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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
nutrisystem.com inc.
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(Exact name of registrant as specified in its charter)
Delaware 23-3012204
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
202 Welsh Road, Horsham, PA 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-706-5300
Securities to be registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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INDEX
Page
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Item 1. Business........................................................ 1
Item 2. Financial Information........................................... 20
Item 3. Properties...................................................... 29
Item 4. Security Ownership of Certain Beneficial Owners
and Management................................................ 29
Item 5. Directors and Executive Officers................................ 31
Item 6. Executive Compensation.......................................... 33
Item 7. Certain Relationships and Related Transactions.................. 35
Item 8. Legal Proceedings............................................... 39
Item 9. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters................. 39
Item 10. Recent Sales of Unregistered Securities......................... 40
Item 11. Description of Registrant's Securities to be Registered......... 41
Item 12. Indemnification of Directors and Officers....................... 42
Item 13. Financial Statements and Supplementary Data..................... 43
Item 14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 44
Item 15. Financial Statements and Exhibits............................... 44
(i)
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Item 1. Business.
(a) General Development of Business
On September 27, 1999, Ansama Corp. ("Ansama"), a Nevada
corporation formed in March 1988 with no active business operations,
stockholders' equity of approximately $72,235 at December 31, 1998 and
approximately 200 stockholders of record, merged (the "Merger") with and into
nutrisystem.com inc. (the "Company") for the purpose of reincorporating as a
Delaware corporation under the name "nutrisystem.com inc." Ansama formed the
Company as a Delaware corporation for this purpose in August 1999. As part of
the Merger, each of the 2,039,337 outstanding shares of Common Stock of Ansama
was converted into the right to receive one share of the Company's Common Stock.
As a further consequence of the Merger, the Company succeeded
to the rights of Ansama under: (i) an August 16, 1999 Asset Purchase Agreement
(the "Asset Agreement") with Nutri/System L.P., a Delaware limited partnership
(the "Partnership"), whereby Ansama agreed to purchase specified assets of the
Partnership, including the right to the name "NutriSystem," and assume specified
liabilities of the Partnership, for $3,000,000 in cash and (ii) an August 16,
1999 Stock Exchange and Purchase Agreement (the "Stock Agreement") with HPF
Holdings, Inc., Brian D. Haveson, Joseph H. Boileau, Kathleen E. Simone, Deborah
A. Gallen and Frederick C. Tecce, whereby Ansama agreed to acquire all of the
beneficial interests of NutriSystem Direct, L.L.C. ("NSDirect"), a Pennsylvania
limited liability company, for $400,000 in cash and the issuance of 17,500,000
shares of Common Stock. See Item 7 hereof.
On September 30, 1999, the Company completed the sale of
4,363,985 shares of its Common Stock at a price of $1.00 per share paid in cash
on that date ($964,000 of which had been received by the Company on September
30, 1999 and the remainder of which was received shortly thereafter) in a
partial closing under a private placement (the "Private Placement") for which
Pennsylvania Merchant Group acted as placement agent and, immediately
thereafter, the Company and the other parties to the Asset Agreement and the
Stock Agreement consummated the transactions contemplated by such agreements.
The Company used a portion of the proceeds of the Private Placement to satisfy
its obligations under the Asset Agreement and issued 17,500,000 shares of Common
Stock pursuant to the Stock Agreement; the remainder of such proceeds were used
to pay the Company's expenses incurred in connection with the Private Placement
and for working capital. On October 13, 1999, the Company completed the closing
of the Private Placement by the sale for $1.00 per share paid in cash on that
date of an additional 3,273,415 shares of its Common Stock. The proceeds from
the Private Placement, after payment of $3,400,000 pursuant to the Asset
Agreement and the Stock Agreement, are being used for working capital and to
pursue the Company's business strategy, including marketing and advertising
initiatives, enhancements to the Company's Web site, expanding the Company's
capacity to fulfill orders and increases in staff levels.
As a result of the foregoing transactions, as of February 1,
2000 the Company has 27,176,737 outstanding shares of Common Stock.
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As used herein, unless the context otherwise requires, the
term the "Company" refers to nutrisystem.com inc. and its subsidiaries and their
respective predecessors.
"NutriSystem(R)" and "Nutrihance(R)" are the registered
trademarks of the Company.
(b) Financial Information About Industry Segments
The Company operates as a single industry segment within the
meaning of Statement of Financial Accounting Standards No. 131.
(c) Narrative Description of Business
Overview
By offering an interactive, Internet based solution to the $33 billion
weight loss industry, the Company has transferred its business model from weight
loss centers to homes via its Internet Web site, "www.nutrisystem.com" (the "Web
site"), providing dieters with a friendly and timesaving program. The Company
leverages the advantages of online commerce with specific focus on all aspects
of weight loss. The increasing percentage of Internet users who shop for
healthcare products online puts the Company in an optimal position for rapid and
profitable growth.
Traditional weight loss programs offered at physical retail centers are
inherently expensive, requiring up-front program fees that range from $60 to
$600. Participants attend mandatory weekly on-site meetings and are required to
purchase products and supplements. This traditional form of weight loss has lost
its luster and now represents an archaic business model. The Internet allows the
Company to be the low-cost provider in the weight loss industry, offering free
participation and products at value pricing. Without the constraints and
overhead costs of the bricks and mortar weight loss program, the Company is able
to expand its client base, offering a time-conscious and private experience,
while promoting quality and value to the consumer.
The Company's online program offers dieters a comprehensive and
anonymous approach to dieting without sacrificing any program benefits. By
providing individualized calorie plans, portion-controlled food, one-on-one
counseling, behavior modification, exercise education and maintenance plans at
the participant's convenience, the online program meets the client's every need.
Comprehensive weight related information is offered in a participatory manner,
allowing clients to customize their weight loss programs and personalize their
meal and exercise plans.
The primary tool in promoting weight loss in the nutrisystem.com
program is pre-packaged, portion-controlled food. The food is specially
formulated and prepared using a state-of-the-art heating process. It requires no
refrigeration, making storage and shipping costs negligible. With over 100
shelf-stable food selections, the products offered by the Company are
particularly suited for e-commerce. Because orders can be placed 24 hours a
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day, seven days a week through the Web site, customers find themselves having
the convenience of timely product selection and service fulfillment.
Once the Company achieves sufficient sales volume to realize economies
of scale, the Company believes that its high inventory turnover, lack of
investment in expensive retail centers and substantially lower warehousing
expenses should give it significant advantages relative to traditional weight
loss centers.
Recent Developments
The Company is currently engaged in discussions with two private
investors regarding the purchase by each investor of 500,000 shares of Common
Stock at a price of $5.00 per share. If these private investments are completed,
the Company anticipates that a representative of each investor would be
appointed to the Company's Board of Directors.
Upon completion of the contemplated private placement, which is
anticipated to occur by the end of the first quarter of 2000 and result in gross
proceeds of $5,000,000, the Company intends to commence discussions with
selected investment banking firms regarding a public offering of Common Stock
before the end of 2000.
No assurance can be given that the private placement will be completed
as contemplated or that a public offering will occur.
Industry Background
Traditional Weight Loss Retailing. The traditional weight loss industry
is characterized by classroom style diet firms that charge initiation fees and
have mandatory weekly meetings. The two major classroom style diet firms are
Jenny Craig Inc., with approximately 800 owned and franchised centers in North
America, Australia and New Zealand, and Weight Watchers International, which was
recently sold to a private European investment firm by H.J. Heinz Company. On
average, a client spends 10 weeks in a program and loses 1 to 22 pounds per
week. Overweight individuals typically join a weight loss program for health and
cosmetic reasons and often stop and then re-enroll in a program several times.
The weight loss industry is characterized by a broad array of products,
services and supplements as well as rapid changes in trends and the broad
availability of diet literature and philosophies. The Company believes that the
business model of the traditional weight loss industry results in high overhead
costs that are passed on to clients through program fees ranging from $60 to
$600.
Recent studies reported in the Journal of the American Medical
Association indicate that approximately 100 million Americans are overweight and
spend in excess of $33 billion per year on weight control products and services.
A recent report released by Tufts University found that 63% of men and 55% of
women over the age of 25 are obese or overweight, the highest rate ever
recorded. As result, more Americans are now at risk for diabetes, cancer and
heart disease among other conditions. These statistics contribute to the rising
health care costs to treat obesity, which are now estimated at $70 billion per
year. The
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Company believes its Web site provides an attractive commercial medium to reach
the weight loss industry.
e-Commerce. The Internet has become an important alternative to
traditional media, enabling millions of consumers to seek information,
communicate with one another and execute commercial transactions electronically.
According to an industry research firm, the number of World Wide Web users is
expected to grow from approximately 100 million in 1998 to approximately 320
million by 2002. The Internet is distinct from traditional media in that it
offers real-time access to dynamic and interactive content and instantaneous
communication among users. These characteristics, combined with the fast growth
of Internet users and usage, have created a powerful, rapidly expanding direct
marketing and sales channel. Advertisers can target specific demographic groups,
measure the effectiveness of advertising campaigns and revise them in response
to real-time feedback. Similarly, the Internet offers online merchants the
ability to reach a large audience and operate with lower costs and greater
economies of scale, while offering consumers greater selection, lower prices and
increased convenience compared to conventional retailing.
Cyber Dialogue, Inc. estimates that the number of adults in the United
States searching for on-line health and medical information will grow to
approximately 30 million in the year 2000, and they will spend approximately
$150 billion for all types of health-related products and services off-line.
Accordingly, the Company believes that companies that establish a clear brand
identity as a trusted source of online consumer healthcare information and
services will have a significant opportunity to capitalize on multiple revenue
sources, including direct-to-consumer advertising and e-commerce.
Strategy
The Company's online marketing strategy is to attract clients through
informative up-to-date content, online counseling sessions, chat rooms and
personalized exercise programs, coupled with its NutriSystem food offerings. The
Company believes its Web site, which became operational on October 15, 1999,
attracts users who are health conscious and have the disposable income to
participate in weight loss activities but who are faced with time restrictions
from busy work and home schedules. The Web site is attractive to those who would
rather participate privately in an online weight loss program due to the
sensitivity of the subject matter or those who have a dislike for the mandatory
group session approach used by other weight loss firms. The Company plans to
capitalize on the $33 billion weight loss industry by combining the
well-established NutriSystem name and proven weight loss program with the
Internet as the medium of communications with its customers and potential
customers. The Company intends to facilitate this goal using the following
strategies:
Leverage Strong Brand Name Recognition through Strategic
Alliances. The more than 30 years of experience of the
Company's predecessors in the weight loss industry under the
NutriSystem name conveys strong brand recognition and should
substantially facilitate the Company's ability to garner
valuable advertising space and form strategic relationships.
To exploit the Company's brand name recognition and generate
traffic to its online store, the Company has focused its
strategic alliances into three categories: (i) Internet
Portals: AOL.com,
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Lycos.com, Snap.com, About.com, AltaVista.com, Excite.com,
iVillage.com, Iwon.com and WebCrawler.com, (ii) Health Content
Sites: drkoop.com., HeathCentral.com and OnHealth.com and
(iii) Wedding Content Sites: TheKnot.com, ModernBride.com and
WeddingChannel.com.
Encourage Frequent Visits, Providing a Truly Interactive,
Informative Experience. The Company's Web site provides a
highly participatory and enjoyable experience. Unlike other
sites which offer read only content, the Company's Web site
provides a virtual environment in which the user calculates
his/her health status, communicates in "real time" with a
personal counselor in the state-of-the-art counseling room and
even evaluates his/her progress using the Daily Diary. The Web
site also features weight loss product information and other
health related content provided by nutritionists and health
experts, as well as live discussions and lectures that
encourage the user to talk to the experts.
Secure Customer Loyalty by Delivering a Compelling Value
Proposition. The Company offers value through the use of
innovative technology, broad product selection, high quality
content, a high level of customer service, competitive pricing
and personalized services. Dieters are offered an interactive
and anonymous approach to dieting without sacrificing the
specifics of a successful program. Each customer is provided
with an individualized weight loss program as well as
one-on-one behavior modification counseling and exercise
program development. The Company offers over 100 food items
that require no refrigeration, with a cost to the consumer of
less than $8.00 per day before shipping and handling for
breakfast, lunch, dinner and snacks. New food items are added
on a quarterly basis to ensure variety. Orders can be placed
24 hours a day and will be shipped within the next 24 hours.
Customers make person to person inquiries by talking live to
the Company's Online Help Consultant or by calling the
Customer Support toll-free number.
Generate Incremental Revenue. In addition to the products and
services offered as part of its weight loss program, the
Company plans to derive revenue from the sale of nutritional
supplements and exercise equipment. The Company currently
markets a line of vitamins and supplements under the name
"Nutrihance," and plans to expand this line in the first
quarter of 2000 to include brand name vitamins and
supplements. The Company also intends to offer exercise
equipment as well as other diet and health-related products
and accessories beginning in the third quarter of 2000.
Broaden Potential Client Base. The Internet provides the
Company with an excellent distribution channel to attract
overweight men. With over 48% of overweight men trying to lose
weight at any given time, the general program design is
intended to capitalize on the male population that is
traditionally reluctant to attend formal weight loss programs.
Because of the anonymous nature and personalized approach of
the program, the Company believes it can increase the
percentage of male clients who currently participate in
structured weight loss programs from 5% to 30%.
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Continue to Service Dieters Without Internet Access. Through
the Company's NutriSystem Direct Program, independent
representatives offer the Company's products and services
directly to clients or potential customers who do not have
Internet access. This approach offers these clients a
convenient and cost effective approach to the NutriSystem
weight loss program.
The nutrisystem.com Web site
The Company's nutrisystem.com Web site is designed to be informative,
helpful and encouraging, allowing customers to learn easily about, discover and
purchase weight loss products and other complementary products such as exercise
and nutritional aids. Management believes the Company's program is intuitive and
convenient to use and facilitates completion of the ordering process with a
minimum of customer effort. Customers entering the Web site can, in addition to
ordering weight loss products, read a weekly newsletter on dietary trends and
other featured products, sign up for one-on-one counseling sessions, create
individual calorie and exercise plans, search a "before and after" photo library
and check order status. In contrast to the "classroom style" approach used by
traditional diet centers, the consumer can accomplish the weight loss experience
in the comfort and convenience of his or her own home or office.
Personal Meal Plan - The Company takes all the thinking,
calculating and measuring out of dieting. The Company's plan
offers a wide variety of convenient and appealing
portion-controlled meals specifically designed to provide the
client with the important vitamins, minerals and other
nutrients the body needs without the excess fat and calories.
Each week, the client may choose from a variety of meals that
can be delivered directly to the client's home or office.
Innovative Counseling - The counseling room allows a client to
meet and chat with a personal counselor over the Internet in
real time. The one-on-one counseling is a private session,
where the client can discuss his or her progress and receive
support. A client is assigned a counselor who stays with the
client throughout the program, allowing the client to work
with someone the client can learn to trust. If a client has a
question between sessions, or prefers to take a more
independent approach, the client can communicate with a
counselor by e-mail and receive personalized responses to
questions and concerns.
Free Personal Profile - The Personal Profile takes information
provided by the client and identifies his or her overall
weight status. The profile charts the client's present weight
and body mass index. The profile also provides the client with
a recommended calorie level and meal plan based on the
NutriSystem plan and gives an estimate in chart form of how
long it will take to lose the desired weight.
Weekly Newsletter - The Weekly Newsletter is a free
distribution that is e-mailed to clients once a week and
provides the latest information on diet aids, fads and the
current exercise craze. Experts on topics such as childhood
obesity
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and the role of diet in preventing disease are featured. Other
topics include fashion tips and a Dear NutriSystem column.
Discussion and Lecture Room - Free lectures and discussions
provide the client with information from experts in topics
ranging from weight loss to women's and men's health as well
as other articles describing beauty and fashion issues and
trends. A client is able to listen to and participate in these
monthly sessions that are hosted by book authors, doctors and
well-known personalities. A client is able to ask the experts
questions and receive immediate answers. Clients can also read
how others are dealing with the same issues.
Personalized Exercise Programs - A counselor designs an
exercise program that complements the client's specific
physical condition, hobbies and lifestyle. During the weekly
counseling sessions, a client receives information on how to
walk effectively, which exercise equipment works best and how
to use everyday activities to help increase endurance.
Counselors help individuals design their own exercise
programs, set realistic goals and measure their progress.
Testimonials - "Before and After" Library - Real photos of
actual clients are displayed on the Web site with brief
testimonials as to their success using the Company's weight
loss program.
Truly Interactive Site - The Company's Web site is
participatory in nature. For example, if clients choose to
take full advantage of the Web site, they can log in their
daily food intake and physical activity and the Web site
calculates the caloric intake and the calories burned and
recommends ways to improve the clients' progress. The Web site
is user friendly and provides motivational tools to keep a
client focused and on track with his or her program.
Strategic Relationships
The Company believes it can enhance its new customer acquisition
efforts, increase purchases by current customers and expand brand recognition
through strategic alliances with major online and traditional content and
service providers. Alliances with major Internet portal sites will build brand
recognition, increase market share and attract customers. In furtherance of this
strategy, the Company has successfully negotiated strategic alliances with
providers of leading Internet sites including AOL.com, Snap.com, Lycos.com,
Excite.com, WebCrawler.com and Netscape.com. The Company has teamed up with
TheKnot.com, one of the world's busiest content-based Web sites for wedding
planning, to be the exclusive weight loss brand advertised on its weight
management center and has an agreement with drkoop.com to be the premier sponsor
of and the exclusive weight loss program advertised on drkoop.com's Weight
Management Center.
The Internet-based alliances generally provide that the Company will be
the premier online weight loss program on the provider's Web site, with the
exclusive right to place banner advertisements and integrated links to the
nutrisystem.com Web site. These pages feature the nutrisystem.com branded link
that allows users to click through to the Company's
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Web site. As part of these arrangements, the Company typically purchases the
right to display its banners and hyperlinks, often in conjunction with specified
search keywords such as "diet" and "weight loss." To direct traffic to its Web
site, the Company created a number of inbound links that connect directly to
"www.nutrisystem.com" from other sites on the Web.
The Company carefully evaluates each potential alliance in order to
ensure that the associated fees are cost effective in terms of customer
acquisition, potential revenue to be generated, level of exclusivity and brand
exposure.
Advertising and Marketing
The Company believes that the use of multiple marketing channels
reduces reliance on any one source of customers, lowers customer acquisition
costs and maximizes brand awareness. The marketing strategy is to promote,
advertise and increase its brand visibility and acquire new customers through
multiple channels and through various advertising and marketing media,
including: (1) Internet Advertising, (2) Affiliate Network Programs, (3)
Traditional Advertising Media and (4) Direct Marketing.
Internet Advertising
The following table lists the Company's Internet advertising agreements
and the number of impressions provided for under each such agreement in effect
as of February 1, 2000. In most instances, the number of impressions is
"guaranteed" during a specific contract term, and the term of the agreement is
generally extended until that number of impressions is provided.
Number of
Portal/Web site Impressions
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AOL.com including Netscape.com 103,744,000
AltaVista.com 4,379,000
ModernBride.com 11,900,000
drkoop.com 15,952,000
HealthCentral.com 3,700,000
TheKnot.com 15,000,000
Excite.com 22,249,000
OnHealth.com 11,842,000
About.com 944,000
Lycos.com 24,886,000
WeddingChannel.com 2,400,000
Snap.com 2,200,000
iVillage.com 1,000,000
Iwon.com 26,000,000
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Affiliate Network Programs
Affiliate programs provide the Company with an efficient way to market
products and services online. Under these agreements, partners agree to display
the Company's advertising for a percentage of the sales that originate on the
affiliate's site or pay-for-click. The Company currently has an affiliate
relationship with Microsoft's Link Exchange and is in negotiations with other
affiliate networks.
Traditional Advertising Media
The Company will use a combination of television, radio and print
advertising to complement the Internet campaign. The television commercials will
feature a "Before and After" campaign, a strategy that has been proven effective
throughout the weight loss industry. With the input of a leading advertising
agency, a campaign is being developed to capitalize on the highly recognized
brand name while introducing the "New" nutrisystem.com online weight loss
program. The national radio campaign will use testimonials featuring prominent
radio personalities who will participate in the NutriSystem program, lose weight
and then report via live spots regarding their success.
Direct Marketing
A direct mail campaign is being developed as a companion to the media
advertising and will include mailings to the existing database of over 1,000,000
historical customers of the Company's predecessors. The Company anticipates that
it will begin direct mail operations in the second quarter of 2000.
Customer Service
The Customer Service area of the Company's Web site contains extensive
information regarding shopping, ordering and returning products. Shipping
charges, payment options and other policies are explained to the customer. Help
buttons on every page of the site take customers to the specific customer
service topic they desire. Customers can track the current status of their
orders and can obtain shipper-tracking numbers. Because the concept of Internet
retail is new to many people, the Company offers live, interactive help using
NetAgent software and offers telephone assistance by customer service agents to
answer questions about products and the shopping process.
Detailed product information is available, including descriptions and
photographs. To purchase products, customers simply click on a button to add
products to their virtual shopping baskets. Customers can add and subtract
products from their shopping baskets as they browse, prior to making a final
purchase decision, just as in a physical store. To execute orders, customers
click on the "check out" button and are prompted to supply shipping and credit
card details online. For convenience, the Company enables customers to store
information on the Company's secure server, thereby avoiding the need to
re-enter this information when making future purchases. The Company
automatically confirms each order by e-mail within minutes after the order is
placed. The Company offers a money back return policy.
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Behind The Scenes
Warehousing and Fulfillment. Products are shipped from the Company's
27,000 square foot warehouse located in Horsham, Pennsylvania. The Company also
plans to establish a warehouse facility in Reno, Nevada by the end of the second
quarter of 2000. Orders placed by 6:00 p.m. Eastern Time are processed and
shipped via UPS or RPS the same day.
Infrastructure, Operations and Technology. The Company's technology
infrastructure provides for continuous availability of its online service. All
of the critical components of the system are redundant with locations in
Horsham, Pennsylvania and Allentown, Pennsylvania, allowing the Company to
withstand unexpected component failure and to undergo maintenance or upgrades.
The Company's operation is dependent on the ability to maintain its computer and
telecommunications systems in effective working order and to protect its systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. Systems administrators and network managers of a
third party under contract to the Company also monitor the Company's servers and
execute backups. The servers have access to auxiliary power during outages.
Systems are copied to backup tapes daily, which in turn are sent to the Company
for offsite storage. Database and Web servers are redundant and operate using
clustering technology for effective load balancing and fault tolerance.
Regular capacity planning allows for the quick upgrade of existing
hardware and integration of new hardware to react quickly to a rapidly expanding
member base and increased traffic to the Company's Web site. Key content
management and e-commerce components are designed, developed and deployed by the
Company's in-house technology group.
Several layers of security are employed to protect data transmission and
prevent unauthorized access. All production servers are behind firewalls and do
not allow for outside access at the operating systems level. Strict password
management and physical security measures are followed.
E-commerce transactions and browser-based administration screens employ
secure sockets layer encryption to secure data transmitted between clients and
servers. Credit card information captured during e-commerce transactions is
never shared with outside parties.
Information Gathering. Internet software technology allows the Company to
gather detailed information about the purchase and the customer. For example,
the Company can track the source of each sale in order to identify those Web
sites on which the Company advertises that are generating the most business.
This information, combined with customer profile information gathered throughout
the ordering process, creates a powerful direct marketing database which is
utilized to generate repeat business.
Competition
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. The number of Web sites on the Internet
competing for consumers' attention has proliferated and the Company expects that
competition will continue to intensify.
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The Company competes, directly and indirectly, for advertisements, viewers,
members and content providers with the following categories of companies:
o Traditional weight loss franchise centers including
Jenny Craig and Weight Watchers.
o Self-administered weight loss regimens and
physician-monitored programs.
o Online services or Web sites targeted to weight
conscious persons and health enthusiasts, such as
eDiets.com and Cyberdiet.com.
The Company believes its products, services and Web site content compare
favorably with those of its competitors, due to the fact many of them have
committed to relatively expensive multi-site retail operations that make it
difficult for them to leverage their overhead.
Intellectual Property
The Company pursues the registration of its trademarks and service marks
in the United States.
The Company has registered several trademarks with the United States
Patent and Trademark Office, including 1-800-321-THIN(R), NuSystem Cuisine(R),
NuCuisine(R), Nutri/Data(R), Nutrihance(R), NutriRX Weight Loss Program(R) and
multiple text and logo variations of Nutri/System(R). The registration of each
such trademark has a duration of either ten or twenty years after the date of
initial registration, depending on whether the initial registration was
effective on or after November 16, 1989. The Company intends, by complying with
applicable laws relating to the filing of trademark renewals and statements of
continued use, to ensure that all of its material trademarks remain actively
registered in its name.
The Company also has the rights to the Internet domain name
"nutrisystem.com" and various misspellings of this domain name, such as
"nutrisystems.com" and "nutrasystems.com." The Company registers its Internet
domain names through Network Solutions, Inc., which has been appointed by the
National Science Foundation to act as the current registrar for the ".com,"
".net" and ".org" generic top-level domains in the United States. Each of the
Company's domain name registrations other than "nutrisystem.com" has a duration
of two years. The Company's registration of "nutrisystem.com" has a duration of
one year. The Company has the right to renew each registration following the
initial registration period and intends to do so.
Employees
The Company believes its success depends to a significant extent on its
ability to attract, motivate and retain highly skilled vision-oriented
management and employees. To this end, the Company focuses on incentive programs
for its employees and fosters a corporate culture which is challenging,
rewarding and fun. As of February 1, 2000, the Company had 52
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full-time employees and one part-time employee and considers its employee
relations satisfactory.
Other
Expenditures for fundamental research and development activities are not
material to the Company's business, nor has compliance with federal, state or
local provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, had any material effect
upon the capital expenditures, earnings or competitive position of the Company.
However, the Company does anticipate continuing substantial investment in
additional computer software and hardware to enhance its Web site. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity, Capital Resources and Other Financial Data."
Financial Information About Foreign and Domestic Operations and Export Sales
The Company does not have material foreign operations, and has no export
sales.
Risk Factors
No Operating History; Anticipated Losses. The Company was incorporated in
August 1999, acquired the Partnership and NSDirect in September 1999 and
launched its Web site on October 15, 1999. Accordingly, the Company has no
operating history upon which an evaluation of the Company and its prospects can
be based. The Company anticipates that it will incur significant additional
costs to fund increased marketing initiatives, additional strategic alliances,
enhancements to the Company's Web site and technological and hardware
improvements. As a result of these costs, the Company anticipates significant
operating losses for the foreseeable future. To the extent that such costs do
not result in appropriate revenue increases, the Company's business, financial
condition, results of operations or prospects may be materially adversely
affected.
Need for Additional Financing. The capital resources required to implement
the Company's business plan are significant. The Company anticipates that it
will continue to need additional financing to accomplish its business plan.
There can be no assurance that any such financing will be available on terms
acceptable to the Company or at all. See "Recent Developments."
Competition. Both the e-commerce market and the weight loss business are
highly competitive. Since the introduction of e-commerce to the Internet, the
number of e-commerce Web sites competing for customer attention has increased
rapidly. The Company expects future competition to intensify given the relative
ease with which new Web sites can be developed. The Company believes that the
primary competitive factors in e-commerce are brand recognition, site content,
ease of use, price, fulfillment speed, customer support and reliability. The
Company believes that its success will depend heavily upon its ability to
provide a compelling and satisfying weight loss experience for its customers.
The Company believes that other factors that will affect the Company's success
include the Company's ability to attract experienced marketing, technology,
operations and management talent. The nature
-12-
<PAGE>
of the Internet as an electronic marketplace which may, among other things,
facilitate competitive entry and comparison shopping, may render it inherently
more price competitive than traditional weight loss formats. The increase of
competitiveness among online weight loss businesses may result in reduced
operating margins, loss of market share and a diminished brand franchise.
Management of Growth. Future growth is expected to place a significant
strain on the Company's managerial, operational and technical resources. The
Company expects its operating expenses and staffing levels to increase
substantially in the future. To manage its anticipated growth, the Company must
expand its operational and technical capabilities and manage its employee base
while effectively administering multiple relationships with various third
parties. There can be no assurance that the Company will be able to manage the
expansion of its operations effectively. Any failure of the Company to implement
cohesive management and operating systems, add resources on a cost effective
basis or manage the Company's expansion could have a material adverse effect on
the Company's business, financial condition, results of operations or prospects.
Potential Fluctuations in Quarterly Results. The Company expects that it
will experience significant fluctuations in its future quarterly operating
results due to a variety of factors, many of which are outside of the Company's
control. The Company believes that factors that may adversely affect the
Company's quarterly operating results include: (i) the Company's ability to
retain existing customers, attract new customers at a steady rate and maintain
customer satisfaction; (ii) the Company's ability to acquire product and to
manage fulfillment operations; (iii) the Company's ability to maintain gross
margins in its existing business and in future product lines and markets; (iv)
the development, announcement or introduction of new Web sites, services and
products by the Company and its competitors; (v) price competition and (vi) the
Company's ability to upgrade and develop its systems and infrastructure.
Consequently, the Company believes that period-to-period comparisons of the
Company's operating results will not necessarily be meaningful and should not be
relied upon as an indication of future performance. The Company's future
quarterly operating results from time to time may not meet the expectations of
securities analysts or investors, which may have a material adverse effect on
the market price of the Common Stock.
Control by Principal Stockholders. The Company's directors and their
affiliates own beneficially approximately 63.7% of the Company's outstanding
Common Stock. As a result, the Company's directors and their affiliates will,
collectively, be able to exercise control over all matters requiring stockholder
approval, including the election of all directors and the approval of
significant corporate transactions. This ownership may have the effect of
delaying or preventing a change in control of the Company which could materially
adversely affect the price of the Common Stock.
Dependence upon Strategic Alliances. The Company relies on strategic
alliances with third-party Web sites and content providers to attract users to
its Web site. The Company has entered into various agreements with companies to
attract users from numerous other Web sites or online service providers which
are described in more detail in "Strategic Relationships." The Company believes
that such alliances will result in increased traffic to the Company's Web site.
The Company's ability to generate revenues from e-commerce may
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<PAGE>
depend on the increased traffic, purchases, advertising and sponsorships that
the Company expects to generate through such strategic alliances. There can be
no assurance that these agreements will be maintained beyond their initial terms
or that additional third-party agreements will be available to the Company on
acceptable commercial terms or at all. In addition, significant strategic
alliance agreements have traditionally been exclusive arrangements. The
inability to enter into new, and to maintain any one or more of its existing
strategic alliances could have a material adverse effect on the Company's
business, financial condition, results of operations or prospects.
Risks of the Internet as a Medium for Commerce. Consumer use of the
Internet as a medium for commerce is a recent phenomenon and is subject to a
high level of uncertainty. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as reliable network backbones, or complementary services, such as high
speed modems and security procedures for financial transactions. The viability
of the Internet or its viability for commerce may prove uncertain due to delays
in the development and adoption of new standards and protocols (for example, the
next generation Internet Protocol) to handle increased levels of Internet
activity or due to increased government regulation or taxation.
While the number of Internet users has been rising, the Internet
infrastructure may not expand fast enough to meet the increased levels of
demand. The increased use of the Internet as a medium for commerce raises
concerns regarding Internet security, reliability, pricing, accessibility and
quality of service. If use of the Internet does not continue to grow, or if the
necessary Internet infrastructure or complementary services are not developed to
support effectively growth that may occur, the Company's business, financial
condition, results of operations or prospects could be materially adversely
affected. In addition, the nature of the Internet as an electronic marketplace,
which may, among other things, facilitate competitive entry, comparison shopping
and advertising revenue supported business models, may render it inherently more
competitive than conventional retailing formats.
Rapid Technological Change. To remain competitive, the Company must
continue to enhance and improve the responsiveness, functionality and features
of its Web site. The Internet and the e-commerce industry are characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render the Company's Web site and proprietary technology and systems
obsolete. The Company's success will depend, in part, on its ability to license
leading technologies useful in its business, enhance its existing services,
develop new services and technology that address the increasingly sophisticated
and varied needs of its existing and prospective customers and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
The development of a Web site and other proprietary technology entails
significant technical, financial and business risks. Further, the adoption of
new Internet, networking or telecommunications technologies may require the
Company to devote substantial resources to modify and adapt its services. There
can be no assurance that the Company will successfully implement new
technologies or adapt its Web site, proprietary technology and
-14-
<PAGE>
transaction-processing systems to customer requirements or emerging industry
standards. If the Company is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, such failure could have a material adverse effect on
the Company's business, financial condition, results of operations or prospects.
Security Risks. Public concern over Internet security has been, and may
continue to be, a hindrance to mass market commercial use of the Internet.
Despite the implementation of network security measures by the Company, its
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by its customers or others. Computer viruses,
break-ins or other security problems could lead to misappropriation of
proprietary information and interruptions, delays or cessation in service to the
Company's customers. Any computer break-in could affect consumer confidence in
the security of the Company and could seriously damage its business. Moreover,
until more comprehensive security technologies are developed, the security and
privacy concerns of existing and potential customers may hinder the growth of
the Internet as a mass market medium for commerce.
Risk of System Failure or Inadequacy. The Company's operations will be
dependent on its ability to maintain its computer and telecommunications
equipment in effective working order and to protect its systems against damage
from fire, natural disaster, power loss, telecommunications failure or similar
events. In addition, the growth of the Company's customer base may strain or
exceed the capacity of its computer and telecommunications systems and lead to
degradations in performance or systems failure. From time to time, the Company
may experience capacity constraints and failure of its information systems which
could result in decreased levels of service delivery or interruptions in service
to its customers. While the Company will continually review and seek to upgrade
its technical infrastructure and provide for system redundancies and backup
power to limit the likelihood of systems overload or failure, any damage,
failure or delay that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, financial condition,
results of operations or prospects.
Risks Associated with Domain Names. The Company currently holds various
Internet domain names, including "www.nutrisystem.com." Currently, the
acquisition and maintenance of domain names is regulated by governmental
agencies and their designees. For example, in the United States, the National
Science Foundation has appointed Network Solutions, Inc. as the current
registrar for the ".com," ".net" and ".org" generic top-level domains. The
regulation of domain names in the United States and in foreign countries will
change in the near future. Such changes in the United States will include a
transition from the current system to a system which is controlled by a
non-profit corporation and the possible creation of additional top-level
domains. Requirements for holding domain names will also be affected. As a
result, there can be no assurance that the Company will be able to acquire or
maintain relevant domain names in all countries in which it conducts business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. The
Company, therefore, may be unable to prevent third parties from acquiring domain
names that are similar to, infringe upon or otherwise decrease the value of the
Company's trademarks and other proprietary
-15-
<PAGE>
rights. Any such inability could have a material adverse effect on the Company's
business, financial condition, results of operations or prospects.
Government Regulation and Legal Uncertainties. E-commerce is new and
rapidly changing, and federal and state regulation relating to the Internet and
e-commerce is evolving. Currently, there are few laws or regulations directly
applicable to the access to the Internet or to e-commerce on the Internet. Due
to the increasing popularity of the Internet, it is possible that laws and
regulations may be enacted with respect to the Internet, covering issues such as
user privacy, pricing, taxation, content, copyrights, distribution, antitrust
and quality of products and services. In addition, the rapid growth of
e-commerce may trigger the development of more stringent consumer protection
laws. The adoption of such laws or regulations could reduce the rate of growth
of the Internet, which could potentially decrease the usage of the Company's Web
site or could otherwise have a material adverse effect on the Company's
business. In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the event of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies.
It should also be noted that several telecommunications carriers have
requested that the Federal Communications Commission ("FCC") regulate
telecommunications over the Internet. Due to the increasing use of the Internet
and the requirements it has placed on the current telecommunications
infrastructure, telephone carriers have requested that the FCC regulate Internet
service providers and online service providers and impose access fees on those
providers. If the FCC imposes access fees, the costs of using the Internet could
increase dramatically and result in the reduced use of the Internet as a medium
for commerce. A reduction in the use or availability of the Internet could have
a material adverse effect on the Company's business, financial condition,
results of operations or prospects.
Sales and Other Taxes. The Company, in accordance with current industry
practice, does not collect sales or other taxes in respect of shipments of goods
into states other than Pennsylvania. However, one or more states or foreign
countries may seek to impose sales or other tax collection obligations on
out-of-jurisdiction companies such as the Company which engage in e-commerce. A
successful assertion by one or more states or foreign countries that the Company
should collect sales or other taxes on the sale of merchandise could have a
material adverse effect on the Company's business, financial condition, results
of operations or prospects.
Recent federal legislation limits the imposition of state and local taxes
on Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act
which places a three-year moratorium on state and local taxes on (i) Internet
access, unless such tax was already imposed prior to October 1, 1998 and (ii)
discriminatory taxes on electronic commerce. There can be no assurance that
Congress will renew this legislation in 2001. If Congress does not renew this
legislation, state and local governments would be free to impose taxes on
electronically purchased goods which could have a material adverse effect on the
Company's business, financial condition, results of operations or prospects.
-16-
<PAGE>
Risks of Possible Extreme Volatility of Market Price of Common Stock;
Limited Trading Market. The market price of the Common Stock may be extremely
volatile for many reasons, including: (i) actual or anticipated variations in
the Company's revenues and operating results; (ii) announcements of the
development of improved technology; (iii) the use of new sales formats by the
Company or its competitors; (iv) changes in the financial forecasts by
securities analysts; (v) new conditions or trends in the Internet and e-commerce
and (vi) general market conditions.
Recently, market prices for Internet-based companies have experienced
extreme price and volume fluctuations, particularly after initial public
offerings. These fluctuations are often unrelated or disproportionate to the
operating performance of those companies and may not be sustainable. Further,
market prices of the Common Stock in the future may bear no traditional
relationship to the Company's financial condition or performance.
An active trading market does not exist for the Common Stock, and there
can be no assurance that such a market will develop or how liquid that market
might become.
Anti-takeover Effects of Certificate of Incorporation, By-laws and
Delaware Law Provisions; Possible Issuance of Preferred Stock. The ownership by
the Company's directors and their affiliates of approximately 63.7% of the
Company's outstanding Common Stock gives them voting control of the Company and
has the effect of preventing a change in control of the Company without their
consent even if doing so would be beneficial to the Company's other
stockholders. In addition, the Company's Board of Directors has the authority to
issue up to 5,000,000 shares of Preferred Stock without any further vote or
action by the stockholders, and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, if any, of such shares.
Since the Preferred Stock could be issued with voting, liquidation, dividend and
other rights superior to those of the Common Stock, the rights of the holders of
the Common Stock are subject to, and may be adversely affected by, the rights of
the holders of any such Preferred Stock. The issuance of Preferred Stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. Further, the provisions
of the Company's Certificate of Incorporation, including provisions of Delaware
law, could have the effect of delaying or preventing a change in control of the
Company, including transactions in which the unaffiliated holders of the Common
Stock might otherwise receive a premium for their shares over the current market
prices.
Cost of Food and Services. Because a large percentage of the Company's
revenues will be derived from sales of the Company's food products, increases in
the cost of food and food services could have a material adverse impact on the
Company.
Seasonality. The Company's revenues will be affected by a number of
factors, including the volume and timing of customer leads, success of marketing
and advertising programs, success of introductions of new services and products,
activities of competitors and the ability of the Company to penetrate new
markets. The Company's business is seasonal with revenues generally decreasing
in the quarter ending December 31 and during the summer months. The Company may
also choose to reduce prices or to increase spending in
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<PAGE>
response to competition or to pursue new market opportunities, all or any of
which may materially adversely affect the Company's results of operations.
Reliance on Certain Suppliers. The Company carries inventory and is
improving its warehouse to enhance its inventory, but the Company relies to a
large extent on rapid fulfillment from vendors. The Company has no long-term
contracts with any of its vendors that guarantee the availability of
merchandise, the continuation of particular payment terms or the extension of
credit limits. There can be no assurance that the Company's current vendors will
continue to sell merchandise to the Company on current terms or that the Company
will be able to establish new or extend current vendor relationships to ensure
acquisition of merchandise in a timely and efficient manner and on acceptable
commercial terms. If the Company were unable to develop and maintain
relationships with vendors that would allow it to obtain sufficient quantities
of merchandise on acceptable commercial terms, its business, prospects,
financial condition and results of operations would be materially adversely
affected.
Risks Associated with Entry into New Business Areas. The Company may
choose to expand its operations by developing new Web sites, promoting new or
complementary products or sales formats, expanding the breadth and depth of
products and services offered or expanding its market presence through
relationships with third parties. There can be no assurance that the Company
would be able to expand its efforts and operations in a cost-effective or timely
manner or that any such efforts would increase overall market acceptance.
Furthermore, any new business or Web site launched by the Company that is not
favorably received by consumers could damage the Company's reputation. Expansion
of the Company's operations in this manner would also require significant
additional expenses and development, operations and editorial resources, and
would strain the Company's management, financial and operational resources. The
lack of market acceptance of such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products to offset their
cost could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Dependence on Trademarks and Proprietary Rights. The Company regards its
copyrights, trademarks, trade secrets and similar intellectual property as
critical to its success, and relies on trademark and copyright law and trade
secret protection to protect its proprietary rights. The Company pursues the
registration of its trademarks in the United States. Effective trademark,
copyright and trade secret protection may not be available in every country in
which the Company's products and services are made available online. There can
be no assurance that third parties will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate or that third parties will not infringe or misappropriate the Company's
copyrights, trademarks, trade secrets and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims against the Company.
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<PAGE>
Dependence on Key Employees. The success of the Company depends to a
significant degree upon the contribution of its executive officers and other key
personnel, including Brian D. Haveson, the Company's President and Chief
Executive Officer. The Company does not have an employment agreement with any of
its executive officers. There can be no assurance that the Company will be able
to retain its managerial and other key personnel or to attract additional
managerial and other key personnel if required.
-19-
<PAGE>
Item 2. Financial Information.
The following historical selected financial data are derived from
the Company's audited and unaudited Consolidated Financial Statements and those
of its predecessors, Nutri/System L.P. and NutriSystem Direct, L.L.C. (the
"Predecessor Businesses"). The historical selected financial data as of
September 30, 1999 and for the nine months ended September 30, 1999 and 1998
have been derived from the unaudited Consolidated Financial Statements of the
Company. In the opinion of management, the Company's unaudited financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of the Company's results of operations and
financial condition for the periods presented. The Company's results of
operations for the nine months ended September 30, 1999 and 1998 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year or for future periods. The operating data and the balance sheet data
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this document.
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
------------------------------------------------------------ ----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
Statement of Operations Data
Revenues (a):
<S> <C> <C> <C> <C> <C> <C> <C>
Food Sales $ 43,531 $ 44,972 $ 39,000 $ 23,698 $ 8,415 $ 6,606 $ 6,346
Other Revenues 11,829 9,948 8,030 22,173 908 745 579
Total Revenues 55,360 54,920 47,030 45,871 9,323 7,351 6,925
Cost of revenues 57,379 49,217 45,823 47,686 7,101 5,571 5,014
Other Items 1,125 8,781(e) 367(b) (1,828)(c) -- -- 8,200(d)
Other operating expenses 2,694 2,995 2,318 2,873 2,332 2,133 2,242
Operating loss (5,838) (6,073) (1,478) (2,860) (110) (353) (8,531)
Net loss $ (5,875) $ (6,095) $ (163) $ (1,598) $ (42) $ (141) $ (8,330)
Net loss per share:
Basic $ (0.36) $ (0.37) $ (0.00) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
Diluted $ (0.36) $ (0.37) $ (0.00) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
Weighted Average
Shares Outstanding:
Basic 16,282,781 16,282,781 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
Diluted 16,282,781 16,282,781 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
------------------------------------------------------------ ----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets $ 14,900 $ 10,146 $ 11,056 $ 4,826 $ 2,924 $ 3,687 $ 6,822
Long-term liabilities 314 1,045 1,678 76 53 55 44
Minority interest 8,144 2,704 2,350 878 807 661 --
Equity 981 326 2,163 565 523 426 2,482
</TABLE>
- -------------------
(a) In 1997, the Company sold its owned weight loss centers to Complete
Wellness Weight Management, Inc. As a result, beginning in 1998, the
Company experienced a significant decrease in revenues associated with
food sales and weight loss programs. Revenues generated from Company-owned
weight loss centers in 1997 were $33,484.
(b) In 1996, the Company sold some weight loss centers at a loss of $367.
(c) In 1997, the Company sold its weight loss centers (see note(a)) at a loss
of $5,347. In addition, in 1997, the Company received proceeds from its
insurance carrier associated with products liability litigation which
generated a net gain of $7,175.
(d) A compensation charge of $8,200 was recorded in the nine months ended
September 30, 1999.
(e) In 1995, the Company disposed of its exercise weight loss centers at a
loss of $8,292.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except share data)
Background
nutrisystem.com inc., a Delaware corporation, was formed to operate the
leading authoritative World Wide Web site for weight loss and related health
issues by providing a well-known diet program that incorporates pre-packaged
meals and a complete diet philosophy, in the convenience of one's own home.
The Company's predecessors, including the Predecessor Businesses, have
historically operated through company-owned and franchised weight loss centers.
Independent franchise weight loss center owners operate using the Company's
trade name, trademarks and programs for which a royalty is paid to the Company.
The Company's pre-packaged foods are sold to program participants through the
Internet, independent distribution and the franchised weight loss centers.
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<PAGE>
The Company plans to capitalize on the $33 billion weight loss industry
by combining the well-established NutriSystem name and proven weight loss
program with the Internet as the medium of communication using the following
strategies:
o Leverage the strong brand name recognition through an aggressive
marketing campaign using traditional and Internet marketing channels.
On the Internet, the Company has focused its strategic alliances into
three categories: (1) Internet portals; (2) health content sites; and
(3) wedding content sites.
o Encourage frequent visits by providing a truly interactive,
informative experience.
o Offer a compelling value to the customer, including broad product
selection, excellent counseling and customer service and competitive
pricing.
o Broaden the potential customer base by attracting male clients who
traditionally are reluctant to attend formal weight loss programs.
o Generate incremental revenue through the sale of nutritional
supplements and exercise equipment.
o Servicing dieters without Internet access through the Company's
NutriSystem Direct program.
See additional discussion in Item 1 to this Form 10.
The Company has incurred significant losses and, as of September 30,
1999, had an accumulated deficit of $11,437. For the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1999, the Company
generated net losses of $1,598, $42 and $8,330, respectively. The Company
intends to invest heavily in marketing and promotion, strategic alliances, Web
site development and technology, and development of its administrative
organization. In addition, as discussed in Note 1 to the Consolidated Financial
Statements, the Company acquired the Predecessor Businesses for cash of $3,400
plus 17,500,000 shares of Common Stock. In order to fund the planned investment
and the Company's purchase of the Predecessor Businesses, the Company initiated
a private placement of Common Stock which raised proceeds of approximately
$7,637 of which $964 and $3,400, respectively, were recorded in cash and
receivables as of September 30, 1999. The balance of the proceeds from the
private placement was received in cash on October 13, 1999. Future investment is
expected to be funded through the sale of additional equity securities in
private and/or public offerings in 2000. See "Recent Developments" under Item 1.
Achieving profitability depends upon the Company's ability to: (1) raise the
necessary funds to finance the planned marketing program and technology
investment and (2) generate and sustain substantially increased revenue levels.
There can be no assurance that the Company will be able to raise the necessary
capital or generate sufficient revenues to achieve or sustain profitability in
the future.
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<PAGE>
Results Of Operations
The following table illustrates for the periods indicated the
historical selected financial data, derived from the Company's audited and
unaudited Consolidated Financial Statements and those of the Predecessors
Businesses, for the periods indicated. The results of operations for the nine
months ended September 30, 1999 and 1998 are not necessarily indicative of the
results of operations to be expected for the full fiscal year or for future
periods.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
------------------------------------ -------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES: $39,000 $23,698 $ 8,415 $ 6,606 $ 6,346
Food Sales 2,421 1,766 633 514 346
Franchise royalty fees 4,676 17,058 --- --- ---
Weight-loss programs 933 3,349 275 231 233
--------- -------- -------- -------- -------
Other 47,030 45,871 9,323 7,351 6,925
--------- -------- -------- -------- -------
COSTS AND EXPENSES:
Cost of revenues 45,823 47,686 7,101 5,571 5,014
General and administrative 1,392 1,056 2,220 2,069 2,003
Depreciation and amortization 787 1,235 79 57 54
Other 139 582 33 7 185
Disposal of weight-loss centers 367 5,347 --- --- ---
Compensation expense --- --- --- --- 8,200
Net gain on insurance settlement --- (7,175) --- --- ---
--------- -------- -------- -------- -------
48,508 48,731 9,433 7,704 15,456
--------- -------- -------- -------- -------
Operating loss (1,478) (2,860) (110) (353) (8,531)
INTEREST EXPENSE (39) (104) (7) (5) (7)
--------- -------- -------- -------- -------
Loss before minority interest (1,517) (2,964) (117) (358) (8,538)
MINORITY INTEREST 1,354 1,366 75 217 208
--------- -------- -------- -------- -------
Net loss $ (163) $(1,598) $ (42) $ (141) $(8,330)
========= ======== ======== ======== ========
BASIC LOSS PER SHARE $ (0.01) $ (0.08) $ (0.01) $ (0.01) $ (0.43)
========= ======== ======== ======== ========
DILUTED LOSS PER SHARE $ (0.01) $ (0.08) $ (0.01) $ (0.01) $ (0.43)
========= ======== ======== ======== ========
</TABLE>
Nine Months Ended September 30, 1999 and 1998
Net Sales. The Company's net sales decreased $426, or approximately
5.8%, from $7,351 for the nine months ended September 30, 1998 to $6,925 in the
interim period ended September 30, 1999. The decrease was attributable primarily
to a decline in food sales ($260) and franchise royalty fees ($168).
Costs and Expenses. Cost of sales decreased $504 for the nine months
ended September 30, 1999 versus the comparable period in the prior year. As a
percentage of revenues, cost of sales decreased from 76% to 72% primarily due to
a shift in mix toward higher margin NutriSystem Direct sales and away from
franchise food sales. General and administrative
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<PAGE>
expenses decreased $66, or approximately 3%, to $2,003 for the nine months ended
September 30, 1999. During the nine months ended September 30, 1999, the Company
recorded a non-cash compensation expense of $8,200 associated with equity
interests granted to an executive pursuant to the purchase of NSDirect (see
discussion in Note 1 to the Consolidated Financial Statements).
Pro Forma Income Tax Expense. The Predecessor Businesses were
flow-through entities that were not subject to federal or state income taxes
and, consequently, none have been reflected in the Company's financial
statements for the historical periods prior to September 30, 1999. For purposes
of pro forma presentation, due to the recurring losses incurred by the Company
and management's assessment of realization of the related tax deduction, no pro
forma tax benefit would be recorded during the years ended December 31, 1996,
1997 or 1998 or the nine months ended September 30, 1998 or 1999. Effective with
the merger on September 30, 1999, the Company became subject to corporate level
income taxes. No income tax benefit on the excess of the tax basis of Company's
assets over the financial reporting carrying amount has been recorded based on
management's assessment that the net deferred tax asset was not realizable
through future taxable earnings.
Net Loss. The Company's net loss increased to $8,330 in the interim
period ended September 30, 1999 versus $141 in the nine months ended September
30, 1998, primarily due to the compensation expense charge of $8,200 discussed
above that was recorded in 1999.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Net Sales. The Company's net sales decreased $36,548 from $45,871
during the year ended December 31, 1997 to $9,323 for the year ended December
31, 1998. Management believes that the overriding factor contributing to the
revenue decline was the adverse publicity associated with a drug combination
formerly incorporated in the weight loss program that was shown to cause health
problems. Prior to the announcement, sales were increasing. After the
announcement sales declined sharply. In part as a result of the decline in sales
and its impact on the demand for the Company's products and services, a decision
was made to close the Company-owned weight loss centers. In addition, franchise
royalty fees declined from $1,766 in 1997 to $633 in 1998 due to a reduction in
the percentage royalty fee and a decline in the number of franchise locations.
Weight loss program fees, which amounted to $17,058 in revenue in 1997, were
eliminated before 1998 as the Company-owned centers were disposed of. Other
revenues declined from $3,349 in 1997 to $275 in 1998 as a result of
discontinued sales of the drug combination mentioned above.
Costs and Expenses. Consistent with the decline in revenues, cost of
sales decreased $40,585 from $47,686 during the year ended December 31, 1997 to
$7,101 for the year ended December 31, 1998. As a percentage of revenues, cost
of sales was 76% during the year ended December 31, 1998 versus 104% in 1997.
The 1997 cost of sales includes additional costs associated with opening and
upgrading various Company-owned centers in early 1997. General administrative
expenses increased $1,164, or approximately 110%, from $1,056 during the year
ended December 31, 1997 to $2,220 during the year ended December 31, 1998. The
increase is primarily due to a shift in the focus of corporate support activity
in 1998 away from the Company-owned centers (recorded in cost of revenue) to
general and administrative
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activity as the Company-owned centers were closed. Depreciation and amortization
expense was $1,235 in 1997. Depreciation and amortization expense decreased to
$79 in 1998 as the Company had written off substantially all of its property and
equipment in 1997 in connection with the sale of the weight loss centers.
Other Items. The results for the year ended December 31, 1997 include a
loss of $5,347 on the sale of the Company's weight loss centers. In addition, in
1997, the Company recorded a gain, net of legal costs of $2,325, of $7,175 on a
settlement with an insurance company for coverage associated with product
liability litigation relating to the drug combination discussed above. See
additional discussion of these items in the Notes to the Consolidated Financial
Statements.
Interest Expense. Net interest expense decreased $97 from $104 in the
year ended December 31, 1997 to $7 in the year ended December 31, 1998. This
decrease resulted from a lower average borrowings outstanding under the credit
facility compared to 1998.
Net Loss. The Company's net loss decreased from $1,598 in the year
ended December 31, 1997 to $42 in the year ended December 31, 1998.
Year Ended December 31, 1997 Compared To Year Ended December 31, 1996
Net Sales. The Company's net sales decreased $1,159, or approximately
2.5%, from $47,030 during the year ended December 31, 1996 to $45,871 for the
year ended December 31, 1997. The decrease in revenues resulted from a reduction
in food sales of $15,302 to $23,698 due to a decline in the number of franchise
centers and the disposal during 1998 of the Company-owned centers. The decline
in food sales was offset in part by an increase in revenues from weight loss
programs from $4,676 in 1996 to $17,058 in 1997 triggered in part by an
approximate 114% increase in the per person enrollment fees charged to customers
entering the weight loss programs. Revenues from weight loss programs also
benefitted in 1997 from additional post-enrollment fees charged to participants.
Other revenues increased from $933 in 1996 to $3,349 in 1997 as a result of
charges for the drug combination subsequently discontinued.
Costs and Expenses. Cost of sales increased $1,863, or approximately
4.1%, from $45,823 during the year ended December 31, 1996 to $47,686 during the
year ended December 31, 1997. As a percentage of revenues, cost of sales was
104% during the year ended December 31, 1997 versus 97% in 1996. The increase is
due to additional costs associated with opening and upgrading various
Company-owned centers in early 1997. General and administrative expenses
decreased $336, or approximately 24%, from $1,392 during the year ended December
31, 1996 to $1,056 during the year ended December 31, 1997. The decrease was
primarily due to reduced head count. Depreciation and amortization expense
increased from $787 in 1996 to $1,235 in 1997 due to capital additions
associated with the establishment of the Company's weight loss centers. Other
expense increased from $139 in 1996 to $582 in 1997 primarily due to higher
non-food sales.
Other Items. The results for the years ended December 31, 1997 and 1996
include losses of $5,347 and $367, respectively, on the sale of the Company's
weight loss centers. In
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addition, the Company recorded a gain, net of legal costs of $2,325, of $7,175
on a settlement with an insurance company for coverage associated with product
liability litigation. See additional discussion of these items in the Notes to
the Consolidated Financial Statements.
Interest Expense. Net interest expense increased from $39 in the year
ended December 31, 1996 to $104 in the year ended December 31, 1997 due
primarily to an increase in average borrowings outstanding under the credit
facility to fund capital additions in late 1996 and 1997.
Net Loss. The Company's net loss increased from $163 in the year ended
December 31, 1996 to $1,598 in the year ended December 31, 1997. The increase
resulted in part due to the Company purchasing a portion of the minority
shareholders' interest, which resulted in a decrease in the allocation of the
losses to the minority interest in the accompanying statement of operations.
Also, see discussion of the other specific factors contributing to the increase
in the net loss discussed above.
Liquidity, Capital Resources and Other Financial Data
On September 30, 1999, the Company initiated a private placement of
7,637,400 shares of Common Stock at $1 per share. The offering raised net
proceeds of approximately $7,637, of which $964 and $3,400, respectively, were
recorded in cash and receivables as of September 30, 1999. The balance of the
proceeds from the private placement was received on October 13, 1999.
At September 30, 1999, the Company had net working capital of $1,772.
Cash and cash equivalents were $1,047. Also included in working capital is a
payable for the Company's purchase of the Predecessor Businesses. The Company's
principal source of liquidity is the cash obtained from the private placement
transaction. The Company currently has no available credit facilities to fund
operating cash flow or investment opportunities.
During 1998 and the nine months ended September 30, 1999, the Company
has generated small cash flow deficits from operations which were funded from
existing cash balances. Cash requirements in 1997 and 1996 were funded from
existing credit facilities and capital contributions. Net cash used in operating
activities was $278 and $302 for the nine month period ended September 30, 1999
and the year ended December 31, 1998, respectively, and was primarily
attributable to the net losses generated in those periods, as well as changes in
working capital balances. The net cash provided by operations in 1997 was
attributable primarily to net changes in working capital balances.
Net cash used by investing activities was $0, $180 and $2,849 for the
nine month period ended September 30, 1999 and the years ended December 31, 1998
and 1997, respectively, and consisted of capital expenditures. The 1997
additions of $2,849 were incurred primarily in connection with the establishment
of the weight loss centers.
Net cash provided by financing activities was $964 for the nine month
period ended September 30, 1999, and consisted entirely of net proceeds from a
private placement of equity securities.
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<PAGE>
Under marketing agreements, the Company is required to pay aggregate
minimum fixed fees of $637, $4,285 and $319 during the quarter ending December
31, 1999, and the years ending December 31, 2000 and 2001, respectively. The
Company expects to fund its 1999 payment obligations under its marketing
agreements, as well as other advertising and web site development costs, from
the proceeds of the completed private placement. Future cash obligations are
expected to be funded from financing activities which may include additional
private or public offerings of equity securities. As of September 30, 1999, the
Company's principal commitments consisted of obligations under its marketing
agreements and operating leases. Although the Company has no material
commitments for capital expenditures, it anticipates substantial increases in
its capital expenditures consistent with anticipated growth in operations,
infrastructure and personnel.
See "Recent Developments" regarding certain proposed financing
transactions. The Company has no current plans or discussions in process
relating to any material acquisition that is probably in the foreseeable future.
Factors Affecting the Company's Business and Prospects
The Company expects to experience significant fluctuations in its
future quarterly operating results due to a variety of factors, many of which
are outside the Company's control. These issues are discussed more fully in the
Risk Factors section in Item 1 of this Form 10.
Financing and Capital Structure
Since inception in 1972, the Nutri/System businesses have operated in
various organizational and legal structures. In August 1999 Ansama, a
non-operating public shell corporation and the sole stockholder of the Company,
entered into: (1) an Asset Purchase Agreement to acquire the operating assets
and certain liabilities of Nutri/System L.P. for $3,000 and (2) a Stock Exchange
and Purchase Agreement to acquire the beneficial interest in NSDirect for $400
and 17,500,000 shares of Ansama Common Stock. Ansama was subsequently merged
into the Company. In order to fund the Company's resulting cash obligations of
$3,400 under the Asset Purchase and Stock Exchange and Purchase Agreements and
the planned marketing program and technology investment, the Company completed a
private placement of 7,637,400 shares of Common Stock in September and October
1999, which raised $7,637. Future operating needs and investment are expected to
be funded through the sale of additional equity securities in private and/or
public offerings. There can be no assurance that the Company will be able to
raise the necessary capital or generate sufficient revenues to achieve or
sustain profitability in the future. The Company has no credit facilities
available to fund working capital or investment needs. See "Recent Developments"
in Item 1.
Quantitative and Qualitative Disclosures about Market Risk
The Company has no material interest-bearing assets or liabilities, nor
does the Company have any current exposure for changes in foreign currency
exchange rates. The Company does not use derivatives or other financial
instruments. The Company's financial
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<PAGE>
instruments consist of cash and receivables. The market values of these
financial instruments approximate book value.
Inflation
The financial statements are presented on a historical cost basis and
do not fully reflect the impact of prior years' inflation. While the U.S.
inflation rate has been modest for several years, inflation issues may impact
the Company's business in the future. The ability to pass on inflation costs is
an uncertainty due to general economic conditions and competitive situations.
Year 2000 Matters
The Company has not itself experienced and computer problems since
January 1, 2000 nor does it have any knowledge of any computer problems
experienced by any of its suppliers since January 1, 2000.
Recently Issued Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements of the Company for
a discussion of recently issued accounting pronouncements.
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<PAGE>
Item 3. Properties.
The Company leases approximately 30,000 square feet of office and
warehouse space in Horsham, Pennsylvania pursuant to a lease expiring in 2004 at
an annual rate of $360,000. The Company also intends to establish a 27,000
square foot warehouse in Reno, Nevada at an estimated annual rental of $100,000
by the end of the second quarter of 2000.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of February 2, 2000, the number of
shares and percentage of the Company's Common Stock beneficially owned by (i)
each person who is known by the Company to own beneficially 5% or more of the
Company's outstanding Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
Percent of
Name of Individual Shares of Common Stock Outstanding
or Identity of Group Beneficially Owned (1)(2) Common Stock (3)
- -------------------- ------------------------- ----------------
<S> <C> <C>
5% Holders:
HPF Holdings, Inc. (4)..................... 8,200,000 30.2%
Brian D. Haveson (5)....................... 7,507,500 27.6
Directors (6):
Frederick C. Tecce (7)..................... 1,010,000 3.7
Michael E. Heisley (4)..................... 8,200,000 30.2
Executive Officers (8):
Deborah A. Gallen (9)...................... 185,000 *
James A. Brown (10)........................ 200,000 *
Brendon Perero (11)........................ 200,000 *
All executive officers and directors
as a group (6 persons) (12) ............. 17,302,500 63.7
- --------------------
</TABLE>
* less than 1%.
(1) Information furnished by the named persons.
(2) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be the beneficial owner of securities if he has, or
shares, "voting power" which includes the power to vote, or to direct the
voting of, such securities or
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<PAGE>
"investment power" which includes the power to dispose, or to direct the
disposition, of such securities. Under these rules, more than one person
may be deemed to be the beneficial owner of the same securities. Securities
beneficially owned also include securities owned jointly, in whole or in
part, or individually by the person's spouse, minor children or other
relatives who share the same home. The information set forth in the above
table includes all shares of Common Stock over which the named individuals
individually or together share voting power or investment power, adjusted,
however, to eliminate the reporting of shares more than once in order not
to overstate the aggregate beneficial ownership of such persons and to
reflect shares as to which the named individuals disclaim beneficial
ownership.
(3) Less than 1% unless otherwise indicated.
(4) Michael E. Heisley is the principal equity owner of HPF Holdings, Inc.
(5) Includes a total of 28,000 shares held by members of the immediate family
of Mr. Haveson as to which shares Mr. Haveson disclaims beneficial
ownership.
(6) Excludes directors listed under "5% Owners."
(7) Includes a total of 60,000 shares held by members of the immediate family
of Mr. Tecce, as to which shares Mr. Tecce disclaims beneficial ownership.
(8) Excludes executive officers listed under "Directors."
(9) Includes a total of 20,000 shares held by members of the immediate family
of Ms. Gallen, as to which shares Ms. Gallen disclaims beneficial
ownership.
(10) Includes an option granted to Mr. Brown in November 1999 to purchase
200,000 shares of Common Stock at a price of $1.75 per share.
(11) Includes an option granted to Mr. Perero in October 1999 to purchase
200,000 shares of Common Stock at a price of $1.00 per share.
(12) Includes a total of 108,000 shares held by members of the immediate
families of such persons, as to which shares such persons disclaim
beneficial ownership.
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<PAGE>
Item 5. Directors and Executive Officers.
Certain information as to the directors and executive officers of the
Company is as follows:
<TABLE>
<CAPTION>
Principal Occupation
Name Age Positions with the Company for Past Five Years
------- ---- ----------------------------- ----------------------------
<S> <C> <C> <C>
Brian D. Haveson 35 President, Chief Executive Officer President of the Part-
and a director of the Company nership from 1997 to
since August 1999 1999; Chief Financial
Officer of the
Partnership from 1993 to
1997; Arthur Andersen LLP
for five years prior
thereto
Deborah A. Gallen 41 Vice President of E-Commerce Vice President of Oper-
of the Company since ations for NSDirect from
September 1999 1995 to 1999; Director of
Health Care Services for
the Partnership from 1994
to 1995; Director of
Outpatient Programs for
the Mercy Health Care
System, a hospital system
in Philadelphia,
Pennsylvania, for ten
years prior thereto
James D. Brown 43 Chief Financial Officer of the Chief Financial Officer
Company since December 1999 of ImageMax, Inc., a
and Treasurer since January 2000 document management
company located in
Conshohocken,
Pennsylvania, from 1997
to 1999; from 1996 to
1997, Chief Financial
Officer of LMR Holdings,
a holding company for
textile component
manufacturers in
Brooklyn, New York;
President, Main Line
Management, a management
consulting firm in
Wynnewood, Pennsylvania
during 1995; from
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name Age Positions with the Company for Past Five Years
------- ---- ----------------------------- ----------------------------
<S> <C> <C> <C>
1990 to 1994, Chief
Financial Officer of
Liberty Broadcasting
Group, a consolidator of
radio broadcasting
properties, and
Controller of Lancer
Industries, Inc., a
diversified manufacturer
Brendon Perero 23 Chief Information Officer of Vice President and
the Company since August 1999 Senior Programmer/Developer
of INetU, Inc., a
firm engaged in
Internet hosting and
consulting, from
1997 to 1999; from
1997 to 1998, Mr.
Perero was a member
of the Design
Council for IBM
Net.Commerce and
collaborated with
IBM for third party
development of
e-commerce software;
student at Allentown
College of Saint
Francis DeSales from
1994 to 1998 (B.S.)
and at present
(Masters candidate)
Michael E. Heisley 62 Director of the Company President and Chief
since August 1999 Executive Officer, Heico
Acquisitions; Chairman
and Chief Executive
Officer, The Heico
Companies, LLC, an
industrial conglomerate;
Chairman of the Board,
Pettibone LLC, a
diversified manufacturer;
Chairman of the Board,
Davis Wire Corporation, a
wire manufacturer;
Chairman of the Board,
Tom's Foods, Inc., a
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name Age Positions with the Company for Past Five Years
------- ---- ----------------------------- ----------------------------
<S> <C> <C> <C>
food manufacturer; Vice
Chairman, Robertson-Ceco
Corporation, a
manufacturer of
pre-engineered metal
buildings
Frederick C. Tecce 64 Director of the Company Private investor; Of
since August 1999 Counsel, Klett Leiber
Rooney & Schorling,
attorneys at law,
since April 1997; Of
Counsel, Pepper
Hamilton LLP,
attorneys at law,
from 1993 to 1997
</TABLE>
The Company's Board of Directors has an Audit Committee, consisting of
Messrs. Heisley and Tecce. The Audit Committee has responsibility for
recommending to the Board of Directors the selection of independent auditors,
reviewing the scope and results of the audit and reviewing the adequacy of the
Company's accounting, financial, internal and operating controls.
All directors hold office until their respective successors are
elected, or until death, resignation or removal. Officers serve at the
discretion of the Board of Directors. There are no family relationships between
any directors or executive officers of the Company.
See "Recent Developments" in Item 1.
Item 6. Executive Compensation.
Brian D. Haveson, President and Chief Executive Officer of the Company,
is being paid a salary at an annual rate of $250,000 and is the only executive
officer of the Company who received total annual salary and bonus compensation
in cash in excess of $100,000 for the Company's fiscal year ended December 31,
1999.
In addition to his cash compensation in 1999, pursuant to the terms of
the Stock Agreement, Mr. Haveson received 8,200,000 shares of the Company's
Common Stock in consideration for the transfer to the Company of his 7.5%
interest in NSDirect. The issuance of shares to Mr. Haveson was treated by the
Company as a compensation expense for accounting purposes.
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<PAGE>
Other executive officers were granted incentive stock options to
purchase the Company's Common Stock. In 1999, James D. Brown, the Company's
Chief Financial Officer, was granted an option to purchase 200,000 shares at a
price of $1.75 per share and Brendan Perero, the Company's Chief Information
Officer, was granted an option to purchase 200,000 shares at $1.00 per share. In
1999 and 2000, other employees of the Company (none of whom is an executive
officer) were granted options to purchase shares at $1.00 per share and $2.50
per share respectively for an aggregate of 203,000 shares.
The Company does not have an employment agreement with any of its
employees and does not anticipate entering into any employment agreements in the
foreseeable future.
Equity Incentive Plan
On August 20, 1999, the Company's Board of Directors adopted and the
Company's then stockholders approved the Company's 1999 Equity Incentive Plan
(the "Incentive Plan"). The purposes of the Incentive Plan are to attract and
retain key employees and certain other persons who are in a position to make
significant contributions to the success of the Company, to reward those
employees and other persons for their contributions, to provide additional
incentive to those employees and other persons to continue making similar
contributions and to align further the interests of those employees and other
persons with those of the Company's stockholders. To achieve these purposes, the
Incentive Plan permits grants of incentive stock options ("ISOs") and options
not intended to qualify as incentive stock options ("Non-ISOs"). ISOs and
Non-ISOs are collectively referred to herein as "Awards."
The Incentive Plan permits Awards to be granted for a total of
1,000,000 shares of Common Stock. Shares issuable pursuant to Awards that
terminate or expire unexercised will be available for future Awards under the
Incentive Plan. As of February 1, 2000, options to purchase an aggregate of
603,000 shares at prices ranging from $1.00 per share to $2.50 per share were
outstanding under the Incentive Plan.
All current and future employees of the Company, and other persons who,
in the opinion of the Board of Directors, are in a position to make significant
contributions to the success of the Company, such as consultants and
non-employee directors, are eligible to receive Awards under the Incentive Plan.
However, the Company has no current intention of granting Awards to any member
of its Board of Directors.
The Incentive Plan is administered by the Board of Directors, which
determines, among other things and subject to certain conditions, the persons
eligible to receive Awards, the persons who actually receive Awards, the type of
each Award, the number of shares of Common Stock subject to each Award, the date
of grant, exercise schedule, vesting schedule and other terms and conditions of
each Award, whether to accelerate the exercise or vesting schedule or waive any
other terms or conditions of each Award, whether to amend or cancel an Award and
the form of any document used under the Incentive Plan. The Board of Directors
has the right to adopt rules for the administration of the Incentive Plan,
settle all controversies regarding the Incentive Plan or any Award and construe
and correct defects and omissions in the Incentive Plan or any Award. The
Incentive Plan may be amended, suspended or terminated by the Board of
Directors, subject to certain conditions, provided that
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<PAGE>
stockholder approval will be required whenever necessary for the Incentive Plan
to continue to satisfy the requirements of certain securities and tax laws,
rules and regulations.
Recipients of stock options under the Incentive Plan will have the
right to purchase shares of Common Stock at an exercise price, during a period
of time and on such other terms and conditions as are determined by the Board of
Directors. For ISOs, the recipient must be an employee, the exercise price must
be at least 100% (110% if issued to a 10% or greater stockholder of the Company)
of the fair market value of the Common Stock on the date of grant and the term
cannot exceed ten years (five years if issued to a 10% or greater stockholder of
the Company) from the date of grant. If permitted by the Board of Directors and
subject to certain conditions, an option exercise price may be paid by delivery
of shares of Common Stock that have been outstanding, a promissory note, a
broker's undertaking to deliver promptly the necessary funds or by a combination
of these methods. If permitted by the Board of Directors, options may be settled
by the Company paying to the recipient, in cash or in shares of Common Stock
valued at the then fair market value of the Common Stock, an amount equal to
such fair market value minus the exercise price of the option shares.
Generally, upon termination of a recipient's employment or other
relationship with the Company, stock options remain exercisable for a period of
three months (one year if termination is due to death or disability) to the
extent the stock options were exercisable at the date of expiration, except as
otherwise agreed between the employee and the Company.
Item 7. Certain Relationships and Related Transactions.
Following the Merger and the consummation of the transactions
contemplated by the Asset Agreement and the Stock Agreement in September 1999,
Michael E. Heisley, the principal owner of HPF Holdings, Inc., Brian D. Haveson,
Irwin Schneidmill and Frederick C. Tecce, became directors of the Company; Brian
D. Haveson, Deborah A. Gallen, Joseph H. Boileau, Kathleen E. Simone and George
Weatherstone were executive officers of the Company at such time and HPF
Holdings, Inc. and Brian D. Haveson became owners of more than 5% of the
Company's outstanding Common Stock.
On August 16, 1999, Ansama entered into the Stock Agreement with HPF
Holdings, Inc., a Delaware corporation, Brian D. Haveson, Deborah A. Gallen,
Joseph H. Boileau, Kathleen E. Simone and Frederick C. Tecce (collectively, the
"Assignors") whereby the Assignors agreed to transfer to Ansama 100% of the
outstanding ownership interests in NSDirect in exchange for $400,000 in cash and
17,500,000 shares of Ansama's Common Stock. On the basis of unaudited financial
statements of NSDirect as of May 31, 1999, NSDirect had current assets of
$531,960, fixed assets of $105,855, current liabilities of $356,357 and members
equity of $282,058. For the five months ended May 31, 1999, NSDirect had
revenues of $1,833,282 and net income of $282,057. The Assignors acquired their
interests in NSDirect in January 1998 for an aggregate capital contribution of
$100,000.
On August 16, 1999, Ansama entered into the Asset Agreement with the
Partnership whereby Ansama agreed to purchase certain assets and assume certain
liabilities of the Partnership, as specified in the Asset Agreement, in
consideration for the payment to
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<PAGE>
the Partnership of $3,000,000 in cash. The principal assets purchased were (i)
all equipment, fixtures, leasehold improvements, furniture, computers and
software of the Partnership, (ii) all of the Partnership's rights and
obligations to the lease (the "Lease") for the Partnership's premises in
Horsham, Pennsylvania, (iii) the Partnership's telephone numbers and telephone
equipment, (iv) all rental and utility deposits of the Partnership relating to
the Lease and deposits securing letters of credit to food vendors, (v) all
patents, trademarks, logos, copyrights, trade names, trade secrets,
testimonials, agreements of sale, assignments and all other intellectual
property related to the Partnership's business and goodwill relating thereto,
(vi) all financial and sales records, client and customer lists, including all
files and records relating thereto and all other proprietary information used in
connection with the Partnership's business, (vii) all franchise agreements,
(viii) all saleable and marketable foods, vitamins and other perishable goods
and inventory relating to the Partnership's business located at its Horsham,
Pennsylvania warehouse at the close of business on the day preceding the
consummation of the asset purchase and (ix) all cash and accounts receivable of
the Partnership on the date of consummation of the asset purchase. The assets
purchased excluded all rights, claims, causes of action, judgments, awards,
settlements and other benefits related to or arising from the purchase, sale,
prescription or other dealings with fenfluramine, phentermine or Redux or any
combination thereof, including, without limitation, (i) those against American
Home Products Company and any insurance company, (ii) rising from loss of or
injury to business, bad faith and failure to indemnify, and (iii) any and all
deposits for legal fees and services, prepayment for legal fees and services and
retainers for legal fees and services. The Asset Agreement provided that Ansama
was to assume all liabilities and obligations of the Partnership and its
business operations, of any type or nature, known or unknown, absolute,
contingent or otherwise, whether arising before or after the consummation of the
asset purchase, including without limitation all liabilities and obligations of
the Partnership (i) to employees, franchisees, customers, suppliers and others
having relationships with the Partnership, (ii) arising under contracts, leases,
agreements, benefit plans and other obligations, (iii) for personal injury from
products of the Partnership except as hereinafter specifically not assumed, (iv)
arising from any failure to comply with any law, rule or regulation, (v) for any
infringement of any third party's intellectual property and arising from any
suit, claim or proceeding, except that the Partnership agreed to remain solely
responsible for any debt or liability of the Partnership or its business arising
out of or related to any claims for personal injury, fraud, breach of contract,
false advertising or any related advertising claim arising out of or related to
the sale or prescription by the Partnership or US Medical Weight Loss Company,
Inc., their agents or employees of fenfluramine, phentermine or Redux, including
any claims arising from specific lawsuits listed in a schedule to the Asset
Agreement and (vi) for sales taxes, franchise taxes, employment taxes, property
taxes, utilities and other amounts. Pursuant to the Asset Agreement, the
Partnership also agreed for three years to refrain from engaging in the business
in which the Partnership engaged with the assets being sold.
On the basis of unaudited financial statements of the Partnership as of
May 31, 1999, the Partnership had current assets of $1,686,464, total fixed and
other assets of $313,756, total liabilities of $914,605 and total shareholders'
equity of $1,085,810. For the five months ended May 31, 1999, the Partnership
had total revenues of $2,851,105 and a net loss of $178,017. A brief discussion
of the history of the Partnership's business follows:
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Nutri/System, Inc., a Pennsylvania business corporation, was
incorporated in September 1976 under the name Shape-Up Weight Control Centers of
America, Inc. The original name was changed to Weight Loss Medical Centers of
America, Inc. in June 1977, then to Nutri-System Weight Loss Medical Centers of
America, Inc. in May 1979, and to Nutri/System, Inc. in October 1980.
Nutri/System, Inc. opened its first center in 1971 under the name
Shape-Up, Inc., its predecessor. The first franchise was also sold by
Nutri/System, Inc.'s predecessor, Shape-Up, Inc. in 1972. Nutri/System, Inc.
sold its first franchise in 1976. Nutri/System, Inc. was the franchisor of
Nutri/System weight loss centers from 1976 until 1993. Nutri/System, Inc. also
did business under the trade name Nutri/System Weight Loss Centers.
The stock of Nutri/System, Inc. was publicly traded from 1980 through
August 1986 when a senior management group including A. Donald McCulloch, Jr.,
Reef C. Ivey, II, Albert J. DiMarco and John E. Sylvester acquired Nutri/System,
Inc. through a leveraged buy-out and merger. In August 1986, the shareholders of
Nutri/System, Inc. approved the merger among Nutri/System, Inc., Diversified
Services Group, Inc. ("DSG") and Management Acquisition Group, Inc. ("MAG"). At
the time, DSG, a Pennsylvania business corporation incorporated on January 15,
1986, became the parent of Nutri/System, Inc. DSG and MAG were formed solely for
the purpose of effecting the buy-out, and neither was previously involved in any
type of franchising business.
In July 1988, Nutri/System, Inc. refinanced the debt incurred in the
leveraged buy-out and merger through a repurchase of warrants and notes (the
"Refinancing"). DSG repurchased more than 95% of the 4,500,000 warrants to
acquire Nutri/System, Inc.'s common stock, and Nutri/System, Inc. repurchased
98% of its outstanding Subordinated Debentures and 12% Senior Notes. An
aggregate of approximately $127,000,000 was required to complete the
Refinancing. Nutri/System, Inc. provided DSG approximately $67,000,000 to
finance the warrant purchase. Nutri/System, Inc. obtained $100,000,000 in loans
from lenders to accomplish the Refinancing. In June 1989, John E. Sylvester
retired from Nutri/System, Inc. for medical reasons, and his shares in
Nutri/System, Inc. were purchased by DSG. In September 1989, Albert J. DiMarco
resigned from Nutri/System, Inc. for personal reasons, and his shares in
Nutri/System, Inc. were purchased by the two remaining shareholders, A. Donald
McCulloch, Jr. and Reef C. Ivey, II.
Effective as of July 28, 1989, Nutri/System, Inc. was merged with the
following corporate subsidiaries: Nutri/System Delaware, Inc., Nutri-System
Investment Co., Inc., Nutri/System of Florida, Inc., Nutri/System of Georgia,
Inc., Nutri/System of Michigan, Inc., Nutri/System of Nevada, Inc. and Old York
Rydal Corp., and its parent company, DSG. Nutri/System, Inc. was the surviving
corporation. The mergers were effected to comply with the restructuring of
Nutri/System, Inc. to qualify as a Subchapter S corporation as defined by the
Internal Revenue Code of 1986, as amended.
In August 1989, Nutri/System, Inc. opted to localize its financial and
banking arrangements and changed from Citibank, N.A., New York, New York to a
group of six banks led by Fidelity Bank, National Association, Philadelphia,
Pennsylvania. Nutri/System, Inc., through Fidelity Bank, National Association,
paid off its loan to Citibank, N.A. and
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maintained a revolving line of credit of up to $125,000,000 with the six banks
led by Fidelity Bank, National Association (collectively, the "Banks"). On April
27, 1993, the Banks swept all of Nutri/System, Inc.'s bank accounts forcing
Nutri/System, Inc. to close all 283 of its company centers as well as cease all
operations for a two-week period. In addition, there was a two-week interruption
of the flow of food to franchise owners. The Banks had perfected security
interests in, or liens and/or encumbrances on substantially all of the assets of
Nutri/System, Inc. and the capital stock of Nutri/System, Inc. pursuant to the
terms of a U.S. $125,000,000 Credit Agreement dated as of August 17, 1989, as
amended, and an Amended and Restated Credit Agreement dated October 30, 1991, as
amended.
Nutri/System, Inc. was served with a Summons to Debtor and Petition for
Relief under Chapter 7 of the United States Bankruptcy Code (in the United
States Bankruptcy Court for the Eastern District of Pennsylvania on May 4, 1993,
Case Number 93-12725S). The Case was converted to a Chapter 11 proceeding
effective June 4, 1993. Nutri/System, Inc. operated as a debtor in possession
through December 1993. Nutri/System, Inc. re-opened 75 of its 283 company owned
and operated weight loss centers in this period, and continued to provide
services, including food products, to its franchisees.
In addition, in July 1993, Nutri/System of Florida Associates, a
Florida general partnership ("NSF") and Nutri/System of Georgia Associates, a
Florida general partnership ("NSG") involuntarily filed for relief under Chapter
11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court, Eastern
District of Pennsylvania, Case Number 93-14121 and Case Number 93-14120,
respectively. All of the assets of NSF and NSG were also secured by the Banks,
sold to NSI Debt, Inc. and subsequently assigned to the Partnership. NSF and NSG
together operated 60 Nutri/System weight loss centers at the date of sale.
NSI Debt, Inc., a Nevada corporation, was formed on November 8, 1993 to
acquire the assets of Nutri/System, Inc. On December 1, 1993, NSI Debt, Inc.
purchased from the Banks all of the Banks' rights, claims and interests in and
to the Notes and Security Agreements and other documents perfecting the Banks'
interest in Nutri/System, Inc.'s assets, pursuant to the terms of an Assignment
of Nutri/System Interests (hereinafter referred to as the "Assignment
Agreement").
On December 29, 1993, NSI Debt, Inc., pursuant to a public auction
which took place in Philadelphia, Pennsylvania, bid part of its secured debt in
return for the assets of Nutri/System, Inc., and subsequently assigned all of
its rights and obligations under the Assignment Agreement to the Partnership.
Pursuant to the Assignment Agreement, the Partnership then became the owner of
the assets, properties and rights of Nutri/System, Inc., including but not
limited to, the trademarks, trade names and franchise agreements of
Nutri/System, Inc.
In December 1993, the United States Bankruptcy Court for the Eastern
District of Pennsylvania dismissed the bankruptcy action of NSG. On July 8,
1994, the United States Bankruptcy Court for the Eastern District of
Pennsylvania dismissed the bankruptcy actions for Nutri/System, Inc. and NSF.
The dismissal was appealed by several landlords of Nutri/System, Inc. and NSF.
The appeal was denied and no further appeals were taken.
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<PAGE>
From time to time, the Company purchases food from a vendor that is an
affiliate of certain partners of a Predecessor Business. Such transactions are
effected on terms no less favorable to the Company than those made available to
independent third parties.
Item 8. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
No established trading market exists for the Common Stock, although,
following the Merger, there has been some trading in the over-the-counter market
of the Common Stock issued to the former stockholders of Ansama. On or about the
date this Form 10 registration statement becomes effective, the Company intends
to file an application to have its Common Stock listed on the Nasdaq National
Market under the symbol "THIN". The Company can provide no assurance as to
whether or when the Company's application may be approved, if at all.
The Company has not paid any dividends since its formation in August
1999 and does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to reinvest its earnings, if
any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Company's Board
of Directors and will depend upon all then relevant factors, including the
earnings, capital requirements and financial position of the Company as well as
general economic conditions.
As of February 2, 2000, there were approximately 346 holders of record
of the Common Stock.
Of the 27,176,337 shares of the Company's Common Stock outstanding as
of February 2, 2000, approximately 2,039,337 shares are freely transferable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Act") unless purchased by affiliates of the Company as that term
is defined in Rule 144 under the Act. The remaining outstanding shares of Common
Stock (the "Restricted Shares") are eligible to be sold publicly pursuant to an
effective registration statement under the Act or in accordance with an
applicable exemption from the registration requirements under the Act,
including, after October 1, 2000, Rule 144, assuming that the Common Stock has
become registered under the Securities Exchange Act of 1934, as amended, not
later than July 1, 2000. The Company is unable to estimate the amount of
Restricted Shares that may be sold under Rule 144 since this amount will depend
in part on the price for the Common Stock, the personal circumstances of the
sellers and other factors. Sales of a substantial number of Restricted Shares in
the public market, or the availability of such shares, could adversely affect
the price of the Common Stock.
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<PAGE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated for purposes of Rule 144) who has beneficially owned
Restricted Shares for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding or (ii) the
average weekly trading volume of the Common Stock in the over-the-counter market
during the four calendar weeks preceding the date on which notice of sale is
filed with the SEC. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. However, a person (or persons whose shares are
aggregated for purposes of Rule 144) who is deemed not to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the Restricted Shares for at least two years at the time of
sale, would be entitled to sell such shares under Rule 144(k) without regard to
the aforesaid limitations.
Item 10. Recent Sales of Unregistered Securities.
On August 17, 1999, in connection with the incorporation of the
Company, the Company issued 100 shares of Common Stock, $.001 par value (the
"Common Stock") to Ansama in exchange for $100 in cash. This issuance of Common
Stock is exempt from registration under Section 4(2) of the Act. The 100 shares
of Common Stock so issued were cancelled on September 27, 1999 when Ansama
merged with and into the Company in order to change the state of incorporation
of Ansama from Nevada to Delaware.
On September 27, 1999, Ansama merged with and into the Company pursuant
to an Agreement and Plan of Merger dated as of August 19, 1999 between Ansama
and the Company. The purpose of the Merger was to change the state of
incorporation of Ansama from Nevada to Delaware. Upon consummation of the
Merger, each outstanding share of common stock of Ansama was converted in the
right to receive one share of common stock of the Company, resulting in the
issuance to the former stockholders of Ansama of an aggregate of 2,039,337
shares of Common Stock of the Company in exchange for 2,039,337 shares of common
stock of Ansama. No underwriters were involved in the Merger. The issuance of
the 2,039,337 shares of Common Stock in the Merger was exempt from registration
pursuant to Rule 145(a)(2) of the SEC which provides that an exchange of
securities pursuant to a statutory merger the sole purpose of which is to change
an issuer's domicile solely within the United States does not constitute the
offer or sale of a security within the meaning of Section 2(3) of the Act.
On September 30, 1999, the Company completed the sale of 4,363,985
shares of Common Stock at a price of $1.00 per share in cash ($964,000 of which
had been received by the Company on that date and the remainder of which was
received shortly thereafter) in a partial closing of a private placement
effected by the Company for which Pennsylvania Merchant Group acted as agent. On
October 13, 1999, the Company sold an additional 3,273,415 shares of Common
Stock at a price of $1.00 per share in the completion of this private placement.
The Company received an aggregate of $7,637,400 in cash from this private
placement and in consideration of the services of Pennsylvania Merchant Group as
placement agent, the Company issued a warrant to Pennsylvania Merchant Group
entitling
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<PAGE>
it to purchase 763,740 shares of Common Stock at an exercise price of $1.00 per
share for five years from the date of issuance. In addition, the Company
reimbursed Pennsylvania Merchant Group for its out-of-pocket expenses. The
7,637,400 shares issued in the private placement were sold to a total of 111
individuals and institutions, each of whom was an accredited investor. The
issuance of the 7,637,400 shares of Common Stock in the private placement was
exempt from registration under Section 4(2) of the Act and Regulation D
thereunder. The Company filed a Form D with the SEC on or about September 30,
1999 with respect to this private placement and an amended Form D on or about
October 27, 1999.
On September 30, 1999, the Company consummated the acquisition of all
of the beneficial interests in NutriSystem Direct, L.L.C., a Pennsylvania
limited liability company, pursuant to the August 16, 1999 Stock Exchange and
Purchase Agreement among HPF Holdings, Inc., Brian D. Haveson, Joseph H.
Boileau, Kathleen E. Simone, Deborah A. Gallen, Frederick C. Tecce and Ansama,
to which the Company had succeeded pursuant to the September 27, 1999 Merger of
Ansama with and into the Company. As consideration for the acquisition of all of
the beneficial interests in NutriSystem Direct, L.L.C., the Company paid
$400,000 in cash to HPF Holdings, Inc. and issued an aggregate of 17,500,000
shares of Common Stock to HPF Holdings, Inc. (the principal owner of which is
Michael E. Heisley), Brian D. Haveson, Joseph H. Boileau, Kathleen E. Simone,
Deborah A. Gallen and Frederick C. Tecce, each of which individuals was a
director or an executive officer of the Company. The issuance of the 17,500,000
shares of Common Stock to such six persons is exempt from registration under
Section 4(2) of the Act. No underwriters were utilized in connection with this
acquisition. Reference is also made to Item 7 hereof.
Item 11. Description of Registrant's Securities to be Registered.
The authorized Common Stock of the Company consists of 55,000,000
shares, par value $.001 per share, of which 27,176,337 shares were outstanding
as of February 1, 2000.
Each share of Common Stock is entitled to one vote on all matters
submitted to the stockholders of the Company. The shares of Common Stock do not
have cumulative voting rights and, therefore, the holders of more than 50% of
the voting power of the Company are able to elect all directors entitled to be
elected by the stockholders. The absence of cumulative voting, together with the
ownership of more than a majority of the Common Stock by Brian D. Haveson and
HPF Holdings, Inc. could be expected to have the effect of delaying, averting or
preventing a change in control of the Company unless Mr. Haveson and HPF
Holdings, Inc. were in favor of such a change.
Holders of Common Stock have equal rights, share for share, to receive
dividends when, as and if declared by the Board of Directors. The current policy
of the Company's Board of Directors is to retain all future earnings of the
Company, if any, and not to pay cash dividends which, under the Delaware General
Corporation Law (the "DGCL"), can only be paid from earnings. The payment of
future dividends, if any, will be at the discretion of the Board of Directors
and will depend upon many factors, including the Company's earnings, financial
position, capital requirements and other factors. Therefore, there can be no
assurance as to future dividends.
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<PAGE>
In the event of any liquidation, dissolution or winding-up of the
Company, holders of Common Stock will be entitled to share ratably in the assets
of the Company available for distribution to stockholders, subject to the rights
of any Preferred Stock which may be outstanding at the time. No holder of Common
Stock has any preemptive rights.
The Company also has authorized 5,000,000 shares of Preferred Stock
issuable in series upon resolution of the Board of Directors. The Board of
Directors is authorized to establish the relative terms, rights and other
provisions of any series of Preferred Stock. No Preferred Stock is outstanding,
and the Board of Directors has no current intention of issuing any Preferred
Stock. However, unless otherwise required by law in a particular circumstance,
the Board of Directors can, without stockholder approval, issue Preferred Stock
in the future with voting and conversion rights which could adversely affect the
voting power of the Common Stock. The issuance of Preferred Stock could be
expected to, and may have the effect of, delaying, averting or preventing a
change in control of the Company.
As permitted by the DGCL, the Company's Certificate of Incorporation
provides that directors of the Company will not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL relating to prohibited dividends,
distributions and repurchases or redemptions of stock or (iv) for any
transaction from which the director derives an improper personal benefit.
However, such limitation on liability would not generally apply to violations of
the federal securities laws, nor does it limit the availability of non-monetary
relief in any action or proceeding.
The Company intends to send to its stockholders annual reports
containing audited financial statements for each fiscal year and quarterly
reports containing unaudited financial statements for the first three quarters
of each fiscal year.
The transfer agent for the Company's Common Stock is StockTrans, Inc.,
Ardmore, Pennsylvania.
Item 12. Indemnification of Directors and Officers.
Section 145(a) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, other than an action by or in
the right of the corporation, 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 enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no cause
to believe his conduct was unlawful.
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<PAGE>
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that, despite such adjudication of liability, such person is fairly
and reasonably entitled to be indemnified for such expenses which the court
shall deem proper.
Section 145 of the DGCL further provides that to the extent a director
or officer of a Delaware corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) or (b) of Section 145
or in the defense of any claim, issue or matter therein, he shall be indemnified
against any expenses actually and reasonably incurred by him in connection
therewith; that the indemnification provided for by Section 145 shall not be
deemed exclusive of any rights to which the indemnified party may be entitled
and the corporation may purchase and maintain insurance on behalf of a director
or officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
As noted in Item 11, Section 102(b)(7) of the DGCL permits a Delaware
corporation to include a provision in its Certificate of Incorporation, and the
Company's Certificate of Incorporation contains such a provision, to the effect
that, subject to certain exceptions, a director of a Delaware corporation is not
personally liable to the corporation or its stockholders for monetary damages
for breach of his fiduciary duty as a director.
The Company's By-laws also provide that the Company shall indemnify its
directors and officers and, to the extent permitted by the Board of Directors,
the Company's employees and agents, to the full extent permitted by and in the
manner permissible under the laws of the State of Delaware. In addition, the
Company's By-laws permit the Board of Directors to authorize the Company to
purchase and maintain insurance against any liability asserted against any of
the Company's directors, officers, employees or agents arising out of their
capacity as such.
Item 13. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item
13 are listed in Item 15(a) hereof and are included elsewhere in this Form 10.
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<PAGE>
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 15. Financial Statements and Exhibits:
(a) Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1997 and 1998
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1998 and 1999 (unaudited) and the Years Ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
Nine Months Ended September 30, 1999 (unaudited) and the Years
Ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1999 (unaudited) and the Years Ended
December 31, 1996, 1997 and 1998
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
(b) Exhibits:
*2.1 Agreement and Plan of Merger dated August 19, 1999 between
nutrisystem.com inc. and Ansama Corp.
*2.2 Asset Purchase Agreement dated August 16, 1999 between Ansama
Corp. and Nutri/System L.P.
*2.3 Stock Exchange and Purchase Agreement dated August 16, 1999 among
Ansama Corp., HPF Holdings, Inc., Brian D. Haveson and
NutriSystem Direct, L.L.C. management (comprised of Joseph
Boileau, Kathleen Simone, Deborah Gallen and Frederick C. Tecce)
*2.4 Assignments of NutriSystem Direct, L.L.C. Membership Interests
dated September 30, 1999 to nutrisystem.com inc. by each of HPF
Holdings, Inc., Brian D. Haveson, Joseph Boileau, Kathleen
Simone, Deborah Gallen and Frederick C. Tecce
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<PAGE>
*2.5 Operating Agreement of NutriSystem Direct, L.L.C. dated September
30, 1999
*2.6 Intellectual Property Assignment from Nutri/System L.P. to
nutrisystem.com inc. dated September 30, 1999
*2.7 Assignment of Franchise Agreements from Nutri/System L.P. to
nutrisystem.com inc. dated September 30, 1999
*3.1 Certificate of Incorporation of nutrisystem.com inc.
*3.2 By-laws of nutrisystem.com inc.
*4.1 Form of Common Stock certificate of nutrisystem.com inc.
*4.2 Form of warrant to purchase Common Stock of nutrisystem.com inc.
*10.1 Joint Defense and Indemnification Agreement dated September 27,
1999 between Wyeth Ayerst Laboratories Division of American Home
Products Corporation and Nutri/System L.P.
*10.2 Lease, dated December 11, 1997, between Teachers Insurance and
Annuity Association and nutrisystem.com inc. as amended by First
Amendment to Lease dated October 28, 1999
*10.3 Form of Nutri/System L.P. Franchise Agreement
*10.4 Form of NutriSystem Direct, L.L.C. Distributor Agreement
*10.5 1999 Equity Incentive Plan of nutrisystem.com inc.
**10.6 Sponsorship Agreement dated August 16, 1999 between
Nutri/System L.P. and drkoop.com inc.
**10.7 Insertion Order dated August 27, 1999 between nutrisystem.com
inc. and OnHealth Network Company
**10.8 Insertion Order dated June 23, 1999 between NutriSystem Direct,
L.L.C. and The Knot, Inc.
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**10.9 Confidential Shopping Channel Promotion Agreement dated
September 28, 1999 between Nutri/System L.P. and America
Online, Inc.
**10.10 AOL Advertising Insertion Order dated July 20, 1999 between
Nutri/System L.P. and America Online, Inc.
**10.11 AOL Advertising Insertion Order dated January 20, 2000 between
nutrisystem.com inc. and America Online, Inc.
*21.1 Subsidiaries of nutrisystem.com inc.
23.1 Consent of Arthur Andersen LLP
*27.1 Financial data schedule
---------------
* Previously filed.
** Portions of this exhibit have been deleted based upon the
Company's request for confidential treatment pursuant to Rule
24b-2 promulgated under the Act.
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NUTRISYSTEM.COM INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited) F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 and
the Nine Months Ended September 30, 1998 and 1999 (unaudited) F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1997 and 1998 and the Nine Months Ended September
30, 1999 (unaudited) F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and
the Nine Months Ended September 30, 1998 and 1999 (unaudited) F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To nutrisystem.com inc.:
We have audited the accompanying consolidated balance sheets of nutrisystem.com
inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of nutrisystem.com inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to the financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules, and are not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
November 24, 1999
F-2
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
----------------------- September 30,
1997 1998 1999
-------- -------- -------------
ASSETS (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 843 $ 361 $ 1,047
Restricted cash 280 401 358
Trade receivables, less allowance of
$440 in 1997, $341 in
1998 and $220 in 1999 1,742 527 341
Receivable from investors -- -- 3,400
Inventories 1,031 819 700
Prepaid expenses and other current assets 646 380 222
-------- -------- --------
Total current assets 4,542 2,488 6,068
FIXED ASSETS, net 197 299 128
GOODWILL, net -- -- 527
OTHER ASSETS 87 137 99
-------- -------- --------
$ 4,826 $ 2,924 $ 6,822
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 892 $ 762 $ 277
Payable to Nutri/System L.P. -- -- 3,400
Accrued payroll and related benefits 332 46 89
Other current liabilities 2,083 733 530
-------- -------- --------
Total current liabilities 3,307 1,541 4,296
NON-CURRENT LIABILITIES 76 53 44
-------- -------- --------
Total liabilities 3,383 1,594 4,340
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST 878 807 --
-------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock (5,000,000 shares authorized, no shares
outstanding) -- -- --
Common stock, $.001 par value (55,000,000 shares authorized;
shares issued - 19,539,337 at December 31, 1997 and 1998
and 23,903,322 at September 30, 1999) 20 20 24
Additional paid-in capital 3,610 3,610 13,551
Warrants exercisable at $1 per share -- -- 344
Accumulated deficit (3,065) (3,107) (11,437)
-------- -------- --------
Total shareholders' equity 565 523 2,482
-------- -------- --------
$ 4,826 $ 2,924 $ 6,822
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
------------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Food sales $ 39,000 $ 23,698 $ 8,415 $ 6,606 $ 6,346
Franchise royalty fees 2,421 1,766 633 514 346
Weight-loss programs 4,676 17,058 -- -- --
Other 933 3,349 275 231 233
------------ ------------ ------------ ------------ ------------
47,030 45,871 9,323 7,351 6,925
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of revenues 45,823 47,686 7,101 5,571 5,014
General and administrative 1,392 1,056 2,220 2,069 2,003
Depreciation and amortization 787 1,235 79 57 54
Other 139 582 33 7 185
Disposal of weight-loss centers 367 5,347 -- -- --
Compensation expense -- -- -- -- 8,200
Net gain on insurance settlement -- (7,175) -- -- --
------------ ------------ ------------ ------------ ------------
48,508 48,731 9,433 7,704 15,456
------------ ------------ ------------ ------------ ------------
Operating loss (1,478) (2,860) (110) (353) (8,531)
INTEREST EXPENSE (39) (104) (7) (5) (7)
------------ ------------ ------------ ------------ ------------
Loss before
minority interest (1,517) (2,964) (117) (358) (8,538)
MINORITY INTEREST 1,354 1,366 75 217 208
------------ ------------ ------------ ------------ ------------
Net loss $ (163) $ (1,598) $ (42) $ (141) $ (8,330)
============ ============ ============ ============ ============
BASIC LOSS PER SHARE $ (0.01) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
============ ============ ============ ============ ============
DILUTED LOSS PER SHARE $ (0.01) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
============ ============ ============ ============ ============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Shares Stock Capital Warrants Deficit Total
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 16,282,781 $ 17 $ 1,613 $ -- $ (1,304) $ 326
Capital contributions 3,256,556 3 1,997 -- -- 2,000
Net loss -- -- -- -- (163) (163)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 19,539,337 20 3,610 -- (1,467) 2,163
Net loss -- -- -- -- (1,598) (1,598)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 19,539,337 20 3,610 -- (3,065) 565
Net loss -- -- -- -- (42) (42)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 19,539,337 20 3,610 -- (3,107) 523
Net loss (unaudited) -- -- -- -- (8,330) (8,330)
Payment to shareholder in excess of
book value (Note 1) (unaudited) -- -- (2,275) -- -- (2,275)
Capital contribution of shares
issued to executive (Note 1)
(unaudited) -- -- 8,200 -- -- 8,200
Issuance of warrants (unaudited) -- -- (344) 344 -- --
Issuance of common stock
(Note 1) (unaudited) 4,363,985 4 4,360 -- -- 4,364
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1999 (unaudited) 23,903,322 $ 24 $ 13,551 $ 344 $ (11,437) $ 2,482
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31 Ended September 30
--------------------------------------- -----------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING (unaudited)
ACTIVITIES:
Net loss $ (163) $(1,598) $ (42) $ (141) $(8,330)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities-
Compensation expense -- -- -- -- 8,200
Minority interest (1,354) (1,366) (75) (217) (208)
Depreciation and amortization 787 1,235 79 57 54
Loss on disposals 465 5,347 -- -- 115
Provisions for bad debts and
inventory obsolescence 134 403 -- 2 --
Changes in operating assets and
liabilities-
Restricted cash -- (280) (121) (251) 43
Receivables (53) 1,100 1,214 1,269 186
Inventories 429 1,073 212 (366) 120
Prepaids and other assets -- 454 217 119 196
Accounts payable (2,794) (608) (130) 1,410 (486)
Accrued payroll and related
expenses 56 (137) (286) (267) 43
Other accrued expenses 723 (2,277) (1,370) (1,926) (211)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities (1,770) 3,346 (302) (311) (278)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (1,775) (2,849) (180) (97) --
------- ------- ------- ------- -------
Net cash used in investing
activities (1,775) (2,849) (180) (97) --
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowing 1,000 -- -- -- --
Payment of bank borrowing -- (1,000) -- -- --
Contributions from partners 1,000 -- -- -- --
Issuance of common shares -- -- -- -- 964
Other (16) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 1,984 (1,000) -- -- 964
------- ------- ------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,561) (503) (482) (408) 686
CASH AND CASH EQUIVALENTS, beginning of
period 2,907 1,346 843 843 361
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS,
end of period $ 1,346 $ 843 $ 361 $ 435 $ 1,047
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share amounts)
(Information as of September 30, 1999, and for the nine months ended
September 30, 1999 and 1998 is unaudited)
1. BACKGROUND:
Nature of the Business
nutrisystem.com inc. (a Delaware corporation) together with its subsidiaries
(the "Company"), is a national provider of weight loss programs and distributor
of prepackaged foods. As discussed below, the Company was formed to offer
interactive, Internet-based weight loss solutions to the beauty, health,
wellness and personal care markets by providing well-known diet programs that
incorporate pre-packaged meals and a complete diet philosophy.
nutrisystem.com inc. and its predecessor businesses, including Nutri/System L.P.
and NutriSystem Direct, L.L.C. (collectively, the "Predecessor Businesses"),
have historically operated through company-owned and franchised weight-loss
centers. Independent franchise weight loss center owners operate using the
Company's trade name, trademarks and programs for which a royalty is paid to the
Company. The Company's pre-packaged foods are sold to program participants
through the Internet, independent distribution and through franchised weight
loss centers.
Since the inception of the Nutri/System business in 1972, the Company has
operated in various organizational and legal structures. In early 1993, the
Company was party to a bankruptcy proceeding. This case was converted to a
Chapter 11 proceeding effective June 4, 1993. The Company operated as a debtor
in possession through December 1993. Since 1993, the Company has incurred
significant losses and, as of September 30, 1999, has an accumulated deficit of
$11,437. The Company intends to invest heavily in marketing and promotion,
strategic alliances, Web site development and technology and development of its
administrative organization. As a result, the Company believes that it will
incur further operating losses for the foreseeable future. In addition, the
Company acquired the Predecessor Businesses for cash of $3.400 plus 17,500,000
shares of common stock. In order to fund the planned investment and the
Company's purchase of the Predecessor Businesses, the Company initiated a
private placement which raised proceeds of approximately $7,637 of which $964
and $3,400, respectively, were recorded in cash and receivables as of September
30, 1999. The balance of the proceeds from the private placement was received on
October 13, 1999. Based on current cash flow projections, management believes
that existing cash and cash equivalents are sufficient to fund operating and
other needs through the second quarter of 2000. Additional funding is expected
through the sale of additional equity securities in a future private placement
F-7
<PAGE>
and/or a public offering. Achieving profitability depends upon the Company's
ability to: (1) raise the necessary capital to fund operating needs and finance
the planned marketing programs and technology investment and (2) generate and
sustain substantially increased revenue levels. There can be no assurance that
the Company will be able to obtain the necessary capital to fund operating and
investment needs or to generate sufficient revenues to achieve or sustain
profitability in the future.
Merger Transaction
In August 1999, Ansama Corp. ("Ansama"), a non-operating public shell company
with minimal assets and liabilities and the sole shareholder of nutrisystem.com
inc., entered into: (1) an Asset Purchase Agreement to acquire the operating
assets and certain liabilities of Nutri/System L.P. for $3,000 and (2) a Stock
Exchange and Purchase Agreement to acquire the stock of Nutrisystem Direct,
L.L.C. for $400 and 17,500,000 shares of Ansama common stock. The Asset Purchase
Agreement and Stock Exchange and Purchase Agreement are collectively referred to
as the Merger Agreements. The amount paid to the principal shareholder in excess
of the book value was treated as a dividend. The consideration paid for the
acquisition of the minority interest was allocated to the Company's assets and
liabilities in accordance with APB 16.
On September 27, 1999, Ansama was merged into the Company, and the Company
completed the transactions contemplated in the Merger Agreements with proceeds
generated from the private placement. As a result of the transaction, the owners
of the Predecessor Businesses obtained controlling interest in the common stock
of the Company. In addition, the management team of the Predecessor Businesses
became the officers and management of the Company. The transaction was treated
as a recapitalization with the assets and liabilities of the Predecessor
Businesses recorded at historical cost in the accompanying financial statements.
In connection with the merger transaction, the president of the Company was
issued 8,200,000 incremental shares of common stock of the Company. This
issuance was treated as compensation expense for accounting purposes. The
compensation expense recorded was based on a fair market value of $1 per share.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation of Financial Statements
As of September 30, 1999, the Company's consolidated financial statements
include the accounts of nutrisystem.com inc. and its wholly owned subsidiaries.
The accompanying historical financial statements prior to September 30, 1999
include the combined accounts of the Predecessor Businesses. The historical
shareholders' equity presented in the accompanying financial statements has been
retroactively restated to give effect to the shares and consideration issued in
the merger (see Note 1).
All significant intercompany accounts and transactions have been eliminated.
F-8
<PAGE>
Interim Financial Statements
The financial statements as of September 30, 1999, and for the nine months ended
September 30, 1998 and 1999 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results for those interim periods. The
results of operations for the nine months ended September 30, 1998 and 1999 are
not necessarily indicative of the results to be expected for the entire year or
any other period.
Cash Flow Information
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of three months
or less as cash equivalents. The Company made no payments for income taxes
during the years ended December 31, 1996, 1997 or 1998, or the nine months ended
September 30, 1998 and 1999. Payments for interest were $39, $104, and $7 for
the years ended December 31, 1996, 1997 and 1998, respectively, and $5, and $7
for the nine months ended September 30, 1998 and 1999, respectively.
Restricted Cash
Restricted cash represents minimum cash deposited in banks required under
certain vendor arrangements.
Inventories
Inventories consist principally of packaged food at the Company's central
warehouse. Inventories are priced using the lower of cost or market for which
cost is determined using the first-in, first-out (FIFO) method.
Goodwill
Goodwill represents the excess of the consideration paid over the fair value of
net assets and was generated from the acquisition of the minority interest by
the Company. Goodwill is amortized over five years.
Advertising Costs
The Company follows the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP"), 93-7 "Reporting for Advertising Costs"
to account for its Internet site linking agreements. Under SOP 93-7, the Company
amortizes the costs associated with its linking agreements over the contract
terms, with the amortization method primarily based on the rate of delivery of a
guaranteed number of impressions to be received during the contract term. To the
extent additional payments are required to be made based on factors such as
click-throughs and new customers generated, such payments will be charged to
expense as incurred. All other expenses for advertising are expensed when
incurred. At December 31, 1997 and 1998, and September 30, 1999, $0, $41 and $82
of prepaid advertising was included in prepaid expenses. Advertising expense
F-9
<PAGE>
was $3,174, $5,655 and $65 during 1996, 1997 and 1998, respectively, and was $43
and $72 for the nine month periods ended September 30, 1998 and 1999,
respectively.
Internet Site Development Costs
Internet site development costs are accounted for in accordance with AICPA
SOP 98-1. A1l Internet site development costs, which began in 1999 and totaled
$132 for the nine months ended September 30, 1999 were expensed.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
which are generally three to seven years. Leasehold improvements are amortized
on a straight-line basis over the related lease terms.
Other Assets
Other assets represent security deposits on leased facilities and equipment.
Revenue Recognition
Revenues from food sales are recognized when the related products are shipped.
Other revenues represent primarily the sale of vitamins and other supplements to
consumers, and the sales of print materials to franchises.
Until December 1997, franchise royalty fees were calculated at percentages
ranging from 3.4% to 7.0% of the franchisees' monthly net sales. The percentage
applied to the franchisees' revenue is contractual and based on factors such as
territory population size and annual revenue amounts. Beginning in December
1997, royalty income was fixed at 4% of franchisees' total net sales for all
franchises.
Minority Interest
Minority interest represents the minority shareholders' share of the equity and
results of operations of the Company based on their proportionate share of
capital contributions.
Income Taxes
The Predecessor Businesses were flow-through entities which were not subject to
federal or state income taxes and, consequently, none have been reflected in the
accompanying consolidated financial statements. The owners of the Predecessor
Business were required to include their respective share of the profits or
losses in their tax returns (see Note 3).
nutrisystem.com inc. is a "C" corporation which is subject to corporate level
income taxes. As a result of the merger transaction discussed in Note 1, the
Company will be subject to corporate income taxes and will provide for income
taxes in the accompanying financial statements beginning on September 30, 1999
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax liabilities and assets for the expected future tax
F-10
<PAGE>
consequences of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities.
As a result of the transaction discussed in Note 1, the tax basis of the assets
acquired from the Predecessor Businesses exceeded the financial statement
carrying amount by $1,975, resulting in a net deferred tax asset of $790 as of
September 30, 1999. A valuation allowance of $790 was recorded based on
management's current assessment that the net deferred tax asset will not be
realized through future taxable income. To the extent that the existing deferred
tax asset is realized in the future, the related tax benefit will be credited to
equity.
Stock Options
The Company accounts for stock option plans under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" (See Note 11).
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments approximate their
fair values.
Net Loss Per Common Share
The Company has presented net loss per common share pursuant to SFAS No. 128,
"Earnings per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic loss per common share was computed by dividing
net loss applicable to common shareholders by the weighted average number of
shares of Common Stock outstanding. The impact of common stock equivalents has
not been included in the weighted average shares for diluted loss per share
purposes since its effect would be anti-dilutive.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and disclosure of
comprehensive income. Also in June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement outlines standards for determining and disclosing information with
regards to operating segments. These pronouncements, which were required to be
adopted in 1998, had no impact as the Company has no other comprehensive income
items to report and is operated as a single segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The Company is required to adopt this statement beginning in 2001. Currently
management believes that SFAS 133 will have no impact on the Company's
consolidated financial statements.
F-11
<PAGE>
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Adoption of SOP 98-1
will have no effect on the Company's consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and operating expenses
during the reporting period. Actual results could differ from these estimates.
3. PRO FORMA INFORMATION (UNAUDITED):
As discussed in Note 2, on September 27, 1999, the Company became subject to
federal and state income taxes. SEC disclosure rules require companies, for
informational purposes, to display a pro forma adjustment for the income taxes
which would have been recorded if the Company had not been a flow-through entity
during the periods presented in the accompanying statements of operations. Due
to the recurring losses incurred by the Company, and management's assessment of
realization of the related tax deduction, no pro forma tax benefit would be
recorded during the years ended December 31, 1996, 1997 or 1998 or the nine
months ended September 30, 1998 or 1999.
Also on September 27, 1999, the Company's principal shareholder group purchased
the remaining interest of the minority shareholder, which resulted in goodwill
of $527. The effect of goodwill amortization on results of operations would have
been to increase expenses by $105 for each of the years presented, and by $79
for each of the nine-month periods presented had the transaction taken place as
of the beginning of the periods.
4. DISPOSITION OF COMPANY-OWNED WEIGHT LOSS CENTERS:
During 1997, the Company disposed of its 155 Company-owned centers. The assets
and certain liabilities of 53 of its centers were sold, and the remaining
centers were closed. Proceeds from the sale were $150. A loss on the disposition
reflected in the statement of operations of $5,347 has been recorded for closing
the centers, which includes primarily losses on fixed asset disposals of $3,064
and reserves for lease obligations, inventory obsolescence and other liabilities
of $2,283. Also in 1996, the Company recorded a charge of $367 in connection
with the disposal of certain exercise weight loss centers.
F-12
<PAGE>
5. FIXED ASSETS:
Fixed assets consist of the following:
December 31
------------------- September 30,
1997 1998 1999
----- ----- -------------
(unaudited)
Furniture and fixtures $ 158 $ 150 $ 160
Equipment 331 360 167
----- ----- -----
489 510 327
Accumulated depreciation (292) (211) (199)
----- ----- -----
$ 197 $ 299 $ 128
===== ===== =====
6. RELATED-PARTY TRANSACTIONS:
During 1996, 1997 and 1998, the Company purchased $657, $424 and $172,
respectively, of food from a vendor that is an affiliate of the partners of one
of the Predecessor Businesses. Food purchases from that vendor totaled $135 and
$102 for the nine months ended September 30, 1998 and 1999.
For the years ended December 31, 1996, 1997 and 1998, the Company paid retainers
and professional fees of $282, $618, and $0, respectively, to a law firm whose
partner serves as a member of the Board of Directors of the Predecessor
Businesses. No amounts were paid to this firm during the nine months ended
September 30, 1998 and 1999.
For the years ended December 31, 1996, 1997, and 1998, and the nine months ended
September 30, 1998 and 1999, the Company purchased vitamins and supplements of
$0, $355, $51, $49, and $14, respectively, from a vendor that is owned by a
shareholder.
At September 30, 1999, the Company had payables of $47 to related parties.
F-13
<PAGE>
7. COMMITMENTS AND CONTINGENCIES:
The Company leases its warehouse, corporate headquarters and certain equipment.
These leases generally have initial terms of three to five years. Certain of the
leases also contain escalation clauses based upon increases in costs related to
the properties. Lease obligations, with initial or remaining terms of one year
or more, consist of the following at December 31, 1998:
1999 $ 180
2000 307
2001 335
2002 350
2003 365
--------
$ 1,537
========
Total rent expense for the years ended December 31, 1996, 1997 and 1998 was
$5,820, $4,762 and $200, respectively, and was $149 in each of the nine month
periods ended September 30, 1998 and 1999.
The Company has committed to banner advertising and integrated Internet site
linking agreements with various Internet companies. These arrangements extend
through October 2001 with a total commitment of $6,335 payable in installments
over the related contract periods.
In September 1997, Nutri/System L.P., one of the Predecessor Businesses, removed
a drug combination from its weight loss program after it was shown to cause
health problems. Numerous suits were subsequently filed against the Nutri/System
L.P. Also, in 1997, the Company obtained a settlement from its insurance carrier
for coverage associated with this matter. Consequently, the Company recorded a
gain of $7,175, net of related legal costs of $2,325, in the accompanying 1997
statement of operations associated with this settlement. In September 1999, the
supplier of the drug combination agreed to indemnify Nutri/System LP with
respect to any further liability with respect to this matter. In the opinion of
management, the Company has no liability with respect to this matter.
The Company is also involved with certain other claims and litigation matters.
In the opinion of management, after consultation with legal counsel, the outcome
of such matters will not have a material adverse effect on the Company's
financial position or results of operations.
8. EMPLOYEE BENEFIT PLAN:
During 1996, the Company adopted a qualified defined contribution retirement
plan (the "Plan"). Under the provisions of the Plan, substantially all employees
meeting minimum age and service requirements are entitled to defer a certain
percentage of their compensation. The Company matches 100% of an employee
contribution, up to a maximum
F-14
<PAGE>
Company match of 3% of the employee annual salary. Employees vest immediately in
their contributions and vest in the Company contribution over a three-year
period of service. The Company's expense for the years ended December 31, 1996,
1997 and 1998 was $44, $60 and $13, respectively, and for the nine months ended
September 30, 1998 and 1999 was $8 and $17, respectively.
9. CAPITAL STOCK:
Common Stock
The Company's certificate of incorporation includes authorization to issue up to
55 million shares of common stock with a $.001 par value per share. As of
September 30, 1999, 23,903,322 shares were issued and outstanding.
Preferred Stock
The Company has also authorized 5,000,000 shares of preferred stock issuable in
series upon resolution of the Board of Directors. Unless otherwise required by
law, the Board of Directors can, without shareholder approval, issue preferred
stock in the future with voting and conversion rights that could adversely
affect the voting power of the common stock. The issuance of preferred stock
could be expected to, and may have the effect of, delaying, averting, or
preventing a change in control of the Company.
10. INCOME TAXES:
On September 30, 1999, the Company became subject to federal and state income
taxes. At this time, the Company recorded deferred income taxes which represent
the tax effect of the cumulative differences between the financial reporting and
income tax bases of assets and liabilities.
The significant items comprising the Company's deferred income tax assets and
liabilities as of September 30, 1999 are as follows:
Deferred tax asset-
Inventory allowance $ 16
Goodwill 778
Valuation Allowance (790)
-----------
4
Deferred tax liability-
Property and equipment (4)
-----------
$ --
===========
F-15
<PAGE>
The valuation allowance was established based on management's current assessment
that the net deferred tax asset will not be realized through future taxable
income.
11. STOCK OPTIONS AND WARRANTS:
Stock Option Plan
In August 1999, the Company adopted the 1999 Equity Incentive Plan (the "Plan"),
under which options to purchase shares of the Company's common stock could be
granted to key employees. A maximum of 1,000,000 shares of common stock may be
issued pursuant to the Plan. These options could be either incentive stock
options or nonqualified stock options. The Board of Directors determines the
term of each option, but no option can be exercisable more than ten years from
the date the option was granted. The Board also determines the option exercise
price per share and vesting provisions. On October 7, 1999, the Board granted
options to buy 294,500 shares at $1 that vest over a three-year period and
expire ten years from the grant date.
As permitted under SFAS No. 123, the Company has elected to continue to account
for compensation cost using the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123 does require the Company to disclose
pro forma net income and pro forma earnings per share amounts as if compensation
expense were recognized for options granted.
For disclosure purposes, the fair value of stock options granted is estimated on
the date of the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: no dividend yield; expected volatility
of 0.1%; risk-free interest rate of 6.04%; and expected life of 10 years. The
Black-Scholes option-pricing model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of subjective
assumptions, including the expected stock price volatility.
The fair value of the options granted was $133; however, no pro forma
compensation expense would have been recognized had the Company adopted the
provisions of SFAS No. 123 for financial reporting purposes since the options
were not issued during the periods presented.
Common Stock Warrants
In return for services in connection with the private placement, the placement
agent received warrants to purchase 763,740 common shares at $1.00 per share.
The fair value of the warrants of $344 was recorded as a reduction of the
proceeds from the offering. Fair value was computed using the Black-Scholes
option-pricing model as described above.
12. ACCRUED LIABILITIES:
Other current liabilities consist of the folowing:
December 31
------------------- September 30,
1997 1998 1999
----- ----- -------------
(unaudited)
Reserve for contingent libilities $ 1,678 $ 491 $ 282
Payable to shareholder -- 100 100
Deferred program revenue 227 25 22
Accrued expenses 129 98 107
Other 49 19 19
------- ----- -----
$ 2,083 $ 733 $ 530
======= ===== =====
F-16
<PAGE>
SCHEDULE II
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance At
Beginning of Charged to End of
Period Write-offs Income Deductions Period
------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $ 440 $ (99) $ -- $ -- $ 341
Year ended December 31, 1997:
Allowance for doubtful accounts 209 (116) 347 -- 440
Year ended December 31, 1996:
Allowance for doubtful accounts 190 (33) 52 -- 209
</TABLE>
S-1
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
nutrisystem.com inc.
By:/s/ Brian D. Haveson
--------------------
Brian D. Haveson, President
and Chief Executive Officer
Date: February 10, 2000
-47-
<PAGE>
EXHIBIT INDEX
-------------
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description of Exhibit
- ------ ----------------------
*2.1 Agreement and Plan of Merger dated August 19, 1999
between nutrisystem.com inc. and Ansama Corp.
*2.2 Asset Purchase Agreement dated August 16, 1999
between Ansama Corp. and Nutri/System L.P.
*2.3 Stock Exchange and Purchase Agreement dated
August 16, 1999 among Ansama Corp., HPF Holdings,
Inc., Brian D. Haveson and NutriSystem Direct, L.L.C.
management (comprised of Joseph Boileau, Kathleen
Simone, Deborah Gallen and Frederick C. Tecce)
*2.4 Assignments of NutriSystem Direct, L.L.C. Membership
Interests dated September 30, 1999 to nutrisystem.com,
inc. by each of HPF Holdings, Inc., Brian D. Haveson,
Joseph Boileau, Kathleen Simone, Deborah Gallen and
Frederick C. Tecce
*2.5 Operating Agreement of NutriSystem Direct, L.L.C.
dated September 30, 1999
*2.6 Intellectual Property Assignment from Nutri/System L.P.
to nutrisystem.com inc. dated September 30, 1999
*2.7 Assignment of Franchise Agreements from Nutri/System
L.P. to nutrisystem.com inc. dated September 30, 1999
*3.1 Certificate of Incorporation of nutrisystem.com inc.
*3.2 By-laws of nutrisystem.com inc.
*4.1 Form of Common Stock certificate of nutrisystem.com
inc.
*4.2 Form of warrant to purchase Common Stock of
nutrisystem.com inc.
<PAGE>
*10.1 Joint Defense and Indemnification Agreement dated
September 27, 1999 between Wyeth Ayerst Laboratories
Division of American Home Products Corporation and
Nutri/System, L.P.
*10.2 Lease, dated December 11, 1997, between Teachers
Insurance and Annuity Association and
nutrisystem.com inc. as amended by First
Amendment to Lease dated October 28, 1999
*10.3 Form of Nutri/System L.P. Franchise Agreement
*10.4 Form of NutriSystem Direct, L.L.C. Distributor
Agreement
*10.5 1999 Equity Incentive Plan of nutrisystem.com inc.
**10.6 Sponsorship Agreement dated August 16, 1999 between
Nutri/System L.P. and drkoop.com inc.
**10.7 Insertion Order dated August 27, 1999 between
nutrisystem.com inc. and OnHealth Network Company
**10.8 Insertion Order dated June 23, 1999 between
NutriSystem Direct, L.L.C. and The Knot, Inc.
**10.9 Confidential Shopping Channel Promotion Agreement
dated September 28, 1999 between Nutri/System L.P.
and America Online, Inc.
**10.10 AOL Advertising Insertion Order dated July 20, 1999
between Nutri/System L.P. and America Online, Inc.
**10.11 AOL Advertising Insertion Order dated January 20,
2000 between nutrisystem.com inc. and America Online, Inc.
*21.1 Subsidiaries of nutrisystem.com inc.
23.1 Consent of Arthur Andersen LLP
*27.1 Financial data schedule
- -------------
* Previously filed.
** Portions of this exhibit have been deleted based upon the Company's
request for confidential treatment pursuant to Rule 24b-2
promulgated under the Act.
Exhibit 10.6
SPONSORSHIP AGREEMENT
This Sponsorship Agreement (the "Agreement") is entered into as of the 16th
day of August, 1999 (the "Effective Date") by and between drkoop.com inc., a
Texas corporation, located at 8920 Business Park Drive, Longhorn Suite, Austin,
Texas 78759 ("drkoop.com"), and Nutrisystem, a [Pennsylvania] corporation,
located at 202 Welsh Road, Horsham, PA 19044 ("Sponsor").
RECITALS
WHEREAS, drkoop.com inc develops, markets and maintains an integrated suite
of Internet enabled, consumer oriented software applications and services,
including but not limited to, drkoop.com, electronic data interchange services,
and advertising and promotional services on the Internet at the website
http://www.drkoop.com (the "drkoop.com Website");
WHEREAS, Sponsor markets and sells weight loss management systems.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
SPONSORSHIP SERVICES
During the term of this agreement, drkoop.com agrees to provide Sponsor
with the advertising and/or sponsorship services described in Appendix A.
ARTICLE I.
SPONSORSHIP POLICY
1.1. Content. Sponsor shall provide advertising and logo content (the
"Advertising Content") in accordance with the specifications set forth on
Exhibit B attached hereto. DRKOOP.COM reserves the right, without liability, and
at its sole discretion, to exclude any Advertisement Content or to terminate
any links that drkoop.com deems inappropriate.
1.2. Changes and Cancellations. Any cancellations or change orders must be
made in writing and acknowledged by DRKOOP.COM. Sponsor shall not be required
to change Advertising Content more often than once per month. Sponsor shall
provide DRKOOP.COM with Advertising Content artwork at least five business days
in advance of the publication date.
1.3. Statistics. DRKOOP.COM shall provide Sponsor with Sponsor usage
statistics on a monthly basis. Sponsor shall have the right to use such data for
its internal business purposes, but may not provide such data for use by third
parties.
S-1
<PAGE>
1.4. Publication Error. In the event of a publication error in the
Advertising Content arising exclusively from the fault of DRKOOP.COM, Sponsor
shall notify DRKOOP.COM of such error and DRKOOP.COM will use reasonable efforts
to promptly correct the error. DRKOOP.COM 's sole obligation and liability for
such publication errors shall be to use reasonable efforts to promptly correct
such errors.
1.5. Payment.
1.5.1. Fees. In consideration for the Services, Sponsor shall pay
DRKOOP.COM the fee of $[ ] (the "Fees") as follows. Such Fees shall be paid
in one payment of $[ ] at the effective date of the agreement term and
twelve (12) consecutive monthly installments of $[ ], with the first monthly
payment due and payable one month from the commencement of delivery of
advertising services.
1.5.2. Taxes. Sponsor shall be responsible for the collection of any and
all value added, consumption, sales, use or similar taxes and fees payable with
respect to the Services and shall pay such collected taxes to the relevant tax
authorities.
ARTICLE II.
OWNERSHIP OF DATA
2.1. User Data. Drkoop.com requests its users ("Individual Users"), to
provide personal information when they sign up for certain services including
requesting information on a specific disease, chat rooms and forums ("User
Data"). Such User Data is owned by each Individual User and drkoop.com does not
use or disclose any such User Data without the consent of the Individual User.
2.2. Data Release to Sponsor. Drkoop.com shall provide to Sponsor any and
all User Data for which the Individual User has specifically authorized release
to Sponsor. All other user data would be available on an aggregate basis. In the
event that an Individual User grants rights to Sponsor for use of his User Data,
Sponsor shall use its best efforts to keep User Data confidential and shall only
use such data in an ethical manner. Sponsor may use User Data for its own
purposes, but User Data may not be disclosed, sold, assigned, leased or
otherwise disposed of to third parties by Sponsor.
2.3. Data Confidentiality. The User Data shall be drkoop.com Confidential
Information under Article 5 and shall in addition be subject to the terms of
this Article 3. Sponsor shall be liable for the conduct of its employees, agents
and representatives who in any way breach this Amendment. Sponsor's obligations
to treat the User Data as Confidential Information under Article 5 and this
Article 3 shall continue in perpetuity following termination of this Amendment.
ARTICLE III.
LICENSE
3.1. License. Sponsor grants to drkoop.com a non-exclusive, limited right
and license to use and display the Advertising Content for the sole purpose of
providing the Services. Sponsor
S-2
<PAGE>
shall retain all right, title, and interest (including all copyrights, service
marks, trademarks and other intellectual property rights) in the Advertising
Content and drkoop.com shall not acquire any interest therein.
3.2. Intellectual Property Ownership. Drkoop.com shall retain all right,
title and interest (including all copyrights, patents, service marks, trademarks
and other intellectual property rights) in the drkoop.com Web Site. Except for
the license granted pursuant to this Agreement, Sponsor shall not acquire any
interest in the drkoop.com Web Site or any other services or materials, or any
copies or portions thereof, provided by drkoop.com pursuant to this Agreement.
3.3. Use of Name and Likeness. Sponsor shall not have any right to use the
name and/or likeness of Dr. C. Everett Koop or to make any statements, whether
written or oral, which state or otherwise imply, directly or indirectly, any
endorsement from or affiliation with Dr. Koop in any manner whatsoever without
the prior written consent of DRKOOP.COM, which consent may be withheld in
DRKOOP.COM's sole discretion.
ARTICLE IV.
CONFIDENTIALITY
4.1. Confidentiality. For the purposes of this Agreement, "Confidential
Information" means non-public information about the disclosing party's business
or activities that is proprietary and confidential, which shall include, without
limitation, all business, financial, technical and other information of a party
marked or designated "confidential" or by its nature or the circumstances
surrounding its disclosure should reasonably be regarded as confidential.
Confidential Information includes not only written or other tangible
information, but also information transferred orally, visually, electronically
or by any other means. Confidential Information will not include information
that (i) is in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation or
(iii) the receiving party knew prior to receiving such information from the
disclosing party or develops independently.
4.2. Exclusions. Each party agrees (i) that it will not disclose to any
third party or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar importance.
4.3. Exceptions. Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required by law or
(ii) on a "need-to-know" basis under an obligation of confidentiality to its
legal counsel, accountants, banks and other financing sources and their
advisors. Except as set forth in this Section 5.3, the terms and conditions of
the Agreement will be deemed to be the Confidential Information of each party
and will not be disclosed without the prior written consent of the other party.
S-3
<PAGE>
ARTICLE V.
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
5.1. Sponsor Warranty. Sponsor represents and warrants for the benefit of
DRKOOP.COM that the Advertising Content is true and correct and does not and
will not for the term of this Agreement infringe upon or violate: (i) any
copyright of any third party and does not and will not constitute a defamation
or invasion of the rights of privacy or publicity of any kind of any third
party, (ii) any applicable law, regulation or non-proprietary third-party right.
Sponsor further represents and warrants for the benefit of DRKOOP.COM that the
Advertising Content does not contain any material which is unlawful, harmful,
abusive, hateful, obscene, threatening or defamatory and Sponsor is not an
entity or an affiliate of any entity which engages in the manufacture or
wholesale distribution of tobacco or tobacco products (such activities are
collectively referred to herein as "Tobacco Industry Affiliation").
5.2. Indemnification By Sponsor. Sponsor agrees to indemnify and hold
harmless DRKOOP.COM, its officers, directors, employees, and agents from and
against any claims, demands, causes of action and judgments (including
reasonable attorneys' fees and court costs) (collectively, "DRKOOP.COM Claims")
by any third party rising out of any breach or alleged breach of any of Sponsor'
representations and warranties contained in this Section 6.1, provided that
DRKOOP.COM gives Sponsor prompt written notice of the assertion of any such
DRKOOP.COM Claim Sponsor shall have the option to undertake and control the
defense and settlement of any such DRKOOP.COM Claim; provided, however, that (i)
DRKOOP.COM may participate in any such proceeding at its own expense with
counsel of its own choosing, and (ii) Sponsor shall not settle any such
DRKOOP.COM Claim in a manner that adversely affects DRKOOP.COM unless DRKOOP.COM
agrees to such settlement in writing.
ARTICLE VI.
LIMITATION OF LIABILITY
6.1. Warranty. DRKOOP.COM will use commercially reasonable efforts to
maintain the DRKOOP.COM Website available and display the Advertising Content
twenty four hours per day each day during the term of the Agreement. DRKOOP.COM
shall install and maintain a commercially acceptable system of collecting
information about Impressions and other data relating to the use of the
Advertising Content. DRKOOP.COM warrants to Sponsor that it will make reasonable
effort to perform the Services in a competent manner.
6.2. Exclusion of Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, DRKOOP.COM MAKES NO WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF
THIS AGREEMENT AND HEREBY DISCLAIMS ANY AND ALL WARRANTIES WITH REGARD TO
DRKOOP.COM'S WEBSITE AND SERVICES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF NONINFRINGEMENT AND THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN PARTICULAR, AND NOT BY
WAY OF LIMITATION, DRKOOP.COM DOES NOT WARRANT THAT ITS WEBSITE WILL OPERATE
ERROR-FREE OR WITHOUT INTERRUPTION.
S-4
<PAGE>
6.3. Damages. IN NO EVENT SHALL DRKOOP.COM BE LIABLE TO SPONSOR FOR ANY
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS
AGREEMENT OR ITS TERMINATION, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE) STRICT LIABILITY OR OTHERWISE AND IRRESPECTIVE OF WHETHER
DRKOOP.COM HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE.
Notwithstanding the foregoing, in no event shall DRKOOP.COM's cumulative
liability under this Agreement exceed the amount actually paid by Sponsor to
DRKOOP.COM in the immediately preceding six (6) month period.
ARTICLE VII.
TERM AND TERMINATION
7.1. Term; Termination. This Agreement will remain in effect from the
effective date to one year after implementation of advertising services to
sponsor. Implementation of advertising services will commence on October 1,
1999. Upon completion of the agreement term, sponsor retains the right of first
refusal for the premier sponsorship of the weight management center on
www.drkoop.com.
7.2. Termination for Tobacco Industry Affiliation. Upon commencing any
activities relating to Tobacco Industry Affiliation (as defined in Section 6.1),
Sponsor shall promptly notify DRKOOP.COM of its intent to undertake Tobacco
Industry Affiliation. Upon receipt of such notice or upon learning of any such
Tobacco Industry Affiliation from a third party, DRKOOP.COM shall have the right
to terminate this Agreement immediately on written notice to Sponsor without
liability of any kind.
7.3. Termination for Cause. Either party may terminate this Agreement upon
thirty (30) days' written notice of a breach by the other party, provided such
breach is not cured within such thirty-day period.
7.4. Termination by Insolvency. Either party may terminate this Agreement
by providing written notice to the other party if the other party ceases to
function as a going concern, becomes insolvent, makes an assignment for the
benefit of creditors, files a petition in bankruptcy, permits a petition in
bankruptcy to be filed against it, or admits in writing its inability to pay its
debts as they mature, or if a receiver is appointed for a substantial part of
its assets.
7.5. Survival. The following Sections shall survive termination of this
Agreement: Section ___, Article 5 (Confidentiality), Article 6
(Indemnification), Article 6 (Limitation of Liability), Section 7.5 (Effect of
Termination) and Article 9 (General). [NEED TO UPDATE]
S-5
<PAGE>
ARTICLE VIII.
GENERAL
8.1. Publicity. Except as may be required by applicable laws and
regulations or a court of competent jurisdiction, or as required to meet credit
and financing arrangements, or as required or appropriate in the reasonable
judgment of either party to satisfy the disclosure requirements of an applicable
securities law or regulation or any applicable accounting standard, neither
party shall make any public release respecting this Agreement and the terms
hereof without the prior consent of the other party.
8.2. Arbitration. Any and all disputes, controversies and claims arising
out of or relating to this Agreement or concerning the respective rights or
obligations of the parties hereto shall be settled and determined by arbitration
in Austin, Texas before one (1) arbitrator pursuant to the Commercial Rules then
in effect of the American Arbitration Association. Each party shall have no
longer than three (3) days to present its position. Judgment upon the award
rendered may be entered in any court having jurisdiction or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement. The parties agree that the arbitrators shall have the power to
award damages, injunctive relief and reasonable attorneys' fees and expenses to
any party in such arbitration.
8.3. Assignment. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent, which consent will not be
unreasonably withheld, except that a party's rights hereunder may be transferred
to a successor of all or substantially all of the business and assets of the
party regardless of how the transaction or series of related transactions is
structured.
8.4. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, but without giving effect to
its laws or rules relating to conflicts of laws.
8.5. Notice. All notices, statements and reports required or permitted by
this Agreement shall be in writing and deemed to have been effectively given and
received: (i) five (5) business days after the date of mailing if sent by
registered or certified U.S. mail, postage prepaid, with return receipt
requested; (ii) when transmitted if sent by facsimile, provided a confirmation
of transmission is produced by the sending machine and a copy of such facsimile
is promptly sent by another means specified in this section; or (iii) when
delivered if delivered personally or sent by express courier service. Notices
shall be addressed as follows:
For DRKOOP.COM: For Sponsor:
Drkoop.com Inc. Nutrisystem
8920 Business Park Drive 202 Welsh Road
Austin, TX 78759
Attn: Chief Financial Officer Horsham, PA 19044
S-6
<PAGE>
Attn: Brian Haveson
President
Either party may change its address for the purpose of this paragraph by notice
given pursuant to this paragraph.
8.6. No Agency. The parties are independent contractors and will have no
power or authority to assume or create any obligation or responsibility on
behalf of each other. This Agreement will not be construed to create or imply
any partnership, agency or joint venture.
8.7. Severability. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator, the remaining
portions of the Agreement will remain in full force and effect.
8.8. Entire Agreement. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both written and oral)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties.
8.9. Counterparts. This Agreement may be signed in counterparts which, when
signed, shall constitute one document.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
ACCEPTED BY:
Drkoop.com inc.
By: /s/ Susan Georgen-Saad
------------------------------
Name: Susan Georgen-Saad
Title: CFO
Nutrisystem
By: /s/ Brian Haveson
------------------------------
Name: Brian Haveson
Title: President
S-7
<PAGE>
EXHIBIT A
Advertising Services
1. Nutrisystem shall be the premier sponsor of 75% of the content within the
Weight Management Center on www.drkoop.com public site.
2. Drkoop.com shall not display banner advertising on the Weight Management
Center from any direct competitor. Drkoop.com shall not display a direct
competitor's logo button on the drkoop.com home page when the sponsor's logo
is simultaneously being presented. As used herein, "Director Competitor"
shall meany any company whose primary function is the administration of
weight loss programs. This does not include companies whose primary function
is to manufacture or distribute nutritional products that may be used as a
part of a weight management program. Sponsor has designated that "Direct
Competitors" will include but are not limited to: 1) Jenny Craig Inc., 2)
Ediets.com 3) Weight Watchers International, Incorporated.
3. Nutrisystem will be noted as sponsor of the Weight Management Center on 75%
of the content within the Weight Management Center on www.drkoop.com public
site.
4. Drkoop.com will deliver the following number of advertising impressions over
the sponsorship term.-15,952,000. If drkoop.com does not deliver the
designated amount of impressions in the weight management center, agreement
term will be extended till impressions have been delivered.
5. Sponsor advertising impressions will be distributed in the following areas:
- Category Placements - 468 x 60 banners and linkable sponsor logos located
in the Weight Management Center - 6,984,000
- Community Placements - 468 x 60 banners in Chat group areas, promotion of
spotlight events. Text links in spotlight events. - 166,200
- Value Added Placements - Home page logo buttons, Sponsorship of drkoop.com
newsletter (2), 468 x 60 banners in Dr. Nancy Snyderman, Health and
Wellness and Women's health content areas. - 7,577,000
- Run of Site placements - 120 x 60 and 468 x 60 banners placed throughout
drkoop.com at the discretion of drkoop.com. - 1,200,000
- Pre launch impressions - 120 x 60 and 468 x 60 banners on the drkoop.com
home page and fitness center. - 175,000
A-1
<PAGE>
EXHIBIT B
TECHNICAL SPECIFICATIONS FOR ADVERTISING ELEMENTS
File Formats
Naming Convention: (lowercase only, 8.3)
Alternate Text: Use ALT tag; ten words or less
Image Dimensions:
Sponsor Banner: 468 pixels by 60 pixels, 120 pixels by 60 pixels (no animation
on 120 x 60 banners)
Home page logo: 88 pixels by 31 pixels, (size subject to change with
reformatting of home page)
Image File Format: [GIF/JPEG]
Image File Size: 12 k maximum file size
File Names: Use Sponsor name.: [Sponsor].gif]
Delivery of GIFs
Email - [email protected], cc: [email protected]
We accept [,CompactPro, zip, gzip, and UNIX tar or compress] format tiles. All
formats must be mailed in [ASCII encoding(uuencode, mmencode)].
B-1
Exhibit 10.7
OnHealth Network Company
INSERTION ORDER
Date: 8/27/99
- --------------------------------------------------------------------------------
ADVERTISER AGENCY
Company: Nutrisystem Company:
Address: Address:
Contact: Brian Haveson Contact:
Phone: (215) 706-5331 Phone:
Fax: (215) 706-5325 Fax:
Email: [email protected] Email:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bill To: Advertiser
- --------
Salesperson: Carolyn Ballo
Total Term: 1 year (1/1/00- 12/31/00)
Unit Purchased: 468 x 60, 120x60, 120x240, logos, product promos,
timesavers, links
CPM: $[ ] ($[ ] net)
Impression breakout is as follows:
- ----------------------------------
Oct, Nov, Dec 15% 1,776,315
Jan, Feb, Mar 20% 2,368,421
Apr, May, Jul 30% 3,552,631
July, Aug, Sep 35% 4,144,736
TOTAL AMOUNT BOOKED = GROSS: $[ ] NET: $[ ]
o $[ ] upfront production fee, covering: storefront creation/slotting and
maintenance (continuous updates of Nutrisystem promotional items and
implementation of appropriate topical OnHealth editorial coverage), and
site exclusivity within the weight loss category. Payment due 30 days from
contract date.
o $[ ] advertising fee for 11,842,105 million impressions to be
delivered over the course of the one year.
Total impressions = 11,842,105
OnHealth Network Company Cancellation Policy: 90 days
Production Charge ($)
Note: the production fee is non-refundable and is due to OnHealth Network
Company regardless of any changes to the advertising program.
1
<PAGE>
Run Info:
__x__ Run of Site
__x__ Specific Sections-- Exclusive Sponsorship of Weight Loss
Interactive Area + Exclusive Weight Loss E-Commerce Partner & Storefront
__x__ Health Info Tracker - targeted to users who have identified "weight"
as a topic they would like to monitor.
_____ Daily Briefing
_____ In Depth Reports
_____ [Illegible]
_____ Condition Centers
_____ Diabetes
_____ Cardiovascular
x
_____ Discussion Groups - within weight loss
_____ Resources
_____ PHT
_____ Conditions A-Z:
_____ Pharmacy
__x__ Specific Keywords: 3 to be determined by Nutrisystem & OnHealth
_____ OTHER
SPECIAL INSTRUCTIONS:
Weight Loss Interactive Sponsorship includes:
Area entitlement (sponsored by Nutrisystem) on first page of Center &
Competitive exclusivity.
Banners (468x60) or sidebars (120x124) within all pages of the Weight Loss
Center (bottom banners are value-added).
Up to 3 related "keywords" TBD by OnHealth & Nutrisystem.
A targeted Nutrisystem banner program to users of Health Info Tracker who have
identified "weight" as a topic they would like to monitor.
Exclusive placement in weight loss discussion group pages.
A portion of banner impressions will rotate run of site for further exposure.
Weight Loss Area will be comprised of 2 parts:
2
<PAGE>
1 - Weight Loss Center - index page with links to related articles and stories
compiled all in one area. This page will consist of links to Daily Briefings,
Ask Our Experts Columns, In-Depth Reports, Live shows(chats and webcasts),
Condition A-Z Pages, and links to other websites.
2 - Lose Weight Now! Center - this interactive area is a step by step program
whereby the user comes in saily/weekly for pre-scheduled sessions to promote a
behavior change, weight loss.
Nutrisystem will be the Exclusive Weight Loss E-Commerce Partner
Partnership Includes:
OnHealth will deliver impressions through a combination of banners, tile ads,
links, and non-standard ad buttons from OnHealth to the appropriate areas on the
Nutrisystem site. The banner/tile ads will be run on the OnHealth home page,
sponsored Weight Loss areas, Healthy Eating/Weight
Loss Store, ROS.
Nutrisystem will be the exclusive vendor for the Healthy Eating/Weight Loss
Store within the OnHealth Store and will be accorded placement to promote
specials, other products or features.
Nutrisystem will pay OnHealth a [ ]% commission for each order coming from a
customer who enters the Nutrisystem site via OnHealth. This bounty will take
effect for each unique sale over the first 1,000 sales to begin 6 months into
the contract. A customer means a user transferred from OnHealth to Nutrisystem
who purchases any product from Nutrisystem.
OnHealth and Nutrisystem will issue a joint press release regarding the
partnership.
If OnHealth underdelivers impressions, we will fulfill the remainder of
impressions beyond the contract year. OnHealth will guarantee 40% of the
impressions to be delivered in weight loss areas and store. If we fail to
deliver 40% within 1 year, we will extend the contract until 40% guarantee is
met.
Nutrisystem will have first right of refusal.
NetGravity Reports Sent to:
- --------------------------------------------------------------------------------
Contact Person & Phone # for Start of Campaign: (Very Important)
Brian Haveson
- --------------------------------------------------------------------------------
/s/ Brian D. Haveson /s/ Carolyn Ballo
- ------------------------------------ ------------------------------------
Client Signature Sales Representative Signature
3
Exhibit 10.8
Insertion Order
Date: June 23, 1999 Order No.: N062199
Advertiser: Nutri/System
<TABLE>
<CAPTION>
Space Reservation Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Length of Sponsorship: 2 years Net Rate: $[ ]
Start Date: Nov. 1, 1999
------------------
End Date: Oct. 31, 2001 Discount: $[ ]
Total Cost: $[ ]
</TABLE>
o Weight Loss Exclusivity online
o Channel Sponsorship & Special Feature (as outlined below)
o Permanent Link on Home Page of The Knot.com (as outlined below)
o Exclusive Knot Box Inclusion (TOTAL OF 150,000 UNITS)*
Proposal Overview
- -----------------
i. Nutri/System will be the exclusive weight loss brand on The Knot for two
years, with the right of first negotiation for future contract terms.
Nutri/System will have exposure on both The Knot's World Wide Web and AOL
platforms.
ii. The Knot will carry and promote from The Knot web site a Special Feature
Section entitled "The Complete Guide to Healthy Weight Loss Brought to You
in Partnership with Nutri/System". This Special Feature will be promoted
throughout The Knot's Web platform. Nutri/System will also be an exclusive
channel sponsor of Big Day Beauty on both the Web and AOL platforms.
iii. Nutri/System will have a permanent link on the home page of The Knot.com,
directly linking to the Nutri/System Special Feature "Sitelet".
iv. Nutri/System will be included in 150,000 units of the Knot Box (Membership
Kit) in which Nutri/System will be the exclusive weight loss brand with
first right of negotiation for future contact terms. Nutri/System will be
the exclusive sponsor of the weight loss section of The Knot's Ultimate
Wedding Planning Kit within The Knot Box (Membership Kit). The design and
content to be mutually agreed upon by both parties not to be unreasonably
withheld. Included in the publication will be ample editorial promoting
readers to go online and order Nutri/System products and/or visit the
Nutri/System web site.
1
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Program Includes
Text Link on The Knot Home Page
- -------------------------------
Nutri/System will have a static text link on the home page of The Knot for the
duration of the contract with right to first renewal. The text link will appear
at the bottom of The Knot's home page directly linking to Nutri/System's Special
fFeature (Sitelet). The text link will be "Healthy Weight Loss, brought to you
by Nuri/System (registered trademark here). This link will "refresh" once every
three months. The Knot editorial staff (in conjunction with Nutri/System) will
provide the text for this link.
Special Feature Component
- -------------------------
Provided by Nutri/System
The Knot will integrate the Nutri/System supplied weightloss editorial section
entitled "The Complete Guide to Losing Weight" into the Knot.com web site.
NutriSystem will be the exclusive sponsor of this section which must be
developed and produced at the sole cost to the advertiser. To further integrate
this section into the web site, The Knot will provide the following elements:
- - Exclusive sponsorship of the Nutri/System supplied Special Feature
- - Presentation of 4 advertising banners
- - Promotion of online promotional events, such as a sweepstakes or hosted chat
session - Collection of user data (leads)
- - Detailed usage reports (every two weeks)
- - Promotion of Jump page with outbound links to Nutri/System.com
The Special Feature Section is where our entire audience will go to find out all
they need to know about losing weight safely. This section shall not promote any
competing and/or conflicting diet programs with the Nutri/System program.
Nutri/System will supply all the banners on every page of this Special Feature,
and they may include messages such as i.e. "Shed those unwanted pounds before
the big day!" etc., TBD. All banners will lead to the Nutri/System unique area.
Channel Sponsorship Component
- -----------------------------
Nutri/System will be the exclusive sponsor of one of The Knot's editorial
channels e.g. Big Day Beauty (TBD-subject to availability) on both AOL and the
World Wide Web. Nutri/System advertising banners will rotate throughout that
specific editorial channel on The Knot. This sponsorship will include several
elements, such as:
- - Presentation of 6 advertising banners linking to special feature (sitelet)
- - Promotion of an online promotional event, such as a sweepstakes or hosted chat
session
- - Presentation of a user survey
- - Collection of user data (leads)
- - Detailed usage reports (every two weeks)
2
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Costs
Year 1 November 1, 1999 - October 31st, 2000
Media/Marketing Total Payment Payment Due
--------------- ------------- -----------
Media/Knot Box (Membership Kit) $[ ] Billed quarterly
Year 2 November 1, 2000 - October 31st, 2001
Media/Marketing Total Payment Payment Due
--------------- ------------- -----------
Media $[ ] Billed quarterly
Impression Guarantees
15 million impressions delivered between November 1st, 1999 - October 31st,
2001.
If the Knot falls short of the cumulative impressions over the term of the
entire contract (2 years - 15,000,000) then The Knot will extent the contract
until the 15,000,000 guaranteed impressions are met. Impressions will be defined
as; banners, branded text links, buttons, emails, marketing messages and other
branded vehicles related to the Nutri/System brand and/or Nutri/System products.
Competitive Brands
At no time shall users of The Knot who come to pages served by Nutri/System
through The Knot, encounter links or promotions of any kind to any weddings only
resource. Under no circumstance shall customers acquired through The Knot, ever
receive a marketing message from Nutri/System that includes any branded mention
or promotion of any other third party wedding only online resources.
First Right to Negotiate
Upon completion of this contract and payment in full, Nutri/System will have the
first right of negotiation to extend this contract.
3
<PAGE>
Financial Due Diligence
Insertion order conditioned upon acceptable financial due diligence completed by
The Knot. Nutri/System acknowledges that it will make sufficient financial
documents available to the Knot.
Customer Service
This contract is subject to the AOL carriage agreement.
If The Knot receives a customer service complaint or issue related to
Nutri/System then The Knot shall promptly forward the complaint to Nutri/System.
Nutri/System shall contact/respond to the complaint within one business day and
resolve the complaint within ten business days or a reasonable time period based
on the particular situation not to exceed 30 days. Following resolution of the
complaint, Nutri/System shall notify The Knot via email of the resolution.
In the event that The Knot determines that Nutri/System has not fulfilled the
customer service standard set-forth in this agreement, then Nutri/System shall
be in breach of the agreement. The Knot shall provide written notice of the
breach. Nutri/System shall have 30 days to cure the breach and provide written
notice of the same. If, no cure is provided or Nutri/System has not used its
best effort to cure the problem, then The Knot may terminate this agreement.
Indemnification
Nutri/System will indemnify and hold harmless The Knot and The Knot's licensees,
representatives, successors, principals, parents, affiliates, agents,
representatives, subsidiaries and assigns, from and against any and all
third-party claims, loss, damages, costs and expenses (including reasonable
attorneys' fees and costs) sustained, paid or incurred by The Knot or any of the
foregoing in connection with any breach of alleged breach of any representation,
warranty, covenant, agreement made or entered into by Nutri/System herein or
otherwise arising from the acts or omissions of Nutri/System.
The Knot will indemnify and hold harmless Nutri/System and licensees,
representatives, successors, principals, parents, affiliates, agents,
representatives, subsidiaries and assigns, from and against any and all
third-party claims, loss, damages, costs and expenses (including reasonable
outside attorneys' fees and costs) arising out of any content featured on The
Knot's website, except in so far as such claim may be related to a breach or
alleged breach by Nutri/System of any of Nutri/System's representations,
warranties and/or agreements hereunder or otherwise arising out of the acts or
omissions of Nutri/System.
The Knot shall have the right, in The Knot's sole discretion, to control the
defense of any claim or proceeding to which The Knot is a party. If The Knot
shall elect to control such defense, Nutri/System may, at Nutri/Systems's sole
expense, participate in the defense thereof. If The Knot shall elect not to
control such defense, The Knot may nevertheless participate in such defense, at
The Knot's sole expense. Each party shall give the other written notice of any
claim
4
<PAGE>
to which the foregoing indemnity applies promptly following receipt of notice
thereof and shall cooperate with the other in the defense thereof.
Legal Status
This agreement is subject to the laws of the State of New York and of The United
States of America.
Confidentiality
Nutri/System agrees not to disclose or share any information regarding The Knot
Box Program or membership data acquired from any Knot member with any third
party or affiliate unless otherwise required by law.
This agreement may be signed in counterparts via fax.
For Nutri/System
Contact: Brian Haveson
Title: President
Phone: (215) 706-5331
Fax: (215) 706-5388
Address: Nutri/System
202 Welsh Road
Horsham, PA 19044
Signature X /s/ Brian D. Haveson
-------------------------------------------------------
Date 6-23-99
-------------------------------------------------------
President
For The Knot
Contact: Adam Sandow Abby Stenzler
Title: VP Sales Sales Rep
Phone: (212)219-8555x122 (212)219-8555X127
Address: 462 Broadway 462 Broadway
6th floor 6th floor
New York, NY 10013 New York, NY 10013
Signature X /s/ Adam Sandow X /s/ Abby Stenzler
-------------------------------------------------------
Date 6-23-99 6-23-99
-------------------------------------------------------
5
<PAGE>
Production Order
Date: June 23, 1999 Order No: N0PD
Client Nutri/System
Project: Production of Special Feature Section and Custom Sitelet to client
specification and approval
Due Date: Delivery no later than November 1, 1999
- ---------
All creative and production are subject to client approval, such approval is not
to be unreasonably withheld.
The Production Department shall provide a detailed production spec to be
approved by Client upon the clients request.
Deliverables:
- -------------
o Production of a Special Feature Area:
The Nutri/System special features section will be four pages long with
multiple banner slots and original licensed content including some of the
following ideas:
- Sample Menus
- Pertinent information regarding weight management
- Words of encouragement/testimonials
- weight loss promotion
- Health and fitness education
o Production of a Customized Sitelet/ Unique Area:
- A main sitelet page with multiple slots for outbound linking.
- At the clients option, multiple second tier pages of Client specific
content (e.g. Digital Catalog, request for information page)
- Custom developed content around the clients core messages.
o Creative and Production of ten banners to the clients specifications.
o Jump page with variable promotion slots.
6
<PAGE>
Limited License
- ---------------
The client shall be granted a non-exclusive, worldwide license to all editorial
content created for the Special Feature. All other production and content
created pursuant to this agreement becomes the sole property of The Client upon
delivery. That notwithstanding, Nutri/System is prohibited from placing any
materials created pursuant to this agreement on any website or publication who
is a direct competitor of The Knot in the weddings content category.
Delivery
- --------
The publication of the prior approved deliverables online shall constitute
completion and delivery of the project.
Fees
- -----------------------------------------------------
Upon signing $[ ]
- -----------------------------------------------------
Upon completion and $[ ]
delivery
- -----------------------------------------------------
Total production fee $[ ]
- -----------------------------------------------------
This agreement may be signed in counterparts via fax.
For Nutri/System
- ----------------------------------------------------------------
Contact: Brian Haveson
- ----------------------------------------------------------------
Title: President
- ----------------------------------------------------------------
Phone: (215) 706-5331
- ----------------------------------------------------------------
Fax: (215) 706-5388
- ----------------------------------------------------------------
Address: Nutri/System
202 Welsh Road
Horsham, PA 19044
- ----------------------------------------------------------------
Signature X /s/ Brian D. Haveson
- ----------------------------------------------------------------
Date 6-23-99
- ----------------------------------------------------------------
For The Knot
- ----------------------------------------------------------------
Contact: Rob Fassino
- ----------------------------------------------------------------
Title: VP Production
- ----------------------------------------------------------------
Phone: (212)219-8555x120
- ----------------------------------------------------------------
Address: 462 Broadway
6th floor
New York, NY 10013
- ----------------------------------------------------------------
Signature X
- ----------------------------------------------------------------
Date
- ----------------------------------------------------------------
7
Exhibit 10.9
CONFIDENTIAL
SHOPPING CHANNEL PROMOTIONAL AGREEMENT
This Agreement, (the "Agreement") dated as of September 28, 1999 (the
"Effective Date"), is made and entered into by and between America Online, Inc.
("AOL"), a Delaware corporation, with its principal offices at 22000 AOL Way,
Dulles, Virginia 20166 and Nuti/System, LP ("MERCHANT"), a Delaware Limited
Partnership, with its principal offices at 202 Welsh Road, Horsham PA 19044
(each a "Party" and collectively the "Parties").
INTRODUCTION
AOL owns, operates and distributes the AOL Service, AOL.com, the CompuServe
Service and the Netscape Netcenter. MERCHANT wishes to secure a promotional
placement within the shopping channel of the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter (as specified in Exhibit A) (each
channel, a "Shopping Channel") which, when activated, will provide access to
MERCHANT's site on the World Wide Web or its area on the AOL Service or
CompuServe Service (as the case may be) (the "Merchant Site") where MERCHANT
offers content, products and/or services for sale. Terms not defined herein
shall be defined on the attached Exhibit B.
TERMS
1. MERCHANT PROGRAMMING. MERCHANT will make available through the Merchant
Site the certain products, content and/or services specified in Exhibit A
(the "Products") in accordance with the Standard Shopping Channel Terms and
Conditions set forth on Exhibit C.
2. PROMOTIONAL OBLIGATIONS.
2.1 AOL Promotion of MERCHANT. Commencing on a date set forth on Exhibit A
hereto, AOL will provide the promotion(s) set forth in Exhibit A (the
"Promotion"). Except to the extent expressly described in Exhibit A,
the specific form, placement, positioning, duration and nature of the
Promotion(s) will be determined by AOL in its reasonable discretion
(consistent with the editorial composition of the applicable screens)
and the nature of the Promotion being purchased by MERCHANT, as
reflected in Exhibit A. The specific content to be contained within
the Promotions (including, without limitation, within any advertising
banners or contextual promotions) will be determined by MERCHANT,
subject to AOL's technical limitations, the terms of this Agreement
and AOL's then-applicable policies relating to advertising and
promotions. Each Promotion will link only to the Merchant Site and
will promote only Products listed on Exhibit A. MERCHANT acknowledges
that the sole obligation of AOL is to display the Promotion(s) in the
Shopping Channel(s) in accordance with the terms and conditions
hereto.
2.2 MERCHANT Cross-Promotion.
A. Within each Merchant Site, MERCHANT shall include a prominent
promotional banner ("AOL Promo") appearing "above the fold" on
the first screen of the Merchant Site, to promote such AOL
products or services as AOL may reasonably designate (for
example, the America Online(R)brand service, the
CompuServe(R)brand service, the AOL.com(R)site, the Netscape
Netcenter(TM)site, ICQ, the Digital City(R)services or the AOL
Instant Messenger(TM) service) which such promotional banner
shall not be larger than 143 x 245 pixels; AOL will provide the
creative content to be used in the AOL Promo (including
designation of links from such content to other content pages).
MERCHANT shall post (or update, as the case may be) the creative
content supplied by AOL (within the spaces for the AOL Promo)
within a commercially reasonable period of time from its receipt
of such content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, MERCHANT shall
provide AOL with monthly written reports specifying the number of
Impressions to the pages containing the AOL Promo during the
prior month.
B. In MERCHANT's television, radio, print and "out of home" (e.g.,
buses and billboards) advertisements and in any publications,
programs, features or other forms of media over which MERCHANT
exercises at least partial editorial control, MERCHANT will
include specific references or mentions (orally where possible)
of the availability of the Merchant's Site through the America
Online(R)brand service, which are at least as prominent as any
references that MERCHANT makes to any other MERCHANT online or
Internet site (by way of site name, related company name, URL or
otherwise). Without limiting the generality of the foregoing,
MERCHANT's listing of the "URL" for any Merchant online site will
be accompanied by an equally prominent listing of the "keyword"
term on the AOL Service for Merchant's Site.
1
<PAGE>
3. PAYMENTS; REPORTS.
3.1 Placement Fees. MERCHANT will pay AOL $[ ] for displaying the
Promotion within the Shopping Channel on the AOL Service, AOL. com,
the CompuServe Service and the Netscape Netcenter. The total amount of
$[ ] will be payable in two (2) installments, with (i) the first
such payment of [ dollars] $[ ]) to be made upon
the Effective Date, and (ii) the second such payment of [ ]
dollars ($[ ]) to be made ninety (90) days from Merchant's launch
in the AOL Shopping Commerce Center specified on Exhibit A attached
hereto. MERCHANT will be provided a credit against any amounts already
paid to AOL by MERCHANT for promotional carriage under MERCHANT's
existing agreement with AOL which overlap promotional carriage
provided for hereunder, if any, as established by the launch date of
the applicable AOL Shopping Commerce Center(s) specified on Exhibit A
attached hereto. Except as otherwise set forth in this Agreement,
MERCHANT agrees that, once the Promotion is installed, there will be
no refunds or proration of rates if MERCHANT elects to discontinue
display of the Promotion prior to expiration of the Term. Should AOL
fail to display the Promotion in accordance with the terms of this
Agreement due to MERCHANT's failure to comply with any requirement of
this Agreement, MERCHANT will remain liable for the full amount
indicated above.
3.2 Reports. AOL will provide MERCHANT with monthly usage information
related to the Promotion in substance and form reasonably determined
by AOL. MERCHANT may not distribute or disclose usage information to
any third party without AOL's prior written consent. MERCHANT will
provide AOL with monthly reports, in a form reasonably satisfactory to
AOL and MERCHANT, which detail the number of daily items, orders and
gross sales through the Merchant Site on the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter (as applicable).
4. TERM. Unless otherwise rightfully terminated pursuant to the terms and
conditions in the Exhibits attached hereto, this Agreement will terminate
ten (10) months from the latest launch date of the AOL Shopping Channel
Commerce Center(s) specified on Exhibit A attached hereto (the "Term").
5. EXISTING AGREEMENTS. To the extent that MERCHANT has any existing shopping
channel agreement(s) with AOL in effect as of the Effective Date such
agreements shall terminate on the date that the last promotion described in
the existing agreement is replaced with Promotion(s) described in this
Agreement.
6. PRESS RELEASES. Each Party will submit to the other Party, for its prior
written approval, which will not be unreasonably withheld or delayed, any
press release ("Press Release") regarding the transactions contemplated
hereunder. Notwithstanding the foregoing, either Party may issue Press
Releases and other disclosures as required by law or as reasonably advised
by legal counsel without the consent of the other Party and in such event,
the disclosing Party will provide at least five (5) business days prior
written notice of such disclosure unless such law requires immediate
disclosure of such disclosure or legal counsel reasonably advises that the
law requires immediate disclosure in which event, the disclosing Party will
provide prior written notice at the earliest possible date. The failure to
obtain the prior written approval of the other Party, other than otherwise
permitted by this paragraph 6, will be deemed a material breach of this
Agreement. Because it would be difficult to precisely ascertain the extent
of the injury caused to the non-breaching Party, in the event of such
material breach, the non-breaching party may elect to either (i) terminate
this Agreement immediately upon notice to the other Party, and the cure
provision of Section 12 of Exhibit D of this Agreement shall not apply, or
(ii) as liquidated damages, elect to modify the Impression commitment
hereunder by fifteen percent (15%) (either an increase in Impressions if
AOL has materially breached the Agreement or a decrease in Impressions if
MERCHANT has materially breached the Agreement).
7. GENERAL TERMS. The general legal terms and conditions set forth on Exhibit
D attached hereto are hereby made a part of this Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. NUTRI/SYSTEM.com inc.
By: /s/ Eric L. Keller By: /s/ Brian Haveson
- ------------------------------------ ----------------------------
Print Name: Eric L. Keller Print Name: Brian Haveson
------------------------ --------------------
Title: VP, Business Affairs Title: President
----------------------------- -------------------------
Date: 10/8/99 Date: 10/4/99
------------------------------ --------------------------
Tax ID/EIN#:
--------------------
3
<PAGE>
EXHIBIT A
Description of Products:
The only categories of Products to be sold through the Merchant Site to AOL
Users (as further described in Section 1 of Exhibit C) are as listed below:
Category Product List:
Nutri/System Breakfast entrees
Nutri/System Lunch Entrees
Nutri/System Dinner Entrees
Nutri/System Desserts and Snacks
Nutri/System Salad Dressings
Nutri-System Non-alcoholic Beverages
Vitamins and Nutritional Supplements
Exercise Equipment
Exercise Video tapes and other exercise-related products
Product Restrictions. In no event will MERCHANT promote, or be entitled to
promote, any vitamin, nutritional supplement or exercise equipment products
through AOL-Controlled Content Screens appearing within the AOL Network (absent
AOL's prior written approval with respect to any specific promotion).
Impressions:
The screens on which the promotions appear will receive a minimum of 3,349,656
Impressions in the aggregate (the "Impressions Commitment"), subject to the
remainder of this paragraph and (i) will appear on each of the AOL Service,
AOL.com, the CompuServe Service, the Netscape Netcenter and (ii) will appear on
any other product or service owned, operated, distributed or authorized to be
distributed by or through AOL or its affiliates worldwide through which such
service elects to offer (which may include, without limitation, Internet sites
promoting AOL products and services and any "offline" information browsing
products of AOL or its affiliates), and (iii) will link to the Merchant Site. In
the event there is (or will be in AOL's reasonable judgment) a shortfall in
Impressions as of the end of the Initial Term (a "Shortfall"), AOL will provide
MERCHANT, as its sole remedy, with either: (i) extend the Promotion provided for
in the Agreement; or (ii) a refund of a pro-rata portion of the fee allocable to
the display of the Promotion based on the number of Impressions not delivered.
<PAGE>
Description of Specific Promotion(s):
Please check the box next to the Promotion(s) that MERCHANT is purchasing.
o ANCHOR PROMOTION
To commerce on November 15, 1999 and to terminate ten (10) months from the
launch date of the AOL commerce center specified below on the AOL Service (the
"AOL Commerce Center Launch Date"), MERCHANT will become an "Anchor" in the Diet
& Nutrition department(s) of the Health and Beauty commerce center of the
Shopping Channel on the AOL Service. Commencing on November 15, 1999, MERCHANT
will become an Anchor Shopping Channel on each of AOL.com, the CompuServe
Service and the Netscape Netcenter and such promotion shall terminate ten (10)
months from the AOL Commerce Center Launch Date. As an Anchor in a department,
MERCHANT will be entitled to the following:
For purposes of this Agreement, the Commerce Center Launch Date for the Health
and Beauty commerce center of the Shopping Channel on the AOL Service is August
12, 1999.
Principal Exposure on the AOL Service, AOL.com, the CompuServe Service and the
Netscape Netcenter:
o One continuous (24/7) 143 x 245 pixels promotional space with corporate
brand or logo, product offering graphic and product offering two-line text
field on the department front screen.
Additional Promotion on the AOL Service Shopping Channel:
o Rotation with other Anchor Tenants of the Commerce Center on the Commerce
Center front screen of the AOL Service on two promotional spaces with
corporate brand or logo, product offering graphic. These promotional space
rotations are reserved for the Anchor Tenant Merchant's of each Commerce
Center and will be divided proportionately among them.
o Product listing availability through the AOL Product Search, subject to
Merchant's participation and the terms and conditions set forth on Exhibit C
Section 3.
o Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping channel
merchants.
o Up to three (3) AOL Keywords(TM) for use from the AOL Service, for
registered MERCHANT trade name or trademark (subject to the other provisions
contained herein).
o Fifteen percent (15%) discount from the then-current rate card on purchases
of additional advertising banners or buttons on the AOL Service, AOL.com,
the CompuServe Service and the Netscape Netcenter, subject to availability
for the period requested (with such purchases to be made in accordance with
the then-applicable Standard Advertising Insertion Order for the property in
question). Sponsorships are not entitled to the aforementioned discount.
o Eligibility to participate in the following AOL Shopping promotional
programs (the "Program Areas") subject to the terms and conditions set forth
on Exhibit C Section 3:
o Quick Gifts
o Standard Seasonal Catalogs or Special Event Merchandising areas
(e.g., Christmas Shop), subject to MERCHANT's participation in
AOL's Quick Checkout and AOL's Search Product as described on
Exhibit C Section 3.
o Premier-level Seasonal Catalogs or Special Event Merchandising
areas (e.g., Golf Outings), subject to MERCHANT's participation in
AOL's Quick Checkout and AOL's Search Product as described on
Exhibit C Section 3.
o Gift Reminder
o Newsletters
All additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL Network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard Promotions to be provided to the MERCHANT within the Shopping areas on
the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will
be comparable in nature to the additional, standard Promotions provided to other
similarly situated MERCHANTs in the same category (i.e. Anchor Tenant, Gold
Tenant or Silver Tenant).
<PAGE>
EXHIBIT B
Definitions
Additional Merchant Channel. Any other online distribution channel (e.g., an
interactive Service other than AOL) through which MERCHANT makes available an
offering comparable in nature to the Merchant Site.
AOL-Controlled Content Screen. Any screen (i) run on or through the AOL Network,
including any promotion run on the AOL Service, AOL.com, CompuServe or Netscape
Netcenter, and (ii) controlled by AOL.
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service and (ii) any other product or service owned,
operated, distributed or authorized to be distributed by or through AOL or its
Affiliates worldwide through which such party elects to offer the Merchant Site
(which may include, without limitation, AOL-related Internet sites, "offline"
information browsing products, international versions of the AOL brand service,
and CompuServe).
AOL Service. The standard narrow-band U.S. America Online(R) brand commercial
online service.
AOL User. Any user of the AOL Service, AOL.com, the CompuServe Service, the
Netscape Netcenter, or the AOL Network.
AOL.com. The standard narrow-band U.S. version of its primary website marketed
under the AOL.com(R) brand.
CompuServe Service. The standard narrow-band affiliate U.S. CompuServe(R) brand
commercial online service.
Content. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Products,
advertisements, promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
Digital City. The standard, narrow-band U.S. version of Digital City's local
content offerings marketed under the Digital City(R) brand name.
ICQ. (i) The ICQ Service, (ii) ICQ.com and (iii) any other product or service
owned, operated, distributed or authorized to be distributed by or through ICQ
or its affiliates worldwide (and including without limitation the ICQ Service,
ICQ.com, and the rest of the ICQ Network).
Impression. User exposure to the commerce center screens, department level
screens and any other promotional inventory screens (i.e. AOL Welcome Screen)
containing the applicable promotion or advertisement, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
Interactive Service. Means and refers to an entity offering one or more of the
following: (i) online or Internet connectivity services (e.g., an Internet
service provider); (ii) an interactive site or service featuring a broad
selection of aggregated third party interactive content or navigation thereto
(e.g., an online service or search and directory service) and/or marketing a
broad selection of products and/or services across numerous interactive commerce
categories (e.g., an online mall or other leading online commerce site); (iii) a
persistent desktop client; or (iv) communications software capable of serving as
the principal means through which a user creates, sends or receives electronic
mail or real time or "instant" online messages (whether by telephone, computer
or other means), including without limitation greeting cards.
Keyword Search Terms. The Keyword(TM) online search terms made available on the
AOL Service for use by AOL Members, combining AOL's Keyword(TM) online search
modifier with a term or phrase specifically related to MERCHANT (and determined
in accordance with the terms of this Agreement).
Merchant Interactive Site. Any site (other than the Merchant Site) which is
managed, maintained, owned or controlled by Merchant or its agents.
Netscape Netcenter. The standard narrow-band primary website of Netscape
Communications Corporation marketed under the "Netcenter(TM)" brand.
Promotional Materials. Any marketing, advertising or other promotional
materials, excluding Press Releases, related to this Agreement and/or
referencing the other Party and/or its trade names, trademarks and service
marks.
<PAGE>
EXHIBIT C
Standard Shopping Channel Terms & Conditions
1. Merchant Site. MERCHANT will work diligently to develop and implement the
Merchant Site, consisting of the specific Product(s) set forth in Exhibit A and
any additional Products agreed upon in writing by the Parties subsequent to the
Effective Date. Except as mutually agreed upon in writing by the Parties, the
Merchant Site will contain only categories of Products, Services and Content
that are directly related to the MERCHANT Products listed in Exhibit A. All
sales of Products through the Merchant Site will be conducted through a direct
sales format (e.g. no auctions or clubs), absent the mutual consent of the
Parties. MERCHANT will ensure that the Merchant Site does not in any respect
promote, advertise, market or distribute the products, services or content of
any other Interactive Service. MERCHANT may comply with the requirements of this
Section , and any other customization requirements, applicable to Merchant Site
(at MERCHANT's sole expense), by any of the following methods: (i) ensuring that
all versions of MERCHANT Site so comply (ii) providing a mirrored version of
Merchants Site to be the only version available for AOL Users to use as the
Merchant Site, which mirrored version so complies; or (iii) providing a
customized version of Merchant Site to appear to AOL Users when accessing such
website (such as by dynamically serving such users) to use as the Merchant Site,
which customized version so complies.
2. Management of Merchant Site. MERCHANT will manage, review, delete, edit,
create, update and otherwise manage all Content available on or through the
Merchant Site, in a timely and professional manner and in accordance with the
terms of this Agreement and AOL's applicable Terms of Service and AOL's Privacy
Policy (as set forth on the AOL Service) or Merchant's Privacy Policy provided
such MERCHANT policy is posted online. MERCHANT will ensure that the Merchant
Site is current, accurate and well-organized at all times. MERCHANT warrants
that the Merchant Site and any material contained therein: (i) will conform to
AOL's applicable Terms of service and AOL's privacy policy or Merchant's posted
and applicable Privacy Policy; (ii) will not infringe on or violate any
copyright, trademark, U.S. patent or any other third party right, including
without limitation, any music performance or other music-related rights; and
(iii) will not contain any Product which violates any applicable law or
regulation, including those relating to contests, sweepstakes or similar
promotions. AOL will have no obligations with respect to the Products available
on or through the Merchant Site, including, but not limited to, any duty to
review or monitor any such categories of Products; provided, however, that AOL
reserves the right to review and approve any additional categories of Products
and any third-party content, products or services that MERCHANT makes or desires
to make available to AOL Users through the Merchant Site. Upon AOL's request,
MERCHANT agrees to include within the Merchant Site a product disclaimer (the
specific form and substance to be mutually agreed upon by the Parties)
indicating that transactions are solely between MERCHANT and the AOL Users who
purchase products from MERCHANT. MERCHANT will ensure that neither MERCHANT nor
any content, product or service contained within the Merchant Site, linked to
the Promotion or otherwise relating the Agreement shall (i) disparage AOL; (ii)
promote a competitor of AOL; or (iii) state or imply that AOL endorses
MERCHANT's Products.
3. Optimization of Merchant Site. MERCHANT will take all commercially reasonable
steps necessary to conform its promotion and sale of Products through the
Merchant Site to the then-existing commerce technologies made available to
MERCHANT by AOL. MERCHANT will be given an opportunity to implement, at
MERCHANT's option, AOL's "quick checkout" tool which allows AOL Users to enter
payment and shipping information which is then passed from AOL's centralized
server unit to MERCHANT for order fulfillment ("AOL Quick Checkout") and AOL's
"product search" tool technology which allows AOL Users to run a customized
search among Merchant's detailed inventory data ("AOL Product Search"); provided
however that in the event that MERCHANT declines participation in these programs
then AOL reserves the right to reduce or prohibit MERCHANT's participation in
any other incremental merchandising programs offered through the Shopping
Channel. At Merchant's request, AOL will make all reasonable efforts to provide
the tools for the MERCHANT (i) to enable Merchant Site with the AOL Quick
Checkout technology and functionality and (ii) to allow integration of
Merchant's detailed inventory data into AOL's Search Product database.
Collection, storage and disclosure of AOL Quick Checkout information which
MERCHANT provides to AOL, will be subject to AOL's privacy policy and all
confidentiality requirements hereunder. To the extent that the Merchant Site
offers AOL's Quick Checkout, MERCHANT will ensure that the AOL Quick Checkout is
of equal placement and promotion prominence to other available payment options.
AOL reserves the right to review and test the Merchant Site from time to time at
its own expense to determine whether the site is compatible with AOL's,
CompuServe's and Netscape's then-available client and host software and their
corresponding networks. AOL will be entitled to require reasonable changes to
the content, features and/or functionality within the Merchant Site if such
content, features or functionality will, in AOL's good faith judgment, adversely
affect operations of the AOL Network and provided such changes can be made by
MERCHANT without a material cost to MERCHANT. MERCHANT agrees to optimize
operations of the Merchant Site consistent with Exhibit E attached hereto.
4. Removal of Content. AOL will have the right to remove, or direct MERCHANT to
remove, any Content in the Merchant Site (including, without limitation, any
features, functionality or technology) which, as reasonably determined by AOL
(i) violates AOL's then-standard Terms of Service or MERCHANT's posted and
applicable Privacy Policy (as set forth on the Merchant Site), any other
standard, written AOL policy generally applicable to other shopping channel
merchants or the terms of this Agreement, (ii) is inconsistent in any manner
with the terms of the Agreement or with the Product description set forth in
Exhibit A or (iii) is otherwise in conflict with AOL's existing contractual
commitments to third parties. In addition, in the event that AOL reasonably
believes that software, technology or other technical components of the Merchant
Site will materially harm AOL, CompuServe or Netscape or other operations,
MERCHANT will work in good faith with AOL to limit access to such components
from the AOL Service, AOL.com, the CompuServe Service and the Netscape
Netcenter. MERCHANT will take all commercially reasonable steps using MERCHANT's
then-available technology to block access by AOL Users to Content which AOL
desires to remove or have removed pursuant to any of the foregoing. In the event
that MERCHANT cannot, through such efforts, block access to the Content in
question, the MERCHANT will provide AOL prompt written notice of such fact no
later than five (5) days after AOL notifies MERCHANT of AOL's objection to such
Content. AOL may then, at its option, either (i) restrict access by AOL Users to
the Content in question using technology available to AOL or (ii) suspend all
links, promotions and advertisements for the Merchant Site until such time as
the Content in question is no longer displayed. MERCHANT will cooperate with
AOL's reasonable requests to the extent AOL elects to implement any of the
foregoing access restrictions.
5. Promotional Placement. MERCHANT acknowledges that the sole obligation of AOL
is to display the Promotion in the Shopping Channel in accordance with the terms
and conditions of the Agreement. The specific positioning of the Promotion on
any screen in the Shopping Channel shall be as determined by AOL, consistent
with the editorial composition of such screen and the nature of the Promotion
being purchased by MERCHANT. AOL reserves the right to reject, cancel or remove
at any time the Promotion for any reason with fifteen (15) days prior notice to
MERCHANT, and AOL will refund to MERCHANT a pro-rata portion of the fee
allocable to the display of the Promotion based on the number of days that the
Promotion was displayed. Except for the pro-rata refund set forth in the
foregoing sentence, AOL will not be liable in any way for any rejection,
<PAGE>
cancellation or removal of the Promotion, except as otherwise set forth in this
Agreement. AOL reserves the right to redesign or modify the organization,
navigation, structure, "look and feel" and other elements of the AOL Service,
AOL.com, the CompuServe Service, the Netscape Netcenter and the AOL Network, at
its sole discretion at any time without prior notice. MERCHANT acknowledges and
agrees that AOL will own all right, title and interest in and to the elements of
graphics, design, organization, presentation, layout, user interface, navigation
and stylistic convention (including the digital implementations thereof) which
are generally associated with online areas contained within the AOL Network. In
the event such modifications materially affect the placement of the Promotion,
AOL will notify MERCHANT and will work with MERCHANT to display the Promotion in
a comparable location and manner. If AOL and MERCHANT cannot reach agreement on
a substitute placement, MERCHANT will have the right to cancel the Promotion,
upon thirty (30) days advance written notice to AOL. In such case, MERCHANT will
only be responsible for the pro-rata portion of payments attributable to the
period from the Effective Date through the end of the thirty (30) day notice
period. MERCHANT may not resell, trade, exchange, barter or broker to any third
party any promotional or advertising space which is the subject of this
Agreement. MERCHANT will not be entitled to any refund or proration for delays
caused by MERCHANT's failure to deliver to AOL any materials relating to the
Promotion.
6. Product Offering. MERCHANT will ensure that the Merchant Site generally
includes all of the Products and other Content (including, without limitation,
any features, offers, contests, functionality or technology) that are then made
available by or on behalf of MERCHANT through any Additional MERCHANT Channel
unless prohibited by this Agreement.
7. Pricing and Terms. MERCHANT will ensure that: (i) the prices for Products in
the MERCHANT Site generally do not exceed the prices for the Products offered by
or on behalf of MERCHANT through any additional MERCHANT Channel; and (ii) the
terms and conditions related to Products in the MERCHANT Site are generally no
less favorable in any respect to the terms and conditions for the Products
offered by or on behalf of MERCHANT through any Additional MERCHANT Channel.
8. Exclusive Offers. MERCHANT will generally promote through the Merchant Site
any special or promotional offers made available by or on behalf of MERCHANT
through any Additional MERCHANT Channel.
In addition, MERCHANT shall promote through the Merchant Site on a regular
and consistent basis special offers exclusively available to AOL Users (the "AOL
Exclusive Offers"). MERCHANT shall, at all times, feature at least one AOL
Exclusive Offer for AOL Users (except as otherwise mutually agreed upon by the
Parties). The AOL Exclusive Offer made available by MERCHANT shall provide a
substantial member benefit to AOL Users, either by virtue of a meaningful price
discount, product enhancement, unique service benefit or other special feature.
MERCHANT will provide AOL with reasonable prior notice of Exclusive Offers so
that AOL can in its editorial discretion, market the availability of such
offers. At MERCHANT's option, MERCHANT will work with AOL or its authorized
agents to develop a customized AOL rewards program, which shall be a promotional
program or plan that is intended to provide AOL Users with rewards or benefits
in exchange for, or on account of, their past or continued loyalty to, or
patronage or purchase of, the products or services of Merchant or any third
party (e.g. a promotional program similar to a "frequent flier" program), to be
provided through AOL's "AOL Rewards" program, accessible on the AOL Service at
Keyword: "AOL Rewards." Merchant's participation in such promotional rewards
program is subject to AOL's approval and may also require the payment of certain
reasonable administration fees to AOL or its authorized agents or contractors
operating the program.
9. Customer Service. It is the sole responsibility of MERCHANT to provide
customer service to persons or entities purchasing Products through the AOL
Service, AOL.com, the CompuServe Service, the Netscape Netcenter or the AOL
Network ("Customers"). MERCHANT will bear full responsibility for all customer
service, including without limitation, order processing, billing, fulfillment,
shipment, collection and other customer service associated with any Products
offered, sold or licensed through each Merchant Site, and AOL will have no
obligations whatsoever with respect thereto. Merchant Site shall include clear
and conspicuous disclosure of its customer service policies and a phone number
and an email or street address at which customers may contact MERCHANT. MERCHANT
shall provide a name of a customer service contact for use by AOL and a
telephone number and email or street address to which AOL may forward or refer
customer inquiries or complaints relating to MERCHANT. MERCHANT will receive all
emails from Customers via a computer available to MERCHANT's customer service
staff and generally respond to such emails within one business day of receipt.
MERCHANT will receive all orders electronically and generally process all orders
within one business day of receipt, provided Products ordered are not advance
order items. MERCHANT will ensure that all orders of Products are received,
processed, fulfilled and delivered on a timely and professional basis. MERCHANT
will offer AOL Users who purchase Products through such a Merchant Site a
money-back satisfaction guarantee. MERCHANT will bear all responsibility for
compliance with federal, state and local laws in the event that Products are out
of stock or are no longer available at the time an order is received. MERCHANT
will also comply with the requirements of any federal, state or local consumer
protection or disclosure law. Payment for Products will be collected by MERCHANT
directly from customers.
10. Launch Dates. In the event that any terms contained herein relate to or
depend on the commercial launch date of the online area or other property
contemplated by this Agreement (the "Launch Date"), then it is the intention of
the Parties to record such Launch Date in a written instrument signed by both
Parties promptly following such Launch Date; provided that, in the absence of
such a written instrument, the Launch Date will be as reasonably determined by
AOL based on the information available to AOL. For each day beyond the Launch
Date that the actual commercial launch of the Merchant Site is delayed (e.g.,
due to MERCHANT or the Merchant Site not being ready), then AOL will be entitled
to reduce the Impressions Commitment pro rata and decrease the promotions it
provides to MERCHANT hereunder.
11. Merchant Certification Program. MERCHANT will participate in any generally
applicable "Certified Merchant" program operated by AOL or its authorized agents
or contractors. Such program may require merchant participants on an ongoing
basis to meet certain reasonable standards relating to provision of electronic
commerce through the AOL Service, AOL.com, the CompuServe Service and the
Netscape Netcenter and may also require the payment of certain reasonable
certification fees to AOL or its authorized agents or contractors operating the
program. At MERCHANT's option, MERCHANT may (i) participate in the BizRate(R)
Program, a service offered by Binary Compass Enterprises, Inc. (BCE), which
provides opt-in satisfaction surveys to Users who purchase Products through such
Merchant Site, or such other provider of such services as AOL may designate or
approve from time to time, and (ii) provide a link to BizRate's then-current
standard survey forms, or such other survey forms offered by any other party
that AOL may reasonably designate or approve from time to time. To the extent
MERCHANT participates in the BizRate(R) Program, MERCHANT's participation shall
be based upon a separate written agreement which MERCHANT will enter into with
BCE, or other such party reasonably designated or approved by AOL. MERCHANT may
authorize BCE to provide to AOL any and all reports provided to MERCHANT by BCE,
or other third party providing such services, and agrees to provide written
notice of such authorization to BCE, or such other third party.
12. Traffic Flow/Navigation. The Parties will work together on implementing
mutually acceptable links from the Merchant Site back to the AOL Network. In the
event that AOL points to the Merchant Site or any other Merchant Interactive
Site or otherwise delivers traffic to such site, MERCHANT will ensure that
navigation back to the AOL Network
<PAGE>
from such site, whether through a particular pointer or link, the "back" button
on an Internet browser, the closing of an active window, or any other return
mechanism, shall not be interrupted by MERCHANT through the use of any
intermediate screen or other device not specifically requested by the user,
including without limitation through the use of any html pop-up window or any
other similar device. Rather, such AOL Traffic shall be pointed directly back to
the AOL Network as mutually agreed upon by AOL and MERCHANT. AOL will be
entitled to establish navigational icons, links, pointers connecting other
content areas on or outside of the AOL Network (so long as such areas are not
controlled by competitors of Merchant's) to the Merchant Site (or portions
thereof). Additionally, in cases where an AOL User performs a search for
Merchant through any search or navigational tool or mechanism that is accessible
or available through the AOL Network (e.g., Promotions, Keyword Search Terms, or
any other similar promotions or navigational tools), AOL shall have the right to
direct such AOL User to the Merchant Site.
<PAGE>
EXHIBIT D
Standard Legal Terms & Conditions
1. Production and Technical Services. Unless expressly provided for elsewhere in
the Shopping Channel Promotional Agreement which has been executed by AOL and
MERCHANT (the "Promotional Agreement," and, collectively with these Standard
Legal Terms and Conditions, the "Agreement"), Agreement (i) AOL will have no
obligation to provide any creative, design, technical or production services to
MERCHANT and (ii) subject to the following sentence, the nature and extent of
any such services which AOL may provide to MERCHANT will be as determined by AOL
in its sole discretion. The terms regarding any creative, design, technical or
productions services provided by AOL to MERCHANT will be as mutually agreed upon
by the parties in a separate written work order. With respect to any routine
production, maintenance or related services which AOL reasonably determines are
necessary for AOL to perform in order to support the proper functioning and
integration of the Merchant Site ("Routine Services"), MERCHANT will pay the
then-standard fees charged by AOL for such Routine Services.
2. AOL Accounts. To the extent MERCHANT has been granted any AOL, CompuServe or
Netscape accounts pursuant to the Agreement or otherwise used to conduct
business related to this Agreement, MERCHANT will be responsible for the actions
taken under or through its accounts, which actions are subject to AOL's
applicable Terms of Service and for any surcharges, including, without
limitation, all premium charges, transaction charges, and any applicable
communication surcharges incurred by any account issued to MERCHANT. Upon the
termination of this Agreement, all such accounts, related screen names and any
associated usage credits or similar rights, will automatically terminate. AOL
will have no liability for loss of any data or content related to the proper
termination of any such account.
3. Taxes. MERCHANT will collect and pay and indemnify and hold AOL harmless
from, any sales, use, excise, import or export value added or similar tax or
duty not based on AOL's net income, including any penalties and interest, as
well as any costs associated with the collection or withholding thereof,
including attorneys' fees.
4. Promotional Materials. Each Party will submit to the other Party, for its
prior written approval, which shall not be unreasonably withheld or delayed, any
Promotional Materials; provided, however, that after the initial public
announcement of the business relationship between the Parties in accordance with
the approval and other requirements contained therein, either Party's subsequent
factual reference to the existence of a business relationship between AOL and
MERCHANT in Promotional Materials, including, without limitation, the
availability of the Merchant Site through the AOL Network, or use of screen
shots relating to the distribution under this Agreement (so long as the AOL
Network is clearly identified as the source of such screen shots) for
promotional purposes shall not require the approval of the other Party. Once
approved, the Promotional Materials may be used by a Party and its affiliates
for the purpose of promoting the distribution of the Merchant Site through the
AOL Network and reused for such purpose until such approval is withdrawn with
reasonable prior notice. Neither Party will issue any press releases, promotions
or public statements concerning the existence or terms of the Agreement.
MERCHANT will not use, display or modify AOL's trademarks, tradenames or
servicemarks in any manner, absent AOL's express prior written approval. AOL
will not use, display or modify MERCHANT's trademarks, trade names or service
marks in any manner, absent MERCHANT's prior approval; which such approval is
agreed by the Parties to be given to AOL by MERCHANT when MERCHANT transfers or
delivers any promotional content or artwork to AOL, or any of AOL's agents.
Notwithstanding the foregoing, either Party may issue press releases and other
disclosures as required by law or as reasonably advised by legal counsel without
the consent of the other Party and in such event, prompt notice thereof will be
provided to the other Party.
5. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into the Agreement and to perform the acts required of it
hereunder; (ii) the execution of the Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a Party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, the Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in the Agreement.
6. License. For the term of this Agreement, MERCHANT hereby grants AOL a
non-exclusive, worldwide, revocable license (i) to use solely for the purpose of
fulfilling AOL's obligations under this Agreement and subject to any written
guidelines provided by Merchant to AOL (ii) to reproduce solely for the purpose
of fulfilling AOL's obligations under this Agreement including for the purposes
of cacheing, and (iii) to display, transmit and promote the Merchant's trade
names, trademarks, service marks and the Merchant Site or online materials (i.e.
creatives) otherwise provided by MERCHANT in connection herewith (e.g., offline
or online promotional content, Promotions, etc.) through the AOL Network solely
for the purpose of fulfilling AOL's obligations under this Agreement. AOL Users
will have the right to access and use the Merchant Site as customized per
Section 1 on Exhibit C. MERCHANT retains all right, title to and interest in the
Merchant Site. During the Term, AOL will have the right to use MERCHANT's
trademarks, trade names and service marks, subject to the terms and conditions
of this Agreement and to any written guidelines provided in writing to AOL;
provided, however, AOL shall not use, reproduce, display or take any action
outside the scope of this Agreement with respect to MERCHANT's trademarks, trade
names or service marks, absent prior written consent from Merchant to AOL.
7. Confidentiality. Each Party acknowledges that Confidential Information may be
disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the term
of this Agreement, and for a period of three years following expiration or
termination of this Agreement, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder, who will each agree to comply with this
provision. "Confidential Information" means any information relating to or
disclosed in the course of the Agreement, which is or should be reasonably
understood to be confidential or proprietary to the disclosing Party, including,
but not limited to, the material terms of this Agreement, information about AOL
Users, technical processes and formulas, source codes, product designs, sales,
cost and other unpublished financial information, product and business plans,
projections, and marketing data. "Confidential Information" will not include
information (a) already lawfully known to or independently developed by the
receiving Party, (b) disclosed in published materials, (c) generally known to
the public, (d) lawfully obtained from any third party, or (e) required or
reasonably advised to be disclosed by law. MERCHANT shall not make, publish, or
otherwise communicate through the AOL Network any deleterious remarks concerning
AOL or its Affiliates, directors, officers, employees, or agents (including,
without limitation, AOL's business projects, business capabilities, performance
of duties and services, or financial
<PAGE>
position) which remarks are based on the relationship established by this
Agreement or information exchanged hereunder. This section is not intended to
limit good faith editorial statements made by MERCHANT based upon publicly
available information, or information developed by MERCHANT independent of its
relationship with AOL and its employees and agents.
8. Limitation of Liability; Disclaimer; Indemnification.
(a) Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY
TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, THE
NETSCAPE NETCENTER OR THE MERCHANT SITE, OR ARISING FROM ANY OTHER PROVISION OF
THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED
PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES")' PROVIDED THAT
EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED
DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT
TO PARAGRAPH (C) BELOW. EXCEPT AS PROVIDED IN PARAGRAPH (C) BELOW, (I) LIABILITY
ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE
DAMAGES, AND (II), THE MAXIMUM LIABILITY OF ONE PARTY TO THE OTHER PARTY FOR ANY
CLAIMS ARISING IN CONNECTION WITH THIS AGREEMENT WILL NOT EXCEED THE AGGREGATE
AMOUNT OF PAYMENT OBLIGATIONS OWED TO AOL BY MERCHANT IN THE YEAR IN WHICH THE
EVENT GIVING RISE TO LIABILITY OCCURS; PROVIDED THAT MERCHANT WILL REMAIN LIABLE
TO AOL FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED PURSUANT OT THE
AGREEMENT.
(b) No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING AOL.COM, THE AOL
SERVICE OR NETWORK, THE COMPUSERVE SERVICE, THE NETSCAPE NETCENTER OR THE
MERCHANT SITE, 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 GENERALITY OF THE FOREGOING, AOL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE PROFITABILITY OF THE
MERCHANT SITE, (II) THE NUMBER OF PERSONS WHO WILL ACCESS OR "CLICK-THROUGH" THE
PROMOTION, (III) ANY BENEFIT MERCHANT MIGHT OBTAIN FROM INCLUDING THE PROMOTION
WITHIN THE AOL SERVICE OR NETWORK, AOL.COM, THE NETSCAPE NETCENTER, OR THE
COMPUSERVE SERVICE OR (IV) THE FUNCTIONALITY, PERFORMANCE OR OPERATION OF THE
AOL, COMPUSERVE OR NETSCAPE SERVICES WITH RESPECT TO THE PROMOTION.
(c) Indemnity. Each Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the indemnifying Party's material breach of
any duty, representation, or warranty of the Agreement, except where Liabilities
result from the gross negligence or knowing and willful misconduct of the other
Party.
(d) Claims. If a Party entitled to indemnification hereunder (the "Indemnified
Party") becomes aware of any matter it believes is indemnifiable hereunder
involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party which satisfaction shall not be unreasonably withheld. The Indemnified
Party will cooperate, at the expense of the Indemnifying Party, with the
Indemnifying Party and its counsel in the defense and the Indemnified Party will
have the right to participate fully, at its own expense, in the defense of such
Action. If the Indemnifying Party responds within the required ten (10) day
period and elects not to defend such Action, the Indemnified Party will be free,
without prejudice to any of the Indemnified Party's rights hereunder, to
compromise or defend (and control the defense of) such Action. In such case, the
Indemnifying Party will cooperate, at its own expense, with the Indemnified
Party and its counsel in the defense against such Action and the Indemnifying
Party will have the right to participate fully, at its own expense, in the
defense of such Action. Any compromise or settlement of an Action will require
the prior written consent of both Parties hereunder, such consent not to be
unreasonably withheld or delayed.
(e) Acknowledgment. AOL and MERCHANT each acknowledges that the provisions of
this Agreement were negotiated to reflect an informed, voluntarily allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers related to
warranties and liability contained in the Agreement are intended to limit the
circumstances and extent of liability. The provisions in paragraphs (a) through
(d) above and this paragraph (e) will be enforceable independent of and
severable from any other enforceable or unenforceable provision of this
Agreement.
9. Solicitation of Subscribers.
(a) During the term of the Agreement and for a two year period thereafter,
MERCHANT will not use the AOL Network (including, without limitation, the e-mail
network contained therein) to solicit AOL Members or AOL Users on behalf of
another Interactive Service. MERCHANT will not send unsolicited, commercial
e-mail through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "Prior Business Relationship"
will mean that the AOL User to whom commercial e-mail is being sent has
voluntarily either (i) engaged in a transaction with MERCHANT or (ii) provided
information to MERCHANT through a consent, registration, or other communication,
which included notice to the AOL User that the information provided could result
in commercial e-mail being sent to that AOL User by MERCHANT or its agents. More
generally, any commercial e-mail to be sent through or into AOL's products or
services shall be subject to AOL's then-standard restrictions on distribution of
bulk e-mail (e.g., related to the time and manner in which such e-mail can be
distributed through the AOL service in question) and the limitations set forth
in Exhibit C.
(b) MERCHANT shall ensure that its collection, use and disclosure of information
obtained from AOL Users under this Agreement ("User Information") complies with
(i) all applicable laws and regulations (ii) AOL's standard privacy policies,
available on the AOL Service at the keyword term "Privacy", and (iii) AOL's
applicable Terms of Service.
(c) MERCHANT will not disclose User Information to any third party in a manner
that identifies AOL User as end users of an AOL product or service or use User
Information collected under this Agreement to market an Interactive Service
competitive with AOL; provided that the restrictions in this subsection (c)
shall not restrict MERCHANT's use of any information collected independently of
this Agreement.
10. AOL User Communications. To the extent MERCHANT is otherwise permitted to
send communications to AOL Users (in accordance with the other requirements
contained herein): (i) any solicitations in such communications to purchase
products or services shall promote the Merchant Site available through the AOL
Network as the principal means through which to purchase any such products or
services; (ii) any direct links to specific offers within such communications
shall link to the Merchant Site; (iii) MERCHANT shall
<PAGE>
limit the subject matter of such communications to those categories of products,
services and/or content which are specifically contemplated by this Agreement;
and (iv) MERCHANT will provide the recipient with a prominent and easy means to
"opt-out" of receiving any future commercial e-mail communications from
Merchant. In addition, in any communication to AOL Users or on the Merchant
Site, MERCHANT will not encourage AOL Users to take any action inconsistent with
the scope and purpose of this Agreement, including with limitation the following
actions: (a) using interactive sites other than the Merchant Site; (b)
bookmarking of other interactive sites; (c) changing the default home page on
the AOL browser; or (d) using any interactive service other than the AOL,
Netscape and CompuServe Services.
11. Keyword(TM) Search Terms. Any Keyword Search Terms to be directed to
Merchant's Site shall be (i) subject to availability and (ii) limited to the
combination of the Keyword(TM) search modifier combined with a registered
trademark of MERCHANT, AOL reserves the right at any time to revoke MERCHANT's
use of any Keywords that are not registered trademarks of MERCHANT, MERCHANT
acknowledges that its utilization of a Keyword Search Term will not create in
it, nor will it represent it has, any right, title or interest in or to such
Keyword Search Term, other than the right, title and interest MERCHANT holds in
MERCHANT's registered trademark independent of the Keyword Search Term. Without
limiting the generality of the foregoing, MERCHANT will not: (a) attempt to
register or otherwise obtain trademark or copyright protection in the Keyword
Search Term; or (b) use the Keyword Search Term, except for the purposes
expressly required or permitted under this Agreement. To the extent AOL allows
AOL Users to "bookmark" the URL or other locator for the Merchant Site, such
bookmarks will be subject to AOL's control at all times. Upon the termination of
this Agreement, MERCHANT's rights to any Keywords and bookmarking will
terminate.
12. Miscellaneous. Neither Party will be liable for, or be considered in breach
of or default under the Agreement on account of, any delay or failure to perform
as required by the Agreement (except with respect to payment obligations) as a
result of any causes or conditions which are beyond such Party's reasonable
control and which such Party is unable to overcome by the exercise of reasonable
diligence. Neither Party's rights, duties, and obligations under the Agreement
are transferable. The Parties to the Agreement are independent contractors.
Neither Party is an agent, representative or partner of the other Party. Neither
Party will have any right, power or authority to enter into any agreement for or
on behalf of, or incur any obligation or liability of, or to otherwise bind, the
other Party. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of the Agreement or to exercise
any right under the Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect. Sections 3, 4, 7, 8, 9, 10, 11, 12 and 13
of these Standard Legal Terms and Conditions, will survive the completion,
expiration, termination or cancellation of the Promotional Agreement. Either
party may terminate the Agreement at any time with written notice to the other
Party in the event of a material breach of the Agreement by the other Party,
which remains uncured after thirty days written notice thereof. Any notice,
approval, request, authorization, direction or other communication under this
Agreement will be given in writing and will be deemed to have been delivered and
given for all purposes (i) on the delivery date if delivered by electronic mail
on AOL's network or systems (to screenname "[email protected]" in the case of
AOL) or by confirmed facsimile; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one business day
after deposit with a commercial overnight carrier, with written verification of
receipt; or (iv) five business days after the mailing date, whether or not
actually received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a receipt
is available. In the case of AOL, such notice will be provided to both the
Senior Vice President for Business Affairs (fax no. 703-265-1206) and the Deputy
General Counsel (fax no. 703-265- 1105), each at the address of AOL set forth in
the first paragraph of this Agreement. In the case of MERCHANT, except as
otherwise specified herein, the notice address will be the address for MERCHANT
set forth in the first paragraph of this Agreement, with the other relevant
notice information, including the recipient for notice and, as applicable, such
recipient's fax number or AOL email address, to be as reasonably identified by
AOL. Except as otherwise specified herein, the Agreement sets forth the entire
agreement between MERCHANT and AOL, and supersedes any and all prior agreements
of AOL or MERCHANT with respect to the transactions set forth herein. No change,
amendment or modification of any provision of the Agreement will be valid unless
set forth in a written instrument signed by the Party subject to enforcement of
such amendment. Each Party will promptly inform the other Party of any
information related to the Merchant Site which could reasonably lead to a claim,
demand, or liability of or against AOL and/or its affiliates by any third party.
Except as provided below, MERCHANT will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written consent of
AOL. Assumption of the Agreement by any successor to MERCHANT (including,
without limitation, by way of merger, consolidation or sale of all or
substantially all of MERCHANT's stock or assets) will be subject to AOL's prior
written approval unless such successor (i) is not an Interactive Service, (ii)
continues the business of MERCHANT in the ordinary course, and (iii) is of equal
or superior creditworthiness to MERCHANT. Subject to the foregoing, this
Agreement will be fully binding upon, inure to the benefit of and be enforceable
by the Parties hereto and their respective successors and assigns. Except where
otherwise specified herein, the rights and remedies granted to a Party under the
Agreement are cumulative and in addition to, and not in lieu of, any other
rights or remedies which the Party may possess at law or in equity. In the event
that any provision of the Agreement is held invalid by a court with jurisdiction
over the Parties to the Agreement, (i) such provision will be deemed to be
restated to reflect as nearly as possible the original intentions of the Parties
in accordance with applicable law and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect. The Agreement may be executed in counterparts, each of which will be
deemed an original and all of which together will constitute one and the same
document. The Agreement will be interpreted, construed and enforced in all
respects in accordance with the laws of the Commonwealth of Virginia, except for
its conflicts of law principles. MERCHANT hereby irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts therein in connection with any action arising under this
Agreement.
<PAGE>
EXHIBIT E
Operations
1. MERCHANT Site Infrastructure. MERCHANT will be responsible for all
communications, hosting and connectivity costs and expenses associated with
the MERCHANT Site. MERCHANT will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet traffic
demands on the MERCHANT Site from the AOL Network. MERCHANT will design and
implement the network between the AOL Service and MERCHANT site such that
(i) no single component failure will have a materially adverse impact on
AOL Members seeking to reach the MERCHANT Site from the AOL Network and
(ii) no single line under material control by the Merchant will run at more
than 70% average utilization for a 5-minute peak in a daily period. In this
regard, MERCHANT will provide AOL, upon request, with a detailed network
diagram regarding the architecture and network infrastructure supporting
the MERCHANT Site. In the event that MERCHANT elects to create a custom
version of the MERCHANT Site in order to comply with the terms of this
Agreement, MERCHANT will bear responsibility for all aspects of the
implementation, management and cost of such customized site.
2. Optimization; Speed. MERCHANT will use commercially reasonable efforts to
ensure that : (a) the functionally and features within the MERCHANT Site
are optimized for the client software then in sue by AOL Members; and (b)
the MERCHANT Site is designed and populated in a manner that minimizes
delays when AOL Members attempt to access such site. At a minimum, MERCHANT
will ensure that the MERCHANT Site's data transfers initiate within fewer
than fifteen (15) seconds on average. Prior to commercial launch of any
material promotions described herein, MERCHANT will permit AOL to conduct
performance and load testing of the MERCHANT Site (in person or through
remote communications), with such commercial launch not to commence until
such time as AOL is reasonably satisfied with the results of any such
testing.
3. User Interface. MERCHANT will maintain a graphical user interface within
the MERCHANT Site that is competitive in all material respects with
interfaces of other similar sites based on similar form technology. AOL
reserves the right to review and approve the user interface and site design
prior to launch of the Promotions and to conduct focus group testing to
assess compliance with respect to such consultation and with respect to
MERCHANT's compliance with the preceding sentence.
4. Technical Problems. MERCHANT agrees to use commercially reasonable efforts
to address material technical problems (over which MERCHANT exercises
control) affecting use by AOL Members of the MERCHANT Site (a "MERCHANT
Technical Problem") promptly following notice thereof. In the event that
MERCHANT is unable to promptly resolve a MERCHANT Technical Problem
following notice thereof from AOL (including, without limitation,
infrastructure deficiencies producing user delays). AOL will have the right
to regulate the promotions it provides to MERCHANT hereunder until such
time as MERCHANT corrects the MERCHANT Technical Problem at issue.
5. Monitoring. MERCHANT will ensure that the performance and availability of
the MERCHANT Site is monitored on a continuous basis. MERCHANT will provide
AOL with contact information (including e-mail, phone, pager and fax
information, as applicable, for both during and after business hours) for
MERCHANT's principal business and technical representatives, for use in
cases when issues or problems arise with respect to the MERCHANT Site.
6. Security. MERCHANT will utilize Internet standard encryption technologies
(e.g., Secure Socket Layer - SSL) to provide a secure environment for
conducting transactions and/or transferring private member information
(e.g. credit card numbers, banking/financial information, and member
address information) to and from the MERCHANT Site. MERCHANT will
facilitate periodic reviews of the MERCHANT Site by AOL in order to
evaluate the security risks of such site. MERCHANT will promptly remedy any
security risks or breaches of security as may be identified by AOL's
Operations Security team.
7. Technical Performance.
i. MERCHANT will designate the MERCHANT Site to support the AOL-client
embedded version of the Microsoft Internet Explorer 3.XX and 4.XX
browsers (Windows and Macintosh), the Netscape Browser 4.XX, and make
commercially reasonable efforts to support all other AOL browsers
listed at: "http://webmaster.info.aol.com/"
ii. To the extent MERCHANT creates customized pages on the MERCHANT Site
for AOL Members, MERCHANT will develop and employ a methodology to
detect AOL Members (e.g. examine the HTTP User-Agent field in order to
identify the "AOL Member-Agents" listed at:
"http://webmaster.info.aol.com/").
iii. MERCHANT will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
iv. MERCHANT will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 and to adhere to AOL's parameters for refreshing
or preventing the caching of information in AOL's proxy system
outlined in the document provided at the following URL:
http://webmaster.info.aol.com. The Merchant is responsible for the
manipulation of these parameters in web based objects so as to allow
them to be cached or not cached as outlined in RFC 1945.
v. Prior to releasing material, new functionality or features through the
MERCHANT Site ("New Functionality"), MERCHANT will use commercially
reasonable efforts to: (i) test the New Functionality to confirm its
compatibility with AOL Service client software and (ii) provide AOL
with written notice of the New Functionality so that AOL can perform
tests of the New Functionality to confirm its compatibility with the
AOL Service client software. Should any new material, new
functionality or features through the Merchant Site be released
without notification to AOL, AOL will not be responsible for any
adverse member
<PAGE>
experience until such time that compatibility tests can be performed
and the new material, functionality or features qualified for the AOL
Service.
8. AOL Internet Services MERCHANT Support. AOL will provide MERCHANT with access
to the standard online resources, standards and guidelines documentation,
technical phone support, monitoring and after-hours assistance that AOL makes
generally available to similarly situated web-based partners. AOL support will
not, in any case, be involved with content creation on behalf of MERCHANT or
support for any technologies, databases, software or in this Exhibit E. other
applications which are not supported by AOL or are related to any MERCHANT area
other than the MERCHANT Site. Support to be provided by AOL is contingent on
MERCHANT providing to AOL demo account information (where applicable), a
detailed description of the MERCHANT Site's software, hardware and network
architecture and access to the MERCHANT Site for purposes of such performance
and the coordination of load testing as AOL elects to conduct. As described
elsewhere in this Agreement, MERCHANT is fully responsible for all aspects of
hosting and administration of the Merchant Site and must ensure that the site
satisfies the specified access and performance requirements as outlined
Exhibit 10.10
<TABLE>
AOL ADVERTISING INSERTION ORDER
<S> <C>
-------------------------------------------
Contract # 18968
-------------------------------------------
AOL Salesperson: Doreen Woo
-------------------------------------------
Sales Coordinator: None
-------------------------------------------
Date: 7/20/99
-------------------------------------------
Credit Approval Received:
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Advertiser Advertising Agency
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contact Person Brian Haveson
- ------------------------------------------------------------------------------------------------------------------------------------
Company Name Nutrisystem
- ------------------------------------------------------------------------------------------------------------------------------------
Address - Line 1 202 Welsh Road
- ------------------------------------------------------------------------------------------------------------------------------------
Address - Line 2 Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
Phone # 215-706-5300/215-706-5331 (direct)
- ------------------------------------------------------------------------------------------------------------------------------------
Fax # 215-706-5325
- ------------------------------------------------------------------------------------------------------------------------------------
Email
- ------------------------------------------------------------------------------------------------------------------------------------
SIC Code
- ------------------------------------------------------------------------------------------------------------------------------------
Advertiser IAB Category
- ------------------------------------------------------------------------------------------------------------------------------------
Description of Advertiser's Product/Service Diet and Weightloss Program
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Billing Information
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Send invoices to (choose one): Advertiser Agency
- ------------------------------------------------------------------------------------------------------------------------------------
Advertiser or Agency Billing Contact Person Brian Haveson
- ------------------------------------------------------------------------------------------------------------------------------------
Company Name Nutrisystem
- ------------------------------------------------------------------------------------------------------------------------------------
Billing Address - Line 1 202 Welsh Road
- ------------------------------------------------------------------------------------------------------------------------------------
Billing Address - Line 2 Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
Billing Phone # 215-706-5300/215-706-5331 (direct)
- ------------------------------------------------------------------------------------------------------------------------------------
Billing Fax # 215-706-5325
- ------------------------------------------------------------------------------------------------------------------------------------
Billing Email Address
- ------------------------------------------------------------------------------------------------------------------------------------
P.O. #. If applicable
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Billing Schedule (select one):
|_| If total payment due is less than or equal to $5,000 and the advertiser is
new to AOL, payment is due upon signing* and must be received by AOL prior to ad
flight.
|_| If total payment due is greater than $5,000, an advertiser new to AOL must
have a favorable D&B credit rating (as determined by AOL). If the new advertiser
does not receive a favorable credit rating or no D&B credit rating is available,
payment is due* in advance of display start date.
|_| Given a favorable credit rating for a new advertiser or a positive payment
history for a current advertiser, invoices will be due monthly commencing on the
display start date, due net 30. A current advertiser with invoices past due to
AOL must pay outstanding debts prior to new display start date.
================================================================================
* Payment Information if payment is due to AOL upon signing or prior to display
start date (select one):
|_| To wire funds: Payment due is greater than or equal to $100,000, please wire
funds to: Acct Title: America Online, Inc., ABA: 021000021, Acct #: 323070752,
The Chase Manhattan Bank, 1 Chase Manhattan Bank, New York, NY 10081.
|_| To mail checks: Payment due is less than $100,000, please mail checks to:
America Online, Inc., Attn: Accounts Receivable, General Post Office, P.O. Box
5696, New York, NY 10087-5696.
|_| To overnight checks: Send payment to - Chase Manhattan Bank, 55 Water
Street, Lockbox dept. Room #413, New York, NY 10041, Lockbox #5696
All amounts not paid when due and payable will bear interest from the due
date at the prime rate in effect at such time. In the event of
nonpayment, AOL reserves the right to immediately terminate this
Insertion Order Agreement with written notice to Advertiser.
- --------------------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventory Type: |_| AOL Service |X| AOL.COM/Netfind
|_| Compuserve |_| Netscape |_| ICQ
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AOL.com
Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
Display Display # of Ad Slots Total Net
AOL.COM Inventory/Packages**Purchased Start Date Stop Date Ad Type Purchased Price Total Impressions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
diet 01/01/00 12/31/00 468 x 60 $[ ] 1,502,000
- ------------------------------------------------------------------------------------------------------------------------------------
diets 01/01/00 12/31/00 468 x 60 $[ ] 186,000
- ------------------------------------------------------------------------------------------------------------------------------------
weightloss 01/01/00 12/31/00 468 x 60 $[ ] 51,000
- ------------------------------------------------------------------------------------------------------------------------------------
nutrisystem 01/01/00 12/31/00 468 x 60 $[ ] 0
- ------------------------------------------------------------------------------------------------------------------------------------
weightwatchers 01/01/00 12/31/00 468 x 60 $[ ] 42,000
- ------------------------------------------------------------------------------------------------------------------------------------
jennycraig 01/01/00 03/31/00 468 x 60 $[ ] 0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
** See attached package description for any AOL.com package purchases Totals: $[ ] 1,781,000
====================================================================================================================================
</TABLE>
All necessary artwork and active URL's must be provided by
advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
|X| 468x60 NF Reviews. Search Terms, My News & Hometown / 12k Max / Animation OK
|_| 100x70 AOL.com Home Page / 3k Max / No animation
|_| 120x60 NF Home Page / 2k Max / No Animation
|_| 120x60 Shopping / 4k Max / No animation
|_| 234x60 NF Kids Only & Hometown / 7k Max / Animation OK
|_| 120x60 Instant Messenger/7.5k
Linking URL: (Must Be Filled In)
<TABLE>
<S> <C>
The HTTP/URL address to be connected to the Advertisement shall be: http:// www.nutrisystem.com
</TABLE>
Please send artwork and URL to (choose one):
<TABLE>
<S> <C> <C>
|X| [email protected] |_| [email protected] |_| [email protected]
</TABLE>
- --------------------------------------------------------------------------------
AOL reserves the right to immediately cancel any advertising flight in the
event of a material change to the nature or content of the site linked
to the Advertisement.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising Purchase Summary
- ------------------------------------------------------------------------------------------------------------------------------------
Total Price Total Impressions CPM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AOL Service $0.00 - $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
AOL.com $[ ] 1,781,000 $[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
CompuServe $0.00 - $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Netscape $0.00 - $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
ICQ $0.00 - $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Purchase Price $[ ] 1,781,000
- ------------------------------------------------------------------------------------------------------------------------------------
<Less Agency Discount>
- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net Purchase Price Total Guaranteed Impressions CPM
-------------------------------------------------------------------------------------------
$[ ] 1,781,000 $[ ]
-------------------------------------------------------------------------------------------
</TABLE>
In the event guaranteed impressions are reached prior to the Display Stop date,
AOL may, at its option, discontinue display at such earlier time. Any guarantees
are to impressions (as measured by AOL in accordance with its standard
methodologies and protocols), not "click-throughs." To the extent that there is
a shortfall in impressions as of the end of the specified display period, AOL
will provide, as Advertiser's sole remedy, "make good" impressions through
comparable placements. To the extent impressions commitments are identified
without regard to specific placements, such placements will be as mutually
agreed upon by AOL and Advertiser during the course of the display period. AOL
reserves the right to alter Advertiser flight dates to accommodate trafficking
needs or other operational needs. In such cases, AOL will make available to
Advertiser reasonably equivalent flight(s).
Standard Terms and Conditions
This Insertion Order incorporates by reference AOL's standard advertising terms
and conditions (the "Standard Terms"), including terms related to advertising
material, payment modifications, cancellation rights, usage data, limitations of
liability, disclaimers, indemnifications, use of AOL member information and
miscellaneous legal terms. Among other things, the Standard Terms provide AOL
the right to cancel this Insertion order Agreement on thirty days notice to
Advertiser (or upon such shorter notice as may be designated by AOL in the event
that AOL believes that further display of the Advertisement will expose AOL to
liability or other adverse consequences), in which case Advertiser shall only be
responsible for the pro rata portion of payments attributable to the period
preceding such termination. The Standard Terms appear at keyword "Standard Ad
Terms 4" on the U.S.-based America Online brand service and at
http://mediaspace.aol.com/adterms4.html. Advertiser acknowledges that it has
been provided an opportunity to review the Standard Terms and agrees to be bound
by them.
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly
authorized representatives have signed their names below on the dates indicated.
This Agreement (including the Standard Terms incorporated by reference) shall be
binding on both parties when signed on behalf of each party and delivered to the
other party (which delivery may be accomplished by facsimile transmission of the
signature pages hereto).
America Online Inc. Advertiser
By: /s/ Richard Nagel By: /s/ Doreen Woo
- ---------------------------------- ----------------------------------
(signature) (signature)
Print Name: RICHARD NAGEL Print Name:
---------------------- -----------------------
Title: Director Client Operations Title:
--------------------------- ----------------------------
(Print or Type) (Print or Type)
Date: 7/07/99 Date:
Exhibit 10.11
AOL ADVERTISING INSERTION ORDER
<TABLE>
--------------------------------------------
<S> <C>
Contract # 22445
--------------------------------------------
AOL Salesperson: Cici Kelly
--------------------------------------------
Sales Coordinator: Robin Fihma
--------------------------------------------
Sales Planner: Erika Snyder
--------------------------------------------
Date: 1/20/00
--------------------------------------------
Credit Approval Received: Yes
--------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Advertiser Advertising Agency
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contact Person Brian Haveson
- -----------------------------------------------------------------------------------------------------------------------
Company Name Nutrisystem
- -----------------------------------------------------------------------------------------------------------------------
Address - Line 1 202 Welsh road
- -----------------------------------------------------------------------------------------------------------------------
Address - Line 2 Horsham, PA 19044
- -----------------------------------------------------------------------------------------------------------------------
Phone # 215-706-5331
- -----------------------------------------------------------------------------------------------------------------------
Fax # 215-706-5325
- -----------------------------------------------------------------------------------------------------------------------
Email [email protected]
- -----------------------------------------------------------------------------------------------------------------------
SIC Code
- -----------------------------------------------------------------------------------------------------------------------
Advertiser IAB Category
- -----------------------------------------------------------------------------------------------------------------------
Description of Advertiser's Product/Service
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Billing Information
- -----------------------------------------------------------------------------------------------------------------------
Send Invoices to (choose one). Advertiser Agency
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advertiser or Agency Billing Contact Person Brian Haveson
- -----------------------------------------------------------------------------------------------------------------------
Company Name Nutrisystem
- -----------------------------------------------------------------------------------------------------------------------
Billing Address - Line 1 202 Welsh road
- -----------------------------------------------------------------------------------------------------------------------
Billing Address - Line 2 Horsham, PA 19044
- -----------------------------------------------------------------------------------------------------------------------
Billing Phone # 215-706-5331
- -----------------------------------------------------------------------------------------------------------------------
Billing Fax # 215-706-5325
- -----------------------------------------------------------------------------------------------------------------------
Billing Email Address [email protected]
- -----------------------------------------------------------------------------------------------------------------------
P.O. #, if applicable
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Billing Schedule (select one):
|_| If total payment due is less than or equal to $5,000 and the advertiser is
new to AOL, payment is due upon signing* and must be received by AOL prior to ad
flight.
|-|
If total payment due is greater than $5,000, an advertiser new to AOL must
have a favorable D&B credit rating (as determined by AOL). If the new advertiser
does not receive a favorable credit rating or no D&B credit rating is available,
payment is due* in advance of display start date.
|X| Given a favorable credit rating for a new advertiser or a positive payment
history for a current advertiser, invoices will be due monthly commencing on the
display start date due net 30. A current advertiser with invoices past due to
AOL must pay outstanding debts prior to new display start date. *Payment
Information if payment is due to AOL upon signing or prior to display start date
(select one):
|_| To wire funds: Payment due is greater than or equal to $100,000, please wire
funds to: Acct. Title: America Online, Inc., ABA: 021000021, Acct #: 323070752,
The Chase Manhattan Bank, 1 Chase Manhattan Bank, New York, NY 10081.
|X| To mail checks: Payment due is less than $100,000, please mail checks to:
American Online, Inc., Attn: Accounts Receivable, General Post Office, P.O. Box
5696, New York, NY 10087-5696.
|_| To overnight checks: Send payment to - Chase Manhattan Bank, 55 Water
Street, Lockbox dept., Room #413, New York, NY 10041, Lockbox #5696
All amounts not paid when due and payable will bear interest from the due
date at the prime rate in effect at such time. In the event of nonpayment,
AOL reserves the right to immediately terminate this Insertion
Order Agreement with written notice to Advertiser.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
Inventory Type: |X| AOL Service |X| AOL.COM/Netfind
|_| Compuserve |X| Netscape |_| ICQ
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AOL Service
Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
Display Display % of Ad Slots Total Net Total
AOL Inventory/Demographic* Purchased Start Date Stop Date Ad Type Purchased Price Impressions CPM
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
L1 Premium Diet and Nutrition Program (banner) 11/15/99 11/30/00 $ [ ] 6,000,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Diet & Nutrition tip (banner) 12/26/99 11/30/00 $ [ ] 240,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Diet & Nutrition tip (button) 12/26/99 11/30/00 $ [ ] 240,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Dieting success Story (banner) 12/26/99 11/30/00 $ [ ] 60,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Dieting success Story (button) 12/26/99 11/30/00 $ [ ] 60,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Simply fit feature series(Banner) 12/26/99 11/30/00 $ [ ] 300,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Simply fit feature series (Button) 12/26/99 11/30/00 $ [ ] 300,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L4 People Connection: Special Interests: Health
And Fitnesss 12/26/99 01/20/00 $ [ ] 5,961 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L4 ROS - demo target Physical Fitness/exercise/
walking for health 12/26/99 01/20/00 Never Ran $ - 0 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L4 Email - Demo target Women 18-54 12/26/99 01/20/00 Never Ran $ - 0 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L5 Chat 12/26/99 01/20/00 $ [ ] 751,503 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
Thrive-Nutrition (was Eats) Web 01/10/00 01/20/00 $ [ ] 71,578 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
Thrive-Weight (was Weightloss) Web 01/10/00 11/30/00 $ [ ] 1,000,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
Thrive-Fitness Web 12/01/99 01/20/00 $ [ ] 246,044 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
* Attach completed AOL Demographic Profile Worksheets Totals: $ [ ] 9,275,084 $[ ]
-----------------------------------------------
</TABLE>
All necessary artwork and active URL's must be provided by advertiser 3 business
days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
<TABLE>
<S> <C>
|X| 234x60 IAB Standard / 7k Max file size |_| Special
------------
|X| 175x46 Chat/Mail in-box /5k Max file size |X| 120x60 Shopping / 5k Max file size
</TABLE>
Linking URL: (Must Be Filled in)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
The HTTP/URL address to be connected to the Advertisement shall be: http // www.nutrisystem.com
</TABLE>
Please send artwork and URL to (choose one):
<TABLE>
<S> <C> <C>
|_| [email protected] |X| [email protected]|_| [email protected]
</TABLE>
AOL reserves the right to immediately cancel any advertising flight in the
event of a material change to the nature or content of the site linked to the
Advertisement.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AOL.com
Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
Display Display % of Ad Slots Total Net Total
AOL.COM Inventory/Packages** Purchased Start Date Stop Date Ad Type Purchased Price Impressions CPM
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
L1 Sponsorship: Diet & Nutrition button 12/26/99 11/30/00 $ [ ] 420,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsorship: Diet & Nutrition text 12/25/99 11/30/00 $ [ ] 430,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L2 Search: Premium diet & Nutrition Search
terms (banner) 12/26/99 11/30/00 $ [ ] 266,651 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L4 Home Page 11/15/99 11/30/00 $ [ ] 48,000,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
Premium Diet & Nutrition Search Terms include
only following: $0.00
- ----------------------------------------------------------------------------------------------------------------------------
diet, diets, weight loss, nutrisystem $0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
**See attached package description for any AOL.com package purchases Totals: $ [ ] 48,138,651 $[ ]
-----------------------------------------------
</TABLE>
All necessary artwork and active URL's must be provided by advertiser 3 business
days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
|X| 466x60 NF Reviews, Search Terms, My News & Hometown / 12k Max / Animation OK
|X| 100x70 AOL com Home Page / 3k Max / No animation
|_| 120x60 NF Home Page / 2k Max / No Animation
|X| 120x60 Shopping / 4k Max / No animation
|_| 234x60 NF Kids Only & Hometown / 7k Max / Animation OK
|_| 120x60 Instant Messenger/7.5k
Linking URL: (Must Be Filled in)
<TABLE>
<S> <C>
The HTTP/URL address to be connected to the Advertisement shall be: http // www.nutrisystem
</TABLE>
Please send artwork and URL to (choose one):
<TABLE>
<S> <C> <C>
|_| [email protected] |X| [email protected] |_| [email protected]
</TABLE>
- --------------------------------------------------------------------------------
AOL reserves the right to immediately cancel any advertising flight in the
event of a material change to the nature or content of the site linked to the
Advertisement.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Display Display % of Ad Slots Total Gross Total
Netscape Inventory Purchased Start Date Stop Date Ad Type Purchased Price Impressions CPM
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
L1 Sponsor: Diet & Nutrition Button 11/15/99 11/30/00 $ [ ] 2,100,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L1 Sponsor: Diet & Nutrition Banner 11/15/99 11/30/00 $ [ ] 2,100,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
L3 Netscape Home Page Banners 12/26/99 11/30/00 $ [ ] 36,000,000 $[ ]
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
$0.00
- ----------------------------------------------------------------------------------------------------------------------------
Totals: $ [ ] 40,200,000 $[ ]
-----------------------------------------------
</TABLE>
All necessary artwork and active URL's must be provided by advertiser 3 business
days prior to start date.
468x60 IAB Standard / 10k Max File Size
Go to http://home.netscape.com/ads/specs.html for additional
Traffic Specifications information
Linking URL: (Must Be Filled in)
<TABLE>
<S> <C>
The HTTP/URL address to be connected to the Advertisement shall be: http // www.nutrisystem.com
</TABLE>
Please send artwork and URL to:
<TABLE>
<S> <C> <C>
|_| [email protected] |X| [email protected] |_| [email protected]
</TABLE>
- --------------------------------------------------------------------------------
AOL reserves the right to immediately cancel any advertising flight in the
event of a material change to the nature or content of the site linked to the
Advertisement.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Advertising Purchase Summary
- ------------------------------------------------------------------------------------------------------
Total Price Total Impressions CPM
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AOL Service $[ ] 9,275,084 $[ ]
- ------------------------------------------------------------------------------------------------------
AOL.com $[ ] 49,138,651 $[ ]
- ------------------------------------------------------------------------------------------------------
CompuServe $0.00 - $0.00
- ------------------------------------------------------------------------------------------------------
Netscape $[ ] 40,200,000 $[ ]
- ------------------------------------------------------------------------------------------------------
ICQ $0.00 - $0.00
- ------------------------------------------------------------------------------------------------------
Total Purchase Price $[ ] 98,613,735
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
Net Purchase Price Total Guaranteed Impressions CPM
----------------------------------------------------------------------------
$[ ] 98,613,735 $[ ]
----------------------------------------------------------------------------
</TABLE>
In the event guaranteed impressions are reached prior to the Display Stop Date,
AOL may, at its option, discontinue display at such earlier time. Any guarantees
are to impressions (as measured by AOL in accordance with it standard
methodologies and protocols), not "click-throughs." To the extent that there is
a shortfall in impressions as of the end of the specified display period, AOL
will provide, as Advertiser's sole remedy, "make good" impressions through
comparable placements. To the extent impressions commitments are identified
without regard to specific placements, such placements will be as mutually
agreed upon by AOL and Advertiser during the course of the display period. AOL
reserves the right to alter Advertiser flight dates to accommodate trafficking
needs or other operational needs. In such cases, AOL will make available to
Advertiser reasonably equivalent flight(s).
Standard Terms and Conditions
This Insertion Order incorporates by reference AOL's standard advertising terms
and conditions (the "Standard Terms"), including terms related to advertising
material, payment modifications, cancellation rights, usage data, limitations of
liability, disclaimers, indemnifications, use of AOL member information and
miscellaneous legal terms. Among other things, the Standard Terms provide AOL
the right to cancel this Insertion Order Agreement on thirty days notice to
Advertiser (or upon such shorter notice as may be designated by AOL in the event
that AOL believes that further display of the Advertisement will expose AOL to
liability or other adverse consequences), in which case Advertiser shall only be
responsible for the pro-rata portion of payments attributable to the period
preceding such termination. The Standard Terms appear at keyword "Standard Ad
Terms 4" on the U.S.-based America Online brand service and at
http://mediaspace.aol.com/adterms4.html. Advertiser acknowledges that it has
been provided an opportunity to review the Standard Terms and agrees to be bound
by them.
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly
authorized representatives have signed their names below on the dates indicated.
This Agreement (including the Standard Terms incorporated by reference) shall be
binding on both parties when signed on behalf or each party and delivered to the
other party (which delivery may be accomplished by facsimile transmission of the
signature pages hereto).
America Online Inc. Advertiser
------------------- ----------
By: By: /s/ Brian Haveson
----------------------------- --------------------------------
(signature) (signature)
Print Name: Print Name: Brian Haveson
--------------------- ------------------------
Title: Title: CEO/President
-------------------------- -----------------------------
(Print or Type) (Print or Type)
Date: Date: 1/20/2000
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To nutrisystem.com inc.:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 9, 2000
