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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27499
VITAMINSHOPPE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-3659179
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
444 MADISON AVENUE, SUITE 802, NEW YORK, NY 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 308-6730
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 21, 2000, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
approximately $20,249,320. For purposes of this paragraph only, we have deemed
our directors, executive officers and 10% or greater shareholders to be
affiliates.
As of March 21, 2000, the registrant had outstanding 7,277,574 shares of
its Class A common stock and 13,081,500 shares of its Class B common stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference the proxy statement of
the registrant for the annual meeting of stockholders to be filed with the
Securities and Exchange Commission pursuant to Section 14 of the Securities
Exchange Act of 1934.
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TABLE OF CONTENTS
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Part I.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 24
Part
III.
Item 10. Directors and Executive Officers of the Registrant.......... 24
Item 11. Executive Compensation...................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 24
Item 13. Certain Relationships and Related Transactions.............. 24
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 25
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The information on our Web site is not a part of this report. The Vitamin
Shoppe logo is a registered trademark, and The Vitamin Shoppe name,
VitaminShoppe.com and The Vitamin Shoppe Frequent Buyer Program are the
trademarks and service marks, of Vitamin Shoppe Industries Inc., and are used
under license by VitaminShoppe.com. This report 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.
As used in this document, "we," "our," "us" and the "Company" means
VitaminShoppe.com, Inc. and "The Vitamin Shoppe" refers to Vitamin Shoppe
Industries Inc.
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PART I
ITEM 1. BUSINESS.
VITAMINSHOPPE.COM
VitaminShoppe.com, Inc., a Delaware corporation organized in May 1999, is a
leading online source for products and content related to vitamins, nutritional
supplements and minerals. Our www.VitaminShoppe.com Web site, 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 Web site links
consumers to our own health-related information Web site, www.vitaminbuzz.com
and offers 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 70 retail stores throughout the East Coast region and a
monthly catalog with an annual circulation of 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. 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.
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 and product fulfillment through The
Vitamin Shoppe's distribution center, 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 through a combination of the following factors -- extensive
selection of quality products, attractive pricing, superior customer service,
convenience and expert information -- we deliver a compelling value proposition
to our customers. In addition, our Web site integrates advanced transactional
capabilities with easy access to health and nutrition information from credible
third-party sources. We believe that our integrated approach meets a broad
spectrum of consumer needs, fosters customer loyalty and positions
VitaminShoppe.com as a comprehensive resource for vitamins, nutritional
supplements and minerals.
BUSINESS STRATEGY
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 seek to become the comprehensive
online source for these products by delivering a new value proposition to our
customers that combines The Vitamin Shoppe's
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23 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 approximately 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 23
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 Web site and
its flexible database structure, which we continue to enhance, 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 and fulfillment
operations provide excellent efficiency, reliability and customer service. The
Vitamin Shoppe's efficient operations and high levels of in-stock merchandise
enabled us during 1999 to provide same-business-day shipping for approximately
85% of online orders received by 5:00 p.m. Eastern time.
Leverage a Proven Platform and Established Infrastructure. We benefit from
the existing operations of The Vitamin Shoppe and its 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 enable us to deliver value to our customers and
also provide the infrastructure to sustain rapid growth.
Offer Compelling Content and Information. We provide information about
vitamins, nutritional supplements and minerals through our companion Web site,
www.vitaminbuzz.com, which will be integrated into our new enhanced Web site
scheduled to launch later in 2000, and hyperlinks to credible third-party
information sources about health and nutrition on well-known health-related Web
sites, such as www.drkoop.com, www.drweil.com, www.InteliHealth.com and
www.onhealth.com. Our e-commerce Web site, www.VitaminShoppe.com, supports our
product listings with factual information, including an ingredient list for
every product that we carry. In recognition of the Food and Drug Administration
and Federal Trade Commission regulations concerning health claims and labeling,
information that could be construed as advisory or prescriptive in nature is
accessible only from credible third-party information sources.
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 in 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.
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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 targeted 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 December 31, 1999, we had over 100,000 customers who had
purchased products at least once on our Web site.
- Aggressively Pursue Marketing Initiatives. We 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 use these programs to communicate the value proposition
of our Web site and to encourage new customers to experience online
buying. Our marketing initiatives include online and traditional media,
cross-promotions with The Vitamin Shoppe and other retailers and direct
and database marketing.
- Build Strategic Relationships. We plan to 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 Web sites, such as www.InteliHealth.com,
www.drweil.com and www.drkoop.com and online portals, such as America
Online. We continually review these relationships to determine their
success in reaching our key customers. In February 2000, we announced a
strategic marketing alliance with Barnes & Noble (bn.com). We, along with
six other leading e-commerce companies, will participate in a reciprocal
marketing program, which is expected to help increase customer
acquisitions by leveraging across the customer bases of our marketing
partners.
Promote Customer Retention and Growth. Our goal is to maximize customer
retention. Although our current order size and frequency are already
substantial, we will continually attempt to increase them across our customer
base. Through a combination of superior products, price and service, coupled
with the personalization capabilities of the Internet, we believe that we can
continue 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 Program, which is The Vitamin Shoppe's successful loyalty program. We
promote customer retention and growth by means of the following strategies:
- Utilize Customer Database for Target Marketing. We 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 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
expect to continue to invest in technology, such as customization
features, and to increase the range of products and content that we
offer. We plan to launch a new site developed in conjunction with Sapient
that will offer enhanced levels of customization and personalization. In
addition, the site will be fully scaleable and serve as a platform for
future growth. The site will use customer feedback and transaction
histories to expand our product offerings and to pursue additional
revenue opportunities. In addition, we will continue to utilize strategic
relationships and licensing arrangements to expand our content offerings
on the new site. Finally, the site will address the individual interests
of our customer base by targeting specific groups, lifestyles or
interests, such as sports enthusiasts and expectant mothers.
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THE VITAMINSHOPPE.COM ONLINE EXPERIENCE
We believe that our Web site, which integrates commerce with content and
service, offers attractive benefits to consumers, including convenience, ease of
use, privacy, broad product selection and relevant product information. Our new
enhanced Web site, which we plan to launch later in 2000, will provide all of
these features as well as additional customization and personalization.
Features and Capabilities. We emphasize ease of use and efficiency. We
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 Web site 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 allowing customers to compare the prices of various options and to select
those that best meet their personal criteria for price, brand and size.
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. 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. During 1999 we provided
same-business-day shipping for approximately 85% of online orders received
by 5:00 p.m. Eastern time.
Customer Service. From the customer's initial experience with our Web
site through the order process to delivery of the product, we focus on
customer satisfaction. Our 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 Web site. We plan to add
additional capabilities that will allow our customers to check the status
of orders online and enable us to offer special product promotions that
correlate to previous purchases.
Products. We offer consumers a broad and deep complement of quality
products at competitive prices. Our year-round discounts generally range 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 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. 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 chrondriotin 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
permit customers to educate themselves about health-related topics.
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- 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 offer 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 Web site
with easy access to information on topics related to health and nutrition from
well-respected third-party sources. We have a companion informational Web site,
www.vitaminbuzz.com, which will be integrated into our enhanced Web site
scheduled to launch later in 2000, and maintain strategic relationships with
credible health-related information sources.
- www.vitaminbuzz.com. Our companion Web site 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 Web site also highlights topics of current interest and contains a
hyperlink to the FDA's Guide to Dietary Supplements Web site. We sponsor
and maintain www.vitaminbuzz.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.
- 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.
Among our online arrangements with Internet content providers, we are
established as the exclusive or preferred vendor of nutritional products on Web
sites of these content providers. Under these agreements, we pay advertising
fees to the content providers in order to have access to their audience of
potential customers who are interested in health and wellness topics. Some of
these agreements also allow us to link our Web site to the Web sites 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 content 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 Web sites. The
information contained on these Web sites 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 43% of our sales during 1999 and 47% of our sales during 1998. We
sell over 18,000 different items. No single item accounted for more than 2% of
our sales during 1999. During 1999, our online sales mix by product category was
vitamins, nutritional supplements and minerals (71%), herbals (15%), body
building (9%), personal care (4%), homeopathic (1%), books (1%).
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.
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ADVERTISING AND MARKETING
We benefit from the direct marketing knowledge and expertise of our
management team and, under the administrative services agreement, personnel of
The Vitamin Shoppe. During 1999 we launched comprehensive advertising and
marketing campaigns. We began 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 by expanding and strengthening our
strategic relationships. Through a combination of in-house expertise and
research, we continue to improve upon our targeted approach to marketing and
customer acquisition. 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 seek to maximize the lifetime value of our customers by focusing on
purchase frequency and customer retention.
Traditional and Online Advertising. From time to time, we pursue
traditional media-based advertising campaigns that include television, radio and
print. Our print campaigns focus on advertising in the health and nutrition
magazines in which The Vitamin Shoppe has successfully advertised. Other
activities include targeted online advertising to promote both the
VitaminShoppe.com brand name and specific merchandising opportunities. We have
entered into an online marketing agreement with America Online. Occasionally, we
purchase additional banners and other forms of online advertising to create
online awareness, reach new consumers and convert current vitamin, nutritional
supplement and mineral consumers into our customers. Our online advertising
includes targeted Web sites oriented to appropriate health and lifestyle groups,
as well as broader campaigns on portals and mass audience Web sites.
Cross-promotion. Through our co-marketing agreement with The Vitamin
Shoppe, we create significant brand awareness through cross-promotion in The
Vitamin Shoppe retail and catalog channels. The Vitamin Shoppe has over 70
retail stores, and in 1999 over 14 million copies of its monthly and bi-monthly
catalogs were distributed. In addition, the www.vitaminshoppe.com url is
permanently displayed at all retail stores. See "Intercompany Agreements" below
for a description of the co-marketing agreement.
Direct Marketing. We apply direct marketing techniques aimed at attracting
and retaining quality customers and increasing order size. Direct marketing
programs include e-mail special offers or promotions to targeted audience
segments, including our current customers and those prospective customers which
are obtained through the rental of mailing lists.
Loyalty Programs. Our intercompany agreement with The Vitamin Shoppe
permits our customers to participate in the established Vitamin Shoppe Frequent
Buyer Program, which we believe encourages repeat purchases. We also target
special offers and promotions to customer purchasing habits reflected in
information that we obtain from The Vitamin Shoppe's and our own transactional
histories, and we 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 of VitaminShoppe.com and is currently our principal stockholder. 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 and product fulfillment through The
Vitamin Shoppe's distribution center, 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
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- 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 communication 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.
Throughout the fourth quarter 1999 and first quarter 2000, we have been
investing in additional technologies that will handle growth in online commerce
traffic and enhance functionality. We will launch our new enhanced Web site,
developed in conjunction with Sapient, a leading e-services consultancy, later
in 2000. When completed, our Web site will be technologically advanced,
redundant and highly flexible with features and functionality that will be
regularly updated with the latest technology. This updated Web site will
accommodate changes in our business environment in real time -- from the
introduction of new products and promotions, to the addition of suppliers and
business partners. We will be able to tightly integrate our Web content with
personalized and customized marketing activities to acquire and retain new
customers, while preserving the security and integrity of customer information.
This dynamic site is designed to support our future expansion and will enable us
to effectively market on a one-to-one basis to our customers.
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 Web site 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 1999, The Vitamin Shoppe shipped an
average of 25,300 packages weekly from its warehouse and distribution centers.
The Vitamin Shoppe's efficient operations and high levels of in-stock
merchandise enabled us during 1999 to provide same-business-day shipping on
approximately 85% of online orders received by 5:00 p.m. Eastern time. Customers
generally receive orders one business day after shipping.
COMPETITION
The vitamin, nutritional supplement and mineral market (VSM) was over $8.9
billion in 1998 and is expected to grow to $16.6 billion by 2003, yet it still
remains highly fragmented and competitive. VSM products are sold in numerous
retailing categories with no single company maintaining significant market
dominance.
We compete in a variety of retailing categories 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 and
direct sales. Most of these companies do not focus primarily on VSM retailing.
Therefore, they do not offer the breadth of VitaminShoppe.com's 18,000 products
and 400 brands. Our key competitors are online health/natural specialty
retailers such as Mothernature.com and Vitamins.com.
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The online commerce market in which we operate is new, rapidly evolving and
highly competitive. We expect increased competition from several different
sources: current online competitors, online competition from offline retailers
and new online retailers.
Health/Natural Specialty Retailers. This category is highly fragmented and
includes local, regional and national chains selling through retail, catalog, or
online channels. The largest participant in this sector is General Nutritional
Centers (GNC), which has a nationwide retail presence and a Web site, GNC.com
which is part of Drugstore.com's online operations. Another large competitor is
NBTY, which sells its 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 Web sites. 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 MotherNature.com and Vitamins.com.
Drugstores. This category is dominated by chains, such as Walgreen's, CVS
and RiteAid. The national chains are expanding their online presence. CVS
acquired soma.com and is expanding its online presence as cvs.com. RiteAid is
creating an online presence through drugstore.com. Other online-only entrants
include PlanetRx.com, healthquick.com, healthcentral.com and rx.com. This
category typically offers a moderate selection of vitamins, nutritional
supplements and minerals, focusing instead on prescriptions and over-the-
counter products. Their VSM offerings are often not all-natural 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. Whole Foods has created a lifestyle e-commerce site, WholePeople.com,
and Wild Oats has an e-commerce site which is operated by eNutrition.com. Online
grocery stores, such as Peapod.com and Netgrocer.com also compete against us.
This category generally offers an extremely limited selection of vitamins,
nutritional supplements and minerals and infrequent discounts.
Mass Merchant Retailers. This category is dominated by companies such as
Wal-Mart, Kmart and Target, which have extensive retail locations but limited
online presence. These chains offer attractive pricing on vitamins, nutritional
supplements and minerals but have limited selection at retail stores and offer
little product information. Their online offerings focus on larger, big-ticket
items and typically do not include VSM products.
Many of our current and potential competitors have long 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, 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 us include the Food and Drug Administration ("FDA") and the Federal
Trade Commission ("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
limited common law or regulatory guidance that clarifies the manner in which
government regulation impacts online sales of dietary supplements. This lack of
clarity lends uncertainty to the laws regulating online promotional claims and
Web site 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 labeling or advertising,
require that a company offer to repurchase products, seek injunctive relief or
product
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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 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 ("DSHEA") was
enacted in October 1994 as an amendment to the Federal Food, Drug and Cosmetic
Act ("FFDCA"). 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 DSHEA.
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 nutrition labeling on dietary supplements, which
became effective on March 23, 1999 for products with labels attached after that
date.
The Nutritional 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 a reduction in the
risk of disease, for any foods (including dietary supplements), unless the
health claim is supported by "significant scientific agreement" and is
preapproved by the FDA. The FDA Modernization Act of 1997, which also amended
the FFDCA, relaxed this prohibition somewhat by permitting health claims based
upon authoritative statements of specific scientific bodies without FDA
preapproval, but only following notification to 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 DSHEA, 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 dietary supplements 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 January 2000, the FDA released final 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
subject of the claim would continue to be regarded as a drug and must meet the
safety and effectiveness standards of the FFDCA.
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Under the DSHEA, 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 Web site is consistent with the provisions of this
statute governing the use of third-party literature.
The FDA currently intends 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 our 1999 revenues were derived
from products that contain ephedra. We do not believe that a complete loss of
sales of these products or further restriction in jurisdictions in which these
products may be sold would materially impact our business.
Dietary supplements 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 labeling 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 policies published by the FTC to implement it, product claims
must be properly substantiated and stated in a nondeceptive manner.
INTELLECTUAL PROPERTY
Under the trademark license agreement, The Vitamin Shoppe has granted us an
exclusive license to use The Vitamin Shoppe's trademarks and service marks,
including The Vitamin Shoppe logo and the name and mark VitaminShoppe.com, 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 licensed
trademarks by appropriate legal action. The Vitamin Shoppe relies on common law
trademark rights to protect its unregistered trademarks and service marks, such
as VitaminShoppe.com and 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 the interest in The Vitamin Shoppe's trademarks and service
marks.
GOVERNMENT REGULATION OF INTERNET
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. A recent session of the U.S. Congress
resulted in Internet laws regarding children's privacy, copyrights, taxation and
the transmission of sexually explicit material. The European Union has also
enacted its own privacy regulations. The law of the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel, contracts and taxation apply to
the Internet. In addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.
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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. We have filed
these agreements with the Securities and Exchange Commission as exhibits to our
registration statement on Form S-1, as amended (File No. 333-83849). 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 an unaffiliated third party. 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 our directors who are not
directors, officers or holders of 5% or more of the capital stock of The Vitamin
Shoppe. This provision of our bylaws may be amended or rescinded only by a
majority of these directors.
Trademark License Agreement. We have licensed The Vitamin Shoppe logo and
name and certain other marks, including VitaminShoppe.com, on an exclusive basis
for use in connection with our marketing and sale of products and services in
online commerce. We 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 begins at 5% of net sales up to $25 million and
declines 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
Web sites any online content that The Vitamin Shoppe determines 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 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 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 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 or 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 or minerals, we must offer to sell
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 store or print catalog portion of the business. These
covenants not to compete terminate two years after the trademark license
agreement terminates. 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 operated by The Vitamin Shoppe.
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Supply and Fulfillment Agreement. The Vitamin Shoppe supplies
substantially all of the products that we sell, for which we 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 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 has the right to prohibit us from
selling products not carried by The Vitamin Shoppe that in The Vitamin Shoppe's
reasonable judgment are of lower quality than The Vitamin Shoppe brand products
or do not comply with applicable government 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. 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 also provides warehousing and fulfillment services,
including receiving, quality control, storage, picking, packaging and shipping
of customer orders and processing of customer returns, under the supply and
fulfillment agreement. We 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 takes 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 60 days preceding our notification to The
Vitamin Shoppe of the receipt of such a proposal. After The Vitamin Shoppe
ceases to handle our fulfillment, it will continue to supply The Vitamin Shoppe
brand products under the agreement, but it will not be required to supply other
products, to fulfill orders for other products or The Vitamin Shoppe 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 terminates immediately
if the trademark license agreement terminates.
Co-marketing Agreement. Unless we otherwise notify The Vitamin Shoppe, The
Vitamin Shoppe provides 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 also provides us with promotional references in
its retail stores and on shopping bags, product labels and store receipts, for
which we pay The Vitamin Shoppe $833 per urban retail store and $417 per
suburban retail store each month. The Vitamin Shoppe pays us $20,000 each year
to list its retail locations on our Web site and to allow a Web site 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.
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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. 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.
Administrative Services Agreement. The Vitamin Shoppe provides general and
administrative services to us. The Vitamin Shoppe bills 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
pay The Vitamin Shoppe $55,000 per month for human resources, management
information, cash management, finance and accounting services. After June 30,
2000, we anticipate providing these services ourselves, however, we have the
option to contract with The Vitamin Shoppe to receive these services for
mutually acceptable compensation.
The Vitamin Shoppe assists us in building and maintaining, at our expense,
appropriate links between the computer systems utilized by The Vitamin Shoppe
and us. We have the right to terminate the services described in this paragraph
on 90 days prior written notice, and The Vitamin Shoppe may terminate these
services at any time after June 30, 2000 upon 90 days prior written notice.
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.
Database Agreement. On a non-exclusive, royalty-free basis, we and The
Vitamin Shoppe 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 or us to solicit the
other's customers. Neither The Vitamin Shoppe nor we may sell, lease or rent the
other's customer information to a third party.
We have the right to terminate the database agreement at any time upon 180
days prior written notice. The Vitamin Shoppe is entitled to terminate the
database agreement immediately upon the acquisition of the ownership of 30% or
more of the voting power of the capital stock of VitaminShoppe.com by any person
or entity that engages in the direct or indirect marketing or distribution
through retail or direct marketing channels of vitamins, nutritional
supplements, minerals 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.
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.
Intercompany Indemnification Agreement. We will indemnify The Vitamin
Shoppe for liabilities related to our business after the transfer of the online
business to us. The Vitamin Shoppe will indemnify us for liabilities related to
its businesses and for 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 March 17, 2000, we had 60 employees who devote 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.
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EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH VITAMINSHOPPE.COM
- ---- --- -------------------------------
<S> <C> <C>
M. Anthony Fisher......................... 49 Chairman of the Board of Directors
Jeffrey J. Horowitz....................... 52 President and Chief Executive Officer
Chief Financial Officer, Secretary and
Ann M. Sardini............................ 50 Treasurer
Philip H. Teplitzky....................... 50 Chief Technology Officer
Joel Gurzinsky............................ 44 Vice President -- Operations
</TABLE>
M. Anthony Fisher has been chairman of the board of directors of
VitaminShoppe.com since January 2000 and a director since its incorporation. Mr.
Fisher has been a partner in Fisher Brothers, a real estate development firm,
since 1981 and a general partner in FdG Associates, a private equity fund, since
1995. Mr. Fisher also serves as a director of Sunpark, Inc., McGinnis Farms and
The Vitamin Shoppe. Our Board of Directors has approved an amendment of our
bylaws providing that the Chairman of the Board will no longer be an executive
officer position.
Jeffrey J. Horowitz has been president and chief executive officer of
VitaminShoppe.com since January 2000, has been a director since its
incorporation, and was chairman of the board of directors of VitaminShoppe.com
from its incorporation until January 2000. Mr. Horowitz is the founder of The
Vitamin Shoppe and was its president and chief executive officer from 1977 until
January 2000, when he became president and chief executive officer of
VitaminShoppe.com. Mr. Horowitz also serves as a director of The Vitamin Shoppe.
Ann M. Sardini has been the chief financial officer, secretary and
treasurer of VitaminShoppe.com since October 1999. From 1995 to 1999, Ms.
Sardini was executive vice president and chief financial officer of Children's
Television Workshop, a multimedia company that produces Sesame Street. From 1993
to 1995, she was chief financial officer and vice president -- finance and
operations for Q2, an interactive consumer marketing and technology division of
retailer QVC, Inc.
Philip H. Teplitzky has been chief technology officer of VitaminShoppe.com
since September 1999. From 1995 to 1999, Mr. Teplitzky 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 -- technology for
SHL Systemhouse, a software development company.
Joel Gurzinsky has been vice president -- operations of VitaminShoppe.com
since July 1999. Mr. Gurzinsky joined Vitamin Shoppe Industries 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 -- online operations for The Vitamin
Shoppe.
Kathryn H. Creech was President and Chief Executive Officer and a director
of VitaminShoppe.com from June 1999 to January 2000. She is 47 years old.
Eliot D. Russman was Chief Marketing Officer of VitaminShoppe.com from June
1999 to January 2000. He is 44 years old.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report that are not historical
facts are, or may be considered to be, "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements reflect our expectations regarding our future growth,
results of operations, performance, business prospects, opportunities and
financial condition. Words such as "anticipates," "believes," "plans," "expects"
and "estimates" and similar expressions have been used to identify these
forward-looking statements but are not the exclusive means of identifying these
statements. These statements reflect our current beliefs and are based on
information available to us on the date hereof. We
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assume no obligation to update any such forward-looking statement in our press
releases, oral communications or other filings with the Securities and Exchange
Commission. Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors that could cause our actual growth, results of
operations, performance, business prospects, opportunities and financial
condition to differ from those expressed in, or implied by, the forward-looking
statements. In addition, some of our forward-looking statements are based on
assumptions concerning future events that may not prove to be accurate.
Forward-looking statements regarding our growth, results of operations,
performance, business prospects, opportunities and financial condition are
subject to numerous risks and assumptions, including those discussed in "Risk
Factors" in our registration statement on Form S-1, as amended (File No.
333-83849), filed with the Securities and Exchange Commission.
ITEM 2. PROPERTIES.
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 currently provides for a 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.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any legal proceeding that we believe would have a
material adverse effect on our business, results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 23, 1999, by written consent the sole shareholder of
VitaminShoppe.com approved the second amended and restated certificate of
incorporation of VitaminShoppe.com, which provided for (in relevant part) (a)
the authorization of 30,000,000 shares of Class A Common Stock, par value $0.01
per share, (b) the authorization of 15,000,000 shares of Class B Common Stock,
par value $0.01 per share, (c) the authorization of 5,000,000 shares of
preferred stock, par value $0.01 per share, undesignated as to class or series,
(d) the reclassification of our previously outstanding 1,000 shares of Common
Stock into 8,500,000 shares of Class B Common Stock and (e) the designation of
one vote for each share of Class A Common Stock and six votes for each share of
Class B Common Stock.
On September 17, 1999, by unanimous written consent the shareholders of
VitaminShoppe.com approved the certificate of amendment of the second amended
and restated certificate of incorporation of VitaminShoppe.com, which provided
for (in relevant part) the method of classifying the number of directors in each
class.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 17, 2000, there were 117 holders of record of our Class A
common stock, par value $0.01 per share. This figure does not include an
estimate of the indeterminate number of beneficial holders whose shares may be
held of record by brokerage firms and clearing agencies. The principal market
upon which our Class A common stock is traded is the Nasdaq National Market
under the symbol VSHP. During the period from October 8 through December 31,
1999, which is the only period in 1999 when our Class A common stock was
publicly traded, the high and low bids for our Class A common stock were $19.438
and $7.250.
As of March 17, 2000, there was one record holder of our Class B common
stock, par value $0.01 per share. There is no established trading market for the
Class B common stock. The Class B common stock is convertible into Class A
common stock at any time at the option of the holder and would automatically
convert to Class A common stock upon transfer from the holder.
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REGISTERED OFFERING AND USE OF PROCEEDS
On October 7, 1999, the Securities and Exchange Commission declared
effective a registration statement on Form S-1 (File No. 333-83849) with respect
to our Class A common stock. Pursuant to the registration statement, we offered
and sold 4,545,455 shares of Class A common stock at $11.00 per share to an
underwriting syndicate. The managing underwriters of this syndicate were Thomas
Weisel Partners LLC, William Blair & Company and PaineWebber Incorporated. The
offering terminated because all shares offered were sold.
The gross proceeds from the offering were $50.0 million. Total expenses
that we incurred in connection with the issuance and distribution of the Class A
common stock from the date that the offer commenced to December 31, 1999 were
$5.0 million. No discounts, commissions or other offering expenses were paid to
directors, officers or general partners of VitaminShoppe.com, our associates or
persons owning 10% or more of any class of our equity securities. Payments to
underwriters, printers, accountants and legal counsel were made directly to
those parties. After deducting these expenses and the write-off of prepaid
offering costs, the net proceeds of the offering were approximately $45.0
million.
During 1999, we used $2.7 million of the net proceeds for enhancements to
our Web site and other capital expenditures, $5.8 million for the repayment of a
note due to The Vitamin Shoppe, and $13.4 million for advertising and marketing
activities. Other than principal and accrued interest paid to our principal
stockholder, none of these payments were made to directors, officers or general
partners of VitaminShoppe.com or our associates or to persons owning 10% or more
of any class of our equity securities. The remainder of the proceeds of the
offering have been invested in short-term, investment-grade, interest-bearing
obligations and we expect that they will be used for general corporate purposes,
including working capital, capital expenditures and advertising and marketing
activities. 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 agreements or commitments with respect to such an acquisition. The
amounts actually expended by us for such purposes may vary significantly and
will depend upon a number of factors, including our future revenue and cash
generated by operations. Accordingly, we retain broad discretion in the
allocation of the net proceeds of the offering.
RECENT SALES OF UNREGISTERED SECURITIES
Private Placements of Securities.
On June 11, 1999, we issued 1,000 shares of common stock, par value $0.01
per share, to The Vitamin Shoppe in connection with our initial capitalization.
We intended this private placement of securities by us to be exempt from
registration pursuant to section 4(2) of the Securities Act of 1933. We
reclassified these shares into 8,500,000 shares of Class B common stock as of
July 9, 1999. We split these shares into 13,081,500 shares of Class B common
stock effective as of October 7, 1999. Each share of Class B common stock is
convertible into one share of Class A common stock at any time at the option of
the holder and will automatically convert into one share of Class A common stock
upon the sale to a person or entity not affiliated with The Vitamin Shoppe.
On July 9, 1999, we issued $10 million in aggregate principal amount of
convertible promissory notes due in June 2000. Four stockholders of The Vitamin
Shoppe and affiliates of these stockholders held these notes. We intended this
private placement of securities to be exempt from registration pursuant to
section 4(2) of the Securities Act of 1933. On July 27, 1999, all of these notes
converted into shares of our Series A convertible preferred stock, par value
$0.01 per share, based on the principal and interest due on the notes divided by
the purchase price of the shares of Series A preferred stock.
In July 1999, we received $15 million from ten stockholders in exchange for
1,053,156 shares of Series A preferred stock. As indicated in the preceding
paragraph, we also exchanged $10 million in aggregate principal amount of
promissory notes for 722,104 shares of Series A preferred stock in the same
transaction. In addition, we issued warrants to purchase shares of Series A
preferred stock to Thomas Weisel Partners LLC in consideration for its services
as placement agent in this transaction. We intended this private placement of
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<PAGE> 20
securities to be exempt from registration pursuant to section 4(2) of the
Securities Act of 1933 and/or rule 506 of Regulation D promulgated under the
Securities Act of 1933. Each share of Series A preferred stock converted into
1.539 post-split shares of Class A common stock effective as of the initial
public offering. As a result, the warrant held by Thomas Weisel Partners LLC
became exercisable for 32,703 shares of Class A common stock at an exercise
price per share of $11.00.
Option Grants.
In June 1999, we granted options to two employees to purchase 569,045
post-split shares of our common stock at a post-split exercise price of $3.82
per share. We reclassified the shares for which these options may be exercised
into Class A common stock as of July 9, 1999.
In July 1999, we granted to three employees options to purchase 235,021
post-split shares of Class A common stock at a post-split exercise price of
$9.15 per share.
In August 1999, we granted to one director and two employees options to
purchase 54,675 post-split shares of Class A common stock at a post-split
exercise price of $9.15 per share.
In September 1999, we 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.
In October 1999, we granted to five directors and two employees options to
purchase 532,329 shares of Class A common stock at an exercise price of $11.00
per share.
In November 1999, we granted to nine employees options to purchase 38,500
shares of Class A common stock at an average exercise price of $9.03 per share.
In December 1999, we granted to 10 employees options to purchase 61,000
shares of Class A common stock at an average exercise price of $13.65 per share.
No underwriters were involved in the foregoing sales of securities.
DIVIDEND POLICY
We paid no dividends on our capital stock during 1999, which was the first
year in which we were incorporated. We currently intend to retain any earnings
to finance the operations and expansion of our business, and we do not expect to
pay 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 on our capital stock.
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<PAGE> 21
ITEM 6. 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
thereto included herein. 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 business 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 and for the years ended December 31, 1998 and 1999, and the
historical balance sheet data as of December 31, 1998 and 1999, are derived from
financial statements of VitaminShoppe.com, Inc. that have been audited by
Deloitte & Touche LLP, independent auditors, and are included herein.
The historical financial information includes allocations for supply,
fulfillment, promotional, administrative and other expenses incurred by The
Vitamin Shoppe for services rendered to us prior to July 1999. 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 effective as of July 1, 1999 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 provide 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. 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. Historical and pro forma results are not necessarily
indicative of the operating results for any future period.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------- -------------------------
OCTOBER 1, 1997 YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
(INCEPTION) TO ------------------------- -------------------------
DECEMBER 31, 1997 1998 1999 1998 1999
----------------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ -- $ 2,861 $ 13,638 $ 2,861 $ 13,638
Cost of goods sold................................. -- 1,407 7,594 1,477 7,700
----------- ----------- ----------- ----------- -----------
Gross profit....................................... -- 1,454 6,044 1,384 5,938
Operating expenses:
Marketing and sales expenses..................... -- 3,215 27,579 4,032 28,134
Technology development expenses.................. 285 642 3,142 642 3,142
General and administrative expenses.............. 64 917 5,425 920 5,474
----------- ----------- ----------- ----------- -----------
Total operating expenses................... 349 4,774 36,146 5,594 36,750
----------- ----------- ----------- ----------- -----------
Loss from operations............................... (349) (3,320) (30,102) (4,210) (30,812)
Interest expense (income), net..................... 4 120 (9) 150 48
----------- ----------- ----------- ----------- -----------
Loss before income tax provision................... (353) (3,440) (30,093) (4,360) (30,860)
Income tax provision............................... -- -- 108 -- 108
----------- ----------- ----------- ----------- -----------
Net loss........................................... $ (353) $ (3,440) $ (30,201) $ (4,360) $ (30,968)
=========== =========== =========== =========== ===========
Basic and diluted net loss per share............... $ (0.03) $ (0.26) $ (2.05) $ (0.33) $ (2.10)
=========== =========== =========== =========== ===========
Weighted average shares outstanding used to compute
basic and diluted net loss per share............. 13,081,500 13,081,500 14,756,339 13,081,500 14,756,339
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $38,019
Working capital (deficiency)................................ (4,278) 29,754
Total assets................................................ 614 49,160
Due to The Vitamin Shoppe................................... 3,583 2,635
Stockholders' equity (deficit).............................. (3,793) 35,938
</TABLE>
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<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for the historical information contained in this report, some
statements made herein are "Forward-Looking Statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These
Forward-Looking Statements reflect our expectations regarding our future growth,
results of operations, performance and business prospects and opportunities.
Words such as "anticipates," "believes," "plans," "expects," "estimates," and
similar expressions have been used to identify these Forward-Looking Statements,
but are not the exclusive means of identifying these statements. These
statements reflect our current beliefs and are based on information currently
available to us. Accordingly, these statements are subject to known and unknown
risks, uncertainties and other factors that could cause our actual growth,
results, performance and business prospects and liquidity to differ from those
expressed in, or implied by, these Forward-Looking Statements. These risks,
uncertainties and other factors are described in our Registration Statement on
Form S-1, as amended (File No. 333-83849), under the caption "Risk Factors". We
are not obligated to update or revise these Forward-Looking Statements to
reflect new events or circumstances.
OVERVIEW
We began development of our online operations in October 1997 and launched
our Web site on April 7, 1998. For the period from our inception through the
launch of the Web site, our primary activities consisted of:
- developing the business model;
- developing strategic relationships;
- designing and developing our Web site;
- recruiting and training employees;
- negotiating advertising contracts with several major web portals; and
- developing the VitaminShoppe.com brand.
Since the launch of the Web site, these operating activities have
continued. We have also focused on acquiring new customers, building sales
momentum, promoting the brand, enhancing the search and transactional features
of our Web site, expanding customer service operations, increasing the
information content available to our customers and building the infrastructure
of the business.
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 the early stages of
development, particularly companies in new and rapidly evolving markets such as
online commerce. In view of these factors, we believe that period-to-period
comparisons of our operating results should not be relied upon as an indication
of future performance.
We have incurred net losses of $33.99 million from inception through
December 31, 1999. We believe that net losses will continue for the foreseeable
future.
RESULTS OF OPERATIONS: 1999 COMPARED TO 1998
Net Sales. Net sales consist of product sales net of allowances for
product returns. Revenues are recognized when the related product is shipped.
The level of our sales depends on many factors, including:
- the number of customers that we are able to attract;
- the frequency of customers' purchases;
- the quantity and mix of products that customers purchase;
- the price that we charge for our products; and
- the level of customer returns that we experience.
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<PAGE> 23
Net sales for 1999 totaled $13.64 million, an increase of $10.78 million or
377% from net sales of $2.86 million for the nine-month period beginning April
1, 1998 (the date on which we launched our Web site). We have made enhancements
to our Web site to improve navigation and the overall user experience, and we
have significantly increased our advertising, marketing and promotional
expenditures in 1999. We believe these factors have contributed to growth in our
customer base and continuation of a favorable pattern of repeat buying.
Cost of Goods Sold. Cost of goods sold consists primarily of the costs of
products sold to customers. The Vitamin Shoppe supplies inventory to us on an
exclusive basis. Under the supply and fulfillment agreement with The Vitamin
Shoppe beginning July 1, 1999, we pay The Vitamin Shoppe an amount equal to 105%
of The Vitamin Shoppe's product cost. Prior to that time, inventory was provided
to us by The Vitamin Shoppe at 100% of its product cost. As a result, cost of
goods sold as a percentage of sales is higher in 1999 than in 1998. We expect
that it will continue to be higher than in the past both as a percentage of
sales and in absolute dollars to the extent that our volume of sales increases.
In the future, we may expand or increase the discounts we offer to our
customers and may otherwise alter our pricing structures and policies. These
changes would negatively reduce our gross margins. In addition to pricing
strategy, our gross margins will fluctuate based on other factors, including:
- the cost of our products, including the extent of purchase volume
discounts that The Vitamin Shoppe is able to obtain from its suppliers;
- promotions or special offers that we offer to attract new customers;
- the mix of The Vitamin Shoppe brand products versus other branded
products that our customers purchase; and
- the mix of products within each brand category that our customers
purchase.
Cost of goods sold for 1999 was $7.59 million, or 55.6% of net sales,
versus $1.41 million, or 49.3% of net sales for the nine-month period beginning
April 1, 1998 (the date on which we launched our Web site). The increase in cost
of sales as a percent of net sales is attributable to the implementation of our
supply and fulfillment agreement with The Vitamin Shoppe, the offering of
promotional discount coupons to customers during 1999 and the sales of a lower
proportion of The Vitamin Shoppe(R) branded products versus other brands as a
percent of total sales in 1999 as compared to 1998. The Vitamin Shoppe brand
products carry a higher gross margin than other brands.
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. Some of these expenses
represent charges for services provided by The Vitamin Shoppe. Prior to July
1999, these charges were in the form of allocations based on The Vitamin
Shoppe's best estimate of actual expenses. As of July 1, 1999 various
intercompany agreements were put in place to cover these expenses. Under these
agreements The Vitamin Shoppe will continue to provide warehousing and
fulfillment services for customer orders on an exclusive basis. We pay The
Vitamin Shoppe for fulfillment services 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. While this amount is higher than the 100% cost of these services to us
under the historical allocation method, we believe that the increase will not
have a material effect on our results of operations because our fulfillment
costs have historically been less than 2% of our net sales. Under the trademark
license agreement with The Vitamin Shoppe which provides us with the exclusive
right to use The Vitamin Shoppe's trademarks, including the logo and name, in
connection with the marketing and sale of products and services in online
commerce, we pay an annual royalty fee equal to $1 million plus an amount based
on a percentage of net sales volume of The Vitamin Shoppe(R) branded product.
Prior to July 1, 1999, there was no royalty fee charged by The Vitamin Shoppe.
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<PAGE> 24
Marketing and sales expenses increased by $24.36 million to $27.58 million
in 1999, or 202% of net sales, from $3.2 million in 1998, or 110% of net sales.
The increase is largely attributable to the implementation of our significant
multi-media marketing campaign which began late in third quarter 1999 and
continued through fourth quarter 1999. In addition, we have added to our roster
of strategic relationships with web portals and health-oriented channels.
Subsequent to the third quarter 1998, agreements with Yahoo! (November 1998),
drkoop.com (March 1999), OnHealth (March 1999), InteliHealth (April 1999) and
America Online (October 1999) have been added to the existing list which
included Ask Dr. Weil (April 1998). We expect marketing and sales expenses to
vary considerably from quarter to quarter during future periods depending on the
timing of advertising campaigns, but do not expect quarterly spending in 2000 to
continue at the same rate as the fourth quarter of 1999. In addition, we expect
marketing and sales expenses to remain high as a percentage of sales, but lower
as a percentage of sales than we experienced in 1999.
Technology Development Expenses. Technology development expenses consist
primarily of consulting fees and payroll and related expenses for applications
development and information technology personnel, licensing and service
agreements, Web site hosting and communications charges, and Web site content
development and design expenses. Technology development expenses increased by
$2.50 million to $3.14 million for 1999 from $0.64 million for 1998. As a
percentage of net sales, these expenses were 23% in 1999 and 22% in 1998.
Expenses increased in the areas of technology development personnel and use of
third-party service providers, consultants and contract labor. The increase in
expense and in our overall investment in technology reflects our commitment to
providing a superior web commerce experience to our customers. We believe
strongly that our new Web site, its ongoing technology-based enhancements and
the infrastructure supporting the site will contribute significantly to customer
satisfaction and retention. Continued investment is therefore anticipated, to
provide improvements to the capabilities of the site and to expand the
infrastructure necessary to support it. We also expect to continue to invest in
the development of in-house expertise necessary to effectively manage the
technology of our business. In 1999, we successfully recruited a highly
experienced Chief Technology Officer and a Director of Technology Operations, as
well as several other technology professionals.
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, deferred stock-based compensation and other general corporate
expenses. General and administrative expenses increased by $4.51 million to
$5.43 million, or 40% of net sales, for 1999 from $0.92 million, or 32% of net
sales, for 1998. This increase was primarily due to the addition of personnel,
professional fees and other expenses associated with building our infrastructure
and the addition of deferred stock-based compensation. As we continue this
building process, we expect that general and administrative expenses will
continue to increase during future periods.
Interest Expense (income), net. Interest expense (income), net consists of
interest charges allocated from The Vitamin Shoppe and interest income earned on
cash and cash equivalents. Interest expense was charged on the note due to The
Vitamin Shoppe and advances to us at the rate of 8.75% per annum which totaled
$416,000 in 1999 as compared to $120,000 in 1998. Interest income has been
earned since the sale of our Series A convertible preferred stock on July 27,
1999 and our initial public offering on October 8, 1999 and amounted to
$425,000. Since the note due to The Vitamin Shoppe was repaid in November 1999,
the Company no longer anticipates interest expense unless we incur future
borrowings.
Amortization of Stock-Based Compensation. Amortization of deferred
stock-based compensation expense, included in general and administrative
expenses, was $1.2 million in 1999 as compared to zero in 1998. Due to the
resignations of two officers during the first quarter 2000, we expect to
eliminate approximately $1.9 million of unamortized deferred stock-based
compensation that was previously recorded as additional paid in capital.
Intercompany Agreements. The intercompany agreements cover rights and
obligations regarding trademark licenses, inventory supply and fulfillment,
promotional and co-marketing activities, databases and administrative services.
We incurred a total of $5.5 million of merchandise purchases and $2.3 million of
other expenses under the intercompany agreements with The Vitamin Shoppe for the
six months ended
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<PAGE> 25
December 31, 1999. The intercompany agreements were not in place during the
first three quarters 1998 and the six months ended June 30, 1999 but became
effective on July 1, 1999. Had the intercompany agreements been in place during
the full first three quarters 1999 and 1998 (as shown in the pro forma columns
in Item 6 "Selected Financial Data"), our net loss would have been increased to
$31.0 million in 1999 and $4.36 million in 1998.
Income taxes. Our operating results through June 30, 1999 were included in
the consolidated income tax returns of The Vitamin Shoppe. Through June 30,
1999, The Vitamin Shoppe did not allocate to us its share of income tax
liabilities or benefits attributable to our proportionate share of operating
results. Since July 1, 1999, we are no longer included in the consolidated
income tax return of The Vitamin Shoppe and, therefore, our income tax
provisions have been calculated on a separate return basis.
Since our capitalization on July 1, 1999, when we ceased to be part of The
Vitamin Shoppe's consolidated group, losses generated are available to offset
any future taxable income for 20 years. Deferred tax assets normally recorded to
reflect the future benefit may or may not be shown as realizable, depending on
our ability to demonstrate the likelihood of future profitability.
As of December 31, 1999, we had a net operating loss carry forward that, if
utilized, provides a future tax benefit of approximately $10.3 million at an
effective tax rate of 40 percent. Due to the uncertainty of the realization of
this net operating loss carry forward in the future, we have provided a
valuation allowance to offset this deferred tax asset.
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 June 1999. On June 30, 1999, we issued a promissory note to The Vitamin
Shoppe 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 through June 30, 1999 and was repaid in
full in October 1999.
On July 9, 1999, we issued $10 million in aggregate principal amount of
promissory notes due in June 2000. These notes were held by stockholders of The
Vitamin Shoppe or affiliates of these stockholders. Later in July 1999, these
notes were converted into Series A convertible preferred stock and approximately
$13.6 million of additional Series A convertible preferred stock was issued.
Together, these shares of Series A convertible preferred stock were converted
into an aggregate of 2,732,119 shares of Class A common stock.
On October 8, 1999, we sold 4,545,455 shares of our Class A common stock in
an initial public offering at a price of $11.00 per share. The gross proceeds
from this offering were $50 million. The net proceeds were approximately $45
million after deducting underwriting discounts and commissions of $3.5 million
and other offering expenses of $1.5 million.
In connection with our initial public offering, the 1,775,260 shares of
Series A convertible preferred stock automatically converted into 2,732,119
shares of Class A common stock. The carrying amount of the Series A convertible
preferred stock was credited to Class A common stock stated capital and to
additional paid-in capital.
During 1999, net cash used in operating activities was $21.16 million, an
increase of $18.44 million from 1998. Net cash used in investing activities was
$5.93 million during 1999, an increase of $5.42 million from 1998. During 1999,
net cash provided by financing activities was $65.10 million, which consisted of
amounts funded by The Vitamin Shoppe, our initial capitalization by The Vitamin
Shoppe, the sale of our Series A convertible preferred stock and the initial
public offering. We expect that cash flows from operating activities will
continue to be negative as we grow our infrastructure and continue our efforts
to grow and retain our customer base.
As of December 31, 1999, we had accounts payable and accrued liabilities of
$10.59 million and amounts payable to The Vitamin Shoppe of $2.64 million due
under the intercompany agreements. At this date, our principal commitments going
forward consisted of obligations outstanding under online marketing agreements
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with web portals and strategic partners aggregating $9.8 million through
February 2001 and a sublease agreement for our office space aggregating $1.8
million through November 2003.
As of December 31, 1999, we had approximately $38.0 million in cash and
cash equivalents. Based upon our current plans for fiscal 2000, we expect to
have sufficient cash available to meet our operating and capital expenditure
needs through December 31, 2000, but we cannot assure you that our expected
growth or expenditures will take place as planned. If we fail to meet our
planned growth or otherwise need additional working capital, we could reduce
certain expenditures or seek to raise cash. Our principal use of cash is to fund
our advertising and Internet sponsorship arrangements, to pay for our Web site
development costs and to fund our payroll and other operating costs. Our
contractual commitments for Internet sponsorship arrangements total
approximately $8.4 million in 2000. If necessary, we could reduce our
discretionary advertising expenditures to mitigate the impact on our available
cash. Further, our technology development in 2000 will take place in stages, the
first of which is the launch of our new Web site. Other components of our
technology development can be delayed, if necessary. While such a reduction in
advertising spending or Web site development may negatively impact sales, we
believe that we can generate sufficient sales and cash flow at levels which,
although below our planned amount, would enable us to fund our operations
through December 31, 2000. As an alternative to reducing such expenses, we may
seek to raise additional cash through the issuance of capital stock or debt. We
cannot assure you that such additional financing will be available to us when
required on favorable terms or at all.
YEAR 2000 COMPLIANCE
During 1999, we directly or through The Vitamin Shoppe assessed the year
2000 compliance of internally developed and purchased software, which included
software for use in order processing and fulfillment, i.e., credit card
processing and distribution functions, accounting and database systems. Expenses
associated with this assessment and a corrective action plan approximated $0.4
million and was largely borne by The Vitamin Shoppe. We have not experienced any
major disruptions in our operations associated with issues related to the year
2000.
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 information about operating segments in their annual financial statements
and in subsequent condensed financial statements of interim periods issued to
stockholders. 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 the 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. Its adoption did not have a material effect
on our financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires recognition of all
derivatives on the balance sheet at fair value. Adoption of this standard will
not have a material effect on our financial statements or disclosures.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that inflation has not had a material impact on our results of
operations since inception for each of our fiscal years ended December 31, 1998
and 1999. However, there can be no assurance that future inflation would not
have an adverse impact on our operating results and financial condition.
We are not subject to currency fluctuations since we do not have any
international operations. We have limited market risk exposure since we do not
have any outstanding variable rate debt or derivative financial and commodity
instruments as of March 17, 2000.
As of March 17, 2000, we have no outstanding long-term debt instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item 8 is included in Item 14, under
"Financial Statements" appearing at the end of this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required with respect to our directors required by Item 401 and
our directors and executive officers required by Item 405 of Regulation S-K is
set forth in our proxy statement for the annual meeting of stockholders, to be
filed with the Securities and Exchange Commission pursuant to Section 14 of the
Securities Exchange Act of 1934, and is incorporated by reference herein.
Certain information with respect to our executive officers required by Item 401
of Regulation S-K is forth in Item 1 "Business -- Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth in our proxy
statement for the annual meeting of stockholders, to be filed with the
Securities and Exchange Commission pursuant to Section 14 of the Securities
Exchange Act of 1934, and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the security ownership of certain beneficial owners
and management is set forth in our proxy statement for the annual meeting of
stockholders, to be filed with the Securities and Exchange Commission pursuant
to Section 14 of the Securities Exchange Act of 1934, and is incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions is
set forth in our proxy statement for the annual meeting of stockholders, to be
filed with the Securities and Exchange Commission pursuant to Section 14 of the
Securities Exchange Act of 1934, and is incorporated by reference herein.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS
The following financial statements have been filed as required by Item 8 of
this report:
Independent Auditors' Report
Balance Sheets as of December 31, 1997, 1998 and 1999
Statement of Operations for the period from October 1, 1997 (inception) to
December 31, 1997 and for the years ended December 31, 1998 and 1999
Statements of Stockholders' Equity (Deficit) for the period from October 1, 1997
(inception) to December 31, 1997 and for the years ended December 31, 1998 and
1999
Statement of Cash Flows for the period from October 1, 1997 (inception) to
December 31, 1997 and for the years ended December 31, 1998 and 1999
Notes to Financial Statements
25
<PAGE> 29
VITAMINSHOPPE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the period from October 1, 1997
(inception) to December 31, 1997, and for the years ended
December 31, 1998 and 1999................................ F-4
Statements of Stockholders' Equity (Deficit) for the period
from October 1, 1997 (inception) to December 31, 1997, and
for the years ended December 31, 1998 and 1999............ F-5
Statements of Cash Flows for the period from October 1, 1997
(inception) to December 31, 1997, and for the years ended
December 31, 1998 and 1999................................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 30
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, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the period from
October 1, 1997 (inception) to December 31 1997 and the years ended December 31,
1998 and 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,
1998 and 1999, and the results of its operations and its cash flows for the
period from October 1, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
February 24, 2000
F-2
<PAGE> 31
VITAMINSHOPPE.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 38,019
Accounts receivable....................................... 35 259
Inventory................................................. -- 35
Prepaid expenses and other current assets................. 94 4,663
------- --------
Total current assets.............................. 129 42,976
Property and equipment, net............................... 485 6,184
------- --------
Total assets...................................... $ 614 $ 49,160
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 824 $ 10,587
Due to The Vitamin Shoppe................................. 3,583 2,635
------- --------
Total current liabilities......................... 4,407 13,222
Stockholders' Equity (Deficit):
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, no shares issued or outstanding............ -- --
Class A common stock, $.01 par value, no shares
authorized, issued or outstanding at December 31, 1998,
30,000,000 shares authorized, 7,277,574 shares issued
and outstanding at December 31, 1999................... -- 73
Class B common stock, $.01 par value, no shares
authorized, issued or outstanding at December 31, 1998,
15,000,000 shares authorized, 13,081,500 shares issued
and outstanding at December 31, 1999................... -- 131
Additional paid-in capital................................ -- 64,242
Deferred stock-based compensation......................... -- (2,732)
Deficit................................................... (3,793) (25,776)
------- --------
Total stockholders' equity (deficit).............. (3,793) 35,938
------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 614 $ 49,160
======= ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 32
VITAMINSHOPPE.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 1, 1997 YEAR ENDED DECEMBER 31,
(INCEPTION) TO ------------------------
DECEMBER 31, 1997 1998 1999
----------------- ---------- ----------
<S> <C> <C> <C>
Net sales.......................................... $ -- $ 2,861 $ 13,638
Cost of goods sold................................. -- 1,407 7,594
---------- ---------- ----------
Gross profit....................................... -- 1,454 6,044
Operating expenses:
Marketing and sales expenses..................... -- 3,215 27,579
Technology development expenses.................. 285 642 3,142
General and administrative expenses.............. 64 917 5,425
---------- ---------- ----------
Total operating expenses................. 349 4,774 36,146
---------- ---------- ----------
Loss from operations............................... (349) (3,320) (30,102)
Interest expense (income), net..................... 4 120 (9)
---------- ---------- ----------
Loss before income tax provision................... (353) (3,440) (30,093)
Income tax provision............................... -- -- 108
---------- ---------- ----------
Net loss........................................... $ (353) $ (3,440) $ (30,201)
========== ========== ==========
Basic and diluted net loss per share............... $ (0.03) $ (0.26) $ (2.05)
========== ========== ==========
Weighted average shares outstanding used to compute
basic and diluted net loss per share............. 13,081,500 13,081,500 14,756,339
========== ========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 33
VITAMINSHOPPE.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- ------------------ ------------------- PAID-IN STOCK-BASED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- -------- --------- ------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1997
(inception)....................... -- $ -- -- $-- -- $ -- $ -- $ --
Net loss.......................... -- -- -- -- -- -- -- --
---------- -------- --------- --- ---------- ---- ------- -------
Balance, December 31, 1997.......... -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
---------- -------- --------- --- ---------- ---- ------- -------
Balance, December 31, 1998.......... -- -- -- -- -- -- -- --
Net loss (1/1/99-6/30/99)......... -- -- -- -- -- -- -- --
Capitalization of the Company by
The Vitamin Shoppe on June 30,
1999............................ -- -- -- -- 13,081,500 131 (8,348) --
Sale of Series A convertible
preferred stock................. 1,775,260 23,472 -- -- -- -- 86 --
Sale of common stock.............. -- -- 4,545,455 46 -- -- 45,080 --
Issuance of common stock upon
conversion of preferred stock... (1,775,260) (23,472) 2,732,119 27 -- -- 23,445 --
Deferred stock-based
compensation.................... -- -- -- -- -- -- 3,979 (3,979)
Amortization of deferred
stock-based compensation........ -- -- -- -- -- -- -- 1,247
Net loss (7/1/99-12/31/99)........ -- -- -- -- -- -- -- --
---------- -------- --------- --- ---------- ---- ------- -------
Balance, December 31, 1999.......... -- $ -- 7,277,574 $73 13,081,500 $131 $64,242 $(2,732)
========== ======== ========= === ========== ==== ======= =======
<CAPTION>
DEFICIT TOTAL
-------- --------
<S> <C> <C>
Balance, October 1, 1997
(inception)....................... $ -- $ --
Net loss.......................... (353) (353)
-------- --------
Balance, December 31, 1997.......... (353) (353)
Net loss.......................... (3,440) (3,440)
-------- --------
Balance, December 31, 1998.......... (3,793) (3,793)
Net loss (1/1/99-6/30/99)......... (4,425) (4,425)
Capitalization of the Company by
The Vitamin Shoppe on June 30,
1999............................ 8,218 1
Sale of Series A convertible
preferred stock................. -- 23,558
Sale of common stock.............. -- 45,126
Issuance of common stock upon
conversion of preferred stock... -- --
Deferred stock-based
compensation.................... -- --
Amortization of deferred
stock-based compensation........ -- 1,247
Net loss (7/1/99-12/31/99)........ (25,776) (25,776)
-------- --------
Balance, December 31, 1999.......... $(25,776) $ 35,938
======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 34
VITAMINSHOPPE.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1, 1997 YEAR ENDED DECEMBER 31,
(INCEPTION) TO -----------------------
DECEMBER 31, 1997 1998 1999
----------------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(353) $(3,440) $(30,201)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... -- 21 226
Amortization of deferred stock-based
compensation.................................... -- -- 1,247
Deferred rent/other............................... -- 102 482
Changes in operating assets and liabilities:
Accounts receivable............................... -- (35) (224)
Inventory......................................... -- -- (35)
Prepaid expenses and other current assets......... -- (94) (4,569)
Accounts payable and accrued liabilities.......... -- 722 11,916
----- ------- --------
Net cash used in operating activities................ (353) (2,724) (21,158)
----- ------- --------
Cash flows from investing activities:
Capital expenditures................................. -- (506) (5,925)
----- ------- --------
Net cash used in investing activities................ -- (506) (5,925)
----- ------- --------
Cash flows from financing activities:
Increase in Note due to The Vitamin Shoppe........... 353 3,230 2,220
Repayment of Note due to The Vitamin Shoppe.......... -- -- (5,803)
Issuance of Series A convertible preferred stock..... -- -- 23,558
Issuance of common stock............................. -- -- 45,127
----- ------- --------
Net cash provided by financing activities............ 353 3,230 65,102
----- ------- --------
Net increase in cash and cash equivalents.............. -- -- 38,019
Cash and cash equivalents -- beginning of period....... -- -- --
----- ------- --------
Cash and cash equivalents -- end of period............. $ -- $ -- $ 38,019
===== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................... $ -- $ -- $ 531
===== ======= ========
Income taxes...................................... $ -- $ -- $ --
===== ======= ========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 35
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND
THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
VitaminShoppe.com, Inc. (the "Company" or "VitaminShoppe.com") is an online
provider of 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 Web
site. The Company was incorporated in Delaware in May 1999 and capitalized by
The Vitamin Shoppe in June 1999. See Note 6.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
For all periods prior to July 1, 1999, the financial statements have been
prepared as if the Company operated as a stand-alone entity since inception.
Thus, the financial information related to those periods 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 actually been a separate,
stand-alone entity.
For the periods prior to July 1, 1999, the financial statements include
allocations of expenses incurred by The Vitamin Shoppe in support of the
Company. These allocations took into consideration personnel, business volume
and other appropriate factors and generally included costs related to
fulfillment, marketing, administrative, general management and other services
provided to the Company by The Vitamin Shoppe. Such allocated charges were $49,
$816 and $786 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,
respectively. Interest expense, net, shown in the financial statements reflects
interest expense at a rate of 8.75 percent per annum on the average amounts due
to The Vitamin Shoppe until November 1999 when the note balance was paid, offset
by interest income in the amount of $217 earned from interest bearing deposit
accounts. Allocations of expenses were estimates based on The Vitamin Shoppe
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
were reasonable. In addition to these allocations, The Vitamin Shoppe supplied
the Company with inventory on an exclusive basis at a charge of 100 percent of
cost.
Effective July 1, 1999 the Company and The Vitamin Shoppe entered into
several intercompany agreements which replaced the expense allocations covering
inventory supply, fulfillment, marketing and administration that were in effect
prior to July 1, 1999 and which cover additional rights and obligations
regarding trademark licenses, co-marketing and databases. Under the intercompany
agreements for inventory supply and fulfillment, The Vitamin Shoppe supplies
inventory to the Company at a cost equal to 105 percent of The Vitamin Shoppe's
product cost and fulfills customer orders at a cost equal to 105 percent of The
Vitamin Shoppe's actual average unit cost per package, plus actual shipping
costs not paid directly by the Company. Both of these services were provided at
100 percent of cost under the allocation approach used prior to July 1, 1999.
The rights and obligations which were added when the intercompany
agreements became effective July 1, 1999 include trademark licenses and
co-marketing. The trademark license agreement provides 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. Under this
agreement, the Company pays The Vitamin Shoppe an annual royalty fee equal to $1
million plus a percentage (which ranges from 5 percent to 1 percent depending
upon volume) of the Company's net sales of The Vitamin Shoppe brand products,
and other products
F-7
<PAGE> 36
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
identified by or branded with The Vitamin Shoppe's trademarks. Under the
co-marketing agreements, The Vitamin Shoppe and the Company provide certain
advertising and promotional references to each other in their respective
catalogue, retail store and web businesses for mutually agreed upon fees.
For the six months ended December 31, 1999, charges for services provided
to the Company by The Vitamin Shoppe were in accordance with the intercompany
agreements and totaled $2.3 million, as shown in the chart below. Accounts
payable and accrued expenses on the accompanying balance sheet at December 31,
1999 include amounts due to The Vitamin Shoppe related to these services in the
amount of $1.1 million.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
Trademark license........................................... $ 703
Co-marketing................................................ 614
Administrative.............................................. 369
Supply and fulfillment...................................... 335
Merchandising............................................... 300
------
Total Expense............................................... $2,321
======
</TABLE>
All merchandise purchases are made from The Vitamin Shoppe. Such purchases
aggregated $1.4 million and $7.6 million for the years ended December 31, 1998
and 1999, respectively. Accounts payable and accrued expenses on the
accompanying balance sheet at December 31, 1999 include amounts due to The
Vitamin Shoppe related to these merchandise purchases in the amount of $1.5
million.
By implementing the intercompany agreements, new charges were created that
were not provided for in the historical financial statements prior to July 1,
1999. On a pro forma basis, had the trademark license and the supply and
fulfillment agreements been in place for all periods presented, the net loss
would have been $4.36 million and $31.0 million for the years ended December 31,
1998 and 1999, respectively. Since July 1, 1999, the charges related to these
intercompany agreements are included in the results of operations.
Online Marketing Arrangements
The Vitamin Shoppe, on behalf of the Company, and the Company since July 1,
1999, on behalf of itself, have 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 Web
sites 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, 1999, the Company's remaining base
payments under such arrangements were approximately $8.4 million and $1.4
million for the years ending December 31, 2000 and 2001, 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.
F-8
<PAGE> 37
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation and
amortization. Software acquired, computers and fixtures and equipment are
depreciated using the straight-line method over their estimated useful lives of
three to ten years. Leasehold improvements are amortized over the lesser of
their estimated useful lives or the lease term. Effective January 1, 1999, the
Company adopted the AlCPA'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 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 years ended December 31, 1998 and 1999 were $0,
$3.0 million and $19.9 million, respectively.
Deferred Rent
Rent expense under operating leases providing for rent abatements and fixed
non-contingent escalations is recognized on a straight-line basis over the term
of each individual underlying lease. The cumulative net excess of recorded rent
expense over lease payments made is included in accounts payable and accrued
expenses on the accompanying balance sheet.
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.
Computation of Basic and Diluted Net Loss Per Share
Net loss per share has been calculated under SFAS No. 128, Earnings per
Share. SFAS No. 128 requires companies to compute earnings per share under two
different methods (basic and diluted). Basic net loss per share is calculated by
dividing the net loss by the weighted average shares of common stock outstanding
during the period. Shares used for this computation consist of 13,081,500 shares
of Class B common stock
F-9
<PAGE> 38
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
issued in connection with the Company's initial capitalization in June 1999 as
if all shares were outstanding for all periods presented. For the year ended
December 31, 1999, diluted net loss per share is equal to basic net loss per
share since potential common shares from the exercise of the stock options and
warrants are antidilutive. At December 31, 1999, securities, the issuance or
exercise of which may result in dilution, consisted of 32,703 shares of Class A
common stock issuable upon the exercise of a warrant and 1,844,768 options to
purchase shares of Class A common stock. VitaminShoppe.com evaluated the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 98, and concluded that there are no nominal issuances of common stock
or potential common stock required to be shown as outstanding for all periods as
outlined in SAB No. 98.
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 Web site
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, 1998 and 1999, 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.
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 SFAS 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 to provide a pro forma disclosure
of the impact of applying the fair value method of SFAS No. 123. See Note 6.
Comprehensive Income
The Company has no reconciling items to comprehensive income, therefore,
net loss and comprehensive loss are the same.
Disclosures About Segments of an Enterprise and Related Information
The Company currently operates as one segment.
F-10
<PAGE> 39
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Pronouncements
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 disclosures.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ------
(IN THOUSANDS)
<S> <C> <C>
Website development costs................................... $ -- $4,340
Computer hardware........................................... 268 1,169
Software.................................................... 200 652
Leasehold improvements...................................... 10 137
Fixtures and equipment...................................... 28 133
---- ------
506 6,431
Accumulated depreciation and amortization................... (21) (247)
---- ------
$485 $6,184
==== ======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
---- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $ -- $ 2,611
Advertising and marketing................................... 722 3,487
Website development costs................................... -- 1,561
Professional fees........................................... -- 861
Other accrued expenses...................................... 102 2,067
---- -------
Total accounts payable and other accrued expenses........... $824 $10,587
==== =======
</TABLE>
5. COMMITMENTS
At December 31, 1999, the Company is obligated under online marketing
agreements with web portals and strategic partners for future payments
aggregating $9.8 million 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
annually, unless the executive is dismissed for cause or upon disability or
death. See Note 8.
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 as security for its lease commitment. Rental payments under this
lease for the period from September 1999 through November 2003 approximate $35
per
F-11
<PAGE> 40
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
month and aggregate $1.8 million over the lease term. Rental expense was $182
for the year ended December 31, 1999.
6. STOCKHOLDERS' EQUITY
a. Capital Transactions
The Company was incorporated in May 1999 and was capitalized in June 1999.
The Company was capitalized by the issuance to The Vitamin Shoppe of 1,000
shares of common stock, par value $.01 per share, for a purchase price of $1 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. 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. Prior to July 1, 1999, the Company was operated as a division of The
Vitamin Shoppe. Through its ownership of the Class B common stock, The Vitamin
Shoppe currently holds approximately 91.5 percent of the voting power of all
outstanding common stock.
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 The Vitamin Shoppe or affiliates of these stockholders. As
described below, in July 1999 these notes were converted into shares of 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 were 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 transaction were approximately $23.6 million. Of the gross
proceeds, $10.0 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 the noteholders and other persons for
cash consideration of $15.0 million. The Company also issued warrants to
purchase an equivalent of 32,703 shares of Class A common stock at a price of
$9.15 per share, subsequently amended to $11.00, to Thomas Weisel Partners LLC
in consideration for its services as placement agent in this transaction. All
shares of the Series A convertible preferred stock converted into an aggregate
of 2,732,119 shares of the Class A common stock upon the closing of the
Company's initial public offering. The estimated fair value of the warrants
issued to the placement agent of approximately $86 was recorded as an additional
expense of the issuance and was credited to additional paid-in capital in the
balance sheet.
On September 9, 1999, the Company's Board of Directors approved a
1.539-for-l 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 and footnotes
reflect the stock split for all periods presented.
On October 8, 1999, the Company sold 4,545,455 shares of its Class A common
stock in an initial public offering at a price of $11.00 per share. The gross
proceeds from the offering were $50 million. The net proceeds were $45.1 million
after deducting the underwriting discounts and commissions of $3.5 million and
other offering expenses of $1.4 million.
In connection with the initial public offering, the 1,775,260 shares of
Series A convertible preferred stock converted into 2,732,119 shares of Class A
common stock. As reflected in the balance sheet the carrying amount of the
Series A convertible preferred stock was credited to Class A common stock par
value and to additional paid-in capital.
F-12
<PAGE> 41
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total shares outstanding at December 31, 1999 consisted of 7,277,574 shares
of Class A common stock and 13,081,500 shares of Class B common stock for total
shares outstanding of 20,359,074 shares.
b. Stock Options
In July 1999, dated July 1, 1999, the Company established the
VitaminShoppe.com, Inc. Stock Option Plan for Employees (the "Employee Plan"),
which provides for the granting of stock options, including incentive stock
options and non-qualified stock options. The Company 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 Non-employee 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 non-employee director. The Company reserved 461,700
shares of Class A common stock for grant.
During the period from June 14, 1999 through October 7, 1999, the Company
granted to twenty employees and two directors options to purchase 1,302,510
shares of Class A common stock at exercise prices of $3.82 and $9.15 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 approximately $3.9 million during the year ended December 31,
1999. The deferred stock-based compensation is being amortized over the vesting
period of the underlying options. Total amortization of stock-based compensation
recognized during the year ended December 31, 1999 was approximately $1.2
million, inclusive of approximately $697 of 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. Subsequent to December 31, 1999, two of the
executive officers that were granted stock options prior to October 7, 1999,
resigned their positions with the Company. During the first quarter 2000, the
Company expects to eliminate approximately $1.9 million of unamortized deferred
stock based compensation by removing it from the additional paid in capital
where it was originally recorded, and there will no longer be expense associated
with these options.
Since October 8, 1999, the Company has granted to 20 employees and 5
directors options to purchase 631,829 shares of Class A common stock at exercise
prices ranging from $8.53 to $14.47 (the then current fair market value on the
dates of grant). The options expire 10 years from the date of grant and vest
ratably over a period of three years.
F-13
<PAGE> 42
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option transactions during the year ended December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding, beginning of year.............................. -- $ --
Granted..................................................... 1,934,339 8.24
Exercised................................................... -- --
Forfeited................................................... (91,571) 9.15
--------- -----
Outstanding, end of year.................................... 1,842,768 $8.20
========= =====
Options exercisable at year end............................. 130,815 $3.82
========= =====
Options available for future grant.......................... 927,432
=========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF OPTIONS CONTRACTUAL LIFE WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
3.82 569,045 9.42 $ 3.82 130,815 $3.82
8.53 - 9.44 679,394 9.69 9.14 -- --
11.00 - 14.47 594,329 9.77 11.31 -- --
--------- ---- ------ ------- -----
1,842,768 9.63 $ 8.20 130,815 $3.82
========= ==== ====== ======= =====
</TABLE>
During January 2000, 703,185 options were forfeited with a weighted-average
exercise price of $7.29.
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 year end December 31,
1999 (in thousands):
<TABLE>
<S> <C>
Net loss -- as reported..................................... $(30,201)
========
Incremental pro forma compensation expense under SFAS No.
123....................................................... $ (242)
========
Net loss -- pro forma....................................... $(30,443)
========
Basic and diluted net loss per share -- as reported......... $ (2.05)
========
Basic and diluted net loss per share -- pro forma........... $ (2.07)
========
</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 December 31, 1999:
<TABLE>
<S> <C>
Average risk-free interest rate............................. 5.21%
Average expected life....................................... 3.0 years
Volatility.................................................. 33.33%
</TABLE>
For purposes of the pro forma disclosures, the estimated weighted average
fair value of the options granted, estimated to be $5.54 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
F-14
<PAGE> 43
VITAMINSHOPPE.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in the accompanying financial statements of $4.86 per share for those options
that were granted below the fair market value on the date of grant.
d. Parent Company Restrictions
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 lenders could take ownership of the Class B common stock,
which would convert to 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.
7. INCOME TAXES
The Company's operating results through June 30, 1999 were included in the
consolidated income tax returns of The Vitamin Shoppe. Through June 30, 1999,
The Vitamin Shoppe did not allocate to the Company its share of income tax
liabilities or benefits attributable to the Company's proportionate share of
operating results. Since July 1, 1999, the Company is no longer included in the
consolidated income tax return of The Vitamin Shoppe and, therefore, the
Company's income tax provisions have been calculated on a separate return basis.
Since the capitalization of the Company on July 1, 1999, when the Company
ceased to be part of The Vitamin Shoppe's consolidated group, losses generated
are available to offset any future taxable income for 20 years. Deferred tax
assets normally recorded to reflect the future benefit may or may not be shown
as realizable, depending on the Company's ability to demonstrate the likelihood
of future profitability.
As of December 31, 1999, the Company has a net operating loss carry forward
that, if utilized, provides a future tax benefit of approximately $10.3 million
at an effective tax rate of 40 percent. Due to the uncertainty of the
realization of this net operating loss carry forward in the future, the Company
has provided a valuation allowance to offset this deferred tax asset.
Included in the statement of operations for the year ended December 31,
1999 is an income tax provision that consists of minimum state taxes.
8. SUBSEQUENT EVENTS
In January 2000, the president and CEO and the chief marketing officer
resigned their positions with the Company. In connection with these
resignations, the Company will record approximately $842 of severance expense
during the first quarter of fiscal 2000 representing approximately $607 of cash
compensation in accordance with their employment agreements, and approximately
$235 of accelerated vesting of stock options. Additionally, the Company will
eliminate approximately $1.9 million of unamortized deferred stock based
compensation that was previously recorded as additional paid in capital.
F-15
<PAGE> 44
EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.1 Second Amended and Restated Certificate of Incorporation of
the registrant, incorporated by reference to exhibit 3.1 to
the Registration Statement on Form S-1 of the registrant
(File. No. 333-83849).
3.2 Amended and Restated Bylaws of the registrant.
3.3 Certificate of Designation, Powers, Preferences and Rights
of Series A Convertible Preferred Stock of the registrant,
incorporated by reference to exhibit 3.3 of the Registration
Statement on Form S-1 of the registrant (File No.
333-83849).
3.4 Certificate of Amendment of Second Amended and Restated
Certificate of Incorporation of the registrant, incorporated
by reference to exhibit 3.4 of the Registration Statement on
Form S-1 of the registrant (File No. 333-83849).
4.1 Specimen Class A common stock certificate of the registrant,
incorporated by reference to exhibit 4.1 of the Registration
Statement on Form S-1 of the registrant (File No.
333-83849).
4.2 See exhibits 3.1, 3.2 and 3.4 for provisions of the
certificate of incorporation and bylaws of the registrant
that govern the rights of holders of the securities
registered.
10.1 Assignment and Assumption of Contracts dated as of June 30,
1999 between the registrant and Vitamin Shoppe Industries
Inc., incorporated by reference to exhibit 10.1 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.2 Bill of Sale dated as of June 30, 1999 between the
registrant and Vitamin Shoppe Industries Inc., incorporated
by reference to exhibit 10.2 of the Registration Statement
on Form S-1 of the registrant (File No. 333-83849).
10.3 Assignment of Domain Name dated as of June 30, 1999 between
the registrant and Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.3 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.4 Intercompany Note dated as of June 30, 1999 made by the
registrant and payable to Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.4 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.5 Convertible Subordinated Note Purchase Agreement dated as of
July 9, 1999 between the registrant and the purchasers named
therein, incorporated by reference to exhibit 10.5 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.6 Form of Convertible Subordinated Note dated as of July 9,
1999 made by the registrant with attached schedule
describing purchaser and principal amount of note.
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,
incorporated by reference to exhibit 10.7 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
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, incorporated by reference to
exhibit 10.8 of the Registration Statement on Form S-1 of
the registrant (File No. 333-83849).
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, incorporated by
reference to exhibit 10.9 of the Registration Statement on
Form S-1 of the registrant (File No. 333-83849).
</TABLE>
26
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
10.10 Irrevocable Commitment to Convert by holders of Series A
Convertible Preferred Stock of the registrant, incorporated
by reference to exhibit 10.39 of the Registration Statement
on Form S-1 of the registrant (File No. 333-83849).
10.11 Series A Convertible Preferred Stock Purchase Warrant dated
as of July 27, 1999 of the registrant in favor of Thomas
Weisel Partners LLC, incorporated by reference to exhibit
10.10 of the Registration Statement on Form S-1 of the
registrant (File No. 333-83849).
10.12 Amendment No. 1 dated as of September 22, 1999 to the Series
A Convertible Preferred Stock Purchase Warrant A-1 of the
registrant in favor of Thomas Weisel Partners LLC,
incorporated by reference to exhibit 10.46 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.13 Trademark License Agreement dated as of July 1, 1999 between
the registrant and Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.11 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.14 Supply and Fulfillment Agreement dated as of July 1, 1999
between the registrant and Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.12 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.15 Co-Marketing Agreement dated as of July 1, 1999 between the
registrant and Vitamin Shoppe Industries Inc., incorporated
by reference to exhibit 10.13 of the Registration Statement
on Form S-1 of the registrant (File No. 333-83849).
10.16 Administrative Services Agreement dated as of July 1, 1999
between the registrant and Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.14 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.17 Database Agreement dated as of July 1, 1999 between the
registrant and Vitamin Shoppe Industries Inc., incorporated
by reference to exhibit 10.15 of the Registration Statement
on Form S-1 of the registrant (File No. 333-83849).
10.18 Intercompany Indemnification Agreement dated as of July 1,
1999 between the registrant and Vitamin Shoppe Industries
Inc., incorporated by reference to exhibit 10.16 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.19 Tax Allocation Agreement dated as of July 1, 1999 between
the registrant and Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.17 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.20 Sublease Agreement dated as of July 14, 1999 between Yahoo!
Inc. and Vitamin Shoppe Industries Inc., incorporated by
reference to exhibit 10.18 of the Registration Statement on
Form S-1 of the registrant (File No. 333-83849).
10.21 Consulting Agreement dated as of June 14, 1999 between the
registrant and Kathryn H. Creech, incorporated by reference
to exhibit 10.20 of the Registration Statement on Form S-1
of the registrant (File No. 333-83849).
10.22 Employment and Noncompetition Agreement dated as of June 14,
1999 between the registrant and Kathryn H. Creech,
incorporated by reference to exhibit 10.19 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.23 VitaminShoppe.com, Inc. Amended and Restated Stock Option
Plan for Employees dated as of July 1, 1999 and amended and
restated as of March 16, 2000.
10.24 Form of Nonqualified Stock Option Agreement between the
registrant and employee with attached schedule describing
actual option grants.
10.25 Amended and Restated Stock Option Plan for Non-Employee
Directors dated as of August 1, 1999 and amended and
restated as of March 16, 2000.
</TABLE>
27
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
10.26 Form of Non-Employee Director Stock Option Agreement between
the registrant and Non-Employee Director with attached
schedule describing actual option grants.
10.27 Sponsorship Agreement dated as of September 23, 1998 between
Vitamin Shoppe Industries Inc. and Excite, Inc.,
incorporated by reference to exhibit 10.26 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).*
10.28 Advertising Insertion Order dated as of November 1, 1998
between Vitamin Shoppe Industries Inc. and Yahoo!,
incorporated by reference to exhibit 10.27 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).*
10.29 NetGravity AdServer Network License Agreement dated as of
December 17, 1998 between Vitamin Shoppe Industries Inc. and
NetGravity, Inc., incorporated by reference to exhibit 10.28
of the Registration Statement on Form S-1 of the registrant
(File No. 333-83849).
10.30 Letter agreement dated as of December 17, 1998 between
Vitamin Shoppe Industries Inc. and Time Inc. New Media
related to Ask Dr. Weil Web site, incorporated by reference
to exhibit 10.29 of the Registration Statement on Form S-1
of the registrant (File No. 333-83849).*
10.31 Agreement dated as of February 1, 1999 between Vitamin
Shoppe Industries Inc. and Virtual Communities, Inc.,
incorporated by reference to exhibit 10.30 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).
10.32 Sponsorship Agreement dated as of March 11, 1999 between
Vitamin Shoppe Industries Inc. and drkoop.com, Inc.,
incorporated by reference to exhibit 10.31 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).*
10.33 Sponsorship Agreement dated as of March 31, 1999 between
Vitamin Shoppe Industries Inc. and OnHealth Network Company,
incorporated by reference to exhibit 10.32 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).*
10.34 Strategic Planning Services Agreements dated as of April 29,
1999 between Vitamin Shoppe Industries Inc. and Jupiter
Communications, L.L.C., incorporated by reference to exhibit
10.33 of the Registration Statement on Form S-1 of the
registrant (File No. 333-83849).
10.35 Letter Agreement dated as of May 24, 1999 between Vitamin
Shoppe Industries Inc. and Time Inc. New Media related to
Dr. Bernie Siegel Web site, incorporated by reference to
exhibit 10.34 of the Registration Statement on Form S-1 of
the registrant (File No. 333-83849).*
10.36 Sponsorship and Advertising Agreement dated as of April 16,
1999 between Vitamin Shoppe Industries Inc. and
InteliHealth, Inc., incorporated by reference to exhibit
10.35 of the Registration Statement on Form S-1 of the
registrant (File No. 333-83849).*
10.37 Memorandum of Engagement dated as of June 7, 1999 between
Compelling Content and the registrant, incorporated by
reference to exhibit 10.36 of the Registration Statement on
Form S-1 of the registrant (File No. 333-83849).
10.38 License Agreement dated as of October 5, 1998 between
HealthNotes, Inc. and Vitamin Shoppe Industries Inc.,
incorporated by reference to exhibit 10.37 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).*
10.39 AOL Advertising Insertion Order dated as of August 27, 1999
between the registrant and America Online, Inc.,
incorporated by reference to exhibit 10.45 of the
Registration Statement on Form S-1 of the registrant (File
No. 333-83849).*
10.40 Offer Letter dated as of September 15, 1999 between the
registrant and Philip Teplitzky.
10.41 Offer Letter dated as of October 6, 1999 between the
registrant and Ann M. Sardini.
10.42 Separation and Release Agreement dated as of January 17,
2000 between the registrant and Kathryn Creech.
10.43 Separation and Release Agreement dated as of February 8,
2000 between the registrant and Eliot D. Russman.
</TABLE>
28
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
10.44 Letter agreement dated as of June 15, 1999 between the
registrant and Time Inc. New Media related to Ask Dr. Weil,
Dr. Ruth Westheimer! and Alice Waters Web sites.**
10.45 Letter agreement dated as of August 16, 1999 between the
registrant and Sapient Corporation.**
11.1 Statement regarding computation of per share earnings of the
registrant.
27.1 Financial data schedule.
</TABLE>
- ---------------
* Request for confidential treatment granted. Confidential portions of this
document have been redacted and filed separately with the Securities and
Exchange Commission.
** Confidential treatment requested. Confidential portions of this document have
been redacted and filed separately with the Securities and Exchange
Commission.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1999.
29
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VITAMINSHOPPE.COM, INC.
(Registrant)
Date: March 30, 2000 By: /s/ JEFFREY J. HOROWITZ
------------------------------------
Jeffrey J. Horowitz
President and Chief Executive
Officer
By: /s/ ANN M. SARDINI
------------------------------------
Ann M. Sardini
Chief Financial Officer, Treasurer
and Secretary
Chief Accounting Officer
30
<PAGE> 49
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 30, 2000 /s/ M. ANTHONY FISHER
--------------------------------------------------------
M. Anthony Fisher
Chairman of the Board of Directors
and a Director
Date: March 30, 2000 /s/ JEFFREY J. HOROWITZ
--------------------------------------------------------
Jeffrey J. Horowitz
Director
Date: March 30, 2000 /s/ MICHAEL C. BROOKS
--------------------------------------------------------
Michael C. Brooks
Director
Date: March 30, 2000 /s/ MARTIN L. EDELMAN
--------------------------------------------------------
Martin L. Edelman
Director
Date: March 30, 2000 /s/ BARBARA S. FEIGIN
--------------------------------------------------------
Barbara S. Feigin
Director
Date: March 30, 2000 /s/ DAVID S. GELLMAN
--------------------------------------------------------
David S. Gellman
Director
Date: March 30, 2000 /s/ WOODSON C. MERRELL
--------------------------------------------------------
Woodson C. Merrell, M.D.
Director
Date: March 30, 2000 /s/ STEPHEN P. MURRAY
--------------------------------------------------------
Stephen P. Murray
Director
</TABLE>
31
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
3.2 Amended and Restated Bylaws of the registrant.
10.6 Form of Convertible Subordinated Note dated as of July 9,
1999 made by the registrant with attached schedule
describing purchaser and principal amount of note.
10.23 VitaminShoppe.com, Inc. Amended and Restated Stock Option
Plan for Employees dated as of July 1, 1999 and amended and
restated as of March 16, 2000.
10.24 Form of Nonqualified Stock Option Agreement between the
registrant and employee with attached schedule describing
actual option grants.
10.25 Amended and Restated Stock Option Plan for Non-Employee
Directors dated as of August 1, 1999 and amended and
restated as of March 16, 2000.
10.26 Form of Non-Employee Director Stock Option Agreement between
the registrant and Non-Employee Director with attached
schedule describing actual option grants.
10.40 Offer Letter dated as of September 15, 1999 between the
registrant and Philip Teplitzky.
10.41 Offer Letter dated as of October 6, 1999 between the
registrant and Ann M. Sardini.
10.42 Separation and Release Agreement dated as of January 17,
2000 between the registrant and Kathryn Creech.
10.43 Separation and Release Agreement dated as of February 8,
2000 between the registrant and Eliot D. Russman.
10.44 Letter agreement dated as of June 15, 1999 between the
registrant and Time Inc. New Media related to Ask Dr. Weil,
Dr. Ruth Westheimer! and Alice Waters Web sites.**
10.45 Letter agreement dated as of August 16, 1999 between the
registrant and Sapient Corporation.**
11.1 Statement regarding computation of per share earnings of the
registrant.
27.1 Financial data schedule.
</TABLE>
- ---------------
** Confidential treatment requested. Confidential portions of this document have
been redacted and filed separately with the Securities and Exchange
Commission.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
VITAMINSHOPPE.COM, INC.
ARTICLE I
STOCKHOLDERS
Section 1.01. ANNUAL MEETING. An annual meeting of stockholders for the
purpose of electing directors and transacting such other business as may come
before the meeting, shall be held each year on such date, at such time and at
such place as may be specified by the Board of Directors (the "Board").
Section 1.02. SPECIAL MEETINGS. Special meetings of the stockholders may
be held at any time on call of the Chairman of the Board, any Vice Chairman of
the Board, the President or a majority of the Board. Only business related to
the purposes set forth in the notice of the meeting may be transacted at a
special meeting.
Section 1.03. PLACE AND TIME OF MEETINGS. Meetings of the stockholders
may be held in or outside the State of Delaware at the place and time specified
by the Board or the officers requesting the meeting.
Section 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Written notice of
each meeting of stockholders shall be given to each stockholder entitled to vote
at the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting
and (b) no notice of an adjourned meeting need be given, except when required
under section 1.06 or by law. Each notice of a meeting shall be given,
personally or by mail, not fewer than 10 nor more than 60 days before the
meeting and shall state the time and place of the meeting, and, unless it is the
annual meeting, shall state at whose direction or request the meeting is called
and the purposes for which it is called. Such notice shall specify the place
where the stockholders list will be open for examination prior to the meeting if
required by section 1.10. If mailed, notice shall be considered given when
mailed to a stockholder at his address on the Corporation's records. The
attendance of any stockholder at a meeting, without protesting at the beginning
of the meeting that the meeting is not lawfully called or convened, shall
constitute a waiver of notice by him. In the event of a transfer of shares after
notice has been given and prior to the holding of the meeting, it shall not be
necessary to serve notice on the transferee.
Section 1.05. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If the Board fails to fix such
<PAGE> 2
a record date, (i) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held, and (ii) in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders, the record date for determining stockholders for such purpose
shall be the close of business on the day on which the Board adopts the
resolution relating thereto. Determination of stockholders entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of such
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
Section 1.06. QUORUM; ADJOURNMENT. A meeting of stockholders duly called
shall not be organized for the transaction of business unless a quorum is
present. Except as otherwise expressly provided by law, or in the certificate of
incorporation or these bylaws, at any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the shares entitled to vote
shall constitute a quorum for the transaction of any business. The stockholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. In the absence of a quorum, a majority in voting interest of
those present or, if no stockholders are present, any officer entitled to
preside at or to act as secretary of the meeting, may adjourn the meeting until
a quorum is present. Any meeting of stockholders, annual or special, may adjourn
from time to time to reconvene at the same or some other place. No notice of an
adjourned meeting need be given, if the time and place are announced at the
meeting at which the adjournment is taken, except that, if adjournment is for
more than 30 days or if, after the adjournment, a new record date is fixed for
the meeting, notice of the adjourned meeting shall be given pursuant to section
1.04. At any adjourned meeting at which a quorum is present, any action may be
taken that might have been taken at the meeting as originally called.
Section 1.07. ORGANIZATION. The Chairman of the Board, or in his absence,
the Vice Chairman of the Board, or in their absence one of the following
officers, the President or any Vice President (in order of seniority) shall call
to order meetings of stockholders, and shall act as chairman of such meetings.
The Board or, if the Board fails to act, the stockholders may appoint any
stockholder, director or officer of the Corporation to act as chairman of any
meeting in the absence of the Chairman of the Board, the Vice Chairman of the
Board, the Chief Executive Officer, the President and all Vice Presidents. The
Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
Section 1.08. VOTING. (a) Each stockholder of record shall, at each
meeting of the stockholders, be entitled to vote in person or by proxy each
share or fractional share of the capital stock of the Corporation having voting
rights on the matter in question and which shall have been held by him and
registered in his name on the books of the Corporation on the date fixed
pursuant to section 1.05 as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting. Corporate action
to be taken by stockholder vote, other than the election of
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directors, shall be authorized by the holders of a majority of the votes cast at
a meeting of stockholders, except as otherwise provided by law.
(b) Directors shall be elected in the manner provided in section 2.03.
Voting need not be by ballot, unless requested by a majority of the stockholders
entitled to vote at the meeting or ordered by the chairman of the meeting. Each
stockholder entitled to vote at any meeting of stockholders or to express
consent to or dissent from corporate action in writing without a meeting may
authorize another person to act for him by proxy. No proxy shall be valid after
three years from its date, unless it provides otherwise.
Section 1.09. INSPECTORS. The Board, in advance of any meeting of the
stockholders, may appoint one or more inspectors to act at the meeting. If
inspectors are not so appointed, the person presiding at the meeting may appoint
one or more inspectors. If any person so appointed fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the meeting
or at the meeting by the person presiding thereat. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at the meeting with strict
impartiality and according to the best of his ability. The inspectors so
appointed shall determine the number of shares outstanding, the shares
represented at the meeting, the existence of a quorum and the authenticity,
validity and effect of proxies and shall receive votes, ballots, waivers,
releases, or consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes, ballots,
waivers, releases or consents, determine and announce the results and do such
acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the inspectors
shall make a report in writing of any challenge, question or matter determined
by them and execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts stated and
of the vote as certified by them.
Section 1.10. LIST OF STOCKHOLDERS. The Secretary shall prepare and make
a complete list of the stockholders of record as of the applicable record date
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 1.11. STOCKHOLDERS. At an annual meeting of the stockholders,
only such business shall be conducted as shall have been brought before the
meeting (a) pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board or (c) by a stockholder of the Corporation who is a
stockholder of record at the time of giving the notice provided for in this
section 1.11, who shall be entitled to vote at such meeting and who complies
with the notice procedures set forth in this section 1.11. For business to be
properly brought before an annual meeting by a stockholder
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pursuant to clause (c) above, the stockholder must give timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than 120 days nor more than 150 days prior to the first anniversary of
the date of the Corporation's notice of annual meeting provided with respect to
the previous year's annual meeting of stockholders. Notwithstanding the
foregoing, 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 such anniversary, notice shall be timely
if received before the earlier of (i) 60 days prior to the annual meeting of
stockholders or (ii) 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. A stockholder's notice to the Secretary shall set forth as to each
matter that the stockholder proposes to bring before the meeting (A) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (B) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, and the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, (C) the class and number of shares of capital stock
of the Corporation that are owned beneficially and of record by such stockholder
of record and by the beneficial owner, if any, on whose behalf the proposal is
made and (D) any material interest of such stockholder of record and such
beneficial owner, if any, in such business. Notwithstanding any in this section
1.11 to the contrary, no business shall be conducted at an annual meeting except
in accordance with the procedures set forth in this section 1.11. The chairman
of the meeting shall, if the facts warrant, determine and declare to the meeting
whether business was properly brought before the meeting in accordance with the
procedures prescribed by these bylaws, and if he should so determine, he shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this section 1.11, a stockholder shall comply with all applicable requirements
of the Securities Exchange Act of 1934, and the rules and regulations
thereunder, with respect to the matters set forth in this section 1.11.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. GENERAL POWERS OF BOARD. The powers of the Corporation
shall be exercised, its business and affairs conducted, and its property
controlled by the Board, except as otherwise provided by of Delaware law or in
the certificate of incorporation.
Section 2.02. NUMBER OF DIRECTORS. The initial number of directors which
shall constitute the whole Board shall be fixed by resolution of the Board at no
less than six nor more than ten; provided, however, that the Board, by
resolution adopted by vote of a majority of the then authorized number of
directors, or the stockholders, may increase or decrease the number of
directors, but no decrease may shorten the term of any incumbent director. As
used in these bylaws, the term "entire Board" means the total number of
directors which the Corporation would have if there were no vacancies.
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Section 2.03. NOMINATION, ELECTION AND TERM OF DIRECTORS. Nominations for
the election of directors may be made by the Board or by any stockholder
entitled to vote for the election of directors. Such nominations, if not made by
the Board, shall be made by notice in writing, in accordance with the notice
procedures set forth in section 1.11 of these bylaws. Notice of nominations
which are proposed by the Board shall be given on behalf of the Board by the
chairman of the meeting. The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Directors shall be elected at each annual meeting of stockholders and shall hold
office until the next annual meeting of stockholders and until the election and
qualification of their respective successors, subject to section 2.12.
Section 2.04. ANNUAL AND REGULAR MEETINGS. Annual meetings of the Board,
for the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of stockholders
and at the same place or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in section 2.06. Regular meetings of the
Board may be held without notice at such times and places as the Board
determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
Section 2.05. SPECIAL MEETINGS. Special meetings of the Board shall be
held at such time and place as shall be designated in the notice of the meeting
whenever called by the Chairman of the Board, any Vice Chairman of the Board,
the President (if a director) or by a majority of the Board.
Section 2.06. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the time
and place of each special meeting of the Board, and of each annual meeting not
held immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting. Such
notice shall specify the place, date and hour of the meeting and, if it is for a
special meeting, the purpose or purposes for which the meeting is called. Any
acts or proceedings taken at a meeting of the Board not validly called or
constituted may be made valid and fully effective by ratification at a
subsequent meeting which shall be legally and validly called or constituted.
Notice of any regular meeting of the Board need not state the purpose of the
meeting and, at any regular meeting duly held, any business may be transacted.
If the notice of a special meeting shall state as a purpose of the meeting the
transaction of any business that may come before the meeting, then at the
meeting any business may be transacted, whether or not referred to in the notice
thereof. A written waiver of notice of a special or regular meeting, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein shall be deemed the equivalent of such notice, and attendance of
a director at a meeting shall constitute a waiver of notice of such meeting
except when the director attends the meeting and prior to or at the commencement
of such meeting protests the lack of proper notice. Notice of any adjourned
meeting need not be given, other than by announcement at the meeting at which
the adjournment is taken.
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Section 2.07. PLACE OF MEETING. The Board may hold any of its meetings in
or outside the State of Delaware, at the principal office of the Corporation or
at such other place or places as the Board may from time to time designate.
Directors may participate in any regular or special meeting of the Board by
means of conference telephone or similar communications equipment pursuant to
which all persons participating in the meeting of the Board can hear each other,
and such participation shall constitute presence in person at such meeting.
Section 2.08. QUORUM AND MANNER OF ACTING. A majority of the entire Board
shall constitute a quorum for the transaction of business at any meeting, except
as provided in section 2.13. Action of the Board shall be authorized by the vote
of the majority of the directors present at the time of the vote, if there is a
quorum, unless otherwise provided by law or these Bylaws. In the absence of a
quorum, a majority of the directors present may adjourn any meeting from time to
time until a quorum is present.
Section 2.09. COMMITTEES. The Board may, by resolution adopted by a
majority of the entire Board, designate one or more committees, each committee
to consist of one or more directors of the Corporation; provided that persons
who are not directors of the Corporation may also be members of such committees
to the extent provided in the resolution of the Board. The Board may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board and permitted
by law, shall have and may exercise all of the powers and authority of the Board
in the management of the business, property and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Each committee of the Board may fix its own rules and procedures.
Notice of meetings of committees, other than of regular meetings provided for by
the rules, shall be given to committee members. All action taken by committees
shall be recorded in minutes of the meetings.
Section 2.10. BOARD OR COMMITTEE ACTION WITHOUT A MEETING. Any action
required or permitted to be taken by the Board or by any committee of the Board
may be taken without a meeting, if all the members of the Board or the committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents by the members of the Board or the committee
shall be filed with the minutes of the proceedings of the Board or the
committee.
Section 2.11. PARTICIPATION IN BOARD OR COMMITTEE MEETINGS BY CONFERENCE
TELEPHONE. Any or all members of the Board or any committee of the Board may
participate in a meeting of the Board or the committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
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Section 2.12. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may
resign at any time by giving written notice to the Chairman of the Board or the
Secretary. Such resignation shall take effect at the time specified therein,
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. Any or all of the directors may be
removed at any time by the holders of a majority of the shares entitled at the
time to vote at an election of directors, but only for cause so long as the
certificate of incorporation provides for the classification of the Board.
Section 2.13. VACANCIES. Any vacancy in the Board, including one created
by an increase in the number of directors, may be filled for the unexpired term
by a majority vote of the remaining directors, though less than a quorum.
Section 2.14. COMPENSATION. Directors shall receive such compensation as
the Board determines, together with reimbursement of their reasonable expenses
in connection with the performance of their duties. A director also may be paid
for serving the Corporation or its affiliates or subsidiaries in other
capacities.
ARTICLE III
OFFICERS
Section 3.01. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be the President, one or more Vice Presidents, the Secretary
and the Treasurer. Any person may hold at one time two or more offices.
Section 3.02. ELECTION, TERMS OF OFFICE. The executive officers of the
Corporation shall be elected annually by the Board, and each such officer shall
hold office until the next annual meeting of the Board and until the election of
his successor, subject to the provisions of section 3.04.
Section 3.03. SUBORDINATE OFFICERS. The Board may appoint subordinate
officers (including assistant secretaries and assistant treasurers), agents or
employees, each of whom shall hold office for such period and have such powers
and duties as the Board determines. The Board may delegate to any executive
officer or committee the power to appoint and define the powers and duties of
any subordinate officers, agents or employees.
Section 3.04. RESIGNATION AND REMOVAL OF OFFICERS. Any officer may resign
at any time by giving written notice to the Chairman of the Board, the President
or the Secretary of the Corporation. Any such resignation shall take effect at
the time specified therein, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
officer elected or appointed by the Board or appointed by an executive officer
or by a committee may be removed by the Board either with or without cause, and
in the case of an officer appointed by an executive officer or by a committee,
by the officer or committee that appointed him or by the President or the
Chairman of the Board.
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Section 3.05. VACANCIES. A vacancy in any office shall be filled in the
manner prescribed in these bylaws for regular appointments or elections to such
office.
ARTICLE IV
DUTIES OF THE OFFICERS
Section 4.01. [Intentionally deleted.]
Section 4.02. [Intentionally deleted.]
Section 4.03. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation. Subject to the control of the Board and the Chairman
of the Board, he shall have general supervision of the business, affairs and
property of the Corporation and shall have such other powers and duties as
presidents of other corporations usually have or as the Board assigns to him.
Section 4.04. VICE PRESIDENTS. Each Vice President shall have such powers
and duties as the Board or the President assigns to him.
Section 4.05. THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall be in charge of the Corporation's books and
accounts. Subject to the control of the Board, he shall have such other powers
and duties as the Board or the President assigns to him.
Section 4.06. THE SECRETARY. The Secretary shall be the secretary of, and
keep the minutes of, all meetings of the Board and the stockholders, shall be
responsible for giving notice of all meetings of stockholders and the Board, and
shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board or the President assigns to him. In the absence
of the Secretary from any meeting, the minutes shall be kept by the person
appointed for that purpose by the presiding officer.
Section 4.07. SALARIES. The Board may fix the officers' salaries, if any,
or it may authorize the President or the Chairman of the Board to fix the salary
of any other officer.
ARTICLE V
CAPITAL STOCK
Section 5.01. CERTIFICATE FOR SHARES. Every owner of one or more shares
of capital stock in the Corporation shall be entitled to a certificate, which
shall be in such form as the Board shall prescribe, certifying the number and
class of shares in the Corporation owned by him. When such
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certificate is counter-signed by an incorporated transfer agent or registrar,
the signature of any of said officers may be facsimile, engraved, stamped or
printed. The certificates for the respective classes of such shares shall be
numbered in the order in which they shall be issued and shall be signed in the
name of the Corporation by the Chairman of the Board or any Vice Chairman of the
Board, or the President or a Vice President, and by the Secretary or any
Assistant Secretary or the Treasurer or an Assistant Treasurer. A record shall
be kept of the name of the person, firm or corporation owning the shares
represented by each such certificate and the number of shares represented
thereby, the date thereof, and in case of cancellation, the date of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificates until such existing
certificates shall have been so canceled.
Section 5.02. LOST, DESTROYED AND MUTILATED CERTIFICATES. If any
certificates for shares in the Corporation become worn, defaced or mutilated but
are still substantially intact and recognizable, the directors, upon production
and surrender thereof, may order the same canceled and issue a new certificate
in lieu of same. The holder of any shares of capital stock in the Corporation
shall immediately notify the Corporation if a certificate therefor shall be
lost, destroyed, or mutilated beyond recognition, and the Corporation may issue
a new certificate in the place of any certificate theretofore issued by it which
is alleged to have been lost or destroyed or mutilated beyond recognition, and
the Board may, in its discretion, require the owner of the certificate which has
been lost, destroyed or mutilated beyond recognition, or his legal
representative, to give the Corporation a bond in such sum and with such surety
or sureties as it may direct, not exceeding double the value of the capital
stock, to indemnify the Corporation against any claim that may be made against
it on account of the alleged loss, destruction or mutilation of any such
certificate. The Board may, however, in its discretion, refuse to issue any such
new certificate except pursuant to legal proceedings.
Section 5.03. TRANSFERS OF SHARES. Transfers of shares of capital stock
in the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, his legal guardian, executor or administrator, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or with a transfer agent appointed by the Board, and on
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by properly executed stock powers and evidence of the payment of
all taxes imposed upon such transfer. The person in whose name shares stand on
the books of the Corporation shall, to the full extent permitted by law, be
deemed the owner thereof for all purposes.
Section 5.04. REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these bylaws concerning the
issue, transfer and registration of certificates for shares of capital stock in
the Corporation. It may appoint one or more transfer agents or one or more
registrars, or both, and may require all certificates for shares to bear the
signature of either or both.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.01. RIGHT TO INDEMNIFICATION. Each person who was or is a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal administrative
or investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as such director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from time to time,
against all costs, charges, expenses, liabilities and losses (including attorney
fees, judgments, fines, amounts paid or to be paid in settlement and other
disbursements) actually and reasonably incurred by such person in connection
therewith, and that indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his heirs, executors and administrators. The right to indemnification conferred
in these bylaws shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the General
Corporation Law of the State of Delaware, as amended from time to time,
requires, the payment of such expenses incurred by a director or officer in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by that person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced, if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under these bylaws or
otherwise. The Corporation may, by action of its Board, provide indemnification
to employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 6.02. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under section
6.01 is not paid in full by the Corporation within 30 days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant also shall be entitled to
be paid the expense of prosecuting that claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition, where the required
undertaking, if any, is required and has been tendered to the Corporation) that
the claimant has failed to meet a standard of conduct that makes it permissible
under Delaware law for the Corporation to indemnify the claimant for the amount
claimed. Neither the failure of the Corporation (including the Board,
independent legal counsel of the Corporation or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is permissible in the circumstances because he has met that
standard
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of conduct, nor an actual determination by the Corporation (including the Board,
independent legal counsel of the Corporation or its stockholders) that the
claimant has not met that standard of conduct, shall be a defense to the action
or create a presumption that the claimant has failed to meet that standard of
conduct.
Section 6.03. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VI shall not be exclusive of any
other right any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.04. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or person who serves or has served at the request of the Corporation
in a similar capacity in another corporation, partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit plans,
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against that expense, liability or
loss under Delaware law.
Section 6.05. EXPENSES AS A WITNESS. To the extent any director, officer,
employee or agent of the Corporation is by reason of such position, or a
position with another entity at the request of the Corporation, a witness in any
action, suit or proceeding, he shall be indemnified against all costs and
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
Section 6.06. INDEMNITY AGREEMENTS. The Corporation may enter into
agreement with any director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permitted by Delaware law.
ARTICLE VII
MISCELLANEOUS
Section 7.01. SEAL. The Board shall adopt a corporate seal, which shall
be in the form of a circle and shall bear the Corporation's name and the year
and state in which it was incorporated.
Section 7.02. FISCAL YEAR. The Board may determine the Corporation's
fiscal year. Until changed by the Board, the last day of the Corporation's
fiscal year shall be December 31.
Section 7.03. VOTING OF SHARES IN OTHER CORPORATIONS. Shares in other
corporations held by the Corporation may be represented and voted by an officer
of this Corporation or by a proxy or proxies appointed by one of them. The Board
may, however, appoint some other person to vote the shares.
Section 7.04. EXECUTION OF INSTRUMENTS GENERALLY. All contracts and other
instruments entered into in the ordinary course of business requiring execution
by the Corporation may be
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executed and delivered by the President, any Vice President or the Treasurer and
authority to sign any such contracts or instruments, which may be general or
confined to specific instances, may be conferred by the Board upon any other
person or persons. Any person having authority to sign on behalf of the
Corporation may delegate, from time to time, by instrument in writing, all or
any part of such authority to any person or persons if authorized so to do by
the Board.
Section 7.05. AGREEMENTS WITH VITAMIN SHOPPE. As long as Vitamin Shoppe
Industries Inc., a New York corporation ("VSI"), has direct or beneficial
ownership of 30% or more of the voting power of the capital stock of the
Corporation, the Corporation shall not enter into any material agreement with
VSI or any of its subsidiaries (other than the Corporation and subsidiaries of
the Corporation), unless such agreement has been approved by a majority of the
members of the Board of this Corporation who are not (i) directors or officers
of VSI, (ii) the beneficial owners of five percent or more of the outstanding
voting securities of VSI or (iii) designees of such beneficial owners. This
section 7.05 may be amended or repealed only by the affirmative vote of a
majority of the members of the Board of the Corporation who are not directors or
officers of VSI or the beneficial owners of five percent or more of the
outstanding voting securities of VSI.
12
<PAGE> 1
EXHIBIT 10.6
The form of Convertible Subordinated Note dated as of July 9, 1999 is
hereby amended to add the following information:
Schedule to Convertible Subordinated Note
<TABLE>
<CAPTION>
Name of Purchaser Principal Amount of Note
- ----------------- ------------------------
<S> <C>
FdG-Chase Capital Partners LLC $292,683
FdG Capital Partners, LLC $3,707,317
Jeffrey Horowitz July, 1999 GRAT $1,000,000
Helen Horowitz July, 1999 GRAT $1,000,000
CB Capital Investors, Inc. $4,000,000
</TABLE>
<PAGE> 1
Exhibit 10.23
[SUBJECT TO STOCKHOLDER APPROVAL]
AMENDED AND RESTATED
VITAMINSHOPPE.COM, INC.
STOCK OPTION PLAN
FOR EMPLOYEES
EFFECTIVE AS OF JULY 1, 1999
AND AMENDED AND RESTATED AS OF MARCH 16, 2000
<PAGE> 2
INTRODUCTION
VitaminShoppe.com, Inc., a corporation organized under the laws of the
State of Delaware (the "Corporation"), hereby adopts this Amended and
Restated Stock Option Plan for Employees of VitaminShoppe.com. The purposes of
this Plan are to further the growth, development and financial success of the
Corporation by providing additional incentives to certain of its employees and
to offer options as a means of enhancing the ability of the Corporation to
obtain and retain valuable employees, in each case by assisting employees to
become owners of the Corporation's Class A Common Stock and thus to benefit
directly from the Corporation's growth, development and financial success.
<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
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, (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. "EMPLOYEE" shall mean any employee (as defined in accordance
with the regulations and revenue rulings then applicable under Section 3401(c)
of the Code) of the Corporation, or of any corporation which is then a Parent
Corporation or a Subsidiary, whether such employee is so employed at the time
this Plan is adopted or becomes so employed subsequent to the adoption of this
Plan.
J. "EMPLOYMENT COMMENCEMENT DATE" shall mean the date as of which
an individual is hired (or rehired) by the Corporation as an Employee.
K. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder.
L. "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 (x) on or prior to January 20, 2000, 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, and (y) following January 20, 2000, the fair market value is the
closing price per share of such Class A Stock of the Corporation on the date of
grant, and if such date is not a Trading Day, the date of grant shall be deemed
the closing price on the next Trading Day, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or any
comparable system; (iii) 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 (iv) notwithstanding the foregoing, 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.
M. "GOOD CAUSE" shall mean a Participant's (i) willful or gross
misconduct or wilful or gross negligence in the performance of his duties for
the Corporation or for any Parent or Subsidiary after prior written notice to
the Participant of such misconduct or negligence, (ii) intentional or habitual
neglect of his duties for the Corporation or for any Parent or Subsidiary after
prior written notice to the Participant of such neglect, (iii) theft or
misappropriation of funds of the Corporation or of any Parent or Subsidiary,
(iv) conviction of a felony, drunkenness or drug
2
<PAGE> 5
addiction, (v) intentionally causing the Corporation to commit a violation of
local, state or federal laws or (vi) willful refusal to comply with the policy,
directives or decisions of the Corporation or willful refusal to perform the
duties reasonably assigned to the Participant by the Corporation; provided that,
if a Participant has entered into an employment agreement with the Corporation
containing a definition of Cause, Good Cause or a similar term, such definition
set forth in such agreement shall be substituted for the above.
N. "GOOD REASON" shall mean (i) a material adverse change in a
Participant's duties, responsibilities or position from those as of the date of
the relevant Change of Control, or (ii) the Corporation's breach in any material
respect of this Plan or an employment agreement between the Participant and the
Corporation.
O. "INCENTIVE STOCK OPTION" shall mean a stock option intended to
satisfy the requirements of Section 422 of the Code.
P. "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.
Q. "NONQUALIFIED STOCK OPTION" shall mean a stock option which
does not satisfy the requirements of Section 422 of the Code.
R. "OPTION" or "PLAN AWARD" shall mean an Incentive Stock Option
or a Nonqualified Stock Option granted to purchase shares of the Corporation's
Class A Stock pursuant to the provisions of Section 6
hereof.
S. "OPTIONEE" shall mean a Participant who is granted an Option
under the terms of this Plan.
T. "PARENT" shall mean a parent corporation of the Corporation
within the meaning of Section 424(e) of the Code.
U. "PARTICIPANT" shall mean an Employee participating under the
Plan.
V. "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
W. "SPECIAL AWARD COMMITTEE" shall mean the President and Chief
Executive Officer and one other member of the Committee or the Board of
Directors.
X. "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, procedures and
3
<PAGE> 6
conditions of awards which, in its opinion, may be advisable in the
administration of the Plan. The Committee is authorized to direct the
Corporation to withhold in accordance with applicable law from any regular cash
compensation payable to an Optionee any taxes required to be withheld by the
Corporation under federal, state, or local law as a result of such Optionee's
exercise of an Option 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.
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 1.5 million 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
Those Employees of the Corporation selected by the Committee or Special
Award Committee shall be eligible to participate in the Plan. Notwithstanding
any other provision of the Plan, no Employee may receive an Incentive Stock
Option under the Plan if at the time the Option is granted he owns stock
possessing more than ten (10) percent of the total combined voting power of all
classes of stock of the Corporation or of its Parent Corporation or Subsidiary.
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;
provided, that the Special Award Committee may grant or award Options to
eligible Participants under the Plan so long as such Participant receives an
Option to purchase no more than 6,500 shares of Class A Stock. All
interpretations and determinations of the Committee or the Special Award
Committee to the extent described herein, may be made in its sole discretion on
an individual participant or group participant basis and shall be final,
conclusive and binding on all interested parties. The authority of the Committee
(or the Special Award Committee in connection with the award of Options pursuant
to the proviso above) shall include, without limitation, the right to the
following:
A. PROCEDURES FOR EXERCISE OF OPTION. The establishment of
procedures for an Optionee (i) to exercise an Option by payment of cash or any
other property acceptable to the
4
<PAGE> 7
Committee or the Special Award Committee in connection with the award of
Options pursuant to the proviso above, (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 which
shall equal the Option exercise price in the aggregate for the portion exercised
and, in cases where an Option is not exercised in its entirety, to permit the
Optionee to deliver the shares of 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 an Optionee 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 of purchase of Class A Stock or
Options pursuant to Section 6 hereof.
SECTION 6
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. The aggregate Fair Market Value of such shares on the
date of grant of all Incentive Stock Options that are exercisable for the first
time by a Participant during a calendar year (under the Plan or any other plan
of the Corporation, its Parent Corporation or a Subsidiary) shall not exceed
$100,000. The Committee, or the Special Award Committee, as appropriate, shall
have the right to grant Options that are subject to performance criteria
selected by the Committee (which need not be uniform). Any such performance
options shall be subject to the terms and conditions hereof.
B. EXERCISABILITY OF STOCK OPTION. Each Option granted under this
Section 6 by its terms shall expire ten (10) years from the date of its grant.
Furthermore, subject to Section 7, the Committee shall determine, in its sole
discretion, the number of shares for which Options shall be granted to an
Employee and the date or dates on which such Options shall become exercisable as
to the number of shares of Common Stock covered thereby, which shall, with
respect to Incentive Stock Options granted under the Plan, be set forth in the
Incentive Stock Option Agreement, and with respect to Nonqualified Stock Options
granted under the Plan be set forth in a Nonqualified Stock Option Agreement.
C. EMPLOYEE'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, 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, or the Special Award
Committee, as appropriate, 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
5
<PAGE> 8
Corporation and to applicable law: (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 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 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.
D. EMPLOYEE'S TERMINATION. If an Employee's service with the
Corporation is terminated by reason of (i) his Disability, (ii) the failure of
the Corporation to retain such Employee, other than for Good Cause, or (iii) his
voluntary termination, such termination shall be considered a "Qualifying
Termination" and each Option granted to such Employee 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 an Employee's service with the
Corporation is terminated for Good Cause, such termination shall be considered a
"Non-Qualifying Termination,"and all outstanding unexercised Options granted
pursuant to this Section 6 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 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 of Qualifying Termination
of the Employee, and the Employee shall have the obligation to sell to the
Corporation (i) any outstanding Option exercisable by the Employee as 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 Employee
through the exercise of an Option at their Fair Market Value.
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
6
<PAGE> 9
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 holder
of any Option theretofore granted and still outstanding (and not otherwise
expired) shall have the right immediately prior to the effective date of such
Liquidity Event (or, if later, within 10 days of Optionee's notification of such
event) to exercise such Option(s) 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
Optionees 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 Optionees the right to purchase the securities they would have received
had they held Common 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.
In the event that any Optionee terminates his employment with the
Corporation or the surviving corporation in a Qualifying Business Combination
(as defined below), for Good Reason or such Optionee'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 such Optionee's
Options shall immediately become exercisable without regard to any installment
or vesting provision that may have been made part of the terms and conditions of
such options, provided that all conditions precedent to the exercise of such
Options, other than the passage of time, have occurred. 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
7
<PAGE> 10
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 7B 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;
provided, however that such Option or rights or interests therein may be
assignable or transferable upon consent of the Committee, which consent may be
withheld in its sole discretion. 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 Common 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
Plan Award or to any employee receiving a Plan Award.
D. OTHER INCENTIVE PLANS. The adoption of the Plan does not
preclude the adoption by appropriate means of any other incentive plan for
Employees.
E. 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.
F. 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.
G. 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.
8
<PAGE> 11
H. 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.
I. 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.
J. NONGUARANTEE OF EMPLOYMENT. Nothing contained in this Plan
shall be construed as a right of any Employee to be continued as an employee 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 any of its
employees, with or without cause.
K. NOTICES. Each notice relating of 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, New
York 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.
L. WRITTEN AGREEMENTS. Each Plan Award shall be evidenced, with
respect to an Incentive Stock Option by a signed written Incentive Stock Option
Agreement, and with respect to a Nonqualified Stock Option by a signed written
Nonqualified Stock Option Agreement between the Corporation and the Participant
containing the terms and conditions of the award.
M. CONFLICT. In the event of any conflict between the terms of
this Plan and any employment agreement between the Corporation and an Optionee,
the terms of such employment agreement shall control. 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. Except as otherwise provided
herein, no amendment, suspension or termination of the Plan shall alter or
impair any Plan Awards previously granted under the Plan, without the consent of
the holder thereof.
SECTION 10
TERM OF PLAN
The Plan shall remain in effect until July 1, 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 Plan Awards may be
granted under the Plan subsequent to the termination of the Plan.
9
<PAGE> 1
Exhibit 10.24
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT"),
dated as of ____________, between VITAMINSHOPPE.COM, INC., a Delaware
Corporation (the "CORPORATION"), and ____________, 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 Amended
and Restated Stock Option Plan for Employees, effective as of July 1, 1999 and
amended and restated as of March 16, 2000 (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 __________________ (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 _________ 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 $________ 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 _____ Shares on or after
__________________;
(ii) as to _____ Shares on or after
__________________; and
(iii) as to _____ Shares on or after
__________________.
(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
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 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.
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<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: Ann M. Sardini
Title: Chief Financial Officer,
Secretary and Treasurer
----------------------------------------
[Name of Employee]
----------------------------------------
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 ___________, 1999, whereby you have granted to me a
nonqualified stock option to purchase _________ 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,
---------------------------------
[Name of Employee]
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
[NAME OF EMPLOYEE]
Participant
$_____
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: __________________ EXPIRATION DATE: ________________
<PAGE> 12
VITAMINSHOPPE.COM, INC.
NONQUALIFIED STOCK OPTION AGREEMENT SUMMARY
FOR EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
Shares Subject
Name to Option Exercise Price Date of Grant
- --------------------------------------------------------------------------------
Kathryn H. Creech 392,445(1) $ 3.82 June 14, 1999
- --------------------------------------------------------------------------------
Kathryn H. Creech 82,944(2) $ 9.15 July 27, 1999
- --------------------------------------------------------------------------------
Kathryn H. Creech 339,954(3) $11.00 October 14, 1999
- --------------------------------------------------------------------------------
Joel Gurzinsky 52,300 $ 9.15 September 15, 1999
- --------------------------------------------------------------------------------
Lisa H. Kern 59,500(4) $ 9.15 July 26, 1999
- --------------------------------------------------------------------------------
Eliot D. Russman 176,600(5) $ 3.82 June 1, 1999
- --------------------------------------------------------------------------------
Ann M. Sardini 200,000 $ 9.15 October 6, 1999
- --------------------------------------------------------------------------------
Philip H. Teplitzky 180,000 $ 9.15 September 15, 1999
- --------------------------------------------------------------------------------
(1) The option vested with respect to 130,815 shares on October 14, 1999 and
50,000 on January 17, 2000. Due to termination of her employment, the remaining
shares granted under this option have lapsed.
(2) Due to termination of her employment, the shares granted under this option
have lapsed.
(3) Due to termination of her employment, the shares granted under this option
have lapsed.
(4) Ms. Kern ceased employment with us on November 5, 1999. All of her options
have lapsed.
(5) The option will vest with respect to 25,000 shares on July 24, 2000. Due to
termination of his employment, the remaining shares granted under this option
have lapsed.
All options granted under the Amended and Restated Stock Option Plan
for Employees vest in three equal annual installments on the anniversary of the
date of grant. All options terminate ten years from the date of grant.
<PAGE> 1
EXHIBIT 10.25
[SUBJECT TO STOCKHOLDER APPROVAL]
AMENDED AND RESTATED
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS OF
VITAMINSHOPPE.COM, INC.
EFFECTIVE AS OF AUGUST 1, 1999
AND AMENDED AND RESTATED AS OF MARCH 16, 2000
<PAGE> 2
INTRODUCTION
VitaminShoppe.com, Inc., a corporation organized under the
laws of the State of Delaware (the "Corporation"), hereby adopts this Amended
and Restated 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, (x) on or prior to January 20, 2000, 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, and (y) following January 20, 2000, the fair market value
is the closing price per share of such Class A Stock of the Corporation on the
date of grant, and if such date is not a Trading Day, the date of grant shall be
deemed the closing price on the next Trading Day, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or any
comparable system; (iii) 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 (iv) notwithstanding the foregoing, 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 38,475 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 38,475 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
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<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
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<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.
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<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; provided, however that such Option under the Plan or any rights or
interests therein may be assignable or transferable upon consent of the
Committee, which consent may be withheld in its sole discretion. 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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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.
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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.
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<PAGE> 1
EXHIBIT 10.26
FORM OF NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
This NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this
"AGREEMENT") dated as of ______________, between VITAMINSHOPPE.COM, INC., a
Delaware Corporation (the "CORPORATION"), and ______________, 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 Amended and Restated Stock Option Plan for Non-Employee
Directors of VitaminShoppe.com, Inc., effective as of August 1, 1999 and amended
and restated as of March 16, 2000 (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
38,475 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 ________________ and payable to
stockholders of record on ________________.
2. Exercise Price. The exercise price for the purchase of the
Shares covered by the Option will be $_____ 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 _____ Shares on or after
___________________;
(ii) as to _____ Shares on or after
___________________; and
(iii) as to _____ Shares on or after
___________________.
(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
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<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.
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<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.
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:
Title: President and Chief Executive
Officer
----------------------------------------
[Name of Director]
----------------------------------------
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 ___________________, whereby you have granted to me a
stock option to purchase 38,475 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,
___________________________
[Name of Director]
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
[NAME OF DIRECTOR]
Participant
38,475 $_______
- ------------------------ ------------------------
Number of Shares Price per Share
DATE GRANTED: __________________ EXPIRATION DATE: _________________
<PAGE> 12
VITAMINSHOPPE.COM, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT SUMMARY
- --------------------------------------------------------------------------------
Shares Subject
Name to Option Exercise Price Date of Grant
- --------------------------------------------------------------------------------
Woodson Merrell, M.D. 38,475 $ 9.15 August 6, 1999
- --------------------------------------------------------------------------------
Barbara S. Feigin 38,475 $ 9.15 September 20, 1999
- --------------------------------------------------------------------------------
Michael C. Brooks 38,475 $11.00 October 14, 1999
- --------------------------------------------------------------------------------
Martin L. Edelman 38,475 $11.00 October 14, 1999
- --------------------------------------------------------------------------------
M. Anthony Fisher 38,475 $11.00 October 14, 1999
- --------------------------------------------------------------------------------
David S. Gellman 38,475 $11.00 October 14, 1999
- --------------------------------------------------------------------------------
Stephen P. Murray 38,475 $11.00 October 14, 1999
- --------------------------------------------------------------------------------
All options granted under the Amended and Restated Stock Option Plan
for Non-Employee Directors vest in three equal annual installments on the
anniversary of the date of grant. All options terminate ten years from the date
of grant.
<PAGE> 1
EXHIBIT 10.40
September 15, 1999
TO: Philip Teplitzky
FR: Kathryn Creech
RE: Your Employment with VitaminShoppe.com.
It is with pleasure that I confirm our offer to have you join VitaminShoppe.com
(the "Company") as Chief Technology Officer. You will report to me with
responsibility for leading the development and implementation of the e-commerce
infrastructure necessary to support our business. You will be a member of our
senior management team and participate in the development of cross-functional
strategic initiatives critical to the growth of VitaminShoppe.com. Your start
date will be September 30, 1999.
In consideration for your services, you will receive an annual salary of
$250,000. You will also receive a one-time start up bonus of $50,000. Your
compensation will be reviewed annually. As a senior employee with the Company,
you will also be eligible to participate in all Company - health and welfare
benefit programs available to executives of the Company. You will receive
vacation and sick leave in accordance with standard Company policies. In
addition, you will be eligible for participation in performance bonus programs,
if any, developed by the Company, with bonuses to be awarded at the sole
discretion of the Board of Directors.
In the event your employment with the Company is terminated for reasons other
than Good Cause (as defined in the attached Stock Option Plan (the "Option
Plan")), you will be entitled to receive monthly severance payments from the
Company, based on your monthly salary at the time of termination, which payments
will terminate at the later of (i) twelve months from your Start Date or (ii)
six months from the date of your termination. If you terminate your employment
with the Company with Good Reason (as defined in the Option Plan) following a
Qualifying Business Combination (as defined in the Option Plan), you will also
be entitled to receive the severance payments described in the preceding
sentence. Your medical benefits provided by the Company will continue in effect
during any period in which you are receiving severance payments. In the event
your employment with the Company is terminated for Good Cause, your rights to
receive compensation and benefits will terminate on the date of the termination
of your employment.
In addition to the compensation described above, you will be granted options
("Options") to purchase 180,000 shares of the Company's common stock
(post-split, excluding the conversion of Series A Convertible Preferred). The
exercise price is $9.15 per share. The Options will vest over a period of three
years, with one-third vesting on each of the first three anniversaries of your
Start Date. The Options will be granted pursuant to, and in accordance with, the
Option Plan and a Stock Option Agreement to be executed by you and the Company.
As a condition of your employment, you will be required to execute the Company's
standard Confidentiality, Non-Competition and Non-Solicitation Agreement, a copy
of which is attached hereto.
I hope this letter addresses the key issues relating to your employment by
VitaminShoppe.com. We are very excited to have you join our team and about the
prospects for our business.
/s/ Kathryn Creech /s/ Philip Teplitzky
- ------------------------------------ --------------------------------
Kathryn Creech Philip Teplitzky
President and CEO
VitaminShoppe.com
cc: Jeff Horowitz, VitaminShoppe.com
Howard Romanow, FdG Associates
<PAGE> 1
EXHIBIT 10.41
Date: October 6, 1999
TO: Ann Sardini
FR: Kathryn Creech
RE: Your Employment with VitaminShoppe.com
It is with pleasure that I confirm our offer to have you join VitaminShoppe.com
(the "Company") as CFO, with a start date of October 18, 1999 (the "Start
Date"). You will report to me, with dotted line reporting to the Company's
Board of Directors, with responsibility for building and managing the Company's
financial and administrative organizations, including responsibility for
supporting the Company's business development, marketing and growth efforts,
managing the finance- and operations-related elements of the Company's
relationship with Vitamin Shoppe Industries and ensuring the integration of the
Company's financial systems with its internet infrastructure.
In consideration for your services, you will receive an annual salary of
$250,000. You will also receive a one-time start up bonus of $25,000. Your
compensation will be reviewed annually. As a senior employee with the Company,
you will also be eligible to participate in all Company health and welfare
benefit programs available to executives of the Company. You will receive
vacation and sick leave in accordance with standard Company policies. In
addition, you will be eligible for participation in performance bonus programs
(either cash or equity), if any, developed by the Company, with bonuses to be
awarded at the sole discretion of the Board of Directors.
In the event your employment with the Company is terminated for reasons other
than Good Cause (as defined in the attached Stock Option Plan (the "Option
Plan")), you will be entitled to receive monthly severance payments from the
Company, based on your monthly salary at the time of termination, which
payments will terminate at the later of (i) twelve months from your Start Date
or (ii) six months from the date of your termination. If you terminate your
employment with the Company with Good Reason (as defined in the Option Plan)
following a Qualifying Business Combination (as defined in the Option Plan),
you will also be entitled to receive the severance payments described in the
preceding sentence. Your medical benefits provided by the Company will continue
in effect during any period in which you are receiving severance payments. In
the event your employment with the Company is terminated for Good Cause, your
rights to receive compensation and benefits will terminate on the date of the
termination of your employment.
In addition to the compensation described above, you will be granted options
(the "Options") to purchase 200,000 shares of the Company's common stock, at an
exercise price of $9.15. The Options will vest over a period of three years,
with one-third vesting on each of the first three anniversaries of your Start
Date. The Options will be granted pursuant to, and in accordance with, the
Option Plan and a Stock Option Agreement to be executed by you and the Company.
As a condition of your employment, you will be required to execute the
Company's standard Confidentiality, Non-Competition and Non-Solicitation
Agreement, a copy of which is attached hereto.
I hope this letter addresses the key issues relating to your employment by
VitaminShoppe.com. We are very excited to have you join our team and about the
prospects for our business.
Kathryn Creech Ann Sardini
- ------------------------ ------------------------
Kathryn Creech Ann Sardini
President and CEO
VitaminShoppe.com
<PAGE> 1
EXHIBIT 10.42
SEPARATION AND RELEASE AGREEMENT
Separation and Release Agreement dated as of January 17, 2000, between
VitaminShoppe.com, Inc., a Delaware corporation (the "Company"), and Kathryn
Creech, an individual ("Creech").
The Company and Creech desire to provide for the terms on which Creech's
employment by the Company will terminate.
The parties hereto, intending to be legally bound, hereby agree as follows:
SECTION 1. Termination. Creech's employment by the Company is terminated,
effective as of the date hereof. As a result of that termination, Creech will
hold no office or position, and will not be employed by, the Company. Creech
agrees and acknowledges that she will no longer serve in the positions of
President and Chief Executive Officer of the Company and that she has resigned
from the Board of Directors of the Company effective as of the date hereof.
SECTION 2. SEVERANCE PAYMENTS; OPTIONS.
2.1 Severance. Creech will receive from the Company the severance payments
and benefits to which she is entitled pursuant to Section 4(c) of the Employment
and Noncompetition Agreement between the Company and her dated as of June 14,
1999 (the "Employment Agreement "); provided, that such severance payments shall
not be made quarterly but shall be made by the Company to Creech on the
following dates in the amounts set forth opposite such dates, in full
satisfaction of all amounts payable by the Company to Creech under the
Employment Agreement:
DATE AMOUNT
February 17, 2000 $8,333.33
March 17, 2000 $8,333.33
April 17, 2000 $208,333.33
July 17, 2000 $24,999.99
September 14, 2000 $50,000.00
October 17, 2000 $24,999.99
December 14, 2000 $50,000.00
January 17, 2001 $24,999.99
March 14, 2001 $50,000.00
April 17, 2001 $24,999.99
June 14, 2001 $65,307.90
<PAGE> 2
Creech acknowledges and agrees that this Agreement shall be the exclusive basis
on which she is entitled to receive any compensation or benefits of any kind
from the Company. All payments made by the Company to Creech hereunder shall be
subject to all applicable federal and state withholding taxes.
2.2 Stock Options. Creech currently holds fully vested options to acquire
130,815 shares of the Company's Class A Common Stock at $3.82 per share granted
under the Company's Stock Option Plan for Employees effective as of June 14,
1999 (the "Plan") and the Nonqualified Stock Option Agreement between the
Company and Creech made as of July 1, 1999, effective as of June 14, 1999 (the
"Option Agreement") and no other vested options or equity securities of the
Company. In consideration for her entry into this agreement and the releases
given by her hereunder, the Company hereby agrees to accelerate to today the
vesting of options to purchase an additional 50,000 shares of the Company's
Class A Common Stock at $3.82 per share granted to her under the Plan and the
Option Agreement. Creech acknowledges that all other options and rights to
purchase securities of the Company under the Employment Agreement, any option
agreement with the Company or any other arrangement with the Company remain
unvested and lapse as of the date hereof and that she will have no further claim
with respect thereto.
SECTION 3. OFFICE/EQUIPMENT.
3.1 Use of Office. The Company shall provide Creech with office space for
up to six months from the date hereof (or, if earlier, until she obtains new
employment), which shall not be in the Company's premises; provided that the
Company shall not be required to pay more than $2,500 per month for such office
space.
3.2 Equipment. The Company hereby transfers to Creech, on an "as is" basis
without representation or warranty the Company's personal laptop computer
currently in her possession; provided that, prior to such transfer Creech shall
provide the Company with access to such laptop computer to enable the Company to
delete any and all information, data and files stored on such laptop computer as
the Company shall in its sole discretion elect to delete.
SECTION 4. INDEMNIFICATION.
To the extent permitted by law, the Company shall indemnify Creech with
respect to matters arising from her service as a director or officer or employee
of the Company as provided by the Company's Articles of Incorporation and
By-Laws as currently in effect.
SECTION 5. MUTUAL RELEASES.
(a) In consideration of the acceleration of additional stock options, the
other benefits conferred by this agreement and for other valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Creech hereby
releases and forever discharges the Company and its subsidiaries, and their
respective past, present and future affiliates, stockholders, officers,
directors, employees, agents, and controlling persons, and the respective heirs,
administrators, successors and
2
<PAGE> 3
assigns of each of the foregoing (each, a "Releasee"), of and from any and all
manner of action or actions, cause or causes of action, in law or in equity,
suits, debts, contracts, agreements, promises, liability, claims, demands,
damages, loss, cost or expense, of any nature whatsoever, known or unknown to
her, fixed or contingent, choate or inchoate, which Creech ever had, now has or
may have at any time arising out of or relating to Creech's employment with, or
status as a director or officer of, the Company or the termination of such
employment or status (or any promise or agreement made or entered into, or any
action taken or omitted, in connection with such employment, status or
termination), including, but not limited to, those arising under the federal
Civil Rights Acts of 1866, 1871, 1964 and 1971, as amended, the Age
Discrimination in Employment Act of 1967, as amended by, inter alia, the Older
Workers Benefit Protection Act of 1990, the Americans with Disabilities Act of
1990, the Employee Retirement Income Security Act of 1974 or any other federal,
state or local statute or principle of common law. Creech shall refrain from
asserting any matter released hereby against any Releasee in any manner,
including, but not limited to, by way of counterclaim, offset or defense and
shall actively resist any effort to assert on its behalf any such matter. Creech
shall indemnify and hold harmless each Releasee from and against all losses,
liabilities, claims, damages and expenses (including costs of investigation and
defense and reasonable attorneys' fees), arising directly or indirectly from or
in connection with the assertion by or on behalf of Creech of any claim or other
matter released pursuant to this paragraph.
Notwithstanding anything contained herein to the contrary, there is and
shall be excepted from the within and foregoing release and discharge any and
all of the following: any and all of the obligations of the Company under this
Agreement; and any and all rights which Creech may have as an owner of Common
Stock and/or Options.
(b) For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company hereby releases and forever discharges Creech
and her heirs, administrators, executors, agents, representatives, successors
and assigns (each, a "Creech Releasee"), of and from any and all manner of
action or actions, cause or causes of action, in law or in equity, suits, debts,
contracts, agreements, promises, liability, claims, demands, damages, loss, cost
or expense, of any nature whatsoever, known or unknown to the Company, fixed or
contingent, choate or inchoate, which the Company ever had, now has or may have
at any time arising out of or relating to Creech's employment or status as a
director or officer or the termination of such employment or status (or any
promise or agreement made or entered into, or any action taken or omitted, in
connection with such employment, status or termination). The Company shall
refrain from asserting any matter released hereby against any Creech Releasee in
any manner, including, but not limited to, by way of counterclaim, offset or
defense and shall actively resist any effort to assert on its behalf any such
matter. The Company shall indemnify and hold harmless each Creech Releasee from
and against all losses, liabilities, claims, damages and expenses (including
costs of investigation and defense and reasonable attorneys' fees), arising
directly or indirectly from or in connection with the assertion by or on behalf
of the Company of any claim or other matter released pursuant to this paragraph.
3
<PAGE> 4
Notwithstanding anything contained herein to the contrary, there is and
shall be excepted from the within and foregoing release and discharge any and
all of the following: any and all of the obligations of Creech under this
Agreement.
SECTION 6. NO DISPARAGEMENT. The Company shall not , directly or
indirectly, disparage or impugn the reputation of Creech. Creech shall not,
directly or indirectly, disparage or impugn the reputation of the Company, or
any of its shareholders, directors, officers, employees or agents. Creech hereby
confirms that she does not intend to and shall not, directly or indirectly, make
or deliver to the Company any statement for inclusion (or that the Company might
be required to include or refer to) in the Company's proxy statement or any
filing by the Company with the Securities and Exchange Commission.
SECTION 7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without regard to any conflicts
of laws principles thereof that would call for the application of the laws of
any other jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties hereto in the courts of the State of New
York, or if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of New York, and each of the parties hereto
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world, whether
within or without the State of New York.
7.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same agreements.
7.3 Notices. All notices, demands, requests or other communications which
may be or are required to be given, served or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows (or to such other addresses as a
party may specify as to itself by notice to the other):
If to the Company:
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, New York 10022
Attention: President and Chief Executive Officer
Facsimile:
4
<PAGE> 5
with copies to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Nancy Fuchs, Esq.
Andrea Christensen, Esq.
Facsimile: (212) 836-8689
If to the Executive:
Kathryn Creech
31 Copper Beech Road
Greenwich, Connecticut 06830
Facsimile: (212) 953-0910
with a copy to:
Louis L. Broudy, Esq.
Broudy & Associates, P.C.
230 Park Avenue, Suite 2400
New York, New York 10169
Facsimile: (212) 490-3434
7.4 Binding Nature of Agreement; Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns as
provided herein.
7.5 Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
7.6 Indulgences, Not Waivers. Neither the failure nor any delay on the part
of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power of privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and signed by the party asserted to have granted such waiver.
5
<PAGE> 6
7.7 Confidentiality. Creech shall keep the terms of this Agreement
confidential and she will not hereafter disclose any information concerning the
Company and/or this Agreement to anyone except her attorneys, accountants, tax
and financial advisors; except that she may repeat the statements made in the
press release issued by the Company with respect thereto on January 18, 2000
(which statements she authorized). The Company shall keep the terms of this
Agreement confidential and not hereafter disclose any information concerning
this Agreement to anyone except its attorneys, accountants, and tax and
financial advisors; except that the Company may make any disclosure regarding
the terms of this Agreement (including regarding the amounts payable to Creech
and the options accelerated hereunder) that it is advised by counsel is required
to be made under the Securities Exchange Act of 1934 (and the rules promulgated
thereunder) and any other applicable securities laws, and shall file this
Agreement as an exhibit to a report filed by the Company with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended.
7.8 Independent Judgment; Revocation. The Company and Creech have each been
represented and advised by counsel in connection with the negotiation, execution
and delivery of this Agreement, have exercised independent judgment in
connection therewith, and have not relied on any statement, promise,
representation or warranty not expressly set forth in this Agreement. Creech may
revoke this agreement by written notice given to the Company within seven
calendar days after the date on which this Agreement is executed by Creech; if
so revoked, this agreement shall be of no effect. Creech hereby waives the
benefit of any longer revocation or review period to which she may be entitled
under any applicable law.
VITAMINSHOPPE.COM, INC.
By: /s/ Jeffrey J. Horowitz
--------------------------
Name: Jeffrey J. Horowitz
Title:
/s/ Kathryn H. Creech
-------------------
Kathryn Creech
6
<PAGE> 1
Exhibit 10.43
SEPARATION AND RELEASE AGREEMENT
Separation and Release Agreement dated as of February 8, 2000, between
VitaminShoppe.com, Inc., a Delaware corporation (the "Company"), and Eliot D.
Russman, an individual ("Russman").
The Company and Russman desire to provide for the terms on which Russman's
employment by the Company will terminate.
The parties hereto, intending to be legally bound, hereby agree as follows:
SECTION 1. TERMINATION. Russman's employment by the Company is terminated,
effective as of the date hereof. As a result of that termination, Russman will
hold no office or position, and will not be employed by, the Company. Russman
agrees and acknowledges that he will no longer serve in the position of Chief
Marketing Officer of the Company.
SECTION 2. SEVERANCE PAYMENTS; OPTIONS.
2.1 Severance. Russman will receive from the Company the severance payments
and benefits to which he is entitled pursuant to the terms of the July 20, 1999
Offer Letter Confirming Russman's Employment with the Company ("the Offer
Letter"). The severance payments shall be made monthly for a six-month period,
commencing as of January 24, 2000 in full satisfaction of all amounts payable by
the Company to Russman under the Offer Letter.
Russman acknowledges and agrees that this Agreement shall be the exclusive basis
on which he is entitled to receive any compensation or benefits of any kind from
the Company. All payments made by the Company to Russman hereunder shall be
subject to all applicable federal and state withholding taxes and Russman will
be fully liable and responsible for the payment of all taxes on said payments.
2.2 Stock Options. In consideration for Russman's entry into this Agreement
and the releases given by Russman hereunder, the Company hereby agrees to
accelerate to July 24, 2000 the vesting of options to purchase 25,000 shares of
the Company's Class A Common Stock at $3.82 per share granted to Russman under
the Nonqualified Stock Option Agreement, dated July 1, 1999. Russman
acknowledges that all other options and rights to purchase securities of the
Company under the Offer Letter, any option agreement with the Company or any
other arrangement with the Company remain unvested and lapse as of the date
hereof and that he will have no further claim with respect thereto.
1
<PAGE> 2
SECTION 3. OFFICE.
The Company shall provide Russman with office space for up to three months
from the date hereof (or, if earlier, until he should obtain new employment),
which shall not be in the Company's premises; provided that the Company shall
not be required to pay more than $2,000 per month for such office space.
SECTION 4. INDEMNIFICATION.
To the extent permitted by law, the Company shall indemnify Russman with
respect to matters arising from his service as an officer or employee of the
Company as provided by the Company's Articles of Incorporation and By-Laws as
currently in effect.
SECTION 5. MUTUAL RELEASES.
(a) In consideration of the acceleration of additional stock options, the
other benefits conferred by this agreement and for other valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Russman hereby
releases and forever discharges the Company and its subsidiaries, and their
respective past, present and future affiliates, stockholders, officers,
directors, employees, agents, and controlling persons, and the respective heirs,
administrators, successors and assigns of each of the foregoing (each, a
"Releasee"), of and from any and all manner of action or actions, cause or
causes of action, in law or in equity, suits, debts, contracts, agreements,
promises, liability, claims, demands, damages, loss, cost or expense, of any
nature whatsoever, known or unknown to him, fixed or contingent, choate or
inchoate, which Russman ever had, now has or may have at any time arising out of
or relating to Russman's employment with, or status as an officer or employee
of, the Company or the termination of such employment or status (or any promise
or agreement made or entered into, or any action taken or omitted, in connection
with such employment, status or termination), including, but not limited to,
those arising under the federal Civil Rights Acts of 1866, 1871, 1964 and 1971,
as amended, the Age Discrimination in Employment Act of 1967, as amended by,
inter alia, the Older Workers Benefit Protection Act of 1990, the Americans with
Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 or
any other federal, state or local statute or principle of common law. Russman
shall refrain from asserting any matter released hereby against any Releasee in
any manner, including, but not limited to, by way of counterclaim, offset or
defense and shall actively resist any effort to assert on its behalf any such
matter. Russman shall indemnify and hold harmless each Releasee from and against
all losses, liabilities, claims, damages and expenses (including costs of
investigation and defense and reasonable attorneys' fees), arising directly or
indirectly from or in connection with the assertion by or on behalf of Russman
of any claim or other matter released pursuant to this paragraph.
Notwithstanding anything contained herein to the contrary, there is and shall be
excepted from the within and foregoing release and discharge any and all of the
following: any and all of the obligations of the Company under this Agreement;
and any and all rights which Russman may have as an owner of Common Stock and/or
Options.
2
<PAGE> 3
(b) For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company hereby releases and forever discharges Russman
and his heirs, administrators, executors, agents, representatives, successors
and assigns (each, a "Russman Releasee"), of and from any and all manner of
action or actions, cause or causes of action, in law or in equity, suits, debts,
claims, demands, damages, loss, cost or expense, of any nature whatsoever, known
or unknown to the Company, which the Company ever had, now has or may have at
any time arising out of or relating to Russman's employment or status as an
officer or employee or the termination of such employment or status. The Company
shall refrain from asserting any matter released hereby against any Russman
Releasee in any manner, including, but not limited to, by way of counterclaim,
offset or defense and shall actively resist any effort to assert on its behalf
any such matter. The Company shall indemnify and hold harmless each Russman
Releasee from and against all losses, liabilities, claims, damages and expenses
(including costs of investigation and defense and reasonable attorney's fees),
arising directly or indirectly from or in connection with the assertion by or on
behalf of the Company of any claim or other matter released pursuant to this
paragraph.
Notwithstanding anything contained herein to the contrary, there is and
shall be excepted from the within and foregoing release and discharge any and
all of the following: any and all of the obligations of Russman under this
Agreement; Russman's obligations under the Non-Competition, Non-Solicitation and
Confidentiality Agreement with the Company, dated September 1, 1999.
SECTION 6. NO DISPARAGEMENT. The Company shall not , directly or
indirectly, disparage or impugn the reputation of Russman. Russman shall not,
directly or indirectly, disparage or impugn the reputation of the Company, or
any of its shareholders, directors, officers, employees or agents. Russman
hereby confirms that he does not intend to and shall not, directly or
indirectly, make or deliver to the Company any statement for inclusion (or that
the Company might be required to include or refer to) in the Company's proxy
statement or any filing by the Company with the Securities and Exchange
Commission.
SECTION 7. MISCELLANEOUS.
7.1 Reimbursement of Business Expenses. Russman shall be reimbursed for all
business expenses incurred through January 24, 2000 for which he submits
appropriate expense reports in accordance with existing Company policies.
7.2 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without regard to any conflicts
of laws principles thereof that would call for the application of the laws of
any other jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties hereto in the courts of the State of New
York, or if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of New York, and each of the parties hereto
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world, whether
within or without the State of New York.
3
<PAGE> 4
7.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same agreements.
7.4 Notices. All notices, demands, requests or other communications which
may be or are required to be given, served or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows (or to such other addresses as a
party may specify as to itself by notice to the other):
If to the Company:
VitaminShoppe.com, Inc.
444 Madison Avenue, Suite 802
New York, New York 10022
Attention: Ann Sardini
Facsimile: 308-6186
with copies to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Nancy Fuchs, Esq.
Andrea Christensen, Esq.
Facsimile: (212) 836-8689
If to the Executive:
Eliot D. Russman
315 East 68th Street
New York, New York 10021
Facsimile:
7.5 Binding Nature of Agreement; Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns as
provided herein.
7.6 Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms
4
<PAGE> 5
hereof control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
7.7 Indulgences, Not Waivers. Neither the failure nor any delay on the part
of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and signed by the party asserted to have granted such waiver.
7.8 Confidentiality. Russman shall keep the negotiation and terms of this
Agreement confidential and he will not hereafter disclose any information
concerning the Company and/or this Agreement to anyone except his attorneys,
accountants, tax and financial advisors. The Company shall keep the terms of
this Agreement confidential and not hereafter disclose any information
concerning this Agreement to anyone except its attorneys, accountants, and tax
and financial advisors; except that the Company may make any disclosure
regarding the terms of this Agreement (including regarding the amounts payable
to Russman and the options accelerated hereunder) that it is advised by counsel
is required to be made under the Securities Exchange Act of 1934 (and the rules
promulgated thereunder) and any other applicable securities laws, and may file
this Agreement as an exhibit to a report filed by the Company with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended.
7.9 Independent Judgment; Revocation. Russman enters into this Agreement
voluntarily and acknowledges that he has been advised to consult with counsel as
to the contents of this Agreement. The Company and Russman have each exercised
independent judgment in connection with the negotiation and execution of this
Agreement and have not relied on any statement, promise, representation or
warranty not expressly set forth in this Agreement. Russman may revoke this
Agreement by written notice given to the Company within seven calendar days
after the date on which this Agreement is executed by Russman; if so revoked,
this Agreement shall be of no effect. Russman hereby waives the benefit of any
longer revocation or review period to which he may be entitled under any
applicable law.
VITAMINSHOPPE.COM, INC.
By: /s/ Ann M. Sardini
---------------------------------
Name: Ann M. Sardini
Title: Chief Financial Officer, Secretary
and Treasurer
/s/ Eliot Russman
---------------------------------
Eliot D. Russman
5
<PAGE> 1
[TIME INC. NEW MEDIA LETTERHEAD]
EXHIBIT 10.44
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
As of June 15, 1999
Ms. Kathryn Creech
Chief Executive Officer
VitaminShoppe.com, Inc.
Westside Avenue
North Bergen, New Jersey 07047
Dear Ms. Creech:
This letter shall confirm the agreement ("Agreement"), effective as of the
date first written above (the "Effective Date"), between VitaminShoppe.com, Inc.
("VS"), a Delaware corporation, and Time Inc. New Media ("TINM"), a Delaware
corporation, pursuant to which VS will be the exclusive vitamins, herbs and
nutritional supplements (excluding the nutritional supplements identified on
Appendix 2) retail sponsor on each TINM Site (as defined herein) during the
Sponsorship Period (as defined herein) applicable to each TINM Site.
The parties agree to the following terms and conditions:
1. Exclusive Sponsorship.
---------------------
(a) Subject to the terms and conditions of this Agreement, VS shall
be the exclusive vitamins, herbs and nutritional supplements (excluding the
nutritional supplements identified on Appendix 2) (collectively, the "Covered
Products") retail sponsor on each of the TINM Sites during the Sponsorship
Period applicable to each TINM Site. As such, VS will be the only third party
online retailer of the Covered Products which may [*****]. The "TINM Sites"
shall mean the following three (3) sites owned or operated by TINM (or an
affiliate of TINM), together with any successor or replacement sites owned or
operated by TINM which feature such individuals: (i) the site featuring Dr.
Andrew Weil, currently known as the "Ask Dr. Weil" site, and currently located
at www.askdrweil.com; (ii) the site featuring Dr. Ruth Westheimer, currently
known as the "Dr. Ruth Westheimer!" site and currently located at
www.drruth.com; and (iii) the site featuring Alice Waters, provisionally
entitled the "Alice Waters" site, and provisionally to be located at
www.inthekitchenwithalicewaters.com. TINM will not allow any online retailer
of the Covered
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
Products (other than VS) to place on the TINM Sites any banner advertisement,
commerce button, marketing button, tagline link or other sponsorship placement
which promotes the Covered Products. The "Sponsorship Period" for each TINM Site
shall mean the time period identified on Appendix 1 (which is attached hereto
and incorporated herein) during which VS shall be the exclusive retail sponsor
of the Covered Products on such TINM Site, as described in this Agreement.
(b) Subject to the terms and conditions of this Agreement, TINM will, with
respect to each TINM Site during the Sponsorship Period for each TINM Site,
provide, and VS will receive, the type of sponsorship placement and number of
Impressions (as defined herein) set forth on Appendix 1. "Impressions" shall
mean the number of times that a banner advertisement, commerce button, marketing
button, marketplace placement, tagline link or other sponsorship placement, as
applicable (each of which shall be counted separately) is delivered to a user on
the TINM Site. Notwithstanding anything in this Agreement, the maximum amount of
VS impressions on any one page on any TINM Site which shall be counted towards
the total amount of impressions set forth on Appendix 1 shall be [*****]. The
tagline links to be provided by TINM as set forth in this Agreement (a) shall be
prominently displayed on the home page of each TINM Site and on every other page
of each TINM Site which contains any sponsor space; (b) shall state the
following: "Sponsored by VitaminShoppe.com"; and (c) shall contain a link to a
VS Site determined by VS. In the event TINM fails to provide on any TINM Site
during any applicable Sponsorship Period for such TINM Site, the number of
Impressions for a particular type of sponsorship placement as set forth on
Appendix 1, TINM shall provide a "make good" on such shortfall of Impressions,
by, at its discretion, either (i) reducing the applicable amount due and payable
by VS to TINM on a prorated basis by the amount of such shortfall; (ii)
extending the time period for providing the applicable type of sponsorship
placement on the applicable TINM Site until the number of Impressions for such
shortfall is reached; or (iii) providing the number of Impressions for such
shortfall by providing the applicable type of sponsorship placement on another
TINM Site or by providing another type of sponsorship placement with reasonably
equivalent placement and value on the same TINM Site, another TINM Site, or
another site owned or operated by TINM which targets a reasonably equivalent
audience (e.g., www.parenttime.com, www.parenting.com, www.people.com). TINM
will confer with VS in the event the "make good" is to be provided on such a
site owned or operated by TINM.
(c) Notwithstanding anything to the contrary in this Agreement, TINM may,
at its discretion, place, on any TINM Site, banner advertisements, commerce
buttons, marketing buttons and other promotions (collectively, "Promotions") of
third parties which sell the Covered Products (including without limitation,
when such promotions are placed by a third party which sells the Covered
Products); provided that no Promotions may themselves promote any of the Covered
Products in any way and provided further that any Promotions that do promote any
of the Covered Products must be located at least [*****] or more clicks away
from the applicable TINM Site. In the event VS discovers that TINM has failed to
comply with the preceding provisions set forth in this paragraph, VS shall
notify TINM in writing and TINM will immediately cease
-2-
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
displaying such placements on such TINM Site and shall also provide a "make
good" by, at its discretion, either (i) providing such additional number of
Impressions (in addition to the number of Impressions outlined in Appendix 1) as
may be equivalent to the number of Impressions delivered by the Restricted
Promotions (as defined herein); or (ii) providing such number of click-throughs
as may be equivalent to the number of click-throughs delivered by the Restricted
Promotions. "Restricted Promotions" shall mean the banner advertisements,
commerce buttons, marketing buttons and other promotions that TINM is restricted
from placing on the TINM Sites as set forth in the preceding provisions of this
paragraph.
(d) VS acknowledges that yourPharmacy.com, Inc. is the exclusive online
pharmacy (i.e., the exclusive third party online retailer allowed to promote
prescription drugs, over-the-counter drugs, certain health and beauty products
other than Covered Products which are described above and durable medical
equipment) on the TINM Sites. VS agrees that it will not place banner
advertisements, commerce buttons, marketing buttons or other forms of promotions
on the TINM Sites that themselves promote prescription drugs, over-the-counter
drugs, certain health and beauty products and durable medical equipment. The
foregoing shall not prohibit VS from selling prescription drugs,
over-the-counter drugs, certain health and beauty products and durable medical
equipment on its site, which is currently located at www.vitaminshoppe.com, or
on any of its other sites that are primarily branded with the VitaminShoppe.com
name and are reasonably equivalent to www.vitaminshoppe.com with respect to the
products and services offered (e.g., www.myvitaminshoppe.com) (collectively, the
"VS Sites").
(e) VS agrees that all banner advertisements, commerce buttons,
marketing buttons and other promotions it places on the TINM Sites shall be
subject to TINM's then-current standard rate card (other than price) and
advertising policies. VS shall have the right, at its option, to serve
advertisements on the TINM Sites from its own servers without the pre-approval
of TINM and TINM shall reasonably cooperate (taking into account TINM's existing
technology and resources) with such ad serving; provided that (i) VS conducts
such ad serving in accordance with industry standards; and (ii) any failures by
VS in serving such ads shall not be deducted from the number of Impressions to
be provided by TINM.
(f) VS shall be responsible for all transactions sought by users of the
TINM Sites which occur on any of the VS Sites, including without limitation,
order processing, credit card clearance, security, fulfillment, distribution,
customer service and user privacy. In addition, VS will comply with appropriate
privacy policies in handling customers' personally identifying information.
Specifically, VS will prominently display, and will strictly comply with, a
privacy policy on the VS Sites that is substantially similar to the privacy
policy displayed on the TINM Sites, and strictly adheres to the privacy
guidelines and principles promulgated by the Direct Marketing Association or
the Online Privacy Alliance.
-3-
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
(g) TINM shall provide VS via the Internet with weekly Impression
information and click through numbers. With respect to users who link to VS
Sites from the TINM Sites, VS shall provide TINM with weekly sales figures,
along with the number of catalogs ordered, from the VS Sites.
(h) VS shall, at TINM's written request and to the extent
technically feasible, develop and maintain within the VS Site 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 TINM in its sole discretion. The
customized page(s) will consist of no fewer than [*****] page, after which a
visitor may be taken into the main portion of the VS Site. Users who click a
banner advertisement, commerce button, marketing button or other equivalent
promotion of VS while on the TINM Sites will be automatically linked to such
customized page(s) as the initial page(s) they view on the VS Site. 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 VS Sites by
way of a link from the TINM Sites. The parties acknowledge and agree that the
customized pages may be either on the home page or other pages of the VS Site,
as may be mutually agreed upon by the parties.
2. Fees and Payments.
(a) In consideration of the foregoing, VS shall pay TINM a total of
[*****] (which amount includes the [*****] discount from the gross amount of
[*****]. Such total amount shall be paid by VS as follows: (i) $[*****] on
[*****]; (ii) $[*****] on $[*****]; (iii) $[*****] on $[*****]; and (iv)
$[*****] on [*****].
(b) In the event any Sponsorship Period on any TINM Site actually
commences later than the initial date identified on Appendix 1 for such
Sponsorship Period, the total amount due by VS shall be prorated based on the
applicable TINM Site involved and the period remaining for such Sponsorship
Period. Notwithstanding anything in this Agreement, to the extent that TINM
terminates this Agreement pursuant to Section 3(d), TINM shall give VS a
pro-rata refund of any pre-paid amounts under this Agreement.
3. Term and Termination.
(a) The term of this Agreement shall commence on the date first set
forth above and shall continue until [*****], unless earlier terminated as
provided below, or extended as provided for herein.
(b) This Agreement may be renewed upon mutual written agreement
signed by both parties.
-4-
<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
(c) Either party shall have the right to terminate this Agreement if
the other party has materially breached this Agreement; provided, however, that
the non-breaching party shall have given the breaching party reasonable notice
of such breach and thirty (30) days in which to cure such breach.
(d) In the event (i) TINM establishes a significant strategic
alliance (e.g., by way of an acquisition, merger, significant investment, joint
venture) that involves the TINM Sites and a site which is predominantly an
online retailer of pharmaceutical products and services, or (ii) VS establishes
a significant strategic alliance (e.g., by way of an acquisition, merger,
significant investment, joint venture) that involves the VS Sites and a site
which is predominantly an online health information portal (other than any
arrangement with VitaminBuzz.com, provided that VitaminBuzz.com continues to be
wholly owned by VS), each party will have a thirty (30) day period during which
it may, upon sixty (60) days prior written notice, terminate this Agreement.
Each party shall continue to be responsible for performing its obligations
under this Agreement during such thirty (30) day and sixty (60) day period.
(e) The provisions of Sections 3(e), 4(a), 4(b), 6, 8, 9 and 12 of
this Agreement shall survive termination or expiration of this Agreement.
4. Ownership and Licenses.
(a) As between VS and TINM, VS shall own all right, title and
interest in and to the VS Sites and the VS Trademarks (as defined herein),
including without limitation, all copyright, patent, trademark, trade secret
and proprietary rights thereto.
(b) As between VS and TINM, TINM shall own all right, title, and
interest in and to the TINM Sites and the TINM Trademarks (as defined herein),
including without limitation, all copyright, patent, trademark, trade secret
and proprietary rights thereto.
(c) Subject to the terms and conditions of this Agreement, VS does
hereby grant to TINM a non-exclusive, worldwide, non-transferable license to
reproduce and display all logos, trademarks, trade names and similar
identifying material relating to VS or the VS Sites (the "VS Trademarks")
solely in connection with the promotion, marketing and distribution of the TINM
Sites, VS and the VS Sites in accordance with the terms hereof; provided,
however, that TINM shall not make any specific use of any VS Trademark without
first submitting a sample of such use to VS 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.
(d) Subject to the terms and conditions of this Agreement, TINM does
hereby grant to VS a non-exclusive, worldwide, non-transferable license to
reproduce and display all logos, trademarks, trade names and similar
identifying material relating to TINM or the TINM Sites (the "TINM Trademarks")
solely in connection with the promotion, marketing and
-5-
<PAGE> 6
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
distribution of the TINM Sites, VS and the VS Sites in accordance with the terms
hereof; provided, however, that VS shall not make any specific use of any TINM
Trademark without first submitting a sample of such use to TINM 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.
5. Representations and Warranties.
(a) TINM represents and warrants as follows:
(i) TINM has full power and authority to enter into this
Agreement, and to perform its obligations hereunder, and its entry into this
Agreement and the performance of such obligations does not violate any other
agreement by which it is bound.
(ii) The conduct of TINM in performing this Agreement shall at
all times comply with all applicable federal, state, and local laws, rules and
regulations in the United States.
(b) VS represents and warrants as follows:
(i) VS has full power and authority to enter into this
Agreement, and to perform all of its obligations hereunder, and its entry into
this Agreement and the performance of its obligations does not violate any
other agreement by which it is bound.
(ii) The conduct of VS in performing this Agreement shall at all
times comply with all applicable federal, state, and local laws, rules and
regulations in the United States.
6. Indemnification.
(a) Each party hereby agrees to indemnify and hold harmless the
other party, its subsidiaries and affiliates, and their respective officers,
directors and employees from and 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.
(b) TINM shall indemnify and hold harmless VS, its subsidiaries and
its affiliates, and their respective officers, directors and employees from and
against any and all Losses insofar as such Losses (or third party actions in
respect thereof) arise out of or are based on a breach, or allegation which if
true would constitute a breach, of any of its representations, warranties or
obligations herein.
-6-
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
(c) VS shall indemnify and hold harmless TINM, its subsidiaries and
affiliates, and their respective officers, directors and employees from and
against any and all Losses insofar as such Losses (or third party actions in
respect thereof) arise out of a breach, or allegation which if true would
constitute a breach, of any of its representations, warranties or obligations
herein.
(d) TINM shall indemnify and hold harmless VS, its subsidiaries and
affiliates, and their respective officers, directors and employees from and
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 VS of the TINM
Trademarks in accordance with the terms hereof to the extent TINM did not have
the right to grant a license to VS as set forth in this Agreement.
(e) VS shall indemnify and hold harmless TINM, its subsidiaries and
affiliates, and their respective officers, directors and employees from and
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 TINM of the VS
Trademarks in accordance with the terms hereof to the extent VS did not have
the right to grant a license to TINM as set forth in this Agreement.
7. Public Announcements. Neither party will make any announcements or
statements to the public concerning the relationship between them or the
transactions described herein without the prior written consent of the other.
8. Confidentiality.
(a) Neither party shall use or disclose any Confidential Information
(as defined herein) of the other party, except on a need-to-know basis pursuant
to this Agreement. "Confidential Information" shall mean any and all
information or material, whether in tangible or intangible form, that is
confidential or proprietary to the disclosing party and is disclosed under
circumstances under which the receiving party should reasonably have known such
information or material to be confidential or proprietary to the disclosing
party, including without limitation, technical, distribution, operating,
business, marketing, research and financial information relating to the
disclosing party or its products or services, and the material terms of this
Agreement.
(b) For purposes of this Agreement, "Confidential Information" shall
not include information or material (a) in the public domain (other than as a
result of a breach of this Agreement); (b) in the receiving party's possession
prior to its receipt from the disclosing party; (c) independently developed by
the receiving party without the use of Confidential Information; (d) obtained
by the receiving party from a third party under no obligation of
confidentiality to the disclosing party; or (e) must be disclosed due to a
judicial or governmental requirement or order, provided that (i) the receiving
party has given the disclosing party sufficient prior notice of such
requirement or order to permit the disclosing party a reasonable opportunity to
object or to seek a protective order or other appropriate remedy, (ii) the
receiving party cooperates with the
-7-
<PAGE> 8
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
disclosing party so that it may object or seek a protective order or other
appropriate remedy and (iii) the receiving party in any event discloses only
that portion of the Confidential Information that is legally required to be
disclosed.
9. Limitation on Liability; Disclaimer.
(a) Limitation on Liability. UNDER NO CIRCUMSTANCES SHALL EITHER
PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) SUCH AS, BUT NOT LIMITED TO,
LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY OR ITS
AFFILIATES BE LIABLE TO THE OTHER FOR ANY CLAIM ARISING OUT OF ANY DOWNLOADING
OR OTHER USE OF ITS WEB SITES.
(b) Disclaimer. EXCEPT AS SET FORTH IN SECTION 6(a), NEITHER PARTY
MAKES ANY, AND EACH PARTY ACKNOWLEDGES THAT THE OTHER HAS NOT MADE ANY, AND
EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, REGARDING THE OPERATION OF ITS WEB SITES, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
WITHOUT LIMITING THE FOREGOING, EACH PARTY ACKNOWLEDGES THAT OTHER PARTY'S
WEB SITES ARE OPERATED ON AN "AS IS", "AS AVAILABLE" BASIS, AND THAT IT MAKES
NO WARRANTY THAT ITS WEB SITES WILL BE ERROR-FREE OR THAT ACCESS THERETO WILL
BE UNINTERRUPTED.
10. Notices. All notices to be given hereunder shall be in writing and
shall be given to the parties and at the addresses first above written. Notices
shall be deemed to have been given (and received) (a) when personally
delivered, (b) on the next business day after the date on which deposited with
a nationally recognized overnight carrier, addressed to that party for whom the
notice is intended at the address set forth above, (c) five (5) business days
after posting when sent by certified United States mail, postage prepaid,
return receipt requested, and (d) the day following transmission if sent by
facsimile transmission followed by written confirmation sent by mail.
11. Force Majeure. Neither party shall be liable to the other for any
default or delay in performance of any of its obligations under this Agreement
if such default or delay is caused, directly or indirectly, by an event beyond
such party's reasonable control, including without limitation, fire, flood,
earthquake or other acts of God; wars, rebellions or revolution; strikes, riots
or civil disorders; accidents or unavoidable casualties; interruptions in
transportation,
-8-
<PAGE> 9
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
communications or power facilities; or changes in law, treaties, rulings,
regulations, decisions or requirements of any governmental, administrative or
regulatory agency.
12. Miscellaneous. This Agreement shall be construed in accordance with
the laws of the State of New York, without regard to its conflicts of laws
rules. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior oral or written
agreements or other communications between the parties with respect to the
subject matter hereof. This Agreement may not be modified except by a writing
signed by an authorized signatory of each party. The parties are acting as
independent contractors to each other under this Agreement, and nothing
contained in this Agreement shall create or suggest any affiliation,
association, partnership, agency or joint venture between the parties. Neither
party shall represent itself or act as the associate, partner, agent or joint
venturer of the other party in any way whatsoever. Neither party shall assign
any right or any obligation under this Agreement without the prior written
consent of the other party, and any such attempted assignment shall be null and
void, except that either party may assign any right or any obligation under this
Agreement to an affiliate of such party upon prior notice to the other party
(but without the other party's prior written consent), provided that such
affiliate continues to maintain or operate the assigning party's site. No waiver
by either party or any breach or default hereunder shall be deemed to be a
waiver of any preceding or subsequent breach or default. The section headings
used herein are for convenience only and shall not be given any legal import.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute a single
instrument. If any provision of this Agreement shall be found by a court of
competent jurisdiction to be invalid or unenforceable, such finding shall not
affect the validity or enforceability of this Agreement as a whole or of any
other provision of this Agreement.
-9-
<PAGE> 10
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
If the foregoing meets with your approval, please sign the enclosed copy
and return it to TINM with the appropriate signatures.
TIME INC. NEW MEDIA
By: /s/ Steven Petrow
-------------------------------
Name: Steven Petrow
-----------------------------
Title: Exec Editor
----------------------------
AGREED TO AND ACCEPTED:
VITAMINSHOPPE.COM, INC.
By: /s/ K.H. Creech
-------------------------
Name: K.H. Creech
-----------------------
Title: CEO
----------------------
-10-
<PAGE> 11
CONFIDENTIAL MATERIALS OMITTED AND
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
APPENDIX 1
SPONSORSHIP PLACEMENTS
<TABLE>
<CAPTION>
TYPE OF SPONSORSHIP
TINM SITE PLACEMENT NUMBER OF IMPRESSIONS SPONSORSHIP PERIOD
- --------- ------------------- --------------------- ------------------
<S> <C> <C> <C>
Dr. Andrew Weil [*****] [*****]/week [*****]-[*****]
[*****] [*****] [*****]-[*****]
[*****] [*****] [*****]-[*****]
[*****] [*****]/week [*****]-[*****]
[*****] [*****]/week [*****]-[*****]
[*****] [*****]/week [*****]-[*****]
Total: [*****]
- ---------------------------------------------------------------------------------------------------
Dr. Ruth Westheimer [*****] [*****]/month [*****]-[*****]
[*****] [*****]/month [*****]-[*****]
[*****] [*****]/month [*****]-[*****]
[*****] [*****] [*****]-[*****]
Total: [*****]
[*****] [*****]/month [*****]-[*****]
[*****] [*****]/month [*****]-[*****]
[*****] [*****]/month [*****]-[*****]
[*****] [*****] [*****]-[*****]
Total: [*****]
- ----------------------------------------------------------------------------------------------------
Alice Waters [*****] Total: [*****] [*****]-[*****]
[*****]
[*****]
[*****]
- ----------------------------------------------------------------------------------------------------
Grand Total: [*****}
- ----------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 12
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
APPENDIX 2
EXCLUDED COVERED PRODUCTS
See attached.
-12-
<PAGE> 13
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
<TABLE>
<CAPTION>
DEPARTMENT CATEGORY VENDOR NAME DESCRIPTION
- ---------- -------- ----------- -----------
<S> <C> <C> <C>
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR BOOST ENERGY
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR SUSTACAL
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR SUSTACAL PLUS
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR ISOCAL
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR ISOCAL HN
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR LIPISORB RTU
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR RESPALOR
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR BOOST
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR DELIVER 2.0
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR ULTRACAL
Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR TRAUMACAL
Vitamins & Nutrition Meal Replacement NATURE'S WAY PRODUCTS INC. NAT WY
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE PLUS
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE FRT
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP COMPLEAT MODI
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP ISOSOURCE
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP ISOSOURCE HN
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP MERITENE INST
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE F/BV
Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP VIVONEX PLUS
Vitamins & Nutrition Meal Replacement RAINBOW LIGHT NUTRITIONAL R/L
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE PLUS
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE LIGHT
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE/FIBER
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE PLS HN
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE HONEY
Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE CHOC
Vitamins & Nutrition Teas ADAMS USA
Vitamins & Nutrition Teas GOLDEN TEMPLE INC
Vitamins & Nutrition Teas MD LABS INC
Vitamins & Nutrition Teas TRADITIONAL MEDICINALS INC
Vitamins & Nutrition Teas TWIN LABORATORIES INC
Vitamins & Nutrition Diet Products SLIM FAST FOODS
Vitamins & Nutrition Diet Products AMERICAN NATURAL SNACKS
Vitamins & Nutrition Diet Products ATKINS NUTRITIONALS INC
Vitamins & Nutrition Diet Products NATURES'S SOURCES LLC
Vitamins & Nutrition Diet Products RAINBOW LIGHT NUTRITIONAL
Vitamins & Nutrition Diet Products ROSS LABS
Vitamins & Nutrition Sports Nutrition CLIF BAR INTERNATIONAL
Vitamins & Nutrition Sports Nutrition MLO PRODUCTS
Vitamins & Nutrition Sports Nutrition WEIDER NUTRITION INTERNTL
Vitamins & Nutrition Sports Nutrition ATKINS NUTRITIONALS INC
Vitamins & Nutrition Sports Nutrition TWIN LABORATORIES INC
Vitamins & Nutrition Sports Nutrition CHAMPION NUTRITION
Vitamins & Nutrition Sports Nutrition CNS INC
</TABLE>
<PAGE> 1
RSPAB 9/10/99
EXHIBIT 10.45
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
As of August 16, 1999
Ms. Kathryn Creech
President and CEO
VitaminShoppe.com
4700 West Side Ave.
North Bergen, NJ 07407
Dear Kathryn:
This letter provides an understanding of the scope of the services (the
"Services") to be performed by Sapient Corporation ("Sapient") solely during the
Concept and Design phase (the "Concept and Design Phase") of Sapient's
performance of designing and developing the VitaminShoppe.com and
VitaminBuzz.com Web sites (the "Project") for VitaminShoppe.com, Inc.
("VitaminShoppe.com"). The Concept and Design Phase of the Project shall
commence on Monday August 9, 1999 and end on Friday October 22, 1999, unless
extended by Sapient and VitaminShoppe.com.
The deliverables (the "Deliverables") to be delivered by Sapient to
VitaminShoppe.com during and by the end of the Concept and Design Phase are set
forth on Schedule A attached hereto. For the Services VitaminShoppe.com shall
pay Sapient $[*****](the "Concept and Design Phase Fee"), plus reasonable
actual out-of-pocket expenses. The Concept and Design Phase Fee will be paid
according to the following schedule:
8/23/99 [*****]% $[*****]
9/20/99 [*****]% $[*****]
11/1/99 [*****]% $[*****]
Such out-of-pocket expenses will be billed at the end of the Concept Phase and
again at the end of the Design Phase with payment due 30 days from receipt of
invoice by VitaminShoppe.com. Sapient will not bill VitaminShoppe.com for travel
and lodging expenses incurred by resources dedicated solely to the back end
integration team.
Within three business days of the last day of the Concept and Design Phase,
Sapient shall deliver to VitaminShoppe.com a good faith estimate for the cost of
the Project. Within 10 days following the receipt of such estimate,
VitaminShoppe.com shall deliver written notice to Sapient which notice shall
state whether VitaminShoppe.com wishes to continue with the Project or not to
continue with the Project. If VitaminShoppe.com decides to continue with the
Project at such time, the parties shall enter into a Web Site Development
Agreement to set forth the
<PAGE> 2
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
terms and conditions for the balance of the Project, and the Concept and Design
Phase Fee, together with the $[*****] already paid by VitaminShopppe.com to
Sapient in connection with the Project, shall be credited towards the total fee
for the Project. If VitaminShoppe.com decides not to continue with the Project
at such time, Sapient shall have no further obligation to provide additional
services to VitaminShoppe.com in connection with the Project beyond the Services
and VitaminShoppe.com shall have no further obligation to pay Sapient any
consideration in connection with the Project beyond the Concept and Design Phase
Fee and the out-of-pocket expenses set forth herein, provided, however, that
each party shall remain bound by the terms and conditions of the confidentiality
provisions and its representations, warranties and covenants contained in this
letter agreement.
Each party agrees to hold in confidence and not disclose (except on a
confidential basis to its employees or agents who are working on the Project and
who are bound to preserve the confidentiality thereof) any Proprietary
Information of the other to any third party. "Proprietary Information" shall
mean all information, knowledge and data possessed by either party, including
without limitation trade secrets, information designated as confidential which
is not publicly available, methodologies, systems, processes, inventions,
algorithms, procedures, techniques, work approaches and tangible manifestations
of Proprietary Information (including the reports to be delivered to
VitaminShoppe.com by Sapient at the conclusion of the Concept and Design Phase),
as well as any information VitaminShoppe.com obtains regarding any of Sapient's
clients. Without in any way limiting the foregoing, all information delivered by
VitaminShoppe.com to Sapient during the Concept and Design Phase, or otherwise
in connection with the Project, shall be deemed "Proprietary Information" under,
and shall be subject to, the terms and conditions of the Confidential Disclosure
Agreement dated as of July 12, 1999 between VitaminShoppe.com and Sapient, the
terms and conditions of which are incorporated herein by reference.
The Sapient team will be defined during the later stages of the Concept and
Design Phase, provided, however, that the following Sapient staff will be
allocated to the Project:
Jon Frey - Delivery Director (part time)
Lindsey Mosby - User Experience Team Lead (part time)
Mark Berler - Director of Architecture (part time)
Casey Hanback - Project Manager
Ram Prabhala - Lead Technical Architect
Sapient may not re-assign any of the above, or any of the other Sapient team
members working on the Project, from the Project without the written consent of
VitaminShoppe.com. Such consent shall not be unreasonably withheld.
Sapient and VitaminShoppe.com each agree and represent that Sapient is an
independent contractor and is not VitaminShoppe.com's agent, legal
representative, joint venturer, partner or
-2-
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DEMOTE OMISSIONS.
employee for state or federal tax purposes or for any other purposes whatsoever
(and will not hold itself out as such), except in connection with providing the
Services in accordance with the terms of this letter agreement, and that Sapient
and its employees are not entitled to any VitaminShoppe.com employee benefits.
Notwithstanding anything to the contrary which may be set forth or implied
herein, Sapient has no authority to make or enter into any obligations, express
or implied, on behalf of VitaminShoppe.com or enter into contracts on behalf of,
bind or otherwise obligate VitaminShoppe.com in any manner whatsoever. Sapient
shall be responsible for all withholding and taxes by any government authority
on the compensation paid to Sapient by VitaminShoppe.com. Sapient shall make
clear in all agreements with its employees and independent contractors that they
are being employed directly by Sapient, and that Sapient is acting individually
and not as agent of VitaminShoppe.com in its employment of these individuals.
VitaminShoppe.com is retaining Sapient in reliance upon Sapient's
representations that it will use its best efforts, skills, judgment and
abilities to provide the Services in a professional manner consistent with
VitaminShoppe.com policies, as set forth in VitaminShoppe.com's policy manuals
and/or handbooks, if any, written copies of which have been provided to Sapient,
or such other policies as may be conveyed in writing by VitaminShoppe.com to
Sapient, and shall devote such time as is reasonably necessary to such duties.
Sapient acknowledges and agrees that all deliverables ("Work Product") created,
developed or provided by Sapient to VitaminShoppe.com during the Concept and
Design Phase, or otherwise in connection with the Project, shall be deemed "work
made for hire" for the benefit of VitaminShoppe.com. All rights, title and
interest to all Work Product, including all copyrights and all intellectual
property rights pertaining thereto, shall be held by VitaminShoppe.com.
To the extent that title to any such Work Product may not, by operation of law,
vest in VitaminShoppe.com or such Work Product may not be considered "works made
for hire," all right, title and interest therein are hereby irrevocably assigned
by Sapient to VitaminShoppe.com. Sapient agrees to execute all necessary
documentation for the assignment or registration of copyright to secure
VitaminShoppe.com's rights to any and all Work Product. Notwithstanding the
foregoing, Sapient shall retain all rights, title and interest to any
methodologies, concepts, work approaches, know-how and techniques, software
programs, user interface (UI) conventions, UI design patterns and any other
consulting, design or development tools which Sapient either developed prior to
the commencement of the Project or which Sapient develops during the course of
the Project but which are developed either at Sapient's cost or not in
connection with the Project (collectively, the "Sapient Materials"). Sapient
hereby grants VitaminShoppe.com a perpetual, worldwide, royalty free right and
license to use the Sapient Materials in connection with the use and operation of
the VitaminShoppe.com and VitaminBuzz.com web sites, which license may be
transferred to any entity which purchases substantially all of the business
and/or assets of VitaminShoppe.com or which purchases either the
VitaminShoppe.com or VitaminBuzz.com Web sites. Sapient shall be free to use for
any purpose the Residuals resulting from its work on the Project. The term
"Residuals" means
-3-
<PAGE> 4
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FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DEMOTE OMISSIONS.
information in intangible form, which may be retained by persons working on the
engagement, including ideas, concepts, know-how, and techniques contained
therein and which do not contain and of VitaminShoppe.com's proprietary
information.
Sapient agrees that upon termination of this Agreement any materials provided by
VitaminShoppe.com to Sapient shall remain VitaminShoppe.com property and any
Work Product that is in progress and not complete shall be transferred to
VitaminShoppe.com, and Sapient shall return all such materials to
VitaminShoppe.com.
Each party represents and warrants that it has the authority to enter into this
letter and to perform its obligations hereunder, and Sapient represents and
warrants that its original Work Product produced in connection with the Services
performed hereunder and the Work Product hereunder shall not violate any rights
of any person, including but not limited to trademark, copyright, privacy, or
proprietary rights, provided that Sapient shall have no liability to
VitaminShoppe.com under this Agreement to the extent that any infringement or
claim thereof is based upon (i) the combination, operation or use of a
Deliverable in combination with equipment or software not supplied, approved or
recommended by Sapient hereunder where the Deliverable would not itself be
infringing, (ii) compliance with designs, specifications or instructions
provided to Sapient by VitaminShoppe.com, (iii) use of a Deliverable in an
application or environment for which it was not designed or not contemplated
under this Agreement, or (iv) modifications of a Deliverable by anyone other
than Sapient or not approved by Sapient where the unmodified version of the
Deliverable would not be infringing.
THE FOREGOING REPRESENTATIONS AND WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THOSE CONCERNING
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND NO REPRESENTATION OR
STATEMENT NOT EXPRESSLY CONTAINED IN THIS AGREEMENT AND ANY WORK STATEMENT WILL
BE BINDING ON SAPIENT AS A WARRANTY.
This letter 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 letter agreement constitutes the entire agreement of
the parties hereto with respect to the Concept and Design Phase of the Project
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
letter 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 letter 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
may assign its rights or obligations hereunder, in whole or in part, without the
other party's written consent, except 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
-4-
<PAGE> 5
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
of related transactions is structured, provided, that the successor party agrees
to be bound by all of the terms and conditions hereof.
To the extent that the terms and conditions set forth in Schedule A contradict
those set forth in this letter agreement, the terms and conditions of this
letter agreement shall govern.
If you are in agreement with these arrangements, please sign one copy of this
letter agreement and return it to us in the enclosed stamped self-addressed
envelope. We very much appreciate the opportunity to serve VitaminShoppe.com.
Best Regards,
Alex Kormushoff
Vice President
Agreed:
VITAMINSHOPPE.COM, INC.
By:/S/ KATHRYN H. CREECH
______________________
Name: KATHRYN H. CREECH
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
-5-
<PAGE> 6
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AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
[*****]
VISUAL DESIGN CONCEPTS
- - [*****]
INFORMATION ARCHITECTURE CONCEPTS
- - [*****]
CONTENT STRATEGY CONCEPTS
- - [*****]
INTERACTIVITY AND USABILITY MODELS
- - [*****]
BRAND STRATEGY
- - [*****]
- - [*****]
- - [*****]
[*****]
TEST, STAGING AND PRODUCTION SYSTEM CONFIGURATION SPECIFICATION
- - [*****]
- - [*****]
DEVELOPMENT MEDIUM ( SCRIPTING, LANGUAGE, ETC.) RECOMMENDATIONS
LEGACY INTERFACE DESIGN
HOSTING OPTIONS
SCOPE REFINEMENT
[*****]
INTEGRATED PROTOTYPE
- - [*****]
[*****]
SYSTEM AND PACKAGE INTERFACE SPECIFICATION
-6-
<PAGE> 7
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
FRONT END - TO MIDDLE TIER INTERFACE
MIDDLE-TIER TO BACK-END INTERFACE
BACK-END TO LEGACY INTERFACES
DRILL DOWN INTERFACES FOR EACH OF THE COMPONENTS IN THE THREE TIERS
ARCHITECTURE MODELS AND DOCUMENTATION ( MID LEVEL DETAIL)
CLASS DIAGRAMS
OBJECT DIAGRAMS
INTERACTION DIAGRAMS
DATA MODEL
USE CASES AND SCENARIOS FOR THE VARIOUS PROCESSES
TEST PLANS
IMPLEMENTATION PROJECT PLAN
-7-
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF LOSS PER COMMON SHARE
Period from October 1, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Year ended December 31,
October 1, 1997
(inception) to
December 31, 1997 1998 1999
----------------- ------------- ------------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE (1):
Net loss $ (353) $ (3,440) $ (30,201)
============ ============ ============
Weighted average number of common shares outstanding (2) 13,081,500 13,081,500 14,756,339
============ ============ ============
Basic and diluted net loss per share $ (0.03) $ (0.26) $ (2.05)
============ ============ ============
</TABLE>
(1) Diluted net loss per share is equal to basic net loss per share since
potential common shares from the exercise of stock options and warrants are
antidilutive.
(2) The number of shares used to compute the loss per share amounts includes
13,081,500 shares of Class B common stock issued in connection with the
Company's initial capitalization in June 1999, as if all shares were outstanding
for the entire periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 38,019
<SECURITIES> 0
<RECEIVABLES> 259
<ALLOWANCES> 0
<INVENTORY> 35
<CURRENT-ASSETS> 42,976
<PP&E> 6,431
<DEPRECIATION> 247
<TOTAL-ASSETS> 49,160
<CURRENT-LIABILITIES> 13,222
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 35,734
<TOTAL-LIABILITY-AND-EQUITY> 49,160
<SALES> 13,638
<TOTAL-REVENUES> 13,638
<CGS> 7,594
<TOTAL-COSTS> 36,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9)
<INCOME-PRETAX> (30,093)
<INCOME-TAX> 108
<INCOME-CONTINUING> (30,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,201)
<EPS-BASIC> (2.05)
<EPS-DILUTED> (2.05)
</TABLE>
