-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q3hci4sEC3OzEgIauVsjA7QLkEN+IPwyFrKUdgE3R80fZgc9AnaumwBpXYnywDU/ Uv7E7tJ4OiynRB0Qr0fZpg== /in/edgar/work/20000728/0000950123-00-006937/0000950123-00-006937.txt : 20000921 0000950123-00-006937.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-006937 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000429 FILED AS OF DATE: 20000728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEIGHT WATCHERS INTERNATIONAL INC CENTRAL INDEX KEY: 0000105319 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 116040273 STATE OF INCORPORATION: VA FISCAL YEAR END: 0429 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-03389 FILM NUMBER: 681645 BUSINESS ADDRESS: STREET 1: 175 CROSSWAYS PARK WEST CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5163901400 MAIL ADDRESS: STREET 1: 175 CROSSWAYS PARK WEST CITY: WOODBURY STATE: NY ZIP: 11797 10-K405 1 e10-k405.txt FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 29, 2000 Commission File no 000-03389 --------- WEIGHT WATCHERS INTERNATIONAL, INC. - ------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Virginia 11-6040273 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 175 Crossways Park West, Woodbury, New York 11797-2055 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (516) 390-1400 ------------------ Securities registered pursuant to Section 12 (b) of the Act: None ------------------- Name of each exchange Title of each class None on which registered None ------------------ --------------- Securities registered pursuant to Section 12 (g) of the Act: None - ------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value, as determined by the date of the sale, of the voting stock held by non-affiliates (shareholders holding less than 5% of the outstanding common stock, excluding directors and officers), as of July 28, 2000 was $3,700,000. The number of common shares outstanding as of July 28, 2000 was 23,800,000. - - Documents incorporated by reference: None ------------------------ 2 PART I ITEM 1. BUSINESS Weight Watchers International, Inc. (herein, together with its subsidiaries unless the context otherwise requires, generally referred to as the "Company" or "Registrant") was incorporated in Virginia in 1974, as a successor to a business founded in 1963. The Company's trademarks included in this Form 10-K appear in italics. The Company is the largest provider of weight control programs in the world, operating in 29 countries through a network of company-owned and franchise operations. At the core of the business are weekly meetings, in which is presented a scientifically designed program, incorporating group support and education about healthy eating patterns, behavior modification and physical activity. The Company has developed the Weight Watchers program through continuous improvement over its 37-year history and the brand name is recognized globally today as the standard for healthy, safe and drug free weight control. Careful management of the brand identity and reputation is a fundamental element of the Company's long-term success. According to a Gallup study conducted in 1998, more than 84% of adults and 94% of dieting adults in the United States recognize the brand name. In an independent survey of U.S. doctors in 1998, among those doctors who had recommended weight loss programs in the preceding year, 65% recommended Weight Watchers. The next most frequently recommended program received recommendations from less than 13% of those doctors. The Company believes that the combination of its brand recognition, extensive global network and 9,000 classroom leaders provide a significant competitive advantage. Throughout its history, the Company has based its program on four core elements: group support, behavior modification, diet and exercise. The group support system remains the cornerstone method of presenting the program. Group support assists members in dealing with issues such as depression-eating and habitual eating behaviors. This support is offered through meetings that are interactive and encourage learning through group activities and discussions. Members learn strategies from leaders who have learned how to lose weight and maintain their weight loss on the program. These leaders are trained to respond to member needs by using internally developed techniques and actively modeling the Company's principles. The group support system continues throughout the maintenance period of the program when members learn how to stay within their appropriate weight range. Behavior modification and education on eating habits have also always been key elements of the program. Motivation, education and support are used to help members manage their weight and to change their habits. Members are taught how to meet and overcome these challenges. Discussions on topics such as staying motivated, overeating and managing stress offer valuable insight and provide the reassurance that no one must diet alone. Exercise is an important component of weight management and the Company's overall program to lose weight. U.S. members currently receive The Weight Watchers Activity Guide which is designed to promote exercise and activity outside of the classroom. It is consistent with the recommendations for physical activity outlined by both the Center for Disease Control and 2 3 Prevention and the American College of Sports Medicine. International members receive similar publications. The final key element of the program is diet which is described in detail below. The diets are based on healthy food selection rather than prepackaged meals. This allows members to tailor and modify their diet to their personal tastes. In order to keep the diets at the forefront of weight loss science, each diet is designed in consultation with doctors and other scientific advisors. The Company continually strives to improve its diets by periodically testing, then introducing new features. There are currently two diets: 1-2-3 Success and Success Signals. In 1996, the United Kingdom subsidiary developed and introduced 1-2-3 Success, a state-of-the-art diet management system that helps participants manage their calorie intake through a simple and flexible POINTS system. Unlike some competing diets, 1-2-3 Success allows participants to eat regular meals instead of prepackaged servings, allowing members freedom to choose what they eat. In 1997, the 1-2-3 Success diet was successfully rolled out to select international operations, North American franchises and North American Company-Owned ("NACO") operations. 1-2-3 Success features the POINTS food system, which is based on a formula involving calories, fat and fiber. The formula for POINTS differs from country to country in order to suit local tastes, as well as package labeling differences between countries. In 1996, local management in Europe successfully developed a diet called Success Signals based on a green-yellow-red food selection system. Success Signals helps guide dieters to low fat foods (green) instead of high fat foods (red). This system is similar to 1-2-3 Success in that it does not require weighing of portions. It is now used in nine Continental European countries and Brazil. The Company intends to introduce a POINTS based plan in these markets as a program innovation. The Company works closely with doctors, scientists and nutritionists, to ground the program in scientific and medically sound principles of weight control. As part of the program, the Company is sponsoring a two-year scientific study to quantify the health benefits of its program as compared to self-help dieting. The Company believes that the publication of this study will serve to encourage a greater number of employers and health insurance companies to partner with them to cover or reimburse the cost of joining the Weight Watchers program. The Company uses several delivery methods as a means to provide services to its members. At the core of the business is the classroom meeting, which members attend to learn the key weight loss techniques, to celebrate their success with other dieters, and to receive motivation and group support. An estimated 9,000 classroom leaders run the meetings and educate members on the process of successful and sustained weight loss. Field management and current leaders constantly identify new leaders as members with strong interpersonal skills, personality and communication skills. Leaders are part-time employees and earn an hourly wage and commissions based on sales. The program is presented in a series of weekly classes which average one hour in duration. Classes are conveniently scheduled throughout the day. Classes are held in either leased locations, such as space at shopping malls, or in meeting rooms typically rented from civic or religious organizations. 3 4 Typically, classes begin with registration and a weigh-in where the weight change of attendees since their last session is noted in their attendance book which serves as a permanent record of the participants' progress. Leaders are trained to engage the members at the weigh-in to talk about their weight control efforts during the previous week and provide encouragement and advice, making them feel at ease. After the weigh-in, the leader introduces the class. Part of the class is educational, where the leader uses personal anecdotes, games or open questions to demonstrate some of the core aspects of weight loss, such as self-belief and discipline. During another part of the class, the leader focuses on a variety of topics, such as achievements people have made in the prior week and celebrating and applauding successes. Participants who have reached their weight goal are singled out for their accomplishment. Discussions can range from dealing with a holiday office party to making time to exercise. The leader encourages substantial class participation and promotes supporting products and materials as appropriate. At the end of the class, new members are given special tutoring in the 1-2-3 Success plan. Generally, group leaders help set a member's weight goal within a healthy range by using a body mass index. When members reach their weight goal and maintain it for six weeks, they achieve lifetime member status. This gives them the privilege to attend the Company's meetings free of charge as long as they maintain their weight within a certain range. Successful members also become eligible to apply for class leader positions. The At Work program was designed to address the weight loss needs of people in the workforce by operating on-site in their place of employment. This program represents a significant amount of total revenue for NACO operations and is expanding in other countries. Employees can attend the At Work program meetings that are held either before work, during lunch hours, or after work. At Work is particularly popular in the United States as employees, and increasingly employers, are receptive to the Weight Watchers classes in the work place. In many cases, employers subsidize employee participation and typically provide meeting space without charge. The Community Meetings program was designed to meet the needs of people in rural areas that would otherwise be unable to support traditional meetings. Members in Community Meetings prepay for a series of meetings to ensure adequate enrollment. The Company provides additional programs designed for people who, either through circumstance or personal preference, do not wish to attend the traditional classes. The At Home self-help program was developed to provide guidance and support needed to lose weight without having to attend classes. In Australia, the Company is testing the Gut Buster mail-order program which has been scientifically designed for male weight control. Customers who order this program receive audio cassettes and literature. In France, the Company also has a One-On-One program which offers members supplemental private tutoring. In addition to meetings, the Company generates additional revenues through product sales. In the classroom operations, the Company sells books, CD-Rom's, 1-2-3 Success POINTS calculators, healthy snack bars and other items. 4 5 GENERAL Members have demonstrated strong loyalty towards the Weight Watchers program, which is characterized by a high predictable pattern of repeat consumer behavior. The Company believes the quality and flexibility of its program helps attract and retain new members and contributes to significant repeat enrollments. Given the Company's 37-year operating history, the Company has created a powerful referral network. An important source of new members is through referrals from existing or prior members. There are incentive programs for member referrals, such as the bring a friend promotion. In fiscal year ended April 29, 2000, approximately 4.8 million people enrolled in classes worldwide. The Company's business is heavily reliant on marketing and promotion. Advertising supports the three key enrollment-generating seasons during the year: winter, spring and fall. In addition to enhancing brand image and awareness, advertising is designed to motivate both former members and its potential members to take immediate action and join the program. Media investments are allocated on a market-by-market basis, as well as by media vehicle (television, radio, magazines and newspaper), taking into account such characteristics as penetration, market vitality, media efficiencies and effectiveness. Direct mail is a critical element of the Company's marketing mix because it targets former members who account for the majority of the Company's attendance. The focus of the Company's public relations efforts is at the grass roots level. Leaders and successful members engage in local promotions, information presentations and charity events to promote Weight Watchers and demonstrate the program's efficacy. Public relations programs are specifically designed to facilitate this type of promotion. For many years, the Company has used celebrities to promote and endorse the program. Since 1997, the Company has retained Sarah Ferguson, the Duchess of York, to promote and endorse the program in North America. Her contract, which runs through 2000, requires her to devote approximately 20 days per year on activities such as appearances at major events and filming television advertisements. The most popular payment structure is a "pay-as-you-go" arrangement without contracts, although the Company also offers discounted pre-pay options. A new member pays an initial registration fee and then a weekly fee for each class attended, although free registration is often offered as a promotion. In 1996, a new pricing structure, called Liberty/Loyalty, was developed in France. Liberty/Loyalty provides members the option of committing to consecutive weekly attendance and paying a lower weekly fee with penalties for missed classes, or paying a higher weekly fee without the missed meeting penalties. Following the successful introduction in France, the Liberty/Loyalty pricing plan was rolled out to most of the rest of Europe and, following a successful test marketing, it was rolled out to the Company's NACO operations in April/May 1999. COMPANY OWNED OPERATIONS The Company's NACO operations consist of approximately 1,300 meeting locations, that for the fiscal year ended April 29, 2000, attracted 13.2 million attendances and generated $158.4 million in revenue including product sales. In 1997, NACO operations were restructured by eliminating the prepackaged meals program, improving customer service, restoring employee morale and introducing 1-2-3 Success and Liberty/Loyalty programs. In connection with the elimination of the prepackaged meals program, the Company eliminated over $18.0 million in costs. As a result of all these efforts, NACO attendance has increased to 13.2 million in fiscal year 2000. International company-owned operations consist of approximately 8,100 meeting locations in 13 countries outside the United States. In the fiscal year ended April 29, 2000, these operations attracted 20.0 million attendances and generated meeting fee revenue of $192.3 million. In fiscal year 2000, in the United Kingdom there were on average 5,100 weekly meetings in 3,800 different locations, with approximately 97% in third-party locations, such as meeting rooms rented from civil organizations and church halls. In the rest of Europe there were on average 3,400 weekly meetings in 2,200 different locations, with approximately 95% in third-party locations. In Australia/New Zealand there were on average 1,880 weekly meetings in 794 different locations, with approximately 97% in third-party locations. 5 6 INTERNATIONAL OPERATIONS The Company's international operations are subject to certain customary risks inherent in carrying on business abroad, including the risk of adverse currency fluctuations. FRANCHISE OPERATIONS The Company operates its domestic and international businesses through a combination of company-owned and franchise operations. Over the last 37-years, the Company has developed a strong group of franchisees throughout the world. There are franchise operations in 16 countries, including the United States. The Company estimates that in the fiscal year ended April 29, 2000, these franchised operations attracted attendance of 23.7 million. Franchisees are responsible for running classroom operations in their territory using the Company developed program. Franchisees are obliged to adhere strictly to the program content guidelines, with the freedom to control pricing, locations, operational structure and local promotions. Franchisees have the option to buy approved merchandise from the Company or from other vendors to sell to members. Franchisees are required to keep accurate attendance records that are audited on a periodic basis. Most franchise agreements are in perpetuity and can only be terminated upon a material breach or bankruptcy of the franchisee. The Company provides a central support system for the program and the brand. It also produces and sells program and marketing material to the franchisees. Franchisees provide local operational expertise, advertising and public relations. The franchise owners are close to the business and generally participate actively in all aspects of the business. Franchisees typically pay a fee equal to 10% of their meeting fee revenues. LICENSING Another source of revenue for the Company is generated through the licensing arrangements with third parties. Under an agreement between the Company and a third-party publisher, the Company granted the publisher the exclusive right to use its trademarks in developing, publishing, licensing, selling and distributing books, audio products, video products, calendars, recipe cards and other products for sale at meetings, book clubs and retail stores. The publisher holds this exclusive license through October 2001. In return for this license, the publisher agreed to pay a non-returnable fee and certain ongoing royalties. Nearly four million copies of recipe collections have been sold since 1994. Weight Watchers Magazine was published in North America and the United Kingdom by Southern Progress and by the Company in Australia. The Company reacquired all rights to publish the Magazine, including in North America and the United Kingdom, by an agreement dated February 18, 2000 and it has introduced a new magazine in May, 2000. Southern Progress still has the exclusive right to publish Weight Watchers books through direct response marketing. The Company has entered into an ongoing licensing relationship with Heinz to develop and market the Weight Watchers brand for certain food products. Under the agreement, the Company retains all food licenses except that Heinz retains an exclusive, royalty-free global license to use the brand for certain food categories, including frozen foods, soups, condiments, canned fish and canned pasta. Heinz will also receive royalty payments from an existing portfolio of third-party licenses for various food products through 2004. After 2004, Heinz will assign those licenses to the Company. 6 7 In January 1999, the Company entered into a licensing agreement with Warnaco, an established clothing/shapewear manufacturer, to produce a broad range of Weight Watchers branded shapewear in the United States and Canada. Under this agreement, the Company will receive minimum average royalty payments of $2.1 million per year. Warnaco's exclusive license runs through July 31, 2004, and is renewable at Warnaco's option for an additional five years. TRADE NAMES AND TRADEMARKS The Weight Watchers brand is recognized worldwide. Careful management of the Company's brand identity and reputation is a fundamental element to its long-term success. As a result, the Company constantly monitors and acts as necessary to protect its intellectual property rights. COMPETITION The market for weight control includes commercial weight loss programs, self-help weight loss products, weight loss services administered by doctors, nutritionists and dieticians and weight loss drugs. Competition among commercial weight loss programs is largely based on the effectiveness of the program and price. The most significant direct competitor in the United Kingdom is Slimming World. There are few direct competitors in the rest of Europe. In Australia/New Zealand, the Company's closest competitor is Jenny Craig. In the United States, the Company competes in the commercial weight control segment, along with other companies such as Jenny Craig, The Diet Workshop and Nutri/System, although the Company believes its business platforms are not comparable. For example, many of the competitors' businesses are based on the sale of prepackaged meals and meal replacements, whereas Weight Watchers program uses group support, education and behavior modification to help members change their eating habits without prepackaged foods. The Company believes that weight control is a lifelong challenge and that quick results offered by certain of these products are not sustainable and may have side effects. When the diet drugs Phen/Fen and Redux became popular in 1996, many competitors turned to prescription drug sales as a way to boost sagging profitability. In September 1997, the United States Food and Drug Administration requested the withdrawal of fenfluramine (one of the pharmaceuticals used in "Phen/Fen") and dexfenfluramine ("Redux") from the U.S. market citing potential health risks. The manufacturer and distributor of these pharmaceuticals agreed to an immediate recall of these drugs. The resultant negative publicity and lawsuits over these drugs further weakened these competitors. Two new drugs have received approval from the FDA for the treatment of obesity. Meridia, approved in November 1997, and Xenical, approved in April 1999, are being marketed to physicians for use in their patients and directly to consumers. To date, competitors have not turned to the use of these drugs as part of their offering to clients. Any increase in competition, including scientific developments in weight control, new drugs and other technologies may have a material adverse impact on the Company. 7 8 REGULATION A number of laws and regulations govern the Company's advertising, franchise operations and relations with consumers. The Federal Trade Commission and certain states regulate advertising, disclosures to consumers and franchisees, and other consumer matters. Company customers may file actions on their own behalf, as a class or otherwise, and may file complaints with the FTC or state or local consumer affairs offices and these agencies may take action on their own initiative or on a referral from consumers or others. The Company and the FTC have entered into a Consent Order settling all contested issues raised in a complaint filed against the Company alleging that it violated the Federal Trade Commission Act by the use and content of certain advertisements for its weight loss program featuring testimonials, claims for the program's success and safety, and statements as to the program's costs to participants. The Consent Order does not admit any issue of fact or law or any violation by the Company of any law or regulation, and does not involve payment by the Company of any civil money penalty, damages, or other financial relief. The Consent Order requires certain procedures and disclosures in connection with the Company's advertisements of products and services. The FTC accepted the Consent Order, and it became effective as of December 24, 1997. The Company does not believe that compliance with the Consent Order will have a material adverse effect on its consolidated financial position or results of operations or its current advertising and marketing practices. The Company's foreign operations and franchises are also generally subject to regulations of the applicable country regarding the offer and sale of franchises, the content of advertising and promotion of diet products and programs. Future legislation or regulations including, without limitation, legislation or regulations affecting its marketing and advertising practices, relations with consumers or franchisees or the Company's food products, could have a material adverse impact on the Company. EMPLOYEES As of April 29, 2000, the Company had approximately 22,400 service providers and employees, of which 6,600 were located in the United States, 8,400 were located in the United Kingdom, 2,600 were located in Continental Europe and 4,800 were located in Australia and New Zealand. 119 employees work full-time as management and support personnel in the Woodbury, New York offices, 172 employees work full-time as management and support personnel at the regional offices in the three NACO regions, and 221 employees work full-time as management and support personnel in the head offices of the other countries in which the Company operates worldwide. Approximately 6,900 service providers work part-time as leaders and approximately 14,900 work part-time as receptionists worldwide. None of the 8 9 service providers or employees are represented by a labor union. The Company considers its employee relations to be good. FORWARD LOOKING STATEMENTS The information contained in this report, other than historical information, includes forward-looking statements including, in particular, the statements about plans, strategies and prospects under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operation," "Industry" and "Business." Words such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this report identify forward-looking statements. These forward-looking statements are based on current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These 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 debt obligations; - risks associated with the relative success of marketing and advertising; - risks associated with the continued attractiveness of the Company's diets; - competition, including price competition and competition with self-help weight loss and medical programs; and - adverse results in litigation and regulatory matters, the adoption of adverse legislation or regulations, more aggressive enforcement of existing legislation or regulations or a change in the interpretation of existing legislation or regulations. ITEM 2. PROPERTIES The Company is headquartered in Woodbury, New York in a 35,000 square-foot leased office. Each of the three NACO regions has a small regional office. The Woodbury lease expires in 2005 and the Paramus, New Jersey call center lease expires in 2007. The remaining North American office leases are short-term. Each country operation also has one head office. The Company holds its classes either in retail centers (typically leased spaces in strip malls for short-terms, generally less than five years) or third-party locations (typically meeting rooms in well-located civic or religious organizations). In fiscal year ended April 29, 2000, there were approximately 1,300 NACO meeting locations in North America, including approximately 300 retail centers and 1,000 third-party locations. In the United Kingdom, there were approximately 3,800 meeting locations, with approximately 97% in third-party locations. In Continental Europe, there are approximately 2,200 meeting locations, with approximately 95% in third-party locations. In Australia/New Zealand, there were approximately 794 meeting locations, with approximately 97% in third-party locations. 9 10 ITEM 3. LEGAL PROCEEDINGS The Company has had and continues to have disputes with the Company's franchisees regarding, among other things, operations and revenue sharing, including the interpretation of franchise territories as they relate to new media. In the opinion of management, based in part upon advice of legal counsel, the disposition of all such matters will not have a material effect on the consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS There is no established trading market for the Registrants' Common Stock. ITEM 6. SELECTED FINANCIAL DATA WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (IN THOUSANDS)
2000 1999 1998 1997 1996 -------------- -------------- ----------- ----------- ------------- Revenues net $ 399,574 $ 364,608 $ 297,245 $ 292,846 $ 323,316 Net income (loss) $ 37,759 $ 47,982 $ 23,771 $ (24,089) $ 21,490 Working capital $ (958) $ 91,200 $ 65,792 $ 64,869 $ 83,593 Total assets $ 334,207 $ 371,434 $ 370,799 $ 372,997 $ 393,387 Long-term obligations $ 500,505 $ 16,664 $ 17,745 $ 71,613 $ 72,950 EBITDA $ 107,280 $ 88,253 $ 48,484 $ (21,216) $ 32,144
EBITDA represents income before income taxes and minority interest plus depreciation, amortization and net interest expense. EBITDA should not be construed as an alternative to operating income or cash flows from operating activities, as determined in accordance with generally accepted accounting principles. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is the largest provider of weight control programs in the world, operating in 29 countries through a network of company-owned and franchise operations. The Company earns revenues by conducting meetings, selling products, collecting commissions from franchisees operating under its name and by collecting royalties related to licensing agreements. 10 11 Domestic and international operations are run through a combination of company-owned and franchise operated locations. Franchisees typically pay a royalty fee of 10% of their meeting fee revenues. A number of factors have affected the Company's revenues and profitability over the last several years. In fiscal year ended 1990, Heinz began introducing and promoting the sale of prepackaged meals through the North American ("NACO") network. These changes forced group leaders to become food salespeople and retail managers for food products, detracting from their function as role models and motivators for members. These changes caused a significant drop in customer satisfaction and employee morale, and NACO's attendance declined. Prior to the introduction of prepackaged meal sales in fiscal year ended 1990, NACO's annual classroom attendance was 12.9 million, but by fiscal year ended 1997, attendance had dropped to 7.8 million. In contrast, in the international operations, where the prepackaged meals sales strategy was not implemented, attendance remained stable over this period. As North American focus turned to promoting and selling prepackaged meals, program development began to suffer. In response, the Company shifted to a more decentralized management approach, allowing the management of its international operations to begin to develop their own local business strategies and program innovations. This approach was successful and by 1996 international growth began to accelerate rapidly. Beginning in 1997, NACO operations were restructured by: - eliminating the prepackaged meals programs, - introducing 1-2-3 Success and Liberty/Loyalty, - improving customer service, - restoring employee morale, - relocating classes from fixed to rented meeting rooms, - reducing back office and field headcount, and - eliminating certain field offices. This restructuring allowed the Company to eliminate over $18.0 million in costs related to the food sales system. As a result of these efforts, NACO attendance has grown by 70% from 7.8 million in fiscal year ended 1997 to 13.2 million in fiscal year ended April 29, 2000. Over this period, international operations continued to generate significant growth which had started when local management was allowed to create new strategies and program innovations. Between fiscal year ended 1997 and fiscal year ended April 29, 2000, in continental Europe, net revenues increased by 31%, in the United Kingdom by 54% and in Australia/New Zealand by 58%, respectively. The combination of the revitalization of the North American operation and the continued strong performance of international business contributed to the strong growth in revenues and profitability. In addition to franchise revenue and company-owned classroom revenues, the Company also sells to the Company's members ancillary products which complement its program such as calendars, books, healthy snack bars and CD-ROMS. 11 12 RESULTS OF OPERATIONS On September 29, 1999, the Company effected a recapitalization and stock purchase agreement, (the "Transaction") with its former parent, H.J. Heinz Company ("Heinz"). The Company redeemed shares of common stock from Heinz for $349.5 million. The $349.5 million consisted of $324.5 million of cash and $25.0 million of the Company's redeemable Series A preferred stock. After the redemption, Artal Luxembourg S.A. purchased 94% of the Company's remaining common stock from Heinz for $223.7 million. The recapitalization and stock purchase was financed through borrowings under credit facilities amounting to approximately $237.0 million and by issuing Senior Subordinated Notes amounting to $255.0 million, due 2009. The balance of the borrowings was utilized to refinance debt incurred prior to the Transaction relating to the transfer of ownership and acquisition of the minority interest in the Weight Watchers businesses that operate in Australia and New Zealand. The acquisition of the minority interest resulted in approximately $15.9 million of goodwill. In connection with the Transaction, the Company incurred approximately $8.3 million in transaction costs which were expensed and $15.9 million in deferred financing costs. For U.S. Federal and State tax purposes, the Transaction is being treated as a taxable sale under Section 338 (h) (10) of the Internal revenue Code of 1986 as amended. As a result, for tax purposes, the Company will record a step-up in the tax basis of net assets. For financial reporting purposes, a valuation allowance of approximately $72.1 million has been established against the corresponding deferred tax asset as management has concluded it is more likely than not that this amount will not be utilized to reduce future tax payments. The Company issued 1.0 million shares of Series A Preferred Stock in conjunction with the Transaction. Holders of the Series A Preferred Stock are entitled to receive dividends at an annual rate of 6% payable annually in arrears. The Company has recorded a $875,000 dividend at April 29, 2000. The liquidation preference of the Series A Preferred Stock is $25 per share. If there is a liquidation, dissolution or winding up, the holders of shares of Series A Preferred Stock are entitled to be paid out of the Company's assets available for distribution to shareholders an amount in cash equal to the $25 liquidation preference per share plus all accrued and unpaid dividends prior to the distribution of any assets to holders of shares of common stock. The Transaction has been accounted for as a leveraged recapitalization, which will have no impact on the historical book basis of the Company's assets or liabilities. During the fourth quarter of fiscal year ended 1997, the Company announced a reorganization and restructuring program. The reorganization plan was designed to strengthen the Company's classroom business and improve profitability and global growth. Charges related to the restructuring were recognized to reflect the exit from the Personal Cuisine Food Option in the United States company-owned locations, the relocation of classes from certain fixed retail outlets to traveling locations, and other initiatives involving the exit of certain under-performing businesses and product lines. Restructuring and related costs recorded in fiscal year ended 1997 totalled $51.7 million pretax. Pretax charges of $49.7 million were classified as classroom operating expenses and $2.0 million as selling, general and administrative expenses. The major components of the 12 13 fiscal year ended 1997 restructuring charges and the remaining accrual balances as of April 25, 1998, April 24, 1999 and April 29, 2000 were as follows:
Employee Exit cost Termination --------------------------- Non-Cash and Accrued Asset Severance Exit Implementation Write-downs Costs Costs Costs Total ----------- ----------- --------- ------------- ---------- Initial charge-1997 $ 27,402 $ 4,723 $ 19,569 $ - $ 51,694 Amounts utilized-1997 (27,402) (339) (46) - (27,787) ----------- ----------- --------- ------------- ---------- Accrued restructuring costs- April 26, 1997 - 4,384 19,523 23,907 Implementation costs-1998 - - - 999 999 Amounts utilized-1998 - (3,709) (8,553) (999) (13,261) ----------- ----------- --------- ------------- ---------- Accrued restructuring costs- April 25, 1998 - 675 10,970 - 11,645 Implementation costs 1999 - - - 32 32 Amounts utilized-1999 - (186) (3,769) (32) (3,987) ----------- ----------- --------- ------------- ---------- Accrued restructing costs- April 24, 1999 - 489 7,201 - 7,690 Amounts utilized-2000 - - (2,904) - (2,904) ----------- ----------- --------- ------------- ---------- Accrued restructuring costs- April 29,2000 $ - $ 489 $ 4,297 $ - $ 4,786 =========== =========== ========= ============= ==========
Asset write-downs of $16.9 million consisted primarily of fixed assets and other long-term asset impairments that were recorded as a direct result of the Company's decision to exit businesses or facilities. Such assets were written down based on management's estimate of fair value. Write-downs of $10.5 million were also recognized for estimated losses from disposals of classroom inventories, packaging materials and other assets related to product line rationalizations and process changes as a direct result of the Company's decision to exit businesses or facilities. Employee severance costs were expensed. For the fiscal year ended April 24, 1998 the workforce was reduced by approximately 337 employees. Severance costs include charges related to both involuntary terminations and voluntary terminations. As part of the voluntary termination agreements, enhanced retirement benefits were offered to the affected employees. These amounts were included in the Employee Termination and Severance costs component of the restructuring charge. Exit costs consist primarily of contract and lease termination costs associated with the Company's decision to exit the activities described above. In fiscal year ended April 29, 2000 $2.9 million was utilized. The remaining accrued exit costs will be utilized through fiscal year ended 2002. 13 14 The results for fiscal year ended 1998 included costs related to the implementation of the restructuring program of $999 thousand pretax, which were classified as selling, general and administrative expenses. These costs consist primarily of center relocation and training. The results for fiscal year ended 1999 included costs related to the implementation of the restructuring program of $32 thousand pretax, which was classified as selling, general and administrative expenses. These costs consist primarily of relocation and training costs. COMPARISON OF FISCAL YEAR ENDED APRIL 29, 2000 TO FISCAL YEAR ENDED APRIL 24, 1999. Net revenues were $399.6 million for the fiscal year ended April 29, 2000 an increase of $35.0 million or 9.6% from $364.6 million for the fiscal year ended April 24, 1999 (net of promotional allowances of $23.0 million and $40.2 million, respectively). Of the $35.0 million increase, $8.5 million was attributable to domestic company-owned classroom meeting fees, $8.8 million from foreign company-owned classroom meeting fees, $2.6 million from franchise commissions, and $26.9 million from product sales, which were offset by an $11.8 million decline in royalties from licensing, publications, and other. The decline in royalties is directly related to the discontinuation of food royalties from Heinz as a result of the Transaction and the recognition in fiscal year ended 1999 of the present value of the guaranteed future payments from the Warnaco licensing agreement. Adjusting for the discontinued food royalties of $1.8 million, net revenues were $397.8 million for the fiscal year ended April 29, 2000, an increase of 13.5% from $350.6 million (excluding $8.7 million from non-recurring revenue from the Warnaco licensing agreement and $5.3 million from discontinued food royalties) for the fiscal year ended April 24, 1999. Domestic company-owned classroom meeting fee revenues were $130.8 million for the fiscal year ended April 29, 2000 an increase of 6.9% from $122.3 million for the fiscal year ended April 24, 1999 (net of promotional allowances of $5.7 million and $23.0 million, respectively). This increase in domestic company-owned classroom meeting fee revenues was the result of a 22% increase in member attendance, partially offset by lower average meeting fee revenue per attendee as a result of the rollout of the Liberty/Loyalty pricing strategy. Foreign company-owned classroom meeting fee revenues were $152.7 million for the fiscal year ended April 29, 2000, an increase of 6.1% from $143.9 million for the fiscal year ended April 24, 1999 (net of promotional allowances of $17.4 million and $17.2 million, respectively). This increase in foreign company-owned classroom meeting fee revenues was the result of a 6.1% increase in international attendance in the UK, Continental Europe, and Australia. Domestic franchise revenues were $21.3 million for the fiscal year ended April 29, 2000, an increase of 11.5% from $19.1 million for the fiscal year ended April 24, 1999. This increase in domestic franchise revenues was primarily the result of an increase in member attendance, due to improved training and support and increased marketing effectiveness. Foreign franchise revenues were $4.5 million for the fiscal year ended April 29, 2000, an increase of 9.8% from $4.1 million for the fiscal year ended April 24, 1999. This increase was primarily the result of a strong performance in Canada and Ireland. Product revenues were $84.2 million for the fiscal year ended April 29, 2000, an increase of 47.0% from $57.3 million for the fiscal year ended April 24, 1999. This increase in product revenues was primarily the result of increased member attendance and the Company's strategy to focus sales efforts on core classroom products, including its newly introduced nutrition bars. 14 15 Royalties from licensing, publications and other were $4.3 million (excluding $1.8 million from discontinued food royalties) for the fiscal year ended April 29, 2000, an increase of 10.3% from $3.9 million (excluding $8.7 million from non-recurring revenue from the Warnaco licensing agreement and $5.3 million from discontinued food royalties) for the fiscal year ended April 24, 1999. Cost of revenues was $201.4 million for the fiscal year ended April 29, 2000, an increase of 12.6% from $178.9 million for the fiscal year ended April 24, 1999. This increase was primarily the result of an increased number of meetings to accommodate attendance growth and growing product sales. Gross profit margin was 49.4% for fiscal year ended April 29, 2000 (excluding $1.8 million from discontinued food royalties) compared to 49.0% for the fiscal year ended April 24, 1999 (excluding $8.7 million from non-recurring revenue from the Warnaco licensing agreement and $5.3 million from discontinued food royalties). Marketing expenses were $51.5 million for the fiscal year ended April 29, 2000, a decrease of 2.6% from $52.9 million for the fiscal year ended April 24, 1999 (net of promotional allowances of $23.0 million and $40.2 million, respectively). The Company's marketing program remains unchanged. The decrease of $1.4 million is related to amounts expended under Heinz's marketing programs in fiscal year ended 1999 and the discontinuation of food royalty related marketing rebate expenses. Selling, general and administrative expenses were $50.7 million for the fiscal year ended April 29, 2000, an increase of 3.7% from $48.9 million for the fiscal year ended April 24, 1999. As a percentage of net revenues, (excluding $1.8 million from discontinued food royalties in fiscal year ended April 29, 2000 and excluding $8.7 million from non-recurring revenue from the Warnaco licensing agreement and $5.3 million from discontinued food royalties in fiscal year ended April 24, 1999), these costs were 12.7% for the fiscal year ended April 29, 2000 compared to 13.9% for fiscal year ended April 24, 1999. This percentage decrease was due to the continued benefit of the Company's restructuring and reorganization program. As a result of the above, operating income was $94.2 million (excluding a one-time charge of $8.3 million of transaction costs and $1.8 million in revenue from discontinued food royalties) for the year ended April 29, 2000, an increase of 34.8% from operating income of $69.9 million (excluding $8.7 million of non-recurring revenue from the Warnaco licensing agreement and $5.3 million from discontinued food royalties) for the fiscal year ended April 24, 1999. 15 16 COMPARISON OF FISCAL YEAR ENDED APRIL 24, 1999 TO FISCAL YEAR ENDED APRIL 25, 1998. Net revenues were $364.6 million for the fiscal year ended April 24, 1999, an increase of $67.4 million or 22.7%, from $297.5 million for the fiscal year ended April 25, 1998 (net of promotional allowances of $40.2 million and $37.1 million, respectively). Of the $67.4 million increase, $28.5 million was attributable to domestic company-owned classrooms, $14.8 million to foreign company-owned classrooms, $5.3 million to franchise commissions, $9.8 million to products sales and $9.0 million to royalties from licensing publications, and other. The increase in royalties was due to the recognition, in fiscal year ended April 24, 1999, of the present value of the guaranteed future payments from the Warnaco licensing agreement. Adjusting for the Warnaco licensing agreement of $8.7 million, net revenues were $355.9 million for the fiscal year ended April 24, 1999, an increase of $58.7 million, or 19.8%, from $297.2 million for the fiscal year ended April 25, 1998. Domestic company-owned classroom meeting fee revenues were $122.3 million for the fiscal year ended April 24, 1999, an increase of 30.4% from $93.8 million for the fiscal year ended April 25, 1998 (net of promotional allowances of $23.0 million and $19.5 million, respectively). This increase in domestic company-owned classroom meeting fee revenues was the result of a 29% increase in member attendance. The Company believes the increase in member attendance was due to the continued improvement in member satisfaction which resulted from the full year impact of 1-2-3 Success and the elimination of its prepackaged meals program. Foreign company-owned classroom meeting fee revenues were $143.8 million for the fiscal year ended April 24, 1999, an increase of 11.5% from $129.0 million for the fiscal year ended April 25, 1998 (net of promotional allowances of $17.2 million and $17.6 million, respectively). This increase in foreign company-owned classroom meeting fee revenues was the result of a 6% increase in international attendance in the UK, continental Europe and Australia. Domestic franchise revenues were $19.1 million for the fiscal year ended April 24, 1999, an increase of 32.9% from $14.4 million for the fiscal year ended April 25, 1998. This increase in domestic franchise revenues was primarily the result of an increase in member attendance, which was due to the full year impact of 1-2-3 Success, improved training and support and increase marketing effectiveness. Foreign franchise revenues were $4.1 million for the fiscal year ended April 24, 1999, an increase of 15.3% from $3.5 million for the fiscal year ended April 25, 1998. This increase was primarily the result of a strong performance in Canada and Ireland. Product revenues were $57.3 million for the fiscal year ended April 24, 1999, an increase of 20.6% from $47.5 million for the fiscal year ended April 25, 1998. This increase in product revenues was primarily the result of increased member attendance. In addition, the elimination of approximately two-thirds of items in NACO allowed the Company to focus its sales efforts on its core products. Royalties from licensing, publications and other were $9.3 million (excluding $8.7 million of non-recurring revenue from the Warnaco licensing agreement) for the fiscal year ended April 24, 1999, an increase of 3.3% from $9.0 million for the fiscal year ended April 25, 1998. 16 17 Cost of revenues was $178.9 million for the fiscal year ended April 24, 1999, an increase of 11.8% from $160.0 million for the fiscal year ended April 25, 1998. This increase was attributable to the increased levels of attendance. Gross profit margin (net of promotional allowances of $40.2 million and $37.1 million, respectively), however, increased from 46.2% for the fiscal year ended April 25, 1998 to 49.7% (excluding $8.7 million of non-recurring revenue from the Warnaco licensing agreement) for the fiscal year ended April 24, 1999. This increase in gross margin was due to various factors, including an increase in attendance per meeting, an increase in the ratio of third-party locations to total locations, and a change in product mix with a focus on higher margin core products. Marketing expenses were $52.9 million for the fiscal year ended April 24, 1999, an increase of 7.5% from $49.2 million for the fiscal year ended April 25, 1998 (net of promotional allowances of $40.2 million and $37.1 million, respectively). This increase in marketing expenses was the result of an increase in advertising . Selling, general and administrative expenses were $48.9 million for the fiscal year ended April 24, 1999, an increase of 10.9% from $44.1 million for the fiscal year ended April 25, 1998. As a percentage of total revenues, (excluding $8.7 million of non-recurring revenue from the Warnaco licensing agreement), these costs decreased from 14.8% for fiscal year ended April 25, 1998 to 13.7% for fiscal year ended April 24, 1999. This percentage decrease was due to the continued benefit of the Company's restructuring and reorganization program, which allowed the Company to eliminate certain costs that were not directly associated with its core business, classroom operations and related products. As a result of the above, operating income was $75.2 million (excluding $8.7 million of non-recurring revenue from the Warnaco licensing agreement) for the fiscal year ended April 24, 1999, an increase of 70.9% from operating income of $43.9 million for the fiscal year ended April 25, 1998. LIQUIDITY AND CAPITAL RESOURCES During fiscal year ended April 29, 2000, the primary source of funds to meet working capital needs was cash from operations. Cash and cash equivalents increased $24.5 million during the fiscal year ended April 29, 2000. Cash flows provided by operating and financing activities of $49.9 million and $8.1 million, respectively, were in excess of cash flows used in investing activities of $19.6 million. Cash flows used for investing activities were principally related to acquisitions of minority interest. The total cash required to effect the Transaction was $496.0 million. The Company funded the Transaction and related costs from available cash, the proceeds of the Senior Subordinated Notes of $255.0 million and $237.0 million in borrowings under the credit facilities. Capital spending has averaged $2.6 million annually over the last three years and has consisted primarily of leasehold improvements for meeting locations and administrative offices, computer equipment for field staff and call centers and year 2000 upgrades. 17 18 The Company is significantly leveraged. As of April 29, 2000, there was outstanding $474.6 million in aggregate indebtedness, with $30 million of additional borrowing capacity available under the revolving credit facility, and total stockholders' deficit of $234.1 million. As a result of the Transaction, the Company's liquidity requirements are significantly increased, primarily due to increased debt service obligations. The Company believes that cash flow from operating activities, together with borrowings available under the revolving credit facility, will be sufficient to fund its currently anticipated capital investment requirements, debt service requirements and working capital requirements. Any future acquisitions, joint ventures or other similar transaction will likely require additional capital and the Company cannot assure that any such capital will be available to it on acceptable terms, or at all. The Company's credit facilities provide senior secured financing of up to $267.0 million, consisting of the $75.0 million term loan A facility with a maturity of six years, the $75.0 million term loan B facility with a maturity of seven years, the $87.0 million transferable loan certificate facility with a maturity of seven years and a $30.0 million revolving credit facility. The Company drew the full amount of the term loan A facility, the term loan B facility and the transferable loan certificate facility upon closing of the Transaction. The revolving credit facility commitment will terminate six years from the date of the closing of the credit facilities. The term loan A facility, the term loan B facility, the transferable loan certificate facility and the revolving credit facility will initially bear interest, subject to performance based stepdowns applicable to the term loan A facility and the revolving credit facility, at a rate equal to (a) in the case of the term loan A facility and the revolving credit facility, LIBOR plus 3.25% or, at the Company's option, the alternate base rate (as defined in the credit facilities) plus 2.25%; or (b) in the case of the term loan B facility and the transferable loan certificate facility, LIBOR plus 4.00% or, at the Company's option, the alternate base rate plus 3.00%. In addition to paying interest on outstanding principal under the credit facilities, the Company is required to pay a commitment fee to the lenders under the revolving credit facility in respect to the unused commitments at a rate equal to 0.50% per year. The term loan A facility, the term loan B facility and the transferable loan certificate facility will amortize each year in equal quarterly amounts in the following approximate aggregate principals amounts for each year set forth below: 18 19
Term Term Loan A Loan B TLC Year Facility Facility Facility ---- ----------- ---------- ----------- (in millions) 1........................ $ 3.13 $ 0.19 $ 0.22 2........................ 12.50 0.75 0.87 3........................ 12.50 0.75 0.87 4........................ 12.50 0.75 0.87 5........................ 12.50 0.75 0.87 6........................ 14.06 0.75 0.87 7........................ 7.81 35.72 41.43 8........................ 35.34 41.00 ----------- ---------- ----------- Total $ 75.0 $ 75.0 $ 87.0 =========== ========== ===========
Amounts outstanding under the revolving credit facility are due and payable in full at maturity, six years from the date of the closing of the credit facilities. The credit facilities contain a number of covenants that, among other things, restrict the Company's ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, repay other indebtedness, make certain restricted payments and dividends, create liens on assets, make investments, loans or advances, make certain acquisitions, engage in mergers or consolidations, make capital expenditures, enter into sale and leaseback transactions, or engage in certain transactions with affiliates and otherwise restrict the Company's corporate activities. In addition, under the credit facilities, the Company is required to comply with specified financial ratios and tests, including minimum fixed charge coverage and interest coverage ratios and maximum leverage ratios. The credit facilities also contain certain customary events of default. The notes will mature in 2009. The Company's obligations under the notes are subordinate and junior in right of payment to all of its existing and future senior indebtedness, including all indebtedness under the credit facilities. The indentures restrict, among other things, its ability to incur additional indebtedness, issue shares of disqualified stock and preferred stock, pay dividends or make certain other restricted payments and enter into certain transactions with affiliates, and impose certain restrictions on the ability of its subsidiaries to pay dividends or make certain payments to the Company, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets. In addition, the Company has 1.0 million shares of Series A Preferred Stock issued and outstanding. Holders of Series A Preferred Stock are entitled to receive dividends at an annual rate of 6% payable annually in arrears. 19 20 The Company's ability to fund its capital investment requirements, interest, principal and dividend payment obligations and working capital requirements and to comply with all of the financial covenants under its debt agreements depends on the Company's future operations, performance and cash flow. These are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond its control. OTHER MATTERS See discussion of recently issued accounting pronouncements included in Note 2 to the "Consolidated Financial Statements." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to foreign currency fluctuations and interest rate changes. Its exposure to market risk for changes in interest rates relates to the fair value of long-term fixed rate debt and interest expense of variable rate debt. The Company has historically managed interest rates through the use of, and its long-term debt is currently composed of, a combination of fixed and variable rate borrowings. Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. Based on the overall interest rate exposure on the Company's fixed rate borrowings at April 29, 2000 a 10% change in market interest rates would have less than a 5% impact on the fair value of the Company's long-term debt. Other than intercompany transactions between its domestic and foreign entities and the portion of the notes which are denominated in euro dollars, the Company generally does not have significant transactions that are denominated in a currency other than the functional currency applicable to each entity. Fluctuations in currency exchange rates may also impact its stockholders' equity. The assets and liabilities of its non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at the weighted average exchange rate for the year. The resulting translation adjustments are recorded in stockholders' equity as accumulated other comprehensive income/loss. In addition, fluctuations in the value of the euro will cause the U.S. dollar translated amounts to change in comparison to prior periods and may impact interest expense. Furthermore, the Company will revalue the outstanding euro notes at the end of each period, and the resulting change in value will be reflected in the income statement of the corresponding period. Each of its subsidiaries derives revenues and incurs expenses primarily within a single country, and consequently, does not generally incur currency risks in connection with the conduct of normal business operations. The Company uses foreign currency forward contracts to more properly align the underlying sources of cash flow with debt servicing requirements. At April 29, 2000, the 20 21 Company had long-term foreign currency forward contracts receivable with notional amounts of USD 44.0 million and EUR 52.0 million offset by foreign currency forward contracts payable with notional amounts of GBP 59.2 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information is incorporated by reference to the "Consolidated Financial Statements and Notes" on pages F-1 through F-35, together with the report thereon of Pricewaterhouse-Coopers LLP on page F-34. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE. PART III ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY The following table sets forth certain information concerning each of the Company's executive officers. All officers serve at the pleasure of the Board of Directors.
Name Age Position - ---- --- -------- Linda Huett.............55 President and Director Thomas Kiritsis.........55 Vice President and Chief Financial Officer Robert W. Hollweg.......57 Vice President, General Counsel and Secretary Clive Brothers..........46 Vice President, Continental Europe John Dennis.............43 General Manager, United Kingdom Robert Mallow...........42 Vice President, NACO Operations Scott Penn..............28 Vice President, Australasia Raymond Debbane.........45 Chairman of the Board Jonas M. Fajgenbaum.....27 Director Kent Q. Kreh............64 Director Sacha Lainovic..........44 Director Richard Penn............54 Director Christopher J. Sobecki..42 Director
21 22 Linda Huett. Ms. Huett is the President and a Director of the Company. Ms. Huett joined the Company in 1984 as a classroom leader. Ms. Huett was promoted to U.K. Training Manager in 1986. In 1990, Ms. Huett was appointed Director of the United Kingdom operation and in 1993 was appointed Vice President of Weight Watchers U.K. Ms. Huett graduated from Gustavas Adolphus College and received her Masters in Theater from Yale University. Thomas Kiritsis. Mr. Kiritsis is Vice President and Chief Financial Officer. Mr. Kiritsis joined the Company in May 2000. From June 1994 to April 2000, he was Senior Vice President of Finance of Olsten Corporation. Mr. Kiritsis received a B.B.A. in Accounting from Hofstra University and is a Certified Public Accountant. Robert W. Hollweg. Mr. Hollweg is Vice President, General Counsel and Secretary. He joined the Company in 1969 as an Assistant Counsel in the Law Department. He transferred to the Heinz Law Department subsequent to the acquisition of the Company by Heinz in 1978 and served there in various capacities. He rejoined the Company after its acquisition by Artal in September 1999. Mr. Hollweg graduated from Fordham University and received his Juris Doctor degree from Fordham University School of Law. He is a member of the American and New York State Bar Associations and a former President of the International Trademark Association. Clive Brothers. Mr. Brothers is Vice President Continental Europe. Mr. Brothers was appointed to this position in 1993. Mr. Brothers joined the Company in 1985 as Marketing Manager, U.K. In 1990, Mr. Brothers was appointed General Manager, France. Mr. Brothers received a B.A. from Leeds Polytechnic in England and a Diploma in Marketing from the Chartered Institute of Marketing. John Dennis. Mr. Dennis is General Manger, Weight Watchers (U.K.) Limited. Mr. Dennis was appointed to this position in 1999. He joined Weight Watchers (U.K.) Limited in 1992 as Head of Finance, having previously worked for Nabisco Brands Ltd. and Grand Metropolitan Foods Ltd. Mr. Dennis qualified as a member of the Chartered Institute of Management Accountants in 1984. Robert Mallow. Mr. Mallow is Vice President, NACO Operations. He joined Weight Watchers International, Inc. in 1983 as Northeastern Regional Manager, Franchise Department. In January 1986 Mr. Mallow was promoted to National Franchise Manager, Weight Watchers International Inc. In April 1987, he became Vice President, General Manager Business Operations, Weight Watchers of Syracuse, Inc. In November 1991, Mr. Mallow was promoted to Regional Field Director, Weight Watchers North America, Inc. In September 1996, Mr. Mallow was appointed to his present position. Mr. Mallow received a B.A. in Economics from the State University of New York at Cortland and an M.B.A. from the State University of New York at Binghamton. Scott Penn. Mr. Penn is Vice President, Australasia operations. Mr. Penn joined the Company in 1994 as a Marketing Services Manager in Australia. In 1996, Mr. Penn was 22 23 promoted in Australia to Group Marketing Manager and in 1997 he was promoted to General Manager-Marketing & Finance. In 1999, Mr. Penn was promoted to his present position. Raymond Debbane. Mr. Debbane became Chairman of the Board upon completion of the Transaction. Mr. Debbane is a co-founder and President of Invus. Prior to forming Invus in 1985, Mr. Debbane was a manger and consultant for The Boston Consulting Group in Paris, France. He holds an M.B.A. from Stanford Graduate School of Business, an M.S. in Food Science and Technology from the University of California, Davis and a B.S. in Agricultural Sciences and Agricultural Engineering from American University of Beirut. Mr. Debbane is director of Artal Group S.A., Ceres, Inc., Financial Technologies International Inc., Nellson Neutraceuticals, Inc. and the Advisory Board of Oxford BioScience Partners and also served as a director of Keebler Foods Company from 1996 to 1999. Jonas M. Fajgenbaum. Mr. Fajgenbaum became a Director upon completion of the Transaction. Mr. Fajgenbaum is a director at Invus. He joined the firm in 1996. Prior to joining Invus, Mr. Fajgenbaum was a consultant for McKinsey & Company in New York from 1994 to 1996. He graduated with a B.S. from the Wharton School of Business and a B.A. in Economics from the University of Pennsylvania in 1994. Kent Q. Kreh. Mr. Kreh, a Director since 1997, served as President and Chief Executive Officer of Weight Watchers International, Inc. from 1997 to 1999. He joined Weight Watchers in 1972 as Marketing Director and was named Executive Vice President and Publisher of Weight Watchers publications in 1983. Prior to joining the Company, he was employed by General Mills, Bristol Myers and Ford Motor Company. Mr. Kreh received his B.A. from the University of Missouri, Columbia. Mr. Kreh is a board member of the Public Health Research Institute, New York City, the American Obesity Association, Washington D.C. and the American Heart Association, New York City. Sacha Lainovic. Mr. Lainovic became a Director upon completion of the Transaction. Mr. Lainovic is a co-founder and Executive Vice President of Invus. Prior to forming Invus in 1985, Mr. Lainovic was a manager and consultant for the Boston Consulting Group in Paris, France. He holds an M.B.A. from Stanford Graduate School for Business and an M.S. in engineering from Insa de Lyon in Lyon, France. Mr. Lainovic is a director of Financial Technologies International Inc., Nellson Nutraceuticals, Inc., and Delta Radio, and also served as a director of Keebler Foods Company from 1996 to 1999. Richard Penn. Mr. Penn became a Director upon completion of the Transaction. From 1984 to 1999, Mr. Penn was Managing Director of Weight Watchers Australia. Mr. Penn began his career with McCann Erickson in advertising and joined the Coca-Cola Company (Australia) in 1968. Mr. Penn served as the first President of the International Weight Watchers franchise Association from 1993 to 1995. Richard Penn is the father of Scott Penn. Christopher J. Sobecki. Mr. Sobecki became a Director upon completion of the Transaction. Mr. Sobecki, a Managing Director of Invus, joined the firm in 1989. He received an M.B.A. from Harvard Business School. He also hold a B.S. in Industrial Engineering from Purdue University. Mr. Sobecki is a director of Nellson Neutraceuticals, inc. Financial Technologies International Inc. and iLife, Inc. He also served as director of Keebler Foods Company from 1996 to 1998. BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION PROGRAMS The Board of Directors oversees the Compensation Programs of the Company, with particular attention to the compensation of the Company's Chief Executive Officer and the other Executive Officers. It is the responsibility of the Board of Directors to review, recommend and approve changes to the Company's compensation policies and benefits programs, to administer the Company's stock plans, including approving stock option grants to executive officers and certain other stock option grants, and to otherwise ensure that the Company's compensation philosophy is consistent with the Company's best interests and is properly implemented. The compensation philosophy of the Company is to (i) provide a competitive total compensation package that enables the Company to attract and retain key executive and employee talent needed to accomplish the Company's goals and (ii) directly link compensation to improvements in Company financial and operational performance. Total compensation is comprised of base salary, both cash and noncash incentive compensation and is based on the Company's financial performance and other factors and is delivered through a combination of cash and equity-based awards. This approach results in overall compensation levels which follow the financial performance of the Company. The Board of Directors reviews each senior executive officer's base salary annually. In determining appropriate base salary levels, consideration is given to the officer's impact level, scope of responsibility, prior experience, past accomplishments, and data on prevailing compensation levels in relevant executive labor markets. The Board of Directors believes that granting stock options on an ongoing basis provides officers with a strong economic interest in maximizing shareholder returns over the longer term. The Company believes that the practice of granting stock options is critical to retaining and recruiting the key talent necessary at all employee levels to ensure the Company's continued success. The Board of Directors will continue to monitor the Company's compensation program in order to maintain the proper balance between cash compensation and equity-based incentives and may consider further revisions in the future, although it is expected that equity-based compensation will remain one of the principal components of compensation. 23 24 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth, for the fiscal years ended April 29, 2000 and April 24, 1999, the compensation paid to the Company's President and to each of the next four most highly compensated executive officers whose total annual salary and bonus was in excess of $100,000.
LONG-TERM COMPENSATION -------------- AWARD(1) ANNUAL -------------- COMPENSATION SECURITIES ------------------ UNDERLYING ALL OTHER SALARY BONUS OPTIONS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) (NO. AWARDED) ($)(2) - ---------------------------------------------- -------- ------- ------------------ ------------- LINDA HUETT President Officer.............................. 2000 183,750 215,159 71,385 288,905 1999 138,574 219,435 40,000 - CLIVE BROTHERS Vice President Continental Europe................... 2000 143,423 158,597 71,385 12,908 1999 138,574 219,435 40,000 - ROBERT MALLOW Vice President Weight Watchers North America 2000 162,839 79,244 71,385 10,005 1999 124,380 213,547 35,000 27,218 JOHN DENNIS General Manager United Kingdom 2000 108,702 112,338 17,846 9,710 1999 89,667 48,871 500 7,998 STEPHANIE KONECOFF Vice President Franchise Business Relations.... 2000 126,792 65,828 71,385 10,021 1999 121,266 165,830 11,000 10,000 KENT KREH(3) President And Chief Executive Officer.............................. 2000 118,385 - - - 1999 231,048 651,511 90,000 140,552
- ------------------------------------------------- (1) Awards of stock were made to the named executives. Prior to 9/29/99, options were granted to the named executives under the H.J. Heinz, 1996 Stock Option Plan. Subsequent to 9/29/99, options were granted to named executives under the 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries and Weight Watchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries. (2) Includes amounts contributed under the Weight Watchers 401(k) Savings Plan and the Weight Watchers Non-Qualified Executive Profit Sharing Plan of $5,661 for Ms. Huett, $10,005 for Mr. Mallow, and $10,021 for Ms. Konecoff. Includes contributions to the UK Pension Plan of $283,244 for Ms. Huett and $12,908 for Mr. Brothers. (3) Mr. Kreh resigned his position from Weight Watchers International as of 9/29/99. 24 25 In December 1999 the Board of Directors adopted the "1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries", pursuant to which selected employees were afforded the opportunity to purchase shares of the Company's common stock and/or were granted options to purchase shares of the Company's common stock. The number of shares available for grant under this plan is 1,200,000 shares of authorized common stock of the Company. The following table sets forth certain information regarding options granted during fiscal year ended April 29, 2000, to the named executive officers under the Weight Watchers International, Inc. and Subsidiaries Option Plan.
Weight Watchers International, Inc. and Subsidiaries Option Grants for the fiscal year ended April 29, 2000 Individual Grants ------------------------------------------------------------------------------------------ Number of Percent of Total Securities Options Underlying Granted to Exercise or Grant Date Options Employees in Base Price Expiration Present Name Granted (1) Fiscal Year (2) ($/Share) Date Value ($)(3) - ----------------------- -------------- ------------------ ----------- --------- -------------- Linda Huett............. 60,000 5.72% $ 10.00 12/17/09 291,600 Clive Brothers.......... 60,000 5.72% $ 10.00 12/17/09 291,600 Robert Mallow........... 60,000 5.72% $ 10.00 12/17/09 291,600 John Dennis............. 15,000 1.43% $ 10.00 12/17/09 72,900 Stephanie Konecoff...... 60,000 5.72% $ 10.00 12/17/09 291,600 - -----------------------
(1) Options were granted on December 17, 1999 pursuant to the terms of the option plan. No options under the plan were exercised during fiscal year ended April 29, 2000. Options are exercisable based on vesting provisions outlined in the agreement. (2) Percentage of total options granted are based on total grants made to all employees during fiscal year ended April 29, 2000. (3) The estimated grant date's present value is determined using the Black-Scholes model. The adjustments and assumptions incorporated in the Black-Scholes model in estimating the value of the grants include the following: (a) exercise price of options equals the fair market value of the underlying stock on the date of grant; (b) option term 10 years; (c) dividend yield and volatility of 0%; and (d) a risk free interest rate ranging from 6.49% to 6.65%. The ultimate value, if any, an optionee will realize upon exercise of an option will depend on the excess of the market value of the Company's common stock over the exercise price on the date the option is granted. 25 26 In April 2000 of Weight Watchers International, Inc. and subsidiaries, the Board of Directors adopted the "WeightWatchers.com Stock Incentive Plan", pursuant to which selected employees were granted options to purchase shares of common stock of WeightWatchers.com, Inc. that are owned by the Company. The number of shares available for grant under this Plan is 400,000 shares of authorized common stock of WeightWatchers.com, Inc. The following table sets forth certain information regarding options granted during fiscal year ended April 29, 2000, to the named executive officers under the WeightWatchers.com Option Plan.
Weight Watchers.com Option Grants for the fiscal year ended April 29, 2000 Individual Grants ------------------------------------------------------------------------------------------ Number of Percent of Total Securities Options Underlying Granted to Exercise or Grant Date Options Employees in Base Price Expiration Present Name Granted (1) Fiscal Year (2) ($/Share) Date Value ($)(3) - ----------------------- -------------- ------------------ ----------- --------- -------------- Linda Huett............. 11,385 7.73% .01 4/28/10 1,822 Clive Brothers.......... 11,385 7.73% .01 4/28/10 1,822 Robert Mallow........... 11,385 7.73% .01 4/28/10 1,822 John Dennis............. 2,846 1.93% .01 4/28/10 455 Stephanie Konecoff...... 11,385 7.73% .01 4/28/10 1,822 - -----------------------
(1) Options were granted on April 28, 2000 pursuant to the terms of the option plan. Options are exercisable based on vesting provisions outlined in the agreement. (2) Percentage of total options granted are based on total grants made to Weight Watchers employees during fiscal year ended April 29, 2000. (3) The estimated grant date's present value is determined using the Black-Scholes model. The adjustments and assumptions incorporated in the Black-Scholes model in estimating the value of the grants include the following: (a) price paid per share of $.01; (b) option term 10 years; (c) dividend yield and volatility of 0%; and (d) a risk free interest rate of 6.5%. The ultimate value, if any, an optionee will realize upon exercise of an option will depend on the excess of the market value of the Company's common stock over the exercise price on the date the option is granted. 26 27 Certain qualifying employees of the Company were granted options to purchase common stock under the H.J. Heinz Stock Option Plan. Options under the plan have been granted at not less than market prices on the date of grants. The following table sets forth certain information regarding Heinz options granted during fiscal year ended April 24, 1999, to the named executive officers:
H.J. Heinz Option Grants for the Fiscal Year ended April 24, 1999 Individual Grants ------------------------------------------------------------------------------------------------------ Percent of Total Number of Securities Options Granted to Exercise or Grant Date Underlying Options Employees in Fiscal Base Price Expiration Present Value Name Granted Year (3) ($/Share) Date ($)(4) - ---------------------- -------------------- ---------------------- --------------- ------------- --------------- Kent Q. Kreh.......... 40,000(1) 0.45% 54.625 6/9/08 467,200 50,000(2) 0.56% 49.6875 4/20/09 634,000 Linda Huett........... 15,000(1) 0.17% 54.625 6/9/08 175,200 25,000(2) 0.28% 49.6875 4/20/09 317,000 Clive Brothers........ 15,000(1) 0.17% 54.625 6/9/08 175,200 25,000(2) 0.28% 49.6875 4/20/09 317,000 Robert Mallow......... 10,000(1) 0.11% 54.625 6/9/08 116,800 25,000(2) 0.28% 49.6875 4/20/09 317,000 John Dennis........... -(1) - - - - 500(2) 0.00% 49.6875 4/20/09 6,340 Stephanie Konecoff.... 4,000(1) 0.04% 54.625 6/9/08 46,720 7,000(2) 0.08% 49.6875 4/20/09 88,760 - ----------------------
(1) Options were granted on June 10, 1998 pursuant to the terms of Heinz's 1996 Stock Option Plan. The fair value of the stock was $54.625 on the date of grant. Options to purchase 40% of the shares granted vested on June 10, 1999 and the remaining options became exercisable upon closing of the Transaction. (2) Options were granted on April 21, 1999 pursuant to the terms of Heinz's 1996 Stock Option Plan and these options vested upon closing of the Transaction. (3) Percentages of total options granted are based on total grants made to all Heinz employees. (4) The estimated grant date's present value is determined using the Black-Scholes model. The material assumptions and adjustments incorporated in the Black-Scholes model in estimating the value of the option grants referred to in Note (1) include the following: (a) exercise price of the options equal to the fair market value of the underlying stock on the date of grant; (b) option term of 10 years; (c) dividend yield of 2.15%; (d) a risk-free interest rate of 5.8%; and (e) volatility of 22.8%. The material assumptions and adjustments with respect to the options grants referred to in Note (2) include the following: (a) exercise price of the options equal to the fair market value of the underlying stock on the date of grant; (b) option term of 10 years; (c) dividend yield of 2.6%; (d) a risk-free interest rate of 5.18%; and (e) volatility of 27.1%. The ultimate values of the options will depend on the future market price of Heinz's stock, which cannot be forecast. The actual value, if any, an optionee will realize upon exercise of an option will depend on the excess of the market value of Heinz's common stock over the exercise price on the date the option is exercised. 27 28 DIRECTOR COMPENSATION Kent Q. Kreh receives $25,000 per year for his services as director and Richard Penn receives $50,000 for his services. Other directors do not receive compensation, except in their capacity as officers or employees. EMPLOYMENT AGREEMENTS AND SEVERANCE POLICIES As of August 30, 1996, the Company entered into an employment agreement with Robert Mallow, Vice President of NACO Operations. Mr. Mallow's employment agreement provides for a base salary, subject to increases, and for participation in an annual incentive bonus scheme. Under the letter agreement, in the event of a termination of Mr. Mallow's employment by the Company for just cause (which term is not defined in the agreement), Mr. Mallow is eligible for salary continuation for a period of one year from the date of termination. The Company is in the process of establishing a severance policy to cover all full-time salaried employees. It is intended that the severance policy will provide continuation of base salary for employees for some period of time after an individual's employment is terminated under specified circumstances. The Company is still in the process of establishing the guidelines for this policy. EXECUTIVE SAVINGS AND PROFIT SHARING PLAN The Company sponsors the Weight Watchers Savings Plan for salaried and eligible hourly employees, a defined contribution plan which provides for employer matching contributions up to 100% of the first 3% of an employee's eligible compensation. The Savings Plan also permits employees to contribute between 1% and 13% of eligible compensation on a pre-tax basis. The Company has established the Weight Watchers Executive Profit Sharing Plan, which provides a nonqualified profit sharing plan for key management personnel who are not eligible to participate in the Weight Watchers Profit Sharing Plan. This nonqualified profit sharing plan has similar features as the Weight Watchers Profit Sharing Plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's common stock by (1) all persons known by the Company to own beneficially more than 5% of the Company's common stock, (2) each director who is a stockholder, (3) the President and each of the named executive officers and (4) all directors and executive officers as a group.
SHARES NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS - ------------------------------------ ----- ---------------- Artal Luxembourg S.A. (1)...................... 21,083,200 88.6% 105 Grand-Rue Luxembourg City, Luxembourg L-1661 H.J. Heinz Company............................. 1,428,000 6.0% 600 Grant Street Pittsburgh, Pennsylvania 15219 Linda Huett (3)(4)............................. 20,000 * Clive Brothers (3)............................. 20,000 *
28 29
John Dennis (3) .................................. 5,000 * Robert Mallow (3) ................................ 20,000 * Stephanie Konecoff (3) ........................... 20,000 * Richard Penn (4) ................................. 250,000 1.1% All directors and executive officers as a group .. 370,000 1.6%
(1) The parent entity of Artal Luxembourg S.A. is Artal Group S.A. ("Artal Group"). The address of Artal Group is the same as the address of Artal Luxembourg. (2) The Company's directors and officers may be contacted c/o Weight Watchers International, Inc., 175 Crossways Park West, Woodbury, New York, 11797. (3) Executive Officer (4) Director ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The summaries of the agreements described below are not complete. You should read the agreements in their entirety, copies of which are available upon request from the Company. STOCKHOLDERS' AGREEMENT Simultaneously with the closing of the Transaction, the Company entered into a stockholders' agreement with Artal and Heinz governing the relationship between and among the Company and these holders of its common stock. Subsequent transferees of Artal and Heinz must, subject to certain limited exceptions, agree to be bound by the terms and provisions of the agreement. The stockholders' agreement imposes on Heinz certain restrictions on the transfer of the Company's common stock until the earlier to occur of (1) the fifth anniversary of the Transaction and (2) its initial public offering of common stock under the Securities Act, subject to certain exceptions. Heinz will have the right to participate pro rata in certain transfers of the Company's common stock by Artal, and Artal will have the right to force Heinz to participate on a pro rata basis on certain transfers of the Company's common stock by Artal. REGISTRATION RIGHTS AGREEMENT Simultaneously with the closing of the Transaction, the Company entered into a registration rights agreement with Artal and Heinz. The registration rights agreement grants Artal certain demand rights and grants Artal and Heinz certain incidental registration rights to register their shares of the Company's common stock for public sale under the Securities Act. PREFERRED STOCKHOLDERS' AGREEMENT Simultaneously with the closing of the Transaction, the Company entered into a preferred stockholders' agreement with Heinz governing the relationship between and among the Company and the holders of its Series A Preferred Stock. Subsequent transferees of Heinz, subject to certain limited exceptions, must agree to be bound by the terms and provisions of this agreement. The preferred stockholders' agreement imposes on Heinz certain restrictions on transfer of the Company's Series A Preferred Stock until the second anniversary of the Transaction. In addition, at any time after the second anniversary but prior to the fifth anniversary of the Transaction, the Company, Artal and the Company's respective designees will have a right of first refusal with respect to transfers of the Company's preferred stock by Heinz. 29 30 LIMITED LIABILITY COMPANY AGREEMENT Simultaneously with the closing of the Transaction, the Company contributed $2,500 in exchange for a 50% membership interest in WW Foods, LLC (the "LLC"), a Delaware limited liability company. Heinz owns the remaining 50% interest. The purpose of the LLC is to own, maintain and preserve certain food and beverage trademarks to be contributed to the LLC by Heinz. The LLC serves as the vehicle for licensing certain rights in those food and beverage trademarks to the Company and to Heinz, and for the licensing of program information by the Company to Heinz. LICENSING AGREEMENTS The licensing agreements govern the ownership and rights to use Weight Watchers and other trademarks, service marks and related rights among the Company, Heinz and the LLC. As described below, the licensing agreements and the recapitalization and stock purchase agreement address the parties' respective ownership and rights to use food and beverage trademarks, service marks, program standards, program information, program information trademarks and third party licenses. Heinz is also a party to the operating agreement, which will help preserve and enhance these trademarks, service marks and related rights and will facilitate their orderly use by each party. Food and Beverage Trademarks Under the licensing agreements and recapitalization and stock purchase agreement, the Company distributed to Heinz and Heinz contributed to the LLC all Weight Watchers trademarks and certain other trademarks the Company owned relating to food and beverage products ("Food & Beverage Trademarks"), except for certain trademarks previously used by Heinz in connection with the Food & Beverage Trademarks that do not include the Weight Watchers name (including, for example, Smart Ones), which the Company distributed to Heinz and Heinz retained (the "Heinz Retained Trademarks"). At the closing of the Transaction, the LLC granted an exclusive, worldwide, royalty-free license to use the Food & Beverage Trademarks (1) to Heinz, for worldwide use on food products in certain defined product categories (including frozen dinners, frozen breakfasts, frozen desserts (excluding ice cream), frozen pizza and pizza snacks, frozen potatoes, frozen rice products, ketchup, tomato sauce, gravy, canned tuna or salmon products, soup, noodles (excluding pasta), and canned beans and pasta products), and for use only in Australia and New Zealand in certain additional food product categories (including mayonnaise, frozen vegetables, canned fruits and canned vegetables) (the "Heinz Licensed Products"); and (2) to us, for use on all other food and beverage products (the "Weight Watchers Licensed Products"). The Company may promote, endorse and sell both Heinz Licensed Products and Weight Watchers Licensed Products through its classroom business and related activities, subject to certain non-competition provisions with Heinz. Additionally, the Company may continue to sell any food and beverage product (or comparable product) sold by it in a particular country within the year preceding the closing of the Transaction, even if that product is a Heinz Licensed Product, but may do so only within that country and by using the same channels of distribution through which the product was sold during that one-year period. Certain Food & Beverage Trademarks and trademark applications were not distributed to Heinz for contribution to the LLC. These trademarks and trademark applications include (1) trademarks consisting of registrations in multiple trademark classes, where such classes include both food and beverage product classes and classes relating to other types of products or services ("Multi-Class Registrations"); (2) pending applications that could not be transferred until a registration is granted; (3) trademark registrations and applications in countries that do not recognize ownership of trademarks by an entity such as the LLC; (4) trademark registrations and applications in countries where the local law imposes restrictions or limitations on the ownership or registration of similar trademarks by unrelated parties; and 30 31 (5) the Program Information Trademarks (as defined below). The Company retained legal ownership of the Food & Beverage Trademarks identified in clauses (1) through (4) above (the "Custodial Trademarks") which are held in custody for the benefit of the LLC. At the closing of the Transaction, the Company granted to Heinz an exclusive, worldwide, royalty-free license to use the Custodial Trademarks (or any portion covering food and beverage products) in connection with Heinz Licensed Products. The Company has undertaken to contribute any of the Custodial Trademarks (or any portion covering food and beverage products) to the LLC if the LLC determines that the transfer may be achieved under local law. If local law does not permit an existing Multi-Class Registration to be severed so as to reflect separate ownership of registrations in food and beverage product classes from registrations in classes covering other types of products or services, (1) the LLC will apply for new registrations to cover the food and beverage products, (2) the Company will cancel the portion of the Multi-Class Registration covering food and beverage products upon issuance of the new registrations and (3) the Company will retain ownership of all remaining portions of the Multi-Class Registration. Heinz will pay the Company an annual fee of $1.2 million for five years in exchange for the Company's serving as the custodian of the Custodial Trademarks. Other Marks The licensing agreements provide that the Company retain exclusive ownership of all service marks and trademarks other than food and beverage trademarks and, except for the rights granted to the LLC and to Heinz, the Company has the exclusive right to use all these marks for any purpose, including their use as trademarks for all products other than food and beverage products. Program Standards The licensing agreements and operating agreement provide that the Company has exclusive control of the dietary principles (the "Standards") to be followed in any eating or lifestyle regimen to facilitate weight loss or weight control employed by the classroom business (a "Program"), such as 1-2-3 SUCCESS. Except for certain limitations concerning products currently sold and extensions of existing product lines, Heinz will use the Food & Beverage Trademarks and Custodial Trademarks only on Heinz Licensed Products that have been specially formulated to be compatible with the then-current Program Standards. The Company will have exclusive responsibility for enforcing compliance with the Standards. Program Information and Program Information Trademarks The licensing agreements and the recapitalization and stock purchase agreement provide that the Company retain exclusive ownership of all Program Information, consisting of (1) all information and know-how relating to any Program, (2) all terminology and (3) all trademarks or service marks used to identify the programs or terminology ("Program Information Trademarks"). The Company granted an exclusive, worldwide, royalty-free license to the LLC (for sublicense to Heinz) to use the terminology and Program Information Trademarks on Heinz Licensed Products, and the Company provided the LLC (and through the LLC, Heinz) with access to and a right to use this information as may be reasonably necessary to develop, manufacture or market food and beverage products in accordance with the Standards. Heinz granted a worldwide, royalty-free license to the LLC to use certain improvements that Heinz may develop in the course of its use of Program Information, which the LLC sublicensed in turn to the Company. Third Party Licenses Under the licensing agreements the Company assigned to Heinz all licenses that the Company previously granted to third parties, and Heinz retained all existing sublicenses granted by it to third parties under a license previously granted to Heinz, that relate to the manufacture, distribution or sale of food and beverage products ("Third Party Licenses"). Heinz assumed the Company's obligations under the Third Party Licenses, and has the right to collect and keep all proceeds from the Third Party Licenses for a period of five years. Ownership of the Third Party Licenses, to the extent they pertain to Weight Watchers Licensed Products, will be transitioned to the Company over the five-year period. All proceeds from any Third Party License that cannot be transitioned to the Company 31 32 by the end of that five-year period will thereafter be collected by Heinz and paid over to the Company. Any sublicense granted after the closing date of the Transaction by Heinz or the Company relating to use of the Food & Beverage Trademarks must conform to the terms of the licenses granted to each Heinz and the Company by the LLC. MANAGEMENT AGREEMENT Simultaneously with the closing of the Transaction, the Company entered into a management agreement with The Invus Group, LTD, an independent investment arm of Artal, pursuant to which Invus renders to the Company management, consulting and certain other services in exchange for an annual fee equal to the greater of $1.0 million and 1.0% of the Company's EBITDA (as defined in the indentures) and any related out-of-pocket expenses. TRANSITION SERVICES The recapitalization and stock purchase agreement provides that Heinz will continue to provide administrative services to the Company for approximately one year. WEIGHTWATCHERS.COM SUBSCRIPTION AGREEMENT On September 29, 1999 the Company entered into a subscription agreement with WeightWatchers.com, Artal and Heinz under which Artal, Heinz and the Company purchased common stock of WeightWatchers.com for a nominal amount. As of April 29, 2000, the Company owns approximately 19.8% of WeightWatchers.com's common stock while Artal and Heinz own 75.4% and 4.8%, respectively, of WeightWatchers.com's common stock. WEIGHTWATCHERS.COM NOTE The Company has agreed to loan to WeightWatchers.com up to an aggregate principal amount of $10.0 million at any time or from time to time prior to October 31, 2000. The unpaid principal amount under the note will bear interest at a rate of 11% per year. All principal and interest outstanding under the note will be repayable on December 30, 2000. The note may be prepaid at any time and from time to time, in whole or in part, without premium or penalty. During 2000, the Company loaned WeightWatchers.com $2.0 million pursuant to the note. WEIGHTWATCHERS.COM WARRANT AGREEMENT Under a warrant agreement entered into between WeightWatchers.com and the Company, the Company has received warrants to purchase an additional 20.2% of WeightWatchers.com's common stock in connection with the loans that the Company has made to WeightWatchers.com under the WeightWatchers.com note described above. These warrants will expire on November 24, 2009 and may be exercised at a price of $7.14 per share of WeightWatchers.com's common stock until then. The exercise price and the number of shares of WeightWatchers.com's common stock available for purchase upon exercise of the warrants may be adjusted from time to time upon the occurrence of certain events. WEIGHTWATCHERS.COM INTERNET LICENSE AGREEMENT WeightWatchers.com will develop a web site on the Internet that uses the WeightWatchers brand name and other proprietary information for "e-commerce" and related purposes. Prior to the closing of the Company's Transaction, and except for some existing agreements, the Company granted WeightWatchers.com an exclusive license to use all of the Company's trademarks, copyrights and domain names on the Internet and any other similar or related forms of electronic delivery or digital transmission (other than broadband technology) that now exist or may be developed later. In exchange for 32 33 these rights, WeightWatchers.com will pay the Company 10% of its annual net profit related to its Internet activities. The Company and WeightWatchers.com are currently renegotiating the provisions of the license agreement and, among other things, expect to amend the licensing fee to reflect a revenue-based royalty scheme. WEIGHTWATCHERS.COM STOCKHOLDERS' AGREEMENT The Company entered into a stockholders' agreement with WeightWatchers.com, Artal and Heinz governing the relationship between and among WeightWatchers.com and Artal, Heinz and the Company as holders of common stock of WeightWatchers.com. Subsequent transferees of Artal, Heinz and the Company must, except for some limited exceptions, agree to be bound by the terms and provisions of the agreement. The stockholders' agreement imposes on Heinz and the Company certain restrictions on the transfer of common stock of WeightWatchers.com until the earlier to occur of (1) the fifth anniversary of the Transaction and (2) WeightWatchers.com's initial public offering of common stock under the Securities Exchange Act, except for certain exceptions. Heinz and the Company have the right to participate pro rata in certain transfers of common stock of WeightWatchers.com by Artal, and Artal has the right to force Heinz and the Company to participate on a pro rata basis in certain transfers of WeightWatchers.com's common stock by Artal. WEIGHTWATCHERS.COM REGISTRATION RIGHTS AGREEMENT The Company entered into a registration rights agreement with WeightWatchers.com, Artal and Heinz with respect to its shares in WeightWatchers.com. The registration rights agreement grants Artal certain demand rights and grants Artal, Heinz and the Company certain incidental registration rights to register shares of WeightWatchers.com's common stock for public sale under the Securities Exchange Act. NELLSON CO-PACK AGREEMENT On February 8, 1999, the Company entered into an agreement with Nellson Neutraceutical, Inc., a subsidiary of Artal, to purchase nutrition bar products manufactured by Nellson for sale at the Company's meetings. Under the agreement, Nellson agrees to produce sufficient nutrition bar products to fill the Company's purchase orders within 30 days of Nellson's receipt of these purchase orders, and the Company is not bound to purchase a minimum quantity of nutrition bar products. The term of the agreement is two years, and the Company may renew the agreement for successive one-year periods by providing written notice to Nellson. 33 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORT ON FORM 8-K. (a) 1. Financial Statements The financial statements listed in the Index to Financial Statements and Financial Statement Schedule on page F-1 are filed as part of this Form 10-K. 2. Financial Statement Schedule The financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedule on page F-1 is filed as part of this Form 10-K. 3. Exhibits The exhibits listed in the Exhibit Index are filed as part of this Form 10-K report. (b) Reports on Form 8-K None. 34 35 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS ITEMS 14(a) 1&2
PAGES ----- Consolidated Balance Sheets as of April 29, 2000 and April 24, 1999 F-2 Consolidated Statements of Operations for the fiscal years ended F-3 April 29, 2000, April 24, 1999 and April 25, 1998 Consolidated Statements of Changes in Stockholders' Deficit, Parent F-4 Company Investment and Comprehensive Income for the fiscal years ended April 29, 2000, April 24, 1999 and April 25, 1998 Consolidated Statements of Cash Flows for the fiscal years ended F-5 April 29, 2000, April 24, 1999 and April 25, 1998 Notes to Consolidated Financial Statements F-6-33 Report of Independent Accountants F-34 Schedule II - Valuation and Qualifying Accounts and Reserves for the F-35 fiscal years ended April 29, 2000, April 24, 1999 and April 25, 1998.
All other schedules are omitted for the reason that they are either not required, not applicable, not material or the information is included in the consolidated financial statements or notes thereto. F-1 36 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF APRIL 29, 2000 AND APRIL 24, 1999 (IN THOUSANDS) - --------------------------------------------------------------------------------
April 29, April 24, ASSETS 2000 1999 --------------------- ------------------- CURRENT ASSETS Cash and cash equivalents $ 44,043 $ 19,515 Receivables (net of allowances: 2000-$609; 1999-$994) 12,877 11,403 Notes receivable, current 2,791 3,266 Inventories 9,328 7,580 Prepaid expenses 8,360 7,598 Deferred income taxes 94 3,609 Due from related parties - 133,783 --------------------- ------------------- TOTAL CURRENT ASSETS 77,493 186,754 --------------------- ------------------- Property and equipment, net 7,001 8,725 Notes and other receivables, noncurrent 7,045 19,165 Goodwill (net of accumulated amortization: 2000-$55,430;1999-$49,888) 152,565 143,714 Trademarks and other intangible assets (net of accumulated 7,163 8,113 amortization: 2000-$17,638; 1999 - $18,982) Deferred income taxes 67,574 4,133 Deferred financing costs 14,666 - Other noncurrent assets 700 830 --------------------- ------------------- TOTAL ASSETS $ 334,207 $ 371,434 ===================== =================== LIABILITIES, REDEEMABLE PREFERRED STOCK AND PARENT COMPANY'S INVESTMENT/STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Short-term borrowings and line of credit $ - $ 6,690 Short-term borrowings due to related party 1,489 16,250 Portion of long-term debt due within one year 14,120 1,164 Accounts payable 12,362 12,710 Salaries and wages 10,125 11,285 Accrued interest 4,082 2,176 Accrued restructuring costs 4,786 7,690 Foreign currency contract payable 486 7,169 Other accrued liabilities 19,583 16,044 Income taxes 6,786 7,962 Deferred revenue 4,632 6,414 --------------------- ------------------- TOTAL CURRENT LIABILITIES 78,451 95,554 --------------------- ------------------- Long-term debt 460,510 15,500 Deferred income taxes 2,941 8,228 Other 546 3,204 --------------------- ------------------- TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 463,997 26,932 --------------------- ------------------- Redeemable preferred stock 25,875 - Common stock, par value $0 per share, 23,800 shares authorized, issued and outstanding - - Accumulated deficit (231,663) - Accumulated other comprehensive loss (2,453) - Parent company's investment - 248,948 --------------------- ------------------- TOTAL PARENT COMPANY'S INVESTMENT AND STOCKHOLDERS' DEFICIT (234,116) 248,948 --------------------- ------------------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, PARENT COMPANY'S INVESTMENT AND STOCKHOLDERS' DEFICIT $ 334,207 $ 371,434 ===================== ===================
The accompanying notes are an integral part of the consolidated financial statements. F-2 37 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED APRIL 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
APRIL 29, APRIL 24, APRIL 25 2000 1999 1998 -------------------- ----------------- ------------------- (53 WEEKS) (52 WEEKS) (52 WEEKS) Revenues, net $ 399,574 $ 364,608 $ 297,245 Cost of revenues 201,389 178,925 159,961 -------------------- ----------------- ------------------- Gross profit 198,185 185,683 137,284 Marketing expenses 51,453 52,856 49,227 Selling, general and administrative expenses 50,743 48,912 44,067 Transaction costs 8,345 - - -------------------- ----------------- ------------------- Operating income 87,644 83,915 43,990 Interest income 5,792 16,027 13,452 Interest expense (36,871) (8,859) (8,576) Other income (expense) net 10,351 (5,248) (4,281) -------------------- ----------------- ------------------- Income before income taxes and minority interest 66,916 85,835 44,585 Provision for income taxes 28,323 36,360 19,969 -------------------- ----------------- ------------------- Income before minority interest 38,593 49,475 24,616 Minority interest 834 1,493 845 -------------------- ----------------- ------------------- Net income $ 37,759 $ 47,982 $ 23,771 ==================== ================= ===================
The accompanying notes are an integral part of the consolidated financial statements. F-3 38 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT, PARENT COMPANY INVESTMENT AND COMPREHENSIVE INCOME FOR THE THREE YEARS ENDED APRIL 29,2000 (IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER PARENT COMMON STOCK PAID IN COMPREHENSIVE ACCUMULATED COMPANY'S SHARES AMOUNT CAPITAL LOSS DEFICIT INVESTMENT TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- Balance April 26, 1997 $ 188,936 $ 188,936 Comprehensive Income: Net income (10,212) 23,771 Translation adjustment (10,212) --------- Total Comprehensive Income 13,559 --------- Net Parent advances 29,115 29,115 Dividend (2,521) (2,521) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at April 25, 1998 229,089 229,089 Comprehensive Income: Net income 47,982 47,982 Translation adjustment 19,660 19,660 -- --------- Total Comprehensive Income 67,642 --------- Net Parent settlements (42,851) (42,851) Dividend (4,932) (4,932) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at April 24, 1999 248,948 248,948 Net Parent settlements (252,883) (252,883) Recapitalization and settlement of Parent company investment 23,800 $-- $(72,100) $ (12,764) $(268,547) 3,935 (349,476) Deferred tax asset 72,100 72,100 Comprehensive Income: Net income 37,759 37,759 Translation adjustment 10,311 10,311 --------- Total Comprehensive Income 48,070 --------- Preferred stock dividend (875) (875) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at April 29, 2000 23,800 $-- $ -- $ (2,453) $(231,663) $ -- $(234,116) ==================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. F-4 39 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED APRIL 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
April 29, April 24, April 25, 2000 1999 1998 --------- --------- --------- (53 Weeks) (52 Weeks) (52 Weeks) Operating activities: Net income $ 37,759 $ 47,982 $ 23,771 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 10,398 9,586 8,775 Deferred tax provision 6,883 9,279 15,563 Allowance for doubtful accounts 385 (118) (143) Reserve for inventory obsolescence (121) 2,525 (3,489) Other items, net (2,492) 38 415 Changes in cash due to: Receivables 12,654 (7,041) (2,348) Inventories (1,696) (2,451) 664 Prepaid expenses (801) (1,454) 1,913 Due from related parties (14,765) 3,693 (8,610) Accounts payable (1,512) 3,083 (2,250) Accrued liabilities 5,780 (10,076) (414) Deferred revenue (1,753) (716) 1,872 Income taxes (834) 3,571 647 --------- --------- --------- Cash provided by operating activities 49,885 57,901 36,366 --------- --------- --------- Investing activities: Capital expenditures (1,874) (2,474) (3,389) Acquisitions, net of cash acquired - - (1,412) Acquisitions of minority interest (15,900) - - Other items, net (1,867) (565) (121) --------- --------- --------- Cash used for investing activities (19,641) (3,039) (4,922) --------- --------- --------- Financing activities: Net (decrease) increase in short-term borrowings (5,455) 856 (2,174) Proceeds from borrowings 491,260 - - Repurchase of common stock (324,476) - - Payment of dividends (2,796) (10,368) (8,470) Payments on long-term debt (3,530) (1,081) (1,368) Deferred financing cost (15,861) - - Net Parent settlements (131,030) (37,076) (18,630) --------- --------- --------- Cash provided by (used for) financing activities 8,112 (47,669) (30,642) --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents (13,828) 493 (44) Net increase in cash and cash equivalents 24,528 7,686 758 Cash and cash equivalents, beginning of year 19,515 11,829 11,071 --------- --------- --------- Cash and cash equivalents, end of year $ 44,043 $ 19,515 $ 11,829 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-5 40 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1.BASIS OF PRESENTATION: Weight Watchers International, Inc. (the "Company") operates and franchises territories offering weight loss and control programs through the operation of classroom type meetings to the general public in the United States, Canada, Mexico, the United Kingdom, Continental Europe, Australia, New Zealand, South Africa, Latin America and South America. Recapitalization On September 29, 1999, the Company effected a recapitalization and stock purchase agreement (the "Transaction") with its former parent, H.J. Heinz Company ("Heinz"). The Company redeemed shares of common stock from Heinz for $349.5 million. The $349.5 million consisted of $324.5 million of cash and $25.0 million of the Company's redeemable Series A Preferred Stock. After the redemption, Artal Luxembourg S.A. purchased 94% of the Company's remaining common stock from Heinz for $223.7 million. The Transaction was financed through borrowings under credit facilities amounting to approximately $237.0 million and by issuing Senior Subordinated Notes amounting to $255.0 million, due 2009. The balance of the borrowings was utilized to refinance debt incurred prior to the Transaction relating to the transfer of ownership and acquisition of the minority interest in the Weight Watchers businesses that operate in Australia and New Zealand. The acquisition of the minority interest resulted in approximately $15.9 million of goodwill. In connection with the Transaction, the Company incurred approximately $8.3 million in transaction costs and $15.9 million in deferred financing costs. For U.S. Federal and State tax purposes, the Transaction is being treated as a taxable sale under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. As a result, for tax purposes, the Company will record a step-up in the tax basis of net assets. For financial reporting purposes, a valuation allowance of approximately $72.1 million has been established against the corresponding deferred tax asset as management has concluded it is more likely than not that this amount will not be utilized to reduce future tax payments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year ends on the Saturday nearest April 30, which was April 29, April 24 and April 25 for 2000, 1999 and 1998, respectively. However, in order to facilitate timely reporting, certain foreign subsidiaries end their fiscal year one month prior to the fiscal years referenced above and have no material impact on the consolidated financial statements. Use of Estimates: The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure 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 these estimates. F-6 41 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Translation of Foreign Currencies: For all foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in net income for the period. Cash Equivalents: Cash and cash equivalents are defined as highly liquid investments with original maturities of three months or less. Inventories: Inventories, which consist of finished goods, are stated at the lower of cost or market on a first-in, first-out basis, net of reserves. Property and Equipment: Property and equipment are recorded at cost. For financial reporting purposes, equipment is depreciated on the straight-line method over the estimated useful lives of the assets (5 to 10 years). Leasehold improvements are amortized on the straight-line method over the shorter of the term of the lease or the useful life of the related assets (5 to 10 years). Accelerated depreciation methods are generally used for income tax purposes. Expenditures for new facilities and improvements that substantially extend the useful life of an asset are capitalized. Ordinary repairs and maintenance are expensed as incurred. When assets are retired or otherwise disposed of, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income. Intangibles: Goodwill, trademarks and other intangibles arising from acquisitions, including the acquisition of previously franchised areas, are being amortized on a straight-line basis over periods ranging from 3 to 40 years. The Company regularly reviews the individual components of the balances by evaluating the future cash flows of the businesses to determine the recoverability of the assets and recognizes, on a current basis, any diminution in value. Amortization of goodwill, trademarks and other intangibles for 2000, 1999 and 1998 was $6.4 million, $6.0 million and $5.6 million, respectively. The Company accounts for software costs under the AICPA Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP No. 98-1 requires capitalization of certain costs incurred in connection with developing or obtaining internally used software. Software costs are amortized over 3 to 5 years. F-7 42 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Revenue Recognition: The Company earns revenue by conducting meetings, selling products and aids in its own facilities, by collecting commissions from franchisees operating under the Weight Watchers name and by collecting royalties related to licensing agreements. Revenue is recognized when services are rendered, products are sold and commissions and royalties are earned. Deferred revenue, consisting of prepaid lecture income, is amortized into income over the period earned. Advertising Costs: Advertising costs consist primarily of national and local direct mail, television, and spokesperson's fees. All costs related to advertising are expensed in the period incurred. Total advertising expenses for 2000, 1999, and 1998 were approximately $48.0 million, $48.8 million, and $45.7 million, respectively. Income Taxes: The Company provides for taxes based on current taxable income and the future tax consequences of temporary differences between the financial reporting and income tax carrying values of its assets and liabilities. Under SFAS No. 109, assets and liabilities acquired in purchase business combinations are assigned their fair values and deferred taxes are provided for lower or higher tax bases. Foreign Currency Contracts: The Company enters into forward and swap contracts to hedge transactions denominated in foreign currencies in order to reduce the currency risk associated with fluctuating exchange rates. Such contracts are used primarily to hedge certain intercompany cash flows and for payments arising from certain foreign currency denominated obligations. Realized and unrealized gains and losses from instruments qualifying as hedges are included in net income for the period. Investments: The Company uses the cost method to account for investments in which the Company holds 20% or less of the investee's voting stock. Where the Company holds 50% or less of the investee's voting stock or where the Company has the ability to exercise significant influence over operating and financial policies of the investee, the investment is accounted for under the equity method. F-8 43 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Deferred Financing Costs: Deferred financing costs consists of costs associated with the establishment of the Company's credit facilities resulting from the Transaction. Such costs are being amortized using the interest rate method over the term of the related debt. Amortization expense was approximately $1.1 million for 2000. Comprehensive Income: In 1999, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income in the financial statements. Comprehensive income consists of net income and foreign currency translation adjustments. Business Segment Information: In 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which established new standards for reporting information about operating segments (see Note 15). Stock-Based Compensation: The Company has elected to follow Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25, if the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Recently Issued Accounting Standards: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement established accounting and reporting standards for derivative instruments. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative instruments and Hedging Activities-Deferral of the Effective Date of Statement 133," which postponed the adoption date of SFAS No. 133. As such, the Company is not required to adopt the statement until fiscal year ended 2002. The Company does not believe this standard will have a material impact on its financial statements. F-9 44 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Reclassification: Certain 1999 and 1998 amounts have been reclassified to conform to the current year presentation. 3. REDEEMABLE PREFERRED STOCK: The Company issued one million shares of Series A Preferred Stock in conjunction with the Transaction. Holders of the Series A Preferred Stock are entitled to receive dividends at an annual rate of 6% payable annually in arrears. The liquidation preference of the Series A Preferred Stock is $25 per share. If there is a liquidation, dissolution or winding up, the holders of shares of Series A Preferred Stock are entitled to be paid out of the Company assets available for distribution to shareholders an amount in cash equal to the $25 liquidation preference per share plus all accrued and unpaid dividends prior to the distribution of any assets to holders of shares of common stock. Except as required by law, the holders of the preferred stock have no voting rights with respect to their shares of preferred stock, except that (1) the approval of holders of a majority of the outstanding shares of preferred stock, voting as a class, is required to amend, repeal or change any of the provisions of the Company's certificate of incorporation in any manner that would alter or change the powers, preferences or special rights of the shares of preferred stock in a way that would affect them adversely and (2) the consent of each holder of Series A Preferred Stock is required for any amendment that reduces the dividend payable on or the liquidation value of the Series A Preferred Stock. At the Company's option, the Company may redeem the Series A Preferred Stock, in whole or in part, at any time, at a price per share equal to 100% of its liquidation value plus all accrued and unpaid dividends. In addition, the Series A Preferred Stock is redeemable at the option of its holders upon the occurrence of a change of control or upon a sale of the Company's common stock by Artal in a registered public offering. If that occurs, the redemption price will be equal to 100% of the liquidation value plus accrued and unpaid dividends. 4. LONG-TERM DEBT: In connection with the Transaction, the Company entered into a credit facility ("Credit Facility") with the Bank of Nova Scotia, Credit Suisse First Boston and certain other lenders providing (i) a $75.0 million term loan A facility ("Term Loan A"), (ii) a $75.0 million term loan B facility ("Term Loan B"), (iii) an $87.0 million transferable loan certificate ("TLC") and (iv) a revolving credit facility with borrowings up to $30.0 million ("Revolving Credit Facility"). Borrowings under the Credit Facility are paid quarterly and initially bear interest at a rate equal to LIBOR plus (a) in the case of Term Loan A and the Revolving Credit Facility, 3.25% or, at the Company's option, the alternate base rate, as defined, plus 2.25% or (b) in the case of Term Loan B and the TLC, 4.00% or, at the Company's option, the alternate base rate plus 3.00%. At April 29, 2000, the interest rates were 9.00% for Term Loan A and 10.13% for Term Loan B and the TLC. Borrowings under Term Loan A and the Revolving Credit Facility mature in six years and Term Loan B and the TLC mature in seven years. Assets of the Company collateralize the Credit Facility. In addition, the Company issued $150.0 million USD denominated and 100.0 million EUR denominated principal amount 13% Senior Subordinated Notes due 2009 (the "Notes") to qualified institutional buyers. F-10 45 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- At April 29, 2000 the 100.0 million EUR notes translated into $91.2 million USD denominated equivalent. The impact of the change in foreign exchange rates related to euro denominated debt are reflected in the income statement. Interest is payable on the Notes semi-annually on April 1 and October 1 of each year, commencing April 1, 2000. The Company uses interest rate swaps and foreign currency forward contracts in association with its debt (see Note 16). The Notes are uncollateralized senior subordinated obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company, including the Credit Facility. Each of the aforementioned debt facilities contains restrictive covenants and requires the Company to maintain certain financial ratios, as defined. The aggregate amounts of existing long-term debt maturing in each of the next five years and thereafter are as follows:
(IN THOUSANDS) 2001 $ 14,120 2002 14,120 2003 14,120 2004 14,120 2005 and thereafter 418,150 -------- $474,630 --------
Effective with the Transaction on September 29, 1999, outstanding lines of credit of $6.7 million and promissory notes of $16.7 million have been settled. The lines of credit had a weighted-average interest rate during 1999. The promissory notes represent amounts due various former franchisees as a result of the Company acquiring certain franchised operations. The Company has guaranteed Term Loans and Letters of Credit of franchisees that originated as part of a franchisees' acquisition of certain Weight Watchers franchised areas. The balance of the guaranteed indebtedness was $24.5 million in 1999. 5. STOCK PLANS: Weight Watchers Incentive Compensation Plans On December 16, 1999, the Board of Directors adopted the "1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries" (the "Plan"). The Plan is designed to promote the long-term financial interests and growth of the Company and its subsidiaries by attracting and retaining management with the ability to contribute to the success of the business. The Plan is to be administered by the Board of Directors or a committee thereof. Under the stock purchase component of the Plan, 318,800 shares of common stock were sold to 43 members of the Company's management group at $10 per share. Under the option component of the Plan, grants may take the following forms in the Committee's sole discretion: Incentive Stock Options, Other Stock Options (other than incentive options), Stock Appreciation Rights, Restricted Stock, Purchase Stock, Dividend F-11 46 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Equivalent Rights, Performance Units, Performance Shares and Other Stock - Based Grants. The maximum number shares available for grant under this plan shall be 1,200,000 shares of authorized common stock as of the effective date of the Plan. Pursuant to the option component of the Plan, the Board of Directors authorized the Company to enter into agreements under which certain members of management received Non-Qualified Time and Performance Stock Options providing them the opportunity to purchase shares of the Company's common stock at an exercise price of $10 per share. The options are exercisable based on the terms outlined in the agreement. The weighted average fair value of options granted was $10 per share in 2000. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2000: dividend yield of 0%; expected volatility of 0% risk; risk free interest rate ranging from 6.49% to 6.65%; and expected live of 10 years. The exercise price was equivalent to the fair market value at the date of grant. A summary of the Company's stock options for the year ended April 29, 2000 is as follows: F-12 47 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
Weighted average exercise price Shares in dollars --------- -------------- Options outstanding, Beginning of year -- Granted 1,048,500 $ 10.00 Exercised -- Cancelled -- Options outstanding, end of year 1,048,500 $ 10.00 Options exercisable, end of year 34,950 $ 10.00 Options available for grant, end of year 151,500 $ 10.00 Weighted-average fair value of options $ 10.00 granted during the year
The weighted average remaining contractual life of options outstanding at April 29, 2000 was 9.5. WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries In April 2000, the Board of Directors adopted the WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries, pursuant to which selected employees were granted options to purchase shares of common stock of WeightWatchers.com, Inc. that are owned by the Company. The number of shares available for grant under this plan is 400,000 shares of authorized common stock of WeightWatchers.com, Inc. On April 28, 2000, 147,319 options were granted to selected employees. The options vest based on certain performance targets, outlined in the agreement. The weighted average fair value of options granted was $0.01 per share in fiscal year ended April 29, 2000. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2000: dividend yield of 0%; expected volatility of 0% risk; risk free interest rate 6.5%; and expected life of ten years. A summary of the Company's stock options for the year ended April 29, 2000 is as follows: F-13 48 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
Weighted average exercise price Shares in dollars ------------ -------------- Options outstanding, Beginning of year -- Granted 147,319 $ 0.50 Exercised -- Cancelled -- Options outstanding, end of year 147,319 $ 0.50 Options exercisable, end of year -- $ 0.50 Options available for grant, end of year 252,681 $ 0.50 Weighted-average fair value of options $ 0.50 granted during the year
The weighted average remaining contractual life of options outstanding at April 29, 2000 was 10 years. The pro forma effect of SFAS No. 123 on the Company's financial statements would have been as follows under the 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries and the WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries.
2000 ------ As reported 37,759 Pro forma 36,738
Heinz Incentive Compensation Plans - Prior to the Transaction Certain qualifying employees of the Company were granted options to purchase Heinz common stock under Heinz's stock option plans. These options have been granted at not less than market prices on the date of grant. Stock options granted have a maximum term of ten years. Vesting occurs from one to three years after the date of grant. Beginning in fiscal 1998, in order to place greater emphasis on creation of shareholder value, performance-accelerated stock options were granted to certain key executives. These options vest eight years after the grant date, subject to acceleration if predetermined share price goals are achieved. The pro forma effect of SFAS No. 123 on the Company's financial statements would have been as follows:
1999 1998 ------- ------- Net Income: As reported $47,982 $23,771 Pro forma 47,621 23,485
F-14 49 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weight-average assumptions:
1999 1998 ---- ---- Dividend yield 2.5% 2.5% Volatility 22.0 20.0 Risk-free interest rate 5.1 6.2 Expected term (years) 5.0 5.0
6. EMPLOYEE BENEFIT PLANS: Weight Watchers Sponsored Plans: Effective September 29, 1999, the net assets of the Heinz sponsored employee savings plan were transferred into the Weight Watchers sponsored plan upon execution of the Transaction. The Company sponsors the Weight Watchers Savings Plan (the "Savings Plan") for salaried and hourly employees. The Savings Plan is a defined contribution plan which provides for employer matching contributions up to 100% of the first 3% of an employee's eligible compensation. The Savings Plan also permits employees to contribute between 1% and 13% of eligible compensation on a pre-tax basis. Company contributions in 2000 were $1.0 million. The Company sponsors the Weight Watchers Profit Sharing Plan (the "Profit Sharing Plan") for all full-time salaried employees who are eligible to participate in the Savings Plan (except for certain senior management personnel). The Profit Sharing Plan provides for a guaranteed monthly employer contribution on behalf of each participant based on the participant's age and a percentage of the participant's eligible compensation. The Profit Sharing Plan has a supplemental employer contribution component, based on the Company's achievement of certain annual performance targets, which are determined annually by the Company's Board of Directors. The Company also reserves the right to make additional discretionary contributions to the Profit Sharing Plan. For certain senior management personnel, the Company sponsors the Weight Watchers Executive Profit Sharing Plan. Under the Internal Revenue Service ("IRS") definition, this plan is considered a Nonqualified Deferred Compensation Plan. There is a promise of payment by the Company made on the employees' behalf instead of an individual account with a cash balance. The account is valued at the end of each fiscal month, based on an annualized interest rate of prime plus 2%, with an annualized cap of 15%. The Company is currently applying for a determination letter to qualify the Savings Plan under Section 401(a) of the IRS Code. It is the Company's opinion that the IRS will issue a favorable determination letter as to the qualified status of the Savings Plan. Heinz Sponsored Plans - Prior to the Transaction: Domestic employees participate in certain defined pension plans, a defined contribution 401(k) savings plan and, for employees affected by certain IRS limits, a section 415 Excess Plan, all of which are F-15 50 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- sponsored by Heinz. The Company also provides post-retirement health care and life insurance benefits for employees who meet the eligibility requirements of the Heinz plans. Retirees share in the cost of these benefits based on age and years of service. Company contributions to the Heinz Savings Plan include a qualified age-related contribution and a matching of the employee's contribution, up to a specified amount. The following amounts were included in the Company's result of operations:
2000 1999 1998 ------ ------ ------ (THOUSANDS) Defined Benefit Pension Plans $ 421 $1,456 $ 726 Defined Benefit Postretirement Medical $ 253 $ 577 $ 261 Savings Plan $ 994 $2,170 $1,668
In addition, foreign employees participate in certain Company sponsored pension plans and such charges, which are included in the results of operations, are not material. 7. WEIGHTWATCHERS.COM WARRANT AND NOTE AGREEMENT: On September 29, 1999, the Company entered into a subscription agreement with WeightWatchers.com, Artal and Heinz under which Artal, Heinz and the Company purchased common stock of WeightWatchers.com for a nominal amount. The Company owns approximately 19.8% of WeightWatchers.com's common stock while Artal and Heinz own 75.4% and 4.8%, respectively, of WeightWatchers.com's common stock. Under a warrant agreement entered into with WeightWatchers.com, the Company has warrants to purchase an additional 20.2% of WeightWatchers.com's common stock in connection with the loans that the Company has made to WeightWatchers.com under the WeightWatchers.com note described below. These warrants will expire on November 24, 2009 and may be exercised at a price of $7.14 per share of WeightWatchers.com's common stock until then. The exercise price and the number of shares of WeightWatchers.com's common stock available for purchase upon exercise of the warrants may be adjusted from time to time upon the occurrence of certain events. In connection therewith, the Company has agreed to loan to WeightWatchers.com up to an aggregate principal amount of $10.0 million at any time or from time to time prior to October 31, 2000. The unpaid principal amount under the note will bear interest at a rate of 11% per year. All principal and interest outstanding under the note will be repayable on December 30, 2000. The note may be prepaid at any time and from time to time, in whole or in part, without premium or penalty at fiscal year end and during 2000 the Company loaned WeightWatchers.com $2.0 million pursuant to the note. 8. RESTRUCTURING CHARGES: During the fourth quarter of fiscal year ended 1997, the Company announced a reorganization and restructuring program. The reorganization plan was designed to strengthen the Company's classroom business and improve profitability and global growth. F-16 51 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Charges related to the restructuring, were recognized to reflect the exit from the Personal Cuisine Food Option in United States Company-owned locations, the relocation of classes from certain fixed retail outlets to traveling locations, and other initiatives involving the exit of certain under-performing business and product liens. Restructuring and related costs recorded in fiscal year ended 1997 totaled $51.7 million pretax. Pretax charges of $49.7 million were classified as classroom operating expenses and $2.0 million as selling, general and administrative expenses. The major components of the year ended 1997 charges and the remaining accrual balances for 1997, 1998, 1999 and 2000 were as follows:
Employee Exit Costs Termination ------------------------------ Non-Cash and Accrued Asset Severance Exit Implementation Write-downs Costs Costs Costs Total ------------- ------------- ------------- -------------- ------------- Initial charge -1997 $ 27,402 $ 4,723 $ 19,569 $ -- $ 51,694 Amounts utilized -1997 (27,402) (339) (46) -- (27,787) ------------- ------------- ------------- ------------- ------------- Accrued restructuring costs - April 26, 1997 -- 4,384 19,523 23,907 Implementation costs - 1998 -- -- -- 999 999 Amounts utilized -1998 -- (3,709) (8,553) (999) (13,261) ------------- ------------- ------------- ------------- ------------- Accrued restructuring costs - April 25, 1998 -- 675 10,970 -- 11,645 Implementation costs -1999 -- -- -- 32 32 Amounts utilized -1999 -- (186) (3,769) (32) (3,987) ------------- ------------- ------------- ------------- ------------- Accrued restructuring costs - April 24, 1999 -- 489 7,201 -- 7,690 Amounts utilized - 2000 -- -- (2,904) -- (2,904) ------------- ------------- ------------- ------------- ------------- Accrued restructuring costs - April 29, 2000 $ -- $ 489 $ 4,297 $ -- $ 4,786 ============= ============= ============= ============= =============
Asset write-downs of $16.9 million consisted primarily of fixed assets and other long-term asset impairments that were recorded as a direct result of the Company's decision to exit businesses or facilities. Such assets were written down based on management's estimate of fair value. Write-downs of $10.5 million were also recognized for estimated losses from disposals of classroom inventories, packaging materials and other assets related to product line rationalizations and process changes as a direct result of the Company's decision to exit businesses or facilities. Employee severance costs include charges related to both voluntary terminations and involuntary terminations. As part of the voluntary termination agreements, enhanced retirement benefits were offered to the affected employees. These amounts were included in the Employee Termination and Severance costs component of the restructuring charge. F-17 52 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Exit costs consist primarily of contract and lease termination costs associated with the Company's decision to exit the activities described above. The remaining accrued exit costs will be utilized through 2002. The results for 1998 included costs related to the implementation of the restructuring program of $999 thousand pretax, which were classified as selling, general and administrative expenses. These costs consist primarily of center relocation and training. The results for 1999 included costs related to the implementation of the restructuring program of $32 thousand pretax, which was classified as selling, general and administrative expenses. These costs consist primarily of relocation and training costs. 9. PROPERTY AND EQUIPMENT: The components of property and equipment were:
2000 1999 ---------- ---------- Leasehold improvements $ 17,954 $ 18,343 Equipment 30,900 36,559 ---------- ---------- 48,854 54,902 Less: Accumulated depreciation and amortization 41,911 46,428 ---------- ---------- 6,943 8,474 Construction in progress 58 251 ---------- ---------- $ 7,001 $ 8,725 ========== ==========
Depreciation and amortization expense of property and equipment was $2.9 million, $3.6 million, and $3.3 million, in 2000, 1999 and 1998 respectively. 10. RELATED PARTY TRANSACTIONS: On February 8, 1999, the Company entered into an agreement with Nellson Neutraceutical, Inc. ("Nellson"), a wholly-owned subsidiary of Artal, to purchase nutrition bar products manufactured by Nellson for sale at the Company's meetings. Under the agreement, Nellson agrees to produce sufficient nutrition bar products to fill the Company's purchase orders within 30 days of receipt. The Company is not bound to purchase a minimum quantity of nutrition bar products. The term of the agreement is one year and the Company may renew the agreement for successive one-year periods by providing written notice to Nellson. Total purchases from Nellson amounted to $4.3 million from the date of the Transaction through the end of 2000. At the closing of the Transaction, the Company granted to Heinz an exclusive, worldwide, royalty-free license to use the Custodial Trademarks (or any portion covering food and beverage products) in connection with Heinz licensed products. Heinz will pay the Company an annual fee of $1.2 million for five years in exchange for the Company serving as the custodian of the Custodial Trademarks. F-18 53 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Prior to the Transaction, the following related party transactions existed. Certain of Heinz' general and administrative expenses were allocated to the Company. Total costs allocated include charges for salaries of corporate officers and staff and other Heinz corporate overhead. Total costs charged to the Company for these services were $1.0 million, $2.2 million and $1.8 million in 2000, 1999 and 1998, respectively. Heinz charged the Company for its share of group health insurance costs for eligible Company employees based upon location specific costs, overall insurance costs and loss experience incurred during a calendar year. In addition, various other insurance coverages were also provided to the Company through Heinz' consolidated programs. Workers compensation, auto, property, product liability and other insurance coverages are charged directly based on the Company's loss experience. Amounts charged to the Company for insurance costs were $3.8 million, $4.3 million and $4.2 in 2000, 1999 and 1998, respectively , and are recorded in selling, general and administrative expenses in the accompanying statement of operations. Total costs charged to the Company by Heinz for other miscellaneous services were $93 thousand, $520 thousand and $579 thousand in 2000, 1999 and 1998, respectively, and were recorded in selling, general and administrative expenses in the accompanying statement of operations. The Company maintained a cash management arrangement with Heinz. On a daily basis, all available domestic cash was deposited and disbursements were withdrawn. Heinz charged (credited) the Company interest on the average daily balance maintained in an intercompany account. Net interest (income) expense related to this arrangement included in the statement of operations was $1.7 million, $3.1 million and $965 thousand in 2000, 1999 and 1998, respectively. The interest rate charged to or received by the Company was 5.5% in 2000 and 6.25% in 1999 and 1998. Substantially all of the due from related parties of $133.8 million at April 24, 1999 represents a note receivable from an affiliate of Heinz which was repaid in June 1999. Interest income reflected in the statement of operations related to this note receivable was $10.0 million and $9.6 million, in 1999 and 1998, respectively. The interest rate charged by the Company was LIBOR plus 25 basis points in both years. Short-term borrowings due to an affiliate of Heinz of $16.3 million at April 24, 1999 represented a note payable due April 28, 1999. Interest expense related to the note payable was $35 thousand in 2000 and $1.0 million in 1999 and 1998. Long-term borrowings of $52.5 million due to a related party were contributed to capital during fiscal year ended 1998. Interest expense related to these long-term borrowings was $961 thousand and the interest rate was 10.5%. Pension costs and postretirement costs are also charged to the Company based upon eligible employees participating in the Plans. See Note 6. F-19 54 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- 11. INCOME TAXES: The following tables summarizes the provision (benefit) for U.S. federal, state and foreign taxes on income:
2000 1999 1998 ---------- ---------- ---------- Current: U.S. federal $ 5,727 $ 11,997 $ (4,798) State 2,464 3,247 346 Foreign 11,591 11,837 8,858 ---------- ---------- ---------- 19,782 27,081 4,406 ---------- ---------- ----------
Deferred: U.S. federal 7,800 6,368 10,493 State 368 312 502 Foreign 373 2,599 4,568 ---------- ---------- ---------- 8,541 9,279 15,563 ---------- ---------- ---------- Total tax provision $ 28,323 $ 36,360 $ 19,969 ========== ========== ==========
The components of income before income taxes consist of the following:
2000 1999 1998 ---------- ---------- ---------- Domestic $ 33,538 $ 48,199 $ 13,143 Foreign 32,544 36,143 30,597 ---------- ---------- ---------- $ 66,082 $ 84,342 $ 43,740 ========== ========== ==========
F-20 55 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- The difference between the U.S. federal statutory tax rate and the Company's consolidated effective tax rate are as follows:
2000 1999 1998 ------ ------ ------ U.S. federal statutory 35.0% 35.0% 35.0% Foreign income taxes 1.7 3.8 7.8 States' income taxes (net of federal benefit) 2.7 2.9 1.7 Goodwill amortization 0.4 0.9 1.8 Other 3.1 0.5 (0.6) ----- ----- ----- Effective tax rate 42.9% 43.1% 45.7% ===== ===== =====
The deferred tax assets and deferred tax (liabilities) recorded on the balance sheet as of April 29, 2000 and April 24, 1999 are as follows:
2000 1999 ---------- ---------- Depreciation 304 Provision for estimated expenses 1,771 3,288 Operating loss carryforwards 4,369 4,430 Transaction Expenses 2,933 -- Benefits plans -- 5,878 Other 216 1,998 Amortization 135,329 -- --------- -------- Total Deferred tax Assets 144,922 15,594 ========= ======== Depreciation/amortization $ -- $ (9,620) Deferred income (4,985) (3,767) Other (3,231) (2,063) --------- -------- Total Deferred tax liabilities (8,216) (15,450) --------- -------- Less: Valuation allowance 71,979 630 --------- -------- Net deferred tax assets (liabilities) $ 64,727 $ (486) ========= ========
At the end of 2000, net operating loss carryforward's totalled $11.8 million, all of which will expire by 2020. As of April 29, 2000, the Company has provided for a valuation allowance for its deferred tax assets. Although realization is not assured, management believes it is more likely than not, that the net deferred tax assets F-21 56 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNT) - -------------------------------------------------------------------------------- will be realized. The amount of the net deferred tax assets considered realizable could be reduced if estimates of future taxable income are reduced. Undistributed earnings of foreign subsidiaries considered to be reinvested permanently amounted to $23.2 million as of April 29, 2000. 12. CASH FLOW INFORMATION: Net cash paid during the year for:
2000 1999 1998 -------- -------- -------- Interest expense $ 31,402 $ 2,748 $ 5,818 Income taxes $ 13,601 $ 5,380 $ 4,706 Noncash investing and financing activities was as follows: Deferred tax asset recorded as a component of stockholders' deficit in conjunction with the recapitalization of the Company $ 72,100 -- -- Redeemable preferred stock issued to Heinz $ 25,875 -- -- Contribution of related party debt to capital $ -- $ -- $ 52,500
13. COMMITMENTS AND CONTINGENCIES: Legal: Due to the nature of its activities, the Company is, at times, subject to pending and threatened legal actions which arise out of the normal course of business. In the opinion of management, based in part upon advice of legal counsel, the disposition of such matters will not have a material effect on the consolidated financial statements. F-22 57 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNT) - -------------------------------------------------------------------------------- Lease Commitments: Minimum rental commitments under non-cancelable operating leases, primarily for office and rental facilities at April 29, 2000, consists of the following: 2001 $13,292 2002 8,240 2003 3,966 2004 2,123 2005 1,614 2006 and thereafter 2,444 ------- Total $31,679 =======
Total rent expense charged to operations under these leases was $12.3 million, $11.0 million and $10.3 million in 2000, 1999 and 1998, respectively. Repurchase Agreements: The Company is a party to repurchase agreements related to the 10% minority interests in the classroom operations in Finland and Sweden. Pursuant to the agreements, the Company may elect or be required to repurchase the minority shareholders' interests in these operations. If the Company repurchases the minority interests within five years of the original sale, the repurchase price is based on the original sales price times the increase in the consumer price index since the date of the sale. If the Company repurchases the minority interest after five years from the original sale, the repurchase price is based on a multiple of the average operating income during the last three years. 14. FRANCHISE PROFIT SHARING FUND: The Company's franchise agreement with certain North American franchisees provides for an annual franchise profit sharing distribution based upon specified formulas. Profit sharing expense under this arrangement was $.4 million, $.8 million and $.7 million in 2000, 1999 and 1998, respectively. Unpaid amounts are included in accrued liabilities. 15. SEGMENT AND GEOGRAPHIC DATA: The Company is engaged principally in one line of business, weight control, which represents more than 92% of consolidated sales. The following table presents information about the Company by geographic area. There were no material amounts of sales or transfers among geographic areas and no material amounts of United States export sales.
EXTERNAL SALES LONG-LIVED ASSETS -------------- ----------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- United States $207,256 $189,366 $143,765 $142,675 $149,054 $155,360 United Kingdom 90,778 76,143 73,146 949 1,198 1,272 Continental Europe 66,524 65,119 54,850 1,973 2,422 2,463 Australia and New Zealand 35,016 33,980 25,484 21,132 7,878 8,208 -------- -------- -------- -------- -------- -------- $399,574 $364,608 $297,245 $166,729 $160,552 $167,303 ======== ======== ======== ======== ======== ========
F-23 58 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNT) - -------------------------------------------------------------------------------- 16. FINANCIAL INSTRUMENTS: Fair value of Financial Instruments: The Company's significant financial instruments include cash and cash equivalents, short-and-long-term debt, current and noncurrent notes receivable, currency exchange agreements and guarantees. In evaluating the fair value of significant financial instruments, the Company generally uses quoted market prices of the same or similar instruments or calculates an estimated fair value on a discounted cash flow basis using the rates available for instruments with the same remaining maturities. As of April 29, 2000 and April 24, 1999, the fair value of financial instruments held by the Company approximated the recorded value. Foreign Currency Contracts: As of April 29, 2000 and April 24, 1999, the Company held currency and interest rate swap contracts to purchase certain foreign currencies totaling $139.4 million and $127.2 million, respectively. The Company also held separate currency and interest rate swap contracts to sell foreign currencies of $138.9 million and $134.4 million, respectively. Net unrealized gains and losses associated with the Company's foreign currency contracts were not material. 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- YEAR ENDED APRIL 29, 2000 Revenues $ 92,174 $ 84,031 $ 90,507 $132,862 Operating income $ 28,302 $ 10,508 $ 14,719 $ 34,115 Net income $ 17,095 $ 2,239 $ 912 $ 17,513 YEAR ENDED APRIL 24, 1999 Revenues $ 84,036 $ 79,966 $ 89,403 $111,203 Operating income $ 22,488 $ 14,505 $ 20,118 $ 26,804 Net income $ 12,708 $ 8,227 $ 11,506 $ 15,541
18. GUARANTOR SUBSIDIARIES The Company's payment obligations under the Senior Subordinated Notes will be fully and unconditionally guaranteed on a joint and several basis by the following wholly-owned subsidiaries: 58 WW Food Corp.; Waist Watchers, Inc.; Weight Watchers Camps, Inc.; W.W. Camps and Spas, Inc.; Weight Watchers Direct, Inc.; W/W Twentyfirst Corporation; W.W. Weight Reduction Services, F-24 59 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNT) - -------------------------------------------------------------------------------- Inc.; W.W.I. European Services Ltd.; W.W. Inventory Service Corp.; Weight Watchers North America, Inc.; Weight Watchers UK Holdings Ltd.; Weight Watchers International Holdings Ltd.; Weight Watchers (U.K.) Limited; Weight Watchers (Exercise) Ltd.; Weight Watchers (Accessories & Publications) Ltd.; Weight Watchers (Food Products) Limited; Weight Watchers New Zealand Limited; Weight Watchers International Pty Limited; Fortuity Pty Ltd; and Gutbusters Pty Ltd. (collectively, the "Guarantor Subsidiaries"). The obligations of each Guarantor Subsidiary under its guarantee of the Notes are subordinated to such subsidiary's obligations under its guarantee of the new senior credit facility. Presented below is condensed consolidating financial information for Weight Watchers International, Inc. ("Parent Company"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries (primarily companies incorporated in European countries other than the United Kingdom). In the Company's opinion, separate financial statements and other disclosures concerning each of the Guarantor Subsidiaries would not provide additional information that is material to investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below. Investments in subsidiaries are accounted for by the Parent company on the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Parent Company's investments in subsidiaries' accounts. The elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. F-25 60 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AS OF APRIL 29, 2000 (IN THOUSANDS) - -------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR Assets COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- -------------- ------------- ------------ ------------- Current Assets Cash and cash equivalents $ 10,984 $ 22,465 $ 10,594 $ - $ 44,043 Receivables, net 6,006 5,606 1,265 - 12,877 Notes receivable, current 2,791 - - - 2,791 Inventories - 7,827 1,501 - 9,328 Prepaid expenses 748 6,240 1,372 - 8,360 Deferred income taxes 2,846 (2,752) - - 94 Due from related parties - - - - - Intercompany receivables (payables) (32,114) 27,742 4,372 - - ---------- ------------- ------------- ------------- ------------ Total current assets (8,739) 67,128 19,104 - 77,493 Investment in consolidated subsidiaries 162,320 - - 162,320 - Property and equipment, net 1,809 3,974 1,218 - 7,001 Notes and other receivables, noncurrent 7,045 - - - 7,045 Goodwill, net 25,833 125,977 755 - 152,565 Trademarks and other intangible assets, net 1,960 5,193 10 - 7,163 Deferred income taxes (9,854) 77,428 - - 67,574 Deferred financing costs 14,749 (83) - - 14,666 Other noncurrent assets 163 365 172 - 700 ---------- ------------- ------------- ------------- ------------ Total assets $ 195,286 $ 279,982 $ 21,259 $ (162,320) $ 334,207 ---------- ------------- ------------- ============= ============= Liabilities, Redeemable Preferred Stock and Stockholders Equity (Deficit) Current liabilities Short-term borrowings and line of credit $ - $ - $ - $ - - Short-term borrowings due to related party 1,489 - - - 1,489 Portion of long-term debt due within one year 13,250 870 - - 14,120 Accounts payable 1,438 9,084 1,840 - 12,362 Salaries and wages 2,301 4,256 3,568 - 10,125 Accrued interest 3,521 561 - - 4,082 Accrued restructuring costs - 4,786 - - 4,786 Foreign currency contract payable 486 - - - 486 Other accrued liabilities 6,387 9,049 4,147 - 19,583 Income taxes (1,846) 5,965 2,667 - 6,786 Deferred revenue - 3,824 808 - 4,632 ---------- ------------- ------------- ------------- ----------- Total current liabilities 27,026 38,395 13,030 - 78,451 Long-term debt 374,598 85,912 - - 460,510 Deferred income taxes 1,903 390 648 - 2,941 Other - - 546 - 546 ---------- ------------- ------------- ------------- ------------ Total long-term debt and other liabilities 376,501 86,302 1,194 - 463,997 Redeemable preferred stock 25,875 2,507 254 (2,761) 25,875 Stockholders' equity (deficit) (234,116) 152,778 6,781 (159,559) (234,116) ---------- ------------- ------------- ------------- ------------ Total liabilities, redeemable preferred stock and stockholders' equity (deficit) $ 195,286 $ 279,982 $ 21,259 $ (162,320) $ 334,207 ========== ============= ============= ============= ============
The accompanying notes are an integral part of the consolidated financial statements. F-26 61 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENT CONSOLIDATING BALANCE SHEET AS OF APRIL 24, 1999 (IN THOUSANDS) - -------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR Assets COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ---------- ----------- ------------ ------------ Current Assets Cash and cash equivalents $ (74) $ 12,376 $ 7,213 $ - $ 19,515 Receivables, net 5,134 4,364 1,905 - 11,403 Notes receivable, current 3,266 - - - 3,266 Inventories - 5,775 1,805 - 7,580 Prepaid expenses 856 4,588 2,154 - 7,598 Deferred income taxes 1,758 (1,949) 3,800 - 3,609 Due from related parties 1,034 242 132,507 - 133,783 Intercompany receivables (payables) 103,588 (107,373) 3,785 - - ---------- ---------- ----------- ------------ ----------- total current assets 115,562 (81,977) 153,169 - 186,754 Investment in consolidated subsidiaries 117,732 - - (117,732) - Property and equipment, net 1,981 5,231 1,513 - 8,725 Notes and other receivables, noncurrent 10,295 - 8,870 - 19,165 Goodwill, net 27,254 115,568 892 - 143,714 Trademarks and other intangibles assets, net 2,355 5,745 13 - 8,113 Deferred income taxes (22) 4,155 - - 4,133 Deferred financing costs - - - - Other noncurrent assets 138 510 182 - 830 ---------- ---------- ----------- ------------ ----------- Total Assets $ 275,295 $ 49,232 $ 164,639 $ (117,732) $ 371,434 ========== ========== =========== ============ =========== Liabilities and Parent Company's Investment Current liabilities Short-term borrowings and line of credit $ - $ - $ 6,690 $ - $ 6,690 Short-term borrowings due to related party 16,638 (388) - - 16,250 Portion of long-term debt due within one year 1,164 - - - 1,164 Accounts payable 631 9,192 2,887 - 12,710 Salaries and wages 4,189 7,096 - - 11,285 Accrued interest 2,161 - 15 - 2,176 Accrued restructuring costs 8 7,929 (247) - 7,690 Foreign currency contract payable - - 7,169 - 7,169 Other accrued liabilities 1,798 6,659 7,587 - 16,044 Income taxes (11,168) 17,118 2,012 - 7,962 Deferred revenue - 5,680 734 - 6,414 ---------- ---------- ----------- ------------ ----------- Total current liabilities 15,421 53,286 26,847 - 95,554 Long-term debt 15,500 - - - 15,500 Deferred income taxes (2,366) 10,338 256 - 8,228 Other - 2,659 545 - 3,204 ---------- ---------- ----------- ------------ ----------- Total long-term debt and other liabilities 13,134 12,997 801 - 26,932 Parent company's investment 246,740 (17,051) 136,991 (117,732) 248,948 ---------- ---------- ----------- ------------ ----------- Total liabilities and parent company's investment $ 275,295 $ 49,232 $ 164,639 $ (117,732) $ 371,434 ========== ========== =========== ============ ===========
The accompanying notes are an integral part of the consolidated financial statements. F-27 62 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- -------------- -------------- -------------- Revenues, net $ 32,836 $ 300,215 $ 66,523 $ - $ 399,574 Cost of revenues 4,911 155,251 41,227 - 201,389 ----------- ------------ ----------- ------------ ------------ Gross profit 27,925 144,964 25,296 - 198,185 Marketing expense 7,417 35,707 8,329 - 51,453 Selling, general & administrative 23,066 20,357 7,320 - 50,743 Transaction costs 8,247 98 - - 8,345 ----------- ------------ ----------- ------------ ------------ Operating (loss) income (10,805) 88,802 9,647 - 87,644 Interest income 1,462 1,864 2,466 - 5,792 Interest expense (29,104) (6,471) (1,296) - (36,871) Other income (expense), net 10,997 (151) (495) - 10,351 Equity in income of consolidated subsidiaries 44,441 - - (44,441) - Franchise commission income (loss) 21,686 (18,500) (3,186) - - ----------- ------------ ----------- ------------ ------------ Income before income taxes and minority interest 38,677 65,544 7,136 (44,441) 66,916 Provision for income taxes 918 24,090 3,315 - 28,323 ----------- ------------ ----------- ------------ ------------ Income before minority interest 37,759 41,454 3,821 (44,441) 38,593 Minority interest - 834 - - 834 ----------- ------------ ----------- ------------ ------------ Net income $ 37,759 $ 40,620 $ 3,821 $ (44,441) $ 37,759 =========== ============ =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-28 63 \ WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 24, 1999 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- -------------- -------------- -------------- Revenues, net $ 42,288 $ 257,202 $ 65,118 $ - $ 364,608 Cost of revenues 3,685 135,095 40,145 - 178,925 ----------- ------------ ----------- ------------ ------------ Gross profit 38,603 122,107 24,973 - 185,683 Marketing expense 8,815 35,381 8,660 - 52,856 Selling, general & administrative 23,715 17,794 7,403 - 48,912 ----------- ------------ ----------- ------------ ------------ Operating income 6,073 68,932 8,910 - 83,915 Interest income 615 5,096 10,938 (622) 16,027 Interest expense (3,537) (357) (5,587) 622 (8,859) Other (expense) income, net (1,930) (3,361) 43 - (5,248) Equity in income of consolidated subsidiaries 37,310 - - (37,310) - Franchise commission income (loss) 8,697 (6,072) (2,625) - - ----------- ------------ ----------- ------------ ------------ Income before income taxes and minority interest 47,228 64,238 11,679 (37,310) 85,835 Provision for income taxes 7,944 22,860 5,556 - 36,360 ----------- ------------ ----------- ------------ ------------ Income before minority interest 39,284 41,378 6,123 (37,310) 49,475 Minority interest - 1,108 385 - 1,493 ----------- ------------ ----------- ------------ ------------ Net income $ 39,284 $ 40,270 $ 5,738 $ (37,310) $ 47,982 =========== ============ =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-29 64 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 25, 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ============ ============ ============ ============ ============ Revenues, net $ 28,465 $ 213,929 $ 54,851 $ - $ 297,245 Cost of revenues 3,264 122,148 34,549 - 159,961 ------------ ------------ ----------- ---------- ------------ Gross profit 25,201 91,781 20,302 - 137,284 Marketing expense 7,916 33,499 7,812 - 49,227 Selling, general & administrative 21,154 16,578 6,335 - 44,067 ------------ ------------ ----------- ---------- ------------ Operating (loss) income (3,869) 41,704 6,155 - 43,990 Interest income 831 2,297 10,641 (317) 13,452 Interest expense (4,033) (607) (4,253) 317 (8,576) Other expense net (1,695) (2,494) (92) - (4,281) Equity in income of consolidated subsidiaries 16,837 - - (16,837) - Franchise commission income (loss) 8,038 (5,984) (2,054) - - ------------ ------------ ----------- ---------- ------------ Income before income taxes and minority interest 16,109 34,916 10,397 (16,837) 44,585 (Benefit from) provision for income taxes (1,979) 16,355 5,593 - 19,969 ------------ ------------ ----------- ---------- ------------ Income before minority interest 18,088 18,561 4,804 (16,837) 24,616 Minority interest - 629 216 - 845 ------------ ------------ ----------- ---------- ------------ Net income $ 18,088 $ 17,932 $ 4,588 $ (16,837) $ 23,771 ============ ============ =========== ========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-30 65 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW FOR THE YEAR ENDED APRIL 29, 2000 (IN THOUSANDS) - -------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ============ ============ ============ ============ ============ Operating activities: Net income $ 37,759 $ 40,620 $ 3,821 $ (44,441) $ 37,759 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 3,438 6,028 932 - 10,398 Deferred tax provision (benefit) 85,113 (82,422) 4,192 - 6,883 Allowance for doubtful accounts 352 29 4 - 385 Reserve for inventory obsolescence - (93) (28) - (121) Other items, net - (2,492) - - (2,492) Changes in cash due to: Receivables 4,501 (1,353) 9,506 - 12,654 Inventories - (2,028) 332 - (1,696) Prepaid expense 108 (1,691) 782 - (801) Due from related parties (15,149) 384 - - (14,765) Accounts payable 807 (1,272) (1,047) - (1,512) Accrued liabilities 4,538 (1,845) 3,087 - 5,780 Deferred revenue (1,827) 74 (1,753) Income taxes 9,322 (10,811) 655 - (834) ------------ ------------ ------------ ----------- ------------ Cash provided by (used for) operating activities 130,789 (58,773) 22,310 (44,441) 49,885 ------------ ------------ ------------ ----------- ------------ Investing activities: Capital expenditures (299) (1,004) (571) - (1,874) Acquisitions, net of cash acquired - - - - - Acquisitions of minority interest (15,900) - - (15,900) Other items, net (2,067) 116 84 - (1,867) ------------ ------------ ------------ ----------- ------------ Cash used for investing activities (2,366) (16,788) (487) - (19,641) ------------ ------------ ------------ ----------- ------------ Financing activities: Net increase(decrease) in short-term borrowings - 1,235 (6,690) - (5,455) Parent company investment in subsidiaries (34,693) - - 34,693 - Proceeds from borrowings 404,260 87,000 - - 491,260 Repurchase of common stock (324,476) - - - (324,476) Payment of dividends (2,797) (3,120) (4,494) 7,615 (2,796) Payments on long-term debt (3,312) (218) - - (3,530) Deferred financing costs (15,861) - - - (15,861) Net Parent (settlements) advances (138,998) 14,552 (7,175) 591 (131,030) ------------ ------------ ------------ ----------- ------------ Cash (used for) provided by financing activities (115,877) 99,449 (18,359) 42,899 8,112 ------------ ------------ ------------ ----------- ------------ Effect of exchange rate changes on cash equivalents (1,488) (13,799) (83) 1,542 (13,828) Net increase in cash equivalents 11,058 10,089 3,381 - 24,528 Cash and cash equivalents, beginning of year (74) 12,376 7,213 - 19,515 ------------ ------------ ------------ ----------- ------------ Cash and cash equivalents, end of year $ 10,984 $ 22,465 $ 10,594 $ - $ 44,043 ============ ============ ============ =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-31 66 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW FOR THE YEAR ENDED APRIL 24, 1999 (IN THOUSANDS) - -------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ============ ============ ============ ============ ============ Operating activities: Net income $ 39,284 $ 40,270 $ 5,738 $ (37,310) $ 47,982 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 2,378 6,609 599 - 9,586 Deferred tax provision 1,735 4,345 3,199 - 9,279 Allowance for doubtful accounts (84) (30) (4) - (118) Reserve for inventory obsolescence - 2,528 (3) - 2,525 Other items, net - 153 (115) - 38 Changes in cash due to: Receivables (7,219) 1,378 (1,200) - (7,041) Inventories - (2,476) 25 - (2,451) Prepaid expense (20) (1,141) (293) - (1,454) Due from related parties 38,317 (35,394) 770 - 3,693 Accounts payable (288) 3,698 (327) - 3,083 Accrued liabilities 1,003 (2,572) (8,507) - (10,076) Deferred revenue - (1,450) 734 (716) Income taxes (36,393) 38,362 1,602 - 3,571 ------------ ------------ ------------ ----------- ------------ Cash provided by operating activities 38,713 54,280 2,218 (37,310) 57,901 ------------ ------------ ------------ ----------- ------------ Investing activities: Capital expenditures (271) (1,612) (591) - (2,474) Other items, net (278) (286) (1) - (565) ------------ ------------ ------------ ----------- ------------ Cash used for investing activities (549) (1,898) (592) - (3,039) ------------ ------------ ------------ ----------- ------------ Financing activities: Net increase (decrease) in short-term borrowings - 1,262 (406) - 856 Payment of dividends (5,435) (14,446) (3,670) 13,183 (10,368) Payments on long-term debt (1,081) - - - (1,081) Net Parent (settlements) advances (31,483) (32,903) 3,316 23,994 (37,076) ------------ ------------ ------------ ----------- ------------ Cash used for financing activities (37,999) (46,087) (760) 37,177 (47,669) ------------ ------------ ------------ ----------- ------------ Effect of exchange rate changes on cash and cash equivalents (135) 281 214 133 493 Net increase in cash and cash equivalents 30 6,576 1,080 - 7,686 Cash and cash equivalents, beginning of year (104) 5,800 6,133 - 11,829 ------------ ------------ ------------ ----------- ------------ Cash and cash equivalents, end of year $ (74) $ 12,376 7,213 $ - $ 19,515 ============ ============ ============ =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-32 67 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW FOR THE YEAR ENDED APRIL 25, 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ============ ============ ============ ============ ============ Operating activities: Net income $ 18,088 $ 17,932 $ 4,588 $ (16,837) $ 23,771 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 2,390 5,764 621 - 8,775 Deferred tax provision 1,628 10,463 3,472 - 15,563 Allowance for doubtful accounts 66 (209) - - (143) Reserve for inventory obsolescence - (3,489) - - (3,489) Other items, net (120) 139 396 - 415 Change in cash due to: Receivables 380 (3,069) 341 - (2,348) Inventories - 982 (318) - 664 Prepaid expense (298) 2,091 120 - 1,913 Due from related parties (5,092) 1,546 (5,064) - (8,610) Accounts payable (45) (3,024) 819 - (2,250) Accrued liabilities (1,311) (5,849) 6,746 - (414) Deferred revenue - 1,872 - - 1,872 Income taxes 12,315 (10,428) (1,240) - 647 ------------ ------------ ------------ ----------- ------------ Cash provided by operating activities 28,001 14,721 10,481 (16,837) 36,366 ------------ ------------ ------------ ----------- ------------ Investing activities: Capital expenditures (170) (2,539) (680) - (3,389) Acquisitions, net of cash acquired - (1,007) (405) (1,412) Other items, net (627) 521 (15) - (121) ------------ ------------ ------------ ----------- ------------ Cash used for investing activities (797) (3,025) (1,100) - (4,922) ------------ ------------ ------------ ----------- ------------ Financing activities: Net decrease in short-term borrowings (1,250) (133) (791) - (2,174) Payment of dividends (5,949) (8,378) (1,145) 7,002 (8,470) Payments on long-term debt 2,382 (3,750) - - (1,368) Net Parent (settlements) advances (21,818) (42) (6,373) 9,603 (18,630) ------------ ------------ ------------ ----------- ------------ Cash used for financing activities (26,635) (12,303) (8,309) 16,605 (30,642) ------------ ------------ ------------ ----------- ------------ Effect of exchange rate changes on cash and cash equivalents (229) 689 (736) 232 (44) Net increase in cash and cash equivalents 340 82 336 - 758 Cash and cash equivalents, beginning of year (444) 5,718 5,797 - 11,071 ------------ ------------ ------------ ----------- ------------ Cash and cash equivalents, end of year $ (104) $ 5,800 $ 6,133 $ - $ 11,829 ============ ============ ============ =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-33 68 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Weight Watchers International, Inc.: In our opinion, the consolidated financial statements and financial statement schedule listed in the Index appearing under Item 14(a) (1) and (2) on page F-1 present fairly, in all material respects, the financial position of Weight Watchers International, Inc. and its subsidiaries at April 29, 2000 and April 24, 1999, and the results of their operations and their cash flows for each of the three years in the period ended April 29, 2000 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statement in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP July 10, 2000 Melville, New York F-34 69 WEIGHT WATCHERS INTERNATIONAL, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
COLUMN B COLUMN C COLUMN D COLUMN E ---------- --------- ------------- ---------- COLUMN A ADDITIONS --------- CHARGED BALANCE AT TO COSTS BALANCE AT BEGINNING AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) PERIOD ----------- ---------- --------- ------------- ---------- YEAR ENDED APRIL 29, 2000.............. Allowance for doubtful accounts...... $ 994 $ (385) $ $ 609 Inventory reserves................... 1,436 3,360 (3,329) 1,557 YEAR ENDED APRIL 24, 1999.............. Allowance for doubtful accounts...... $ 876 $ 118 $ 994 Inventory reserves................... 3,961 3,910 $ (6,435) 1,436 YEAR ENDED APRIL 25, 1998.............. Allowance for doubtful accounts...... $ 733 $ 143 $ 876 Inventory reserves................... 472 4,505 $ (1,016) 3,961
- ------------ (1) Primarily represents the utilization of established reserves, net of recoveries F-35 70 Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on his behalf by the undersigned, thereunto duly authorized. WEIGHT WATCHERS INTERNATIONAL, INC. Date: July 28, 2000 By: /s/ LINDA HUETT -------------------------------------------- Linda Huett President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: July 28, 2000 By: /s/ Linda Huett -------------------------------------------- Linda Huett President and Director (Principal Executive Officer) Date: July 28, 2000 By: /s/ THOMAS S. KIRITSIS -------------------------------------------- Thomas S. Kiritsis Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: July 28, 2000 By: /s/ RAYMOND DEBBANE -------------------------------------------- Raymond Debbane Director Date: July 28, 2000 By: /s/ JONAS M. FAIGENBAUM -------------------------------------------- Jonas M. Faigenbaum Director Date: July 28, 2000 By: /s/ KENT Q. KREH -------------------------------------------- Kent Q. Kreh Director Date: July 28, 2000 By: /s/ SACHA LAINOVIC -------------------------------------------- Sacha Lainovic Director Date: July 28, 2000 By: /s/ RICHARD PENN -------------------------------------------- Richard Penn Director Date: July 28, 2000 By: /s/ CHRISTOPHER J. SOBECKI -------------------------------------------- Christopher J. Sobecki Director 71 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- **2 - Recapitalization and Stock Purchase Agreement, dated July 22, 1999, among Weight Watchers International, Inc., H.J. Heinz Company and Artal International S.A. is incorporated herein by reference to Exhibit 2 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.1 - Amended and Restated Articles of Incorporation of Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 3.1 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.2 - Amended and Restated By-laws of Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 3.2 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.3 - Certificate of Incorporation of 58 WW Food Corp. is incorporated herein by reference to Exhibit 3.3 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.4 - By-laws of 58 WW Food Corp. is incorporated herein by reference to Exhibit 3.4 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.5 - Certificate of Incorporation of Waist Watchers, Inc. is incorporated herein by reference to Exhibit 1 filed with Amendment No. 3.5 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.6 - By-laws of Waist Watchers, Inc. is incorporated herein by reference to Exhibit 3.6 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.7 - Certificate of Incorporation of Weight Watchers Camps, Inc. is incorporated herein by reference to Exhibit 3.7 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.8 - By-laws of Weight Watchers Camps, Inc. is incorporated herein by reference to Exhibit 3.8 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.9 - Certificate of Incorporation of W.W. Camps and Spas, Inc. is incorporated herein by reference to Exhibit 3.9 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.10 - By-laws of W.W. Camps and Spas, Inc. is incorporated herein by reference to Exhibit 3.10 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.11 - Certificate of Incorporation of Weight Watchers Direct, Inc. is incorporated herein by reference to Exhibit 3.11 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.12 - By-laws of Weight Watchers Direct, Inc. is incorporated herein by reference to Exhibit 3.12 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.13 - Certificate of Incorporation of W/W Twentyfirst Corporation is incorporated herein by reference to Exhibit 3.13 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.14 - By-laws of W/W Twentyfirst Corporation is incorporated herein by reference to Exhibit 3.14 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.15 - Certificate of Incorporation of W.W. Weight Reduction Services, Inc. is incorporated herein by reference to Exhibit 3.15 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
72
EXHIBIT NUMBER DESCRIPTION - ------- ----------- **3.16 - By-laws of W.W. Weight Reduction Services, Inc. is incorporated herein by reference to Exhibit 3.16 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.17 - Certificate of Incorporation of W.W.I. European Services, Ltd. is incorporated herein by reference to Exhibit 3.17 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.18 - By-laws of W.W.I. European Services, Ltd. is incorporated herein by reference to Exhibit 3.18 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.19 - Certificate of Incorporation of W.W. Inventory Service Corp. is incorporated herein by reference to Exhibit 3.19 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.20 - By-laws of W.W. Inventory Service Corp. is incorporated herein by reference to Exhibit 3.20 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.21 - Certificate of Incorporation of Weight Watchers North America, Inc. is incorporated herein by reference to Exhibit 3.21 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.22 - By-laws of Weight Watchers North America, Inc. is incorporated herein by reference to Exhibit 3.22 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.23 - Certificate of Incorporation and Memorandum and Articles of Association of Weight Watchers UK Holdings Ltd. is incorporated herein by reference to Exhibit 3.23 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.24 - Certificate of Incorporation and Memorandum and Articles of Association of Weight Watchers International Holdings Ltd. is incorporated herein by reference to Exhibit 3.24 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.25 - Certificate of Incorporation and Memorandum and Articles of Association of Weight Watchers (U.K.) Limited is incorporated herein by reference to Exhibit 3.25 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.26 - Certificate of Incorporation and Memorandum and Articles of Association of Weight Watchers (Accessories & Publications) Ltd. is incorporated herein by reference to Exhibit 3.26 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.27 - Certificate of Incorporation and Memorandum and Articles of Association of Weight Watchers (Food Products) Limited is incorporated herein by reference to Exhibit 3.27 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.28 - Certificate of Incorporation and Constitution of Weight Watchers New Zealand Limited is incorporated herein by reference to Exhibit 3.28 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.29 - Certificate of Registration and Memorandum and Articles of Association of Weight Watchers International Pty Limited is incorporated herein by reference to Exhibit 3.29 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.30 - Certificate of Registration and Memorandum and Articles of Association of Fortuity Pty Ltd. is incorporated herein by reference to Exhibit 3.30 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **3.31 - Certificate of Registration and Memorandum and Articles of Association of Gutbusters Pty Ltd. is incorporated herein by reference to Exhibit 3.31 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **4.1 - Dollar Securities Indenture, dated as of September 29, 1999, between Weight Watchers International, Inc. and Norwest Bank Minnesota, National Association is incorporated herein by reference to Exhibit 4.1 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **4.2 - Guarantee Agreement, dated as of March 3, 2000, given by 58 WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps and Spas, Inc., Weight Watchers Direct, Inc., W/W Twentyfirst Corporation, W.W. Weight Reductions Services, Inc., W.W.I. European Services, Ltd., W.W. Inventory Service Corp., Weight Watchers
73
EXHIBIT NUMBER DESCRIPTION - ------- ----------- North America, Inc., Weight Watchers UK Holdings Ltd., Weight Watchers International Holdings, Ltd., Weight Watchers U.K. Limited , Weight Watchers (Accessories & Publications) Ltd., Weight Watchers (Food Products) Limited, Weight Watchers New Zealand Limited, Weight Watchers International Pty Limited, Fortuity Pty Ltd. and Gutbusters Ltd. is incorporated herein by reference to Exhibit 4.2 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **4.3 - Euro Securities Indenture, dated as of September 29, 1999, between Weight Watchers International Inc. and Norwest Bank Minnesota, National Association is incorporated herein by reference to Exhibit 4.3 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **4.4 - Guarantee Agreement, dated as of March 3, 2000, given by 58 WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps and Spas, Inc., Weight Watchers Direct, Inc., W/W Twentyfirst Corporation, W.W. Weight Reductions Services, Inc., W.W.I. European Services, Ltd., W.W. Inventory Service Corp., Weight Watchers North America, Inc., Weight Watchers UK Holdings Ltd., Weight Watchers International Holdings, Ltd., Weight Watchers U.K. Limited , Weight Watchers (Accessories & Publications) Ltd., Weight Watchers (Food Products) Limited, Weight Watchers New Zealand Limited, Weight Watchers International Pty Limited, Fortuity Pty Ltd. and Gutbusters Ltd. is incorporated herein by reference to Exhibit 4.4 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.1 - Credit Agreement, dated as of September 29, 1999, among Weight Watchers International, Inc., WW Funding Corp., Credit Suisse First Boston, BHF (USA) Capital Corporation, The Bank of Nova Scotia and various financial institutions is incorporated herein by reference to Exhibit 10.1 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.2 - Preferred Stock Stockholders' Agreement, dated as of September 29, 1999, among Weight Watchers International, Inc., Artal Luxembourg S.A. and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.2 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.3 - Stockholders' Agreement, dated as of September 29, 1999, among Weight Watchers International, Inc., Artal Luxembourg S.A. and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.3 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.4 - License Agreement, dated as of September 29, 1999, between WW Foods, LLC and Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 10.4 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.5 - License Agreement, dated as of September 29, 1999, between Weight Watchers International, Inc. and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.5 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.6 - License Agreement, dated as of September 29, 1999, between WW Foods, LLC and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.6 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.7 - LLC Agreement, dated as of September 29, 1999, between H.J. Heinz Company and Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 10.7 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.8 - Operating Agreement, dated as of September 29, 1999, between Weight Watchers International, Inc. and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.8 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.9 - Subscription Agreement, dated as of September 29, 1999, among WeightWatchers.com, Inc., Weight Watchers International, Inc., Artal Luxembourg S.A. and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.9 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.10 - Registration Rights Agreement, dated September 29, 1999, among WeightWatchers.com, Weight Watchers International, Inc., H.J. Heinz Company and Artal Luxembourg S.A. is incorporated herein by reference to Exhibit 10.10 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.11 - Stockholders' Agreement, dated September 29, 1999, among WeightWatchers.com, Weight Watchers
74
EXHIBIT NUMBER DESCRIPTION - ------- ----------- International, Inc., Artal Luxembourg S.A., H.J. Heinz Company is incorporated herein by reference to Exhibit 10.11 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.12 - Letter Agreement, dated as of September 29, 1999, between Weight Watchers International, Inc. and The Invus Group, Ltd. is incorporated herein by reference to Exhibit 10.12 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.13 - Agreement of Lease, dated as of August 1, 1995, between Industrial & Research Associates Co. and Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 10.13 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.14 - Lease Agreement, dated as of April 1, 1997, between Junto Investments and Weight Watchers North America, Inc. is incorporated herein by reference to Exhibit 10.14 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.15 - Lease Agreement, dated as of August 31, 1995, between 89 State Line Limited Partnership and Weight Watchers North America, Inc. is incorporated herein by reference to Exhibit 10.15 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. **10.16 - Employment Agreement, dated as of August 30, 1996, between Weight Watchers International, Inc. and Robert Mallow is incorporated herein by reference to Exhibit 10.16 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. *10.17 - Weight Watchers Savings Plan, dated as of October 3, 1999. *10.18 - Weight Watchers Executive Profit Sharing Plan, dated as of October 4, 1999. *10.19 - 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries. *10.20 - WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries. *10.21 - Warrant Agreement, dated as of November 24, 1999 between WeightWatchers.com, Inc. and Weight Watchers International, Inc. *10.22 - Warrant Certificate Weightwatchers.com, Inc. No. 01, dated November 24, 1999. *12.1 - Computation of Ratio of Earnings to Fixed Charges. *12.2 - Computation of Pro Forma Ratio of Earnings to Fixed Charges. **21 - Subsidiaries of Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 21 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000. *27 - Financial Data Schedules.
* Filed herewith. ** Previously filed. EX-10.17 2 ex10-17.txt SAVINGS PLAN 1 Exhibit 10.17 WEIGHT WATCHERS SAVINGS PLAN OCTOBER 1999 1 2 WEIGHT WATCHERS SAVINGS PLAN TABLE OF CONTENTS Page # Article I: Introduction......................................................1 1.01 Name..................................................................1 1.02 Purpose...............................................................1 1.03 Status Under Code.....................................................1 1.04 Effective Date........................................................1 Article II: Definitions......................................................2 2.01 Defined Terms.........................................................2 2.02 Account(s)............................................................2 2.03 Affiliate.............................................................2 2.04 After Tax Account.....................................................2 2.05 After Tax Contributions...............................................2 2.06 Alternate Payee.......................................................2 2.07 Annual Additions......................................................2 2.08 Beneficiary...........................................................3 2.09 Board of Directors....................................................3 2.10 Break in Service......................................................3 2.11 Code..................................................................4 2.12 Committee.............................................................4 2.13 Compensation..........................................................4 2.14 Compensation Limit....................................................4 2.15 Continuous Membership.................................................4 2.16 Disability............................................................4 2.17 Discharge Without Cause...............................................5 2.18 Eligibility Computation Period........................................5 2.19 Eligible Earnings.....................................................5 2.20 Eligible Retirement Plan..............................................5 2.21 Eligible Rollover Distribution........................................5 2.22 Employee..............................................................5 2.23 Employer..............................................................6 2.24 Employment Commencement Date..........................................7 2.25 ERISA.................................................................7 2.26 Fair Market Value.....................................................7 2.27 Fund or Investment Fund(s)............................................7 2.28 Highly Compensated Employee...........................................7 2.29 Hour of Service.......................................................8 2.30 Investment Committee..................................................8 2.31 Key Employee..........................................................8 2.32 Leased Employee.......................................................8 2 3 WEIGHT WATCHERS SAVINGS PLAN TABLE OF CONTENTS Page # 2.33 Matching Account......................................................9 2.34 Matching Contributions................................................9 2.35 Member................................................................9 2.36 Payroll Period........................................................9 2.37 Period of Service.....................................................9 2.38 Period of Severance...................................................9 2.39 Plan..................................................................9 2.40 Plan Year.............................................................9 2.41 Profit Sharing Contribution...........................................9 2.42 Profit Sharing Contribution Account...................................9 2.43 Qualified Domestic Relations Order....................................9 2.44 Qualified Nonelective Contributions..................................10 2.45 Retired Member.......................................................10 2.46 Retirement...........................................................10 2.47 Rollover Account.....................................................10 2.48 Rollover Contributions...............................................10 2.49 Salaried Employee....................................................10 2.50 Service..............................................................10 2.51 Severance from Service Date..........................................10 2.52 Stock Account........................................................11 2.53 Stock Fund...........................................................11 2.54 Tax Deferred Account.................................................11 2.55 Tax Deferred Contributions...........................................11 2.56 Trust Agreement......................................................11 2.57 Trust Fund...........................................................11 2.58 Trustee..............................................................11 2.59 Valuation Date.......................................................11 Article III: Membership.....................................................12 3.01 Eligibility and Enrollment...........................................12 3.02 Cessation of Membership..............................................12 3.03 Cessation and Resumption of Employment Status........................12 3.04 Military Service.....................................................13 Article IV: Contributions...................................................14 4.01 Profit Sharing Contributions.........................................14 4.02 Tax Deferred Contributions...........................................14 4.03 Change in Tax Deferred Contributions.................................17 4.04 Suspension of Tax Deferred Contributions.............................17 4.05 Limitation on Tax Deferred Contributions.............................17 3 4 WEIGHT WATCHERS SAVINGS PLAN TABLE OF CONTENTS Page # 4.06 Matching Contributions...............................................19 4.07 Rollover Contributions...............................................20 4.08 Limitation Based on Contribution Percentage..........................20 4.09 Allocation to Member Accounts........................................22 4.10 Maximum Annual Additions.............................................23 4.11 Participation in Other Plans.........................................24 4.12 Aggregate Limit......................................................24 4.13 Return of Contributions..............................................25 Article V: Eligibility for Benefits.........................................26 5.01 Vesting..............................................................26 5.02 Retirement...........................................................26 5.03 Death................................................................26 5.04 Disability...........................................................26 5.05 Discharge Without Cause..............................................26 5.06 Other Termination of Employment......................................26 5.07 Application of Forfeitures...........................................27 Article VI: Withdrawals.....................................................28 6.01 In General...........................................................28 6.02 After Tax Account and Rollover Account...............................28 6.03 Matching Account.....................................................28 6.04 Tax Deferred Account.................................................28 6.05 Profit Sharing Contribution Account..................................29 6.06 Hardship Withdrawal..................................................29 6.07 Additional Withdrawal Rules..........................................30 Article VII: Accounts.......................................................32 7.01 Member Accounts......................................................32 7.02 Periodic Statements..................................................32 Article VIII: Distributions.................................................33 8.01 In General...........................................................33 8.02 Methods of Distribution.............................................34 8.03 Medium of Payment....................................................35 8.04 Timing of Distributions..............................................35 8.05 Valuation............................................................36 8.06 Written Explanation..................................................36 4 5 WEIGHT WATCHERS SAVINGS PLAN TABLE OF CONTENTS Page # Article IX: Trust Fund......................................................38 9.01 Trustee and Trust Agreement..........................................38 9.02 Expenses.............................................................38 9.03 Investment Funds.....................................................38 9.04 Investment Elections by Members......................................39 9.05 Investment Election Changes..........................................39 9.06 Reallocation Among Funds.............................................39 9.07 Transferred Amounts..................................................40 9.08 Interim Investment Fund..............................................40 9.09 Member Loans.........................................................40 9.10 Loan Requirements....................................................41 Article X: Administration...................................................45 10.01 The Committee.......................................................45 10.02 Powers..............................................................45 10.03 Quorum and Committee Actions........................................46 10.04 Insufficient Information............................................46 10.05 Investment Committee................................................47 10.06 Liability Insurance and Indemnification.............................47 10.07 Qualified Domestic Relations Orders.................................47 10.08 Fiduciary Standard..................................................47 10.09 Facility of Payment.................................................48 10.10 Valuation Dates.....................................................48 Article XI: Amendment, Termination, and Merger..............................49 11.01 Right to Terminate or Amend.........................................49 11.02 Termination Procedures..............................................49 11.03 Merger, Consolidation, or Transfer of Plan Assets...................50 Article XII: General Provisions.............................................51 12.01 Uniform Administration..............................................51 12.02 Source of Payment...................................................51 12.03 No Right to Employment..............................................51 12.04 Benefits Not Assignable.............................................51 12.05 Laws Applicable.....................................................51 12.06 Election Procedures.................................................51 12.07 Top-Heavy Requirements..............................................52 12.08 Gender and Number...................................................53 12.09 Interpretations Relating to Alternate Payees........................53 5 6 WEIGHT WATCHERS SAVINGS PLAN TABLE OF CONTENTS Page # Article XIII: Claims Procedure..............................................54 13.01 Application for Payment.............................................54 13.02 Disposition of Claim................................................54 13.03 Appeals.............................................................54 13.04 Committee Decision Final............................................54 Article XIV: Signature......................................................55 6 7 WEIGHT WATCHERS SAVINGS PLAN ARTICLE I: INTRODUCTION 1.01 NAME. This Plan shall be known as the Weight Watchers Savings Plan (the "Plan"). 1.02 PURPOSE. The purpose of the Plan is to assure a competitive compensation program for Employees by establishing a retirement plan which combines monthly Employer contributions for the account of each eligible Employee with a formal savings program under which Employees may elect to have tax deferred savings supplemented by matching amounts derived from Employer contributions. The Plan provides an additional incentive for the Employees to remain in the employ of the Employer. 1.03 STATUS UNDER CODE. This Plan is intended to be a qualified plan under section 401(a) of the Code. The Plan as a whole is designed to qualify as a profit-sharing plan, provided that Employer contributions shall be made to the Plan without regard to current or accumulated earnings and profits. The provisions of the Plan concerning Tax Deferred Contributions are intended to constitute a cash or deferred arrangement under section 401(k) of the Code. 1.04 EFFECTIVE DATE. The Plan is effective October 3, 1999. 1 8 ARTICLE II: DEFINITIONS 2.01 DEFINED TERMS. Unless otherwise required by the context, the terms used herein shall have the meanings set forth in this Article II. 2.02 ACCOUNT(S). Account(s) shall mean the Tax Deferred Account, the Matching Account, the After Tax Account, the Profit Sharing Contribution Account and/or the Rollover Account. 2.03 AFFILIATE. Affiliate shall mean any corporation which is a member of a controlled group of corporations (within the meaning of section 414(b) of the Code), which also includes as a member the Employer, a trade or business under common control (within the meaning of section 414(c) of the Code) with the Employer, any organization (whether or not incorporated) which is a member of an affiliated service group (within the meaning of section 414(m) of the Code) which includes the Employer and any other organization or arrangement to the extent aggregation is required pursuant to section 414(o) of the Code. For purposes of paragraph 4.10 only, the definitions in sections 414(b) and (c) of the Code shall be modified as provided in section 415(h) of the Code. 2.04 AFTER TAX ACCOUNT After Tax Account shall mean the account into which were credited After Tax Contributions, and earnings attributable thereto. 2.05 AFTER TAX CONTRIBUTIONS After Tax Contributions shall mean contributions made by a Member, prior to the effective date of the Plan, under either the H.J. Heinz Company Employees Retirement and Savings Plan or the H.J. Heinz Company SAVER Plan, and which, subsequent to the effective date of the Plan, are credited to the Member's After Tax Account. 2.06 ALTERNATE PAYEE Alternate Payee shall mean a person designated to receive payments or distributions pursuant to a Qualified Domestic Relations Order. 2.07 ANNUAL ADDITIONS Annual Additions shall mean, for any calendar year, the sum of: (a) the Employer contributions (including Tax Deferred Contributions) made on behalf of the Member for such calendar year; and 2 9 (b) Forfeitures, if applicable, that have been allocated to the Member's Accounts under this Plan or his accounts under any other qualified defined contribution plan sponsored by the Employer. For purposes of this paragraph, any Tax Deferred Contributions distributed under the provisions of paragraph 4.05 and any Matching Contributions which may have been distributed or forfeited under the provisions of paragraphs 4.02, 4.05, or 4.10 shall be included in the Annual Addition for the year allocated. 2.08 BENEFICIARY Beneficiary shall mean any person or persons (natural or otherwise) designated by a Member, in accordance with procedures prescribed by the Committee, to receive benefits payable in the event of the death of the Member. If a married Member designates a Beneficiary who is other than his spouse, then such designation must be consented to and signed by both the Member and his spouse and witnessed by a Plan representative or notary public, unless such requirement is waived because it is established in accordance with procedures prescribed by the Committee that there is no spouse, the spouse cannot be located, the spouse is legally incompetent (in which case the consent of the legal guardian is required), the Member is legally separated or has been abandoned by his spouse (as determined according to local law), or for such other reasons as may be prescribed by applicable regulations. If no such designation is in effect at the time of death of the Member, or the person(s) so designated do not survive the Member, the Beneficiary shall be deemed to be the Member's surviving spouse, if any; otherwise the Beneficiary shall be the estate of the Member. A Member may change his Beneficiary at any time, provided that the spousal consent requirements above are fulfilled, if applicable. 2.09 BOARD OF DIRECTORS Board of Directors shall mean the Board of Directors of Weight Watchers International or the Executive Committee of such Board. 2.10 BREAK IN SERVICE Break in Service shall mean a Period of Severance of 12 consecutive months or longer. Notwithstanding the foregoing, if an Employee's service is terminated or if the Employee is otherwise absent from work due to the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption by the Employee of that child or for purposes of caring for that child for a period following the birth or placement, a Break in Service shall occur only if the Employee is not reemployed or does not return to active service prior to the second anniversary of the Employee's Severance from Service Date; and provided 3 10 further that the first year of such absence, measured from his Severance from Service Date, shall not be considered in determining a Member's "period of Break in Service" for purposes of paragraphs 2.50 and 5.06. 2.11 CODE Code shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.12 COMMITTEE Committee shall mean the committee appointed by the Board of Directors or such other committee or board as the Board of Directors may subsequently designate as being responsible for the general administration of the Plan. 2.13 COMPENSATION Compensation shall mean the Employee's total salary, wages, fees and other remuneration received in the Plan Year for personal services actually rendered in the course of employment with the Employers, including, but not by way of limitation, bonuses, overtime payments and commissions, and shall exclude deferred compensation, stock options and other distributions which receive special tax benefits under the Code, all such inclusions and exclusions to be determined consistently with Treasury Regulation section 1.415-2(d), which is hereby incorporated by reference. Except as otherwise provided, compensation shall be determined after any reduction of Eligible Earnings pursuant to paragraph 4.02 and after any pre-tax contributions under a cafeteria plan under section 125 of the Code. 2.14 COMPENSATION LIMIT Compensation Limit shall mean $160,000, as adjusted pursuant to sections 401(a)(17) and 415(d) of the Code. 2.15 CONTINUOUS MEMBERSHIP Continuous Membership shall mean any uninterrupted period during which an Employee has been a Member of the Plan, including any periods of suspension of contributions so long as there is a balance in his Accounts. 2.16 DISABILITY Disability shall mean a physical or mental condition of a Member that, based on satisfactory medical evidence acceptable to the Committee, is believed to be permanent and to render the Member unfit to perform duties for the Employer. 4 11 2.17 DISCHARGE WITHOUT CAUSE Discharge without cause shall mean involuntary termination of employment with the Employer because of job elimination, plant shutdown or permanent layoff in connection with a reduction in force. 2.18 ELIGIBILITY COMPUTATION PERIOD Eligibility Computation Period shall mean the 12 consecutive month period beginning on an individual's Employment Commencement Date and the 12 consecutive month period beginning on the first day of the Plan Year commencing after the Employment Commencement Date. 2.19 ELIGIBLE EARNINGS Eligible Earnings shall mean all cash remuneration payable to an Employee before payroll withholding, including sales incentive payments and bonuses, but excluding hiring, retention and referral bonuses, short-term housing relocation allowances, overseas allowances amounts received by the Member under long term incentive plans or amounts previously deferred, severance payments, Employer contributions under welfare or retirement programs, all classroom and related meeting pay for Salaried Employees, suggestion system awards and prizes, reimbursements for business, travel, or entertainment expenses incurred by the Member and not reported as wages for federal tax purposes, and any amounts designated as a "Vacation Bonus" relating to the number of meetings facilitated by an Employee working in the field. Any amounts by which an Employee's cash compensation is reduced at the Employee's election pursuant to plans maintained by the Employer which are described in section 125 of the Code or section 401(k) of the Code shall be included, but cash or other benefits payable to the Employee from such plans shall be excluded. In all cases of doubt as to determination of Eligible Earnings, the decision of the Committee shall be final. 2.20 ELIGIBLE RETIREMENT PLAN Eligible Retirement Plan shall have the meaning set forth in section 401(a)(31)(D) of the Code. 2.21 ELIGIBLE ROLLOVER DISTRIBUTION Eligible Rollover Distribution shall have the meaning set forth in section 401(a)(31)(D) of the Code. 2.22 EMPLOYEE Employee shall mean any person employed by an Employer who receives a regular stated compensation from the Employer other than a pension, retainer or fee under contract, provided that such term shall not include: 5 12 (a) a person who is a nonresident alien, unless such person receives remuneration from the Employer that is considered to be U.S.-source income; (b) A person whose compensation is established under a collective bargaining agreement, unless such agreement specifically provides for membership in the Plan; (c) A Leased Employee, provided that if a person who originally performs services for the Employer as a Leased Employee (or in a status which would be that of a Leased Employee if such services had been on a substantially full time basis for a period of at least one year) becomes an Employee, or in the event an Employee becomes employed by the Employer as a Leased Employee, any service rendered with the Employer as a Leased Employee (or in a status which would be that of a Leased Employee if such services had been on a substantially full time basis for a period of at least one year) shall be counted in determining (i) eligibility under paragraph 3.01 (except that he shall not by reason of that status be eligible to become a Member) and (ii) Continuous Membership and years of Service for vesting under paragraph 5.01. (d) However, "Employee" shall exclude any individual retained by an Employer to perform services for the Employer (for either a definite or indefinite duration) and is characterized thereby as a fee-for-service worker or independent contractor or in a similar capacity (rather than in the capacity of an employee), regardless of such individual's status under common law, including, without limitation, any such individual who is or has been determined by a third party, including, without limitation, a government agency or board or court or arbitrator, to be an employee of the Employer for any purpose, including, without limitation, for purposes of any employee benefit plan of the Employer (including this Plan) or for purposes of federal, state or local tax withholding, employment tax or employment law. Notwithstanding the foregoing, a Member while in receipt of disability income payments under a long-term disability program sponsored by the employer shall be treated as an Employee until the date he ceases to be eligible for payments under such program or until age 65 or his earlier Retirement or termination of Employee status. 2.23 EMPLOYER Employer shall mean, as the case may be, Weight Watchers International and any Affiliate of Weight Watchers International that adopts the plan. 6 13 2.24 EMPLOYMENT COMMENCEMENT DATE Employment Commencement Date shall mean the first day of any period for which a person is paid or entitled to payment for performance of duties for the Employer or an Affiliate; provided, however, the Employment Commencement Date of any person employed by an Affiliate may not be earlier than the date the Affiliate becomes such as described in paragraph 2.03, except as otherwise directed by the Board of Directors or required by law. 2.25 ERISA ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended form time to time. 2.26 FAIR MARKET VALUE Fair Market Value as of a particular date with respect to stock of the H.J. Heinz Company shall mean the closing price per share on such date (or, if such date is not a business day, the first business day immediately preceding such date) on the New York Stock Exchange. 2.27 FUND OR INVESTMENT FUND(S). Fund or Investment Fund(s) shall mean one or more of the funds in which Member and Employer contributions to the Plan are invested in accordance with Article IX. 2.28 HIGHLY COMPENSATED EMPLOYEE Highly Compensated Employee shall mean, for tax years beginning after December 31, 1996, an individual determined in accordance with section 414(q) of the Code, and with such rules and regulations as shall be promulgated by the Internal Revenue Service pursuant to such section, and shall mean an Employee who: (i) was a 5% owner (as defined in section 416(i)(1) of the Code) with respect to an Employer or an Affiliate during the Plan Year being tested or the preceding Plan Year, or (ii) earned more than $80,000 of Section 414(q) compensation (as defined in section 414(q)(4) of the Code) in the preceding Plan Year; provided however, the $80,000 amount is subject to adjustment as provided under section 415 of the Code, except that the base period shall be the calendar quarter ending September 30, 1996. For purposes of the this provision, a former Employee shall be treated as a Highly Compensated Employee if such former Employee was a Highly Compensated Employee when such former Employee separated from service, 7 14 or such former Employee was a Highly Compensated Employee at any time after attaining age 55. 2.29 HOUR OF SERVICE Hour of Service shall mean, with respect to any Eligibility Computation Period: (a) each hour for which a person is paid or entitled to payment for the performance of duties for the Employer or an Affiliate; (b) each hour for which a person is paid or entitled to payment by the Employer or an Affiliate directly or indirectly, on account of a period during which no duties are performed, whether or not the employment relationship has terminated due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence, but not in excess of 501 hours for any such single continuous period; (c) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or an Affiliate, excluding any hour credited under paragraphs (a) or (b) above, which shall be credited to the computation period or periods to which the award, agreement or payment pertains, rather than to the computation period in which the award, agreement or payment is made; and (d) no hours shall be credited on account of any period during which a person performs no duties and receives payment solely for the purpose of complying with workers' compensation, unemployment compensation, or disability insurance laws. The Hours of Service to be credited shall be determined pursuant to Title 29 of the Code of Federal Regulations, section 2530.200b-2(b) and (c) as promulgated by the United States Department of Labor. 2.30 INVESTMENT COMMITTEE Investment Committee shall mean the Investment Committee appointed by the Board of Directors as prescribed in paragraph 10.05 or such other committee or board as the Board of Directors may subsequently designate as being responsible for the duties prescribed for the Investment Committee in this Plan. 2.31 KEY EMPLOYEE Key Employee shall have the meaning set forth in section 416(i) of the Code. 2.32 LEASED EMPLOYEE Leased Employee shall have the meaning as set forth in Section 414(n) of the Code. 8 15 2.33 MATCHING ACCOUNT Matching Account shall mean the account into which are credited Matching Contributions, and earnings attributable thereto. 2.34 MATCHING CONTRIBUTIONS Matching Contributions shall mean contributions made by the Employer on a Member's behalf pursuant to paragraph 4.06(a). 2.35 MEMBER Member shall mean an Employee who meets the requirements of paragraph 3.01 or who has an undistributed balance. 2.36 PAYROLL PERIOD Payroll Period shall mean the weekly, biweekly, semimonthly or monthly period that is the basis for the Employer's regular payment of remuneration to the Employee. 2.37 PERIOD OF SERVICE Period of Service shall mean a period beginning on an Employment Commencement Date and ending on the next Severance from Service Date. 2.38 PERIOD OF SEVERANCE Period of Severance shall mean a period beginning on a Severance from Service Date and ending on the next Employment Commencement Date. 2.39 PLAN. Plan shall mean the Weight Watchers Savings Plan. 2.40 PLAN YEAR Plan Year shall mean the calendar year, except that the first Plan Year shall begin on the date the Plan is effective and shall end on December 31, 1999. 2.41 PROFIT SHARING CONTRIBUTION Profit Sharing Contribution shall mean the Employer contributions pursuant to paragraph 4.01. 2.42 PROFIT SHARING CONTRIBUTION ACCOUNT Profit Sharing Contribution Account shall mean the account into which are credited Profit Sharing Contributions and earnings attributable thereto. 2.43 QUALIFIED DOMESTIC RELATIONS ORDER Qualified Domestic Relations Order shall mean any judgment, decree, or order which: 9 16 (a) creates for, or assigns to, a spouse, former spouse, child or other dependent of a Member the right to receive all or a portion of the Member's benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that spouse, child or dependent, (b) is made pursuant to a state domestic relations law, (c) does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan, and (d) otherwise meets the requirements of section 206(d)(3) of ERISA, as determined by the Committee. 2.44 QUALIFIED NONELECTIVE CONTRIBUTIONS Qualified Nonelective Contributions shall mean discretionary contributions by the Employer which are made pursuant to paragraph 4.06(d). 2.45 RETIRED MEMBER Retired Member shall mean a Member who has commenced Retirement and who has an Account balance remaining in the Plan. 2.46 RETIREMENT Retirement shall mean cessation of work for the Employer on or after attainment of age 55. 2.47 ROLLOVER ACCOUNT Rollover Account shall mean the account into which shall be credited Rollover Contributions. 2.48 ROLLOVER CONTRIBUTIONS Rollover Contributions shall mean contributions made by or on behalf of a Member pursuant to paragraph 4.07. 2.49 SALARIED EMPLOYEE Salaried Employee shall mean any Employee whose base compensation from the Employer is not an hourly wage. 2.50 SERVICE Service shall mean the aggregate of all Periods of Service and all Periods of Severance of less than 12 consecutive months, excluding periods prior to a Break in Service of 5 years or more by a Member who is not vested in his Matching Account and Profit Sharing Contribution Account prior to such Break in Service. 2.51 SEVERANCE FROM SERVICE DATE Severance from Service Date shall mean the earlier of: 10 17 (a) the date the Employee quits, is discharged, retires, dies or otherwise is terminated from employment with the Employer or an Affiliate, or (b) the first anniversary of the date of a period in which the employee remains absent from work for any other reason. 2.52 STOCK ACCOUNT Stock Account shall mean the separate account for a Member to which are allocated shares of stock of the H.J. Heinz Company pursuant to paragraph 9.07. 2.53 STOCK FUND Stock Fund shall mean the Investment Fund established pursuant to paragraph 9.03 which is invested entirely or primarily in shares of stock of the H.J. Heinz Company. 2.54 TAX DEFERRED ACCOUNT Tax Deferred Account shall mean the account into which are credited Tax Deferred Contributions (including nonelective contributions that have been treated as elective contributions), and earnings attributable thereto. 2.55 TAX DEFERRED CONTRIBUTIONS Tax Deferred Contributions shall mean contributions made by the Employer on a Member's behalf pursuant to paragraph 4.02. 2.56 TRUST AGREEMENT Trust Agreement shall mean any agreement and amendments thereto entered into between the Employer and the Trustee to carry out the provisions of the Plan. 2.57 TRUST FUND Trust Fund shall mean the cash and other properties held and administered by the Trustee pursuant to the Trust Agreement to carry out the provisions of the Plan. 2.58 TRUSTEE Trustee shall mean the one or more designated trustees acting at any time under any Trust Agreement. 2.59 VALUATION DATE Valuation Date shall mean the date or dates in each calendar month on which any valuation is made, as determined under Committee procedures established pursuant to paragraph 10.10. 11 18 ARTICLE III: MEMBERSHIP 3.01 ELIGIBILITY AND ENROLLMENT. An Employee shall become a Member of the Plan according to the following rules: (a) A Salaried Employee shall become a Member on the first day of the month following his Employment Commencement Date or, if later, the first day of the month coincident with or following the Employee's becoming a Salaried Employee. (b) An Employee other than a Salaried Employee shall become a Member on the first day of the month following completion of an Eligibility Computation Period during which he has performed 1,000 or more Hours of Service. (c) Notwithstanding subparagraphs (a) and (b), an individual who becomes an Employee as a result of an acquisition of all or part of the assets or stock of the prior employer of such individual by an Employer shall be eligible to become a Member of the Plan on the earlier of: (i) the first day of the month coincident with or next following the expiration of 6 months from the date of such acquisition, or (ii) the date specified by the Committee, provided such individual is then an Employee. An eligible Employee shall be enrolled as a Member automatically upon satisfaction of the requirements of this paragraph 3.01. 3.02 CESSATION OF MEMBERSHIP. Membership shall continue so long as there is a balance in the Employee's Accounts. Membership in the Plan shall cease upon death or when an Employee's Accounts have been forfeited or completely distributed or withdrawn. 3.03 CESSATION AND RESUMPTION OF EMPLOYMENT STATUS. A Member who ceases to be an Employee as defined in paragraph 2.22 shall not be eligible to have Tax Deferred Contributions, Matching Contributions or Profit Sharing Contributions made to the Plan on his behalf or allocated to his Accounts, but shall continue to be a Member of the Plan until he ceases to have any balance in his Accounts. If a Member or former Member is rehired or otherwise resumes Employee status, as of the date of such resumption he shall again become entitled to an allocation of Profit Sharing Contributions, 12 19 Tax Deferred Contributions and Matching Contributions shall resume (unless he elects otherwise). 3.04 MILITARY SERVICE. Notwithstanding any provision of the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with section 414(u) of the Code, effective for reemployment on or after December 12, 1994. 13 20 ARTICLE IV: CONTRIBUTIONS 4.01 PROFIT SHARING CONTRIBUTIONS. The Employer shall contribute on a monthly basis on behalf of each Member who is a Salaried Employee during such month an amount equal to the applicable percentage (determined on the basis of the member's attained age at the end of the month) of the Member's Eligible Earnings for the month (up to the Compensation Limit), as derived from the following table: Years of Attained Age: Contribution Rate: Less than 25 0.50 % At least 25 but less than 30 0.75 % At least 30 but less than 35 1.50 % At least 35 but less than 40 2.50 % At least 40 but less than 45 3.50 % At least 45 but less than 50 4.50 % At least 50 but less than 55 5.50 % At least 55 but less than 60 6.00 % 60 and over 6.50 % Notwithstanding the foregoing, no such contribution shall be made to any Employee who is classified as senior manager level (or above) earning base compensation at an annual rate which exceeds the $80,000 amount specified in, and subject to adjustment under, the provisions of paragraph 2.28(ii). In the case of a Member who ceases active employment as a result of Disability but who retains Employee status, Profit Sharing Contributions under the provisions of this paragraph shall continue, subject to paragraph 4.10(b), with the Member's monthly rate of compensation prior to the commencement of disability income payments under a long-term disability program sponsored by the Employer being treated as his Eligible Earnings for this purpose, until the Member reaches age 65 or elects Retirement. 4.02 TAX DEFERRED CONTRIBUTIONS. Each Member is entitled to have Tax Deferred Contributions made by the Employer on his behalf for each Payroll Period. (a) Tax Deferred Contributions may be in an amount equal to any whole percentage of a Member's Eligible Earnings for that Payroll Period not less than 1% of his Eligible Earnings for that Payroll Period (up to the Compensation Limit) nor more than 13% of his Eligible Earnings for 14 21 that Payroll Period (up to the Compensation Limit). An election by a Member to have Tax Deferred Contributions made on his behalf constitutes an authorization to the Employer to reduce the Member's cash remuneration by an amount equal to the Tax Deferred Contributions. Tax Deferred Contributions for any Plan Year may be elected only with respect to Eligible Earnings that would have been received by the Member in the Plan Year but for his election to defer under this paragraph 4.02. Tax Deferred Contributions pursuant to this subparagraph (a) shall be made by the Employer to the Trustee in cash within a reasonable time after the end of the Payroll Period to which such contributions relate. Tax Deferred Contributions may be limited by paragraph 4.05 dealing with the actual deferral percentage for Highly Compensated Employees, by paragraph 4.10 imposing limits on Annual Additions, by paragraph 6.06 in the case of a hardship withdrawal, and by the following subparagraphs. (i) In the case of an Employee who, prior to the effective date of the Plan, was participating in the H.J. Heinz Company Employees Retirement and Savings Plan or the H.J. Heinz Company SAVER Plan and who had a Tax Deferred Contribution election in effect under either of those plans, such Member's election shall continue in effect on and after the effective date of the Plan unless changed in accordance with paragraph 4.03. (ii) An Employee who, prior to the effective date of the Plan, was eligible to elect Tax Deferred Contributions under the H.J. Heinz Company Employees Retirement and Savings Plan or the H.J. Heinz Company SAVER Plan but who did not have an election in effect may initiate an election on or after the effective date of the Plan in accordance with procedures prescribed by the Committee. (iii) Except in the case of an Employee described in (i) or (ii) above, a Member who is a Salaried Employee shall be deemed to have elected to have Tax Deferred Contributions made by the Employer on his behalf for each Payroll Period in an amount equal to 3% of his Eligible Earnings (up to the Compensation Limit), and to have authorized the Employer to reduce his cash remuneration payable while a Member by an equal amount, unless he elects, in accordance with procedures prescribed by the Committee, to have no Tax Deferred Contributions made on his behalf or to have Tax Deferred Contributions made on his behalf at a different rate. (b) A Member's Tax Deferred Contributions under subparagraph(a) in any calendar year shall not exceed $10,000, or such adjusted amount as 15 22 may be prescribed pursuant to sections 402(g)(5) and 415(d) of the Code, reduced by the sum of all other elective deferrals (as defined in regulations pursuant to section 402(g) of the Code) during such year under other plans, contracts or arrangements maintained by the Employer or any Affiliate. If a Member's Tax Deferred Contributions in a calendar year reach the applicable dollar limitation for such year, his election of Tax Deferred Contributions for the remainder of the calendar year will be canceled. As of the first pay period of the following calendar year, the Member's election of Tax Deferred Contributions shall again become effective in accordance with his previous election. (c) If a Member makes elective deferrals under another qualified defined contribution plan for any calendar year and those contributions when added to his Tax Deferred Contributions under this Plan exceed the dollar limitation set forth above for that calendar year, the Member may allocate all or a portion of such excess deferrals to this Plan. In that event, the excess deferrals (together with income allocable thereto determined by any reasonable method consistent with regulations pursuant to section 402(g) of the Code) shall be returned to the Member no later than the April 15 following the end of the calendar year in which the excess deferrals were made. The Plan shall not be required to return excess deferrals unless the Member notifies the Committee, in writing, by March 1 of that following calendar year of the amount of the excess deferrals allocated to this Plan. However, a Member who has excess deferrals calculated by taking into account only elective deferrals under this Plan and other plans, contracts or arrangements maintained by the Employer or any Affiliate shall be deemed to have made an election pursuant to this subparagraph (c) with respect to such excess deferral. The amount of excess deferrals that may be distributed pursuant to this subparagraph shall be determined after taking into account any amounts previously recharacterized or distributed pursuant to paragraph 4.05. (d) If any Matching Contributions have been allocated with respect to excess deferrals, they shall be forfeited and applied as provided in paragraph 5.07. (e) In the event that Tax Deferred Contributions are returned to the Employer in accordance with the provisions of paragraph 4.13, the elections to reduce Eligible Earnings which were made by Members on whose behalf those contributions were made shall be void retroactively to the beginning of the period for which those contributions were made. The Tax Deferred Contributions so returned shall be distributed in cash to those Members for whom those contributions were made. 16 23 4.03 CHANGE IN TAX DEFERRED CONTRIBUTIONS. Subject to the provisions of paragraph 4.02, a Member may change the percentage elected pursuant to paragraph 4.02, in accordance with procedures described by the Committee. A Member shall be permitted to change such Tax Deferred Contribution Percentage on the first of any month by giving the Employer adequate notice in accordance with procedures prescribed by the Committee. 4.04 SUSPENSION OF TAX DEFERRED CONTRIBUTIONS. (a) In accordance with procedures prescribed by the Committee, a Member may suspend Tax Deferred Contributions under paragraph 4.02. During such a period of suspension, the Employer shall make no monthly contributions on behalf of such Member to the Matching Account of such Member pursuant to paragraph 4.09(c). (b) In accordance with procedures prescribed by the Committee, a Member who has suspended Tax Deferred Contributions may elect resumption thereof in accordance with paragraph 4.02. (c) A Member who is granted an authorized leave of absence by the Employer shall be deemed to have suspended Tax Deferred Contributions pursuant to subparagraph (a) of this paragraph 4.04 and immediately upon completion of his leave of absence Tax Deferred Contributions shall resume in accordance with the election previously in effect unless changed by the Member in accordance with paragraph 4.03. 4.05 LIMITATION ON TAX DEFERRED CONTRIBUTIONS. Notwithstanding paragraph 4.02, the limitations of this paragraph 4.05 shall apply with respect to Highly Compensated Employees. (a) The actual deferral percentage for Highly Compensated Employees shall not exceed the greater of (i) or (ii) below: (i) The actual deferral percentage for all other eligible Employees multiplied by 1.25; (ii) The lesser of (A) or (B) below: (A) the actual deferral percentage for all other eligible Employees multiplied by 2.0; (B) the actual deferral percentage for all other eligible Employees increased by two percentage points (or such lesser amount as may be applicable pursuant to paragraph 4.12). (b) For purposes of this paragraph 4.05, the actual deferral percentage for a specified group of eligible Employees for a Plan Year shall be the 17 24 average (calculated to the nearest hundredth of a percentage point) of the ratios (calculated separately to the nearest hundredth of a percentage point for each Employee in the group) of: (i) The sum of the amount of Tax Deferred Contributions (and, if applicable, Qualified Nonelective Contributions) actually paid to the Trust Fund on behalf of each such Employee for such Plan Year (whether or not such contributions are returned to the Member pursuant to the rules on excess tax deferred contributions in paragraph 4.02(c)), to (ii) The Employee's Compensation for the Plan Year, taking into account for this purpose only the portion of the Plan Year after the Employee has become eligible for the Plan. (c) The Committee may implement rules, consistent with regulations under the Code, whereby Tax Deferred Contributions by any Member or group of Members may be limited in advance to a lesser percentage than the otherwise allowable maximum, whereby Tax Deferred Contributions may be decreased, suspended or otherwise modified to meet the requirements of this paragraph 4.05, or whereby Tax Deferred Contributions may be disposed of by distribution to some or all Highly Compensated Employees, in accordance with the following guidelines, so that the limitation set forth in this paragraph 4.05 is satisfied. (i) With respect to any Plan Year in which Tax Deferred Contributions made on behalf of Members who are Highly Compensated Employees exceed the applicable limit set forth in this paragraph 4.05, the Committee may reduce the amount of excess Tax Deferred Contributions made on behalf of such Highly Compensated Employees as described. Any distribution of the excess Tax Deferred Contributions for any Plan Year shall be made to the Highly Compensated Employee on the basis of the Highly Compensated Employee who had the greatest dollar amount of Tax Deferred Contributions by such Highly Compensated Employee to the extent necessary to satisfy the actual deferral percentage test. This process shall be repeated until the actual deferral percentage test is satisfied, in accordance with applicable legal guidance. (ii) Excess contributions subject to reduction under (i) above ("excess contributions"), together with income attributable to the excess contributions, shall be paid to the Member before the close of the Plan Year following the Plan Year in which the 18 25 excess contributions were made and, to the extent practicable, within 2 1/2 months of the close of the Plan Year in which the excess contributions were made. Any excess contributions for any Plan Year shall be reduced by any Tax Deferred Contributions previously returned to the Member under paragraph 4.02(d) for that Plan Year. If any Matching Contributions have been allocated with respect to excess contributions, they shall be forfeited and applied as provided in paragraph 5.07. (d) The amount of income attributable to the excess contributions for a Plan Year shall be determined by any reasonable method consistent with regulations pursuant to section 401(k) of the Code. (e) The limitations and other provisions of this paragraph shall be applied separately with respect to Members who are Employees of Weight Watchers International and its Affiliates and to Members who are Employees of WeightWatchers.com and its Affiliates. 4.06 MATCHING CONTRIBUTIONS. In addition to contributions pursuant to paragraphs 4.01 and 4.02, the Employer shall make contributions in accordance with the following: (a) The Employer shall contribute to the Trustee on a monthly basis an amount equal to the aggregate of the Tax Deferred Contributions under paragraph 4.02 on behalf of all Members for the Payroll Period ending in or with such month (disregarding the portion of the Tax Deferred Contributions for any Member which is in excess of 3% of the Member's Eligible Earnings) for such Payroll Period. Contributions pursuant to this subparagraph shall be made by the Employer to the Trustee in cash within a reasonable time after the end of the month to which such contributions relate and are subject to the limitations of paragraph 4.05(c)(ii) and paragraph 4.08. (b) The Employer shall contribute to the Trustee not later than September 15, 1999 an additional amount for each Member who was a participant in the H.J. Heinz Company SAVER Plan on October 3, 1999, is an Employee on December 31, 1999 and whose Eligible Earnings from the Employer and from the H.J. Heinz Company for the 1999 Plan Year exceed $15,000. Such additional amount shall be equal to the aggregate of the Member's Tax Deferred Contributions under Section 4.02 of the H.J. Heinz SAVER Plan for the 1999 Plan Year (disregarding the portion of such Tax Deferred Contributions in excess of 3% of the Member's Eligible Earnings from the H.J. Heinz Company for such Plan Year). Contributions pursuant to this 19 26 subparagraph are subject to the limitations of paragraph 4.08 and shall be credited to the Member's Matching Account. (c) In addition, the Employer shall contribute from time to time such amounts as may be required for restoration of forfeitures pursuant to paragraph 5.06. (d) In addition, the Employer may in its discretion contribute from time to time such amounts which meet the requirements for "qualified nonelective contributions" under regulations pursuant to sections 401(k) and (m) of the Code as it shall determine to be appropriate to enable the Plan to satisfy the limitations of paragraphs 4.05 and/or 4.08. 4.07 ROLLOVER CONTRIBUTIONS. With the permission of the Committee and without regard to any limitations on contribution percentages for Highly Compensated Employees in paragraphs 4.05 and 4.08 or limitations on Annual Additions in paragraph 4.10, the Plan may receive from a Member or from another plan which is qualified under section 401(a) of the Code, any amount which qualifies as an Eligible Rollover Distribution or otherwise qualifies for rollover treatment under Code section 408(d)(3)(A)(ii), provided that the Member provides evidence satisfactory to the Committee that such amount so qualifies. Rollover contributions which are not directly transferred from another qualified plan must be paid to the Trustee on or before the 60th day after having been received by the Member. Direct transfers may be accomplished by wire transfer to the Trustee or by delivery to the Trustee of a check made out to the Plan or to the Trustee, as prescribed by the Committee. 4.08 LIMITATION BASED ON CONTRIBUTION PERCENTAGE. After application of the provisions of paragraph 4.05 above, the regular contribution percentage for Highly Compensated Employees shall be subject to the limitations of this paragraph 4.08. (a) The regular contribution percentage for Highly Compensated Employees who are Members or eligible to become Members or eligible to become Members shall not exceed the greater of (i) or (ii) below: (i) The regular contribution percentage for all other eligible Employees multiplied by 1.25; (ii) The lesser of (A) or (B) below: (A) the regular contribution percentage for all other eligible Employees, multiplied by 2.0; (B) the regular contribution percentage for all other eligible Employees increased by two percentage points 20 27 (or such lesser amount as may be applicable pursuant to paragraph 4.12). (b) For purposes of this paragraph 4.08, the regular contribution percentage for a specified group of eligible Employees for a Plan Year shall be the average (calculated to the nearest hundredth of a percentage point) of the ratios (calculated separately to the nearest hundredth of a percentage point for each Employee in the group) of: (i) The sum of the amounts allocable under paragraph 4.09 to the Employee's Matching Account for that Plan Year (plus Qualified Nonelective Contributions, if applicable), to (ii) The Employee's Compensation for the Plan Year, taking into account for this purpose only the portion of the Plan Year after the Employee has become eligible for the Plan. (c) In the event the Committee determines that the limitation under subparagraph (a) of this paragraph 4.08 would be exceeded in any Plan Year, the following provisions shall apply: (i) With respect to any Plan Year in which Matching Contributions made on behalf of Members who are Highly Compensated Employees exceed the applicable limit set forth in this paragraph 4.08, the Committee may reduce the amount of excess Matching Contributions made on behalf of such Highly Compensated Employees as described. Any distribution of the excess Matching Contributions for any Plan Year shall be made to the Highly Compensated Employee on the basis of the Highly Compensated Employee who had the greatest dollar amount of Matching Contributions on behalf of such Highly Compensated Employee to the extent necessary to satisfy the actual contribution percentage test. This process shall be repeated until the actual contribution percentage test is satisfied, in accordance with applicable legal guidance. (ii) Any contributions allocable to the Matching Contributions subject to reduction under this paragraph ("excess aggregate contributions"), together with income attributable to the excess aggregate contributions, shall be reduced as follows: (A) Such reduction amounts shall be applied by paying to the Member a part of the amount allocable to the Matching Account which equals the balance of the excess aggregate contributions. 21 28 (B) Any repayment of excess aggregate contributions shall be made before the close of the Plan Year following the Plan Year for which those contributions were made; to the extent practicable any repayment shall be made within 2 1/2 months of the close of the Plan Year in which the contributions were made. (C) The amount of income attributable to the excess aggregate contributions shall be determined by any reasonable method consistent with regulations pursuant to section 401(m) of the Code. (d) The limitations and other provisions of this paragraph shall be applied separately with respect to Members who are Employees of Weight Watchers International and its Affiliates and to Members who are Employees of WeightWatchers.com and its Affiliates. 4.09 ALLOCATION TO MEMBER ACCOUNTS. Allocations shall be made to the Accounts of Members in accordance with this paragraph 4.09, subject to the limitations on Annual Additions set forth in paragraph 4.10. (a) Profit Sharing Contributions and contributions made pursuant to paragraph 4.06(b) on behalf of each Member pursuant to paragraph 4.01 shall be allocated to the Profit Sharing Contribution Account of such Member. (b) Tax Deferred Contributions pursuant to a Member's election under paragraph 4.02 shall be allocated to the Tax Deferred Account of each Member on whose behalf such contribution is made, subject to the limitations on Tax Deferred Contributions in paragraphs 4.02 and 4.05 and the aggregate limit on Tax Deferred Contributions and Matching Contributions specified in paragraph 4.12. (c) Contributions that are made pursuant to paragraph 4.06(a) shall be allocated to the Matching Account of each Member in an amount equal to 100% of the Tax Deferred Contributions (not in excess of 3% of the Member's Eligible Earnings (up to the Compensation Limit)) under paragraph 4.02 on behalf of each Member for the month for which such contribution is made. (d) Contributions pursuant to paragraph 4.06(d) shall be allocated among the Tax Deferred Accounts of such Members in such proportions as the Committee prescribes at the time of authorization of such contributions or, if no allocation method is prescribed, in equal amounts among the Tax Deferred Accounts of Members other than Highly Compensated Employees. 22 29 4.10 MAXIMUM ANNUAL ADDITIONS. (a) The Annual Additions made by or on behalf of and allocated to any Member for any Plan Year to this Plan and any other defined contribution plan which is qualified under section 401(a) of the Code and which is maintained by the Employer or any Affiliate shall not be greater than an amount equal to the lesser of (i) and (ii): (i) 25% of the Member's Compensation for such Plan Year (determined without regard to the last sentence of paragraph 2.13). (ii) $30,000. As of January 1 of each calendar year on and after the date the dollar limitation under section 415 of the Code for defined benefit plans reaches $120,000, the dollar limitation set forth above for each such year shall be adjusted to 25% of the defined benefit plan dollar limitation and shall become effective as the maximum permissible dollar limitation for that calendar year, in lieu of the $30,000 limitation set forth above. (b) In the case of a Member who is totally and permanently disabled (within the meaning of section 22(e)(3) of the Code), Compensation for a Plan Year for purposes of this paragraph 4.10 shall be deemed to be the amount which the Member would have received for such Plan Year if he was paid at the rate of compensation in effect immediately before becoming totally and permanently disabled. (c) In order to prevent excess Annual Additions, the Committee shall limit contributions and/or allocations to a Member's Accounts in the following order of priority: (i) Tax Deferred Contributions; (ii) Profit Sharing Contributions. (d) If, as a result of a reasonable error in estimating a Member's Compensation or in determining the amount of Tax Deferred Contributions that may be made with respect to a Member, or other circumstances permitted pursuant to regulations under the Code, amounts are contributed with respect to a calendar year by or on behalf of a Member in excess of the amount that can be allocated under subparagraph (a), such excess shall be subject to the following rules: 23 30 (i) Contributions in excess of the limitations shall be distributed to the Member to the extent consisting of Tax Deferred Contributions; (ii) Any remaining excess amounts, which shall be chargeable first against Profit Sharing Contributions on behalf of a Member and thereafter against Matching Contributions, may be allocated to a suspense account and used to reduce contributions on behalf of the Member in the next calendar year (and treated as Annual Additions in such next year) if the Member is entitled to an allocation of contributions in such next year or, in the direction of the Committee, may be applied to reduce subsequent contributions by the Employer for the current calendar year and allocated and reallocated to the Accounts of other Members for the current calendar year, provided that if such allocation and reallocation should cause the Accounts of all Members to exceed the limitations of this paragraph 4.10 the excess shall be credited to a suspense account and allocated to Member Accounts for succeeding calendar years before any further contributions are made under the plan. 4.11 PARTICIPATION IN OTHER PLANS. If any Highly Compensated Employee is a participant in another qualified plan of the Employer or an Affiliate under which deferred cash contributions or matching contributions are made on behalf of the Highly Compensated Employee or under which the Highly Compensated Employee makes participant contributions, in applying the limitations of paragraphs 4.05, 4.08 and 4.12 the Committee shall implement rules, which shall be uniformly applicable to all Employees similarly situated, to take into account all such contributions under all such plans to the extent required by Code sections 401(k) and (m). 4.12 AGGREGATE LIMIT. In no event shall the sum of the actual deferral percentage of the group of eligible Highly Compensated Employees and regular contribution percentage of such group, after applying the provisions of paragraphs 4.05 and 4.08, exceed the "aggregate limit" as such term is defined in regulations and rulings implementing section 401(m)(9) of the Code. In the event the aggregate limit is exceeded for any Plan Year, the contribution percentages of the Highly Compensated Employees shall be reduced to the extent necessary to satisfy the aggregate limit in accordance with the procedure set forth in paragraph 4.08. 24 31 4.13 RETURN OF CONTRIBUTIONS. A contribution made by the Employer under a mistake of fact shall be returned to the Employer upon its written request within one year after the contribution was made. Contributions by the Employer are conditional on deductibility under the Code and accordingly any contribution for which a deduction is disallowed shall be returned to the Employer upon its written request within one year of disallowance. Contributions returned to the Employer pursuant to this subparagraph shall be without earnings thereon but shall be reduced for any investment losses. 25 32 ARTICLE V: ELIGIBILITY FOR BENEFITS 5.01 VESTING. A Member's interest in the Profit Sharing Contribution Account and Matching Account shall be fully vested when the Member's aggregate Service totals at least 5 years or, if earlier, upon the Member's attainment of age 65, death, disability or Discharge without Cause by the Employer. The value of the Member's Tax Deferred Account, After Tax Account and Rollover Account will be fully vested at all times. 5.02 RETIREMENT. A Member may elect Retirement on the first day of the month coincident with or next following the date on which he attains age 55 or the first day of any subsequent month by application in accordance with procedures prescribed by the Committee specifying a desired date of Retirement not less than 30 nor more than 90 days following the date such application is made. The date of commencement of benefits shall be either the date so specified or on the first day of the calendar month next following, as the Committee shall determine. 5.03 DEATH. Upon the death of a Member, his Accounts shall be distributable to his Beneficiary in accordance with the provisions of Article VIII. 5.04 DISABILITY. In the event of a Member's Disability, his After Tax Account, Tax Deferred Account and Matching Account shall be distributable in accordance with the provisions of Article VIII. 5.05 DISCHARGE WITHOUT CAUSE. Upon a Member's Discharge without Cause, his Accounts shall be distributable in accordance with the provisions of Article VIII. 5.06 OTHER TERMINATION OF EMPLOYMENT. In the case of termination of employment of a Member for any reason other than Retirement, death, Disability or Discharge without Cause by the Employer, the Member's vested Accounts as described in paragraph 5.01 shall be distributable in accordance with the provisions of Article VIII. (a) Such a Member shall forfeit his non-vested interest in the Matching Account and Profit Sharing Contribution Account upon the payment of his Account or when he incurs a 5 year Break in Service, if later, subject to the rules in subparagraphs (b) and (c) below. 26 33 (b) If such a Member forfeits an amount to the credit of his Profit Sharing Contribution Account before he has a period of Break in Service of 5 years, such amount shall be restored to his Profit Sharing Contribution Account provided he is reemployed by the Employer or an Affiliate before the occurrence of a Break in Service of 5 years. (c) If such a Member forfeits an amount to the credit of his Matching Account before he has a period of Break in Service of 5 years, such amount shall be restored to his Matching Account, provided (i) he is reemployed by the Employer or an Affiliate and (ii) after resumption of employment he repays to the Trust Fund an amount equal to the full amount, if any, distributed to him from the Trust Fund as a result of his termination of employment. Any repayment under this paragraph must be made in a lump sum before the earlier of 5 years after the date he is reemployed or the occurrence of a Break in Service of 5 years. 5.07 APPLICATION OF FORFEITURES. Forfeitures under paragraph 5.06(a) shall be applied as provided in this paragraph. (a) Any portion of the Profit Sharing Contribution Account forfeited during a Plan Year in accordance with paragraph 5.06(a) shall be used as required to make restorations required by paragraph 5.06(b) to Members' Profit Sharing Contribution Accounts for such Plan Year, to defray Plan administrative expenses, or to reduce subsequent Employer contributions under paragraphs 4.01 and/or 4.06. (b) Any portion of the Matching Account forfeited during a Plan Year in accordance with paragraph 5.06(a) shall be used as required to make restorations required by paragraph 5.06(c) to Members' Matching Accounts for such Plan Year, to defray Plan administrative expenses, or to reduce subsequent Employer contributions under paragraphs 4.01 and/or 4.06. 27 34 ARTICLE VI: WITHDRAWALS 6.01 IN GENERAL. Except as provided in paragraph 10.07 in the case of a Qualified Domestic Relations Order, withdrawals may be made from a Member's Accounts before the occurrence of a distribution event described in paragraph 8.01 only as provided in this Article VI. 6.02 AFTER TAX ACCOUNT AND ROLLOVER ACCOUNT. A Member or the Beneficiary of a deceased Member may withdraw a specific dollar amount or the entire amount credited to the Member's After Tax Account and Rollover Account. 6.03 MATCHING ACCOUNT. A Member or the Beneficiary of a deceased Member may withdraw a specific dollar amount or the entire amount from the vested balance credited to the Member's Matching Account, provided that a Member may make such withdrawals only if: (a) the Member has at least 60 months of Continuous Membership, or (b) the withdrawal satisfies the "hardship" withdrawal rules of paragraph 6.06, or (c) the Member has attained age 59-1/2. 6.04 TAX DEFERRED ACCOUNT. A Member or the Beneficiary of a deceased Member may withdraw a specific dollar amount or the entire amount of the Member's Tax Deferred Account, provided that a Member may make such a withdrawal only if: (a) the withdrawal satisfies the "hardship" withdrawal rules of paragraph 6.06, or (b) the Member has attained age 59-1/2. A withdrawal under this paragraph 6.04 shall not exceed (i) the amount credited to the Member's Tax Deferred Account under the H.J. Heinz Company Savings Plan as of December 31, 1988, (ii) increased by the Member's Tax Deferred Contributions under such plan after such date and decreased by the amounts, if any, withdrawn by the Member under paragraph 6.04 of such plan after such date, and (iii) decreased by any prior withdrawal by the Member under this paragraph 6.04. Except as provided in this paragraph 6.04, a Member shall not be permitted to withdraw any amount from his Tax Deferred Account prior to Retirement, Disability, death or other separation from Service. 28 35 6.05 PROFIT SHARING CONTRIBUTION ACCOUNT. Withdrawals from a Member's Profit Sharing Contribution Account are permitted only as provided in Article VIII. 6.06 HARDSHIP WITHDRAWAL. The Committee shall approve an application for a hardship withdrawal by a Member who otherwise qualifies for a hardship withdrawal under this Article VI if the application, made in such form as the Committee shall prescribe, satisfies subparagraphs (a) and (b) of this paragraph 6.06. (a) As a condition for a hardship withdrawal, the Member must seek a withdrawal on account of any of the following financial needs: (i) medical expenses described in section 213(d) of the Code previously incurred by the Member, his spouse or any of his dependents (as defined in section 152 of the Code) or necessary for these persons to obtain medical care described in section 213(d) of the Code; (ii) costs directly related to the purchase of a principal residence of the Member (excluding mortgage payments); (iii) payment of tuition and related educational fees for the next 12 months of post-secondary education of the Member, his spouse or dependents (as defined in section 152 of the Code); or (iv) payment of amounts necessary to prevent eviction of the Member from his principal residence or to avoid foreclosure on the mortgage of his principal residence. (b) As a condition for a hardship withdrawal, the requested withdrawal must be necessary to satisfy the financial need described in subparagraph (a). The Committee will make its determination of the necessity for the withdrawal solely on the basis of the application provided all of the following requirements are met: (i) the distribution is not in excess of the amount of the immediate and heavy financial need specified according to subparagraph (a), plus any additional amount necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution; (ii) the Member has obtained all distributions, other than distributions available only on account of hardship, and all nontaxable loans currently available under all plans of the Employer and Affiliates; (iii) the hardship withdrawal will result in: 29 36 (A) suspension under this Plan and all other qualified and nonqualified plans of deferred compensation maintained by the Employer and Affiliates of the Member's elective deferrals and Employee contributions (other than mandatory contributions to a defined benefit plan) for at least 12 months after receipt of the distribution; and (B) reduction of the limitation under section 402(g) of the Code under this Plan and all other plans of the Employer and Affiliates for the calendar year following the year in which the withdrawal is made by the Member's elective deferrals made in the calendar year of the distribution for hardship. 6.07 ADDITIONAL WITHDRAWAL RULES. The following rules shall apply to withdrawals under this Article VI: (a) No withdrawal may be made from a Member's Tax Deferred Account unless all amounts then available for withdrawal under paragraphs 6.02 and 6.03 have been withdrawn. No withdrawal may be made from a Member's Matching Account under paragraph 6.03 unless all amounts withdrawable under paragraph 6.02 have been withdrawn. (b) After there have been two withdrawals under this Article VI in any Plan Year, withdrawals shall be allowed only under the hardship rules of paragraph 6.06, with a maximum of two such hardship withdrawals for any Plan Year. (c) Funds withdrawn pursuant to this Article VI may not be repaid. (d) Any withdrawal must be in an amount which is not less than $200 unless such withdrawal consists of the entire balance in the Account from which the withdrawal is being made. (e) Withdrawals may be in cash or stock of the H.J. Heinz Company as provided in paragraph 8.03. (f) Any amounts withdrawn shall be charged against the Investment Funds in proportion to the current balances of the Account in such Investment Funds. (g) No withdrawal may be made if such withdrawal would cause a violation of the maximum loan limitations prescribed pursuant to paragraph 9.09. (h) A withdrawal may include an election that a withdrawal which is an Eligible Rollover Distribution be transferred directly to an Eligible Retirement Plan in accordance with procedures described in paragraph 8.02(c). (i) The amount of any withdrawal paid to the recipient shall be the net amount after reduction for applicable tax withholding. 30 37 (j) The effective date of a withdrawal shall be the first Valuation Date occurring after the withdrawal request is completed. The amount of the withdrawal shall be paid to the Member as soon as practicable after the effective date. 31 38 ARTICLE VII: ACCOUNTS 7.01 MEMBER ACCOUNTS. The Trustee or such other record keeper as the Committee may designate shall maintain in an equitable manner a separate Tax Deferred Account, Matching Account, After Tax Account, Profit Sharing Contribution Account and Rollover Account for each Member. Each separate Account shall be revalued at current market values not less frequently than monthly, and a separate record shall be kept of the share of each such separate Account in each Investment Fund of the Trust Fund. The Committee may instruct the Trustee or such other record keeper to maintain such additional Accounts and such subaccounts as it deems appropriate for administration of the Plan. 7.02 PERIODIC STATEMENTS. The Trustee or such other record keeper as the Committee shall designate shall furnish to each Member or Beneficiary annually or more frequently a statement setting forth the value of his Accounts. 32 39 ARTICLE VIII: DISTRIBUTIONS 8.01 IN GENERAL. Distribution of a Member's Accounts shall be in accordance with the Rules of this Article VIII. (a) Retirement. The Method of distribution to be made after Retirement may be elected by the Member in accordance with procedures prescribed by the Committee. The method of distribution shall be any one of the methods in paragraph 8.02. If no such election is made, the distribution shall be made pursuant to the method described in paragraph 8.02(a), subject to paragraph 8.02(c). (b) Death. Payments to a Beneficiary upon death of the Member shall be made pursuant to subparagraphs (a) or (b) of paragraph 8.02 as specified by election made during the Member's lifetime in accordance with procedures prescribed by the Committee, subject to the right of a Beneficiary who is the Member's Spouse to elect a direct transfer of an Eligible Rollover Distribution under paragraph 8.02(c). A Member may specify that a designated Beneficiary may elect to reduce an installment period previously elected by the Member under paragraph 8.02(b) or accelerate the lump sum payment in paragraph 8.02(a). If no specification of distribution method was made by the Member, distribution shall be made as elected by the Beneficiary. If no Member or Beneficiary election is made, distribution shall be made pursuant to the method described in paragraph 8.02(a), subject to paragraph 8.02(c). (c) Disability. In cases of Disability, payments from a Member's After Tax Account, Tax Deferred Account and Matching Account upon the Member's election made in accordance with procedures prescribed by the Committee. The provisions of paragraph 8.04(b) shall not apply while such a Member retains Employee status. Distribution pursuant to this paragraph may be pursuant to any one of the methods in paragraph 8.02 as specified by election of the Member in accordance with procedures prescribed by the Committee. If no such election is made, the distribution shall be made pursuant to the method described in paragraph 8.02(a), subject to paragraph 8.02(c). (d) Discharge without Cause. Payments to a Member because of Discharge without Cause shall be made pursuant to any one of the methods in paragraph 8.02. If no such election is made, the distribution shall be made pursuant to the method described in paragraph 8.02(a), subject to paragraph 8.02(c). 33 40 (e) Other Termination of Employment. Payments to Members whose employment is terminated for reasons other than Retirement, death or Discharge without Cause shall be made pursuant to the method described in paragraph 8.02(a), subject to paragraph 8.02(c). (f) Required Beginning Date. A Member who has attained his "required beginning date" under section 401(a)(9) of the Code may make an election of the method of distribution in accordance with procedures prescribed by the Committee. The method of distribution shall be any one of the methods in paragraph 8.02. If no such election is made, the distribution shall be made pursuant to the method described in paragraph 8.02(a), subject to paragraph 8.02(c). 8.02 METHODS OF DISTRIBUTION. Methods of distribution which may be available to a Member or Beneficiary pursuant to paragraph 8.01 are the following: (a) A lump sum. (b) Installments, over a period which shall not exceed 30 years under such one of the following methods in subparagraph (i) or (ii) as is elected by the Member or Beneficiary in writing to the Committee: (i) Annual payments, the amounts of which are recalculated annually by dividing the current value of the Member's Accounts by the remaining number of unpaid installments; or (ii) Annual payments, the amounts of which are calculated by dividing the current value of the Member's Accounts by the number of years over which installments are payable. If the amount of any annual installment so calculated is in excess of the balance to the credit of the Accounts, such balance shall be distributed and no further installments shall be made. Any surplus remaining in the Member's Accounts at the expiration of the period elected by him for receipt of installment payments shall be distributed with the last annual installment. Notwithstanding the above, an installment arrangement must provide for payment over a period which meets the requirements of paragraph 8.04(e). A Member or Beneficiary may elect in writing to reduce an installment period previously elected. (c) A direct transfer to the trustee or other custodian of an Eligible Retirement Plan of all or a specified amount that part of the Member's Accounts distributable under subparagraph (a) or (b) which is an Eligible Rollover Distribution, provided that to invoke this option: 34 41 (i) the Member or Beneficiary must specify, in accordance with procedures prescribed by the Committee, the Eligible Retirement Plan to which the distribution is to be paid; (ii) the Member or Beneficiary must provide, in accordance with procedures prescribed by the Committee, adequate information regarding the designated Eligible Retirement Plan. Reasonable reliance may be placed on such information concerning a designated Eligible Retirement Plan as is provided by the Member or Beneficiary and independent verification of such information is not required. Notwithstanding the foregoing, an Alternate Payee who is not the Member's Spouse or former Spouse or a Beneficiary who is not the Member's Spouse may not elect a direct transfer and a Spouse may elect a direct transfer only to an Eligible Retirement Plan which is an individual retirement account. 8.03 MEDIUM OF PAYMENT. Payments from the Funds will normally be made in cash; however, at the request of the Member or Beneficiary, payment from the Member's Stock Fund may be made in full shares of stock of the H.J. Heinz Company and cash in lieu of fractional shares. 8.04 TIMING OF DISTRIBUTIONS. Any provision herein to the contrary notwithstanding, all distributions pursuant to paragraph 8.01 must meet the following rules: (a) If the value of a Member's Accounts exceeds $5,000, distribution shall not be made or commence before the later of: (i) the Member's termination of employment, or (ii) his attainment of age 70-1/2, unless the Member (or the Beneficiary of a deceased Member) consents to earlier payment. (b) If the value of the Member's Account is less than $5,000, a distribution shall be made as soon as is practicable after termination of employment. (c) Distribution of a Member's Accounts shall be made or shall commence, unless the Member elects otherwise, not later than 60 days after the later of: (i) the end of the Plan Year in which the Member attains age 65, or (ii) the end of the Plan Year in which the Member's Retirement occurs. 35 42 (d) In the event that a Member ceases to be an Employee because of the disposition by the Employer of substantially all of the assets of a trade or business or the sale of a subsidiary but continues employment with the successor employer, no distribution shall be made with respect to the Tax Deferred Account of an affected member unless the applicable requirements of section (k)(2)(B) and section 401(k)(10) of the Code are met. (e) An installment arrangement under paragraph 8.02(b) must provide for payment over an installment period which does not exceed the life expectancy of the last survivor of the Member and his Beneficiary or if the Member is deceased, the life expectancy of the Beneficiary, with the amount of installments to be calculated in a manner which complies with the requirements of section 401(a)(9) of the Code (including the incidental benefit requirements of Code section 401(a)(9)(G)), and regulations thereunder, which shall override any provision of this Plan inconsistent therewith. In the event of the death of the Member who is receiving installment payments under paragraph 8.02(b) as of his date of death, the benefits shall be distributed at least as rapidly as under the method of payment selected by the Member. No benefit option selected by a Beneficiary shall defer the commencement of distribution beyond one year after the Member's date of death or, if the Beneficiary is the Member's spouse, the April 1 of the calendar year following the calendar year in which the Member would have attained age 70-1/2. 8.05 VALUATION. Valuation of Accounts for purposes of distribution to or on behalf of a Member or Beneficiary shall be made as of the effective date of each payment or transfer. For purposes of the preceding sentence: (a) the effective date of an immediate distribution of an Account of $5,000 or less pursuant to paragraph 8.04(b) shall be the first Valuation Date occurring after the Committee receives notice of termination of employment; and (b) the effective date of any distribution with respect to which the consent of a Member or Beneficiary is required shall be the first Valuation Date occurring after the Committee receives the distribution election in accordance with procedures prescribed by the Committee. 8.06 WRITTEN EXPLANATION. Within a reasonable time before a distribution is made from the Plan, the recipient shall, in accordance with procedures prescribed the Committee, be provided with a written explanation of: 36 43 (a) the provisions under which the recipient may have the distribution directly transferred to another Eligible Retirement Plan; (b) the provision which requires the withholding of tax on Eligible Rollover Distributions which are not directly transferred to another Eligible Retirement Plan; (c) the provisions under which an Eligible Rollover Distribution will not be subject to tax if transferred to an Eligible Retirement Plan within 60 days after receipt; and (d) the provisions concerning taxation of lump sum distributions and distributions of employer securities. 37 44 ARTICLE IX: TRUST FUND 9.01 TRUSTEE AND TRUST AGREEMENT. The Board of Directors shall select one or more organizations or individuals to serve as Trustee and the Employer shall enter into one or more agreements of trust providing for the administration of the Trust Fund in such form and containing such provisions as the Employer deems appropriate, including, but not by way of limitation, provisions with respect to the powers and authority of the Trustee and the authority of the Employer to amend or terminate the Trust Agreement or to change the Trustee and to settle the accounts of the Trustee on behalf of all persons having an interest in the Trust Fund. The principal or the income of the Trust Fund shall not be used for any purpose other than for the exclusive benefit of Members and Beneficiaries or to meet the necessary expenses of the Plan. 9.02 EXPENSES. Brokerage fees, commissions, taxes and expenses incident to the income or assets of the Trust or the purchase or sale of securities by the Trustee shall be deemed to be a charge against such income or assets, or part of the cost of such securities or a deduction in computing the proceeds therefrom, as the case may be. All other expenses of the Plan, including record keeping fees, administrative charges, professional fees, Trustee fees, and expenses and transfer taxes on distribution of shares of stock, may be paid by the Trustee from the assets of the Trust Fund unless paid by the Employer. 9.03 INVESTMENT FUNDS. One or more Investment Funds, as selected by the Investment Committee appointed pursuant to paragraph 10.05, shall be established for the investment and reinvestment of contributions made on behalf of or by Members of the Plan. (a) Investment Funds selected by the Investment Committee may include, but shall not be limited to, accounts or contracts with insurance companies and accounts with banks, trust companies, mutual funds, investment companies, other equity funds managed by investment managers as defined under section 3(38) of ERISA or by the Investment Committee or a common trust fund operated by the Trustee of the Plan; provided, however, one of the Funds established shall be a Stock Fund. Any Investment Fund selected by the Investment Committee shall be communicated to Members and Beneficiaries in a timely fashion. 38 45 (b) The Plan adopts and includes the provisions of any group or common trust fund in which the Plan's Trust participates, but only as long as such group or common trust fund remains qualified under section 401(a) of the Code and exempt from taxation under section 501(a) of the Code in accordance with Revenue Ruling 81-100. (c) The Trustee shall reinvest in each of the above Funds the dividends, interest and other distributions received on the assets held by the Trustee in the respective Funds. The Trustee may keep such amounts of cash and short-term investments as it shall deem necessary or advisable to maintain as a part of such Funds. 9.04 INVESTMENT ELECTIONS BY MEMBERS. Upon enrollment (or as soon as practicable thereafter) a Member shall elect that amounts allocated to his Account be invested entirely in one of the available Funds established pursuant to paragraph 9.03 or in any or all of such Funds in multiples of [1%]. Each Member shall assume all investment risks connected with the assets held by the Trustee for his Accounts (other than his Matching Account) and is solely responsible for the selection of his investment options. The Trustee, the Investment Committee, the Committee, the Employer, and the officers, supervisors and other employees of the Employer are not empowered to advise a Member as to the manner in which such Accounts shall be invested. The fact that an Investment Fund is available to Members for investment under the Plan shall not be construed as a recommendation for investment in that Investment Fund. In default of any election by a Member, his undirected Accounts shall be invested in such Fund or Funds as the Investment Committee may direct. 9.05 INVESTMENT ELECTION CHANGES. The Committee shall establish procedures whereby a Member may elect to change the investment of future additions to his Account to any combination of selections permitted under paragraph 9.04. Such procedures may provide that an election in effect at the end of any calendar month shall apply to all additions for such month, whether received by the Trustee before or after the end of such month. 9.06 REALLOCATION AMONG FUNDS. The Committee shall establish procedures whereby a Member, an inactive or Retired Member or the Beneficiary of a deceased Member may elect to reallocate among the Investment Funds in multiples of 1% the investment of his existing Tax Deferred Account, After Tax Account, Rollover Account and Profit Sharing Contribution Account. 39 46 9.07 TRANSFERRED AMOUNTS. Amounts allocated to a Member's Account as amounts transferred on behalf of the Member from the Heinz Employee Retirement and Savings Plan, to the extent not consisting of shares of stock of the H.J. Heinz Company, shall be invested entirely in one of the available Funds or in any or all such available Funds as the Member shall elect pursuant to paragraph 9.04. Shares of stock of the H.J. Heinz Company allocated to a Member's Account with respect to such transfer shall be allocated to a separate account for the Member and, as the Member shall so elect with respect to any and all such shares of stock, shall be sold from such separate account and the proceeds of such sale or sales shall be invested entirely in one of the available Funds or in any or all such available Funds as the Member shall elect pursuant to paragraph 9.04; provided, however, that any such shares of stock remaining in such separate account on December 31, 2000 shall be sold from such separate account and the proceeds of such sale invested in the available Fund or Funds in the same proportion as amounts described in paragraph 9.04 are invested in such Funds or Funds. 9.08 INTERIM INVESTMENT FUND. All amounts allocated to a Member's Account, other than shares of stock of the H.J. Heinz Company described in paragraph 9.07, shall, prior to the establishment of Investment Funds as described in paragraph 9.03, be invested as the Investment Committee shall direct. 9.09 MEMBER LOANS. Loans shall be made available to any Member who is an Employee, in accordance with the following provisions of this paragraph 9.09. (a) Loans shall be made available to all Members on a reasonably equivalent and nondiscriminatory basis and in accordance with section 408(b)(1) of ERISA and regulations promulgated thereunder. The Committee may suspend at any time authorization for future loans to Members but no such suspension shall affect any loan then outstanding. (b) Upon the application of a Member who is an Employee, the Committee or its delegate shall instruct the Trustee to make a loan to such Member first from his Tax Deferred Account (if any), and then, if necessary, from his Matching Account (if any), and then, if necessary, from his Rollover Account (if any), and then, if necessary, from his After Tax-Contributions (if any) and provided that such loan meets the requirements of paragraph 9.10. The promissory note executed pursuant to paragraph 9.10(f) shall be held in trust by the Trustee as a Trust asset and allocated solely to the borrower's Accounts, and the value of such promissory note shall be considered to be the 40 47 outstanding unpaid balance of the note including any accrued interest. No loan shall be made until the Member has completed the appropriate form (whether in one or more separate documents or by undertaking any alternative procedures prescribed by the Committee) and submitted (or otherwise communicated) to the Committee or its delegate such information as deemed appropriate, which shall include, among other items, the Member's promise to repay to the Trustee, as payee, the full amount, the loan term, the repayment schedule, the Member's authorization and direction that the Employer shall withhold each Payroll Period and remit to the Trustee the appropriate installment amounts, and such other terms and conditions as are consistent with this paragraph and paragraph 9.10. If the loan is approved, the Trustee shall have a conditional security interest in the Member's Accounts to the Trustee as security for repayment of the loan. The Committee or its delegate shall inform a Member in writing within a reasonable time of the approval or denial (and the reason(s) for denial) of a loan request. (c) No more than one (1) loan made to a Member may be outstanding at any time. (d) If a Member obtains a loan under this paragraph 9.09, his status as a Member and rights with respect to Plan benefits are not affected, except to the extent that the Member has assigned interests in the Accounts pursuant to this paragraph and paragraph 9.10. 9.10 LOAN REQUIREMENTS. A loan pursuant shall meet all of the following requirements: (a) Minimum Amount. A loan must be in an amount not less than one thousand dollars ($1,000). (b) Maximum Amount. A loan shall not exceed the least of: (i) 50% of the value of the Member's vested interest in the Member's Account balance. (ii) 100% of the value of the Member's Tax Deferred Account, Matching Account, Rollover Account and After Tax Account, and (iii) $50,000 reduced by the greater of the unpaid balance (if any) of any other loan from the Plan to the Member on the date the loan is made or the highest outstanding balance of loans (if any) from the Plan to the Member during the one-year period ending on the day before the date the loan is made. (c) Valuation. The value of a Member's Accounts shall be determined as of the last valuation completed immediately prior to the date on which 41 48 the Member's loan request is received (or, if the Committee or its delegate shall so direct, any later Valuation Date prior to the distribution of funds. If any unpaid balance is required to be taken into account under clause (iii), such unpaid balance shall also be taken into account as included in the Member's Account balance under clause (ii). (d) Interest and Amortization. A loan shall bear interest that is fixed for the term of the loan, and shall provide for substantially level amortization (within the meaning of section 72(p)(2)(C) of the Code) with payments made through payroll deductions during any period that the Member receives pay for employment by the Employer and otherwise with payments made monthly by the Member's personal check. The rate of interest for loans shall be set for each calendar quarter to apply to all loans made in such quarter. The rate of interest set for a calendar quarter shall be equal to 1% plus the published prime interest rate of a bank selected by the Committee as that rate is published on the tenth business day preceding the end of the preceding quarter; provided, however, that the Committee may direct that the interest rate be changed more frequently than quarterly by reference to such prime rate as published on any date that is not more than 10 days prior to the date such change is first effective. If the rate of interest set pursuant to the preceding sentence exceeds the highest rate which may legally be charged under applicable law, no loans may be made to any Member, notwithstanding any other provision in this paragraph 9.10 to the contrary. (e) Repayment Term. The principal amount of a loan must be payable no later than the earlier of the following dates: (i) The expiration of a 5 year term, except for a loan used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the Member, which may be for any longer term of whole years not in excess of 15 years. (ii) The date on which distribution of the Member's Accounts is made or otherwise commences following the Member's Severance from Service Date. Notwithstanding the foregoing, a Member shall have the right to prepay the full outstanding balance of such loan without penalty, at any time. (f) Promissory Note. A loan shall be evidenced by a promissory note executed by the Member. Such note shall provide that if the Member receives pay for employment by an Employer, the loan is to be paid by 42 49 regular deductions from his pay in each pay period in which the loan is outstanding and that if the Member is not receiving pay for employment by an Employer, the loan is to be paid monthly by a Certified or Bank Check. The promissory note shall also contain such other terms as the Committee or its delegate shall in its sole discretion determine. (g) Written Agreement. A loan shall be made pursuant to a loan agreement executed by the Member and the Trustee (directly, or acting through the Committee or its delegate), on a form containing such terms and provisions as the Committee or its delegate shall determine. (h) Loan Expenses. Any fees, taxes, charges or other expenses (including without limitation any asset liquidation charge or similar extraordinary expense) incurred in connection with a loan shall be paid or charged against the Accounts of the Member from which the loan is made unless otherwise determined by the Committee. (i) Allocation Among Investment Funds. A loan shall be allocated on a pro rata or substantially pro rata basis among the Investment Funds in which the Member's Tax Deferred Account, Matching Account, Rollover Account, and After Tax Account (whichever was the source for the loan) is invested. (j) Repayment. The total amount of principal and interest payments on a Member's loan shall be allocated to the Member's Accounts out of which the loan was funded, in the following order: (1) After Tax Contributions; (2) Rollover Account; (3) Matching Account, (4) Tax Deferred Account. Such payments shall be allocated to such Investment Funds as the Member shall have designated under paragraph 9.04. (k) Disposition of Loan Upon Certain Events. Subject to the provision of paragraph 9.10(d) authorizing prepayment of a loan, in the event of the death of a Member before the Member repays all outstanding loans, the Trustee shall reduce the value of the Member's Accounts by the amount of the Member's outstanding loan before making a distribution to the Member or his beneficiary. (l) Default. A loan shall be in default if a scheduled payment of principal or interest is not received by the Committee or its delegate within 90 days following the scheduled payment date. Upon such default, the outstanding principal amount and accrued interest of the loan shall become immediately due and payable, and the Committee or its delegate may direct the Trustee to execute upon the Plan's security interest in the Member's Accounts to satisfy the debt; provided, however, that the execution shall not occur until such time as the Member's Accounts could be distributed to the Member consistent with the requirements for qualification of the Plan under section 401(k) 43 50 of the Code. The Committee or its delegate may take any other action he deems appropriate to obtain payment of the outstanding amount of principal and accrued interest, which may include accepting payments of principal and interest that were not made on schedule and permitting the loan to remain outstanding under its original payment schedule. 44 51 ARTICLE X: ADMINISTRATION 10.01 THE COMMITTEE. The general administration and responsibility for carrying out the provisions of the Plan shall be placed with the Committee. The members of the Committee may be eligible to participate in the Plan. The Committee shall have complete control of the administration of the Plan with all powers to enable it to carry out its duties in that respect, subject at all times to the limitations and conditions specified in or imposed by the Plan. 10.02 POWERS. In addition to any implied powers needed to carry out the provisions of the Plan, the Committee shall have the following specific powers: (a) To make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan, including procedures for enrollment, investment elections, withdrawals and distributions, and to design written forms or other documents to implement such rules, regulations and procedures. (b) To interpret the Plan and to decide any and all matters arising hereunder, including the right to remedy possible ambiguities, inconsistencies or omissions. (c) To determine the amount of benefits that shall be payable to a Member or Beneficiary in accordance with the provisions of the Plan. (d) To authorize disbursements from the Trust Fund and the payment of monies or property, or both, therefrom to a Member or Beneficiary and others; and to arrange for withholding and remittance of such withholding taxes as are required under the Code. (e) To authorize one or more of its number or any agent to execute or deliver any instrument or make any payment on its behalf; to retain counsel, employ agents and provide for such clerical, accounting, actuarial and consulting services as it may require in carrying out the provisions of the Plan; and to allocate among or delegate to other persons all or such portion of its duties hereunder, other than those granted to the Trustee under the Trust Agreement adopted for use in implementing the Plan, as the Committee in its sole discretion shall decide. (f) To determine benefit eligibility under this Plan, to interpret Plan provisions and to take any action necessary to execute the provisions of the Plan, and all such authority shall be exercised in a manner consistent with the provisions of the Plan. 45 52 All interpretations, determinations and decisions of the Committee in respect of any matter hereunder shall be final, conclusive and binding upon the Employees, Members and Beneficiaries and all other persons claiming an interest under the Plan. 10.03 QUORUM AND COMMITTEE ACTIONS. A majority of the members of the Committee shall have the power to act with or without a meeting and the concurrence of any member may be by letter, wire, cablegram, fax or telephone. 10.04 INSUFFICIENT INFORMATION. In the event the Employer does not provide sufficient information to the Committee concerning any aspect of the Plan's operation, including but not limited to the amount of a Member's contributions, investment elections or other transactions involving a Member's Account, to enable the Plan to accurately complete valuations or process transactions in the normal course of operations, the Committee may take such action as it deems necessary pursuant to this paragraph. (a) The Committee action may include, but shall not be limited to, temporarily suspending transactions by Members employed by the Employer with respect to their Accounts under the Plan and treating the Plan contributions from the Employer as if such contributions were made by one person and allocating such contributions to the appropriate Funds under the Plan in accordance with the instructions of the Employer. (b) In the absence of such investment election information such contributions shall be invested in such Fund or Funds as the Investment Committee may direct. (c) In the event sufficient information is subsequently provided to enable the Plan to resolve the above described situation within a reasonable period of time, the amounts involved will be allocated properly to the Accounts of the affected Members subject to the Plan provisions. (d) If sufficient information is not provided to enable the Plan to resolve the above described situation within a reasonable period of time, the Committee shall cause the Accounts of the Members employed by such Employer to be spun off in accordance with Code section 414(1) into a separate plan for which the Employer will assume all responsibility. (e) Any additional administrative expenses incurred by the Plan due to the occurrence of the events described above shall be paid to the Plan by the responsible Employer. The payment of such expenses shall be due and payable upon receipt by such Employer of a written notice from the Committee of the amount of such additional administrative 46 53 expenses. In addition, if an Employer fails to provide sufficient information to the Plan concerning any aspect of its operations and such failure causes an error in the Plan's operations, including, but not limited to, inaccuracies involving transactions, such Employer shall pay to the Plan, as an additional administrative expense, the amount necessary to rectify such error. The payment of such expense shall be due and payable upon receipt by the Employer of a written notice from the Committee of the amount of such expense. 10.05 INVESTMENT COMMITTEE. The Board of Directors shall appoint an Investment Committee which shall consist of three or more members who shall serve at the pleasure of the Board. To the extent not otherwise limited by the provisions of the trust instrument or this Plan, for the purpose of carrying out its duties and responsibilities, the members of the Investment Committee may direct the Trustee in the management of the assets of the Plan; may appoint one or more investment managers to direct the Trustee in the management of the assets of the Plan; may establish procedures to evaluate the investment performance of the Funds of the Plan and its asset managers; and may allocate among themselves or delegate to other persons all or such portion of their duties hereunder, as they, in their sole discretion shall decide. 10.06 LIABILITY INSURANCE AND INDEMNIFICATION. The Employer shall obtain insurance or indemnify the members of the Committee and the Investment Committee for any and all liability, whether joint or several, for their acts and conduct, or the acts or conduct of their agents, in their official capacity, to the fullest extent permitted or authorized by current or future legislation or by current or future judicial or administrative decision. 10.07 QUALIFIED DOMESTIC RELATIONS ORDERS. The Committee shall establish reasonable written procedures consistent with the requirements of section 206(d)(3) of ERISA for determining whether a domestic relations order is a Qualified Domestic Relations Order and to administer any Qualified Domestic Relations Order. Notwithstanding any other provision of the Plan, a Qualified Domestic Relations Order may provide that a lump sum payment (or, if otherwise permitted, a direct transfer of a lump sum amount) of the portion of a Member's Accounts assigned to an Alternate Payee shall be made as soon as administratively feasible whether or not the Member is entitled to a withdrawal or distribution at such time. 10.08 FIDUCIARY STANDARD. The members of the Committee and the Investment Committee shall use that degree of care, skill, prudence and diligence that a prudent man acting in a 47 54 like capacity and familiar with such matters would use in his conduct in a similar situation. 10.09 FACILITY OF PAYMENT. Whenever, in the Committee's opinion, a person entitled to receive any payment of a benefit or installment thereof hereunder is under legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may direct the Trustee to make payments to such person or to his legal representative or to a relative or friend of such person for his benefit or to apply the payment for the benefit of such person in such manner as it considers advisable. 10.10 VALUATION DATES. The Committee shall establish procedures for determining the Valuation Dates which shall apply for withdrawals, distributions or other relevant purposes. Valuation Dates need not be the same for all purposes. 48 55 ARTICLE XI: AMENDMENT, TERMINATION, AND MERGER 11.01 RIGHT TO TERMINATE OR AMEND. The Board of Directors reserves the right to terminate, modify, alter or amend this Plan or any Trust Agreement hereunder from time to time to any extent that it may deem advisable including, but not without limiting the generality of the foregoing, any amendment deemed necessary to ensure the continued qualification of the Plan under section 401(a) and section 401(k) Code, or the appropriate provisions of any subsequent revenue law or any other applicable laws regulating employee plans. No such amendment shall increase the dues or responsibilities of the Trustee without its consent thereto in writing. No such amendment shall have the effect of diverting the whole or any part of the principal or income of the Trust Fund to purposes other than for the exclusive benefit of Members and Beneficiaries. A modification or amendment of the Plan may affect present as well as future Members and Beneficiaries but may retroactively reduce the Accounts of any Member or Beneficiary. 11.02 TERMINATION PROCEDURES. In the event of termination or partial termination of the Plan or the complete discontinuance of Employer contributions, the Accounts of affected Members shall be fully vested and the Trustee shall: (a) pay any and all expenses chargeable against the Trust Fund; (b) determine from the Committee the balance in each Member's Account; (c) as directed by the Committee, either: (i) distribute the balance in the affected Members' Accounts in the manner prescribed in Article VIII, provided that no distribution shall be made with respect to the Tax Deferred Account of an effected Member unless the applicable requirements of section 401(k)(2)(B) and 401(k)(10) of the Code are met; or (ii) continue to maintain the Trust Fund and Plan to pay benefits in accordance with the provisions of Article VIII, except that no Employee shall become a Member on or after the effective date of such termination. In making any distributions after termination of the Plan, any and all determinations, divisions, appraisals, apportionments and allotments determined by the Committee shall be final and conclusive. If, after all liabilities of the Plan to Members and Beneficiaries have been satisfied or provided for, any assets remain unallocated in the suspense account 49 56 provided for in paragraph 4.10(d)(ii), then such assets shall be distributed to the Employer. 11.03 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS. In the case of any merger or consolidation with, or transfer of assets and liabilities to, any other plan, provisions shall be made so that each Member, former Member and Beneficiary on the date thereof would, if the Plan were then terminated, receive a benefit immediately after the merger, consolidation or transfer that would be equal to or greater than the benefit he would have been entitled to receive immediately prior to the merger, consolidation or transfer if the Plan had then been terminated. 50 57 ARTICLE XII: GENERAL PROVISIONS 12.01 UNIFORM ADMINISTRATION. Whenever the administration of the Plan requires any action by the Employer, the Committee or any member thereof, including action with respect to eligibility or classification of Employees or contributions or benefits, such action shall be uniform in nature, shall apply to all persons similarly situated and shall not discriminate in favor of any Employee. 12.02 SOURCE OF PAYMENT. Benefits under this Plan shall be payable only out of the Trust Fund. Neither the Employer, the Board of Directors or any members thereof, nor the Committee or any member thereof shall have any legal obligation, responsibility or liability to make any direct payment of benefits accrued under the Plan. Neither the Employer, the Trustee, the Board of Directors or any member thereof, nor the Committee or any member thereof guarantees the Trust Fund against any loss or depreciation or guarantees the payment of any benefit hereunder. 12.03 NO RIGHT TO EMPLOYMENT. Nothing herein contained shall be deemed to give any Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge him at any time. 12.04 BENEFITS NOT ASSIGNABLE. Except (a) as provided in a Qualified Domestic Relations Order or (b) in the case of loans in effect before January 1, 1990 in accordance with paragraph 9.09, no right or interest of any Member or Beneficiary in the Plan, or in the Accounts, shall be assignable or transferable, or subject to any lien, in whole or in part, either directly or by operation of law, or otherwise including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no right or interest of any Member of Beneficiary in the Plan or in the Accounts shall be liable for, or be subject to, any obligation or liability of such Member or Beneficiary. 12.05 LAWS APPLICABLE. Subject to the provisions of ERISA, the Plan shall be governed by, and construed in accordance with, the laws of the State of New York. 12.06 ELECTION PROCEDURES. Any elections, designations, withdrawals, authorizations and other actions taken by Employees, Members, or Beneficiaries shall be in accordance with procedures prescribed by the Committee. 51 58 12.07 TOP-HEAVY REQUIREMENTS. (a) The following definitions apply to the terms used in this paragraph: (i) "applicable determination date" means the last day of the preceding Plan Year; (ii) "top-heavy ratio" means the ratio of (A) the value of the aggregate of the Accounts under the Plan for Key Employees to (B) the value of the aggregate of the Accounts under the Plan for all Key Employees and non-Key Employees; (iii) "non-Key Employee" means any Employee who is not a Key Employee; (iv) "applicable Valuation Date" means the Valuation Date coincident with or immediately preceding the last day of the preceding Plan Year; (v) "required aggregation group" means any other qualified plan(s) of the Employer or an Affiliate in which there are members who are Key Employees or which enable(s) the Plan to meet the requirements of section 401(a)(4) or 410 of the Code; and (vi) "permissive aggregation group" means each plan in the required aggregation group and any other qualified plan(s) of the Employer or an Affiliate in which all members are non-Key Employees, if the resulting aggregation group continues to meet the requirements of sections 401(a)(4) and 410 of the Code. (b) For purposes of this paragraph, the Plan shall be "top-heavy" with respect to any Plan Year if, as of the applicable determination date the top-heavy ratio exceeds 60%. The top-heavy ratio shall be determined as of the applicable Valuation Date in accordance with section 416(g)(3) and (4) of the Code and Article VII of this Plan. For purposes of determining whether the Plan is top-heavy, the Account balances under the Plan will be combined with the account balances or the present value of accrued benefits under each other plan in the required aggregation group, and, in the Employer's discretion, may be combined with the account balances or the present value of accrued benefits under any other qualified plan in the permissive aggregation group. (c) The following provisions shall be applicable to Members for any Plan Year with respect to which the Plan is top-heavy: (i) All Matching Accounts shall become 100% vested and all future contributions to the Plan shall be immediately 100% vested. (ii) An additional Employer contribution shall be allocated on behalf of each Member (and each Employee eligible to become a 52 59 Member) who is a Non-Key Employee, and who has not terminated service as of the last day of the Plan Year, to the extent that Profit Sharing Contributions and Matching Contributions on his behalf for the Plan Year which are not needed to meet the contribution percentage test set forth in paragraph 4.08 would otherwise be less than 3% of his Compensation (up to the Compensation Limit). However, if the greatest percentage of Compensation (up to the Compensation Limit) contributed on behalf of a Key Employee for the Plan Year would be less than 3%, such lesser percentage shall be substituted for "3%" in the preceding sentence. Notwithstanding the foregoing provisions of this subparagraph (ii), no minimum contribution shall be made under this Plan with respect to a Member (or an Employee eligible to become a Member) if the required minimum benefit under section 416(c)(1) of the Code is provided to him by any other qualified pension plan of the Employer or an Affiliate. 12.08 GENDER AND NUMBER. Masculine pronouns used herein shall refer to men or women or both and nouns when stated in the singular shall include the plural and when stated in the plural shall include the singular whenever appropriate. 12.09 INTERPRETATIONS RELATING TO ALTERNATE PAYEES. Unless the context otherwise requires, any reference herein to a Member or Beneficiary shall be deemed to be a reference to an Alternate Payee to the extent (a) appropriate to carry out the purposes of the applicable Qualified Domestic Relations Order and (b) not inconsistent with the procedures adopted by the Committee pursuant to paragraph 10.07. 53 60 ARTICLE XIII: CLAIMS PROCEDURE 13.01 APPLICATION FOR PAYMENT. Payments to Members or their Beneficiaries shall be made upon application submitted in accordance with procedures prescribed by the Committee. 13.02 DISPOSITION OF CLAIM. The Committee shall furnish written notice of disposition of a claim to the claimant within 60 days after the claimant has filed application therefor. In the event the Committee denies such claim, it shall specifically set forth in writing the reasons for the denial, cite the pertinent provisions of the Plan, and, where appropriate, provide an explanation as to how the claimant can perfect such claim. 13.03 APPEALS. Any Member or Beneficiary who has been denied a benefit shall be entitled, upon request to the Secretary of the Committee, to appeal the denial of his claim. The claimant must provide a written statement of his position to the Secretary of the Committee not later than 60 days after receipt of the notification of denial of claim as set forth in paragraph 13.02. The Committee shall within 60 days after receipt of such notice communicate to the claimant its decision in writing. 13.04 COMMITTEE DECISION FINAL. The Committee's determination of benefits due under the Plan shall be accorded deference and its decision shall be final and binding upon all parties. 54 61 ARTICLE XIV: SIGNATURE To record the adoption of this Plan by the Employer and its Affiliates participating therein, the Employer has caused this Plan to be executed by its duly authorized corporate officers, and its corporate seal to be hereunto affixed, effective as of the ______ day of ____________, ________. Weight Watchers International By: ________________________________ Authorized Officer [Seal] Attest: ________________________________ Secretary 55 EX-10.18 3 ex10-18.txt EXECUTIVE PROFIT SHARING PLAN 1 EXHIBIT 10.18 WEIGHT WATCHERS EXECUTIVE PROFIT SHARING PLAN Effective October 4, 1999 2 ARTICLE I INTRODUCTION 1.01 NAME. This Plan shall be known as the Weight Watchers Executive Profit Sharing Plan (the "Plan"). 1.02 PURPOSE. The purpose of the Plan is to provide a replacement retirement benefit for certain senior manager level employees who are not eligible to receive a profit-sharing contribution under the Weight Watchers Savings Plan (the "Qualified Plan") but are otherwise eligible to participate under the 401(k) feature of the Qualified Plan. 1.03 UNFUNDED PLAN. The Plan is intended to be an unfunded plan for purposes of the Employee Retirement Income Security Act of 1974, as amended, and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.01 BOARD. "Board" means the Board of Directors of the Company or the Executive Committee of such Board. 2.02 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.03 COMMITTEE. "Committee" means the committee appointed by the Board or such other committee or board as the Board may subsequently designate as being responsible for the general administration of the Plan. 2.04 COMPANY. "Company" means the Weight Watchers International or any successor entity thereto, including without limitation, the transferee of all or substantially all of the stock or assets of the Company. 2.05 DISABILITY. "Disability" means a physical or mental condition of a Member that, based on satisfactory medical evidence acceptable to the Committee, is believed to be permanent and to render the Member unfit to perform duties for the Company or an affiliated employer. 3 2.06 MEMBER. "Member" means any individual who is eligible to participate in the Plan as provided in section 4.1 hereof. 2.07 PROFIT SHARING ACCOUNT. "Profit Sharing Account" means the notional account established and maintained for each Member in accordance with Article IV hereof, for bookkeeping purposes only, to measure the value of Profit Sharing Contributions made under the Plan and the earnings thereon. Amounts credited to the Profit Sharing Account shall be in dollars and cents. 2.08 PROFIT SHARING CONTRIBUTION. "Profit Sharing Contribution" means the notional contribution made under the Plan pursuant to Article IV hereof to each Member's Profit Sharing Account.. 2.09 QUALIFIED PLAN CONTRIBUTION. "Qualified Plan Contribution" means the profit sharing contribution that is made on behalf of a participant of the Qualified Plan under Section 4.01 thereof 2.10 QUALIFIED PLAN CONTRIBUTION LIMITS. "Qualified Plan Contribution Limits" means (a) the maximum compensation of a Member that may be recognized under the Qualified Plan pursuant to Section 401(a)(17) of the Code, and (b) the limitations on annual contributions under the Qualified Plan pursuant to Section 415 of the Code. 2.11 UNFORESEEABLE EMERGENCY. "Unforeseeable Emergency" means severe financial hardship to the Member resulting from a sudden and unexpected illness or accident of the Member or a dependent of the Member, loss of the Member's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Member. ARTICLE III ADMINISTRATION 3.01 COMMITTEE. Except as otherwise provided in the Plan, the Committee shall have full power to construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities that it believes reasonable and proper. 3.02 DUTIES. The Committee, or any person or entity designated by the Committee, shall be responsible for the administration of the Plan including but not limited to determination of eligibility, distribution of benefits hereunder, maintenance of account balances, calculation of hypothetical investment returns and any other duties concerning the day-to-day operation of the Plan. 4 3.03 ADJUDICATION. Any decision made, or action taken, by the Committee or the Board arising out of, or in connection with, the interpretation and administration of the Plan, including but not limited to the adjudication of claims and payment of benefits hereunder, shall be final and conclusive. 3.04 INDEMNIFICATION. The members of the Board and the Committee shall be indemnified by the Company to the fullest extent permitted by law against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith. ARTICLE IV PARTICIPATION 4.01 MEMBERSHIP. Any individual who is eligible to participate under the Qualified Plan (in accordance with Article III thereof), but who is not eligible to receive a Qualified Plan Contribution shall be a Member under this Plan. 4.02 PROFIT SHARING CONTRIBUTION. An amount equal to the Qualified Plan Contribution that otherwise would have been made on behalf of a Member under the Qualified Plan if such Member were actually eligible to receive such contribution under the Qualified Plan, determined without regard to the Qualified Plan Contribution Limits, shall be credited to the Member's Profit Sharing Account as and when such Qualified Plan Contribution otherwise would have been made under the Qualified Plan. 4.03 VESTING. A Member's interest in his or her Profit Sharing Account shall be fully vested when the Member's aggregate "Service" (as defined under the Qualified Plan) totals at least 5 years or, if earlier, upon the Member's attainment of age 65, death, disability or "Discharge without Cause" (as defined under the Qualified Plan) by the Company or an affiliated employer. 4.04 INTEREST CREDITS. Subject to a maximum annualized interest rate cap of 15%, each Member's Profit Sharing Account shall be credited with interest at an annual rate equal to the sum of (a) 2% plus (b) the annualized prime rate, as published in the Wall Street Journal, compounded as of the end of each fiscal month. 5 4.05 DISCRETIONARY CONTRIBUTIONS. At the sole discretion of either the Board or the President of the Company, additional amounts may be credited on behalf of any Member from time to time based on criteria established, or in a manner otherwise determined, by the Board or the President of the Company. ARTICLE V DISTRIBUTIONS 5.01 TIMING OF PAYMENT. Payment of a Member's Profit Sharing Account shall be made in a single lump sum as soon as practicable following the Member's termination of employment with the Company or an affiliated employer, except as provided under Section 5.03 hereof. 5.02 FORM OF PAYMENT. Any payment under this Article shall be in the form of cash or a cash equivalent. 5.03 DEATH OR DISABILITY. (a) In the event of the Member's death, the balance of such Member's Profit Sharing Account shall be paid to the Member's designated beneficiary or, if no beneficiary has been designated, to the Member's estate in a lump sum as soon as practicable or as otherwise provided by the Committee. (b) In the event of the Member's Disability, the balance of such Member's Profit Sharing Account shall be paid to the Member (or the Member's legal representative) in the manner prescribed by the Committee at its sole discretion. 5.04 HARDSHIP DISTRIBUTION. Notwithstanding any provision to the contrary, in the event of an Unforeseeable Emergency a Member shall be entitled to early payment of all or part of the balance of such Member's Profit Sharing Account to the extent reasonably needed to satisfy the Unforeseeable Emergency need. An application for an early payment under this section 5.04 shall be made in accordance with the procedures and requirements adopted by the Committee. 6 ARTICLE VI STATEMENT OF ACCOUNTS Statements shall be sent annually to each Member (or such Member's estate, beneficiary or legal representative) or as otherwise provided by the Committee. ARTICLE VII BENEFICIARY DESIGNATION Each Member shall have the right, at any time, to designate any person, persons or entity as such Member's designated beneficiary. A beneficiary designation shall be made, and may be amended, by the Member by filing a written designation in accordance with the procedures adopted by the Committee. ARTICLE VIII AMENDMENT OR TERMINATION The Board or the Committee may amend, modify or terminate the Plan at any time; provided, however, no amendment, modification or termination shall, without the consent of the Member, adversely affect such Member's right to payment from the Member's vested balance under the Profit Sharing Account as of the date of such amendment, modification or termination. ARTICLE IX MISCELLANEOUS 9.01 UNSECURED RIGHT. Any right to receive a payment under the Plan shall be no greater than that of an unsecured general creditor of the Company. No amount payable under the Plan may be assigned, transferred, encumbered or subject to any legal process for the payment of any claim against a Member. 9.02 NO RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall not give any employee any right to remain in the employ of the Company or any affiliate thereof. 9.03 WITHHOLDING. The Company shall withhold to the extent required by law all applicable income and other taxes from amounts deferred or paid under the Plan. 7 9.04 GOVERNING LAW. The Plan shall be construed, governed and enforced in accordance with the laws of the State of New York without reference to rules relating to conflicts of law, except to the extent preempted by federal law. 9.05 COMPLIANCE WITH SECURITIES LAWS. The Committee may, from time to time, impose additional restrictions upon Members as it deems necessary, advisable or appropriate in order to comply with applicable federal and state securities laws. 8 EXHIBIT A WEIGHT WATCHERS EXECUTIVE PROFIT SHARING PLAN BENEFICIARY DESIGNATION FORM Please complete each section as instructed. The capitalized terms as used herein have the meaning set forth in the Weight Watchers Executive Profit Sharing Plan. 1. MEMBER INFORMATION Name____________________________ Social Security #_______________________ Address_____________________________________________________________________ 2. BENEFICIARY ELECTION I hereby designate the following individual as my beneficiary in accordance with Article VII of the Plan: Beneficiary_____________________ Social Security #_______________________ Address_____________________________________________________________________ 3. ACKNOWLEDGEMENT AND AGREEMENT I acknowledge and agree that I have received and reviewed a copy of the Plan. I understand that this Beneficiary Designation Form may not be revoked except by operation of a subsequent filing of such form. _____________________________________________ __________________________ Signature of Member Date EX-10.19 4 ex10-19.txt STOCK PURCHSE AND OPTION PLAN 1 EXHIBIT 10.19 1999 STOCK PURCHASE AND OPTION PLAN OF WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 1. Purpose of Plan The 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries (the "Plan") is designed: (a) to promote the long term financial interests and growth of Weight Watchers International, Inc. (the "Company") and its subsidiaries by attracting and retaining management personnel with the training, experience and ability to enable them to make a substantial contribution to the success of the Company's business; (b) to motivate management personnel by means of growth-related incentives to achieve long range goals; and (c) to further the mutuality of interests of participants with those of the stockholders of the Company through opportunities for increased stock, or stock-based, ownership in the Company. 2. Definitions As used in the Plan, the following words shall have the following meanings: (a) "Affiliate" shall mean, any corporation directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board of Directors in which the Company or an affiliate has an interest. (b) "Board of Directors" means the Board of Directors of the Company. (c) "Change of Control" means (i) sales of all or substantially all of the assets of the Company to a Person who is not an affiliate of Artal, (ii) a sale by Artal or any of its respective affiliates resulting in more than 50% of the voting stock of the Company being held by a Person or Group that does not include Artal or any of its respective affiliates or (iii) a merger or consolidation of the Company into another Person which is not an affiliate of Artal; if and only if any such event results in the inability of Artal to elect a majority of the Board of Directors of the Company (or the resulting entity). For purposes hereof, "Artal" means Artal Luxembourg S.A. (d) "Committee" means the Compensation Committee of the Board of Directors. 2 2 (e) "Common Stock" or "Share" means common stock of the Company which may be authorized but unissued, or issued and reacquired. (f) "Employee" means a key person, including an officer, in the regular full-time employment of the Company or one of its Subsidiaries who, in the opinion of the Committee, is, or is expected, to be primarily responsible for the management, growth or protection of some part or all of the business of the Company. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (h) "Fair Market Value" means such value of a Share as reported for stock exchange transactions and/or determined in accordance with any applicable resolutions or regulations of the Committee in effect at the relevant time. (i) "Grant" means an award made to a Participant pursuant to the Plan and described in Paragraph 5, including, without limitation, an award of an Incentive Stock Option, Stock Option, Stock Appreciation Right, Dividend Equivalent Right, Restricted Stock, Purchase Stock, Performance Units, Performance Shares or Other Stock-Based Grant or any combination of the foregoing. (j) "Grant Agreement" means an agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant. (k) "Group" means two or more Persons acting together as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of the Company. (l) "Participant" means an Employee, or other person having a relationship with the Company or one of its Subsidiaries (including a consultant), to whom one or more Grants have been made and such Grants have not all been forfeited or terminated under the Plan. (m) "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. (n) "Stock-Based Grants" means the collective reference to the grant of Stock Appreciation Rights, Dividend Equivalent Rights, Restricted Stocks, Performance Units, Performance Shares and Other Stock-Based Grants. (o) "Stock Options" means the collective reference to "Incentive Stock Options" and "Other Stock Options". (p) "Subsidiary" means any company other than the Company in an unbroken chain of companies beginning with the Company if each of the companies other than the last company in the unbroken chain owns 50% or more of the voting stock in one of the other companies in such chain. 3 3 3. Administration of Plan (a) The Plan shall be administered by the Committee. None of the members of the Committee shall be eligible to be selected for Grants under the Plan, or have been so eligible for selection within one year prior thereto; provided, however, that the members of the Committee shall qualify to administer the Plan for purposes of Rule 16b-3 (and any other applicable rule) promulgated under Section 16(b) of the Exchange Act to the extent that the Company is subject to such rule. The Committee may adopt its own rules of procedure, and the action of a majority of the Committee, taken at a meeting or taken without a meeting by a writing signed by such majority, shall constitute action by the Committee. The Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes in such rules. Any such interpretations, rules, and administration shall be consistent with the basic purposes of the Plan. (b) The Committee may delegate to any senior officers of the Company its duties under the Plan subject to such conditions and limitations as the Committee shall prescribe, except that only the Committee may designate and make Grants to Participants who are subject to Section 16 of the Exchange Act. (c) The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company, and the officers and directors of the Company shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Grants, and all members of the Committee shall be fully protected by the Company with respect to any such action, determination or interpretation. 4. Eligibility The Committee may from time to time make Grants under the Plan to such Employees, or other persons having a relationship with the Company or any of its Subsidiaries, and in such form and having such terms, conditions and limitations as the Committee may determine. Grants may be granted singly, in combination or in tandem. The terms, conditions and limitations of each Grant under the Plan shall be set forth in a Grant Agreement, in a form approved by the Committee, consistent, however, with the terms of the Plan; provided, however, such Grant Agreement shall contain provisions dealing with the treatment of Grants in the event of the termination, death or disability of a Participant, and may also include provisions concerning the treatment of Grants in the event of a change of control of the Company. 5. Grants From time to time, the Committee will determine the forms and amounts of Grants for Participants. Such Grants may take the following forms in the Committee's sole discretion: 4 4 (a) Incentive Stock Options - These are stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to purchase Common Stock. In addition to other restrictions contained in the Plan, an option granted under this Paragraph 5(a), (i) may not be exercised more than 10 years after the date it is granted, (ii) may not have an option price less than the Fair Market Value of the Common Stock on the date the option is granted, (iii) must otherwise comply with Code Section 422, and (iv) must be designated as an "Incentive Stock Option" by the Committee. The maximum aggregate Fair Market Value of Common Stock (determined at the time of each Grant) with respect to which any Participant may first exercise Incentive Stock Options under this Plan and any Incentive Stock Options granted to the Participant for such year under any plans of the Company or any Subsidiary in any calendar year is $100,000. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan, the Grant Agreement, and of any applicable guidelines of the Committee in effect at the time. (b) Other Stock Options - These are options to purchase Common Stock which are not designated by the Committee as "Incentive Stock Options". At the time of the Grant the Committee shall determine, and shall have contained in the Grant Agreement or other Plan rules, the option exercise period, the option price, and such other conditions or restrictions on the grant or exercise of the option as the Committee deems appropriate, which may include the requirement that the grant of options is predicated on the acquisition of Purchase Shares under Paragraph 5(e) by the Optionee. In addition to other restrictions contained in the Plan, an option granted under this Paragraph 5(b), may not be exercised more than 10 years after the date it is granted. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan and of any applicable guidelines of the Committee in effect at the time. (c) Stock Appreciation Rights - These are rights that on exercise entitle the holder to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value on the date of Grant (the "base value") multiplied by (iii) the number of rights exercised as determined by the Committee. Stock Appreciation Rights granted under the Plan may, but need not be, granted in conjunction with an Option under Paragraph 5(a) or 5(b). The Committee, in the Grant Agreement or by other Plan rules, may impose such conditions or restrictions on the exercise of Stock Appreciation Rights as it deems appropriate, and may terminate, amend, or suspend such Stock Appreciation Rights at any time. No Stock Appreciation Right granted under this Plan may be exercised less than 6 months or more than 10 years after the date it is granted except in the event of death or disability of a Participant. To the extent that any Stock Appreciation Right that shall have become exercisable, but shall not have been exercised or cancelled or, by reason of any termination of employment, shall have become non-exercisable, it shall be deemed to have been exercised automatically, without any notice of exercise, on the last day on which it is exercisable, provided that any conditions or limitations on its exercise are satisfied (other than (i) notice of exercise and (ii) exercise or election to exercise during the period prescribed) and the Stock Appreciation Right shall then have value. Such exercise shall be deemed to specify that, the holder elects to receive cash and that such exercise of a Stock Appreciation Right shall be effective as of the time of automatic exercise. 5 5 (d) Restricted Stock - Restricted Stock is Common Stock delivered to a Participant with or without payment of consideration with restrictions or conditions on the Participant's right to transfer or sell such stock; provided that the price of any Restricted Stock delivered for consideration and not as bonus stock may not be less than par value of the Common Stock on the date such Restricted Stock is granted. If a Participant irrevocably elects in writing in the calendar year preceding a Grant of Restricted Stock, dividends paid on the Restricted Stock granted may be paid in shares of Restricted Stock equal to the cash dividend paid on Common Stock. The number of shares of Restricted Stock and the restrictions or conditions on such shares shall be as the Committee determines, in the Grant Agreement or by other Plan rules, and the certificate for the Restricted Stock shall bear evidence of the restrictions or conditions. No Restricted Stock may have a restriction period of less than 6 months, other than in the case of death or Disability (as defined in the Grant Agreement) of the Participant. (e) Purchase Stock - Purchase Stock are shares of Common Stock offered to a Participant at such price as determined by the Committee, the acquisition of which will make him eligible to receive under the Plan, including, but not limited to, Other Stock Options. (f) Dividend Equivalent Rights - These are rights to receive cash payments from the Company at the same time and in the same amount as any cash dividends paid on an equal number of shares of Common Stock to shareholders of record during the period such rights are effective. The Committee, in the Grant Agreement or by other Plan rules, may impose such restrictions and conditions on the Dividend Equivalent Rights, including the date such rights will terminate, as it deems appropriate, and may terminate, amend, or suspend such Dividend Equivalent Rights at any time. (g) Performance Units - These are rights to receive at a specified future date, payment in cash of an amount equal to all or a portion of the value of a unit granted by the Committee. At the time of the Grant, in the Grant Agreement or by other Plan rules, the Committee must determine the base value of the unit, the performance factors applicable to the determination of the ultimate payment value of the unit and the period over which Company performance will be measured. These factors must include a minimum performance standard for the Company below which no payment will be made and a maximum performance level above which no increased payment will be made. The term over which Company performance will be measured shall be not less than six months. (h) Performance Shares - These are rights to receive at a specified future date, payment in cash or Common Stock, as determined by the Committee, of an amount equal to all or a portion of the Fair Market Value for all days that the Common Stock is traded during the last forty-five (45) days of the specified period of performance of a specified number of shares of Common Stock at the end of a specified period based on the Company's performance during the period. At the time of the Grant, the Committee, in the Grant Agreement or by Plan rules, will determine the factors which will govern the portion of the rights so payable and the period over which Company performance will be measured. The factors will be based on Company's performance and must include a minimum performance standard for the Company below which no payment will be made and a maximum performance level above which no increased payment will be made, and no performance shall be paid unless and until the Committee certifies that the 6 6 applicable performance goals have been met. The term over which the Company's performance will be measured shall be not less than six months. (i) Other Stock-Based Grants - The Committee may make other Grants under the Plan pursuant to which shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Paragraph 5(d)), are or may in the future be acquired, or Grants denominated in stock units, including ones valued using measures other than market value. Other Stock-Based Grants may be granted with or without consideration. Such Other Stock-Based Grants may be made alone, in addition to or in tandem with any Grant of any type made under the Plan and must be consistent with the purposes of the Plan. 6. Limitations and Conditions (a) The number of Shares available for Grants under this Plan shall be 1,200,000 shares of the authorized Common Stock as of the effective date of the Plan. Unless restricted by applicable law, Shares related to Grants that are forfeited, terminated, cancelled or expire unexercised, shall immediately become available for Grants. (b) No Grants shall be made under the Plan beyond ten years after the effective date of the Plan, but the terms of Grants made on or before the expiration thereof may extend beyond such expiration. At the time a Grant is made or amended or the terms or conditions of a Grant are changed, the Committee may provide for limitations or conditions on such Grant. (c) Nothing contained herein shall affect the right of the Company to terminate any Participant's employment at any time or for any reason. (d) Deferrals of Grant payouts may be provided for, at the sole discretion of the Committee, in the Grant Agreements. (e) Except as otherwise prescribed by the Committee, the amounts of the Grants for any employee of a Subsidiary, along with interest, dividend, and other expenses accrued on deferred Grants shall be charged to the Participant's employer during the period for which the Grant is made. If the Participant is employed by more than one Subsidiary or by both the Company and a Subsidiary during the period for which the Grant is made, the Participant's Grant and related expenses will be allocated between the companies employing the Participant in a manner prescribed by the Committee. (f) Other than as specifically provided with regard to the death of a Participant, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. (g) Participants shall not be, and shall not have any of the rights or privileges of, stockholders of the Company in respect of any Shares purchasable in connection with any Grant 7 7 unless and until certificates representing any such Shares have been issued by the Company to such Participants. (h) No election as to benefits or exercise of Stock Options, Stock Appreciation Rights, or other rights may be made during a Participant's lifetime by anyone other than the Participant except by a legal representative appointed for or by the Participant. (i) Absent express provisions to the contrary, any grant under this Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or its Subsidiaries and shall not affect any benefits under any other benefit plan of any kind or subsequently in effect under which the availability or amount of benefits is related to level of compensation. This Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. (j) Unless the Committee determines otherwise, no benefit or promise under the Plan shall be secured by any specific assets of the Company or any of its Subsidiaries, nor shall any assets of the Company or any of its Subsidiaries be designated as attributable or allocated to the satisfaction of the Company's obligations under the Plan. 7. Transfers and Leaves of Absence For purposes of the Plan, unless the Committee determines otherwise: (a) a transfer of a Participant's employment without an intervening period of separation among the Company and any Subsidiary shall not be deemed a termination of employment, and (b) a Participant who is granted in writing a leave of absence shall be deemed to have remained in the employ of the Company during such leave of absence. 8. Adjustments In the event of any change in the outstanding Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization, consolidation or merger, change of control, or similar event, the Committee may adjust appropriately the number of Shares subject to the Plan and available for or covered by Grants and Share prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. 8 8 9. Merger, Consolidation, Exchange, Acquisition, Liquidation or Dissolution In its absolute discretion, and on such terms and conditions as it deems appropriate, coincident with or after the grant of any Stock Option or any Stock-Based Grant, the Committee may provide that such Stock Option or Stock-Based Grant cannot be exercised after the merger or consolidation of the Company into another Company, the sale or exchange of all or substantially all of the assets of the Company, the acquisition by another entity of 80% or more of the Company's then outstanding shares of voting stock or the recapitalization, reclassification, liquidation or dissolution of the Company, and if the Committee so provides, it shall, on such terms and conditions as it deems appropriate in its absolute discretion, also provide, either by the terms of such Stock Option or Stock-Based Grant or by a resolution adopted prior to the occurrence of such merger, consolidation, exchange, acquisition, recapitalization, reclassification, liquidation or dissolution, that, for some period of time prior to such event, such Stock Option or Stock-Based Grant shall be exercisable as to all shares subject thereto, notwithstanding anything to the contrary herein (but subject to the provisions of Paragraph 6(b)) and that, upon the occurrence of such event, such Stock Option or Stock-Based Grant shall terminate and be of no further force or effect; provided, however, that the Committee may also provide, in its absolute discretion, that even if the Stock Option or Stock-Based Grant shall remain exercisable after any such event, from and after such event, any such Stock Option or Stock-Based Grant shall be exercisable only for the kind and amount of securities and/or other property, or the cash equivalent thereof, receivable as a result of such event by the holder of a number of shares of stock for which such Stock Option or Stock-Based Grant could have been exercised immediately prior to such event. 10. Amendment and Termination The Committee shall have the authority to make such amendments to any terms and conditions applicable to outstanding Grants as are consistent with this Plan provided that, except for adjustments under Paragraph 8 or 9 hereof, no such action shall modify such Grant in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Grant. The Board of Directors may amend, suspend or terminate the Plan except that no such action, other than an action under Paragraph 8 or 9 hereof, may be taken which would, without shareholder approval, increase the aggregate number of Shares available for Grants under the Plan, decrease the price of outstanding Options or Stock Appreciation Rights, change the requirements relating to the Committee or extend the term of the Plan. 11. Foreign Options and Rights The Committee may make Grants to Employees who are subject to the laws of nations other than the United States, which Grants may have terms and conditions that differ from the terms hereof for the purpose of complying with foreign laws. 9 9 12. Withholding Taxes The Company shall have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to deliver shares upon the exercise of an Option or Stock Appreciation Right, upon payment of Performance units or shares, upon delivery of Restricted Stock or upon exercise, settlement or payment of any Other Stock-Based Grant that the Participant pay to the Company such amount as may be requested by the Company for the purpose of satisfying any liability for such withholding taxes. Any Grant Agreement may provide that the Participant may elect, in accordance with any conditions set forth in such Grant Agreement, to pay a portion or all of such withholding taxes in shares of Common Stock. 13. Effective Date and Termination Dates The Plan shall be effective on and as of the date of its approval by the stockholders of the Company and shall terminate ten years later, subject to earlier termination by the Board of Directors pursuant to Paragraph 10. 14. Governing Law The Plan shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. EX-10.20 5 ex10-20.txt STOCK INCENTIVE PLAN 1 Exhibit 10.20 WEIGHTWATCHERS.COM STOCK INCENTIVE PLAN OF WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 1. Purpose of Plan The WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries (the "Plan") is designed: (a) to promote the long term financial interests and growth of Weight Watchers International, Inc. (the "Company") and its subsidiaries by attracting and retaining management personnel with the training, experience and ability to enable them to make a substantial contribution to the success of the Company's business; and (b) to motivate management personnel by means of growth-related incentives to achieve long range goals. 2. Definitions As used in the Plan, the following words shall have the following meanings: (a) "Affiliate" shall mean, any corporation directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board of Directors in which the Company or an affiliate has an interest. (b) "Board of Directors" means the Board of Directors of the Company. (c) "Change of Control" means (i) sales of all or substantially all of the assets of the Company to a Person who is not an affiliate of Artal, (ii) a sale by Artal or any of its respective affiliates resulting in more than 50% of the voting stock of the Company or WW.com being held by a Person or Group that does not include Artal or any of its respective affiliates or (iii) a merger or consolidation of the Company or WW.com into another Person which is not an affiliate of Artal; if and only if any such event results in the inability of Artal to elect a majority of the Board of Directors of the Company or WW.com (or the resulting entity). For purposes hereof, "Artal" means Artal Luxembourg S.A. (d) "Committee" means the Compensation Committee of the Board of Directors. (e) "Common Stock" or "Share" means common stock, par value $0.01 per share, of WW.com, otherwise held by the Company. (f) "Employee" means a key person, including an officer, in the regular full-time employment of the Company or one of its Subsidiaries who, in the opinion of the Committee, is, or is expected, to be primarily responsible for the management, growth or protection of some part or all of the business of the Company. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2 2 (h) "Fair Market Value" means such value of a Share as reported for stock exchange transactions and/or determined in accordance with any applicable resolutions or regulations of the Committee in effect at the relevant time. (i) "Grant" means an award made to a Participant pursuant to the Plan and described in Paragraph 5, including, without limitation, an award of an Incentive Stock Option, Stock Option, Stock Appreciation Right, Dividend Equivalent Right, Restricted Stock, Purchase Stock, Performance Units, Performance Shares or Other Stock-Based Grant or any combination of the foregoing. (j) "Grant Agreement" means an agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant. (k) "Group" means two or more Persons acting together as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of the Company. (l) "Participant" means an Employee, a nonemployee member of the Board of Directors, or other person having a relationship with the Company or one of its Subsidiaries (including a consultant), to whom one or more Grants have been made and such Grants have not all been forfeited or terminated under the Plan. (m) "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. (n) "Stock-Based Grants" means the collective reference to the grant of Stock Appreciation Rights, Dividend Equivalent Rights, Restricted Stocks, Performance Units, Performance Shares and Other Stock-Based Grants. (o) "Stock Options" means the collective reference to "Incentive Stock Options" and "Other Stock Options". (p) "Subsidiary" means any company other than the Company in an unbroken chain of companies beginning with the Company if each of the companies other than the last company in the unbroken chain owns 50% or more of the voting stock in one of the other companies in such chain. (q) "WW.com" means WeightWatchers.com, Inc., a Delaware corporation. 3 3 3. Administration of Plan (a) The Plan shall be administered by the Committee; provided, however, that the members of the Committee shall qualify to administer the Plan for purposes of Rule 16b-3 (and any other applicable rule) promulgated under Section 16(b) of the Exchange Act to the extent that the Company is subject to such rule. The Committee may adopt its own rules of procedure, and the action of a majority of the Committee, taken at a meeting or taken without a meeting by a writing signed by such majority, shall constitute action by the Committee. The Committee shall have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes in such rules. Any such interpretations, rules, and administration shall be consistent with the basic purposes of the Plan. (b) The Committee may delegate to any senior officers of the Company its duties under the Plan subject to such conditions and limitations as the Committee shall prescribe, except that only the Committee may designate and make Grants to Participants who are subject to Section 16 of the Exchange Act. (c) The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company, and the officers and directors of the Company shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Grants, and all members of the Committee shall be fully protected by the Company with respect to any such action, determination or interpretation. 4. Eligibility The Committee may from time to time make Grants under the Plan to such Employees, or other persons having a relationship with the Company or any of its Subsidiaries, and in such form and having such terms, conditions and limitations as the Committee may determine. Grants may be granted singly, in combination or in tandem. The terms, conditions and limitations of each Grant under the Plan shall be set forth in a Grant Agreement, in a form approved by the Committee, consistent, however, with the terms of the Plan; provided, however, such Grant Agreement shall contain provisions dealing with the treatment of Grants in the event of the termination, death or disability of a Participant, and may also include provisions concerning the treatment of Grants in the event of a Change of Control. 5. Grants From time to time, the Committee will determine the forms and amounts of Grants for Participants. Such Grants may take the following forms in the Committee's sole discretion: (a) Incentive Stock Options - These are stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to purchase Common Stock. 4 4 In addition to other restrictions contained in the Plan, an option granted under this Paragraph 5(a), (i) may not be exercised more than 10 years after the date it is granted, (ii) may not have an option price less than the Fair Market Value of the Common Stock on the date the option is granted, (iii) must otherwise comply with Code Section 422, and (iv) must be designated as an "Incentive Stock Option" by the Committee. The maximum aggregate Fair Market Value of Common Stock (determined at the time of each Grant) with respect to which any Participant may first exercise Incentive Stock Options under this Plan and any Incentive Stock Options granted to the Participant for such year under any plans of the Company or any Subsidiary in any calendar year is $100,000. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan, the Grant Agreement, and of any applicable guidelines of the Committee in effect at the time. (b) Other Stock Options - These are options to purchase Common Stock which are not designated by the Committee as "Incentive Stock Options". At the time of the Grant the Committee shall determine, and shall have contained in the Grant Agreement or other Plan rules, the option exercise period, the option price, and such other conditions or restrictions on the grant or exercise of the option as the Committee deems appropriate, which may include the requirement that the grant of options is predicated on the acquisition of Purchase Shares under Paragraph 5(e) by the Optionee. In addition to other restrictions contained in the Plan, an option granted under this Paragraph 5(b), may not be exercised more than 10 years after the date it is granted. Payment of the option price shall be made in cash or in shares of Common Stock, or a combination thereof, in accordance with the terms of the Plan and of any applicable guidelines of the Committee in effect at the time. (c) Stock Appreciation Rights - These are rights that on exercise entitle the holder to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value on the date of Grant (the "base value") multiplied by (iii) the number of rights exercised as determined by the Committee. Stock Appreciation Rights granted under the Plan may, but need not be, granted in conjunction with an Option under Paragraph 5(a) or 5(b). The Committee, in the Grant Agreement or by other Plan rules, may impose such conditions or restrictions on the exercise of Stock Appreciation Rights as it deems appropriate, and may terminate, amend, or suspend such Stock Appreciation Rights at any time. No Stock Appreciation Right granted under this Plan may be exercised less than 6 months or more than 10 years after the date it is granted except in the event of death or disability of a Participant. To the extent that any Stock Appreciation Right that shall have become exercisable, but shall not have been exercised or cancelled or, by reason of any termination of employment, shall have become non-exercisable, it shall be deemed to have been exercised automatically, without any notice of exercise, on the last day on which it is exercisable, provided that any conditions or limitations on its exercise are satisfied (other than (i) notice of exercise and (ii) exercise or election to exercise during the period prescribed) and the Stock Appreciation Right shall then have value. Such exercise shall be deemed to specify that, the holder elects to receive cash and that such exercise of a Stock Appreciation Right shall be effective as of the time of automatic exercise. (d) Restricted Stock - Restricted Stock is Common Stock delivered to a Participant with or without payment of consideration with restrictions or conditions on the Participant's right to transfer or sell such stock; provided that the price of any Restricted Stock delivered for 5 5 consideration and not as bonus stock may not be less than par value of the Common Stock on the date such Restricted Stock is granted. If a Participant irrevocably elects in writing in the calendar year preceding a Grant of Restricted Stock, dividends paid on the Restricted Stock granted may be paid in shares of Restricted Stock equal to the cash dividend paid on Common Stock. The number of shares of Restricted Stock and the restrictions or conditions on such shares shall be as the Committee determines, in the Grant Agreement or by other Plan rules, and the certificate for the Restricted Stock shall bear evidence of the restrictions or conditions. No Restricted Stock may have a restriction period of less than 6 months, other than in the case of death or Disability (as defined in the Grant Agreement) of the Participant. (e) Purchase Stock - Purchase Stock are shares of Common Stock offered to a Participant at such price as determined by the Committee, the acquisition of which will make him eligible to receive under the Plan, including, but not limited to, Other Stock Options. (f) Dividend Equivalent Rights - These are rights to receive cash payments from the Company at the same time and in the same amount as any cash dividends paid on an equal number of shares of Common Stock to shareholders of record during the period such rights are effective. The Committee, in the Grant Agreement or by other Plan rules, may impose such restrictions and conditions on the Dividend Equivalent Rights, including the date such rights will terminate, as it deems appropriate, and may terminate, amend, or suspend such Dividend Equivalent Rights at any time. (g) Performance Units - These are rights to receive at a specified future date, payment in cash of an amount equal to all or a portion of the value of a unit granted by the Committee. At the time of the Grant, in the Grant Agreement or by other Plan rules, the Committee must determine the base value of the unit, the performance factors applicable to the determination of the ultimate payment value of the unit and the period over which Company performance will be measured. These factors must include a minimum performance standard for the Company below which no payment will be made and a maximum performance level above which no increased payment will be made. The term over which Company performance will be measured shall be not less than six months. (h) Performance Shares - These are rights to receive at a specified future date, payment in cash or Common Stock, as determined by the Committee, of an amount equal to all or a portion of the Fair Market Value for all days that the Common Stock is traded during the last forty-five (45) days of the specified period of performance of a specified number of shares of Common Stock at the end of a specified period based on the Company's performance during the period. At the time of the Grant, the Committee, in the Grant Agreement or by Plan rules, will determine the factors which will govern the portion of the rights so payable and the period over which Company performance will be measured. The factors will be based on Company's performance and must include a minimum performance standard for the Company below which no payment will be made and a maximum performance level above which no increased payment will be made, and no performance shall be paid unless and until the Committee certifies that the applicable performance goals have been met. The term over which the Company's performance will be measured shall be not less than six months. 6 6 (i) Other Stock-Based Grants - The Committee may make other Grants under the Plan pursuant to which shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Paragraph 5(d)), are or may in the future be acquired, or Grants denominated in stock units, including ones valued using measures other than market value. Other Stock-Based Grants may be granted with or without consideration. Such Other Stock-Based Grants may be made alone, in addition to or in tandem with any Grant of any type made under the Plan and must be consistent with the purposes of the Plan. 6. Limitations and Conditions (a) The number of Shares available for Grants under this Plan shall be 400,000 shares of the authorized Common Stock as of the effective date of the Plan. Unless restricted by applicable law, Shares related to Grants that are forfeited, terminated, cancelled or expire unexercised, shall immediately become available for Grants. (b) No Grants shall be made under the Plan beyond ten years after the effective date of the Plan, but the terms of Grants made on or before the expiration thereof may extend beyond such expiration. At the time a Grant is made or amended or the terms or conditions of a Grant are changed, the Committee may provide for limitations or conditions on such Grant. (c) Nothing contained herein shall affect the right of the Company to terminate any Participant's employment at any time or for any reason. (d) Deferrals of Grant payouts may be provided for, at the sole discretion of the Committee, in the Grant Agreements. (e) Except as otherwise prescribed by the Committee, the amounts of the Grants for any employee of a Subsidiary, along with interest, dividend, and other expenses accrued on deferred Grants shall be charged to the Participant's employer during the period for which the Grant is made. If the Participant is employed by more than one Subsidiary or by both the Company and a Subsidiary during the period for which the Grant is made, the Participant's Grant and related expenses will be allocated between the companies employing the Participant in a manner prescribed by the Committee. (f) Other than as specifically provided with regard to the death of a Participant, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. (g) Participants shall not be, and shall not have any of the rights or privileges of, stockholders of WW.com in respect of any Shares purchasable in connection with any Grant unless and until certificates representing any such Shares have been issued to such Participants. 7 7 (h) No election as to benefits or exercise of Stock Options, Stock Appreciation Rights, or other rights may be made during a Participant's lifetime by anyone other than the Participant except by a legal representative appointed for or by the Participant. (i) Absent express provisions to the contrary, any grant under this Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or its Subsidiaries and shall not affect any benefits under any other benefit plan of any kind or subsequently in effect under which the availability or amount of benefits is related to level of compensation. This Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended. (j) Unless the Committee determines otherwise, no benefit or promise under the Plan shall be secured by any specific assets of the Company or any of its Subsidiaries, nor shall any assets of the Company or any of its Subsidiaries be designated as attributable or allocated to the satisfaction of the Company's obligations under the Plan. 7. Transfers and Leaves of Absence For purposes of the Plan, unless the Committee determines otherwise: (a) a transfer of a Participant's employment without an intervening period of separation among the Company and any Subsidiary shall not be deemed a termination of employment, and (b) a Participant who is granted in writing a leave of absence shall be deemed to have remained in the employ of the Company during such leave of absence. 8. Adjustments In the event of any change in the outstanding Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization, consolidation or merger, change of control, or similar event, the Committee may adjust appropriately the number of Shares subject to the Plan and available for or covered by Grants and Share prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. 9. Merger, Consolidation, Exchange, Acquisition, Liquidation or Dissolution 8 8 In its absolute discretion, and on such terms and conditions as it deems appropriate, coincident with or after the grant of any Stock Option or any Stock-Based Grant, the Committee may provide that such Stock Option or Stock-Based Grant cannot be exercised after the merger or consolidation of WW.com into another company, the sale or exchange of all or substantially all of the assets of WW.com, the acquisition by another entity of 80% or more of WW.com's then outstanding shares of voting stock or the recapitalization, reclassification, liquidation or dissolution of WW.com, and if the Committee so provides, it shall, on such terms and conditions as it deems appropriate in its absolute discretion, also provide, either by the terms of such Stock Option or Stock-Based Grant or by a resolution adopted prior to the occurrence of such merger, consolidation, exchange, acquisition, recapitalization, reclassification, liquidation or dissolution, that, for some period of time prior to such event, such Stock Option or Stock-Based Grant shall be exercisable as to all shares subject thereto, notwithstanding anything to the contrary herein (but subject to the provisions of Paragraph 6(b)) and that, upon the occurrence of such event, such Stock Option or Stock-Based Grant shall terminate and be of no further force or effect; provided, however, that the Committee may also provide, in its absolute discretion, that even if the Stock Option or Stock-Based Grant shall remain exercisable after any such event, from and after such event, any such Stock Option or Stock-Based Grant shall be exercisable only for the kind and amount of securities and/or other property, or the cash equivalent thereof, receivable as a result of such event by the holder of a number of shares of stock for which such Stock Option or Stock-Based Grant could have been exercised immediately prior to such event. 10. Amendment and Termination The Committee shall have the authority to make such amendments to any terms and conditions applicable to outstanding Grants as are consistent with this Plan provided that, except for adjustments under Paragraph 8 or 9 hereof, no such action shall modify such Grant in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Grant. The Board of Directors may amend, suspend or terminate the Plan except that no such action, other than an action under Paragraph 8 or 9 hereof, may be taken which would, without shareholder approval, increase the aggregate number of Shares available for Grants under the Plan, decrease the price of outstanding Options or Stock Appreciation Rights, change the requirements relating to the Committee or extend the term of the Plan. 11. Foreign Options and Rights The Committee may make Grants to Employees who are subject to the laws of nations other than the United States, which Grants may have terms and conditions that differ from the terms hereof for the purpose of complying with foreign laws. 12. Withholding Taxes 9 9 The Company shall have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to deliver shares upon the exercise of an Option or Stock Appreciation Right, upon payment of Performance units or shares, upon delivery of Restricted Stock or upon exercise, settlement or payment of any Other Stock-Based Grant that the Participant pay to the Company such amount as may be requested by the Company for the purpose of satisfying any liability for such withholding taxes. Any Grant Agreement may provide that the Participant may elect, in accordance with any conditions set forth in such Grant Agreement, to pay a portion or all of such withholding taxes in shares of Common Stock. 13. Effective Date and Termination Dates The Plan shall be effective on and as of the date of its approval by the stockholders of the Company and shall terminate ten years later, subject to earlier termination by the Board of Directors pursuant to Paragraph 10. 14. Governing Law The Plan shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. EX-10.21 6 ex10-21.txt WARRANT AGREEMENT 1 EXHIBIT 10.21 WARRANT AGREEMENT, dated as of November 24, 1999 (the "Agreement"), between WeightWatchers.com, Inc., a Delaware corporation (the "Company"), and Weight Watchers International, Inc., a Virginia corporation ("WWI"). W I T N E S S E T H : WHEREAS, WWI has agreed to loan the Company up to an aggregate principal amount of $10.0 million (the "Loan") pursuant to the terms of the Note attached hereto as Exhibit A; and WHEREAS, in order to induce WWI to make the Loan, the Company has agreed to enter into this Agreement and issue 60,246 Warrants to WWI. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, and for the purpose of defining the respective rights and obligations of the Company and the Holders (as defined below), the parties hereto agree as follows: SECTION 1. DEFINED TERMS. 1.1 Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Board" means the Board of Directors of the Company. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Cashless Exercise" has the meaning specified in Section 3.2 hereof. "Cashless Exercise Ratio" means a fraction, the numerator of which is the excess of the Current Market Value (as defined below) per share of Common Stock on the Exercise Date over the Exercise Price per share as of the Exercise Date and the denominator of which is the Current Market Value per share of Common Stock on the Exercise Date. 2 "Combination" has the meaning specified in Section 4.1(d) hereof. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Current Market Value," per share of Common Stock or any other security at any date, means (i) if the security is not registered under the Exchange Act, the fair market value of the security (without any discount for lack of liquidity, the amount of such security offered to be purchased or the fact that such securities may represent a minority interest in a private company or a company under the control of another Person) as determined in good faith by the Board and certified in a board resolution that is delivered to the Holders, and, if requested by the Majority Holders, determined to be fair, from a financial point of view, to the holders of such security or another security exercisable for such security, by an Independent Financial Expert (as set forth in such Independent Financial Expert's written fairness opinion); or (ii) if the security is registered under the Exchange Act, the average of the last reported sale price of the security (or the equivalent in an over-the-counter market) for each Business Day during the period commencing 15 Business Days before such date and ending on the date one day prior to such date, or if the security has been registered under the Exchange Act for less than 15 consecutive Business Days before such date, the average of the daily closing bid prices (or such equivalent) for all of the Business Days before such date for which daily closing bid prices are available (provided, however, that if the closing bid price is not determinable for at least 10 Business Days in such period, the "Current Market Value" of the security shall be determined as if the security were not registered under the Exchange Act). The Company shall pay the fees and expenses of any Independent Financial Expert in the determination of Current Market Value. "Exchange Act" means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations promulgated thereunder. "Exercise Date" means the date on which a Warrant is exercised by the Holder thereof. "Exercise Price" means the purchase price per Warrant Share to be paid upon the exercise of each Warrant, which price shall be $500.00 per Warrant Share as adjusted in accordance with the terms hereof. "Expiration Date" means November 24, 2009. "Holder" means the holder of a Warrant, which shall initially be WWI. "Independent Financial Expert" means a nationally recognized investment bank that does not (and whose directors, executive officers and 5% stockholders do not) have a direct or indirect financial interest in the Company, the Holders, or any of their respective subsidiaries or Affiliates, which has not been for at least five years, and at the time it is 3 3 called upon to give independent financial advice to the Company is not (and none of its directors, executive officers or 5% stockholders is), a promoter, director, or officer of the Company, the Holders or any of their respective subsidiaries or Affiliates. The Independent Financial Expert may be compensated and indemnified by the Company for opinions or services it provides as an Independent Financial Expert. "Issue Date" means November 24, 1999, the date on which the Warrants are first issued. "Majority Holders" means the Holders of a majority of the then outstanding Warrants. "Officer" means the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Repurchase Price" means, in respect of a Warrant, (i) the excess of the Current Market Value of a share of Common Stock of the Company over the Exercise Price per share of Common Stock, multiplied by (ii) the number of Warrant Shares that would be obtained if one Warrant was exercised on the date of repurchase. "Right" has the meaning specified in Section 4.1(g) hereof. "Securities Act" means the Securities Act of 1933, as amended (or any successor act), and the rules and regulations promulgated thereunder. "Successor Company" has the meaning specified in Section 4.1(d) hereof. "Warrant Certificates" means the certificates evidencing the Warrants to be delivered pursuant to this Agreement, substantially in the form of Exhibit B hereto. "Warrant Registrar" has the meaning specified in Section 2.3 hereof. "Warrant Shares" has the meaning specified in Section 2.1 hereof. "Warrants" shall mean the Warrants issued hereunder and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. 1.2 Rules of Construction. Unless the text otherwise required. 4 4 (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with United States generally accepted accounting principles ("U.S. GAAP") as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including, without limitation; and (v) words in the singular include the plural and words in the plural include the singular. SECTION 2. ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES. 2.1 Issuance of Warrants. Each Warrant Certificate shall evidence the number of Warrants specified therein, and each Warrant evidenced thereby shall represent the right, subject to the provisions contained herein and therein, to purchase from the Company (and the Company shall issue and sell to such holder of the Warrant) one share of Common Stock of the Company (the shares purchasable upon exercise of a Warrant being hereinafter referred to as the "Warrant Shares," subject to adjustment as provided in Section 4 hereof). 2.2 Execution of Warrant Certificates. The Warrant Certificates shall be executed on behalf of the Company by one Officer of the Company. Such signatures may be the manual or facsimile signatures of the present or any future such Officers. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity or enforceability of any Warrant Certificate. In case any Officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such Officer before the Warrant Certificate so signed shall be delivered by the Company, such Warrant Certificate nevertheless may be delivered or disposed of as though the Person who signed such Warrant Certificate had not ceased to be such Officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Warrant Certificate, shall be the proper Officers of the Company, although at the date of the execution and delivery of this Agreement any such Person was not such an Officer. 2.3 Registration, Registration of Transfers and Exchanges. The Company will keep, at the office or agency maintained by the Company for such purpose, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of, and registration of transfer and exchange of, Warrants as provided herein. Each person designated by the Company from time to time as a Person authorized to register the 5 5 transfer and exchange of the Warrants is hereinafter called, individually and collectively, the "Warrant Registrar." The Company hereby initially appoints itself as Warrant Registrar. Upon written notice to the Holders and any acting Warrant Registrar, the Company may appoint a successor Warrant Registrar for such purposes. The Company will at all times designate one Person (who may be the Company and who need not be a Warrant Registrar) to act as repository of a master list of names and addresses of the holders of Warrants (the "Warrant Register"). The Company will act as such repository unless and until some other Person is, by written notice from the Company to the Holders and the Warrant Registrar, designated by the Company to act as such. In the event the Warrant Registrar is not the repository, the Company shall cause the Warrant Registrar to furnish to such repository, on a current basis, such information as to all registrations of transfer and exchanges effected by the Warrant Registrar, as may be necessary to enable such repository to maintain the Warrant Register on as current a basis as is practicable. When Warrants are presented to the Company with a request to register the transfer of the Warrants or exchange Warrants for an equal number of Warrants of other authorized denominations, the Company shall register the transfer or make the exchange as requested if the requirements under this Warrant Agreement as set forth herein for such transactions are met; provided, however, that the Warrants presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Company, duly executed by the holder thereof or by his attorney, duly authorized in writing. All Warrants issued upon any registration of transfer or exchange of Warrants shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrants surrendered upon such registration of transfer or exchange. 2.4 Form of Warrant Certificates. The Warrant Certificates to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit B attached hereto. Such Warrant Certificates shall represent such of the outstanding Warrants as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon and that the aggregate amount of outstanding Warrants represented thereby may from time to time be decreased or increased, as appropriate. Any endorsement of a Warrant Certificate to reflect the amount of any increase or decrease in the amount of outstanding Warrants represented thereby shall be made by the Company in accordance with instructions given by the holder thereof. 2.5 Restrictive Legends. The Warrant Certificates shall bear the following legend (the "Private Placement Legend") on the face thereof: 6 6 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. 2.6 Offices for Exercise, etc. So long as any of the Warrants remain outstanding, the Company will designate: (a) an office or agency where the Warrant Certificates may be presented for exercise, (b) an office or agency where the Warrant Certificates may be presented for registration of transfer and for exchange, and (c) an office or agency where notices and demands to or upon the Company in respect of the Warrants or of this Agreement may be served. The Company may from time to time change such designation, as it may deem desirable or expedient. The Company will give to the Holders and the Warrant Registrar written notice of the location of any such office or agency and of any change of location thereof. The Company hereby designates its office at the address set forth in Section 6.1, as the initial agency maintained for such purpose. 2.7 Cancellation. All Warrant Certificates surrendered for the purpose of exercise (in whole or in part), exchange, substitution or transfer shall, if surrendered to the Company or to any of its agents, be delivered to the Company for cancellation or in cancelled form, or if surrendered to the Company shall be cancelled by it, and no Warrant Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. If the Company purchases or acquires Warrants and if the Company so chooses, the Company may cancel and retire the Warrant Certificates evidencing said Warrants. 2.8 Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates. Upon receipt by the Company (or any agent of the Company if requested by the Company) of evidence satisfactory to it of the loss, theft, destruction, defacement or mutilation of any Warrant Certificate and of indemnity satisfactory to it (which may include posting a bond) and, in the case of mutilation or defacement, upon surrender thereof to the Company for cancellation, then, in the absence of notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser or holder in due course, the Company shall execute in exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant Certificate, a new Warrant Certificate representing a like number of Warrants, bearing a number or other distinguishing symbol not contemporaneously outstanding. Upon the issuance of any new Warrant Certificate under this Section, the Company may require the payment from the holder of such Warrant Certificate of a sum sufficient to cover any tax, stamp tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Warrant Registrar) in connection therewith. Every substitute Warrant Certificate executed and delivered pursuant to this Section in lieu of any lost, stolen or 7 7 destroyed Warrant Certificate shall constitute an additional contractual obligation of the Company, whether or not the lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of (but shall be subject to all the limitations of rights set forth in) this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.8 are exclusive with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the extent lawful) any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates. SECTION 3. TERMS OF WARRANTS; EXERCISE OF WARRANTS. 3.1 Exercise Period. Subject to the terms of this Agreement, each Holder shall have the right until 5:00 p.m., New York City time, on the Expiration Date to receive from the Company the number of fully paid and nonassessable Warrant Shares which the Holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price then in effect for such Warrant Shares. Each Warrant not exercised prior to 5:00 p.m., New York City time, on the Expiration Date shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time. The Company shall give notice not less than 90, and not more than 120, days prior to the Expiration Date to the Holders of the outstanding Warrants to the effect that the Warrants will terminate and become void as of 5:00 p.m., New York City time, on the Expiration Date; provided, however, that the failure by the Company to give such notice as provided in this Section shall not affect such termination and becoming void of the Warrants as of 5:00 p.m., New York City time, on the Expiration Date. 3.2 Manner of Exercise. A Warrant may be exercised at any time prior to the Expiration Date upon (i) surrender to the Company of the Warrant Certificates, together with the form of election to purchase properly completed and executed by the Holder thereof and (ii) payment to the Company of the Exercise Price for each share of Common Stock or other securities issuable upon exercise of such Warrants. The Exercise Price may be paid (i) in cash or by certified or official bank check or by wire transfer to an account designated by the Company for such purpose (a "Cash Exercise") or (ii) without the payment of cash, by reducing the number of shares of Common Stock that would be obtainable upon the exercise of a Warrant and payment of the Exercise Price in cash so as to yield a number of shares of Common Stock upon the exercise of such Warrant equal to the product of (a) the number of shares of Common Stock for which such Warrant is exercisable as of the date of exercise (if the Exercise Price were being paid in cash) and (b) the Cashless Exercise Ratio. An exercise of a Warrant in accordance with clause (ii) of the immediately preceding sentence is herein called a "Cashless Exercise." In the event of a Cashless Exercise of Warrants, the Company will purchase from the Holder thereof such number of Warrants as would have entitled the Holder thereof to receive the excess of the number of shares of Common Stock deliverable upon a Cash Exercise over the number of shares of Common Stock deliverable upon a Cashless Exercise, for a purchase price equal to the Exercise Price multiplied by the excess of the number of shares of Common Stock purchasable 8 8 upon a Cash Exercise over the number of shares of Common Stock purchasable upon a Cashless Exercise. The Company agrees to offset the purchase price referred to in the immediately preceding sentence with the obligation to pay the Exercise Price in respect of the shares of Common Stock deliverable upon a Cashless Exercise. Upon surrender of a Warrant Certificate representing more than one Warrant in connection with the holder's option to elect a Cashless Exercise, the number of shares of Common Stock deliverable upon a Cashless Exercise shall be equal to the number of shares of Common Stock issuable upon the exercise of Warrants that the Holder specifies are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions of this Agreement shall be applicable with respect to a surrender of a Warrant Certificate pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. Upon surrender of the Warrant Certificate and payment of the Exercise Price in accordance with this Agreement, the Company will issue shares of Common Stock of the Company for each Warrant evidenced by such Warrant Certificate, subject to adjustment as described herein. Whenever there occurs a Cashless Exercise, the Company shall deliver to the Holder a certificate setting forth the Cashless Exercise Ratio. 3.3 Issuance of Warrant Shares. Subject to Section 2.8, upon the surrender of Warrant Certificates and payment of the Exercise Price, as set forth above, the Company shall issue shares of Common Stock in such name or names as the Holder may designate, for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.4 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such shares of Common Stock shall be deemed to have been issued and any Person so designated shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price or upon a Cashless Exercise. The Company hereby agrees that no service charge will be made for registration of transfer or exchange upon surrender of any Warrant Certificate at the office maintained for that purpose. Holders may be required to make payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or transfer or exchange of Warrant Certificates. 3.4 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.4, be issuable on the exercise of any Warrant (or specified portion thereof), the Company may, at its option, pay an amount in cash equal to the Current Market Value for one Warrant Share on the Business Day immediately preceding the date the Warrant is exercised, multiplied by such fraction. 3.5 Sufficient Authorized Share Capital. 9 9 The Company has and will maintain an authorized share capital sufficient for the issuance of such number of shares of Common Stock as will be issuable upon the exercise of all outstanding Warrants. Such shares of Common Stock, when issued and paid for in accordance with the Warrant Agreement, will be duly and validly issued, fully paid and nonassessable, free of preemptive rights and free from all liens, charges and security interests with respect to the issue thereof. 3.6 Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of the Warrants and the Warrant Shares issuable upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or Warrant Shares in a name other than that of the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES ISSUABLE. 4.1 Adjustments. The Exercise Price and the number of Warrant Shares purchasable upon the exercise of Warrants shall be subject to adjustment from time to time as follows: (a) Changes in Shares of Common Stock. In the event that at any time or from time to time after the date hereof the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock or other shares of capital stock, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) increase or decrease the number of shares of Common Stock outstanding by reclassification of its shares of Common Stock, then the number of shares of Common Stock purchasable upon exercise of each Warrant immediately after the happening of such event shall be adjusted (including by adjusting the definition of "Warrant Shares") so that, after giving effect to such adjustment, the Holder of each Warrant shall be entitled to receive the number of shares of Common Stock upon exercise that such Holder would have owned or have been entitled to receive had such Warrants been exercised immediately prior to the happening of the events described above (or, in the case of a dividend or distribution of shares of Common Stock, immediately prior to the record date therefor). An adjustment made pursuant to this Section 4.1(a) shall become effective immediately after the effective date, retroactive to the record date therefor in the case of a dividend or distribution in shares of Common Stock, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. 10 10 (b) Cash Dividends and Other Distributions. In case at any time or from time to time after the date hereof the Company shall distribute to holders of shares of Common Stock (i) any dividend or other distribution of cash, evidences of its indebtedness, shares of its capital stock or any other properties or securities or (ii) any options, warrants or other rights to subscribe for or purchase any of the foregoing (other than, in each case set forth in (i) and (ii), (x) any dividend or distribution described in Section 4.1(a) or (y) any rights, options, warrants or securities described in Section 4.1(c)) then the number of Warrant Shares purchasable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock issuable immediately prior to the record date upon exercise of each Warrant by a fraction, the numerator of which shall be the sum of (x) any cash distributed per Warrant Share and (y) the Current Market Value of the portion, if any, of the distribution applicable to one Warrant Share consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription of purchase rights and the denominator of which shall be the Current Market Value of the shares of Common Stock comprising one Warrant Share immediately after such dividend or other distribution. Such adjustment shall be made whenever any distribution is made and shall become effective as of the date of distribution, retroactive to the record date for any such distribution; provided, however, that the Company is not required to make an adjustment pursuant to this Section 4.1(b) if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of shares of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable (whether or not currently exercisable). No adjustment shall be made pursuant to this Section 4.1(b) which shall have the effect of decreasing the number of Warrant Shares purchasable upon exercise of each Warrant. (c) Rights Issue. In the event that at any time or from time to time after the date hereof the Company shall issue, sell, distribute or otherwise grant any rights to subscribe for or to purchase, or any options or warrants for the purchase of, or any securities convertible or exchangeable into, shares of Common Stock to all holders of shares of Common Stock, entitling such holders to subscribe for or purchase shares of Common Stock or stock or securities convertible into shares of Common Stock within 60 days after the record date for such issuance, sale, distribution or other grant, as the case may be, and the sum of (a) the offering price of such right, option, warrant or other security (on a per share basis) and (b) any subscription, purchase, conversion or exchange price per share of Common Stock (the "Consideration") is lower at the record date for such issuance than the then Current Market Value per share of such Common Stock, the number of shares of Common Stock thereafter purchasable shall be increased to a number determined by multiplying the number of shares of Common Stock issuable immediately prior to the record date upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the number of additional shares of Common Stock offered for subscription or purchase or into or for which such securities are convertible or exchangeable, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the total number of shares of Common Stock which could be purchased at the Current Market Value with the aggregate of the Consideration with respect to such issuance, sale, distribution or other grant. Such adjustment 11 11 shall be made whenever such rights, options or warrants are issued and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options, warrants or securities; provided however, that the Company is not required to make an adjustment pursuant to this Section 4.1(c) if the Company shall make the same distribution to Holders of Warrants. No adjustment shall be made pursuant to this Section 4.1(c) which shall have the effect of decreasing the number of Warrant Shares purchasable upon exercise of each Warrant. If the Company at any time shall issue two or more securities as a unit and one or more of such securities shall be rights, options or warrants for or securities convertible or exchangeable into, shares of Common Stock subject to this Section 4.1(c), the consideration allocated to each such security shall be determined in good faith by the Board. (d) Combination; Liquidation. (i) Except as provided in clause (ii) below, in the event of certain consolidations, mergers or demergers of the Company, or the sale of all or substantially all of the assets of the Company to another Person (a "Combination"), each Warrant will thereafter be exercisable for the right to receive the kind and amount of shares of stock or other securities or property to which such holder would have been entitled as a result of such Combination had the Warrants been exercised immediately prior thereto. Unless clause (ii) is applicable to a Combination, if any Warrants shall be outstanding after a Combination, the Company shall provide that the surviving or acquiring Person (the "Successor Company") in such Combination will enter into an agreement with the Holders confirming the Holders' rights pursuant to this Section 4.1(d) and providing for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4.1(d) shall similarly apply to successive Combinations involving any Successor Company. (ii) In the event of (A) a Combination, and, in connection therewith, the consideration payable to the holders of shares of Common Stock in exchange for their shares is payable solely in cash or (B) a dissolution, liquidation or winding-up of the Company, then the holders of the Warrants will be entitled to receive distributions on an equal basis with the holders of shares of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such event, less the Exercise Price. Upon receipt of such payment, if any, the Warrants will expire and the rights of holders thereof will cease. (iii) In the case of any such Combination, the surviving or acquiring Person as described in this Section 4.1(d) and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall promptly pay to the Holders of the Warrants the amounts to which they are entitled as described above upon surrender of the Warrant Certificates. The Company shall make payment to the Holders by delivering a check, or by wire transfer of same- day funds, in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by the Holders surrendering such Warrants. 12 12 (e) Tender Offers; Exchange Offers. In the event that the Company or any subsidiary of the Company shall purchase shares of Common Stock pursuant to a tender offer or an exchange offer for a price per share of Common Stock that is greater than the then Current Market Value per share of Common Stock in effect at the end of the trading day immediately following the day on which such tender offer or exchange offer expires, then the Company, or such subsidiary of the Company, shall, within 10 Business Days of the expiry of such tender offer or exchange offer, offer to purchase Warrants for comparable consideration per share of Common Stock based on the number of shares of Common Stock which the Holders of such Warrants would receive upon exercise of such Warrants (the "Offer") (such amount less the Exercise Price in respect of such share, the "Per Share Consideration"); provided, however, if a tender offer is made for only a portion of the outstanding shares of Common Stock, then such offer shall be made for such shares of Common Stock issuable upon exercise of the Warrants in the same pro rata proportion. The Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase such Warrants for the applicable Per Share Consideration. (f) Other Events. If any event occurs as to which the foregoing provisions of this Section 4 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board, to protect such purchase rights as aforesaid. (g) When No Adjustment Required. Without limiting any other exception contained in this Section 4.1, and in addition thereto, no adjustment need be made for: (i) (A) grants to, exercises of Rights by, or issuances of equity securities to employees, directors, consultants or advisors of the Company or any of its subsidiaries and (B) exercises of Rights by, or issuances of equity securities in connection with Rights previously issued to former employees, former directors, former consultants (to the extent that all such securities, other than those permitted by clause (ii) below, do not have an aggregate value in excess of 15% of the equity value of the Company on a fully diluted basis, as determined in good faith by the Board). As used herein, "Right" shall mean any right, option, warrant or convertible or exchangeable security containing the right to subscribe for or acquire one or more shares of Common Stock, excluding the Warrants; 13 13 (ii) options, warrants or other agreements or rights to purchase capital stock of the Company entered into or granted prior to the date of the issuance of the Warrants or any issuance of capital stock pursuant thereto or in connection therewith; (iii) bona fide public offerings or private placements; (iv) rights to purchase shares of Common Stock pursuant to a Company plan for reinvestment of dividends or interest; and (v) a change in the par value of shares of Common Stock (including a change from par value to no par value or vice versa). (h) Adjustment of Exercise Price. Whenever the number of shares of Common Stock purchasable upon the exercise of each Warrant is adjusted, as provided under this Section 4, the Exercise Price per share of Common Stock payable upon exercise of such Warrant shall be adjusted (calculated to the nearest $0.01) so that it shall equal the price determined by multiplying such Exercise Price immediately prior to such adjustment by a fraction the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter. Following any adjustment to the Exercise Price pursuant to this Section 4, the amount payable, when adjusted, shall never be less than the par value per share of Common Stock at the time of such adjustment. If after an adjustment, a Holder of a Warrant upon exercise of it may receive shares of two or more classes of capital stock of the Company, the Company shall determine the allocation of the adjusted Exercise Price between such classes of shares in a manner that the Board deems fair and equitable to the Holders. After such allocation, the exercise privilege and the Exercise Price of each class of shares shall thereafter be subject to adjustment on terms comparable to those applicable to shares of Common Stock under this Section 4. Such adjustment shall be made successively whenever any event listed above shall occur. 4.2 Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges which resulted in the adjustments pursuant to this Section 4, if any thereof shall not have been exercised, the number of Warrant Shares purchasable upon the exercise of each Warrant shall be readjusted as if (A) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (B) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange 14 14 privileges whether or not exercised; provided, however, that no such readjustment shall (except by reason of an intervening adjustment under Section 4.1(a)) have the effect of decreasing the number of Warrant Shares purchasable upon the exercise of each Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. 4.3 Minimum Adjustment. The adjustments required by the preceding Sections of this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the number of shares of Common Stock purchasable upon exercise of Warrants that would otherwise be required shall be made (except in the case of a subdivision or combination of shares of Common Stock, as provided for in Section 4.1(a)) unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% of the number of shares of Common Stock purchasable upon exercise of Warrants immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Section 4, fractional interests in shares of Common Stock shall be taken into account to the nearest one-hundredth of a share. 4.4 Notice of Adjustment. Whenever the number of shares of Common Stock and other property, if any, purchasable upon exercise of Warrants is adjusted, as herein provided, the Company shall deliver to the Holders a certificate setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board determined the fair market value of any evidences of indebtedness, other securities or property or warrants or other subscription or purchase rights), and specifying the number of shares of Common Stock purchasable upon exercise of Warrants after giving effect to such adjustment. The Company shall promptly deliver a copy of such certificate to each Holder. 4.5 Notice of Certain Transactions. In the event that the Company shall propose (a) to pay any dividend payable in securities of any class to the holders of its shares of Common Stock or to make any other distribution to the holders of its shares of Common Stock, (b) to offer the holders of its shares of Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any reclassification of its shares of Common Stock, capital reorganization or Combination or (d) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or in the event of a tender offer or exchange offer described in Section 4.1(e), the Company shall within 5 Business Days of making such proposal, tender offer or exchange offer send to the Holders a notice of such proposed action or offer, such notice to be mailed by the Company to the Holders at their addresses as they appear in the Warrant Register, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take 15 15 place and the date of participation therein by the holders of shares of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the shares of Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, purchasable upon exercise of each Warrant after giving effect to any adjustment which will be required as a result of such action. Such notice shall be given by the Company as promptly as possible and, in the case of any action covered by clause (a) or (b) above, at least 10 Business Days prior to the record date for determining holders of the shares of Common Stock for purposes of such action and, in the case of any other such action, at least 20 Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of shares of Common Stock, whichever shall be the earlier. 4.6 Adjustment to Warrant Certificate. The form of Warrant Certificate need not be changed because of any adjustment made pursuant to this Section 4, and Warrant Certificates issued after such adjustment may state the same Exercise Price and the same number of shares of Common Stock as are stated in any Warrant Certificates issued prior to the adjustment. The Company, however, may at any time in its sole discretion make any change in the form of Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant Certificate, and any Warrant Certificate thereafter issued, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. 4.7 Challenge to Good Faith Determination. Whenever the Board shall be required to make a determination in good faith of the Current Market Value of any item under Section 4, such determination may be challenged in good faith by the Majority Holders. 4.8 Treasury Stock. The sale or other disposition of any issued shares of Common Stock owned or held by or for the account of the Company shall be deemed an issuance thereof and a repurchase thereof and designation of such shares as treasury stock shall be deemed to be a redemption thereof for the purposes of this Agreement. SECTION 5. HOLDERS' RIGHTS AND OBLIGATIONS. 5.1 Registration Rights. The parties hereby agree and acknowledge that the Holders will have registration rights with respect to Warrant Shares in accordance with the provisions of the Registration Rights Agreement, dated as of September 29, 1999, among the Company, WWI, H.J. Heinz Company ("Heinz") and Artal Luxembourg S.A. ("Artal"). 5.2 Other Rights and Obligations. The parties hereby agree that the Warrants shall have the rights and be subject to the obligations set forth in the Stockholders' Agreement, dated as of September 29, 1999 (the "Stockholders' Agreement"), among the Company, WWI, Heinz and Artal with respect to shares of Common Stock held by WWI. The parties hereby agree and acknowledge that the Warrant Shares shall accordingly be subject to the provisions of the Stockholders' Agreement. 16 16 SECTION 6. MISCELLANEOUS. 6.1 Notices to the Company and WWI. Any notice or demand authorized by this Agreement to be given or made by the Holder of any Warrant Certificate to or on the Company shall be sufficiently given or made (i) five business days after deposited in the mail, first class or registered, postage prepaid, (ii) one business day after being timely delivered to a next-day air courier or (ii) when receipt is acknowledged by the addressee, if telecopied, addressed (until another addresses is filed in writing by the Company with the Holders), as follows: WeightWatchers.com, Inc. c/o The Invus Group, Ltd. 135 East 57th Street New York, New York 10022 Attention: Chris Sobecki and Phillipe Amouyal Telecopy: (212) 371-1829 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Robert E. Spatt, Esq. Telecopy: (212) 455-2502 Any notice pursuant to this Agreement to be given by the Company to any Holder shall be sufficiently given or made (i) five business days after deposited in the mail, first-class or registered, postage prepaid, (ii) one business day after being timely delivered to a next-day air courier or (ii) when receipt is acknowledged by the addressee, if telecopied, addressed (until another or additional address is filed in writing by a Holder with the Company) to the Holder as follows: Weight Watchers International, Inc. 175 Crossways Park West Woodbury, New York 11797 Attention: General Counsel Telecopy: (516) 390-1719 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Robert E. Spatt, Esq. Telecopy: (212) 455-2502 17 17 6.2 Amendments. Except as set forth herein, the provisions of this Agreement may only be amended or waived with the prior written consent of the Company and each Holder; provided that the Company and the Majority Holders may amend or waive this Agreement except to the extent such waiver or amendment would constitute an adverse amendment or waiver to a non-consenting Holder's rights hereunder in a material respect. 6.3 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. 6.4 Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Holders shall bind and inure to the benefit of their respective permitted successors and assigns hereunder. 6.5 Termination. This Agreement (other than the Company's obligations with respect to Warrants previously exercised and the Company's and the Holders' rights and obligations set forth in Sections 5.1 and 5.2) shall terminate at 5:00 p.m., New York City time on the Expiration Date. 6.6 Governing Law. THIS WARRANT AGREEMENT AND THE WARRANTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 6.7 Jurisdiction; Venue. The parties to this Agreement agree that jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall properly lie and shall be brought in any federal or state court located in the State of New York. By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself or himself and in respect of its or his property with respect to such action. The parties hereto irrevocably agree that venue would be proper in such court, and hereby irrevocably waive any objection that such court is an improper or inconvenient forum for the resolution of such action. 6.8 Benefits of This Agreement. (a) Nothing in this Agreement shall be construed to give to any Person other than the Company and the Holders of any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company and the Holders. (b) Prior to the exercise of the Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any rights of a stockholder of the Company, including, without limitation, the right to receive dividends or subscription rights, the right to vote, to consent, to 18 18 exercise any preemptive right, to receive any notice of meetings of stockholders for the election of directors of the Company, to share in the assets of the Company in the event of the liquidation, dissolution or winding up of the Company's affairs or any other matter or to receive any notice of any proceedings of the Company, except as may be specifically provided for herein. 6.9 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 6.10 Table of Contents. The table of contents and headings of the Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 6.11 MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO. 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. WEIGHTWATCHERS.COM, INC. By: /s/ Philippe Amouyal ------------------------------------ Name: Philippe Amouyal Title: President WEIGHT WATCHERS INTERNATIONAL, INC. By: /s/ Robert W. Hollweg ------------------------------------ Name: Robert W. Hollweg Title: Vice President and Secretary 20 EXHIBIT A [Form of Note] 21 EXHIBIT B THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. No. ___ _____ Warrants WARRANT CERTIFICATE WEIGHTWATCHERS.COM, INC. THIS CERTIFIES THAT, Weight Watchers International, Inc., a Virginia corporation ("WWI"), is the owner of _____ Warrants (the "Warrants") as described above, transferable only on the books of WeightWatchers.com, Inc., a Delaware corporation (the "Company"), by the holder thereof in person or by his or her duly authorized attorney, on surrender of the Certificate properly endorsed. Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement, dated as of November __, 1999 (the "Warrant Agreement"), between the Company and WWI, to purchase from the Company, one Warrant Share per Warrant at the exercise price per share of $500.00 (the "Exercise Price"), or by Cashless Exercise. This Warrant is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. This Warrant Certificate shall terminate and become void as of 5:00 p.m. on November __, 2009 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The Exercise Price and the number of Warrant Shares purchasable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. 22 THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed on behalf of the Company on the date set forth below. Dated: November __, 1999 WEIGHTWATCHERS.COM, INC. By: ---------------------------------- Name: Title: 23 [FORM OF REVERSE OF WARRANT CERTIFICATE] This Warrant Certificate is issued under and in accordance with the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Company c/o The Invus Group, Ltd., 135 East 57th Street, New York, New York 10022. Warrants may be exercised at any time until 5:00 p.m., New York City time on the Expiration Date. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part by surrender of this Warrant Certificate with the form of election to purchase Warrant Shares attached hereto duly executed and with the simultaneous payment of the Exercise Price (i) in cash to the Company at the office of the Company or (ii) by Cashless Exercise. Payment of the Exercise Price in cash shall be made in cash or by certified or official bank check payable to the order of the Company or by wire transfer of same-day funds to an account designated by the Company for such purpose. Payment by Cashless Exercise shall be made by the surrender of a Warrant or Warrants represented by one or more Warrant Certificates and without payment of the Exercise Price in cash, in exchange for the issuance of such number of shares of Common Stock equal to the product of (1) the number of shares of Common Stock for which such Warrants would otherwise then be nominally exercised if payment of the Exercise Price were being made in cash and (2) the Cashless Exercise Ratio. The Warrant Agreement provides that upon the occurrence of certain events the number of shares of Common Stock issuable upon the exercise of each Warrant shall, subject to certain conditions, be adjusted. In the event the Company enters into a Combination following which this Warrant remains outstanding, the Holder hereof will be entitled to receive upon exercise of the Warrants the shares of capital stock or other securities or other property of such surviving entity as such Holder would have been entitled to receive upon or as the result of such Combination had the Holder exercised its Warrants immediately prior to such Combination; provided, however, that in the event that, in connection with such Combination, consideration to holders of shares of Common Stock in exchange for their shares is payable solely in cash or in the event of the dissolution, liquidation or winding-up of the Company, the Holder hereof will be entitled to receive distributions on an equal basis with the holders of shares of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such events, less the Exercise Price. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 3.6 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to the exercise of the Warrants or the Warrant Shares. 24 2 Upon any partial exercise of the Warrants, there shall be issued to the Holder hereof a new Warrant Certificate in respect of the Warrant Shares as to which the Warrants shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Company by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. In the event any fractional Warrant Shares would have to be issued upon the exercise of the Warrants, the Company may, at its option, pay an amount in cash equal to the Current Market Value for one Warrant Share on the Business Day immediately preceding the date the Warrant is exercised, multiplied by such fraction, in lieu of issuing such fractional share. The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and non-assessable. The Holder of this Warrant Certificate may be deemed and treated by the Company as the absolute owner of the Warrant Certificate for all purposes whatsoever and the Company shall not be affected by notice to the contrary. 25 FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) [ ] The undersigned hereby irrevocably elects to exercise ____________ Warrants at an exercise price per Warrant Share of $________ to acquire an equal number of Warrant Shares on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to WeightWatchers.com, Inc., and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: ________________, ____ _______________________________(1) (Signature of Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) _____________ (1) The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatever. 26 2 Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: Any unexercised Warrants evidenced by the within Warrant Certificate to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: 27 - -------------------------------------------------------------------------------- WARRANT AGREEMENT Dated as of November 24, 1999 between WEIGHTWATCHERS.COM, INC. and WEIGHT WATCHERS INTERNATIONAL, INC. - -------------------------------------------------------------------------------- 28 WARRANT AGREEMENT TABLE OF CONTENTS
Page SECTION 1 Defined Terms..... .................................................... 1 1.1 Certain Definitions ....................................................... 1 1.2 Rules of Construction ..................................................... 4 SECTION 2 Issuance, Form, Execution, Delivery and Registration of Warrant Certificates ................................................. 4 2.1 Issuance of Warrants ...................................................... 4 2.2 Execution of Warrant Certificates ......................................... 4 2.3 Registration, Registration of Transfers and Exchanges ..................... 5 2.4 Form of Warrant Certificates .............................................. 5 2.5 Restrictive Legends ....................................................... 6 2.6 Offices for Exercise, etc ................................................. 6 2.7 Cancellation .............................................................. 6 2.8 Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates ........ 6 SECTION 3 Terms of Warrants; Exercise of Warrants .............................. 7 3.1 Exercise Period ........................................................... 7 3.2 Manner of Exercise ........................................................ 7 3.3 Issuance of Warrant Shares ................................................ 8 3.4 Fractional Warrant Shares ................................................. 8 3.5 Sufficient Authorized Share Capital ....................................... 9 3.6 Payment of Taxes .......................................................... 9 SECTION 4 Adjustment of Exercise Price and Number of Warrant Shares Issuable.... 9 4.1 Adjustments ............................................................... 9 4.2 Superseding Adjustment .................................................... 13 4.3 Minimum Adjustment ........................................................ 14 4.4 Notice of Adjustment ...................................................... 14 4.5 Notice of Certain Transactions ............................................ 14 4.6 Adjustment to Warrant Certificate ......................................... 15 4.7 Challenge to Good Faith Determination ..................................... 15 4.8 Treasury Stock ............................................................ 15
- i - 29
Page SECTION 5 Holders' Rights and Obligations ...................................... 15 5.1 Registration Rights ....................................................... 15 5.2 Other Rights and Obligations .............................................. 15 SECTION 6 Miscellaneous ........................................................ 16 6.1 Notices to the Company and WWI ............................................ 16 6.2 Amendments ................................................................ 17 6.3 Severability .............................................................. 17 6.4 Successors ................................................................ 17 6.5 Termination ............................................................... 17 6.6 Governing Law ............................................................. 17 6.7 Jurisdiction; Venue ....................................................... 17 6.8 Benefits of This Agreement ................................................ 17 6.9 Counterparts .............................................................. 18 6.10 Table of Contents ......................................................... 18 6.11 MUTUAL WAIVER OF JURY TRIAL ............................................... 18
- ii - 30 Page EXHIBITS EXHIBIT A - Form of Note EXHIBIT B - Form of Warrant Certificate - iii - EX-10.22 7 ex10-22.txt WARRANT CERTIFICATE 1 EXHIBIT 10.22 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. No. 01 60,246 Warrants WARRANT CERTIFICATE WEIGHTWATCHERS.COM, INC. THIS CERTIFIES THAT, Weight Watchers International, Inc., a Virginia corporation ("WWI"), is the owner of 60,246 Warrants (the "Warrants") as described above, transferable only on the books of WeightWatchers.com, Inc., a Delaware corporation (the "Company"), by the holder thereof in person or by his or her duly authorized attorney, on surrender of the Certificate properly endorsed. Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement, dated as of November 24, 1999 (the "Warrant Agreement"), between the Company and WWI, to purchase from the Company, one Warrant Share per Warrant at the exercise price per share of $500.00 (the "Exercise Price"), or by Cashless Exercise. This Warrant is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. This Warrant Certificate shall terminate and become void as of 5:00 p.m. on November 24, 2009 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The Exercise Price and the number of Warrant Shares purchasable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect 2 as though fully set forth at this place. THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed on behalf of the Company on the date set forth below. Dated: November 24, 1999 WEIGHTWATCHERS.COM, INC. By: /s/ Philippe Amouyal ________________________________ Name: Philippe Amouyal Title: President 3 [FORM OF REVERSE OF WARRANT CERTIFICATE] This Warrant Certificate is issued under and in accordance with the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Company c/o The Invus Group, Ltd., 135 East 57th Street, New York, New York 10022. Warrants may be exercised at any time until 5:00 p.m., New York City time on the Expiration Date. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part by surrender of this Warrant Certificate with the form of election to purchase Warrant Shares attached hereto duly executed and with the simultaneous payment of the Exercise Price (i) in cash to the Company at the office of the Company or (ii) by Cashless Exercise. Payment of the Exercise Price in cash shall be made in cash or by certified or official bank check payable to the order of the Company or by wire transfer of same-day funds to an account designated by the Company for such purpose. Payment by Cashless Exercise shall be made by the surrender of a Warrant or Warrants represented by one or more Warrant Certificates and without payment of the Exercise Price in cash, in exchange for the issuance of such number of shares of Common Stock equal to the product of (1) the number of shares of Common Stock for which such Warrants would otherwise then be nominally exercised if payment of the Exercise Price were being made in cash and (2) the Cashless Exercise Ratio. The Warrant Agreement provides that upon the occurrence of certain events the number of shares of Common Stock issuable upon the exercise of each Warrant shall, subject to certain conditions, be adjusted. In the event the Company enters into a Combination following which this Warrant remains outstanding, the Holder hereof will be entitled to receive upon exercise of the Warrants the shares of capital stock or other securities or other property of such surviving entity as such Holder would have been entitled to receive upon or as the result of such Combination had the Holder exercised its Warrants immediately prior to such Combination; provided, however, that in the event that, in connection with such Combination, consideration to holders of shares of Common Stock in exchange for their shares is payable solely in cash or in the event of the dissolution, liquidation or winding-up of the Company, the Holder hereof will be entitled to receive distributions on an equal basis with the holders of shares of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such events, less the Exercise Price. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 3.6 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to the exercise of the Warrants or the Warrant Shares. 4 Upon any partial exercise of the Warrants, there shall be issued to the Holder hereof a new Warrant Certificate in respect of the Warrant Shares as to which the Warrants shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Company by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. In the event any fractional Warrant Shares would have to be issued upon the exercise of the Warrants, the Company may, at its option, pay an amount in cash equal to the Current Market Value for one Warrant Share on the Business Day immediately preceding the date the Warrant is exercised, multiplied by such fraction, in lieu of issuing such fractional share. The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and non-assessable. The Holder of this Warrant Certificate may be deemed and treated by the Company as the absolute owner of the Warrant Certificate for all purposes whatsoever and the Company shall not be affected by notice to the contrary. 5 FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) [ ] The undersigned hereby irrevocably elects to exercise ____________ Warrants at an exercise price per Warrant Share of $________ to acquire an equal number of Warrant Shares on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to WeightWatchers.com, Inc., and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: ________________, ____ _______________________________(1) (Signature of Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) - -------- (1) The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatever. 6 Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: Any unexercised Warrants evidenced by the within Warrant Certificate to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: EX-12.1 8 ex12-1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.1 Ratio of Earnings to Fixed Charges Earnings:
FISCAL YEAR ENDED ------------------------------------------------------------------------ APRIL 27, APRIL 26, APRIL 25, APRIL 24, APRIL 29, 1996 1997 1998 1999 2000 ----------- ------------ ----------- ----------- ----------- (In millions, except ratios) EARNINGS: Income (loss) before income taxes and minority 18.5 (36.3) 44.5 85.8 66.9 interests Interest expense 18.4 13.8 8.6 8.9 36.9 Amort. of deferred financing costs 1.1 Rental expense interest component 6.6 6.4 4.1 3.7 3.4 --------- ----------- ---------- --------- ---------- Earnings 43.5 (16.1) 57.2 98.4 108.3 ========= =========== ========== ========= ========== FIXED CHARGES: Interest expense (18.4) (13.8) (8.6) (8.9) (36.9) Amort. of deferred financing costs (1.1) Rental expense interest component (6.6) (6.4) (4.1) (3.7) (3.4) --------- ----------- ---------- --------- ---------- Fixed charges (25.0) (20.2) (12.7) (12.6) (41.4) ========= =========== ========== ========= ========== Ratio of earnings to fixed charges 1.7x (a) 4.5x 7.8 2.6x
- ------------------------------------------------------ Footnotes The data above sets forth the ratio of earnings to fixed charges of Weight Watchers International, Inc. and Subsidiaries ("WWI") for each of the years in the five-year period ended April 29, 2000. The data for each of the years in the five year period ended April 29, 2000 are derived from the audited historical financial statements, included elsewhere in this document. Footnote (a) Earnings for the period ended April 26, 1997 were inadequate to cover fixed charges and resulted in a coverage deficiency of approximately $.8 million. EX-12.2 9 ex12-2.txt COMPUTATION OF PRO FORMA RATIO OF EARNINGS 1 Exhibit 12.2
FISCAL YEAR ENDED ------------------------------------- April 29, APRIL 24, 2000 1999 ------------- ------------ EARNINGS: Income (loss) before income taxes and minority 52.6 28.1 interests Interest expense 58.2 55.5 Amortization of deferred financing costs 1.9 2.1 Rental expense interest component 3.4 3.7 ------------ ----------- Earnings 116.1 89.3 ============ =========== FIXED CHARGES: Interest expense 58.2 55.5 Amortization of deferred financing costs 1.9 2.1 Rental expense interest component 3.4 3.7 ------------ ----------- Fixed charges 61.6 59.1 ============ =========== Ratio of earnings to fixed charges 1.9x 1.5
EX-27 10 ex27.txt FINANCIAL DATA SCHEDULE
5 12-MOS 12-MOS APR-29-2000 APR-24-1999 APR-25-1999 APR-26-1998 APR-29-2000 APR-24-1999 44,043 19,515 0 0 13,486 12,397 609 994 9,328 7,580 77,493 186,754 48,912 55,153 41,911 46,428 334,207 371,434 78,451 95,554 0 0 0 0 25,875 0 0 0 (234,116) 248,948 334,207 371,434 399,574 364,608 399,574 364,608 201,389 178,925 311,930 280,693 (10,351) 5,248 (398) 34 36,871 8,859 66,916 85,835 28,323 36,360 37,759 47,982 0 0 0 0 0 0 37,759 47,982 0 0 0 0
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