-----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, QoVcVt/f2MKB7fZh8+qUl5RozMAH1bm7Ycf9GcFLEWphCX9lG9SgdRjM/uD53ieJ S8UbKPWdsQltSEy6Lyomng== 0000950123-00-011447.txt : 20001214 0000950123-00-011447.hdr.sgml : 20001214 ACCESSION NUMBER: 0000950123-00-011447 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001028 FILED AS OF DATE: 20001212 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-Q SEC ACT: SEC FILE NUMBER: 000-03389 FILM NUMBER: 787932 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-Q 1 y43477e10-q.txt WEIGHT WATCHERS INTERNATIONAL, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period year ended October 28, 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 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 ____ ------ The number of common shares outstanding as of October 28, 2000 was 23,800,000. PART I - - FINANCIAL INFORMATION 2 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX
Part I. FINANCIAL INFORMATION PAGE NO. - ------------------------------ -------- Item 1. Financial Statements Consolidated Balance Sheets as of October 28, 2000 (unaudited) and April 29, 2000 2 Unaudited Consolidated Statements of Operations and Comprehensive Income for the three months ended October 28, 2000 and October 23, 1999 3 Unaudited Consolidated Statements of Operations and Comprehensive Income for the six months ended October 28, 2000 and October 23, 1999 4 Unaudited Consolidated Statements of Cash Flows for the six months ended October 28, 2000 and October 23, 1999 5 Notes to Unaudited Consolidated Financial Statements 6 - 17 Item 2. Management's Discussion and Analysis of Financial Condition 18 - 20 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Part II. OTHER INFORMATION 22 - 23 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters To a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K
3 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 2 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
OCTOBER 28, APRIL 29, 2000 2000 ASSETS (UNAUDITED) Current assets Cash and cash equivalents $ 55,890 $ 44,043 Receivables, net 14,978 12,877 Notes receivable, current 1,943 2,791 Inventories 12,110 9,328 Prepaid expenses, other 10,304 8,454 --------- --------- Total current assets 95,225 77,493 Property and equipment, net 6,641 7,001 Notes and other receivables, noncurrent 6,154 7,045 Goodwill, net 150,452 152,565 Trademarks and other intangible assets, net 6,373 7,163 Deferred income taxes 67,561 67,574 Deferred financing costs, other 14,488 15,366 --------- --------- Total assets $ 346,894 $ 334,207 ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current liabilities Short-term borrowings due to related party $ 1,602 $ 1,489 Portion of long-term debt due within one year 14,120 14,120 Accounts payable 10,925 12,362 Accrued liabilities 49,272 39,062 Income taxes 8,606 6,786 Deferred revenue 7,407 4,632 --------- --------- Total current liabilities 91,932 78,451 Long-term debt 446,350 460,510 Deferred income taxes 2,522 2,941 Other 96 546 --------- --------- Total long-term debt and other liabilities 448,968 463,997 Redeemable preferred stock 25,746 25,875 Stockholders' deficit Common stock, par value $0 per share, 23,800 shares authorized, issued and outstanding -- -- Accumulated deficit (211,352) (231,663) Accumulated other comprehensive loss (8,400) (2,453) --------- --------- Total stockholders' deficit (219,752) (234,116) --------- --------- Total liabilities, redeemable preferred stock, and stockholders' deficit $ 346,894 $ 334,207 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 4 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 3 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS)
THREE MONTHS ENDED --------------------------- OCTOBER 28, OCTOBER 23, 2000 1999 (UNAUDITED) Revenues, net $ 101,113 $83,931 Cost of revenues 53,187 43,947 --------- ------- Gross profit 47,926 39,984 Marketing expenses 10,964 11,406 Selling, general and administrative expenses 11,757 9,824 Transaction costs -- 8,345 --------- ------- Operating income 25,205 10,409 Interest income 1,117 1,451 Interest expense 14,943 5,020 Other (income) expenses, net (177) 3,096 --------- ------- Income before income taxes and minority interest 11,556 3,744 Provision for income taxes 2,450 1,287 --------- ------- Income before minority interest 9,106 2,457 Minority interest 14 218 --------- ------- Net income 9,092 2,239 Other comprehensive income: Foreign currency translation adjustment (5,060) 2,519 --------- ------- Comprehensive income $ 4,032 $ 4,758 ========= =======
The accompanying notes are an integral part of the consolidated financial statements. 5 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS)
SIX MONTHS ENDED ---------------------------- OCTOBER 28, OCTOBER 23, 2000 1999 (UNAUDITED) Revenues, net $ 204,655 $176,105 Cost of revenues 100,973 86,656 --------- -------- Gross profit 103,682 89,449 Marketing expenses 21,049 20,175 Selling, general and administrative expenses 23,176 22,218 Transaction costs -- 8,345 --------- -------- Operating income 59,457 38,711 Interest income 1,998 4,575 Interest expense 29,919 6,474 Other expenses, net 4,083 4,261 --------- -------- Income before income taxes and minority interest 27,453 32,551 Provision for income taxes 6,283 12,625 --------- -------- Income before minority interest 21,170 19,926 Minority interest 109 592 --------- -------- Net income 21,061 19,334 Other comprehensive income: Foreign currency translation adjustment (5,947) 12,465 --------- -------- Comprehensive income $ 15,114 $ 31,799 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 6 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED ------------------------------- OCTOBER 28, OCTOBER 23, 2000 1999 (UNAUDITED) Operating activities: Net income $ 21,061 $ 19,334 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,767 4,743 Deferred tax benefit (405) (512) Accounting for equity investment 10,500 -- Allowance for doubtful accounts 191 (676) Reserve for inventory obsolescence 2,122 1,471 Other items, net (1,018) (2,347) Changes in cash due to: Receivables (3,953) 17,868 Inventories (4,998) (2,957) Prepaid expense (1,870) 380 Due to related parties 113 (14,195) Accounts payable (5,043) 2,611 Accrued liabilities 10,369 (1,817) Deferred revenue 2,806 (3,602) Income taxes 2,116 (2,324) -------- --------- Cash provided by operating activities 37,758 17,977 -------- --------- Investing activities: Capital expenditures (1,436) (999) Advances to equity investment (8,500) -- Acquisitions of minority interest (2,400) (15,900) Other items, net 459 1,180 -------- --------- Cash used for investing activities (11,877) (15,719) -------- --------- Financing activities: Net increase (decrease) in short-term borrowings 3,658 (7,570) Proceeds from borrowings -- 491,452 Repurchase of common stock -- (324,476) Payment of dividends (879) (2,047) Payments of long-term debt (7,060) -- Deferred financing costs -- (15,696) Net Parent (settlements) advances -- (131,014) -------- --------- Cash (used for) provided by financing activities (4,281) 10,649 -------- --------- Effect of exchange rate changes on cash and cash equivalents (9,753) 1,012 Net increase in cash and cash equivalents 11,847 13,919 Cash and cash equivalents, beginning of period 44,043 19,515 -------- --------- Cash and cash equivalents, end of period $ 55,890 $ 33,434 ======== =========
The accompanying notes are an integral part of the consolidated financial statements. 7 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying consolidated financial statements include the accounts of Weight Watchers International, Inc. and Subsidiaries (the "Company"). The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts that are based on management's best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. The consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation. This report should be read in conjunction with the Company's annual report filed on Form 10K for the fiscal year ended April 29, 2000. 2. 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 had 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. 3. 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. 8 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 7 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 October 28, 2000, the interest rates were 9.745% for Term Loan A and 10.870% 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. All 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 of 13% Senior Subordinated Notes due 2009 (the "Notes") to qualified institutional buyers under a private placement offering pursuant to Rule 144A. At October 28, 2000, the 100.0 million EUR notes translated into $84.1 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. 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 $ 7,060 2002 14,120 2003 14,120 2004 14,120 2005 15,683 2006 and thereafter 395,367 -------- $460,470 ========
5. WEIGHT WATCHERS.COM NOTE On October 1, 2000 the Company amended its loan agreement with Weight Watchers.com increasing the aggregate principal amount from $10.0 million to $23.5 million. On that date, the unpaid principal and accumulated interest was rolled over into the new loan. The amount may be advanced 9 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 8 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS at any time or from time to time prior to July 31, 2003. The note bears interest at 13% per year. All principal and interest outstanding under the note are scheduled to be payable on September 30, 2003. The note may be prepaid at any time in whole or in part, without premium or penalty. As of October 28, 2000, the Company has advanced Weight Watchers.com $10.5 million pursuant to the note. The $10.5 million in advances were classified in other expenses, net. 6. LEGAL In November 2000, the Company reached an agreement with certain franchisees regarding the sharing of profits of prior and future product sales. The settlement provides for a payment of approximately $3.8 million and releases the Company from any future obligation to the franchisees under profit sharing arrangements which date back to 1969. Due to the nature of its activities, the Company is, at times, subject to pending and threatened legal actions that 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. 7. SUBSEQUENT EVENT Effective December 11, 2000, the Company signed an agreement to purchase the assets and certain franchised territories operated by Weighco Enterprises, Inc., Weighco of Northwest, Inc and Weighco of Southwest, Inc.; for $83.8 million. The transaction will be accounted for by the purchase method of accounting. Substantially, all of the purchase price of the acquisition in excess of the net assets acquired will be recorded as intangibles. It is anticipated that the transaction will be finalized in January 2001. 8. GUARANTOR SUBSIDIARIES The Company's payment obligations under the Senior Subordinated Notes are 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, 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 & Publication) 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. The following presentations are 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. 10 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 9 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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. 11 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 10 SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF OCTOBER 28, 2000 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------------- --------------- --------------- --------------- ------------ ASSETS Currentt assets Cash and cash equivalents $ 15,696 $ 29,356 $10,838 $ -- $ 55,890 Receivables, net 8,648 4,435 1,895 -- 14,978 Notes receivable, current 1,943 -- -- -- 1,943 Inventories -- 10,411 1,699 -- 12,110 Prepaid expenses, other 4,148 4,129 2,027 -- 10,304 Intercompany receivables (payables) (58,925) 57,056 1,869 -- -- --------- -------- ------- --------- -------- Total current assets (28,490) 105,387 18,328 -- 95,225 Investment in consolidated subsidiaries 184,351 -- -- (184,351) -- Property and equipment, net 1,867 3,629 1,145 -- 6,641 Notes and other receivables, noncurrent 6,154 -- -- -- 6,154 Goodwill, net 28,597 121,172 683 -- 150,452 Trademarks and other intangible assets, net 1,871 4,494 8 -- 6,373 Deferred income taxes (1,746) 69,307 -- -- 67,561 Deferred financing costs, other 13,952 367 169 -- 14,488 --------- -------- ------- --------- -------- Total assets $ 206,556 $304,356 $20,333 $(184,351) $346,894 ========= ======== ======= ========= ======== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT) Current liabilities Short-term borrowings due to related party $ 1,602 $ -- $ -- $ -- $ 1,602 Portion of long-term debt due within one year 13,250 870 -- -- 14,120 Accounts payable 744 8,896 1,285 -- 10,925 Accrued liabilities 20,779 21,464 7,029 -- 49,272 Income taxes 1,411 4,633 2,562 -- 8,606 Deferred revenue -- 6,330 1,077 -- 7,407 --------- -------- ------- --------- -------- Total current liabilities 37,786 42,193 11,953 -- 91,932 Long-term debt 360,873 85,477 -- -- 446,350 Deferred income taxes 1,903 28 591 -- 2,522 Other -- -- 96 -- 96 --------- -------- ------- --------- -------- Total long term debt and other liabilities 362,776 85,505 687 -- 448,968 Redeemable preferred stock 25,746 -- -- -- 25,746 Stockholders' equity (deficit) (219,752) 176,658 7,693 (184,351) (219,752) --------- -------- ------- --------- -------- Total liabilities, redeemable preferred stock and stockholders' equity (deficit) $ 206,556 $304,356 $20,333 $(184,351) $346,894 ========= ======== ======= ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 12 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 11 SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF APRIL 29, 2000 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------------- --------------- --------------- --------------- ------------ ASSETS 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, other 3,594 3,488 1,372 -- 8,454 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, other 14,912 282 172 -- 15,366 --------- -------- ------- --------- -------- 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 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 Accrued liabilities 12,695 18,652 7,715 -- 39,062 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. 13 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 12 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 28, 2000 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------------- --------------- --------------- --------------- ------------ Revenues, net $ 8,187 $ 77,166 $15,760 $ -- $101,113 Cost of revenues 4,174 39,392 9,621 53,187 --------- -------- ------- --------- -------- Gross profit 4,013 37,774 6,139 -- 47,926 Marketing expenses 1,328 7,572 2,064 -- 10,964 Selling, general & administrative expenses 5,074 4,826 1,857 -- 11,757 --------- -------- ------- --------- -------- Operating income (loss) (2,389) 25,376 2,218 -- 25,205 Interest income 578 482 57 -- 1,117 Interest expense 9,715 5,223 5 -- 14,943 Other (income) expenses, net (628) 451 -- -- (177) Equity in income of consolidated subsidiaries 18,329 -- -- (18,329) -- Franchise commission income (loss) 3,101 (2,285) (816) -- -- --------- -------- ------- --------- -------- Income before income taxes and minority interest 10,532 17,899 1,454 (18,329) 11,556 Provision for (benefit from) income taxes 1,440 (25) 1,035 -- 2,450 --------- -------- ------- --------- -------- Income before minority interest 9,092 17,924 419 (18,329) 9,106 Minority interest -- -- 14 -- 14 --------- -------- ------- --------- -------- Net income $ 9,092 $ 17,924 $ 405 $ (18,329) $ 9,092 ========= ======== ======= ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 14 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 13 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 23, 1999 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ Revenues, net $ 7,949 $ 63,209 $ 12,773 $ -- $83,931 Cost of revenues 384 34,797 8,766 -- 43,947 -------- -------- -------- -------- ------- Gross profit 7,565 28,412 4,007 -- 39,984 Marketing expenses 1,700 7,571 2,135 -- 11,406 Selling, general & administrative expenses 2,419 6,118 1,287 -- 9,824 Transaction costs 8,345 -- -- -- 8,345 -------- -------- -------- -------- ------- Operating income (loss) (4,899) 14,723 585 -- 10,409 Interest income 294 746 411 -- 1,451 Interest expense 3,907 606 507 -- 5,020 Other (income) expenses, net 3,707 (620) 9 -- 3,096 Equity in income of consolidated subsidiaries 15,684 -- -- (15,684) -- Franchise commission income (loss) 2,198 (1,611) (587) -- -- -------- -------- -------- -------- ------- Income (loss) before income taxes and minority interest 5,663 13,872 (107) (15,684) 3,744 Provision for (benefit from) income taxes 3,424 (2,213) 76 -- 1,287 -------- -------- -------- -------- ------- Income (loss) before minority interest 2,239 16,085 (183) (15,684) 2,457 Minority interest -- 189 29 -- 218 -------- -------- -------- -------- ------- Net income (loss) $ 2,239 $ 15,896 $ (212) $(15,684) $ 2,239 ======== ======== ======== ======== =======
The accompanying notes are an integral part of the consolidated financial statements. 15 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 14 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 28, 2000 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Revenues, net $ 16,114 $ 157,210 $ 31,331 $ -- $204,655 Cost of revenues 4,439 77,639 18,895 -- 100,973 -------- --------- -------- -------- -------- Gross profit 11,675 79,571 12,436 -- 103,682 Marketing expenses 2,428 15,277 3,344 -- 21,049 Selling, general & administrative expenses 9,571 9,936 3,669 -- 23,176 -------- --------- -------- -------- -------- -- Operating income (loss) (324) 54,358 5,423 -- 59,457 Interest income 1,034 817 147 -- 1,998 Interest expense 19,558 10,344 17 -- 29,919 Other expenses, net 3,724 352 7 -- 4,083 Equity in income of consolidated subsidiaries 33,627 -- -- (33,627) -- Franchise commission income (loss) 5,303 (4,015) (1,288) -- -- -------- --------- -------- -------- -------- Income before income taxes and minority interest 16,358 40,464 4,258 (33,627) 27,453 Provision for (benefit from) income taxes (4,703) 9,507 1,479 -- 6,283 -------- --------- -------- -------- -------- Income before minority interest 21,061 30,957 2,779 (33,627) 21,170 Minority interest -- -- 109 -- 109 -------- --------- -------- -------- -------- Net income $ 21,061 $ 30,957 $ 2,670 $(33,627) $ 21,061 ======== ========= ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 16 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 15 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 23, 1999 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Revenues, net $ 15,838 $ 132,040 $ 28,227 $ -- $176,105 Cost of revenues 1,129 67,745 17,782 -- 86,656 -------- --------- -------- -------- -------- Gross profit 14,709 64,295 10,445 -- 89,449 Marketing expenses 3,292 13,399 3,484 -- 20,175 Selling, general & administrative expenses 7,837 11,070 3,311 -- 22,218 Transaction costs 8,345 -- -- -- 8,345 -------- --------- -------- -------- -------- Operating income (loss) (4,765) 39,826 3,650 -- 38,711 Interest income 911 1,527 2,137 -- 4,575 Interest expense 4,628 616 1,230 -- 6,474 Other expenses, net 4,084 110 67 -- 4,261 Equity in income of consolidated subsidiaries 31,264 -- -- (31,264) -- Franchise commission income (loss) 3,752 (2,607) (1,145) -- -- -------- --------- -------- -------- -------- Income before income taxes and minority interest 22,450 38,020 3,345 (31,264) 32,551 Provision for income taxes 3,116 8,780 729 -- 12,625 -------- --------- -------- -------- -------- Income before minority interest 19,334 29,240 2,616 (31,264) 19,926 Minority interest -- 446 146 -- 592 -------- --------- -------- -------- -------- Net income $ 19,334 $ 28,794 $ 2,470 $(31,264) $ 19,334 ======== ========= ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 17 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 16 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED OCTOBER 28, 2000 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Operating activities: Net income $ 21,061 $ 30,957 $ 2,670 $(33,627) $ 21,061 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,121 3,348 298 -- 5,767 Deferred tax provision (benefit) (8,108) 7,760 (57) -- (405) Accounting for equity investment 10,500 -- -- -- 10,500 Allowance for doubtful accounts -- 191 -- -- 191 Reserve for inventory obsolescence -- 2,110 12 -- 2,122 Other items, net -- (572) (446) -- (1,018) Changes in cash due to: Receivables (4,232) 909 (630) -- (3,953) Inventories -- (4,788) (210) -- (4,998) Prepaid expense (554) (661) (655) -- (1,870) Intercompany receivables/payables 26,811 (29,314) 2,503 -- -- Due to related parties 113 -- -- -- 113 Accounts payable (1,088) (3,400) (555) -- (5,043) Accrued liabilities 8,084 2,969 (684) -- 10,369 Deferred revenue -- 2,537 269 -- 2,806 Income taxes 3,257 (1,036) (105) -- 2,116 -------- -------- -------- -------- -------- Cash provided by operating activities 57,965 11,010 2,410 (33,627) 37,758 -------- -------- -------- -------- -------- Investing activities: Capital expenditures (300) (811) (325) -- (1,436) Advances to equity investment (8,500) -- -- -- (8,500) Acquisition of minority interest (2,400) -- -- -- (2,400) Other items, net 48 361 50 -- 459 -------- -------- -------- -------- -------- Cash used for investing activities (11,152) (450) (275) -- (11,877) -------- -------- -------- -------- -------- Financing activities: Net increase (decrease) in short-term borrowings 394 3,264 -- -- 3,658 Parent company investment in subsidiaries (22,031) -- -- 22,031 -- Payment of dividends (879) (4,355) (1,603) 5,958 (879) Payments on long-term debt (6,625) (435) -- -- (7,060) Net parent (settlements) advances -- -- 307 (307) -- -------- -------- -------- -------- -------- Cash used for financing activities (29,141) (1,526) (1,296) 27,682 (4,281) -------- -------- -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (12,960) (2,143) (595) 5,945 (9,753) Net increase in cash and cash equivalents 4,712 6,891 244 -- 11,847 Cash and cash equivalents, beginning of period 10,984 22,465 10,594 -- 44,043 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period $ 15,696 $ 29,356 $ 10,838 $ -- $ 55,890 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 18 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 17 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED OCTOBER 23, 1999 (IN THOUSANDS)
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Operating activities: Net income $ 19,334 $ 28,794 $ 2,470 $(31,264) $ 19,334 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 1,326 3,146 350 (79) 4,743 Deferred tax provision (benefit) 3,159 (8,601) 4,930 -- (512) Allowance for doubtful accounts (552) (132) 8 -- (676) Reserve for inventory obsolescence -- 1,417 54 -- 1,471 Other items, net -- (2,158) (189) -- (2,347) Changes in cash due to: Receivables 6,752 1,722 9,394 -- 17,868 Inventories -- (2,803) (154) -- (2,957) Prepaid expense 2,187 (2,140) 333 -- 380 Due from related parties (14,583) 388 -- -- (14,195) Accounts payable 50 4,052 (1,491) -- 2,611 Accrued liabilities 10,963 (14,051) 1,271 -- (1,817) Deferred revenue -- (3,875) 273 -- (3,602) Income taxes 13,083 (14,922) (485) -- (2,324) --------- -------- -------- -------- --------- Cash provided by (used for) operating activities 41,719 (9,163) 16,764 (31,343) 17,977 --------- -------- -------- -------- --------- Investing activities: Capital expenditures (166) (512) (321) -- (999) Acquisitions of minority interest -- (15,900) -- -- (15,900) Other items, net 150 958 (7) 79 1,180 --------- -------- -------- -------- --------- Cash used for investing activities (16) (15,454) (328) 79 (15,719) --------- -------- -------- -------- --------- Financing activities: Net decrease in short-term borrowings -- (914) (6,656) -- (7,570) Proceeds from borrowings 404,260 87,192 -- -- 491,452 Repurchase of common stock (324,476) -- -- -- (324,476) Payment of dividends (2,048) (3,123) (4,224) 7,348 (2,047) Payments on long-term debt -- -- -- -- -- Deferred financing costs (15,696) -- -- -- (15,696) Net Parent settlements (93,085) (57,424) (4,998) 24,493 (131,014) --------- -------- -------- -------- --------- Cash provided by (used for) financing activities (31,045) 25,731 (15,878) 31,841 10,649 --------- -------- -------- -------- --------- Effect of exchange rate changes on cash and cash equivalents 662 261 666 (577) 1,012 Net increase in cash and cash equivalents 11,320 1,375 1,224 -- 13,919 Cash and cash equivalents, beginning of year (74) 12,376 7,213 -- 19,515 --------- -------- -------- -------- --------- Cash and cash equivalents, end of year $ 11,246 $ 13,751 $ 8,437 $ -- $ 33,434 ========= ======== ======== ======== =========
The accompanying notes are an integral part of the consolidated financial statements. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18 COMPARISON OF THREE MONTHS ENDED OCTOBER 28, 2000 TO THREE MONTHS ENDED OCTOBER 23, 1999 Net revenues were $101.1 million for the three months ended October 28, 2000, an increase of 21.5% from $83.2 million for the three months ended October 23, 1999 (excluding food royalties of $0.7 million). The increase in net revenues resulted from increased attendance strong growth in classroom product sales and a price increase in the majority of its North American NACO markets. Cost of revenues was $53.2 million for the three months ended October 28, 2000, an increase of 21.2% from $43.9 million for the three months ended October 23, 1999. This increase resulted from an increase in product sales and the number of meetings held in Company-owned classrooms. Marketing expenses were $11.0 million for the three months ended October 28, 2000, a decrease of 3.5% from $11.4 million for the three months ended October 23, 1999. As a percentage of revenue, marketing decreased from 13.6% to 10.9% for the three months ended October 28, 2000. Selling, general and administrative expenses increased by 20.4% to $11.8 million for the three months ended October 28, 2000, as compared to $9.8 million for the three months ended October 23, 1999. As a percentage of revenue, selling, general, and administrative remained flat from year to year. As a result of the above, operating income was $25.2 million for the three months ended October 28, 2000, an increase of 39.2% from $18.1 million for the three months ended October 23, 1999 (excluding revenues from food royalties of $0.7 million and a one-time charge of $8.3 million for transaction costs). Interest expense increased to $14.9 million for the three months ended October 28, 2000 from $5.0 million for the three months ended October 23, 1999 as a result of borrowings related to the Transaction. The effective income tax rate for the three months ended October 28, 2000 of 21.2% decreased from 34.4% for the three months ended October 23, 1999 due to several factors. The decrease was primarily due to the benefit of utilizing a net operating loss carryforward to reduce the current U.S. tax provision, with limited offset to the deferred provision due to the existence of a valuation allowance against the projected realization of the deferred tax asset. COMPARISON OF SIX MONTHS ENDED OCTOBER 28, 2000 TO SIX MONTHS ENDED OCTOBER 23, 1999 Net revenues were $204.7 million for the six months ended October 28, 2000, an increase of 17.4% from $174.3 million for the six months ended October 23, 1999 (excluding $1.8 from discontinued food royalties). This increase in net revenues resulted primarily from increased attendance in most of our markets, strong growth in classroom product sales and a price increase in the majority of our NACO markets. Cost of revenues was $101.0 million for the six months ended October 28, 2000, an increase of 16.5% from $86.7 million for the six months ended October 23, 1999. This increase was primarily the result of an increased number of meetings to accommodate attendance growth and growing product sales. Marketing expenses were $21.0 million for the six months ended October 28, 2000, an increase of 4.0% from $20.2 million for the six months ended October 23, 1999. As a percentage of revenue, marketing decreased from 11.5% to 10.3% for the six months ended October 28, 2000. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 Selling, general and administrative expenses increased 4.5% to 23.2 million for the six months ended October 28, 2000 as compared to $22.2 million for the six months ended October 23, 1999. As a percentage of revenue, selling, general and administrative decreased from 12.6% to 11.3% for the six months ended October 28, 2000. As a result of the above, operating income was $59.5 million for the six months ended October 28, 2000, an increase of 31.6% from $45.2 million for the six months ended October 23, 1999 (excluding a one-time charge of $8.3 million for transaction costs and $1.8 million in revenue from discontinued food royalties). Interest Expenses increased to $29.9 million for the six months ended October 28, 2000 from $6.5 million for the six months ended October 23, 1999 as a result of borrowings related to the Transaction. The effective income tax rate for the six months ended October 28, 2000 of 22.9% decreased from 38.8% for the six months ended October 23, 1999 due to several factors. The decrease was primarily due to the benefit of utilizing a net operating loss carryforward to reduce the current U.S. tax provision, with limited offset to the deferred provision due to the existence of a valuation allowance against the projected realization of the deferred tax asset. LIQUIDITY AND CAPITAL RESOURCES For the six months ended October 28, 2000, the Company's primary source of funds to meet working capital needs was cash from operations. Cash and cash equivalents increased $11.8 million during the six months ended October 28, 2000. Cash flows provided by operating activities of $37.8 million funded net cash flows used for investing activities of $11.9 million and financing activities of $4.3 million. Capital spending has averaged $2.9 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. Capital expenditures for the six months ended October 28, 2000 was $1.4 million. The Company is significantly leveraged. As of October 28, 2000, after reflecting the repurchase of common stock and related borrowings, there was outstanding $460.5 million in aggregate indebtedness, with approximately $30.0 million of additional borrowing capacity available under the revolving credit facility. 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 flows from operating activities, together with borrowings available under the revolving credit facility, will be sufficient to fund currently anticipated capital investment requirements, debt service requirements and working capital requirements. 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. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20 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. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21 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 October 28, 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' deficit. 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 period. The resulting translation adjustments are recorded in stockholders' deficit 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 translates the outstanding euro notes at the end of each period into U.S. dollars, and the resulting change 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 maintains foreign currency forward contracts denominated in the euro and pounds sterling to more properly align the underlying sources of cash flow with debt servicing requirements. At October 28, 2000, the Company had long-term foreign currency forward contracts receivable with notional amounts of USD 44.0 million and EUR 76.0 million offset by foreign currency forward contracts payable with notional amounts of GBP 59.2 million and USD 21.9 million. The Company's ability to fund 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. 23 22 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Nothing to report under this item. ITEM 2. CHANGES IN SECURITIES Nothing to report under this item. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Nothing to report under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Nothing to report under this item. ITEM 5. OTHER INFORMATION This report contains forward-looking statements regarding the Company's future performance. These forward-looking statements are based on management's views and assumptions, and involve unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statement. These include, but are not limited to, sales, earnings and volume growth, competitive conditions, production costs, currency valuations, global economic and industry conditions, and the other factors described in "Forward-Looking Statements" in the Company's Form 10-K for the fiscal year ended April 29, 2000, as updated from time to time by the Company in its subsequent filings with the SEC. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required to be furnished by Item 601 of Regulation S-K are filed as part hereof. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulations S-K. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended October 28, 2000. 24 23 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: December 12, 2000 By: /s/ LINDA HUETT -------------------------------------------- Linda Huett President and Director (Principal Executive Officer) Date: December 12, 2000 By: /s/ THOMAS S. KIRITSIS -------------------------------------------- Thomas S. Kiritsis Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 25 EXHIBIT INDEX Exhibit Number Description *10.1 Agreement dated December 11, 2000, between Weighco Enterprises, Inc., Weighco of Northwest, Inc., Weighco of Southwest, Inc., Weight Watchers North America and Weight Watchers International, Inc. *10.2 Warrant Agreement & Warrant Certificate No. 02 dated October 1, 2000, between WeightWatchers.com, Inc. and Weight Watchers International, Inc. *10.3 Collateral Assignment and Security Agreement dated October 1, 2000, between WeightWatchers.com, Inc. and Weight Watchers International, Inc. EX-10.1 2 y43477ex10-1.txt AGREEMENT 1 ----------------------------------------------------------- ASSET PURCHASE AGREEMENT among WEIGHCO ENTERPRISES, INC., WEIGHCO OF NORTHWEST, INC., WEIGHCO OF SOUTHWEST, INC., WEIGHT WATCHERS NORTH AMERICA, INC. and WEIGHT WATCHERS INTERNATIONAL, INC. Dated as of December 11, 2000 ---------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE 1. Definitions 2. Purchase and Sale of Assets; Assumption of Certain Liabilities 2.1. Transfer of Assets 2.2. Excluded Assets 2.3. Instruments of Conveyance and Transfer 2.4. Further Assurances 2.5. Assumed Liabilities 3. Closing; Payment of Purchase Price at Closing 3.1. Closing Date 3.2. Purchase Price and Payment 3.3. Payment of Balance of Closing Payment. 3.4. Ownership and Investment of the Escrow Fund; Fees and Expenses of Escrow Agent 3.5. Post Closing Adjustment. 3.6. Prepaid Coupon Adjustment. 3.7. Guaranty; Consent 4. Representations and Warranties 4.1. Representations and Warranties of Sellers. (a) Due Organization; Power; Capacity; Good Standing (b) Authorization and Validity (c) No Governmental Approvals or Notices Required; No Conflict (d) Financial Information; Liabilities (e) Title and Condition of Properties; Absence of Liens (f) List of Properties, Contracts, Permits and Other Data (g) Receivables; Subscriber Information (h) Legal Proceedings (i) Insurance (j) Labor (k) Intellectual Property (l) Government Licenses, Permits and Related Approvals (m) Compliance with Law and Requirements (n) Employee Benefit Programs.
3 (o) Certain Fees (p) Absence of Certain Changes or Events (q) Offering Memorandum; Disclosure. (r) Environmental Matters (s) Entire Business (t) Tax Matters (u) No Subsidiaries (v) Purchase Price Transfers (w) Prohibited Payments (x) Affiliate Transactions. (y) Compensation of Management Employees (z) Bankruptcy (aa) Qualified S Chapter Subsidiaries 4.2. Representations and Warranties of Buyer and WWI (a) Due Organization; Good Standing and Power (b) Authorization and Validity. (c) Governmental Approvals; No Conflict (d) Brokers' Fees 4.3. Survival of Representations 5. Agreements 5.1. Access to Information 5.2. Conduct of the Business 5.3. Further Actions 5.4. Antitrust Improvements Act 5.5. Notification 5.6. No Inconsistent Action 5.7. No Solicitation 5.8. Delivery of Financial Statements. 5.9. Franchise Agreements 5.10. No Solicitation of Employees 5.11. Payment of Annual Compensation and Bonuses 5.12. Interim Financial Statements 5.13. Covenant Not to Compete 5.14. Employment Matters
4 5.15. Leases and Service Contracts 5.16. Carolina Acquisition Agreement. 6. Conditions Precedent. 6.1. Conditions Precedent to Obligations of Parties (a) No Injunction, etc. (b) Antitrust Matters 6.2. Conditions Precedent to Obligations of Buyer (a) Accuracy of Representations and Warranties (b) Performance of Obligations (c) Officer's Certificate (d) Absence of Certain Changes (e) Opinions (f) Escrow Agreement (g) Non-Competition Agreement (h) British Columbia Amendment (i) Review Financials (j) No Litigation (k) Funding (l) Lien Search (m) Consents, etc. (n) Carolina Franchise (o) Release of Liens (p) Actions and Proceedings (q) Closing Deliveries 6.3. Conditions Precedent to the Obligations of Sellers (a) Accuracy of Representations and Warranties (b) Performance of Obligations (c) Officer's Certificate (d) Actions and Proceedings (e) Opinions (f) Escrow Agreement (g) Non-Competition Agreement (h) British Columbia Amendment. (i) Closing Deliveries
5 (j) No Litigation (k) Carolina Franchise 7. Employees and Employee Benefits 7.1. Offer of Employment 8. Termination 8.1. Termination of Agreement 8.2. No Liabilities in Event of Termination 8.3. Return of Documents 9. Indemnification 9.1. Sellers Indemnity 9.2. Buyer and WWI Indemnity 9.3. Procedures for Indemnification 9.4. Additional Agreements 9.5. Limits on Indemnification 10. Miscellaneous 10.1. Public Announcements 10.2. Expenses 10.3. Transfer Taxes and Recording Expenses 10.4. Notices 10.5. Entire Agreement 10.6. Binding Effect 10.7. Bulk Sales Law 10.8. Assignability 10.9. No Third Party Beneficiaries 10.10. Amendment; Waiver 10.11. Confidentiality. 10.12. Schedules. 10.13. Section Headings; Table of Contents 10.14. Severability 10.15. Counterparts 10.16. APPLICABLE LAW; JURISDICTION; VENUE 10.17. Further Assurances 10.18. Other Franchise Agreements 10.19. Time of Essence
6 SCHEDULES Schedule 1(a) - Franchise Agreements Schedule 1(b) - Equipment Leases Schedule 1(c) - Leases Schedule 1(d) - Service Agreements Schedule 2.1(b) - Transferred Contracts, Agreements and Purchase Commitments Schedule 2.1(c) - Transferred Leases Schedule 2.2 - Excluded Tangible Personal Property Schedule 2.5(a) - Assumed Contracts, Agreements, Leases and Commitments Schedule 2.5(b) - Assumed licenses, permits and franchises Schedule 3.2 - Purchase Price Allocation Schedule 3.4(b) - Allocation of Seller's Ownership of Escrow Fund Schedule 4.1 - Employees with Knowledge Schedule 4.1(c) - Consents, Approvals, etc. Schedule 4.1(d) - Financial Information Schedule 4.1(f)(i) - Contracts, Agreements, Commitments, etc. Schedule 4.1(f)(ii) - Leases Schedule 4.1(f)(iii) - Licenses, Permits and Franchises Schedule 4.1(f)(iv) - Intellectual Property Schedule 4.1(g) - Paid Attendance and Enrollments Schedule 4.1(h) - Legal Actions Schedule 4.1(i) - Insurance Schedule 4.1(j) - Closings, Layoffs, Early Retirement, etc. Schedule 4.1(k) - Defects in Patents, Trademarks and Similar Rights Schedule 4.1(l) - Government Licenses, Permits and Related Approvals Schedule 4.1(n) - Employee Benefit Programs Schedule 4.1(p) - Absence of Certain Changes or Events Schedule 4.1(q) - Recipients of Offering Memorandum Schedule 4.1(r) - Environmental Matters Schedule 4.1(t) - Tax Matters Schedule 4.1(u) - Subsidiaries of Sellers Schedule 4.1(x) - Affiliate Transactions Schedule 4.1(y) - Compensation of Management Employees Schedule 5.2(d) - Modified Subscription Fees, Activity Fees or Rebates Schedule 5.2(e) - Permitted Contracts Schedule 5.2(g) - Permitted Increase in Compensation or Benefits Schedule 6.2(d) - Absence of Certain Changes
7 EXHIBITS Exhibit A - Form of Escrow Agreement Exhibit B - Form of Assumption Agreement Exhibit C - Form of Tax Affidavit Exhibit D - Form of Opinion of Law Offices of Alan H. Finegold Exhibit E - Form of Opinion of New York Counsel to the Sellers Exhibit F - Form of Non-Competition Agreement Exhibit G - Form of Opinion of Robert W. Hollweg, Esq. Exhibit H - Form of Opinion of Simpson Thacher & Bartlett Exhibit I - Form of Opinion of Hunton & Williams Exhibit J - Form of British Columbia Amendment ASSET PURCHASE AGREEMENT, dated as of December 11, 2000, among WEIGHCO ENTERPRISES, INC., a Delaware corporation ("WEI"), WEIGHCO OF NORTHWEST, INC., a Delaware corporation ("WNI"), WEIGHCO OF SOUTHWEST, INC., a Delaware corporation ("WSI", and together with WEI and WNI, each individually a "Seller" and collectively, the "Sellers"), WEIGHT WATCHERS NORTH AMERICA, INC., a Delaware corporation ("Buyer"), and Weight Watchers INTERNATIONAL, iNC., a Virginia corporation ("WWI"). WITNESSETH WHEREAS, Sellers are each franchisees of WWI, authorized exclusively to conduct Weight Watchers classes for weight reduction and control ("Classes"), in franchise areas numbers 30, 37, 47, 55, 58, 62, 66, 78, 86, 105, 110, 121 and 123 (the territories specified therein are collectively referred to herein as the "Territories"), granted pursuant to the several Franchise Agreements between WWI and each of the respective Sellers, listed on Schedule 1(a) hereto (collectively, the "Franchise Agreements"); and Sellers own and operate the business of conducting Classes in the Territories (the "Franchises"); WHEREAS, Buyer is a wholly-owned subsidiary of WWI; WHEREAS, upon and subject to the terms and conditions set forth herein, Buyer desires to buy and Sellers desire to sell the Franchises and other businesses, operations and substantially all of the assets in connection therewith, except, however, for the Excluded Assets, and Buyer is willing to assume certain specified related liabilities and obligations of Sellers, all as hereinafter set forth; and WHEREAS, concurrently with the closing of the transactions contemplated pursuant to this Agreement (the "Closing"), Sellers, Buyer and The Chase Manhattan Bank, N.A., as escrow agent (the "Escrow Agent"), shall enter into an escrow agreement (the "Escrow Agreement"), substantially in the form attached hereto as Exhibit A. NOW, THEREFORE, in consideration of the premises and of the mutual covenants of the parties hereto, it is hereby agreed as follows: 1. Definitions The following terms shall have the following respective meanings: "Acquired Person" has the meaning ascribed thereto in Section 5.13(a). "Acquisition Proposal" means any offer, proposal or indication of interest for the acquisition of (including by merger or other business combination) (i) any of the capital stock or other securities of any of the Sellers or (ii) any of the assets (including the Assets) of the Sellers (other than a sale of inventory in the ordinary course of business consistent with past practice), in each case, other than in a transaction contemplated by this Agreement. 8 "Actions" has the meaning ascribed thereto in Section 4.1(h). "Affiliate" means a Person, which directly or indirectly, alone or through one or more intermediaries, controls, or is controlled by, or is under common control with a specified Person. "Agreement" means this Agreement among Sellers, Buyer and WWI as originally executed and delivered, as the same may be amended or supplemented in accordance with the provisions hereof. "Antitrust Division" means the Antitrust Division of the United States Department of Justice. "Antitrust Improvements Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Assets" has the meaning ascribed thereto in Section 2.1. "Assumed Liabilities" has the meaning ascribed thereto in Section 2.5. "Assumption Agreement" has the meaning ascribed thereto in Section 2.5. "Basket Amount" has the meaning ascribed thereto in Section 9.5. "Benefit Arrangement" has the meaning ascribed thereto in Section 4.1(n). "British Columbia Amendment" means the Amendment, dated the Closing Date, to the Restated Franchise Agreement, dated April 24, 1992, between WWI and the British Columbia Company, as amended and modified, in substantially the form set forth in Exhibit J hereto. "British Columbia Company" means Weight Watchers of British Columbia, Ltd., a British Columbia corporation. "Business" means the business of Sellers, including, without limitation, the business of conducting Classes in the Territories and the sale of products and publications, but excluding the business related to the British Columbia Company. "Buyer" has the meaning ascribed thereto in the recitals to this Agreement. "Buyer Escrow Release Amount" has the meaning ascribed thereto in Section 3.3. "Carolina Acquisition Agreement" means the Third Amendment, dated the date hereof, to the Management and Option Agreement, dated January 8, 1992, between WEI and W.W. of North Carolina, Inc., as amended by the First Amendment and the Second Amendment thereto. "Carolina Franchise" means the Franchise granted by the Carolina Franchise Agreement. "Carolina Franchise Agreement" means that certain Restated Franchise Agreement, dated December 30, 1991, as the same may have been amended or supplemented from time to time, between WWI and Weight Watchers of North Carolina, Inc. and Catherine H. Aldridge. "Cash" means all cash in currency and all cash on deposit and immediately available for withdrawal. "Cash Equivalents" means certificates of deposit, money market funds, Treasury bills and similar instruments, including, without limitation, repurchase agreements secured thereby. "Classes" has the meaning ascribed thereto in the recitals to this Agreement. "Closing" has the meaning ascribed thereto in the recitals to this Agreement. "Closing Date" has the meaning ascribed thereto in Section 3.1. "COBRA" has the meaning ascribed thereto in Section 4.1(n). "Code" means the Internal Revenue Code of 1986, as amended and as in effect from time to time, and any law which shall have been a predecessor or shall be a successor thereto. "Conclusive Statement" has the meaning ascribed thereto in Section 3.5(c). "Confidential Information" has the meaning ascribed thereto in Section 10.11. 9 "Customer Contracts" means all agreements (including Prepaid Coupons) with customers of Sellers for attendance at Classes in the Territories in effect on the Closing Date, including, without limitation, agreements under the At-Work program. "Employee Benefit Programs" has the meaning ascribed thereto in Section 4.1(n). "Environmental Laws" has the meaning ascribed thereto in Section 4.1(r). "Equipment" means the equipment, furniture, furnishings, fixtures, machinery, vehicles, telephones and other tangible personal property of Sellers, including, without limitation, the furniture, fixtures and equipment used for the conduct of the Classes in the Territories, Weight Watchers signs and all keys which Sellers may have to locked doors within the premises subject to the Leases. "ERISA" has the meaning ascribed thereto in Section 4.1(n). "Escrow Agent" has the meaning ascribed thereto in the recitals to this Agreement. "Escrow Agreement" has the meaning ascribed thereto in the recitals to this Agreement. "Escrow Fund" has the meaning ascribed thereto in Section 3.2. "Excluded Assets" has the meaning ascribed thereto in Section 2.2. "Financial Information" has the meaning ascribed thereto in Section 4.1(d) "Franchises" has the meaning ascribed thereto in the recitals to this Agreement. "Franchise Agreements" has the meaning ascribed thereto in the recitals to this Agreement. "Franchise Fees" has the meaning ascribed thereto in Section 5.9. "FTC" means the Federal Trade Commission. "Funded Debt" means any indebtedness of the Sellers, whether or not contingent, in respect of (i) obligations with regard to borrowed money (including reimbursement obligations) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) whether or not secured by any of the Assets, or bankers' acceptances, (ii) obligations evidenced by bonds, debentures, notes or similar instruments, (iii) obligations to pay the deferred purchase price of assets or other property (other than accounts payable which are incurred in the ordinary course of business consistent with past practice), other than Leases which are equipment leases and are set forth on Schedule 1(b), (iv) obligations under leases which are required to be classified and accounted for as capital leases on financial statements prepared in accordance with GAAP, other than Leases which are equipment leases and are set forth on Schedule 1(b) and (v) the guarantee by any Seller of any indebtedness of any other Person. "GAAP" means generally accepted United States accounting principles as of the date hereof applied on a consistent basis during the periods involved. "Group Health Plan" has the meaning ascribed thereto in Section 4.1(n). "Intellectual Property" has the meaning ascribed thereto in Section 2.1(o). "Indemnitee" has the meaning ascribed thereto in Section 9.3(a). "Indemnitor" has the meaning ascribed thereto in Section 9.3(a). "Leases" means the real estate leases, equipment leases and rental agreements listed on Schedule 1(c), including, without limitation, all license and other agreements providing for the periodic occupancy of space for the conduct of the Classes in the Territories. "Letter of Intent" has the meaning ascribed thereto in Section 10.5. "Liens" means any lien, mortgage, option, pledge, security interest, assignment by way of security, claim, charge, encumbrance or other restriction of any kind or nature. "Losses" has the meaning ascribed thereto in Section 9.1. 10 "Manager" has the meaning ascribed thereto in Section 5.10. "Management Employees" has the meaning ascribed thereto in Section 4.1(y). "Material Adverse Effect" means any material adverse effect on the condition (financial or other), results of operations, assets, properties, business or prospects of Sellers or an adverse effect on Sellers' ability to perform their obligations hereunder or under any other agreement contemplated hereby. "Montford Center Litigation" means the action brought in Mecklenburg County, North Carolina under the name Weighco Enterprises Inc. f/k/a Weighco of Florida, Incorporated v. Catherine H. Aldridge, et al. and currently on appeal to the North Carolina Court of Appeals. "Neutral Auditor" has the meaning ascribed thereto in Section 3.5(c). "Notice of Claim" has the meaning ascribed thereto in Section 9.3(b). "Offering Memorandum" means the undated Confidential Offering Memorandum prepared by Houlihan, Lokey, Zukin & Howard with respect to Sellers and the Business. "Other Real Property" has the meaning ascribed thereto in Section 4.1(r). "Permitted Liens" has the meaning ascribed thereto in Section 4.1(e). "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or other entity or organization. "Plans" has the meaning ascribed thereto in Section 4.1(n). "Prepaid Coupons" means any prepaid coupon or other arrangement with customers, including, without limitation, customers under the At-Work program, whereby the customer has paid to or for the benefit of any Seller in advance for Classes or other services not yet provided to or received by such customer prior to the opening of business on the Closing Date or for goods not yet provided to or received by such customer prior to the opening of business on the Closing Date. "Prepaid Coupon Payment Date" has the meaning ascribed thereto in Section 3.6(b). "Prepaid Coupon Statement" has the meaning ascribed thereto in Section 3.6(a). "Prepaid Coupon Liability" has the meaning ascribed thereto in Section 3.6(a). "Proceeding" has the meaning ascribed thereto in Section 10.16. "Protected Business" has the meaning ascribed thereto in Section 5.13(a). "Purchase Price" has the meaning ascribed thereto in Section 3.2. "Receivables" has the meaning ascribed thereto in Section 4.1(g). "Representatives" means any stockholder, director, officer, employee, advisor, attorney, accountant or other representative or agent of a Person. "Resolution Period" has the meaning ascribed thereto in Section 3.5(b). "Review Financials" has the meaning ascribed thereto in Section 5.8. "Schedules" means the schedules furnished by Sellers to Buyer in the form attached to this Agreement. "Section 3.5 Assumed Assets" has the meaning ascribed thereto in Section 3.5(a). "Section 3.5 Assumed Liabilities" has the meaning ascribed thereto in Section 3.5(a). "Section 4.1 Employees" has the meaning ascribed thereto in Section 4.1. "Section 6 Liens" has the meaning ascribed thereto in Section 6(l). "Sellers" has the meaning ascribed thereto in the recitals to this Agreement. "Service Agreements" means those certain service contracts, maintenance contracts and other agreements 11 listed in Schedule 1(d). "Statement" has the meaning ascribed thereto in Section 3.5(a). "Supplies" means all inventory, including, without limitation, cookbooks and other books, calendars, food diaries, food companions, food scales, measuring devices, calculators, vitamins, weight systems, tapes, binders and other materials and all products held for sale to customers, supplies of attendance books and other program materials used in the conduct of the Classes in the Territories, including, without limitation, stationery, forms, labels, directories and promotional materials and supplies of office materials used for the Business on the Closing Date. "Taxes" has the meaning ascribed thereto in Section 4.1(t). "Tax Return" has the meaning ascribed thereto in Section 4.1(t). "Territories" has the meaning ascribed thereto in the recitals to this Agreement. "Third Parties" has the meaning ascribed thereto in Section 5.7. "Third Party Claims" has the meaning ascribed thereto in Section 9.3(c). "WEI" has the meaning ascribed thereto in the recitals to this Agreement. "WNI" has the meaning ascribed thereto in the recitals to this Agreement. "WSI" has the meaning ascribed thereto in the recitals to this Agreement. "WWI" has the meaning ascribed thereto in the recitals to this Agreement. 2. Purchase and Sale of Assets; Assumption of Certain Liabilities 1. Transfer of Assets On the basis of the representations, warranties, covenants and agreements and subject to the satisfaction (or waiver by the party whose obligations hereunder are subject to such satisfaction) of the conditions set forth in this Agreement, on the Closing Date, Sellers shall sell, convey, assign, transfer and deliver to Buyer free and clear of all Liens (other than liens of landlords or lessors under the Leases), and Buyer shall purchase and acquire from Sellers free and clear of all Liens (other than liens of landlords or lessors under the Leases), all of the businesses and substantially all of the assets, rights, properties, claims and contracts of Sellers (other than the Excluded Assets) at the Closing Date of every kind, nature, character and description, tangible and intangible, real, personal or mixed, wherever located, including, without limitation, the following: a. The Franchises; b. All the contracts and agreements (including, without limitation, the Franchise Agreements, all agreements by customers of Sellers for attendance at the Classes in the Territories in effect on the Closing Date, including but not limited to the Customer Contracts, Service Agreements, maintenance agreements, operating agreements, customer subscription agreements, non-competition agreements, the indemnification and non-competition provisions under all acquisition agreements, marketing agreements and agreements relating to servicing, distribution, solicitation, hardware and/or software, advertising, promotional, lease and other agreements) and purchase commitments listed on Schedule 2.1(b); c. All of the Leases listed on Schedule 2.1(c), including, without limitation, (i) the leasehold interests in real property, all buildings, structures and other improvements situated thereon, (ii) equipment leases and (iii) other rental agreements entered into, or assumed, by Sellers; subject, however, to the provisions of Section 5.15; d. All accounts receivable and other receivables of Sellers in existence on or prior to the opening of business on the Closing Date (whether or not billed); e. All deposits and prepaid expenses as of the opening of business on the Closing Date (other than with respect to policies of insurance); 12 f. All Equipment, and all warranties and guarantees, if any, express or implied, existing for the benefit of Sellers with respect to the Equipment; g. All the Supplies; h. All mailing lists relating to the Business; i. All management information systems and software, and customer, subscriber and vendor lists, catalogs, research material, technical information, technology, specifications, designs, drawings, processes, and quality control data and all rights respecting software packages and systems; j. All sales promotion and selling literature and promotional and advertising materials, customer lists and customer information maintained by Sellers with respect to customers within the Territories; k. All books, records and files of Sellers relating to the operation of the Business; l. All licenses, permits or franchises issued by any domestic or foreign governmental authority or other third party, including, without limitation, all occupancy permits, licenses and other permits that Sellers may have with respect to its properties, and the premises subject to the Leases, their use, maintenance and occupancy; m. All security deposited with third parties and security bonds and all claims against other parties (other than claims relating to the Montford Center Litigation); n. All goodwill and going concern value; o. All Sellers' right, title and interest in and to the following types of property (including all rights to sue for past infringement thereof) (collectively, the "Intellectual Property") relating to the Business: i. all United States and foreign registered and unregistered trademarks and service marks, trademark and service mark registrations, trademark and service mark applications for registration, trade names and the like (including corporate names), together with the goodwill connected with the use of and symbolized by such marks, names, registrations and applications for registration; ii. all United States and foreign patents, patent applications, and all other patent rights, copyrights, copyright registrations and copyright applications; iii. all information, recorded knowledge, surveys, engineering reports, manuals, catalogues, research data, proprietary information, know-how, trade and business secrets, photos, art work, editorial materials, formats, syndicated market research data, sales data and other similar information and all other intellectual property; iv. all non-governmental licenses, sublicenses, covenants or agreements to which Sellers are a party, which relate in whole or in part to any items of the categories mentioned above in clauses (i) - (iii), including all trademark licenses; and v. all other proprietary rights, trade secrets, ideas or know-how; (p) All plans, owner's and operator's manuals, user's instruction and warranties of manufacturers and contractors which Sellers may have with respect to items used in the Business and the premises and equipment subject to the Leases, their use, maintenance and operation. The assets being sold, conveyed, assigned, transferred and delivered to Buyer by Sellers hereunder are sometimes hereinafter referred to as the "Assets." 2. Excluded Assets It is expressly understood and agreed that the Assets shall not include the following (collectively, the "Excluded Assets"): a. Cash and Cash Equivalents owned or held by Sellers as of the close of business on the business day immediately preceding the Closing Date; b. The life insurance policies on Catherine H. Aldridge, Lola A. Bode, Stanley L. Lipman and Richard J. McSorley and any other employees or former employees of Sellers and all other policies of insurance insuring Sellers; c. The proceeds to be received by Sellers upon consummation of the transactions contemplated hereby; d. Any federal, state or municipal tax refunds or overpayments; e. Any rights under the Montford Center Litigation; 13 f. The items of tangible personal property listed in Schedule 2.2; g. The corporate names "Weighco Enterprises, Inc.," "Weighco of Northwest, Inc." and "Weighco of Southwest, Inc." and any goodwill associated with such names; h. The capital stock, including treasury shares, of Sellers; provided, however, that the Assets shall include all of the assets and property of Sellers except as otherwise specified in this Section 2.2; i. The books, records and files of Sellers not related to the conduct of the Business, including without limitation, income tax and other tax records; j. The corporate minute books and stock transfer books of the Sellers; and k. Any agreement, contract, arrangement or transaction to which any Affiliate of any Seller is a party. 3. Instruments of Conveyance and Transfer On the Closing Date, Sellers shall (a) deliver or cause to be delivered to Buyer such deeds, bills of sale, endorsements, consents, assignments and other good and sufficient instruments of conveyance and assignment all in recordable form, where applicable, as shall be effective to vest in Buyer all right, title and interest of Sellers in and to the Assets; subject, however, to the provisions of Section 5.15 and (b) transfer to Buyer originals of all contracts, agreements, commitments, books, records, files, certificates, licenses, permits, plans and specifications and other data of Sellers, including, without limitation, computer tapes and computer-generated records constituting part of the Assets. All materials referred to in clause (b) shall be delivered to Buyer in the form and order in which Sellers maintained such materials. 4. Further Assurances From time to time after the Closing Date, Sellers shall promptly execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such other instruments of conveyance, assignment, transfer and delivery and will take or cause to be taken such other actions as Buyer may reasonably request in order to more effectively sell, convey, assign, transfer and deliver to Buyer any of the Assets or to enable Buyer to protect, exercise and enjoy all rights and benefits of Sellers with respect thereto and as otherwise may be appropriate to carry out the transactions herein contemplated. From time to time, at Sellers' request and without further consideration, Buyer will execute and deliver or cause to be executed and delivered such other instruments and take such other actions as Sellers or their counsel may reasonably request to more effectively assume, pay, perform and discharge the Assumed Liabilities or to carry out the transactions herein contemplated. 5. Assumed Liabilities On the basis of the representations, warranties, covenants and agreements and subject to the satisfaction (or waiver by the party whose obligations hereunder are subject to such satisfaction) of the conditions set forth in this Agreement, on the Closing Date, Buyer shall deliver to Sellers an undertaking in the form attached as Exhibit B (the "Assumption Agreement") pursuant to which Buyer shall, subject to the provisions of Section 5.15, on and as of the Closing Date, assume and agree to pay, perform and discharge when due, the following liabilities and obligations of Sellers (without duplication): (a) Sellers' obligations under the contracts, agreements, leases and commitments listed in Schedule 2.5(a), which are assigned by Sellers to Buyer and as to which Buyer succeeds to the rights of Sellers, but, only to the extent of liabilities and obligations that arise thereunder after the opening of business on the Closing Date; (b) Sellers' obligations under the licenses, permits and Franchises listed in Schedule 2.5(b), but only to the extent of liabilities and obligations that arise thereunder after the opening of business on the Closing Date; (c) liabilities and obligations of Sellers arising out of the operation of the Assets from and after the opening of business on the Closing Date (other than as a result of any breach by Sellers of their obligations hereunder); (d) the payment of rent and the performance of other obligations pertaining to the operations of the Franchises from and after the opening of business on the Closing Date, (e) obligations incurred after the opening of business on the Closing Date for the Service Agreements, (f) obligations incurred after the opening of business on the Closing Date for the employees hired by Buyer; provided that Buyers shall not be responsible for any "stay" or "retention" bonuses agreed to be awarded by any Seller or any of their respective Affiliates to any employee of Sellers and (g) Customer Contracts. Notwithstanding the foregoing, Buyer is not assuming, nor shall it be deemed to have assumed, any obligations or liabilities of Sellers to any of the Sellers' respective stockholders or Affiliates or to any of their employees for any pre-Closing period or for personal services for any pre-Closing period, for Funded Debt, for federal, state or municipal income or other taxes or (iv) related to any previous acquisitions or similar transactions (except, however, for rent and other post-Closing obligations under Leases and post-Closing obligations under Service Agreements that were assumed by Sellers in such 14 acquisitions or similar transactions), (v) any liability or obligation of any kind or nature, except as expressly provided in the Assumption Agreement or this Agreement or (vi) any liability or obligation relating to the Excluded Assets. The liabilities and obligations assumed by Buyer in accordance with clauses (a) through (g) of this Section 2.5 are sometimes hereinafter referred to as the "Assumed Liabilities." 3. Closing; Payment of Purchase Price at Closing 1. Closing Date On and subject to the conditions herein set forth, the Closing shall take place at the offices of Simpson Thacher & Bartlett, located at 425 Lexington Avenue, New York, New York 10017, at 10 a.m., New York City time, on the third business day following the satisfaction of waiver of all conditions set forth herein, or at such other time and place as shall be agreed upon by the parties hereto; provided that in no event shall the Closing occur prior to January 2, 2001. The day on which the Closing actually takes place is herein referred to as the "Closing Date." The Closing Date shall be deemed to have occurred as of 12:01 a.m. (New York time) on the Closing Date. 2. Purchase Price and Payment In consideration for the Assets, and subject to the terms and conditions of this Agreement, Buyer shall on the Closing Date (a) assume the Assumed Liabilities as provided in Section 2.5, (b) transfer to the order of WEI, on behalf of the Sellers, in immediately available funds the amount of $73,800,000 and (c) transfer to the Escrow Agent in immediately available funds the amount of $10,000,000 (the "Escrow Fund") to be held pursuant to the Escrow Agreement (such payments collectively the "Purchase Price"), and Sellers on the Closing Date will sell, assign and transfer the Assets to Buyer in accordance with the provisions of this Agreement. Buyer and Sellers agree to allocate the Purchase Price among the Assets in accordance with the rules under Section 1060 of the Code and the Treasury Regulations promulgated thereunder and in the manner set forth in Schedule 3.2. Buyer and Sellers agree to act in accordance with such allocations in all Tax Returns, reports or filings, including IRS Form 8594. Unless otherwise required by applicable law, neither Buyer nor Sellers shall, after filing IRS Form 8594, revoke or amend IRS Form 8594 without the prior written consent of the other. 3. Payment of Balance of Closing Payment. In accordance with and subject to the terms of the Escrow Agreement, (a) nine months following the Closing Date, the Escrow Agent will release to (i) Buyer funds from the Escrow Fund equaling the amounts owed but not yet paid to Buyer (x) pursuant to Sections 3.5 and 3.6 of this Agreement or (y) as a result of any indemnification obligation pursuant to Section 9 of this Agreement (collectively, the "Buyer Escrow Release Amount") and (ii) WEI, on behalf of the Sellers, an amount equal to $5,000,000 minus the Buyer Escrow Release Amount and (b) eighteen months following the Closing Date, the Escrow Agent will release to (i) Buyer funds equaling the amounts owed but not yet paid to Buyer (x) pursuant to Sections 3.5 and 3.6 of this Agreement or (y) as a result of any indemnification obligation pursuant to Section 9 of this Agreement and (ii) WEI, on behalf of the Sellers, all amounts remaining in the Escrow Fund after payment of funds to Buyer pursuant to Section 3.3(b)(i). 4. Ownership and Investment of the Escrow Fund; Fees and Expenses of Escrow Agent The Escrow Agent shall retain the Escrow Fund subject to the terms and conditions hereof and of the Escrow Agreement, and shall be empowered and directed, upon receipt of written instructions signed by WEI, on behalf of the Sellers, to invest said sum in such investments as WEI, on behalf of Sellers, shall direct, provided that such investments shall be limited to those described in Schedule I of the Escrow Agreement. The Escrow Agent shall further be authorized to sell or redeem any or all of such investments and to reinvest the proceeds of such sales or redemptions in accordance with the provisions of the Escrow Agreement. The Escrow Agent shall further be authorized to sell or redeem any or all of such investments without further instructions as may be necessary from time to time to pay in cash any amount to be paid pursuant to the provisions hereof of or the Escrow Agreement. All amounts and investments (other than bearer instruments) comprising the Escrow Fund shall be registered and held in the name of the Escrow Agent, as escrow agent for Buyer and Sellers. It is understood that Sellers are the owners of the Escrow Fund in the proportionate interests set forth in Schedule 3.4(b), including all interest and distributions thereon and investments thereof. The Escrow Fund shall be increased from time to time by any and all interest accrued and paid thereon (after payment of expenses incurred in connection with the investment, 15 reinvestment or sale thereof) pursuant to the Escrow Agreement. For purposes of all Tax laws, all items of asset, liability, income, gain, loss, expense, deduction, credit and other items of the Escrow Fund shall be allocated to Sellers in the proportionate interests set forth in Schedule 3.4(b). The Escrow Agent, after consultation with WEI, on behalf of the Sellers, and at the direction of WEI, on behalf of the Sellers, shall file with the appropriate taxing authority such Tax Returns or other materials and send to Sellers such materials, as may be required by any applicable taxing jurisdiction with respect to any funds held by it hereunder. Any expense in connection with such Tax Returns or other materials shall be borne by the Sellers. All fees and expenses of the Escrow Agent in connection with the administration of the Escrow Fund shall be borne by the Sellers. 5. Post Closing Adjustment. a. Within 120 calendar days after the Closing Date, Buyer shall prepare and deliver to Sellers (i) a statement (the "Statement") setting forth (x) the accounts receivable, deposits and prepaid expenses constituting part of the Assets (the "Section 3.5 Assumed Assets") and (y) the amount of the obligations and liabilities of Sellers assumed by Buyer as of the opening of business on the Closing Date, except, however, for obligations for rent and other charges under the Leases not accrued as of the opening of business on the Closing Date and obligations under the Service Agreements not accrued as of the opening of business on the Closing Date (collectively, the "Section 3.5 Assumed Liabilities") and (ii) the workpapers of Buyer used in the preparation of the Statement. The Statement shall be prepared in accordance with GAAP. b. After receipt of the Statement, Sellers will have thirty (30) calendar days to review the Statement together with the workpapers used in its preparation. Buyer shall provide Sellers with access to the relevant books and records and employees of Buyer to the extent required to review the Statement. Unless Sellers deliver written notice to the Buyer setting forth the specific items disputed by Sellers, on or prior to the thirtieth calendar day after their receipt of the Statement, Sellers will be deemed to have accepted and agreed to the Statement and such agreement will be final and binding. Any such notice of disagreement shall specify the basis of such objection, including identifying any alleged miscalculation or alleged uncounted or improperly included items, and Sellers shall be deemed to have agreed with all other items and amounts contained in the Statement. If Sellers so notify Buyer of its objections to the Statement, Buyer and the Sellers will, within thirty (30) calendar days following delivery of the notice of disagreement (the "Resolution Period"), use their reasonable best efforts to reach agreement on the disputed items. Any resolution by Buyer and Sellers during the Resolution Period as to any disputed amounts will be final, binding and conclusive. c. If Buyer and Sellers do not resolve all disputed items by the end of the Resolution Period or any mutually agreed extension thereof, then all items remaining in dispute will be submitted within thirty (30) calendar days after the expiration of the Resolution Period to Ernst & Young LLP, or such other independent accounting firm mutually acceptable to Buyer and Sellers (the "Neutral Auditor"). The Neutral Auditor shall act as an arbitrator to determine only those items remaining in dispute. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor will be borne equally by Buyer, on the one hand, and Sellers, on the other hand. The Neutral Auditor will deliver to Buyer and Sellers a written determination (such determination to include a work sheet setting forth all material calculations used in arriving at such determination and to be based solely on information provided to the Neutral Auditor by the Sellers and Buyer) of the disputed items within thirty 30 calendar days of receipt of the disputed items, which determination, in the absence of manifest error, will be final, binding and conclusive. The final, binding and conclusive Statement, which is agreed upon by Buyer and Sellers or is delivered by the Neutral Auditor in accordance with this Section 3.5(c), will be the "Conclusive Statement." In the event that either 16 Buyer or Sellers fail to submit their respective statement regarding any items remaining in dispute within the time determined by the Neutral Auditor, then the Neutral Auditor shall render a decision based solely on the evidence timely submitted to the Neutral Auditor by Buyer and Sellers. d. If the amount of Section 3.5 Assumed Liabilities exceeds the amount of Section 3.5 Assumed Assets as shown on the Conclusive Statement, then the Sellers shall pay Buyer, as an adjustment to the Purchase Price, an amount equal to the difference between the amount of Section 3.5 Assumed Liabilities and the amount of Section 3.5 Assumed Assets. If the amount of Section 3.5 Assumed Assets exceeds the amount of Section 3.5 Assumed Liabilities, then Buyer shall pay WEI, on behalf of the Sellers, as an adjustment to the Purchase Price, an amount equal to the difference between the amount of Section 3.5 Assumed Assets and the amount of Section 3.5 Assumed Liabilities. If the amount of Section 3.5 Assumed Liabilities equals the amount of Section 3.5 Assumed Assets, no payment shall be required and no adjustment shall be made to the Purchase Price. All payments to be made pursuant to this Section 3.5(d) will be made on the tenth business day following the date on which the Conclusive Statement is determined by wire transfer (to an account previously designated in writing by the receiving party) of immediately available funds. Any payment required to be made pursuant to this Section 3.5(d), if made following the date which shall be 120 calendar days after the Closing Date, shall bear interest accrued from the date 120 days after the Closing Date through the date of payment at a rate of interest equal to 13% per annum and the amount of interest shall be added to the amount to be paid pursuant to this Section 3.5(d). 6. Prepaid Coupon Adjustment. Sellers are responsible for all Prepaid Coupons issued or sold prior to the Closing Date and redeemed after the commencement of business on the Closing Date. As soon as reasonably practicable after the end of each month after the Closing Date, Buyer shall prepare and deliver to Sellers a statement (the "Prepaid Coupon Statement") setting forth a summary of the amount payable hereunder with respect to such Prepaid Coupons (the "Prepaid Coupon Liabilities"), together with the Prepaid Coupons redeemed during such month. After receipt of the Prepaid Coupon Statement, Sellers shall pay to Buyer, as an adjustment to the Purchase Price, no later than the tenth business day following the date on which the Prepaid Coupon Statement is delivered (the "Prepaid Coupon Payment Date") an amount equal to the Prepaid Coupon Liabilities by wire transfer (to an account previously designated in writing by the Buyer) of immediately available funds. Any payment required to be made pursuant to this Section 3.6 and not so paid shall bear interest from the tenth business day after the Prepaid Coupon Payment Date through the date of payment at a rate of interest equal to 13% per annum, and the amount of interest shall be added to the amount to be paid pursuant to this Section 3.6. The amount of the Prepaid Coupon Liabilities shall be the excess of the amount received by Sellers from the sale of the Prepaid Coupons redeemed after the commencement of business on the Closing Date, less any and all royalties paid or payable by Sellers to WWI with respect to the sale of such Prepaid Coupons. 7. Guaranty; Consent WWI does hereby guarantee the performance of each of the obligations (financial or otherwise) of the Buyer under this Agreement, including, without limitation, the obligations of Buyer under Section 3.2 hereof. WWI, by its execution and delivery of this Agreement, does hereby consent to, and approve, the assignment of the Franchises, including without limitation, the Carolina Franchise, by Sellers hereunder in accordance with the provisions of the Franchise Agreements and waives the compliance by Sellers and Buyer with any and all requirements under the Franchise Agreements with respect to such assignments, except as otherwise specifically provided in this Agreement. 4. Representations and Warranties 1. Representations and Warranties of Sellers. Sellers jointly and severally represent and warrant to Buyer as follows (provided that, with respect to Sellers, if any representation or warranty is made hereunder to the "best 17 knowledge" of Sellers or any similar phrase, such knowledge shall be limited to information obtained by an examination of Sellers' managerial employees specified on Schedule 4.1 (the "Section 4.1 Employees") and records and any public record pertinent to the relevant representation or warranty): a. Due Organization; Power; Capacity; Good Standing Each of the Sellers is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as now conducted by it. Each of the Sellers has all requisite corporate and other power and authority to enter into this Agreement and any other agreement contemplated hereby and to perform its obligations hereunder and thereunder. Each Seller is duly authorized, qualified or licensed to do business as a foreign corporation, and is in good standing, in each of the jurisdictions in which its right, title or interest in or to any of the assets held by it, or the conduct of its business, requires such authorization, qualification or licensing, except where the failure to so qualify or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect. b. Authorization and Validity Each Seller has all requisite power and authority to execute, deliver and perform their respective obligations under this Agreement and any other agreement contemplated hereby and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by each Seller of this Agreement and any other agreement contemplated hereby and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by the stockholders and by the Board of Directors of each Seller. No other corporate or stockholder action is necessary for the authorization, execution, delivery and performance by any Seller of this Agreement and any other agreements contemplated hereby and the consummation by Sellers of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by each of the Sellers and constitutes a valid and legally binding obligation of each of the Sellers, enforceable against them in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing. c. No Governmental Approvals or Notices Required; No Conflict Except as set forth in Schedule 4.1(c), the execution, delivery and performance of this Agreement and any other agreements contemplated hereby by each Seller and the consummation by each Seller of the transactions contemplated hereby and thereby will (i) not conflict with or violate (with or without the giving of notice or the lapse of time or both), or require any consent, registration, declaration, approval, filing or notice under, any provision of any law, statute, ordinance, rule or regulation, court or administrative order, writ, judgment or decree of any court or any public governmental or regulatory body, agency or authority having jurisdiction over any of the Sellers or any of their assets (including the Assets) or properties, except for such conflicts or violations the occurrence of which, and such consents, approvals, filings or notices the failure of which to obtain or make, would not, individually or in the aggregate, have a Material Adverse Effect, and (ii) not (with or without the giving of notice or the lapse of time or both) (x) violate or conflict with, or result in the breach, suspension or termination of any provision of, or constitute a default under, or require any consent, approval or notice under, or result in the acceleration of the performance of the obligations of Sellers under, or give rise to any right of termination, purchase, amendment or any other right under, increase the liability of any party under or (y) result in the creation of any Lien upon all or any portion of the properties, assets (including the Assets) or business of Sellers pursuant to, the charter or by-laws or any provision of the organizational documents of any Seller, or any indenture, mortgage, deed of trust, lease, agreement, contract or instrument to which any Seller is a party or by which any of the Sellers or any of their properties, assets (including the Assets) or business is bound, except for such violations, conflicts, breaches, suspensions, terminations, defaults, accelerations or Liens which, individually or in the aggregate, would not have a Material Adverse Effect. 18 d. Financial Information; Liabilities The consolidated balance sheets of Sellers as at December 26, 1998 and December 25, 1999 and for the period from December 26, 1999 to September 30, 2000 and the related consolidated statements of income and retained earnings and consolidated statements of cash flows for the fiscal years and nine month period ended on such dates, copies of which are attached hereto in Schedule 4.1(d), are complete and correct and present fairly the consolidated financial condition of Sellers as at such dates, and the consolidated results of their operations for the fiscal years and nine month period then ended. Except as set forth in Schedule 4.1(d), all such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP. Except as set forth in Schedule 4.1(d), none of the Sellers had, at the date of the most recent balance sheet referred to above, any material contingent obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment not reflected therein or in a footnote thereto that would have been required to be reflected in or reserved against on a balance sheet (or the notes thereto) for the Sellers prepared in accordance with GAAP. All such financial statements, including the related schedules and notes thereto, are sometimes hereinafter referred to as the "Financial Information." i. Except to the extent set forth in the financial statements for the nine month period ending September 30, 2000 included in the Financial Information or set forth in Schedule 4.1(d) or incurred since September 30, 2000 in the ordinary course of Sellers' business consistent with past practice, none of the Sellers have any material liabilities or material obligations (absolute, accrued, contingent or otherwise), whether due or to become due. e. Title and Condition of Properties; Absence of Liens Except for Uniform Commercial Code security interests held by PNC Bank, National Association and WWGWS, Inc. which shall be released upon the Closing and liens of landlords or lessors under the Leases, Sellers have, and Buyer on the Closing Date will receive, good and marketable title to all the Assets, free and clear of all Liens, except for such imperfections of title, easements, pledges, charges and encumbrances, if any, as do not in the aggregate materially detract from the value or materially interfere with the present use of the Assets or otherwise materially impair or interfere with Sellers' business ("Permitted Liens"). Sellers do not, directly or indirectly, own any real property, other than leasehold rights and leasehold improvements under certain of the Leases. i. Sellers have no knowledge of any material defect in the normal operating condition and repair of the Equipment. The Supplies are good and merchantable in all material respects, except for ordinary wear and tear. ii. The Assets constitute all of the assets used in the Business as currently conducted and as conducted since January 1, 1998, except with respect to assets relating to Franchises acquired by any of the Sellers after such date and with respect thereto, since the date of the acquisition of such assets. f. List of Properties, Contracts, Permits and Other Data The following Schedules set forth certain information with respect to the Assets and Sellers on the date of this Agreement: i. Schedule 4.1(f)(i) contains a complete and correct list of all oral and written contracts, agreements, commitments, licenses, sublicenses or other binding arrangements (including, without limitation, the Franchise Agreements, all agreements by customers of Sellers for attendance at the Classes in the Territories in effect on the Closing Date (including but not limited to the Customer Contracts), Service Agreements, maintenance, operating, customer subscription, non-competition, acquisition, marketing and servicing, distribution, solicitation, hardware and/or software, advertising, promotional, lease and other agreements) to which Sellers are a party or by which any of their respective assets or properties is bound; ii. Schedule 4.1(f)(ii) contains a complete and correct list of all (A) leases under which any of the Sellers is a lessee and all license and other agreements providing for the periodic occupancy of space for the conduct of Classes in the Territories and (B) all other leases under which any of the Sellers is a lessee. The applicable Seller holds a valid leasehold or subleasehold interest in each such lease subject to only (A) any and all underlying mortgages, deeds of trust, leases, grants of term or other estates in or interests affecting the landlord's or fee 19 owner's interest in the applicable portion of such property which are superior to the interests of such Seller as lessee, (B) any encumbrances of title to the leased real property other than those granted by, authorized by or attributable to acts or omissions of any Seller, (C) all applicable building and zoning ordinances and (D) liens securing taxes, assessments, governmental charges or levies, or the claims of contractors, material men, carriers, landlords, warehousemen, workmen, repairmen, customers, employees and similar persons which are not yet due and payable or are being contested in good faith. iii. Schedule 4.1(f)(iii) contains a complete and correct list of all licenses, permits and franchises issued by governmental authorities or other third parties; and iv. Schedule 4.1(f)(iv) contains a complete and correct list of all Intellectual Property owned or licensed by any Seller. True and complete copies of all documents (including all amendments thereto and waivers in respect thereof) referred to in the foregoing Schedules 4.1(f)(i), (ii), (iii) and (iv) have been delivered to Buyer. To the best knowledge of Sellers, all rights, licenses, permits, leases, registrations, applications, contracts, agreements, commitments and other arrangements referred to in such Schedules are in full force and effect and are valid and enforceable in accordance with their respective terms, except where the failure to be in full force and effect and valid and enforceable would not, either individually or in the aggregate, have a Material Adverse Effect. Except for the failure to obtain consent to, or approval of, the assignment or other transfer of certain of the Leases and Service Contracts assigned by third parties to Sellers, Sellers are not (and to the best knowledge of Sellers, each other party thereto is not) in breach or default in the performance of any obligation thereunder, and, to the best knowledge of Sellers, no event has occurred or has failed to occur whereby, with or without the giving of notice or the lapse of time or both, a default or breach will be deemed to have occurred thereunder or any of the other parties thereto have been or will be released therefrom or will be entitled to refuse to perform thereunder, except for such breaches, defaults and events which, individually or in the aggregate, would not have a Material Adverse Effect. None of the Sellers has delivered or received notice of termination of any right, license, permit, lease, registration, contract, agreement or other arrangement referred to in such Schedules. g. Receivables; Subscriber Information The accounts receivable and other receivables (collectively, "Receivables") of Sellers arose from bona fide transactions in the ordinary course of business and are, to the best knowledge of Sellers, current and fully collectible. No counterclaims or offsetting claims with respect to presently outstanding Receivables are pending or, to the best knowledge of Sellers, threatened. i. The number of paid attendance and enrollments of Weight Watchers Classes in each of the Territories for each fiscal month commencing on December 27, 1998 or, with respect to Franchises acquired by Sellers after such date, for each fiscal month commencing after the date of the acquisition of such Franchise by Sellers, whichever is later, through September 30, 2000 are listed on Schedule 4.1(g). h. Legal Proceedings Except for the Montford Center Litigation or as set forth on Schedule 4.1(h), there is no claim, cause of action, allegation, suit, litigation, proceeding, arbitration or investigation (collectively, "Actions") to which any Seller is a party pending or, to the best knowledge of Sellers, threatened against any of them or relating to the assets (including the Assets) or the business of Sellers or the transactions contemplated by this Agreement which would be likely, individually or in the aggregate, to result in a Material Adverse Effect or which seeks to prevent, restrain, enjoin, delay or interfere with the consummation of any of the transactions contemplated hereby. None of Sellers is in violation of any term of any judgment, writ, decree, injunction or order entered by any court or governmental authority and outstanding against any Seller or with respect to any of their respective assets (including the Assets) or properties which violation would be likely to have, individually or in the aggregate, a Material Adverse Effect. To the best knowledge of Sellers, there are no facts that could provide a basis for any successful prosecution of any such Action. There is no order, decree, injunction or judgment pending or in effect against any of the Sellers which would be likely to prevent, materially interfere with or materially delay the consummation of the transactions contemplated hereby or, individually or in the aggregate, would be likely to have a Material Adverse Effect. 20 i. Insurance Each Seller maintains insurance on its properties and assets (including the Assets) and with respect to its employees and representatives and business which, in the reasonable judgment of Sellers, is provided by financially sound and reputable insurers and which covers risks customarily insured by businesses similar to the business of Sellers. Schedule 4.1(i) is a list of Sellers' insurance maintained on their respective properties and assets (including the Assets). All such policies are in full force and effect, all premiums due thereon have been paid, and Sellers have complied with the provisions of all such policies. j. Labor (i) Each Seller is in compliance in all material respects with all applicable laws relating to employment practices, terms and conditions of employment and wages and hours; (ii) there are no controversies pending or, to the best knowledge of Sellers, threatened between any Seller and its employees, prospective employees, former employees or labor unions or other collective bargaining representatives representing their employees; (iii) no unfair labor practice complaints have been filed against any Seller, and no Seller has received any notice or communication reflecting an intention or a threat to file any such complaint; (iv) there is no labor strike, dispute, slow-down or stoppage pending or, to the best knowledge of Sellers, threatened against any Seller; (v) no representation petition is pending with the National Labor Relations Board (or any other labor relations board) in respect of any of Sellers' business; (vi) each Seller has paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due to such employees except for severance payments and bonuses which Sellers may pay to certain employees in anticipation of, or upon, the consummation of the transactions contemplated hereby; (vii) except as set forth in Schedule 4.1(j), none of the Sellers has closed any facility, effectuated any layoffs of employees or implemented any early retirement, separation or window program within the past three years, nor has any Seller planned or announced any such action or program for the future; (viii) no promises of benefit improvements under the Employee Benefit Programs have been made by any Seller or any Affiliate thereof to any current or former employee of any Seller; and (ix) each Seller is in compliance with its respective obligations pursuant to the Worker Adjustment and Retraining Notification Act of 1988, and all other notification and bargaining obligations arising under any collective bargaining agreement, statute or otherwise. k. Intellectual Property Except as set forth in Schedule 4.1(k), Sellers have, and will transfer to Buyer on the Closing Date, good and marketable title to all the Intellectual Property, free and clear of all Liens. No claims have been asserted within the past five years or are currently in dispute to the effect that the use of the Intellectual Property by Sellers infringes on any intellectual property of any other Person in any material respect. To the best knowledge of Sellers, the use of all other material Intellectual Property by Sellers does not infringe on the rights of any Person. Except as set forth in Schedule 4.1(k), Sellers own all material Intellectual Property used in Sellers' business as presently conducted. Except as set forth in Schedule 4.1(k), no material part of the business of the conduct of the Classes in the Territories depends on any Intellectual Property except for the trademark licenses under the Franchise Agreements. l. Government Licenses, Permits and Related Approvals Except as set forth in Schedule 4.1(l), each Seller has all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities required for the conduct of its business as presently conducted, except where the failure to have such licenses, permits, consents, approvals, authorizations, qualifications and orders would not be likely, individually or in the aggregate, to have a Material Adverse Effect. m. Compliance with Law and Requirements Each Seller is conducting and has conducted for the applicable period (as specified below) its business in compliance with all applicable laws, statutes, ordinances, rules, regulations, decrees, judgments, writs, injunctions, or orders, rights of concession, licenses, know-how or other proprietary rights of others, the failure to comply with which would, individually or in the aggregate, be likely to have a Material Adverse 21 Effect. For the purposes of this Section 4.1(m), the applicable period in the case of WEI shall be the period of three years prior to the date hereof and in the case of each of the other of the Sellers shall be the period from the commencement of business thereof. n. Employee Benefit Programs. i. Schedule 4.1(n) identifies each "employee benefit plan" as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is covered by ERISA and that is maintained, or otherwise contributed to by Sellers or any Affiliates of Sellers for the benefit of the current or former employees or directors of Sellers (a "Plan" and, collectively, the "Plans"), copies of which have been delivered to Buyer (together with (A) the most recent Annual Report on Form 5500 required to be filed by Sellers and (B) the most recent actuarial valuation reports, in connection with any Plan); ii. Schedule 4.1(n) identifies each plan or arrangement not subject to ERISA maintained or otherwise contributed to by Sellers for the benefit of employees of Sellers and providing for deferred compensation, bonuses, stock options, employee insurance coverage or any similar compensation arrangement (a "Benefit Arrangement"; such Benefit Arrangements, together with the Plans, are referred to herein collectively as the "Employee Benefit Programs"), true and correct copies of which have been delivered to Buyer. iii. Each Employee Benefit Program has been maintained and administered at all times substantially in compliance with its terms and with all applicable laws, rules and regulations, including, without limitation, ERISA and the Code; iv. No "prohibited transaction" (as such term is used in Section 406 of ERISA or Section 4975 of the Code) has occurred with respect to any Plan which could have a Material Adverse Effect; v. Sellers do not sponsor, contribute to, participate in or have any other obligations or liabilities (whether or not contingent) which remain unsatisfied or are pending with respect to any employee pension benefit plan (within the meaning of Section 3(2) of ERISA) that is subject to Title IV of ERISA or Section 302 of ERISA. vi. Sellers have not at any time contributed to or participated in any pension plan which is a "multiemployer plan," as defined in Section 3(37) of ERISA; vii. No material litigation or administrative or other proceedings involving the Employee Benefit Programs have occurred, are pending or, to the best knowledge of Sellers, are threatened; viii. Except as set forth in Schedule 4.1(n), there are no other employment agreements, contracts or understandings with any employee of Sellers; ix. There are no collective bargaining agreements which Sellers or their Affiliates have entered into on behalf of any employees of Sellers, nor, to the best knowledge of Sellers, are there any ongoing efforts to organize any union representation; and x. Except as set forth on Schedule 4.1(n), with respect to any Plan that is an employee welfare benefit plan (within the meaning of Section 3(1) of ERISA), (1) no such Plan is funded through a "welfare benefits fund", as such term is defined in Section 419(e) of the Code, (2) each such Plan that is a group health plan ("Group Health Plan"), as such term is defined in Section 4980B(g)(2) of the Code, complies with the applicable requirements of Section 4980B(f) of the Code ("COBRA") and (3) no such Plan (other than as required by COBRA) provides any post-employment welfare benefits for former employees (including retirees), either currently or at any time hereafter. o. Certain Fees With the exception of the engagement of and the fees and expenses payable to Houlihan Lokey Zukin & Howard (which will be paid by Sellers), none of the Sellers nor any of their officers, directors or employees or Affiliates has employed any broker or finder or incurred any other liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated hereby. p. Absence of Certain Changes or Events Except as set forth in Schedule 4.1(p), since December 26, 1999 there has not been (i) any material adverse change in the Assets or in the condition (financial or other), results of operations, prospects or business of Sellers, (ii) any material damage, destruction or loss relating to the business or assets (including the Assets) of Sellers, whether or not insured, (iii) any liability created or incurred which Buyer will assume under the Assumption Agreement other than liabilities created or incurred in the 22 ordinary course of business and in amounts not unusual in respect of the ordinary course of business consistent with past practice, (iv) any Lien created on any Asset, (v) except in the ordinary course of business, any increase in, or commitment or plan adopted to increase, the wages, salaries, compensation, pension or other benefits or payments to employees, (vi) any material capital expenditures or commitment to make any such expenditures with respect to the Assets or as to which Buyer will become obligated after the Closing pursuant to the Assumption Agreement, (vii) any condemnation proceedings commenced with respect to any Asset or any notice received by Sellers as to the proposed commencement of any such proceedings, (viii) any rights of substantial value knowingly waived with respect to the Assets or the Business, (ix) any sale or transfer of any Assets other than dispositions of obsolete property in the ordinary course of business consistent with past practice or (x) any action performed, taken, agreed to or permitted of the type described in Section 5.2(a) through (p). Since December 25, 1999, except as set forth in Schedule 4.1(p), other than acts relating to the transactions contemplated by this Agreement, the business of each Seller has been conducted only in the ordinary course consistent with past practice. q. Offering Memorandum; Disclosure. Neither this Agreement, the information set forth in Schedule 4.1(q) nor any other document and instrument to be executed and delivered by Sellers pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact which Sellers have not disclosed to Buyer in writing and of which any Section 4.1 Employees is aware which has had or would reasonably be expected to have a Material Adverse Effect. Schedule 4.1(q) sets forth a true and complete list of all Persons who received the Offering Memorandum from any of the Sellers or their respective Affiliates or Representatives. r. Environmental Matters Except as set forth in Schedule 4.1(r), none of the Sellers has in the past materially violated or is now in material violation of any federal, state or local law, code, statute, common law, ordinance, rule, regulation, order, decree or guideline relating in any manner to contamination, pollution, or protection of human health or the environment ("Environmental Laws") in connection with the ownership or operation of any of its assets (including the Assets) and the conduct of the Business. None of the Sellers has received any written notice from any governmental authority, and does not have knowledge of any governmental inquiry, with respect to any actual or alleged violation of any Environmental Laws with respect to any of its assets (including the Assets) or the Business and there is not pending or, to the best knowledge of Sellers, threatened any suit, claim, proceeding or investigation against Sellers relating to any violation or threatened violation of any Environmental Law. There has been no storage, disposal or treatment of solid wastes or hazardous wastes on, under or at any real property currently or formerly owned by Sellers or, to the best knowledge of Sellers, any other real property ("Other Real Property") currently or formerly leased or otherwise used by Sellers. There has been no release, including any spill, discharge, leak, emission, injection, escape or dumping of any kind, from operations of Sellers or, to the best knowledge of Sellers, otherwise, onto any real property currently or formerly used by Sellers or into the environment surrounding any such real property, of any hazardous substances, other than those releases permissible under applicable regulations, laws or statutes or allowable under applicable permits. Except as set forth in Schedule 4.1(r), none of the Sellers nor, to the best knowledge of Sellers, any other person has discovered any occurrence or condition on any real property adjoining or in the vicinity of any real property that could cause such real property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such real property under any Environmental Law. None of the Sellers has contractually assumed any liabilities or obligations under any Environmental Law other than as a result of its status as a lessee under the Leases. As used in this Section 4.1(r), the terms "storage", "treatment", "disposal", "solid wastes" and "hazardous wastes" shall have the meanings set forth under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901 et seq.; and the terms "release" and "hazardous substance" shall have the meanings set forth under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601 et seq. For purposes of this Section 4.1(r) only, "best knowledge of Sellers" shall not require the conduct of any environmental or engineering study of properties nor the examination of public records normally 23 examined in such studies. s. Entire Business On the Closing Date, Sellers will transfer to Buyer all of the assets used by Sellers in and necessary for the conduct by Buyer of the Business, except for the Excluded Assets. t. Tax Matters For purposes of this Agreement, (i) "Taxes" shall mean all United States federal, state, provincial, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, excise, value added, estimated, stamp, alternative or add-on minimum, environmental, withholding and any other taxes, duties or assessments, together with all interest, penalties and additions imposed with respect to such amounts; and (ii) "Tax Return" shall mean any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. None of the Assets is (A) subject to section 168(f)(8) of the Internal Revenue Code of 1954 or (B) tax-exempt use property within the meaning of Section 168(h)(1) of the Code. Except as provided under Section 10.3 hereof, all Tax Returns required to be filed by Sellers (or their respective predecessors) on or before the Closing Date have been or shall be timely filed and all such Tax Returns were true, correct and complete in all material respects. All Taxes with respect to any of the Assets which are due or which may be claimed to be due (whether or not shown to be due on any Tax Return) have been or shall be paid or accrued within the prescribed period or any extension thereof. There are no tax liens upon any of the Assets except for Liens for current Taxes not yet due and payable. Except as set forth in Schedule 4.1(t) and except as disclosed in the Financial Information, none of the Sellers (or any of their respective predecessors) is a party to or has received any notice with respect to any proposed or pending action by any governmental authority for assessment or collection of Taxes with respect to any of the Assets, or is party to any dispute or threatened dispute relating to Taxes with respect to any of the Assets in which action or dispute an adverse determination could have a Material Adverse Effect and no such claim for assessment or collection of Taxes with respect to any of the Assets has been made upon Sellers. No Seller is a "foreign person" within the meaning of section 1445 of the Code and Sellers will furnish Buyer with an affidavit that satisfies the requirements of section 1445(b)(2) of the Code, in the form attached as Exhibit C. u. No Subsidiaries Except as set forth on Schedule 4.1(u), each of the Sellers does not directly or indirectly own or control any capital stock of or other interests or investments in any other individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, or other entity or governmental body nor do Sellers have any obligation or right to acquire any such interest or investment. v. Purchase Price Transfers After the Closing and upon any transfer of the Purchase Price following the Closing, Sellers will not (i) be insolvent; (i) have unreasonably small capital with which to engage in their respective businesses; or (iii) have incurred or plan to incur debts beyond their respective ability to pay as they become absolute and matured. w. Prohibited Payments No Seller nor any of their respective officers, directors, employees, agents or Affiliates has offered, paid, or agreed to pay to any Person, including any government official, or solicited, received or agreed to receive from any such Person, directly or indirectly, any money or anything of value for the purpose of or with the intent of obtaining or maintaining the business of Sellers or otherwise affecting the business, assets, financial condition or operations of Sellers in any manner which is unlawful. x. Affiliate Transactions. Except for employment, consulting and management service agreements with respect to which Buyer will not assume any liabilities, Schedule 4.1(x) lists all contracts, 24 arrangements or other transactions (i) between or among any Seller or any of its Affiliates, on the one hand, and any officers or employees of any Sellers, on the other hand, or (ii) which Buyer will assume or become liable with respect to and any Seller or any of their respective Affiliates will be a party to such contract, agreement, arrangement or transaction. y. Compensation of Management Employees Set forth on Schedule 4.1(y) is a true and complete listing of (1) the annual compensation, including bonuses, for each executive officer and senior manager (collectively, the "Management Employees") of each Seller for the past three years and (2) the proposed annual compensation, including bonuses, for the current fiscal year, including, without limitation, any "stay" or "retention" bonus payable to any Management Employee in connection with the transactions contemplated hereby. No Seller has agreed to pay any of its employees any "stay" or "retention" bonus in connection with the transactions contemplated hereby. z. Bankruptcy Sellers have not filed any voluntary petitions in bankruptcy or insolvency or any petitions for reorganization under any bankruptcy or similar law; no involuntary petition in bankruptcy has been filed against any Seller; no receiver has been appointed for all or any part of the property of Sellers; and no court has granted Sellers relief in bankruptcy or insolvency or approved a petition seeking reorganization or approving a receiver, trustee or liquidator of all or any part of the property of Sellers. aa. Qualified S Chapter Subsidiaries WEI has made a valid election to treat WNI and WSI as "qualified S chapter subsidiaries" under section 1361(a)(3) of the Code. 2. Representations and Warranties of Buyer and WWI Each of Buyer and WWI represents and warrants to each Seller as follows: a. Due Organization; Good Standing and Power Each of Buyer and WWI is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of Buyer and WWI has all requisite corporate and other power and authority to enter into this Agreement and any other agreement contemplated hereby and to perform its obligations hereunder and thereunder. b. Authorization and Validity. Each of Buyer and WWI has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and any other agreement contemplated hereby and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by each of Buyer and WWI of this Agreement and any other agreements contemplated hereby and the consummation by each of Buyer and WWI of the transactions contemplated hereby and thereby have been duly authorized by its Board of Directors. No other corporate or stockholder action is necessary for the authorization, execution, delivery and performance by Buyer or WWI of this Agreement and any other agreement contemplated hereby and the consummation by Buyer and WWI of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by each of Buyer and WWI and constitutes a valid and legally binding obligation of each of Buyer and WWI, enforceable against Buyer and WWI in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing. c. Governmental Approvals; No Conflict The execution, delivery and performance of this Agreement and any other agreements contemplated hereby by each of Buyer and WWI and the consummation by each of 25 Buyer and WWI of the transactions contemplated hereby and thereby (i) will not conflict with or violate (with or without the giving of notice or the lapse of time or both), or require any consent, registration, declaration, approval, filing or notice under any provision of any law, statute, ordinance, rule or regulation, court or administrative order, writ, judgment or decree of any court or any public governmental or regulatory body, agency or authority having jurisdiction over Buyer, WWI or their respective assets or properties, except for the requirements of the Antitrust Improvements Act and except for such conflicts or violations the occurrence of which, and such consents, approvals, filings or notices the failure of which to obtain or make, would not, individually or in the aggregate, have a material adverse effect on Buyer's or WWI's ability to perform its obligations hereunder, and (ii) will not (with or without the giving of notice or the lapse of time or both) (x) violate or conflict with, or result in the breach, suspension or termination of any provision of, or constitute a default under, or require any consent, approval or notice under, or result in the acceleration of the performance of the obligations of Buyer or WWI, under, or give rise to any right of termination, purchase, amendment or any other right under, increase the liability of any party under or (y) result in the creation of any Lien upon all or any portion of the properties, assets or business of Buyer or WWI pursuant to, the charter or by-laws or any provision of the organizational documents of Buyer or WWI, or any indenture, mortgage, deed of trust, lease, agreement, contract or instrument to which Buyer or WWI is a party or by which Buyer or WWI or any of their respective assets or properties is bound, except for such violations, conflicts, breaches, suspensions, terminations, defaults, accelerations or Liens which would not, individually or in the aggregate, have a material adverse effect on Buyer's or WWI's ability to perform its obligations hereunder. d. Brokers' Fees Neither Buyer, WWI nor any of their respective officers, directors or employees, on behalf of Buyer or WWI, has employed any broker or finder or incurred any other liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated hereby. 3. Survival of Representations The representations, warranties, covenants and agreements contained in this Agreement, and in any agreements, certificates or other instruments delivered pursuant to this Agreement, shall survive the Closing and shall remain in full force and effect for the period specified in Section 9.4 hereof, regardless of any investigations made by or on behalf of any party, but subject to all express limitations and other provisions contained in this Agreement. No investigation by or knowledge of any party shall relieve any other party hereto in any manner with respect to its obligations under the representations, warranties, covenants and agreements made by such other party hereunder or in any agreement, certificate or other document delivered pursuant to this Agreement. 5. Agreements 1. Access to Information Prior to Closing, Sellers agree to (a) give or cause to be given to Buyer and its Representatives and potential financing sources full and free access to Richard J. McSorley and such access to the offices, employees, properties, Assets, contracts, books, accountants, workpapers and records and all other documents and data relating to the Assets as Buyer may from time to time reasonably request, provided, however, in the case of access to personnel, access to such personnel shall require the prior consent of Richard J. McSorley (such consent not to be unreasonably withheld or delayed) and (b) furnish or cause to be furnished to Buyer such financial and operating data and other information with respect to the Business and properties and assets (including the Assets) of Sellers, as Buyer may from time to time reasonably request. After Closing, Buyer agrees to provide Sellers with reasonable access to information contained in the files and records of Sellers transferred to Buyer at Closing to the extent necessary for Sellers to prepare tax returns and other government mandated filings and to prosecute, or defend against, any claims. 2. Conduct of the Business Sellers jointly and severally agree that, except as required by this Agreement or otherwise consented to in writing by Buyer, during the period commencing on September 30, 2000 and ending on the Closing Date, Sellers shall: a. operate the Business only in the ordinary course of business 26 consistent with past practice and, to the extent consistent with such operation, use its reasonable best efforts to preserve its present business organization intact, keep available the services of its present employees (other than Lola A. Bode and Stanley L. Lipman) and preserve its goodwill and present business relationships, including its relationships with its members participating in its Classes; b. maintain their books, accounts and records relating to their business in the ordinary course of business consistent with past practice, comply with and perform in all material respects all laws and contractual and other obligations applicable to them or their business; c. maintain in full force and effect adequate insurance with respect to the Assets and their employees covering risks customarily insured by similar businesses; d. not increase, reduce or otherwise modify membership fees, activity fees or rebates except as set forth in Schedule 5.2(d); e. not enter into any contract, agreement or other commitment or series of related contracts, agreements or commitments which is not terminable by the parties upon thirty (30) days notice or less or which involves aggregate consideration in excess of $20,000 except as set forth in Schedule 5.2(e) f. not (i) sell, dispose of or abandon any of the Assets, other than in the ordinary course of business consistent with past practice, or (ii) enter into, amend, change, waive or otherwise modify any contract, agreement, lease, license or other document which constitutes part of the Assets; g. not (i) permit or allow any of its properties and assets (including the Assets) to become subject to any Liens, except for Permitted Liens and other liens existing on the date hereof, (ii) waive any claims or rights relating to the Assets, (iii) except as set forth in Schedule 5.2(g) or with respect to Richard J. McSorley, grant any increase in the compensation or benefits of its employees (including any such increase pursuant to any deferred compensation, severance, bonus, pension, profit-sharing or other plan or commitment), (iv) establish, enter into or adopt any employment agreement or collective bargaining agreement or other Employee Benefits Programs or, except as set forth in Schedule 5.2(g), modify or terminate any Employee Benefits Programs, or (v) enter into any agreements giving rise to trade and barter obligations on the part of Sellers; h. provide Buyer with reasonable notice prior to any Seller (i) declaring, setting aside or paying any dividends on, or making any other distributions in respect of, any of its capital stock or (ii) purchasing, redeeming or otherwise acquiring any shares of capital stock of Sellers or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; i. provide Buyer with reasonable notice prior to any amendment by any Seller of its charter, by-laws or other organizational documents; j. provide Buyer with reasonable notice prior to any Seller acquiring or agreeing to acquire, merging or consolidating with, or purchasing a substantial portion of the stock or assets of, or entering into any similar transaction with any business or any corporation, partnership, joint venture, association or other business organization or division thereof; k. provide Buyer with reasonable notice prior to any Seller adopting a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or reorganization; l. provide Buyer with reasonable notice prior to any Seller changing any financial reporting policy or accounting principle; m. not settle or compromise any litigation (whether or not commenced prior to the date of this Agreement) on any terms except for (i) a settlement of the Montford Center Litigation pursuant to the provisions of the Carolina Acquisition Agreement and (ii) a settlement which only provides for a release of the claim and the payment of money, if any, and does not otherwise adversely affect the Business; provided that Sellers shall provide Buyer with reasonable prior notice of any such settlement or compromise; 27 n. not write down the value of any inventory or any other asset or sell any amount of its inventory except in the ordinary course of business consistent with past practice; and o. not enter into any transaction that may reasonably be expected to render any Seller insolvent; and p. not authorize any of, or commit or agree to take any of, the foregoing actions set forth in clauses (a) through (g) and (m) through (o) above. 3. Further Actions Subject to the terms and conditions hereof, including, without limitation, Section 5.15 hereof, Sellers and Buyer agree to use their reasonable best efforts to promptly take, or cause to be promptly taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable best efforts (without commencement of litigation or the assumption of any material obligation): (i) to obtain at the earliest practicable date prior to the Closing Date (pursuant to instruments reasonably satisfactory to Buyer in form and substance) all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts, licenses or agreements with Sellers or its Affiliates as are necessary for the consummation of the transactions contemplated hereby; (ii) to effect all necessary registrations and filings; (iii) to furnish to each other such information and assistance as reasonably may be requested in connection with the foregoing; (iv) to assist Buyer in obtaining prior to the Closing Date all governmental licenses, permits, consents, approvals, authorizations, qualifications and orders as are necessary in order to enable Buyer to conduct the Business of Sellers in the ordinary course as of and from the opening of business on the Closing Date; (v) upon request, to assist Buyer in obtaining prior to the Closing Date sufficient financing to fund the Purchase Price, including, without limitation, assisting in preparing materials for, providing access to materials and personnel and attending meetings with potential financing sources; (vi) upon request, to assist WEI in the acquisition on or prior to the Closing Date, of the Carolina Franchise from W.W. of North Carolina, Inc., a North Carolina corporation formerly known as Weight Watchers of North Carolina, Inc., including, without limitation, assisting in preparing materials for, providing access to materials and personnel and attending meetings with representatives of W.W. of North Carolina, Inc.; provided, however that nothing contained in items (v) or (vi) of this Section 5.3 shall be interpreted or construed to require that Sellers provide any financial support, or make any concession, to Buyer or Buyer provide any financial support, or make any concession to Sellers in connection with such financing or such acquisition and (vii) with respect to Sellers, to complete the acquisition of the Carolina Franchise pursuant to the provisions of the Carolina Acquisition Agreement. 4. Antitrust Improvements Act Sellers shall timely and promptly make all filings, which may be required by it in connection with the consummation of the transactions contemplated hereby under the Antitrust Improvements Act. Sellers shall furnish to Buyer such information and assistance as Buyer may reasonably request in connection with Buyers preparation of any necessary filings or submissions by it to any governmental agency, including, without limitation, any filings necessary under the provisions of the Antitrust Improvements Act. Sellers shall provide Buyer with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between Sellers or its representatives, on the one hand, and the FTC, the Antitrust Division and their staffs, on the other hand, with respect to this Agreement and the transactions contemplated hereby. Buyer shall timely and promptly make all filings that may be required by it in connection with the consummation of the transactions contemplated hereby under the Antitrust Improvements Act. Buyer shall furnish to Sellers such information and assistance as Sellers may reasonably request in connection with Sellers preparation of any necessary filings or submissions by it to any governmental agency, including, without limitation, any filings necessary under the provisions of the Antitrust Improvements Act. Buyer shall provide Sellers with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between Buyer or its representatives, on the one hand, and the FTC, the Antitrust Division and their staffs, on the other hand, with respect to this Agreement and the transactions contemplated hereby. WWI and Buyer shall be responsible for the payment of all filing fees in connection with the Antitrust Improvements Act. 5. Notification Sellers shall notify Buyer and keep it advised of (i) any litigation or administrative proceeding pending or, to the best knowledge of Sellers, threatened against Sellers which 28 could, if adversely determined, have a Material Adverse Effect; (ii) any material damage or destruction of any of the Assets; and (iii) any material adverse change in the condition (financial or other), results of operations, assets, business or prospects of the Business. Sellers shall promptly notify Buyer in writing of the occurrence of any event that would result in the failure of a condition specified in Sections 6.1 or 6.2, and Buyer shall promptly notify Sellers in writing of the occurrence of any event that would result in the failure of a condition specified in Section 6.1 or 6.3. 6. No Inconsistent Action Subject to Sections 8.1 and 8.2, the parties hereto shall not take any action inconsistent with their obligations under this Agreement or which could materially hinder or delay the consummation of the transactions contemplated by this Agreement. None of the parties hereto shall take or omit to take any action that could result in any of their respective representations and warranties not being true and correct on the Closing Date. 7. No Solicitation From and after the date of this Agreement, until the earlier of the Closing or 180 days after the termination of this Agreement pursuant to Section 8.1, Sellers shall not, and shall not permit any of their respective Affiliates or Representatives, to, directly or indirectly (i) solicit, initiate or encourage the submission of any inquiries, indications of interest, proposals or offers from any Person, other than Buyer (collectively, "Third Parties"), concerning any Acquisition Proposal, (ii) participate in any discussions or negotiations regarding, or enter into any agreements or understandings (whether or not in writing) relating to, any of the foregoing with, or provide any information concerning any Seller or the Assets to any Third Parties other than in the ordinary course of business or other than as required by applicable law or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any Third Party to do or seek any of the foregoing, provided, however, that nothing contained herein shall be interpreted or construed to require that Sellers retrieve or recall any copy of the Offering Memorandum previously distributed to any Person or to take any other action with respect to the Offering Memorandum. As soon as is practicable after this Agreement has been executed, Sellers will use their reasonable best efforts to cause the destruction or return of all non-public, confidential or proprietary information concerning the Assets provided to potential purchasers of any Seller or the Assets, other than the Offering Memorandum. Sellers will immediately notify the Buyer after the receipt by it or any of its Representatives of any inquiry, indication of interest, proposal or offer with respect to an Acquisition Proposal by any Third Party and promptly deliver to Buyer written documentation reflecting the material economic terms thereof. Each Seller agrees that it and its Representatives shall immediately cease and cause to be terminated any activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. Notwithstanding the foregoing, in the event of the termination of this Agreement pursuant to Section 8.1 solely as a result of the failure to satisfy the condition set forth in Section 6.2(k), the period of one hundred eighty (180) days set forth in the first sentence of this Section 8.1 shall be reduced to thirty (30) days. 8. Delivery of Financial Statements. Sellers will use its best efforts to cooperate with the preparation of the review financial statements of Sellers consisting of review consolidated balance sheets of Sellers for the period from December 26, 1999 to September 30, 2000 and the related review consolidated statements of income and retained earnings and consolidated statements of cash flows for the nine month period ended on such date, reviewed by PricewaterhouseCoopers, and prepared in accordance with GAAP ("Review Financials"). WWI and Buyer shall bear all cost and expense of the preparation of the Review Financials. 9. Franchise Agreements Each of the Sellers hereby agrees to pay WWI when due all amounts, fees and payments accrued or owing under the Franchise Agreements ("Franchise Fees") as of the close of business on the business day prior to the Closing Date by wire transfer (to an account previously designated in writing by WWI) of immediately available funds. Any payment required to be made pursuant to this Section 5.9 and not so paid shall bear interest from the tenth business day after the date on which such payment shall be due through the date of payment at a rate of interest equal to 13% per annum, and the amount of interest shall be added to the amount to be paid pursuant to this Section 5.9. 10. No Solicitation of Employees 29 Sellers shall not, and shall cause their respective Affiliates not to, within a period of three years after the Closing Date, directly or indirectly, solicit or hire any person who is a senior managerial employee of any of the Sellers as of the date hereof or on the Closing Date (each a "Manager"); provided that the foregoing shall not prohibit Sellers or any of their respective Affiliates from hiring any Manager whose employment has been terminated by the Buyer. 11. Payment of Annual Compensation and Bonuses On the date of the next regularly scheduled payroll date immediately following the Closing Date and in no event later than 15 business days following the Closing Date, Sellers shall pay all annual compensation, including bonuses, payable to any Management Employee or any other employee of any Seller and any severance payments or bonuses which Sellers may pay to certain employees in anticipation of, or upon the consummation of, the transactions contemplated hereby. 12. Interim Financial Statements Within 21 calendar days of the end of the month, beginning with November 30, 2000, until the Closing Date Sellers shall deliver to Buyer interim financial statements for the month then ended presenting the consolidated financial condition of Sellers as at such dates, and the consolidated results of their operations. 13. Covenant Not to Compete (a) The Sellers shall not engage in the Protected Business for a period of four (4) years after the Closing Date; provided, however, that nothing herein shall preclude Sellers from (i) acquiring or operating the British Columbia Company, or any successor to the business and assets thereof, (ii) acquiring or operating any other Franchises in Canada or (iii) acquiring an equity interest in, any person (an "Acquired Person") which, together with its subsidiaries, derives 10% or less but not more than $1.0 million of its consolidated revenues from the Protected Business and continuing the business operations of such Acquired Person. Each of Buyer and WWI only intend to limit Sellers or its subsidiaries current or future business activities as expressly set forth in this Section 5.13 but not otherwise. For purposes of this Section 5.13, the term "Protected Business" means the weight loss and weight control industry, including, without limitation, the provision of classes for weight reduction and control and the sale of related products and publications. (b) The parties agree that the terms of the covenant contained in this Section 5.13 are fair and reasonable in light of Buyers and WWIs plans for the Protected Business and are necessary to accomplish the full transfer of the goodwill and other intangible assets contemplated hereby. If, as a result of a dispute between the parties as to this covenant, a court refuses to enforce this covenant not to compete for any reason, the parties shall request such court to reform this covenant (for purposes of application only in the jurisdiction in which such dispute arises) to the extent necessary to permit its enforcement. 14. Employment Matters In the event that Buyer intends to engage the services of any employees of Sellers from and after the Closing, including without limitation Richard J. McSorley, no later than five (5) business days prior to the Closing, Buyer shall submit to Sellers a list of such employees whom Buyer intends to engage; and Buyer shall have the right to solicit the employment of such employees under such wages, hours and working conditions as Buyer shall determine, from and after, and effective upon, the Closing. Nothing construed in this Agreement, nevertheless, shall be interpreted or construed to impose upon Sellers, or any of them, any obligations for such wages, hours and working conditions, including without limitation vacation pay or other benefits, provided by Buyer from and after the Closing regardless of whether, for the purposes thereof, any such employees shall be credited with service prior to the Closing. 15. Leases and Service Contracts (a) Except as set forth in Section 5.15(b), Buyer hereby agrees to assume and agrees to pay, perform and discharge Sellers' obligations under the contracts, agreements, leases and commitments listed in Schedule 2.5(a), which are assigned by Sellers to Buyer and as to which Buyer succeeds to the rights of Sellers, but, only to the extent of liabilities and obligations that arise thereunder after the opening of business on the Closing Date. 30 (b) To the extent that any consent or approval is not obtained with respect to any contract, lease, license or agreement as contemplated herein and the failure to obtain such consent or approval is not a result of the default by Buyer thereunder (except if such default results from a violation of the transfer and assignment provisions contained therein as a result of the transactions contemplated hereby), this Agreement shall not constitute an assignment or an attempted assignment thereof. In each such case, Sellers agree to cooperate with Buyer in any reasonable arrangement designed to (i) provide for Buyer the benefits under any such contract, lease, license or agreement, including enforcement at the cost and for the account of Buyer of any and all rights of Sellers against the other party or otherwise and (ii) insure performance by Buyer of Sellers' obligations thereunder to the extent Buyer receives such benefits. If and to the extent that such arrangement cannot be made, Buyer shall not have any obligation with respect to any such contract, lease, license or agreement. (c) WWI and Buyer hereby agree to bear all expenses in connection with seeking the consent or approval to the assignment of any contract, agreement, lease or commitment listed in Schedule 2.5(a) from any Seller to Buyer. 16. Carolina Acquisition Agreement. Each Seller hereby agrees that it will not amend the Carolina Acquisition Agreement without the prior written consent of WWI and Buyer. 6. Conditions Precedent. 1. Conditions Precedent to Obligations of Parties The respective obligations of the parties hereto to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing Date of the following conditions: a. No Injunction, etc. No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction in the United States or by any United States federal or state governmental or regulatory body nor any statute, rule, regulation or executive order promulgated or enacted by any United States federal or state governmental authority which restrains, enjoins or otherwise prohibits any of the transactions contemplated hereby shall be in effect. b. Antitrust Matters Any filings required to be made by WWI and Buyer and Sellers under the Antitrust Improvements Act shall have been made, and the specified waiting periods thereunder (and any extensions thereof) shall have expired or been terminated without the receipt of any objections from the appropriate governmental agency. 2. Conditions Precedent to Obligations of Buyer The obligations of Buyer and WWI to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Buyer and WWI) at or prior to the Closing Date of each of the following conditions: a. Accuracy of Representations and Warranties All representations and warranties of Sellers contained herein or in any certificate, instrument or other document delivered to Buyer or WWI pursuant hereto shall be true and correct on and as of the date of this Agreement and the Closing Date, with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except to the extent that any such representation and warranty is made as of a specified date, in which case such representation and warranty shall have been true and correct as of such date. b. Performance of Obligations Sellers shall have performed and complied with all obligations and agreements, and complied with all covenants and conditions, contained in this Agreement to be performed or complied with by them prior to or at the Closing Date. c. Officer's Certificate 31 Buyer and WWI shall have received a certificate, dated the Closing Date, of the President of each Seller certifying that the conditions specified in clauses (a) and (b) above have been fulfilled. d. Absence of Certain Changes Except as set forth in Schedule 6.2(d), since September 30, 2000, there shall not have been any material adverse change in the condition (financial or other), results of operations, assets, Business or prospects of the Business. e. Opinions Buyer and WWI shall have received (i) an opinion dated the Closing Date from the Law Offices of Alan H. Finegold, counsel to Sellers, in substantially the form attached as Exhibit D and (ii) an opinion dated the Closing Date from special New York counsel to Sellers reasonably satisfactory to WWI and Buyer, in substantially the form attached as Exhibit E. f. Escrow Agreement Sellers and the Escrow Agent shall each have delivered an executed counterpart to the Escrow Agreement, substantially in the form of Exhibit A hereto. g. Non-Competition Agreement D. Grant Peacock shall have delivered an executed counterpart to the Non-Competition Agreement, substantially in the form of Exhibit F hereto. h. British Columbia Amendment WEI shall have caused the British Columbia Company to deliver an executed counterpart to the British Columbia Amendment, substantially in the form of Exhibit J hereto. i. Review Financials Buyer shall have received the Review Financials in form and substance satisfactory to Buyer. j. No Litigation No litigation or proceeding shall have been commenced or threatened by any Person (other than WWI or the Buyer or any of their Affiliates) for the purpose of enjoining or otherwise preventing the consummation of any of the transactions contemplated hereby or which could have a Material Adverse Effect. k. Funding Buyer shall have received sufficient financing to fund the Purchase Price on terms and conditions satisfactory to Buyer. l. Lien Search Buyer and WWI shall have received satisfactory results of Lien searches with respect to the Assets reflecting no Liens on the Assets other than the security interests of PNC Bank, National Association, WWGWS, Inc. and landlords or lessors under the Leases (collectively, the "Section 6 Liens"). m. Consents, etc. All licenses, permits, consents, approvals, authorizations and orders of governmental authorities and other third parties (other than with respect to Leases and Service Contracts) necessary for the consummation of the transactions contemplated hereby shall have been obtained. n. Carolina Franchise 32 WEI shall have completed the acquisition of the Carolina Franchise in accordance with the provisions of the Carolina Acquisition Agreement. o. Release of Liens The Assets shall have been released from and shall be free and clear of all Liens, including, without limitation, all Section 6 Liens, except, however, for the liens of landlords or lessors under the Leases. p. Actions and Proceedings All corporate actions, proceedings, instruments and documents of Sellers and their Affiliates required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall be reasonably satisfactory to Robert W. Hollweg, General Counsel of Buyer and WWI, and Simpson Thacher & Bartlett, counsel for Buyer and WWI, and such counsel shall have been furnished with such certified copies of such corporate actions and proceedings and such other instruments and documents as it shall have reasonably requested, including, without limitation, incumbency certificates from the Secretary of each Seller and certified copies of the resolutions of the Board of Directors of each Seller and evidence of the stockholders of each Seller authorizing and approving this Agreement and the transactions contemplated hereby. q. Closing Deliveries Sellers shall have delivered to Buyer and WWI all deliveries to be made to them pursuant to Section 2.3. 3. Conditions Precedent to the Obligations of Sellers The obligations of Sellers to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Sellers) at or prior to the Closing Date of each of the following conditions: a. Accuracy of Representations and Warranties All representations and warranties of Buyer and WWI contained herein or in any certificate, instrument or other document delivered to Sellers pursuant hereto shall be true and correct on and as of the date of this Agreement and the Closing Date, with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except to the extent that any such representation and warranty is made as of a specified date, in which case such representation and warranty shall have been true and correct as of such date. b. Performance of Obligations Each of Buyer and WWI shall have performed and complied with all obligations and agreements, and complied with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or at the Closing Date. c. Officer's Certificate Sellers shall have received a certificate, dated the Closing Date, of the President or any Vice President of Buyer and the President or any Vice President of WWI certifying that the conditions specified in paragraphs (a) and (b) above have been fulfilled. d. Actions and Proceedings All corporate actions, proceedings, instruments and documents of Buyer and WWI required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall be reasonably satisfactory to Law Offices of Alan H. Finegold, counsel for Sellers, and such counsel shall have been furnished with such certified copies of such corporate actions and proceedings and such other instruments and documents as it shall have reasonably requested. e. Opinions Sellers shall have received (i) an opinion dated the Closing Date from Robert W. 33 Hollweg, General Counsel of WWI and Buyer, in substantially the form attached as Exhibit G, (ii) an opinion dated the Closing Date from Simpson Thacher & Bartlett, counsel to WWI and Buyer, in substantially the form attached as Exhibit H and (iii) an opinion dated the Closing Date from Hunton & Williams, special Virginia counsel to WWI, in substantially the form attached as Exhibit I. f. Escrow Agreement Buyer and the Escrow Agent shall each have delivered an executed counterpart to the Escrow Agreement, substantially in the form of Exhibit A hereto. g. Non-Competition Agreement WWI shall have delivered an executed counterpart to the Non-Competition Agreement, substantially in the form of Exhibit E hereto. h. British Columbia Amendment. WWI shall have delivered an executed counterpart to the British Columbia Amendment, substantially in the form of Exhibit J hereto. i. Closing Deliveries Each of Buyer and WWI shall have delivered to Sellers all deliveries to be made pursuant to Section 2.5. j. No Litigation No litigation or proceeding shall have been commenced or threatened by any Person (other than Sellers or an of their Affiliates) for the purpose of enjoining or otherwise preventing the consummation of any of the transactions contemplated hereby. k. Carolina Franchise WEI shall have completed the acquisition of the Carolina Franchise in accordance with provisions of the Carolina Acquisition Agreement so long as the failure to complete the acquisition of the Carolina Franchise is not a result of a violation of or breach by any Seller of the Carolina Acquisition Agreement. 7. Employees and Employee Benefits 1. Offer of Employment Buyer shall not be required to offer employment to any employee employed by Sellers. Sellers shall indemnify and hold harmless Buyer against any loss as a result of any claim by any employees of Sellers (or, following the Closing Date, employees of Buyer) or any one or more of them on account of such terms of wages, hours, working conditions or other benefits, including but not limited to vacation benefits and severance, under which such employees have been employed by Sellers or any claim for notification or otherwise under the Worker Adjustment and Retraining Notification Act; provided, however that nothing contained herein shall be interpreted or construed to impose any liability or obligation on Sellers for any wages or other compensation or benefits, including without limitation, vacation benefits provided or granted by Buyer to any such employee, including, without limitation, Robert J. McSorley, hired by Buyer and employed thereby at any time from and after the Closing. 8. Termination 1. Termination of Agreement This Agreement may be terminated and the transactions contemplated herein abandoned (a) by mutual written consent of Buyer, WWI and Sellers, (b) by Buyer and WWI, if there has been a material breach of Sellers' covenants and agreements hereunder or if the conditions contained in Section 6.2 cannot be fulfilled on or before April 30, 2001, (c) by Sellers, if there has been a material breach of WWI's or Buyers' covenants and agreements hereunder or if the conditions contained in Section 6.3 cannot be fulfilled on or before April 30, 2001, (d) by any party by notice to the other parties in the event that the Closing Date shall not have occurred on or before April 30, 2001; provided, however, that if the Closing shall not have occurred, on or before April 30, 2001 due to the act or failure of one of the parties, that party may not, and if such party is one of the Sellers, none of the Sellers may, or if such party is Buyer or WWI, neither Buyer nor WWI may, terminate the Agreement, or (e) by any party upon the occurrence of any of the adverse events described in Section 6.1(a) which has become a nonappealable final order, decree or judgment. 34 2. No Liabilities in Event of Termination In the event of any termination of this Agreement pursuant to Section 8.1, written notice thereof shall forthwith be given to the other parties specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become void and of no further force and effect, and no party hereto shall have any liability to the other parties or their respective Affiliates, directors, officers or employees, except for the obligations set forth in Sections 5.7, 10.1, 10.2, 10.3, 10.4, 10.5, 10.11 and 10.16 and this Section 8.2 hereof, which shall survive such termination; provided nothing in this Section 8.2. shall relieve any party from any liability for any breach of such party's covenants or agreements contained in this Agreement prior to such termination or, to the extent of reimbursement of the other party's expenses, for any breach of such party's representations and warranties under this Agreement. 3. Return of Documents In the event of the termination of this Agreement pursuant to this Section 8, Buyer and WWI agree, upon request of Sellers, to return or destroy all documents of Sellers containing Confidential Information that have been previously provided to Buyer and WWI. 9. Indemnification 1. Sellers Indemnity Sellers jointly and severally agree to indemnify, defend and hold Buyer, WWI and their respective Affiliates harmless against and in respect of (i) all obligations and liabilities of Sellers or any of their Affiliates, whether accrued, absolute, fixed, contingent or otherwise, not expressly assumed by Buyer pursuant to the Assumption Agreement; (ii) any claim, cost, loss, liability, charge, action, suit, proceeding, deficiency, damage and expense, interest, award, judgment and penalty (including, without limitation, reasonable legal costs and expenses) (collectively, "Losses") imposed on, incurred, sustained or suffered by Buyer, WWI or any of their respective Affiliates arising out of or as a result of (A) any misrepresentation or breach of warranty by Sellers or (B) a breach by Sellers of any covenant or other agreement contained herein; (iii) liabilities for sales, use, income and other taxes arising at any time out of the operation of the business of Sellers and their Affiliates prior to the opening of business on the Closing Date and not provided for in Section 10.3 hereof; (iv) any claim, cost, loss, liability or damage incurred or sustained by Buyer, WWI or their respective Affiliates as a result of the operation of the business of Sellers and their Affiliates prior to the opening of business on the Closing Date and (v) all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Buyer, WWI or their respective Affiliates in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9.1; provided, however that Sellers shall have no liability or obligation for consequential or punitive damages other than any such damages awarded to any person who is not a party hereto or is not an Affiliate of a party hereto. 2. Buyer and WWI Indemnity Buyer and WWI jointly and severally agree to indemnify, defend and hold Sellers and their respective Affiliates harmless against and in respect of (i) all obligations and liabilities of Sellers or any of their Affiliates, whether accrued, absolute, fixed, contingent or otherwise, expressly assumed by Buyer pursuant to the Assumption Agreement; (ii) any Losses imposed on, incurred, sustained or suffered by Sellers or any of their respective Affiliates arising out of or as a result of (A) any misrepresentation or breach of warranty by WWI or Buyer, or (B) a breach by WWI or Buyer of any covenant or other agreement contained herein; (iii) liabilities for sales, use, income and other taxes arising at any time out of the operation of the business of Buyer and its Affiliates following the opening of business on the Closing Date and not provided for in Section 10.3 hereof; (iv) any claim, costs, loss, liability or damage incurred or sustained by Sellers or their respective Affiliates as a result of the operation of the business of Buyer and its Affiliates following the opening of business on the Closing Date; and (v) all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Sellers or their Affiliates in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9.2; provided however, that neither Buyer nor WEI shall have any liability or obligation for consequential or punitive damages other than any such damages awarded to any person who is not a party hereto or is not an Affiliate of a party hereto. 3. Procedures for Indemnification 35 For the purposes of this Section 9.3, the term "Indemnitee" shall refer to the Person indemnified, or entitled, or claiming to be entitled to be indemnified, pursuant to the provisions of Section 9.1 or 9.2, as the case may be; and the term "Indemnitor" shall refer to the Person having the obligation to indemnify pursuant to such provisions. a. An Indemnitee shall give written notice (a "Notice of Claim") to the Indemnitor (including a Third Party Claim, as hereinafter defined) which an Indemnitee has determined has given or could reasonably be expected to give rise to a right of indemnification under this Agreement. No failure to give such Notice of Claim shall affect the indemnification obligations of the Indemnitor hereunder, except to the extent the Indemnitor can demonstrate such failure materially prejudiced such Indemnitor's ability to successfully defend the matter giving rise to the claim. The Notice of Claim shall state the nature of the claim, the amount of the Loss, if known and the method of computation thereof, all with reasonable particularity and containing a reference to the provisions of the Agreement in respect of which such right of indemnification is claimed or arises. b. The obligations and liabilities of an Indemnitor under this Article 9 with respect to Losses arising from claims of any third party that are subject to the indemnification provisions provided for in this Section 9 ("Third Party Claims") shall be governed by and contingent upon the following additional terms and conditions: The Indemnitee at the time it gives a Notice of Claim to the Indemnitor of the Third Party Claim shall advise the Indemnitor that Indemnitor shall be permitted, at its option, to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it gives written notice of its intention to do so to the Indemnitee within twenty (20) days of its receipt of the Notice of Claim. In the event the Indemnitor exercises its right to undertake the defense against any such Third Party Claim as provided above, the Indemnitee shall cooperate with the Indemnitor in such defense and make available to the Indemnitor all witnesses, pertinent records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitor, and the Indemnitee may participate by its own counsel and at its own expense in defense of such Third Party Claim; provided, however, that if the defendants in any Action shall include both the Indemnitee and the Indemnitor and such Indemnitee shall have reasonably concluded in good faith that counsel selected by the Indemnitor has a conflict of interest because of the availability of different or additional defenses to such Indemnitee, such Indemnitee shall have the right to select separate counsel to participate in the defense of such Action on its behalf, at the expense of the Indemnitor; provided, further, that such Indemnitor shall not, in connection with any one such action or separate but substantially similar or related actions, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel). Notwithstanding the foregoing, the Indemnitee, during the period the Indemnitor is determining whether to elect to assume the defense of a matter covered by this Section 9.3, may take such reasonable actions as it deems necessary to preserve any and all rights with respect to the matter, without such actions being construed as a waiver of the Indemnitee's rights to defense and indemnification pursuant to this Agreement. Similarly, in the event the Indemnitee is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and make available to it all such witnesses, records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitee and the Indemnitor may participate by its own counsel and at its own expense in the defense of such Third Party Action. Except for the settlement of a Third Party Claim which involves the payment of money only, no Third Party Claim may be settled or judgment entered by consent by the Indemnitor without the written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed. No Third Party Claim may be settled or 36 judgment entered by consent by the Indemnitee without the written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. 4. Additional Agreements The indemnities provided in this Article 9 shall survive the Closing, except that: (i) Sellers shall not be liable for any indemnification claim hereunder with respect to a misrepresentation or a breach of any warranty contained in (1) Section 4.1(n), unless notice of such claim shall have been delivered in accordance with this Section 9 on or before the third anniversary of the Closing Date, (2) Section 4.1(t), unless notice of such claim shall have been delivered in accordance with this Section 9 on or before the expiration of the longest statute of limitations applicable to claims against Sellers by any relevant taxing authority and (3) any provision of Section 4.1 (other than Section 4.1(n) and (t)), unless notice of such claim shall have been delivered in accordance with this Section 9 within eighteen months of the Closing Date; and (ii) Buyer shall not be liable for any indemnification claim hereunder with respect to a misrepresentation or a breach of any warranty contained in Section 4.2, unless notice of such claim shall have been delivered in accordance with this Article 9 within eighteen months of the Closing Date. a. The parties agree that any indemnification payments made pursuant to this Agreement shall be treated for tax purposes as an adjustment to the Purchase Price, unless otherwise required by applicable law. b. Any party receiving notice of any claim by any taxing authority that such party owes or may in the future owe Taxes shall, if the claim to which such notice relates could, if resolved against such party, reasonably be expected to have adverse consequences for other parties to this Agreement, notify all other parties of such notice. Any party may, at its own expense, be entitled to participate as an observer in the proceedings with respect to any such claim. 5. Limits on Indemnification Notwithstanding the provisions of Section 9.1(ii)(A), Sellers shall have no obligation to indemnify WWI or Buyer or any of their respective Affiliates pursuant to Section 9.1(ii)(A) except to the extent that the indemnification obligations thereunder shall exceed Two Hundred Twelve Thousand Five Hundred Dollars ($212,500) (the "Basket Amount") in the aggregate; provided if Seller indemnification obligations pursuant to Section 9.1(ii)(A) exceed the Basket Amount, WWI, Buyer and their respective Affiliates shall be entitled to receive indemnification with respect to the entire amount of such Losses, subject to the provisions of the next sentence. Furthermore, the aggregate indemnification obligations of Sellers pursuant to Section 9.1(ii)(A) shall not exceed Twenty-Five Million Dollars ($25,000,000); provided, however, that any indemnification claim by Buyer with respect to a misrepresentation or breach of any representation or warranty by any Seller contained in Sections 4.1(d) or (e) shall not be subject to the limitation of Twenty-Five Million Dollars ($25,000,000) set forth in this Section 9.5. The aggregate indemnification obligations of WWI and Buyer pursuant to Section 9.2(ii)(A) shall not exceed Twenty-Five Million Dollars ($25,000,000). 10. Miscellaneous 1. Public Announcements All public announcements relating to this Agreement or the transactions contemplated hereby shall be made at such time and in such manner as the parties hereto shall mutually agree, except that nothing in this Agreement shall prevent a party hereto from making any disclosure in connection with the transactions contemplated by this Agreement to the extent required by law provided that prior notice of such disclosure is given to the other parties. 2. Expenses Unless otherwise specified in this Agreement, whether or not the transactions contemplated by this Agreement are completed, each of the parties hereto shall pay the fees and expenses incurred by it in connection with the negotiation, preparation, execution and performance of this Agreement, including, without limitation, attorneys' and accountants' fees. The foregoing shall not affect the legal right, if any, that any party hereto may have to recover expenses from any other party that breaches its obligations hereunder. 3. Transfer Taxes and Recording Expenses Buyer shall assume and pay and shall indemnify Sellers against all sales, motor vehicle or transfer taxes and recording expenses, if any, required to be paid in connection with the transfer of the Assets (including any interest charge or penalty with respect thereto) up to an 37 amount not to exceed $50,000. If any such sales, motor vehicle or transfer taxes and recording expenses required to be paid in connection with the transfer of the Assets exceeds $50,000, the payment of such taxes and expenses shall be equally borne by Sellers, on the one hand, and Buyer, on the other hand. The parties shall cooperate in providing each other appropriate resale exemption certificates and other appropriate tax documentation. 4. Notices All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or telecopied or mailed, first class mail, postage prepaid, return receipt requested, as follows: If to Sellers: Weighco Enterprises, Inc. 25 East Court Street Suite 301 Greenville, South Carolina 29601 Telephone No. (864) 250-4440 Telecopy No. (864) 250-4413 Attention: Mr. D. Grant Peacock with a copy to: Law Offices of Alan Finegold Six PPG Place, Suite 1150 Pittsburgh, Pennsylvania 15222-5406 Telephone No. (412) 471-2548 Telecopy No. (412) 562-1613 Attention: Alan H. Finegold, Esq. If to WWI or Buyer: Weight Watchers International, Inc. 175 Crossways Park West Woodbury, New York 11797-2055 Telephone No. (516) 390-1754 Telecopy No. (516) 390-1795 Attention: Robert W. Hollweg with a copy to: The Invus Group, Ltd. 135 East 57th Street New York, New York 10022 Telephone No.: (212) 371-1717 Telecopy No.: (212) 371-1829 38 Attention: Raymond Debbane with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Telephone No. (212) 455-2000 Telecopy No. (212) 455-2502 Attention: Robert Spatt, Esq. or to such other address or to the attention of such other person as any party shall have specified by notice in writing to the other parties; provided that notice to WEI shall constitute notice to each of the other Sellers. All such notices, requests, demands and communications shall be deemed to have been received on the date of personal delivery or on the third business day after the mailing thereof. 5. Entire Agreement This Agreement (including the Exhibits and Schedules hereto) and the agreements specifically referred to herein or delivered pursuant hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof, including, without limitation, the letter agreement, dated September 29, 2000 (the "Letter of Intent"), among Sellers and WWI; provided nothing in this Section 10.5 shall relieve any party from any liability for any breach of such party's covenants or agreements contained in the Letter of Intent prior to such termination. 6. Binding Effect This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 7. Bulk Sales Law The parties agree to waive compliance with the provisions of the bulk sales law of any jurisdiction. Sellers agree to indemnify and hold harmless Buyer from and against any and all liabilities that may be asserted by third parties against Buyer as a result of such noncompliance; provided, however, that nothing contained in this Section 10.7 shall be interpreted or construed to relieve Buyer of any liability or responsibility for any Assumed Liability or to provide for indemnification against any Assumed Liability. 8. Assignability This Agreement shall not be assignable, in whole or in part, by any party hereto without the prior written consent of the other parties hereto; provided that without the consent of Sellers Buyer may assign any or all its rights, interests and obligations hereunder to any of its Affiliates and to a lender in connection with the financing of all or any portion of the Purchase Price. 9. No Third Party Beneficiaries Nothing herein expressed or implied shall confer upon any of the employees of Sellers, Buyer, WWI or any of their Affiliates, any rights or remedies, including, without limitation, any right to employment, or continued employment for any specified period, of any nature or kind under or by reason of the Agreement. Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 10. Amendment; Waiver 39 This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein, or in any documents delivered or to be delivered pursuant to this Agreement or in connection with the Closing hereunder. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 11. Confidentiality. (a) Except as and to the extent required by law or otherwise permitted pursuant to the Franchise Agreements, Buyer and WWI agree not to disclose or use, and will direct their Representatives not to disclose or use, at any time prior to the Closing Date to the detriment of Sellers any Confidential Information with respect to Sellers furnished or to be furnished by Sellers or any of their respective Representatives to Buyer, WWI or their Representatives at any time or in any manner other than in connection with the evaluation by Buyer or WWI of the transactions contemplated pursuant to this Agreement. For the purposes hereof, "Confidential Information" means any information about Sellers stamped "confidential" or identified in writing as such to Buyer and WWI by Sellers promptly following its disclosure, unless such data or information (a) is already known to Buyer or WWI or their Representatives or to others not bound by any duty of confidentiality or such information is publicly available through no fault of Buyer, WWI or their Representatives, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated pursuant to this Agreement or (c) the furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings. (b) Except as and to the extent required by law, Sellers agree not to disclose or use, and will direct its Representatives not to disclose or use, at any time on or after the Closing Date any confidential information with respect to the Assets or any other aspect of the Business of Sellers. For the purposes hereof, "confidential information" shall not include any data or information (a) publicly available through no fault of any Seller or its Representatives, or (b) the furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings or required by law. 12. Schedules. Any item disclosed in the Schedules attached hereto, under any specific Schedule number hereof, shall be deemed to have been disclosed only for purposes of such Schedule. Disclosure of any fact or item in any Schedule hereto shall not necessarily mean that such fact or item is material. 13. Section Headings; Table of Contents The section headings contained in this Agreement and the Table of Contents to this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 14. Severability If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect. 15. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 16. APPLICABLE LAW; JURISDICTION; VENUE THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING RELATING 40 TO THIS AGREEMENT OR TO THE TRANSACTIONS CONTEMPLATED HEREBY ("PROCEEDINGS"), EACH PARTY IRREVOCABLY (I) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY; AND (II) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDINGS BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT SUCH PROCEEDINGS HAVE BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY. 17. Further Assurances Each of the parties hereto agrees that, from and after the Closing, upon the reasonable request of any other party hereto and without further consideration, such party will promptly execute, acknowledge and deliver to such other party such documents and further assurances and will take such other actions (without cost to such party) as such other party may reasonably request in order to carry out the purpose and intention of this Agreement. 18. Other Franchise Agreements Except as otherwise provided in Section 3.7, no provision of this Agreement shall amend or waive any provision of any franchise agreement relating to the Weight Watchers business between WWI, on the one hand, and any Seller or any of their respective Affiliates, on the other hand, including, without limitation, WWI's right of first refusal with respect to any such franchise. 19. Time of Essence Time shall be of the essence with respect to the transactions contemplated by this Agreement. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. WEIGHT WATCHERS INTERNATIONAL, INC. By: /S/ Linda Huett ------------------- Name: Linda Huett Title: President WEIGHT WATCHERS NORTH AMERICA, INC. By: /S/ Linda Huett ------------------- Name: Linda Huett Title: President WEIGHCO ENTERPRISES, INC. By: /S/ D. Grant Peacock --------------------------- Name: D. Grant Peacock Title: Chairman WEIGHCO OF SOUTHWEST, INC. By: /S/ D. Grant Peacock --------------------------- Name: D. Grant Peacock Title: Chairman WEIGHCO OF NORTHWEST, INC. By: /S/ D. Grant Peacock --------------------------- Name: D. Grant Peacock Title: Chairman 41 SCHEDULES TO ASSET PURCHASE AGREEMENT Schedule 3.2 Purchase Price Allocation The portion of the Purchase Price allocated to inventories and supplies will be the Book Value thereof as of the Closing. The portion of Purchase Price allocated to furniture, fixtures and equipment will be one hundred fifty percent (150%) of the Book Value thereof, net of depreciation, as of the Closing. The portion of the Purchase Price allocated to leasehold improvements will be twenty-five percent (25%) of the Book Value thereof, net of depreciation, as of the Closing. The portion of the Purchase Price allocated to the remainder of the Assets, including real estate leases, the trade names, the Franchises and goodwill will be the remainder of such consideration or purchase price. For purposes of this Schedule 3.2, "Book Value" consists of the amount shown on the books and records of account of Sellers maintained in accordance with GAAP. EX-10.2 3 y43477ex10-2.txt WARRANT AGREEMENT & WARRANT CERTIFICATE NO. 2 1 Exhibit 10.2 WARRANT AGREEMENT Dated as of October 1, 2000 between WEIGHTWATCHERS.COM, INC. and WEIGHT WATCHERS INTERNATIONAL, INC. WARRANT AGREEMENT TABLE OF CONTENTS Page Section 1. Defined Terms. 1.1 Certain Definitions 1.2 Rules of Construction Section 2. Issuance, Form, Execution, Delivery and Registration of Warrant Certificates. 2.1 Issuance of Warrants 2.2 Execution of Warrant Certificates 2.3 Registration, Registration of Transfers and Exchanges 2.4 Form of Warrant Certificates 2.5 Restrictive Legends 2.6 Offices for Exercise, etc 2.7 Cancellation 2.8 Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates Section 3. Terms of Warrants; Exercise of Warrants. 6 3.1 Exercise Period 6 3.2 Manner of Exercise 7 3.3 Issuance of Warrant Shares 3.4 Fractional Warrant Shares 3.5 Sufficient Authorized Share Capital 3.6 Payment of Taxes 8 Section 4. Adjustment of Exercise Price and Number of Warrant Shares Issuable.
2 4.1 Adjustments 4.2 Superseding Adjustment 4.3 Minimum Adjustment 4.4 Notice of Adjustment 13 4.5 Notice of Certain Transactions 4.6 Adjustment to Warrant Certificate 4.7 Challenge to Good Faith Determination 4.8 Treasury Stock Section 5. Holders' Rights and Obligations. 5.1 Registration Rights 5.2 Other Rights and Obligations Section 6. Miscellaneous. 6.1 Notices to the Company and WWI 6.2 Amendments 6.3 Severability 6.4 Successors 6.5 Termination 6.6 Governing Law 6.7 Jurisdiction; Venue 6.8 Benefits of This Agreement 6.9 Counterparts 6.10 Table of Contents 6.11 MUTUAL WAIVER OF JURY TRIAL
Exhibits EXHIBIT A - Form of Note EXHIBIT B - Form of Warrant Certificate
WARRANT AGREEMENT, dated as of October 1, 2000 (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 $23.5 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 1,200,000 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: 3 1. DEFINED TERMS. 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. "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 4 exercise of each Warrant, which price shall be $7.14 per Warrant Share as adjusted in accordance with the terms hereof. "Expiration Date" means October 1, 2010. "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 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 October 1, 2000, 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. 2. Rules of Construction Unless the text otherwise required. 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; 5 iv. "including" means including, without limitation; and v. words in the singular include the plural and words in the plural include the singular. 2. ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES. 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. 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. 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 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 6 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. 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. 5. Restrictive Legends . The Warrant Certificates shall bear the following legend (the "Private Placement Legend") on the face thereof: 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. 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. 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. 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 7 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 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. 3. TERMS OF WARRANTS; EXERCISE OF WARRANTS. 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. 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 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 8 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. 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. 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. 5. Sufficient Authorized Share Capital 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. 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. 9 4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES ISSUABLE. 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. 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, 10 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 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. 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. 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. 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 11 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. 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; 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 12 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. 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 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. 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. 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 13 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. 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 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. 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. 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. 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. 5. HOLDERS' RIGHTS AND OBLIGATIONS. 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 14 Luxembourg S.A. ("Artal"). 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. 6. MISCELLANEOUS. 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. 360 Lexington Ave., 11th Floor New York, New York 10017 Attention: General Counsel Telecopy: (212) 687-4398 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 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. 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 15 clause or provision of this Agreement in any jurisdiction. 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. 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. 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. 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. 8. Benefits of This Agreement 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. a. 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 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. 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. 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. 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. 16 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: Name: Title: WEIGHT WATCHERS INTERNATIONAL, INC. By: Name: Title: EXHIBIT A [Form of Note] 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. 02 1,200,000 Warrants WARRANT CERTIFICATE WEIGHTWATCHERS.COM, INC. THIS CERTIFIES THAT, Weight Watchers International, Inc., a Virginia corporation ("WWI"), is the owner of 1,200,000 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 October 1, 2000 (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 $7.14 (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 October 1, 2010 (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. 17 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. 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: October 1, 2000 WEIGHTWATCHERS.COM, INC. By: Name: Title: [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, 360 Lexington Ave., 11th Floor, New York, New York 10017. 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. 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. 18 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. 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: ------------------------- - ------------------------------- (Signature of Owner) - ------------------------------- (Street Address) ------------------------------- (City) (State) (Zip Code) 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-10.3 4 y43477ex10-3.txt COLLATERAL ASSIGNMENT & SECURITY AGREEMENT 1 Exhibit 10.3 COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT, dated as of October 1, 2000, made by WEIGHTWATCHERS.COM, INC., a Delaware corporation (the "Company"), in favor of WEIGHT WATCHERS INTERNATIONAL, INC., a Virginia corporation (the "Holder"). W I T N E S S E T H: WHEREAS, the Company and the Holder are parties to that certain Note, dated as of October 1, 2000 (the "Note"), in a principal amount of $23,500,000; WHEREAS, pursuant to the Note, the Holder has agreed to make loans to the Company upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition to the obligation of the Holder to make the loans to the Company under the Note that the Company shall have executed and delivered this Collateral Assignment and Security Agreement to the Holder. NOW, THEREFORE, in consideration of the premises and to induce the Holder to enter into the Note and to induce the Holder to make the loans to the Company, the Company hereby agrees with the Holder as follows: 1. Defined Terms. 1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Note and used herein shall have the meanings given to them in the Note, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Certificated Security, Chattel Paper, Documents, Equipment, General Intangibles, Instruments, Inventory, Investment Property and Proceeds. (b) The following terms shall have the following meanings: "Agreement": this Collateral Assignment and Security Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Code": the Uniform Commercial Code as from time to time in effect in the State of New York. "Collateral": as defined in Section 1. "Copyrights": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof. "Copyright Licenses": any written agreement naming the Company as licensor or licensee, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. "Deposit Accounts": as defined in the Uniform Commercial Code of any applicable jurisdiction and, in any event, including, without limitation, any demand, time, savings, passbook or like account maintained with a depositary institution. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, 2 the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Obligations": the collective reference to the unpaid principal of and interest on the loans made under the Note and all other obligations and liabilities of the Company to the Holder, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Note or this Agreement. "Patents": (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof and (iii) all rights to obtain any reissues or extensions of the foregoing. "Patent License": all agreements, whether written or oral, providing for the grant by or to the Company of any right to manufacture, use or sell any invention covered in whole or in part by a Patent. "Receivable": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account). "Trademarks": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (ii) the right to obtain all renewals thereof. "Trademark License" means any agreement, written or oral, providing for the grant by or to the Company of any right to use any Trademark. "Vehicles" means all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state and all tires and other appurtenances to any of the foregoing. 1.2 Other Definitional Provisions. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Grant of Security Interest. As collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Company hereby grants to the Holder a security interest in all of the following property now owned or at any time hereafter acquired by the Company or in which the Company now has or at any time in the future may acquire any right, title or interest (collectively, the "Collateral"): (a) all Accounts; (b) all Chattel Paper; (c) all Deposit Accounts; (d) all Documents; (e) all Equipment; (f) all General Intangibles; 3 (g) all Instruments; (h) all Intellectual Property; (i) all Inventory; (j) all Investment Property; (k) all Vehicles; (l) all other property not otherwise described above; (m) all books and records pertaining to the Collateral; and a. (n) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any person with respect to any of the foregoing. Provided however notwithstanding anything in this Agreement to the contrary that that City do not this such in such sublease would does not Notwithstanding anything to the contrary above or contained herein, this Agreement shall not constitute an assignment or pledge of, or grant of security interest in or lien on, any Collateral to the extent that such assignment, pledge or grant of security interest or lien with respect to such Collateral is prohibited by, constitutes a breach of, or results in the termination of the terms of any contract, agreement, instrument or indenture relating to such Collateral; provided that the foregoing limitation shall not affect, limit, restrict or impair the grant by the Company of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due or other right of payment under any such contract, agreement, instrument or indenture. 3. Representations and Warranties. The Company hereby represents and warrants that: 3.1 Title; No Other Liens. Except for the security interest granted to the Holder pursuant to this Agreement, the Company owns each item of the Collateral free and clear of any and all liens or claims of others, other than liens expressly permitted by the Note. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Holder pursuant to this Agreement. 3.2 Perfected First Priority Liens. The security interests granted pursuant to this Agreement upon completion of the filings and other actions specified on Schedule 1 will constitute perfected security interests in the Collateral (other than security interest in vehicles granted hereunder which shall not be required to be perfected) in favor of the Holder, as collateral security for the Obligations and are prior to all other liens on the Collateral in existence on the date hereof. 3.3 Inventory and Equipment. The Inventory and the Equipment are kept at the locations listed on Schedule 2. 3.4 Jurisdiction of Organization; Chief Executive Office. The Company's jurisdiction of organization is Delaware and its chief executive office or sole place of business is presently located at 360 Lexington Avenue, New York, NY. Its chief executive office and sole place of business will be relocated to 888 Seventh Avenue, New York City, NY within the next three months. 4. Covenants. The Company covenants and agrees with the Holder that, from and after the date of this Agreement until the Obligations shall have been paid in full: 4.1 Delivery of Instruments, Certificated Securities and Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be immediately delivered to the Holder, duly indorsed in a manner satisfactory to the Holder, to be held as Collateral pursuant to this Agreement. 4.2 Maintenance of Perfected Security Interest; Further Documentation. (a) The Company shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in subsection 3.2 and shall defend such security interest against the claims and demands of all persons whomsoever. (b) The Company will furnish to the Holder from time to time statements and schedules further 4 identifying and describing the assets and property of the Company and such other reports in connection therewith as the Holder may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Holder, and at the sole expense of the Company, the Company will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Holder may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property, Deposit Accounts and any other relevant Collateral, taking any actions necessary to enable the Holder to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto. 4.3 Changes in Locations, Name, etc. The Company will not, except upon 15 days' prior written notice to the Holder and delivery to the Holder of (a) all additional executed financing statements and other documents reasonably requested by the Holder to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 2 showing any additional location at which Inventory or Equipment shall be kept: (a) permit any of the Inventory or Equipment to be kept at a location other than those listed on Schedule 2; (b) change its jurisdiction of organization or the location of its chief executive office or sole place of business from that specified in subsection ; or (c) change its name, identity or corporate structure to such an extent that any financing statement filed by the Holder in connection with this Agreement would become misleading. 4.4 Notices. The Company will advise the Holder promptly, in reasonable detail, of: (a) any lien (other than security interests created hereby) on any of the Collateral which would adversely affect the ability of the Holder to exercise any of its remedies hereunder; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 5. Remedies. If an Event of Default shall occur and be continuing, the Holder may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. 6. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7. Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Company and the Holder. 8. No Waiver by Course of Conduct; Cumulative Remedies. The Holder shall not by any act (except by a written instrument pursuant to Section 7), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Holder, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Holder of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Holder would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 9. Enforcement Expenses; Indemnification. (a) The Company agrees to pay or reimburse the Holder for all its costs and expenses incurred in enforcing or preserving any rights under this Agreement, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to the Holder. (b) The Company agrees to pay, and to save the Holder harmless from, any and all liabilities with respect 5 to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) The Company agrees to pay, and to save the Holder harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (other than those resulting from the gross negligence or willful misconduct of the Holder) with respect to the execution, delivery, enforcement, performance and administration of this Agreement. (d) The agreements in this Section 9 shall survive repayment of the Obligations and all other amounts payable under the Note. 10. Releases. (a) At such time as the Obligations shall have been in full, the Collateral shall be released from the liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Holder and the Company hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Company. At the request and sole expense of the Company following any such termination, the Holder shall deliver to the Company any Collateral held by the Holder hereunder, and execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination. (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by the Company in a transaction permitted by the Note, then the Holder, at the request and sole expense of the Company, shall execute and deliver to the Company all releases or other documents reasonably necessary or desirable for the release of the liens created hereby on such Collateral. 110. Notices. All notices, requests and demands to or upon the Holder hereunder shall be effected in the manner provided for in the Note. 121. Section Headings. The Section and subsection headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 132. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of the Company and shall inure to the benefit of the Holder and its successors and assigns. 143. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 154.. WAIVER OF JURY TRIAL. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, the undersigned has caused this Collateral Assignment and Security Agreement to be duly executed and delivered as of the date first above written. WEIGHTWATCHERS.COM, INC. By: ______________________________ Name: Title: 6 Schedule 1 FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS Uniform Commercial Code Filings Schedule 2 INVENTORY AND EQUIPMENT Item Location -----END PRIVACY-ENHANCED MESSAGE-----