0001021408-01-509272.txt : 20011107
0001021408-01-509272.hdr.sgml : 20011107
ACCESSION NUMBER: 0001021408-01-509272
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20011019
ITEM INFORMATION: Acquisition or disposition of assets
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 20011102
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EDIETS COM INC
CENTRAL INDEX KEY: 0001094058
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389]
IRS NUMBER: 560952883
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-30559
FILM NUMBER: 1773899
BUSINESS ADDRESS:
STREET 1: 3467 W HILLSBORO BLVD.
CITY: DEERFIELD BEACH
STATE: FL
ZIP: 33442
BUSINESS PHONE: 9543609022
MAIL ADDRESS:
STREET 1: 3467 W. HILLSBORO BLVD.
CITY: DEERFIELD BEACH
STATE: FL
ZIP: 33642
8-K
1
d8k.txt
FORM 8 - K
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 19, 2001
eDiets.com, Inc.
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(Exact name of Registrant as specified in its charter)
0-30559
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Commission File Number
Delaware 56-0952883
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
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(Address of Principal Executive Offices) (Zip Code)
(954) 360-9022
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(Registrant's Telephone number, including area code)
Item 2. Acquisition or Disposition of Assets.
On October 19, 2001, eDiets.com, Inc., a Delaware corporation (the
"Company") acquired all of the issued and outstanding shares of capital stock of
DietSmart, Inc., a Delaware corporation ("DietSmart") pursuant to the Agreement
and Plan of Merger dated as of October 1, 2001 ("Merger Agreement"), by and
among the Company, DietSmart Acquisition Corp., a Delaware corporation a
direct, wholly-owed subsidiary of the Company ("Newco"), DietSmart, David R.
Humble, the Company's Chairman, Chief Executive Officer and principal
stockholder, and Tamara L. Totah, DietSmart's Chief Executive Officer ("Totah"),
Carlos M. Lopez-Ona, DietSmart's Chief Financial Officer ("Lopez-Ona") and
Andrew G. Smith, the President of DietSmart ("Smith"). Pursuant to the Merger
Agreement, DietSmart was merged with and into Newco ("Merger") with Newco
continuing as the surviving corporation, with its name changed to "DietSmart,
Inc." and becoming a direct, wholly-owned subsidiary of the Company.
Upon consummation of the Merger, each holder of (1) DietSmart Common
Stock, (2) Preferred Stock, and (3) certain DietSmart stock options was entitled
to receive 0.1657105 shares of the Company's Common Stock and $0.207138 in cash
for each share of DietSmart Common Stock, Preferred Stock or stock options
owned, for an aggregate Merger consideration of 2,000,000 shares of the
Company's Common Stock ("Share Consideration") and $2.5 million of cash. The
cash consideration ("Cash Consideration") is payable in five equal installments
with a quarterly compounded interest rate of 6%. The first payment of Cash
Consideration is due upon the surrender of the DietSmart stock certificates to
the exchange agent, the second payment is due April 30, 2002, the third payment
is due July 30, 2002, the fourth payment is due October 30, 2002 and the final
payment is due January 30, 2003.
Totah and Lopez-Ona, the owners of all of the outstanding shares of
DietSmart Common Stock, owned in the aggregate approximately 68% of DietSmart's
voting securities. In connection with the Merger, Totah became entitled to
receive, in exchange for her DietSmart Common Stock and options, $933,783 of
Cash Consideration due to the DietSmart stockholders and 747,016 shares of the
Share Consideration. Upon the Closing, she entered into a three-year employment
agreement with the Company under which she serves as the Company's President and
a member of the Board of Directors. She received a grant of 150,000 stock
options vesting over a period of two years exercisable at a price of $1.23 per
share. Mr. Lopez-Ona became entitled to receive, in exchange for his DietSmart
Common Stock and options, $479,078 of Cash Consideration and 383,262 shares of
the Share Consideration. He entered into a three year employment agreement
serving as an Executive Vice President prior to relocation to Florida and Chief
Operating Officer after relocation. He also received 150,000 stock options on
the same terms as Ms. Totah. Mr. Smith became entitled to receive, in exchange
for his stock options, $350,876 of cash proceeds and 280,701 of the Company's
Common Stock. He also entered into an employment agreement under which he
serves as the Company's Executive Vice President-Marketing and was granted
150,000 stock options on the same terms as Ms. Totah and Mr. Lopez-Ona.
In the event that the Merger is not treated as a tax-free reorganization
by the Internal Revenue Service, the Company has agreed to loan to each of Totah
and Lopez-Ona the amount of any federal income tax recognized by each of them
based on the receipt of the Company's Common Stock pursuant to the Merger.
2
$100,000 of the initial Cash Consideration payment of $500,000 was, and
$100,000 of each remaining $500,000 Cash Consideration installment payments of
cash consideration will be delivered into an escrow account and the Company will
retain 10,000 shares of Common Stock that would otherwise be deliverable to each
of Totah, Lopez-Ona and Smith until the final disposition of a pending
litigation between DietSmart and a third party.
At the Closing, the Company entered into a Registration Rights Agreement
with all of the holders of DietSmart's voting securities, except Totah, Lopez-
Ona and Smith, under which the Company agreed to file a registration statement
on or prior to April 30, 2002 for the registration of all of the Share
Consideration issued to the DietSmart stockholders and to use its best efforts
to cause the registration statement to become effective to permit the public
trading of the Company's securities by the DietSmart stockholders. In addition
to executing the Registration Rights Agreement, the Company has agreed to
provide certain piggyback registration rights to all DietSmart stockholders,
including Totah, Lopez-Ona and Smith, on or after the first anniversary date of
the Merger.
The Company funded the initial cash portion of the merger consideration
delivered to Totah, Lopez-Ona, Smith and certain stock option holders at the
Closing and to the escrow account out of its available cash on hand. Through the
Merger, the Company acquired certain equipment and properties owned or leased by
DietSmart, including network servers, computers and software. This property was
used in the operation of DietSmart's business, which was as an online weight-
loss service that provided its customers with custom-tailored diet and fitness
programs for a fee. The Company intends to continue to use such property in its
similar business.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information contained in this Current Report on form 8-K, other than
historical information, may include forward-looking statements. Words such as
"may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend"
and similar expressions in this report identify forward-looking statements. The
forward-looking statements are based on current views with respect to future
events and financial performance. Actual results may differ materially from
those projected in the forward-looking statements. The forward-looking
statements are subject to risks, uncertainties and assumptions,
including, among other things:
- risks associated with the Company's ability to meet the Company's financial
obligations;
- risks associated with the relative success of marketing and advertising;
- risks associated with the continued attractiveness of the Company's diets
and fitness programs;
- competition, including price competition and competition with self-help
weight loss and medical programs; and
- adverse results in litigation and regulatory matters, more aggressive
enforcement of existing legislation or regulations or a change in the
interpretation of existing legislation or regulations; and
- promulgation of new or enhanced legislation or regulations;
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired:
See Exhibit 99.1 attached hereto for the audited financial
statements of DietSmart as of and for the year ended June 30,
2001.
See Exhibit 99.2 attached hereto for audited financial statements
of DietSmart as of and for the year ended June 30, 2000.
(b) Pro Forma Financial Information:
See Exhibit 99.3 attached hereto for Pro Forma Financial
Information giving effect to the acquisition of DietSmart.
(c) Exhibits
Exhibit No.
2.1 Agreement and Plan of Merger, dated October 1, 2001 by and among
eDiets.com, Inc., DietSmart Acquisition Corp., David R. Humble,
DietSmart, Inc., Tamara L. Totah, Carlos M. Lopez-Ona and Andrew G.
Smith. (1)
4.1 Registration Rights Agreement, dated October 19, 2001 by and among
eDiets.com, Inc., Tamara L. Totah, Carlos Lopez-Ona and Andrew G. Smith.
3
10.1 Indemnification Escrow Agreement, dated October 19, 2001 by and among
eDiets.com, Inc., DietSmart Acquisition Corp., Tamara L. Totah, Carlos
M. Lopez-Ona and Andrew G. Smith.
10.2 Employment Agreement dated October 19, 2001 between eDiets.com, Inc.
and Tamara L. Totah.
10.3 Employment Agreement dated October 19, 2001 between eDiets.com, Inc. and
Carlos M. Lopez-Ona.
10.4 Employment Agreement dated October 19, 2001 between eDiets.com, Inc. and
Andrew G. Smith.
10.5 Tax Liability Letter Agreement dated October 19, 2001 among eDiets.com,
Inc., Tamara L. Totah and Carlos M. Lopez-Ona.
99.1 Audited Financial Statements of DietSmart, Inc. as of and for the year
ended June 30, 2001.
99.2 Audited Financial Statements of DietSmart, Inc. as of and for the year
ended June 30, 2000.
99.3 Pro Forma Financial Information giving effect to the acquisition of
DietSmart, Inc.
______________________________
(1) This Exhibit was previously filed with the Company's current report on
Form 8-K dated October 1, 2001.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused and authorized this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: November 2, 2001
eDiets.com, Inc.
By: /s/ Robert T. Hamilton
----------------------------------------
Robert T. Hamilton, Chief Financial
Officer
4
Exhibit Index
Exhibit No. Exhibit Description
----------- -------------------
4.1 Registration Rights Agreement, dated October 19, 2001 by and
among eDiets.com, Inc., Tamara L. Totah, Carlos Lopez-Ona and
Andrew G. Smith.
10.1 Indemnification Escrow Agreement, dated October 19, 2001 by and
among eDiets.com, Inc., DietSmart Acquisition Corp., Tamara L.
Totah, Carlos M. Lopez-Ona and Andrew G. Smith.
10.2 Employment Agreement dated October 19, 2001 between eDiets.com,
Inc. and Tamara L. Totah.
10.3 Employment Agreement dated October 19, 2001 between eDiets.com,
Inc. and Carlos M. Lopez-Ona.
10.4 Employment Agreement dated October 19, 2001 between eDiets.com,
Inc. and Andrew G. Smith.
10.5 Tax Liability Letter Agreement dated October 19, 2001 among
eDiets.com, Inc., Tamara L. Totah and Carlos M. Lopez-Ona.
99.1 Audited Financial Statements of DietSmart, Inc. as of and for the
year ended June 30, 2001.
99.2 Audited Financial Statements of DietSmart, Inc. as of and for the
year ended June 30, 2000.
99.3 Pro Forma Financial Information giving effect to the acquisition
of DietSmart, Inc.
EX-4.1
3
dex41.txt
REGISTRATION RIGHTS AGREEMENT
Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of the
19/th/ day of October, 2001, is among (i) eDiets.com, Inc., a Delaware
corporation, having its principal place of business at 3801 Hillsboro Boulevard,
Deerfield Beach, Florida 33442 (the "Company"), and (ii) Tamara L. Totah
("Totah"), Andrew G. Smith ("Smith") and Carlos M. Lopez-Ona ("Lopez-
Ona")(Totah, Smith and Lopez-Ona are collectively the "Principal Stockholders").
WHEREAS, pursuant to Section 7.3 and 7.4 of the Agreement and Plan of
Merger dated as of October 1, 2001 (the "Merger Agreement") among the Company,
DietSmart Acquisition Corp., David R. Humble, DietSmart, Inc. ("DietSmart") and
the Principal Stockholders, the Company has agreed to register the shares of the
Company received by all of the stockholders of DietSmart in connection with the
Merger, except for the shares received by the Principal Stockholders, and to
grant them certain piggyback registration rights. All of the DietSmart
stockholders except for the Principal Stockholders are referred to as the
"DietSmart Stockholders". The DietSmart Stockholders and the Principal
Stockholders, together with each person or entity that subsequently becomes a
party to or entitled to the benefits of this Agreement pursuant to, and in
accordance with, the provisions of Section 9 are individually sometimes
---------
referred to as "Holder" and collectively as "Holders".
NOW, THEREFORE, pursuant to the terms of the Merger Agreement, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Mandatory Registration. (a) The Company will include all the
----------------------
Registrable Shares (as defined below) held by the DietSmart Stockholders in a
registration statement (the "Mandatory Registration Statement") which the
Company will prepare and file with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Act") on Form S-3, or
if S-3 is not available, on another available form, on or before April 30, 2002,
so as to permit the public trading of such Registrable Shares. The Mandatory
Registration Statement shall permit the DietSmart Stockholders to offer and
sell, on a delayed or continuous basis pursuant to Rule 415 under the Act, any
or all of the Registrable Shares held by them. The Company will use its best
efforts to have the Mandatory Registration Statement declared effective by the
SEC as soon as practicable after the filing of the Mandatory Registration
Statement. The Company shall keep the Mandatory Registration Statement effective
until the earlier of (i) the date when all the Registrable Shares registered
thereunder shall have been sold, and (ii) the date when all the Registrable
Shares registered thereunder may be sold to the public pursuant to Rule 144(k)
promulgated under the Act (or by similar provision under the Act). The Company's
obligations under this Section 1(a) shall end on any date as of which the
Company is no longer required to file annual and quarterly reports under the
Exchange Act.
(b) For purposes of this Agreement:
"Common Stock" means the Company's common stock, par value $0.001 per
share.
"Registrable Shares" means (i) any shares of Common Stock now or
hereafter held by the Holders, and (ii) any shares of Common Stock issued or
issuable directly or indirectly with respect to any of the securities referred
to in clause (i) by way of stock dividend or stock split or in connection with a
subdivision or combination of shares, recapitalization, merger, consolidation or
other reorganization. As to any particular shares constituting Registrable
Shares, such shares will cease to be Registrable Shares when they have been (A)
effectively registered under the Act and disposed of in accordance with a
registration statement covering them, or (B) sold to the public pursuant to Rule
144(k) promulgated under the Act (or by similar provision under the Act).
2. Piggyback Registration. (a) If at any time after the first
----------------------
anniversary of the Effective Date (as defined in the Merger Agreement) the
Company proposes to prepare and file a registration statement covering any of
the Company's equity, equity-linked or debt securities (whether such
registration statement relates to a primary or a secondary offering of the
Company's equity, equity-linked or debt securities), other than pursuant to Form
S-4 or Form S-8 or successor forms (a " Piggyback Registration Statement") it
will, each such time, give written notice of its intention to do so by
registered mail ("Notice"), at least thirty (30) business days prior to the
filing of each such Registration Statement, to each Holder and shall offer such
Holder the right to request inclusion of any of such Holder's Registrable Shares
in the proposed Piggyback Registration Statement.
(b) Upon the written request of a Holder, made within twenty
(20) business days after receipt of the Notice, the Company shall include in the
proposed Piggyback Registration Statement the Registrable Shares of such
requesting Holder (a "Requesting Holder"), to the extent requested to be
registered (it being understood and agreed that if a Requesting Holder shall
decide not to include all its Registrable Shares in such Piggyback Registration,
such Requesting Holder nevertheless shall continue to have the right to include
any portion of or all its Registrable Shares in any subsequent Piggyback
Registration Statement(s) as may be filed by the Company). The Company shall use
its best efforts to cause such Piggyback Registration Statement to be declared
effective under the Act by the SEC as soon as practicable after the filing of
such Piggyback Registration Statement so as to permit the public sale by the
Requesting Holders of their Registrable Shares, to the extent requested to be
registered pursuant thereto, at the Company's sole cost and expense and at no
cost or expense to the Requesting Holders; provided, however, that if in the
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written opinion of the Company's managing underwriter, if any, for the offering
evidenced by such Piggyback Registration Statement, the inclusion of all or a
portion of the Registrable Shares held by any Requesting Holder, when added to
the securities being registered, will exceed the maximum amount of the Company's
securities which can be marketed either (i) at a price reasonably related to
their then-current market value or (ii) without otherwise materially adversely
affecting the entire offering, then the Company may exclude from such offering
all or a portion of such Registrable Securities, as provided in Section 2(c).
------------
(c) If securities are proposed to be offered for sale pursuant
to such Piggyback Registration Statement by other security holders of the
Company and the total number of
2
securities to be offered by the Requesting Holders and such other selling
security holders is required to be reduced pursuant to a request from the
managing underwriter (which request shall be made only for the reasons and in
the manner set forth in the proviso contained in Section 2(b) above), the
------------
aggregate number of Registrable Shares held by any Requesting Holder to be
offered by such Requesting Holder pursuant to such Piggyback Registration
Statement shall equal the number which bears the same ratio to the maximum
number of securities that the underwriter believes may be included for all the
selling security holders (including the Requesting Holders) as the original
number of Registrable Shares held by any Requesting Holder proposed to be sold
by such Requesting Holder bears to the total original number of securities
proposed to be offered by all the selling security holders (including the
Requesting Holders).
(d) Notwithstanding the provisions of this Section 2, the Company
---------
shall have the right at any time after it shall have given Notice to the Holders
pursuant to this Section 2 (irrespective of whether any written request for
---------
inclusion of Piggyback Securities shall have already been made) to elect not to
file any such proposed Piggyback Registration Statement or to withdraw the same
after its filing but prior to the effective date thereof.
3. Additional Covenants and Obligations of the Company With Respect
-----------------------------------------------------------------
to Registration. In connection with the Company's obligations under Section 1
--------------- ---------
and 2 hereof to file the Mandatory Registration Statement or a Piggyback
-
Registration Statement (each, a "Registration Statement") with the SEC and to
use its best efforts to cause such Registration Statement to become effective as
soon as practicable, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC such Registration Statement on the
appropriate form, and thereafter use its best efforts to cause such Registration
Statement to become and remain effective in accordance with Section 3(b) and in
------------
accordance with all applicable securities laws;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and prospectus(es) used in connection therewith as
may be necessary to keep such Registration Statement effective (i) in the case
of the Mandatory Registration Statement, for the period stated in Section 1(a),
------------
and (ii) in the case of any Piggyback Registration Statement, for a period of
either (A) not less than 270 days (subject to extension pursuant to Section 5)
---------
or, if such registration statement relates to an underwritten public offering
under the Act, such longer period as in the opinion of counsel for the
underwriters a prospectus is required by law to be delivered in connection with
sales of Registrable Shares by an underwriter or dealer, or (B) such shorter
period as will terminate when all of the securities covered by such Piggyback
Registration Statement have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
Piggyback Registration Statement (but in any event not before the expiration of
any longer period required under the Act), and to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
Piggyback Registration Statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such Piggyback Registration Statement;
3
(c) furnish each Holder of Registrable Shares included in a
Registration Statement (each, a "Participating Holder") with such number of
copies of such Registration Statement, each amendment and supplement thereto,
related preliminary prospectus and other prospectus meeting the requirements of
the Act, and such other documents relating to the registration and public
offering of such shares, as shall be reasonably requested by the Participating
Holder to permit the Participating Holder to make a public distribution or
otherwise dispose of such Registrable Shares;
(d) advise each Participating Holder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for such purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order shall be issued;
(e) pay all costs, fees, and expenses in connection with all
Registration Statements filed pursuant to Sections 1 and 2 above, including,
---------- -
without limitation, all the Company's registration and qualification and filing
fees, legal and accounting fees and expenses, printing fees and expenses, and
blue sky fees and expenses;
(f) use its best efforts to register or qualify any Registrable Shares
included in a Registration Statement for sale under the applicable securities
laws in such jurisdictions as the Participating Holders shall reasonably request
and do any and all other acts or things which may be necessary or advisable to
enable the Participating Holders to consummate the public sale or other
disposition in such jurisdictions of such Registrable Shares, provided that no
such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to general service of process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction;
(g) at any time when a prospectus relating to the Registration
Statement is required to be delivered under the Act, as promptly as practicable
after becoming aware of such event, and in no event later than two (2) business
days after becoming aware of such event, notify each Holder of the happening of
any event of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and thereafter the
Company will promptly (and in any event within 10 days) prepare (and, when
completed give notice to each Participating Holder) a supplement or amendment to
the Registration Statement or other appropriate filing with the SEC to correct
such untrue statement or omission and deliver a number of copies of such
supplement or amendment to each Holder as such Holder may reasonably request so
that, as thereafter delivered to the purchasers of such Registrable Shares, such
prospectus will not contain an untrue statement of a material fact or omit to
state a fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made provided, however, that each Participating Holder, upon receipt of notice
-------- -------
from the Company that an event of the kind described in this Sections 3(h) has
-------------
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of the Shares until the Holder receives a copy of a
4
supplemented or amended prospectus from the Company, which the Company shall
provide immediately after such notice;
(h) at any time when a prospectus relating to the Registration
Statement is required to be delivered under the Act, as promptly as practicable
after becoming aware of such event, and in no event later than two (2) business
days after becoming aware of such event, notify each Holder and each underwriter
and (if requested by any such Participating Holder) confirm such notice in
writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, and (ii) of the
issuance by the SEC or any state securities or other regulatory authority of any
order suspending the registration, qualification or exemption from registration
or qualification of any of the Registrable Shares under the Act or applicable
securities laws or the initiation of any proceedings for that purpose; provided,
--------
however, that each Participating Holder, upon receipt of notice from the Company
-------
that an event of the kind described in this Sections 3(h) has occurred which
-------------
requires a post-effective amendment to the Registration Statement or a
supplement to the prospectus included therein, shall promptly discontinue the
sale of the Shares until the Holder receives a copy of a supplemented or amended
prospectus from the Company, which the Company shall provide immediately after
such notice;
(i) if any proposed registration effected pursuant to this Agreement
involves an underwritten public offering under the Act, use its best efforts to
cause all Registrable Shares to be listed for trading on each securities
exchange on which similar securities issued by the Company are then listed;
(j) before filing a registration statement or amendment thereto,
furnish to each Participating Holder and its counsel and other representatives
and the underwriters, if any, copies of each such registration statement or
amendment proposed to be filed, which documents shall be made available on a
timely basis for review and comment by the Participating Holders, the
underwriters (if any) and their respective representatives;
(k) if requested by the managing underwriter or any Participating
Holder, promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or any Participating
Holder reasonably requests to be included therein, including, without
limitation, with respect to the Registrable Shares being sold by such
Participating Holder, the purchase price being paid therefor by the underwriters
and with respect to any other terms of the underwritten public offering of the
Registrable Securities to be sold in such public offering, and promptly make all
required filings of such prospectus supplement or post-effective amendment;
(l) cooperate with the Participating Holders and the managing
underwriter to facilitate the timely preparation and delivery of certificates
(which shall not bear any restrictive legends unless required under applicable
law) representing securities sold under any Registration Statement (if any), and
enable such securities to be in such denominations and registered in such names
as the managing underwriter or such sellers may request and keep available and
make available to the Company's transfer agent prior to the effectiveness of
such Registration Statement a supply of such certificates;
5
(m) make available for inspection by any Participating Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
Participating Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such Participating Holder, underwriter,
attorney, accountant or agent in connection with such Registration Statement;
(n) provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such Registration Statement;
(o) provide a CUSIP number for the Registrable Shares included in any
Registration Statement not later than the effective date of such registration
statement;
(p) cooperate with each Participating Holder and each underwriter
participating in the disposition of such Registrable Shares and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD");
----
(q) during the period when the prospectus is required to be delivered
under the Act, promptly file all documents required to be filed with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;
(r) notify each Participating Holder promptly of any request by the
SEC for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(s) prepare and file with the SEC promptly any amendments or
supplements to such Registration Statement or prospectus which, in the opinion
of counsel for the Company or the managing underwriter, is required in
connection with the distribution of the Registrable Shares; and
(t) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least 12 months beginning with the first day of the Company's first full
calendar quarter after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
If the Company has delivered preliminary or final prospectuses to any
Participating Holder and after having done so the prospectus is amended to
comply with the requirements of the Act, the Company shall promptly notify such
Participating Holder and, if requested by the Company in writing, the
Participating Holder shall immediately cease making offers of Registrable Shares
and return all such prospectuses to the Company. The Company shall promptly
provide the Participating Holder with revised prospectuses and, following
receipt of the revised prospectuses, the Participating Holder shall be free to
resume making offers of the Registrable Shares.
6
4. Indemnification and Contribution.
--------------------------------
(a) In connection with any Registration Statement covering
Registrable Shares, the Company shall indemnify, defend and hold harmless each
Participating Holder, each underwriter of such shares, if any, each broker or
any other person acting on behalf of the Participating Holders, the affiliates
of each such Holder, the directors, partners, officers, employees, managers and
agents of any of the foregoing and each person who controls any of the foregoing
provisions within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages, expenses or liabilities, joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, expenses or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in a Registration Statement as
originally filed or in any amendment thereof or supplement thereto, or in any
preliminary prospectus or final prospectus, or in any amendment thereof or
supplement thereto or any document incident to registration or qualification of
any Registrable Shares pursuant to Section 3(f), or arise out of, are related
------------
to, result from or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or, with respect to any prospectus, necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or any violation by the Company of the state
securities or blue sky laws applicable to the Company and relating to action or
inaction required of the Company in connection with such registration or
qualification under such state securities or blue sky laws, and the Company
shall reimburse each such indemnified party, as incurred, for any legal or other
costs and expenses reasonably incurred by them in connection with investigating,
preparing for, defending or settling any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any case to
-------- -------
the extent that any such loss, claim, damage, expenses or liability arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Participating
Holder specifically stating that it is for inclusion therein. This indemnity
agreement will be in addition to any liability which may otherwise have.
(b) Each Participating Holder shall severally and not jointly
indemnify, defend and hold harmless (i) the Company, (ii) each of its directors,
(iii) each of its officers who signs such Registration Statement and (iv) each
person who controls the Company within the meaning of either the Act or the
Securities Exchange Act against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement as originally filed or in any amendment
thereof or supplement thereto, or in any preliminary prospectus or final
prospectus, or in any amendment thereof or supplement thereto or any document
incident to registration or qualification of any Registrable Shares pursuant to
Section 3(f), or arise out of, are related to, result from or are based upon the
------------
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein, in
light of the circumstances
7
under which they were made, not misleading, but only to the extent that such
untrue statement, alleged untrue statement, omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Participating Holder specifically stating that it is for
inclusion in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which any such Holder may otherwise have. Anything in
this Agreement contained to the contrary notwithstanding, the liability of each
Holder for indemnification or contribution hereunder shall be limited to the
amount of net proceeds actually received by such Holder from the sale of
Registrable Shares in the offering giving rise to such liability.
(c) Promptly after receipt by an indemnified party under this Section
4 of notice of the commencement of any action involving a claim referred to in
Section 4(a) or 4(b), such indemnified party will, if a claim in respect thereof
------------ ----
is to be made against the indemnifying party under this Section 4, notify the
indemnifying party in writing of the commencement thereof; but the failure so to
promptly notify the indemnifying party will not relieve the indemnifying party
from liability under Section 4(a) or 4(b) hereof unless and to the extent that
it is materially prejudiced thereby in its ability to defend such action. In
case any such action is brought against an indemnified party, the indemnifying
party shall have the right to participate in and, to the extent the indemnifying
party desires, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel of the indemnifying party's choice at
the indemnifying party's expense to represent the indemnified party in any
action for which indemnification is sought (in which case the indemnifying party
shall not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from, in conflict with or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action, (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party, (v) such
action, claim or litigation involves or could reasonably be expected to have an
effect upon matters beyond the scope of the indemnity agreement provided in this
Section 4, or (vi) if the indemnifying party fails to take diligent action to
---------
defend such claim within 20 days following notice thereof from the indemnified
party. An indemnifying party that is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party and
any other such indemnified party with respect to such claim, unless in the
reasonable judgment of any indemnified party, a conflict of interest may exist
between such indemnified party with respect to such claim, in which event the
indemnifying party shall be obligated to pay the reasonable fees costs and
expenses of such additional counsel or counsels. An indemnified party
8
shall not settle or compromise any action for which it seeks indemnification or
contribution hereunder without the prior written consent of the indemnifying
party, which consent shall not be unreasonably withheld or delayed. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding and such settlement,
compromise or consent does not contain any admission of fault by the indemnified
party.
(d) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which an indemnified party makes a claim
for indemnification pursuant to this Section 4, but it is judicially determined
---------
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced notwithstanding the fact that this
Section 4 provides for indemnification in such case, then the Company and the
---------
Participating Holder, shall contribute to the aggregate losses, claims, damages,
expenses or liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively "losses") to
which they may be subject in such proportion as is appropriate to reflect, as
between the indemnifying party, on the one hand, and the indemnified party, on
the other hand, the relative fault of the indemnifying party, on the one hand,
and the indemnified party, on the other hand, in connection with the statements
or omissions which resulted in such losses, claims, damages, expenses or
liabilities, it being understood that the parties acknowledge that the
overriding equitable consideration to be given effect in connection with this
provision is the ability of one party or the other to correct the statement or
omission which resulted in such losses, claims, damages, expenses or
liabilities, and that it would not be just and equitable if contribution
pursuant hereto were to be determined by pro rata allocation or by any other
--- ----
method of allocation which does not take into consideration the foregoing
equitable considerations. Notwithstanding the foregoing, (i) the Participating
Holder will not be required to contribute any amount in excess of the proceeds
to it of all Registrable Shares sold by it pursuant to such Registration
Statement, (ii) no underwriter shall be required to contribute any amount in
excess of the proceeds to it from the offering pursuant to such Registration
Statement, and (iii) no person guilty of fraudulent misrepresentation, within
the meaning of Section 11(f) of the Act, shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. If
indemnification is available under this Section 4, the indemnifying parties
---------
shall indemnify each indemnified party to the full extent provided in Section
-------
4(a) and Section 4(b) without regard to the relative fault of said indemnifying
---- ------------
party or indemnified party or any other equitable consideration provided for in
this Section 4(d).
------------
(e) Notwithstanding any of the foregoing, if in connection with an
underwritten public offering under the Act of any Registrable Shares, the
Company, the Participating Holder and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification among the parties, the indemnification
provided thereunder shall be in addition to (and not in lieu of) the
indemnification provided to the Holders hereunder.
9
(f) The indemnification and contribution required by this Section 4
---------
shall be made by periodic payment of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred; provided, however, that if a court of competent
-------- -------
jurisdiction finally determines that any indemnified party which has received
payments hereunder does not have an indemnification right under this Section 4
---------
for any reason, then such indemnified party shall within five days of such final
determination, refund all amounts received hereunder to the person(s) who had
provided indemnification hereunder to such indemnified party.
(g) The provisions of this Section 4 shall remain in full force and
---------
effect regardless of any investigation made by or on behalf of any indemnified
party pursuant to the provisions of this Section 4, and shall survive the sale
---------
by a Holder of shares pursuant to the Registration Statement.
5. Suspension of Dispositions. Each Participating Holder agrees that
--------------------------
upon receipt of any notice (a "Suspension Notice") from the Company of the
-----------------
happening of any event of the kind described in Section 3(g), such Participating
------------
Holder will forthwith discontinue disposition of Registrable Shares until such
Participating Holder's receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing (the "Advice") by counsel to the
------
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, and, if so directed by the Company, such Participating Holder
will deliver to the Company all copies, other than permanent file copies then in
such Participating Holder's possession, of the prospectus covering such
Registrable Shares current at the time of receipt of such notice. In the event
the Company shall give any such Suspension Notice, the time period regarding the
effectiveness of registration statements set forth in Section 3(b) shall be
------------
extended by the number of days during the period from and including the date of
the giving of the Suspension Notice to and including the date when each seller
of Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus or the Advice. The
Company shall use its best efforts and take such actions as are reasonably
necessary to render the Advice as promptly as practicable.
6. Cooperation upon a Registration. Each Participating Holder agrees
-------------------------------
to cooperate reasonably with the Company and the underwriters of any
underwritten public offering in the preparation of all documentation necessary
or desirable to effectuate any registration of any Registrable Shares under the
Act pursuant to this Agreement, or any registration or qualification of any
Registrable Securities pursuant to Section 3(f). In addition, the Company agrees
------------
to cooperate fully with the Participating Holders in connection with any such
registration or qualification. The Holder or Holders of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder or holders of Registrable Shares, the Registrable Shares
held by them and the distribution proposed by such Holder or Holders of
Registrable Shares as the Company may reasonably request in writing and as shall
be required in connection with any registration (including any amendment to a
Registration Statement or prospectus), qualification or compliance.
7. Rule 144. With a view to making available to each holder of
--------
Registrable Shares the benefits of certain rules and regulations of the SEC
which may permit the sale of the
10
Registrable Securities to the public without registration, the Company agrees
that so long as a holder owns any Registrable Securities, the Company shall, at
any time after any of the Company's shares of capital stock are registered under
the Act or the Exchange Act: (i) make and keep available public information, as
those terms are contemplated by Rule 144 under the Act (or any successor or
similar rule then in force); (ii) timely file with the SEC all reports and other
documents required to be filed under the Securities Act and the Exchange Act;
and (iii) furnish to each holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other information as such holder may
reasonably request in order to avail itself of any rule or regulation of the SEC
allowing such holder to sell any Registrable Shares without registration.
8. Amendments; Termination.
-----------------------
(a) This Agreement may not be amended, modified or supplemented, and
waivers of or consents to departures from the provisions of this Agreement may
not be given, except with the written consent of each Principal Stockholder and
the Company.
(b) This Agreement shall terminate on the earlier of (i) the date
when all the Registrable Shares shall have been registered pursuant to Sections
1(a) or 2(a) and sold, and (ii) the fifth (5th) anniversary of the date of this
Agreement.
9. Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of, and be binding upon, the Company, the Holders (including without limitation
the DietSmart Stockholders not parties hereto, who shall be deemed third party
beneficiaries of this Agreement), and the other persons and entities described
in Section 4 hereof and their respective successors, assigns and transferees,
including, without limitation and without the need for an express assignment,
subsequent holders of Registrable Shares. The Company may not assign this
Agreement.
10. Headings. The headings which are contained in this Agreement are
--------
for the sole purpose of convenience of reference, and shall not limit or
otherwise affect the interpretation of any of the provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Florida without regard to the principles of conflicts of law
thereof.
12. Dispute Resolution.
------------------
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or the validity, interpretation, breach or termination thereof (a
"Dispute"), shall be resolved in accordance with the procedures set forth
herein. Until completion of such procedures, no party may take any action not
contemplated herein to force a resolution of the Dispute by any judicial,
arbitral or similar process, except to the limited extent necessary to (i) avoid
expiration of a claim that might eventually be permitted hereby or (ii) obtain
interim relief, including injunctive relief, to preserve the status quo or
prevent irreparable harm.
11
(b) All communications between the parties or their representatives
in connection with the attempted resolution of any Dispute shall be deemed to
have been delivered in furtherance of a Dispute settlement and shall be exempt
from discovery and production, and shall not be admissible in evidence (whether
as an admission or otherwise), in any arbitral or other proceeding for the
resolution of the Dispute.
(c) In connection with any Dispute, the parties expressly waive and
forego any right to punitive, exemplary, statutorily-enhanced or similar damages
in excess of compensatory damages.
(d) As a condition precedent to the institution of arbitration,
written notice, served in accordance with Section 13, shall be served by the
party ("Disputing Party") seeking to enforce the terms of this Agreement or the
transaction contemplated herein. The notice shall be in the form of a written
statement of the dispute, the resolution sought and the basis upon which such
resolution is predicated. Within thirty (30) days after the notice is complete
and if the dispute has not been resolved by the parties or any representative
appointed by a party, any party has the right to submit the dispute to binding
arbitration.
(e) Either party may submit the Dispute for resolution by arbitration
pursuant to the Rules of the American Arbitration Association ("AAA") for
commercial disputes as in effect at the time of the arbitration, except as
modified herein. The parties consent to a single, consolidated arbitration for
all Disputes for which arbitration is permitted.
(f) The arbitral tribunal shall be composed of one arbitrator
selected by agreement of the parties or, in the absence of such agreement within
60 days after either party first proposes an arbitrator, by the AAA. Each party
shall be permitted to present its case, witnesses and evidence, if any, in the
presence of the other party. The parties shall have the right to conduct
discovery in accordance with the discovery rules of the state in which the
arbitration is conducted. A written transcript of the proceedings shall be made
and furnished to the parties. The arbitrator shall determine the Dispute in
accordance with the law of the State of Florida, without giving effect to any
conflict of law rules or other rules that might render such law inapplicable or
unavailable, and shall apply this Agreement according to its terms, provided
that the provisions relating to arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. (S)(S)1 et seq. The Arbitrator shall enter an award
which includes detailed findings of fact and conclusions of law.
(g) The parties agree to be bound by any award or order resulting
from any arbitration conducted hereunder and further agree that:
(i) any monetary award shall include pre-award interest, to
the extent appropriate, and shall be made and payable in U.S. dollars
through a bank selected by the recipient of such award, free of any
withholding tax or other deduction, together with interest thereon at the
prime rate in effect at such bank on the date of the award, from the date
the award is granted to the date it is paid in full;
12
(ii) in the context of an attempt by either party to
enforce an arbitral award or order, any defenses relating to the parties'
capacity or the validity of this Agreement or any related agreement under
any law are hereby waived; and
(iii) judgment on any award or order resulting from an
arbitration conducted under this Section may be entered and enforced in any
court having jurisdiction thereof or having jurisdiction over any of the
parties or any of their assets.
(iv) The parties shall have the right to appeal the
Arbitrator's final decision and award to any court having jurisdiction over
the matter, and such appeal rights shall include reversal for an
application of law which is erroneous or a finding of fact which is clearly
erroneous.
(h) Except as expressly permitted by this Agreement, no party will
commence or voluntarily participate in any court action or proceeding concerning
a Dispute, except (i) for enforcement as contemplated by paragraph (g)(iii)
above, (ii) to restrict or vacate an arbitral decision based on the grounds
specified under applicable law and not waived in paragraph (g)(ii) above, or
(iii) for interim relief as provided in paragraph (i) below. For purposes of the
foregoing or enforcement of any undisputed obligation, the parties hereto submit
to the non-exclusive jurisdiction of the courts of Florida and New York.
(i) In addition to the authority otherwise conferred on the arbitral
tribunal, the tribunal shall have the authority to make such orders for interim
relief, including injunctive relief, as it may deem just and equitable. If the
tribunal shall not have been appointed, either party may seek interim relief
from a court having jurisdiction if the award to which the applicant may be
entitled may be rendered ineffectual without such interim relief. Upon
appointment of the tribunal following any grant of interim relief by a court,
the tribunal may affirm or disaffirm such relief, and the parties will seek
modification or rescission of the court action as necessary to accord with the
tribunal's decision.
(j) The prevailing party in any arbitration conducted under this
Section shall be entitled to recover (as part of the arbitral award or order)
its reasonable attorneys' fees and other costs of arbitration or litigation.
13. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be made by hand delivery, registered or certified mail
(postage paid, return receipt requested), telecopier or any courier providing
overnight delivery, (i) if to the Company at the address set forth in the Merger
Agreement and (ii) if to a Holder to the address set forth on the books and
records of the Company. All such notices and other communications shall be
deemed to have been duly given upon receipt (or refusal of receipt).
14. Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this Agreement sets forth the entire agreement of the parties hereof with
respect to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
13
15. Severability. In the event that anyone or more of the provisions
------------
of this Agreement, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions of this Agreement shall not be in any way impaired or
affected thereby.
16. Further Assurances. The Company will from time to time after the
------------------
date hereof take any and all actions, and execute, acknowledge and deliver any
and all documents and instruments, at its cost and expense, as any Holder may
from time to time reasonably request in order to more fully perfect or protect
the rights intended to be granted to it hereunder.
17. Interpretation. As used in this Agreement, unless the context
--------------
otherwise requires: words describing the singular number shall include the
plural and vice versa; words denoting any gender shall include all genders;
words denoting natural persons shall include corporations, partnerships and
other entities, and vice versa; and the words "hereof, "herein" and "hereunder",
and words of similar import, shall refer to this Agreement as a whole, and not
to any particular provision of this Agreement.
18. Waiver. The failure of the Company or any Holder to at any time
------
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof or the right of the Company or any Holder
to thereafter enforce each and every provision of this Agreement. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Holders or any of them would otherwise have. No
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Holders or any of them to take any
other or further action in any circumstances without notice or demand.
19. Specific Performance. The parties hereto acknowledge and agree
--------------------
that if this Agreement is breached, the parties hereto hereby agree that
remedies at law might be inadequate and that, therefore, such rights and
obligations, and this Agreement, shall be enforceable by specific performance.
The remedy of specific performance shall not be an exclusive remedy, but shall
be cumulative of all other rights and remedies of the parties hereto at law, in
equity or under this Agreement.
20. Counterparts. This Agreement may be executed (including by
------------
facsimile transmission) with counterpart signature pages or in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
21. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice-versa.
22. Recapitalization. This Agreement shall apply to (a) the Common
----------------
Stock held by the Holders, as well as any Common Stock hereafter acquired by the
Holders (including any Common Stock issued upon the exercise, conversion or
exchange of any convertible securities), and (b) any and all shares of capital
stock of the Company which may be issued in
14
respect of, in exchange for or in substitution of Common Stock, by reason of any
stock dividend, split, reverse split, combination, reclassification, merger,
recapitalization, share exchange or other transaction.
23. Attorneys' Fees. If any party initiates any legal action arising
---------------
out of or in connection with this Agreement, the prevailing party in such legal
action shall be entitled to recover from the other party all reasonable
attorneys' fees, expert witness fees and expenses incurred by the prevailing
party in connection therewith.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Agreement as of the date above written:
EDIETS.COM, INC.
By /s/ David R. Humble
--------------------------------------
Name: David R. Humble
Title: Chairman and Chief
Executive Officer
/s/ Tamara L . Totah
------------------------------------------
Tamara L. Totah
/s/ Carlos M Lopez-Ona
------------------------------------------
Carlos M. Lopez-Ona
/s/ Andrew G. Smith
------------------------------------------
Andrew G. Smith
15
EX-10.1
4
dex101.txt
INDEMNIFICATION ESCROW AGREEMENT
Exhibit 10.1
INDEMNIFICATION ESCROW AGREEMENT
This Indemnification Escrow Agreement (herein "Agreement") is entered into
on the 19/th/ day of October , 2001, by and between EDIETS.COM, INC., a Delaware
corporation ("eDiets") and TAMARA L. TOTAH, ANDREW G. SMITH and CARLOS M. LOPEZ-
ONA (collectively the "Principal Stockholders"), and DIETSMART ACQUISITION
CORP., a Delaware corporation ("Newco"), (the "Escrow Agent"), all being duly
authorized to execute and deliver this Agreement.
W I T N E S S E T H :
WHEREAS, eDiets, Principal Stockholders, and Newco (hereinafter
collectively referred to as the "Parties") entered into a certain Agreement and
Plan of Merger dated , October 1, 2001 (the "Merger Agreement"); and
WHEREAS, the parties desire to establish an Escrow Fund) pursuant to
Section 10 of the Merger Agreement (a copy of which is attached hereto as
Exhibit "C") and as defined in Exhibit A annexed hereto, ; and
WHEREAS, the parties desire to appoint Citibank N.A. as the escrow agent
(the "Escrow Agent");
WHEREAS, the parties to this Agreement desire to set forth herein the terms
and conditions which shall govern disbursements of the Escrow Fund; and
WHEREAS, Escrow Agent is legally qualified to act as Escrow Agent under
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound,
hereby, agree as follows:
1. APPOINTMENT OF ESCROW AGENT.
---------------------------
The Parties hereby appoint and designate Citibank N.A. 411 Fifth Avenue New
York, New York 10016 as the Escrow Agent for the purposes set forth in this
Agreement.
2. ESCROW AGENT.
------------
A. The duties and responsibilities of the Escrow Agent shall be limited
to those expressly set forth in this Agreement and Exhibit A hereto. No implied
duties of the Escrow Agent shall be read into this Agreement. Subject to the
terms and conditions of this Agreement and the Merger Agreement between the
Parties and David R. Humble, Chief
Executive of eDiets, the Escrow Agent shall not be subject to, or obliged to
recognize any other agreementbetween, or direction or instruction of, any or all
the parties hereto.
B. In the event that all or a part of the Escrow Fund is attached,
garnished, levied or enjoined pursuant to a court order, decree, writ, judgment
or arbitration award, or the delivery of the Escrow Fund is stayed or enjoined
by a court order, decree, writ, judgment or arbitration award, Escrow Agent is
hereby expressly authorized to comply with any court order, decree, writ,
judgment or arbitration award and such compliance shall not render the Escrow
Agent liable to any Party or person as a result of such compliance.
C. Escrow Agent shall not be liable to any Party or person for damages,
losses or expenses incurred by a Party or person resulting from any act or
omission of Escrow Agent, provided, however, that any damages, losses or
expenses that result from the Escrow Agent's criminal act, willful misconduct or
gross negligence will result in liability. Without limiting the foregoing,
Escrow Agent, shall not incur any liability with respect to any act (i)
undertaken or not undertaken in good faith, upon the advice of Escrow Agent's
counsel, with respect to Escrow Agent's duties and responsibilities under this
Agreement or the Merger Agreement, (ii) taken or not undertaken, in reliance
upon any instrument, including any written notice or instruction provided for in
this Agreement or the Merger Agreement, including but not limited to, due
execution, truth and accuracy and validity and effectiveness of the instrument,
that Escrow Agent in good faith believes to be genuine and to conform to the
provisions of this Agreement or the Merger Agreement.
D. Unless specifically provided for herein, the Escrow Agent shall
promptly collect any monies, checks or other items, including but not limited to
the cash consideration payments le set forth in section 1.6 (c) (i)-(v) of the
Merger Agreement. Escrow Agent shall not be required to (i) notify a Party of
any payment made or the date of maturity of any instrument deposited or received
other than in the ordinary course of Escrow Agent's business, or (ii) take any
legal action to enforce payment of any draft, check, note or security deposited
or received. In the event that any funds, including funds which have been
cleared and credited to the Escrow Fund are later determined to be uncollected
after the funds have been released by the Escrow Agent pursuant to this
Agreement, the Party to whom such funds were delivered will repay to the Escrow
Fund the aggregate sum of monies released. The Parties acknowledge that its
obligation in the preceding sentence shall survive the termination of this
Agreement. Escrow Agent will not be required to lend to, or advance, or pay out
of its own funds any sums whatsoever for the account of any Party.
E. Provided that the Escrow Agent is otherwise lawfully discharging its
duties, it shall not be responsible for the sufficiency, accuracy, form,
execution, validity or genuineness, of documents, or of any endorsement or lack
of endorsement, or for any description or lack of description therein. Nor shall
the Escrow Agent be liable to any Party for or on account of the identity,
authority or rights of any person executing, depositing or delivering or
purporting to
2
execute, deposit or deliver any document, or endorsement or this Agreement.
Further, Escrow Agent shall not be liable to any Party on account of or by
reason of forgeries, false representations, or the exercise of its discretion in
any particular manner, nor shall the Escrow Agent be liable for any mistake of
fact or of law or any error of judgment or for any act or omission, except as a
result of its gross negligence, criminal act or willful misconduct.
F. In the event of a dispute between the parties hereto sufficient in the
discretion of Escrow Agent to justify its doing so, Escrow Agent shall be
entitled at the expense of the Escrow Fund to tender the Escrow Fund into the
registry or custody of any Court of competent jurisdiction, to initiate such
legal proceedings at the expense of the Escrow Fund as it deems appropriate, and
thereupon to be discharged from all further duties and liabilities under this
Agreement. Any such legal action may be brought in any such court as Escrow
Agent shall determine to have jurisdiction over the Escrow Fund. The filing of
any such legal proceedings shall not deprive Escrow Agent of its compensation
hereunder earned prior to such filing.
G. In the event of a dispute between the parties, which in the discretion
of Escrow Agent requires action on behalf of itself or the Escrow Fund, the
Escrow Agent shall at the expense of the Escrow Fund (i) initiate, on behalf of
the Escrow Fund, legal proceedings; (ii) follow the direction of an arbitrator
in accordance with Section 18.8 of the Merger Agreement or a court of competent
jurisdiction and deposit the Escrow Fund with any person or court so ordered and
(iii) initiate such legal proceedings at the as it deems appropriate to be
discharged from all duties and liabilities under this Agreement. Any such legal
action may be brought in any such court as Escrow Agent shall determine to have
jurisdiction over the Escrow Fund. The filing of any such legal proceedings
shall not deprive Escrow Agent of its compensation hereunder earned prior to
such filing.
H. Provided that the Escrow Agent is otherwise lawfully discharging its
duties it shall not be under a duty to take legal action in connection with this
Agreement or its enforcement, nor shall it be under a duty to appear in,
prosecute or defend any action or legal proceeding that would cause Escrow Agent
to incur any costs or expenses unless such costs and expenses are indemnifiable
pusuant to Section 3 below.
3. INDEMNIFICATION OF ESCROW AGENT.
-------------------------------
The Parties agree to, jointly and severally, protect, defend, indemnify and
hold harmless the Escrow Agent against any and all costs, losses, claims,
damages, disbursements, liabilities and expenses, including reasonable costs of
investigation, court costs and reasonable attorney's fees, which may be incurred
by Escrow Agent in connection with its acceptance of, or appointment as, Escrow
Agent hereunder, or in connection with the discharge of its duties hereunder,
including any litigation arising out of this Agreement or involving the subject
matter hereof, provided, however, that said indemnity shall not cover costs,
losses, claims, damages, disbursements, liabilities and expenses arising out of
Escrow Agent's willful miscondut, criminal act or gross negligence. This
indemnification shall survive the termination of this Agreement or the
resignation or removal of the Escrow Agent.
3
4. RESIGNATION OF ESCROW AGENT.
---------------------------
It is understood that the Escrow Agent reserves the right to resign at any
time by giving written notice of its intent to resign, specifying the effective
date thereof, to each Party hereto. Within thirty (30) days after receiving the
notice, the Parties shall appoint a successor Escrow Agent to which the Escrow
Agent may distribute the Escrow Fund, less its fees, costs and expenses
(including reasonable attorney's fees and expenses) which may remain unpaid at
that time. If at the conclusion of the thirty (30) day notice period, a
successor Escrow Agent has not been appointed or has not accepted such
appointment, the Escrow Agent may apply to a court of competent jurisdiction for
the appointment of a successor Escrow Agent and the fees, costs and expenses
(including reasonable attorney's fees and expenses) associated with such
application incurred shall be shared equally by all Parties.
5. NOTICES.
-------
All notices provided for hereunder shall be in writing and shall be deemed
deliveredwhen: (a)in the case of personal delivery, on the date of delivery; an
ndividual, or an officer of a company, to which the notice is directed; or (b)
in the case of registered or certified mail, postage pre-paid, return receipt
requested, three (3) days after the date such notice has been postmarked by the
United States Postal Service; or (c) the next business day when delivered by a
nationally recognized overnight delivery service (including Federal Express or
United States Express Mail) with receipt acknowledged and with all charges
prepaid by the sender. Notices shall be directed as follows:
If to Principal Stockholders Ms. Tamara L. Totah
addressed to: 24 Fifth Avenue
New York, NY 10003
Carlos M. Lopez-Ona
254 East 68/th/ Street, Apartment 3F
New York, NY
Andrew G. Smith
95 Christopher Street
New York, NY 10013
4
In each case, Jennifer Lupo, Esq.
with a copy to: 1032 Avenue of the Americas, 3/rd/ floor
New York, NY 10018
and
John Kaufmann, Esq.
Winston & Strawn
200 Park Avenue
New York, NY 10166
If to eDiets or Newco eDiets.com, Inc.
addressed to: Attention: David R. Humble
3801 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
with a copy to: Nason, Yeager, Gerson, White & Lioce, P.A.
Attention: Mark A. Pachman, Esquire
1645 Palm Beach Lakes Boulevard, Suite 1200
West Palm Beach, Florida 33401
If to Escrow Agent: Citibank N.A.
411 Fifth Avenue
New York, New York 10018
or at such other place or places or to such person or persons as shall be
designated by notice by any party hereto.
6. TERMINATION.
-----------
This Agreement shall terminate upon the release of the Escrow Fundpursuant
to the provisions of this Agreement. Any termination of this Agreement shall not
affect any of the Parties obligations arising prior to such termination,
including the obligation to pay Escrow Agent's fees pursuant to Section 6 above.
7. ENTIRE AGREEMENT; BINDING EFFECT.
--------------------------------
This Agreement and matters and agreements referred to herein contain the
entire understanding by and among the Parties hereto and shall be binding upon
and shall inure to the benefit of the thereof, and their respective successors
and assigns.
5
8. MODIFICATION AND ASSIGNMENT.
---------------------------
None of the terms or conditions of this Agreement may be changed, waived,
modified or varied in any manner whatsoever unless in writing duly signed by the
Parties. This Agreement may not be assigned by either party except with the
prior written consent of the other Parties. However, any successor to the
business of Escrow Agent, whether by reorganization or otherwise, will act with
like effect as though originally named.
9. GOVERNING LAW/DISPUTE RESOLUTION.
--------------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to the application of the
principles of conflicts of law. Any disputes relating to this Agreement shall be
resolved in accordance with the provisions of Section 17.8 of the Merger
Agreement.
10. HEADINGS DESCRIPTIVE.
--------------------
The headings of the several sections of the Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this agreement.
11. BUSINESS DAY.
------------
Business day shall mean a day on which commercial banks in New York are
open for the general transaction of business. If any action or time for
performance pursuant to this Agreement is to occur on any Saturday, Sunday or
holiday, such time for action or performance shall be extended to the next
Business Day.
12. MONTHLY STATEMENTS.
------------------
Escrow Agent shall deliver monthly statements to the Parties indicating the
beginning balance and ending balance of the escrowed funds along with an
itemization of all distributions (date, amount and payee) for the duration of
this Escrow.
13. EXECUTION IN COUNTERPARTS.
-------------------------
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed an original, but all of which shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties and Escrow Agent have caused this Agreement
to be executed by their authorized representatives as of the date first above
written.
eDiets:
EDIETS.COM, INC.
6
By: /s/ David R. Humble
--------------------------------
Principal Stockholders:
/s/ Tamara L. Totah
-----------------------------------
Tamara L. Totah
/s/ Andrew G. Smith
-----------------------------------
Andrew G. Smith
/s/ Carlos M. Lopez-Ona
-----------------------------------
Carlos M. Lopez-Ona
Newco:
DIETSMART ACQUISITION CORP.
By: /s/ David R, Humble
--------------------------------
_________________, its _________
7
EXHIBIT "A"
DUTIES AND RESPONSIBILITIES OF ESCROW AGENT
-------------------------------------------
1. Escrow Fund.
-----------
eDiets and the Principal Stockholders shall, on the Closing Date (or
defined in the Merger Agreement) deposit in to escrow with the Escrow Agent the
aggregate sum of One Hundred Thousand Dollars ($100,000) (the "Initial
Deposit"). In addition, eDiets shall designate and retain 10,000 of the shares
of its common stock that are to be delivered to each of the Principal
Stockholders (for an aggregate of 30,000 shares), which shares shall also be
held by eDiets pending the final disposition of the Turner Litigation (the
"Escrow Shares"). The Initial Deposit, any further sums of money deposited with
the Escrow Agent by eDiets pursuant to Sections 1.6 (c) (i)-(v) and 10 of the
Merger Agreement shall be the "Escrow Fund". Additionally, the the Escrow Shares
held by eDiets in accordance herewith, shall also be considered a part of the
"Escrow Fund."
2. Establishment of Escrow Fund. On or prior to the Closing Date, the
----------------------------
Principal Stockholders shall cause a money market and checking account to be
opened with the Escrow Agent. The Escrow Agent will cause monthly statements to
be prepared and forwarded to each of the signatories as set forth below.
3. Signatories. In the case of eDiets, Robert Hamilton, and in the case of
-----------
DietSmart, Carlos M. Lopez-Ona and Tamara L. Totah (collectivelly
"Signatories").
4. Management of Escrow Fund. Each of Tamara L. Totah and Carlos M. Lopez-Ona
-------------------------
have full and complete investment discretion and will act in accordance with
Section 5 below with respect to any investment decisions made for the benefit of
the Escrow Fund. Any payments of legal fees, costs or expenses in connection
with the Turner Litigation and the Recognition Group claim to be made from the
Escrow Fund, shall be made by either of Totah and Lopez-Ona. In the event that
either Lopez-Ona or Totah are under a disability which impairs his or her
ability to manage the Escrow Fund, then the other will make the aforementioned
payment. In the event that both Lopez-Ona and Totah are under a disability which
impairs his or her ability to manage the Escrow Fund then Jose Ibietatorremendia
shall be appointed to manage the Escrow Fund.
5. Investment of Escrow Fund.
-------------------------
The Escrow Agent shall have no discretion whatsoever with respect to the
management, disposition or investment of the Escrow Fund and is not a trustee or
fiduciary of any Party. The Parties hereby acknowledge and agree that all
investments made pursuant to this section shall be for the account and risk of
the Parties and any losses associated with investments shall be borne solely by
the Parties. Escrow Agent shall from time to time invest and reinvest the funds
held in the Escrow Fund, as and when instructed by the Principal Stockholders in
writing, in any one or more
8
of the following: (a) obligations of the United States of America; (b) general
obligation of any State of the United States of America; (c) general obligations
of any political subdivision of a State of the United States of America, if such
obligations are rated by at least two recognized rating services as at least
"AA"; (d) certificates of deposit of any national bank or banks (including, if
applicable, Escrow Agent or an affiliate of Escrow Agent) insured by the Federal
Deposit Insurance Corporation (FDIC) with a net worth in excess of $100,000,000
("Acceptable Bank"); (e) obligations of State or Municipal Public Housing
Authorities chartered by the United States of America and guaranteed by the
United States of America; (f) demand interest bearing accounts of Escrow Agent
or an affiliate of Escrow Agent if Escrow Agent or an affiliate of Escrow Agent
is an Acceptable Bank; (g) any open-end or closed-end management type investment
company or investment trust registered under the Investment Company Act of 1940,
as amended, which invests in any of (a) through (e) above. The fact that Escrow
Agent, or any affiliate of Escrow Agent is providing services to and receiving
remuneration from the foregoing investment company or investment trust as
investment advisor, custodian, transfer agent, registrar, or otherwise shall not
preclude Escrow Agent from investing in the securities of such investment
company or investment trust.
6. Proceeds of Investments.
-----------------------
All dividends, interest, income or other proceeds received by the Escrow
Agent in respect of any investment of the Escrow Fund shall be added to the
Escrow Fund and distributed together with the Escrow Fund. The Escrow Agent may
liquidate any investments made hereunder at such time as it shall deem necessary
to make payments in accordance with the provisions hereof.
7. Distributions from the Escrow Fund.
----------------------------------
(a) The Escrow Agent shall continue to hold the Escrow Fundestablished
pursuant to Section 10.1 of the Merger Agreement until it has received written
direction signed by each of the Signatories notifying the Escrow Agent of the
final order, judgment, decree, award after arbitration or settlement of the
Turner Litigation and instructing the Escrow Agent how to distribute the Escrow
Fund. In addition, upon the delivery of said writing to the Escrow Agent
directing the disposition of the Escrow Fund, eDiets shall release in the same
manner, the Escrow Shares.
(b) With respect to any escrow established pursuant to Section 10.3 of the
Merger Agreement (the Recognition GroupEscrow") the Escrow Agent shall hold the
amount placed on account of the Recognition Group Claim in the Escrow Fund until
it has received written direction signed by each of the Signatories notifying
the Escrow Agent of the final order, judgment, decree, award after arbitration
or settlement and directing the release of the Recognition Group Claim escrow
funds.
(c) In the event that eDiets determines that it has a claim for
indemnification pursuant to the Merger Agreement and wishes to establish an
indemnification claims escrow pursuant to Section 10.2 of the Merger Agreement,
it shall provide notice to the Principal Stockholders and the Escrow Agent
specifying in reasonable detail the basis for its claim (a "Claim") and its
estimate of the amount thereof. In such event, out of the installments of the
Cash Consideration (as defined in the
9
Merger Agreement), eDiets shall pay into the Escrow Fund, out of the Cash
Consideration installment next due, the estimated amount of the Claim. Upon the
final resolution of the Claim in accordance with Section 17.8 of the Merger
Agreement, the escrowed funds will be released in accordance with any final
order, judgment, decree, award after arbitration or settlement agreement.
10
EX-10.2
5
dex102.txt
EMPLOYMENT AGREEMENT - TAMARA L. TOTAH
Exhibit 10.2
EMPLOYMENT AGREEMENT
Agreement dated as of the 19/th/ day of October, 2001, by and between
EDIETS.COM, INC., a Delaware corporation having its principal place of business
at 3801 W. Hillsboro Boulevard, Deerfield Beach, Florida 33442 (the
"Corporation") and TAMARA L. TOTAH (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ Executive as an executive
officer, and Executive is willing to accept such employment, all subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the terms and conditions hereof, the
Corporation hereby employs Executive, and Executive hereby accepts employment by
the Corporation, for a period of three (3) years commencing on October 19, 2001
(the "Commencement Date") and ending on the third anniversary of the
Commencement Date, unless terminated sooner pursuant to the provisions hereof.
2. DUTIES. Executive shall serve the Corporation as its President. Executive's
primary responsibilities, subject to the direction of the Corporation's Board of
Directors and Chief Executive Officer, shall be as set forth on Exhibit "A"
attached hereto. Executive shall also be elected to the Corporation's Board of
Directors and shall serve as a Director for as long as she is employed
hereunder. However, Executive shall perform such executive, administrative,
management, marketing and other services and duties as are incidental to the
offices she holds and as may, from time to time, be assigned to her by the Board
of Directors of the Corporation or a committee thereof or the Chief Executive
Officer. Executive shall devote all of her business and professional time to the
performance of her duties hereunder. Executive further agrees to serve as an
officer or director of any parent, subsidiary or affiliate of the Corporation
upon the Corporation's request, with no additional compensation beyond that set
forth in Paragraph 3 below. The Executive's principal place of employment shall
initially be the executive offices of the Corporation's subsidiary, DietSmart,
Inc., in New York, New York for a transition period of up to six (6) months,
after which time the Corporation may relocate Executive to its home office in
Deerfield Beach, Florida, although the Executive understands and agrees that
during the transition period she will be required to travel frequently to and
spend extensive time in the Florida home office. In the event of Executive's
relocation to Deerfield Beach, Florida, at the request of the Corporation, the
Corporation shall reimburse Executive for all reasonably incurred relocation
expenses up to a maximum amount of $20,000.
3. COMPENSATION.
(a) As base compensation for the services to be rendered by Executive
hereunder, the Corporation agrees to pay to Executive an annual base salary in
the amount of One Hundred Sixty Thousand Dollars ($160,000), such salary to be
paid in equal biweekly installments for so long as Executive is employed by the
Corporation. Executive's base compensation shall be reviewed and increased at
least annually, with such increases being a minimum of six percent (6%) per
year.
(b) The Corporation shall institute a bonus and/or profit sharing plan
effective January 1, 2002. Such plan shall provide that all eligible full time
employees of the Corporation or its subsidiary DietSmart, Inc. shall participate
in the plan so long as the Corporation's annual operating performance
(commencing in 2002) meets or exceeds the criteria, which shall be determined
when bonus compensation is to be awarded to employees. The Executive shall be
consulted by the Corporation's Chief Executive Officer prior to the submission
of the plan to the Corporation's compensation committee.
(c) The Executive shall receive an initial grant of 150,000 employee stock
options (the "Options") under the Corporation's Stock Option Plan (the "Plan")
with an exercise price equal to the fair market value of the Corporation's
common stock at the Commencement Date. Such Options shall be in the form set
forth on Exhibit "B" attached hereto. The options, which shall be exercisable
for a period of five (5) years from the date of grant, shall vest over two (2)
years in four (4) equal semi-annual installments, with the first installment
vesting six (6) months after the Commencement Date. All unvested options held by
the Executive shall vest upon the following events: (i) a sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation; (ii) the merger or consolidation of the Corporation with
another corporation in which the Corporation is not the survivor; (iii) the
acquisition by a person or a group that is not currently a beneficial holder of
an equity interest in the Corporation of at least 51% of the outstanding stock
of the Corporation; or (iv) consummation of a "going private" transaction in
which the Corporation's securities are no longer registered under the Securities
Exchange Act of 1934 and its securities are no longer publicly traded.
Notwithstanding the specific grant of options pursuant to this Section 3(c) the
Executive may be entitled to receive additional options if so determined in the
sole discretion of the Corporation's Board of Directors or compensation
committee.
(d) Executive shall be entitled, on a basis consistent with the
Corporation's policy, to reimbursement for all normal and reasonable travel,
entertainment and other expenses necessarily incurred by her in the performance
of her obligations hereunder. The Corporation shall reimburse Executive for such
expenses upon presentation to the
2
Corporation, within a reasonable time after such expenses are incurred, of an
itemized account of such expenses, together with such vouchers or receipts for
individual expense items as the Corporation may from time to time require under
its established policies and procedures.
(e) Executive shall be entitled to participate in, or benefit from, in
accordance with the eligibility and other provisions thereof, such medical
insurance, pension, retirement, or other fringe benefit plans or policies as the
Corporation may make available to, or have in effect for, its executive
personnel from time to time. Plans and benefits may be modified or eliminated by
the Corporation from time to time as it determines in its sole discretion.
However, the Corporation agrees that it will always make available a medical
insurance plan to its employees and executive personnel. Executive shall also be
entitled to two (2) weeks of vacation and an additional two (2) weeks of
personal (including sick) time annually and other similar benefits in accordance
with the policies of the Corporation from time to time in effect for executive
personnel.
(f) Except as hereinafter provided, the Corporation shall pay Executive,
for any period during the term of this Agreement during which she is unable
fully to perform her duties because of physical or mental disability or
incapacity, an amount equal to the compensation due her for such period in
accordance with this Agreement, less the aggregate amount of all income
disability benefits which for such period she may receive under or by reason of
(i) any applicable compulsory state disability law, (ii) the Federal Social
Security Act, (iii) any applicable workmen's compensation law or similar law,
and (iv) any plan towards which the Corporation or any parent, subsidiary or
affiliate of the Corporation has contributed or for which it has made payroll
deductions, such as group accident, disability or health policies.
4. TERMINATION ON DISABILITY OR DEATH.
(a) In the event that Executive, due to physical or mental disability or
incapacity, is unable to substantially perform her duties hereunder for a period
of three (3) successive months, the Corporation or Executive shall then have the
right to terminate this Agreement and Executive's employment hereunder upon
thirty (30) days' prior written notice, provided, however, that in the event
that Executive shall recommence rendering services and performing all of her
duties hereunder within such thirty (30) day notice period, such notice shall be
vitiated, and the Corporation and the Executive shall no longer have the right
to terminate based on the disability event described in the notice. Executive's
employment shall terminate immediately upon her death.
(b) Upon termination of Executive's employment by reason of her death or
disability as aforesaid, Executive, or in the case of Executive's death,
Executive's personal representatives, shall be entitled to receive base
compensation earned or
3
accrued to the date of such termination and not already paid, as well as a pro-
rata portion of any earned and unpaid bonus less any benefits paid to Executive
by reason of such disability. Such accrued base compensation shall be paid to
the Executive within 30 days following the date of termination.
(c) In the event of the termination of this Agreement for any reason other
than death, Executive shall have the right to purchase, and the Corporation
shall assign to Executive, any insurance policy maintained by the Company on the
life of Executive then in effect, for a price equal to the net cash surrender
value thereof at the time of such termination.
5. TERMINATION FOR CERTAIN CAUSES AND OTHER REASONS.
(a) In the event of the (i) willful material misconduct, gross negligence
or bad faith of Executive in the performance of her duties hereunder, (ii)
material breach of any provisions of Paragraphs 6, 7 or 8, or (iii) conviction
of the Executive for any felony under federal or state law, this Agreement and
Executive's employment hereunder may be terminated by the Corporation without
prior notice. This Agreement may also be terminated by the Corporation in the
event that there has been a material failure of performance by Executive of her
duties hereunder and such failure has not been cured by Executive within a
period of sixty (60) days of her receipt from the Corporation of a written
notice of proposed termination specifying the particular failure(s) of
performance, and the proposed remedy upon which the proposed termination will be
based, if not cured. In the event of termination pursuant to this subparagraph
5(a) the Corporation shall have no further obligation to the Executive except to
pay the base compensation earned or accrued to the date of termination, and the
pro-rata share of any earned and unpaid bonus, and upon such termination all
options granted to Executive shall lapse and be no longer exercisable.
(b) The Corporation may also terminate this Agreement if the Executive
refuses to relocate after requested to do so by the Corporation in accordance
with Paragraph 2 above. In the event of termination pursuant to this
subparagraph 5 (b), the Corporation shall have no further obligation to the
Executive except to pay the base compensation earned or accrued to the date of
termination and not already paid and the pro-rata share of any earned and unpaid
bonus. Upon such termination, Executive shall have three months to exercise any
options that are vested on the date of termination.
(c) The Corporation may also terminate this Agreement for any reason other
than the reasons set forth in Paragraphs 5 (a) (b) above. If the Corporation
elects to terminate under this Paragraph 5(c), or if the Executive resigns for
Good Reason (as defined below) during the first six (6) months of this
Agreement, as a severance allowance, Executive will be entitled to receive a
lump sum payment of $150,000 plus a pro-rata portion of any earned but unpaid
bonus. If the Corporation elects to terminate under this Paragraph 5(c) or if
the Executive resigns for Good Reason during
4
months seven (7) through eighteen (18) of this Agreement, Executive shall
receive a lump sum payment of $200,000 plus a pro-rata portion of any earned but
unpaid bonus. If the Corporation elects to terminate under this Paragraph 5(c),
or if the Executive resigns for Good Reason after nineteen (19) months of this
Agreement, Executive shall receive a lump sum payment of $250,000 plus a pro-
rata portion of any earned but unpaid bonus. Such lump sum payment shall be paid
to the Executive within 30 days following the date of termination. If, at any
time during the initial term of this Agreement, the Corporation elects to
terminate under this Paragraph 5(c) or the Executive resigns for Good Reason:
(i) there shall be an immediate vesting of all unvested Options that would have
vested during the four (4) months succeeding the date of termination; (ii) with
respect to all of Executive's vested Options before they lapse, Executive shall
have a period of seven and one-half (7 1/2) months after the date of termination
within which to exercise such vested Options; and (iii) all health benefits in
effect for Executive as of the date of termination shall be continued by the
Corporation, at its sole cost and expense, through the last day of the initial
term of this Agreement.
For purposes of this Agreement, "Good Reason" shall mean: (i) an adverse
and material change in the Executive's position without Executive's prior
consent, where such change has: (a) a negative financial effect on Executive; or
(b) represents a material change in role, title, nature of duties, employee
benefits or working conditions, or (ii) a requirement by the Corporation that
Executive relocate to a location other than Deerfield Beach, Florida; (iii) a
material breach by the Corporation of its obligations to Executive; (iv) a
direction to Executive to take illegal or unethical actions which direction is
not withdrawn within seven (7) days following written notice by Executive to the
directing party; and (v) where the Chief Executive Officer or any member of the
Board of Directors tells another person, whether written or oral, false and
harmful information that affects the Executive's reputation and hinders her
current and future working relationships.
6. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES.
(a) Executive hereby covenants and agrees to disclose promptly and fully,
in writing, whenever possible, to the Corporation and its attorneys and
designated representatives, without additional compensation, all ideas,
formulae, programs, systems, devices, inventions, processes, business concepts,
discoveries, improvements, developments, works of authorship, product marks and
designations, technical information and know-how, whether or not patentable,
copyrightable or otherwise protectable relating to personalized diet and
nutrition programs (together, the "Developments"), which she may conceive,
develop, reduce to practice, acquire or make, alone or jointly with others:
(i) during the term of her employment with the Corporation, whether
during or outside of the usual hours of work; and
5
(ii) during the Post-Termination Period, as defined in Section 8
below.
Notwithstanding the foregoing, no obligation is being imposed on Executive
to assign to the Corporation any Development for which no equipment, supplies,
facility, or trade secret information of the Corporation was used and that was
developed entirely on Executive's own time, unless: (a) such Development relates
(1) to the Corporation's business or (2) to the Corporation's actual or
demonstrably anticipated research or development, or (b) the Development results
from any work performed by Executive for the Corporation.
Executive hereby agrees that all of her right, title and interest in and to
such Developments shall be deemed the sole and exclusive property of the
Corporation and shall be subject to the confidentiality provisions of Section 7
as confidential information of the Corporation.
(b) Executive, when requested and required to do so, either during or
after the term of her employment with the Corporation, shall:
(i) assign and convey to the Corporation her entire right, title and
interest in and to the Developments to the extent not owned by the Corporation
as a matter of law from the time of their creation and execute, acknowledge and
deliver all such further instruments and documents, in form and substance
satisfactory to the Corporation, as it shall deem reasonably necessary or
advisable to evidence the vesting in the Corporation of all right, title and
interest of Executive in and to the Developments;
(ii) assist the Corporation and its agents in preparing patent
applications, domestic and foreign, covering the Developments;
(iii) sign and deliver all such applications and assignments of the
same to the Corporation; and
(iv) generally give all information and testimony, sign all papers
and do all things which may be needed or requested by the Corporation to the end
that the Corporation may obtain, extend, reissue, maintain and enforce United
States and foreign patents covering the Developments.
(c) The Corporation shall bear all costs and expenses which it causes to
be incurred in obtaining, extending, issuing, reissuing, maintaining and
enforcing such patents and in investing and perfecting title thereto in the
Corporation, and agrees further to pay Executive for any time which it may
require of her therefor, and for any services that may be required of her
pursuant to subparagraph 6(b), subsequent to the termination of her employment
with the Corporation, such payment to be at an hourly
6
rate equivalent to that at which Executive is paid at the time of the
termination of her employment by the Corporation.
(d) In the event of the unenforceability of all or part of the foregoing
provisions of this Paragraph 6, as determined by a court of competent
jurisdiction, Executive hereby transfers and assigns to the Corporation such
lesser interests in the Developments, including, without limitations, any and
all United States and foreign patent rights therein and renewals thereof, as may
be determined by such a court to be a reasonable grant of interests under the
circumstances, but, in any event, and without limitation, Executive shall be
deemed to have granted to the Corporation not less than an irrevocable, non-
exclusive license, with the right to sublicense others, to manufacture, use,
lease and sell the Developments which have not been assigned to the Corporation
under the provisions of subparagraph 6(b), without payment of any royalty.
7
7. CONFIDENTIALITY
(a) Executive understands and hereby acknowledges that as a result of her
employment with the Corporation, she will necessarily become informed of, and
have access to, certain valuable and confidential information of the Corporation
and any of its subsidiaries, joint ventures and affiliates, including, without
limitation, inventions, trade secrets, technical information, know-how, plans,
specifications, identity of customers and suppliers, and that such information,
even though it may be developed or otherwise acquired by Executive, is the
exclusive property of the Corporation to be held by Executive in trust and
solely for the Corporation's benefit. Accordingly, except as provided under this
Agreement, Executive hereby agrees that she shall not, at any time, either
during or subsequent to her employment hereunder, use, reveal, report, publish,
transfer or otherwise disclose to any person, corporation or other entity, any
of the Corporation's confidential information without the prior written consent
of the Corporation, except: (i) to officers and employees of the Corporation and
to responsible persons who are in a contractual, employment or fiduciary
relationship with the Corporation or who have a need for such information for
purposes in the interest of the Corporation, (ii) as required by a court or in a
legal or administrative proceeding; and (iii) for such information that legally
and legitimately is or becomes of public knowledge from sources other than
Executive. The Corporation's confidential information shall not include any
information known by the Executive prior to the Commencement Date or that
becomes known to the Executive from sources other than the Corporation.
(b) Upon the termination of her employment with the Corporation for any
reason whatsoever, Executive shall promptly deliver to the Corporation all
drawings, manuals, letters, notes, notebooks, reports and copies thereof, and
all other materials, including, without limitation, those of a secret and
confidential nature, relating to the Corporation's business which are in
Executive's possession or control.
8. NON-COMPETITION. Executive agrees that, during the term of this Agreement
and for the Post-Termination Period (as defined below), she shall not, anywhere
in the United States of America or elsewhere in the world (or in such smaller
area or for such lesser period as may be determined by a court of competent
jurisdiction to be a reasonable limitation on the competitive activity of
Executive), directly or indirectly:
(i) engage in a directly competitive line of business to the business
carried on by the Corporation to be defined as any diet and fitness business,
both on- and offline, either for her own account or with or for anyone else;
(ii) solicit or attempt to solicit business of any customers of the
Corporation for diet and fitness products or services the same or similar to
those offered, sold, produced or under development by the Corporation at the
time of the beginning of the Post-Termination Period;
8
(iii) intentionally attempt to induce any person, firm or entity with
a material business relationship of the Corporation to cease or materially
reduce the level of business it conducts with the Corporation;
(iv) solicit or attempt to solicit (except through general newspaper
or other print media solicitations) for any business endeavor any employee of
the Corporation;
(v) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any person which is so engaged in a diet and fitness
business.
Notwithstanding anything to the contrary contained in this Paragraph 8, the
provisions hereof shall not prevent the Executive from purchasing or owning up
to five percent (5%) of the voting securities of any corporation, the stock of
which is publicly traded.
The Post-Termination Period shall be as follows: (a) in the event that the
Executive's employment terminates during the first six (6) months of this
Agreement, the Post-Termination Period shall be one (1) year; (b) in the event
the Executive's employment terminates for any reason during months seven (7)
through eighteen (18), then the Post-Termination Period shall be one (1) year
and three (3) months; and (c) if Executive's employment terminates after
nineteen (19) months of this Agreement, then the Post-Termination Period shall
be for a period of one (1) year and nine (9) months after the expiration or
termination of employment.
9. REMEDIES. Because the Corporation does not have an adequate remedy at law
to protect its business from Executive's competition or to protect its interests
in its trade secrets, privileged, proprietary or confidential information and
similar commercial assets, the Corporation shall be entitled to injunctive
relief, in addition to such other remedies and relief that would, in the event
of a breach of the provisions of Paragraphs 6, 7 and 8, be available to the
Corporation.
10. SURVIVAL. The provisions of Paragraphs 6, 7 and 8 shall survive termination
of this Agreement for any reason.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the
parties and merges and supersedes any prior or contemporaneous agreements
between the parties pertaining to the subject matter hereof. This Agreement may
not be changed or terminated orally, and no change, termination or attempted
waiver of any of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be enforced; PROVIDED,
HOWEVER, that Executive's compensation may be increased at any time by the
Corporation without in any way affecting any of the other terms and conditions
of this Agreement, which in all other respects shall remain in full force and
effect. Failure of a party to enforce one or more
9
of the provisions of this Agreement or to require at any time performance of any
of the obligations hereof shall not be construed to be a waiver of such
provisions by such party nor to in any way affect the validity of this Agreement
of such party's right thereafter to enforce any provision of this Agreement, nor
to preclude such party from taking any other action at any time which it would
legally be entitled to take.
12. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign this
personal Agreement, or any rights or obligations hereunder, without the consent
of the other party; PROVIDED, HOWEVER, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both Executive and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. Subject to the foregoing, this Agreement shall
inure to the benefit of, and bind, the parties hereto and their legal
representatives, heirs, successors and assigns.
13. ADDITIONAL ACTS. Executive and the Corporation each agrees that she or it
shall, as often as requested to do so, execute, acknowledge and deliver and
file, or cause to be executed, acknowledged and delivered and filed, any and all
further instruments, agreements or documents as may be necessary or expedient in
order to consummate the transactions provided for in this Agreement and do any
and all further acts and things as may be necessary or expedient in order to
carry out the purpose and intent of this Agreement.
14. COMMUNICATIONS. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been given
at the time when mailed in any United States post office enclosed in a
registered or certified postage prepaid envelope or via personal delivery,
messenger, reputable overnight courier or fax (with hard copy to follow) and
addressed to the addresses set forth at the beginning of this Agreement, or to
such other address as any party may specify by notice to the other party;
PROVIDED, HOWEVER, that any notice of change of address shall be effective only
upon receipt.
15. CONSTRUCTION. The headings of the Paragraphs of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions hereof. References
in this Agreement to Sections are to the sections of this Agreement. All terms
and words used in this Agreement, regardless of the number, letter or gender
used, shall be deemed to include any other gender, letter or number as the
context or use thereof may require or permit.
10
16. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
17. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by a court or tribunal of competent jurisdiction, such invalidity
or unenforceability shall not affect the validity and enforceability of the
other provisions of this Agreement and the provision held to be invalid or
unenforceable shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
18. LAW; VENUE. This Agreement will be construed in accordance with the laws of
the State of Florida. The party seeking to enforce the provisions of this
Agreement will choose the venue of such action, and the non-enforcing party
agrees to submit to and waives any objections to jurisdiction or venue in that
proceeding.
19. TIME. Time is of the essence of each and every covenant, condition and
obligation of this Agreement. Except as herein expressly permitted, neither
party hereto shall have the right to extend any date, the date of expiration of
any period of time or the date for the performance of any act or the
satisfaction of any condition. Failure by a party hereto to perform timely its
covenants, agreements and obligations hereunder shall, unless waived in writing
by the other party hereto, be a material default under this Agreement. Any time
period provided for herein which ends on a Saturday, Sunday or a legal holiday
in the State of Florida will extend to 5:00 p.m. of the next business day.
20. EXHIBITS. All of the exhibits attached to this Agreement are hereby
incorporated into, and made a part of, this Agreement.
11
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first set forth above.
CORPORATION: EDIETS.COM, INC.
By: /s/ David R. Humble
--------------------------
David R. Humble, Chairman
EXECUTIVE:
By: /s/ Tamara L. Totah
--------------------------
Tamara L. Totah
Exhibits
--------
"A" - Primary Responsibilities
"B" - Option Agreement
12
EXHIBIT A
---------
TAMARA L. TOTAH
Will be President of the Corporation, and will report to the Chief Executive
Officer, with the following primary responsibilities:
. Public relations (consumer and financial community)
. Corporate strategy
. International strategy
. General strategic decisions (financial, strategic and operational)
. Budget Process
. Brand management decisions
. Brand expansion decisions
. Different revenue streams, including, but not limited to, mergers and
acquisitions
EXHIBIT "B"
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of this ____ day of ___________, 2001, between
eDiets.com, Inc., a Delaware corporation (the "Company"), and _________________
(the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an option to purchase
shares of its common capital stock (the "Shares") pursuant to Optionee's
Employment Agreement dated as of _______________, 2001 (the "Employment
Agreement") under the Company's Stock Option Plan (the "Plan"); and
WHEREAS, the Company and the Optionee understand and agree that any terms
used herein have the same meanings as in the Plan (the "Optionee" being referred
to in the Plan as a "Participant").
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and option to purchase all or
any part of an aggregate of 150,000 Shares (the "Option") on the terms and
conditions and subject to and with the benefit of all the limitations set
forth herein and in the Plan, which is incorporated herein by reference.
The Optionee acknowledges receipt of a copy of the Plan. The Option granted
herein is intended to be a Nonstatutory Option as defined in the Plan. In
the event of any inconsistencies between the terms of the Employment
Agreement and the Plan, the expressed terms of the Employment Agreement
shall govern.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be ______
Dollar __________ Cents ($_____) per Share.
3. EXERCISE OPTION
The Option shall be exercisable as follows:
EXERCISE PERIOD
Commencement Expiration
Number of Shares Date Date
---------------- ------------ ----------
37,500 ____________, 2002 ___________, 2006
37,500 ____________, 2002 ___________, 2006
37,500 ____________, 2003 ___________, 2006
37,500 ____________, 2003 ___________, 2006
The Employment Agreement shall govern those events that require
acceleration of the foregoing vesting schedule.
4. TERMINATION OF EMPLOYMENT
The terms and conditions of Article V, Sections F of the Plan shall not
apply, and the provisions of the Employment Agreement shall govern
Optionee's exercise rights in the event of termination of employment.
Optionee shall have 7.5 months after the expiration of the term of the
Employment Agreement to exercise any vested options.
5. EXERCISE OF OPTION AND ISSUANCE OF STOCK
The Option may be exercisable in whole or in part (to the extent that it is
exercisable in accordance with its terms) by the giving written notice to
the Company. Such written notice shall be signed by the person exercising
the Option, shall state the number of Shares with respect to which the
Option is being exercised, shall contain the warranty, if any, required
under the Plan and shall specify a date (other than a Saturday, Sunday or
legal holiday) not less than five (5) nor more than ten (10) days after the
date of such written notice, as the date on which the Shares will be
purchased, at the principal office of the Company during ordinary business
hours, or at such other hour and place agreed upon by the Company and the
person or persons exercising the Option, and shall otherwise comply with
the terms and conditions of this Agreement and the Plan. On the date
specified in such written notice (which date may be extended by the Company
on one occasion for up to 30 days if any law or regulation requires the
Company to take any action with respect to the Shares prior to the issuance
thereof) the Company shall accept payment for the Shares and shall deliver
to the Optionee an appropriate certificate or certificates for the Shares
as to which the Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Optionee either:
(a) in cash, by certified check or bank check, or by wire transfer; or
2
(b) in whole shares of the Company's common stock; or
(c) any combination of (a) or (b) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option in a manner
consistent with the determination of fair market value with respect to the
grant of an Option under the Plan. Any certificate for shares of
outstanding stock of the Company used to pay the purchase price shall be
accompanied by a stock power duly endorsed in blank by the registered
holder of the certificate, with signature guaranteed in the event the
certificate shall also be accompanied by instructions from the Optionee to
the Company's transfer agent with respect to disposition of the balance of
the shares covered thereby. The Company shall pay all original issue taxes
with respect to the issuance of Shares pursuant hereto and all other fees
and expenses necessarily incurred by the Company in connection therewith.
The holder of this Option shall have the rights of a stockholder only with
respect to those Shares covered by the Option which have been registered in
the holder's name in the share register of the Company upon the due
exercise of the Option.
{The provision in the last sentence of Section I of Article V of the Plan
shall not apply.}
6. NON-ASSIGNABILITY
Unless otherwise permissible under Article V. Section K. of the Plan, this
Option shall not be transferable by the Optionee and shall be exercisable
only by the Optionee, or the Optionee's heirs and legatees in the event of
Optionee's death except as the Plan may otherwise provide.
7. PURCHASE FOR INVESTMENT
{Section M. of Article V.} of the Plan shall apply, with the following
modifications: (a) Optionee shall only be required to represent that she is
not purchasing the Shares with a view towards distribution in violation of
the applicable securities laws; and (b) in the event of a placement of a
legend on the Option shares, the opinion of counsel required shall be of a
counsel reasonably acceptable to the Corporation.}
8. AMENDMENT
No amendment of the Plan shall be effective to amend this Agreement or
alter or impair the rights of the Optionee hereunder.
9. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:
3
To the Company: eDiets.com, Inc.
3801 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
Attention: David R. Humble, Chairman
To the Optionee: ______________________________
______________________________
______________________________
______________________________
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
10. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Florida.
11. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 6 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company has caused these presents to be executed on
its behalf by its duly authorized representative and the Optionee has hereunder
set her/her hand, all on the day and year first above written.
eDiets.com, Inc.
By:________________________________
David R. Humble
Its: Chairman
___________________________________
________________________, Optionee
4
EX-10.3
6
dex103.txt
EMPLOYMENT AGREEMENT - CARLOS LOPEZ-ONA
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
Agreement dated as of the 19/th/ day of October, 2001, by and between
EDIETS.COM, INC., a Delaware corporation having its principal place of business
at 3801 W. Hillsboro Boulevard, Deerfield Beach, Florida 33442 (the
"Corporation") and CARLOS LOPEZ-ONA (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ Executive as an executive
officer, and Executive is willing to accept such employment, all subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the terms and conditions hereof, the
Corporation hereby employs Executive, and Executive hereby accepts employment by
the Corporation, for a period of three (3) years commencing on October 19, 2001
(the "Commencement Date") and ending on the third anniversary of the
Commencement Date, unless terminated sooner pursuant to the provisions hereof.
2. DUTIES. Executive shall serve the Corporation initially as an Executive
Vice President and, after relocation to Florida, as its Chief Operating Officer.
Executive's primary responsibilities, subject to the direction of the
Corporation's Board of Directors and Chief Executive Officer shall be as set
forth on Exhibit "A" attached hereto. However, Executive shall perform such
executive, administrative, management, marketing and other services and duties
as are incidental to the offices he holds and as may, from time to time, be
assigned to him by the Board of Directors of the Corporation or a committee
thereof or the Chief Executive Officer. Executive shall devote all of his
business and professional time to the performance of his duties hereunder.
Executive further agrees to serve as an officer or director of any parent,
subsidiary or affiliate of the Corporation upon the Corporation's request, with
no additional compensation beyond that set forth in Paragraph 3 below. The
Executive's principal place of employment shall initially be the executive
offices of the Corporation's subsidiary, DietSmart, Inc., in New York, New York
for a transition period of up to six (6) months, after which time the
Corporation may relocate Executive to its home office in Deerfield Beach,
Florida, although the Executive understands and agrees that during the
transition period he will be required to travel frequently to and spend
extensive time in the Florida home office. In the event of Executive's
relocation to Deerfield Beach, Florida, at the request of the Corporation, the
Corporation shall reimburse Executive for all reasonably incurred relocation
expenses up to a maximum amount of $20,000.
3. COMPENSATION.
(a) As base compensation for the services to be rendered by Executive
hereunder, the Corporation agrees to pay to Executive an annual base salary in
the amount of One Hundred Sixty Thousand Dollars ($160,000), such salary to be
paid in equal biweekly installments for so long as Executive is employed by the
Corporation. Executive's base compensation shall be reviewed and increased at
least annually, with such increases being a minimum of six percent (6%) per
year.
(b) The Corporation shall institute a bonus and/or profit sharing plan
effective January 1, 2002. Such plan shall provide that all eligible full time
employees of the Corporation or its subsidiary DietSmart, Inc. shall participate
in the plan so long as the Corporation's annual operating performance
(commencing in 2002) meets or exceeds the criteria, which shall be determined
when bonus compensation is to be awarded to employees. The Executive shall be
consulted by the Corporation's Chief Executive Officer prior to the submission
of the plan to the Corporation's compensation committee.
(c) The Executive shall receive an initial grant of 150,000 employee stock
options (the "Options") under the Corporation's Stock Option Plan (the "Plan")
with an exercise price equal to the fair market value of the Corporation's
common stock at the Commencement Date. Such Options shall be in the form set
forth on Exhibit "B" attached hereto. The options, which shall be exercisable
for a period of five (5) years from the date of grant, shall vest over two (2)
years in four (4) equal semi-annual installments, with the first installment
vesting six (6) months after the Commencement Date. All unvested options held
by the Executive shall vest upon the following events: (i) a sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation; (ii) the merger or consolidation of the Corporation with
another corporation in which the Corporation is not the survivor; (iii) the
acquisition by a person or a group that is not currently a beneficial holder of
an equity interest in the Corporation of at least 51% of the outstanding stock
of the Corporation; or (iv) consummation of a "going private" transaction in
which the Corporation's securities are no longer registered under the Securities
Exchange Act of 1934 and its securities are no longer publicly traded.
Notwithstanding the specific grant of options pursuant to this Section 3(c) the
Executive may be entitled to receive additional options if so determined in the
sole discretion of the Corporation's Board of Directors or compensation
committee.
(d) Executive shall be entitled, on a basis consistent with the
Corporation's policy, to reimbursement for all normal and reasonable travel,
entertainment and other expenses necessarily incurred by him in the performance
of his obligations hereunder.
2
The Corporation shall reimburse Executive for such expenses upon presentation to
the Corporation, within a reasonable time after such expenses are incurred, of
an itemized account of such expenses, together with such vouchers or receipts
for individual expense items as the Corporation may from time to time require
under its established policies and procedures.
(e) Executive shall be entitled to participate in, or benefit from, in
accordance with the eligibility and other provisions thereof, such medical
insurance, pension, retirement, or other fringe benefit plans or policies as the
Corporation may make available to, or have in effect for, its executive
personnel from time to time. Plans and benefits may be modified or eliminated by
the Corporation from time to time as it determines in its sole discretion.
However, the Corporation agrees that it will always make available a medical
insurance plan to its employees and executive personnel. Executive shall also
be entitled to two (2) weeks of vacation and an additional two (2) weeks of
personal (including sick) time annually and other similar benefits in accordance
with the policies of the Corporation from time to time in effect for executive
personnel.
(f) Except as hereinafter provided, the Corporation shall pay Executive,
for any period during the term of this Agreement during which he is unable fully
to perform his duties because of physical or mental disability or incapacity, an
amount equal to the compensation due him for such period in accordance with this
Agreement, less the aggregate amount of all income disability benefits which for
such period he may receive under or by reason of (i) any applicable compulsory
state disability law, (ii) the Federal Social Security Act, (iii) any applicable
workmen's compensation law or similar law, and (iv) any plan towards which the
Corporation or any parent, subsidiary or affiliate of the Corporation has
contributed or for which it has made payroll deductions, such as group accident,
disability or health policies.
4. TERMINATION ON DISABILITY OR DEATH.
(a) In the event that Executive, due to physical or mental disability or
incapacity, is unable to substantially perform his duties hereunder for a period
of three (3) successive months, the Corporation or Executive shall then have the
right to terminate this Agreement and Executive's employment hereunder upon
thirty (30) days' prior written notice, provided, however, that in the event
that Executive shall recommence rendering services and performing all of his
duties hereunder within such thirty (30) day notice period, such notice shall be
vitiated, and the Corporation and the Executive shall no longer have the right
to terminate based on the disability event described in the notice. Executive's
employment shall terminate immediately upon his death.
3
(b) Upon termination of Executive's employment by reason of his death or
disability as aforesaid, Executive, or in the case of Executive's death,
Executive's personal representatives, shall be entitled to receive base
compensation earned or accrued to the date of such termination and not already
paid, as well as a pro-rata portion of any earned and unpaid bonus less any
benefits paid to Executive by reason of such disability. Such accrued base
compensation shall be paid to the Executive within 30 days following the date of
termination.
(c) In the event of the termination of this Agreement for any reason other
than death, Executive shall have the right to purchase, and the Corporation
shall assign to Executive, any insurance policy maintained by the Company on the
life of Executive then in effect, for a price equal to the net cash surrender
value thereof at the time of such termination.
5. TERMINATION FOR CERTAIN CAUSES AND OTHER REASONS.
(a) In the event of the (i) willful material misconduct, gross negligence
or bad faith of Executive in the performance of his duties hereunder, (ii)
material breach of any provisions of Paragraphs 6, 7 or 8, or (iii) conviction
of the Executive for any felony under federal or state law, this Agreement and
Executive's employment hereunder may be terminated by the Corporation without
prior notice. This Agreement may also be terminated by the Corporation in the
event that there has been a material failure of performance by Executive of his
duties hereunder and such failure has not been cured by Executive within a
period of sixty (60) days of his receipt from the Corporation of a written
notice of proposed termination specifying the particular failure(s) of
performance, and the proposed remedy upon which the proposed termination will be
based, if not cured. In the event of termination pursuant to this subparagraph
5(a) the Corporation shall have no further obligation to the Executive except to
pay the base compensation earned or accrued to the date of termination, and the
pro-rata share of any earned and unpaid bonus, and upon such termination all
options granted to Executive shall lapse and be no longer exercisable.
(b) The Corporation may also terminate this Agreement if the Executive
refuses to relocate after requested to do so by the Corporation in accordance
with Paragraph 2 above. In the event of termination pursuant to this
subparagraph 5 (b), the Corporation shall have no further obligation to the
Executive except to pay the base compensation earned or accrued to the date of
termination and not already paid and the pro-rata share of any earned and unpaid
bonus. Upon such termination, Executive shall have three months to exercise any
options that are vested on the date of termination.
(c) The Corporation may also terminate this Agreement for any reason other
than the reasons set forth in Paragraphs 5 (a) (b) above. If the Corporation
elects to terminate under this Paragraph 5(c), or if the Executive resigns for
Good Reason (as defined below) during the first six (6) months of this
Agreement, as a severance
4
allowance, Executive will be entitled to receive a lump sum payment of $150,000
plus a pro-rata portion of any earned but unpaid bonus. If the Corporation
elects to terminate under this Paragraph 5(c) or if the Executive resigns for
Good Reason during months seven (7) through eighteen (18) of this Agreement,
Executive shall receive a lump sum payment of $200,000 plus a pro-rata portion
of any earned but unpaid bonus. If the Corporation elects to terminate under
this Paragraph 5(c), or if the Executive resigns for Good Reason after nineteen
(19) months of this Agreement, Executive shall receive a lump sum payment of
$250,000 plus a pro-rata portion of any earned but unpaid bonus. Such lump sum
payment shall be paid to the Executive within 30 days following the date of
termination. If, at any time during the initial term of this Agreement, the
Corporation elects to terminate under this Paragraph 5(c) or the Executive
resigns for Good Reason: (i) there shall be an immediate vesting of all unvested
Options that would have vested during the four (4) months succeeding the date of
termination; (ii) with respect to all of Executive's vested Options before they
lapse, Executive shall have a period of seven and one-half (7 1/2) months after
the date of termination within which to exercise such vested Options; and (iii)
all health benefits in effect for Executive as of the date of termination shall
be continued by the Corporation, at its sole cost and expense, through the last
day of the initial term of this Agreement.
For purposes of this Agreement, "Good Reason" shall mean: (i) an adverse
and material change in the Executive's position without Executive's prior
consent, where such change has: (a) a negative financial effect on Executive;
or (b) represents a material change in role, title, nature of duties, employee
benefits or working conditions, or (ii) a requirement by the Corporation that
Executive relocate to a location other than Deerfield Beach, Florida; (iii) a
material breach by the Corporation of its obligations to Executive; (iv) a
direction to Executive to take illegal or unethical actions which direction is
not withdrawn within seven (7) days following written notice by Executive to the
directing party; and (v) where the Chief Executive Officer or any member of the
Board of Directors tells another person, whether written or oral, false and
harmful information that affects the Executive's reputation and hinders his or
her current and future working relationships.
6. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES.
(a) Executive hereby covenants and agrees to disclose promptly and fully,
in writing, whenever possible, to the Corporation and its attorneys and
designated representatives, without additional compensation, all ideas,
formulae, programs, systems, devices, inventions, processes, business concepts,
discoveries, improvements, developments, works of authorship, product marks and
designations, technical information and know-how, whether or not patentable,
copyrightable or otherwise protectable relating to personalized diet and
nutrition programs (together, the "Developments"), which he may conceive,
develop, reduce to practice, acquire or make, alone or jointly with others:
5
(i) during the term of his employment with the Corporation, whether
during or outside of the usual hours of work; and
(ii) during the Post-Termination Period, as defined in Section 8
below.
Notwithstanding the foregoing, no obligation is being imposed on Executive
to assign to the Corporation any Development for which no equipment, supplies,
facility, or trade secret information of the Corporation was used and that was
developed entirely on Executive's own time, unless: (a) such Development relates
(1) to the Corporation's business or (2) to the Corporation's actual or
demonstrably anticipated research or development, or (b) the Development results
from any work performed by Executive for the Corporation.
Executive hereby agrees that all of his right, title and interest in and to
such Developments shall be deemed the sole and exclusive property of the
Corporation and shall be subject to the confidentiality provisions of Section 7
as confidential information of the Corporation.
(b) Executive, when requested and required to do so, either during or
after the term of his employment with the Corporation, shall:
(i) assign and convey to the Corporation his entire right, title and
interest in and to the Developments to the extent not owned by the Corporation
as a matter of law from the time of their creation and execute, acknowledge and
deliver all such further instruments and documents, in form and substance
satisfactory to the Corporation, as it shall deem reasonably necessary or
advisable to evidence the vesting in the Corporation of all right, title and
interest of Executive in and to the Developments;
(ii) assist the Corporation and its agents in preparing patent
applications, domestic and foreign, covering the Developments;
(iii) sign and deliver all such applications and assignments of the
same to the Corporation; and
(iv) generally give all information and testimony, sign all papers
and do all things which may be needed or requested by the Corporation to the end
that the Corporation may obtain, extend, reissue, maintain and enforce United
States and foreign patents covering the Developments.
(c) The Corporation shall bear all costs and expenses which it causes to
be incurred in obtaining, extending, issuing, reissuing, maintaining and
enforcing such patents and in investing and perfecting title thereto in the
Corporation, and agrees further to pay Executive for any time which it may
require of him therefor, and for any
6
services that may be required of him pursuant to subparagraph 6(b), subsequent
to the termination of his employment with the Corporation, such payment to be at
an hourly rate equivalent to that at which Executive is paid at the time of the
termination of his employment by the Corporation.
(d) In the event of the unenforceability of all or part of the foregoing
provisions of this Paragraph 6, as determined by a court of competent
jurisdiction, Executive hereby transfers and assigns to the Corporation such
lesser interests in the Developments, including, without limitations, any and
all United States and foreign patent rights therein and renewals thereof, as may
be determined by such a court to be a reasonable grant of interests under the
circumstances, but, in any event, and without limitation, Executive shall be
deemed to have granted to the Corporation not less than an irrevocable, non-
exclusive license, with the right to sublicense others, to manufacture, use,
lease and sell the Developments which have not been assigned to the Corporation
under the provisions of subparagraph 6(b), without payment of any royalty.
7
7. CONFIDENTIALITY
(a) Executive understands and hereby acknowledges that as a result of his
employment with the Corporation, he will necessarily become informed of, and
have access to, certain valuable and confidential information of the Corporation
and any of its subsidiaries, joint ventures and affiliates, including, without
limitation, inventions, trade secrets, technical information, know-how, plans,
specifications, identity of customers and suppliers, and that such information,
even though it may be developed or otherwise acquired by Executive, is the
exclusive property of the Corporation to be held by Executive in trust and
solely for the Corporation's benefit. Accordingly, except as provided under this
Agreement, Executive hereby agrees that he shall not, at any time, either during
or subsequent to his employment hereunder, use, reveal, report, publish,
transfer or otherwise disclose to any person, corporation or other entity, any
of the Corporation's confidential information without the prior written consent
of the Corporation, except: (i) to officers and employees of the Corporation and
to responsible persons who are in a contractual, employment or fiduciary
relationship with the Corporation or who have a need for such information for
purposes in the interest of the Corporation, (ii) as required by a court or in a
legal or administrative proceeding; and (iii) for such information that legally
and legitimately is or becomes of public knowledge from sources other than
Executive. The Corporation's confidential information shall not include any
information known by the Executive prior to the Commencement Date or that
becomes known to the Executive from sources other than the Corporation.
(b) Upon the termination of his employment with the Corporation for any
reason whatsoever, Executive shall promptly deliver to the Corporation all
drawings, manuals, letters, notes, notebooks, reports and copies thereof, and
all other materials, including, without limitation, those of a secret and
confidential nature, relating to the Corporation's business which are in
Executive's possession or control.
8. NON-COMPETITION. Executive agrees that, during the term of this Agreement
and for the Post-Termination Period (as defined below), he shall not, anywhere
in the United States of America or elsewhere in the world (or in such smaller
area or for such lesser period as may be determined by a court of competent
jurisdiction to be a reasonable limitation on the competitive activity of
Executive), directly or indirectly:
(i) engage in a directly competitive line of business to the
business carried on by the Corporation to be defined as any diet and fitness
business, both on- and offline, either for his own account or with or for anyone
else;
(ii) solicit or attempt to solicit business of any customers of the
Corporation for diet and fitness products or services the same or similar to
those offered, sold, produced or under development by the Corporation at the
time of the beginning of the Post-Termination Period;
8
(iii) intentionally attempt to induce any person, firm or entity with a
material business relationship of the Corporation to cease or materially reduce
the level of business it conducts with the Corporation;
(iv) solicit or attempt to solicit (except through general newspaper or
other print media solicitations) for any business endeavor any employee of the
Corporation;
(v) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any person which is so engaged in a diet and fitness
business.
Notwithstanding anything to the contrary contained in this Paragraph 8, the
provisions hereof shall not prevent the Executive from purchasing or owning up
to five percent (5%) of the voting securities of any corporation, the stock of
which is publicly traded.
The Post-Termination Period shall be as follows: (a) in the event that the
Executive's employment terminates during the first six (6) months of this
Agreement, the Post-Termination Period shall be one (1) year; (b) in the event
the Executive's employment terminates for any reason during months seven (7)
through eighteen (18), then the Post-Termination Period shall be one (1) year
and three (3) months; and (c) if Executive's employment terminates after
nineteen (19) months of this Agreement, then the Post-Termination Period shall
be for a period of one (1) year and nine (9) months after the expiration or
termination of employment.
9. REMEDIES. Because the Corporation does not have an adequate remedy at law
to protect its business from Executive's competition or to protect its interests
in its trade secrets, privileged, proprietary or confidential information and
similar commercial assets, the Corporation shall be entitled to injunctive
relief, in addition to such other remedies and relief that would, in the event
of a breach of the provisions of Paragraphs 6, 7 and 8, be available to the
Corporation.
10. SURVIVAL. The provisions of Paragraphs 6, 7 and 8 shall survive termination
of this Agreement for any reason.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of
the parties and merges and supersedes any prior or contemporaneous agreements
between the parties pertaining to the subject matter hereof. This Agreement may
not be changed or terminated orally, and no change, termination or attempted
waiver of any of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be enforced; PROVIDED,
HOWEVER, that Executive's compensation may be increased at any time by the
Corporation without in any way affecting any of the other terms and conditions
of this Agreement, which in all other respects shall remain in full force and
effect. Failure of a party to enforce one or more
9
of the provisions of this Agreement or to require at any time performance of any
of the obligations hereof shall not be construed to be a waiver of such
provisions by such party nor to in any way affect the validity of this Agreement
of such party's right thereafter to enforce any provision of this Agreement, nor
to preclude such party from taking any other action at any time which it would
legally be entitled to take.
12. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign this
personal Agreement, or any rights or obligations hereunder, without the consent
of the other party; PROVIDED, HOWEVER, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both Executive and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. Subject to the foregoing, this Agreement shall
inure to the benefit of, and bind, the parties hereto and their legal
representatives, heirs, successors and assigns.
13. ADDITIONAL ACTS. Executive and the Corporation each agrees that he or it
shall, as often as requested to do so, execute, acknowledge and deliver and
file, or cause to be executed, acknowledged and delivered and filed, any and all
further instruments, agreements or documents as may be necessary or expedient in
order to consummate the transactions provided for in this Agreement and do any
and all further acts and things as may be necessary or expedient in order to
carry out the purpose and intent of this Agreement.
14. COMMUNICATIONS. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been given
at the time when mailed in any United States post office enclosed in a
registered or certified postage prepaid envelope or via personal delivery,
messenger, reputable overnight courier or fax (with hard copy to follow) and
addressed to the addresses set forth at the beginning of this Agreement, or to
such other address as any party may specify by notice to the other party;
PROVIDED, HOWEVER, that any notice of change of address shall be effective only
upon receipt.
15. CONSTRUCTION. The headings of the Paragraphs of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions hereof. References
in this Agreement to Sections are to the sections of this Agreement. All terms
and words used in this Agreement, regardless of the number, letter or gender
used, shall be deemed to include any other gender, letter or number as the
context or use thereof may require or permit.
10
16. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
17. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by a court or tribunal of competent jurisdiction, such invalidity
or unenforceability shall not affect the validity and enforceability of the
other provisions of this Agreement and the provision held to be invalid or
unenforceable shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
18. LAW; VENUE. This Agreement will be construed in accordance with the laws
of the State of Florida. The party seeking to enforce the provisions of this
Agreement will choose the venue of such action, and the non-enforcing party
agrees to submit to and waives any objections to jurisdiction or venue in that
proceeding.
19. TIME. Time is of the essence of each and every covenant, condition and
obligation of this Agreement. Except as herein expressly permitted, neither
party hereto shall have the right to extend any date, the date of expiration of
any period of time or the date for the performance of any act or the
satisfaction of any condition. Failure by a party hereto to perform timely its
covenants, agreements and obligations hereunder shall, unless waived in writing
by the other party hereto, be a material default under this Agreement. Any
time period provided for herein which ends on a Saturday, Sunday or a legal
holiday in the State of Florida will extend to 5:00 p.m. of the next business
day.
20. EXHIBITS. All of the exhibits attached to this Agreement are hereby
incorporated into, and made a part of, this Agreement.
11
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first set forth above.
CORPORATION: EDIETS.COM, INC.
By: /s/ David R. Humble
--------------------------------
David R. Humble, Chairman
EXECUTIVE:
By: /s/ Carlos M. Lopez-Ona
--------------------------------
Carlos M. Lopez-Ona
Exhibits
--------
"A" - Primary Responsibilities
"B" - Option Agreement
12
EXHIBIT A
---------
CARLOS M. LOPEZ-ONA
A. Prior to Relocation.
Executive Vice President with primary responsibility for the following:
. Operations liaison between the Corporation and DietSmart subsidiary and
their offices
. General business operations
. Mergers and acquisitions and investments opportunities
. General strategic decisions
. Shall report directly to the Chief Executive Officer
B. After Relocation to Florida.
Mr. Lopez-Ona shall be the Chief Operating Officer with the following
responsibilities:
. He shall have the authority and responsibility to oversee and coordinate
most aspects of the Corporation's operations, including having a
significant role in (i) deciding what projects will be undertaken; (ii)
senior level management decisions (including all major strategic, financial
and operational decisions); (iii) prioritizing projects; (iv) organizing
and restructuring business operations; (v) participating in any investment
road show or fund-raising activity; (vi) management of and coordination
with any and all offices and subsidiaries of the Corporation; (vii)
overseeing and leading any merger, acquisition, investment or other similar
opportunities or transactions for the Corporation. All departments of the
Corporation with the exception of the finance department, the Chief
Financial Officer and the President, shall report to the Executive,
including, without limitation, the customer service, marketing, business
development, and legal departments or their functional equivalents. Mr.
Lopez-Ona shall report directly to the Chief Executive Officer of the
Corporation.
13
EXHIBIT "B"
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of this ____ day of ___________, 2001, between
eDiets.com, Inc., a Delaware corporation (the "Company"), and
______________________________ (the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an option to purchase
shares of its common capital stock (the "Shares") pursuant to Optionee's
Employment Agreement dated as of _______________, 2001 (the "Employment
Agreement") under the Company's Stock Option Plan (the "Plan"); and
WHEREAS, the Company and the Optionee understand and agree that any terms
used herein have the same meanings as in the Plan (the "Optionee" being referred
to in the Plan as a "Participant").
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and option to purchase all or
any part of an aggregate of 150,000 Shares (the "Option") on the terms and
conditions and subject to and with the benefit of all the limitations set
forth herein and in the Plan, which is incorporated herein by reference.
The Optionee acknowledges receipt of a copy of the Plan. The Option
granted herein is intended to be a Nonstatutory Option as defined in the
Plan. In the event of any inconsistencies between the terms of the
Employment Agreement and the Plan, the expressed terms of the Employment
Agreement shall govern.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be ______
Dollar __________ Cents ($_____) per Share.
3. EXERCISE OPTION
The Option shall be exercisable as follows:
EXERCISE PERIOD
Commencement Expiration
Number of Shares Date Date
---------------- ------------ ----------
37,500 ____________, 2002 ___________, 2006
37,500 ____________, 2002 ___________, 2006
37,500 ____________, 2003 ___________, 2006
37,500 ____________, 2003 ___________, 2006
The Employment Agreement shall govern those events that require
acceleration of the foregoing vesting schedule.
4. TERMINATION OF EMPLOYMENT
The terms and conditions of Article V, Sections F of the Plan shall not
apply, and the provisions of the Employment Agreement shall govern
Optionee's exercise rights in the event of termination of employment.
Optionee shall have 7.5 months after the expiration of the term of the
Employment Agreement to exercise any vested options.
5. EXERCISE OF OPTION AND ISSUANCE OF STOCK
The Option may be exercisable in whole or in part (to the extent that it is
exercisable in accordance with its terms) by the giving written notice to
the Company. Such written notice shall be signed by the person exercising
the Option, shall state the number of Shares with respect to which the
Option is being exercised, shall contain the warranty, if any, required
under the Plan and shall specify a date (other than a Saturday, Sunday or
legal holiday) not less than five (5) nor more than ten (10) days after the
date of such written notice, as the date on which the Shares will be
purchased, at the principal office of the Company during ordinary business
hours, or at such other hour and place agreed upon by the Company and the
person or persons exercising the Option, and shall otherwise comply with
the terms and conditions of this Agreement and the Plan. On the date
specified in such written notice (which date may be extended by the Company
on one occasion for up to 30 days if any law or regulation requires the
Company to take any action with respect to the Shares prior to the issuance
thereof) the Company shall accept payment for the Shares and shall deliver
to the Optionee an appropriate certificate or certificates for the Shares
as to which the Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Optionee either:
2
(a) in cash, by certified check or bank check, or by wire transfer; or
(b) in whole shares of the Company's common stock; or
(c) any combination of (a) or (b) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option in a manner
consistent with the determination of fair market value with respect to the
grant of an Option under the Plan. Any certificate for shares of
outstanding stock of the Company used to pay the purchase price shall be
accompanied by a stock power duly endorsed in blank by the registered
holder of the certificate, with signature guaranteed in the event the
certificate shall also be accompanied by instructions from the Optionee to
the Company's transfer agent with respect to disposition of the balance of
the shares covered thereby. The Company shall pay all original issue taxes
with respect to the issuance of Shares pursuant hereto and all other fees
and expenses necessarily incurred by the Company in connection therewith.
The holder of this Option shall have the rights of a stockholder only with
respect to those Shares covered by the Option which have been registered in
the holder's name in the share register of the Company upon the due
exercise of the Option.
{The provision in the last sentence of Section I of Article V of the Plan
shall not apply.}
6. NON-ASSIGNABILITY
Unless otherwise permissible under Article V. Section K. of the Plan, this
Option shall not be transferable by the Optionee and shall be exercisable
only by the Optionee, or the Optionee's heirs and legatees in the event of
Optionee's death except as the Plan may otherwise provide.
7. PURCHASE FOR INVESTMENT
{Section M. of Article V.} of the Plan shall apply, with the following
modifications: (a) Optionee shall only be required to represent that he
is not purchasing the Shares with a view towards distribution in violation
of the applicable securities laws; and (b) in the event of a placement of a
legend on the Option shares, the opinion of counsel required shall be of a
counsel reasonably acceptable to the Corporation.
8. AMENDMENT
No amendment of the Plan shall be effective to amend this Agreement or
alter or impair the rights of the Optionee hereunder.
9. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:
3
To the Company: eDiets.com, Inc.
3801 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
Attention: David R. Humble, Chairman
To the Optionee: ______________________________
______________________________
______________________________
______________________________
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
10. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Florida.
11. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 6 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company has caused these presents to be executed on its
behalf by its duly authorized representative and the Optionee has hereunder set
his/her hand, all on the day and year first above written.
eDiets.com, Inc.
By:_____________________________
David R. Humble
Its: Chairman
________________________________
_____________________, Optionee
4
EX-10.4
7
dex104.txt
EMPLOYMENT AGREEMENT - ANDREW SMITH
Exhibit 10.4
EMPLOYMENT AGREEMENT
Agreement dated as of the 19/th/ day of October, 2001, by and between
EDIETS.COM, INC., a Delaware corporation having its principal place of business
at 3801 W. Hillsboro Boulevard, Deerfield Beach, Florida 33442 (the
"Corporation") and ANDREW G. SMITH (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ Executive as an executive
officer, and Executive is willing to accept such employment, all subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the terms and conditions hereof, the
Corporation hereby employs Executive, and Executive hereby accepts employment by
the Corporation, for a period of three (3) years commencing on October 19, 2001
(the "Commencement Date") and ending on the third anniversary of the
Commencement Date, unless terminated sooner pursuant to the provisions hereof.
2. DUTIES. Executive shall serve the Corporation as its Executive Vice
President-Marketing. Executive's primary responsibilities, subject to the
direction of the Corporation's Board of Directors and Chief Executive Officer,
shall be as set forth on Exhibit "A" attached hereto. However, Executive shall
perform such executive, administrative, management, marketing and other services
and duties as are incidental to the offices he holds and as may, from time to
time, be assigned to him by the Board of Directors of the Corporation or a
committee thereof or the Chief Executive Officer. Executive shall devote all of
his business and professional time to the performance of his duties hereunder.
Executive further agrees to serve as an officer or director of any parent,
subsidiary or affiliate of the Corporation upon the Corporation's request, with
no additional compensation beyond that set forth in Paragraph 3 below. The
Executive's principal place of employment shall initially be the executive
offices of the Corporation's subsidiary, DietSmart, Inc., in New York, New York
for a transition period of up to six (6) months, after which time the
Corporation may relocate Executive to its home office in Deerfield Beach,
Florida, although the Executive understands and agrees that during the
transition period he will be required to travel frequently to and spend
extensive time in the Florida home office. In the event of Executive's
relocation to Deerfield Beach, Florida, at the request of the Corporation, the
Corporation shall reimburse Executive for all reasonably incurred relocation
expenses up to a maximum amount of $20,000.
3. COMPENSATION.
(a) As base compensation for the services to be rendered by Executive
hereunder, the Corporation agrees to pay to Executive an annual base salary in
the amount of One Hundred Sixty Thousand Dollars ($160,000), such salary to be
paid in equal biweekly installments for so long as Executive is employed by the
Corporation. Executive's base compensation shall be reviewed and increased at
least annually, with such increases being a minimum of six percent (6%) per
year.
(b) The Corporation shall institute a bonus and/or profit sharing plan
effective January 1, 2002. Such plan shall provide that all eligible full time
employees of the Corporation or its subsidiary DietSmart, Inc. shall participate
in the plan so long as the Corporation's annual operating performance
(commencing in 2002) meets or exceeds the criteria, which shall be determined
when bonus compensation is to be awarded to employees. The Executive shall be
consulted by the Corporation's Chief Executive Officer prior to the submission
of the plan to the Corporation's compensation committee.
(c) The Executive shall receive an initial grant of 150,000 employee stock
options (the "Options") under the Corporation's Stock Option Plan (the "Plan")
with an exercise price equal to the fair market value of the Corporation's
common stock at the Commencement Date. Such Options shall be in the form set
forth on Exhibit "B" attached hereto. The options, which shall be exercisable
for a period of five (5) years from the date of grant, shall vest over two (2)
years in four (4) equal semi-annual installments, with the first installment
vesting six (6) months after the Commencement Date. All unvested options held
by the Executive shall vest upon the following events: (i) a sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation; (ii) the merger or consolidation of the Corporation with
another corporation in which the Corporation is not the survivor; (iii) the
acquisition by a person or a group that is not currently a beneficial holder of
an equity interest in the Corporation of at least 51% of the outstanding stock
of the Corporation; or (iv) consummation of a "going private" transaction in
which the Corporation's securities are no longer registered under the Securities
Exchange Act of 1934 and its securities are no longer publicly traded.
Notwithstanding the specific grant of options pursuant to this Section 3(c) the
Executive may be entitled to receive additional options if so determined in the
sole discretion of the Corporation's Board of Directors or compensation
committee.
(d) Executive shall be entitled, on a basis consistent with the
Corporation's policy, to reimbursement for all normal and reasonable travel,
entertainment and other expenses necessarily incurred by him in the performance
of his obligations hereunder. The Corporation shall reimburse Executive for such
expenses upon presentation to the Corporation, within a reasonable time after
such expenses are incurred, of an itemized
2
account of such expenses, together with such vouchers or receipts for individual
expense items as the Corporation may from time to time require under its
established policies and procedures.
(e) Executive shall be entitled to participate in, or benefit from, in
accordance with the eligibility and other provisions thereof, such medical
insurance, pension, retirement, or other fringe benefit plans or policies as the
Corporation may make available to, or have in effect for, its executive
personnel from time to time. Plans and benefits may be modified or eliminated by
the Corporation from time to time as it determines in its sole discretion.
However, the Corporation agrees that it will always make available a medical
insurance plan to its employees and executive personnel. Executive shall also
be entitled to two (2) weeks of vacation and an additional two (2) weeks of
personal (including sick) time annually and other similar benefits in accordance
with the policies of the Corporation from time to time in effect for executive
personnel.
(f) Except as hereinafter provided, the Corporation shall pay Executive,
for any period during the term of this Agreement during which he is unable fully
to perform his duties because of physical or mental disability or incapacity, an
amount equal to the compensation due him for such period in accordance with this
Agreement, less the aggregate amount of all income disability benefits which for
such period he may receive under or by reason of (i) any applicable compulsory
state disability law, (ii) the Federal Social Security Act, (iii) any applicable
workmen's compensation law or similar law, and (iv) any plan towards which the
Corporation or any parent, subsidiary or affiliate of the Corporation has
contributed or for which it has made payroll deductions, such as group accident,
disability or health policies.
4. TERMINATION ON DISABILITY OR DEATH.
(a) In the event that Executive, due to physical or mental disability or
incapacity, is unable to substantially perform his duties hereunder for a period
of three (3) successive months, the Corporation or Executive shall then have the
right to terminate this Agreement and Executive's employment hereunder upon
thirty (30) days' prior written notice, provided, however, that in the event
that Executive shall recommence rendering services and performing all of his
duties hereunder within such thirty (30) day notice period, such notice shall be
vitiated, and the Corporation and the Executive shall no longer have the right
to terminate based on the disability event described in the notice. Executive's
employment shall terminate immediately upon his death.
(b) Upon termination of Executive's employment by reason of his death or
disability as aforesaid, Executive, or in the case of Executive's death,
Executive's personal representatives, shall be entitled to receive base
compensation earned or accrued to the date of such termination and not already
paid, as well as a pro-rata
3
portion of any earned and unpaid bonus less any benefits paid to Executive by
reason of such disability. Such accrued base compensation shall be paid to the
Executive within 30 days following the date of termination.
(c) In the event of the termination of this Agreement for any reason other
than death, Executive shall have the right to purchase, and the Corporation
shall assign to Executive, any insurance policy maintained by the Company on the
life of Executive then in effect, for a price equal to the net cash surrender
value thereof at the time of such termination.
5. TERMINATION FOR CERTAIN CAUSES AND OTHER REASONS.
(a) In the event of the (i) willful material misconduct, gross negligence
or bad faith of Executive in the performance of his duties hereunder, (ii)
material breach of any provisions of Paragraphs 6, 7 or 8, or (iii) conviction
of the Executive for any felony under federal or state law, this Agreement and
Executive's employment hereunder may be terminated by the Corporation without
prior notice. This Agreement may also be terminated by the Corporation in the
event that there has been a material failure of performance by Executive of his
duties hereunder and such failure has not been cured by Executive within a
period of sixty (60) days of his receipt from the Corporation of a written
notice of proposed termination specifying the particular failure(s) of
performance, and the proposed remedy upon which the proposed termination will be
based, if not cured. In the event of termination pursuant to this subparagraph
5(a) the Corporation shall have no further obligation to the Executive except to
pay the base compensation earned or accrued to the date of termination, and the
pro-rata share of any earned and unpaid bonus, and upon such termination all
options granted to Executive shall lapse and be no longer exercisable.
(b) The Corporation may also terminate this Agreement if the Executive
refuses to relocate after requested to do so by the Corporation in accordance
with Paragraph 2 above. In the event of termination pursuant to this
subparagraph 5 (b), the Corporation shall have no further obligation to the
Executive except to pay the base compensation earned or accrued to the date of
termination and not already paid and the pro-rata share of any earned and unpaid
bonus. Upon such termination, Executive shall have three months to exercise any
options that are vested on the date of termination.
(c) The Corporation may also terminate this Agreement for any reason other
than the reasons set forth in Paragraphs 5 (a) (b) above. If the Corporation
elects to terminate under this Paragraph 5(c), or if the Executive resigns for
Good Reason (as defined below) during the first six (6) months of this
Agreement, as a severance allowance, Executive will be entitled to receive a
lump sum payment of $150,000 plus a pro-rata portion of any earned but unpaid
bonus. If the Corporation elects to terminate under this Paragraph 5(c) or if
the Executive resigns for Good Reason during months seven (7) through eighteen
(18) of this Agreement, Executive shall receive a
4
lump sum payment of $200,000 plus a pro-rata portion of any earned but unpaid
bonus. If the Corporation elects to terminate under this Paragraph 5(c), or if
the Executive resigns for Good Reason after nineteen (19) months of this
Agreement, Executive shall receive a lump sum payment of $250,000 plus a pro-
rata portion of any earned but unpaid bonus. Such lump sum payment shall be paid
to the Executive within 30 days following the date of termination. If, at any
time during the initial term of this Agreement, the Corporation elects to
terminate under this Paragraph 5(c) or the Executive resigns for Good Reason:
(i) there shall be an immediate vesting of all unvested Options that would have
vested during the four (4) months succeeding the date of termination; (ii) with
respect to all of Executive's vested Options before they lapse, Executive shall
have a period of seven and one-half (7 1/2) months after the date of termination
within which to exercise such vested Options; and (iii) all health benefits in
effect for Executive as of the date of termination shall be continued by the
Corporation, at its sole cost and expense, through the last day of the initial
term of this Agreement.
For purposes of this Agreement, "Good Reason" shall mean: (i) an adverse
and material change in the Executive's position without Executive's prior
consent, where such change has: (a) a negative financial effect on Executive;
or (b) represents a material change in role, title, nature of duties, employee
benefits or working conditions, or (ii) a requirement by the Corporation that
Executive relocate to a location other than Deerfield Beach, Florida; (iii) a
material breach by the Corporation of its obligations to Executive; (iv) a
direction to Executive to take illegal or unethical actions which direction is
not withdrawn within seven (7) days following written notice by Executive to the
directing party; and (v) where the Chief Executive Officer or any member of the
Board of Directors tells another person, whether written or oral, false and
harmful information that affects the Executive's reputation and hinders his or
her current and future working relationships.
6. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES.
(a) Executive hereby covenants and agrees to disclose promptly and
fully, in writing, whenever possible, to the Corporation and its attorneys and
designated representatives, without additional compensation, all ideas,
formulae, programs, systems, devices, inventions, processes, business concepts,
discoveries, improvements, developments, works of authorship, product marks and
designations, technical information and know-how, whether or not patentable,
copyrightable or otherwise protectable relating to personalized diet and
nutrition programs (together, the "Developments"), which he may conceive,
develop, reduce to practice, acquire or make, alone or jointly with others:
(i) during the term of his employment with the Corporation,
whether during or outside of the usual hours of work; and
5
(ii) during the Post-Termination Period, as defined in Section 8
below.
Notwithstanding the foregoing, no obligation is being imposed on Executive
to assign to the Corporation any Development for which no equipment, supplies,
facility, or trade secret information of the Corporation was used and that was
developed entirely on Executive's own time, unless: (a) such Development relates
(1) to the Corporation's business or (2) to the Corporation's actual or
demonstrably anticipated research or development, or (b) the Development results
from any work performed by Executive for the Corporation.
Executive hereby agrees that all of his right, title and interest in and to
such Developments shall be deemed the sole and exclusive property of the
Corporation and shall be subject to the confidentiality provisions of Section 7
as confidential information of the Corporation.
(b) Executive, when requested and required to do so, either during or
after the term of his employment with the Corporation, shall:
(i) assign and convey to the Corporation his entire right, title
and interest in and to the Developments to the extent not owned by the
Corporation as a matter of law from the time of their creation and execute,
acknowledge and deliver all such further instruments and documents, in form and
substance satisfactory to the Corporation, as it shall deem reasonably necessary
or advisable to evidence the vesting in the Corporation of all right, title and
interest of Executive in and to the Developments;
(ii) assist the Corporation and its agents in preparing patent
applications, domestic and foreign, covering the Developments;
(iii) sign and deliver all such applications and assignments of the
same to the Corporation; and
(iv) generally give all information and testimony, sign all papers
and do all things which may be needed or requested by the Corporation to the end
that the Corporation may obtain, extend, reissue, maintain and enforce United
States and foreign patents covering the Developments.
(c) The Corporation shall bear all costs and expenses which it causes to
be incurred in obtaining, extending, issuing, reissuing, maintaining and
enforcing such patents and in investing and perfecting title thereto in the
Corporation, and agrees further to pay Executive for any time which it may
require of him therefor, and for any services that may be required of him
pursuant to subparagraph 6(b), subsequent to the termination of his employment
with the Corporation, such payment to be at an hourly
6
rate equivalent to that at which Executive is paid at the time of the
termination of his employment by the Corporation.
(d) In the event of the unenforceability of all or part of the foregoing
provisions of this Paragraph 6, as determined by a court of competent
jurisdiction, Executive hereby transfers and assigns to the Corporation such
lesser interests in the Developments, including, without limitations, any and
all United States and foreign patent rights therein and renewals thereof, as may
be determined by such a court to be a reasonable grant of interests under the
circumstances, but, in any event, and without limitation, Executive shall be
deemed to have granted to the Corporation not less than an irrevocable, non-
exclusive license, with the right to sublicense others, to manufacture, use,
lease and sell the Developments which have not been assigned to the Corporation
under the provisions of subparagraph 6(b), without payment of any royalty.
7
7. CONFIDENTIALITY
(a) Executive understands and hereby acknowledges that as a result of his
employment with the Corporation, he will necessarily become informed of, and
have access to, certain valuable and confidential information of the Corporation
and any of its subsidiaries, joint ventures and affiliates, including, without
limitation, inventions, trade secrets, technical information, know-how, plans,
specifications, identity of customers and suppliers, and that such information,
even though it may be developed or otherwise acquired by Executive, is the
exclusive property of the Corporation to be held by Executive in trust and
solely for the Corporation's benefit. Accordingly, except as provided under this
Agreement, Executive hereby agrees that he shall not, at any time, either during
or subsequent to his employment hereunder, use, reveal, report, publish,
transfer or otherwise disclose to any person, corporation or other entity, any
of the Corporation's confidential information without the prior written consent
of the Corporation, except: (i) to officers and employees of the Corporation and
to responsible persons who are in a contractual, employment or fiduciary
relationship with the Corporation or who have a need for such information for
purposes in the interest of the Corporation, (ii) as required by a court or in a
legal or administrative proceeding; and (iii) for such information that legally
and legitimately is or becomes of public knowledge from sources other than
Executive. The Corporation's confidential information shall not include any
information known by the Executive prior to the Commencement Date or that
becomes known to the Executive from sources other than the Corporation.
(b) Upon the termination of his employment with the Corporation for any
reason whatsoever, Executive shall promptly deliver to the Corporation all
drawings, manuals, letters, notes, notebooks, reports and copies thereof, and
all other materials, including, without limitation, those of a secret and
confidential nature, relating to the Corporation's business which are in
Executive's possession or control.
8. NON-COMPETITION. Executive agrees that, during the term of this Agreement
and for the Post-Termination Period (as defined below), he shall not, anywhere
in the United States of America or elsewhere in the world (or in such smaller
area or for such lesser period as may be determined by a court of competent
jurisdiction to be a reasonable limitation on the competitive activity of
Executive), directly or indirectly:
(i) engage in a directly competitive line of business to the
business carried on by the Corporation to be defined as any diet and fitness
business, both on- and offline, either for his own account or with or for anyone
else;
(ii) solicit or attempt to solicit business of any customers of the
Corporation for diet and fitness products or services the same or similar to
those offered, sold, produced or under development by the Corporation at the
time of the beginning of the Post-Termination Period;
8
(iii) intentionally attempt to induce any person, firm or entity with
a material business relationship of the Corporation to cease or materially
reduce the level of business it conducts with the Corporation;
(iv) solicit or attempt to solicit (except through general newspaper
or other print media solicitations) for any business endeavor any employee of
the Corporation;
(v) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any person which is so engaged in a diet and fitness
business.
Notwithstanding anything to the contrary contained in this Paragraph 8, the
provisions hereof shall not prevent the Executive from purchasing or owning up
to five percent (5%) of the voting securities of any corporation, the stock of
which is publicly traded.
The Post-Termination Period shall be as follows: (a) in the event that the
Executive's employment terminates during the first six (6) months of this
Agreement, the Post-Termination Period shall be one (1) year; (b) in the event
the Executive's employment terminates for any reason during months seven (7)
through eighteen (18), then the Post-Termination Period shall be one (1) year
and three (3) months; and (c) if Executive's employment terminates after
nineteen (19) months of this Agreement, then the Post-Termination Period shall
be for a period of one (1) year and nine (9) months after the expiration or
termination of employment.
9. REMEDIES. Because the Corporation does not have an adequate remedy at law
to protect its business from Executive's competition or to protect its interests
in its trade secrets, privileged, proprietary or confidential information and
similar commercial assets, the Corporation shall be entitled to injunctive
relief, in addition to such other remedies and relief that would, in the event
of a breach of the provisions of Paragraphs 6, 7 and 8, be available to the
Corporation.
10. SURVIVAL. The provisions of Paragraphs 6, 7 and 8 shall survive termination
of this Agreement for any reason.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of
the parties and merges and supersedes any prior or contemporaneous agreements
between the parties pertaining to the subject matter hereof. This Agreement may
not be changed or terminated orally, and no change, termination or attempted
waiver of any of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be enforced; PROVIDED,
HOWEVER, that Executive's compensation may be increased at any time by the
Corporation without in any way affecting any of the other terms and conditions
of this Agreement, which in all other respects shall remain in full force and
effect. Failure of a party to enforce one or more
9
of the provisions of this Agreement or to require at any time performance of any
of the obligations hereof shall not be construed to be a waiver of such
provisions by such party nor to in any way affect the validity of this Agreement
of such party's right thereafter to enforce any provision of this Agreement, nor
to preclude such party from taking any other action at any time which it would
legally be entitled to take.
12. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign this
personal Agreement, or any rights or obligations hereunder, without the consent
of the other party; PROVIDED, HOWEVER, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both Executive and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. Subject to the foregoing, this Agreement shall
inure to the benefit of, and bind, the parties hereto and their legal
representatives, heirs, successors and assigns.
13. ADDITIONAL ACTS. Executive and the Corporation each agrees that he or it
shall, as often as requested to do so, execute, acknowledge and deliver and
file, or cause to be executed, acknowledged and delivered and filed, any and all
further instruments, agreements or documents as may be necessary or expedient in
order to consummate the transactions provided for in this Agreement and do any
and all further acts and things as may be necessary or expedient in order to
carry out the purpose and intent of this Agreement.
14. COMMUNICATIONS. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been given
at the time when mailed in any United States post office enclosed in a
registered or certified postage prepaid envelope or via personal delivery,
messenger, reputable overnight courier or fax (with hard copy to follow) and
addressed to the addresses set forth at the beginning of this Agreement, or to
such other address as any party may specify by notice to the other party;
PROVIDED, HOWEVER, that any notice of change of address shall be effective only
upon receipt.
15. CONSTRUCTION. The headings of the Paragraphs of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions hereof. References
in this Agreement to Sections are to the sections of this Agreement. All terms
and words used in this Agreement, regardless of the number, letter or gender
used, shall be deemed to include any other gender, letter or number as the
context or use thereof may require or permit.
10
16. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
17. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by a court or tribunal of competent jurisdiction, such invalidity
or unenforceability shall not affect the validity and enforceability of the
other provisions of this Agreement and the provision held to be invalid or
unenforceable shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
18. LAW; VENUE. This Agreement will be construed in accordance with the laws
of the State of Florida. The party seeking to enforce the provisions of this
Agreement will choose the venue of such action, and the non-enforcing party
agrees to submit to and waives any objections to jurisdiction or venue in that
proceeding.
19. TIME. Time is of the essence of each and every covenant, condition and
obligation of this Agreement. Except as herein expressly permitted, neither
party hereto shall have the right to extend any date, the date of expiration of
any period of time or the date for the performance of any act or the
satisfaction of any condition. Failure by a party hereto to perform timely its
covenants, agreements and obligations hereunder shall, unless waived in writing
by the other party hereto, be a material default under this Agreement. Any
time period provided for herein which ends on a Saturday, Sunday or a legal
holiday in the State of Florida will extend to 5:00 p.m. of the next business
day.
20. EXHIBITS. All of the exhibits attached to this Agreement are hereby
incorporated into, and made a part of, this Agreement.
11
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first set forth above.
CORPORATION: EDIETS.COM, INC.
By: /s/ David R. Humble
--------------------------------
David R. Humble, Chairman
EXECUTIVE:
By: /s/ Andrew G. Smith
--------------------------------
Andrew G. Smith
Exhibits
--------
"A" - Primary Responsibilities
"B" - Option Agreement
12
EXHIBIT A
---------
ANDREW G. SMITH
. Mr. Smith shall be Executive Vice President-Marketing with the primary
responsibility for on-line and off-line marketing and product development.
. Mr. Smith shall also have a significant role in senior level management
decisions (including major strategic and operational decisions).
. Mr. Smith shall report to the Chief Executive Officer and/or the Chief
Operating Officer, commensurate with other executive vice presidents.
EXHIBIT "B"
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of this ____ day of ___________, 2001, between
eDiets.com, Inc., a Delaware corporation (the "Company"), and
______________________________ (the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an option to purchase
shares of its common capital stock (the "Shares") pursuant to Optionee's
Employment Agreement dated as of _______________, 2001 (the "Employment
Agreement") under the Company's Stock Option Plan (the "Plan"); and
WHEREAS, the Company and the Optionee understand and agree that any terms
used herein have the same meanings as in the Plan (the "Optionee" being referred
to in the Plan as a "Participant").
NOW, THEREFORE, in consideration of the following mutual covenants and for
other good and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION
The Company grants to the Optionee the right and option to purchase all or
any part of an aggregate of 150,000 Shares (the "Option") on the terms and
conditions and subject to and with the benefit of all the limitations set
forth herein and in the Plan, which is incorporated herein by reference.
The Optionee acknowledges receipt of a copy of the Plan. The Option
granted herein is intended to be a Nonstatutory Option as defined in the
Plan. In the event of any inconsistencies between the terms of the
Employment Agreement and the Plan, the expressed terms of the Employment
Agreement shall govern.
2. PURCHASE PRICE
The purchase price of the Shares subject to the Option shall be ______
Dollar __________ Cents ($_____) per Share.
3. EXERCISE OPTION
The Option shall be exercisable as follows:
EXERCISE PERIOD
Commencement Expiration
Number of Shares Date Date
---------------- ------------ -------------------
37,500 ____________, 2002 ___________, 2006
37,500 ____________, 2002 ___________, 2006
37,500 ____________, 2003 ___________, 2006
37,500 ____________, 2003 ___________, 2006
The Employment Agreement shall govern those events that require
acceleration of the foregoing vesting schedule.
4. TERMINATION OF EMPLOYMENT
The terms and conditions of Article V, Sections F of the Plan shall not
apply, and the provisions of the Employment Agreement shall govern
Optionee's exercise rights in the event of termination of employment.
Optionee shall have 7.5 months after the expiration of the term of the
Employment Agreement to exercise any vested options.
5. EXERCISE OF OPTION AND ISSUANCE OF STOCK
The Option may be exercisable in whole or in part (to the extent that it is
exercisable in accordance with its terms) by the giving written notice to
the Company. Such written notice shall be signed by the person exercising
the Option, shall state the number of Shares with respect to which the
Option is being exercised, shall contain the warranty, if any, required
under the Plan and shall specify a date (other than a Saturday, Sunday or
legal holiday) not less than five (5) nor more than ten (10) days after the
date of such written notice, as the date on which the Shares will be
purchased, at the principal office of the Company during ordinary business
hours, or at such other hour and place agreed upon by the Company and the
person or persons exercising the Option, and shall otherwise comply with
the terms and conditions of this Agreement and the Plan. On the date
specified in such written notice (which date may be extended by the Company
on one occasion for up to 30 days if any law or regulation requires the
Company to take any action with respect to the Shares prior to the issuance
thereof) the Company shall accept payment for the Shares and shall deliver
to the Optionee an appropriate certificate or certificates for the Shares
as to which the Option was exercised.
The Option price of any Shares shall be payable at the time of exercise as
determined by the Optionee either:
(a) in cash, by certified check or bank check, or by wire transfer; or
2
(b) in whole shares of the Company's common stock; or
(c) any combination of (a) or (b) above.
The fair market value of the stock to be applied toward the purchase price
shall be determined as of the date of exercise of the Option in a manner
consistent with the determination of fair market value with respect to the
grant of an Option under the Plan. Any certificate for shares of
outstanding stock of the Company used to pay the purchase price shall be
accompanied by a stock power duly endorsed in blank by the registered
holder of the certificate, with signature guaranteed in the event the
certificate shall also be accompanied by instructions from the Optionee to
the Company's transfer agent with respect to disposition of the balance of
the shares covered thereby. The Company shall pay all original issue taxes
with respect to the issuance of Shares pursuant hereto and all other fees
and expenses necessarily incurred by the Company in connection therewith.
The holder of this Option shall have the rights of a stockholder only with
respect to those Shares covered by the Option which have been registered in
the holder's name in the share register of the Company upon the due
exercise of the Option.
The provision in the last sentence of Section I of Article V of the Plan
shall not apply.
6. NON-ASSIGNABILITY
Unless otherwise permissible under Article V. Section K. of the Plan, this
Option shall not be transferable by the Optionee and shall be exercisable
only by the Optionee, or the Optionee's heirs and legatees in the event of
Optionee's death except as the Plan may otherwise provide.
7. PURCHASE FOR INVESTMENT
{Section M. of Article V.} of the Plan shall apply, with the following
modifications: (a) Optionee shall only be required to represent that he
is not purchasing the Shares with a view towards distribution in violation
of the applicable securities laws; and (b) in the event of a placement of a
legend on the Option shares, the opinion of counsel required shall be of a
counsel reasonably acceptable to the Corporation.
8. AMENDMENT
No amendment of the Plan shall be effective to amend this Agreement or
alter or impair the rights of the Optionee hereunder.
9. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by registered or certified mail, return receipt
requested, addressed as follows:
To the Company: eDiets.com, Inc.
3801 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
Attention: David R. Humble, Chairman
3
To the Optionee: ______________________________
______________________________
______________________________
______________________________
or to such other address or addresses of which notice in the same manner
has previously been given. Any such notice shall be deemed to have been
given when mailed in accordance with the foregoing provisions.
10. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the laws
of the State of Florida.
11. BINDING EFFECT
This Agreement shall (subject to the provisions of Section 6 hereof) be
binding upon the heirs, executors, administrators, successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the Company has caused these presents to be executed on
its behalf by its duly authorized representative and the Optionee has hereunder
set his/her hand, all on the day and year first above written.
eDiets.com, Inc.
By: _________________________________
David R. Humble
Its: Chairman
_____________________________________
________________________, Optionee
4
EX-10.5
8
dex105.txt
TAX LIABILITY AGREEMENT
Exhibit 10.5
TAX LIABILITY LETTER AGREEMENT
This Tax Liability Letter Agreement ("Tax Agreement"), effective
October 19, 2001 (the "Agreement Date"), is entered into by eDiets.com.
Inc., a Delaware corporation ("eDiets"), TAMARA L. TOTAH ("Totah") and
CARLOS M. LOPEZ-ONA ("Lopez-Ona") (Totah and Lopez-Ona are collectively the
"Principal Stockholders"). The parties hereby agree as follows:
Relationship to the Agreement and Plan of Merger. All capitalized terms
------------------------------------------------
used herein but not defined shall have the meaning set forth in the
AGREEMENT AND PLAN OF MERGER dated as of October 1, 2001 (the "Agreement")
among EDIETS.COM, INC., a Delaware corporation ("eDiets"), DIETSMART
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of
eDiets ("Newco"), DAVID R. HUMBLE ("Humble"), DIETSMART, INC., a Delaware
corporation ("DietSmart") TAMARA L. TOTAH ("Totah"), ANDREW G. SMITH
("Smith") and CARLOS M. LOPEZ-ONA ("Lopez-Ona").
1. Tax Liability Loan; Stock Pledge.
--------------------------------
(a) If for any reason or no reason, the Merger is determined not
to be a tax-free reorganization within the meaning of the Code, and Totah
and Lopez-Ona recognize gain or income with respect to the receipt of the
Share Consideration paid in exchange for their DietSmart securities, and
the Cash Consideration has not been paid to the DietSmart Stockholders,
Certain Option Holders and/or the Escrow Agent in accordance with Section
1.6 (c) (i)-(v) of the Agreement, then eDiets will loan to each of Totah
and Lopez-Ona, individually, sufficient monies to satisfy their respective
tax liabilities resulting from the receipt of the Share Consideration. Any
loan received by either or both of Totah and Lopez-Ona shall be secured by
the foregoing individuals through the pledge to eDiets of a fixed number of
eDiets securities equal to the cash value of the loan when made. Any loan
made will accrue interest at a rate of 6% per annum compounded quarterly
and will be due on the earlier of the third anniversary of the date loan
was made or the sale of any additional eDiets shares held by either or both
of Totah and Lopez-Ona or the exercise of any options held by Totah (with
respect to the loan made to her) or Lopez-Ona (with respect to the loan
made to him). There will be no penalty for prepayment. In no event shall
eDiets make a loan to Totah and Lopez-Ona after the last installment of the
Cash Consideration has been paid to the DietSmart Stockholders, Certain
Option Holders and/or Escrow Agent.
(b) The per share value of eDiets securities for purposes of
determining the number of shares to be pledged in exchange for a loan shall
be determined as follows: (i) if eDiets Common Stock is publicly traded,
then the per share value shall be the closing price in the eDiets stock
trading market on the date that the Internal Revenue Service has assessed a
tax liability that is the subject of the loan; or (ii) if eDiets Common
Stock ceases to trade on the over-the-counter Bulletin Board or any other
nationally recognized stock exchange, the per share value of eDiets
securities shall be determined as follows: (a) by negotiation between
eDiets and Totah and Lopez-Ona of a mutually acceptable per share value; or
(b) by an appraisal of the securities made by an
independent appraiser of Totah and Lopez-Ona's choosing, at their expense,
provided, however, that the appraiser shall be a person or firm
knowledgeable and experienced in valuations of this type and eDiets will
not unreasonably withhold its consent to the appointment of the appraiser
chosen by the both of Totah and Lopez-Ona. In the event that eDiets does
not consent to the appointment of the appraiser chosen by the both of Totah
and Lopez-Ona, the parties agree to submit the dispute to arbitration in
accordance with the provision of Section 17.8 of the Agreement, and the
arbitrator will select the appraiser.
(c) If at the time a loan is made pursuant to this Tax Agreement
there has not been a final disposition of the Turner Litigation, then any
amounts payable by Totah and/or Lopez-Ona pursuant to the last sentence of
Section 9.5(a) of the Agreement (the "Turner Personal Liability
Obligation") may at the option of Totah and/or Lopez-Ona, be satisfied, by
(i) the return to eDiets of a proportionate number of shares of eDiets
Common Stock equal in value to the amount to each of Totah and Lopez-Ona's
pro-rata share of the Turner Personal Liability Obligation; or (ii) in
cash. For purposes of this Section 1 (c) should either or both of Totah and
Lopez-Ona elect to satisfy the Turner Personal Liability Obligation through
the surrender of a proportionate share of his or her eDiets Common Stock or
the exercise of his or her eDiets options, the value of eDiets Common Stock
shall be determined as of the date the Turner Personal Liability Obligation
arises and in the same manner as provided in Section 1(b) above.
(d) In the event that Totah and/or Lopez-Ona have pledged all of
the Share Consideration received by each of them to secure the loan
advanced pursuant to Section 1(a), then Totah and/or Lopez-Ona shall have
no further Turner Personal Liability Obligation pursuant to Section 9.5(a)
of the Agreement. In addition, in the event that the aggregate value of the
shares returned to eDiets, pursuant to Section 1(a), is less than the
amount of the Turner Personal Liability Obligation of Totah and/or Lopez-
Ona, she and/or he shall have no further Turner Personal Liability
Obligation. In the event, however, that the aggregate value of Totah's
and/or Lopez-Ona's shares are insufficient to pay her and/or his Turner
Personal Liability Obligation because she or he have sold or transferred
eDiets shares, then any excess amounts of the Turner Personal Liability
Obligation over the value of the shares returned shall be paid by Totah
and/or Lopez-Ona in cash.
(e) If either or both of Totah and Lopez-Ona shall have sold
shares of eDiets Common Stock, which when received represented Share
Consideration in the Merger, prior to the time that either or both incur a
tax liability as described in Section 1(a) above, then any loan made
hereunder shall be reduced dollar for dollar by the amount of the net
after-tax proceeds realized by either or both of them on the sale(s) of
such eDiets Common Stock.
[Remainder of Page Intentionally Left Blank]
2
IN WITNESS WHEREOF, the parties have caused this Tax Agreement to be executed by
their duly authorized representatives on the dates indicated below.
EDIETS.COM, INC. TAMARA L. TOTAH
By: /s/ David R Humble Sign: /s/ Tamara L. Totah
----------------------- --------------------------
Name:______________________ Name:___________________________
(Please print) (Please print)
Title:_____________________ Date:___________________________
Date:______________________
CARLOS M. LOPEZ-ONA
Sign: /s/ Carlos M. Lopez-Ona
--------------------------
Name:___________________________
(Please print)
Date:___________________________
3
EX-99.1
9
dex991.txt
DIETSMART, INC. -2001 FINANCIAL STATEMENTS
Exhibit 99.1
Financial Statements
DietSmart, Inc.
Year ended June 30, 2001
with Report of Independent Certified Public Accountants
DietSmart, Inc.
Financial Statements
Year ended June 30, 2001
Contents
Report of Independent Certified Public Accountants.......................... 1
Audited Financial Statements
Balance Sheet............................................................... 2
Statement of Operations..................................................... 3
Statement of Stockholders' Equity (Deficit)................................. 4
Statement of Cash Flows..................................................... 5
Notes to Financial Statements............................................... 6
Report of Independent Certified Public Accountants
Board of Directors and Management
DietSmart, Inc.
We have audited the accompanying balance sheet of DietSmart, Inc. (the Company)
as of June 30, 2001, and the related statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DietSmart, Inc. at June 30,
2001, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.
The accompanying financial statements have been prepared assuming DietSmart,
Inc. will continue as a going concern. As more fully described in Note 3, the
Company has incurred significant losses since inception, resulting in a
substantial working capital deficiency at June 30, 2001. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continued existence is dependent upon its ability to raise
additional capital and to successfully market and sell its services. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
August 15, 2001
DietSmart, Inc.
Balance Sheet
June 30, 2001
Assets
Current assets:
Cash and cash equivalents $ 205,275
Accounts receivable 31,737
Prepaid expenses and other current assets 18,477
-----------
Total current assets 255,489
Restricted cash 55,025
Property and equipment, net 713,733
Deferred consulting fees 44,349
Other assets 32,292
-----------
Total assets $ 1,100,888
===========
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 603,021
Accrued liabilities 203,770
Deferred revenue 633,312
Current portion of capital lease obligations 14,891
Related party notes payable 50,000
-----------
Total current liabilities 1,504,994
Capital lease obligations, net of current portion 6,510
Deferred executive compensation 362,298
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.001 par value--2,000,000 shares authorized,
1,645,000 shares issued and outstanding (liquidation value of $1,645,000) 1,645
Series B convertible preferred stock, $.001 par value--1,538,462 shares authorized,
1,406,887 shares issued and outstanding (liquidation value of $1,828,953) 1,407
Common stock, $.001 par value--18,000,000 shares authorized, 6,572,361 shares issued and
outstanding 6,572
Additional paid-in capital 5,109,386
Unearned compensation (779,472)
Accumulated deficit (5,112,452)
------------
Total stockholders' deficit (772,914)
------------
Total liabilities and stockholders' deficit $ 1,100,888
============
See accompanying notes.
2
DietSmart, Inc.
Statement of Operations
Year ended June 30, 2001
Revenues $ 1,877,145
Costs and expenses:
Cost of revenues 178,669
Product development 874,272
Sales and marketing 2,728,322
General and administrative 1,431,245
Depreciation and amortization 218,116
--------------
Total costs and expenses 5,430,624
--------------
Loss from operations (3,553,479)
Interest expense (28,558)
Other income 3,993
--------------
Net loss $(3,578,044)
==============
See accompanying notes.
3
DietSmart, Inc.
Statement of Stockholders' Equity (Deficit)
Total
Series A Series B Additional Stockholders'
Preferred Stock Preferred Stock Common Stock Paid-In Unearned Accumulated Equity
Shares Amount Shares Amount Shares Amount Capital Compensation Deficit (Deficit)
-----------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 1,645,000 $1,645 384,616 $ 385 6,572,361 $6,572 $3,623,931 $(901,085) $(1,534,408) $ 1,197,040
Issuance of Series B
Preferred Stock - - 1,022,271 1,022 - - 1,327,928 - - 1,328,950
Stock options issued to
employees - - - - - - 333,700 (333,700) - -
Vesting of stock options
issued to employees - - - - - - - 455,313 - 455,313
Stock options issued to
consultants - - - - - - 55,397 - - 55,397
Forfeiture of unvested
stock options issued to
consultants - - - - - - (231,570) - - (231,570)
Net loss - - - - - - - - (3,578,044) (3,578,044)
----------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 1,645,000 $1,645 1,406,887 $1,407 6,572,361 $6,572 $5,109,386 $(779,472) $(5,112,452) $ (772,914)
==========================================================================================================
See accompanying notes.
4
DietSmart, Inc.
Statement of Cash Flows
Year ended June 30, 2001
Operating activities
Net loss $(3,578,044)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 218,116
Stock options issued to employees and consultants 597,465
Reversal of stock compensation to consultant (100,000)
Write-off of capitalized website and software development costs 34,500
Changes in operating assets and liabilities:
Accounts receivable (31,737)
Prepaid expenses and other current assets 97,441
Restricted cash (55,025)
Other assets 261,573
Accounts payable and accrued liabilities 650,716
Deferred revenue 633,312
Deferred executive compensation 206,048
-----------
Net cash used in operating activities (1,065,635)
Investing activity
Purchases of property and equipment, net (466,265)
-----------
Net cash used in investing activity (466,265)
Financing activities
Proceeds from issuance of preferred stock 1,328,950
Proceeds from related party notes payable 200,000
Repayment of related party notes payable (150,000)
Payment of capital lease obligations (12,711)
-----------
Net cash provided by financing activities 1,366,239
-----------
Decrease in cash and cash equivalents (165,661)
Cash and cash equivalents at beginning of year 370,936
-----------
Cash and cash equivalents at end of year $ 205,275
===========
See accompanying notes.
5
DietSmart, Inc.
Notes to Financial Statements
June 30, 2001
1. Organization and Basis of Presentation
DietSmart, Inc. (the Company) was incorporated in the State of Delaware on June
15, 1999. The Company is an online weight-loss service that provides its
customers with custom-tailored diet and fitness programs for a fee. The Company
markets its service primarily through advertising and other promotional
arrangements on the World Wide Web. On January 19, 2000, the Company's name was
changed from Dietology, Inc. to DietSmart, Inc.
The financial statements of the Company for prior periods were prepared in
accordance with the accounting and reporting principles prescribed by Statement
of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Restricted Cash
Restricted cash on the accompanying balance sheet consists of funds held by a
credit card processing company as collateral for chargebacks related to credit
card transactions.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which is approximately two years for equipment and computer hardware and
software, including capitalized website and software development costs, and
approximately seven years for furniture and fixtures.
Certain costs incurred in connection with developing the Company's website and
associated features have been capitalized in accordance with Emerging Issues
Task Force (EITF) 00-2, Accounting for Website Development Costs and AICPA
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed for or Obtained For Internal Use. Costs capitalized pursuant to EITF
00-2 and SOP 98-1 are included in property and equipment in the accompanying
balance sheet.
6
DietSmart, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company generates revenue from fees charged to subscribers to its online
diet service. Revenues from customer subscriptions paid in advance are deferred
and recognized on a straight-line basis over the period of the subscription upon
the lapse of the customer's right to a refund.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, defines a fair value
method of accounting for issuance of stock options and other equity investments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period. Pursuant to SFAS No. 123, companies are
encouraged, but not required, to adopt the fair value method of accounting for
employee stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, but are required to disclose
in a note to the financial statements pro forma net income amounts as if the
Company had applied the new method of accounting.
The Company accounts for employee stock-based compensation under APB No. 25 and
has complied with the disclosure requirements of SFAS No. 123 (see Note 7).
Long-Lived Assets
The Company accounts for long-lived assets pursuant to SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, which requires impairment losses to be recorded on long-lived assets used in
operations when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management reviews long-lived assets
and the related intangible assets for impairment whenever events or changes in
circumstances indicate the assets may be impaired. An impairment loss is
recorded when the net book value of the assets exceeds the fair value, as
measured by projected undiscounted future cash flows.
7
DietSmart, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income
Taxes. Deferred income tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is recorded
when it is more likely than not that some portion or all of a deferred tax asset
will not be realized.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expenses
incurred for the year ended June 30, 2001 totaled approximately $1,736,000.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents in banks and
accounts receivable from credit card transaction processing companies. The
credit risk associated with cash, cash equivalents and accounts receivable is
considered low due to the credit quality of the financial institutions.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. Actual results could differ from these estimates.
3. Going Concern
The financial statements have been presented on the basis that the Company is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred net
losses of $5,112,452 for the period from inception through June 30, 2001 which
has resulted in a working capital deficiency of $1,249,505 at June 30, 2001.
Management is currently pursuing sources of additional financing or a strategic
transaction for the Company; however, there is no guarantee that the Company
will be successful in raising additional capital or entering into a strategic
transaction.
8
DietSmart, Inc.
Notes to Financial Statements (continued)
3. Going Concern (continued)
The Company's continued existence is dependent upon its ability to raise capital
and to market and sell its services successfully. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of this uncertainty.
4. Property and Equipment
Property and equipment, net as of June 30, 2001, consists of the following:
Furniture and fixtures $ 60,782
Computer equipment and software 176,235
Capitalized website and software development costs 723,382
---------
960,399
Less accumulated depreciation
and amortization (246,666)
---------
$ 713,733
=========
Computer equipment and software includes $48,257 of assets recorded under
capital leases, less accumulated amortization of $26,419, at June 30, 2001.
Amortization of assets recorded under capital leases is included in depreciation
and amortization expense in the accompanying statement of operations.
9
DietSmart, Inc.
Notes to Financial Statements (continued)
5. Income Taxes
The significant components of the Company's net deferred income taxes as of June
30, 2001, are as follows:
Deferred tax assets:
Accrued expenses $ 74,000
Deferred compensation 136,000
Deferred compensation from stock options 221,000
Net operating loss carryforwards 1,639,000
------------
2,070,000
Valuation allowance (1,924,000)
-----------
Total deferred tax assets 146,000
Deferred tax liabilities:
Fixed assets 146,000
-----------
Net deferred income taxes $ -
===========
The Company has incurred net losses since inception. At June 30, 2001, the
Company had approximately $4,356,000 in net operating loss carryforwards for
U.S. federal income tax purposes that expire in various amounts through 2021.
Management has determined that it is more likely than not that the resulting
deferred tax assets, and the Company's other net deferred tax assets, will not
be realized; therefore, a full valuation allowance has been provided. The change
in the valuation allowance for the year ended June 30, 2001 was an increase of
approximately $1,346,000.
The utilization of the Company's net operating loss carryforwards could be
affected by the transaction described in Note 9.
The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense during the year ended June 30, 2001 is as follows:
Tax at U.S. statutory rate (34.00)%
State taxes net of federal benefit (3.63)
Nondeductible items 0.02
Change in valuation allowance 37.61
---------
0.00%
=========
10
DietSmart, Inc.
Notes to Financial Statements (continued)
6. Notes Payable
In August 2000, the Company entered into a promissory note with a relative of a
Company officer for short-term working capital borrowings totaling $150,000. The
note provided for interest at a rate equal to the applicable federal rate of
interest per annum (approximately 6.25%). The note and accrued interest thereon
was repaid in December 2000.
In February 2001, the Company entered into another promissory note with a
relative of a Company officer for short-term working capital borrowings totaling
$50,000. The note bears interest at a rate equal to the applicable federal rate
of interest per annum (approximately 6.25% at June 30, 2001) and is payable,
with interest, upon demand as of June 30, 2001. The note is mandatorily payable
upon the occurrence of a corporate transaction, as defined, including a merger
of the Company with another corporation or the sale of substantially all of the
assets of the Company.
7. Stockholders' Equity
The Company is authorized to issue 18,000,000 shares of common stock and
7,000,000 shares of preferred stock, each with a par value of $.001. Under the
Company's Amended and Restated Articles of Incorporation, 2,000,000 shares of
preferred stock have been designated as Series A Preferred Stock and 1,538,462
shares of preferred stock have been designated as Series B Preferred Stock. The
Company's Board of Directors is authorized to establish multiple series of
preferred stock and fix or alter the rights, preferences, privileges and
restrictions of each series.
Common Stock
The holders of common stock are entitled to one vote for each share held. The
holders of common stock are also entitled to receive dividends whenever funds
are legally available and when declared by the Board of Directors, subject to
the prior rights of holders of all classes of stock, at the time outstanding,
having priority rights as to dividends.
As of June 30, 2001, common shares reserved for issuance are as follows:
Series A Preferred Stock 1,645,000
Series B Preferred Stock 1,406,887
Stock options available for grant under the 1999
Stock Option Plan 3,427,639
---------
Total 6,479,526
=========
11
DietSmart, Inc.
Notes to Financial Statements (continued)
7. Stockholders' Equity (continued)
Series A Preferred Stock
The holders of Series A Preferred Stock are entitled to share in any dividends
declared and paid by the Company, pro rata in accordance with the number of
shares of common stock into which the preferred stock is then convertible, as
discussed below. In the event of liquidation, the holders of Series A Preferred
Stock are entitled to receive, prior and in preference to any distributions of
any Company assets to the holders of common stock, an amount per share equal to
the sum of $1.00 for each outstanding share of Series A Preferred Stock (Series
A Original Issuance Price) plus any declared and unpaid dividends on such
shares.
The Series A Preferred Stock can be converted at any time at the option of the
holder into shares of the Company's common stock at a conversion price equal to
the Series A Original Issuance Price divided by the conversion price of $1.00
per share, subject to adjustment in certain events. All shares of Series A
Preferred Stock will be automatically converted into common stock in the event
of the Company's consummation of an initial public offering under the Securities
Act of 1933 at the conversion price in effect at the time of the offering. The
number of votes to which each share of Series A Preferred Stock is entitled is
equal to the number of shares of common stock into which the preferred stock is
then convertible.
Series B Preferred Stock
As of June 30, 2000, the Company received $100,000 from investors for 76,923
shares of Series B Preferred Stock that had not been issued at such date. In
October 2000, the related shares were issued to the investors. These shares have
been included in the balance of outstanding shares at June 30, 2000 in the
accompanying statement of stockholders' equity. Between July 2000 and February
2001, the Company issued an additional 1,022,271 shares of Series B Preferred
Stock. The proceeds from the issuance were approximately $1,329,000.
The holders of Series B Preferred Stock are entitled to share in any dividends
declared and paid by the Company, pro rata in accordance with the number of
shares of common stock into which the preferred stock is then convertible, as
discussed below. In the event of liquidation, the holders of Series B Preferred
Stock are entitled to receive, prior and in preference to any distributions of
any Company assets to the holders of common stock or Series A Preferred Stock,
an amount per share equal to the sum of $1.30 for each outstanding share of
Series B Preferred Stock (Series B Original Issuance Price) plus any declared
and unpaid dividends on such shares.
12
7. Stockholders' Equity (continued)
The Series B Preferred Stock can be converted at any time at the option of the
holder into shares of the Company's common stock at a conversion price equal to
the Series B Original Issuance Price divided by the conversion price of $1.30
per share, subject to adjustment in certain events. All shares of Series B
Preferred Stock will be automatically converted into common stock in the event
of the Company's consummation of an initial public offering under the Securities
Act of 1933 at the conversion price in effect at the time of the offering. The
number of votes to which each share of Series B Preferred Stock is entitled is
equal to the number of shares of common stock into which the preferred stock is
then convertible.
Stock Options
In December 1999, the Company's Board of Directors adopted the DietSmart, Inc.
1999 Stock Option Plan (the Plan), which provides for the granting of up to
3,427,639 nonqualified stock options to employees, directors and consultants and
incentive stock options to key employees. Options granted under the Plan
generally have an exercise price equal to the fair market value of the
underlying common stock at the grant date, have a term of 10 years, and vest
ratably over a four-year period.
Certain options granted to employees under the Plan during the years ended June
30, 2000 and 2001 were at an exercise price lower than the estimated fair market
value of the underlying common stock at the grant date. Compensation expense has
been recognized pro-rata on a straight-line basis for the excess of the
estimated fair market value over the exercise price and totaled approximately
$455,000 for the year ended June 30, 2001, including expense related to the
current year vesting of certain prior year grants.
During the years ended June 30, 2000 and 2001, the Company issued 467,750 and
205,020 options, respectively, to nonemployees for consulting and other advisory
services. These options, as amended in certain instances, have a contractual
life of 10 years, vest either immediately or over various periods, and have an
exercise prices ranging from $0.01 to $1.00 per share. The fair value of these
options was calculated using the Black-Scholes option pricing model using the
following assumptions: expected volatility factor of 60%; risk-free interest
rates ranging from 5.28% to 6.92%; dividend yield of 0%; and expected life of 10
years. The fair value of these options has been recorded as deferred expense
upon their respective issuance dates. The deferred expense balance is being
amortized over the vesting period of the options and unvested options
13
7. Stockholders' Equity (continued)
will be re-measured at each balance sheet date until they are fully vested since
variable accounting is required for options that vest under consulting service
arrangements. Compensation expense recognized for the options totaled
approximately $142,000 for the year ended June 30, 2001, including expense
related to the current year vesting of certain prior year grants.
Pro forma information regarding net income or loss is required by SFAS No. 123
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value of options
granted was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: expected
volatility factor of 60%; risk-free interest rates ranging from 4.76% to 6.27%;
dividend yield of 0%; and expected life of 4 years. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The effect of applying the fair value method
proscribed by SFAS No. 123 to the Company's options results in pro forma net
loss of approximately $3,638,000 for the year ended June 30, 2001. Because the
determination of the fair value of all options is based on the assumptions
described above, and because additional option grants are expected to be made in
future periods, this pro forma information is not likely to be representative of
the pro forma effects on reported net income or loss for future years.
A summary of the Company's stock option activity and related information for the
year ended June 30, 2001 is as follows:
Weighted
Average
Exercise
Shares Price
----------------------------
Outstanding at beginning of year 2,379,750 $0.09
Granted 912,020 $0.40
Forfeited (381,520) $0.83
-------------
Outstanding at end of year 2,910,250 $0.36
=============
Exercisable at end of year 1,162,833 $0.27
=============
14
7. Stockholders' Equity (continued)
Weighted average exercise price of options
granted during the year:
Issued at market price $1.00
Issued above market price $1.30
Issued below market price $0.30
Weighted average fair value of options granted
during the year:
Issued at market price $0.51
Issued above market price $0.45
Issued below market price $0.80
Information about options outstanding at June 30, 2001 is as follows:
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Exercise Life Exercise Exercise
Prices Shares (Years) Price Shares Price
-------------------------------------------------------------------------------------------------------------------
$0.01 to $0.10 1,602,000 8.6 $0.02 648,478 $0.01
$0.30 to $0.80 964,750 9.0 $0.68 494,063 $0.58
$1.00 to $1.30 343,500 9.4 $1.10 20,292 $1.29
----------- ------------
2,910,250 1,162,833
=========== ============
15
8. Commitments and Contingencies
Leases
The Company has obligations under noncancelable capital leases and operating
leases for computer equipment and facilities. The leases expire at various dates
through fiscal 2003 and, in many cases, provide for renewal options. Most of the
leases require the payment of related executory costs, which include payment of
taxes, maintenance and insurance.
A summary of the future minimum lease payments under the Company's noncancelable
leases as of June 30, 2001 is as follows:
Capital Operating
Leases Leases
------------------------
Year ended June 30:
2002 $ 17,368 $36,225
2003 6,727 -
---------------------
Total payments due 24,095 $36,225
=======
Less amount representing interest (2,694)
--------
Total minimum lease payments 21,401
Less current maturities (14,891)
--------
$ 6,510
========
Rent expense totaled approximately $118,000 for the year ended June 30, 2001.
Deferred Executive Compensation
During the year ended June 30, 2000, the Company entered into employment
agreements with certain key executives of the Company. The agreements provide
for future minimum annual compensation as follows:
Year ended June 30:
2002 $187,500
2003 150,000
2004 37,500
--------
Total $375,000
========
16
8. Commitments and Contingencies (continued)
Upon execution of the agreements, the executives entered into a deferral
agreement with the Company that permitted the executives to defer payment of the
base compensation and bonus, if any, provided for under the employment
agreements to a future date. Amounts deferred by the executives under this
arrangement vest immediately upon the earlier to occur of (i) the date of an
investor financing, or series of financings, securing gross proceeds to the
Company or at least $2,000,000 or (ii) the date of the executive's termination
of employment with the Company other than by the executive's voluntary
termination or by the Company for cause. Compensation deferred under the
arrangements accrues interest at a rate of 6% per annum. As of June 30, 2001,
deferred compensation and accrued interest totaled $362,298 and has been
included as a long-term liability in the accompanying balance sheet.
Consulting Agreements
The Company has entered into various consulting agreements with third parties,
as amended, that provide for minimum future cash compensation of $49,083 through
fiscal 2003.
Litigation
In October 1999, the Company entered into a four-year consulting agreement for
website development and maintenance services. Compensation under the agreement
included cash payments of $172,000 and the issuance of options for the purchase
of 327,639 shares of common stock at an exercise price of $0.01 per share.
Through June 30, 2001, the Company had paid approximately $197,000 under the
agreement, which has been capitalized as website and software development costs.
The stock options contemplated under the agreement have not been issued and the
consultant is no longer providing services to the Company.
In December 2000, the Company filed suit against the consultant, alleging breach
of contract, negligence and is seeking monetary damages of $18.5 million. The
consultant has countersued the Company and is seeking remuneration of
approximately $452,000, plus interest and other costs. Although the Company
believes that the consultant's counterclaim is without merit, the Company may be
unsuccessful in defeating this claim. If the Company is unsuccessful in
defending the consultant's counterclaim, any resulting judgment against the
Company could have a material adverse effect on the Company's financial
position.
17
9. Subsequent Events
On July 6, 2001, the Company entered into a letter of intent for the merger of
the Company with eDiets.com, Inc. (eDiets), pursuant to which all of the
outstanding capital stock of the Company would be acquired by eDiets in exchange
for 2,000,000 shares of eDiets common stock and cash of $2,500,000, payable in
installments with interest beginning on the closing date and continuing over a
period of time not to exceed 15 months. The closing of the transaction is
conditioned upon, among other things, satisfactory completion by each of the
parties of due diligence and the negotiation and execution of definitive
agreements, which the parties are obligated in good faith to negotiate, execute
and deliver.
In connection with the execution of the letter of intent, eDiets loaned the
Company $50,000.
18
EX-99.2
10
dex992.txt
DIETSMART INC. - 2000 FINANCIALS STATEMENTS
Exhibit 99.2
DietSmart Inc.
(formerly Dietology)
Financial Statements
Period from June 15, 1999 (Inception)
to June 30, 2000
DietSmart Inc.
Index
Report of independent certified public accountants 2
Financial statements:
Balance sheet 3
Statement of loss 4
Statement of stockholders' equity 5
Statement of cash flows 6
Summary of business and significant accounting policies 7-10
Notes to financial statements 11-19
1
Report of Independent Certified Public Accountants
The Stockholders
DietSmart Inc.
New York, New York
We have audited the accompanying balance sheet of DietSmart Inc. ("Company"), a
company in the development stage, as of June 30, 2000, and the related
statements of loss, stockholders' equity and cash flows for the period from June
15, 1999 (inception) to June 30, 2000. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DietSmart Inc. at June 30,
2000, and the results of its operations and its cash flows for the period from
June 15, 1999 (inception) to June 30, 2000, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming DietSmart Inc.
will continue as a going concern. As discussed in Note 1, the Company is in the
development stage, has had nominal revenues from operations and has generated a
net loss of $1,534,408 since inception. In addition, the Company will require
substantial, additional funds for development and marketing of its products.
These matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
October 4, 2000
2
DietSmart Inc.
Balance Sheet
June 30, 2000
--------------------------------------------------------------------
Assets
Current:
Cash $ 370,936
Prepaid sponsorship agreement (Note 3) 100,000
Other current assets 15,918
--------------------------------------------------------------------
Total current assets 486,854
Deferred promotion agreement (Note 6) 275,000
Security deposit 20,665
Deferred consulting fees (Note 3) 362,674
Property and equipment, net (Note 2) 498,284
--------------------------------------------------------------------
$ 1,643,477
====================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses (Note 3) $ 190,187
Deferred compensation (Note 4) 156,250
Compensation payable (Note 3) 100,000
--------------------------------------------------------------------
Total liabilities 446,437
--------------------------------------------------------------------
Commitments (Notes 3, 4 and 5)
Stockholders' equity (Note 3):
Preferred stock - 7,000,000 shares authorized -
Series A preferred stock, $.001 par value -
2,000,000 shares authorized, 1,645,000 issued
and outstanding 1,645
Series B preferred stock, $.001 par value -
1,538,462 shares authorized, 307,693 issued and
outstanding 308
Series B preferred stock - 76,923 shares 77
subscribed
Common stock, $.001 par value - 18,000,000 shares
authorized, 6,572,361 issued and outstanding 6,572
Additional paid-in capital 3,623,931
Unearned compensation (901,085)
Deficit accumulated during the development stage (1,534,408)
Treasury stock, at cost (3,427,639 shares) -
Total stockholders' equity 1,197,040
--------------------------------------------------------------------
$ 1,643,477
====================================================================
See accompanying summary of business and significant accounting policies
and notes to financial statements.
3
DietSmart Inc.
Statement of Loss
Period from June 15, 1999 (inception) to June 30, 2000
---------------------------------------------------------------------
Interest income $ 19,464
---------------------------------------------------------------------
Operating expenses:
Salaries 474,795
Professional fees 295,121
Stock-based compensation to employees and 199,115
officers (Note 3)
General and administrative 154,447
Stock-based consulting fees (Note 3) 141,376
Consultant fees 124,459
Sales and marketing 84,058
Rent (Note 3) 55,200
Depreciation and amortization 25,301
---------------------------------------------------------------------
Total operating expenses 1,553,872
---------------------------------------------------------------------
Net loss $(1,534,408)
=====================================================================
See accompanying summary of business and significant accounting policies
and notes to financial statements.
4
DietSmart Inc.
Statement of Stockholders' Equity
Period from June 15, 1999 (inception) to June 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
Preferred stock
Preferred stock subscribed
--------------------------------------- -------------------
Series A Series B Series B Common stock
---------------- ---------------- ------------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------------------------------------
Initial contribution - $ - - $ - - $ - 200 $ 200
Stock split - - - - - - 9,999,800 9,800
Contribution of treasury shares - - - - - - (3,427,639) (3,428)
Options issued for consulting services - - - - - - - -
Conversion of convertible debt to
Preferred Stock Series A 400,000 400 - - - - - -
Issuance of Preferred Stock Series A 1,245,000 1,245 - - - - - -
Options issued to an officer and an
employee as compensation - - - - - - - -
Issuance of unvested options to an
officer and an employee - - - - - - - -
Issuance of Preferred Stock Series B
for cash - - 115,385 116 - - - -
Issuance of Preferred Stock Series B in
lieu of payment of a promotional
agreement - - 192,308 192 - - - -
Subscribed shares of Preferred Stock
Series B - - - - 76,923 77 - -
Net loss from inception through
------------------------------------------------------------------------------------------------------------------------------------
June 30, 2000 - - - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 1,645,000 $1,645 307,693 $308 76,923 $77 6,572,361 $ 6,572
====================================================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Additional during the Total
paid-in Unearned development Treasury Stock stockholders'
-------------------
capital compensation stage Shares Amount equity
------------------------------------------------------------------------------------------------------------------------------------
Initial contribution $ 10,000 $ - $ - - $ - $ 10,200
Stock split (9,800) - - - - -
Contribution of treasury shares 3,428 - - 3,427,639 - -
Options issued for consulting services 387,133 - - - - 387,133
Conversion of convertible debt to
Preferred Stock Series A 399,600 - - - - 400,000
Issuance of Preferred Stock Series A 1,243,755 - - - - 1,245,000
Options issued to an officer and an
employee as compensation 189,115 - - - - 189,115
Issuance of unvested options to an
officer and an employee 901,085 (901,085) - - - -
Issuance of Preferred Stock Series B
for cash 149,884 - - - - 150,000
Issuance of Preferred Stock Series B in
lieu of payment of a promotional 249,808 - - - - 250,000
agreement
Subscribed shares of Preferred Stock
Series B 99,923 - - - - 100,000
Net loss from inception through
------------------------------------------------------------------------------------------------------------------------------------
June 30, 2000 - - (1,534,408) - - (1,534,408)
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $3,623,931 $(901,085) $(1,534,408) 3,427,639 $ - $ 1,197,040
====================================================================================================================================
See accompanying summary of business and significant accounting policies
and notes to financial statements.
5
DietSmart Inc.
Statement of Cash Flows
Period from June 15, 1999 (inception) to June 30, 2000
----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(1,534,408)
----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of consulting contracts compensated via the issuance of options 24,459
Noncash consulting expenses provided in exchange for the issuance of common stock 100,000
Deferred compensation 156,250
Noncash compensation expense to officers and employees in exchange for options and
shares 199,115
Depreciation and amortization 25,301
Changes in operating assets and liabilities:
Prepaid sponsorship agreement (100,000)
Prepaid promotion agreement (25,000)
Other assets (15,918)
Security deposit (20,665)
Accounts payable 151,646
----------------------------------------------------------------------------------------------------------
Total adjustments 495,188
----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,039,220)
----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (485,044)
----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 200
Issuance of convertible debt 400,000
Issuance of Preferred Stock Series A 1,245,000
Issuance of Preferred Stock Series B 150,000
Subscribed share of Preferred Stock Series B 100,000
----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,895,200
----------------------------------------------------------------------------------------------------------
Net increase in cash 370,936
Cash, beginning of period -
----------------------------------------------------------------------------------------------------------
Cash, end of period $ 370,936
=========================================================================================================
See accompanying summary of business and significant accounting policies
and notes to financial statements.
6
DietSmart Inc.
Summary of Business and Significant Accounting Policies
Business DietSmart Inc. ("DietSmart" or the "Company"), a
development stage enterprise, was incorporated on
June 15, 1999 under the name, Dietology, under the
laws of the State of Delaware. During January 2000,
the Company changed its name to DietSmart, Inc.
DietSmart is an online weight loss service that
provides its clients with custom-tailored diet and
fitness programs for a fee.
Basis of Presentation The financial statements have been prepared in
accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage
Enterprises," which requires development stage
enterprises to employ the same accounting principles
as operating companies.
Property and Equipment Property and equipment are stated at cost.
Depreciation will be computed using the straight-line
method over the estimated useful lives of the assets,
which range from three to seven years.
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 reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition To date, the Company has generated nominal revenues.
DietSmart anticipates that its revenue will primarily
be comprised of monthly registration fees,
commissions, advertising and other revenue.
The Company will recognize revenues according to the
type of product or service being sold and the
structure of the contract negotiated with the
individual.
7
DietSmart Inc.
Summary of Business and Significant Accounting Policies
Advertising Revenue
The Company will also earn revenue from the sale of
advertising on its web site. These revenues will be
recognized as the advertisement is displayed.
Comprehensive Income The Company is required to report comprehensive
income under SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting
and display of comprehensive income, its components
and accumulated balances. Comprehensive income is
defined to include all changes in equity except
those resulting from investments by owners and
distributions to owners. There were no items of
comprehensive income during the period presented.
Income Taxes The Company uses the liability method of accounting
for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Deferred income tax
assets and liabilities are recognized based on the
temporary differences between the financial
statement and income tax bases of assets,
liabilities and carryforwards using enacted tax
rates. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply
to taxable income in the years in which those
temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized
in income in the period that includes the enactment
date. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the
amount expected to be realized.
The Company has net operating losses ("NOLs") of
approximately $1,045,000 which expire in 2020.
Deferred tax assets resulting from these NOLs, the
stock-based compensation issued to consultants and
employees not yet exercised, and deferred
compensation have been offset with a valuation
allowance of a full amount.
8
DietSmart Inc.
Summary of Business and Significant Accounting Policies
Stock-Based Compensation The Company accounts for its stock option awards
under the intrinsic value based method of
accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued
to Employees". Under the intrinsic value based
method, compensation cost is the excess, if any,
of the fair market value of the stock at grant
date or other measurement date over the amount an
employee must pay to acquire the stock. The
Company will make pro forma disclosures of net
loss as if the fair value based method of
accounting had been applied, as required by SFAS
No. 123, "Accounting for Stock-Based
Compensation."
For option and stock grants to nonemployees, the
Company capitalizes certain costs and amortizes
the ascribed value of such grants over the related
service period or useful life of the underlying
asset.
Capitalized Software In March 1998, the American Institute of Certified
Costs Public Accountants ("AICPA") issued Statement of
Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance over accounting for computer software
developed or obtained for internal use including
the requirement to capitalize specified costs and
amortization of such costs.
The Company has capitalized certain incurred
software development costs in connection with its
online services. The costs associated with
research and development of such technology were
expensed as incurred. Software development costs
incurred subsequent to establishing technological
feasibility have been capitalized. Technological
feasibility is established upon the completion of
a detailed program design (in the absence of any
high risk issues or uncertainties). Capitalized
software costs are being amortized over a period
of three years. Maintenance costs incurred in
connection with the software are being expensed as
incurred.
9
DietSmart Inc.
Summary of Business and Significant Accounting Policies
In 2000, the Emerging Issues Task Force ("EITF")
issued a consensus on EITF Issue No. 00-2, "Website
Development Costs," which established guidelines
for accounting for website development costs and is
effective for quarterly periods beginning after
June 30, 2000. Although the Company is still
evaluating its impact, the Company does not believe
its adoption will have a significant effect on its
financial statements.
10
DietSmart Inc.
Notes to Financial Statements
1. Going Concern The accompanying financial statements have been
prepared assuming that the Company will continue
as a going concern. The Company is in the
development stage and has had nominal revenues
from operations since inception and has generated
a net loss of $1,534,408. There can be no
assurance that the Company will be able to obtain
the substantial additional capital resources
necessary to pursue its business plan or that any
assumptions relating to its business plan will
prove to be accurate. The Company is pursuing
sources of additional financing and there can be
no assurance that any such financing will be
available to the Company on commercially
reasonable terms, or at all. Any inability to
obtain additional financing will have a material
adverse effect on the Company, including possibly
requiring the Company to significantly curtail or
cease operations.
These factors raise substantial doubt about the
ability of the Company to continue as a going
concern. The financial statements do not include
any adjustments that might result from the outcome
of this uncertainty.
2. Property and Property and equipment, net consists of the
Equipment, Net following:
June 30, 2000
-------------------------------------------------------------
Capitalized software development costs $363,207
Computer equipment 103,390
Furniture and equipment 28,991
Telecommunication equipment 27,997
-------------------------------------------------------------
523,585
Less: Accumulated depreciation and
amortization (25,301)
-------------------------------------------------------------
Property and equipment, net $498,284
=============================================================
11
DietSmart Inc.
Notes to Financial Statements
3. Commitments Lease Commitments
The Company leases office space for its corporate
headquarters in New York City under an operating lease
through November 2002.
The minimum lease payments required under the
noncancellable operating lease for the years subsequent
to June 30, 2000 approximate:
Year ending June 30,
-----------------------------------------
2001 $ 92,000
2002 96,000
2003 38,000
-----------------------------------------
$226,000
=========================================
Total rent expense for the period from June 15, 1999
(inception) to June 30, 2000 was approximately $48,000.
Consulting Agreements
During October 1999, the Company entered into a four-
year consulting agreement whereby the consultant would
perform advisory, web development and maintenance
services for the Company. The value of the contract was
agreed to be $500,000. According to the terms of the
contract, the Company is required to pay $172,000 cash
and issue options to purchase 327,639 shares of Company
common stock at an exercise price equal to $0.01. For
the services rendered during the period from inception
through June 30, 2000, the Company has capitalized
software costs under this agreement totaling $88,541,
which includes $50,000 of cash payments. Accounts
payable includes $38,541 representing the amount of the
liability outstanding for services performed to date.
12
DietSmart Inc.
Notes to Financial Statements
On January 14, 2000, the Company signed an annual
consulting contract for business advisory and
promotional services in exchange for 270,000 shares of
common stock to be delivered on January 14, 2001. The
value ascribed to this contract was based on the fair
value of the Company's common stock on January 14,
2000. The shares are earned on a monthly basis and, in
the event the contract is terminated prior to the
delivery date, the Company must deliver the pro rata
portion of earned shares. At June 30, 2000, the Company
has accrued a charge of approximately $100,000. If and
when such shares are issued, the Company will reduce
this liability and increase stockholders' equity.
From December 1999 through March 2000, the Company
granted options to nine consultants with a fair value
of $168,859 for services to be performed for periods up
to 5 years. The fair values ascribed to these option
grants was determined using a binomial mode option
model as described in Note 5. These amounts have been
recorded as deferred consulting fees and are being
amortized over the related contract lives. During the
period from December 16, 1999 through June 30, 2000,
$24,459 has been amortized based upon the terms of the
underlying contracts.
Sponsorship Agreement
The Company has entered into an agreement with an
online network whereby the network guarantees the
delivery of impressions and banners for the Company.
The commitment for this agreement is $150,000 for the
year ending June 2001. Originally, this agreement
required fees of $750,000, but during September 2000,
the Company renegotiated this commitment to $150,000.
13
DietSmart Inc.
Notes to Financial Statements
4. Employment The Company has entered into employment agreements
Agreements ("Agreements") with certain key employees ("Executives")
providing for future minimum annual compensation as
follows:
Year ending June 30,
----------------------------------------------------------
2001 $225,000
2002 225,000
2003 225,000
2004 68,750
==========================================================
Upon execution of the Agreements, the Executives entered
into a deferral agreement with the Company that permits
them to defer payment of their bonus and base salaries
from the Company to a future date. The amount deferred by
the Executives shall vest 100% upon the earlier to occur
of (i) the date of an investor financing, or series of
related financings, occurring on or after January 1, 2000
and securing gross proceeds to the Company of at least
$2,000,000 or (ii) the date of the Executive's termination
of employment with the Company other than the Executive's
voluntary termination by the Company for cause. The
compensation will accrue interest at the rate of 6% per
annum. For the period from October 1, 1999 (inception) to
June 30, 2000, deferred compensation expense was $156,250.
14
DietSmart Inc.
Notes to Financial Statements
5. Stock Options On December 16, 1999, the Company adopted the 1999 Stock
Option Plan ("Plan") which provides for the granting of
non-qualified stock options and common shares to
employees, non-employee directors and consultants and the
granting of incentive stock options to employees. Awards
of up to a maximum aggregate of 3,427,639 shares of common
stock have been reserved for the Plan. As of June 30,
2000, 2,379,750 options were granted to employees and
consultants, 270,000 shares have been reserved to be
utilized as payment for consulting services during January
2001 and 327,639 shares have been reserved for option
agreements delivered, but not signed by the third-party
participants. Subsequent to year-end, an additional
357,500 options were granted and related shares reserved
under this Plan.
The Company has issued stock options under the Plan to key
employees and certain consultants to purchase its common
stock at the fair value on the date of grant. The fair
value of each option was determined by using a binomial
mode option-pricing model. The fair market value of each
option grant was estimated by using the following
assumptions for the fiscal year ended 2000; risk-free
interest rates of 6.0%; dividend yield of 0%; expected
lives of 10 years and volatility of .60%. Additional
adjustments are made for assumed cancellations and
expectations that shares acquired through exercise of
options are held during employment.
June 30, 2000
----------------------------------------------------------------------------
Weighted
Weighted average fair
average value at grant
Fixed price portions Shares exercise price date
----------------------------------------------------------------------------
Outstanding, beginning
of year - $ - $ -
Granted 2,379,750 .09 .45
Exercised - - -
Expired - - -
----------------------------------------------------------------------------
Outstanding, end of year 2,379,750 $ .09 $ .45
============================================================================
15
DietSmart Inc.
Notes to Financial Statements
The following table summarizes information about fixed
stock options outstanding at June 30, 2000:
Options Options
outstanding exercisable
------------------------------------- ------------------
Weighted average
Number remaining Number
outstanding at contractual life exercisable at
Exercise prices 6/30/00 (years) 6/30/00
-----------------------------------------------------------------------------------
$ .01 1,380,000 9.4 44,516
.80 872,750 9.6 5,000
1.00 35,000 9.9 -
1.30 92,000 9.9 -
-----------------------------------------------------------------------------------
These options vest pro rata between three to five years
from their date of issuance and expire 10 years from date
of grant.
Under the accounting provisions of SFAS 123, the Company's
pro forma net loss is approximately $1,974,000.
One officer and an employee of the Company were granted
1,395,000 options to purchase shares at an exercise price
less than fair value. A compensation charge of $189,115
was recorded by the Company for the vested portion of this
award based on the difference between the fair value of
those shares and the exercise price on the date of grant.
6. Equity (a) Initial Contributions
Transactions
On September 13, 1999, the Company issued 200 shares
of common stock to its founding members for $200 cash
and management services rendered by these individuals
valued by the Board of Directors at $10,000.
16
DietSmart Inc.
Notes to Financial Statements
(b) Treasury Stock and Recapitalizations
On December 15, 1999, the Board of Directors approved
a 50,000:1 stock split and the authorized shares of
the Company were increased to 20,000,000 shares, of
which 18,000,000 shares were designated as common
stock and 2,000,000 as preferred stock, designated as
Series A. The founding shareholders contributed
3,427,639 back to the Company as treasury stock to be
utilized for options and shares granted under the
Company's stock incentive plan.
On March 30, 2000, the Board of Directors increased
the amount of authorized shares of the Company to
25,000,000, of which 18,000,000 shares were
designated as common stock and 7,000,000 were
designated as preferred stock.
(c) Convertible Debt
Between November 3, 1999 and December 8, 1999, the
Company issued $400,000 of 5.5% convertible debt to
independent third parties. Such debt was convertible
at the same rate as the terms of any equity financing
the Company entered into while the debt was
outstanding. The convertible debt was converted into
Series A preferred stock on December 17, 1999.
(d) Preferred Stock
The Company issued an additional 1,245,000 shares of
Series A preferred stock in exchange for $1,245,000.
The Series A shares are convertible and have the same
dividend and voting rights as the common stock, have
liquidation preference over the holders of common
stock and will be automatically converted into common
stock in the event of the Company's consummation of
an initial public offering under the Securities Act
of 1933 under the same terms of the offering.
17
DietSmart Inc.
Notes to Financial Statements
From April 27 through May 30, 2000, the Company
issued 384,616 shares of Series B preferred stock for
$1.30 per share. These shares were issued as payment
for $250,000 for promotional services and $250,000
cash. The Company has not yet issued 76,923 shares as
the stock purchase agreements have not yet been
signed by the shareholders. The shares of Series B
preferred stock are convertible and have the same
dividends and voting rights as the common stock, have
liquidation preference over the holders of Series A
preferred stock and the common stock and will be
automatically converted into common stock in the
event of the Company's consummation of an initial
public offering under the Securities Act of 1933
under the same terms of the offering.
7. Supplemental Cash paid for interest during the period from inception
Cash Flow through June 30, 2000 was approximately $1,800. No monies
Information were paid for income taxes during this period.
The Company converted $400,000 of 5.5% convertible debt
into 400,000 shares of $.001 Series A preferred stock.
In exchange for future services related to sponsorship
services, the Company issued 192,308 shares of Series B
preferred stock.
As fees for consulting services contracted for two to five
years, the Company issued options to purchase 467,750
shares of common stock with a fair value of $168,859.
The Company capitalized $38,541 of website development
services based on an agreement utilizing options for
consideration.
18
DietSmart Inc.
Notes to Financial Statements
8. Subsequent Event During August 2000, the Company issued a $150,000
convertible debt note which bears interest at an
annual rate of 6.01%. This note is convertible at the
same rate and terms of any equity financing the
Company enters into while the debt is outstanding.
Subsequent to June 30, 2000, the Company received
proceeds of $1,080,000 for the sale of 830,771 shares
of Series B preferred stock.
19
EX-99.3
11
dex993.txt
EDIETS PROFORMA FINANCIAL STATEMENTS
Proforma Condensed Consolidated
Financial Statements (Unaudited)
eDiets.com, Inc.
EDIETS.COM, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENTS (UNAUDITED)
Contents
Proforma Condensed Consolidated Balance Sheet as of June 30, 2001.......... 2
Proforma Condensed Consolidated Statement of Operations for the
six months ended June 30, 2001........................................... 3
Proforma Condensed Consolidated Statement of Operations for the
year ended December 31, 2000............................................. 5
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed consolidated balance sheet at June 30, 2001
gives effect to the acquisition of DietSmart, Inc. (DietSmart) by eDiets.com,
Inc. (the Company) as if the transaction had occurred on June 30, 2001. The pro
forma condensed consolidated statements of operations for the year ended
December 31, 2000 and the six months ended June 30, 2001 give effect to the
foregoing as if the transaction had occurred on January 1, 2000.
The Company has entered into an agreement and plan of merger with DietSmart,
Inc., a private company, in exchange for 2 million shares of common stock, par
value $.001 per share, of the Company and cash of $2.5 million. Subject to
escrow provisions, the cash consideration, and interest thereon, shall be
payable to DietSmart as follows: $500,000 was paid on the effective date of
closing; $500,000 shall be paid on the last day of the 6th month ending after
the effective date; $500,000 shall be paid on the last day of the 9th month
ending after the effective date; $500,000 shall be paid on the last day of the
12th month ending after the effective date; and $500,000, plus all interest then
accrued and unpaid, shall be paid on the last day of the 15th month ending after
the effective date.
Upon the completion of the acquisition, certain deferred compensation owed to
the three DietSmart founders was paid and the remainder will be paid on an
installment basis. In addition, the Company has entered into a three-year
employment agreement with each of the three DietSmart founders providing for an
annual base salary of $160,000 with a 6% increase per year.
The pro forma financial data is presented for informational purposes only and
does not purport to project the financial position or results of operations for
any future period or as of any future date. The pro forma condensed consolidated
financial statements should be read in conjunction with the notes thereto and
with the financial statements and the notes thereto of the Company and the
financial statements and the notes thereto of DietSmart, Inc., all of which are
included elsewhere in this document.
1
EDIETS.COM, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 2001
Company Proforma Company
as Reported DietSmart, Inc. Adjustments Proforma
-----------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,867,221 $ 205,275 $ (500,000) (1) $ 1,487,496
(85,000) (2)
Accounts receivable 441,709 31,737 - 473,446
Prepaid advertising costs 333,318 - - 333,318
Other current assets 225,772 18,477 - 244,249
-----------------------------------------------------------------------
Total current assets 2,868,020 255,489 (585,000) 2,538,509
Restricted cash 237,796 55,025 - 292,821
Property and equipment, net 930,417 713,733 - 1,644,150
Prepaid advertising costs 1,043,081 - - 1,043,081
Intangible assets - - 5,822,111 (1) 5,634,813
(187,298) (2)
Other assets - 76,641 - 76,641
-----------------------------------------------------------------------
Total assets $ 5,079,314 $ 1,100,888 $ 5,049,813 $ 11,230,015
=======================================================================
Liabilities and stockholders' equity
(deficit)
Current liabilities:
Accounts payable $ 391,225 $ 603,021 $ - $ 994,246
Accrued liabilities 1,593,618 203,770 1,500,000 (1) 3,557,388
260,000 (1)
Deferred revenue 2,174,009 633,312 - 2,807,321
Current portion of capital lease 119,577 14,891 - 134,468
obligations
Related party notes payable - 50,000 - 50,000
-----------------------------------------------------------------------
Total current liabilities 4,278,429 1,504,994 1,760,000 7,543,423
Capital lease obligations, net of
current portion 141,412 6,510 - 147,922
Deferred executive compensation - 362,298 (272,298) (2) 90,000
Other long-term liabilities - - 500,000 (1) 500,000
Stockholders' equity (deficit):
Series A convertible preferred stock - 1,645 (1,645) (1) -
Series B convertible preferred stock - 1,407 (1,407) (1) -
Common stock 13,586 6,572 (6,572) (1) 15,586
2,000 (1)
Additional paid-in capital 7,308,397 5,109,386 (5,109,386) (1) 9,595,594
169,197 (1)
2,118,000 (1)
Unearned compensation (5,365) (779,472) 779,472 (1) (5,365)
Accumulated deficit (6,657,145) (5,112,452) 5,112,452 (1) (6,657,145)
-----------------------------------------------------------------------
Total stockholders' equity (deficit) 659,473 (772,914) 3,062,111 2,948,670
-----------------------------------------------------------------------
Total liabilities and stockholders' equity
(deficit) $ 5,079,314 $ 1,100,888 $ 5,049,813 $ 11,230,015
=======================================================================
See accompanying notes.
2
EDIETS.COM, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001
Company Proforma Company
as Reported DietSmart, Inc. Adjustments Proforma
-----------------------------------------------------------------------
Revenue $ 10,519,633 $1,684,277 $ - $ 12,203,910
Costs and expenses:
Cost of revenue 522,755 63,568 - 586,323
Product development 207,824 440,457 - 648,281
Sales and marketing 7,669,001 1,515,006 80,000 (3) 9,225,536
(38,471) (3)
General and administrative 1,725,773 402,793 160,000 (3) 2,211,623
(76,943) (3)
Depreciation and amortization 216,412 130,215 291,106 (4) 637,733
-----------------------------------------------------------------------
Total costs and expenses 10,341,765 2,552,039 415,692 13,309,496
Other income (expense), net 7,599 (10,617) (8,995) (5) (12,013)
Provision for income taxes (3,719) - - (3,719)
-----------------------------------------------------------------------
Net income (loss) $ 181,748 $ (878,379) $ (424,687) $ (1,121,318)
=======================================================================
Earnings (loss) per common share - basic
and diluted $ 0.01 $ (0.07)
================== ===================
Weighted average number of common
shares outstanding:
Basic 13,557,446 15,557,446
================== ===================
Diluted 14,723,530 15,557,446
================== ===================
See accompanying notes.
3
(1) Reflects elimination of the historical equity accounts of DietSmart, Inc.
and allocation of total purchase price as follows:
Cash.................................... $2,500,000
Common Stock............................ 2,120,000
Fair value of stock options............. 169,197
Direct acquisition costs................ 260,000
--------------
Total purchase price.................... $5,049,197
==============
Reflects the estimated value of eDiets.com, Inc. common stock to be issued
at $1.06 per share.
(2) Reflects adjustment to deferred executive compensation as per the agreement
and plan of merger.
(3) Reflects six months of annual salary for each of the three executives of
DietSmart under new employment agreements and reversal of previously
recorded cash and deferred compensation amounts for the period.
(4) For the purpose of these unaudited pro forma condensed consolidated
financial statements, we have allocated half of the excess of the purchase
price over the fair value of the net liabilities acquired to identifiable
intangible assets and the other half to goodwill. We believe that we will
benefit from these intangibles for an indeterminable period of time of at
least five years, and therefore a five-year amortization is appropriate.
For the purpose of these unaudited pro forma condensed consolidated
financial statements, we have adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Intanbible Assets." In accordance with SFAS No. 141, no
amortization of goodwill is included.
The final allocation of the purchase price will be determined after the
completion of a valuation of tangible and identifiable intangible assets
acquired (including their estimated useful lives) and liabilities assumed.
Using this information we will make a final allocation of the purchase
consideration, including allocation to tangible assets and liabilities,
identifiable intangible assets and goodwill. Accordingly, depreciation and
amortization, as presented in the pro forma condensed consolidated
statements of operations for the six months ended June 30, 2001 may
fluctuate significantly from the preliminary estimate when the final
valuation of tangible and intangible assets is completed.
(5) Reflects interest expense related to the deferred cash payment component of
the purchase price.
4
EDIETS.COM, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2000
Company Proforma Company
as Reported DietSmart, Inc. Adjustments Proforma
------------------------------------------------------------------------
Revenue $ 11,433,680 $ 192,868 $ - $ 11,626,548
Costs and expenses:
Cost of revenue 544,333 136,713 - 681,046
Product development 237,700 577,550 - 815,250
Sales and marketing 12,746,650 1,544,424 160,000 (1) 14,355,797
(95,277) (1)
General and administrative 3,202,474 1,924,760 320,000 (1) 5,256,727
(190,507) (1)
Depreciation and amortization 313,472 113,200 582,211 (2) 1,008,883
------------------------------------------------------------------------
Total costs and expenses 17,044,629 4,296,647 776,427 22,117,703
Other income, net 160,798 3,752 (99,651) (3) 64,899
------------------------------------------------------------------------
Net loss $ (5,450,151) $ (4,100,027) $ (876,078) $ (10,426,256)
========================================================================
Loss per common share - basic and diluted
$ (0.41) $ (0.69)
================== =================
Weighted average number of common shares
outstanding - basic and diluted 13,214,855 15,214,855
================== =================
See accompanying notes.
5
(1) Reflects annual salary for each of the three executives of DietSmart under
new employment agreements and reversal of previously recorded cash and
deferred compensation amounts for the period
(2) For the purpose of these unaudited pro forma condensed consolidated
financial statements, we have allocated half of the excess of the purchase
price over the fair value of the net liabilies acquired to identifiable
intangible assets and the other half to goodwill. We believe that we will
benefit from these intangibles for an indeterminable period of time of at
least five years, and therefore a five-year amortization is appropriate.
For the purpose of these unaudited pro forma condensed consolidated
financial statements, we have adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Intanbible Assets." In accordance with SFAS No. 141, no
amortization of goodwill is included.
The final allocation of the purchase price will be determined after the
completion of a valuation of tangible and identifiable intangible assets
acquired (including their estimated useful lives) and liabilities assumed.
Using this information we will make a final allocation of the purchase
consideration, including allocation to tangible assets and liabilities,
identifiable intangible assets and goodwill. Accordingly, depreciation and
amortization, as presented in the pro forma condensed consolidated
statements of operations for the twelve months ended December 31, 2000 may
fluctuate significantly from the preliminary estimate when the final
valuation of tangible and intangible assets is completed.
(3) Reflects interest expense related to the deferred cash payment component of
the purchase price.
6