser will be subject to AOL's then-applicable advertising
policies, AOL's third party relationships and exclusivities, and AOL's
prior written approval. For the avoidance of doubt, any Advertisements
on the Affiliated Advertiser Site shall not promote, market or
advertise any competitor of AOL or any third party that could be
construed to be in competition with any exclusive or premier partner of
AOL. The revenue sharing arrangement with respect to any such shall be
mutually agreed upon by the parties prior to the sale of any such
Advertisements on or through the Affiliated Advertiser Site. No
Interactive Service (other than AOL or its affiliates) will be promoted
in the Affiliated Advertiser Site.
3. REGULATORY.
a. PROMO CONTENT: REGULATORY COMPLIANCE. Advertiser hereby represents
and warrants that the Promo Content will comply with all applicable
federal, state and local laws pertaining to the advertising of
prescription drugs. In connection with the foregoing, Advertiser
represents that (i) it has conducted an evaluation of its online sale
of prescription drugs (if any) and that entering into this Agreement
will not violate any federal, state or local laws, rules or regulations
and (ii) in order to ensure continued compliance with any federal,
state or local laws, rules or regulations, prior to posting the Promo
Content on the AOL Network, the Promo Content will be reviewed by
Advertiser's medical and regulatory affairs counsel.
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
b. PROVISION OF OTHER CONTENT AND SERVICES. Advertiser shall ensure
that its provision of Products and content as contemplated herein shall
not constitute the practice of medicine, nor shall Advertiser engage in
the practice of medicine through the Affiliated Advertiser Site. To the
extent that the Affiliated Advertiser Site provides information and
services concerning health care and/or general medical advice, the
Parties expressly acknowledge that such services are provided by
Advertiser, and AOL shall in no way be responsible for, or associated
with the provision of such information. Additionally, in the event that
AOL notifies Advertiser that (i) as reasonably determined by AOL, any
content within the Affiliated Advertiser Site violates AOL's
then-standard Terms of Service (as set forth on the America Online(R)
brand service at Keyword term "TOS"), the terms of this Agreement or
any other standard, written AOL policy or (ii) AOL reasonably objects
to the inclusion of any Content within the Affiliated Advertiser Site
(other than any specific items of Content which may be expressly
identified in this Agreement), then Advertiser will take commercially
reasonable steps to block access by AOL Users to such content using
Advertiser's then-available technology. In the event that Advertiser
cannot, through its commercially reasonable efforts, block access by
AOL Users to the content in question, then Advertiser will provide AOL
prompt written notice of such fact. AOL may then, at its option,
restrict access from the AOL Network to the content in question using
technology available to AOL. Advertiser will cooperate with AOL's
reasonable requests to the extent AOL elects to implement any such
access restrictions.
C. SALE OF PRODUCTS. It is the sole responsibility of Advertiser to
provide the Products in the Affiliated Advertiser Site, and AOL will
have no obligations with respect to the Products available on or
through the Affiliated Advertiser Site, including, but not limited to,
any duty to review or monitor any such Products. Additionally,
Advertiser shall provide Customer service to all persons or entities
purchasing Products through the Affiliated Advertiser Site or the AOL
Network ("Customers"). Advertiser will bear full responsibility for all
customer service, including without limitation, order processing,
billing, fulfillment, shipment, retention and maintenance of all
prescription records (electronic or otherwise), any required pharmacy
counseling, collection and other customer service associated with any
Products offered, sold or licensed through the Affiliated Advertiser
Site, and AOL will have no obligations whatsoever with respect thereto.
The Affiliated Advertiser Site shall include clear and conspicuous
disclosure of its customer service policies and a phone number and an
email or street address at which customers may contact Advertiser.
Advertiser shall provide a name of a customer service contact for use
by AOL and a telephone number and email or street address to which AOL
may forward or refer customer inquiries or complaints relating to
Advertiser. To the extent that Advertiser is required by law, rule,
regulation or otherwise, to fulfill any paper record keeping
requirements in connection with the Products, Advertiser shall be
responsible for fulfilling such requirements and creating and
maintaining any systems associated with compliance with any such law,
rule, or regulation. Advertiser will bear all responsibility for
compliance with all federal, state and local laws in the event that
Products are out of stock or are no longer available at the time an
order is received. Advertiser will also comply with the requirements of
any federal, state or local consumer protection or disclosure law, or
any laws associated with the practice of pharmacy, the sale of
prescription drugs, or the sale of OTC drugs. Payment for Products will
be collected by Advertiser directly from customers. Advertiser will
receive all emails from Customers via a computer available to
Advertiser's customer service staff and generally respond to such
emails within one business day of receipt. Advertiser will receive all
orders electronically and generally process all orders within one
business day of receipt, provided Products ordered are not advance
order items. Advertiser will ensure that all orders of Products are
received, processed, fulfilled and delivered on a timely and
professional basis. Advertiser will offer AOL Users who purchase
Products through the Affiliated Advertiser Site a money-back
satisfaction guarantee.
d. INTERNATIONAL SALE OF THE PRODUCTS. Unless otherwise mutually agreed
by the Parties as set forth below, with the exception of (i) Japan,
England and the Caribbean and (ii) any other country or territory in
which the sale of the Advertiser Products by Advertiser through the
Affiliated Advertiser Site (and in the manner contemplated by this
Agreement) is not prohibited by the laws of such country and/or the
laws of the United States, as the case may be (collectively, the
"Select International Countries"), Advertiser shall not engage in the
sale of the Products through the Affiliated Advertiser Site in any
jurisdiction other than the United States of America and its
territories. In connection therewith, Advertiser hereby represents and
warrants that it does not currently sell, distribute or ship the
Products in, or to, any jurisdiction other than the Select
<PAGE> 8
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
International Countries, the United States of America and its
territories, nor does it intend to so sell, distribute or ship the
Products through the Affiliated Advertiser Site during the Term hereof.
To the extent that international users of the AOL Network access the
Affiliated Advertiser Site, Advertiser shall prominently post and
display the notice required pursuant to the following paragraph and, to
the extent technically feasible, Advertiser shall block such users from
making any purchases through the Affiliated Advertiser Site. If
Advertiser wishes to use the Affiliated Advertiser Site to sell any
Product outside the United States or the Select International
Countries, the Parties shall negotiate in good faith an amendment to
this Agreement providing for the terms by which Advertiser shall be
able to do so (including, without limitation Advertiser's demonstration
to AOL's satisfaction that Advertiser will be able to comply with all
applicable international laws, rules and regulations and, similar to
the terms hereof, that all such compliance shall be Advertiser's
responsibility, not AOL's), and such agreed-upon countries shall be
deemed "Select International Countries" for purposes of this Agreement.
Advertiser will defend, indemnify, save and hold harmless AOL and the
officers, directors, agents, affiliates, distributors, franchisees and
employees of AOL from any and all third party claims, demands,
liabilities, costs or expenses, including reasonable attorneys' fees
("Liabilities"), arising from the sale of the Products through the
Affiliated Advertiser Site in (i) the United States and its territories
and (ii) the Select International Countries.
e. DISCLAIMERS AND NOTICES. Upon AOL's request, Advertiser agrees to
include within the Affiliated Advertiser Site the following disclaimers
(the specific form and substance to be mutually agreed upon by the
Parties): (i) a product disclaimer indicating that transactions are
solely between Advertiser and AOL Users purchasing Products from
Advertiser; (ii) to the extent that Advertiser intends to use any
private information obtained from AOL Users in connection with a
prescription, a notice indicating that Advertiser will be using such
information in the manner intended by Advertiser, and a disclaimer
indicating that such information will be used by Advertiser and not by
AOL; (iii) a prominent notice indicating that all customer service
requests, and any required pharmacy counseling associated with purchase
of the Products are the responsibility of Advertiser and not of AOL;
and (iv) a prominent notice indicating that the sale of the Products is
expressly for United States residents only.
f. REPRESENTATIONS AND WARRANTIES. Advertiser hereby represents and
warrants that (a) it possesses all authorizations, approvals, consents,
licenses, permits, certificates or other rights and permissions
necessary to sell the Products in the state in which it currently
resides, and (b) it possesses all authorizations, approvals, consents,
licenses, permits, certificates or other rights and permissions to sell
the Products in each other state in which Advertiser sells the Products
and in the Select International Countries.
4. TERM. The initial term hereof shall begin on the [******] and end on
[******], unless otherwise terminated prior thereto (the "Initial
Term").
5. CONTINUED LINK. Upon conclusion of the Initial Term of this Agreement,
AOL may, at its discretion, continue to promote (for a period not to
exceed three (3) years) one or more "pointers" or links from the AOL
Network to the Affiliated Advertiser Site (or, if the Affiliated
Advertiser Site no longer exists, to any Advertiser Interactive Site)
and continue to use Advertiser's trade names, trade marks and service
marks in connection therewith (collectively, a "Continued Link"). After
the Term, regardless of any Continued Link, the following obligations
of the Parties will cease: (i) Advertiser will not be required to pay
any guaranteed, fixed payment, maintain the Affiliated Advertiser Site
nor perform any of the cross-promotional obligations contained herein
(except as set forth below); and (ii) AOL will not be required to
undertake any minimum promotional/placement obligations. However, so
long as AOL maintains a Continued Link, (i) the Standard Terms shall
survive, together with any provisions necessary if and to the extent
required for the express purposes of this paragraph; and (ii) if any
Transaction Revenues are generated from the Continued Link, the
Advertiser shall pay AOL [******] of the Gross Margin. Advertiser shall
pay all of the foregoing amounts on a quarterly basis within thirty
(30) days following the end of the quarter in which the applicable
Transaction Revenues were generated. In addition, each payment to be
made by Advertiser pursuant to the revenue sharing provisions hereof,
will be accompanied by a report containing information which supports
the payment, including information identifying gross Transaction
Revenues and all items deducted or excluded from gross Transaction
Revenues to produce Transaction Revenues. For the sole purpose of
ensuring compliance with the revenue
<PAGE> 9
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
sharing provisions hereof, AOL (or its representative) will have the
right to conduct a reasonable and necessary inspection of portions of
the books and records of Advertiser which are relevant to Advertiser's
performance pursuant to Section 18. Any such audit may be conducted
after twenty (20) business days prior written notice to Advertiser. AOL
shall bear the expense of any audit conducted pursuant to this Section
5 unless such audit shows an error in AOL's favor amounting to a
deficiency to AOL in excess of five percent (5%) of the actual amounts
paid and/or payable to AOL hereunder, in which event Advertiser shall
bear the reasonable expenses of the audit. Advertiser shall pay AOL the
amount of any deficiency discovered by AOL within thirty (30) days
after receipt of notice thereof from AOL.
6. SPECIAL OFFERS/MEMBER BENEFITS. Advertiser will generally promote
through the Affiliated Advertiser Site any special or promotional
offers made available by or on behalf of Advertiser through any other
distribution channels. In addition, Advertiser shall promote through
the Affiliated Advertiser Site on a regular and consistent basis,
special offers exclusively available to AOL Users (the "AOL Special
Offers"). AOL Special Offers made available by Advertiser shall provide
a substantial benefit to AOL users, either by virtue of a meaningful
price discount, product enhancement, unique service benefit or other
special feature. Advertiser will provide AOL with reasonable prior
notice of AOL Special Offers so that AOL can market the availability of
such AOL Special Offers in the manner AOL deems appropriate in its
editorial discretion.
7. AOL QUICK CHECKOUT AND AOL PRODUCT SEARCH. Advertiser will take all
reasonable steps necessary to conform its promotion and sale of
products through the Affiliated Advertiser Site to the then-existing
commerce technologies made available to Advertiser by AOL, including
without limitation AOL's "quick checkout" tool which allows AOL users
to enter payment and shipping information which is then passed from
AOL's centralized server unit to Advertiser for order fulfillment ("AOL
Quick Checkout") and AOL's "product search" tool technology which
allows AOL Users to run a customized search among Advertiser's detailed
inventory data ("AOL Product Search"); provided however that in the
event that Advertiser declines participation in these programs then AOL
reserves the right to reduce or prohibit Advertiser's participation in
any other incremental merchandising programs offered through the
Shopping Channel. At Advertiser's request, .AOL will make all
reasonable efforts to provide the tools for the Advertiser (i) to
enable the Affiliated Advertiser Site with the AOL Quick Checkout
technology and functionality and (ii) to allow integration of
Advertiser's detailed inventory data into AOL's Search Product
database. Collection, storage and disclosure of AOL Quick Checkout
information which Advertiser provides to AOL, will be subject to AOL's
privacy policy and all confidentiality requirements hereunder. To the
extent that the Affiliated Advertiser Site includes AOL's Quick
Checkout, [******].
8. MERCHANT CERTIFICATION PROGRAM. Advertiser will participate in any
generally applicable "Certified Merchant" program operated by AOL or
its authorized agents or contractors. Such program may require
Advertiser participants on the Shopping Channel on an ongoing basis to
meet certain reasonable standards relating to provision of electronic
commerce through the AOL Service, AOL.com, Digital City, Netcenter and
CompuServe and may also require the payment of certain reasonable
certification fees to AOL or its authorized agents or contractors
operating the program.
9. BIZRATE SURVEY. At Advertiser's option, Advertiser may (i) participate
in the BizRate Program, a service offered by Binary Compass
Enterprises, Inc. (BCE), which provides opt-in satisfaction surveys to
Users who purchase Products through Affiliated Advertiser Site, or such
other provider of such services as AOL may designate or approve from
time to time, and (ii) provide a link to BizRate's then-current
standard survey forms, or such other survey forms offered by any other
party that AOL may reasonably designate or approve from time to time.
To the extent Advertiser participates in the BizRate Program,
Advertiser's participation shall be based upon a separate written
agreement which Advertiser will enter into with BCE, or other such
party reasonably designated or approved by AOL. Advertiser hereby
authorizes BCE to provide to AOL any and all reports provided to
Advertiser by BCE, or other third party providing such services, and
agrees to provide written notice of such authorization to BCE, or such
other third party.
10. REPORTS TO AOL. Advertiser will provide AOL with monthly reports, in a
form reasonably
<PAGE> 10
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
satisfactory to AOL, which detail the number of orders and gross sales
through the Advertiser Site on the AOL Service, AOL.com, Digital City,
CompuServe and Netcenter (as applicable).
11. SOLICITATION OF AOL USERS. During the term of the Agreement and for a
two year period thereafter, Advertiser will not use the AOL Network
(including, without limitation, the e-mail network contained therein)
to solicit AOL Users on behalf of another Interactive Service. More
generally, Advertiser will not send unsolicited, commercial e-mail
(i.e., "spam") through or into AOL's products or services, absent a
Prior Business Relationship. For purposes of this Agreement, a "Prior
Business Relationship" will mean that the AOL User to whom commercial
e-mail is being sent has voluntarily either (i) engaged in a
transaction with Advertiser or (ii) provided information to Advertiser
through a contest, registration, or other communication, which included
clear notice to the AOL User that the information provided could result
in commercial e-mail being sent to that AOL User by Advertiser or its
agents. Any commercial e-mail communications to AOL Users which are
otherwise permitted hereunder, will (a) include a prominent and easy
means to "opt-out" of receiving any future commercial e-mail
communications from Advertiser, and (b) shall also be subject to AOL's
then-standard restrictions on distribution of bulk e-mail (e.g.,
related to the time and manner in which such e-mail can be distributed
through or into the AOL product or service in question).
12. COLLECTION AND USE OF USER INFORMATION. Advertiser shall ensure that
its collection, use and disclosure of information obtained from AOL
Users under this Agreement ("Member Information") complies with (i) all
applicable laws and regulations and (ii) AOL's standard privacy
policies, available on the AOL Service at the keyword term "Privacy"
(or, in the case of the Affiliated Advertiser Site, Advertiser's
standard privacy policies so long as such policies are prominently
published on the site and provide adequate notice, disclosure and
choice to users regarding Advertiser's collection, use and disclosure
of user information). Advertiser will not disclose Member Information
collected hereunder to any third party in a manner that identifies AOL
Users as end users of an AOL product or service or use Member
Information collected under this Agreement to market another
Interactive Service.
13. AOL LOOK AND FEEL. Advertiser acknowledges and agrees that AOL will own
all right, title and interest in and to the AOL Look and Feel (subject
only to Advertiser's ownership rights in any Advertiser trademarks or
copyrighted material within the Affiliated Advertiser Site).
14. MANAGEMENT OF THE AFFILIATED ADVERTISER SITE. Advertiser will manage,
review, delete, edit, create, update and otherwise manage all Content
available on or through the Affiliated Advertiser Site, in a timely and
professional manner and in accordance with the terms of this Agreement.
Advertiser will ensure that the Affiliated Advertiser Site is current,
accurate and well-organized at all times. Advertiser represents and
warrants that the Licensed Content: (i) does not and will not infringe
on or violate any copyright, trademark, U.S. patent or any other third
party right; (ii) does not and will not violate AOL's then-applicable
Terms of Service; and (iii) does not and will not violate any
applicable law or regulation (federal, state, or otherwise), including
without limitation those relating to taxes, advertising, or contests,
sweepstakes or similar promotions. Additionally, Advertiser represents
and warrants that it owns or has a valid license to all rights to any
Licensed Content used in AOL "slideshow" or other formats embodying
elements such as graphics, animation and sound, free and clear of all
encumbrances and without violating the rights of any other person or
entity. Advertiser also warrants that a reasonable basis exists for all
Product performance or comparison claims appearing through the
Affiliated Advertiser Site. Advertiser shall not in any manner,
including, without limitation in any Advertisement, the Licensed
Content, or any Materials (defined below), state or imply that AOL
recommends or endorses Advertiser or Advertiser's Services (e.g., no
statements that Advertiser is an "official" or "preferred" provider of
products or services for AOL). AOL will have no obligations with
respect to the Products available on or through the Affiliated
Advertiser Site, including, but not limited to, any duty to review or
monitor any such Products.
15. DUTY TO INFORM. Advertiser will promptly inform AOL of any information
related to the Affiliated Advertiser Site which could reasonably lead
to a claim, demand, or liability of or against AOL and/or its
affiliates by any third party.
<PAGE> 11
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
16. PROMOTIONAL MATERIALS/PRESS RELEASES. Each Party will submit to the
other Party, for its prior written approval, which will not be
unreasonably withheld or delayed, any marketing, advertising, press
releases, and all other promotional materials related to the Affiliated
Advertiser Site and/or referencing the other Party and/or its trade
names, trademarks, and service marks (the "Materials"); provided,
however, that either Party's use of screen shots of the Affiliated
Advertiser Site for promotional purposes will not require the approval
of the other Party so long as America Online(R) is clearly identified
as the source of such screen shots; and provided further, however,
that, following the initial public announcement of the business
relationship between the Parties in accordance with the approval and
other requirements contained herein, either Party's subsequent factual
reference to the existence of a business relationship between the
Parties will not require the approval of the other Party. Each Party
will solicit and reasonably consider the views of the other Party in
designing and implementing such Materials. Once approved, the Materials
may be used by a Party and its affiliates for the purpose of promoting
the Affiliated Advertiser Site and the content contained therein and
reused for such purpose until such approval is withdrawn with
reasonable prior notice. In the event such approval is withdrawn,
existing inventories of Materials may be depleted. Notwithstanding the
foregoing, either Party may issue press releases and other disclosures
as required by law or as reasonably advised by legal counsel without
the consent of the other Party and in such event, the disclosing Party
will provide at least five (5) business days prior written notice of
such disclosure.
17. AUDITING RIGHTS. Advertiser will maintain complete, clear and accurate
records of all expenses, revenues and fees in connection with the
performance of this Insertion Order Agreement. For the sole purpose of
ensuring compliance with this Insertion Order Agreement, AOL (or its
representative) will have the right to conduct a reasonable and
necessary inspection of portions of the books and records of Advertiser
which are relevant to Advertiser's performance pursuant to this
Insertion Order Agreement. Any such audit may be conducted after twenty
(20) business days prior written notice to Advertiser. AOL shall bear
the expense of any audit conducted pursuant to this Section 17 unless
such audit shows an error in AOL's favor amounting to a deficiency to
AOL in excess of five percent (5%) of the actual amounts paid and/or
payable to AOL hereunder, in which event Advertiser shall bear the
reasonable expenses of the audit. Advertiser shall pay AOL the amount
of any deficiency discovered by AOL within thirty (30) days after
receipt of notice thereof from AOL.
18. TAXES. Advertiser will collect and pay and indemnify and hold AOL
harmless from, any sales, use, excise, import or export value added or
similar tax or duty not based on AOL's net income, including any
penalties and interest, as well as any costs associated with the
collection or withholding thereof, including attorneys' fees.
19. SALES REPORTS. Advertiser will provide AOL in an automated manner with
a monthly report in an AOL-designated format, detailing the following
activity in such period (and any other information mutually agreed upon
by the parties or reasonably required for measuring revenue activity by
Advertiser through the Affiliated Advertiser Site): (i) monthly sales
summary information setting forth the total number of orders and total
Transaction Revenues; and (ii)information sufficient to decipher repeat
consumption, to the extent technically feasible (the information in
clauses (i) and (ii), "Sales Reports"). More generally, each payment to
be made by Advertiser pursuant to the revenue sharing provisions
hereof, will be accompanied by a report containing information which
supports the payment, including information identifying (i) gross
Transaction Revenues and all items deducted or excluded from gross
Transaction Revenues to produce Transaction Revenues and (ii) any
applicable Advertising Revenues.
20. COMMUNITY, CHAT, MESSAGE BOARD FUNCTIONALITY. Advertiser agrees that
any chat, instant messaging, bulletin board and other community
functionality to be integrated into the Affiliated Advertiser Site
shall be provided by AOL and shall be for use only by AOL Members. In
the event that Advertiser wishes to include any "component" product
(e.g., message boards, community chat, instant messaging functionality)
in the Affiliated Advertiser Site for which AOL (or any of its
affiliates) provides a comparable tool or functionality, AOL and
Advertiser shall discuss the terms for integrating such AOL (or AOL
affiliate) component product into the Affiliated Advertiser Site. In
the event that AOL and Advertiser cannot agree to such terms with
respect to any component product(s), Advertiser may provide such
component product(s) on the Affiliated Advertiser Site
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
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provided that (i) such third-party component product is being provided
to Advertiser on substantially more favorable terms than AOL offered to
provide the same component product and (ii) such component product is
not provided by any Interactive Service.
21. KEYWORD SEARCH TERMS. So long as Advertiser is in compliance with the
terms of this Agreement and subject to AOL policies regarding the use
of Keyword Search Terms, (i) Advertiser shall receive the Keyword
Search Term "VitaminShoppe", (ii) provided Advertiser is the registered
owner of the URL www.vitaminshop.com (i.e., has and maintains the
necessary registration with the appropriate internet address domain
name registration entity), Advertiser shall receive the Keyword Search
Term "vitaminshop.com", and (iii) AOL shall not provide the Keyword
Search Term "vitaminshop" to any third party (provided that no third
party claims any, trademark or service mark rights in such term. In the
event AOL elects to provide the Keyword Search Term "vitaminshop" for a
health-related area that is related to the Advertiser Products on the
AOL Service, AOL will include a placement of Advertiser in such area in
a manner to be determined in AOL's reasonable good faith discretion.
Any Keyword Search Terms to be directed to the Affiliated Advertiser
Site shall be (i) subject to availability for use by Advertiser and
(ii) limited to the combination of the Keyword search modifier combined
with a registered trademark of Advertiser. AOL reserves the right to
revoke at any time Advertiser's use of any Keyword Search Terms which
do not incorporate registered trademarks of Advertiser. Advertiser
acknowledges that its utilization of a Keyword Search Term will not
create in it, nor will it represent it has, any right, title or
interest in or to such Keyword Search Term, other than the right, title
and interest Advertiser holds in Advertiser's registered trademark
independent of the Keyword Search Term. Without limiting the generality
of the foregoing, Advertiser will not: (a) attempt to register or
otherwise obtain trademark or copyright protection in the Keyword
Search Term; or (b) use the Keyword Search Term, except for the
purposes expressly required or permitted under this Agreement. To the
extent AOL allows AOL Users to "bookmark" the URL or other locator for
the Affiliated Advertiser Site, such bookmarks will be subject to AOL's
control at all times. Upon the termination of this Agreement,
Advertiser's rights to any Keyword Search Terms and bookmarking will
terminate.
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
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EXHIBIT B
DEFINITIONS
AD PROGRAM. "Ad Program" shall have the meaning set forth in Section 2 of
Exhibit A.
ADVERTISER PRODUCTS. "Advertiser Products" shall have the meaning set forth in
Section 1 of Exhibit A.
AFFILIATED ADVERTISER SITE. The specific area to be promoted and distributed by
AOL hereunder through which Advertiser can market and complete transactions
regarding its permitted Services.
AOL LOOK AND FEEL. The elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with interactive
sites within the AOL Network.
AOL MEMBER. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL NETWORK. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe, (iv) Digital
City, (v) MovieFone, (vi) Netcenter, and (vii) any other product or service
owned, operated, distributed or authorized to be distributed by or through AOL
or its affiliates worldwide (and including those properties excluded from the
definitions of the AOL Service or AOL.com). It is understood and agreed that the
rights of Advertiser as set forth herein relate only to the AOL Service,
AOL.com, Netcenter and the CompuServe Service, each as and to the extent
applicable hereunder, and not generally to the AOL Network.
AOL PURCHASER. Any person or entity who enters the Affiliated Advertiser Site
from the AOL Network including, without limitation, from any third party area
therein (to the extent entry from such third party area is traceable through
both Parties' commercially reasonable efforts), and generates Transaction
Revenues (regardless of whether such person or entity provides an e-mail address
during registration or entrance to the Affiliated Advertiser Site which includes
a domain other than an "AOL.com" domain) provided that any person or entity who
has previously satisfied the definition of AOL Purchaser will remain an AOL
Purchaser, and any subsequent purchases by such person or entity (e.g., as a
result of e-mail solicitations or any off-line means for receiving orders
requiring purchasers to reference a specific promotional identifier or tracking
code) will also give rise to Transaction Revenues hereunder (and will not be
conditioned on the person or entity's satisfaction of clauses (i) or (ii)
above).
AOL QUICK CHECKOUT. "AOL Quick Checkout" shall have the meaning set forth in
Section 7 of Exhibit A.
AOL SERVICE. The standard narrow-band U.S. version of the America Online brand
service, specifically excluding (a) AOL.com, Netcenter or any other AOL
Interactive Site, (b) the international versions of an America Online service
(e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe
products or services (d) "Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans",
"Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by, through or
with the U.S. version of the America Online brand service, (e) any programming
or Content area offered by or through the U.S. version of the America Online
brand service over which AOL does not exercise complete operational control
(including, without limitation, Content areas controlled by other parties and
member-created Content areas), (f) any yellow pages, white pages, classifieds or
other search, directory or review services or Content offered by or through the
U.S. version of the America Online brand service, (g) any property, feature,
product or service which AOL or its affiliates may acquire subsequent to the
Effective Date and (h) any other version of an America Online service which is
materially different from the standard narrow-band U.S. version of the America
Online brand service, by virtue of its branding, distribution, functionality,
Content or services, including, without limitation, any co-branded version of
the service or any version distributed through any broadband distribution
platform or through any platform or device other than a desktop personal
computer.
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
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AOL SPECIAL OFFERS. "AOL Special Offers" shall have the meaning set forth in
Section 8 of Exhibit A.
AOL USER. Any user of the AOL Service, AOL.com, CompuServe, Digital City,
Netcenter or the AOL Network.
AOL.COM. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) Netcenter,
(c) any international versions of such site, (d) "ICQ," "AOL NetFind(TM)," "AOL
Instant Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My News" or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (e) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any programming or Content area offered by or through such
site which was operated, maintained or controlled by the former AOL Studios
division (e.g., Electra), (g) any yellow pages, white pages, classifieds or
other search, directory or review services or Content offered by or through such
site or any other AOL Interactive Site, (h) any property, feature, product or
service which AOL or its affiliates may acquire subsequent to the Effective Date
and (i) any other version of an America Online Interactive Site which is
materially different from AOL's primary Internet-based Interactive Site marketed
under the "AOL.COM(TM)" brand, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any
co-branded versions or any version distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer.
ADVERTISER INTERACTIVE SITE. Any Interactive Site (other than the Affiliated
Advertiser Site) which is managed, maintained, owned or controlled by Advertiser
or its agents.
COMPUSERVE. The standard, narrow-band U.S. version of the CompuServe brand
service, specifically excluding (a) any international versions of such service,
(b) any web-based service including "compuserve.com", "cserve.com" and "cs.com",
or any similar product or service offered by or through the U.S. version of the
CompuServe brand service, (c) Content areas owned, maintained or controlled by
CompuServe affiliates or any similar "sub-service," (d) any programming or
Content area offered by or through the U.S. version of the CompuServe brand
service over which CompuServe does not exercise complete or substantially
complete operational control (e.g., third-party Content areas), (e) any yellow
pages, white pages, classifieds or other search, directory or review services or
Content and (f) any co-branded or private label branded version of the U.S.
version of the CompuServe brand service, (g) any version of the U.S. version of
the CompuServe brand service which offers Content, distribution, services and/or
functionality materially different from the Content, distribution, services
and/or functionality associated with the standard, narrow-band U.S. version of
the CompuServe brand service, including, without limitation, any version of such
service distributed through any platform or device other than a desktop personal
computer and (h) any property, feature, product or service which CompuServe or
its affiliates may acquire subsequent to the Effective Date.
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course
of the Agreement, which is or should be reasonably understood to be confidential
or proprietary to the disclosing Party, including, but not limited to, the
material terms of this Agreement, information about AOL Members, AOL Users, AOL
Purchasers and Advertiser customers, technical processes and formulas, source
codes, product designs, sales, cost and other unpublished financial information,
product and business plans, projections, and marketing data. "Confidential
Information" will not include information (a) already lawfully known to or
independently developed by the receiving Party, (b) disclosed in published
materials, (c) generally known to the public, or (d) lawfully obtained from any
third party.
CONTENT. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Services,
advertisements, promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
CONTINUED LINK. "Continued Link" shall have the meaning set forth in Section 5
of Exhibit A.
CUSTOMERS. "Customers" shall have the meaning set forth in Section 3.c of
Exhibit A.
DIGITAL CITY. The standard, narrow-band U.S. version of Digital City's local
content offerings marketed under the Digital City(R) brand name, specifically
excluding (a) the AOL Service, AOL.com, Netcenter, or any
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other AOL Interactive Site, (b) any international versions of such local content
offerings, (c) the CompuServe(R) brand service and any other CompuServe products
or services (d) "Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans",
"Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by, through or
with the standard narrow band version of Digital City's local content offerings,
(e) any programming or Content area offered by or through such local content
offerings over which AOL does not exercise complete operational control
(including, without limitation, Content areas controlled by other parties and
member-created Content areas), (f) any yellow pages, white pages, classifieds or
other search, directory or review services or Content offered by or through such
local content offerings, (g) any property, feature, product or service which AOL
or its affiliates may acquire subsequent to the Effective Date, (h) any other
version of a Digital City local content offering which is materially different
from the narrow-band U.S. version of Digital City's local content offerings
marketed under the Digital City brand name, by virtue of its branding,
distribution, functionality, Content or services, including, without limitation,
any co-branded version of the offerings or any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer, and (i) Digital City-branded offerings in any local
area where such offerings are not owned or operationally controlled by America
Online, Inc. or DCI (e.g., Chicago, Orlando, South Florida, and Hampton Roads).
EFFECTIVE DATE. [*****]
GROSS MARGIN. [*****]
IMPRESSION. User exposure to the applicable Promotion, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
INITIAL TERM. "Initial Term" shall have the meaning set forth in Section 4 of
Exhibit A.
INTERACTIVE SERVICE. An entity offering one or more of the following: (i) online
or Internet connectivity services (e.g., an Internet service provider); (ii) an
interactive site or service featuring a broad selection of aggregated third
party interactive content (or navigation thereto) (e.g., an online service or
search and directory service) and/or marketing a broad selection of products
and/or services across numerous interactive commerce categories (e.g., an online
mall or other leading online commerce site); and (iii) communications software
capable of serving as the principal means through which a user creates, sends
and receives electronic mail or real time online messages.
INTERACTIVE SITE. Any interactive site or area, including, by way of example and
without limitation, (i) an Advertiser site on the World Wide Web portion of the
Internet or (ii) a channel or area delivered through a "push" product such as
the Pointcast Network, interactive environment such as Microsoft's Active
Desktop or interactive television service such as WebTV.
KEYWORD SEARCH TERMS. The Keyword online search terms made available on the AOL
Service for use by AOL Members, which is the combination of AOL's Keyword online
search modifier (i.e., "Keyword:") with a term or phrase specifically related to
Advertiser (and determined in accordance with the terms of this Agreement).
LICENSED CONTENT. All Content offered through the Affiliated Advertiser Site
pursuant to this Agreement or otherwise provided by Advertiser or its agents in
connection herewith (e.g., offline or online promotional Content, Promotions,
AOL "slideshows" , etc.), including in each case, any modifications, upgrades,
updates, enhancements, and related documentation.
MATERIALS. "Materials" shall have the meaning set forth in Section 16 of Exhibit
A.
MEMBER INFORMATION. "Member Information" shall have the meaning set forth in
Section 12 of Exhibit A.
NETCENTER. Netscape Communications Corporation's primary Internet-based
Interactive Site marketed under the "Netscape Netcenter" brand, specifically
excluding (a) the AOL Service, (b) AOL.com, (c) any
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international versions of such site, (d) "ICQ," "AOL Netfind," "AOL Instant
Messenger," "NetMail," "AOL Hometown," "My News," "Digital City," or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (e) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any programming or Content area offered by or through the
U.S. version of the America Online brand service which was operated, maintained
or controlled by the former AOL Studios division (e.g., Electra), (g) any yellow
pages, white pages, classifieds or other search, directory or review services or
Content offered by or through such site or any other AOL Interactive Site, (h)
any property, feature, product or service which AOL or its affiliates may
acquire subsequent to the Effective Date and (i) any other version of an AOL or
Netscape Communications Corporation Interactive Site which is materially
different from Netscape Communications Corporation's primary Internet-based
Interactive Site marketed under the "Netscape Netcenter" brand, by virtue of its
branding, distribution, functionality, Content or services, including, without
limitation, any co-branded versions and any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer (e.g. Custom NetCenters built specifically for third
parties).
PRIOR BUSINESS RELATIONSHIP. "Prior Business Relationship" shall have the
meaning set forth in Section 12 of Exhibit A.
SEARCH TERM or SEARCH TERM. The online search term or terms made available on
AOL.com only for use by AOL.com users using the NetFind brand search engine
thereon (the results of which such search are non-exclusive, and result in
references to many entities).
SELECT INTERNATIONAL COUNTRIES. "Select International Countries" shall have the
meaning set forth in Section 3.d of this Agreement.
SHORTFALL. "Shortfall" shall have the meaning set forth in Section 2 of the main
text of this Agreement.
STANDARD TERMS. "Standard Terms" shall have the meaning set forth in Section 4
of the main text of this Agreement.
TRANSACTION REVENUES. Aggregate amounts paid by AOL Purchasers in connection
with the sale, licensing, distribution or provision of any Products in any
Advertiser Interactive Site, excluding, in each case, (a) handling, shipping,
service charges (to the extent not a profit center and actually paid to a third
party), (b) amounts collected for sales or use taxes or duties and (c) credits
and chargebacks for returned or canceled goods or services, but not excluding
cost of goods sold or any similar cost.
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EXHIBIT C
OPERATIONS
1. Affiliated Advertiser Site Infrastructure. Advertiser will be
responsible for all communications, hosting and connectivity costs and
expenses associated with the Affiliated Advertiser Site. Advertiser
will provide all hardware, software, telecommunications lines and other
infrastructure necessary to meet traffic demands on the Affiliated
Advertiser Site from the AOL Network. Advertiser will design and
implement the network between the AOL Service and Affiliated Advertiser
Site such that (i) no single component failure will have a materially
adverse impact on AOL Members seeking to reach the Affiliated
Advertiser Site from the AOL Network and (ii) no single line will run
at more than 70% average utilization for a 5-minute peak in a daily
period. In this regard, Advertiser will provide AOL, upon request, with
a detailed network diagram regarding the network infrastructure
supporting the Affiliated Advertiser Site. In the event that Advertiser
elects to create a custom version of the Affiliated Advertiser Site in
order to comply with the terms of this Agreement, Advertiser will bear
responsibility for all aspects of the implementation, management and
cost of such customized site.
2. Optimization; Speed. Advertiser will use commercially reasonable
efforts to ensure that: (a) the functionality and features within the
Affiliated Advertiser Site are optimized for the client software then
in use by AOL Members; and (b) the Affiliated Advertiser Site is
designed and populated in a manner that minimizes delays when AOL
Members attempt to access such site. At a minimum, Advertiser will
ensure that the Affiliated Advertiser Site's data transfers initiate
within fewer than fifteen (15) seconds on average. Prior to commercial
launch of any material promotions described herein, Advertiser will
permit AOL to conduct performance and load testing of the Affiliated
Advertiser Site (in person or through remote communications), with such
commercial launch not to commence until such time as AOL is reasonably
satisfied with the results of any such testing.
3. User Interface. Advertiser will maintain a graphical user interface
within the Affiliated Advertiser Site that is competitive in all
material respects with interfaces of other similar sites based on
similar form technology. AOL reserves the right to review and approve
the user interface and site design prior to launch of the Promotions
and to conduct focus group testing to assess compliance with respect to
such consultation and with respect to Advertiser's compliance with the
preceding sentence.
4. Technical Problems. Advertiser agrees to use commercially reasonable
efforts to address material technical problems (over which Advertiser
exercises control) affecting use by AOL Members of the Affiliated
Advertiser Site (a "Advertiser Technical Problem") promptly following
notice thereof. In the event that Advertiser is unable to promptly
resolve a Advertiser Technical Problem following notice thereof from
AOL (including, without limitation, infrastructure deficiencies
producing user delays), AOL will have the right to regulate the
promotions it provides to Advertiser hereunder until such time as
Advertiser corrects the Advertiser Technical Problem at issue.
5. Monitoring. Advertiser will ensure that the performance and
availability of the Affiliated Advertiser Site is monitored on a
continuous basis. Advertiser will provide AOL with contact information
(including e-mail, phone, pager and fax information, as applicable, for
both during and after business hours) for Advertiser's principal
business and technical representatives, for use in cases when issues or
problems arise with respect to the Affiliated Advertiser Site.
6. Telecommunications. The Parties agree to explore encryption methodology
to secure data communications between the Parties' data centers. The
network between the Parties will be configured such that no single
component failure will significantly impact AOL Users. The network will
be sized such that no single line runs at more than 70% average
utilization for a 5-minute peak in a daily period.
7. Security. Advertiser will utilize Internet standard encryption
technologies (e.g., Secure Socket Layer - SSL) to provide a secure
environment for conducting transactions and/or transferring private
member information (e.g. credit card numbers, banking/financial
information, and member address information) to and from the Affiliated
Advertiser Site. Advertiser will facilitate periodic reviews of the
Affiliated Advertiser Site by AOL in order to evaluate
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the security risks of such site. Advertiser will promptly remedy any
security risks or breaches of security as may be identified by AOL's
Operations Security team.
8. Technical Performance.
i. Advertiser will design the Affiliated Advertiser Site to support the
AOL-client embedded versions of the Microsoft Internet Explorer 4.0
browser (Windows and Macintosh) (provided that upon identifying any AOL
User using version 3.0 of such browser, Advertiser shall direct any
such AOL User to update such AOL User's browser, , and make
commercially reasonable efforts to support all other AOL browsers
listed at: "http://webmaster.info.aol.com/BrowTable.html."
ii. To the extent Advertiser creates customized pages on the Affiliated
Advertiser Site for AOL Members, Advertiser will configure the server
from which it serves the site to examine the HTTP User-Agent field in
order to identify the "AOL Member-Agents" listed at: "http://webmaster.
info.aol.com/Brow2Text.html."
iii. Advertiser will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
iv. Advertiser will design its site to support HTTP 1.0 or later protocol
as defined in RFC 1945 and to adhere to AOL's parameters for refreshing
cached information listed at http://webmaster.info.aol.com.
v. Prior to releasing material, new functionality or features through the
Affiliated Advertiser Site ("New Functionality"), Advertiser will use
commercially reasonable efforts to either (i) test the New
Functionality to confirm its compatibility with AOL Service client
software or (ii) provide AOL with written notice of the New
Functionality so that AOL can perform tests of the New Functionality to
confirm its compatibility with the AOL Service client software.
9. AOL Internet Services Advertiser Support. AOL will provide Advertiser
with access to the standard online resources, standards and guidelines
documentation, technical phone support, monitoring and after-hours
assistance that AOL makes generally available to similarly situated
web-based partners. AOL support will not, in any case, be involved with
content creation on behalf of Advertiser or support for any
technologies, databases, software or other applications which are not
supported by AOL or are related to any Advertiser area other than the
Affiliated Advertiser Site. Support to be provided by AOL is contingent
on Advertiser providing to AOL demo account information (where
applicable), a detailed description of the Affiliated Advertiser Site's
software, hardware and network architecture and access to the
Affiliated Advertiser Site for purposes of such performance and load
testing as AOL elects to conduct.
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EXHIBIT D
CROSS-PROMOTION
1. Online. Within Advertiser's web sites on the World Wide Web portion of
the Internet (each an "Advertiser Web Site"), Advertiser shall include
the following (collectively, the "AOL Promos"): (i) a prominent
promotional banner or button (at least 90 x 30 pixels or 70 x 70 pixels
in size) appearing "below the fold" on the first screen of the
Advertiser Web Site (and at Advertiser's discretion, above the fold on
any other screen therein), to promote such AOL products or services as
AOL may designate (for example, the America Online brand service, the
CompuServe brand service, the AOL.com site, any of the Digital City
services or the AOL Instant Messenger service); or (ii) a prominent
"Try AOL" feature (at least 90 x 30 pixels or 70 x 70 pixels in size)
through which users can obtain promotional information about AOL
products or services designated by AOL and, at AOL's option, download
or order the then-current version of client software for such AOL
products or services. AOL will provide the creative content to be used
in the AOL Promos (including designation of links from such content to
other content pages). Advertiser shall post (or update, as the case may
be) the creative content supplied by AOL within the spaces for the AOL
Promos within five days of its receipt of such content from AOL.
Without limiting any other reporting obligations of the Parties
contained herein, Advertiser shall provide AOL with monthly written
reports specifying the number of impressions to the pages containing
the AOL Promos during the prior month. In the event that AOL elects to
serve the AOL Promos to the Advertiser Web Site from an ad server
controlled by AOL or its agent, Advertiser shall take all reasonable
operational steps necessary to facilitate such ad serving arrangement
including, without limitation, inserting HTML code designated by AOL on
the pages of the Advertiser Web Site on which the AOL Promos will
appear. In addition, within each Advertiser Web Site, Advertiser shall
provide prominent promotion for the keywords granted to Advertiser
hereunder (if any).
2. Offline. In Advertiser's television, radio, print and "out of home"
(e.g., buses and billboards) advertisements and in any publications,
programs, features or other forms of media over which Advertiser
exercises at least partial editorial control, Advertiser will include
specific references or mentions (verbally where possible) of the
availability of the Affiliated Advertiser Site through the AOL Service,
which are at least as prominent as any references that Advertiser makes
to any Advertiser Web Site (by way of site name, related company name,
URL or otherwise); provided, that in any advertiser catalogue, (i)
Advertiser shall use commercially reasonable efforts to include any
Keyword Search Term granted to Advertiser hereunder alongside the
Advertiser URL on the front cover of such catalogue and (ii) any such
AOL Keyword Search Term shall also appear prominently within other
areas of the catalogue itself (e.g., in inserts, order forms,
fold-outs, any areas where the Advertiser URL is prominently displayed,
etc.). Without limiting the generality of the foregoing, Advertiser's
listing of the "URL" for any Advertiser Web Site will be accompanied by
an equally prominent listing of the "keyword" term on AOL for the
Affiliated Advertiser Site. Advertiser will not implement or authorize
any promotion similar in any respect (including, without limitation, in
scope, purpose, amount, prominence or regularity) to the promotion
required or provided pursuant to this Agreement for any other entity
reasonably construed to be competitive to AOL.
<PAGE> 20
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
EXHIBIT E
CARRIAGE PLAN
CLIENT: VITAMINSHOPPE
FLIGHT: [*****]-[*****]
<TABLE>
<CAPTION>
AOL SERVICE FLIGHTS YEAR [*****] YEAR [*****] TARGET
COPY SIZE START END TARGET IMPS TARGET IMPS IMPS
--------- ----- --- ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Alternative Medicine Tip (100% 234x60/ [*****] [*****]
button and banner) 100x70 [*****] [*****] [*****]
Simply Fit Sponsorship 234x60 [*****] [*****]
[*****] [*****] [*****]
Women's Wellness Main Screen 234x60 [*****] [*****]
[*****] [*****] [*****]
Women in their 30s (9/1/99-12/31/99) 234x60 [*****] [*****]
[*****] [*****] [*****]
Premium Alternative Medicine Package 234x60 [*****] [*****]
[*****] [*****] [*****]
Premium Diet Package 234x60 [*****] [*****]
[*****] [*****] [*****]
Premium Fitness Package 234x60 [*****] [*****]
[*****] [*****] [*****]
General Health 234x60 [*****] [*****]
[*****] [*****] [*****]
Run of Service--demo target 234x60 [*****] [*****]
W25-54 [*****] [*****] [*****]
Email--demo target W25-54 175x45 [*****] [*****]
health/running/jogging/walking [*****] [*****] [*****]
Email--demo target Men 18-49 175x45 [*****] [*****]
physical fitness/exercise [*****] [*****] [*****]
People Connection--Gay and Lesbian 175x45 [*****] [*****]
[*****] [*****] [*****]
Wellness Center Placement 175x45 [*****] [*****]
[*****] [*****] [*****]
[*****] [*****] [*****]
</TABLE>
<TABLE>
<CAPTION>
AOL.COM FLIGHTS YEAR [*****] YEAR [*****] TARGET
COPY SIZE START END IMPS/[*****] IMPS/[*****] IMPS
--------- ----- --- ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Premium Health search terms package 468x60 [*****] [*****]
[*****] [*****] [*****]
Health Search terms ROS package 468x60 [*****] [*****]
[*****] [*****] [*****]
Contextual Link integration in Diet [*****] [*****]
& Nutrition (100% placement) [*****] [*****] [*****]
Sponsorship Button in Diet & 88x31 [******] [******]
Nutrition [******] [******] [******]
</TABLE>
<PAGE> 21
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
General Health Rotation 468x60 [******] [******]
[******] [******] [******]
Netfind Home Page 120x60 [******] [******]
[******] [******] [******]
Netfind ROS 468x60 [******] [******]
[******] [******] [******]
-------- -------- --------
[******] [******] [******]
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
NETSCAPE NETCENTER FLIGHTS YEAR [*****] YEAR [*****] TARGET
COPY SIZE START END IMPS/[*****] IMPS/[*****] IMPS
--------- ----- --- ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Contextual Link integration in Diet 29 char [******] [******]
& Nutrition [******] [******] [******]
Contextual Link integration in 29 char [******] [******]
Fitness & Exercise [******] [******] [******]
Sponsor Button in Alternative 141x60 [******] [******]
Medicine [******] [******] [******]
Sponsor Button in Diet & Nutrition 141x60 [******] [******]
[******] [******] [******]
Sponsor Button in Fitness and 141x60 [******] [******]
Exercise [******] [******] [******]
Online Pharmacy Placement: Vitamin, [******] [******]
Mineral, & Supplement [******] [******] [******]
Netcenter ROS 468x60 [******] [******]
[******] [******] [******]
Netcenter Run of Health 468x60 [******] [******]
[******] [******] [******]
-------- -------- --------
[******] [******] [******]
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
PARTNER FLIGHTS YEAR [*****] YEAR [*****] TARGET
COPY SIZE START END IMPS/[*****] IMPS/[*****] IMPS
--------- ----- --- ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Run of Oxygen [******] [******]
[******] [******] [******]
Dr. Koop -- Fitness Center (AOL [******] [******]
affiliate site) [******] [******] [******]
ROS Dr.Koop [******] [******]
[******] [******] [******]
Oxygen -- Thrive [******] [******]
[******] [******] [******]
-------- -------- --------
[******] [******] [******]
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
SHOP @ AOL FLIGHTS YEAR [*****] YEAR [*****] TARGET
COPY SIZE START END IMPS/[*****] IMPS/[*****] IMPS
--------- ----- --- ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Diet and Nutrition--ANCHOR [******] [******]
[******] [******] [******]
Drugstore and Pharmacy--GOLD [******] [******] [******]
[******] [******] [******]
Sports and Fitness--GOLD [******] [******]
[******] [******] [******]
[******] [******] [******]
TOTALS [******] [******] [******]
-------- -------- --------
</TABLE>
<PAGE> 1
EXHIBIT 10.46
VitaminShoppe.com, Inc.
Amendment No. 1 to the
Series A Convertible Preferred Stock Purchase Warrant No. A-1
This Amendment, dated as of September 22, 1999, amends the Series A
Convertible Preferred Stock Purchase Warrant No. A-1 (the "Warrant"), issued to
Thomas Weisel Partners LLC ("Thomas Weisel") by VitaminShoppe.com, Inc., a
Delaware corporation (the "Company"), on July 27, 1999, as set forth below:
1. Upon the closing of the Company's initial public offering pursuant to
its Registration Statement on Form S-1 (File No. 333-83849) (the "Offering"),
the Purchase Price for each share of Class A Common Stock then purchasable upon
exercise of the Warrant shall be the greater of (i) the Purchase Price
immediately prior to the closing of the Offering and (ii) the initial public
offering price of the Offering, subject to such further adjustments from time
to time pursuant to the provisions of the Warrant.
2. The Registered Holder agrees that it will not sell, transfer, assign,
pledge or hypothecate the Warrant or any shares of Capital Stock purchased
thereunder for a period of one year from the effective date of the Offering;
provided, however, that the Warrant or any shares of Capital Stock purchased
thereunder may be transferred to any member of the NASD participating in the
Offering as well as to any bona fide officers or partners thereof if this
Warrant or the shares of Capital Stock so transferred or received remain
subject to the restrictions of this paragraph; and provided further, however,
that any exercise of the Warrant pursuant to Sections 1(b) or 1(c) of the
Warrant shall not be deemed to violate the restrictions on transfer set forth
in this sentence. This paragraph shall terminate and shall be null and void
without further action on the part of the Company or the Registered Holder on
the occurrence of the earlier of (a) the termination of that certain
underwriting agreement to be entered into by the Company and Thomas Weisel in
connection with the Offering (the "Underwriting Agreement") or (b) if the
Underwriting Agreement is not executed by each party thereto on or prior to
December 31, 1999.
3. Capitalized terms used herein and not otherwise defined shall have
the respective meanings ascribed to them in the Warrant.
-1-
<PAGE> 2
4. Except as provided in this Amendment, the terms and conditions of the
Warrant shall remain in full force and effect.
VITAMINSHOPPE.COM,INC.
By:________________________________
Title:_____________________________
THOMAS WEISEL PARTNERS LLC
By:________________________________
Title:_____________________________
-2-
<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 August 19, 1999 (September 23, 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.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
DELOITTE & TOUCHE LLP
New York, New York
October 1, 1999
