-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EaqCgSckGN6oKAQeVU+wiXd7d4BwMKdLTpFZDPrlOzEjZFrynsH9I4jhIYhcpLEc nm/GP+W/YcqhCr51/OEEqw== 0000950123-00-002991.txt : 20000331 0000950123-00-002991.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950123-00-002991 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITAMINSHOPPE COM INC CENTRAL INDEX KEY: 0001090156 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 223659179 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27499 FILM NUMBER: 585784 BUSINESS ADDRESS: STREET 1: 380 LEXINGTON AVE STE 1700 CITY: NORTH BERGEN STATE: NJ ZIP: 07047 BUSINESS PHONE: 2018667711 10-K 1 VITAMINSHOPPE.COM, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-27499 VITAMINSHOPPE.COM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-3659179 (STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.) ORGANIZATION) 444 MADISON AVENUE, SUITE 802, NEW YORK, NY 10022 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 308-6730 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 21, 2000, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $20,249,320. For purposes of this paragraph only, we have deemed our directors, executive officers and 10% or greater shareholders to be affiliates. As of March 21, 2000, the registrant had outstanding 7,277,574 shares of its Class A common stock and 13,081,500 shares of its Class B common stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K incorporates by reference the proxy statement of the registrant for the annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934. 3 TABLE OF CONTENTS Part I. Item 1. Business.................................................... 1 Item 2. Properties.................................................. 15 Item 3. Legal Proceedings........................................... 15 Item 4. Submission of Matters to a Vote of Security Holders......... 15 Part II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 15 Item 6. Selected Financial Data..................................... 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 19 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 24 Item 8. Financial Statements and Supplementary Data................. 24 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................... 24 Part III. Item 10. Directors and Executive Officers of the Registrant.......... 24 Item 11. Executive Compensation...................................... 24 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 24 Item 13. Certain Relationships and Related Transactions.............. 24 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 25
The information on our Web site is not a part of this report. The Vitamin Shoppe logo is a registered trademark, and The Vitamin Shoppe name, VitaminShoppe.com and The Vitamin Shoppe Frequent Buyer Program are the trademarks and service marks, of Vitamin Shoppe Industries Inc., and are used under license by VitaminShoppe.com. This report contains other product names, trade names, trademarks and service marks of these and other organizations, all of which are the property of their respective owners. As used in this document, "we," "our," "us" and the "Company" means VitaminShoppe.com, Inc. and "The Vitamin Shoppe" refers to Vitamin Shoppe Industries Inc. i 4 PART I ITEM 1. BUSINESS. VITAMINSHOPPE.COM VitaminShoppe.com, Inc., a Delaware corporation organized in May 1999, is a leading online source for products and content related to vitamins, nutritional supplements and minerals. Our www.VitaminShoppe.com Web site, which was launched in April 1998, provides a convenient and informative shopping experience for consumers desiring to purchase products that promote healthy living. We offer an extensive selection of vitamins, nutritional supplements and minerals and a comprehensive line of herbal formulas, homeopathic products, personal care items, body building supplements, healthcare products and books on health and nutrition. We sell our entire line of products at year-round discounts generally ranging from 20% to 40% off suggested retail prices. Our Web site links consumers to our own health-related information Web site, www.vitaminbuzz.com and offers features from credible third-party sources designed to assist consumers in making informed decisions. In addition, our shopping experience offers customers reliable product delivery and superior customer service. Until July 1999, we operated as a division of Vitamin Shoppe Industries Inc., a leading retail and catalog source that has done business as The Vitamin Shoppe since it was established in 1977. Based in North Bergen, New Jersey, The Vitamin Shoppe has over 70 retail stores throughout the East Coast region and a monthly catalog with an annual circulation of 14 million copies. The Vitamin Shoppe's catalog operations, including purchasing, design, customer service, warehousing, packaging and shipping, are conducted from its New Jersey headquarters. We have entered into intercompany agreements under which The Vitamin Shoppe has licensed its trademarks to us and provides product supply, fulfillment, promotional, administrative and other services to us. We believe that The Vitamin Shoppe's expertise and experience provide us with important competitive advantages, including: - management, purchasing and merchandising expertise, including strong relationships with hundreds of vendors, which enhances our ability to provide a comprehensive selection of products at competitive prices; - full integration of order processing and product fulfillment through The Vitamin Shoppe's distribution center, which gives us the fulfillment capability to support growth; - the exclusive right to use The Vitamin Shoppe logo and name in online commerce, which provides the superior brand recognition that we believe is a strong motivating factor for new customers; and - direct marketing knowledge, including access to information regarding more than 700,000 historical catalog and retail customers of The Vitamin Shoppe, and the ability to conduct cross-marketing, co-promotions and customer acquisition programs with The Vitamin Shoppe. We believe that through a combination of the following factors -- extensive selection of quality products, attractive pricing, superior customer service, convenience and expert information -- we deliver a compelling value proposition to our customers. In addition, our Web site integrates advanced transactional capabilities with easy access to health and nutrition information from credible third-party sources. We believe that our integrated approach meets a broad spectrum of consumer needs, fosters customer loyalty and positions VitaminShoppe.com as a comprehensive resource for vitamins, nutritional supplements and minerals. BUSINESS STRATEGY Our strategy is to become the leading online source for vitamins, nutritional supplements and minerals by combining the core competencies and infrastructure of The Vitamin Shoppe with the functionality, convenience and information resources of the Internet. We seek to become the comprehensive online source for these products by delivering a new value proposition to our customers that combines The Vitamin Shoppe's 1 5 23 years of experience with the functionality, convenience and information resources of the Internet. To achieve this goal, we are focusing on the following objectives: Offer a Large Selection of Products. Our product selection includes over 18,000 items, representing approximately 400 brands, including The Vitamin Shoppe brand, which we believe offers an excellent value as a quality alternative to other branded products. The Vitamin Shoppe stocks most of its suppliers' entire product lines, and our product offerings are not constrained by the limitations of shelf space. We provide year-round discounts generally ranging from 20% to 40% off suggested retail prices. The Vitamin Shoppe's 23 years of experience provide us with exceptional knowledge about products and suppliers, as well as insights into customer purchasing patterns. Provide a Convenient Shopping Experience. By offering an extensive selection of quality products, together with access to product and health-oriented information, we believe that we make our products accessible to a wide range of consumers whose level of interest and knowledge ranges from casual to sophisticated. The easy-to-use search capabilities of our Web site and its flexible database structure, which we continue to enhance, allow customers to tailor the breadth of product choice and depth of product information to their particular needs. We provide consumers with the ability to shop 24 hours per day, seven days per week, supported by online customer service and a toll-free number. Deliver Superior Customer Service. We have the ability to draw upon The Vitamin Shoppe's 19 years of experience in catalog fulfillment and customer service. We believe that The Vitamin Shoppe's order processing and fulfillment operations provide excellent efficiency, reliability and customer service. The Vitamin Shoppe's efficient operations and high levels of in-stock merchandise enabled us during 1999 to provide same-business-day shipping for approximately 85% of online orders received by 5:00 p.m. Eastern time. Leverage a Proven Platform and Established Infrastructure. We benefit from the existing operations of The Vitamin Shoppe and its economies of scale in purchasing, supplier relationships, inventory management and direct mail fulfillment. We believe that our intercompany agreements with The Vitamin Shoppe provide key competitive advantages over some of our online competitors. We believe that these advantages enable us to deliver value to our customers and also provide the infrastructure to sustain rapid growth. Offer Compelling Content and Information. We provide information about vitamins, nutritional supplements and minerals through our companion Web site, www.vitaminbuzz.com, which will be integrated into our new enhanced Web site scheduled to launch later in 2000, and hyperlinks to credible third-party information sources about health and nutrition on well-known health-related Web sites, such as www.drkoop.com, www.drweil.com, www.InteliHealth.com and www.onhealth.com. Our e-commerce Web site, www.VitaminShoppe.com, supports our product listings with factual information, including an ingredient list for every product that we carry. In recognition of the Food and Drug Administration and Federal Trade Commission regulations concerning health claims and labeling, information that could be construed as advisory or prescriptive in nature is accessible only from credible third-party information sources. GROWTH STRATEGY Our growth strategy focuses on maximizing the lifetime value of our customers by establishing ourselves as a "trusted provider" of vitamins, nutritional supplements and minerals and by creating long-term customer relationships. We believe that this strategy will build customer loyalty, encourage repeat purchases, increase average order size and produce recurring revenues. In order to maximize the lifetime value of our customers, we believe that we must: - generate high levels of interest in and awareness of the VitaminShoppe.com brand to encourage consumers to try online purchasing; - build customer trust in the VitaminShoppe.com brand; - provide helpful product information to facilitate informed purchases; and - reward customer loyalty. 2 6 We believe that the combination of our business and growth strategies will position VitaminShoppe.com as a "trusted provider." The key elements of our growth strategy include: Acquire new customers. Our objective is to attract new customers through aggressive targeted marketing initiatives and strategic relationships that generate awareness of the VitaminShoppe.com brand as a comprehensive online source for both products and hyperlinks to credible third-party information sources. As of December 31, 1999, we had over 100,000 customers who had purchased products at least once on our Web site. - Aggressively Pursue Marketing Initiatives. We utilize a broad range of advertising and marketing programs to build awareness of VitaminShoppe.com as a comprehensive online source for products and information. We use these programs to communicate the value proposition of our Web site and to encourage new customers to experience online buying. Our marketing initiatives include online and traditional media, cross-promotions with The Vitamin Shoppe and other retailers and direct and database marketing. - Build Strategic Relationships. We plan to use existing and new strategic relationships to enhance the VitaminShoppe.com brand and expand our customer base. In addition to our relationship with The Vitamin Shoppe, we have entered into a number of relationships with credible health-related content Web sites, such as www.InteliHealth.com, www.drweil.com and www.drkoop.com and online portals, such as America Online. We continually review these relationships to determine their success in reaching our key customers. In February 2000, we announced a strategic marketing alliance with Barnes & Noble (bn.com). We, along with six other leading e-commerce companies, will participate in a reciprocal marketing program, which is expected to help increase customer acquisitions by leveraging across the customer bases of our marketing partners. Promote Customer Retention and Growth. Our goal is to maximize customer retention. Although our current order size and frequency are already substantial, we will continually attempt to increase them across our customer base. Through a combination of superior products, price and service, coupled with the personalization capabilities of the Internet, we believe that we can continue to build relationships with our customers that will meet their lifetime purchasing needs for vitamins, nutritional supplements and minerals. These lifetime relationships will be enhanced through the Vitamin Shoppe Frequent Buyer Program, which is The Vitamin Shoppe's successful loyalty program. We promote customer retention and growth by means of the following strategies: - Utilize Customer Database for Target Marketing. We target our growing customer database with e-mail marketing messages designed to stimulate repeat purchases and increased spending. Our database contains detailed customer information about the preferences and purchasing patterns of our online customers. We have also entered into a database agreement with The Vitamin Shoppe, under which we conduct marketing analysis using the customer information in The Vitamin Shoppe's database of over 700,000 historical retail and catalog customers. The Vitamin Shoppe's database is unavailable to other online vitamin, nutritional supplement and mineral sources. - Enhance Customer Experience. To enhance the purchasing experience, we expect to continue to invest in technology, such as customization features, and to increase the range of products and content that we offer. We plan to launch a new site developed in conjunction with Sapient that will offer enhanced levels of customization and personalization. In addition, the site will be fully scaleable and serve as a platform for future growth. The site will use customer feedback and transaction histories to expand our product offerings and to pursue additional revenue opportunities. In addition, we will continue to utilize strategic relationships and licensing arrangements to expand our content offerings on the new site. Finally, the site will address the individual interests of our customer base by targeting specific groups, lifestyles or interests, such as sports enthusiasts and expectant mothers. 3 7 THE VITAMINSHOPPE.COM ONLINE EXPERIENCE We believe that our Web site, which integrates commerce with content and service, offers attractive benefits to consumers, including convenience, ease of use, privacy, broad product selection and relevant product information. Our new enhanced Web site, which we plan to launch later in 2000, will provide all of these features as well as additional customization and personalization. Features and Capabilities. We emphasize ease of use and efficiency. We provide a wide range of consumers -- from the casual to the sophisticated consumer of vitamins, nutritional supplements and minerals -- with immediate access to the products and information that will promote an informed purchase. Our Web site features full keyword search functionality and other capabilities that enable customers to search for and select products quickly and reliably. Our database includes complete product listings with detailed information about ingredients. A keyword search permits efficient comparisons within or across brands allowing customers to compare the prices of various options and to select those that best meet their personal criteria for price, brand and size. Online Ordering. We provide customers with the ability to place their orders easily and to gather a variety of items in their online shopping carts for rapid checkout. Customers earn "points" in the Vitamin Shoppe Frequent Buyer Program, which they may redeem online or in The Vitamin Shoppe's retail stores or catalog operations. During 1999 we provided same-business-day shipping for approximately 85% of online orders received by 5:00 p.m. Eastern time. Customer Service. From the customer's initial experience with our Web site through the order process to delivery of the product, we focus on customer satisfaction. Our experienced customer service representatives provide timely responses to customer inquiries by e-mail or telephone. These inquiries typically involve questions about products or order status and requests for general support as to use of the Web site. We plan to add additional capabilities that will allow our customers to check the status of orders online and enable us to offer special product promotions that correlate to previous purchases. Products. We offer consumers a broad and deep complement of quality products at competitive prices. Our year-round discounts generally range from 20% to 40% off suggested retail prices. By carrying both national brands and The Vitamin Shoppe brand, we believe that we meet the needs of casual, intermediate and sophisticated consumers of vitamins, nutritional supplements and minerals, as well as both brand-loyal and value-oriented customers. Our products come in various formulations and delivery forms, including tablets, capsules, soft gels, liquids and powders. We carry almost every national and popular brand of vitamins, nutritional supplements and minerals, including TwinLabs(R), Nature's Way(R) and Schiff(R), as well as The Vitamin Shoppe brand and less well-known specialty brands. The primary product categories include: - Vitamins, Nutritional Supplements and Minerals. Vitamins, nutritional supplements and minerals are our largest category. We also feature all major and trace minerals, including calcium, boron, zinc, selenium, chromium, magnesium and potassium. We offer vitamins and minerals alone and in combinations to address the specific lifestyle, age and gender needs of our customers. Our nutritional supplement line includes glucosamine and chrondriotin sulfate, coenzyme Q 10, essential fatty acids, carnitine, phosphatidylserine and numerous antioxidants. - Herbal Products. Popular herbals include St. John's wort, ginkgo biloba, echinacea and kava kava. Herbals may be sold as a single herb, in combinations or as teas. - Homeopathic Products. These products draw on natural ingredients to aid digestion, blood circulation and ailments like headaches. - Personal Care Products. We offer natural alternatives to traditional lines of soaps, shampoos, moisturizers, toners, massage oils and other products. - Books. Our well-balanced selection of books on health and nutrition permit customers to educate themselves about health-related topics. 4 8 - Body Building Products. We offer a wide selection of products designed to assist beginner and advanced athletes in achieving higher muscular performance and endurance levels. - Healthcare Products. We offer over 150 healthcare products and accessories, such as massage products, posture and joint products and magnet therapy products, that complement our diverse product offerings. Content. We supplement the product information available on our Web site with easy access to information on topics related to health and nutrition from well-respected third-party sources. We have a companion informational Web site, www.vitaminbuzz.com, which will be integrated into our enhanced Web site scheduled to launch later in 2000, and maintain strategic relationships with credible health-related information sources. - www.vitaminbuzz.com. Our companion Web site is a valuable resource for online consumers of vitamins, nutritional supplements and minerals. It offers information on health concerns, nutritional supplements, herbal formulas, drug interactions, homeopathic medicine, diets and therapies. The Web site also highlights topics of current interest and contains a hyperlink to the FDA's Guide to Dietary Supplements Web site. We sponsor and maintain www.vitaminbuzz.com, but all of its content is provided by independent third parties. Most of the content is currently provided under a license from Health Notes Online, a well-known online and CD-ROM encyclopedia of health and nutrition information. - Third-party Information Sources. We have built relationships with well-known third-party information sources, including www.drkoop.com, www.drweil.com, www.InteliHealth.com and www.onhealth.com, that offer balanced content related to health and nutrition. These information sources provide additional research opportunities to aid customers in making informed purchase decisions. Among our online arrangements with Internet content providers, we are established as the exclusive or preferred vendor of nutritional products on Web sites of these content providers. Under these agreements, we pay advertising fees to the content providers in order to have access to their audience of potential customers who are interested in health and wellness topics. Some of these agreements also allow us to link our Web site to the Web sites of the content providers. The agreements provide for fixed monthly or quarterly payments by us and in some cases require us to share revenues upon the attainment of stipulated revenue volumes. In addition, some of these agreements require the Internet content provider to guarantee a minimum level of impressions and to make up shortfalls in the level of impressions delivered. We do not have the right to control the content offered on these Web sites. The information contained on these Web sites is developed exclusively by third-party sources and controlled by the Internet content providers. MERCHANDISING STRATEGY We carry every significant domestic brand of vitamins, nutritional supplements and minerals, as well as many smaller and less well-known specialty brands. Consistent with The Vitamin Shoppe's successful strategy, we sell most of the suppliers' full product lines. We also offer The Vitamin Shoppe brand products, a premium brand manufactured for The Vitamin Shoppe. The Vitamin Shoppe brand, which provides higher gross margins to us than other brands, constituted 43% of our sales during 1999 and 47% of our sales during 1998. We sell over 18,000 different items. No single item accounted for more than 2% of our sales during 1999. During 1999, our online sales mix by product category was vitamins, nutritional supplements and minerals (71%), herbals (15%), body building (9%), personal care (4%), homeopathic (1%), books (1%). We enjoy the economic benefit of The Vitamin Shoppe's relationships with a diverse group of hundreds of vendors, as well as the purchasing economies enjoyed by The Vitamin Shoppe as a result of its size and The Vitamin Shoppe brand products. 5 9 ADVERTISING AND MARKETING We benefit from the direct marketing knowledge and expertise of our management team and, under the administrative services agreement, personnel of The Vitamin Shoppe. During 1999 we launched comprehensive advertising and marketing campaigns. We began to implement an aggressive advertising and marketing campaign to increase awareness of the VitaminShoppe.com brand and to acquire new customers through multiple channels, including traditional and online advertising, direct marketing, and by expanding and strengthening our strategic relationships. Through a combination of in-house expertise and research, we continue to improve upon our targeted approach to marketing and customer acquisition. We believe that the use of multiple marketing channels reduces reliance on any one source of customers, maximizes brand awareness and promotes customer acquisition. In addition to the specific strategies discussed below, we seek to maximize the lifetime value of our customers by focusing on purchase frequency and customer retention. Traditional and Online Advertising. From time to time, we pursue traditional media-based advertising campaigns that include television, radio and print. Our print campaigns focus on advertising in the health and nutrition magazines in which The Vitamin Shoppe has successfully advertised. Other activities include targeted online advertising to promote both the VitaminShoppe.com brand name and specific merchandising opportunities. We have entered into an online marketing agreement with America Online. Occasionally, we purchase additional banners and other forms of online advertising to create online awareness, reach new consumers and convert current vitamin, nutritional supplement and mineral consumers into our customers. Our online advertising includes targeted Web sites oriented to appropriate health and lifestyle groups, as well as broader campaigns on portals and mass audience Web sites. Cross-promotion. Through our co-marketing agreement with The Vitamin Shoppe, we create significant brand awareness through cross-promotion in The Vitamin Shoppe retail and catalog channels. The Vitamin Shoppe has over 70 retail stores, and in 1999 over 14 million copies of its monthly and bi-monthly catalogs were distributed. In addition, the www.vitaminshoppe.com url is permanently displayed at all retail stores. See "Intercompany Agreements" below for a description of the co-marketing agreement. Direct Marketing. We apply direct marketing techniques aimed at attracting and retaining quality customers and increasing order size. Direct marketing programs include e-mail special offers or promotions to targeted audience segments, including our current customers and those prospective customers which are obtained through the rental of mailing lists. Loyalty Programs. Our intercompany agreement with The Vitamin Shoppe permits our customers to participate in the established Vitamin Shoppe Frequent Buyer Program, which we believe encourages repeat purchases. We also target special offers and promotions to customer purchasing habits reflected in information that we obtain from The Vitamin Shoppe's and our own transactional histories, and we offer bonus incentives for the introduction of new customers and the placement of repeat orders. RELATIONSHIP WITH THE VITAMIN SHOPPE Our business was conducted by The Vitamin Shoppe from our inception in October 1997 until July 1999, when we began to operate as a separate company. VitaminShoppe.com was incorporated in May 1999 to operate the business as a separate company. The Vitamin Shoppe owns all of the outstanding Class B common stock of VitaminShoppe.com and is currently our principal stockholder. We believe that our relationship with The Vitamin Shoppe provides several important benefits: - management, purchasing and merchandising expertise, including strong relationships with hundreds of vendors, which enhances our ability to provide a comprehensive selection of products at competitive prices; - full integration of order processing and product fulfillment through The Vitamin Shoppe's distribution center, which gives us the fulfillment capability to support growth; - the exclusive right to use The Vitamin Shoppe logo and name in online commerce, which provides the superior brand recognition that we believe is a strong motivating factor for new customers; and 6 10 - direct marketing knowledge, including access to information regarding more than 700,000 historical catalog and retail customers of The Vitamin Shoppe, and the ability to conduct cross-marketing, co-promotions and customer acquisition programs with The Vitamin Shoppe. MANAGEMENT INFORMATION SYSTEMS Our systems are designed to provide availability 24 hours per day, seven days per week. Physical hosting and communication services are provided by a nationally recognized firm, which provides redundant communications lines and emergency power backup. Our systems have been designed based on industry standard technologies and have been engineered to minimize system interruptions in the event of outages or catastrophic occurrences. We have implemented load balancing systems and redundant servers to provide for fault tolerance. Throughout the fourth quarter 1999 and first quarter 2000, we have been investing in additional technologies that will handle growth in online commerce traffic and enhance functionality. We will launch our new enhanced Web site, developed in conjunction with Sapient, a leading e-services consultancy, later in 2000. When completed, our Web site will be technologically advanced, redundant and highly flexible with features and functionality that will be regularly updated with the latest technology. This updated Web site will accommodate changes in our business environment in real time -- from the introduction of new products and promotions, to the addition of suppliers and business partners. We will be able to tightly integrate our Web content with personalized and customized marketing activities to acquire and retain new customers, while preserving the security and integrity of customer information. This dynamic site is designed to support our future expansion and will enable us to effectively market on a one-to-one basis to our customers. ORDER PROCESSING AND FULFILLMENT Processing of our orders is handled by The Vitamin Shoppe's fully integrated systems, which include product sourcing, warehouse management, inventory management, order processing and order fulfillment. Our Web site is fully integrated with The Vitamin Shoppe's warehouse fulfillment system, which monitors the in-stock status of each item ordered, processes the order and generates warehouse selection tickets and packing slips for order fulfillment. The Vitamin Shoppe processes and fulfills our customer orders through its facilities totalling 72,000 square feet in North Bergen, New Jersey. Access to The Vitamin Shoppe's order processing and fulfillment systems enables us to retain greater control over the quality, timeliness and cost of fulfilling our product orders than competitors that outsource these services. In addition, the scale of The Vitamin Shoppe's operations enables it to keep a large number of items in stock. During 1999, The Vitamin Shoppe shipped an average of 25,300 packages weekly from its warehouse and distribution centers. The Vitamin Shoppe's efficient operations and high levels of in-stock merchandise enabled us during 1999 to provide same-business-day shipping on approximately 85% of online orders received by 5:00 p.m. Eastern time. Customers generally receive orders one business day after shipping. COMPETITION The vitamin, nutritional supplement and mineral market (VSM) was over $8.9 billion in 1998 and is expected to grow to $16.6 billion by 2003, yet it still remains highly fragmented and competitive. VSM products are sold in numerous retailing categories with no single company maintaining significant market dominance. We compete in a variety of retailing categories including health/natural specialty retailers, drugstores, supermarkets and grocery stores, and mass merchant retailers. Our competitors operate in one or more distribution channels, including online commerce, retail stores, catalog operations and direct sales. Most of these companies do not focus primarily on VSM retailing. Therefore, they do not offer the breadth of VitaminShoppe.com's 18,000 products and 400 brands. Our key competitors are online health/natural specialty retailers such as Mothernature.com and Vitamins.com. 7 11 The online commerce market in which we operate is new, rapidly evolving and highly competitive. We expect increased competition from several different sources: current online competitors, online competition from offline retailers and new online retailers. Health/Natural Specialty Retailers. This category is highly fragmented and includes local, regional and national chains selling through retail, catalog, or online channels. The largest participant in this sector is General Nutritional Centers (GNC), which has a nationwide retail presence and a Web site, GNC.com which is part of Drugstore.com's online operations. Another large competitor is NBTY, which sells its private-label products through its Puritan's Pride and Nutrition Headquarters mail order catalogs and its Vitamin World retail stores. NBTY also sells through separate Vitamin World and Puritan's Pride Web sites. In addition, Rexall Sundown, a large manufacturer of vitamins, nutritional supplements and minerals, sells directly to consumers through both catalog and direct mail operations. Competitors focusing exclusively on online operations include MotherNature.com and Vitamins.com. Drugstores. This category is dominated by chains, such as Walgreen's, CVS and RiteAid. The national chains are expanding their online presence. CVS acquired soma.com and is expanding its online presence as cvs.com. RiteAid is creating an online presence through drugstore.com. Other online-only entrants include PlanetRx.com, healthquick.com, healthcentral.com and rx.com. This category typically offers a moderate selection of vitamins, nutritional supplements and minerals, focusing instead on prescriptions and over-the- counter products. Their VSM offerings are often not all-natural products. Supermarkets and Grocery Stores. This category includes traditional supermarkets, such as Safeway and Kroger, and natural-food markets, such as Whole Foods and Wild Oats. Some of these companies have entered the online market with a limited offering of vitamins, nutritional supplements and minerals. Whole Foods has created a lifestyle e-commerce site, WholePeople.com, and Wild Oats has an e-commerce site which is operated by eNutrition.com. Online grocery stores, such as Peapod.com and Netgrocer.com also compete against us. This category generally offers an extremely limited selection of vitamins, nutritional supplements and minerals and infrequent discounts. Mass Merchant Retailers. This category is dominated by companies such as Wal-Mart, Kmart and Target, which have extensive retail locations but limited online presence. These chains offer attractive pricing on vitamins, nutritional supplements and minerals but have limited selection at retail stores and offer little product information. Their online offerings focus on larger, big-ticket items and typically do not include VSM products. Many of our current and potential competitors have long operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may develop products or services that are equal or superior to our solutions and may achieve greater market acceptance than we do. In addition, well-established and well-financed entities may acquire, invest in or form joint ventures with online competitors or suppliers as the use of the Internet increases. GOVERNMENT REGULATION The formulation, manufacturing, processing, packaging, labeling, advertising, distribution and sale of dietary supplements are subject to regulation by federal agencies. The principal governmental agencies that regulate us include the Food and Drug Administration ("FDA") and the Federal Trade Commission ("FTC"). Dietary supplements are also regulated by governmental agencies for the states and localities in which we sell our products. Among other matters, the FDA and FTC prohibit claims with respect to a product that refer to the value of the product in treating or preventing disease or other adverse health conditions. Because the Internet is relatively new, there is limited common law or regulatory guidance that clarifies the manner in which government regulation impacts online sales of dietary supplements. This lack of clarity lends uncertainty to the laws regulating online promotional claims and Web site structure. Governmental agencies, such as the FDA and FTC, have a variety of remedies and processes available to them. They may initiate investigations, issue warning letters and cease-and-desist orders, require corrective labeling or advertising, require that a company offer to repurchase products, seek injunctive relief or product 8 12 seizure, impose civil penalties or commence criminal prosecution. Some state agencies have similar authority, as well as the authority to prohibit or restrict the manufacture or sale of products within their jurisdictions. In the past, these agencies have imposed civil penalties in the millions of dollars. Increased sales and publicity of dietary supplements may result in increased regulatory scrutiny of the industry. The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was enacted in October 1994 as an amendment to the Federal Food, Drug and Cosmetic Act ("FFDCA"). We believe that this statute is generally favorable to the industry. The statute established a new statutory definition of "dietary supplements," which includes vitamins, minerals, herbs, amino acids and other dietary ingredients for human use to supplement the diet. With respect to all dietary ingredients already on the domestic market as of October 15, 1994, the manufacturer or distributor is not required to submit evidence of a history of use or other evidence of safety establishing that a supplement containing only these dietary ingredients will reasonably be expected to be safe. In contrast, a supplement that contains a new dietary ingredient not on the domestic market on October 15, 1994 does require a submission to the FDA of evidence of a history of use or other evidence of safety. Among other things, the statute prevented the further regulation of dietary ingredients as "food additives" and allowed the use of "statements of nutritional support" on product labels. In September 1997, the FDA issued final regulations to implement the DSHEA. Among other things, these regulations established a procedure for manufacturers and distributors of dietary supplements to notify the FDA about the intended marketing of a new dietary ingredient or about the use in labeling and advertising of statements of nutritional support. The regulations also established a new format for nutrition labeling on dietary supplements, which became effective on March 23, 1999 for products with labels attached after that date. The Nutritional Labeling and Education Act of 1990, which amended the Federal Food, Drug and Cosmetic Act, prohibits the use of any health claim, which generally means any statement relating a substance to a reduction in the risk of disease, for any foods (including dietary supplements), unless the health claim is supported by "significant scientific agreement" and is preapproved by the FDA. The FDA Modernization Act of 1997, which also amended the FFDCA, relaxed this prohibition somewhat by permitting health claims based upon authoritative statements of specific scientific bodies without FDA preapproval, but only following notification to the FDA. To date, the FDA has approved or accepted notification for only a limited number of health claims for dietary supplements. Dietary supplement manufacturers, marketers and distributors are allowed to make statements of nutritional support. Under the DSHEA, manufacturers and marketers must notify the FDA of any statements of nutritional support no later than 30 days after the first marketing of a supplement with the statement. Four types of statements of nutritional support are permissible: - a benefit related to a classical nutrient deficiency disease; - the role of a nutrient or dietary ingredient that is intended to affect the structure or function of the body; - the documented mechanism by which a nutrient or dietary ingredient acts to maintain a bodily structure or function; and - general well-being from consuming a nutrient or dietary ingredient. A statement of nutritional support developed by a manufacturer or distributor of dietary supplements must carry a disclaimer in the labeling, stating that the claim "has not been evaluated by the FDA" and that the product "is not intended to diagnose, treat, cure or prevent any disease." In January 2000, the FDA released final rules regarding the regulation of claims with respect to dietary supplements that expressly or implicitly claim to diagnose, treat, prevent or cure a disease. The dietary supplement that is the subject of the claim would continue to be regarded as a drug and must meet the safety and effectiveness standards of the FFDCA. 9 13 Under the DSHEA, retailers are allowed to use "third-party literature" to educate customers in connection with product sales. The literature must be balanced, objective, scientific information about the use of the product. The literature must not be misleading, must be displayed or presented with other literature to present a balanced view, must not promote a particular brand and, if in a store, must be physically separate from the associated product. We believe that the relationship between health and product information and the product listings on our Web site is consistent with the provisions of this statute governing the use of third-party literature. The FDA currently intends to regulate the sale of nonprescription products containing ephedra, a natural product that contains a small percentage of the ephedrine alkaloids that are used in some prescription and over-the-counter stimulants and antihistamines. Less than 1% of our 1999 revenues were derived from products that contain ephedra. We do not believe that a complete loss of sales of these products or further restriction in jurisdictions in which these products may be sold would materially impact our business. Dietary supplements must also comply with adulteration and misbranding provisions of laws administered by the FDA. In addition, all ingredients must be safe and suitable for use. All mandatory labeling information must be presented in accordance with governing regulations, and no information may be false or misleading. The FTC enforces against unfair acts or practices in commerce, including false or deceptive advertising of dietary supplements. Under the Federal Trade Commission Act and policies published by the FTC to implement it, product claims must be properly substantiated and stated in a nondeceptive manner. INTELLECTUAL PROPERTY Under the trademark license agreement, The Vitamin Shoppe has granted us an exclusive license to use The Vitamin Shoppe's trademarks and service marks, including The Vitamin Shoppe logo and the name and mark VitaminShoppe.com, in connection with our marketing and sale of products and services in online commerce. We believe that The Vitamin Shoppe logo and name are currently the only trademarks that are material to the conduct of our business, but we regard all of the licensed trademarks and other proprietary rights as valuable assets. The Vitamin Shoppe logo is a federally registered trademark. Under the trademark license agreement, The Vitamin Shoppe is required to register VitaminShoppe.com as a trademark and to protect its legal rights concerning the licensed trademarks by appropriate legal action. The Vitamin Shoppe relies on common law trademark rights to protect its unregistered trademarks and service marks, such as VitaminShoppe.com and Vitamin Shoppe Frequent Buyer Program. Common law trademark rights do not provide the same level of protection as that afforded by a United States federal registration of a trademark. Common law trademark rights are limited to the geographic area in which the trademark is actually used. With limited exceptions, a United States federal registration enables the registrant to stop unauthorized use by any third party anywhere in the United States, even if the registrant has never used the trademark in the geographic area in which the unauthorized use is being made. While we believe that The Vitamin Shoppe's approach to protecting its trademarks is reasonable and customary, it may not be adequate to protect the interest in The Vitamin Shoppe's trademarks and service marks. GOVERNMENT REGULATION OF INTERNET Laws and regulations directly applicable to communications or commerce over the Internet are becoming more prevalent. A recent session of the U.S. Congress resulted in Internet laws regarding children's privacy, copyrights, taxation and the transmission of sexually explicit material. The European Union has also enacted its own privacy regulations. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel, contracts and taxation apply to the Internet. In addition, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business online. The adoption or modification of laws or regulations relating to the Internet could adversely affect our business. 10 14 INTERCOMPANY AGREEMENTS In order to obtain the benefits of The Vitamin Shoppe's expertise and infrastructure, we have entered into several intercompany agreements with The Vitamin Shoppe, the material terms of which are summarized here. We have filed these agreements with the Securities and Exchange Commission as exhibits to our registration statement on Form S-1, as amended (File No. 333-83849). These agreements were not negotiated on an arms-length basis. However, we believe that the terms of these agreements are no less favorable to us than could have been obtained from an unaffiliated third party. In general, the intercompany agreements do not have fixed terms. As long as The Vitamin Shoppe owns at least 30% of the voting power of our capital stock, the material terms of the intercompany agreements may not be amended or waived without the approval of a majority of our directors who are not directors, officers or more than 5% stockholders of The Vitamin Shoppe (or the designee of a more than 5% stockholder). In addition, our bylaws prohibit us from entering into other material agreements with The Vitamin Shoppe, as long as The Vitamin Shoppe owns at least 30% of the voting power of our capital stock, unless the agreements are approved by a majority of our directors who are not directors, officers or holders of 5% or more of the capital stock of The Vitamin Shoppe. This provision of our bylaws may be amended or rescinded only by a majority of these directors. Trademark License Agreement. We have licensed The Vitamin Shoppe logo and name and certain other marks, including VitaminShoppe.com, on an exclusive basis for use in connection with our marketing and sale of products and services in online commerce. We pay The Vitamin Shoppe an annual royalty fee equal to $1 million plus a percentage of our net sales of The Vitamin Shoppe brand products and other products identified by or branded with The Vitamin Shoppe's trademarks. This percentage begins at 5% of net sales up to $25 million and declines to 1% of net sales above $100 million. The trademark license agreement contains restrictions with respect to our marketing of products and services. For example, The Vitamin Shoppe has the right to demand that we remove from our Web sites any online content that The Vitamin Shoppe determines is detrimental to its reputation. In addition, unless we obtain the written permission of The Vitamin Shoppe, we must provide it with prior written notice if we intend to market and sell The Vitamin Shoppe brand products at less than The Vitamin Shoppe's monthly promotional prices in effect from time to time. We may not use the trademark license to market and sell under The Vitamin Shoppe's trademarks any products not supplied to us by The Vitamin Shoppe. We have the right to terminate the trademark license agreement at any time upon 180 days prior written notice to The Vitamin Shoppe. Either party has the right to terminate the trademark license agreement immediately if the other is in material breach that is not cured within 20 days after written notice, the other party is in bankruptcy, the business of the other party is liquidated or terminated or the other party becomes insolvent. Termination of the trademark license agreement causes the immediate termination of the supply and fulfillment agreement. The trademark license agreement also contains covenants not to compete. The Vitamin Shoppe will not enter the online vitamin, nutritional supplement and mineral business. In addition, if The Vitamin Shoppe acquires a business that includes an online vitamin, nutritional supplement and mineral business, it must offer to sell that portion of the business to us. If we elect not to purchase that portion of the business and The Vitamin Shoppe does not sell or license that portion of the business to a third party within 90 days, The Vitamin Shoppe must cease to operate the online portion of the business. We will not manufacture vitamin, nutritional supplement or mineral products or market or distribute these products through retail stores or print catalogs. In addition, if we acquire a business that includes a retail store or print catalog business related to vitamins, nutritional supplements or minerals, we must offer to sell that portion of the business to The Vitamin Shoppe. If The Vitamin Shoppe elects not to purchase that portion of the business and we do not sell or license that portion of the business to a third party within 90 days, we must cease to operate the retail store or print catalog portion of the business. These covenants not to compete terminate two years after the trademark license agreement terminates. In addition, we will not install an Internet kiosk within a one-half mile radius of any urban retail store or a five-mile radius of any suburban retail store operated by The Vitamin Shoppe. 11 15 Supply and Fulfillment Agreement. The Vitamin Shoppe supplies substantially all of the products that we sell, for which we pay The Vitamin Shoppe an amount equal to 105% of its product cost. As a result, our success depends on the ability of The Vitamin Shoppe to obtain products from third-party vendors at competitive prices, in sufficient quantities and of acceptable quality. In addition, we pay The Vitamin Shoppe $50,000 per month, subject to annual adjustments on mutually agreeable terms, for purchasing, merchandising, executive management and product development related to the products that The Vitamin Shoppe supplies. We may sell products supplied by The Vitamin Shoppe only in online commerce. The Vitamin Shoppe has the right to prohibit us from selling products not carried by The Vitamin Shoppe that in The Vitamin Shoppe's reasonable judgment are of lower quality than The Vitamin Shoppe brand products or do not comply with applicable government regulations. We must provide The Vitamin Shoppe with either 10 or 60 days prior written notice of our promotions, depending on their breadth and duration, in order to allow The Vitamin Shoppe to adjust the amount of promoted products that it carries in inventory. In general, we may terminate the supply services under the supply and fulfillment agreement upon 180 days prior written notice to The Vitamin Shoppe. The Vitamin Shoppe also provides warehousing and fulfillment services, including receiving, quality control, storage, picking, packaging and shipping of customer orders and processing of customer returns, under the supply and fulfillment agreement. We pay The Vitamin Shoppe an amount equal to 105% of its actual average unit cost per package, multiplied by the number of packages shipped to our customers, plus actual shipping costs that we do not pay directly. The Vitamin Shoppe's actual average unit cost takes into account all warehousing and fulfillment costs, including overhead items such as rent, depreciation and operating expenses. The Vitamin Shoppe is obligated to use its best efforts to cause the quality of fulfillment services provided to us under the agreement to be at least as high as The Vitamin Shoppe provides when fulfilling orders for its catalog operations. If at any time we determine that the quality of fulfillment services provided by The Vitamin Shoppe fails to meet the standards required to remain competitive, we may solicit a proposal from a third-party provider of fulfillment services. If The Vitamin Shoppe elects not to provide fulfillment services on terms comparable to those specified in the third-party proposal, we may engage the third-party provider to provide our fulfillment services. If we engage a third-party provider for fulfillment, we are required to provide The Vitamin Shoppe with 180 days prior written notice of our termination of its fulfillment services. This notice period may be reduced to 90 days provided that we purchase from The Vitamin Shoppe the amount of products, on a one-for-one basis, that we had purchased over the 60 days preceding our notification to The Vitamin Shoppe of the receipt of such a proposal. After The Vitamin Shoppe ceases to handle our fulfillment, it will continue to supply The Vitamin Shoppe brand products under the agreement, but it will not be required to supply other products, to fulfill orders for other products or The Vitamin Shoppe brand products, or to process customer returns. Either party has the right to terminate the supply and fulfillment agreement immediately if the other is in material breach that is not cured within 20 days after written notice, the other party is in bankruptcy, the business of the other party is liquidated or terminated or the other party becomes insolvent. The supply and fulfillment agreement terminates immediately if the trademark license agreement terminates. Co-marketing Agreement. Unless we otherwise notify The Vitamin Shoppe, The Vitamin Shoppe provides us with a full-page advertisement and with promotional references in its print catalogs, for which we will pay $40 per 1,000 catalogs distributed. The Vitamin Shoppe also provides us with promotional references in its retail stores and on shopping bags, product labels and store receipts, for which we pay The Vitamin Shoppe $833 per urban retail store and $417 per suburban retail store each month. The Vitamin Shoppe pays us $20,000 each year to list its retail locations on our Web site and to allow a Web site user to order The Vitamin Shoppe's catalog. All payments under the co-marketing agreement are subject to annual consumer price index adjustments. Customers of VitaminShoppe.com and The Vitamin Shoppe may use "points" earned through the Vitamin Shoppe Frequent Buyer Program to purchase merchandise from either VitaminShoppe.com or The Vitamin Shoppe. The Vitamin Shoppe may not include other online advertisers of vitamins, nutritional supplements and minerals in its catalogs. 12 16 We have the right to terminate the co-marketing agreement at any time after June 30, 2001 upon 90 days prior written notice to The Vitamin Shoppe. Either party has the right to terminate the co-marketing agreement immediately if the other is in material breach that is not cured within 20 days after written notice, the other party is in bankruptcy, the business of the other party is liquidated or terminated or the other party becomes insolvent. Administrative Services Agreement. The Vitamin Shoppe provides general and administrative services to us. The Vitamin Shoppe bills us directly for 100% of the cost of employee benefits, such as medical and dental insurance, until we establish or are directly billed for these benefits. Through June 30, 2000, we pay The Vitamin Shoppe $55,000 per month for human resources, management information, cash management, finance and accounting services. After June 30, 2000, we anticipate providing these services ourselves, however, we have the option to contract with The Vitamin Shoppe to receive these services for mutually acceptable compensation. The Vitamin Shoppe assists us in building and maintaining, at our expense, appropriate links between the computer systems utilized by The Vitamin Shoppe and us. We have the right to terminate the services described in this paragraph on 90 days prior written notice, and The Vitamin Shoppe may terminate these services at any time after June 30, 2000 upon 90 days prior written notice. Either party has the right to terminate the administrative services agreement immediately if the other is in material breach that is not cured within 20 days after written notice, the other party is in bankruptcy, the business of the other party is liquidated or terminated or the other party becomes insolvent. Database Agreement. On a non-exclusive, royalty-free basis, we and The Vitamin Shoppe share with each other available product and customer information, including transaction histories, for analytical purposes. None of the customer information exchanged may be used by The Vitamin Shoppe or us to solicit the other's customers. Neither The Vitamin Shoppe nor we may sell, lease or rent the other's customer information to a third party. We have the right to terminate the database agreement at any time upon 180 days prior written notice. The Vitamin Shoppe is entitled to terminate the database agreement immediately upon the acquisition of the ownership of 30% or more of the voting power of the capital stock of VitaminShoppe.com by any person or entity that engages in the direct or indirect marketing or distribution through retail or direct marketing channels of vitamins, nutritional supplements, minerals or any other nutritional or nonprescription health- related product anywhere in the world or of any other product produced, marketed or distributed by The Vitamin Shoppe during the term of the database agreement. Either party has the right to terminate the database agreement immediately if the other is in material breach that is not cured within 20 days after written notice, the other party is in bankruptcy, the business of the other party is liquidated or terminated or the other party becomes insolvent. Intercompany Indemnification Agreement. We will indemnify The Vitamin Shoppe for liabilities related to our business after the transfer of the online business to us. The Vitamin Shoppe will indemnify us for liabilities related to its businesses and for any tax liabilities resulting from any election by The Vitamin Shoppe to include us in its "consolidated group" for federal income tax purposes. EMPLOYEES As of March 17, 2000, we had 60 employees who devote all or substantially all of their time to our business. From time to time, we employ independent contractors to supplement our staff. In addition, many of The Vitamin Shoppe's employees provide services to us. We believe that our relations with our employees are good. We are not a party to any collective bargaining agreements. Under the administrative services agreement, The Vitamin Shoppe provides our employees with a benefit package that includes medical insurance, dental insurance, life insurance and a contributory 401(k) plan. 13 17 EXECUTIVE OFFICERS
NAME AGE POSITION WITH VITAMINSHOPPE.COM - ---- --- ------------------------------- M. Anthony Fisher......................... 49 Chairman of the Board of Directors Jeffrey J. Horowitz....................... 52 President and Chief Executive Officer Chief Financial Officer, Secretary and Ann M. Sardini............................ 50 Treasurer Philip H. Teplitzky....................... 50 Chief Technology Officer Joel Gurzinsky............................ 44 Vice President -- Operations
M. Anthony Fisher has been chairman of the board of directors of VitaminShoppe.com since January 2000 and a director since its incorporation. Mr. Fisher has been a partner in Fisher Brothers, a real estate development firm, since 1981 and a general partner in FdG Associates, a private equity fund, since 1995. Mr. Fisher also serves as a director of Sunpark, Inc., McGinnis Farms and The Vitamin Shoppe. Our Board of Directors has approved an amendment of our bylaws providing that the Chairman of the Board will no longer be an executive officer position. Jeffrey J. Horowitz has been president and chief executive officer of VitaminShoppe.com since January 2000, has been a director since its incorporation, and was chairman of the board of directors of VitaminShoppe.com from its incorporation until January 2000. Mr. Horowitz is the founder of The Vitamin Shoppe and was its president and chief executive officer from 1977 until January 2000, when he became president and chief executive officer of VitaminShoppe.com. Mr. Horowitz also serves as a director of The Vitamin Shoppe. Ann M. Sardini has been the chief financial officer, secretary and treasurer of VitaminShoppe.com since October 1999. From 1995 to 1999, Ms. Sardini was executive vice president and chief financial officer of Children's Television Workshop, a multimedia company that produces Sesame Street. From 1993 to 1995, she was chief financial officer and vice president -- finance and operations for Q2, an interactive consumer marketing and technology division of retailer QVC, Inc. Philip H. Teplitzky has been chief technology officer of VitaminShoppe.com since September 1999. From 1995 to 1999, Mr. Teplitzky was a vice president of Citibank, N.A. in its consumer bank division, where he designed and implemented several technical and functional areas of an Internet consumer bank initiative. From 1992 to 1995, he was director and then managing director -- technology for SHL Systemhouse, a software development company. Joel Gurzinsky has been vice president -- operations of VitaminShoppe.com since July 1999. Mr. Gurzinsky joined Vitamin Shoppe Industries in 1979 and has served in a variety of positions, including retail store management, purchasing, direct marketing management and distribution management. Before transferring to VitaminShoppe.com, he was vice president -- online operations for The Vitamin Shoppe. Kathryn H. Creech was President and Chief Executive Officer and a director of VitaminShoppe.com from June 1999 to January 2000. She is 47 years old. Eliot D. Russman was Chief Marketing Officer of VitaminShoppe.com from June 1999 to January 2000. He is 44 years old. FORWARD-LOOKING STATEMENTS Some of the statements contained in this report that are not historical facts are, or may be considered to be, "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our expectations regarding our future growth, results of operations, performance, business prospects, opportunities and financial condition. Words such as "anticipates," "believes," "plans," "expects" and "estimates" and similar expressions have been used to identify these forward-looking statements but are not the exclusive means of identifying these statements. These statements reflect our current beliefs and are based on information available to us on the date hereof. We 14 18 assume no obligation to update any such forward-looking statement in our press releases, oral communications or other filings with the Securities and Exchange Commission. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual growth, results of operations, performance, business prospects, opportunities and financial condition to differ from those expressed in, or implied by, the forward-looking statements. In addition, some of our forward-looking statements are based on assumptions concerning future events that may not prove to be accurate. Forward-looking statements regarding our growth, results of operations, performance, business prospects, opportunities and financial condition are subject to numerous risks and assumptions, including those discussed in "Risk Factors" in our registration statement on Form S-1, as amended (File No. 333-83849), filed with the Securities and Exchange Commission. ITEM 2. PROPERTIES. Our headquarters consist of approximately 10,000 square feet of space at 444 Madison Avenue, Suite 802, New York, New York 10022. The sublease for this space expires in November 2003 and currently provides for a monthly rental of $34,913. We believe that our facilities are adequate for our needs and that additional suitable space will be available on acceptable terms as required. We do not own any real estate. ITEM 3. LEGAL PROCEEDINGS. We are not a party to any legal proceeding that we believe would have a material adverse effect on our business, results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On July 23, 1999, by written consent the sole shareholder of VitaminShoppe.com approved the second amended and restated certificate of incorporation of VitaminShoppe.com, which provided for (in relevant part) (a) the authorization of 30,000,000 shares of Class A Common Stock, par value $0.01 per share, (b) the authorization of 15,000,000 shares of Class B Common Stock, par value $0.01 per share, (c) the authorization of 5,000,000 shares of preferred stock, par value $0.01 per share, undesignated as to class or series, (d) the reclassification of our previously outstanding 1,000 shares of Common Stock into 8,500,000 shares of Class B Common Stock and (e) the designation of one vote for each share of Class A Common Stock and six votes for each share of Class B Common Stock. On September 17, 1999, by unanimous written consent the shareholders of VitaminShoppe.com approved the certificate of amendment of the second amended and restated certificate of incorporation of VitaminShoppe.com, which provided for (in relevant part) the method of classifying the number of directors in each class. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of March 17, 2000, there were 117 holders of record of our Class A common stock, par value $0.01 per share. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. The principal market upon which our Class A common stock is traded is the Nasdaq National Market under the symbol VSHP. During the period from October 8 through December 31, 1999, which is the only period in 1999 when our Class A common stock was publicly traded, the high and low bids for our Class A common stock were $19.438 and $7.250. As of March 17, 2000, there was one record holder of our Class B common stock, par value $0.01 per share. There is no established trading market for the Class B common stock. The Class B common stock is convertible into Class A common stock at any time at the option of the holder and would automatically convert to Class A common stock upon transfer from the holder. 15 19 REGISTERED OFFERING AND USE OF PROCEEDS On October 7, 1999, the Securities and Exchange Commission declared effective a registration statement on Form S-1 (File No. 333-83849) with respect to our Class A common stock. Pursuant to the registration statement, we offered and sold 4,545,455 shares of Class A common stock at $11.00 per share to an underwriting syndicate. The managing underwriters of this syndicate were Thomas Weisel Partners LLC, William Blair & Company and PaineWebber Incorporated. The offering terminated because all shares offered were sold. The gross proceeds from the offering were $50.0 million. Total expenses that we incurred in connection with the issuance and distribution of the Class A common stock from the date that the offer commenced to December 31, 1999 were $5.0 million. No discounts, commissions or other offering expenses were paid to directors, officers or general partners of VitaminShoppe.com, our associates or persons owning 10% or more of any class of our equity securities. Payments to underwriters, printers, accountants and legal counsel were made directly to those parties. After deducting these expenses and the write-off of prepaid offering costs, the net proceeds of the offering were approximately $45.0 million. During 1999, we used $2.7 million of the net proceeds for enhancements to our Web site and other capital expenditures, $5.8 million for the repayment of a note due to The Vitamin Shoppe, and $13.4 million for advertising and marketing activities. Other than principal and accrued interest paid to our principal stockholder, none of these payments were made to directors, officers or general partners of VitaminShoppe.com or our associates or to persons owning 10% or more of any class of our equity securities. The remainder of the proceeds of the offering have been invested in short-term, investment-grade, interest-bearing obligations and we expect that they will be used for general corporate purposes, including working capital, capital expenditures and advertising and marketing activities. A portion of the net proceeds may also be used to acquire or invest in complementary businesses, technologies, product lines or products. We have no current agreements or commitments with respect to such an acquisition. The amounts actually expended by us for such purposes may vary significantly and will depend upon a number of factors, including our future revenue and cash generated by operations. Accordingly, we retain broad discretion in the allocation of the net proceeds of the offering. RECENT SALES OF UNREGISTERED SECURITIES Private Placements of Securities. On June 11, 1999, we issued 1,000 shares of common stock, par value $0.01 per share, to The Vitamin Shoppe in connection with our initial capitalization. We intended this private placement of securities by us to be exempt from registration pursuant to section 4(2) of the Securities Act of 1933. We reclassified these shares into 8,500,000 shares of Class B common stock as of July 9, 1999. We split these shares into 13,081,500 shares of Class B common stock effective as of October 7, 1999. Each share of Class B common stock is convertible into one share of Class A common stock at any time at the option of the holder and will automatically convert into one share of Class A common stock upon the sale to a person or entity not affiliated with The Vitamin Shoppe. On July 9, 1999, we issued $10 million in aggregate principal amount of convertible promissory notes due in June 2000. Four stockholders of The Vitamin Shoppe and affiliates of these stockholders held these notes. We intended this private placement of securities to be exempt from registration pursuant to section 4(2) of the Securities Act of 1933. On July 27, 1999, all of these notes converted into shares of our Series A convertible preferred stock, par value $0.01 per share, based on the principal and interest due on the notes divided by the purchase price of the shares of Series A preferred stock. In July 1999, we received $15 million from ten stockholders in exchange for 1,053,156 shares of Series A preferred stock. As indicated in the preceding paragraph, we also exchanged $10 million in aggregate principal amount of promissory notes for 722,104 shares of Series A preferred stock in the same transaction. In addition, we issued warrants to purchase shares of Series A preferred stock to Thomas Weisel Partners LLC in consideration for its services as placement agent in this transaction. We intended this private placement of 16 20 securities to be exempt from registration pursuant to section 4(2) of the Securities Act of 1933 and/or rule 506 of Regulation D promulgated under the Securities Act of 1933. Each share of Series A preferred stock converted into 1.539 post-split shares of Class A common stock effective as of the initial public offering. As a result, the warrant held by Thomas Weisel Partners LLC became exercisable for 32,703 shares of Class A common stock at an exercise price per share of $11.00. Option Grants. In June 1999, we granted options to two employees to purchase 569,045 post-split shares of our common stock at a post-split exercise price of $3.82 per share. We reclassified the shares for which these options may be exercised into Class A common stock as of July 9, 1999. In July 1999, we granted to three employees options to purchase 235,021 post-split shares of Class A common stock at a post-split exercise price of $9.15 per share. In August 1999, we granted to one director and two employees options to purchase 54,675 post-split shares of Class A common stock at a post-split exercise price of $9.15 per share. In September 1999, we granted to one director and 12 employees options to purchase 295,775 post-split shares of Class A common stock at an exercise price of $9.15 per share. In October 1999, we granted to five directors and two employees options to purchase 532,329 shares of Class A common stock at an exercise price of $11.00 per share. In November 1999, we granted to nine employees options to purchase 38,500 shares of Class A common stock at an average exercise price of $9.03 per share. In December 1999, we granted to 10 employees options to purchase 61,000 shares of Class A common stock at an average exercise price of $13.65 per share. No underwriters were involved in the foregoing sales of securities. DIVIDEND POLICY We paid no dividends on our capital stock during 1999, which was the first year in which we were incorporated. We currently intend to retain any earnings to finance the operations and expansion of our business, and we do not expect to pay any cash dividends on our capital stock in the foreseeable future. We may incur indebtedness in the future, the terms of which may prohibit or effectively restrict the payment of dividends on our capital stock. 17 21 ITEM 6. SELECTED FINANCIAL DATA. You should read the following selected historical and pro forma financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included herein. Although we were not operating as a separate company until July 1999, the historical financial statements present the operations of The Vitamin Shoppe's online business as if we had been a separate entity since October 1, 1997, the date of inception. The historical statement of operations data presented below for the period from October 1, 1997, the date of inception, to December 31, 1997 and for the years ended December 31, 1998 and 1999, and the historical balance sheet data as of December 31, 1998 and 1999, are derived from financial statements of VitaminShoppe.com, Inc. that have been audited by Deloitte & Touche LLP, independent auditors, and are included herein. The historical financial information includes allocations for supply, fulfillment, promotional, administrative and other expenses incurred by The Vitamin Shoppe for services rendered to us prior to July 1999. While we believe these allocations to be reasonable, they do not necessarily indicate, and it is not practical for us to estimate, the levels of expenses that would have resulted had we been operating as an independent company. We have entered into several intercompany agreements effective as of July 1, 1999 under which The Vitamin Shoppe has licensed its trademarks to us for use on the Internet and provides supply, fulfillment, promotional, administrative and other services to us. These agreements provide some charges that we did not incur in the past. While the intercompany agreements were not negotiated on an arms-length basis, we believe that their terms are no less favorable to us than could have been obtained from unaffiliated third parties. The pro forma statement of operations data give retroactive effect to adjustments resulting from the implementation of the trademark license agreement and the supply and fulfillment agreement with The Vitamin Shoppe. Historical and pro forma results are not necessarily indicative of the operating results for any future period.
HISTORICAL PRO FORMA --------------------------------------------- ------------------------- OCTOBER 1, 1997 YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, (INCEPTION) TO ------------------------- ------------------------- DECEMBER 31, 1997 1998 1999 1998 1999 ----------------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales.......................................... $ -- $ 2,861 $ 13,638 $ 2,861 $ 13,638 Cost of goods sold................................. -- 1,407 7,594 1,477 7,700 ----------- ----------- ----------- ----------- ----------- Gross profit....................................... -- 1,454 6,044 1,384 5,938 Operating expenses: Marketing and sales expenses..................... -- 3,215 27,579 4,032 28,134 Technology development expenses.................. 285 642 3,142 642 3,142 General and administrative expenses.............. 64 917 5,425 920 5,474 ----------- ----------- ----------- ----------- ----------- Total operating expenses................... 349 4,774 36,146 5,594 36,750 ----------- ----------- ----------- ----------- ----------- Loss from operations............................... (349) (3,320) (30,102) (4,210) (30,812) Interest expense (income), net..................... 4 120 (9) 150 48 ----------- ----------- ----------- ----------- ----------- Loss before income tax provision................... (353) (3,440) (30,093) (4,360) (30,860) Income tax provision............................... -- -- 108 -- 108 ----------- ----------- ----------- ----------- ----------- Net loss........................................... $ (353) $ (3,440) $ (30,201) $ (4,360) $ (30,968) =========== =========== =========== =========== =========== Basic and diluted net loss per share............... $ (0.03) $ (0.26) $ (2.05) $ (0.33) $ (2.10) =========== =========== =========== =========== =========== Weighted average shares outstanding used to compute basic and diluted net loss per share............. 13,081,500 13,081,500 14,756,339 13,081,500 14,756,339 =========== =========== =========== =========== ===========
AS OF DECEMBER 31, ------------------ 1998 1999 ------- ------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $ -- $38,019 Working capital (deficiency)................................ (4,278) 29,754 Total assets................................................ 614 49,160 Due to The Vitamin Shoppe................................... 3,583 2,635 Stockholders' equity (deficit).............................. (3,793) 35,938
18 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Except for the historical information contained in this report, some statements made herein are "Forward-Looking Statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These Forward-Looking Statements reflect our expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Words such as "anticipates," "believes," "plans," "expects," "estimates," and similar expressions have been used to identify these Forward-Looking Statements, but are not the exclusive means of identifying these statements. These statements reflect our current beliefs and are based on information currently available to us. Accordingly, these statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual growth, results, performance and business prospects and liquidity to differ from those expressed in, or implied by, these Forward-Looking Statements. These risks, uncertainties and other factors are described in our Registration Statement on Form S-1, as amended (File No. 333-83849), under the caption "Risk Factors". We are not obligated to update or revise these Forward-Looking Statements to reflect new events or circumstances. OVERVIEW We began development of our online operations in October 1997 and launched our Web site on April 7, 1998. For the period from our inception through the launch of the Web site, our primary activities consisted of: - developing the business model; - developing strategic relationships; - designing and developing our Web site; - recruiting and training employees; - negotiating advertising contracts with several major web portals; and - developing the VitaminShoppe.com brand. Since the launch of the Web site, these operating activities have continued. We have also focused on acquiring new customers, building sales momentum, promoting the brand, enhancing the search and transactional features of our Web site, expanding customer service operations, increasing the information content available to our customers and building the infrastructure of the business. We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets such as online commerce. In view of these factors, we believe that period-to-period comparisons of our operating results should not be relied upon as an indication of future performance. We have incurred net losses of $33.99 million from inception through December 31, 1999. We believe that net losses will continue for the foreseeable future. RESULTS OF OPERATIONS: 1999 COMPARED TO 1998 Net Sales. Net sales consist of product sales net of allowances for product returns. Revenues are recognized when the related product is shipped. The level of our sales depends on many factors, including: - the number of customers that we are able to attract; - the frequency of customers' purchases; - the quantity and mix of products that customers purchase; - the price that we charge for our products; and - the level of customer returns that we experience. 19 23 Net sales for 1999 totaled $13.64 million, an increase of $10.78 million or 377% from net sales of $2.86 million for the nine-month period beginning April 1, 1998 (the date on which we launched our Web site). We have made enhancements to our Web site to improve navigation and the overall user experience, and we have significantly increased our advertising, marketing and promotional expenditures in 1999. We believe these factors have contributed to growth in our customer base and continuation of a favorable pattern of repeat buying. Cost of Goods Sold. Cost of goods sold consists primarily of the costs of products sold to customers. The Vitamin Shoppe supplies inventory to us on an exclusive basis. Under the supply and fulfillment agreement with The Vitamin Shoppe beginning July 1, 1999, we pay The Vitamin Shoppe an amount equal to 105% of The Vitamin Shoppe's product cost. Prior to that time, inventory was provided to us by The Vitamin Shoppe at 100% of its product cost. As a result, cost of goods sold as a percentage of sales is higher in 1999 than in 1998. We expect that it will continue to be higher than in the past both as a percentage of sales and in absolute dollars to the extent that our volume of sales increases. In the future, we may expand or increase the discounts we offer to our customers and may otherwise alter our pricing structures and policies. These changes would negatively reduce our gross margins. In addition to pricing strategy, our gross margins will fluctuate based on other factors, including: - the cost of our products, including the extent of purchase volume discounts that The Vitamin Shoppe is able to obtain from its suppliers; - promotions or special offers that we offer to attract new customers; - the mix of The Vitamin Shoppe brand products versus other branded products that our customers purchase; and - the mix of products within each brand category that our customers purchase. Cost of goods sold for 1999 was $7.59 million, or 55.6% of net sales, versus $1.41 million, or 49.3% of net sales for the nine-month period beginning April 1, 1998 (the date on which we launched our Web site). The increase in cost of sales as a percent of net sales is attributable to the implementation of our supply and fulfillment agreement with The Vitamin Shoppe, the offering of promotional discount coupons to customers during 1999 and the sales of a lower proportion of The Vitamin Shoppe(R) branded products versus other brands as a percent of total sales in 1999 as compared to 1998. The Vitamin Shoppe brand products carry a higher gross margin than other brands. Marketing and Sales Expenses. Marketing and sales expenses consist primarily of advertising and promotional expenditures, merchandising, customer service, distribution expenses, including order processing and fulfillment charges, net shipping costs, equipment and supplies and payroll and related expenses for personnel engaged in these activities. Some of these expenses represent charges for services provided by The Vitamin Shoppe. Prior to July 1999, these charges were in the form of allocations based on The Vitamin Shoppe's best estimate of actual expenses. As of July 1, 1999 various intercompany agreements were put in place to cover these expenses. Under these agreements The Vitamin Shoppe will continue to provide warehousing and fulfillment services for customer orders on an exclusive basis. We pay The Vitamin Shoppe for fulfillment services an amount equal to 105% of The Vitamin Shoppe's actual average unit cost per package, multiplied by the number of packages shipped to our customers, plus actual shipping costs that we do not pay directly. While this amount is higher than the 100% cost of these services to us under the historical allocation method, we believe that the increase will not have a material effect on our results of operations because our fulfillment costs have historically been less than 2% of our net sales. Under the trademark license agreement with The Vitamin Shoppe which provides us with the exclusive right to use The Vitamin Shoppe's trademarks, including the logo and name, in connection with the marketing and sale of products and services in online commerce, we pay an annual royalty fee equal to $1 million plus an amount based on a percentage of net sales volume of The Vitamin Shoppe(R) branded product. Prior to July 1, 1999, there was no royalty fee charged by The Vitamin Shoppe. 20 24 Marketing and sales expenses increased by $24.36 million to $27.58 million in 1999, or 202% of net sales, from $3.2 million in 1998, or 110% of net sales. The increase is largely attributable to the implementation of our significant multi-media marketing campaign which began late in third quarter 1999 and continued through fourth quarter 1999. In addition, we have added to our roster of strategic relationships with web portals and health-oriented channels. Subsequent to the third quarter 1998, agreements with Yahoo! (November 1998), drkoop.com (March 1999), OnHealth (March 1999), InteliHealth (April 1999) and America Online (October 1999) have been added to the existing list which included Ask Dr. Weil (April 1998). We expect marketing and sales expenses to vary considerably from quarter to quarter during future periods depending on the timing of advertising campaigns, but do not expect quarterly spending in 2000 to continue at the same rate as the fourth quarter of 1999. In addition, we expect marketing and sales expenses to remain high as a percentage of sales, but lower as a percentage of sales than we experienced in 1999. Technology Development Expenses. Technology development expenses consist primarily of consulting fees and payroll and related expenses for applications development and information technology personnel, licensing and service agreements, Web site hosting and communications charges, and Web site content development and design expenses. Technology development expenses increased by $2.50 million to $3.14 million for 1999 from $0.64 million for 1998. As a percentage of net sales, these expenses were 23% in 1999 and 22% in 1998. Expenses increased in the areas of technology development personnel and use of third-party service providers, consultants and contract labor. The increase in expense and in our overall investment in technology reflects our commitment to providing a superior web commerce experience to our customers. We believe strongly that our new Web site, its ongoing technology-based enhancements and the infrastructure supporting the site will contribute significantly to customer satisfaction and retention. Continued investment is therefore anticipated, to provide improvements to the capabilities of the site and to expand the infrastructure necessary to support it. We also expect to continue to invest in the development of in-house expertise necessary to effectively manage the technology of our business. In 1999, we successfully recruited a highly experienced Chief Technology Officer and a Director of Technology Operations, as well as several other technology professionals. General and Administrative Expenses. General and administrative expenses consist primarily of payroll and related expenses for executive and administrative personnel, corporate facility expenses, professional services expenses, travel, deferred stock-based compensation and other general corporate expenses. General and administrative expenses increased by $4.51 million to $5.43 million, or 40% of net sales, for 1999 from $0.92 million, or 32% of net sales, for 1998. This increase was primarily due to the addition of personnel, professional fees and other expenses associated with building our infrastructure and the addition of deferred stock-based compensation. As we continue this building process, we expect that general and administrative expenses will continue to increase during future periods. Interest Expense (income), net. Interest expense (income), net consists of interest charges allocated from The Vitamin Shoppe and interest income earned on cash and cash equivalents. Interest expense was charged on the note due to The Vitamin Shoppe and advances to us at the rate of 8.75% per annum which totaled $416,000 in 1999 as compared to $120,000 in 1998. Interest income has been earned since the sale of our Series A convertible preferred stock on July 27, 1999 and our initial public offering on October 8, 1999 and amounted to $425,000. Since the note due to The Vitamin Shoppe was repaid in November 1999, the Company no longer anticipates interest expense unless we incur future borrowings. Amortization of Stock-Based Compensation. Amortization of deferred stock-based compensation expense, included in general and administrative expenses, was $1.2 million in 1999 as compared to zero in 1998. Due to the resignations of two officers during the first quarter 2000, we expect to eliminate approximately $1.9 million of unamortized deferred stock-based compensation that was previously recorded as additional paid in capital. Intercompany Agreements. The intercompany agreements cover rights and obligations regarding trademark licenses, inventory supply and fulfillment, promotional and co-marketing activities, databases and administrative services. We incurred a total of $5.5 million of merchandise purchases and $2.3 million of other expenses under the intercompany agreements with The Vitamin Shoppe for the six months ended 21 25 December 31, 1999. The intercompany agreements were not in place during the first three quarters 1998 and the six months ended June 30, 1999 but became effective on July 1, 1999. Had the intercompany agreements been in place during the full first three quarters 1999 and 1998 (as shown in the pro forma columns in Item 6 "Selected Financial Data"), our net loss would have been increased to $31.0 million in 1999 and $4.36 million in 1998. Income taxes. Our operating results through June 30, 1999 were included in the consolidated income tax returns of The Vitamin Shoppe. Through June 30, 1999, The Vitamin Shoppe did not allocate to us its share of income tax liabilities or benefits attributable to our proportionate share of operating results. Since July 1, 1999, we are no longer included in the consolidated income tax return of The Vitamin Shoppe and, therefore, our income tax provisions have been calculated on a separate return basis. Since our capitalization on July 1, 1999, when we ceased to be part of The Vitamin Shoppe's consolidated group, losses generated are available to offset any future taxable income for 20 years. Deferred tax assets normally recorded to reflect the future benefit may or may not be shown as realizable, depending on our ability to demonstrate the likelihood of future profitability. As of December 31, 1999, we had a net operating loss carry forward that, if utilized, provides a future tax benefit of approximately $10.3 million at an effective tax rate of 40 percent. Due to the uncertainty of the realization of this net operating loss carry forward in the future, we have provided a valuation allowance to offset this deferred tax asset. LIQUIDITY AND CAPITAL RESOURCES Since inception, our operations have not generated sufficient cash flow to satisfy our current obligations. The Vitamin Shoppe funded these obligations through June 1999. On June 30, 1999, we issued a promissory note to The Vitamin Shoppe for approximately $5.8 million payable upon demand by The Vitamin Shoppe. This amount represented funds advanced to us by The Vitamin Shoppe for operating losses and working capital requirements through June 30, 1999 and was repaid in full in October 1999. On July 9, 1999, we issued $10 million in aggregate principal amount of promissory notes due in June 2000. These notes were held by stockholders of The Vitamin Shoppe or affiliates of these stockholders. Later in July 1999, these notes were converted into Series A convertible preferred stock and approximately $13.6 million of additional Series A convertible preferred stock was issued. Together, these shares of Series A convertible preferred stock were converted into an aggregate of 2,732,119 shares of Class A common stock. On October 8, 1999, we sold 4,545,455 shares of our Class A common stock in an initial public offering at a price of $11.00 per share. The gross proceeds from this offering were $50 million. The net proceeds were approximately $45 million after deducting underwriting discounts and commissions of $3.5 million and other offering expenses of $1.5 million. In connection with our initial public offering, the 1,775,260 shares of Series A convertible preferred stock automatically converted into 2,732,119 shares of Class A common stock. The carrying amount of the Series A convertible preferred stock was credited to Class A common stock stated capital and to additional paid-in capital. During 1999, net cash used in operating activities was $21.16 million, an increase of $18.44 million from 1998. Net cash used in investing activities was $5.93 million during 1999, an increase of $5.42 million from 1998. During 1999, net cash provided by financing activities was $65.10 million, which consisted of amounts funded by The Vitamin Shoppe, our initial capitalization by The Vitamin Shoppe, the sale of our Series A convertible preferred stock and the initial public offering. We expect that cash flows from operating activities will continue to be negative as we grow our infrastructure and continue our efforts to grow and retain our customer base. As of December 31, 1999, we had accounts payable and accrued liabilities of $10.59 million and amounts payable to The Vitamin Shoppe of $2.64 million due under the intercompany agreements. At this date, our principal commitments going forward consisted of obligations outstanding under online marketing agreements 22 26 with web portals and strategic partners aggregating $9.8 million through February 2001 and a sublease agreement for our office space aggregating $1.8 million through November 2003. As of December 31, 1999, we had approximately $38.0 million in cash and cash equivalents. Based upon our current plans for fiscal 2000, we expect to have sufficient cash available to meet our operating and capital expenditure needs through December 31, 2000, but we cannot assure you that our expected growth or expenditures will take place as planned. If we fail to meet our planned growth or otherwise need additional working capital, we could reduce certain expenditures or seek to raise cash. Our principal use of cash is to fund our advertising and Internet sponsorship arrangements, to pay for our Web site development costs and to fund our payroll and other operating costs. Our contractual commitments for Internet sponsorship arrangements total approximately $8.4 million in 2000. If necessary, we could reduce our discretionary advertising expenditures to mitigate the impact on our available cash. Further, our technology development in 2000 will take place in stages, the first of which is the launch of our new Web site. Other components of our technology development can be delayed, if necessary. While such a reduction in advertising spending or Web site development may negatively impact sales, we believe that we can generate sufficient sales and cash flow at levels which, although below our planned amount, would enable us to fund our operations through December 31, 2000. As an alternative to reducing such expenses, we may seek to raise additional cash through the issuance of capital stock or debt. We cannot assure you that such additional financing will be available to us when required on favorable terms or at all. YEAR 2000 COMPLIANCE During 1999, we directly or through The Vitamin Shoppe assessed the year 2000 compliance of internally developed and purchased software, which included software for use in order processing and fulfillment, i.e., credit card processing and distribution functions, accounting and database systems. Expenses associated with this assessment and a corrective action plan approximated $0.4 million and was largely borne by The Vitamin Shoppe. We have not experienced any major disruptions in our operations associated with issues related to the year 2000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, which is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income. The adoption of SFAS No. 130 as of January 1, 1998 did not have a material effect on our financial statements or disclosures as we have no reconciling items. Therefore, net loss and comprehensive loss are the same. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 requires that public companies report information about operating segments in their annual financial statements and in subsequent condensed financial statements of interim periods issued to stockholders. This statement also requires that public companies report certain information about their products and services, the geographic areas in which they operate and their major customers. Adoption of the standard did not have an effect on our disclosures for all periods because we currently operate as one segment. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting on the Costs of Start-up Activities, which is effective for fiscal years beginning after December 15, 1998. SOP 98-5 establishes accounting and reporting standards for start-up activities and requires the costs of start-up activities, including organization costs, to be expensed as incurred. We adopted SOP 98-5 effective January 1, 1999. Its adoption did not have a material effect on our financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires recognition of all derivatives on the balance sheet at fair value. Adoption of this standard will not have a material effect on our financial statements or disclosures. 23 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We believe that inflation has not had a material impact on our results of operations since inception for each of our fiscal years ended December 31, 1998 and 1999. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition. We are not subject to currency fluctuations since we do not have any international operations. We have limited market risk exposure since we do not have any outstanding variable rate debt or derivative financial and commodity instruments as of March 17, 2000. As of March 17, 2000, we have no outstanding long-term debt instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information called for by this Item 8 is included in Item 14, under "Financial Statements" appearing at the end of this annual report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required with respect to our directors required by Item 401 and our directors and executive officers required by Item 405 of Regulation S-K is set forth in our proxy statement for the annual meeting of stockholders, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated by reference herein. Certain information with respect to our executive officers required by Item 401 of Regulation S-K is forth in Item 1 "Business -- Executive Officers." ITEM 11. EXECUTIVE COMPENSATION. Information relating to executive compensation is set forth in our proxy statement for the annual meeting of stockholders, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information relating to the security ownership of certain beneficial owners and management is set forth in our proxy statement for the annual meeting of stockholders, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to certain relationships and related transactions is set forth in our proxy statement for the annual meeting of stockholders, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated by reference herein. 24 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. FINANCIAL STATEMENTS The following financial statements have been filed as required by Item 8 of this report: Independent Auditors' Report Balance Sheets as of December 31, 1997, 1998 and 1999 Statement of Operations for the period from October 1, 1997 (inception) to December 31, 1997 and for the years ended December 31, 1998 and 1999 Statements of Stockholders' Equity (Deficit) for the period from October 1, 1997 (inception) to December 31, 1997 and for the years ended December 31, 1998 and 1999 Statement of Cash Flows for the period from October 1, 1997 (inception) to December 31, 1997 and for the years ended December 31, 1998 and 1999 Notes to Financial Statements 25 29 VITAMINSHOPPE.COM, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ F-2 Balance Sheets as of December 31, 1998 and 1999............. F-3 Statements of Operations for the period from October 1, 1997 (inception) to December 31, 1997, and for the years ended December 31, 1998 and 1999................................ F-4 Statements of Stockholders' Equity (Deficit) for the period from October 1, 1997 (inception) to December 31, 1997, and for the years ended December 31, 1998 and 1999............ F-5 Statements of Cash Flows for the period from October 1, 1997 (inception) to December 31, 1997, and for the years ended December 31, 1998 and 1999................................ F-6 Notes to Financial Statements............................... F-7
F-1 30 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of VitaminShoppe.com, Inc. New York, New York We have audited the accompanying balance sheets of VitaminShoppe.com, Inc. (the "Company") as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity (deficit) and cash flows for the period from October 1, 1997 (inception) to December 31 1997 and the years ended December 31, 1998 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of VitaminShoppe.com, Inc. as of December 31, 1998 and 1999, and the results of its operations and its cash flows for the period from October 1, 1997 (inception) to December 31, 1997 and the years ended December 31, 1998 and 1999, in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 24, 2000 F-2 31 VITAMINSHOPPE.COM, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, ------------------- 1998 1999 ------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ -- $ 38,019 Accounts receivable....................................... 35 259 Inventory................................................. -- 35 Prepaid expenses and other current assets................. 94 4,663 ------- -------- Total current assets.............................. 129 42,976 Property and equipment, net............................... 485 6,184 ------- -------- Total assets...................................... $ 614 $ 49,160 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued liabilities.................. $ 824 $ 10,587 Due to The Vitamin Shoppe................................. 3,583 2,635 ------- -------- Total current liabilities......................... 4,407 13,222 Stockholders' Equity (Deficit): Preferred Stock, $.01 par value, 5,000,000 shares authorized, no shares issued or outstanding............ -- -- Class A common stock, $.01 par value, no shares authorized, issued or outstanding at December 31, 1998, 30,000,000 shares authorized, 7,277,574 shares issued and outstanding at December 31, 1999................... -- 73 Class B common stock, $.01 par value, no shares authorized, issued or outstanding at December 31, 1998, 15,000,000 shares authorized, 13,081,500 shares issued and outstanding at December 31, 1999................... -- 131 Additional paid-in capital................................ -- 64,242 Deferred stock-based compensation......................... -- (2,732) Deficit................................................... (3,793) (25,776) ------- -------- Total stockholders' equity (deficit).............. (3,793) 35,938 ------- -------- Total liabilities and stockholders' equity (deficit)........................................ $ 614 $ 49,160 ======= ========
See notes to financial statements. F-3 32 VITAMINSHOPPE.COM, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OCTOBER 1, 1997 YEAR ENDED DECEMBER 31, (INCEPTION) TO ------------------------ DECEMBER 31, 1997 1998 1999 ----------------- ---------- ---------- Net sales.......................................... $ -- $ 2,861 $ 13,638 Cost of goods sold................................. -- 1,407 7,594 ---------- ---------- ---------- Gross profit....................................... -- 1,454 6,044 Operating expenses: Marketing and sales expenses..................... -- 3,215 27,579 Technology development expenses.................. 285 642 3,142 General and administrative expenses.............. 64 917 5,425 ---------- ---------- ---------- Total operating expenses................. 349 4,774 36,146 ---------- ---------- ---------- Loss from operations............................... (349) (3,320) (30,102) Interest expense (income), net..................... 4 120 (9) ---------- ---------- ---------- Loss before income tax provision................... (353) (3,440) (30,093) Income tax provision............................... -- -- 108 ---------- ---------- ---------- Net loss........................................... $ (353) $ (3,440) $ (30,201) ========== ========== ========== Basic and diluted net loss per share............... $ (0.03) $ (0.26) $ (2.05) ========== ========== ========== Weighted average shares outstanding used to compute basic and diluted net loss per share............. 13,081,500 13,081,500 14,756,339 ========== ========== ==========
See notes to financial statements. F-4 33 VITAMINSHOPPE.COM, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A CONVERTIBLE CLASS A CLASS B PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL DEFERRED --------------------- ------------------ ------------------- PAID-IN STOCK-BASED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ---------- -------- --------- ------ ---------- ------ ---------- ------------ Balance, October 1, 1997 (inception)....................... -- $ -- -- $-- -- $ -- $ -- $ -- Net loss.......................... -- -- -- -- -- -- -- -- ---------- -------- --------- --- ---------- ---- ------- ------- Balance, December 31, 1997.......... -- -- -- -- -- -- -- -- Net loss.......................... -- -- -- -- -- -- -- -- ---------- -------- --------- --- ---------- ---- ------- ------- Balance, December 31, 1998.......... -- -- -- -- -- -- -- -- Net loss (1/1/99-6/30/99)......... -- -- -- -- -- -- -- -- Capitalization of the Company by The Vitamin Shoppe on June 30, 1999............................ -- -- -- -- 13,081,500 131 (8,348) -- Sale of Series A convertible preferred stock................. 1,775,260 23,472 -- -- -- -- 86 -- Sale of common stock.............. -- -- 4,545,455 46 -- -- 45,080 -- Issuance of common stock upon conversion of preferred stock... (1,775,260) (23,472) 2,732,119 27 -- -- 23,445 -- Deferred stock-based compensation.................... -- -- -- -- -- -- 3,979 (3,979) Amortization of deferred stock-based compensation........ -- -- -- -- -- -- -- 1,247 Net loss (7/1/99-12/31/99)........ -- -- -- -- -- -- -- -- ---------- -------- --------- --- ---------- ---- ------- ------- Balance, December 31, 1999.......... -- $ -- 7,277,574 $73 13,081,500 $131 $64,242 $(2,732) ========== ======== ========= === ========== ==== ======= ======= DEFICIT TOTAL -------- -------- Balance, October 1, 1997 (inception)....................... $ -- $ -- Net loss.......................... (353) (353) -------- -------- Balance, December 31, 1997.......... (353) (353) Net loss.......................... (3,440) (3,440) -------- -------- Balance, December 31, 1998.......... (3,793) (3,793) Net loss (1/1/99-6/30/99)......... (4,425) (4,425) Capitalization of the Company by The Vitamin Shoppe on June 30, 1999............................ 8,218 1 Sale of Series A convertible preferred stock................. -- 23,558 Sale of common stock.............. -- 45,126 Issuance of common stock upon conversion of preferred stock... -- -- Deferred stock-based compensation.................... -- -- Amortization of deferred stock-based compensation........ -- 1,247 Net loss (7/1/99-12/31/99)........ (25,776) (25,776) -------- -------- Balance, December 31, 1999.......... $(25,776) $ 35,938 ======== ========
See notes to financial statements. F-5 34 VITAMINSHOPPE.COM, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
OCTOBER 1, 1997 YEAR ENDED DECEMBER 31, (INCEPTION) TO ----------------------- DECEMBER 31, 1997 1998 1999 ----------------- --------- ---------- Cash flows from operating activities: Net loss............................................. $(353) $(3,440) $(30,201) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization..................... -- 21 226 Amortization of deferred stock-based compensation.................................... -- -- 1,247 Deferred rent/other............................... -- 102 482 Changes in operating assets and liabilities: Accounts receivable............................... -- (35) (224) Inventory......................................... -- -- (35) Prepaid expenses and other current assets......... -- (94) (4,569) Accounts payable and accrued liabilities.......... -- 722 11,916 ----- ------- -------- Net cash used in operating activities................ (353) (2,724) (21,158) ----- ------- -------- Cash flows from investing activities: Capital expenditures................................. -- (506) (5,925) ----- ------- -------- Net cash used in investing activities................ -- (506) (5,925) ----- ------- -------- Cash flows from financing activities: Increase in Note due to The Vitamin Shoppe........... 353 3,230 2,220 Repayment of Note due to The Vitamin Shoppe.......... -- -- (5,803) Issuance of Series A convertible preferred stock..... -- -- 23,558 Issuance of common stock............................. -- -- 45,127 ----- ------- -------- Net cash provided by financing activities............ 353 3,230 65,102 ----- ------- -------- Net increase in cash and cash equivalents.............. -- -- 38,019 Cash and cash equivalents -- beginning of period....... -- -- -- ----- ------- -------- Cash and cash equivalents -- end of period............. $ -- $ -- $ 38,019 ===== ======= ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest.......................................... $ -- $ -- $ 531 ===== ======= ======== Income taxes...................................... $ -- $ -- $ -- ===== ======= ========
See notes to financial statements. F-6 35 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 1, 1997 (INCEPTION) TO DECEMBER 31, 1997 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. DESCRIPTION OF BUSINESS VitaminShoppe.com, Inc. (the "Company" or "VitaminShoppe.com") is an online provider of products and content related to vitamins, nutritional supplements and minerals. Until July 1999, the Company was wholly owned by Vitamin Shoppe Industries Inc. ("The Vitamin Shoppe"). The Company commenced operations effective October 1, 1997 as a division of The Vitamin Shoppe and operated in the development stage until April 1998, when it began sales through its Web site. The Company was incorporated in Delaware in May 1999 and capitalized by The Vitamin Shoppe in June 1999. See Note 6. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation For all periods prior to July 1, 1999, the financial statements have been prepared as if the Company operated as a stand-alone entity since inception. Thus, the financial information related to those periods may not necessarily reflect the financial position, results of operations or cash flows of the Company in the future or what the balance sheets, results of operations or cash flows of the Company would have been if it had actually been a separate, stand-alone entity. For the periods prior to July 1, 1999, the financial statements include allocations of expenses incurred by The Vitamin Shoppe in support of the Company. These allocations took into consideration personnel, business volume and other appropriate factors and generally included costs related to fulfillment, marketing, administrative, general management and other services provided to the Company by The Vitamin Shoppe. Such allocated charges were $49, $816 and $786 for the period from October 1, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and the six months ended June 30, 1999, respectively. Interest expense, net, shown in the financial statements reflects interest expense at a rate of 8.75 percent per annum on the average amounts due to The Vitamin Shoppe until November 1999 when the note balance was paid, offset by interest income in the amount of $217 earned from interest bearing deposit accounts. Allocations of expenses were estimates based on The Vitamin Shoppe management's best assessment of actual expenses incurred on behalf of the Company. It is management's opinion that the expenses charged to the Company were reasonable. In addition to these allocations, The Vitamin Shoppe supplied the Company with inventory on an exclusive basis at a charge of 100 percent of cost. Effective July 1, 1999 the Company and The Vitamin Shoppe entered into several intercompany agreements which replaced the expense allocations covering inventory supply, fulfillment, marketing and administration that were in effect prior to July 1, 1999 and which cover additional rights and obligations regarding trademark licenses, co-marketing and databases. Under the intercompany agreements for inventory supply and fulfillment, The Vitamin Shoppe supplies inventory to the Company at a cost equal to 105 percent of The Vitamin Shoppe's product cost and fulfills customer orders at a cost equal to 105 percent of The Vitamin Shoppe's actual average unit cost per package, plus actual shipping costs not paid directly by the Company. Both of these services were provided at 100 percent of cost under the allocation approach used prior to July 1, 1999. The rights and obligations which were added when the intercompany agreements became effective July 1, 1999 include trademark licenses and co-marketing. The trademark license agreement provides the Company with the exclusive right to use The Vitamin Shoppe's trademarks in connection with its marketing and sale of products and services in online commerce. Under this agreement, the Company pays The Vitamin Shoppe an annual royalty fee equal to $1 million plus a percentage (which ranges from 5 percent to 1 percent depending upon volume) of the Company's net sales of The Vitamin Shoppe brand products, and other products F-7 36 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) identified by or branded with The Vitamin Shoppe's trademarks. Under the co-marketing agreements, The Vitamin Shoppe and the Company provide certain advertising and promotional references to each other in their respective catalogue, retail store and web businesses for mutually agreed upon fees. For the six months ended December 31, 1999, charges for services provided to the Company by The Vitamin Shoppe were in accordance with the intercompany agreements and totaled $2.3 million, as shown in the chart below. Accounts payable and accrued expenses on the accompanying balance sheet at December 31, 1999 include amounts due to The Vitamin Shoppe related to these services in the amount of $1.1 million.
SIX MONTHS ENDED DECEMBER 31, 1999 ----------------- (IN THOUSANDS) Trademark license........................................... $ 703 Co-marketing................................................ 614 Administrative.............................................. 369 Supply and fulfillment...................................... 335 Merchandising............................................... 300 ------ Total Expense............................................... $2,321 ======
All merchandise purchases are made from The Vitamin Shoppe. Such purchases aggregated $1.4 million and $7.6 million for the years ended December 31, 1998 and 1999, respectively. Accounts payable and accrued expenses on the accompanying balance sheet at December 31, 1999 include amounts due to The Vitamin Shoppe related to these merchandise purchases in the amount of $1.5 million. By implementing the intercompany agreements, new charges were created that were not provided for in the historical financial statements prior to July 1, 1999. On a pro forma basis, had the trademark license and the supply and fulfillment agreements been in place for all periods presented, the net loss would have been $4.36 million and $31.0 million for the years ended December 31, 1998 and 1999, respectively. Since July 1, 1999, the charges related to these intercompany agreements are included in the results of operations. Online Marketing Arrangements The Vitamin Shoppe, on behalf of the Company, and the Company since July 1, 1999, on behalf of itself, have entered into several online marketing arrangements with Internet content providers whereby the Company is established as the exclusive or preferred vendor of nutritional products on the Internet Web sites of these providers. The agreements are for terms of 12 to 24 months, provide for fixed monthly or quarterly payments by the Company and in some cases contain revenue-sharing provisions upon the attainment of stipulated revenue amounts. Certain agreements provide for guaranteed minimum levels of impressions delivered by the Internet service providers and certain make-good provisions in the event of a shortfall. At December 31, 1999, the Company's remaining base payments under such arrangements were approximately $8.4 million and $1.4 million for the years ending December 31, 2000 and 2001, respectively. The Company's fixed payments under such arrangements are recognized as expenses either on a straight-line basis over the term of the agreement, or on an impression delivered basis, depending upon the terms of the agreement. Expense accruals relating to revenue sharing provisions are made when projections indicate that revenue thresholds will be attained. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could differ from those estimates. F-8 37 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Property and Equipment Property and equipment is carried at cost less accumulated depreciation and amortization. Software acquired, computers and fixtures and equipment are depreciated using the straight-line method over their estimated useful lives of three to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the lease term. Effective January 1, 1999, the Company adopted the AlCPA's Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company's online store, transaction-processing systems, telecommunications infrastructure and network operations, incurred during the application development stage, are capitalized and are amortized over the estimated lives of three years. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to undiscounted pre-tax future net cash flows expected to be generated by that asset. An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. To date, no such impairment has been recognized. Revenue Recognition Sales of products purchased from The Vitamin Shoppe are recognized, net of discounts and estimated returns, at the time the products are shipped to customers. Advertising Costs The costs of advertising for online marketing arrangements, magazines, television, radio and other media are expensed the first time advertising takes place. Advertising expense for the period from October 1, 1997 (inception) to December 31, 1997 and for the years ended December 31, 1998 and 1999 were $0, $3.0 million and $19.9 million, respectively. Deferred Rent Rent expense under operating leases providing for rent abatements and fixed non-contingent escalations is recognized on a straight-line basis over the term of each individual underlying lease. The cumulative net excess of recorded rent expense over lease payments made is included in accounts payable and accrued expenses on the accompanying balance sheet. Income Taxes In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, the Company uses the asset and liability method to provide for all book/tax differences that are expected to reverse in the future. This method requires that the effect of tax rate changes as well as other changes in income tax laws be recognized in earnings for the period in which such changes are enacted and that valuation allowances be established to reduce deferred tax assets to amounts expected to be realized. Computation of Basic and Diluted Net Loss Per Share Net loss per share has been calculated under SFAS No. 128, Earnings per Share. SFAS No. 128 requires companies to compute earnings per share under two different methods (basic and diluted). Basic net loss per share is calculated by dividing the net loss by the weighted average shares of common stock outstanding during the period. Shares used for this computation consist of 13,081,500 shares of Class B common stock F-9 38 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) issued in connection with the Company's initial capitalization in June 1999 as if all shares were outstanding for all periods presented. For the year ended December 31, 1999, diluted net loss per share is equal to basic net loss per share since potential common shares from the exercise of the stock options and warrants are antidilutive. At December 31, 1999, securities, the issuance or exercise of which may result in dilution, consisted of 32,703 shares of Class A common stock issuable upon the exercise of a warrant and 1,844,768 options to purchase shares of Class A common stock. VitaminShoppe.com evaluated the requirements of the Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 98, and concluded that there are no nominal issuances of common stock or potential common stock required to be shown as outstanding for all periods as outlined in SAB No. 98. Start-Up Costs In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. This SOP establishes accounting and reporting standards for start-up activities and states that costs of start-up activities, including organization costs, should be expensed as incurred. The SOP is effective for fiscal years beginning after December 15, 1998. The Company adopted this statement effective January 1, 1999 and the adoption did not have a material effect on the financial statements. Concentrations The Company's customers are consumers who utilize the Company's Web site and purchase products. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable from credit card processors. As of December 31, 1998 and 1999, there were no significant concentrations of accounts receivable or related credit risks. Fair Value of Financial Instruments Financial instruments, including accounts receivable, accounts payable and accrued liabilities, are reflected in the financial statements at carrying or contract value. Those values were not materially different from their fair values. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations, in accounting for employee stock options rather than the alternative fair value accounting allowed by SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB No. 25 provides that the compensation expense relative to the Company's employee stock options is measured based on the intrinsic value of the stock option. SFAS No. 123 requires companies that continue to follow APB No. 25 to provide a pro forma disclosure of the impact of applying the fair value method of SFAS No. 123. See Note 6. Comprehensive Income The Company has no reconciling items to comprehensive income, therefore, net loss and comprehensive loss are the same. Disclosures About Segments of an Enterprise and Related Information The Company currently operates as one segment. F-10 39 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, which is effective for fiscal years beginning after June 15, 2000, requires the Company to recognize all derivatives on the balance sheet at fair value. The Company has determined that adoption of this new standard will not have a material effect on the Company's financial statements or disclosures. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, -------------- 1998 1999 ---- ------ (IN THOUSANDS) Website development costs................................... $ -- $4,340 Computer hardware........................................... 268 1,169 Software.................................................... 200 652 Leasehold improvements...................................... 10 137 Fixtures and equipment...................................... 28 133 ---- ------ 506 6,431 Accumulated depreciation and amortization................... (21) (247) ---- ------ $485 $6,184 ==== ======
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consists of the following:
DECEMBER 31, --------------- 1998 1999 ---- ------- (IN THOUSANDS) Accounts payable............................................ $ -- $ 2,611 Advertising and marketing................................... 722 3,487 Website development costs................................... -- 1,561 Professional fees........................................... -- 861 Other accrued expenses...................................... 102 2,067 ---- ------- Total accounts payable and other accrued expenses........... $824 $10,587 ==== =======
5. COMMITMENTS At December 31, 1999, the Company is obligated under online marketing agreements with web portals and strategic partners for future payments aggregating $9.8 million through February 2001. In June 1999, the Company entered into an employment agreement with an executive for an initial two-year term. Under the terms of this agreement, the Company is committed to compensate this executive in the amount of $300 annually, unless the executive is dismissed for cause or upon disability or death. See Note 8. In August 1999, the Company entered into a noncancellable operating lease for its corporate office facility and issued a standby letter of credit in the amount of $600 as security for its lease commitment. Rental payments under this lease for the period from September 1999 through November 2003 approximate $35 per F-11 40 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) month and aggregate $1.8 million over the lease term. Rental expense was $182 for the year ended December 31, 1999. 6. STOCKHOLDERS' EQUITY a. Capital Transactions The Company was incorporated in May 1999 and was capitalized in June 1999. The Company was capitalized by the issuance to The Vitamin Shoppe of 1,000 shares of common stock, par value $.01 per share, for a purchase price of $1 and the contribution by The Vitamin Shoppe of net liabilities of approximately $8.2 million. In July 1999, the Company effected a recapitalization through the authorization of 30,000,000 shares of Class A common stock and 15,000,000 shares of Class B common stock and the issuance of 13,081,500 shares of Class B common stock in exchange for the 1,000 shares of common stock previously issued to The Vitamin Shoppe. The recapitalization has been retroactively reflected in the accompanying financial statements. In addition, the Company authorized 5,000,000 shares of preferred stock. Holders of Class A common stock are entitled to one vote per share, while holders of Class B common stock are entitled to six votes per share. Prior to July 1, 1999, the Company was operated as a division of The Vitamin Shoppe. Through its ownership of the Class B common stock, The Vitamin Shoppe currently holds approximately 91.5 percent of the voting power of all outstanding common stock. On July 9, 1999, the Company issued $10 million in aggregate principal amount of promissory notes due in June 2000. These notes were held by stockholders of The Vitamin Shoppe or affiliates of these stockholders. As described below, in July 1999 these notes were converted into shares of Series A convertible preferred stock. On July 27, 1999, the Company issued 1,775,260 shares of Series A convertible preferred stock, par value $.01 per share, that were convertible into 2,732,119 shares of Class A common stock ($9.15 fair value per share) for gross proceeds of $25 million. The proceeds (net of commissions and offering costs) of this transaction were approximately $23.6 million. Of the gross proceeds, $10.0 million was paid through the conversion of promissory notes referred to in the preceding paragraph into Series A convertible preferred stock. The remaining shares were sold to the noteholders and other persons for cash consideration of $15.0 million. The Company also issued warrants to purchase an equivalent of 32,703 shares of Class A common stock at a price of $9.15 per share, subsequently amended to $11.00, to Thomas Weisel Partners LLC in consideration for its services as placement agent in this transaction. All shares of the Series A convertible preferred stock converted into an aggregate of 2,732,119 shares of the Class A common stock upon the closing of the Company's initial public offering. The estimated fair value of the warrants issued to the placement agent of approximately $86 was recorded as an additional expense of the issuance and was credited to additional paid-in capital in the balance sheet. On September 9, 1999, the Company's Board of Directors approved a 1.539-for-l stock split of its Class A common stock and Class B common stock, which was effective on September 22, 1999. The respective share and per-share amounts and conversion ratios included in the financial statements and footnotes reflect the stock split for all periods presented. On October 8, 1999, the Company sold 4,545,455 shares of its Class A common stock in an initial public offering at a price of $11.00 per share. The gross proceeds from the offering were $50 million. The net proceeds were $45.1 million after deducting the underwriting discounts and commissions of $3.5 million and other offering expenses of $1.4 million. In connection with the initial public offering, the 1,775,260 shares of Series A convertible preferred stock converted into 2,732,119 shares of Class A common stock. As reflected in the balance sheet the carrying amount of the Series A convertible preferred stock was credited to Class A common stock par value and to additional paid-in capital. F-12 41 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Total shares outstanding at December 31, 1999 consisted of 7,277,574 shares of Class A common stock and 13,081,500 shares of Class B common stock for total shares outstanding of 20,359,074 shares. b. Stock Options In July 1999, dated July 1, 1999, the Company established the VitaminShoppe.com, Inc. Stock Option Plan for Employees (the "Employee Plan"), which provides for the granting of stock options, including incentive stock options and non-qualified stock options. The Company reserved 2,308,500 shares of Class A common stock for grant. Either the board of directors or the compensation committee of the board of directors may determine the type of award, when and to whom awards are granted, the number of shares and terms of the awards and the exercise prices. Stock options are exercisable for a period not to exceed 10 years from the date of grant and, to the extent determined at the time of grant, may be paid for in cash or shares of Class A common stock, or by a reduction in the number of shares issuable upon exercise of the option. In August 1999, the Company established the VitaminShoppe.com, Inc. Stock Option Plan for Non-employee Directors (the "Director Plan") which provides for the granting of options to purchase 38,475 shares of Class A common stock to each elected or appointed non-employee director. The Company reserved 461,700 shares of Class A common stock for grant. During the period from June 14, 1999 through October 7, 1999, the Company granted to twenty employees and two directors options to purchase 1,302,510 shares of Class A common stock at exercise prices of $3.82 and $9.15 per share. The options expire 10 years from the date of grant and vest ratably over a period of three years. Under APB No. 25, no compensation expense is recognized when the exercise price of the Company's employee stock options equals the fair value of the underlying stock on the date of grant. Deferred stock-based compensation is recorded for those situations where the exercise price of an option was lower than the deemed fair value for financial reporting purposes of the underlying common stock. The Company recorded aggregate deferred stock-based compensation of approximately $3.9 million during the year ended December 31, 1999. The deferred stock-based compensation is being amortized over the vesting period of the underlying options. Total amortization of stock-based compensation recognized during the year ended December 31, 1999 was approximately $1.2 million, inclusive of approximately $697 of expense upon the closing of the initial public offering due to the accelerated vesting of 130,815 of those options. The remaining deferred stock-based compensation will be amortized over the three-year vesting period. Subsequent to December 31, 1999, two of the executive officers that were granted stock options prior to October 7, 1999, resigned their positions with the Company. During the first quarter 2000, the Company expects to eliminate approximately $1.9 million of unamortized deferred stock based compensation by removing it from the additional paid in capital where it was originally recorded, and there will no longer be expense associated with these options. Since October 8, 1999, the Company has granted to 20 employees and 5 directors options to purchase 631,829 shares of Class A common stock at exercise prices ranging from $8.53 to $14.47 (the then current fair market value on the dates of grant). The options expire 10 years from the date of grant and vest ratably over a period of three years. F-13 42 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Stock option transactions during the year ended December 31, 1999 are summarized as follows:
WEIGHTED- AVERAGE EXERCISE SHARES PRICE --------- --------- Outstanding, beginning of year.............................. -- $ -- Granted..................................................... 1,934,339 8.24 Exercised................................................... -- -- Forfeited................................................... (91,571) 9.15 --------- ----- Outstanding, end of year.................................... 1,842,768 $8.20 ========= ===== Options exercisable at year end............................. 130,815 $3.82 ========= ===== Options available for future grant.......................... 927,432 =========
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------- ------------------------------ WEIGHTED-AVERAGE REMAINING RANGE OF OPTIONS CONTRACTUAL LIFE WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- ---------------- ----------- ---------------- 3.82 569,045 9.42 $ 3.82 130,815 $3.82 8.53 - 9.44 679,394 9.69 9.14 -- -- 11.00 - 14.47 594,329 9.77 11.31 -- -- --------- ---- ------ ------- ----- 1,842,768 9.63 $ 8.20 130,815 $3.82 ========= ==== ====== ======= =====
During January 2000, 703,185 options were forfeited with a weighted-average exercise price of $7.29. c. SFAS No. 123 Disclosures Had the stock-based compensation for the Company's stock option grants been determined in accordance with SFAS No. 123 the Company's net loss would have been adjusted to the following pro forma amount for the year end December 31, 1999 (in thousands): Net loss -- as reported..................................... $(30,201) ======== Incremental pro forma compensation expense under SFAS No. 123....................................................... $ (242) ======== Net loss -- pro forma....................................... $(30,443) ======== Basic and diluted net loss per share -- as reported......... $ (2.05) ======== Basic and diluted net loss per share -- pro forma........... $ (2.07) ========
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and with the following weighted average assumptions at December 31, 1999: Average risk-free interest rate............................. 5.21% Average expected life....................................... 3.0 years Volatility.................................................. 33.33%
For purposes of the pro forma disclosures, the estimated weighted average fair value of the options granted, estimated to be $5.54 per share at the date of grant, is amortized to expense over the options' vesting period. This amount has been reduced by the amount of deferred stock-based compensation already recorded F-14 43 VITAMINSHOPPE.COM, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) in the accompanying financial statements of $4.86 per share for those options that were granted below the fair market value on the date of grant. d. Parent Company Restrictions Under the agreements that govern The Vitamin Shoppe's bank credit facility, all of our Class B common stock has been pledged by The Vitamin Shoppe as security for its obligations. If the Vitamin Shoppe defaults under its bank credit facility, its lenders could take ownership of the Class B common stock, which would convert to Class A common stock. In that case, the lender may be able to control VitaminShoppe.com through the election of directors and in matters requiring stockholder approval. 7. INCOME TAXES The Company's operating results through June 30, 1999 were included in the consolidated income tax returns of The Vitamin Shoppe. Through June 30, 1999, The Vitamin Shoppe did not allocate to the Company its share of income tax liabilities or benefits attributable to the Company's proportionate share of operating results. Since July 1, 1999, the Company is no longer included in the consolidated income tax return of The Vitamin Shoppe and, therefore, the Company's income tax provisions have been calculated on a separate return basis. Since the capitalization of the Company on July 1, 1999, when the Company ceased to be part of The Vitamin Shoppe's consolidated group, losses generated are available to offset any future taxable income for 20 years. Deferred tax assets normally recorded to reflect the future benefit may or may not be shown as realizable, depending on the Company's ability to demonstrate the likelihood of future profitability. As of December 31, 1999, the Company has a net operating loss carry forward that, if utilized, provides a future tax benefit of approximately $10.3 million at an effective tax rate of 40 percent. Due to the uncertainty of the realization of this net operating loss carry forward in the future, the Company has provided a valuation allowance to offset this deferred tax asset. Included in the statement of operations for the year ended December 31, 1999 is an income tax provision that consists of minimum state taxes. 8. SUBSEQUENT EVENTS In January 2000, the president and CEO and the chief marketing officer resigned their positions with the Company. In connection with these resignations, the Company will record approximately $842 of severance expense during the first quarter of fiscal 2000 representing approximately $607 of cash compensation in accordance with their employment agreements, and approximately $235 of accelerated vesting of stock options. Additionally, the Company will eliminate approximately $1.9 million of unamortized deferred stock based compensation that was previously recorded as additional paid in capital. F-15 44 EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K The following exhibits are filed as part of this report.
EXHIBIT DESCRIPTION - ------- ----------- 3.1 Second Amended and Restated Certificate of Incorporation of the registrant, incorporated by reference to exhibit 3.1 to the Registration Statement on Form S-1 of the registrant (File. No. 333-83849). 3.2 Amended and Restated Bylaws of the registrant. 3.3 Certificate of Designation, Powers, Preferences and Rights of Series A Convertible Preferred Stock of the registrant, incorporated by reference to exhibit 3.3 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 3.4 Certificate of Amendment of Second Amended and Restated Certificate of Incorporation of the registrant, incorporated by reference to exhibit 3.4 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 4.1 Specimen Class A common stock certificate of the registrant, incorporated by reference to exhibit 4.1 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 4.2 See exhibits 3.1, 3.2 and 3.4 for provisions of the certificate of incorporation and bylaws of the registrant that govern the rights of holders of the securities registered. 10.1 Assignment and Assumption of Contracts dated as of June 30, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.1 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.2 Bill of Sale dated as of June 30, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.2 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.3 Assignment of Domain Name dated as of June 30, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.3 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.4 Intercompany Note dated as of June 30, 1999 made by the registrant and payable to Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.4 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.5 Convertible Subordinated Note Purchase Agreement dated as of July 9, 1999 between the registrant and the purchasers named therein, incorporated by reference to exhibit 10.5 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.6 Form of Convertible Subordinated Note dated as of July 9, 1999 made by the registrant with attached schedule describing purchaser and principal amount of note. 10.7 Stock Purchase Agreement dated as of July 27, 1999 among the registrant and the holders of Series A convertible preferred stock, par value $0.01 per share, of the registrant, incorporated by reference to exhibit 10.7 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.8 Stockholders Agreement dated as of July 27,1999 among the registrant, Vitamin Shoppe Industries Inc. and the holders of Series A convertible preferred stock, par value $0.01 per share, of the registrant, incorporated by reference to exhibit 10.8 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.9 Registration Rights Agreement dated as of July 27, 1999 among the registrant, Vitamin Shoppe Industries Inc. and the holders of Series A convertible preferred stock, par value $0.01 per share, of the registrant, incorporated by reference to exhibit 10.9 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).
26 45
EXHIBIT DESCRIPTION - ------- ----------- 10.10 Irrevocable Commitment to Convert by holders of Series A Convertible Preferred Stock of the registrant, incorporated by reference to exhibit 10.39 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.11 Series A Convertible Preferred Stock Purchase Warrant dated as of July 27, 1999 of the registrant in favor of Thomas Weisel Partners LLC, incorporated by reference to exhibit 10.10 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.12 Amendment No. 1 dated as of September 22, 1999 to the Series A Convertible Preferred Stock Purchase Warrant A-1 of the registrant in favor of Thomas Weisel Partners LLC, incorporated by reference to exhibit 10.46 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.13 Trademark License Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.11 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.14 Supply and Fulfillment Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.12 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.15 Co-Marketing Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.13 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.16 Administrative Services Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.14 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.17 Database Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.15 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.18 Intercompany Indemnification Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.16 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.19 Tax Allocation Agreement dated as of July 1, 1999 between the registrant and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.17 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.20 Sublease Agreement dated as of July 14, 1999 between Yahoo! Inc. and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.18 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.21 Consulting Agreement dated as of June 14, 1999 between the registrant and Kathryn H. Creech, incorporated by reference to exhibit 10.20 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.22 Employment and Noncompetition Agreement dated as of June 14, 1999 between the registrant and Kathryn H. Creech, incorporated by reference to exhibit 10.19 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.23 VitaminShoppe.com, Inc. Amended and Restated Stock Option Plan for Employees dated as of July 1, 1999 and amended and restated as of March 16, 2000. 10.24 Form of Nonqualified Stock Option Agreement between the registrant and employee with attached schedule describing actual option grants. 10.25 Amended and Restated Stock Option Plan for Non-Employee Directors dated as of August 1, 1999 and amended and restated as of March 16, 2000.
27 46
EXHIBIT DESCRIPTION - ------- ----------- 10.26 Form of Non-Employee Director Stock Option Agreement between the registrant and Non-Employee Director with attached schedule describing actual option grants. 10.27 Sponsorship Agreement dated as of September 23, 1998 between Vitamin Shoppe Industries Inc. and Excite, Inc., incorporated by reference to exhibit 10.26 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.28 Advertising Insertion Order dated as of November 1, 1998 between Vitamin Shoppe Industries Inc. and Yahoo!, incorporated by reference to exhibit 10.27 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.29 NetGravity AdServer Network License Agreement dated as of December 17, 1998 between Vitamin Shoppe Industries Inc. and NetGravity, Inc., incorporated by reference to exhibit 10.28 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.30 Letter agreement dated as of December 17, 1998 between Vitamin Shoppe Industries Inc. and Time Inc. New Media related to Ask Dr. Weil Web site, incorporated by reference to exhibit 10.29 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.31 Agreement dated as of February 1, 1999 between Vitamin Shoppe Industries Inc. and Virtual Communities, Inc., incorporated by reference to exhibit 10.30 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.32 Sponsorship Agreement dated as of March 11, 1999 between Vitamin Shoppe Industries Inc. and drkoop.com, Inc., incorporated by reference to exhibit 10.31 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.33 Sponsorship Agreement dated as of March 31, 1999 between Vitamin Shoppe Industries Inc. and OnHealth Network Company, incorporated by reference to exhibit 10.32 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.34 Strategic Planning Services Agreements dated as of April 29, 1999 between Vitamin Shoppe Industries Inc. and Jupiter Communications, L.L.C., incorporated by reference to exhibit 10.33 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.35 Letter Agreement dated as of May 24, 1999 between Vitamin Shoppe Industries Inc. and Time Inc. New Media related to Dr. Bernie Siegel Web site, incorporated by reference to exhibit 10.34 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.36 Sponsorship and Advertising Agreement dated as of April 16, 1999 between Vitamin Shoppe Industries Inc. and InteliHealth, Inc., incorporated by reference to exhibit 10.35 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.37 Memorandum of Engagement dated as of June 7, 1999 between Compelling Content and the registrant, incorporated by reference to exhibit 10.36 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849). 10.38 License Agreement dated as of October 5, 1998 between HealthNotes, Inc. and Vitamin Shoppe Industries Inc., incorporated by reference to exhibit 10.37 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.39 AOL Advertising Insertion Order dated as of August 27, 1999 between the registrant and America Online, Inc., incorporated by reference to exhibit 10.45 of the Registration Statement on Form S-1 of the registrant (File No. 333-83849).* 10.40 Offer Letter dated as of September 15, 1999 between the registrant and Philip Teplitzky. 10.41 Offer Letter dated as of October 6, 1999 between the registrant and Ann M. Sardini. 10.42 Separation and Release Agreement dated as of January 17, 2000 between the registrant and Kathryn Creech. 10.43 Separation and Release Agreement dated as of February 8, 2000 between the registrant and Eliot D. Russman.
28 47
EXHIBIT DESCRIPTION - ------- ----------- 10.44 Letter agreement dated as of June 15, 1999 between the registrant and Time Inc. New Media related to Ask Dr. Weil, Dr. Ruth Westheimer! and Alice Waters Web sites.** 10.45 Letter agreement dated as of August 16, 1999 between the registrant and Sapient Corporation.** 11.1 Statement regarding computation of per share earnings of the registrant. 27.1 Financial data schedule.
- --------------- * Request for confidential treatment granted. Confidential portions of this document have been redacted and filed separately with the Securities and Exchange Commission. ** Confidential treatment requested. Confidential portions of this document have been redacted and filed separately with the Securities and Exchange Commission. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the three months ended December 31, 1999. 29 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VITAMINSHOPPE.COM, INC. (Registrant) Date: March 30, 2000 By: /s/ JEFFREY J. HOROWITZ ------------------------------------ Jeffrey J. Horowitz President and Chief Executive Officer By: /s/ ANN M. SARDINI ------------------------------------ Ann M. Sardini Chief Financial Officer, Treasurer and Secretary Chief Accounting Officer 30 49 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 30, 2000 /s/ M. ANTHONY FISHER -------------------------------------------------------- M. Anthony Fisher Chairman of the Board of Directors and a Director Date: March 30, 2000 /s/ JEFFREY J. HOROWITZ -------------------------------------------------------- Jeffrey J. Horowitz Director Date: March 30, 2000 /s/ MICHAEL C. BROOKS -------------------------------------------------------- Michael C. Brooks Director Date: March 30, 2000 /s/ MARTIN L. EDELMAN -------------------------------------------------------- Martin L. Edelman Director Date: March 30, 2000 /s/ BARBARA S. FEIGIN -------------------------------------------------------- Barbara S. Feigin Director Date: March 30, 2000 /s/ DAVID S. GELLMAN -------------------------------------------------------- David S. Gellman Director Date: March 30, 2000 /s/ WOODSON C. MERRELL -------------------------------------------------------- Woodson C. Merrell, M.D. Director Date: March 30, 2000 /s/ STEPHEN P. MURRAY -------------------------------------------------------- Stephen P. Murray Director
31 50 EXHIBIT INDEX
EXHIBIT DESCRIPTION - ------- ----------- 3.2 Amended and Restated Bylaws of the registrant. 10.6 Form of Convertible Subordinated Note dated as of July 9, 1999 made by the registrant with attached schedule describing purchaser and principal amount of note. 10.23 VitaminShoppe.com, Inc. Amended and Restated Stock Option Plan for Employees dated as of July 1, 1999 and amended and restated as of March 16, 2000. 10.24 Form of Nonqualified Stock Option Agreement between the registrant and employee with attached schedule describing actual option grants. 10.25 Amended and Restated Stock Option Plan for Non-Employee Directors dated as of August 1, 1999 and amended and restated as of March 16, 2000. 10.26 Form of Non-Employee Director Stock Option Agreement between the registrant and Non-Employee Director with attached schedule describing actual option grants. 10.40 Offer Letter dated as of September 15, 1999 between the registrant and Philip Teplitzky. 10.41 Offer Letter dated as of October 6, 1999 between the registrant and Ann M. Sardini. 10.42 Separation and Release Agreement dated as of January 17, 2000 between the registrant and Kathryn Creech. 10.43 Separation and Release Agreement dated as of February 8, 2000 between the registrant and Eliot D. Russman. 10.44 Letter agreement dated as of June 15, 1999 between the registrant and Time Inc. New Media related to Ask Dr. Weil, Dr. Ruth Westheimer! and Alice Waters Web sites.** 10.45 Letter agreement dated as of August 16, 1999 between the registrant and Sapient Corporation.** 11.1 Statement regarding computation of per share earnings of the registrant. 27.1 Financial data schedule.
- --------------- ** Confidential treatment requested. Confidential portions of this document have been redacted and filed separately with the Securities and Exchange Commission. EX-3.2 2 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF VITAMINSHOPPE.COM, INC. ARTICLE I STOCKHOLDERS Section 1.01. ANNUAL MEETING. An annual meeting of stockholders for the purpose of electing directors and transacting such other business as may come before the meeting, shall be held each year on such date, at such time and at such place as may be specified by the Board of Directors (the "Board"). Section 1.02. SPECIAL MEETINGS. Special meetings of the stockholders may be held at any time on call of the Chairman of the Board, any Vice Chairman of the Board, the President or a majority of the Board. Only business related to the purposes set forth in the notice of the meeting may be transacted at a special meeting. Section 1.03. PLACE AND TIME OF MEETINGS. Meetings of the stockholders may be held in or outside the State of Delaware at the place and time specified by the Board or the officers requesting the meeting. Section 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting, except that (a) it shall not be necessary to give notice to any stockholder who submits a signed waiver of notice before or after the meeting and (b) no notice of an adjourned meeting need be given, except when required under section 1.06 or by law. Each notice of a meeting shall be given, personally or by mail, not fewer than 10 nor more than 60 days before the meeting and shall state the time and place of the meeting, and, unless it is the annual meeting, shall state at whose direction or request the meeting is called and the purposes for which it is called. Such notice shall specify the place where the stockholders list will be open for examination prior to the meeting if required by section 1.10. If mailed, notice shall be considered given when mailed to a stockholder at his address on the Corporation's records. The attendance of any stockholder at a meeting, without protesting at the beginning of the meeting that the meeting is not lawfully called or convened, shall constitute a waiver of notice by him. In the event of a transfer of shares after notice has been given and prior to the holding of the meeting, it shall not be necessary to serve notice on the transferee. Section 1.05. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the Board fails to fix such 2 a record date, (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and (ii) in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board adopts the resolution relating thereto. Determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 1.06. QUORUM; ADJOURNMENT. A meeting of stockholders duly called shall not be organized for the transaction of business unless a quorum is present. Except as otherwise expressly provided by law, or in the certificate of incorporation or these bylaws, at any meeting of stockholders, the presence in person or by proxy of the holders of a majority of the shares entitled to vote shall constitute a quorum for the transaction of any business. The stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum, a majority in voting interest of those present or, if no stockholders are present, any officer entitled to preside at or to act as secretary of the meeting, may adjourn the meeting until a quorum is present. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place. No notice of an adjourned meeting need be given, if the time and place are announced at the meeting at which the adjournment is taken, except that, if adjournment is for more than 30 days or if, after the adjournment, a new record date is fixed for the meeting, notice of the adjourned meeting shall be given pursuant to section 1.04. At any adjourned meeting at which a quorum is present, any action may be taken that might have been taken at the meeting as originally called. Section 1.07. ORGANIZATION. The Chairman of the Board, or in his absence, the Vice Chairman of the Board, or in their absence one of the following officers, the President or any Vice President (in order of seniority) shall call to order meetings of stockholders, and shall act as chairman of such meetings. The Board or, if the Board fails to act, the stockholders may appoint any stockholder, director or officer of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer, the President and all Vice Presidents. The Secretary of the Corporation shall act as secretary of all meetings of stockholders, but, in the absence of the Secretary, the chairman of the meeting may appoint any other person to act as secretary of the meeting. Section 1.08. VOTING. (a) Each stockholder of record shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the capital stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation on the date fixed pursuant to section 1.05 as the record date for the determination of stockholders entitled to notice of and to vote at such meeting. Corporate action to be taken by stockholder vote, other than the election of 2 3 directors, shall be authorized by the holders of a majority of the votes cast at a meeting of stockholders, except as otherwise provided by law. (b) Directors shall be elected in the manner provided in section 2.03. Voting need not be by ballot, unless requested by a majority of the stockholders entitled to vote at the meeting or ordered by the chairman of the meeting. Each stockholder entitled to vote at any meeting of stockholders or to express consent to or dissent from corporate action in writing without a meeting may authorize another person to act for him by proxy. No proxy shall be valid after three years from its date, unless it provides otherwise. Section 1.09. INSPECTORS. The Board, in advance of any meeting of the stockholders, may appoint one or more inspectors to act at the meeting. If inspectors are not so appointed, the person presiding at the meeting may appoint one or more inspectors. If any person so appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at the meeting with strict impartiality and according to the best of his ability. The inspectors so appointed shall determine the number of shares outstanding, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies and shall receive votes, ballots, waivers, releases, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, waivers, releases or consents, determine and announce the results and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. Section 1.10. LIST OF STOCKHOLDERS. The Secretary shall prepare and make a complete list of the stockholders of record as of the applicable record date entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 1.11. STOCKHOLDERS. At an annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board or (c) by a stockholder of the Corporation who is a stockholder of record at the time of giving the notice provided for in this section 1.11, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this section 1.11. For business to be properly brought before an annual meeting by a stockholder 3 4 pursuant to clause (c) above, the stockholder must give timely notice thereof in writing to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Corporation's notice of annual meeting provided with respect to the previous year's annual meeting of stockholders. Notwithstanding the foregoing, if no annual meeting of stockholders was held in the previous year or the date of the annual meeting of stockholders has been changed to be more than 30 days earlier than or 60 days after such anniversary, notice shall be timely if received before the earlier of (i) 60 days prior to the annual meeting of stockholders or (ii) the close of business on the tenth day following the date on which notice of the date of the meeting is given to stockholders or made public. A stockholder's notice to the Secretary shall set forth as to each matter that the stockholder proposes to bring before the meeting (A) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (B) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (C) the class and number of shares of capital stock of the Corporation that are owned beneficially and of record by such stockholder of record and by the beneficial owner, if any, on whose behalf the proposal is made and (D) any material interest of such stockholder of record and such beneficial owner, if any, in such business. Notwithstanding any in this section 1.11 to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this section 1.11. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting whether business was properly brought before the meeting in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this section 1.11, a stockholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations thereunder, with respect to the matters set forth in this section 1.11. ARTICLE II BOARD OF DIRECTORS Section 2.01. GENERAL POWERS OF BOARD. The powers of the Corporation shall be exercised, its business and affairs conducted, and its property controlled by the Board, except as otherwise provided by of Delaware law or in the certificate of incorporation. Section 2.02. NUMBER OF DIRECTORS. The initial number of directors which shall constitute the whole Board shall be fixed by resolution of the Board at no less than six nor more than ten; provided, however, that the Board, by resolution adopted by vote of a majority of the then authorized number of directors, or the stockholders, may increase or decrease the number of directors, but no decrease may shorten the term of any incumbent director. As used in these bylaws, the term "entire Board" means the total number of directors which the Corporation would have if there were no vacancies. 4 5 Section 2.03. NOMINATION, ELECTION AND TERM OF DIRECTORS. Nominations for the election of directors may be made by the Board or by any stockholder entitled to vote for the election of directors. Such nominations, if not made by the Board, shall be made by notice in writing, in accordance with the notice procedures set forth in section 1.11 of these bylaws. Notice of nominations which are proposed by the Board shall be given on behalf of the Board by the chairman of the meeting. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Directors shall be elected at each annual meeting of stockholders and shall hold office until the next annual meeting of stockholders and until the election and qualification of their respective successors, subject to section 2.12. Section 2.04. ANNUAL AND REGULAR MEETINGS. Annual meetings of the Board, for the election of officers and consideration of other matters, shall be held either (a) without notice immediately after the annual meeting of stockholders and at the same place or (b) as soon as practicable after the annual meeting of stockholders, on notice as provided in section 2.06. Regular meetings of the Board may be held without notice at such times and places as the Board determines. If the day fixed for a regular meeting is a legal holiday, the meeting shall be held on the next business day. Section 2.05. SPECIAL MEETINGS. Special meetings of the Board shall be held at such time and place as shall be designated in the notice of the meeting whenever called by the Chairman of the Board, any Vice Chairman of the Board, the President (if a director) or by a majority of the Board. Section 2.06. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the time and place of each special meeting of the Board, and of each annual meeting not held immediately after the annual meeting of stockholders and at the same place, shall be given to each director by mailing it to him at his residence or usual place of business at least three days before the meeting, or by delivering or telephoning or telegraphing it to him at least two days before the meeting. Such notice shall specify the place, date and hour of the meeting and, if it is for a special meeting, the purpose or purposes for which the meeting is called. Any acts or proceedings taken at a meeting of the Board not validly called or constituted may be made valid and fully effective by ratification at a subsequent meeting which shall be legally and validly called or constituted. Notice of any regular meeting of the Board need not state the purpose of the meeting and, at any regular meeting duly held, any business may be transacted. If the notice of a special meeting shall state as a purpose of the meeting the transaction of any business that may come before the meeting, then at the meeting any business may be transacted, whether or not referred to in the notice thereof. A written waiver of notice of a special or regular meeting, signed by the person or persons entitled to such notice, whether before or after the time stated therein shall be deemed the equivalent of such notice, and attendance of a director at a meeting shall constitute a waiver of notice of such meeting except when the director attends the meeting and prior to or at the commencement of such meeting protests the lack of proper notice. Notice of any adjourned meeting need not be given, other than by announcement at the meeting at which the adjournment is taken. 5 6 Section 2.07. PLACE OF MEETING. The Board may hold any of its meetings in or outside the State of Delaware, at the principal office of the Corporation or at such other place or places as the Board may from time to time designate. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. Section 2.08. QUORUM AND MANNER OF ACTING. A majority of the entire Board shall constitute a quorum for the transaction of business at any meeting, except as provided in section 2.13. Action of the Board shall be authorized by the vote of the majority of the directors present at the time of the vote, if there is a quorum, unless otherwise provided by law or these Bylaws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. Section 2.09. COMMITTEES. The Board may, by resolution adopted by a majority of the entire Board, designate one or more committees, each committee to consist of one or more directors of the Corporation; provided that persons who are not directors of the Corporation may also be members of such committees to the extent provided in the resolution of the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board and permitted by law, shall have and may exercise all of the powers and authority of the Board in the management of the business, property and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee of the Board may fix its own rules and procedures. Notice of meetings of committees, other than of regular meetings provided for by the rules, shall be given to committee members. All action taken by committees shall be recorded in minutes of the meetings. Section 2.10. BOARD OR COMMITTEE ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board or by any committee of the Board may be taken without a meeting, if all the members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents by the members of the Board or the committee shall be filed with the minutes of the proceedings of the Board or the committee. Section 2.11. PARTICIPATION IN BOARD OR COMMITTEE MEETINGS BY CONFERENCE TELEPHONE. Any or all members of the Board or any committee of the Board may participate in a meeting of the Board or the committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. 6 7 Section 2.12. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign at any time by giving written notice to the Chairman of the Board or the Secretary. Such resignation shall take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any or all of the directors may be removed at any time by the holders of a majority of the shares entitled at the time to vote at an election of directors, but only for cause so long as the certificate of incorporation provides for the classification of the Board. Section 2.13. VACANCIES. Any vacancy in the Board, including one created by an increase in the number of directors, may be filled for the unexpired term by a majority vote of the remaining directors, though less than a quorum. Section 2.14. COMPENSATION. Directors shall receive such compensation as the Board determines, together with reimbursement of their reasonable expenses in connection with the performance of their duties. A director also may be paid for serving the Corporation or its affiliates or subsidiaries in other capacities. ARTICLE III OFFICERS Section 3.01. EXECUTIVE OFFICERS. The executive officers of the Corporation shall be the President, one or more Vice Presidents, the Secretary and the Treasurer. Any person may hold at one time two or more offices. Section 3.02. ELECTION, TERMS OF OFFICE. The executive officers of the Corporation shall be elected annually by the Board, and each such officer shall hold office until the next annual meeting of the Board and until the election of his successor, subject to the provisions of section 3.04. Section 3.03. SUBORDINATE OFFICERS. The Board may appoint subordinate officers (including assistant secretaries and assistant treasurers), agents or employees, each of whom shall hold office for such period and have such powers and duties as the Board determines. The Board may delegate to any executive officer or committee the power to appoint and define the powers and duties of any subordinate officers, agents or employees. Section 3.04. RESIGNATION AND REMOVAL OF OFFICERS. Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any officer elected or appointed by the Board or appointed by an executive officer or by a committee may be removed by the Board either with or without cause, and in the case of an officer appointed by an executive officer or by a committee, by the officer or committee that appointed him or by the President or the Chairman of the Board. 7 8 Section 3.05. VACANCIES. A vacancy in any office shall be filled in the manner prescribed in these bylaws for regular appointments or elections to such office. ARTICLE IV DUTIES OF THE OFFICERS Section 4.01. [Intentionally deleted.] Section 4.02. [Intentionally deleted.] Section 4.03. THE PRESIDENT. The President shall be the chief executive officer of the Corporation. Subject to the control of the Board and the Chairman of the Board, he shall have general supervision of the business, affairs and property of the Corporation and shall have such other powers and duties as presidents of other corporations usually have or as the Board assigns to him. Section 4.04. VICE PRESIDENTS. Each Vice President shall have such powers and duties as the Board or the President assigns to him. Section 4.05. THE TREASURER. The Treasurer shall be the chief financial officer of the Corporation and shall be in charge of the Corporation's books and accounts. Subject to the control of the Board, he shall have such other powers and duties as the Board or the President assigns to him. Section 4.06. THE SECRETARY. The Secretary shall be the secretary of, and keep the minutes of, all meetings of the Board and the stockholders, shall be responsible for giving notice of all meetings of stockholders and the Board, and shall keep the seal and, when authorized by the Board, apply it to any instrument requiring it. Subject to the control of the Board, he shall have such powers and duties as the Board or the President assigns to him. In the absence of the Secretary from any meeting, the minutes shall be kept by the person appointed for that purpose by the presiding officer. Section 4.07. SALARIES. The Board may fix the officers' salaries, if any, or it may authorize the President or the Chairman of the Board to fix the salary of any other officer. ARTICLE V CAPITAL STOCK Section 5.01. CERTIFICATE FOR SHARES. Every owner of one or more shares of capital stock in the Corporation shall be entitled to a certificate, which shall be in such form as the Board shall prescribe, certifying the number and class of shares in the Corporation owned by him. When such 8 9 certificate is counter-signed by an incorporated transfer agent or registrar, the signature of any of said officers may be facsimile, engraved, stamped or printed. The certificates for the respective classes of such shares shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board or any Vice Chairman of the Board, or the President or a Vice President, and by the Secretary or any Assistant Secretary or the Treasurer or an Assistant Treasurer. A record shall be kept of the name of the person, firm or corporation owning the shares represented by each such certificate and the number of shares represented thereby, the date thereof, and in case of cancellation, the date of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificates until such existing certificates shall have been so canceled. Section 5.02. LOST, DESTROYED AND MUTILATED CERTIFICATES. If any certificates for shares in the Corporation become worn, defaced or mutilated but are still substantially intact and recognizable, the directors, upon production and surrender thereof, may order the same canceled and issue a new certificate in lieu of same. The holder of any shares of capital stock in the Corporation shall immediately notify the Corporation if a certificate therefor shall be lost, destroyed, or mutilated beyond recognition, and the Corporation may issue a new certificate in the place of any certificate theretofore issued by it which is alleged to have been lost or destroyed or mutilated beyond recognition, and the Board may, in its discretion, require the owner of the certificate which has been lost, destroyed or mutilated beyond recognition, or his legal representative, to give the Corporation a bond in such sum and with such surety or sureties as it may direct, not exceeding double the value of the capital stock, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, destruction or mutilation of any such certificate. The Board may, however, in its discretion, refuse to issue any such new certificate except pursuant to legal proceedings. Section 5.03. TRANSFERS OF SHARES. Transfers of shares of capital stock in the Corporation shall be made only on the books of the Corporation by the registered holder thereof, his legal guardian, executor or administrator, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent appointed by the Board, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by properly executed stock powers and evidence of the payment of all taxes imposed upon such transfer. The person in whose name shares stand on the books of the Corporation shall, to the full extent permitted by law, be deemed the owner thereof for all purposes. Section 5.04. REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these bylaws concerning the issue, transfer and registration of certificates for shares of capital stock in the Corporation. It may appoint one or more transfer agents or one or more registrars, or both, and may require all certificates for shares to bear the signature of either or both. 9 10 ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 6.01. RIGHT TO INDEMNIFICATION. Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as such director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time, against all costs, charges, expenses, liabilities and losses (including attorney fees, judgments, fines, amounts paid or to be paid in settlement and other disbursements) actually and reasonably incurred by such person in connection therewith, and that indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and administrators. The right to indemnification conferred in these bylaws shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the General Corporation Law of the State of Delaware, as amended from time to time, requires, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by that person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced, if it shall ultimately be determined that such director or officer is not entitled to be indemnified under these bylaws or otherwise. The Corporation may, by action of its Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 6.02. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under section 6.01 is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant also shall be entitled to be paid the expense of prosecuting that claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking, if any, is required and has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct that makes it permissible under Delaware law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including the Board, independent legal counsel of the Corporation or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he has met that standard 10 11 of conduct, nor an actual determination by the Corporation (including the Board, independent legal counsel of the Corporation or its stockholders) that the claimant has not met that standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet that standard of conduct. Section 6.03. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 6.04. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or person who serves or has served at the request of the Corporation in a similar capacity in another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against that expense, liability or loss under Delaware law. Section 6.05. EXPENSES AS A WITNESS. To the extent any director, officer, employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he shall be indemnified against all costs and expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 6.06. INDEMNITY AGREEMENTS. The Corporation may enter into agreement with any director, officer, employee or agent of the Corporation providing for indemnification to the fullest extent permitted by Delaware law. ARTICLE VII MISCELLANEOUS Section 7.01. SEAL. The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the Corporation's name and the year and state in which it was incorporated. Section 7.02. FISCAL YEAR. The Board may determine the Corporation's fiscal year. Until changed by the Board, the last day of the Corporation's fiscal year shall be December 31. Section 7.03. VOTING OF SHARES IN OTHER CORPORATIONS. Shares in other corporations held by the Corporation may be represented and voted by an officer of this Corporation or by a proxy or proxies appointed by one of them. The Board may, however, appoint some other person to vote the shares. Section 7.04. EXECUTION OF INSTRUMENTS GENERALLY. All contracts and other instruments entered into in the ordinary course of business requiring execution by the Corporation may be 11 12 executed and delivered by the President, any Vice President or the Treasurer and authority to sign any such contracts or instruments, which may be general or confined to specific instances, may be conferred by the Board upon any other person or persons. Any person having authority to sign on behalf of the Corporation may delegate, from time to time, by instrument in writing, all or any part of such authority to any person or persons if authorized so to do by the Board. Section 7.05. AGREEMENTS WITH VITAMIN SHOPPE. As long as Vitamin Shoppe Industries Inc., a New York corporation ("VSI"), has direct or beneficial ownership of 30% or more of the voting power of the capital stock of the Corporation, the Corporation shall not enter into any material agreement with VSI or any of its subsidiaries (other than the Corporation and subsidiaries of the Corporation), unless such agreement has been approved by a majority of the members of the Board of this Corporation who are not (i) directors or officers of VSI, (ii) the beneficial owners of five percent or more of the outstanding voting securities of VSI or (iii) designees of such beneficial owners. This section 7.05 may be amended or repealed only by the affirmative vote of a majority of the members of the Board of the Corporation who are not directors or officers of VSI or the beneficial owners of five percent or more of the outstanding voting securities of VSI. 12 EX-10.6 3 FORM OF CONVERTIBLE SUBORDINATED NOTE 1 EXHIBIT 10.6 The form of Convertible Subordinated Note dated as of July 9, 1999 is hereby amended to add the following information: Schedule to Convertible Subordinated Note
Name of Purchaser Principal Amount of Note - ----------------- ------------------------ FdG-Chase Capital Partners LLC $292,683 FdG Capital Partners, LLC $3,707,317 Jeffrey Horowitz July, 1999 GRAT $1,000,000 Helen Horowitz July, 1999 GRAT $1,000,000 CB Capital Investors, Inc. $4,000,000
EX-10.23 4 AMENDED AND RESTATED STOCK OPTION PLAN 1 Exhibit 10.23 [SUBJECT TO STOCKHOLDER APPROVAL] AMENDED AND RESTATED VITAMINSHOPPE.COM, INC. STOCK OPTION PLAN FOR EMPLOYEES EFFECTIVE AS OF JULY 1, 1999 AND AMENDED AND RESTATED AS OF MARCH 16, 2000 2 INTRODUCTION VitaminShoppe.com, Inc., a corporation organized under the laws of the State of Delaware (the "Corporation"), hereby adopts this Amended and Restated Stock Option Plan for Employees of VitaminShoppe.com. The purposes of this Plan are to further the growth, development and financial success of the Corporation by providing additional incentives to certain of its employees and to offer options as a means of enhancing the ability of the Corporation to obtain and retain valuable employees, in each case by assisting employees to become owners of the Corporation's Class A Common Stock and thus to benefit directly from the Corporation's growth, development and financial success. 3 SECTION 1 DEFINITIONS For purposes of this Plan, the following terms shall be defined as follows unless the context clearly indicates otherwise: A. "BUSINESS COMBINATION" shall mean a merger, consolidation, exchange offer or other business combination involving the Corporation and another corporation. B. "CHANGE IN CONTROL" shall occur (x) when any person (including any individual, firm, partnership or other entity) together with all Affiliates and Associates (as defined under Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act) of such person, but excluding (i) any person or any Affiliate or Associate thereof who is a direct or indirect Shareholder of the Corporation as of the effective date of the Plan, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, or (iii) the Corporation or any subsidiary of the Corporation, becomes the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing a majority of the combined voting power of the Corporation's then outstanding securities, other than by reason of a Business Combination, (y) upon a Business Combination if the shareholders of the Corporation (or Affiliates or Associates thereto) immediately prior to such Business Combination do not, as of the date of such Business Combination (after giving effect thereto), own a beneficial interest, directly or indirectly, in shares of voting securities of the corporation surviving such Business Combination having at least a majority of the combined voting power of such surviving corporation's then outstanding securities or (z) upon a sale by the Corporation of all or substantially all of its assets; provided that in the case of (x), (y) or (z) shareholders of the Corporation receive cash in the event giving rise to such Change of Control equal to at least 30% of the value of their shares in the Corporation. C. "CLASS A STOCK" shall mean the Class A common stock, $.01 par value of the Corporation. D. "CLASS B STOCK" shall mean the Class B common stock, $.01 par value of the Corporation. E. "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. F. "COMMITTEE" shall mean the Board of Directors of the Corporation or a committee appointed by the Board of Directors for purposes of administration, operation and application of the Plan. G. "CORPORATION" shall mean VitaminShoppe.com, Inc., a Delaware corporation. H. "DISABILITY" shall have the same meaning as the term "permanent and total disability" under Section 22(e)(3) of the Code. 4 I. "EMPLOYEE" shall mean any employee (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code) of the Corporation, or of any corporation which is then a Parent Corporation or a Subsidiary, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan. J. "EMPLOYMENT COMMENCEMENT DATE" shall mean the date as of which an individual is hired (or rehired) by the Corporation as an Employee. K. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. L. "FAIR MARKET VALUE" with respect to the Corporation's Class A Stock shall mean: (i) in the event the Corporation's Class A Stock is not publicly traded, the fair market value of such Class A Stock, as determined by the Committee in good faith; (ii) in the event the Corporation's Class A Stock is publicly traded (x) on or prior to January 20, 2000, the average over the ten business days ending on a Trading Day of the last reported sale price for Class A Stock on each day or, in case no such reported sale takes place during such period, the average of the closing bid and asked prices for the Class A Stock on each day during such period ending on such Trading Day, in either case on the principal securities exchange on which the Class A Stock is listed or admitted to trading, and (y) following January 20, 2000, the fair market value is the closing price per share of such Class A Stock of the Corporation on the date of grant, and if such date is not a Trading Day, the date of grant shall be deemed the closing price on the next Trading Day, as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or any comparable system; (iii) if the Class A Stock is not listed on NASDAQ or a comparable system, the average over the ten business days ending on a Trading Day of the last reported sale price of the Class A Stock on each day or, if no sale is publicly reported, the average of the closing bid and asked prices for the Class A Stock on each day during such period ending on such Trading Day; as furnished by two members of the National Association of Securities Dealers, Inc. who make a market in the Class A Stock selected from time to time by the Corporation for that purpose; and (iv) notwithstanding the foregoing, in connection with an Option issued upon the commencement of an Initial Public Offering, the public offering price of Class A Stock in such Initial Public Offering. In addition, for purposes of this definition, a "Trading Day" shall mean, if the Class A Stock is listed on any securities exchange, a business day during which such exchange was open for trading or, if the Class A Stock is not listed on any national securities exchange but is traded in the over-the-counter market, a business day during which the over-the-counter market was open for trading. M. "GOOD CAUSE" shall mean a Participant's (i) willful or gross misconduct or wilful or gross negligence in the performance of his duties for the Corporation or for any Parent or Subsidiary after prior written notice to the Participant of such misconduct or negligence, (ii) intentional or habitual neglect of his duties for the Corporation or for any Parent or Subsidiary after prior written notice to the Participant of such neglect, (iii) theft or misappropriation of funds of the Corporation or of any Parent or Subsidiary, (iv) conviction of a felony, drunkenness or drug 2 5 addiction, (v) intentionally causing the Corporation to commit a violation of local, state or federal laws or (vi) willful refusal to comply with the policy, directives or decisions of the Corporation or willful refusal to perform the duties reasonably assigned to the Participant by the Corporation; provided that, if a Participant has entered into an employment agreement with the Corporation containing a definition of Cause, Good Cause or a similar term, such definition set forth in such agreement shall be substituted for the above. N. "GOOD REASON" shall mean (i) a material adverse change in a Participant's duties, responsibilities or position from those as of the date of the relevant Change of Control, or (ii) the Corporation's breach in any material respect of this Plan or an employment agreement between the Participant and the Corporation. O. "INCENTIVE STOCK OPTION" shall mean a stock option intended to satisfy the requirements of Section 422 of the Code. P. "INITIAL PUBLIC OFFERING" shall mean the closing of the first firm commitment underwritten public offering of shares of the Corporation's Class A Stock pursuant to a registration statement on Form S-1 (or any successor form) filed with the Securities and Exchange Commission. Q. "NONQUALIFIED STOCK OPTION" shall mean a stock option which does not satisfy the requirements of Section 422 of the Code. R. "OPTION" or "PLAN AWARD" shall mean an Incentive Stock Option or a Nonqualified Stock Option granted to purchase shares of the Corporation's Class A Stock pursuant to the provisions of Section 6 hereof. S. "OPTIONEE" shall mean a Participant who is granted an Option under the terms of this Plan. T. "PARENT" shall mean a parent corporation of the Corporation within the meaning of Section 424(e) of the Code. U. "PARTICIPANT" shall mean an Employee participating under the Plan. V. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder. W. "SPECIAL AWARD COMMITTEE" shall mean the President and Chief Executive Officer and one other member of the Committee or the Board of Directors. X. "SUBSIDIARY" shall mean a subsidiary corporation of the Corporation within the meaning of Section 424(f) of the Code. SECTION 2 ADMINISTRATION The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee may establish from time to time such regulations, provisions, procedures and 3 6 conditions of awards which, in its opinion, may be advisable in the administration of the Plan. The Committee is authorized to direct the Corporation to withhold in accordance with applicable law from any regular cash compensation payable to an Optionee any taxes required to be withheld by the Corporation under federal, state, or local law as a result of such Optionee's exercise of an Option under the Plan. A majority of the Committee shall constitute a quorum, and, subject to the provisions of Section 5 of the Plan, the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be the acts of the Committee. SECTION 3 SHARES AVAILABLE Subject to adjustment as provided for in Section 7 of the Plan, the maximum aggregate number of shares for which Options may be granted under the Plan shall not exceed 1.5 million shares of the Corporation's Class A Stock. Shares of Class A Stock subject to Options granted under the Plan shall be counted against the maximum number of shares for which Options may be granted, but only to the extent that the option remains exercisable or has been exercised. Stock Options awarded under the Plan may be fulfilled in accordance with the terms of the Plan with either authorized and unissued shares of Class A Stock, issued shares of Class A Stock held in the Corporation's treasury or shares of Class A Stock acquired on the open market. SECTION 4 ELIGIBILITY Those Employees of the Corporation selected by the Committee or Special Award Committee shall be eligible to participate in the Plan. Notwithstanding any other provision of the Plan, no Employee may receive an Incentive Stock Option under the Plan if at the time the Option is granted he owns stock possessing more than ten (10) percent of the total combined voting power of all classes of stock of the Corporation or of its Parent Corporation or Subsidiary. SECTION 5 AUTHORITY OF COMMITTEE The Plan shall be administered by, or under the direction of, the Committee, which shall have plenary authority to make all determinations specified in or permitted by the Plan or deemed necessary or desirable for its administration or for the conduct of the Committee's business and all actions and decisions of the Committee shall be final and binding on all parties; provided, that the Special Award Committee may grant or award Options to eligible Participants under the Plan so long as such Participant receives an Option to purchase no more than 6,500 shares of Class A Stock. All interpretations and determinations of the Committee or the Special Award Committee to the extent described herein, may be made in its sole discretion on an individual participant or group participant basis and shall be final, conclusive and binding on all interested parties. The authority of the Committee (or the Special Award Committee in connection with the award of Options pursuant to the proviso above) shall include, without limitation, the right to the following: A. PROCEDURES FOR EXERCISE OF OPTION. The establishment of procedures for an Optionee (i) to exercise an Option by payment of cash or any other property acceptable to the 4 7 Committee or the Special Award Committee in connection with the award of Options pursuant to the proviso above, (ii) to have withheld from the total number of shares of Class A Stock to be acquired upon the exercise of an Option that number of shares having a Fair Market Value, which, together with such cash as shall be paid in respect of fractional shares, shall equal the option exercise price of the total number of shares of common Stock to be acquired, (iii) to exercise all or a portion of an Option by delivering that number of shares of Class A Stock already owned by him having a Fair Market Value which shall equal the Option exercise price in the aggregate for the portion exercised and, in cases where an Option is not exercised in its entirety, to permit the Optionee to deliver the shares of Class A Stock thus acquired by him in payment of shares of Common Stock to be received pursuant to the exercise of additional portions of such Option, the effect of which shall be that an Optionee can in sequence utilize such newly acquired shares of Class A Stock in payment of the exercise price of the entire Option, together with such cash as shall be paid in respect of fractional shares, and (iv) to engage in any form of "cashless" exercise; and B. PROCEDURES FOR SALE OR PURCHASE OF CLASS A STOCK OR OPTIONS. The establishment of procedures for the sale of purchase of Class A Stock or Options pursuant to Section 6 hereof. SECTION 6 STOCK OPTIONS A. GENERAL PROVISIONS. Subject to the terms and conditions of this Section 6 and of Section 7, the exercise price of the shares of Class A Stock covered by each Option shall be the Fair Market Value of such shares on the date of the grant. The aggregate Fair Market Value of such shares on the date of grant of all Incentive Stock Options that are exercisable for the first time by a Participant during a calendar year (under the Plan or any other plan of the Corporation, its Parent Corporation or a Subsidiary) shall not exceed $100,000. The Committee, or the Special Award Committee, as appropriate, shall have the right to grant Options that are subject to performance criteria selected by the Committee (which need not be uniform). Any such performance options shall be subject to the terms and conditions hereof. B. EXERCISABILITY OF STOCK OPTION. Each Option granted under this Section 6 by its terms shall expire ten (10) years from the date of its grant. Furthermore, subject to Section 7, the Committee shall determine, in its sole discretion, the number of shares for which Options shall be granted to an Employee and the date or dates on which such Options shall become exercisable as to the number of shares of Common Stock covered thereby, which shall, with respect to Incentive Stock Options granted under the Plan, be set forth in the Incentive Stock Option Agreement, and with respect to Nonqualified Stock Options granted under the Plan be set forth in a Nonqualified Stock Option Agreement. C. EMPLOYEE'S DEATH. If a Participant dies while holding an outstanding Option, such Option, to the extent exercisable (and not exercised) on the date of his death, shall remain so exercisable by his estate (or other beneficiaries, as designated in writing by such Participant) until the end of the exercise period under the Option, unless the Committee, or the Special Award Committee, as appropriate, shall otherwise provide at the time of the grant of the option. So long as there has been no Initial Public Offering and subject to any restrictions or conditions set forth in applicable credit and other financing agreements of the 5 8 Corporation and to applicable law: (i) with respect to any outstanding Option exercisable by the estate or beneficiary of a deceased Participant, such estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such Option at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) with respect to shares of Class A Stock held of record or beneficially by the estate or beneficiary of a deceased Participant through the exercise of such Option, such estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such shares at their then Fair Market Value. Notwithstanding the foregoing provisions of this Section 6C, at any time during the one year period following the date of death of the Participant, the Corporation shall have the right in its sole discretion to purchase, and the estate or beneficiary of the deceased Participant shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the estate or beneficiary at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) any shares of Class A Stock held of record or beneficially by the estate or beneficiary through the exercise of an Option at their then Fair Market Value. D. EMPLOYEE'S TERMINATION. If an Employee's service with the Corporation is terminated by reason of (i) his Disability, (ii) the failure of the Corporation to retain such Employee, other than for Good Cause, or (iii) his voluntary termination, such termination shall be considered a "Qualifying Termination" and each Option granted to such Employee shall remain exercisable by him until the end of the exercise period under such Option, but only to the extent exercisable (and not exercised) on the date of such Qualifying Termination, and all Options not exercisable on the date of such Qualifying Termination shall be forfeited and canceled. If an Employee's service with the Corporation is terminated for Good Cause, such termination shall be considered a "Non-Qualifying Termination,"and all outstanding unexercised Options granted pursuant to this Section 6 shall be forfeited or canceled, as the case may be, as of the date of such Non-Qualifying Termination. Notwithstanding the foregoing provisions of this Section 6D, so long as there has been no Initial Public Offering, the Corporation shall have the right in its sole discretion to purchase during the one year period following the date of Qualifying Termination of the Employee, and the Employee shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the Employee as the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) any shares of Class A Stock held of record or beneficially by the Employee through the exercise of an Option at their Fair Market Value. SECTION 7 ADJUSTMENT OF SHARES; MERGER OR CONSOLIDATION, ETC. OF THE CORPORATION A. RECAPITALIZATION, ETC. In the event there is any change in the Class A Stock of the Corporation by reason of a reorganization, recapitalization, stock conversion, stock split, stock dividend or otherwise, there shall be (i) substituted for or added to each share of Class A Stock thereafter subject, or which may become subject, to any Option, the number and kind of shares of stock or other securities into which each outstanding share of Class A Stock shall be so changed or 6 9 for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be, and the per share exercise price thereof also shall be proportionately adjusted, but only to the extent such adjustment is appropriate, and (ii) an appropriate and proportionate adjustment in the maximum aggregate number of shares for which Options may be granted pursuant to Section 3 of the Plan. The Committee shall also make appropriate adjustments, if any, in the event there is any change in the Class B Stock of the Corporation by reason of a reorganization, recapitalization, stock conversion, stock split, stock dividend or otherwise without corresponding changes to the Class A Stock. B. MERGER, CONSOLIDATION OR CHANGE IN CONTROL OF CORPORATION. Upon (i) the dissolution or liquidation of the Corporation or (ii) a Change in Control, (each event described in (i) and (ii), a "Liquidity Event"), the holder of any Option theretofore granted and still outstanding (and not otherwise expired) shall have the right immediately prior to the effective date of such Liquidity Event (or, if later, within 10 days of Optionee's notification of such event) to exercise such Option(s) in whole or in part without regard to any installment or vesting provision that may have been made part of the terms and conditions of such Option(s), provided that all conditions precedent to the exercise of such Options, other than the passage of time, have occurred. The Corporation, to the extent practicable, shall give advance notice to affected Optionees of any such Liquidity Event. All such Options which are not so exercised shall be canceled and forfeited as of the effective time of any such Liquidity Event (or, if later, at the end of the applicable 10-day notice period). If the Corporation engages in a Business Combination which is not a Liquidity Event the Corporation may, in connection with such transaction, at its option elect one of the following: provide for (i) the continuance of the options granted hereunder (either by express provision or, if the Corporation is the surviving corporation in the Business Combination, as a consequence of the failure to address the treatment of options in the applicable agreements), (ii) the substitution of new options for Options granted hereunder (which new options grant Optionees the right to purchase the securities they would have received had they held Common Stock immediately prior to the Business Combination) or (iii) acceleration of outstanding Options in which case such Business Combination will be deemed a "Liquidity Event" and Options treated in accordance with the preceding sentences of this Section 7B. In the event that any Optionee terminates his employment with the Corporation or the surviving corporation in a Qualifying Business Combination (as defined below), for Good Reason or such Optionee's employment is terminated by the Corporation or such surviving corporation without Good Cause, in either case within one year of such Qualifying Business Combination such Optionee's Options shall immediately become exercisable without regard to any installment or vesting provision that may have been made part of the terms and conditions of such options, provided that all conditions precedent to the exercise of such Options, other than the passage of time, have occurred. A "Qualifying Business Combination" is (x) when any person (including any individual, firm, partnership or other entity) together with all Affiliates and Associates (as defined under Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act) of such person, but excluding (i) any person or any Affiliate or Associate thereof who is a direct or indirect shareholder of the Corporation as of the effective date of the Plan, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of 7 10 the Corporation, or (iii) the Corporation or any subsidiary of the Corporation, becomes the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing a majority of the combined voting power of the Corporation's then outstanding securities, other than by reason of a Business Combination or (y) a Business Combination, in either case, which is not otherwise treated as a Liquidity Event for purposes of this Section 7B but in which shareholders of the Corporation (or their Affiliates or Associates) immediately prior to the Business Combination cease to own a majority of the voting securities of the surviving corporation. SECTION 8 MISCELLANEOUS PROVISIONS A. ASSIGNMENT OR TRANSFER. No grant or award of any Option under the Plan or any rights or interests therein shall be assignable or transferable by a Participant except by will or the laws of descent and distribution; provided, however that such Option or rights or interests therein may be assignable or transferable upon consent of the Committee, which consent may be withheld in its sole discretion. During the lifetime of a Participant, Options granted hereunder shall be exercisable only by the Participant. B. INVESTMENT REPRESENTATION. Upon the exercise of an Option, the Committee may require, as a condition of receiving Common Stock, that the Participant furnish to the Corporation such written representations and information as the Committee deems appropriate to permit the Corporation, in light of the existence or nonexistence of an effective registration statement under the Securities Act, to deliver such securities in compliance with the provisions of the Securities Act. C. COSTS AND EXPENSES. The costs and expenses of administering the Plan shall be borne by the Corporation and shall not be charged against any Plan Award or to any employee receiving a Plan Award. D. OTHER INCENTIVE PLANS. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for Employees. E. PLURALS AND GENDER. Where appearing in the Plan, masculine gender shall include the feminine and neuter genders, and the singular shall include the plural, and vice versa, unless the context clearly indicates a different meaning. F. HEADINGS. The headings and sub-headings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof. G. SEVERABILITY. In case any provision of this Plan shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. 8 11 H. COOPERATION OF PARTIES. All parties of this Plan and any person claiming any interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary or desirable for carrying out this Plan or any of its provisions. I. GOVERNING LAW. All questions pertaining to the validity, construction and administration of the Plan shall be determined in accordance with the laws of the State of New York. J. NONGUARANTEE OF EMPLOYMENT. Nothing contained in this Plan shall be construed as a right of any Employee to be continued as an employee of the Corporation (or of any Parent or Subsidiary), or as a limitation on the right of the Corporation or any Parent or Subsidiary to remove any of its employees, with or without cause. K. NOTICES. Each notice relating of this Plan shall be in writing and delivered in person, by air courier or by certified mail to the proper address. All notices to the Corporation or the Committee shall be addressed to it at: VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New York, New York 10022, Attn: President and Chief Executive Officer. All notices to Participants, former Participants, beneficiaries or other persons acting for or on behalf of such persons shall be addressed to such person at the last address for such person maintained on the Committee's records. L. WRITTEN AGREEMENTS. Each Plan Award shall be evidenced, with respect to an Incentive Stock Option by a signed written Incentive Stock Option Agreement, and with respect to a Nonqualified Stock Option by a signed written Nonqualified Stock Option Agreement between the Corporation and the Participant containing the terms and conditions of the award. M. CONFLICT. In the event of any conflict between the terms of this Plan and any employment agreement between the Corporation and an Optionee, the terms of such employment agreement shall control. In the event of any conflict between the terms of this Plan and any Option Agreement, the terms hereof shall control. SECTION 9 AMENDMENT OR TERMINATION OF PLAN The Board of Directors of the Corporation shall have the right to amend, suspend or terminate the Plan at any time. Except as otherwise provided herein, no amendment, suspension or termination of the Plan shall alter or impair any Plan Awards previously granted under the Plan, without the consent of the holder thereof. SECTION 10 TERM OF PLAN The Plan shall remain in effect until July 1, 2009, which is the day prior to the tenth anniversary of the effective date of the Plan, unless sooner terminated by the Board of Directors of the Corporation. No Plan Awards may be granted under the Plan subsequent to the termination of the Plan. 9 EX-10.24 5 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10.24 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT This NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT"), dated as of ____________, between VITAMINSHOPPE.COM, INC., a Delaware Corporation (the "CORPORATION"), and ____________, residing at _________, _______, _____ _____ (the "PARTICIPANT"). W I T N E S S E T H: WHEREAS, the Corporation desires, in connection with the Participant's employment with the Corporation and in accordance with its Amended and Restated Stock Option Plan for Employees, effective as of July 1, 1999 and amended and restated as of March 16, 2000 (the "PLAN"), to provide the Participant with an opportunity to acquire shares of the Corporation's Class A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and thereby increase his proprietary interest in the continued progress and success of the business of the Corporation. Unless otherwise defined herein, all capitalized terms used herein shall have the same definitions as set forth under the Plan. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Corporation and the Participant hereby agree as follows: 1. Confirmation of Grant of Option. Pursuant to a determination by the Committee, which is authorized to administer the Plan, made on __________________ (the "DATE OF GRANT"), the Corporation, subject to the terms of the Plan and this Agreement, hereby grants to the Participant as a matter of separate inducement and agreement, and in addition to and not in lieu of salary or other compensation for services, the right to purchase (hereinafter referred to as the "OPTION") an aggregate of _________ shares of Class A Stock, subject to adjustment as provided in the Plan and Section 9 of this Agreement (such shares, as adjusted, hereinafter being referred to as the "SHARES"). The Option not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. 2. Exercise Price. The exercise price for the purchase of the Shares covered by the Option will be $________ per Share, which equals the Fair Market Value of such Shares on the Date of Grant, subject to adjustment as provided in the Plan. 2 3. Exercise of Option. The Option shall be exercisable on the terms and conditions hereinafter set forth: (a) The Option shall become exercisable as to the following amounts of the number of Shares originally subject thereto (after giving effect to any adjustment pursuant to the Plan), on the dates indicated: (i) as to _____ Shares on or after __________________; (ii) as to _____ Shares on or after __________________; and (iii) as to _____ Shares on or after __________________. (b) The Option may be exercised pursuant to the provisions of this Section 3, by notice and payment (including, but not limited to, by a "cashless" exercise) to the Corporation as provided in Section 11 hereof. 4. Term of Option. The term of the Option shall be a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided in this Agreement. This Option, to the extent unexercised, shall expire on the day immediately prior to the tenth anniversary of the Date of Grant. The Participant shall not have any rights to dividends or any other rights of a stockholder with respect to any shares of Class A Stock subject to the Option until such shares shall have been issued to him (as evidenced by the appropriate entry on the books of a duly authorized transfer agent of the Corporation) provided that the date of issuance shall not be earlier than the date this Option is exercised and payment of the full purchase price of the shares of Class A Stock (with respect to which this Option is exercised) is made to the Corporation. 5. Non-transferability of Option. The Option shall not be assigned, transferred or otherwise disposed of, or pledged or hypothecated in any way, and shall not be subject to execution, attachment or other process, except as may be provided in the Plan. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of the Plan, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Corporation or any Parent or Subsidiary may have under this Agreement or otherwise. 6. Exercise Upon Cessation of Employment. (a) If the Participant's service with the Corporation is terminated by reason of a Qualifying Termination, each Option granted 2 3 to the Participant shall remain exercisable by him until the end of the exercise period under such Option, but only to the extent exercisable (and not exercised) on the date of such Qualifying Termination, and all Options not exercisable on the date of such Qualifying Termination shall be forfeited and canceled. If the Participant's service with the Corporation is terminated by reason of a Non-Qualifying Termination, all outstanding unexercised Options shall be forfeited or canceled, as the case may be, as of the date of such Non-Qualifying Termination. Notwithstanding the foregoing provisions of this Section 6(a), so long as there has been no Initial Public Offering, the Corporation shall have the right in its sole discretion to purchase during the one year period following the date of Qualifying Termination of the Participant, and the Participant shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the Participant at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) any shares of Class A Stock held of record or beneficially by the Participant through the exercise of an Option at their Fair Market Value. (b) Except as otherwise specifically provided herein or in the Plan, the Option shall not be affected by any change of duties or position of the Participant so long as he continues to be a Participant of the Corporation or of any Parent or Subsidiary thereof. If the Participant is granted a temporary leave of absence, such leave of absence shall be deemed a continuation of his employment by the Corporation or of any Parent or Subsidiary thereof for the purposes of this Agreement, but only if and so long as the employing corporation consents thereto. 7. Exercise Upon Death. If the Participant dies while holding an outstanding Option, such Option, to the extent exercisable (and not exercised) on the date of his death, shall remain so exercisable by his estate (or other beneficiaries, as designated in writing by such Participant) until the end of the exercise period under the Option, unless the Committee shall otherwise provide at the time of the grant of the option. So long as there has been no Initial Public Offering and subject to any restrictions or conditions set forth in applicable credit and other financing agreements of the Corporation and to applicable law: (i) with respect to any outstanding Option exercisable by the estate or beneficiary of the deceased Participant, such estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such Option at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) with respect to shares of Class A Stock held of record or beneficially by the estate or beneficiary of the deceased Participant through the exercise of such Option, such estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such shares at their then Fair Market Value. Notwithstanding the foregoing provisions of this Section 7, at any time during the one year period following the date of death of the Participant, the Corporation shall have the right in its sole discretion to purchase, and the estate or beneficiary of the deceased Participant shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the estate or beneficiary at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) any shares of Class A Stock held of record 3 4 or beneficiary by the estate or beneficiary through the exercise of an Option at their then Fair Market Value. 8. Merger, Consolidation or Change in Control of Corporation. (a) Upon the occurrence of a Liquidity Event, the Participant shall have the right immediately prior to the effective date of such Liquidity Event (or, if later, within 10 days of the Participant's notification of such event) to exercise any Option granted and still outstanding (and not otherwise expired) in whole or in part without regard to any installment or vesting provision of this Agreement, provided that all conditions precedent to the exercise of such Options, other than the passage of time, have occurred. The Corporation, to the extent practicable, shall give advance notice to the Participant of any such Liquidity Event. All such Options which are not so exercised shall be canceled and forfeited as of the effective time of any such Liquidity Event (or, if later, at the end of the applicable 10-day notice period). If the Corporation engages in a Business Combination which is not a Liquidity Event, the Corporation may, in connection with such transaction, at its option elect one of the following: provide for (i) the continuance of the Option granted hereunder (either by express provision or, if the Corporation is the surviving corporation in the Business Combination, as a consequence of the failure to address the treatment of options in the applicable agreements), (ii) the substitution of new options for the Option granted hereunder (which new options grant the Participant the right to purchase the securities they would have received had they held Class A Stock immediately prior to the Business Combination) or (iii) acceleration of any outstanding Options in which case such Business Combination will be deemed a "Liquidity Event" and Options treated in accordance with the preceding sentences of this Section 9(a). (b) In the event that the Participant terminates his employment with the Corporation or the surviving corporation in a Qualifying Business Combination for Good Reason, or the Participant's employment is terminated by the Corporation or such surviving corporation without Good Cause, in either case within one year of such Qualifying Business Combination, the Options granted hereunder shall immediately become exercisable without regard to any installment or vesting provision of this Agreement, provided that all conditions precedent to the exercise of such Options, other than the passage of time, have occurred. 9. Stock Split; Initial Public Offering. Notwithstanding anything to the contrary contained in the Plan or this Agreement, no adjustment shall be made to the number of shares subject to the Option granted hereunder or to the exercise price by reason of a change in the Class A Stock by reason of a 1.539 to 1 stock split, 0.539 per share stock dividend or similar transaction which is authorized by the Corporation on September 9, 1999 and effectuated by the Corporation on September 22, 1999. 10. Registration. The Corporation may register or qualify the shares covered by the Option for sale pursuant to the Securities Act of 1933, as amended, at any time prior to or after the exercise in whole or in part of the Option. 4 5 11. Method of Exercise of Option. (a) Subject to the terms and conditions of this Agreement, the Option shall be exercisable by notice in the manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to the Corporation in accordance with the procedure prescribed herein. Each such Notice shall: (i) state the election to exercise the Option and the number of Shares with respect to which it is being exercised; (ii) contain a representation and agreement as to investment intent, if required by the Committee with respect to such Shares, in a form satisfactory to the Committee; (iii) be signed by the Participant or the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Participant, be accompanied by proof satisfactory to the Committee of the right of such other person or persons to exercise the Option; (iv) include payment of the full purchase price for the shares of Class A Stock to be purchased pursuant to such exercise of the Option; and (v) be received by the Corporation on or before the date of the expiration of this Option. In the event the date of expiration of this Option falls on a day which is not a regular business day at the Corporation's executive office then such Notice must be received at such office on or before the last regular business day prior to such date of expiration. (b) Payment of the purchase price of any shares of Class A Stock, in respect of which the Option shall be exercised, shall be made by the Participant or such person or persons at the place specified by the Corporation on the date the Notice is received by the Corporation (i) by delivering to the Corporation a certified or bank cashier's check payable to the order of the Corporation, (ii) by delivering to the Corporation properly endorsed certificates of shares of Class A Stock (or certificates accompanied by an appropriate stock power) with signature guaranties by a bank or trust company, (iii) by having withheld from the total number of shares of Class A Stock to be acquired upon the exercise of this Option a specified number of such shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any combination of the above. (c) The Option shall be deemed to have been exercised on the date the Notice was received by the Corporation with respect to any particular shares of Class A Stock if, and only if, the preceding provisions of this Section 11 and the provisions of Section 12 hereof shall have been complied with. Anything in this Agreement to the contrary notwithstanding, any Notice given pursuant to the provisions of this Section 11 shall be void and of no effect if all of the preceding provisions of this Section 11 (including this subsection (c)) and the provisions of Section 12 shall not have been complied with. 5 6 (d) The certificate or certificates for shares of Class A Stock as to which the Option shall be exercised will be registered in the name of the Participant (or in the name of the Participant's estate or other beneficiary, if the Option is exercised after the Participant's death), or if the Option is exercised by the Participant and if the Participant so requests in the Notice exercising the Option, will be registered in the name of the Participant and another person jointly, with right of survivorship, and will be delivered as soon as practical after the date the Notice is received by the Corporation (accompanied by full payment of the exercise price), but only upon compliance with all of the provisions of this Agreement. (e) If the Participant fails to accept delivery of and pay for all or any part of the number of Shares specified in such Notice, his right to exercise the Option with respect to such undelivered Shares may be terminated in the sole discretion of the Committee. The Option may be exercised only with respect to full Shares. (f) The Corporation shall not be required to issue or deliver any certificate or certificates for shares of its Class A Stock purchased upon the exercise of any part of this Option prior to the payment to the Corporation, upon its demand, of any amount requested by the Corporation for the purpose of satisfying its liability, if any, to withhold state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the exercise of this Option or the transfer of shares thereupon. Such payment shall be made by the Participant in cash or, with the consent of the Corporation, by tendering to the Corporation shares of Class A Stock equal in value to the amount of the required withholding. In the alternative, the Corporation may, at its option, satisfy such withholding requirements by withholding from the shares of Class A Stock to be delivered to the Participant pursuant to an exercise of this Option, a number of shares of Class A Stock equal in value to the amount of the required withholding. 12. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Class A Stock pursuant thereto shall be subject to approval by the Corporation's counsel of all legal matters in connection therewith, including, but not limited to, compliance with the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock may then be listed. 13. Resale of Class A Stock. (a) If so requested by the Corporation, upon any sale or transfer of the Class A Stock purchased upon exercise of the Option, the Participant shall deliver to the Corporation an opinion of counsel satisfactory to the Corporation to the effect that either (i) the Class A Stock to be sold or transferred has been registered under the Securities Act of 1933, and that there is in effect a current prospectus meeting the requirements of Section 10(a) of the Securities Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Class A Stock to be sold or transferred, or (ii) such Class A Stock may then be sold without violating Section 5 of said Act. 6 7 (b) The Class A Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Corporation: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT. 14. Reservation of Shares. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of the Class A Stock as will be sufficient to satisfy the requirements of this Agreement. 15. Nonguarantee of Employment. Nothing contained in this Agreement shall be construed as a right of the Participant to be continued as an Participant of the Corporation (or of any Parent or Subsidiary), or as a limitation on the right of the Corporation or any Parent or Subsidiary to remove the Participant, with or without cause. 16. Notices. Each notice relating to this Agreement shall be in writing and delivered in person, by air courier or by certified mail to the proper address. All notices to the Corporation or the Committee shall be addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New York, NY 10022, Attn: President and Chief Executive Officer. All notices to the Participant shall be addressed to the Participant or such other person or persons at the Participant's address above specified. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 17. Benefits of Agreement. This Agreement shall inure to the benefit of and be binding upon each successor and assign of the Corporation. All obligations imposed upon the Participant and all rights granted to the Corporation under this Agreement shall be binding upon the Participant's heirs, legal representatives, successors and assigns. 18. Severability. In case any provision of this Agreement shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Agreement, but shall be fully severable, and this Agreement shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. 19. Governing Law. All questions pertaining to the validity, construction and administration of this Agreement shall be determined in accordance with the laws of the State of New York. 7 8 20. Incorporation of Terms of Plan. This Agreement shall be interpreted under, and subject to, all of the terms and provisions of the Plan, which are incorporated herein by reference. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed in its name by its President and its corporate seal to be hereunto affixed and attested by its Secretary or its Assistant Secretary and the Participant has hereunto set his hand all as of the date, month and year first above written. VitaminShoppe.com, Inc. By: ------------------------------------ Name: Ann M. Sardini Title: Chief Financial Officer, Secretary and Treasurer ---------------------------------------- [Name of Employee] ---------------------------------------- Social Security Number 9 EXHIBIT A NONQUALIFIED STOCK OPTION EXERCISE FORM -------------------- Date VitaminShoppe.com, Inc. 444 Madison Avenue, Suite 802 New York, NY 10022 Attention: Secretary Dear Sirs: Pursuant to the provisions of the Nonqualified Stock Option Agreement, dated as of ___________, 1999, whereby you have granted to me a nonqualified stock option to purchase _________ shares of the Class A Common Stock (the "CLASS A STOCK") of VitaminShoppe.com, Inc. (the "CORPORATION"), I hereby notify you that I elect to exercise my option to purchase ______________ of the shares covered by such Option at the exercise price specified thereon. In full payment of the price for the shares being purchased hereby: 1. I am delivering to you herewith: (a) a certified or bank cashier's check payable to the order of the Corporation in the amount of $_________; $_________ of this amount is the purchase price of the shares, and the balance represents payment of withholding taxes as follows: Federal $_________, State $_________ and Local $_________, OR (b) a certificate or certificates for [ ] shares of Class A Stock of the Corporation, which have a Fair Market Value as of the date hereof at least equal to the option exercise price, and a certified or bank cashier's check, payable to the order of the Corporation, in the amount of $_________, which represents payment of withholding taxes as follows: Federal $_________, State $_________ and Local $_________. Any such stock certificate or certificates are endorsed, or accompanied by an appropriate stock power, to the order of the Corporation, with my signature guaranteed by a bank or trust company or by a member firm of the National Association of Securities Dealers, Inc. 10 (c) OR (d) Please retain __________ shares of Class A Stock of the Corporation covered by the Option which have a Fair Market Value as of the date hereof at least equal to the option exercise price. I am delivering to you herewith a certified or bank cashier's check, payable to the order of the Corporation, in the amount of $_________ which represents payment of withholding taxes as follows: Federal $_________, State $_________ and Local $_________. In the event the amounts designated above are insufficient for the withholding of federal, state and local taxes, I hereby authorize the Corporation to withhold in accordance with applicable law from any regular cash compensation payable to me the balance of any taxes required to be withheld by the Corporation under federal, state or local law as a result of my election herein. Further, I acknowledge that I am purchasing these shares for investment purposes only and not for resale. Very truly yours, --------------------------------- [Name of Employee] Address for notices, reports, dividend checks and other communications to stockholders: [ ] [ ] 11 VITAMINSHOPPE.COM, INC. Stock Option Plan for Employees NONQUALIFIED STOCK OPTION Granted To [NAME OF EMPLOYEE] Participant $_____ - ------------------------ ------------------------ Number of Shares Price per Share DATE GRANTED: __________________ EXPIRATION DATE: ________________ 12 VITAMINSHOPPE.COM, INC. NONQUALIFIED STOCK OPTION AGREEMENT SUMMARY FOR EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- Shares Subject Name to Option Exercise Price Date of Grant - -------------------------------------------------------------------------------- Kathryn H. Creech 392,445(1) $ 3.82 June 14, 1999 - -------------------------------------------------------------------------------- Kathryn H. Creech 82,944(2) $ 9.15 July 27, 1999 - -------------------------------------------------------------------------------- Kathryn H. Creech 339,954(3) $11.00 October 14, 1999 - -------------------------------------------------------------------------------- Joel Gurzinsky 52,300 $ 9.15 September 15, 1999 - -------------------------------------------------------------------------------- Lisa H. Kern 59,500(4) $ 9.15 July 26, 1999 - -------------------------------------------------------------------------------- Eliot D. Russman 176,600(5) $ 3.82 June 1, 1999 - -------------------------------------------------------------------------------- Ann M. Sardini 200,000 $ 9.15 October 6, 1999 - -------------------------------------------------------------------------------- Philip H. Teplitzky 180,000 $ 9.15 September 15, 1999 - -------------------------------------------------------------------------------- (1) The option vested with respect to 130,815 shares on October 14, 1999 and 50,000 on January 17, 2000. Due to termination of her employment, the remaining shares granted under this option have lapsed. (2) Due to termination of her employment, the shares granted under this option have lapsed. (3) Due to termination of her employment, the shares granted under this option have lapsed. (4) Ms. Kern ceased employment with us on November 5, 1999. All of her options have lapsed. (5) The option will vest with respect to 25,000 shares on July 24, 2000. Due to termination of his employment, the remaining shares granted under this option have lapsed. All options granted under the Amended and Restated Stock Option Plan for Employees vest in three equal annual installments on the anniversary of the date of grant. All options terminate ten years from the date of grant. EX-10.25 6 AMENDED AND RESTATED STOCK OPTION PLAN 1 EXHIBIT 10.25 [SUBJECT TO STOCKHOLDER APPROVAL] AMENDED AND RESTATED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF VITAMINSHOPPE.COM, INC. EFFECTIVE AS OF AUGUST 1, 1999 AND AMENDED AND RESTATED AS OF MARCH 16, 2000 2 INTRODUCTION VitaminShoppe.com, Inc., a corporation organized under the laws of the State of Delaware (the "Corporation"), hereby adopts this Amended and Restated Stock Option Plan for Non-Employee Directors of VitaminShoppe.com, Inc. The purposes of this Plan are to further the growth, development and financial success of the Corporation by providing additional incentives to its Non-Employee Directors by offering them options to purchase the Corporation's Class A Common Stock and thus aligning the interests of such directors with those of the Corporation's shareholders. 3 SECTION 1 DEFINITIONS For purposes of this Plan, the following terms shall be defined as follows unless the context clearly indicates otherwise: A. "Business Combination" shall mean a merger, consolidation, exchange offer or other business combination involving the Corporation and another corporation. B. "Change in Control" shall occur (x) when any person (including any individual, firm, partnership or other entity) together with all Affiliates and Associates (as defined under Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act) of such person, but excluding (i) any person or any Affiliate or Associate thereof who is a direct or indirect shareholder of the Corporation as of the effective date of the Plan, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, or (iii) the Corporation or any Subsidiary, becomes the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing a majority of the combined voting power of the Corporation's then outstanding securities, other than by reason of a Business Combination, (y) upon a Business Combination if the shareholders of the Corporation (or Affiliates or Associates thereto) immediately prior to such Business Combination do not, as of the date of such Business Combination (after giving effect thereto), own a beneficial interest, directly or indirectly, in shares of voting securities of the corporation surviving such Business Combination having at least a majority of the combined voting power of such surviving corporation's then outstanding securities or (z) upon a sale by the Corporation of all or substantially all of its assets; provided that in the case of (x), (y) or (z) shareholders of the Corporation receive cash in the event giving rise to such Change of Control equal to at least 30% of the value of their shares in the Corporation. C. "Class A Stock" shall mean the Class A common stock, $.01 par value of the Corporation. D. "Class B Stock" shall mean the Class B common stock, $.01 par value of the Corporation. E. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. F. "Committee" shall mean the Board of Directors of the Corporation or a committee appointed by the Board of Directors for purposes of administration, operation and application of the Plan. G. "Corporation" shall mean VitaminShoppe.com, Inc., a Delaware corporation. H. "Disability" shall have the same meaning as the term "permanent and total disability" under Section 22(e)(3) of the Code. 4 I. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. J. "Fair Market Value" with respect to the Corporation's Class A Stock shall mean: (i) in the event the Corporation's Class A Stock is not publicly traded, the fair market value of such Class A Stock, as determined by the Committee in good faith; (ii) in the event the Corporation's Class A Stock is publicly traded, (x) on or prior to January 20, 2000, the average over the ten business days ending on a Trading Day of the last reported sale price for Class A Stock on each day or, in case no such reported sale takes place during such period, the average of the closing bid and asked prices for the Class A Stock on each day during such period ending on such Trading Day, in either case on the principal securities exchange on which the Class A Stock is listed or admitted to trading, and (y) following January 20, 2000, the fair market value is the closing price per share of such Class A Stock of the Corporation on the date of grant, and if such date is not a Trading Day, the date of grant shall be deemed the closing price on the next Trading Day, as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or any comparable system; (iii) if the Class A Stock is not listed on NASDAQ or a comparable system, the average over the ten business days ending on a Trading Day of the last reported sale price of the Class A Stock on each day or, if no sale is publicly reported, the average of the closing bid and asked prices for the Class A Stock on each day during such period ending on such Trading Day, as furnished by two members of the National Association of Securities Dealers, Inc. who make a market in the Class A Stock selected from time to time by the Corporation for that purpose; and (iv) notwithstanding the foregoing, in connection with an Option issued upon the commencement of an Initial Public Offering, the public offering price of Class A Stock in such Initial Public Offering. In addition, for purposes of this definition, a "Trading Day" shall mean, if the Class A Stock is listed on any securities exchange, a business day during which such exchange was open for trading or, if the Class A Stock is not listed on any national securities exchange but is traded in the over-the-counter market, a business day during which the over-the-counter market was open for trading. K. "Initial Public Offering" shall mean the closing of the first firm commitment underwritten public offering of shares of the Corporation's Class A Stock pursuant to a registration statement on Form S-1 (or any successor form) filed with the Securities and Exchange Commission. L. "Non-Employee Director" shall mean a director of the Corporation who is not an employee of the Corporation or a Subsidiary and has not, within one year immediately preceding the determination of such director's eligibility, received any award under any plan of the Corporation or a Subsidiary that entitles the participants therein to acquire stock, stock options or stock appreciation rights of any such company (other than any other plan under which participants' entitlements are governed by provisions meeting the requirements of Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act). 2 5 M. "Option" shall mean an option to purchase shares of the Corporation's Class A Stock pursuant to the Plan. Options granted under the Plan are not intended to be "incentive stock options" within the meaning of Section 422 of the Code. N. "Option Agreement" shall mean an Option Agreement to be entered into between the Corporation and a Participant which shall set forth the terms and conditions of the Options granted to such Participant and shall be substantially in the form attached hereto as Exhibit A. O. "Parent" shall mean a parent corporation of the Corporation within the meaning of Section 424(e) of the Code. P. "Participant" shall mean a Non-Employee Director who is granted an Option under the Plan. Q. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder. R. "Subsidiary" shall mean a subsidiary corporation of the Corporation within the meaning of Section 424(f) of the Code. SECTION 2 ADMINISTRATION The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee may establish from time to time such regulations, provisions and procedures relating to the Plan and shall make all determinations necessary or advisable for the administration of the Plan; provided, however, that the Committee shall have no discretion with respect to the selection of directors to receive Options under the Plan, the number of shares subject to any Option, the exercise price of any Options (other than the determination of Fair Market Value as provided herein), the date upon which any Option shall become exercisable or the timing of grants of Options under the Plan. A majority of the Committee shall constitute a quorum, and, subject to the provisions of Section 5 of the Plan, the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be the acts of the Committee. 3 6 SECTION 3 SHARES AVAILABLE Subject to adjustment as provided for in Section 7 of the Plan, the maximum aggregate number of shares for which Options may be granted under the Plan shall not exceed 300,000 shares of the Corporation's Class A Stock. Shares of Class A Stock subject to Options granted under the Plan shall be counted against the maximum number of shares for which Options may be granted, but only to the extent that the option remains exercisable or has been exercised. Stock Options awarded under the Plan may be fulfilled in accordance with the terms of the Plan with either authorized and unissued shares of Class A Stock, issued shares of Class A Stock held in the Corporation's treasury or shares of Class A Stock acquired on the open market. SECTION 4 ELIGIBILITY; GRANT OF STOCK OPTIONS Any individual who is a Non-Employee Director on the date of adoption of this Plan shall be granted an Option to purchase 38,475 shares of Class A Stock upon the commencement of an Initial Public Offering by the Corporation. Any individual who is elected or appointed to serve as a Non-Employee Director after the date of adoption of this Plan shall be granted an Option to purchase 38,475 shares of Class A Stock as of the date of such election or appointment. In addition, each Non-Employee Director shall be granted an Option to purchase 5,000 shares of Class A Stock on the third anniversary of his previous grant under the Plan. SECTION 5 AUTHORITY OF COMMITTEE The Plan shall be administered by, or under the direction of, the Committee, which shall have plenary authority to make all determinations specified in or permitted by the Plan or deemed necessary or desirable for its administration or for the conduct of the Committee's business and all actions and decisions of the Committee shall be final and binding on all parties. All interpretations and determinations of the Committee may be made in its sole discretion and shall be final, conclusive and binding on all interested parties. The authority of the Committee shall include, without limitation, the right to the following: A. Procedures for Exercise of Option. The establishment of procedures for a Participant (i) to exercise an Option by payment of cash or any other property acceptable to the Committee, (ii) to have withheld from the total number of shares of Class A Stock to be acquired upon the exercise of an Option that number of shares having a Fair Market Value, which, together with such cash as shall be paid in respect of fractional shares, shall equal the option exercise price of the total number of shares of common stock to be acquired, (iii) to exercise all or a portion of an Option by delivering that number of shares of Class A Stock already owned by him having a Fair Market Value equal to the exercise price in the aggregate for the portion exercised and, in cases where an Option is not exercised in its entirety, to permit the Participant to deliver the shares of 4 7 Class A Stock thus acquired by him in payment of shares of Common Stock to be received pursuant to the exercise of additional portions of such Option, the effect of which shall be that a Participant can in sequence utilize such newly acquired shares of Class A Stock in payment of the exercise price of the entire Option, together with such cash as shall be paid in respect of fractional shares, and (iv) to engage in any form of "cashless" exercise; and B. Procedures for Sale or Purchase of Class A Stock or Options. The establishment of procedures for the sale or purchase of Class A Stock or Options pursuant to Section 6 hereof. SECTION 6 EXERCISABILITY OF STOCK OPTIONS A. General Provisions. Subject to the terms and conditions of this Section 6 and of Section 7, the exercise price of the shares of Class A Stock covered by each Option shall be the Fair Market Value of such shares on the date of the grant. Each Option granted under the Plan shall become exercisable as follows: (i) one-third upon the first anniversary of the date of grant; (ii) one-third upon the second anniversary of the date of grant; and (iii) one-third upon the third anniversary of the date of grant. B. Term of Option. The date or dates on which such Options shall become exercisable as to the number of shares of Class A Stock covered thereby shall be set forth in the Option Agreement and each Option shall expire ten (10) years from its date of grant. C. Participant's Death. If a Participant dies while holding an outstanding Option, such Option, to the extent exercisable (and not exercised) on the date of his death (including Options which have vested and become non-forfeitable pursuant to Section 7C below), shall remain so exercisable by his estate (or other beneficiaries, as designated in writing by such Participant) until the end of the exercise period under the Option, unless the Committee shall otherwise provide at the time of the grant of the Option. So long as there has been no Initial Public Offering and subject to any restrictions or conditions set forth in applicable credit and other financing agreements of the Corporation and to applicable law: (i) with respect to any outstanding Option exercisable by the estate or beneficiary of a deceased Participant (including Options which have vested and become non-forfeitable pursuant to Section 7C below), such Participant's estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such Option at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) with respect to shares of Class A Stock held of record or beneficially by the estate or beneficiary of a deceased Participant through the exercise of such Option, such estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such shares at their then Fair Market Value. Notwithstanding the foregoing provisions of this Section 6C, at any time during the one year period following the date of death of the Participant , the Corporation shall have the right in its sole discretion to purchase, and the estate or beneficiary of the deceased Participant shall have the 5 8 obligation to sell to the Corporation (i) any outstanding Option exercisable by the estate or beneficiary (including Options which have vested and become non-forfeitable pursuant to Section 7C below) at the then Fair Market Value of a share of Class A Stock less the exercise price and (ii) any shares of Class A Stock held of record or beneficially by the estate or beneficiary through the exercise of an Option at their then Fair Market Value. D. Participant's Termination. Except as otherwise set forth in Section 7C below, if a Participant's service is terminated for any reason other than as described in Sections 6C above or 6E below, or if such Participant is not re-elected to his or her position, any then exercisable Option (including Options which have vested and become non-forfeitable pursuant to Section 7C below) shall remain exercisable until the end of the exercise period under such Option and all Options not exercisable on the date of such termination shall be forfeited and canceled. Notwithstanding the foregoing provisions of this Section 6D, so long as there has been no Initial Public Offering, the Corporation shall have the right in its sole discretion to purchase during the one year period following the date a Participant's service with the Corporation is terminated as described in the preceding sentence, and the Participant shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the Participant at the then Fair Market Value of a share of Class A Stock less the exercise price and (ii) any shares of Class A Stock held of record or beneficially by the Participant through the exercise of an Option at their Fair Market Value. E. Misconduct by Participant. If the Board of Directors (excluding the Participant accused of such misconduct) determines a Participant has committed a felony or an act of embezzlement, fraud, dishonesty, moral turpitude, nonpayment of an obligation owed to the Corporation, breach of fiduciary duty or deliberate disregard of the Corporation's rules resulting in loss, damage or injury to the Corporation, or if a Participant makes an unauthorized disclosure of the Corporation's trade secrets or confidential information, engages in any conduct constituting unfair competition, induces any of the Corporation's customers to breach a contract with the Corporation or induces any principal for whom the Corporation acts as agent to terminate such agency relationship, neither the Participant nor his estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board of Directors shall provide the Participant an opportunity to appear and present evidence on the Participant's behalf at a hearing before the Board of Directors or a committee of the Board of Directors. 6 9 SECTION 7 ADJUSTMENT OF SHARES; MERGER OR CONSOLIDATION, ETC. OF THE CORPORATION A. Recapitalization, Etc. In the event there is any change in the Class A Stock of the Corporation by reason of a reorganization, recapitalization, stock conversion, stock split, stock dividend or otherwise, there shall be (i) substituted for or added to each share of Class A Stock thereafter subject, or which may become subject, to any Option, the number and kind of shares of stock or other securities into which each outstanding share of Class A Stock shall be so changed or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be, and the per share exercise price thereof also shall be proportionately adjusted, but only to the extent such adjustment is appropriate, and (ii) an appropriate and proportionate adjustment in the maximum aggregate number of shares for which Options may be granted pursuant to Section 3 of the Plan. The Committee shall also make appropriate adjustments, if any, in the event there is any change in the Class B Stock of the Corporation by reason of a reorganization, recapitalization, stock conversion, stock split, stock dividend or otherwise without corresponding changes to the Class A Stock. B. Merger, Consolidation or Change in Control of Corporation. Upon (i) the dissolution or liquidation of the Corporation or (ii) a Change in Control (each event described in (i) and (ii), a "Liquidity Event"), the Participant shall have the right immediately prior to the effective date of such Liquidity Event (or, if later, within 10 days of the Participant's notification of such event) to exercise any Option granted and still outstanding (and not otherwise expired) in whole or in part without regard to any installment or vesting provision that may have been made part of the terms and conditions of such Option(s), provided that all conditions precedent to the exercise of such Options, other than the passage of time, have occurred. The Corporation, to the extent practicable, shall give advance notice to affected Participants of any such Liquidity Event. All such Options which are not so exercised shall be canceled and forfeited as of the effective time of any such Liquidity Event (or, if later, at the end of the applicable 10-day notice period). If the Corporation engages in a Business Combination which is not a Liquidity Event, the Corporation may, in connection with such transaction, at its option elect one of the following: provide for (i) the continuance of the options granted hereunder (either by express provision or, if the Corporation is the surviving corporation in the Business Combination, as a consequence of the failure to address the treatment of options in the applicable agreements), (ii) the substitution of new options for Options granted hereunder (which new options grant Participants the right to purchase the securities they would have received had they held Class A Stock immediately prior to the Business Combination) or (iii) acceleration of outstanding Options in which case such Business Combination will be deemed a "Liquidity Event" and Options treated in accordance with the preceding sentences of this Section 7B; provided that if in connection with such Business Combination, all of the outstanding stock options previously granted by the Corporation under any other non-director plan adopted by the Corporation are accelerated, then such Business Combination will be deemed a "Liquidity Event" and Options will be treated in accordance with the preceding sentences of this Section 7B. 7 10 C. In the event that any Participant's service as a director of the Corporation is terminated for any reason in connection with, or within one year after a Qualifying Business Combination (as defined below), notwithstanding any other provision of this Plan, such Participant's Options shall immediately vest and become non-forfeitable, but shall remain exercisable in accordance with the time periods set forth in Section 6A above. A "Qualifying Business Combination" is (x) when any person (including any individual, firm, partnership or other entity) together with all Affiliates and Associates (as defined under Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act) of such person, but excluding (i) any person or any Affiliate or Associate thereof who is a direct or indirect shareholder of the Corporation as of the effective date of the Plan, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, or (iii) the Corporation or any subsidiary of the Corporation, becomes the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing a majority of the combined voting power of the Corporation's then outstanding securities, other than by reason of a Business Combination or (y) a Business Combination, in either case, which is not otherwise treated as a Liquidity Event for purposes of this Section 7C but in which shareholders of the Corporation (or their Affiliates or Associates) immediately prior to the Business Combination cease to own a majority of the voting securities of the surviving corporation. SECTION 8 MISCELLANEOUS PROVISIONS A. Assignment or Transfer. No grant or award of any Option under the Plan or any rights or interests therein shall be assignable or transferable by a Participant except by will or the laws of descent and distribution; provided, however that such Option under the Plan or any rights or interests therein may be assignable or transferable upon consent of the Committee, which consent may be withheld in its sole discretion. During the lifetime of a Participant, Options granted hereunder shall be exercisable only by the Participant. B. Investment Representation. Upon the exercise of an Option, the Committee may require, as a condition of receiving Class A Stock, that the Participant furnish to the Corporation such written representations and information as the Committee deems appropriate to permit the Corporation, in light of the existence or nonexistence of an effective registration statement under the Securities Act, to deliver such securities in compliance with the provisions of the Securities Act. C. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Corporation and shall not be charged against any Option granted under the Plan or to any Participant. D. Plurals and Gender. Where appearing in the Plan, masculine gender shall include the feminine and neuter genders, and the singular shall include the plural, and vice versa, unless the context clearly indicates a different meaning. E. Headings. The headings and sub-headings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof. 8 11 F. Severability. In case any provision of this Plan shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. G. Cooperation of Parties. All parties of this Plan and any person claiming any interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary or desirable for carrying out this Plan or any of its provisions. H. Governing Law. All questions pertaining to the validity, construction and administration of the Plan shall be determined in accordance with the laws of the State of New York. I. Nonguarantee. Nothing contained in this Plan shall be construed to confer any right with respect to continuation of service as a director of the Corporation or nomination to serve as a director of the Corporation, nor shall it interfere in any way with any rights which the Non-Employee Director or the Corporation may have to terminate his directorship at any time. J. Notices. Each notice relating to this Plan shall be in writing and delivered in person, by air courier or by certified mail to the proper address. All notices to the Corporation or the Committee shall be addressed to it at: VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New York, NY 10022, Attn: President and Chief Executive Officer. All notices to Participants, former Participants, beneficiaries or other persons acting for or on behalf of such persons shall be addressed to such person at the last address for such person maintained on the Committee's records. K. Written Agreements. Each Option granted under the Plan shall be evidenced by a signed written Stock Option Agreement between the Corporation and the Participant containing the terms and conditions of the Option. L. Conflict. In the event of any conflict between the terms of this Plan and any Option Agreement, the terms hereof shall control. SECTION 9 AMENDMENT OR TERMINATION OF PLAN The Board of Directors of the Corporation shall have the right to amend, suspend or terminate the Plan at any time, provided, however, that any amendments requiring shareholder approval under any applicable rule of the Securities and Exchange Commission, any stock exchange, the NASDAQ National Market or other regulatory body shall be subject to approval by the shareholders of the Corporation in the manner required by such rule. Except as otherwise provided herein, no amendment, suspension or termination of the Plan shall alter or impair any Options previously granted under the Plan, without the consent of the holder thereof. 9 12 SECTION 10 TERM OF PLAN The Plan shall remain in effect until July 31, 2009, which is the day prior to the tenth anniversary of the effective date of the Plan, unless sooner terminated by the Board of Directors of the Corporation. No Options may be granted under the Plan subsequent to the termination of the Plan. 10 EX-10.26 7 FORM OF NON-EMPLOYEE DIRECTOR STOCK OPTION AGRMT. 1 EXHIBIT 10.26 FORM OF NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT This NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this "AGREEMENT") dated as of ______________, between VITAMINSHOPPE.COM, INC., a Delaware Corporation (the "CORPORATION"), and ______________, residing at _________, _______, _____ _____ (the "PARTICIPANT"). W I T N E S S E T H: WHEREAS, the Corporation desires, in connection with the Participant's service as a Non-Employee Director of the Corporation, and in accordance with the Amended and Restated Stock Option Plan for Non-Employee Directors of VitaminShoppe.com, Inc., effective as of August 1, 1999 and amended and restated as of March 16, 2000 (the "PLAN"), to provide the Participant with an opportunity to acquire shares of the Corporation's Class A Common Stock, $0.01 par value (the "CLASS A STOCK"), on favorable terms and to thereby align her interest in the continued progress and success of the Corporation's business with those of the Corporation's shareholders. Unless otherwise defined herein, all capitalized terms used herein shall have the same definitions as set forth under the Plan. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Corporation and the Participant hereby agree as follows: 1. Confirmation of Grant of Option. Subject to the terms of the Plan and this Agreement, the Corporation hereby grants to the Participant the right to purchase (hereinafter referred to as the "OPTION") an aggregate of 38,475 shares of Class A Stock, subject to adjustment as provided in the Plan (such shares, as adjusted, hereinafter being referred to as the "SHARES"). The Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. The number of shares of Class A Stock subject to the Option shall be adjusted to reflect the stock dividend authorized by the board of directors on ________________ and payable to stockholders of record on ________________. 2. Exercise Price. The exercise price for the purchase of the Shares covered by the Option will be $_____ per Share, which equals the Fair Market Value of such Shares on the date such Options are deemed granted pursuant to the Plan, subject to adjustment as provided in the Plan. 2 3. Exercise of Option. The Option shall be exercisable on the terms and conditions hereinafter set forth: (a) The Option shall become exercisable as to the following amounts of the number of Shares originally subject thereto (after giving effect to any adjustment pursuant to the Plan), on the dates indicated: (i) as to _____ Shares on or after ___________________; (ii) as to _____ Shares on or after ___________________; and (iii) as to _____ Shares on or after ___________________. (b) The Option may be exercised pursuant to the provisions of this Section 3, by notice and payment (including, but not limited to, by a "cashless" exercise) to the Corporation as provided in Section 10 hereof. 4. Term of Option. The term of the Option shall be a period of ten (10) years from the date hereof, subject to earlier termination or cancellation as provided in this Agreement. This Option, to the extent unexercised, shall expire on the day immediately prior to the tenth anniversary of the date hereof. The Participant shall not have any rights to dividends or any other rights of a stockholder with respect to any shares of Class A Stock subject to the Option until such shares shall have been issued to her (as evidenced by the appropriate entry on the books of a duly authorized transfer agent of the Corporation) provided that the date of issuance shall not be earlier than the date this Option is exercised and payment of the full purchase price of the shares of Class A Stock (with respect to which this Option is exercised) is made to the Corporation. 5. Non-transferability of Option. The Option shall not be assigned, transferred or otherwise disposed of, or pledged or hypothecated in any way, and shall not be subject to execution, attachment or other process, except as may be provided in the Plan. Any assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of the Plan, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Corporation or any Parent or Subsidiary may have under this Agreement or otherwise. 6. Exercise Upon Death. If the Participant dies while holding an exercisable Option, such Option shall remain exercisable by her estate (or other beneficiaries, as designated 2 3 in writing by such Participant) until the end of the exercise period under the Option, unless the Committee shall otherwise provide at the time of the grant of the Option. So long as there has been no Initial Public Offering and subject to any restrictions or conditions set forth in applicable credit and other financing agreements of the Corporation and to applicable law: (i) with respect to the exercisable portion of any Option, the deceased Participant's estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such Option at the then Fair Market Value of a share of Class A Stock less the exercise price; and (ii) with respect to shares of Class A Stock held of record or beneficially by the estate or beneficiary of the deceased Participant through the exercise of an Option, such estate or beneficiary shall have the right to sell to the Corporation during the one year period following the date of death of the Participant, and the Corporation shall have the obligation to purchase, such shares at their then Fair Market Value. At any time during the one year period following the Participant's death, the Corporation shall have the right in its sole discretion to purchase, and the estate or beneficiary of the deceased Participant shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the estate or beneficiary at the then Fair Market Value of a share of Class A Stock less the exercise price and (ii) any shares of Class A Stock held of record or beneficially by the estate or beneficiary through the exercise of an Option at their then Fair Market Value. 7. Exercise Upon Disability; Voluntary Termination. If the Participant's service is terminated by reason of (i) Disability or (ii) voluntary discontinuance of service, any then exercisable Option shall remain exercisable until the end of the exercise period under such Option and all Options not exercisable on the date of such termination shall be forfeited and canceled. Notwithstanding the foregoing provisions of this Section 7, so long as there has been no Initial Public Offering, the Corporation shall have the right in its sole discretion to purchase during the one year period following the date the Participant's service with the Corporation is terminated as described in (i) or (ii) of the preceding sentence, and the Participant shall have the obligation to sell to the Corporation (i) any outstanding Option exercisable by the Participant at the then Fair Market Value of a share of Class A Stock less the exercise price and (ii) any shares of Class A Stock held of record or beneficially by the Participant through the exercise of an Option at their Fair Market Value. 8. Misconduct by Participant. If the Board of Directors (excluding the Participant accused of such misconduct) determines that the Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Corporation, breach of fiduciary duty or deliberate disregard of the Corporation's rules resulting in loss, damage or injury to the Corporation, or if the Participant makes an unauthorized disclosure of the Corporation's trade secrets or confidential information, engages in any conduct constituting unfair competition, induces any of the Corporation's customers to breach a contract with the Corporation or induces any principal for whom the Corporation acts as agent to terminate such agency relationship, neither the Participant nor his estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board of Directors shall provide the Participant an opportunity to appear and present evidence on the Optionee's behalf at a hearing before the Board of Directors or a committee of the Board of Directors. 3 4 9. Exercise Upon Other Termination of Service. In the event the Participant ceases to serve as a director of the Corporation for any reason other than as described in Sections 6, 7 or 8 above, within ninety (90) days after such cessation, the Participant may exercise his Option to the extent that it was exercisable on the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after the term set forth in Section 4 has expired. To the extent an Option was not exercisable at the date of such termination, or the Participant does not exercise such Option within the time specified above, the Option shall be forfeited and canceled. 10. Merger, Consolidation or Change in Control of Corporation. (a) Upon the occurrence of a Liquidity Event or a Change in Control, the Participant shall have the right immediately prior to the effective date of such Liquidity Event (or, if later, within 10 days of the Optionee's notification of such event) to exercise any Option granted and still outstanding (and not otherwise expired) in whole or in part without regard to any installment or vesting provision of this Agreement, provided that all conditions precedent to the exercise of such Options, other than the passage of time, have occurred. The Corporation, to the extent practicable, shall give advance notice to the Participant of any such Liquidity Event. All such Options which are not so exercised shall be canceled and forfeited as of the effective time of any such Liquidity Event (or, if later, at the end of the applicable 10-day notice period). If the Corporation engages in a Business Combination which is not a Liquidity Event, the Corporation may, in connection with such transaction, at its option elect one of the following: provide for (i) the continuance of the Option granted hereunder (either by express provision or, if the Corporation is the surviving corporation in the Business Combination, as a consequence of the failure to address the treatment of options in the applicable agreements), (ii) the substitution of new options for the Option granted hereunder (which new options grant the Participant the right to purchase the securities they would have received had they held Class A Stock immediately prior to the Business Combination) or (iii) acceleration of any outstanding Options in which case such Business Combination will be deemed a "Liquidity Event" and Options treated in accordance with the preceding sentences of this Section 10. 11. Registration. The Corporation may register or qualify the shares covered by the Option for sale pursuant to the Securities Act of 1933, as amended, at any time prior to or after the exercise in whole or in part of the Option. 12. Method of Exercise of Option. (a) Subject to the terms and conditions of this Agreement, the Option shall be exercisable by notice in the manner set forth in Exhibit A hereto (the "NOTICE") and provision for payment to the Corporation in accordance with the procedure prescribed herein. Each such Notice shall: (i) state the election to exercise the Option and the number of Shares with respect to which it is being exercised; 4 5 (ii) contain a representation and agreement as to investment intent, if required by the Committee with respect to such Shares, in a form satisfactory to the Committee; (iii) be signed by the Participant or the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Participant, be accompanied by proof satisfactory to the Committee of the right of such other person or persons to exercise the Option; (iv) include payment of the full purchase price for the shares of Class A Stock to be purchased pursuant to such exercise of the Option; and (v) be received by the Corporation on or before the date of the expiration of this Option. In the event the date of expiration of this Option falls on a day which is not a regular business day at the Corporation's executive office then such Notice must be received at such office on or before the last regular business day prior to such date of expiration. (b) Payment of the purchase price of any shares of Class A Stock, in respect of which the Option shall be exercised, shall be made by the Participant or such person or persons at the place specified by the Corporation on the date the Notice is received by the Corporation (i) by delivering to the Corporation a certified or bank cashier's check payable to the order of the Corporation, (ii) by delivering to the Corporation properly endorsed certificates of shares of Class A Stock (or certificates accompanied by an appropriate stock power) with signature guaranties by a bank or trust company, (iii) by having withheld from the total number of shares of Class A Stock to be acquired upon the exercise of this Option a specified number of such shares of Class A Stock, (iv) by any form of "cashless" exercise or (v) by any combination of the above. (c) The Option shall be deemed to have been exercised on the date the Notice was received by the Corporation with respect to any particular shares of Class A Stock if, and only if, the preceding provisions of this Section 12 and the provisions of Section 13 hereof shall have been complied with. Anything in this Agreement to the contrary notwithstanding, any Notice given pursuant to the provisions of this Section 12 shall be void and of no effect if all of the preceding provisions of this Section 12 (including this subsection (c)) and the provisions of Section 13 shall not have been complied with. (d) The certificate or certificates for shares of Class A Stock as to which the Option shall be exercised will be registered in the name of the Participant (or in the name of the Participant's estate or other beneficiary, if the Option is exercised after the Participant's death), or if the Option is exercised by the Participant and if the Participant so requests in the Notice exercising the Option, will be registered in the name of the Participant and another person jointly, with right of survivorship, and will be delivered as soon as practical after 5 6 the date the Notice is received by the Corporation (accompanied by full payment of the exercise price), but only upon compliance with all of the provisions of this Agreement. (e) If the Participant fails to accept delivery of and pay for all or any part of the number of Shares specified in such Notice, his right to exercise the Option with respect to such undelivered Shares may be terminated in the sole discretion of the Committee. The Option may be exercised only with respect to full Shares. (f) The Corporation shall not be required to issue or deliver any certificate or certificates for shares of its Class A Stock purchased upon the exercise of any part of this Option prior to the payment to the Corporation, upon its demand, of any amount requested by the Corporation for the purpose of satisfying its liability, if any, to withhold state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the exercise of this Option or the transfer of shares thereupon. Such payment shall be made by the Participant in cash or, with the consent of the Corporation, by tendering to the Corporation shares of Class A Stock equal in value to the amount of the required withholding. In the alternative, the Corporation may, at its option, satisfy such withholding requirements by withholding from the shares of Class A Stock to be delivered to the Participant pursuant to an exercise of this Option, a number of shares of Class A Stock equal in value to the amount of the required withholding. 13. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Class A Stock pursuant thereto shall be subject to approval by the Corporation's counsel of all legal matters in connection therewith, including, but not limited to, compliance with the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock may then be listed. 14. Resale of Class A Stock. (a) If so requested by the Corporation, upon any sale or transfer of the Class A Stock purchased upon exercise of the Option, the Participant shall deliver to the Corporation an opinion of counsel satisfactory to the Corporation to the effect that either (i) the Class A Stock to be sold or transferred has been registered under the Securities Act of 1933, and that there is in effect a current prospectus meeting the requirements of Section 10(a) of the Securities Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Class A Stock to be sold or transferred or (ii) such Class A Stock may then be sold without violating Section 5 of said Act. 6 7 (b) The Class A Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Corporation: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER OF SUCH SECURITIES MAY BE MADE UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT. 15. Reservation of Shares. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of the Class A Stock as will be sufficient to satisfy the requirements of this Agreement. 16. Nonguarantee. Nothing contained in this Agreement shall be construed to confer any right with respect to continuation of service as a director of the Corporation or nomination to serve as a director of the Corporation, nor shall it interfere in any way with any rights which the Participant or the Corporation may have to terminate his directorship at any time. 17. Notices. Each notice relating to this Agreement shall be in writing and delivered in person, by air courier or by certified mail to the proper address. All notices to the Corporation or the Committee shall be addressed to them at VitaminShoppe.com, Inc., 444 Madison Avenue, Suite 802, New York, NY 10022, Attn: President and Chief Executive Officer. All notices to the Participant shall be addressed to the Participant or such other person or persons at the Participant's address above specified. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 18. Benefits of Agreement. This Agreement shall inure to the benefit of and be binding upon each successor and assign of the Corporation. All obligations imposed upon the Participant and all rights granted to the Corporation under this Agreement shall be binding upon the Participant's heirs, legal representatives, successors and assigns. 19. Severability. In case any provision of this Agreement shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Agreement, but shall be fully severable, and this Agreement shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. 20. Governing Law. All questions pertaining to the validity, construction and administration of this Agreement shall be determined in accordance with the laws of the State of New York. 7 8 21. Incorporation of Terms of Plan. This Agreement shall be interpreted under, and subject to, all of the terms and provisions of the Plan, which are incorporated herein by reference. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed in its name by its President and its corporate seal to be hereunto affixed and attested by its Secretary or its Assistant Secretary and the Participant has hereunto set his hand all as of the date, month and year first above written. VitaminShoppe.com, Inc. By: ------------------------------------ Name: Title: President and Chief Executive Officer ---------------------------------------- [Name of Director] ---------------------------------------- Social Security Number 9 EXHIBIT A NON-EMPLOYEE DIRECTOR STOCK OPTION EXERCISE FORM -------------------- Date VitaminShoppe.com, Inc. 444 Madison Avenue, Suite 802 New York, NY 10168 Attention: Secretary Dear Sirs: Pursuant to the provisions of the Non-Employee Director Stock Option Agreement, dated ___________________, whereby you have granted to me a stock option to purchase 38,475 shares of the Class A Common Stock (the "CLASS A STOCK") of VitaminShoppe.com, Inc. (the "CORPORATION"), I hereby notify you that I elect to exercise my option to purchase ______________ of the shares covered by such Option at the exercise price specified thereon. In full payment of the price for the shares being purchased hereby: 1. I am delivering to you herewith: (a) a certified or bank cashier's check payable to the order of the Corporation in the amount of $_________; $_________ of this amount is the purchase price of the shares, and the balance represents payment of withholding taxes as follows: Federal $_________, State $_________ and Local $_________. OR (b) a certificate or certificates for [ ] shares of Class A Stock of the Corporation, which have a Fair Market Value as of the date hereof at least equal to the option exercise price, and a certified or bank cashier's check, payable to the order of the Corporation, in the amount of $_________, which represents payment of withholding taxes as follows: Federal $_________, State $_________ and Local $_________. Any such stock certificate or certificates are endorsed, or accompanied by an appropriate stock power, to the order of the Corporation, with my signature guaranteed by a bank or trust company or by a member firm of the National Association of Securities Dealers, Inc. 10 (c) OR (d) Please retain __________ shares of Class A Stock of the Corporation covered by the Option which have a Fair Market Value as of the date hereof at least equal to the option exercise price. I am delivering to you herewith a certified or bank cashier's check, payable to the order of the Corporation, in the amount of $_________ which represents payment of withholding taxes as follows: Federal $_________, State $_________ and Local $_________. In the event the amounts designated above are insufficient for the withholding of federal, state and local taxes, I hereby authorize the Corporation to withhold in accordance with applicable law from any regular cash compensation payable to me the balance of any taxes required to be withheld by the Corporation under federal, state or local law as a result of my election herein. Further, I acknowledge that I am purchasing these shares for investment purposes only and not for resale. Very truly yours, ___________________________ [Name of Director] Address for notices, reports, dividend checks and other communications to stockholders: [ ] [ ] [ ] 11 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF VITAMINSHOPPE.COM, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION Granted To [NAME OF DIRECTOR] Participant 38,475 $_______ - ------------------------ ------------------------ Number of Shares Price per Share DATE GRANTED: __________________ EXPIRATION DATE: _________________ 12 VITAMINSHOPPE.COM, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT SUMMARY - -------------------------------------------------------------------------------- Shares Subject Name to Option Exercise Price Date of Grant - -------------------------------------------------------------------------------- Woodson Merrell, M.D. 38,475 $ 9.15 August 6, 1999 - -------------------------------------------------------------------------------- Barbara S. Feigin 38,475 $ 9.15 September 20, 1999 - -------------------------------------------------------------------------------- Michael C. Brooks 38,475 $11.00 October 14, 1999 - -------------------------------------------------------------------------------- Martin L. Edelman 38,475 $11.00 October 14, 1999 - -------------------------------------------------------------------------------- M. Anthony Fisher 38,475 $11.00 October 14, 1999 - -------------------------------------------------------------------------------- David S. Gellman 38,475 $11.00 October 14, 1999 - -------------------------------------------------------------------------------- Stephen P. Murray 38,475 $11.00 October 14, 1999 - -------------------------------------------------------------------------------- All options granted under the Amended and Restated Stock Option Plan for Non-Employee Directors vest in three equal annual installments on the anniversary of the date of grant. All options terminate ten years from the date of grant. EX-10.40 8 OFFER LETTER 1 EXHIBIT 10.40 September 15, 1999 TO: Philip Teplitzky FR: Kathryn Creech RE: Your Employment with VitaminShoppe.com. It is with pleasure that I confirm our offer to have you join VitaminShoppe.com (the "Company") as Chief Technology Officer. You will report to me with responsibility for leading the development and implementation of the e-commerce infrastructure necessary to support our business. You will be a member of our senior management team and participate in the development of cross-functional strategic initiatives critical to the growth of VitaminShoppe.com. Your start date will be September 30, 1999. In consideration for your services, you will receive an annual salary of $250,000. You will also receive a one-time start up bonus of $50,000. Your compensation will be reviewed annually. As a senior employee with the Company, you will also be eligible to participate in all Company - health and welfare benefit programs available to executives of the Company. You will receive vacation and sick leave in accordance with standard Company policies. In addition, you will be eligible for participation in performance bonus programs, if any, developed by the Company, with bonuses to be awarded at the sole discretion of the Board of Directors. In the event your employment with the Company is terminated for reasons other than Good Cause (as defined in the attached Stock Option Plan (the "Option Plan")), you will be entitled to receive monthly severance payments from the Company, based on your monthly salary at the time of termination, which payments will terminate at the later of (i) twelve months from your Start Date or (ii) six months from the date of your termination. If you terminate your employment with the Company with Good Reason (as defined in the Option Plan) following a Qualifying Business Combination (as defined in the Option Plan), you will also be entitled to receive the severance payments described in the preceding sentence. Your medical benefits provided by the Company will continue in effect during any period in which you are receiving severance payments. In the event your employment with the Company is terminated for Good Cause, your rights to receive compensation and benefits will terminate on the date of the termination of your employment. In addition to the compensation described above, you will be granted options ("Options") to purchase 180,000 shares of the Company's common stock (post-split, excluding the conversion of Series A Convertible Preferred). The exercise price is $9.15 per share. The Options will vest over a period of three years, with one-third vesting on each of the first three anniversaries of your Start Date. The Options will be granted pursuant to, and in accordance with, the Option Plan and a Stock Option Agreement to be executed by you and the Company. As a condition of your employment, you will be required to execute the Company's standard Confidentiality, Non-Competition and Non-Solicitation Agreement, a copy of which is attached hereto. I hope this letter addresses the key issues relating to your employment by VitaminShoppe.com. We are very excited to have you join our team and about the prospects for our business. /s/ Kathryn Creech /s/ Philip Teplitzky - ------------------------------------ -------------------------------- Kathryn Creech Philip Teplitzky President and CEO VitaminShoppe.com cc: Jeff Horowitz, VitaminShoppe.com Howard Romanow, FdG Associates EX-10.41 9 OFFER LETTER 1 EXHIBIT 10.41 Date: October 6, 1999 TO: Ann Sardini FR: Kathryn Creech RE: Your Employment with VitaminShoppe.com It is with pleasure that I confirm our offer to have you join VitaminShoppe.com (the "Company") as CFO, with a start date of October 18, 1999 (the "Start Date"). You will report to me, with dotted line reporting to the Company's Board of Directors, with responsibility for building and managing the Company's financial and administrative organizations, including responsibility for supporting the Company's business development, marketing and growth efforts, managing the finance- and operations-related elements of the Company's relationship with Vitamin Shoppe Industries and ensuring the integration of the Company's financial systems with its internet infrastructure. In consideration for your services, you will receive an annual salary of $250,000. You will also receive a one-time start up bonus of $25,000. Your compensation will be reviewed annually. As a senior employee with the Company, you will also be eligible to participate in all Company health and welfare benefit programs available to executives of the Company. You will receive vacation and sick leave in accordance with standard Company policies. In addition, you will be eligible for participation in performance bonus programs (either cash or equity), if any, developed by the Company, with bonuses to be awarded at the sole discretion of the Board of Directors. In the event your employment with the Company is terminated for reasons other than Good Cause (as defined in the attached Stock Option Plan (the "Option Plan")), you will be entitled to receive monthly severance payments from the Company, based on your monthly salary at the time of termination, which payments will terminate at the later of (i) twelve months from your Start Date or (ii) six months from the date of your termination. If you terminate your employment with the Company with Good Reason (as defined in the Option Plan) following a Qualifying Business Combination (as defined in the Option Plan), you will also be entitled to receive the severance payments described in the preceding sentence. Your medical benefits provided by the Company will continue in effect during any period in which you are receiving severance payments. In the event your employment with the Company is terminated for Good Cause, your rights to receive compensation and benefits will terminate on the date of the termination of your employment. In addition to the compensation described above, you will be granted options (the "Options") to purchase 200,000 shares of the Company's common stock, at an exercise price of $9.15. The Options will vest over a period of three years, with one-third vesting on each of the first three anniversaries of your Start Date. The Options will be granted pursuant to, and in accordance with, the Option Plan and a Stock Option Agreement to be executed by you and the Company. As a condition of your employment, you will be required to execute the Company's standard Confidentiality, Non-Competition and Non-Solicitation Agreement, a copy of which is attached hereto. I hope this letter addresses the key issues relating to your employment by VitaminShoppe.com. We are very excited to have you join our team and about the prospects for our business. Kathryn Creech Ann Sardini - ------------------------ ------------------------ Kathryn Creech Ann Sardini President and CEO VitaminShoppe.com EX-10.42 10 SEPARATION AND RELEASE AGREEMENT 1 EXHIBIT 10.42 SEPARATION AND RELEASE AGREEMENT Separation and Release Agreement dated as of January 17, 2000, between VitaminShoppe.com, Inc., a Delaware corporation (the "Company"), and Kathryn Creech, an individual ("Creech"). The Company and Creech desire to provide for the terms on which Creech's employment by the Company will terminate. The parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Termination. Creech's employment by the Company is terminated, effective as of the date hereof. As a result of that termination, Creech will hold no office or position, and will not be employed by, the Company. Creech agrees and acknowledges that she will no longer serve in the positions of President and Chief Executive Officer of the Company and that she has resigned from the Board of Directors of the Company effective as of the date hereof. SECTION 2. SEVERANCE PAYMENTS; OPTIONS. 2.1 Severance. Creech will receive from the Company the severance payments and benefits to which she is entitled pursuant to Section 4(c) of the Employment and Noncompetition Agreement between the Company and her dated as of June 14, 1999 (the "Employment Agreement "); provided, that such severance payments shall not be made quarterly but shall be made by the Company to Creech on the following dates in the amounts set forth opposite such dates, in full satisfaction of all amounts payable by the Company to Creech under the Employment Agreement: DATE AMOUNT February 17, 2000 $8,333.33 March 17, 2000 $8,333.33 April 17, 2000 $208,333.33 July 17, 2000 $24,999.99 September 14, 2000 $50,000.00 October 17, 2000 $24,999.99 December 14, 2000 $50,000.00 January 17, 2001 $24,999.99 March 14, 2001 $50,000.00 April 17, 2001 $24,999.99 June 14, 2001 $65,307.90 2 Creech acknowledges and agrees that this Agreement shall be the exclusive basis on which she is entitled to receive any compensation or benefits of any kind from the Company. All payments made by the Company to Creech hereunder shall be subject to all applicable federal and state withholding taxes. 2.2 Stock Options. Creech currently holds fully vested options to acquire 130,815 shares of the Company's Class A Common Stock at $3.82 per share granted under the Company's Stock Option Plan for Employees effective as of June 14, 1999 (the "Plan") and the Nonqualified Stock Option Agreement between the Company and Creech made as of July 1, 1999, effective as of June 14, 1999 (the "Option Agreement") and no other vested options or equity securities of the Company. In consideration for her entry into this agreement and the releases given by her hereunder, the Company hereby agrees to accelerate to today the vesting of options to purchase an additional 50,000 shares of the Company's Class A Common Stock at $3.82 per share granted to her under the Plan and the Option Agreement. Creech acknowledges that all other options and rights to purchase securities of the Company under the Employment Agreement, any option agreement with the Company or any other arrangement with the Company remain unvested and lapse as of the date hereof and that she will have no further claim with respect thereto. SECTION 3. OFFICE/EQUIPMENT. 3.1 Use of Office. The Company shall provide Creech with office space for up to six months from the date hereof (or, if earlier, until she obtains new employment), which shall not be in the Company's premises; provided that the Company shall not be required to pay more than $2,500 per month for such office space. 3.2 Equipment. The Company hereby transfers to Creech, on an "as is" basis without representation or warranty the Company's personal laptop computer currently in her possession; provided that, prior to such transfer Creech shall provide the Company with access to such laptop computer to enable the Company to delete any and all information, data and files stored on such laptop computer as the Company shall in its sole discretion elect to delete. SECTION 4. INDEMNIFICATION. To the extent permitted by law, the Company shall indemnify Creech with respect to matters arising from her service as a director or officer or employee of the Company as provided by the Company's Articles of Incorporation and By-Laws as currently in effect. SECTION 5. MUTUAL RELEASES. (a) In consideration of the acceleration of additional stock options, the other benefits conferred by this agreement and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, Creech hereby releases and forever discharges the Company and its subsidiaries, and their respective past, present and future affiliates, stockholders, officers, directors, employees, agents, and controlling persons, and the respective heirs, administrators, successors and 2 3 assigns of each of the foregoing (each, a "Releasee"), of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, contracts, agreements, promises, liability, claims, demands, damages, loss, cost or expense, of any nature whatsoever, known or unknown to her, fixed or contingent, choate or inchoate, which Creech ever had, now has or may have at any time arising out of or relating to Creech's employment with, or status as a director or officer of, the Company or the termination of such employment or status (or any promise or agreement made or entered into, or any action taken or omitted, in connection with such employment, status or termination), including, but not limited to, those arising under the federal Civil Rights Acts of 1866, 1871, 1964 and 1971, as amended, the Age Discrimination in Employment Act of 1967, as amended by, inter alia, the Older Workers Benefit Protection Act of 1990, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 or any other federal, state or local statute or principle of common law. Creech shall refrain from asserting any matter released hereby against any Releasee in any manner, including, but not limited to, by way of counterclaim, offset or defense and shall actively resist any effort to assert on its behalf any such matter. Creech shall indemnify and hold harmless each Releasee from and against all losses, liabilities, claims, damages and expenses (including costs of investigation and defense and reasonable attorneys' fees), arising directly or indirectly from or in connection with the assertion by or on behalf of Creech of any claim or other matter released pursuant to this paragraph. Notwithstanding anything contained herein to the contrary, there is and shall be excepted from the within and foregoing release and discharge any and all of the following: any and all of the obligations of the Company under this Agreement; and any and all rights which Creech may have as an owner of Common Stock and/or Options. (b) For valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company hereby releases and forever discharges Creech and her heirs, administrators, executors, agents, representatives, successors and assigns (each, a "Creech Releasee"), of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, contracts, agreements, promises, liability, claims, demands, damages, loss, cost or expense, of any nature whatsoever, known or unknown to the Company, fixed or contingent, choate or inchoate, which the Company ever had, now has or may have at any time arising out of or relating to Creech's employment or status as a director or officer or the termination of such employment or status (or any promise or agreement made or entered into, or any action taken or omitted, in connection with such employment, status or termination). The Company shall refrain from asserting any matter released hereby against any Creech Releasee in any manner, including, but not limited to, by way of counterclaim, offset or defense and shall actively resist any effort to assert on its behalf any such matter. The Company shall indemnify and hold harmless each Creech Releasee from and against all losses, liabilities, claims, damages and expenses (including costs of investigation and defense and reasonable attorneys' fees), arising directly or indirectly from or in connection with the assertion by or on behalf of the Company of any claim or other matter released pursuant to this paragraph. 3 4 Notwithstanding anything contained herein to the contrary, there is and shall be excepted from the within and foregoing release and discharge any and all of the following: any and all of the obligations of Creech under this Agreement. SECTION 6. NO DISPARAGEMENT. The Company shall not , directly or indirectly, disparage or impugn the reputation of Creech. Creech shall not, directly or indirectly, disparage or impugn the reputation of the Company, or any of its shareholders, directors, officers, employees or agents. Creech hereby confirms that she does not intend to and shall not, directly or indirectly, make or deliver to the Company any statement for inclusion (or that the Company might be required to include or refer to) in the Company's proxy statement or any filing by the Company with the Securities and Exchange Commission. SECTION 7. MISCELLANEOUS. 7.1 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to any conflicts of laws principles thereof that would call for the application of the laws of any other jurisdiction. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties hereto in the courts of the State of New York, or if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York, and each of the parties hereto hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world, whether within or without the State of New York. 7.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same agreements. 7.3 Notices. All notices, demands, requests or other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows (or to such other addresses as a party may specify as to itself by notice to the other): If to the Company: VitaminShoppe.com, Inc. 444 Madison Avenue, Suite 802 New York, New York 10022 Attention: President and Chief Executive Officer Facsimile: 4 5 with copies to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Nancy Fuchs, Esq. Andrea Christensen, Esq. Facsimile: (212) 836-8689 If to the Executive: Kathryn Creech 31 Copper Beech Road Greenwich, Connecticut 06830 Facsimile: (212) 953-0910 with a copy to: Louis L. Broudy, Esq. Broudy & Associates, P.C. 230 Park Avenue, Suite 2400 New York, New York 10169 Facsimile: (212) 490-3434 7.4 Binding Nature of Agreement; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns as provided herein. 7.5 Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 7.6 Indulgences, Not Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power of privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver. 5 6 7.7 Confidentiality. Creech shall keep the terms of this Agreement confidential and she will not hereafter disclose any information concerning the Company and/or this Agreement to anyone except her attorneys, accountants, tax and financial advisors; except that she may repeat the statements made in the press release issued by the Company with respect thereto on January 18, 2000 (which statements she authorized). The Company shall keep the terms of this Agreement confidential and not hereafter disclose any information concerning this Agreement to anyone except its attorneys, accountants, and tax and financial advisors; except that the Company may make any disclosure regarding the terms of this Agreement (including regarding the amounts payable to Creech and the options accelerated hereunder) that it is advised by counsel is required to be made under the Securities Exchange Act of 1934 (and the rules promulgated thereunder) and any other applicable securities laws, and shall file this Agreement as an exhibit to a report filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. 7.8 Independent Judgment; Revocation. The Company and Creech have each been represented and advised by counsel in connection with the negotiation, execution and delivery of this Agreement, have exercised independent judgment in connection therewith, and have not relied on any statement, promise, representation or warranty not expressly set forth in this Agreement. Creech may revoke this agreement by written notice given to the Company within seven calendar days after the date on which this Agreement is executed by Creech; if so revoked, this agreement shall be of no effect. Creech hereby waives the benefit of any longer revocation or review period to which she may be entitled under any applicable law. VITAMINSHOPPE.COM, INC. By: /s/ Jeffrey J. Horowitz -------------------------- Name: Jeffrey J. Horowitz Title: /s/ Kathryn H. Creech ------------------- Kathryn Creech 6 EX-10.43 11 SEPARATION AND RELEASE AGREEMENT 1 Exhibit 10.43 SEPARATION AND RELEASE AGREEMENT Separation and Release Agreement dated as of February 8, 2000, between VitaminShoppe.com, Inc., a Delaware corporation (the "Company"), and Eliot D. Russman, an individual ("Russman"). The Company and Russman desire to provide for the terms on which Russman's employment by the Company will terminate. The parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. TERMINATION. Russman's employment by the Company is terminated, effective as of the date hereof. As a result of that termination, Russman will hold no office or position, and will not be employed by, the Company. Russman agrees and acknowledges that he will no longer serve in the position of Chief Marketing Officer of the Company. SECTION 2. SEVERANCE PAYMENTS; OPTIONS. 2.1 Severance. Russman will receive from the Company the severance payments and benefits to which he is entitled pursuant to the terms of the July 20, 1999 Offer Letter Confirming Russman's Employment with the Company ("the Offer Letter"). The severance payments shall be made monthly for a six-month period, commencing as of January 24, 2000 in full satisfaction of all amounts payable by the Company to Russman under the Offer Letter. Russman acknowledges and agrees that this Agreement shall be the exclusive basis on which he is entitled to receive any compensation or benefits of any kind from the Company. All payments made by the Company to Russman hereunder shall be subject to all applicable federal and state withholding taxes and Russman will be fully liable and responsible for the payment of all taxes on said payments. 2.2 Stock Options. In consideration for Russman's entry into this Agreement and the releases given by Russman hereunder, the Company hereby agrees to accelerate to July 24, 2000 the vesting of options to purchase 25,000 shares of the Company's Class A Common Stock at $3.82 per share granted to Russman under the Nonqualified Stock Option Agreement, dated July 1, 1999. Russman acknowledges that all other options and rights to purchase securities of the Company under the Offer Letter, any option agreement with the Company or any other arrangement with the Company remain unvested and lapse as of the date hereof and that he will have no further claim with respect thereto. 1 2 SECTION 3. OFFICE. The Company shall provide Russman with office space for up to three months from the date hereof (or, if earlier, until he should obtain new employment), which shall not be in the Company's premises; provided that the Company shall not be required to pay more than $2,000 per month for such office space. SECTION 4. INDEMNIFICATION. To the extent permitted by law, the Company shall indemnify Russman with respect to matters arising from his service as an officer or employee of the Company as provided by the Company's Articles of Incorporation and By-Laws as currently in effect. SECTION 5. MUTUAL RELEASES. (a) In consideration of the acceleration of additional stock options, the other benefits conferred by this agreement and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, Russman hereby releases and forever discharges the Company and its subsidiaries, and their respective past, present and future affiliates, stockholders, officers, directors, employees, agents, and controlling persons, and the respective heirs, administrators, successors and assigns of each of the foregoing (each, a "Releasee"), of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, contracts, agreements, promises, liability, claims, demands, damages, loss, cost or expense, of any nature whatsoever, known or unknown to him, fixed or contingent, choate or inchoate, which Russman ever had, now has or may have at any time arising out of or relating to Russman's employment with, or status as an officer or employee of, the Company or the termination of such employment or status (or any promise or agreement made or entered into, or any action taken or omitted, in connection with such employment, status or termination), including, but not limited to, those arising under the federal Civil Rights Acts of 1866, 1871, 1964 and 1971, as amended, the Age Discrimination in Employment Act of 1967, as amended by, inter alia, the Older Workers Benefit Protection Act of 1990, the Americans with Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 or any other federal, state or local statute or principle of common law. Russman shall refrain from asserting any matter released hereby against any Releasee in any manner, including, but not limited to, by way of counterclaim, offset or defense and shall actively resist any effort to assert on its behalf any such matter. Russman shall indemnify and hold harmless each Releasee from and against all losses, liabilities, claims, damages and expenses (including costs of investigation and defense and reasonable attorneys' fees), arising directly or indirectly from or in connection with the assertion by or on behalf of Russman of any claim or other matter released pursuant to this paragraph. Notwithstanding anything contained herein to the contrary, there is and shall be excepted from the within and foregoing release and discharge any and all of the following: any and all of the obligations of the Company under this Agreement; and any and all rights which Russman may have as an owner of Common Stock and/or Options. 2 3 (b) For valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company hereby releases and forever discharges Russman and his heirs, administrators, executors, agents, representatives, successors and assigns (each, a "Russman Releasee"), of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, claims, demands, damages, loss, cost or expense, of any nature whatsoever, known or unknown to the Company, which the Company ever had, now has or may have at any time arising out of or relating to Russman's employment or status as an officer or employee or the termination of such employment or status. The Company shall refrain from asserting any matter released hereby against any Russman Releasee in any manner, including, but not limited to, by way of counterclaim, offset or defense and shall actively resist any effort to assert on its behalf any such matter. The Company shall indemnify and hold harmless each Russman Releasee from and against all losses, liabilities, claims, damages and expenses (including costs of investigation and defense and reasonable attorney's fees), arising directly or indirectly from or in connection with the assertion by or on behalf of the Company of any claim or other matter released pursuant to this paragraph. Notwithstanding anything contained herein to the contrary, there is and shall be excepted from the within and foregoing release and discharge any and all of the following: any and all of the obligations of Russman under this Agreement; Russman's obligations under the Non-Competition, Non-Solicitation and Confidentiality Agreement with the Company, dated September 1, 1999. SECTION 6. NO DISPARAGEMENT. The Company shall not , directly or indirectly, disparage or impugn the reputation of Russman. Russman shall not, directly or indirectly, disparage or impugn the reputation of the Company, or any of its shareholders, directors, officers, employees or agents. Russman hereby confirms that he does not intend to and shall not, directly or indirectly, make or deliver to the Company any statement for inclusion (or that the Company might be required to include or refer to) in the Company's proxy statement or any filing by the Company with the Securities and Exchange Commission. SECTION 7. MISCELLANEOUS. 7.1 Reimbursement of Business Expenses. Russman shall be reimbursed for all business expenses incurred through January 24, 2000 for which he submits appropriate expense reports in accordance with existing Company policies. 7.2 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to any conflicts of laws principles thereof that would call for the application of the laws of any other jurisdiction. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties hereto in the courts of the State of New York, or if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York, and each of the parties hereto hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world, whether within or without the State of New York. 3 4 7.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same agreements. 7.4 Notices. All notices, demands, requests or other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows (or to such other addresses as a party may specify as to itself by notice to the other): If to the Company: VitaminShoppe.com, Inc. 444 Madison Avenue, Suite 802 New York, New York 10022 Attention: Ann Sardini Facsimile: 308-6186 with copies to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Nancy Fuchs, Esq. Andrea Christensen, Esq. Facsimile: (212) 836-8689 If to the Executive: Eliot D. Russman 315 East 68th Street New York, New York 10021 Facsimile: 7.5 Binding Nature of Agreement; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns as provided herein. 7.6 Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms 4 5 hereof control and supersede any course of performance and/or usage of trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 7.7 Indulgences, Not Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver. 7.8 Confidentiality. Russman shall keep the negotiation and terms of this Agreement confidential and he will not hereafter disclose any information concerning the Company and/or this Agreement to anyone except his attorneys, accountants, tax and financial advisors. The Company shall keep the terms of this Agreement confidential and not hereafter disclose any information concerning this Agreement to anyone except its attorneys, accountants, and tax and financial advisors; except that the Company may make any disclosure regarding the terms of this Agreement (including regarding the amounts payable to Russman and the options accelerated hereunder) that it is advised by counsel is required to be made under the Securities Exchange Act of 1934 (and the rules promulgated thereunder) and any other applicable securities laws, and may file this Agreement as an exhibit to a report filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. 7.9 Independent Judgment; Revocation. Russman enters into this Agreement voluntarily and acknowledges that he has been advised to consult with counsel as to the contents of this Agreement. The Company and Russman have each exercised independent judgment in connection with the negotiation and execution of this Agreement and have not relied on any statement, promise, representation or warranty not expressly set forth in this Agreement. Russman may revoke this Agreement by written notice given to the Company within seven calendar days after the date on which this Agreement is executed by Russman; if so revoked, this Agreement shall be of no effect. Russman hereby waives the benefit of any longer revocation or review period to which he may be entitled under any applicable law. VITAMINSHOPPE.COM, INC. By: /s/ Ann M. Sardini --------------------------------- Name: Ann M. Sardini Title: Chief Financial Officer, Secretary and Treasurer /s/ Eliot Russman --------------------------------- Eliot D. Russman 5 EX-10.44 12 THE NEW MEDIA AGREEMENT 1 [TIME INC. NEW MEDIA LETTERHEAD] EXHIBIT 10.44 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. As of June 15, 1999 Ms. Kathryn Creech Chief Executive Officer VitaminShoppe.com, Inc. Westside Avenue North Bergen, New Jersey 07047 Dear Ms. Creech: This letter shall confirm the agreement ("Agreement"), effective as of the date first written above (the "Effective Date"), between VitaminShoppe.com, Inc. ("VS"), a Delaware corporation, and Time Inc. New Media ("TINM"), a Delaware corporation, pursuant to which VS will be the exclusive vitamins, herbs and nutritional supplements (excluding the nutritional supplements identified on Appendix 2) retail sponsor on each TINM Site (as defined herein) during the Sponsorship Period (as defined herein) applicable to each TINM Site. The parties agree to the following terms and conditions: 1. Exclusive Sponsorship. --------------------- (a) Subject to the terms and conditions of this Agreement, VS shall be the exclusive vitamins, herbs and nutritional supplements (excluding the nutritional supplements identified on Appendix 2) (collectively, the "Covered Products") retail sponsor on each of the TINM Sites during the Sponsorship Period applicable to each TINM Site. As such, VS will be the only third party online retailer of the Covered Products which may [*****]. The "TINM Sites" shall mean the following three (3) sites owned or operated by TINM (or an affiliate of TINM), together with any successor or replacement sites owned or operated by TINM which feature such individuals: (i) the site featuring Dr. Andrew Weil, currently known as the "Ask Dr. Weil" site, and currently located at www.askdrweil.com; (ii) the site featuring Dr. Ruth Westheimer, currently known as the "Dr. Ruth Westheimer!" site and currently located at www.drruth.com; and (iii) the site featuring Alice Waters, provisionally entitled the "Alice Waters" site, and provisionally to be located at www.inthekitchenwithalicewaters.com. TINM will not allow any online retailer of the Covered 2 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. Products (other than VS) to place on the TINM Sites any banner advertisement, commerce button, marketing button, tagline link or other sponsorship placement which promotes the Covered Products. The "Sponsorship Period" for each TINM Site shall mean the time period identified on Appendix 1 (which is attached hereto and incorporated herein) during which VS shall be the exclusive retail sponsor of the Covered Products on such TINM Site, as described in this Agreement. (b) Subject to the terms and conditions of this Agreement, TINM will, with respect to each TINM Site during the Sponsorship Period for each TINM Site, provide, and VS will receive, the type of sponsorship placement and number of Impressions (as defined herein) set forth on Appendix 1. "Impressions" shall mean the number of times that a banner advertisement, commerce button, marketing button, marketplace placement, tagline link or other sponsorship placement, as applicable (each of which shall be counted separately) is delivered to a user on the TINM Site. Notwithstanding anything in this Agreement, the maximum amount of VS impressions on any one page on any TINM Site which shall be counted towards the total amount of impressions set forth on Appendix 1 shall be [*****]. The tagline links to be provided by TINM as set forth in this Agreement (a) shall be prominently displayed on the home page of each TINM Site and on every other page of each TINM Site which contains any sponsor space; (b) shall state the following: "Sponsored by VitaminShoppe.com"; and (c) shall contain a link to a VS Site determined by VS. In the event TINM fails to provide on any TINM Site during any applicable Sponsorship Period for such TINM Site, the number of Impressions for a particular type of sponsorship placement as set forth on Appendix 1, TINM shall provide a "make good" on such shortfall of Impressions, by, at its discretion, either (i) reducing the applicable amount due and payable by VS to TINM on a prorated basis by the amount of such shortfall; (ii) extending the time period for providing the applicable type of sponsorship placement on the applicable TINM Site until the number of Impressions for such shortfall is reached; or (iii) providing the number of Impressions for such shortfall by providing the applicable type of sponsorship placement on another TINM Site or by providing another type of sponsorship placement with reasonably equivalent placement and value on the same TINM Site, another TINM Site, or another site owned or operated by TINM which targets a reasonably equivalent audience (e.g., www.parenttime.com, www.parenting.com, www.people.com). TINM will confer with VS in the event the "make good" is to be provided on such a site owned or operated by TINM. (c) Notwithstanding anything to the contrary in this Agreement, TINM may, at its discretion, place, on any TINM Site, banner advertisements, commerce buttons, marketing buttons and other promotions (collectively, "Promotions") of third parties which sell the Covered Products (including without limitation, when such promotions are placed by a third party which sells the Covered Products); provided that no Promotions may themselves promote any of the Covered Products in any way and provided further that any Promotions that do promote any of the Covered Products must be located at least [*****] or more clicks away from the applicable TINM Site. In the event VS discovers that TINM has failed to comply with the preceding provisions set forth in this paragraph, VS shall notify TINM in writing and TINM will immediately cease -2- 3 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. displaying such placements on such TINM Site and shall also provide a "make good" by, at its discretion, either (i) providing such additional number of Impressions (in addition to the number of Impressions outlined in Appendix 1) as may be equivalent to the number of Impressions delivered by the Restricted Promotions (as defined herein); or (ii) providing such number of click-throughs as may be equivalent to the number of click-throughs delivered by the Restricted Promotions. "Restricted Promotions" shall mean the banner advertisements, commerce buttons, marketing buttons and other promotions that TINM is restricted from placing on the TINM Sites as set forth in the preceding provisions of this paragraph. (d) VS acknowledges that yourPharmacy.com, Inc. is the exclusive online pharmacy (i.e., the exclusive third party online retailer allowed to promote prescription drugs, over-the-counter drugs, certain health and beauty products other than Covered Products which are described above and durable medical equipment) on the TINM Sites. VS agrees that it will not place banner advertisements, commerce buttons, marketing buttons or other forms of promotions on the TINM Sites that themselves promote prescription drugs, over-the-counter drugs, certain health and beauty products and durable medical equipment. The foregoing shall not prohibit VS from selling prescription drugs, over-the-counter drugs, certain health and beauty products and durable medical equipment on its site, which is currently located at www.vitaminshoppe.com, or on any of its other sites that are primarily branded with the VitaminShoppe.com name and are reasonably equivalent to www.vitaminshoppe.com with respect to the products and services offered (e.g., www.myvitaminshoppe.com) (collectively, the "VS Sites"). (e) VS agrees that all banner advertisements, commerce buttons, marketing buttons and other promotions it places on the TINM Sites shall be subject to TINM's then-current standard rate card (other than price) and advertising policies. VS shall have the right, at its option, to serve advertisements on the TINM Sites from its own servers without the pre-approval of TINM and TINM shall reasonably cooperate (taking into account TINM's existing technology and resources) with such ad serving; provided that (i) VS conducts such ad serving in accordance with industry standards; and (ii) any failures by VS in serving such ads shall not be deducted from the number of Impressions to be provided by TINM. (f) VS shall be responsible for all transactions sought by users of the TINM Sites which occur on any of the VS Sites, including without limitation, order processing, credit card clearance, security, fulfillment, distribution, customer service and user privacy. In addition, VS will comply with appropriate privacy policies in handling customers' personally identifying information. Specifically, VS will prominently display, and will strictly comply with, a privacy policy on the VS Sites that is substantially similar to the privacy policy displayed on the TINM Sites, and strictly adheres to the privacy guidelines and principles promulgated by the Direct Marketing Association or the Online Privacy Alliance. -3- 4 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. (g) TINM shall provide VS via the Internet with weekly Impression information and click through numbers. With respect to users who link to VS Sites from the TINM Sites, VS shall provide TINM with weekly sales figures, along with the number of catalogs ordered, from the VS Sites. (h) VS shall, at TINM's written request and to the extent technically feasible, develop and maintain within the VS Site certain customized page(s) which will feature and offer for sale selected brands, which brands shall be introduced with the words "as discussed by" or "as seen on" or such other language as may be designated by TINM in its sole discretion. The customized page(s) will consist of no fewer than [*****] page, after which a visitor may be taken into the main portion of the VS Site. Users who click a banner advertisement, commerce button, marketing button or other equivalent promotion of VS while on the TINM Sites will be automatically linked to such customized page(s) as the initial page(s) they view on the VS Site. The content of such customized pages shall be mutually agreed upon the parties. Such customized pages will only be accessible by users who access the VS Sites by way of a link from the TINM Sites. The parties acknowledge and agree that the customized pages may be either on the home page or other pages of the VS Site, as may be mutually agreed upon by the parties. 2. Fees and Payments. (a) In consideration of the foregoing, VS shall pay TINM a total of [*****] (which amount includes the [*****] discount from the gross amount of [*****]. Such total amount shall be paid by VS as follows: (i) $[*****] on [*****]; (ii) $[*****] on $[*****]; (iii) $[*****] on $[*****]; and (iv) $[*****] on [*****]. (b) In the event any Sponsorship Period on any TINM Site actually commences later than the initial date identified on Appendix 1 for such Sponsorship Period, the total amount due by VS shall be prorated based on the applicable TINM Site involved and the period remaining for such Sponsorship Period. Notwithstanding anything in this Agreement, to the extent that TINM terminates this Agreement pursuant to Section 3(d), TINM shall give VS a pro-rata refund of any pre-paid amounts under this Agreement. 3. Term and Termination. (a) The term of this Agreement shall commence on the date first set forth above and shall continue until [*****], unless earlier terminated as provided below, or extended as provided for herein. (b) This Agreement may be renewed upon mutual written agreement signed by both parties. -4- 5 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. (c) Either party shall have the right to terminate this Agreement if the other party has materially breached this Agreement; provided, however, that the non-breaching party shall have given the breaching party reasonable notice of such breach and thirty (30) days in which to cure such breach. (d) In the event (i) TINM establishes a significant strategic alliance (e.g., by way of an acquisition, merger, significant investment, joint venture) that involves the TINM Sites and a site which is predominantly an online retailer of pharmaceutical products and services, or (ii) VS establishes a significant strategic alliance (e.g., by way of an acquisition, merger, significant investment, joint venture) that involves the VS Sites and a site which is predominantly an online health information portal (other than any arrangement with VitaminBuzz.com, provided that VitaminBuzz.com continues to be wholly owned by VS), each party will have a thirty (30) day period during which it may, upon sixty (60) days prior written notice, terminate this Agreement. Each party shall continue to be responsible for performing its obligations under this Agreement during such thirty (30) day and sixty (60) day period. (e) The provisions of Sections 3(e), 4(a), 4(b), 6, 8, 9 and 12 of this Agreement shall survive termination or expiration of this Agreement. 4. Ownership and Licenses. (a) As between VS and TINM, VS shall own all right, title and interest in and to the VS Sites and the VS Trademarks (as defined herein), including without limitation, all copyright, patent, trademark, trade secret and proprietary rights thereto. (b) As between VS and TINM, TINM shall own all right, title, and interest in and to the TINM Sites and the TINM Trademarks (as defined herein), including without limitation, all copyright, patent, trademark, trade secret and proprietary rights thereto. (c) Subject to the terms and conditions of this Agreement, VS does hereby grant to TINM a non-exclusive, worldwide, non-transferable license to reproduce and display all logos, trademarks, trade names and similar identifying material relating to VS or the VS Sites (the "VS Trademarks") solely in connection with the promotion, marketing and distribution of the TINM Sites, VS and the VS Sites in accordance with the terms hereof; provided, however, that TINM shall not make any specific use of any VS Trademark without first submitting a sample of such use to VS and obtaining its prior consent, which consent shall not be unreasonably withheld. Such license shall terminate upon the effective date of the expiration or termination of this Agreement. (d) Subject to the terms and conditions of this Agreement, TINM does hereby grant to VS a non-exclusive, worldwide, non-transferable license to reproduce and display all logos, trademarks, trade names and similar identifying material relating to TINM or the TINM Sites (the "TINM Trademarks") solely in connection with the promotion, marketing and -5- 6 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. distribution of the TINM Sites, VS and the VS Sites in accordance with the terms hereof; provided, however, that VS shall not make any specific use of any TINM Trademark without first submitting a sample of such use to TINM and obtaining its prior consent, which consent shall not be unreasonably withheld. Such license shall terminate upon the effective date of the expiration or termination of this Agreement. 5. Representations and Warranties. (a) TINM represents and warrants as follows: (i) TINM has full power and authority to enter into this Agreement, and to perform its obligations hereunder, and its entry into this Agreement and the performance of such obligations does not violate any other agreement by which it is bound. (ii) The conduct of TINM in performing this Agreement shall at all times comply with all applicable federal, state, and local laws, rules and regulations in the United States. (b) VS represents and warrants as follows: (i) VS has full power and authority to enter into this Agreement, and to perform all of its obligations hereunder, and its entry into this Agreement and the performance of its obligations does not violate any other agreement by which it is bound. (ii) The conduct of VS in performing this Agreement shall at all times comply with all applicable federal, state, and local laws, rules and regulations in the United States. 6. Indemnification. (a) Each party hereby agrees to indemnify and hold harmless the other party, its subsidiaries and affiliates, and their respective officers, directors and employees from and against any and all claims, actions, demands, liabilities, losses, damages, judgments, settlements, costs and expenses (including reasonable attorneys' fees) resulting from third party claims (any or all of the foregoing hereinafter referred to as "Losses") insofar as such Losses (or third party actions in respect thereof) arise out of or are based on the use by it of any trademarks belonging to the other party other than in accordance with the terms hereof. (b) TINM shall indemnify and hold harmless VS, its subsidiaries and its affiliates, and their respective officers, directors and employees from and against any and all Losses insofar as such Losses (or third party actions in respect thereof) arise out of or are based on a breach, or allegation which if true would constitute a breach, of any of its representations, warranties or obligations herein. -6- 7 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. (c) VS shall indemnify and hold harmless TINM, its subsidiaries and affiliates, and their respective officers, directors and employees from and against any and all Losses insofar as such Losses (or third party actions in respect thereof) arise out of a breach, or allegation which if true would constitute a breach, of any of its representations, warranties or obligations herein. (d) TINM shall indemnify and hold harmless VS, its subsidiaries and affiliates, and their respective officers, directors and employees from and against any and all Losses insofar as such Losses (or third party actions in respect thereof) arise out of or are based on the use by VS of the TINM Trademarks in accordance with the terms hereof to the extent TINM did not have the right to grant a license to VS as set forth in this Agreement. (e) VS shall indemnify and hold harmless TINM, its subsidiaries and affiliates, and their respective officers, directors and employees from and against any and all Losses insofar as such Losses (or third party actions in respect thereof) arise out of or are based on the use by TINM of the VS Trademarks in accordance with the terms hereof to the extent VS did not have the right to grant a license to TINM as set forth in this Agreement. 7. Public Announcements. Neither party will make any announcements or statements to the public concerning the relationship between them or the transactions described herein without the prior written consent of the other. 8. Confidentiality. (a) Neither party shall use or disclose any Confidential Information (as defined herein) of the other party, except on a need-to-know basis pursuant to this Agreement. "Confidential Information" shall mean any and all information or material, whether in tangible or intangible form, that is confidential or proprietary to the disclosing party and is disclosed under circumstances under which the receiving party should reasonably have known such information or material to be confidential or proprietary to the disclosing party, including without limitation, technical, distribution, operating, business, marketing, research and financial information relating to the disclosing party or its products or services, and the material terms of this Agreement. (b) For purposes of this Agreement, "Confidential Information" shall not include information or material (a) in the public domain (other than as a result of a breach of this Agreement); (b) in the receiving party's possession prior to its receipt from the disclosing party; (c) independently developed by the receiving party without the use of Confidential Information; (d) obtained by the receiving party from a third party under no obligation of confidentiality to the disclosing party; or (e) must be disclosed due to a judicial or governmental requirement or order, provided that (i) the receiving party has given the disclosing party sufficient prior notice of such requirement or order to permit the disclosing party a reasonable opportunity to object or to seek a protective order or other appropriate remedy, (ii) the receiving party cooperates with the -7- 8 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. disclosing party so that it may object or seek a protective order or other appropriate remedy and (iii) the receiving party in any event discloses only that portion of the Confidential Information that is legally required to be disclosed. 9. Limitation on Liability; Disclaimer. (a) Limitation on Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER FOR ANY CLAIM ARISING OUT OF ANY DOWNLOADING OR OTHER USE OF ITS WEB SITES. (b) Disclaimer. EXCEPT AS SET FORTH IN SECTION 6(a), NEITHER PARTY MAKES ANY, AND EACH PARTY ACKNOWLEDGES THAT THE OTHER HAS NOT MADE ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE OPERATION OF ITS WEB SITES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE FOREGOING, EACH PARTY ACKNOWLEDGES THAT OTHER PARTY'S WEB SITES ARE OPERATED ON AN "AS IS", "AS AVAILABLE" BASIS, AND THAT IT MAKES NO WARRANTY THAT ITS WEB SITES WILL BE ERROR-FREE OR THAT ACCESS THERETO WILL BE UNINTERRUPTED. 10. Notices. All notices to be given hereunder shall be in writing and shall be given to the parties and at the addresses first above written. Notices shall be deemed to have been given (and received) (a) when personally delivered, (b) on the next business day after the date on which deposited with a nationally recognized overnight carrier, addressed to that party for whom the notice is intended at the address set forth above, (c) five (5) business days after posting when sent by certified United States mail, postage prepaid, return receipt requested, and (d) the day following transmission if sent by facsimile transmission followed by written confirmation sent by mail. 11. Force Majeure. Neither party shall be liable to the other for any default or delay in performance of any of its obligations under this Agreement if such default or delay is caused, directly or indirectly, by an event beyond such party's reasonable control, including without limitation, fire, flood, earthquake or other acts of God; wars, rebellions or revolution; strikes, riots or civil disorders; accidents or unavoidable casualties; interruptions in transportation, -8- 9 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. communications or power facilities; or changes in law, treaties, rulings, regulations, decisions or requirements of any governmental, administrative or regulatory agency. 12. Miscellaneous. This Agreement shall be construed in accordance with the laws of the State of New York, without regard to its conflicts of laws rules. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements or other communications between the parties with respect to the subject matter hereof. This Agreement may not be modified except by a writing signed by an authorized signatory of each party. The parties are acting as independent contractors to each other under this Agreement, and nothing contained in this Agreement shall create or suggest any affiliation, association, partnership, agency or joint venture between the parties. Neither party shall represent itself or act as the associate, partner, agent or joint venturer of the other party in any way whatsoever. Neither party shall assign any right or any obligation under this Agreement without the prior written consent of the other party, and any such attempted assignment shall be null and void, except that either party may assign any right or any obligation under this Agreement to an affiliate of such party upon prior notice to the other party (but without the other party's prior written consent), provided that such affiliate continues to maintain or operate the assigning party's site. No waiver by either party or any breach or default hereunder shall be deemed to be a waiver of any preceding or subsequent breach or default. The section headings used herein are for convenience only and shall not be given any legal import. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute a single instrument. If any provision of this Agreement shall be found by a court of competent jurisdiction to be invalid or unenforceable, such finding shall not affect the validity or enforceability of this Agreement as a whole or of any other provision of this Agreement. -9- 10 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. If the foregoing meets with your approval, please sign the enclosed copy and return it to TINM with the appropriate signatures. TIME INC. NEW MEDIA By: /s/ Steven Petrow ------------------------------- Name: Steven Petrow ----------------------------- Title: Exec Editor ---------------------------- AGREED TO AND ACCEPTED: VITAMINSHOPPE.COM, INC. By: /s/ K.H. Creech ------------------------- Name: K.H. Creech ----------------------- Title: CEO ---------------------- -10- 11 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. APPENDIX 1 SPONSORSHIP PLACEMENTS
TYPE OF SPONSORSHIP TINM SITE PLACEMENT NUMBER OF IMPRESSIONS SPONSORSHIP PERIOD - --------- ------------------- --------------------- ------------------ Dr. Andrew Weil [*****] [*****]/week [*****]-[*****] [*****] [*****] [*****]-[*****] [*****] [*****] [*****]-[*****] [*****] [*****]/week [*****]-[*****] [*****] [*****]/week [*****]-[*****] [*****] [*****]/week [*****]-[*****] Total: [*****] - --------------------------------------------------------------------------------------------------- Dr. Ruth Westheimer [*****] [*****]/month [*****]-[*****] [*****] [*****]/month [*****]-[*****] [*****] [*****]/month [*****]-[*****] [*****] [*****] [*****]-[*****] Total: [*****] [*****] [*****]/month [*****]-[*****] [*****] [*****]/month [*****]-[*****] [*****] [*****]/month [*****]-[*****] [*****] [*****] [*****]-[*****] Total: [*****] - ---------------------------------------------------------------------------------------------------- Alice Waters [*****] Total: [*****] [*****]-[*****] [*****] [*****] [*****] - ---------------------------------------------------------------------------------------------------- Grand Total: [*****} - ----------------------------------------------------------------------------------------------------
-11- 12 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. APPENDIX 2 EXCLUDED COVERED PRODUCTS See attached. -12- 13 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
DEPARTMENT CATEGORY VENDOR NAME DESCRIPTION - ---------- -------- ----------- ----------- Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR BOOST ENERGY Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR SUSTACAL Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR SUSTACAL PLUS Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR ISOCAL Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR ISOCAL HN Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR LIPISORB RTU Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR RESPALOR Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR BOOST Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR DELIVER 2.0 Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR ULTRACAL Vitamins & Nutrition Meal Replacement MEAD JOHNSON/ADULT-NUTR TRAUMACAL Vitamins & Nutrition Meal Replacement NATURE'S WAY PRODUCTS INC. NAT WY Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE PLUS Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE FRT Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP COMPLEAT MODI Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP ISOSOURCE Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP ISOSOURCE HN Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP MERITENE INST Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP RESOURCE F/BV Vitamins & Nutrition Meal Replacement NOVARTIS NUTRITION CORP VIVONEX PLUS Vitamins & Nutrition Meal Replacement RAINBOW LIGHT NUTRITIONAL R/L Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE PLUS Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE LIGHT Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE/FIBER Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE PLS HN Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE HONEY Vitamins & Nutrition Meal Replacement ROSS LABS ENSURE CHOC Vitamins & Nutrition Teas ADAMS USA Vitamins & Nutrition Teas GOLDEN TEMPLE INC Vitamins & Nutrition Teas MD LABS INC Vitamins & Nutrition Teas TRADITIONAL MEDICINALS INC Vitamins & Nutrition Teas TWIN LABORATORIES INC Vitamins & Nutrition Diet Products SLIM FAST FOODS Vitamins & Nutrition Diet Products AMERICAN NATURAL SNACKS Vitamins & Nutrition Diet Products ATKINS NUTRITIONALS INC Vitamins & Nutrition Diet Products NATURES'S SOURCES LLC Vitamins & Nutrition Diet Products RAINBOW LIGHT NUTRITIONAL Vitamins & Nutrition Diet Products ROSS LABS Vitamins & Nutrition Sports Nutrition CLIF BAR INTERNATIONAL Vitamins & Nutrition Sports Nutrition MLO PRODUCTS Vitamins & Nutrition Sports Nutrition WEIDER NUTRITION INTERNTL Vitamins & Nutrition Sports Nutrition ATKINS NUTRITIONALS INC Vitamins & Nutrition Sports Nutrition TWIN LABORATORIES INC Vitamins & Nutrition Sports Nutrition CHAMPION NUTRITION Vitamins & Nutrition Sports Nutrition CNS INC
EX-10.45 13 LETTER AGREEMENT 1 RSPAB 9/10/99 EXHIBIT 10.45 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. As of August 16, 1999 Ms. Kathryn Creech President and CEO VitaminShoppe.com 4700 West Side Ave. North Bergen, NJ 07407 Dear Kathryn: This letter provides an understanding of the scope of the services (the "Services") to be performed by Sapient Corporation ("Sapient") solely during the Concept and Design phase (the "Concept and Design Phase") of Sapient's performance of designing and developing the VitaminShoppe.com and VitaminBuzz.com Web sites (the "Project") for VitaminShoppe.com, Inc. ("VitaminShoppe.com"). The Concept and Design Phase of the Project shall commence on Monday August 9, 1999 and end on Friday October 22, 1999, unless extended by Sapient and VitaminShoppe.com. The deliverables (the "Deliverables") to be delivered by Sapient to VitaminShoppe.com during and by the end of the Concept and Design Phase are set forth on Schedule A attached hereto. For the Services VitaminShoppe.com shall pay Sapient $[*****](the "Concept and Design Phase Fee"), plus reasonable actual out-of-pocket expenses. The Concept and Design Phase Fee will be paid according to the following schedule: 8/23/99 [*****]% $[*****] 9/20/99 [*****]% $[*****] 11/1/99 [*****]% $[*****] Such out-of-pocket expenses will be billed at the end of the Concept Phase and again at the end of the Design Phase with payment due 30 days from receipt of invoice by VitaminShoppe.com. Sapient will not bill VitaminShoppe.com for travel and lodging expenses incurred by resources dedicated solely to the back end integration team. Within three business days of the last day of the Concept and Design Phase, Sapient shall deliver to VitaminShoppe.com a good faith estimate for the cost of the Project. Within 10 days following the receipt of such estimate, VitaminShoppe.com shall deliver written notice to Sapient which notice shall state whether VitaminShoppe.com wishes to continue with the Project or not to continue with the Project. If VitaminShoppe.com decides to continue with the Project at such time, the parties shall enter into a Web Site Development Agreement to set forth the 2 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. terms and conditions for the balance of the Project, and the Concept and Design Phase Fee, together with the $[*****] already paid by VitaminShopppe.com to Sapient in connection with the Project, shall be credited towards the total fee for the Project. If VitaminShoppe.com decides not to continue with the Project at such time, Sapient shall have no further obligation to provide additional services to VitaminShoppe.com in connection with the Project beyond the Services and VitaminShoppe.com shall have no further obligation to pay Sapient any consideration in connection with the Project beyond the Concept and Design Phase Fee and the out-of-pocket expenses set forth herein, provided, however, that each party shall remain bound by the terms and conditions of the confidentiality provisions and its representations, warranties and covenants contained in this letter agreement. Each party agrees to hold in confidence and not disclose (except on a confidential basis to its employees or agents who are working on the Project and who are bound to preserve the confidentiality thereof) any Proprietary Information of the other to any third party. "Proprietary Information" shall mean all information, knowledge and data possessed by either party, including without limitation trade secrets, information designated as confidential which is not publicly available, methodologies, systems, processes, inventions, algorithms, procedures, techniques, work approaches and tangible manifestations of Proprietary Information (including the reports to be delivered to VitaminShoppe.com by Sapient at the conclusion of the Concept and Design Phase), as well as any information VitaminShoppe.com obtains regarding any of Sapient's clients. Without in any way limiting the foregoing, all information delivered by VitaminShoppe.com to Sapient during the Concept and Design Phase, or otherwise in connection with the Project, shall be deemed "Proprietary Information" under, and shall be subject to, the terms and conditions of the Confidential Disclosure Agreement dated as of July 12, 1999 between VitaminShoppe.com and Sapient, the terms and conditions of which are incorporated herein by reference. The Sapient team will be defined during the later stages of the Concept and Design Phase, provided, however, that the following Sapient staff will be allocated to the Project: Jon Frey - Delivery Director (part time) Lindsey Mosby - User Experience Team Lead (part time) Mark Berler - Director of Architecture (part time) Casey Hanback - Project Manager Ram Prabhala - Lead Technical Architect Sapient may not re-assign any of the above, or any of the other Sapient team members working on the Project, from the Project without the written consent of VitaminShoppe.com. Such consent shall not be unreasonably withheld. Sapient and VitaminShoppe.com each agree and represent that Sapient is an independent contractor and is not VitaminShoppe.com's agent, legal representative, joint venturer, partner or -2- 3 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DEMOTE OMISSIONS. employee for state or federal tax purposes or for any other purposes whatsoever (and will not hold itself out as such), except in connection with providing the Services in accordance with the terms of this letter agreement, and that Sapient and its employees are not entitled to any VitaminShoppe.com employee benefits. Notwithstanding anything to the contrary which may be set forth or implied herein, Sapient has no authority to make or enter into any obligations, express or implied, on behalf of VitaminShoppe.com or enter into contracts on behalf of, bind or otherwise obligate VitaminShoppe.com in any manner whatsoever. Sapient shall be responsible for all withholding and taxes by any government authority on the compensation paid to Sapient by VitaminShoppe.com. Sapient shall make clear in all agreements with its employees and independent contractors that they are being employed directly by Sapient, and that Sapient is acting individually and not as agent of VitaminShoppe.com in its employment of these individuals. VitaminShoppe.com is retaining Sapient in reliance upon Sapient's representations that it will use its best efforts, skills, judgment and abilities to provide the Services in a professional manner consistent with VitaminShoppe.com policies, as set forth in VitaminShoppe.com's policy manuals and/or handbooks, if any, written copies of which have been provided to Sapient, or such other policies as may be conveyed in writing by VitaminShoppe.com to Sapient, and shall devote such time as is reasonably necessary to such duties. Sapient acknowledges and agrees that all deliverables ("Work Product") created, developed or provided by Sapient to VitaminShoppe.com during the Concept and Design Phase, or otherwise in connection with the Project, shall be deemed "work made for hire" for the benefit of VitaminShoppe.com. All rights, title and interest to all Work Product, including all copyrights and all intellectual property rights pertaining thereto, shall be held by VitaminShoppe.com. To the extent that title to any such Work Product may not, by operation of law, vest in VitaminShoppe.com or such Work Product may not be considered "works made for hire," all right, title and interest therein are hereby irrevocably assigned by Sapient to VitaminShoppe.com. Sapient agrees to execute all necessary documentation for the assignment or registration of copyright to secure VitaminShoppe.com's rights to any and all Work Product. Notwithstanding the foregoing, Sapient shall retain all rights, title and interest to any methodologies, concepts, work approaches, know-how and techniques, software programs, user interface (UI) conventions, UI design patterns and any other consulting, design or development tools which Sapient either developed prior to the commencement of the Project or which Sapient develops during the course of the Project but which are developed either at Sapient's cost or not in connection with the Project (collectively, the "Sapient Materials"). Sapient hereby grants VitaminShoppe.com a perpetual, worldwide, royalty free right and license to use the Sapient Materials in connection with the use and operation of the VitaminShoppe.com and VitaminBuzz.com web sites, which license may be transferred to any entity which purchases substantially all of the business and/or assets of VitaminShoppe.com or which purchases either the VitaminShoppe.com or VitaminBuzz.com Web sites. Sapient shall be free to use for any purpose the Residuals resulting from its work on the Project. The term "Residuals" means -3- 4 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DEMOTE OMISSIONS. information in intangible form, which may be retained by persons working on the engagement, including ideas, concepts, know-how, and techniques contained therein and which do not contain and of VitaminShoppe.com's proprietary information. Sapient agrees that upon termination of this Agreement any materials provided by VitaminShoppe.com to Sapient shall remain VitaminShoppe.com property and any Work Product that is in progress and not complete shall be transferred to VitaminShoppe.com, and Sapient shall return all such materials to VitaminShoppe.com. Each party represents and warrants that it has the authority to enter into this letter and to perform its obligations hereunder, and Sapient represents and warrants that its original Work Product produced in connection with the Services performed hereunder and the Work Product hereunder shall not violate any rights of any person, including but not limited to trademark, copyright, privacy, or proprietary rights, provided that Sapient shall have no liability to VitaminShoppe.com under this Agreement to the extent that any infringement or claim thereof is based upon (i) the combination, operation or use of a Deliverable in combination with equipment or software not supplied, approved or recommended by Sapient hereunder where the Deliverable would not itself be infringing, (ii) compliance with designs, specifications or instructions provided to Sapient by VitaminShoppe.com, (iii) use of a Deliverable in an application or environment for which it was not designed or not contemplated under this Agreement, or (iv) modifications of a Deliverable by anyone other than Sapient or not approved by Sapient where the unmodified version of the Deliverable would not be infringing. THE FOREGOING REPRESENTATIONS AND WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THOSE CONCERNING MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND NO REPRESENTATION OR STATEMENT NOT EXPRESSLY CONTAINED IN THIS AGREEMENT AND ANY WORK STATEMENT WILL BE BINDING ON SAPIENT AS A WARRANTY. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law principles thereof. This letter agreement constitutes the entire agreement of the parties hereto with respect to the Concept and Design Phase of the Project and supersedes any and all prior agreement, written and oral, with respect thereto. No change, amendment or modification of any provision hereof shall be valid unless set forth in a written instrument signed by both parties. This letter agreement may be executed in any number of counterparts, each of which shall be deemed an original and together which shall constitute one and the same instrument. This letter agreement and the provisions hereof shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their successors and permitted assigns; provided, however, that neither party may assign its rights or obligations hereunder, in whole or in part, without the other party's written consent, except that a party's rights and obligation hereunder may be transferred to a successor of all or substantially all of the business and assets of the party regardless of how the transaction or series -4- 5 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. of related transactions is structured, provided, that the successor party agrees to be bound by all of the terms and conditions hereof. To the extent that the terms and conditions set forth in Schedule A contradict those set forth in this letter agreement, the terms and conditions of this letter agreement shall govern. If you are in agreement with these arrangements, please sign one copy of this letter agreement and return it to us in the enclosed stamped self-addressed envelope. We very much appreciate the opportunity to serve VitaminShoppe.com. Best Regards, Alex Kormushoff Vice President Agreed: VITAMINSHOPPE.COM, INC. By:/S/ KATHRYN H. CREECH ______________________ Name: KATHRYN H. CREECH Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER -5- 6 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. [*****] VISUAL DESIGN CONCEPTS - - [*****] INFORMATION ARCHITECTURE CONCEPTS - - [*****] CONTENT STRATEGY CONCEPTS - - [*****] INTERACTIVITY AND USABILITY MODELS - - [*****] BRAND STRATEGY - - [*****] - - [*****] - - [*****] [*****] TEST, STAGING AND PRODUCTION SYSTEM CONFIGURATION SPECIFICATION - - [*****] - - [*****] DEVELOPMENT MEDIUM ( SCRIPTING, LANGUAGE, ETC.) RECOMMENDATIONS LEGACY INTERFACE DESIGN HOSTING OPTIONS SCOPE REFINEMENT [*****] INTEGRATED PROTOTYPE - - [*****] [*****] SYSTEM AND PACKAGE INTERFACE SPECIFICATION -6- 7 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS. FRONT END - TO MIDDLE TIER INTERFACE MIDDLE-TIER TO BACK-END INTERFACE BACK-END TO LEGACY INTERFACES DRILL DOWN INTERFACES FOR EACH OF THE COMPONENTS IN THE THREE TIERS ARCHITECTURE MODELS AND DOCUMENTATION ( MID LEVEL DETAIL) CLASS DIAGRAMS OBJECT DIAGRAMS INTERACTION DIAGRAMS DATA MODEL USE CASES AND SCENARIOS FOR THE VARIOUS PROCESSES TEST PLANS IMPLEMENTATION PROJECT PLAN -7- EX-11.1 14 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 COMPUTATION OF LOSS PER COMMON SHARE Period from October 1, 1997 (inception) to December 31, 1997 and the years ended December 31, 1998 and 1999 (In thousands, except share and per share data)
Year ended December 31, October 1, 1997 (inception) to December 31, 1997 1998 1999 ----------------- ------------- ------------ BASIC AND DILUTED LOSS PER SHARE (1): Net loss $ (353) $ (3,440) $ (30,201) ============ ============ ============ Weighted average number of common shares outstanding (2) 13,081,500 13,081,500 14,756,339 ============ ============ ============ Basic and diluted net loss per share $ (0.03) $ (0.26) $ (2.05) ============ ============ ============
(1) Diluted net loss per share is equal to basic net loss per share since potential common shares from the exercise of stock options and warrants are antidilutive. (2) The number of shares used to compute the loss per share amounts includes 13,081,500 shares of Class B common stock issued in connection with the Company's initial capitalization in June 1999, as if all shares were outstanding for the entire periods presented. EX-27.1 15 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 38,019 0 259 0 35 42,976 6,431 247 49,160 13,222 0 0 0 204 35,734 49,160 13,638 13,638 7,594 36,146 0 0 (9) (30,093) 108 (30,201) 0 0 0 (30,201) (2.05) (2.05)
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