-----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, RZ562njfWU7TVipFzeackUQm9UgV9FQL7wUj7cmE2svonkcs/X+q4GBKrp64aipu rijWjVNhtocJcTnjy4DRTg== 0000950123-01-505628.txt : 20010815 0000950123-01-505628.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950123-01-505628 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03389 FILM NUMBER: 1712786 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 y52353e10-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 ended June 30, 2001 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 August 14, 2001 was 23,154,500. PART I -- FINANCIAL INFORMATION 2 2 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX - --------------------------------------------------------------------------------
Part I. FINANCIAL INFORMATION PAGE NO. - ------------------------------ -------- Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2001 (unaudited) and as of December 30, 2000 2 Unaudited Consolidated Statements of Operations for the three months ended June 30, 2001 and July 29, 2000 3 Unaudited Consolidated Statements of Operations for the six months ended June 30, 2001 and July 29, 2000 4 Unaudited Consolidated Statements of Changes in Stockholders' Deficit, Parent Company Investment and Comprehensive Income for the six months ended June 30, 2001, for the eight month period ended December 30, 2000, and for the fiscal year ended April 29, 2000 5 Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and July 29, 2000 6 Notes to Unaudited Consolidated Financial Statements 7 - 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 - 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Part II. OTHER INFORMATION 26 - 27 - --------------------------- 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) - --------------------------------------------------------------------------------
JUNE 30, DECEMBER 30, 2001 2000 ASSETS (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 45,620 $ 44,501 Receivables, net 18,009 14,678 Notes receivable, current 608 2,106 Inventories 12,389 15,044 Prepaid expenses, other 11,743 17,111 -------------- -------------- TOTAL CURRENT ASSETS 88,369 93,440 Property and equipment, net 9,500 8,145 Notes and other receivables, noncurrent 240 5,601 Goodwill, net 225,514 150,901 Trademarks and other intangible assets, net 7,066 6,648 Deferred income taxes 67,207 67,207 Deferred financing costs, other 14,685 14,275 -------------- -------------- TOTAL ASSETS $ 412,581 $ 346,217 ============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Portion of long-term debt due within one year $ 16,157 $ 14,120 Accounts payable 8,784 11,989 Accrued liabilities 55,559 47,636 Income taxes 19,861 3,660 Deferred revenue 14,928 5,836 -------------- -------------- TOTAL CURRENT LIABILITIES 115,289 83,241 Long-term debt 462,548 456,530 Deferred income taxes 3,040 3,107 Other 890 121 -------------- -------------- TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 466,478 459,758 Redeemable preferred stock 26,746 25,996 Common stock subject to a Put 14,402 -- Stockholders' deficit Common stock, par value $0 per share, authorized and issued 23,800 shares at June 30, 2001 and December 30, 2000; outstanding 23,155 shares at June 30, 2001 and 23,800 shares at December 30,2000 -- -- Treasury stock, at cost, 645 shares at June 30, 2001 (12,265) -- Accumulated deficit (182,378) (216,507) Accumulated other comprehensive loss (15,691) (6,271) -------------- -------------- TOTAL STOCKHOLDERS' DEFICIT (210,334) (222,778) -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 412,581 $ 346,217 ============== ==============
The accompanying notes are an integral part of the consolidated financial statements. 4 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 3 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) - --------------------------------------------------------------------------------
THREE MONTHS ENDED ------------------------------------ JUNE 30, JULY 29, 2001 2000 (UNAUDITED) Revenues, net $ 162,325 $ 103,073 Cost of revenues 71,701 48,295 -------------- ------------- Gross profit 90,624 54,778 Marketing expenses 13,469 6,678 Selling, general and administrative expenses 17,854 11,474 -------------- ------------- Operating income 59,301 36,626 Interest expense, net 13,248 14,021 Other expenses, net 3,321 4,249 -------------- ------------- Income before income taxes and minority interest 42,732 18,356 Provision for income taxes 16,642 4,556 -------------- ------------- Income before minority interest 26,090 13,800 Minority interest 12 95 -------------- ------------- Net Income $ 26,078 $ 13,705 =============== =============
The accompanying notes are an integral part of the consolidated financial statements. 5 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 4 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) - --------------------------------------------------------------------------------
SIX MONTHS ENDED ----------------------------------- JUNE 30, JULY 29, 2001 2000 (UNAUDITED) Revenues, net $ 334,276 $ 235,935 Cost of revenues 149,144 111,158 -------------- ------------- Gross profit 185,132 124,777 Marketing expenses 40,569 25,290 Selling, general and administrative expenses 35,481 28,747 -------------- ------------- Operating income 109,082 70,740 Interest expense, net 27,368 29,018 Other expenses (income), net 3,871 (6,594) -------------- ------------- Income before income taxes and minority interest 77,843 48,316 Provision for income taxes 28,457 16,872 -------------- ------------- Income before minority interest 49,386 31,444 Minority interest 70 226 -------------- ------------- Net Income $ 49,316 $ 31,218 ============== =============
The accompanying notes are an integral part of the consolidated financial statements. 6 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 5 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT, PARENT COMPANY INVESTMENT AND COMPREHENSIVE INCOME (IN THOUSANDS) - --------------------------------------------------------------------------------
ADDITIONAL COMMON STOCK TREASURY STOCK PAID IN SHARES AMOUNT SHARES AMOUNT CAPITAL -------- -------- ------ ----------- ---------- Balance at April 24, 1999 Net Parent settlements Recapitalization and settlement of Parent Company investment 23,800 (72,100) Deferred tax asset 72,100 Comprehensive Income: Net income Translation adjustment Total Comprehensive Income Preferred stock dividend -------- -------- ------ --------- ---------- Balance at April 29, 2000 23,800 $ -- -- $ -- $ -- Elimination of foreign subsidiaries one month reporting lag effective April 30, 2000 Comprehensive income: Net Income Translation adjustment Total Comprehensive Income Preferred stock dividend -------- -------- ------ --------- ---------- Balance at December 30, 2000 23,800 $ -- -- $ -- $ -- Comprehensive Income: Net Income Foreign currency translation adjustment Change in fair value of derivatives accounted for as hedges Total Comprehensive Income Preferred Stock Dividend Transfer of common stock to common stock subject to a Put Purchase of Treasury Stock 670 (12,730) -- Sale of Treasury Stock (25) 465 -- -------- -------- ------ --------- ---------- Balance at June 30, 2001 23,800 $ -- 645 $ (12,265) $ -- ======== ======== ====== ========= ==========
ACCUMULATED OTHER PARENT COMPREHENSIVE ACCUMULATED COMPANY'S LOSS DEFICIT INVESTMENT TOTAL --------- --------- --------- --------- Balance at April 24, 1999 $ 248,948 $ 248,948 Net Parent settlements (252,883) (252,883) Recapitalization and settlement of Parent Company investment (12,764) (268,547) 3,935 (349,476) Deferred tax asset 72,100 Comprehensive Income: Net income 37,759 37,759 Translation adjustment 10,311 10,311 --------- Total Comprehensive Income 48,070 --------- Preferred stock dividend (875) (875) --------- --------- --------- --------- Balance at April 29, 2000 $ (2,453) $(231,663) $ -- $(234,116) Elimination of foreign subsidiaries one month reporting lag effective April 30, 2000 1,137 1,137 Comprehensive income: Net Income 15,019 15,019 Translation adjustment (3,818) (3,818) --------- Total Comprehensive Income 11,201 --------- Preferred stock dividend (1,000) (1,000) --------- --------- --------- --------- Balance at December 30, 2000 $ (6,271) $(216,507) $ -- $(222,778) Comprehensive Income: Net Income 49,316 49,316 Foreign currency translation adjustment (3,854) (3,854) Change in fair value of derivatives accounted for as hedges (5,566) (5,566) --------- Total Comprehensive Income 39,896 --------- Preferred Stock Dividend (750) (750) Transfer of common stock to common stock subject to Put (14,402) (14,402) Purchase of Treasury Stock -- (12,730) Sale of Treasury Stock (35) 430 --------- --------- --------- --------- Balance at June 30, 2001 $ (15,691) $(182,378) $ -- $(210,334) ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 7 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 6 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) - -------------------------------------------------------------------------------
SIX MONTHS ENDED -------------------- JUNE 30, JULY 29, 2001 2000 (UNAUDITED) Cash provided by operating activities $ 92,869 $ 39,570 --------- -------- Investing activities: Capital expenditures (1,187) (1,314) Advances to equity investment (7,844) (4,800) Acquisition (84,353) -- Other items, net (1,532) (2,839) --------- -------- Cash used for investing activities (94,916) (8,953) --------- -------- Financing activities: Net decrease in short-term borrowings (257) (1,200) Proceeds from borrowings 60,000 -- Payments of long-term debt (42,735) (7,060) Deferred financing costs -- (165) Net Parent advances -- 2,171 Purchase of treasury stock (12,730) -- Proceeds from issuance of treasury stock 430 -- --------- -------- Cash provided by (used for) financing activities 4,708 (6,254) --------- -------- Effect of exchange rate changes on cash and cash equivalents (1,542) (2,523) Net increase in cash and cash equivalents 1,119 21,840 Cash and cash equivalents, beginning of period 44,501 34,446 --------- -------- Cash and cash equivalents, end of period $ 45,620 $ 56,286 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 8 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 7 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 Form 10K for the eight month period ended December 30, 2000. 2. CHANGE IN FISCAL YEAR The Company changed its fiscal year end from the last Saturday of April, to the Saturday closest to December 31st effective with the eight month period commencing April 30, 2000. In the prior periods, in order to facilitate timely reporting, certain foreign subsidiaries ended their fiscal period one month prior to the Company's fiscal period with no material impact on the consolidated financial statements. Effective April 30, 2000, the one month lag has been eliminated. 3. RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 and 142, "Business Combinations" ("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"), respectively. SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for by the purchase method of accounting. SFAS 142 specifies that goodwill and indefinite lived intangible assets will no longer be amortized but instead will be subject to annual impairment testing. The Company will adopt SFAS 142 on December 30, 2001. The Company is currently evaluating the effect that implementation of the new standards will have on its financial position, results of operations and cash flows. 4. ACQUISITION On January 16, 2001, the Company completed the acquisition of Weight Watchers' franchised territories and certain business assets of Weighco Enterprises, Inc., Weighco of Northeast, Inc., and Weighco of Southwest, Inc. ("Weighco"), for an aggregate purchase price of approximately $83.8 million plus acquisition costs of approximately $.6 million. The acquisition was financed through additional borrowings of $60 million obtained pursuant to the Company's Amended and Restated Credit Agreement, dated January 16, 2001, and cash from operations. The acquisition has been accounted for under the purchase method of accounting and, accordingly, the results of operations are included in the financial statements from the date of the acquisition. Assets acquired include inventory ($2.0 million) and property and equipment ($1.8 million). The excess of investment over the net book value of assets acquired at the date of acquisition resulted in goodwill of $80.6 million which will be amortized over 20 years. 9 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 8 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following table presents unaudited pro forma financial information that reflects the consolidated results of operations of the Company and Weighco as if the acquisition had occurred as of the beginning of the respective periods. This pro forma information does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the consolidated companies.
PRO FORMA for the Three Months Ended for the Six Months Ended -------------------------- ------------------------ July 29, July 29, 2000 2000 (In thousands) (In thousands) Revenue $ 116,096 $ 261,323 Net income $ 15,392 $ 34,477
5. 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 recapitalization and stock purchase was financed through borrowings under credit facilities amounting to approximately $237.0 million and by issuing Senior Subordinated Notes amounting to $255.0 million, due 2009. The balance of the borrowings was utilized to refinance debt incurred prior to the Transaction relating to the transfer of ownership and acquisition of the minority interest in the Weight Watchers businesses that operate in Australia and New Zealand. The acquisition of the minority interest resulted in approximately $15.9 million of goodwill. In connection with the Transaction, the Company incurred approximately $8.3 million in transaction costs 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 recorded a step-up in the tax basis of net assets. For financial reporting purposes, a valuation allowance of approximately $72.1 million was established against the corresponding deferred tax asset of $144.2 million. Management concluded, more likely than not, that the valuation allowance would not be utilized to reduce future tax payments. The Company will continue to monitor the need to maintain the valuation allowance in the future periods. 6. TREASURY STOCK On April 18, 2001, the Company entered into a Put/Call Agreement with Heinz, pursuant to which Heinz acquired the right and option to sell during the period ending on or before May 15, 2002, and the Company acquired the right and option to purchase after that date and on or before August 15, 2002, 1,428,000 shares of the common stock of the Company currently owned by Heinz. In the event all of the Put and Call options are exercised, the value of the transaction will approximate $27.1 million, plus related costs. 10 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 9 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- On April 30, 2001, Heinz exercised its option to sell 670,000 shares for approximately $12.7 million, which was funded with cash from operations. By Put Notice dated July 19, 2001, Heinz notified the Company of its intention to exercise its option to sell an additional 650,000 shares for approximately $12.4 million effective August 15, 2001. The Company intends to fund this transaction with cash from operations. The Company will fund any future transactions with cash from operations and, if needed, its existing credit facilities pursuant to the Amended and Restated Credit Agreement, dated as of January 16, 2001, as amended, among Weight Watchers International, Inc., WW Funding Corp., Various Financial Institutions, as the Lenders, Credit Suisse First Boston, BHF (USA) Capital Corporation, and The Bank of Nova Scotia. 7. COMPREHENSIVE INCOME Comprehensive income for the Company includes net income, the effects of foreign currency translation and changes in fair value of derivative instruments. Comprehensive income is as follows:
For the Three Months Ended For the Six Months Ended -------------------------- ------------------------ June 30, July 29, June 30, July 29, 2001 2000 2001 2000 (In thousands) (In thousands) Net income $ 26,078 $ 13,705 $ 49,316 $ 31,218 Foreign currency translation adjustment 96 (886) (3,854) (2,974) Change in fair value of derivatives Cumulative effect of the adoption of SFAS 133 -- -- (5,086) -- Current period changes in fair value of derivatives (480) -- (480) -- -------- -------- -------- -------- Comprehensive income $ 25,694 $ 12,819 $ 39,896 $ 28,244 ======== ======== ======== ========
8. 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"). The Credit Facility was amended and restated on January 16, 2001 to provide for an additional $50 million in borrowings in connection with the acquisition of Weighco (see Note 4) as follows: (i) Term Loan A was increased by $15.0 million, (ii) the Revolving Credit Facility was increased by $15.0 million to $45.0 million and (iii) a new $20.0 million term loan D facility ("Term Loan D"). 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%, (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% and (c) in the case of Term Loan D, 3.25% or, at the Company's option, the alternate base rate plus 2.25%. At June 30, 2001, the interest rates were 11 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 10 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7.58% for Term Loan A, 8.80% for Term Loan B, 8.02% for the TLC and 8.7% for Term Loan D. All assets of the Company collateralize the Credit Facility. In addition, as part of the Transaction, 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. At June 30, 2001, the 100.0 million EUR notes translated into $85.0 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. The notes are guaranteed by certain subsidiaries of the Company. The Credit Facility contains a number of covenants that, among other things, restrict the Company's ability to dispose of assets, incur additional indebtedness, or engage in certain transactions with affiliates and otherwise restrict the Company's corporate activities. In addition, under the Credit Facility, the Company is required to comply with specified financial ratios and tests, including minimum fixed charge coverage and interest coverage ratios and maximum leverage ratios. 9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Effective December 31, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its related amendment, Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS 133"). These standards require that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value as either assets or liabilities. Changes in the fair value of derivatives will be recorded each period in earnings or accumulated other comprehensive loss, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive loss will be included in earnings in the periods in which earnings are affected by the hedged item. As of December 31, 2000, the adoption of these new standards resulted in an adjustment of $5.1 million to accumulated other comprehensive loss. The Company enters into forward and swap contracts to hedge certain transactions denominated in foreign currencies in order to reduce the currency risk associated with fluctuating exchange rates. Such contracts are used primarily to hedge certain intercompany cash flows and for payments arising from certain foreign denominated obligations. In addition, the Company enters into interest rate swaps to hedge a substantial portion of its variable rate debt which are accounted for as cash flow hedges. As of June 30, 2001, losses of $0.5 million for effective hedges, were reported as a component of accumulated other comprehensive loss. For the six months ended June 30, 2001, ineffectiveness related to cash flow hedges was not material. In addition, fair value adjustments for non-qualifying hedges resulted in a reduction of net income of $1.2 million for the six months ended June 30, 2001. The Company does not anticipate any reclassification to earnings from accumulated other comprehensive loss within the next twelve months. 12 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 11 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 10. WEIGHTWATCHERS.COM NOTE AND WARRANT AGREEMENTS On May 3, 2001, the Company amended and restated its loan agreement with WeightWatchers.com increasing the aggregate principal amount from $23.5 million to $28.5 million. The principal amount may be advanced 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 is payable on September 30, 2003. The note may be prepaid at any time in whole or in part, without premium or penalty. During the three month and six month period ended June 30, 2001, the Company advanced WeightWatchers.com $2.6 million and $7.8 million, respectively, pursuant to the note. In addition to the advance, $.7 million and $1.4 million, respectively, of interest, were classified in other expenses, net during the three month and six month period ended June 30, 2001. At June 30, 2001 the balance outstanding under the loan agreement was $24.6 million. Under Warrant Agreements dated November 24, 1999, October 1, 2000 and May 3, 2001, each agreement entered into between WeightWatchers.com and the Company, the Company received warrants to purchase 5,861,664 shares of WeightWatchers.com's common stock in connection with the loans that the Company has made to WeightWatchers.com under the WeightWatchers.com Note described above. These warrants will expire on November 24, 2009, October 1, 2010 and May 2, 2011, respectively and may be exercised at a price of $7.14 per warrant share. The exercise price and the number of shares of WeightWatchers.com's common stock available for purchase upon exercise of the warrants may be adjusted from time to time upon the occurrence of certain described events. 11. LEGAL The Company is not a party to any material pending legal proceedings. The Company has had and continues to have disputes with the Company's franchisees regarding, among other things, operations and revenue sharing, including the interpretation of franchise territories as they relate to new media. In addition, 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 all such matters will not have a material effect on the consolidated results of operations, cash flows or financial position of the Company. 12. INCOME TAXES As a result of the Transaction, the Company has provided for a valuation allowance for its deferred tax assets. The determination of the net deferred tax assets deemed realizable was based on available historical evidence, and estimates of future taxable income. This amount may be subject to adjustment based on changes to those factors in future periods. The primary differences between the U.S. federal statutory tax rate and the Company's effective tax rate are the valuation allowance and state income taxes. The effective tax rate for the three month and six month period ended June 30, 2001 were 38.9% and 36.6%, respectively. 13. 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: 13 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 12 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 (Exercise) Ltd.; 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. Presented below is condensed consolidating financial information for Weight Watchers International, Inc. ("Parent Company"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries (primarily companies incorporated in European countries other than the United Kingdom). In the Company's opinion, separate financial statements and other disclosures concerning each of the Guarantor Subsidiaries would not provide additional information that is material to investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below. Investments in subsidiaries are accounted for by the Parent Company on the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Parent Company's investments in subsidiaries' accounts. The elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. 14 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 13 SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 2001 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 12,306 $ 19,521 $ 13,793 $ -- $ 45,620 Receivables, net 4,960 11,650 1,399 -- 18,009 Notes receivable, current 606 -- 2 -- 608 Inventories -- 9,397 2,992 -- 12,389 Prepaid expenses, other 419 9,593 1,731 -- 11,743 Intercompany receivables (payables) 24,074 (31,880) 7,806 -- -- --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 42,365 18,281 27,723 -- 88,369 Investment in consolidated subsidiaries 213,923 -- -- (213,923) -- Property and equipment, net 1,164 7,267 1,069 -- 9,500 Notes and other receivables, noncurrent 240 -- -- -- 240 Goodwill, net 27,568 197,308 638 -- 225,514 Trademarks and other intangible assets, net 837 6,216 13 -- 7,066 Deferred income taxes (44,713) 111,920 -- -- 67,207 Deferred financing costs, other 13,876 97 712 -- 14,685 --------- --------- --------- --------- --------- TOTAL ASSETS $ 255,260 $ 341,089 $ 30,155 $(213,923) $ 412,581 ========= ========= ========= ========= ========= LIABILITIES, AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES Portion of long-term debt due within one year $ 15,321 $ 836 $ -- $ -- $ 16,157 Accounts payable 492 6,437 1,855 -- 8,784 Accrued liabilities 28,033 20,076 7,450 -- 55,559 Income taxes (2,739) 19,073 3,527 -- 19,861 Deferred revenue -- 13,723 1,205 -- 14,928 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 41,107 60,145 14,037 -- 115,289 Long-term debt 380,858 81,690 -- -- 462,548 Deferred income taxes 2,481 -- 559 -- 3,040 Other -- 775 115 -- 890 --------- --------- --------- --------- --------- TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 383,339 82,465 674 -- 466,478 Redeemable preferred stock 26,746 -- -- -- 26,746 Common Stock subject to a Put 14,402 -- -- -- 14,402 Stockholders' (deficit) equity (210,334) 198,479 15,444 (213,923) (210,334) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 255,260 $ 341,089 $ 30,155 $(213,923) $ 412,581 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 15 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 14 SUPPLEMENTAL UNAUDITED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 30, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 26,699 $ 11,191 $ 6,611 $ -- $ 44,501 Receivables, net 7,390 5,941 1,347 -- 14,678 Notes receivable, current 2,104 -- 2 -- 2,106 Inventories -- 11,867 3,177 -- 15,044 Prepaid expenses, other 9,171 5,611 2,329 -- 17,111 Intercompany (payables) receivables (10,921) 3,147 7,774 -- -- --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 34,443 37,757 21,240 -- 93,440 Investment in consolidated subsidiaries 175,876 -- -- (175,876) -- Property and equipment, net 1,272 5,679 1,194 -- 8,145 Notes and other receivables, noncurrent 5,601 -- -- -- 5,601 Goodwill, net 28,367 121,814 720 -- 150,901 Trademarks and other intangible assets, net 1,876 4,761 11 -- 6,648 Deferred income taxes (44,713) 111,920 -- -- 67,207 Deferred financing costs, other 13,676 271 328 -- 14,275 --------- --------- --------- --------- --------- TOTAL ASSETS $ 216,398 $ 282,202 $ 23,493 $(175,876) $ 346,217 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES Portion of long-term debt due within one year $ 13,250 $ 870 $ -- $ -- $ 14,120 Accounts payable 932 8,379 2,678 -- 11,989 Accrued liabilities 23,787 17,151 6,698 -- 47,636 Income taxes 1,677 (414) 2,397 -- 3,660 Deferred revenue -- 4,843 993 -- 5,836 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 39,646 30,829 12,766 -- 83,241 Long-term debt 371,053 85,477 -- -- 456,530 Deferred income taxes 2,481 -- 626 -- 3,107 Other -- -- 121 -- 121 --------- --------- --------- --------- --------- TOTAL LONG-TERM DEBT AND OTHER LIABILITIES 373,534 85,477 747 -- 459,758 Redeemable preferred stock 25,996 -- -- -- 25,996 Stockholders' (deficit) equity (222,778) 165,896 9,980 (175,876) (222,778) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 216,398 $ 282,202 $ 23,493 $(175,876) 346,217 ========= ========= ========= ========= =========
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 THREE MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ----------- ------------ ----------- Revenues, net $ 1,949 $ 135,780 $ 24,596 $ -- $ 162,325 Cost of revenues 61 58,524 13,116 -- 71,701 --------- --------- --------- --------- --------- Gross profit 1,888 77,256 11,480 -- 90,624 Marketing expenses -- 11,681 1,788 -- 13,469 Selling, general and administrative expenses 3,990 11,309 2,555 -- 17,854 --------- --------- --------- --------- --------- Operating (loss) income (2,102) 54,266 7,137 -- 59,301 Interest expense (income), net 9,199 4,244 (195) -- 13,248 Other expenses, net 1,776 1,535 10 -- 3,321 Equity in income of consolidated subsidiaries 27,838 -- -- (27,838) -- Franchise commission income (loss) 13,262 (11,451) (1,811) -- -- --------- --------- --------- --------- --------- Income before income taxes and minority interest 28,023 37,036 5,511 (27,838) 42,732 Provision for income taxes 1,945 12,538 2,159 -- 16,642 --------- --------- --------- --------- --------- Income before minority interest 26,078 24,498 3,352 (27,838) 26,090 Minority interest 12 12 --------- --------- --------- --------- --------- Net income $ 26,078 $ 24,498 $ 3,340 $ (27,838) $ 26,078 ========= ========= ========= ========= =========
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 OPERATIONS FOR THE THREE MONTHS ENDED JULY 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Revenues, net $ 7,927 $ 81,408 $ 13,738 $ -- $103,073 Cost of revenues 265 39,331 8,699 -- 48,295 -------- -------- -------- -------- -------- Gross profit 7,662 42,077 5,039 -- 54,778 Marketing expenses 1,100 4,683 895 -- 6,678 Selling, general and administrative expenses 4,497 5,107 1,870 -- 11,474 -------- -------- -------- -------- -------- Operating income 2,065 32,287 2,274 -- 36,626 Interest expense (income), net 9,387 4,713 (79) -- 14,021 Other expenses (income), net 4,352 (99) (4) -- 4,249 Equity in income of consolidated subsidiaries 17,034 -- -- (17,034) -- Franchise commission income (loss) 2,202 (1,730) (472) -- -- -------- -------- -------- -------- -------- Income before income taxes and minority interest 7,562 25,943 1,885 (17,034) 18,356 (Benefit from) provision for income taxes (6,143) 10,471 228 -- 4,556 -------- -------- -------- -------- -------- Income before minority interest 13,705 15,472 1,657 (17,034) 13,800 Minority interest -- -- 95 -- 95 -------- -------- -------- -------- -------- Net income $ 13,705 $ 15,472 $ 1,562 $(17,034) $ 13,705 ======== ======== ======== ======== ========
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 OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ Revenues, net $ 2,830 $ 277,354 $ 54,092 $ -- $ 334,276 Cost of revenues 563 119,883 28,698 -- 149,144 --------- --------- --------- --------- --------- Gross profit 2,267 157,471 25,394 -- 185,132 Marketing expenses -- 33,769 6,800 -- 40,569 Selling, general and administrative expenses 9,669 20,929 4,883 -- 35,481 --------- --------- --------- --------- --------- Operating (loss) income (7,402) 102,773 13,711 -- 109,082 Interest expense (income), net 18,919 8,809 (360) -- 27,368 Other expenses, net 1,178 2,677 16 -- 3,871 Equity in income of consolidated subsidiaries 53,193 -- -- (53,193) -- Franchise commission income (loss) 26,336 (22,957) (3,379) -- -- --------- --------- --------- --------- --------- Income before income taxes and minority interest 52,030 68,330 10,676 (53,193) 77,843 Provision for income taxes 2,714 21,851 3,892 -- 28,457 --------- --------- --------- --------- --------- Income before minority interest 49,316 46,479 6,784 (53,193) 49,386 Minority interest -- -- 70 -- 70 --------- --------- --------- --------- --------- Net income $ 49,316 $ 46,479 $ 6,714 $ (53,193) $ 49,316 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 19 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 18 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JULY 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ------------ Revenues, net $ 17,649 $ 183,716 $ 34,570 $ -- $ 235,935 Cost of revenues 2,375 87,957 20,826 -- 111,158 --------- --------- --------- --------- --------- Gross profit 15,274 95,759 13,744 -- 124,777 Marketing expenses 1,903 20,031 3,356 -- 25,290 Selling, general and administrative expenses 15,023 10,052 3,672 -- 28,747 --------- --------- --------- --------- --------- Operating (loss) income (1,652) 65,676 6,716 -- 70,740 Interest expense (income), net 21,191 7,914 (87) -- 29,018 Other (income) expenses, net (6,129) (484) 19 -- (6,594) Equity in income of consolidated subsidiaries 27,390 -- -- (27,390) -- Franchise commission income (loss) 17,100 (15,126) (1,974) -- -- --------- --------- --------- --------- --------- Income before income taxes and minority interest 27,776 43,120 4,810 (27,390) 48,316 (Benefit from) provision for income taxes (3,442) 18,381 1,933 -- 16,872 --------- --------- --------- --------- --------- Income before minority interest 31,218 24,739 2,877 (27,390) 31,444 Minority interest -- -- 226 -- 226 --------- --------- --------- --------- --------- Net income $ 31,218 $ 24,739 $ 2,651 $ (27,390) $ 31,218 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 20 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 19 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------ -------------- Cash provided by operating activities $ 27,388 $ 110,293 $ 8,381 $ (53,193) $ 92,869 --------- --------- --------- --------- --------- Investing activities: Capital expenditures (51) (867) (269) -- (1,187) Advances to equity investment (7,844) -- -- -- (7,844) Acquisition -- (84,353) -- -- (84,353) Other items, net (406) (1,041) (85) -- (1,532) --------- --------- --------- --------- --------- Cash used for investing activities (8,301) (86,261) (354) -- (94,916) --------- --------- --------- --------- --------- Financing activities: Net (decrease) increase in short-term borrowings (566) 309 -- -- (257) Parent company investment in subsidiaries (38,047) -- -- 38,047 -- Proceeds from borrowings 60,000 -- -- -- 60,000 Payment of dividends -- (11,585) -- 11,585 -- Payments on long-term debt (38,913) (3,822) -- -- (42,735) Net parent settlements -- -- 330 (330) -- Payments to acquire treasury stock (12,730) -- -- -- (12,730) Proceeds from issuance of treasury stock 430 -- -- -- 430 --------- --------- --------- --------- --------- Cash (used for) provided by financing activities (29,826) (15,098) 330 49,302 4,708 --------- --------- --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents (3,654) (604) (1,175) 3,891 (1,542) Net (decrease) increase in cash and cash equivalents (14,393) 8,330 7,182 -- 1,119 Cash and cash equivalents, beginning of period 26,699 11,191 6,611 -- 44,501 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period $ 12,306 $ 19,521 $ 13,793 $ -- $ 45,620 ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 21 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 20 SUPPLEMENTAL UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS JULY 29, 2000 (IN THOUSANDS) - --------------------------------------------------------------------------------
NON- PARENT GUARANTOR GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Cash provided by (used for) operating activities $ 54,914 $ 12,104 $ 1,079 $(28,527) $ 39,570 -------- -------- -------- -------- -------- Investing activities: Capital expenditures (235) (744) (335) -- (1,314) Advances to equity investment (4,800) -- -- -- (4,800) Other items, net (2,143) (740) 44 -- (2,839) -------- -------- -------- -------- -------- Cash (used for) provided by investing activities (7,178) (1,484) (291) -- (8,953) -------- -------- -------- -------- -------- Financing activities: Net increase (decrease) in short-term borrowings 196 (1,396) -- -- (1,200) Parent company investment in subsidiaries (25,208) -- -- 25,208 -- Proceeds from borrowings -- -- -- -- -- Payment of dividends -- -- (1,603) 1,603 -- Payments on long-term debt (6,625) (435) -- -- (7,060) Deferred financing costs (165) -- -- -- (165) Net Parent (settlements) advances 2,177 -- 1,217 (1,223) 2,171 -------- -------- -------- -------- -------- Cash (used for) provided by financing activities (29,625) (1,831) (386) 25,588 (6,254) -------- -------- -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (2,903) (1,686) (873) 2,939 (2,523) Net increase (decrease) in cash and cash equivalents 15,208 7,103 (471) -- 21,840 Cash and cash equivalents, beginning of year 3,880 21,847 8,719 -- 34,446 -------- -------- -------- -------- -------- Cash and cash equivalents, end of year $ 19,088 $ 28,950 $ 8,248 $ -- $ 56,286 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 22 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 TO THREE MONTHS ENDED JULY 29, 2000 In the opinion of management the comparison of the three months ended June 30, 2001 to the three months ended July 29, 2000 most closely reflects the Company's performance. Revenues for the quarter increased 57.5% or $59.3 million, to $162.3 million. Of the $59.3 million increase, $31.3 million was attributable to domestic Company-owned classroom meeting fees, $20.1 million from product sales, $5.7 million from foreign Company-owned classroom meeting fees, $1.6 million from licensing, publications, and other royalties, and $0.6 million from franchise revenues. Domestic Company-owned classroom meeting fee revenues were $70.0 million for the three months ended June 30, 2001, an increase of $31.3 million from $38.7 million for the three months ended July 29, 2000. The Weighco acquisition accounted for $18.0 million of the total increase. Foreign Company-owned classroom meeting fee revenues were $38.7 million for the three months ended June 30, 2001, an increase of $5.7 million from $33.0 million for the three months ended July 29, 2000. The increase in domestic and foreign Company-owned classroom meeting fees was the result of increased member attendance, offset by negative exchange rate variances. Product revenues were $42.9 million for the three months ended June 30, 2001, an increase of $20.1 million from $22.8 million for the three months ended July 29, 2000. The increase in product revenues was primarily the result of increased member attendance and the Company's strategy to focus sales efforts on core classroom products. Domestic and international franchise revenues were $7.6 million for the three months ended June 30, 2001, an increase of $0.6 million from $7.0 million for the three months ended July 29, 2000. Domestic and international franchise revenues excluding Weighco increased 33.3% for the three months ended June 30, 2001. This increase was primarily the result of an increase in member attendance, offset by negative exchange rate variances. Gross profit margins for the quarter increased to 55.8% from 53.1% in the prior period. The increase in gross profit margins was due to higher margins generated by product sales, improved operating efficiencies, and an increase in attendance per meeting. Marketing expenses were $13.5 million for the three months ended June 30, 2001, an increase of $6.8 million or 101.7% from $6.7 million for the three months ended July 29, 2000. The increase in marketing was primarily the result of additional advertising to promote the new program innovations and timing differences related to the Company's shift in fiscal calendars. Selling, general and administrative expenses were $17.9 million for the three months ended June 30, 2001, an increase of $6.4 million from $11.5 million for the three months ended July 29, 2000. As a percentage of revenue, selling, general and administrative costs decreased from 11.1% for the three months ended July 29, 2000 to 11.0% for the three months ended June 30, 2001. As a result of the above, operating income was $59.3 million for the three months ended June 30, 2001, an increase of $22.7 million or 61.9% from $36.6 million for the three months ended July 29, 2000. The Weighco acquisition accounted for $9.2 million of the total increase in operating income. 23 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 TO SIX MONTHS ENDED JULY 29, 2000 In the opinion of management the comparison of the six months ended June 30, 2001 to the six months ended July 29, 2000 most closely reflects the Company's performance. Revenues for the six months increased 41.7% or $98.3 million, to $334.3 million. Of the $98.3 million increase, $51.5 million was attributable to domestic Company-owned classroom meeting fees, $35.7 million from product sales, $7.7 million from foreign Company-owned classroom meeting fees, $2.6 million from licensing, publications, and other royalties, and $0.8 million from franchise revenues. Domestic Company-owned classroom meeting fee revenues were $134.2 million for the six months ended June 30, 2001, an increase of $51.5 million from $82.7 million for the six months ended July 29, 2000. The Weighco acquisition accounted for $32.8 million of the total increase. Foreign Company-owned classroom meeting fee revenues were $85.9 million for the six months ended June 30, 2001, an increase of $7.7 million from $78.2 million for the six months ended July 29, 2000. The increase in domestic and foreign Company-owned classroom meeting fees was the result of increased member attendance, the roll-out of new program innovations and price increases in select markets offset by negative exchange rate variances. Product revenues were $92.7 million for the six months ended June 30, 2001, an increase of $35.7 million from $57.0 million for the six months ended July 29, 2000. The increase in product revenues was primarily the result of increased member attendance and the Company's strategy to focus sales efforts on core classroom products. Domestic and international franchise revenues were $15.9 million for the six months ended June 30, 2001, an increase of $0.8 million from $15.1 million for the six months ended July 29, 2000. Domestic and international franchise revenues excluding Weighco increased 24.2% for the six months ended June 30, 2001. This increase was primarily the result of an increase in member attendance and product sales, offset by negative exchange rate variances. Gross profit margins for the six months increased to 55.4% from 52.9% in the prior period. The increase in gross profit margins was due to price increases in selected markets, improved operating efficiencies, higher margins generated by product sales and an increase in attendance per meeting. Marketing expenses were $40.6 million for the six months ended June 30, 2001, an increase of $15.3 million or 60.4% from $25.3 million for the six months ended July 29, 2000. The increase in marketing was primarily the result of additional advertising to promote the new program innovations and timing differences related to the Company's shift in fiscal calendars. Selling, general and administrative expenses were $35.5 million for the six months ended June 30, 2001, an increase of $6.8 million from $28.7 million for the six months ended July 29, 2000. As a percentage of revenue, selling, general and administrative costs decreased from 12.2% for the six months ended July 29, 2000 to 10.6% for the six months ended June 30, 2001. As a result of the above, operating income was $109.1 million for the six months ended June 30, 2001, an increase of $38.4 million or 54.2% from $70.7 million for the six months ended July 29, 2000. The Weighco acquisition accounted for $16.2 million of the total increase in operating income. 24 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 2001, the Company's primary source of funds to meet working capital needs was cash from operations. Cash and cash equivalents increased $1.1 million during the six months ended June 30, 2001. Cash flows provided by operating and financing activities of $92.9 million and $4.7 million, respectively, funded net cash flows used for investing activities of $94.9 million. On January 16, 2001, the Company acquired franchised territories and certain business assets, including inventory and property and equipment, of Weighco for $83.8 million. The acquisition was financed with available cash of $23.8 million and additional borrowings of $60.0 million. On April 30, 2001, Heinz exercised its option to sell 670,000 shares for $12.7 million, which was funded with cash from operations. During the quarter, in addition to the scheduled debt payments, the Company paid down $10 million on the Term loans from cash generated through operations. Capital spending has averaged approximately $2.7 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 June 30, 2001 was $1.2 million. The Company is significantly leveraged. As of June 30, 2001, there was outstanding $478.7 million in aggregate indebtedness, with approximately $45.0 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. 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." 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 25 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- - - 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. 26 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------------------- The Company is exposed to foreign currency fluctuations and interest rate changes. Its exposure to market risk for changes in interest rates relates to the fair value of long-term fixed rate debt and interest expense of variable rate debt. The Company has historically managed interest rates through the use of, and its long-term debt is currently composed of, a combination of fixed and variable rate borrowings. Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. Based on the overall interest rate exposure on the Company's fixed rate borrowings at June 30, 2001, 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 the reporting 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 June 30, 2001, 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. 27 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 26 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 eight month period ended December 30, 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. EXHIBIT INDEX 10.1 Amended and Restated Note dated October 1, 2000, by WeightWatchers.com, Inc. to Weight Watchers International, Inc. 10.2 Warrant Agreement, dated as of May 3, 2001, between WeightWatchers.com, Inc. and Weight Watchers International, Inc. 10.3 Warrant Certificate WeightWatchers.com, Inc., No. 3, dated May 3, 2001. 10.4 Put/Call Agreement dated April 18, 2001 between Weight Watchers International, Inc. and H.J. Heinz Company. (b) Reports on Form 8-K On May 3, 2001, the Company filed Form 8-K to report under Item 5, the Put/Call Agreement dated April 18, 2001 with Heinz relating to the common stock of the Company owned by Heinz. 28 WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES 27 PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- 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: August 14, 2001 By: /s/ LINDA HUETT ------------------------------------- Linda Huett President and Director (Principal Executive Officer) Date: August 14, 2001 By: /s/ THOMAS S. KIRITSIS ------------------------------------- Thomas S. Kiritsis Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-10.1 3 y52353ex10-1.txt AMENDED AND RESTATED NOTE 1 Exhibit 10.1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND LAWS IS AVAILABLE. WEIGHTWATCHERS.COM, INC. AMENDED AND RESTATED NOTE $28,500,000 OCTOBER 1, 2000 FOR VALUE RECEIVED, the undersigned, WEIGHTWATCHERS.COM, INC., a Delaware corporation (the "Company"), promises to pay to the order of WEIGHT WATCHERS INTERNATIONAL, INC., a Virginia corporation (the "Holder"), on September 30, 2003 (the "Maturity Date") the principal amount of (a) TWENTY-EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($28,500,000.00), or, if less, (b) the aggregate unpaid principal amount of all loans made by the Holder to the Company pursuant to this amended and restated promissory note (this "Note"). Until July 31, 2003, the Holder agrees, at any time or from time to time, to loan the Company up to an aggregate principal amount of $28,500,000 (the "Commitment") within five business days of its receipt of a written request therefor. This Note amends and restates as of the date hereof an existing promissory note dated October 1, 2000 between the Company and the Holder (the "Old Note") in the aggregate principal amount of $23,500,000, which included the outstanding principal amount plus accrued interest on a pre-existing promissory note dated November 24, 1999 for $10,000,000 between the Company and the Holder (the "Prior Note"). As of October 1, 2000, the principal amount plus accrued interest of the Prior Note was rolled over and subsumed into the Old Note and the Prior Note was thereby cancelled. All loans made under this Note shall be in an amount equal to $100,000 or an integral multiple thereof. The unpaid principal amount of this Note from time to time outstanding since the Issuance Date shall bear interest at a rate of 13% per annum, and such interest shall be due and payable semi-annually in arrears on March 31 and September 30 of each year, commencing on March 31, 2001. Interest will be computed on the basis of a 365-day year and the actual number of days elapsed including the first day but excluding the payment date. All payments of principal of and interest on this Note shall be payable in lawful currency of the United States of America. All such payments shall be made by the Company to an account established by the Holder and notified to the Company and shall be recorded on the books and records of the Company and the Holder. 1 2 The Company agrees to pay to the Holder a commitment fee for the period from and including the Issuance Date to July 31, 2003, computed at a rate of 0.50% per annum on the average daily unused portion of the Commitment payable semi-annually in arrears on March 31 and September 30 of each year, commencing March 31, 2001. The Company may skip the payment of the first semi-annual payment of interest and the commitment fee without penalty. However, the amounts otherwise due on March 31, 2001 shall then be paid on September 30, 2001 together with the payments normally due on that date. The Company shall have the further option to skip payment of this first semi-annual payment then otherwise due on September 30, 2001. In addition to the immediately preceding paragraph, the Company may also skip the payment of the second semi-annual payment of interest and commitment fee otherwise due on September 30, 2001 without penalty. However, the amounts otherwise due on September 30, 2001 in accordance with the immediately two preceding paragraphs shall then be paid on March 31, 2002 together with (i) interest on the amounts otherwise due on September 30, 2001 accruing at a rate of 13% per annum from September 30, 2001 (computed on the basis of a 365-day year and the actual number of days elapsed until paid including the first day), and (ii) the payments normally due on March 31, 2002. If any payment on this Note becomes due and payable on a day other than a day on which commercial banks in New York City are open for the transaction of normal business (a "Business Day"), the maturity thereof shall be extended to the next succeeding Business Day and, with respect to any payment of principal, interest or commitment fees thereon, shall be payable at the then applicable rate during such extension. The Holder is authorized to endorse on Schedule A attached hereto and made a part hereof, the amount of each loan made pursuant to this Note (including the outstanding principal and interest on the Prior Note) and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. In addition to, but not in limitation of, the foregoing, the Company further agrees to pay all expenses, including (i) the making of any loans under this Note and (ii) reasonable attorneys' fees and legal expenses, incurred by the Holder in connection with endeavoring to collect any amounts payable hereunder which are not paid when due. 1. Payment Provisions. 1.1 Payments on this Note. The Company shall make payments of principal of, interest on and the commitment fees with respect to this Note when due. 1.2 Optional Redemption. This Note may be redeemed at the option of the Company, at any time or from time to time, in whole or in part, without premium or penalty, at par plus accrued and unpaid interest, plus any accrued and unpaid commitment fees. 1.3 Change of Control. Upon a Change of Control, the Holder shall have the right to require the Company to repurchase this Note at a purchase price equal to 101% of the 2 3 principal amount thereof plus accrued and unpaid interest plus any accrued and unpaid commitment fee to the date of purchase. 2. Default. The entire unpaid principal of this Note, together with all accrued and unpaid interest and any accrued and unpaid commitment fees shall become and be immediately due and payable upon written demand of the Holder (or in the case of an event specified in Sections 2(g) or (h), automatically without notice), without any other notice or demand of any kind or any presentment or protest, if any one of the following events (an "Event of Default") shall occur and be continuing at the time of such demand, whether voluntarily or involuntarily, or, without limitation, occurring or brought about by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any governmental body: a. The Company defaults in any payment of interest or any commitment fee on this Note when the same becomes due and payable, and such default continues for a period of 30 days; b. The Company (i) defaults in the payment of the principal of this Note when the same becomes due and payable at its Stated Maturity or pursuant to the provision of Section 1.3, (ii) defaults in the payment of the principal of this Note when the same becomes due and payable upon redemption, upon declaration or otherwise, or (iii) fails to redeem or purchase the Note when required pursuant to this Note; c. The Company fails to comply with Section 3.8; d. The Company or any of its Subsidiaries fail to comply with any other provision of Section 3, and such failure continues for 30 days after the notice specified below; e. The Company or any of its Subsidiaries fail to comply with any of its agreements in this Note (other than those referred to in (a), (b), (c) or (d) above) and such failure continues for 60 days after the notice specified below; f. Indebtedness of the Company or any of its Subsidiaries is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated at any time exceeds $1,000,000; g. The Company or any of its Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: 1. commences a voluntary case; 3 4 2. consents to the entry of an order for relief against it in an involuntary case; 3. consents to the appointment of a custodian of it or for any substantial part of its property; or 4. makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; h. A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 1. is for relief against the Company or any of its Subsidiaries in an involuntary case; 2. appoints a custodian of the Company or any of its Subsidiaries or for any substantial part of its property; or 3. orders the winding up or liquidation of the Company or any of its Subsidiaries; or any similar relief is granted under any foreign laws and the order, decree or relief remains unstayed and in effect for 60 consecutive days; i. Any judgment or decree for the payment of money in excess of $1,000,000 is rendered against the Company or any of its Subsidiaries (other than a judgment or decree in a claim brought by any Person arising out of, or relating to, the Company's or any of its Subsidiaries' (A) use of the Weight Watchers trademarks, service marks, trade names, brand names, copyrights, program information, terminology or materials, and/or other intellectual property as provided in any license agreement between the Company (or any of its Subsidiaries) and the Holder, or (B) provision of services pursuant to any service agreement between the Company (or any of its Subsidiaries) and the Holder) and is not discharged and either (1) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (2) there is a period of 60 days following such judgment during which such judgment or decree is not discharged, waived or the execution thereof stayed; or 4 5 A Default under Sections 2(d) or (e) is not an Event of Default until the Holder notifies the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. 3. Covenants. 3.1 Limitation on Indebtedness. a. The Company and its Subsidiaries shall not Incur any Indebtedness which will result in the total Indebtedness of the Company and its Subsidiaries exceeding $35,000,000 (including the amount of any principal and interest outstanding on this Note) at any time that there is any principal or interest outstanding on this Note. Notwithstanding the foregoing, for purposes of determining the total Indebtedness Incurred by the Company and its Subsidiaries at any time, any Indebtedness between the Company and any of its Subsidiaries, or between any of the Company's Subsidiaries, shall be excluded. b. This Note shall be senior and have a first priority over all other Indebtedness of the Company. 3.2 Limitation on Liens. The Company shall not, directly or indirectly create, incur, assume or suffer to exist any Lien that secures obligations on any asset or property of the Company and any of its Subsidiaries or any income or profits therefrom, or assign or convey any right to receive income therefrom except for (A) (i) Liens incurred in the ordinary course of business for sums not overdue for a period of more than thirty (30) days (other than Liens consented in writing by Holder), (ii) Liens incurred in the ordinary course of business to finance the purchase, lease or improvement of property (real or personal) or equipment, or (iii) Liens incurred with respect to this Note or any Guarantee issued by the Holder or any Subsidiary of the Holder, or (B) the amount of such Lien or Liens do not result in the total Indebtedness of the Company exceeding $35,000,000 as hereinbefore provided. 3.3 Limitation on Distributions and Redemptions. a. The Company or any Subsidiary shall not, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) or similar payment to the direct or indirect holders of its Capital Stock except (1) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase such Capital Stock and (2) dividends or distributions payable solely to the Company or a Wholly Owned Subsidiary, (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Wholly Owned Subsidiary held by Persons other than the 5 6 Company, (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payments any Indebtedness (other than Indebtedness represented by this Note and Indebtedness between the Company and any of its Subsidiaries, or between Subsidiaries of the Company) or (iv) make any Investment in any Person other than a Permitted Investment. b. The provisions of Section 3.3(a) shall not prohibit: The repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any director, officer or employee of the Company or any Subsidiary of the Company upon such director ceasing to be a director or upon the termination of such officer's or employee's employment with the Company or any Subsidiary of the Company; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1,000,000 in any twelve-month period. 3.4 Limitation on Restrictions on Distributions from Subsidiaries. The Company shall not, and shall not permit any Subsidiary to, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligation owed to the Company or any of its Subsidiaries, (ii) make any loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its property or assets to the Company or any of its Subsidiaries. 3.5 Limitation on Sales of Assets and Subsidiary Stock. The Company shall not, and shall not permit any Subsidiary to, make any Asset Disposition in excess of $10,000 unless (a) the Company or such Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition, (b) at least 85% of the consideration thereof received by the Company or such Subsidiary is in the form of cash or cash equivalents, and (c) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Subsidiary, as the case may be) to invest in Additional Assets within 120 days of receipt thereof. On the 121st day after an Asset Disposition or on such earlier date as the Board of Directors shall determine not to apply 100% of the Net Available Cash as set forth in the preceding sentence, the Company shall redeem this Note, in whole or in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest with the aggregate amount of Net Available Cash which has not been applied in accordance with the preceding sentence. 3.6 Limitation on Transactions with Shareholders and Affiliates. a. The Company shall not, and shall not permit any Subsidiary of the Company to, directly or indirectly, enter into or conduct any 6 7 transaction or related series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms of such transaction are no less favorable to the Company or such Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate. b. The foregoing shall not prohibit (1) any transaction between the Company or any of its Subsidiaries, on the one hand, and any Permitted Holder, on the other hand, (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (3) loans or advances to employees in the ordinary course of business, or (4) any transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. 3.7 Sale of Subsidiary Capital Stock. The Company (a) will not, and will not permit any Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Subsidiary to any Person (other than the Company or a Wholly Owned Subsidiary) and (b) will not permit any Subsidiary to issue any of its Capital Stock (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary. 3.8 Merger, Consolidation or Sale of Assets. The Company shall not consolidate with or merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all its assets to, any Person (in one transaction or a series of related transactions), or permit any Person to merge with or into the Company and the Company will not permit any of its Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Subsidiaries, taken as a whole, to any other Person or Persons without the express written permission of the Holder, unless the principal amount of the Note and any outstanding interest or commitment fee is paid in full prior to the completion of any such transaction. In granting any such written permission the Holder at a minimum will require the following: 1. the resulting, surviving or transferee Person (the "Successor Company") shall be a corporation organized and existing under the laws of the United States of America or any state thereof and the Successor Company (if not the Company) shall expressly assume all the obligations of the Company under this Note; 7 8 2. immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; 3. immediately after giving effect to such transaction on a pro forma basis, the Successor Company shall have a Consolidated Net Worth equal to or greater than an amount which is not less than the Consolidated Net Worth of the Company prior to such transaction; and 4. the Company shall have delivered to the Holder an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the terms of this Note and the Successor Company shall have delivered to the Holder an Officer's Certificate and an Opinion of Counsel, each stating that the assumption of the Note has been duly approved and authorized by the Board of Directors or Shareholders of such Successor Company as may be required by the Holder. 3.9 Periodic Reports. The Company shall provide the Holder with three quarterly unaudited financial statements (within forty-five (45) days of each quarter end) and audited annual reports containing all financial information reasonably requested by Holder (within ninety (90) days of each year end) including, without limitation, income statement, balance sheet, and cash flows prepared in accordance with GAAP. Notwithstanding the foregoing, audited annual reports with respect to calendar years 1999 and 2000 shall be provided by the Company no later than May 31. 2001. 3.10 Corporate Existence. The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership, limited liability or other existence of each of its Subsidiaries in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and the rights (charter and statutory) of the Company and each of its Subsidiaries; provided, however, that the Company shall not be required to preserve any such existence or right if such existence or right involves a Wholly Owned Subsidiary. 3.11 Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon it or any of its Subsidiaries or upon the income, profits or property of it or any of its Subsidiaries and (b) all lawful claims for labor, materials and supplies which, in each case, if unpaid, might by law become a material Lien upon or a material liability affecting the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is 8 9 being contested in good faith by appropriate proceedings and for which appropriate provision has been made. 3.12 Maintenance of Properties and Insurance. (a) The Company shall cause all material properties owned by or leased by it or any of its Subsidiaries useful and necessary to the conduct of its business or the business of any of its Subsidiaries to be improved or maintained and kept in normal condition, repair and working order and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section 3.12 shall prevent the Company or any of its Subsidiaries from discontinuing the use, operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors or of the board of directors of any Subsidiary of the Company concerned, or of an officer (or other agent employed by the Company or of any of its Subsidiaries) of the Company or any of its Subsidiaries having managerial responsibility for any such property, desirable in the conduct of the business of the Company or any Subsidiary of the Company, and if such discontinuance or disposal is not adverse in any material respect to the Holder. (b) To the extent available at commercially reasonable rates, the Company shall maintain, and shall cause its Subsidiaries to maintain, insurance with responsible carriers against such risks and in such amounts, and with such deductibles, retentions, self-insured amounts and co-insurance provisions, as are customarily carried by similar businesses, of similar size. 3.13 Compliance Certificate; Notice of Default. The Company shall deliver to the Holder, within 90 days after the close of each quarter, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether it has kept, observed, performed and fulfilled, and has caused each of its Subsidiaries to keep, observe, perform and fulfill its obligations under this Note and further stating, as to each such officer signing such certificate, that, to the best of his knowledge, the Company during such preceding fiscal year has kept, observed, performed and fulfilled, and has caused each of its Subsidiaries to keep, observe, perform and fulfill each and every such covenant contained in this Note and no Default occurred during such year and at the date of such certificate there is no Default which has occurred and is continuing or, if such signers do know of such Default, the certificate shall describe its status, with particularity and that, to the best of his or her knowledge, no event has occurred and remains by reason of which payments on the account of the principal of or interest on or commitment fee with respect to this Note is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. The Officers' Certificate shall also notify the Holder should the Company elect to change the manner in which it fixes its fiscal year end. The Company shall notify the Holder of any default or defaults in the performance of any covenants or agreements under this Note within five Business Days of becoming aware of any such default. 9 10 3.14 Compliance with Laws. The Company shall comply, and shall cause its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders of the relevant jurisdiction in which they are incorporated and/or in which they carry on business, all political subdivisions thereof, and of any relevant governmental regulatory authority, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. 3.15 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such power as though no such law had been enacted. 3.16 Conduct of Business. The Company shall not, and shall not permit any Subsidiary to, engage in any business, other than a Related Business. 3.17 Future Subsidiaries. Unless otherwise agreed to in writing by Holder, after the Issuance Date, the Company will cause each Subsidiary created or acquired by the Company and each of its Subsidiaries to execute and deliver to the Holder a supplement to this Note (which shall also be executed and delivered by the Company) pursuant to which such Subsidiary will become a party to this Note and thereby be obligated, on a joint and several basis, to make full and prompt payment of the principal of, premium, if any, and interest on this Note. 3.18 Jurisdiction of Incorporation. The Company shall not change its jurisdiction of incorporation or the jurisdiction of its tax residency to a jurisdiction other than the United States of America or any state thereof. 4. Certain Definitions. For purposes of this Note, unless otherwise specifically indicated herein, the term "consolidated" with respect to any Person refers to such Person consolidated with its Subsidiaries. In addition, for purposes of the following definitions and this Note generally, all calculations and determinations shall be made in accordance with GAAP and shall be based upon the consolidated financial statements of the Company and its Subsidiaries prepared in accordance with GAAP. As used in this Note, the following terms shall have the following meanings: "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person that becomes a Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Subsidiary of the Company; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Subsidiary of the Company; provided, however, that, in the case of clauses (ii) and (iii), such Subsidiary is primarily engaged in a Related Business. 10 11 "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of Capital Stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Subsidiary to the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory in the ordinary course of business, (iii) the sale of Temporary Cash Investments in the ordinary course of business, and (iv) a disposition of obsolete equipment or property, or equipment or property that is no longer useful in the business of the Company and its Subsidiaries and that is disposed of in the ordinary course of business. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by this Note, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Bankruptcy Law" means Title 11, United States Code, or any similar U.S. Federal and state laws relating to bankruptcy, insolvency, winding up, administration, receivership and other similar matters. "Board of Directors" means the Board of Directors of the Company. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interests in (however designated) equity of such Person, including, without limitation, any Preferred Stock and if such Person is a partnership, partnership interests, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease. "Change of Control" means the occurrence of any of the following events: (i) any Person (other than a Permitted Holder) is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), except that such Person shall be deemed 11 12 to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) of more than 35% of the total voting power of the Voting Stock of the Company; (ii) the first day within any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors or the board of directors of the Company (together with any new directors whose election by such board of directors or whose nomination for election by the shareholders of the Company or the Company was approved by a majority of the directors of the Company, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason (other than by voluntary resignation, death or disability) to constitute a majority of such board of directors then in office; (iii) upon any merger or consolidation of the Company with or into any Person or any sale, transfer or other conveyance of all or substantially all of the assets of the Company, on a consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction or series of related transactions, any Person (other than a Permitted Holder) is or becomes the owner, directly or indirectly, of more than 35% of the total voting power in the aggregate normally entitled to vote in the election of directors, managers, or trustees, as applicable, of the transferee or surviving entity; (iv) a sale or disposition (other than a transfer to one or more Wholly Owned Subsidiaries of the Company), whether directly or indirectly, by the Company of all or substantially all of its assets; or (v) the pro rata distribution by the Company to its stockholders of substantially all of its assets. "Company" means WeightWatchers.com, Inc. (the maker of this Note). "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 12 13 "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes. "GAAP" means generally accepted accounting principles in the United States in effect as of the Issuance Date. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Subsidiary at the time it becomes a Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto); (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except trade payables), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (v) all Capitalized Lease Obligations and all Attributable Indebtedness of such Person; 13 14 (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, net obligations of such Person under Currency Agreements and Interest Rate Agreements. For the avoidance of doubt, the term "Indebtedness" shall not be deemed to include the trade liabilities of any Person. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Issuance Date" means October 1, 2000. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof) whether or not recorded, filed or otherwise perfected under applicable law. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset 14 15 Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Subsidiary of the Company after such Asset Disposition. "Officers' Certificate" means a certificate signed on behalf of the Company by two officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company that meets the requirements of Section 8.5. "Opinion of Counsel" means a written opinion from legal counsel which and who are reasonably acceptable to, and addressed to, the Holder complying with the requirements of Section 8.5. "Permitted Holder" means Artal Luxembourg S.A., the Holder or any of their respective Affiliates. "Permitted Investment" means an Investment by the Company or any of its Subsidiaries in: (1) any Subsidiary or Person that will, upon the making of the Investment, become or remain a Wholly Owned Subsidiary of the Company (provided the primary business of such Subsidiary is a Related Business); (2) any Subsidiary or Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to the Company or a Wholly Owned Subsidiary of the Company (provided such merger, consolidation, transfer or conveyance complies with Section 3.8 above); (3) cash and Temporary Cash Investments; (4) receivables owing to the Company or any Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (provided that such trade terms may include concessionary trade terms as the Company or any Subsidiary deems reasonable under the circumstances); (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) stock, obligations or securities received in the settlement of debts created in the ordinary course of business and owing to the Company or any Subsidiary or in the satisfaction of judgments; 15 16 (7) any Person to the extent such Investment represents the non-cash portion of the consideration received for in an Asset Disposition as permitted pursuant to Section 3.5; (8) Investments the payment for which consists of Capital Stock of the Company (other than Disqualified Stock); and (9) any Investment acquired by the Company or any of its Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such Investment or accounts receivable, or (b) as a result of a foreclosure by the Company or any such Subsidiary with respect to any secured Investment or other transfer of title with respect to any secured Investment in default. "Person" means any individual, corporation (including the Company), partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Related Business" means any business related, ancillary or complementary to the businesses of the Company's and its Subsidiaries' (i) use of the Weight Watchers trademarks, service marks, trade names, brand names, copyrights, program information, terminology or materials, and/or other intellectual property as provided in any license agreement between the Company (or any Subsidiary) and the Holder, or (ii) provision of services pursuant to any service agreement between the Company (or any Subsidiary) and the Holder. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Subsidiary transfers such property to a Person and the Company or a Subsidiary leases it from such Person. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof 16 17 is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Temporary Cash Investments" means any of the following: (i) any Investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America or any state thereof having capital, surplus and undivided profits aggregating in excess of $250 million and whose long-term debt, or whose parent holding company's long-term debt, is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) Investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, (v) Investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc., and (vi) Investments in mutual funds whose investment guidelines restrict such funds' investments to those satisfying the provisions of clauses (i) through (v) above. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Subsidiary of the Company all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. 6. Loss, Theft, Destruction or Mutilation. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and, in the case of such loss, theft or destruction, upon delivery to the Company of an indemnity undertaking reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender of this Note to the Company, the Company will issue a new note, of like tenor and principal amount, in lieu of or in exchange for such lost, stolen, destroyed or mutilated Note. Upon the issuance of any substitute Note, the Company may require the payment to it of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses in connection therewith. 17 18 5. Notices and Demands. All notices, demands and other communications provided for in this Note or made under this Note shall be in writing and shall be deemed to have been duly given if delivered by hand (whether by overnight courier or otherwise) or sent by registered or certified mail, return receipt requested, postage prepaid, to the Person to whom it is directed: (a) If to Holder, to it at the following address: Weight Watchers International, Inc. 175 Crossways Park West Woodbury, NY 11797-2055 Attn: General Counsel (b) If to the Company, to it at the following address: WeightWatchers.com, Inc. 888 Seventh Ave., 8th Floor New York, New York 10106 Attn: General Counsel If a party desires to change its address for the purpose of receipt of notice, or to change the person to receive a copy of notice, such notice or change of address or recipient shall be given in the manner specified herein. 6. Present Intent. By acceptance of this Note, the Holder acknowledges that this Note is being acquired without a present intention of resale or distribution, and that this Note will not be transferred, pledged or otherwise disposed of by the Holder in the absence of an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or an opinion of counsel (including in-house counsel) reasonably satisfactory to the Company that such registration is, under the circumstances, not required. 7. Miscellaneous Provisions. 7.1 No Oral Modifications. Neither this Note nor any term of this Note may be changed, waived, discharged or terminated orally, but may only be amended or modified by an instrument in writing signed by the Holder and the Company. 7.2 Binding Effect. This Note shall be binding upon and inure to the benefit of the Company, the Holder of this Note and their respective heirs, successors and assigns. 7.3 Governing Law, Jurisdiction; Jury Trial Waiver. This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York located in the borough of Manhattan in the City of New York, or, if such court does not have jurisdiction, the Supreme Court of the State of New York, New York County, for the purposes of any suit, action or other proceeding arising out of this Note. The Company hereby further agrees that service of any process, summons, notice or 18 19 document by U.S. registered mail to its address set forth in Section 6 shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of the parties hereto irrevocably and unconditionally waives, to the extent permitted by applicable law, any objection to the laying of venue of any action, suit or proceeding arising out of this Note in (a) the United States District Court for the Southern District of New York or (b) the Supreme Court of the State of New York, New York County, and hereby further irrevocably and unconditionally waives, to the extent permitted by applicable law, and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. To the extent permitted by applicable law, the Company waives the right to trial by jury in any such action or proceeding. 7.4 Recourse. Recourse under this Note shall be to the assets of the Company only and in no event to the officers, directors or stockholders of the Company. 7.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Note shall include: (1) statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. 7.6 Assignability. The Holder may sell, assign, transfer or otherwise hypothecate ("Transfer") this Note to any other Person. If any interest in this Note is Transferred in compliance with this Section 8.6, this Note shall be cancelled and the Company shall execute and deliver a new note (in substantially the form of this Note) to each Person to whom an interest in this Note has been Transferred in an aggregate principal amount equal to such Person's interest in this Note. 7.7 Costs. The Company will pay all reasonable costs and expenses of collection, including attorneys' fees and disbursements, appraiser's fees and court costs, incurred or paid by the Holder in enforcing this Note, to the extent permitted by law, including all costs and reasonable attorneys' fees incurred in any appeal, bankruptcy proceeding, or other proceeding. 19 20 IN WITNESS WHEREOF, the Company has caused this Note to be executed in its corporate name by its duly authorized officer as of this 3rd day of May, 2001. WEIGHTWATCHERS.COM, INC. By: -------------------------------------- Name: Sharon A. Fordham Title: Chief Executive Officer Agreed and Accepted: WEIGHT WATCHERS INTERNATIONAL, INC. By: -------------------------------------------------- Name: ------------------------------------------- Title: ------------------------------------------ 20 21 SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The initial principal amount of this Note as of the Issuance Date was $10,355,503. The following decreases/increases in the principal amount of this Note have been made:
Decrease in Increase in Notation Made Principal Principal Total Principal Amount by or on Date of Decrease Amount at Amount at at Maturity Following behalf of Increase Maturity Maturity such Decrease/Increase Holder - --------- ----------- ----------- ---------------------- ------------- 10/16/00 $ 200,000 $10,555,503 10/25/00 $ 300,000 $10,855,503 11/1/00 $ 2,700,000 $13,555,503 11/29/00 $ 2,500,000 $16,055,503 12/18/00 $ 1,100,000 $17,155,503 1/5/01 $ 900,000 $18,055,503 1/22/01 $ 2,000,000 $20,055,503 2/15/01 $ 1,300,000 $21,355,503 3/16/01 $ 1,000,000 $22,355,503 4/6/01 $ 600,000 $22,955,503 4/23/01 $ 544,497 $23,500,000
21 EX-10.2 4 y52353ex10-2.txt WARRANT AGREEMENT 1 Exhibit 10.2 WARRANT AGREEMENT Dated as of May 3, 2001 between WEIGHTWATCHERS.COM, INC. and WEIGHT WATCHERS INTERNATIONAL, INC. 2 WARRANT AGREEMENT TABLE OF CONTENTS
Page Section 1. Defined Terms ................................................................... 1 1.1 Certain Definitions ...................................................... 1 1.2 Rules of Construction .................................................... 3 Section 2. Issuance, Form, Execution, Delivery and Registration of Warrant Certificates .... 4 2.1 Issuance of Warrants ..................................................... 4 2.2 Execution of Warrant Certificates ........................................ 4 2.3 Registration, Registration of Transfers and Exchanges .................... 4 2.4 Form of Warrant Certificates ............................................. 5 2.5 Restrictive Legends ...................................................... 5 2.6 Offices for Exercise, etc ................................................ 5 2.7 Cancellation ............................................................. 6 2.8 Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates ....... 6 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 ............................................... 7 3.4 Fractional Warrant Shares ................................................ 8 3.5 Sufficient Authorized Share Capital ...................................... 8 3.6 Payment of Taxes ......................................................... 8 Section 4. Adjustment of Exercise Price and Number of Warrant Shares Issuable .............. 8 4.1 Adjustments .............................................................. 8 4.2 Superseding Adjustment ................................................... 12 4.3 Minimum Adjustment ....................................................... 13 4.4 Notice of Adjustment ..................................................... 13 4.5 Notice of Certain Transactions ........................................... 13 4.6 Adjustment to Warrant Certificate ........................................ 14 4.7 Challenge to Good Faith Determination .................................... 14 4.8 Treasury Stock ........................................................... 14 Section 5. Holders' Rights and Obligations ................................................. 14 5.1 Registration Rights ...................................................... 14 5.2 Other Rights and Obligations ............................................. 14
3 Section 6. Miscellaneous ................................................................... 14 6.1 Notices to the Company and WWI ........................................... 14 6.2 Amendments ............................................................... 15 6.3 Severability ............................................................. 15 6.4 Successors ............................................................... 15 6.5 Termination .............................................................. 15 6.6 Governing Law ............................................................ 16 6.7 Jurisdiction; Venue ...................................................... 16 6.8 Benefits of This Agreement ............................................... 16 6.9 Counterparts ............................................................. 16 6.10 Table of Contents ........................................................ 16 6.11 MUTUAL WAIVER OF JURY TRIAL .............................................. 16
Exhibits EXHIBIT A - Form of Note EXHIBIT B - Form of Warrant Certificate - ii - 4 WARRANT AGREEMENT, dated as of May 3, 2001 (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 amend and restate the loan (the "Amended Loan") between the Company and WWI to permit the Company to borrow up to an aggregate principal amount of $28.5 million pursuant to the terms of the Note attached hereto as Exhibit A; and WHEREAS, in order to induce WWI to enter into the Amended Loan, the Company has agreed to enter into this Agreement and issue an additional 444,444 Warrants to WWI. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, and for the purpose of defining the respective rights and obligations of the Company and the Holders (as defined below), the parties hereto agree as follows: SECTION 1. DEFINED TERMS. 1.1 Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Board" means the Board of Directors of the Company. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Cashless Exercise" has the meaning specified in Section 3.2 hereof. "Cashless Exercise Ratio" means a fraction, the numerator of which is the excess of the Current Market Value (as defined below) per share of Common Stock on the Exercise Date over the Exercise Price per share as of the Exercise Date and the denominator of which is the Current Market Value per share of Common Stock on the Exercise Date. "Combination" has the meaning specified in Section 4.1(d) hereof. 5 2 "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Current Market Value," per share of Common Stock or any other security at any date, means (i) if the security is not registered under the Exchange Act, the fair market value of the security (without any discount for lack of liquidity, the amount of such security offered to be purchased or the fact that such securities may represent a minority interest in a private company or a company under the control of another Person) as determined in good faith by the Board and certified in a board resolution that is delivered to the Holders, and, if requested by the Majority Holders, determined to be fair, from a financial point of view, to the holders of such security or another security exercisable for such security, by an Independent Financial Expert (as set forth in such Independent Financial Expert's written fairness opinion); or (ii) if the security is registered under the Exchange Act, the average of the last reported sale price of the security (or the equivalent in an over-the-counter market) for each Business Day during the period commencing 15 Business Days before such date and ending on the date one day prior to such date, or if the security has been registered under the Exchange Act for less than 15 consecutive Business Days before such date, the average of the daily closing bid prices (or such equivalent) for all of the Business Days before such date for which daily closing bid prices are available (provided, however, that if the closing bid price is not determinable for at least 10 Business Days in such period, the "Current Market Value" of the security shall be determined as if the security were not registered under the Exchange Act). The Company shall pay the fees and expenses of any Independent Financial Expert in the determination of Current Market Value. "Exchange Act" means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations promulgated thereunder. "Exercise Date" means the date on which a Warrant is exercised by the Holder thereof. "Exercise Price" means the purchase price per Warrant Share to be paid upon the exercise of each Warrant, which price shall be $7.14 per Warrant Share as adjusted in accordance with the terms hereof. "Expiration Date" means May 2, 2011. "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 6 3 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 May 3, 2001, the date on which the Warrants are first issued. "Majority Holders" means the Holders of a majority of the then outstanding Warrants. "Officer" means the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Repurchase Price" means, in respect of a Warrant, (i) the excess of the Current Market Value of a share of Common Stock of the Company over the Exercise Price per share of Common Stock, multiplied by (ii) the number of Warrant Shares that would be obtained if one Warrant was exercised on the date of repurchase. "Right" has the meaning specified in Section 4.1(g) hereof. "Securities Act" means the Securities Act of 1933, as amended (or any successor act), and the rules and regulations promulgated thereunder. "Successor Company" has the meaning specified in Section 4.1(d) hereof. "Warrant Certificates" means the certificates evidencing the Warrants to be delivered pursuant to this Agreement, substantially in the form of Exhibit B hereto. "Warrant Registrar" has the meaning specified in Section 2.3 hereof. "Warrant Shares" has the meaning specified in Section 2.1 hereof. "Warrants" shall mean the Warrants issued hereunder and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. 1.2 Rules of Construction. Unless the text otherwise required. (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; 7 4 (iv) "including" means including, without limitation; and (v) words in the singular include the plural and words in the plural include the singular. SECTION 2. ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES. 2.1 Issuance of Warrants. Each Warrant Certificate shall evidence the number of Warrants specified therein, and each Warrant evidenced thereby shall represent the right, subject to the provisions contained herein and therein, to purchase from the Company (and the Company shall issue and sell to such holder of the Warrant) one share of Common Stock of the Company (the shares purchasable upon exercise of a Warrant being hereinafter referred to as the "Warrant Shares," subject to adjustment as provided in Section 4 hereof). 2.2 Execution of Warrant Certificates. The Warrant Certificates shall be executed on behalf of the Company by one Officer of the Company. Such signatures may be the manual or facsimile signatures of the present or any future such Officers. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity or enforceability of any Warrant Certificate. In case any Officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such Officer before the Warrant Certificate so signed shall be delivered by the Company, such Warrant Certificate nevertheless may be delivered or disposed of as though the Person who signed such Warrant Certificate had not ceased to be such Officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Warrant Certificate, shall be the proper Officers of the Company, although at the date of the execution and delivery of this Agreement any such Person was not such an Officer. 2.3 Registration, Registration of Transfers and Exchanges. The Company will keep, at the office or agency maintained by the Company for such purpose, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of, and registration of transfer and exchange of, Warrants as provided herein. Each person designated by the Company from time to time as a Person authorized to register the 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 8 5 exchanges effected by the Warrant Registrar, as may be necessary to enable such repository to maintain the Warrant Register on as current a basis as is practicable. When Warrants are presented to the Company with a request to register the transfer of the Warrants or exchange Warrants for an equal number of Warrants of other authorized denominations, the Company shall register the transfer or make the exchange as requested if the requirements under this Warrant Agreement as set forth herein for such transactions are met; provided, however, that the Warrants presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Company, duly executed by the holder thereof or by his attorney, duly authorized in writing. All Warrants issued upon any registration of transfer or exchange of Warrants shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrants surrendered upon such registration of transfer or exchange. 2.4 Form of Warrant Certificates. The Warrant Certificates to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit B attached hereto. Such Warrant Certificates shall represent such of the outstanding Warrants as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon and that the aggregate amount of outstanding Warrants represented thereby may from time to time be decreased or increased, as appropriate. Any endorsement of a Warrant Certificate to reflect the amount of any increase or decrease in the amount of outstanding Warrants represented thereby shall be made by the Company in accordance with instructions given by the holder thereof. 2.5 Restrictive Legends. The Warrant Certificates shall bear the following legend (the "Private Placement Legend") on the face thereof: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. 2.6 Offices for Exercise, etc. So long as any of the Warrants remain outstanding, the Company will designate: (a) an office or agency where the Warrant Certificates may be presented for exercise, (b) an office or agency where the Warrant Certificates may be presented for registration of transfer and for exchange, and (c) an office or agency where notices and demands to or upon the Company in respect of the Warrants or of this Agreement may be served. The Company may from time to time change such designation, as it may deem desirable or expedient. The Company will give to the Holders and the Warrant Registrar written notice of the location of any such office or agency and of any change of location thereof. The Company 9 6 hereby designates its office at the address set forth in Section 6.1, as the initial agency maintained for such purpose. 2.7 Cancellation. All Warrant Certificates surrendered for the purpose of exercise (in whole or in part), exchange, substitution or transfer shall, if surrendered to the Company or to any of its agents, be delivered to the Company for cancellation or in cancelled form, or if surrendered to the Company shall be cancelled by it, and no Warrant Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. If the Company purchases or acquires Warrants and if the Company so chooses, the Company may cancel and retire the Warrant Certificates evidencing said Warrants. 2.8 Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates. Upon receipt by the Company (or any agent of the Company if requested by the Company) of evidence satisfactory to it of the loss, theft, destruction, defacement or mutilation of any Warrant Certificate and of indemnity satisfactory to it (which may include posting a bond) and, in the case of mutilation or defacement, upon surrender thereof to the Company for cancellation, then, in the absence of notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser or holder in due course, the Company shall execute in exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant Certificate, a new Warrant Certificate representing a like number of Warrants, bearing a number or other distinguishing symbol not contemporaneously outstanding. Upon the issuance of any new Warrant Certificate under this Section, the Company may require the payment from the holder of such Warrant Certificate of a sum sufficient to cover any tax, stamp tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Warrant Registrar) in connection therewith. Every substitute Warrant Certificate executed and delivered pursuant to this Section in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute an additional contractual obligation of the Company, whether or not the lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of (but shall be subject to all the limitations of rights set forth in) this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.8 are exclusive with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the extent lawful) any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates. SECTION 3. TERMS OF WARRANTS; EXERCISE OF WARRANTS. 3.1 Exercise Period. Subject to the terms of this Agreement, each Holder shall have the right until 5:00 p.m., New York City time, on the Expiration Date to receive from the Company the number of fully paid and nonassessable Warrant Shares which the Holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price then in effect for such Warrant Shares. Each Warrant not exercised prior to 5:00 p.m., New York City time, on the Expiration Date shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time. 10 7 The Company shall give notice not less than 90, and not more than 120, days prior to the Expiration Date to the Holders of the outstanding Warrants to the effect that the Warrants will terminate and become void as of 5:00 p.m., New York City time, on the Expiration Date; provided, however, that the failure by the Company to give such notice as provided in this Section shall not affect such termination and becoming void of the Warrants as of 5:00 p.m., New York City time, on the Expiration Date. 3.2 Manner of Exercise. A Warrant may be exercised at any time prior to the Expiration Date upon (i) surrender to the Company of the Warrant Certificates, together with the form of election to purchase properly completed and executed by the Holder thereof and (ii) payment to the Company of the Exercise Price for each share of Common Stock or other securities issuable upon exercise of such Warrants. The Exercise Price may be paid (i) in cash or by certified or official bank check or by wire transfer to an account designated by the Company for such purpose (a "Cash Exercise") or (ii) without the payment of cash, by reducing the number of shares of Common Stock that would be obtainable upon the exercise of a Warrant and payment of the Exercise Price in cash so as to yield a number of shares of Common Stock upon the exercise of such Warrant equal to the product of (a) the number of shares of Common Stock for which such Warrant is exercisable as of the date of exercise (if the Exercise Price were being paid in cash) and (b) the Cashless Exercise Ratio. An exercise of a Warrant in accordance with clause (ii) of the immediately preceding sentence is herein called a "Cashless Exercise." In the event of a Cashless Exercise of Warrants, the Company will purchase from the Holder thereof such number of Warrants as would have entitled the Holder thereof to receive the excess of the number of shares of Common Stock deliverable upon a Cash Exercise over the number of shares of Common Stock deliverable upon a Cashless Exercise, for a purchase price equal to the Exercise Price multiplied by the excess of the number of shares of Common Stock purchasable upon a Cash Exercise over the number of shares of Common Stock purchasable upon a Cashless Exercise. The Company agrees to offset the purchase price referred to in the immediately preceding sentence with the obligation to pay the Exercise Price in respect of the shares of Common Stock deliverable upon a Cashless Exercise. Upon surrender of a Warrant Certificate representing more than one Warrant in connection with the holder's option to elect a Cashless Exercise, the number of shares of Common Stock deliverable upon a Cashless Exercise shall be equal to the number of shares of Common Stock issuable upon the exercise of Warrants that the Holder specifies are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions of this Agreement shall be applicable with respect to a surrender of a Warrant Certificate pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. Upon surrender of the Warrant Certificate and payment of the Exercise Price in accordance with this Agreement, the Company will issue shares of Common Stock of the Company for each Warrant evidenced by such Warrant Certificate, subject to adjustment as described herein. Whenever there occurs a Cashless Exercise, the Company shall deliver to the Holder a certificate setting forth the Cashless Exercise Ratio. 3.3 Issuance of Warrant Shares. Subject to Section 2.8, upon the surrender of Warrant Certificates and payment of the Exercise Price, as set forth above, the Company shall issue shares of Common Stock in such name or names as the Holder may designate, for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.4 in respect of any 11 8 fractional Warrant Shares otherwise issuable upon such exercise. Such shares of Common Stock shall be deemed to have been issued and any Person so designated shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price or upon a Cashless Exercise. The Company hereby agrees that no service charge will be made for registration of transfer or exchange upon surrender of any Warrant Certificate at the office maintained for that purpose. Holders may be required to make payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or transfer or exchange of Warrant Certificates. 3.4 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.4, be issuable on the exercise of any Warrant (or specified portion thereof), the Company may, at its option, pay an amount in cash equal to the Current Market Value for one Warrant Share on the Business Day immediately preceding the date the Warrant is exercised, multiplied by such fraction. 3.5 Sufficient Authorized Share Capital. The Company has and will maintain an authorized share capital sufficient for the issuance of such number of shares of Common Stock as will be issuable upon the exercise of all outstanding Warrants. Such shares of Common Stock, when issued and paid for in accordance with the Warrant Agreement, will be duly and validly issued, fully paid and nonassessable, free of preemptive rights and free from all liens, charges and security interests with respect to the issue thereof. 3.6 Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of the Warrants and the Warrant Shares issuable upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or Warrant Shares in a name other than that of the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES ISSUABLE. 4.1 Adjustments. The Exercise Price and the number of Warrant Shares purchasable upon the exercise of Warrants shall be subject to adjustment from time to time as follows: (a) Changes in Shares of Common Stock. In the event that at any time or from time to time after the date hereof the Company shall (i) pay a dividend or make a distribution on 12 9 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, 13 10 sale, distribution or other grant, as the case may be, and the sum of (a) the offering price of such right, option, warrant or other security (on a per share basis) and (b) any subscription, purchase, conversion or exchange price per share of Common Stock (the "Consideration") is lower at the record date for such issuance than the then Current Market Value per share of such Common Stock, the number of shares of Common Stock thereafter purchasable shall be increased to a number determined by multiplying the number of shares of Common Stock issuable immediately prior to the record date upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the number of additional shares of Common Stock offered for subscription or purchase or into or for which such securities are convertible or exchangeable, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the total number of shares of Common Stock which could be purchased at the Current Market Value with the aggregate of the Consideration with respect to such issuance, sale, distribution or other grant. Such adjustment shall be made whenever such rights, options or warrants are issued and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options, warrants or securities; provided however, that the Company is not required to make an adjustment pursuant to this Section 4.1(c) if the Company shall make the same distribution to Holders of Warrants. No adjustment shall be made pursuant to this Section 4.1(c) which shall have the effect of decreasing the number of Warrant Shares purchasable upon exercise of each Warrant. If the Company at any time shall issue two or more securities as a unit and one or more of such securities shall be rights, options or warrants for or securities convertible or exchangeable into, shares of Common Stock subject to this Section 4.1(c), the consideration allocated to each such security shall be determined in good faith by the Board. (d) Combination; Liquidation. (i) Except as provided in clause (ii) below, in the event of certain consolidations, mergers or demergers of the Company, or the sale of all or substantially all of the assets of the Company to another Person (a "Combination"), each Warrant will thereafter be exercisable for the right to receive the kind and amount of shares of stock or other securities or property to which such holder would have been entitled as a result of such Combination had the Warrants been exercised immediately prior thereto. Unless clause (ii) is applicable to a Combination, if any Warrants shall be outstanding after a Combination, the Company shall provide that the surviving or acquiring Person (the "Successor Company") in such Combination will enter into an agreement with the Holders confirming the Holders' rights pursuant to this Section 4.1(d) and providing for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4.1(d) shall similarly apply to successive Combinations involving any Successor Company. (ii) In the event of (A) a Combination, and, in connection therewith, the consideration payable to the holders of shares of Common Stock in exchange for their shares is payable solely in cash or (B) a dissolution, liquidation or winding-up of the Company, then the holders of the Warrants will be entitled to receive distributions on an equal basis with the holders of shares of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such event, less the Exercise Price. Upon 14 11 receipt of such payment, if any, the Warrants will expire and the rights of holders thereof will cease. (iii) In the case of any such Combination, the surviving or acquiring Person as described in this Section 4.1(d) and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall promptly pay to the Holders of the Warrants the amounts to which they are entitled as described above upon surrender of the Warrant Certificates. The Company shall make payment to the Holders by delivering a check, or by wire transfer of same-day funds, in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by the Holders surrendering such Warrants. (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 15 12 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 by a fraction the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter. Following any adjustment to the Exercise Price pursuant to this Section 4, the amount payable, when adjusted, shall never be less than the par value per share of Common Stock at the time of such adjustment. If after an adjustment, a Holder of a Warrant upon exercise of it may receive shares of two or more classes of capital stock of the Company, the Company shall determine the allocation of the adjusted Exercise Price between such classes of shares in a manner that the Board deems fair and equitable to the Holders. After such allocation, the exercise privilege and the Exercise Price of each class of shares shall thereafter be subject to adjustment on terms comparable to those applicable to shares of Common Stock under this Section 4. Such adjustment shall be made successively whenever any event listed above shall occur. 4.2 Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges which resulted in the adjustments pursuant to this Section 4, if any thereof shall not have been exercised, the number of Warrant Shares purchasable upon the exercise of each Warrant shall be readjusted as if (A) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (B) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company 16 13 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. 4.3 Minimum Adjustment. The adjustments required by the preceding Sections of this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the number of shares of Common Stock purchasable upon exercise of Warrants that would otherwise be required shall be made (except in the case of a subdivision or combination of shares of Common Stock, as provided for in Section 4.1(a)) unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% of the number of shares of Common Stock purchasable upon exercise of Warrants immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Section 4, fractional interests in shares of Common Stock shall be taken into account to the nearest one-hundredth of a share. 4.4 Notice of Adjustment. Whenever the number of shares of Common Stock and other property, if any, purchasable upon exercise of Warrants is adjusted, as herein provided, the Company shall deliver to the Holders a certificate setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board determined the fair market value of any evidences of indebtedness, other securities or property or warrants or other subscription or purchase rights), and specifying the number of shares of Common Stock purchasable upon exercise of Warrants after giving effect to such adjustment. The Company shall promptly deliver a copy of such certificate to each Holder. 4.5 Notice of Certain Transactions. In the event that the Company shall propose (a) to pay any dividend payable in securities of any class to the holders of its shares of Common Stock or to make any other distribution to the holders of its shares of Common Stock, (b) to offer the holders of its shares of Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any reclassification of its shares of Common Stock, capital reorganization or Combination or (d) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or in the event of a tender offer or exchange offer described in Section 4.1(e), the Company shall within 5 Business Days of making such proposal, tender offer or exchange offer send to the Holders a notice of such proposed action or offer, such notice to be mailed by the Company to the Holders at their addresses as they appear in the Warrant Register, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of shares of Common Stock, if any such 17 14 date is to be fixed, and shall briefly indicate the effect of such action on the shares of Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, purchasable upon exercise of each Warrant after giving effect to any adjustment which will be required as a result of such action. Such notice shall be given by the Company as promptly as possible and, in the case of any action covered by clause (a) or (b) above, at least 10 Business Days prior to the record date for determining holders of the shares of Common Stock for purposes of such action and, in the case of any other such action, at least 20 Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of shares of Common Stock, whichever shall be the earlier. 4.6 Adjustment to Warrant Certificate. The form of Warrant Certificate need not be changed because of any adjustment made pursuant to this Section 4, and Warrant Certificates issued after such adjustment may state the same Exercise Price and the same number of shares of Common Stock as are stated in any Warrant Certificates issued prior to the adjustment. The Company, however, may at any time in its sole discretion make any change in the form of Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant Certificate, and any Warrant Certificate thereafter issued, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. 4.7 Challenge to Good Faith Determination. Whenever the Board shall be required to make a determination in good faith of the Current Market Value of any item under Section 4, such determination may be challenged in good faith by the Majority Holders. 4.8 Treasury Stock. The sale or other disposition of any issued shares of Common Stock owned or held by or for the account of the Company shall be deemed an issuance thereof and a repurchase thereof and designation of such shares as treasury stock shall be deemed to be a redemption thereof for the purposes of this Agreement. SECTION 5. HOLDERS' RIGHTS AND OBLIGATIONS. 5.1 Registration Rights. The parties hereby agree and acknowledge that the Holders will have registration rights with respect to Warrant Shares in accordance with the provisions of the Registration Rights Agreement, dated as of September 29, 1999, among the Company, WWI, H.J. Heinz Company ("Heinz") and Artal Luxembourg S.A. ("Artal"). 5.2 Other Rights and Obligations. The parties hereby agree that the Warrants shall have the rights and be subject to the obligations set forth in the Stockholders' Agreement, dated as of September 29, 1999 (the "Stockholders' Agreement"), among the Company, WWI, Heinz and Artal with respect to shares of Common Stock held by WWI. The parties hereby agree and acknowledge that the Warrant Shares shall accordingly be subject to the provisions of the Stockholders' Agreement. SECTION 6. MISCELLANEOUS. 6.1 Notices to the Company and WWI. Any notice or demand authorized by this Agreement to be given or made by the Holder of any Warrant Certificate to or on the 18 15 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. 888 Seventh Ave., 8th Floor New York, New York 10106 Attention: General Counsel Telecopy: (212) 315-0709 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 6.2 Amendments. Except as set forth herein, the provisions of this Agreement may only be amended or waived with the prior written consent of the Company and each Holder; provided that the Company and the Majority Holders may amend or waive this Agreement except to the extent such waiver or amendment would constitute an adverse amendment or waiver to a non-consenting Holder's rights hereunder in a material respect. 6.3 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. 6.4 Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Holders shall bind and inure to the benefit of their respective permitted successors and assigns hereunder. 6.5 Termination. This Agreement (other than the Company's obligations with respect to Warrants previously exercised and the Company's and the Holders' rights and obligations set forth in Sections 5.1 and 5.2) shall terminate at 5:00 p.m., New York City time on the Expiration Date. 19 16 6.6 Governing Law. This Warrant Agreement and the Warrants shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 6.7 Jurisdiction; Venue. The parties to this Agreement agree that jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall properly lie and shall be brought in any federal or state court located in the State of New York. By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself or himself and in respect of its or his property with respect to such action. The parties hereto irrevocably agree that venue would be proper in such court, and hereby irrevocably waive any objection that such court is an improper or inconvenient forum for the resolution of such action. 6.8 Benefits of This Agreement. (a) Nothing in this Agreement shall be construed to give to any Person other than the Company and the Holders of any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company and the Holders. (b) Prior to the exercise of the Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any rights of a stockholder of the Company, including, without limitation, the right to receive dividends or subscription rights, the right to vote, to consent, to exercise any preemptive right, to receive any notice of meetings of stockholders for the election of directors of the Company, to share in the assets of the Company in the event of the liquidation, dissolution or winding up of the Company's affairs or any other matter or to receive any notice of any proceedings of the Company, except as may be specifically provided for herein. 6.9 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 6.10 Table of Contents. The table of contents and headings of the Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 6.11 MUTUAL WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO. 20 17 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: Sharon A. Fordham Title: Chief Executive Officer WEIGHT WATCHERS INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 21 EXHIBIT A [Form of Amended and Restated Note] 22 EXHIBIT B [Form of Warrant Certificate] 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. 03 444,444 Warrants WARRANT CERTIFICATE WEIGHTWATCHERS.COM, INC. THIS CERTIFIES THAT, Weight Watchers International, Inc., a Virginia corporation ("WWI"), is the owner of 444,444 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 May 3, 2001 (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 May 2, 2011 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The Exercise Price and the number of Warrant Shares purchasable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. 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: May 3, 2001 WEIGHTWATCHERS.COM, INC. By: --------------------------------- Name: Sharon A. Fordham Title: Chief Executive Officer 23 [FORM OF REVERSE OF WARRANT CERTIFICATE] This Warrant Certificate is issued under and in accordance with the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Company, 888 Seventh Ave., 8th Floor, New York, New York 10106. 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. 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. 24 FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) [ ] The undersigned hereby irrevocably elects to exercise ____________ Warrants at an exercise price per Warrant Share of $________ to acquire an equal number of Warrant Shares on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to WeightWatchers.com, Inc., and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: ________________, ____ _______________________________(1) (Signature of Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) ________ (1) The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatever. 25 2 Securities and/or check to be issued to: Please insert social security or identifying number: Name: ------------------------------------------------------------- Street Address: --------------------------------------------------- City, State and Zip Code: ----------------------------------------- Any unexercised Warrants evidenced by the within Warrant Certificate to be issued to: Please insert social security or identifying number: Name: ------------------------------------------------------------- Street Address: --------------------------------------------------- City, State and Zip Code: ----------------------------------------- EX-10.3 5 y52353ex10-3.txt WARRANT CERTIFICATE WEIGHTWATCHERS.COM 1 Exhibit 10.3 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. 03 444,444 Warrants WARRANT CERTIFICATE WEIGHTWATCHERS.COM, INC. THIS CERTIFIES THAT, Weight Watchers International, Inc., a Virginia corporation ("WWI"), is the owner of 444,444 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 May 3, 2001 (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 May 2, 2011 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The Exercise Price and the number of Warrant Shares purchasable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. 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: May 3, 2001 WEIGHTWATCHERS.COM, INC. By: --------------------------------- Name: Sharon A. Fordham Title: Chief Executive Officer 2 2 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, 888 Seventh Ave., 8th Floor, New York, New York 10106. 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. 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. EX-10.4 6 y52353ex10-4.txt PUT/CALL AGREEMENT 1 Exhibit 10.4 PUT/CALL AGREEMENT This Put/Call Agreement (the "Agreement"), dated as of April 18, 2001, between WEIGHT WATCHERS INTERNATIONAL, INC., a Virginia corporation ("WWI"), and H.J. HEINZ COMPANY, a Pennsylvania corporation ("Heinz"). The parties hereto are sometimes hereinafter referred to collectively as the "Parties" and individually as a "Party". W I T N E S S E T H : WHEREAS, Heinz owns 1,428,000 shares (the "Subject Shares") of common stock, par value $1.00 per share, of WWI (the "WWI Common Stock"); WHEREAS, WWI, Heinz and Artal Luxembourg S.A. ("Artal") are parties to a Stockholders' Agreement, dated as of September 29, 1999 (the "Stockholders' Agreement"), relating to, among other things, the Subject Shares; WHEREAS, Heinz, WWI and Artal have entered into a letter agreement, dated the date hereof (the "Letter Agreement"), relating to this Agreement and the Stockholders' Agreement; and WHEREAS, WWI desires to have the ability to purchase, and Heinz desires to have the ability to sell, the Subject Shares in the manner described herein. NOW, THEREFORE, in order to implement the foregoing and in consideration of the premises and the mutual representations, warranties, covenants and agreements set forth herein, the Parties agree as follows: ARTICLE I PUTS/CALLS SECTION 1.1. Put Rights. (a) Upon the terms and subject to the conditions of this Agreement, Heinz shall have the right and option on up to five (5) occasions (the "Put Option"), exercisable by written notice (the "Put Notice") delivered to WWI by registered mail or by overnight courier at any time after the date hereof and on or before May 15, 2002 (the "Put Exercise Period") stating that Heinz intends to exercise its right, pursuant to this Section 1.1, to sell to WWI (or such affiliate of WWI as shall be designated by WWI) and to cause WWI (or such affiliate of WWI) to purchase from Heinz any or all of the Subject Shares (such number of Subject Shares specified in such Put Notice, the "Put Shares") for an aggregate purchase price equal to the Put Price (as hereinafter defined). The Put Notice shall also specify the Put Date (as hereinafter defined). The Put Notice shall be deemed to have been delivered (i) five business days after being mailed by registered mail (return receipt requested and postage prepaid) to the recipient or (ii) one business day after being sent by overnight courier (receipt confirmation requested). If Heinz fails to deliver a Put Notice during the Put Exercise Period, Heinz shall have forfeited the Put Option. (b) For purposes hereof, with respect to each exercise of the Put Option, the term "Put Price" shall mean the Put Price Per Share multiplied by the number of Put Shares. 2 2 Subject to adjustment pursuant to Section 1.3 hereof, the "Put Price Per Share" shall equal $19.00. (c) Heinz shall fix the date (a "Put Date") for the exercise of a Put Option no earlier than ten (10) but not more than thirty (30) business days after the Put Notice is deemed to be delivered as set forth in Section 1.1(a) hereof; provided that, with respect to any Put Notice that is deemed to be delivered prior to May 3, 2001, Heinz may fix the Put Date with respect to the exercise of such Put Option no earlier than five (5) business days after such Put Notice is deemed to be delivered. (d) On the Put Date, Heinz will deliver the certificates representing the Put Shares (duly endorsed for transfer by Heinz or accompanied by duly executed stock powers in blank) to WWI (or such affiliate of WWI as shall be designated by WWI) against payment of the Put Price in cash by wire transfer of immediately available funds to an account at a bank designated by Heinz. SECTION 1.2. Call Rights. (a) Upon the terms and subject to the conditions of this Agreement, WWI (or such affiliate of WWI as shall be designated by WWI) shall have the right and option (the "Call Option"), exercisable by written notice (the "Call Notice") delivered to Heinz by registered mail or by overnight courier at any time (i) after the earlier to occur of (A) May 15, 2002 and (B) the date Artal could have delivered (without giving effect to the provisions of the Letter Agreement) a Sale Notice (as defined in the Stockholders' Agreement) to Heinz pursuant to Section 2.3 of the Stockholders' Agreement, provided that in no event shall such date be earlier than August 15, 2001 and (ii) on or before August 15, 2002 (the "Call Exercise Period") stating that WWI (or such affiliate of WWI) intends to exercise its right pursuant to this Section 1.2, to purchase from Heinz and to cause Heinz to sell to WWI (or such affiliate of WWI) any or all of the Subject Shares not previously purchased pursuant to Section 1.1 hereof (the "Call Shares") for an aggregate purchase price equal to the Call Price (as hereinafter defined). The Call Notice shall also specify the Call Date (as hereinafter defined). The Call Notice shall be deemed to have been delivered (A) five business days after being mailed by registered mail (return receipt requested and postage prepaid) to the recipient or (B) one business day after being sent by overnight courier (receipt confirmation requested). If WWI fails to deliver a Call Notice during the Call Exercise Period, WWI shall have forfeited the Call Option. (b) For purposes hereof, the term "Call Price" shall mean the Call Price Per Share multiplied by the number of Call Shares. Subject to adjustment pursuant to Section 1.3 hereof, the "Call Price Per Share" shall equal $19.00. (c) WWI shall fix the date (the "Call Date") for the exercise of the Call Option no earlier than ten (10) but not more than twenty (20) business days after the Call Notice is deemed to be delivered as set forth in Section 1.2(a) hereof. (d) On the Call Date, Heinz will deliver the certificates representing the Call Shares (duly endorsed for transfer by Heinz or accompanied by duly executed stock powers in blank) to WWI (or such affiliate of WWI as shall be designated by WWI) against payment of the 3 3 Call Price in cash by wire transfer of immediately available funds to an account at a bank designated by Heinz. SECTION 1.3. Recapitalizations. Notwithstanding any other provision of this Agreement, in the event of any stock dividend, split, reverse split, combination, recapitalization, liquidation, reclassification, merger or consolidation (each, a "Recapitalization"), (i) the term "Subject Shares" shall also be deemed to include all securities issued in exchange for or with respect to the Subject Shares outstanding immediately prior to such Recapitalization in connection with such Recapitalization and (ii) the terms "Put Price Per Share" and "Call Price Per Share" shall equal (A) the number of Subject Shares outstanding immediately prior to such Recapitalization multiplied by $19.00, divided by (B) the number of Subject Shares outstanding immediately after giving effect to the Recapitalization. SECTION 1.4. Irrevocability of Notice. The delivery of a Put Notice by Heinz or a Call Notice by WWI shall irrevocably commit the Parties to the sale or purchase, as the case may be, of the applicable Put Shares and Call Shares, subject to the terms and provisions of this Agreement. SECTION 1.5. No Transfers. Prior to the date twenty-one (21) business days after the expiration of the Call Exercise Period, Heinz agrees that neither it nor any person or entity which, directly or indirectly, alone or through one or more intermediaries, controls, or is controlled by, or is under common control with Heinz (an "Affiliate") will, directly or indirectly, sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or enter in any contract, option, hedge or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, or reduction in its risk with respect to, any WWI Common Stock beneficially owned by Heinz or any of its Affiliates except to WWI or its Affiliates pursuant to the terms hereof. SECTION 1.6. Closing. On each Put Date or Call Date, Heinz and WWI will each deliver to the other party hereto (i) a copy of all of their corporate resolutions authorizing the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, accompanied by a certification of the Secretary or Assistant Secretary of such entity to the effect that such resolutions are in full force and effect and have not been amended, modified or rescinded and (ii) an incumbency certificate from the Secretary or Assistant Secretary of such entity. ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1. Representations and Warranties of Heinz. Heinz represents and warrants to WWI as of the date hereof and as of each Put Date or Call Date that: (a) Due Incorporation. Heinz is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. 4 4 (b) Authority, Execution and Binding Effect. The execution, delivery and performance by Heinz of this Agreement and the transactions contemplated hereby are within its corporate powers, and have been duly authorized by all necessary action on the part of Heinz, and no other corporate act or proceeding on the part of Heinz is necessary to approve the execution and delivery of this Agreement or the consummation by Heinz of the transactions contemplated hereby. This Agreement has been validly executed and delivered by Heinz. Assuming due authorization, execution and delivery by WWI, this Agreement constitutes a valid and binding agreement of Heinz, enforceable against Heinz in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement or creditors' rights generally or by equitable principles. (c) No Governmental Consent Required. The execution, delivery and performance by Heinz of this Agreement require no order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official except such as have been obtained or except where the failure to obtain any such order, license, consent, authorization, approval or exemption or give any such notice or make any filing or registration would not, in the aggregate, reasonably be expected to adversely affect the ability of Heinz to perform its obligations hereunder. (d) No Conflicts. The execution, delivery and performance of this Agreement by Heinz will not, with or without the giving of notice or lapse of time, or both, (i) conflict with the certificate of incorporation or by-laws or similar constitutive documents of Heinz or (ii) result in the creation of any encumbrance, lien, mortgage, charge, claim, option, pledge, license, sublicense, security interest, assignment by way of security, call, proxy or similar restriction ("Encumbrances") over the Subject Shares or (iii) result in any breach of any terms or provisions of, or constitute a default under, or conflict with any material contract, agreement or instrument to which Heinz is a party or by which Heinz is bound, except for such breaches, defaults or conflicts which, individually or in the aggregate, would not be likely to have a material adverse effect on the financial position, results of operations or business of Heinz, or (iv) violate any material provision of law, statute, rule or regulation to which it is subject or any material order, judgment or decree applicable to Heinz. (e) Stock Ownership; Title to Shares. All of the Subject Shares are as of the date hereof and will be on each Put Date or Call Date owned beneficially and of record by Heinz, free and clear of all Encumbrances. When WWI acquires the Subject Shares pursuant to the provisions of this Agreement, upon payment of the Put Price or the Call Price, as applicable, it will receive the Subject Shares free and clear of any Encumbrances other than Encumbrances resulting from acts or omissions of or created by WWI. Heinz has not granted any option or right, and is not party to any other agreement, and no such option, right or agreement exists which requires, or which upon the passage of time, the payment of money or the occurrence of any other event, may require Heinz to transfer any of the Subject Shares to anyone other than as contemplated by this Agreement. (f) Litigation. There is no claim, cause of action, allegation, action, suit, proceeding, litigation, arbitration or investigation ("Action") pending or, to Heinz's knowledge, threatened (i) by or against Heinz or any of its Affiliates which would be likely to prevent, 5 5 materially interfere with or materially delay the consummation of the transactions contemplated hereby or (ii) with respect to the transactions contemplated hereby, at law or in equity, or before or by any federal, state, municipal, foreign or other governmental department, commission, board, agency, instrumentality or authority which, if adversely determined, would be likely to prevent, materially interfere with or materially delay the consummation of the transactions contemplated hereby. There is no order, decree, injunction or judgment pending or in effect against Heinz or any of its Affiliates which would be likely to prevent, materially interfere with or materially delay the consummation of the transactions contemplated hereby. (g) Brokers and Finders. WWI will not be responsible or in any way obligated for the payment of any fees, commissions or expenses of any broker, agent, finder or intermediary retained by Heinz in connection with the transactions contemplated hereby. SECTION 2.2. Representations and Warranties of WWI. WWI represents and warrants to Heinz as of the date hereof and as of each Put Date or Call Date that: (a) Due Incorporation. WWI is a corporation, duly organized, validly existing and in good standing, under the laws of the Commonwealth of Virginia. (b) Authority, Execution and Binding Effect. The execution, delivery and performance by WWI of this Agreement and the transactions contemplated hereby are within its corporate powers, and have been duly authorized by all necessary action on the part of WWI, and no other corporate act or proceeding on the part of WWI is necessary to approve the execution and delivery of this Agreement or the consummation by WWI of the transactions contemplated hereby. This Agreement has been validly executed and delivered by WWI. Assuming due authorization, execution and delivery by Heinz, this Agreement constitutes a valid and binding agreement of WWI, enforceable against WWI in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement or creditors' rights generally or by equitable principles. (c) No Governmental Consent Required. The execution, delivery and performance by WWI of this Agreement require no order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official except such as have been obtained or except where the failure to obtain any such order, license, consent, authorization, approval or exemption or give any such notice or make any filing or registration would not, in the aggregate, reasonably be expected to adversely affect the ability of WWI to perform its obligations hereunder. (d) No Conflicts. The execution, delivery and performance of this Agreement by WWI will not, with or without the giving of notice or lapse of time, or both, (i) conflict with the certificate of incorporation or by-laws or similar constitutive documents of WWI or (ii) result in any breach of any terms or provisions of, or constitute a default under, or conflict with any material contract, agreement or instrument to which WWI is a party or by which WWI is bound, except for such breaches, defaults or conflicts which, individually or in the aggregate, would not be likely to have a material adverse effect on the financial position, results of operations or business of WWI or (iii) violate any material provision of law, statute, rule or regulation to which it is subject or any material order, judgment or decree applicable to WWI. 6 6 (e) Litigation. There is no Action pending or, to WWI's knowledge, threatened (i) by or against WWI or any of its Affiliates which would be likely to prevent, materially interfere with or materially delay the consummation of the transactions contemplated hereby or (ii) with respect to the transactions contemplated hereby, at law or in equity, or before or by any federal, state, municipal, foreign or other governmental department, commission, board, agency, instrumentality or authority which, if adversely determined, would be likely to prevent, materially interfere with or materially delay the consummation of the transactions contemplated hereby. There is no order, decree, injunction or judgment pending or in effect against WWI which would be likely to prevent, materially interfere with or materially delay the consummation of the transactions contemplated hereby. (f) Brokers and Finders. Heinz will not be responsible or in any way obligated for the payment of any fees, commissions or expenses of any broker, agent, finder or intermediary retained by WWI in connection with the transactions contemplated hereby. ARTICLE III COVENANTS SECTION 3.1. Cooperation; Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties shall use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including providing information and using reasonable efforts to obtain all necessary or appropriate waivers, consents and approvals, and effecting all necessary registrations and filings. (b) In case at any time before or after any Put Date or Call Date any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of the Parties shall execute such further documents (including assignments, acknowledgments and consents and other instruments of transfer) and shall take such further action as shall be necessary or desirable to carry out the purposes of this Agreement, in each case to the extent not inconsistent with applicable law. (c) Subject to the terms and conditions hereof, each of the Parties shall use its reasonable efforts to cause the fulfillment at the earliest practicable date of all of the conditions to the obligations of the Parties to consummate the transactions contemplated by this Agreement. SECTION 3.2. Public Disclosure. Except to the extent that either Party is required by law or regulation to do so, each of the Parties agrees that it shall not, and shall not authorize or permit any of its officers, directors, agents or representatives or those of any of its Affiliates to, make any public disclosure of the existence of this Agreement, the contents hereof or the transactions contemplated hereby without the consent of the other Party. If any Party is required by law or regulation to publicly disclose the existence of this Agreement, the contents hereof or the transactions contemplated hereby, such Party shall give the other Party at least two (2) business days to review its proposed form of public disclosure. 7 7 ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Obligations of WWI. The obligations of WWI to consummate the transactions contemplated by this Agreement to occur on each Put Date or Call Date shall be subject to the satisfaction or waiver of the following conditions on or prior to the applicable Put Date or Call Date: (a) Representations and Warranties. The representations and warranties of Heinz contained in this Agreement shall be true and correct in all material respects, as of the date hereof and as of the applicable Put Date or Call Date as if made at such Put Date or Call Date. (b) Covenants and Agreements. Heinz shall have performed or complied with in all material respects each covenant, agreement and obligation required to be performed by it at or prior to such Put Date or Call Date. (c) Officer's Certificate. WWI shall have received a certificate of the President or any Vice President of Heinz certifying the satisfaction of the conditions set forth in Sections 4.1(a) and (b) at each Put Date or Call Date. (d) No Injunction. No preliminary or permanent injunction or other order shall have been issued by any court of competent jurisdiction, or by a governmental or regulatory body, which remains in effect and invalidates any or all of the provisions of this Agreement or prohibits or enjoins the consummation of any of the transactions contemplated by this Agreement. (e) No Prohibitions. There shall not exist and be continuing a default or an event of default on the part of WWI or any subsidiary of WWI under any loan, guarantee or other agreement under which WWI or any subsidiary of WWI has borrowed or guaranteed money in excess of $1.0 million nor shall the repurchase contemplated by Article I hereof on such Put Date or Call Date result in a default or an event of default on the part of WWI or any subsidiary of WWI under any such agreement nor shall the repurchase not be permitted under Section 13.1-653 of the Virginia Stock Corporation Act (the "VSCA") or otherwise violate the VSCA or the applicable statutes of any state in which WWI reincorporates. SECTION 4.2. Conditions to Obligations of Heinz. The obligations of Heinz to consummate the transactions contemplated by this Agreement to occur on each Put Date or Call Date shall be subject to the satisfaction or waiver of the following conditions on or prior to the applicable Put Date or Call Date: (a) Representations and Warranties. The representations and warranties of WWI contained in this Agreement shall be true and correct in all material respects, as of the date hereof and as of the applicable Put Date or Call Date as if made at such Put Date or Call Date. (b) Covenants and Agreements. WWI shall have performed or complied with in all material respects each covenant, agreement and obligation required to be performed by it at or prior to such Put Date or Call Date. 8 8 (c) Officer's Certificate. Heinz shall have received a certificate of the President or any Vice President of WWI certifying the satisfaction of the conditions set forth in Sections 4.2(a) and (b) at each Put Date or Call Date. (d) No Injunction. No preliminary or permanent injunction or other order shall have been issued by any court of competent jurisdiction, or by a governmental or regulatory body, which remains in effect and invalidates any or all of the provisions of this Agreement or prohibits or enjoins the consummation of any of the transactions contemplated by this Agreement. ARTICLE V MISCELLANEOUS SECTION 5.1. Termination. On the date twenty-one (21) business days after the expiration of the Call Exercise Period, the provisions of Article I of this Agreement shall terminate and no longer be binding or of further force or effect with respect to any Subject Shares not sold pursuant to this Agreement; provided that nothing in this Section 5.1 shall relieve any Party from any liability for any breach of such Party's representations, warranties, covenants or agreements contained in this Agreement prior to such termination. SECTION 5.2. Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law. The Parties agree that (i) the provisions of this Agreement shall be severable in the event that any of the provisions hereof are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, (ii) such invalid, void or otherwise unenforceable provisions shall be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable and (iii) the remaining provisions shall remain enforceable to the extent permitted by law. SECTION 5.3. Counterparts. This Agreement may be executed in one or more counterparts, any one of which need not contain the signatures of more than one Party, but all such counterparts taken together will constitute one and the same Agreement. SECTION 5.4. Notices. All notices (except for a Put Notice or a Call Notice, which shall be delivered by registered mail or by courier), requests and other communications to any Party shall be in writing (including facsimile transmission) and shall be given: if to WWI, to: Weight Watchers International, Inc. 175 Crossways Park West Woodbury, NY 11797 Fax: (516) 390-1795 Attention: General Counsel 9 9 with copies to: The Invus Group, Ltd. 135 East 57th Street - 30th Floor New York, NY 10022 Fax: (212) 371-1829 Attention: Raymond Debbane Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Fax: (212) 455-2502 Attention: Robert E. Spatt, Esq. if to Heinz, to: H.J. Heinz Company 600 Grant Street Pittsburgh, Pennsylvania 15219 Telecopy: (412) 456-6102 Attention: Senior Vice President and General Counsel SECTION 5.5. Parties in Interest. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of, and be enforceable by, the Parties and their respective successors and permitted assigns, provided, however, that neither this Agreement nor any of the rights, interests or obligations herein may be assigned, including by operation of law or otherwise, by any Party without the prior written consent of the other Party, except that Heinz may assign its rights and obligations under this Agreement to an Affiliate if (a) Heinz unconditionally guarantees in writing (such writing to be in form and substance satisfactory to WWI) that such Affiliate to which Heinz's rights and obligations are assigned will perform fully all the obligations of Heinz under this Agreement and (b) such Affiliate assumes in writing (such writing to be in form and substance satisfactory to WWI) the obligations of Heinz under this Agreement. SECTION 5.6. Amendment. This Agreement may be amended, modified or waived in whole or in part only by a duly authorized written agreement that refers to this Agreement and is signed by each of the parties hereto or by their duly appointed representatives or successors. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided therein. SECTION 5.7. Transfer Taxes. All excise, sales, value added, use, registration, stamp, transfer and other similar excise or conveyance taxes, levies, charges and fees incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by Heinz. 10 10 SECTION 5.8. Governing Law. This Agreement and the rights and duties of the Parties shall be governed by, and construed in accordance with, the law of the State of New York. SECTION 5.9. Jurisdiction; Venue; Process. 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 and in respect of its 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. SECTION 5.10. 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. 11 IN WITNESS WHEREOF, the Parties have executed this Put/Call Agreement on the day first written above. WEIGHT WATCHERS INTERNATIONAL, INC. By____________________________________________ Name: Linda A. Huett Title: President & Chief Executive Officer H.J. HEINZ COMPANY By____________________________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----