Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4/A Pre-Effective Amendment to Registration of 211 950K
Securities Issued in a
Business-Combination Transaction
2: EX-4.2 Instrument Defining the Rights of Security Holders 15 47K
3: EX-4.4 Instrument Defining the Rights of Security Holders 15 46K
4: EX-12.1 Statement re: Computation of Ratios 2 16K
5: EX-12.2 Statement re: Computation of Ratios 2 13K
6: EX-23.2 Consent of Experts or Counsel 1 10K
7: EX-27.3 Financial Data Schedule (Pre-XBRL) 2 12K
S-4/A — Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 2000
REGISTRATION NO. 333-92005
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WEIGHT WATCHERS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
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VIRGINIA 7299 11-6040273
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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175 CROSSWAYS PARK WEST
WOODBURY, NEW YORK 11797
(516) 390-1400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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ROBERT W. HOLLWEG, ESQ.
WEIGHT WATCHERS INTERNATIONAL, INC.
175 CROSSWAYS PARK WEST
WOODBURY, NEW YORK 11797
(516) 390-1400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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WITH A COPY TO:
RISE B. NORMAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. / /____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /____________
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANT GUARANTORS
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EXACT NAME OF STATE OR OTHER I.R.S. ADDRESS INCLUDING ZIP CODE,
REGISTRANT GUARANTOR JURISDICTION OF EMPLOYER AND TELEPHONE NUMBER INCLUDING AREA CODE,
AS SPECIFIED INCORPORATION OR IDENTIFICATION OF REGISTRANT GUARANTOR'S
IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
-------------- ------------ ------ ---------------------------
58 WW Food Corp. New York 13-2895206 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
Waist Watchers, Inc. Delaware N/A 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
Weight Watchers Camps, Inc. New York 11-2193880 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
W.W. Camps and Spas, Inc. Delaware N/A 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
Weight Watchers Direct, Inc. Delaware 11-3172982 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
W/W Twentyfirst Corporation New York 13-2592960 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
W.W. Weight Reduction New York 11-2393074 175 Crossways Park West
Services, Inc. Woodbury, NY 11797
(516) 390-1400
W.W.I. European Services, New York 11-2530535 175 Crossways Park West
Ltd. Woodbury, NY 11797
(516) 390-1400
W.W. Inventory Service Corp. Delaware 11-3025305 175 Crossways Park West
Woodbury, NY 11797
(516) 390-1400
Weight Watchers North Delaware 52-1656141 175 Crossways Park West
America, Inc. Woodbury, NY 11797
(516) 390-1400
Weight Watchers UK Holdings United Kingdom N/A Kidswell Park House
Ltd Kidswell Park Drive
Maidenhead, Berkshire
SL6 8YT England
44-1628-415200
Weight Watchers United Kingdom N/A Kidswell Park House
International Holdings Ltd Kidswell Park Drive
Maidenhead, Berkshire
SL6 8YT England
44-1628-415200
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EXACT NAME OF STATE OR OTHER I.R.S. ADDRESS INCLUDING ZIP CODE,
REGISTRANT GUARANTOR JURISDICTION OF EMPLOYER AND TELEPHONE NUMBER INCLUDING AREA CODE,
AS SPECIFIED INCORPORATION OR IDENTIFICATION OF REGISTRANT GUARANTOR'S
IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
-------------- ------------ ------ ---------------------------
Weight Watchers (U.K.) United Kingdom N/A Kidswell Park House
Limited Kidswell Park Drive
Maidenhead, Berkshire
SL6 8YT England
44-1628-415200
Weight Watchers United Kingdom N/A Kidswell Park House
(Accessories & Kidswell Park Drive
Publications) Ltd Maidenhead, Berkshire
SL6 8YT England
44-1628-415200
Weight Watchers United Kingdom N/A Kidswell Park House
(Food Products) Limited Kidswell Park Drive
Maidenhead, Berkshire
SL6 8YT England
44-1628-415200
Weight Watchers New Zealand N/A c/o Davies Accountants
New Zealand Limited Park View Tower, 4(th) Floor
28 Davies Avenue
Manakau City, New Zealand
64-9-262-2304
Weight Watchers Australia N/A 98 Arthur Street
International Pty Limited 10(th) Floor
North Sydney
2060 NSW Australia
61-2-9928-1300
Fortuity Pty Ltd Australia N/A 98 Arthur Street
10(th) Floor
North Sydney
2060 NSW Australia
61-2-9928-1300
Gutbusters Pty Ltd Australia N/A 98 Arthur Street
10(th) Floor
North Sydney
2060 NSW Australia
61-2-9928-1300
Prospectus
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$150,000,000
[EURO]100,000,000 [LOGO]
WEIGHT WATCHERS INTERNATIONAL, INC.
Offer to Exchange All Outstanding 13% Senior Subordinated Notes
due 2009 for 13% Senior Subordinated Notes due 2009,
which have been registered under the Securities Act of 1933
The Exchange Offer
- We will exchange all old notes that are validly tendered and not validly
withdrawn for an equal principal amount of exchange notes that are freely
tradeable.
- You may withdraw tenders of old notes at any time prior to the expiration of
the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on March 31,
2000, unless extended. We do not currently intend to extend the expiration
date.
The Exchange Notes
- The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the old notes, except that the exchange notes
will be freely tradeable.
Resales of Exchange Notes
- The exchange notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods.
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You should consider carefully the risk factors beginning on page 17 of this
prospectus before participating in the exchange offer.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is March 3, 2000.
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY..................... 1
RISK FACTORS........................... 17
EXCHANGE RATE INFORMATION.............. 26
SOURCES AND USES OF FUNDS.............. 27
CAPITALIZATION......................... 28
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME.... 29
SELECTED HISTORICAL CONDENSED COMBINED
FINANCIAL INFORMATION................ 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 39
INDUSTRY............................... 47
BUSINESS............................... 49
MANAGEMENT............................. 63
PRINCIPAL STOCKHOLDERS................. 69
DESCRIPTION OF CAPITAL STOCK........... 71
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CERTAIN RELATIONSHIPS AND RELATED
PAGE
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TRANSACTIONS......................... 72
THE EXCHANGE OFFER..................... 77
DESCRIPTION OF NOTES................... 87
DESCRIPTION OF NEW CREDIT FACILITIES... 133
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS....................... 135
PLAN OF DISTRIBUTION................... 139
LUXEMBOURG LISTING INFORMATION......... 140
WHERE YOU CAN FIND MORE INFORMATION.... 141
LEGAL MATTERS.......................... 141
EXPERTS................................ 141
INDEX TO COMBINED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE..... F-1
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE............................. S-1
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO
"US," "WE" OR "OUR" ARE TO WEIGHT WATCHERS INTERNATIONAL, INC. AND ITS
SUBSIDIARIES. REFERENCES TO PRO FORMA DATA REFLECT THE TRANSACTIONS DESCRIBED
UNDER "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME" WHICH WE
REFER TO AS THE "TRANSACTIONS". HISTORICAL FINANCIAL INFORMATION IN THIS
PROSPECTUS IS DERIVED FROM THE COMBINED FINANCIAL STATEMENTS OF OUR CLASSROOM
BUSINESS, WHICH CONSISTS OF WEIGHT WATCHERS INTERNATIONAL, INC. AND ITS
SUBSIDIARIES AND SUBSIDIARIES OF H.J. HEINZ COMPANY THAT CONDUCT THE WEIGHT
WATCHERS BUSINESS IN AUSTRALIA AND NEW ZEALAND. PRIOR TO THE TRANSACTIONS, WE
ACQUIRED THE WEIGHT WATCHERS BUSINESSES IN AUSTRALIA AND NEW ZEALAND AND THEIR
RESULTS ARE INCLUDED IN OUR COMBINED FINANCIAL STATEMENTS.
WEIGHT WATCHERS INTERNATIONAL, INC.
We are the largest provider of weight control programs in the world. We
operate in 29 countries through a network of company-owned and franchise
operations. At the core of our business are our weekly meetings, in which we
present our scientifically designed program, incorporating group support and
education about healthy eating patterns, behavior modification and physical
activity. In our fiscal year ended April 24, 1999, we estimate we held an
average of approximately thirty-three thousand meetings worldwide each week and
our average weekly attendance exceeded one million members. An estimated 9,000
classroom leaders, all of whom have lost weight on and are specially trained to
teach our program, run our meetings.
We have developed the WEIGHT WATCHERS program through continuous improvement
over our 36 year history, and we believe our brand name is recognized as the
standard for healthy, safe and drug free weight control. Careful management of
our brand identity and reputation is a fundamental element of our long-term
success. According to a Gallup study conducted in 1998, more than 84% of adults
and 94% of dieting adults in the United States recognize our brand. In an
independent survey of U.S. doctors in 1998, among those doctors who had
recommended weight loss programs in the preceding year, 65% recommended WEIGHT
WATCHERS. The next most frequently recommended program received recommendations
from less than 13% of those doctors. We believe the combination of our brand
recognition, extensive global network and our 9,000 trained classroom leaders
provides us with a significant competitive advantage.
We believe the quality, flexibility and effectiveness of our program enable
us to attract new members and contribute to the high level of repeat
enrollments.
Our flexible program:
- allows members to attend on a pay-as-you-go basis at an average cost of
less than $10 per weekly meeting
- allows our members to choose any food they want and does not require the
purchase or consumption of prepackaged meals
- offers meetings at multiple and convenient locations
Our members demonstrate consistent and predictable repeat enrollment
patterns that support our belief that weight control is a life-long challenge.
For example, in our North American company-owned (NACO) operations:
- our members attend an average of 8 weekly sessions in an enrollment cycle
- approximately 75% of returning members re-enroll in the future
- since 1991, our members have enrolled in an average of four separate
program cycles
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For the twelve months ended, October 23, 1999 on a pro forma basis, we
generated revenue of $406.0 million and adjusted EBITDA (as defined) of $102.6
million.
COMPETITIVE STRENGTHS
We believe that we will be able to develop our business because we possess
the following attributes:
- entrepreneurial management;
- continual program enhancement and development;
- strong domestic and international franchise operations; and
- a variable cost structure with a high return on invested capital.
INDUSTRY OVERVIEW
The demographics of overweight people drive the demand for our programs. The
number of overweight and obese people in the United States and other developed
countries has increased greatly over the past four decades due to improving
living standards, the aging of the population (as people tend to gain weight
with age) and increasingly sedentary lifestyles. The National Institute of
Health recently issued a report indicating that approximately 55% of American
adults are overweight or obese. A 1997 World Health Organization publication
titled, "Obesity: Preventing and Managing the Global Epidemic," reported that
the world's population is becoming overweight at a rapid pace and that there
exists an urgent need to deal with this problem. In addition, the health risks
associated with being overweight are becoming increasingly recognized. The World
Health Organization stated: "The prevalence of overweight and obesity is
escalating rapidly worldwide" and that "obesity should be regarded as today's
principal neglected public health problem."
In addition, our market is growing because of the following other trends:
- greater awareness that achieving/maintaining a healthy weight will reduce
the risk of serious medical problems and significantly improve the quality
of life
- the recognition that drugs are not an effective stand-alone remedy and may
have undesirable side effects
- an increasing willingness of employers and insurers to promote and
contribute towards the cost of weight loss programs
HISTORY
Since our founding in 1963, we have grown to be the leading commercial
weight control program in the world. We have developed our program around the
core principles of group support, behavior modification, diet and exercise and
have implemented these principles in our programs world-wide.
Heinz acquired us in 1978. In fiscal year 1990, Heinz altered our successful
model by introducing the sale of prepackaged meals through the NACO network.
These changes forced our group leaders to become food sales people and retail
managers for food products, detracting from their function as role models and
motivators for our members. This caused a significant drop in customer
satisfaction and employee morale, and NACO's attendance declined. Prior to the
introduction of prepackaged meals sales in fiscal year 1990, NACO's annual
classroom attendance was 12.9 million, but by fiscal year 1997, attendance had
dropped to 7.8 million. In contrast, in our international operations where the
prepackaged meals sales strategy was not implemented, our attendance remained
stable over this period. As we turned our North American focus to promoting and
selling our prepackaged meals, our program development began to suffer. In
response, we shifted to a more decentralized management
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approach allowing the management of our international operations to begin to
develop on their own local business strategies and program innovations. This
approach was successful and by 1996 our international growth began to accelerate
rapidly.
Beginning in 1997, we restructured our NACO operations by eliminating the
prepackaged meals program, improving customer service, restoring employee morale
and introducing 1-2-3 SUCCESS and LIBERTY/LOYALTY. 1-2-3 SUCCESS is our
state-of-the-art diet that helps guide dieters to low fat foods instead of high
fat foods. LIBERTY/LOYALTY is a pricing structure that provides members the
option of committing to consecutive weekly attendance and paying a lower weekly
fee and missed meeting fees (Loyalty) or paying a higher weekly fee without the
missed meeting fees (Liberty). In connection with the discontinuation of our
prepackaged meals program, we eliminated over $18.0 million in costs. As a
result of these efforts, we have grown NACO attendance by 40% from 7.8 million
in fiscal year 1997 to 10.9 million in fiscal year 1999. Our near-term objective
is to surpass the NACO attendance level of 12.9 million experienced prior to the
introduction of our prepackaged meals program.
GROWTH STRATEGY
We believe we have multiple opportunities for growth which will be enhanced
by our new focus on the sharing of best practices across our world-wide network.
These opportunities include:
- increasing attendance through our existing classroom network;
- expanding our customer base;
- growing product sales and licensing royalties;
- expanding our geographic presence; and
- participating in Internet growth.
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THE TRANSACTIONS
On July 22, 1999, we and our then-existing parent company, Heinz, entered
into a recapitalization and stock purchase agreement with Artal Luxembourg S.A.
and one of its affiliates.
Under the agreement, on September 29, 1999:
- we effected a stock split in which each share of our common stock, par
value $0.25 per share, was split into 58,747.60 shares of our common
stock, no par value per share;
- we redeemed a portion of our shares of our common stock held by Heinz for
$349.5 million (the "Redemption"), which we paid for with $324.5 million
of cash and $25.0 million of our redeemable preferred stock which was
issued to Heinz; and
- after the Redemption, Artal purchased 94% of our remaining common stock
from Heinz for $223.7 million (the "Equity Purchase").
After the completion of the Redemption and the Equity Purchase, Artal owned
94% of our common stock and Heinz owned 6% of our common stock. On
September 30, 1999, Artal sold 4.1% of our common stock to five investors.
In order to finance the foregoing transactions, we:
- entered into and made initial borrowings of $237.0 million under, new
senior secured bank credit facilities (the "New Credit Facilities") which
provide for borrowings of up to $267.0 million, and
- issued the notes.
We used the proceeds from the notes and the New Credit Facilities to finance
the cash portion of the Redemption, to refinance debt incurred in connection
with the acquisition of the businesses that conduct our business in Australia
and New Zealand and to pay transaction fees and expenses.
As a result of the Transactions, we have a stepped-up tax basis in our
assets, which is expected to reduce our future cash tax payments by
$72.1 million.
SOURCES AND USES OF FUNDS
The following table sets forth the sources and uses of funds in connection
with the foregoing transactions.
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(IN (IN
SOURCES: MILLIONS) USES: MILLIONS)
Available cash.................. $ 4.0
Recapitalization
New Credit Facilities(1)........ 237.0 consideration(2)................ $573.2
Senior Subordinated Notes Refinancing of debt(4).......... 147.5
due 2009...................... 255.0 Heinz rollover equity(3)........ 14.3
Artal Equity Purchase(2)........ 223.7 Transaction fees and expenses... 24.0
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Total cash sources.......... 719.7
Redeemable preferred stock
issued to Heinz(2)............ 25.0
Heinz rollover equity(3)........ 14.3
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Total Sources........... $759.0 Total Uses...................... $759.0
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(1) Represents borrowings under the New Credit Facilities made on the closing
date of the Transactions, consisting of $75.0 million under the term loan A
facility, $75.0 million under the term loan B facility and $87.0 million
under the transferable loan certificate ("TLC") facility.
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Upon consummation of the Transactions, we had $30.0 million of additional
borrowing capacity under the revolving credit facility.
(2) The recapitalization consideration consisted of (a) $349.5 million for the
Redemption, which we paid for with $324.5 million of cash and $25.0 million
of redeemable preferred stock issued to Heinz and (b) $223.7 million for the
Equity Purchase of 94% of our common stock by Artal.
(3) Represents the imputed value of Heinz's remaining ownership, which we refer
to as rollover equity, of 6% of our issued and outstanding common stock
following the recapitalization.
(4) Reflects the refinancing of debt which we incurred prior to the Transactions
relating to the acquisition of the businesses that conduct our business in
Australia and New Zealand.
THE SPONSOR
In 1985, The Invus Group, Ltd. was independently formed in New York and
engaged by Artal Luxembourg S.A., a private European investment company, to
develop and implement a private equity investment strategy. Over the past
fifteen years, Invus has focused on creating value primarily through building
and enhancing strong branded businesses. Invus works actively with its
management teams in developing the portfolio company's strategic and operational
plans.
Invus' diverse experience with branded businesses includes the creation of
the $100 million Polaner All Fruit brand, revitalization and growth of the
Keebler cookies and cracker brand, and the development and enhancement of
license relationships with a number of brands including DKNY and Timberland.
Keebler Foods Company and the Sunshine Biscuit Company were acquired in 1996 for
approximately $650 million and the combined company achieved growth, synergies
and cost savings ahead of schedule, completing a successful initial public
offering in January 1998 and a second equity offering in 1999.
THE ISSUER
Weight Watchers International, Inc. is a Virginia corporation incorporated
in 1974. Our executive offices are located at 175 Crossways Park West, Woodbury,
NY 11797. Our telephone number is 516-390-1400.
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
On September 29, 1999, we completed the private offering of the old notes.
References to "notes" in this prospectus are references to both the old notes
and the exchange notes.
We entered into a registration rights agreement with the initial purchasers
in the private offering in which we agreed to deliver to you this prospectus and
we agreed to complete the exchange offer within 220 days after the date of
original issuance of the old notes. You are entitled to exchange in the exchange
offer your old notes for exchange notes which are identical in all material
respects to the old notes except that:
- the exchange notes have been registered under the Securities Act;
- the exchange notes are not entitled to certain registration rights which
are applicable to the old notes under the registration rights agreement;
and
- certain contingent interest rate provisions are no longer applicable.
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The Exchange Offer................... We are offering to exchange up to $150.0 million aggregate
principal amount of dollar-denominated exchange notes for up
to $150.0 million aggregate principal amount of
dollar-denominated old notes, and we are offering to
exchange up to [EURO]100.0 million aggregate principal
amount of euro-denominated exchange notes for up to
[EURO]100.0 million aggregate principal amount of euro-
denominated old notes. Old notes may be exchanged only in
integral multiples of $1,000 or [EURO]1,000.
Resales.............................. Based on an interpretation by the staff of the SEC set forth
in no-action letters issued to third parties, we believe
that the exchange notes issued pursuant to the exchange
offer in exchange for old notes may be offered for resale,
resold and otherwise transferred by you, unless you are an
"affiliate" of Weight Watchers International, Inc. within
the meaning of Rule 405 under the Securities Act, without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that you are
acquiring the exchange notes in the ordinary course of your
business and that you have not engaged in, do not intend to
engage in, and have no arrangement or understanding with any
person to participate in, a distribution of the exchange
notes.
Each participating broker-dealer that receives exchange
notes for its own account pursuant to the exchange offer in
exchange for old notes that were acquired as a result of
market-making or other trading activity must acknowledge
that it will deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of Distribution."
Any holder of old notes who
- is an affiliate of Weight Watchers International, Inc.;
- does not acquire exchange notes in the ordinary course of
its business; or
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- tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a
distribution of exchange notes,
cannot rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation, Morgan
Stanley & Co. Incorporated or similar no-action letters and,
in the absence of an exemption, must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with the resale of the exchange
notes.
Expiration Date; Withdrawal of
Tenders............................ The exchange offer will expire at 5:00 p.m., New York City
time, on March 31, 2000, or on a later date and time to
which we may extend it, referred to as the "expiration
date". We do not currently intend to extend the expiration
date. A tender of old notes pursuant to the exchange offer
may be withdrawn at any time prior to the expiration date.
Any old notes not accepted for exchange for any reason will
be returned without expense to the tendering holder promptly
after the expiration or termination of the exchange offer.
Certain Conditions to the Exchange
Offer.............................. The exchange offer is subject to customary conditions, which
we may waive. Please read the section captioned "The
Exchange Offer--Certain Conditions to the Exchange Offer" of
this prospectus for more information regarding the
conditions to the exchange offer.
Procedures for Tendering Old Notes... If you wish to accept the exchange offer, you must complete,
sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal, according to the
instructions contained in this prospectus and the letter of
transmittal. You must also mail or otherwise deliver the
letter of transmittal, or a facsimile of the letter of
transmittal, together with the old notes and any other
required documents, to the exchange agent at the address set
forth on the cover page of the letter of transmittal. If you
hold old notes through The Depository Trust Company ("DTC")
and wish to participate in the exchange offer, you must
comply with the Automated Tender Offer Program procedures of
DTC, by which you will agree to be bound by the letter of
transmittal. By signing, or agreeing to be bound by, the
letter of transmittal, you will represent to us that, among
other things:
- any exchange notes that you receive will be acquired in
the ordinary course of your business;
- you have no arrangement or understanding with any person
or entity to participate in a distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange
notes for your own account in exchange for old notes that
were acquired as a result of market-making activities,
that you
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will deliver a prospectus, as required by law, in
connection with any resale of such exchange notes; and
- you are not an "affiliate," as defined in Rule 405 of the
Securities Act, of Weight Watchers International, Inc.
or, if you are an affiliate, you will comply with any
applicable registration and prospectus delivery
requirements of the Securities Act.
Special Procedures for Beneficial
Owners............................. If you are a beneficial owner of old notes which are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, and you wish to tender the
old notes in the exchange offer, you should contact the
registered holder promptly and instruct the registered
holder to tender on your behalf. If you wish to tender on
your own behalf, you must, prior to completing and executing
the accompanying letter of transmittal and delivering your
old notes, either make appropriate arrangements to register
ownership of the old notes in your name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take considerable time
and may not be able to be completed prior to the expiration
date.
Guaranteed Delivery
Procedures......................... If you wish to tender your old notes and your old notes are
not immediately available or you cannot deliver your old
notes, the accompanying letter of transmittal or any other
documents required by the accompanying letter of transmittal
or comply with the applicable procedures under DTC's
Automated Tender Offer Program prior to the expiration date,
you must tender your old notes according to the guaranteed
delivery procedures set forth in this prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures."
Effect on Holders of
Old Notes.......................... As a result of the making of, and upon acceptance for
exchange of all validly tendered old notes pursuant to the
terms of the exchange offer, we will have fulfilled a
covenant contained in the registration rights agreement and,
accordingly, we will not be obligated to pay liquidated
damages as described in the registration rights agreement.
If you are a holder of old notes and you do not tender your
old notes in the exchange offer, you will continue to hold
the old notes and you will be entitled to all the rights and
limitations applicable to the old notes in the indentures,
except for any rights under the registration rights
agreement that by their terms terminate upon the
consummation of the exchange offer.
To the extent that old notes are tendered and accepted in
this exchange offer, the trading market for old notes could
be adversely affected.
Consequences of Failure to
Exchange........................... All untendered old notes will continue to be subject to the
restrictions on transfer provided for in the old notes and
in the
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indentures. In general, the old notes may not be offered or
sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
securities laws. Other than in connection with the exchange
offer, we do not currently anticipate that we will register
the old notes under the Securities Act.
Certain U.S. Federal Income Tax
Considerations..................... The exchange of old notes for exchange notes in the exchange
offer will not be a taxable event for U.S. federal income
tax purposes. See "Certain U.S. Federal Tax Considerations."
Use of Proceeds...................... We will not receive any cash proceeds from the issuance of
exchange notes pursuant to the exchange offer.
Exchange Agent....................... Norwest Bank Minnesota, National Association is the exchange
agent for the exchange offer. The address and telephone
number of the exchange agent are set forth in the section
captioned "Exchange Offer--Exchange Agent" of this
prospectus.
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
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Issuer............................... Weight Watchers International, Inc.
Securities Offered
Dollar Notes....................... $150,000,000 aggregate principal amount of 13% Senior
Subordinated Notes Due 2009.
Euro Notes......................... [EURO]100,000,000 aggregate principal amount of 13% Senior
Subordinated Notes Due 2009.
Dollar Notes
Interest......................... 13% per year.
Interest Payment Dates........... April 1 and October 1 of each year, commencing April 1,
2000.
Maturity......................... October 1, 2009.
Euro Notes
Interest......................... 13% per year.
Interest Payment Dates........... April 1 and October 1 of each year, commencing April 1,
2000.
Maturity......................... October 1, 2009.
Guarantees........................... We will cause each subsidiary (other than certain special
purpose vehicles used to lend cash to guarantors under the
New Credit Facility) that is a guarantor under the New
Credit Facility (the "subsidiary guarantors") to jointly and
severally guarantee the old notes and the exchange notes on
full and unconditional basis on or before the later of
- the date the subsidiary becomes a guarantor under the New
Credit Facility and
- July 29, 2000.
As of the date of this prospectus, the notes are guaranteed
by the subsidiaries listed under "Description of
Notes--Guarantees".
Ranking.............................. The notes are unsecured and subordinated in right of payment
to all of our existing and future senior indebtedness,
including all of our borrowings under the New Credit
Facility. The notes rank equally in right of payment with
all of our existing and future senior subordinated
indebtedness and senior to all of our existing and future
subordinated obligations. We are a holding company and
therefore we derive a significant proportion of our
operating income and cash flow from our subsidiaries. The
note guarantees are unsecured and subordinated in right of
payment to all existing and future senior indebtedness of
the subsidiary guarantors, including all guarantees of the
subsidiary guarantors under the New Credit Facility. The
guarantees rank equally in right of payment with all of the
existing and future senior subordinated indebtedness of the
subsidiary guarantors and senior to all of the existing and
future subordinated obligations of the subsidiary
guarantors.
As of October 23, 1999, we had outstanding:
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- $237.0 million of senior indebtedness, all of which would
have been secured indebtedness, excluding unused commitments
under the New Credit Facility;
- no senior subordinated indebtedness (other than the
notes) and no indebtedness that is subordinate or junior in
right of repayment to the notes; and
- $49.4 million in total liabilities, excluding accrued
restructuring costs and deferred revenues;
and the subsidiary guarantors had outstanding:
- no senior indebtedness, excluding their guarantees of
indebtedness under the New Credit Facility;
- no senior subordinated indebtedness (other than the
guarantees) and no indebtedness that is subordinate or
junior in right of payment to the guarantees; and
- $19.6 million in total liabilities, excluding accrued
restructuring costs and deferred revenues.
As of October 23, 1999, our subsidiaries that are not
guaranteeing the notes had total liabilities, excluding
accrued restructuring costs and deferred revenues, of
$8.9 million. The indentures permit us and our subsidiaries
to incur a significant amount of additional senior
indebtedness.
Optional Redemption.................. We cannot redeem the notes until October 1, 2004, except as
described below. After that date, we can redeem some or all
of the notes at the redemption prices listed under the
heading "Description of Notes--Optional Redemption" in this
prospectus, plus accrued interest.
At any time and from time to time before October 1, 2002, we
can choose to redeem up to 35% of the original principal
amount of each of the dollar and euro notes, including
original principal amount of any additional notes, with
money that we raise in equity offerings, as long as:
- we pay to holders of the notes a redemption price of 113%
of the principal amount of the notes we redeem, plus accrued
interest,
- we redeem the notes within 90 days of completing the
equity offering, and
- at least 65% of the original principal amount of each of
the dollar and euro notes, including the original principal
amount of any additional notes, issued remains
outstanding after each redemption.
Change of Control.................... If there is a change of control, we must give holders of the
notes the opportunity to sell to us their notes at a
purchase price of 101% of their principal amount, plus
accrued interest, unless (1) we have previously provided to
the trustee under the indentures governing the notes an
irrevocable notice of redemption to redeem all outstanding
notes at a time when such redemption is permitted
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under the indentures or (2) we have exercised our optional
change of control call. See "Description of Notes--Change of
Control".
Optional Change of Control Call...... At any time prior to October 1, 2004, we may redeem all of
the notes upon a change of control at a redemption price
equal to 100% of the principal amount of the notes plus a
premium equal to the greater of (1) 1.0% of the principal
amount of the notes or (2) the excess of (a) the present
value of (i) the redemption price of the notes on
October 1, 2004 plus (ii) all required interest payments due
on the notes through October 1, 2004, computed using a
discount rate equal to the Treasury Rate, in the case of the
dollar notes, and the Bund Rate, in the case of the euro
notes, plus 0.50%, over (b) the principal amount of the
notes.
Restrictive Covenants................ The indentures governing the notes contain covenants that
limit our ability and that of our restricted subsidiaries
to:
- incur additional indebtedness,
- pay dividends or distributions on, or redeem or
repurchase, our capital stock,
- make investments,
- engage in transactions with affiliates,
- transfer or sell assets,
- create restrictions on the payment of dividends or other
amounts to us and
- consolidate, merge or transfer all or substantially all
of our assets and the assets of subsidiaries.
For more details, see "Description of Notes--Certain
Covenants."
Absence of a Public Market for the
Exchange Notes...................... The exchange notes generally will be freely transferable but
will also be new securities for which there will not
initially be a market. Accordingly, we cannot assure you
whether a market for the exchange notes will develop or as
to the liquidity of any such market. The initial purchasers
in the private offering of the old notes have advised us
that they currently intend to make a market in the exchange
notes. However, they are not obligated to do so, and any
market making with respect to the exchange notes may be
discontinued without notice.
Use of Proceeds...................... There will be no cash proceeds to us from the exchange
offer.
RISK FACTORS
You should carefully consider the information under the caption "Risk
Factors" and all other information in this prospectus before tendering your old
notes.
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SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Summary Unaudited Pro Forma Condensed Consolidated Financial
Information has been derived from the Unaudited Pro Forma Condensed Consolidated
Statements of Income and the related notes included elsewhere in this
prospectus. The summary unaudited pro forma consolidated statement of income
information and other financial information for the fiscal year ended April 24,
1999 and the six months ended October 24, 1998 and October 23, 1999 give effect
to the Transactions as if they had occurred at April 26, 1998. The Summary
Unaudited Pro Forma Condensed Consolidated Financial Information is for
informational purposes only. It does not purport to represent the results of our
operations that would have actually been obtained had the Transactions in fact
occurred as of the assumed dates or for the periods presented, nor purport to be
indicative of, or a projection for, our results of operations for any future
period or date. The pro forma adjustments, as described in the notes to the
Unaudited Pro Forma Condensed Consolidated Statements of Income included
elsewhere, are based on available information and upon certain assumptions which
we believe are reasonable.
You should read the following Summary Unaudited Pro Forma Condensed
Consolidated Financial Information in conjunction with "Unaudited Pro Forma
Condensed Consolidated Statements of Income," "Selected Historical Condensed
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our combined financial
statements and the related notes included elsewhere in this prospectus.
13
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
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SIX MONTHS ENDED
FISCAL YEAR ENDED ----------------------------------- TWELVE MONTHS ENDED
APRIL 24, 1999 OCTOBER 24, 1998 OCTOBER 23, 1999 OCTOBER 23, 1999
----------------- ---------------- ---------------- -------------------
(IN MILLIONS, EXCEPT RATIOS)
STATEMENT OF INCOME
INFORMATION:
Total revenue................. $ 399.5 $ 178.3 $ 184.8 $ 406.0
Cost of revenues.............. 177.1 83.8 86.0 179.3
-------- -------- -------- ---------
Gross profit................ 222.4 94.5 98.8 226.7
Marketing expenses............ 92.7 35.6 30.6 87.7
Selling, general and
administrative expenses..... 42.6 19.8 20.3 43.1
-------- -------- -------- ---------
Operating income............ 87.1 39.1 47.9 95.9
Interest income............... 1.0 0.4 0.5 1.1
Interest expense.............. (57.5) (28.7) (27.8) (56.6)
Other expenses, net........... (2.5) (1.2) (3.5) (4.8)
-------- -------- -------- ---------
Income before income taxes
and minority interests.... 28.1 9.6 17.1 35.6
Provision for income taxes.... 13.3 3.4 6.6 16.5
-------- -------- -------- ---------
Income before minority
interests................. 14.8 6.2 10.5 19.1
Minority interests............ .3 0.1 0.3 0.5
-------- -------- -------- ---------
Net income.................. 14.5 6.1 10.2 18.6
Dividends on preferred
stock....................... 1.5 0.8 0.8 1.5
-------- -------- -------- ---------
Net income attributable to
common stockholders....... $ 13.0 $ 5.3 $ 9.4 $ 17.1
======== ======== ======== =========
OTHER FINANCIAL INFORMATION:
EBITDA(1)..................... $ 94.6 $ 42.8 $ 49.0 $ 100.8
Adjusted EBITDA(2)............ 95.3 45.0 52.5 102.6
Depreciation and
amortization................ 10.0 4.9 4.6 9.7
Capital expenditures.......... 2.5 1.1 1.0 2.4
Cash interest expense(3)...... 55.4 27.7 26.8 54.5
Ratio of earnings to fixed
charges(4).................. 1.5x 1.3x 1.6x 1.6x
Ratio of Adjusted EBITDA to
cash interest expense....... 1.7x 1.6x 2.0x 1.9x
Ratio of Adjusted EBITDA less
capital expenditures to cash
interest expense............ 1.7x 1.6x 1.9x 1.8x
Ratio of total debt to
Adjusted
EBITDA...................... 4.8x
------------------------
(1) EBITDA represents income before income taxes and minority interest plus
depreciation, amortization and net interest expense. EBITDA should not be
construed as an alternative to operating income or cash flows from operating
activities, as determined in accordance with generally accepted accounting
principles. We believe that EBITDA is a useful supplement to net income and
other income statement data in understanding cash flows generated from
operations
14
that are available for taxes, debt service and capital expenditures.
However, our method of computation may or may not be comparable to other
similarly titled measures of other companies.
(2) Adjusted EBITDA equals EBITDA less (a) the amount of revenue recognized
under the Warnaco licensing agreement in the fiscal year ended April 24,
1999, net of the average minimum annual cash receipts from that agreement,
plus (b) the amount of cost savings that management believes can be achieved
as a stand-alone entity, which include savings resulting from certain Heinz
related expenses and the reversal of certain one-time charges, and (c) the
amount of management incentive bonus expense which would not have been
incurred, had a new plan, with higher budgeted performance hurdles, which
will be implemented after the closing of the Transactions, been in effect.
While we consider the numerical specificity of the foregoing preliminary
estimates and the anticipated cost savings to be reasonable, these estimates
and savings are based on various assumptions that are subject to inherent
uncertainty. The actual cost savings could vary from these estimates. See
Note 2 of the Unaudited Pro Forma Condensed Consolidated Statements of
Income for the reconciliation of EBITDA to Adjusted EBITDA.
(3) Cash interest expense represents pro forma interest expense less
amortization of deferred debt issuance costs.
(4) Earnings used in computing the ratio of earnings to fixed charges consist of
income before income tax expense and minority interest plus fixed charges.
Fixed charges consist of interest expense, which includes amortization of
deferred financing costs, and one-third of the rental expense from operating
leases, which management believes is a reasonable approximation of the
interest component of rental expense.
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SUMMARY HISTORICAL CONDENSED COMBINED FINANCIAL INFORMATION
The following tables set forth certain of our historical combined financial
information and the related notes. The Summary Historical Condensed Combined
Financial Information as of and for the fiscal years ended April 26, 1997,
April 25, 1998 and April 24, 1999 has been derived from, and should be read in
conjunction with, our audited historical combined financial statements and the
related notes, which are included elsewhere in this prospectus. The Summary
Historical Condensed Combined Financial Information as of and for the six months
ended October 24, 1998 and October 23, 1999 has been derived from, and should be
read in conjunction with, our unaudited combined financial statements and the
related notes included elsewhere in this prospectus. In our opinion, all
adjustments (which consist only of normal recurring entries) considered
necessary for a fair presentation have been included in our unaudited combined
financial statements. Interim results for the six months ended October 23, 1999
are not necessarily indicative of, and are not projections for, the results to
be expected for the full fiscal year. You should read the following Summary
Historical Condensed Combined Financial Information in conjunction with
"Selected Historical Condensed Combined Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our combined financial statements and the related notes included elsewhere in
this prospectus.
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FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------------ -----------------------------------
APRIL 26, 1997 APRIL 25, 1998 APRIL 24, 1999 OCTOBER 24, 1998 OCTOBER 23, 1999
-------------- -------------- -------------- ---------------- ----------------
(IN MILLIONS, EXCEPT RATIOS)
STATEMENT OF INCOME INFORMATION:
Total revenue........................... $ 332.7 $ 334.3 $ 404.8 $ 180.5 $ 186.6
Cost of revenues(1)..................... 230.4 160.0 178.9 84.7 86.7
-------- -------- -------- -------- --------
Gross profit.......................... 102.3 174.3 225.9 95.8 99.9
Marketing expenses...................... 88.8 86.3 93.1 35.8 30.7
Selling, general and administrative
expenses(1)........................... 45.5 44.1 48.9 23.0 22.2
Transaction costs....................... -- -- -- -- 8.3
-------- -------- -------- -------- --------
Operating income (loss)............... (32.0) 43.9 83.9 37.0 38.7
Interest income......................... 12.8 13.5 16.0 7.4 4.6
Interest expense........................ (13.8) (8.6) (8.9) (4.4) (6.5)
Other expenses, net..................... (3.3) (4.3) (5.2) (2.5) (4.3)
-------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interests.................. (36.3) 44.5 85.8 37.5 32.5
Provision for (benefit from) income
taxes................................. (12.9) 19.9 36.4 15.9 12.6
-------- -------- -------- -------- --------
Income (loss) before minority
interests........................... (23.4) 24.6 49.4 21.6 19.9
Minority interests...................... .6 .8 1.5 0.7 0.6
-------- -------- -------- -------- --------
Net income (loss)..................... $ (24.0) $ 23.8 $ 47.9 $ 20.9 $ 19.3
======== ======== ======== ======== ========
OTHER FINANCIAL INFORMATION:
Net cash provided by operating
activities............................ $ 9.7 $ 36.2 $ 59.2 $ 21.5 $ 17.1
Net cash used in investing activities... (1.4) (4.9) (3.0) (1.5) (15.7)
Net cash provided by (used in) financing
activities............................ (4.4) (30.5) (48.9) (19.7) 11.6
EBITDA(2)............................... (21.1) 48.4 88.3 39.2 39.0
Depreciation and amortization........... 14.2 8.8 9.6 4.7 4.6
Capital expenditures.................... 2.7 3.4 2.5 1.1 1.0
Ratio of earnings to fixed charges(3)... -- 4.5x 7.8x 7.3x 5.0x
BALANCE SHEET INFORMATION (AT END OF
PERIOD):
Working capital (deficit)............... $ 64.9 $ 65.8 $ 91.2 $ 112.2 $ (9.5)
Total assets............................ 373.0 370.8 371.4 373.0 329.6
Total debt.............................. 97.0 41.1 39.6 42.3 496.0
Total parent company
investment(stockholders' deficit)..... 188.9 229.1 248.9 271.0 (251.2)
----------------------------------
(1) Includes non-recurring restructuring costs of $49.7 million included in cost
of revenues and $2.0 million, included in selling, general and
administrative expenses for the fiscal year ended April 26, 1997 which
reflect the discontinuation of the prepackaged meals program and the
elimination of related fixed costs, rationalization of certain product lines
and termination and severance costs relating to the reorganization of
classroom operations.
(2) EBITDA represents income before income taxes and minority interest plus
depreciation, amortization and net interest expense. EBITDA should not be
construed as an alternative to operating income or cash flows from operating
activities, as determined in accordance with generally accepted accounting
principles. We believe that EBITDA is a useful supplement to net income and
other income statement data in understanding cash flows generated from
operations that are available for taxes, debt service and capital
expenditures. However, our method of computation may or may not be
comparable to other similarly titled measures of other companies.
(3) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before income tax expense (benefit) and minority interest plus
fixed charges. Fixed charges consist of interest expense, which includes
amortization of deferred financing costs, and one-third of the rental
expense from operating leases, which management believes is a reasonable
approximation of the interest component of rental expense. For the year
ended April 26, 1997, earnings were insufficient to cover fixed charges by
$36.3 million.
16
RISK FACTORS
BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER, YOU SHOULD BE AWARE THAT THERE
ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY
CONSIDER THESE RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE YOU DECIDE TO PARTICIPATE IN THE EXCHANGE OFFER.
THERE MAY BE ADVERSE CONSEQUENCES IF YOU DO NOT EXCHANGE YOUR OLD NOTES.
If you do not exchange your old notes for exchange notes under the exchange
offer, then you will continue to be subject to the transfer restrictions on the
old notes as set forth in the offering memorandum distributed in connection with
the offering of the old notes. In general, the old notes may not be offered or
sold unless they are registered or exempt from registration under the Securities
Act and applicable state securities laws. Except as required by the exchange and
registration rights agreement, we do not intend to register resales of the old
notes under the Securities Act. You should refer to "Prospectus Summary--Summary
of Terms of the Exchange Offer" and "The Exchange Offer" for information about
how to tender your old notes.
The tender of old notes under the exchange offer will reduce the principal
amount of the old notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the old notes due to a reduction
in liquidity.
OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS COULD IMPEDE OUR
OPERATIONS AND FLEXIBILITY.
As a result of the Transactions, we incurred a substantial amount of debt.
As of October 23, 1999, we have total debt and redeemable preferred stock of
$521.0 million and stockholders' deficit of $251.2 million. We also have
additional availability under our revolving credit facility of $30.0 million.
After giving pro forma effect to the Transactions, our interest expense for the
twelve months ended October 23, 1999 would have been $56.6 million. After giving
pro forma effect to the Transactions, our ratio of earnings to fixed charges for
the fiscal year ended April 24, 1999, would have been 1.5 to 1 and for the
twelve months ended October 23, 1999 would have been 1.6 to 1.
Our high level of debt could have important consequences for you, including
the following:
- we may have difficulty borrowing money in the future for acquisitions or
other purposes,
- we will need to use a large portion of the money we earn to pay principal
and interest on the New Credit Facilities, the notes and other debt, which
will reduce the amount of money available to us to finance our operations
and other business activities,
- debt under the New Credit Facilities will be secured and will mature prior
to the notes,
- we may have a much higher level of debt than certain of our competitors,
which may put us at a competitive disadvantage, and
- our debt level makes us more vulnerable to economic downturns and adverse
developments in our business.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the notes, the New Credit Facilities and other debt from our
operations. Our ability to meet our expenses and debt service obligations thus
depends on our future performance, which will be affected by financial,
business, economic, demographic and other factors. We will not be able to
control many of these factors, such as economic conditions, demographics and
attitudes toward weight loss and pressure from competitors. We cannot be certain
that our earnings will be sufficient to allow us to pay principal and interest
on our debt (including the notes) and meet our other obligations. If we do not
have enough money, we may be required to refinance all or part of our existing
debt, including the notes, sell assets, borrow more money or raise equity. We
cannot guarantee that we will be able to refinance our debt, sell assets, borrow
more money or raise equity on terms acceptable to us or at all.
17
THE NOTES AND SUBSIDIARY GUARANTEES ARE CONTRACTUALLY JUNIOR IN RIGHT OF PAYMENT
TO OUR SENIOR DEBT.
The notes are contractually junior in right of payment to all of our senior
indebtedness and the subsidiary guarantees are contractually junior in right of
payment to all senior indebtedness of the subsidiary guarantors. As of
October 23, 1999, we have approximately $237.0 million of senior indebtedness as
of such date, all of which is secured and the subsidiary guarantors would have
had no senior indebtedness, other than their guarantees of the New Credit
Facilities. The indentures permit us and our subsidiaries to borrow certain
additional debt, which may be senior indebtedness.
We may not pay principal, premium (if any), interest or other amounts on
account of the notes in the event of a payment default or certain other defaults
in respect of certain senior indebtedness (including debt under the New Credit
Facilities) unless such indebtedness has been paid in full or the default has
been cured or waived. In addition, in the event of certain other defaults with
respect to our senior indebtedness, we may not be permitted to pay any amount on
account of the notes or the subsidiary guarantees for a designated period of
time. If we or the subsidiary guarantors are declared bankrupt or insolvent, or
if there is a payment default under, or an acceleration of, any senior
indebtedness, we are required to pay the lenders under the New Credit Facilities
and any other creditors who are holders of senior indebtedness in full before we
apply any of our assets to pay you. Accordingly, we may not have enough assets
remaining after payments to holders of the senior indebtedness to pay you.
Further, the New Credit Facilities do, and our future senior indebtedness
may, prohibit us from repurchasing any notes prior to maturity, even though the
indentures require us to offer to repurchase notes in certain circumstances. If
we make certain asset sales or if a change of control occurs when we are
prohibited from repurchasing notes, we could ask our lenders under the New
Credit Facilities (or such future senior indebtedness) for permission to
repurchase the notes or we could attempt to refinance the borrowings that
contain such prohibitions. If we do not obtain the consent to repay these
borrowings or are unable to refinance the borrowings, we would be unable to
repurchase the notes. Our failure to repurchase tendered notes at a time when
repurchase is required by the indentures would constitute an event of default
under the indentures, which, in turn, would constitute a default under the New
Credit Facilities and may constitute an event of default under our future senior
indebtedness. In these circumstances, the subordination provisions in the
indentures would restrict payments to you. See "Description of New Credit
Facilities," "Description of Notes--Ranking," "Description of Notes--Change of
Control" and "Description of Notes--Certain Covenants."
THE NOTES ARE JUNIOR IN RIGHT OF PAYMENT TO THE LIABILITIES OF OUR NON-GUARANTOR
SUBSIDIARIES.
We conduct a substantial portion of our operations through our subsidiaries,
including foreign subsidiaries. We are dependent upon dividends or other
intercompany transfers of funds from our subsidiaries to meet our debt service
and other obligations. Generally, creditors of a subsidiary will have a claim to
the assets and earnings of that subsidiary that is superior to the claims of
creditors of its parent company, except to the extent the claims of the parent's
creditors are guaranteed by the subsidiary. Although the subsidiary guarantees
provide the holders of the notes with a direct claim against the assets of the
subsidiary guarantors, enforcement of the subsidiary guarantees may be subject
to legal challenge in a bankruptcy or a reorganization case or a lawsuit by or
on behalf of creditors of the subsidiary guarantor, and would be subject to
certain defenses available to guarantors generally. If the subsidiary guarantees
are not enforceable, the notes would be effectively junior in ranking to all
liabilities of the subsidiary guarantors, including trade payables of the
subsidiary guarantors. As of October 23, 1999, subsidiaries that are
non-guarantor subsidiaries had no senior indebtedness, other than borrowings by
special purpose vehicles used to lend cash to subsidiary guarantors and trade
payables. Together, the non-guarantor subsidiaries accounted for approximately
$70.9 million of revenue for the year ended April 24, 1999 and had operating
income of approximately $8.9 million.
18
Although the indentures limit the ability of our subsidiaries to incur
indebtedness and issue preferred stock, there are certain significant
qualifications and exceptions. See "Description of Notes--Certain
Covenants--Limitation on Indebtedness."
In addition, the ability of our subsidiaries to pay dividends and make other
payments to us may be restricted by, among other things, applicable corporate
and other laws and regulations and agreements of the subsidiaries. Although the
indentures limit the ability of the subsidiaries to enter into consensual
restrictions on their ability to pay dividends and make other payments, the
limitations are subject to a number of significant qualifications and
exceptions. See "Description of Notes--Certain Covenants--Limitation on
Restrictions on Distributions from Restricted Subsidiaries."
WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS.
The indentures contain covenants with respect to us and our restricted
subsidiaries that restrict, among other things,
- the incurrence of additional indebtedness and the issuance of disqualified
stock and preferred stock,
- the payment of dividends on and redemptions of, capital stock and the
redemption of indebtedness that is junior in right of payment to the
notes,
- certain other restricted payments including, without limitation,
investments,
- certain sales of assets,
- certain transactions with affiliates,
- consolidations, mergers and transfers of all or substantially all of our
assets,
- the creation of restrictions on distributions from subsidiaries, and
- the sale of stock of subsidiaries.
In addition, the New Credit Facilities contain other and more restrictive
covenants, and prohibit us from prepaying our other indebtedness (including the
notes) while indebtedness under the New Credit Facilities is outstanding. The
New Credit Facilities also require us to maintain specified financial ratios and
satisfy financial condition tests. These tests and financial ratios become more
restrictive over the life of the New Credit Facilities. Our ability to meet
those financial ratios and tests can be affected by events beyond our control
and we cannot assure you that we will meet those ratios and tests. A breach of
any of these covenants, ratios, tests or restrictions could result in an event
of default under the New Credit Facilities and/or the indentures. Upon the
occurrence of an event of default under the New Credit Facilities, the lenders
could elect to declare all amounts outstanding under the New Credit Facilities,
together with accrued interest, to be immediately due and payable. If we were
unable to repay those amounts, the lenders could proceed against the collateral
granted to them to secure such indebtedness. If the lenders under the New Credit
Facilities accelerate the payment of the indebtedness, we cannot assure you that
our assets would be sufficient to repay in full that indebtedness and our other
indebtedness, including the notes. See "Description of New Credit Facilities,"
and "Description of Notes--Certain Covenants."
OUR ASSETS ARE PLEDGED TO SECURE PAYMENT OF THE NEW CREDIT FACILITIES.
In addition to being junior to all existing and future senior indebtedness,
our obligations under the notes are unsecured while our obligations under the
New Credit Facilities are secured. We have granted the lenders under the New
Credit Facilities security interests in substantially all of our current and
future assets and the current and future assets of our domestic and certain
significant foreign subsidiaries, including a pledge of all of our capital stock
and the capital stock of our domestic and certain significant foreign
subsidiaries. If we default under the New Credit Facilities, the lenders will
19
have a superior claim on our stock and assets. During the period that any such
default is continuing, the lenders under the New Credit Facilities may be able
to prevent payments under the notes, either by way of their ability to "block"
payments for a designated period of time or by limiting our use of cash. If we
were unable to repay this indebtedness, the lenders could foreclose on the
pledged stock of our subsidiaries to your exclusion, even if an event of default
exists under the indentures at such time.
As of October 23, 1999, we had $237.0 million of secured debt outstanding
(all of which are borrowings under the New Credit Facilities) and $30.0 million
was available for additional borrowings.
YOU MAY FACE FOREIGN EXCHANGE RISKS BY INVESTING IN THE EURO NOTES.
A portion of the notes are denominated and payable in euros. If you are a
U.S. investor, an investment in the euro notes entails foreign exchange-related
risks due to, among other factors, possible significant changes in the value of
the euro relative to the U.S. dollar because of economic, political and other
factors over which we have no control. Depreciation of the euro against the U.S.
dollar could cause a decrease in the effective yield of the euro notes below
their stated coupon rates and could result in a loss to you on a U.S. dollar
basis.
WE FACE COMPETITION FROM A VARIETY OF OTHER WEIGHT LOSS METHODS, SOME OF WHICH
MAY HAVE GREATER RESOURCES THAN WE DO.
The weight loss business is highly competitive and we compete against a
large number of alternative providers of various sizes, some of which may have
greater financial resources than us. We compete against self-administered weight
loss regimens, other commercial weight loss programs, nutritionists, dietitians,
the pharmaceutical industry and certain government agencies and non-profit
groups which offer weight control help by means of diets, exercise and weight
loss drugs. Competition among commercial weight loss programs is largely based
on the effectiveness of the program and price. Although we have different
business models, we believe our most significant direct competitors in the
United States commercial weight loss industry are Jenny Craig, The Diet
Workshop, Nutri/System and Diet Center. Our most significant direct competitor
in the United Kingdom is Slimming World. There are few direct competitors in
Continental Europe. Our most significant competition in Australia and New
Zealand is Jenny Craig. We also compete against food manufacturers and
distributors which are developing and marketing low-calorie and diet products to
weight-conscious consumers. In addition, new or different products or methods of
weight control are continually being introduced. Such competition and any
increase in competition, including new pharmaceuticals and other technological
and scientific developments in weight control, may have a material adverse
impact on us.
FINANCIAL DIFFICULTIES OF AND/OR DISPUTES WITH OUR FRANCHISE OPERATORS COULD
ADVERSELY AFFECT OUR RESULTS.
We derived 5.7% of our revenue in fiscal year 1999 from franchises worldwide
which are run by 52 franchisees. If a significant number of franchises were to
experience financial difficulties, our results could be adversely affected.
Because our franchisees are independent, it is possible that one or more of them
could take actions contrary to our interests, such as not following our diets or
not maintaining the quality of our programs. In addition, we have had and
continue to have disputes with our franchisees regarding operations and revenue
sharing, including the interpretation of franchise territories as they relate to
new media.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO ECONOMIC, POLITICAL AND SOCIAL RISKS
IN THE COUNTRIES IN WHICH WE OPERATE.
The international nature of our existing and planned operations involves a
number of risks, including changes in U.S. and foreign government regulations,
tariffs, taxes, exchange controls, economic downturns, inflation, political and
social instability and dependence on foreign personnel. Foreign governmental
regulations may also restrict our ability to own or operate subsidiaries in
those
20
countries, acquire new businesses or repatriate dividends from foreign
subsidiaries back to the United States. We cannot be certain that we will be
able to enter and successfully compete in additional foreign markets or that we
will be able to continue to compete in the foreign markets in which we currently
operate.
WE ARE EXPOSED TO FOREIGN CURRENCY RISKS.
A significant portion of our revenue and operating costs are and a portion
of our indebtedness is denominated in foreign currencies. We are therefore
exposed to fluctuations in the exchange rates between the U.S. dollar and the
currencies in which our foreign operations receive revenues and pay expenses,
including debt service. Our consolidated financial results will be denominated
in U.S. dollars and therefore will require translation adjustments for purposes
of reporting results from foreign operations. Such adjustments may from time to
time be significant.
OUR ADVERTISING AND FRANCHISE OPERATIONS ARE SUBJECT TO LEGISLATIVE AND
REGULATORY RESTRICTIONS.
A number of laws and regulations govern our advertising, franchise
operations and relations with consumers. The Federal Trade Commission and
certain states regulate advertising, disclosures to consumers and franchisees,
and other consumer matters. Our customers may file actions on their own behalf,
as a class or otherwise, and may file complaints with the FTC or state or local
consumer affairs offices and these agencies may take action on their own
initiative or on a referral from consumers or others.
We and the FTC have entered into a Consent Order settling all contested
issues raised in a complaint filed against us alleging that we violated the
Federal Trade Commission Act by the use and content of certain advertisements
for our weight loss program featuring testimonials, claims for the program's
success and safety, and statements as to the programs's costs to participants.
The Consent Order does not admit any issue of fact or law or any violation by us
of any law or regulation, and does not involve payment by us of any civil money
penalty, damages, or other financial relief. The Consent Order requires certain
procedures and disclosures in connection with our advertisements of products and
services. The FTC accepted the Consent Order, and it became effective as of
December 24, 1997. We do not believe that compliance with the Consent Order will
have a material adverse effect on our consolidated financial position or results
of operations or our current advertising and marketing practices.
Future legislation or regulations including, without limitation, legislation
or regulations affecting our marketing and advertising practices, relations with
consumers or franchisees or our food products, could have a material adverse
impact on us.
Our foreign operations and franchises are also generally subject to
regulations of the applicable country regarding the offer and sale of
franchises, the content of advertising and promotion of diet products and
programs.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER.
Artal controls us. As a result, Artal controls our policies and operations
and has the power to appoint management and the board of directors and approve
any action requiring stockholder approval, including adopting amendments to our
certificate of incorporation and approving mergers or sales of substantially all
our assets. We cannot assure you that the interests of Artal will coincide with
your interests. See "Management," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
21
OUR OPERATING RESULTS ARE DEPENDENT UPON THE EFFECTIVENESS OF OUR MARKETING AND
ADVERTISING PROGRAMS.
Our business is marketing intensive. Its success depends upon our ability to
attract new participants to the program and retain existing participants. The
effectiveness of our marketing practices, in particular our advertising
campaigns, is important to our financial performance. If our marketing and
advertising programs do not generate sufficient "leads" and "sales," our results
of operations will be materially adversely affected.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP NEW PROGRAMS.
Our future success will depend on our ability to enhance our existing
products and services and to develop and market new programs on a timely basis
that respond to new and evolving customer demands, achieve market acceptance and
keep pace with new nutritional and weight loss developments. We may not be
successful in developing, introducing on a timely basis or marketing any new
products and services, and we cannot assure you that any new products or
services will be accepted by the market. The failure of our products and
services to be accepted by the market could have a material adverse impact on
us.
FRANCHISEES AND LICENSEES MAY HARM OUR BRAND OR REPUTATION.
We believe the WEIGHT WATCHERS brand is one of our most valuable assets and
that our reputation provides a competitive advantage. We allow our franchisees
to use our brand to conduct business. In addition, we license our brand to
third-party manufacturers of a variety of goods, including food products.
Because our franchisees and licensees are independent third parties with their
own financial objectives, it is possible that actions taken by them could harm
our brand name or reputation. Also, the products we license to third parties may
be subject to product recalls. Any negative publicity associated with these
recalls may adversely affect classroom attendance and our revenues.
OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER.
We have experienced and expect to continue to experience fluctuations in our
quarterly results of operations. Our revenues are affected by a number of
factors, including the volume and timing of customer leads, success of marketing
and advertising programs, success of introductions of new services and products,
activities of competitors and our ability to penetrate new markets. Our business
is seasonal with revenues generally decreasing at year end and during the summer
months. We may also choose to reduce prices or increase spending in response to
competition or to pursue new market opportunities. All of the foregoing may
materially adversely affect our results of operations.
WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURES.
Upon a change of control under the indentures, we will be required to offer
to purchase all of the notes then outstanding at 101% of their principal amount,
plus accrued and unpaid interest and liquidated damages, if any, to the date of
repurchase. If a change of control were to occur, we cannot assure you that we
would have sufficient funds to pay the purchase price of the outstanding notes,
and we expect that we would require third party financing to do so. We cannot
assure you that we would be able to obtain this financing on favorable terms, if
at all. In addition, the New Credit Facilities restrict our ability to
repurchase the notes, including pursuant to an offer in connection with a change
of control. A change of control under the indentures may result in an event of
default under the New Credit Facilities and may cause the acceleration of other
senior indebtedness, if any, in which case the subordination provisions of the
notes would require payment in full of the New Credit Facilities and any other
senior indebtedness before repurchase of the notes. Our future indebtedness may
also contain restrictions on repayment requirements with respect to certain
events or transactions that could constitute a change of control under the
indentures. See "Description of New Credit Facilities" and
22
"Description of Notes--Change of Control." The inability to repay senior
indebtedness, if accelerated, and to purchase the tendered notes, would each
constitute an event of default under the indentures.
U.S. BANKRUPTCY OR FRAUDULENT CONVEYANCE LAW MAY INTERFERE WITH THE PAYMENT OF
THE NOTES AND THE SUBSIDIARY GUARANTEES.
Under U.S. federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the notes and the guarantees issued by the subsidiary
guarantors could be voided or subordinated to all of our other debt if, among
other things, we or any subsidiary guarantor
- incurred the debt or guarantee with the intent of hindering, delaying or
defrauding current or future creditors,
- received less than reasonably equivalent value or fair consideration for
incurring the debt or guarantee, and
- were insolvent or were rendered insolvent by reason of the incurrence,
- were engaged, or about to engage, in a business or transaction for which
the assets remaining with it constituted unreasonably small capital to
carry on our business,
- intended to incur, or believed that it would incur, debts beyond our
ability to pay as these debts matured, or
- were a defendant in an action for money damages, or had a judgment for
money damages docketed against it if, in either case, after final
judgment the judgment was unsatisfied.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction that is being applied in any proceeding. Generally,
however, a debtor would be considered insolvent if, at the time the debtor
incurred the indebtedness, either
- the sum of the debtor's debts, including contingent liabilities, is
greater than the debtor's assets, at fair valuation; or
- the present fair saleable value of the debtor's assets is less than the
amount required to pay the probable liability on the debtor's total
existing debts and liabilities, including contingent liabilities, as they
become absolute and matured.
On the basis of our analysis, internal cash flow projections, estimated
values of our assets and liabilities and other factors, we believe that at the
time we initially incurred indebtedness represented by the outstanding notes, we
- were not insolvent nor rendered insolvent as a result of the issuance of
the notes,
- were in possession of sufficient capital to run our business effectively,
- were incurring debts within our ability to pay as they matured or became
due, and
- had sufficient assets to satisfy any probable money judgment against us in
any pending action.
We cannot assure you, however, as to what standard a court would apply in
making these determinations or that a court passing on these questions would
reach the same conclusions.
YOU MAY NOT BE ABLE TO SELL YOUR EXCHANGE NOTES.
There is no existing market for the exchange notes, and we cannot assure you
as to:
- the liquidity of any markets that may develop for the exchange notes;
- your ability to sell your exchange notes; or
- the prices at which you would be able to sell your exchange notes.
23
Future trading prices of the exchange notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results
and the market for similar securities. The initial purchasers of the old notes
have advised us that they currently intend to make a market in the exchange
notes. However, they are not obligated to do so and any market making may be
discontinued at any time without notice.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the exchange notes will be subject to disruptions. Any such
disruptions may have a negative effect on you, as a holder of the exchange
notes, regardless of our prospects and financial performance.
24
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements including, in
particular, the statements about our plans, strategies and prospects under the
headings "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Industry" and "Business." We
have used the words "may," "will," "expect," "anticipate," "believe,"
"estimate," "plan," "intend" and similar expressions in this prospectus to
identify forward-looking statements. We have based these forward-looking
statements on our 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 our ability to meet our debt obligations;
- risks associated with the relative success of our marketing and
advertising;
- risks associated with the continued attractiveness of our diets;
- competition, including price competition and competition with self-help
weight loss and medical programs; and
- adverse results in litigation and regulatory matters, the adoption of
adverse legislation or regulations, more aggressive enforcement of
existing legislation or regulations or a change in the interpretation of
existing legislation or regulations.
25
EXCHANGE RATE INFORMATION
The euro was launched as the single European currency on January 1, 1999.
Given its recent introduction, there is insufficient historical exchange rate
data concerning the euro for inclusion in this prospectus. As a result, this
section also provides historical exchange rate data concerning the European
Currency Unit ("ECU"). The ECU, the predecessor to the euro, is a composite
currency, consisting of specified amounts of currencies of 12 European Union
member states. The ECU basket is composed of specified amounts of the German
mark, the U.K. pound sterling, the French franc, the Italian lira, the Dutch
guilder, the Belgian franc, the Luxembourg franc, the Danish kroner, the Irish
punt, the Greek drachma, the Spanish peseta and the Portuguese escudo. In
accordance with European Council Regulation No. 1103/97, substitution of the
euro for the ECU is at the rate of one euro for one ECU. Since the United
Kingdom, Denmark and Greece are not currently participating in the European
Monetary Union, some of the currencies (U.K. pound sterling, Danish kroner and
Greek drachma) in the ECU basket will not be considered for euro purposes.
Accordingly, ECU exchange rates cannot be regarded as perfectly comparable with
euro exchange rates for historical purposes.
The following table sets forth, for the periods indicated, certain
information regarding the Noon Buying Rate for ECU and euro, expressed in U.S.
dollars per ECU and euro.
[Enlarge/Download Table]
U.S. DOLLARS U.S. DOLLARS
PER EURO PER EURO
AT AND FOR AT AND FOR
THE YEAR THE PERIOD
U.S. DOLLARS PER ECU ENDED ENDED
AT AND FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, FEBRUARY 29,
---------------------------------------------------- ------------ -------------
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
Exchange rate at end of period.... $1.22 $1.22 $1.28 $1.10 $1.18 $1.00 $0.96
Average exchange rate during
period(1)....................... 1.19 1.29 1.25 1.13 1.10 1.07 0.99
Highest exchange rate during
period.......................... 1.27 1.35 1.29 1.25 1.18 1.16 1.03
Lowest exchange rate during
period.......................... 1.10 1.22 1.22 1.05 1.08 1.00 0.96
------------------------
(1) The average of the Noon Buying Rates on the last business day of each month
during the applicable period.
26
SOURCES AND USES OF FUNDS
We will receive no proceeds from the exchange of old notes pursuant to this
exchange offer. In consideration for issuing the exchange notes as contemplated
in this prospectus, we will receive in exchange a like principal amount of old
notes, the terms of which are identical in all material respects to the exchange
notes. The old notes surrendered in exchange for the exchange notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange notes will not result in any change in our capitalization.
The net proceeds from the issuance and sale of the old notes were
approximately $243.3 million after deduction of the initial purchasers' discount
and other expenses related to the offerings. We applied the net proceeds from
the note offerings, together with the borrowings under the New Credit
Facilities, to fund the cash portion of the Redemption, to refinance debt
incurred in connection with the acquisition of the businesses that conduct our
business in Australia and New Zealand and to pay transaction fees and expenses.
For a further discussion of the estimated sources and uses of funds relating to
the Transactions see "Prospectus Summary--The Transactions."
27
CAPITALIZATION
The following table sets forth our capitalization as of October 23, 1999 on
an actual basis. You should read the table in conjunction with "Sources and Uses
of Funds," "Unaudited Pro Forma Condensed Consolidated Statements of Income,"
"Selected Historical Condensed Combined Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our combined financial statements and the related notes included elsewhere in
this prospectus.
[Download Table]
OCTOBER 23, 1999
----------------
(IN MILLIONS)
Long-term debt (including current maturities):
New Credit Facilities(1).................................. $ 237.0
Senior Subordinated Notes due 2009........................ 256.9
Other..................................................... 2.1
-------
Total long-term debt.................................... 496.0
Redeemable preferred stock.................................. 25.0
Stockholders' deficit(2).................................... (251.2)
-------
Total capitalization.................................. $ 269.8
=======
------------------------
(1) Represents borrowings under the New Credit Facilities made on the closing
date of the Transactions, consisting of $75.0 million under the term loan A
facility, $75.0 million under the term loan B facility and $87.0 million
under the TLC facility. We have $30.0 million of additional borrowing
capacity under a revolving credit facility.
(2) As of October 23, 1999, we had 100,000,000 shares of our common stock, no
par value per share, authorized and 23,800,000 shares issued and
outstanding.
28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
The following Unaudited Pro Forma Condensed Consolidated Statements of
Income have been prepared by applying pro forma adjustments to our historical
combined financial statements included elsewhere in this prospectus.
The pro forma adjustments give effect to the transactions contemplated by
the recapitalization and stock purchase agreement, including:
- the reorganization of our business, including the assignment of certain of
our assets and liabilities to Heinz, the acquisition of the WEIGHT
WATCHERS businesses in Australia and New Zealand and the establishment of
certain trademark and licensing arrangements with Heinz;
- the redemption of a portion of our common stock held by Heinz in exchange
for $349.5 million, consisting of $324.5 million of cash and
$25.0 million of our redeemable preferred stock;
- the purchase by Artal of 94% of our remaining common stock held by Heinz
for $223.7 million;
- our refinancing of debt incurred by our Australian and New Zealand
businesses in connection with their acquisition;
- the payment of transaction fees and expenses; and
- the common stock retained by Heinz having an imputed value of
$14.3 million.
The pro forma adjustments also give effect to the following financing
transactions:
- the issuance of the notes, and
- $237.0 million of borrowings under the New Credit Facilities.
We refer to the transactions contemplated by the recapitalization and stock
purchase agreement and the foregoing financings as the "Transactions."
The unaudited pro forma condensed consolidated statements of income for the
fiscal year ended April 24, 1999 and the six months ended October 24, 1998 and
October 23, 1999, give effect to the Transactions as if they had occurred on
April 26, 1998. Information for the twelve months ended October 23, 1999
represents the sum of the amounts set forth in the unaudited pro forma condensed
consolidated statement of income for the fiscal year ended April 24, 1999, and
the amounts set forth in the unaudited pro forma condensed consolidated
statement of income for the six months ended October 23, 1999, less the amounts
set forth in the unaudited pro forma condensed consolidated statement of income
for the six months ended October 24, 1998. The unaudited pro forma condensed
consolidated statements of income are for informational purposes only. They do
not purport to represent the results of our operations that would have actually
been obtained had the Transactions in fact occurred as of the assumed dates or
for the periods presented, nor are they indicative of, or projections for our
results of operations for any future period or date. The pro forma adjustments,
as described in the accompanying notes, are based on available information and
upon certain assumptions which we believe are reasonable.
The recapitalization has been accounted for as a leveraged recapitalization,
which will have no impact on the historical book basis of our assets and
liabilities. For U.S. federal and state income tax purposes, the Transactions
are being treated as a taxable sale under Section 338 (h)(10) of the Internal
Revenue Code of 1986, as amended. As a result, there will be a step-up in the
tax basis of our net assets, which is expected to reduce our cash tax payments
in the future by $72.1 million.
You should read the following Unaudited Pro Forma Condensed Consolidated
Statements of Income in conjunction with "Sources and Uses of Funds", "Selected
Historical Condensed Combined Financial Information," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our combined
financial statements and the related notes included elsewhere in this
prospectus.
29
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN MILLIONS, EXCEPT RATIO)
[Enlarge/Download Table]
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
Total revenues.......................................... $ 404.8 $ (5.3)(a) $ 399.5
Cost of revenues........................................ 178.9 (.6)(a) 177.1
(.7)(b)
(.5)(c)
Marketing expenses...................................... 93.1 (.4)(a) 92.7
Selling, general and administrative expenses............ 48.9 (3.9)(b) 42.6
(2.4)(d)
-------- -------- --------
Operating income........................................ 83.9 3.2 87.1
Interest income......................................... 16.0 (15.0)(e) 1.0
Interest expense........................................ (8.9) 8.9 (e) (57.5)
(57.5)(e)
Other expenses, net..................................... (5.2) 1.5 (f) (2.5)
1.1 (g)
.5 (h)
(.4)(h)
-------- -------- --------
Income before income taxes and minority interests....... 85.8 (57.7) 28.1
Provision for income taxes.............................. 36.4 (23.1)(i) 13.3
-------- -------- --------
Income before minority interests........................ 49.4 (34.6) 14.8
Minority interests...................................... 1.5 (1.2)(h) .3
-------- -------- --------
Net income.............................................. 47.9 (33.4) 14.5
Dividends on preferred stock............................ 1.5 (j) 1.5
-------- -------- --------
Net income attributable to common stockholders.......... $ 47.9 $ (34.9) $ 13.0
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (4)........................................................................... $ 94.6
Adjusted EBITDA(4)................................................................... 95.3
Depreciation and amortization........................................................ 10.0
Capital expenditures................................................................. 2.5
Ratio of earnings to fixed charges (5)............................................... 1.5x
See accompanying notes to this unaudited statement
30
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 24, 1998
(IN MILLIONS, EXCEPT RATIO)
[Enlarge/Download Table]
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
Total revenues............................................ $ 180.5 $ (2.2)(a) $ 178.3
Cost of revenues.......................................... 84.7 (.2)(a) 83.8
(.4)(b)
(.3)(c)
Marketing expenses........................................ 35.8 (.2)(a) 35.6
Selling, general and administrative expenses.............. 23.0 (2.0)(b) 19.8
(1.2)(d)
--------- -------- --------
Operating income.......................................... 37.0 2.1 39.1
Interest income........................................... 7.4 (7.0)(e) .4
Interest expense.......................................... (4.4) 4.4 (e) (28.7)
(28.7)(e)
Other expenses, net....................................... (2.5) .7 (f) (1.2)
.6 (g)
.2 (h)
(.2)(h)
--------- -------- --------
Income before income taxes and minority interests......... 37.5 (27.9) 9.6
Provision for income taxes................................ 15.9 (12.5)(i) 3.4
--------- -------- --------
Income before minority interests.......................... 21.6 (15.4) 6.2
Minority interests........................................ .7 (.6)(h) .1
--------- -------- --------
Net income................................................ 20.9 (14.8) 6.1
Dividends on preferred stock.............................. -- .8 (j) .8
--------- -------- --------
Net income attributable to common stockholders............ $ 20.9 $ (15.6) $ 5.3
========= ======== ========
OTHER FINANCIAL DATA:
EBITDA (2)............................................................................. $ 42.8
Adjusted EBITDA (2).................................................................... 45.1
Depreciation and amortization.......................................................... 4.9
Capital expenditures................................................................... 1.1
Ratio of earnings to fixed charges (3)................................................. 1.3x
See accompanying notes to this unaudited statement
31
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 23, 1999
(IN MILLIONS, EXCEPT RATIO)
[Enlarge/Download Table]
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
Total revenues............................................. $ 186.6 $ (1.8)(a) $ 184.8
Cost of revenues........................................... 86.7 (.2)(a) 86.0
(.5)(b)
Marketing expenses......................................... 30.7 (.1)(a) 30.6
Selling, general and administrative expenses............... 22.2 (1.0)(b) 20.3
(.9)(d)
Transaction costs.......................................... 8.3 (8.3)(k)
-------- -------- --------
Operating income........................................... 38.7 9.2 47.9
Interest income............................................ 4.6 (4.1)(e) .5
Interest expense........................................... (6.5) 2.6 (e) (27.8)
(23.9)(e)
Other expenses, net........................................ (4.3) .7 (f) (3.5)
.5 (g)
(.3)(h)
(.1)(h)
-------- -------- --------
Income before income taxes and minority interests.......... 32.5 (15.4) 17.1
Provision for income taxes................................. 12.6 (6.0)(i) 6.6
-------- -------- --------
Income before minority interests........................... 19.9 (9.4) 10.5
Minority interests......................................... .6 (.3)(h) .3
-------- -------- --------
Net income................................................. 19.3 (9.1) 10.2
Dividends on preferred stock............................... -- .8 (j) .8
-------- -------- --------
Net income attributable to common stockholders............. $ 19.3 $ (9.9) $ 9.4
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (2).............................................................................. $ 49.0
Adjusted EBITDA (2)..................................................................... 52.4
Depreciation and amortization........................................................... 4.6
Capital expenditures.................................................................... 1.0
Ratio of earnings to fixed charges (3).................................................. 1.6x
See accompanying notes to this unaudited statement
32
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED OCTOBER 23, 1999
(IN MILLIONS, EXCEPT RATIO)
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COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
Total revenues.......................................... $ 410.9 $ (4.9)(a) $ 406.0
Cost of revenues........................................ 180.9 (.6)(a) 179.3
(.8)(b)
(.2)(c)
Marketing expenses...................................... 88.0 (.3)(a) 87.7
Selling, general and administrative expenses............ 48.1 (2.1)(d) 43.1
(2.9)(b)
Transaction costs....................................... 8.3 (8.3)(k)
-------- -------- --------
Operating income........................................ 85.6 10.3 95.9
Interest income......................................... 13.2 (12.1)(e) 1.1
Interest expense........................................ (11.0) 7.1 (e) (56.6)
(52.7)(e)
Other expenses, net..................................... (7.0) 1.5 (f) (4.8)
1.0 (g)
(.3) (h)
-------- -------- --------
Income before income taxes and minority interests....... 80.8 (45.2) 35.6
Provision for income taxes.............................. 33.1 (16.6)(i) 16.5
-------- -------- --------
Income before minority interests........................ 47.7 (28.6) 19.1
Minority interests...................................... 1.4 (.9)(h) .5
-------- -------- --------
Net income.............................................. 46.3 (27.7) 18.6
Dividends on preferred stock............................ -- 1.5 (j) 1.5
-------- -------- --------
Net income attributable to common stockholders.......... $ 46.3 $ (29.2) $ 17.1
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (2)........................................................................... $ 100.8
Adjusted EBITDA (2).................................................................. 102.6
Depreciation and amortization........................................................ 9.7
Capital expenditures................................................................. 2.4
Ratio of earnings to fixed charges (3)............................................... 1.6x
See accompanying notes to this unaudited statement
33
WEIGHT WATCHERS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(1) Set forth below are adjustments to reflect the Transactions as if they had
occurred on April 26, 1998.
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SIX MONTHS ENDED TWELVE MONTHS
--------------------------- ENDED
FISCAL YEAR ENDED OCTOBER 24, OCTOBER 23, OCTOBER 23,
APRIL 24, 1999 1998 1999 1999
----------------- ------------ ------------ --------------
(IN MILLIONS)
Elimination of food license royalties and
related expenses(a)
Lost royalty revenues.................. $ (5.3) $ (2.2) $ (1.8) $ (4.9)
Cost of revenues....................... .6 .2 2 .6
Marketing rebates...................... .4 .2 .1 .3
Cost savings from restructuring(b)
Selling, general and administrative.... 3.9 2.0 1.0 2.9
Cost of revenues....................... .7 .4 .5 .8
Elimination of expenses related to
third-party publisher(c)............... .5 .3 -- .2
Decrease in pension and benefit
expense(d)............................. 2.4 1.2 .9 2.1
Increase in interest expense and
elimination of interest income(e)
Interest expense on new debt........... (57.5) (28.7) (23.9) (52.7)
Interest income........................ (15.0) (7.0) (4.1) (12.1)
Elimination of historical interest
expense.............................. 8.9 4.4 2.6 7.1
Elimination of management fee(f)......... 1.5 .7 .7 1.5
Income related to custodial fee(g)....... 1.1 .6 .5 1.0
Purchase of Australia/New Zealand
minority interests(h)
Minority interests..................... 1.2 .6 .3 .9
Additional amortization................ (.4) (.2) (.1) (.3)
Minority interest expense.............. .5 .2 (.3) --
Decrease in provision for income
taxes(i)............................... 23.1 12.5 6.0 16.6
Redeemable preferred stock
dividends(j)........................... (1.5) (.8) (.8) (1.5)
Elimination of transaction costs(k)...... 8.3 8.3
-------- -------- ------- --------
Total pro forma adjustments.............. $ (34.9) $ (15.6) $ (9.9) $ (29.2)
======== ======== ======= ========
----------------------------
(a) Reflects the net effect of food licenses that Heinz retained subsequent
to the Transactions. Such amount includes lost royalty revenues, offset
by a reduction in associated cost of revenues and marketing rebates.
(b) Under the recapitalization and stock purchase agreement, we restructured
certain of our operations, which included the elimination of several
management and staff positions and the closing of certain offices. This
adjustment reflects cost savings that resulted from this restructuring.
(c) Reflects elimination of publication royalty expenses associated with a
licensing agreement with a third-party publisher.
(d) Reflects the elimination of certain Heinz allocated corporate expenses
related to pension, post-retirement and benefit plans, net of our
estimate of the stand-alone costs we incurred in order to replace these
services.
(e) Reflects elimination of interest income on cash and intercompany
investments and interest expense associated with borrowings under various
lines of credit, promissory notes and related party loans, all of which
were retained by Heinz. The pro forma adjustment to interest expense also
reflects interest expense on the notes and borrowings and fees under the
New
34
WEIGHT WATCHERS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
Credit Facilities (revolver, term loan A, B and C). Pro forma interest
expense has been calculated as set forth below.
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SIX MONTHS
ENDED
FISCAL --------------------------- TWELVE MONTHS
YEAR ENDED OCTOBER 24, OCTOBER 23, ENDED
APRIL 24, 1999 1998 1999 JULY 24, 1999
-------------- ------------ ------------ --------------
(IN MILLIONS)
Interest on notes (13% on $255.0)........... $ 33.1 $ 16.6 $ 16.3 $ 32.8
Estimated interest on New Credit Facilities
Term loan A (8.76% on $75.0).............. 6.5 3.3 3.2 6.4
Term loan B (9.51% on $75.0).............. 7.1 3.5 3.5 7.1
TLC (9.51% on $87.0)...................... 8.3 4.1 4.0 8.2
Revolving credit facility (8.76% on
$2.0)................................... .4 .2 -- .2
------- ------- ------- --------
Total cash interest expense............. 55.4 27.7 27.0 54.7
Amortization of deferred financing fees..... 2.1 1.0 .8 1.9
------- ------- ------- --------
Total interest expense.................. $ 57.5 $ 28.7 $ 27.8 $ 56.6
======= ======= ======= ========
An increase or decrease of 0.125% in the assumed weighted average
interest rate for the New Credit Facilities would change pro forma
interest expense by $0.3 million for the fiscal year ended April 24, 1999
and $0.2 million for each of the six months ended October 24, 1998 and
October 23, 1999.
(f) Reflects elimination of corporate overhead costs allocated to us by
Heinz for general and administrative expenses, net of approximately
$0.6 million of related annual costs which management estimates will be
incurred as a stand alone entity.
(g) Reflects the net custodial fee we will receive from Heinz for the
maintenance of certain trademarks. See "Certain Relationships and Related
Transactions--Licensing Agreements."
(h) Reflects the elimination of the minority interests in the WEIGHT
WATCHERS businesses in Australia and New Zealand. The adjustment consists
of the elimination of a payment made to the minority interest owner,
additional amortization expense related to the goodwill created by the
purchase of the minority interest, and the elimination of the minority
interest expense recorded in each respective period.
(i) Reflects the tax effect of the pro forma adjustments assuming an
estimated effective tax rate of 40%.
(j) Reflects dividends on the $25.0 million of redeemable preferred stock
issued to Heinz.
(k) Reflects elimination of transaction costs associated with the sale of
Weight Watchers International, Inc. by Heinz.
(2) Pro forma EBITDA represents income before income taxes and minority interest
plus depreciation, amortization and net interest expense. EBITDA should not
be construed as an alternative to operating income or cash flows from
operating activities, as determined in accordance with generally accepted
accounting principles. We believe that EBITDA is a useful supplement to net
income and other income statement data in understanding cash flows generated
from operations that are available for taxes, debt service and capital
expenditures. However, our method of computation may or may not be
comparable to other similarly titled measures of other companies.
Pro forma Adjusted EBITDA equals EBITDA less (a) the amount of revenue
recognized under the Warnaco licensing agreement in the fiscal year ended
April 24, 1999, net of the average
35
WEIGHT WATCHERS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
minimum annual cash receipts from that agreement, plus (b) the amount of
cost savings that management believes can be achieved as a stand-alone
entity, which include savings resulting from certain Heinz related expenses
and the reversal of certain one-time charges, and (c) the amount of
management incentive bonus expense which would not have been incurred, had a
new plan, with higher budgeted performance hurdles, which will be
implemented after the closing of the Transactions, been in effect.
The following is a reconciliation of EBITDA to Adjusted EBITDA for each of
the periods presented:
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TWELVE-MONTHS
FISCAL SIX MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED ENDED OCTOBER 23,
APRIL 24, 1999 OCTOBER 24, 1998 OCTOBER 23, 1999 1999
-------------- ---------------- ---------------- -------------
(DOLLARS IN MILLIONS)
EBITDA..................... $ 94.6 $ 42.8 $ 49.0 $ 100.8
Warnaco adjustment......... (6.6) -- -- (6.6)
Cost-savings as a
stand-alone entity....... 2.0 .4 .2 1.8
Management incentive
bonus.................... 5.3 1.9 .5 3.9
Unrealized foreign currency
gain..................... 2.7 2.7
------- ------- ------- --------
Adjusted EBITDA............ $ 95.3 $ 45.1 $ 52.4 $ 102.6
======= ======= ======= ========
(3) Earnings used in computing the ratio of earnings to fixed charges consists
of income (loss) before income tax expense (benefit) plus fixed charges.
Fixed charges consist of interest expense, which includes amortization of
deferred financing costs, and one-third of the rental expense from operating
leases, which management believes is a reasonable approximation of the
interest component of rental expense.
36
SELECTED HISTORICAL CONDENSED COMBINED FINANCIAL INFORMATION
The following table sets forth our Selected Historical Condensed Combined
Financial Information and the related notes. The Selected Historical Condensed
Combined Financial Information as of and for the fiscal years ended April 25,
1995 and April 27, 1996 have been derived from our unaudited historical combined
financial statements which are not included in this prospectus. The Selected
Historical Condensed Combined Financial Information as of and for the fiscal
years ended April 26, 1997, April 25, 1998 and April 24, 1999 have been derived
from, and should be read in conjunction with, our audited historical combined
financial statements and the related notes, which are included elsewhere in this
prospectus. The Selected Historical Combined Financial Information as of and for
the six months ended October 24, 1998 and October 23, 1999 have been derived
from our unaudited combined financial statements included elsewhere in this
prospectus. In our opinion, all adjustments (which consist only of normal
recurring entries) considered necessary for a fair presentation have been
included in our unaudited condensed combined financial statements. Interim
results for the six months ended October 23, 1999 are not necessarily indicative
of, and are not projections for, the results to be expected for the full fiscal
year. You should read the following Selected Historical Condensed Combined
Financial Information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our combined financial
statements and the related notes included elsewhere in this prospectus.
37
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FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------------------------- -------------------------
APRIL 25, APRIL 27, APRIL 26, APRIL 25, APRIL 24, OCTOBER 24, OCTOBER 23,
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- ----------- -----------
(IN MILLIONS, EXCEPT RATIOS)
STATEMENT OF INCOME INFORMATION:
Total revenue.......................... $346.2 $357.7 $332.7 $334.3 $404.8 $180.5 $ 186.6
Cost of revenues....................... 185.7 190.9 230.4 160.0 178.9 84.7 86.7
------ ------ ------ ------ ------ ------ -------
Gross profit......................... 160.5 166.8 102.3 174.3 225.9 95.8 99.9
Marketing expenses..................... 89.3 88.3 88.8 86.3 93.1 35.8 30.7
Selling, general and administrative
expenses............................. 52.3 51.9 45.5 44.1 48.9 23.0 22.2
Transaction costs...................... -- -- -- -- -- -- 8.3
------ ------ ------ ------ ------ ------ -------
Operating income (loss).............. 18.9 26.6 (32.0) 43.9 83.9 37.0 38.7
Interest income........................ 4.0 15.1 12.8 13.5 16.0 7.4 4.6
Interest expense....................... (13.8) (18.4) (13.8) (8.6) (8.9) (4.4) (6.5)
Other expenses, net.................... (4.2) (4.8) (3.3) (4.3) (5.2) (2.5) (4.3)
------ ------ ------ ------ ------ ------ -------
Income (loss) before income taxes and
minority interests................. 4.9 18.5 (36.3) 44.5 85.8 37.5 32.5
Provision for (benefit from) income
taxes................................ 4.6 (3.6) (12.9) 19.9 36.4 15.9 12.6
------ ------ ------ ------ ------ ------ -------
Income (loss) before minority
interests.......................... .3 22.1 (23.4) 24.6 49.4 21.6 19.9
Minority interests..................... .4 .6 .6 .8 1.5 0.7 0.6
------ ------ ------ ------ ------ ------ -------
Net income (loss).................... $ (.1) $ 21.5 $(24.0) $ 23.8 $ 47.9 $ 20.9 $ 19.3
====== ====== ====== ====== ====== ====== =======
OTHER FINANCIAL INFORMATION:
Net cash provided by operating
activities........................... -- -- $ 9.7 $ 36.2 $ 59.2 $ 21.5 $ 17.1
Net cash used in investing
activities........................... -- -- (1.4) (4.9) (3.0) (1.5) (15.7)
Net cash provided by (used in)
financing activities................. -- -- (4.4) (30.5) (48.9) (19.7) 11.6
EBITDA(1).............................. -- -- (21.1) 48.4 88.3 39.2 39.0
Depreciation and amortization.......... 10.7 10.4 14.2 8.8 9.6 4.7 4.6
Capital expenditures................... 3.7 5.3 2.7 3.4 2.5 1.1 1.0
Ratio of earnings to fixed
charges(2)........................... 1.2x 1.7x -- 4.5x 7.8x 7.3x 5.0x
BALANCE SHEET INFORMATION:
Working capital (deficit).............. $(32.2) $ 83.6 $ 64.9 $ 65.8 $ 91.2 $112.2 $ (9.5)
Total assets........................... 268.9 393.4 373.0 370.8 371.4 373.0 329.6
Total debt............................. 101.5 97.2 97.0 41.1 39.6 42.3 496.0
Parent company investment
(stockholders' deficit).............. 110.4 231.7 188.9 229.1 248.9 271.0 (251.2)
------------------------
(1) EBITDA represents income before income taxes and minority interest plus
depreciation, amortization and net interest expense. EBITDA should not be
construed as an alternative to operating income or cash flows from operating
activities, as determined in accordance with generally accepted accounting
principle. We believe that EBITDA is a useful supplement to net income and
other income statement data in understanding cash flows generated from
operations that are available for taxes, debt service and capital
expenditures. However, our method of computation may or may not be
comparable to other similarly titled measures of other companies.
(2) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before income tax expense and minority interest plus fixed
charges. Fixed charges consist of interest expense, which includes
amortization of deferred financing costs, and one-third of the rental
expense from operating leases, which management believes is a reasonable
approximation of the interest component of rental expense. For the year
ended April 26, 1997 earnings were insufficient to cover fixed charges by
$36.3 million.
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING IS A DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FISCAL YEARS ENDED APRIL 26, 1997, APRIL 25, 1998 AND
APRIL 24, 1999 AND THE SIX MONTHS ENDED OCTOBER 24, 1998 AND OCTOBER 23, 1999.
YOU SHOULD READ THIS DISCUSSION IN CONJUNCTION WITH OUR COMBINED FINANCIAL
STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS COVER PERIODS PRIOR TO THE CONSUMMATION OF THE TRANSACTIONS.
ACCORDINGLY, MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL PERIODS DOES NOT
REFLECT THE IMPACT ON US OF THESE EVENTS OR OF THE BUSINESS STRATEGY TO BE
IMPLEMENTED AFTER CONSUMMATION OF THE TRANSACTIONS. SEE "RISK FACTORS,"
"UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME" AND "BUSINESS--
GROWTH STRATEGY."
OVERVIEW
We are the largest provider of weight control programs in the world,
operating in 29 countries through a network of company-owned and franchise
operations. We earn revenues by conducting meetings, selling products,
collecting commissions from our franchisees operating under our name and by
collecting royalties related to licensing agreements.
We run our domestic and international operations through a combination of
owned and franchise operated locations. We estimate that, in fiscal 1999, 40% of
our U.S. attendance and 75% of our international attendance were at
company-owned classes, with the balance of members attending our franchise
locations. Franchisees typically pay a royalty fee of 10% of their meeting fee
revenues to us. For the fiscal year ended April 24, 1999, franchise revenues
totaled $23.2 million.
A number of factors have affected our revenues and profitability over the
last several years. In fiscal year 1990, Heinz began introducing and promoting
the sale of prepackaged meals through the NACO network. These changes forced our
group leaders to become food salespeople and retail managers for food products,
detracting from their function as role models and motivators for our members.
These changes caused a significant drop in customer satisfaction and employee
morale, and NACO's attendance declined. Prior to the introduction of prepackaged
meal sales in fiscal year 1990, NACO's annual classroom attendance was
12.9 million, but by fiscal year 1997, attendance had dropped to 7.8 million. In
contrast, in our international operations, where the prepackaged meals sales
strategy was not implemented, our attendance remained stable over this period.
As we turned our North American focus to promoting and selling our prepackaged
meals, our program development began to suffer. In response, we shifted to a
more decentralized management approach, allowing the management of our
international operations to begin to develop on their own local business
strategies and program innovations. This approach was successful and by 1996 our
international growth began to accelerate rapidly. Beginning in 1997, we
restructured our NACO operations by:
- eliminating the prepackaged meals program,
- introducing 1-2-3 SUCCESS and LIBERTY/LOYALTY,
- improving customer service,
- restoring employee morale,
- relocating classes from fixed to rented meeting rooms,
- reducing back office and field headcount, and
- eliminating certain field offices.
39
This restructuring allowed us to eliminate over $18.0 million in costs
related to the food sales system. As a result of these efforts, we have grown
NACO attendance by 40% from 7.8 million in fiscal year 1997 to 10.9 million in
fiscal year 1999.
Over this period our international operations continued to generate
significant growth which had started when local management was allowed to create
new strategies and program innovations. Between fiscal 1997 and 1999, in
continental Europe, attendance grew by 47.6%, in the United Kingdom revenues
increased by 24.5% and, in New Zealand, where we acquired the WEIGHT WATCHERS
business in 1998, revenues and attendance grew significantly.
The combination of the revitalization of our North American operations and
continued strong performance of our international business contributed to the
strong growth in revenues and profitability. Revenue has increased from $332.7
million in fiscal year 1997 to $404.8 million in fiscal year 1999 and cost of
revenues has decreased from $180.7 million (before a restructuring charge of
$49.7 million) for fiscal year 1997 to $178.9 million for fiscal year 1999.
In addition to franchise revenue and company-owned classroom revenues, we
also sell to our members ancillary products which complement our program such as
calendars, books, healthy snack bars and CD-ROMS. For the fiscal year ended
April 24, 1999, these revenues totalled $56.6 million.
Our business is seasonal with revenues generally decreasing at year end and
during the summer months.
The recapitalization has been accounted for as a leveraged recapitalization,
which will have no impact on the historical book basis of our assets or
liabilities.
RESULTS OF OPERATIONS
The following table summarizes our historical results of operations as a
percentage of revenues for the fiscal years ended April 26, 1997, April 25, 1998
and April 24, 1999 and the six months ended October 24, 1998 and October 23,
1999.
[Enlarge/Download Table]
SIX MONTHS ENDED
FISCAL YEAR ENDED -------------------------
------------------------------------------------ OCTOBER 24, OCTOBER 23,
APRIL 26, 1997 APRIL 25, 1998 APRIL 24, 1999 1998 1999
-------------- -------------- -------------- ----------- -----------
Total revenue................... 100% 100% 100% 100% 100%
Cost of revenues................ 69.3 47.8 44.2 46.9 46.4
----- ----- ----- ----- -----
Gross profit.................. 30.7 52.2 55.8 53.1 53.6
Marketing expenses.............. 26.7 25.8 23.0 19.9 16.5
Selling, general and
administrative expenses....... 13.7 13.2 12.1 12.7 11.9
----- ----- ----- ----- -----
Transaction costs -- -- -- -- 4.4%
Operating income (loss)....... (9.7)% 13.2% 20.7% 20.5% 20.8%
COMPARISON OF SIX MONTHS ENDED OCTOBER 23, 1999 TO SIX MONTHS ENDED OCTOBER 24,
1998
Total revenues were $186.6 million for the six months ended October 23,
1999, an increase of $6.1 million or 3.4% from $180.5 million for the six months
ended October 24, 1998. Net revenues (net of discounts and allowances that are
included as marketing expenses) were $176.2 million for the six months ended
October 23, 1999, an increase of 7.4% from $164.0 million for the six months
ended October 24, 1998. This increase in net revenues resulted from increased
attendance in most of our markets and strong growth in classroom product sales
that were partially offset by the lower LIBERTY/ LOYALTY average meeting fees in
NACO.
40
Cost of revenues was $86.7 million for the six months ended October 23,
1999, an increase of 2.4% from $84.7 million for the six months ended
October 24, 1998. This increase was primarily the result of growing product
sales and an increased number of meetings to accommodate attendance growth.
Gross profit margins (as a % of net sales) improved from 48.4% for the six
months ended October 24, 1998, to 50.8% for the six months ended October 23,
1999. Gross margins benefitted from growth in our franchise commission revenues
and publishing royalties as well as a shift in product mix to higher margin core
products.
Marketing expenses were $30.7 million for the six months ended October 23,
1999, a decrease of 14.2% from $35.8 million for the six months ended
October 24, 1998. The decline in marketing expenses was the result of a
reduction in promotional allowances in NACO associated with the roll-out of the
LIBERTY/LOYALTY program in that market.
Selling, general and administrative expenses declined by 3.4% to
$22.2 million (excluding one-time charge of $8.3 million of transaction costs)
for the six months ended October 23, 1999, as compared to the three months ended
October 24, 1998. This decrease reflects success with our continuing cost
reduction efforts.
As a result of the above, operating income was $47.0 million (excluding
one-time charge of $8.3 million of transaction costs) for the six months ended
October 23, 1999, an increase of 27.0% from $37.0 million for the six months
ended October 24, 1998.
COMPARISON OF FISCAL YEAR ENDED APRIL 24, 1999 TO FISCAL YEAR ENDED APRIL 25,
1998
Total revenues were $404.8 million for the fiscal year ended April 24, 1999,
an increase of $70.5 million, or 21.1%, from $334.3 million for the fiscal year
ended April 25, 1998. Of the $70.5 million increase, $32.1 million was
attributable to domestic company-owned classrooms, $14.4 million to foreign
company-owned classrooms, $4.7 million to domestic franchises, $10.5 million to
products sales and $9.0 million to royalties.
Domestic company-owned classroom meeting fee revenues were $145.3 million
for the fiscal year ended April 24, 1999, an increase of 28.4% from $113.2
million for the fiscal year ended April 25, 1998. This increase in domestic
company-owned classroom meeting fee revenues was the result of a 29% increase in
member attendance. We believe the increase in member attendance was due to the
continued improvement in member satisfaction which resulted from the full year
impact of 1-2-3 SUCCESS and the elimination of our prepackaged meals program.
Foreign company-owned classroom meeting fee revenues were $161.0 million for the
fiscal year ended April 24, 1999, an increase of 9.8% from $146.6 million for
the fiscal year ended April 25, 1998. This increase in foreign company-owned
classroom meeting fee revenues was the result of a 6% increase in international
attendance in continental Europe and Australia.
Domestic franchise revenues were $19.1 million for the fiscal year ended
April 24, 1999, an increase of 32.6% from $14.4 million for the fiscal year
ended April 25, 1998. This increase in domestic franchise revenues was primarily
the result of an increase in member attendance, which was due to the full year
impact of 1-2-3 SUCCESS, improved training and support and increased marketing
effectiveness. Foreign franchise revenues were $4.1 million for the fiscal year
ended April 24, 1999, an increase of 17.1% from $3.5 million for the fiscal year
ended April 25, 1998. This increase was primarily the result of a strong
performance in Canada and Ireland.
Product revenues were $56.6 million for the fiscal year ended April 24,
1999, an increase of 22.8% from $46.1 million for the fiscal year ended
April 25, 1998. This increase in product revenues was primarily the result of
increased member attendance. In addition, the elimination of approximately two-
thirds of our items in NACO allowed us to focus our sales efforts on our core
products.
41
Royalties from licensing, publications and other were $18.0 million for the
fiscal year ended April 24, 1999, an increase of 100% from $9.0 million for the
fiscal year ended April 25, 1998. This increase in royalty revenues was
attributable to a new licensing agreement with Warnaco for the manufacturing of
women's shapewear.
Cost of revenues was $178.9 million for the fiscal year ended April 24,
1999, an increase of 11.8% from $160.0 million for the fiscal year ended
April 25, 1998. This increase was attributable to the increased levels of
attendance. Gross profit margin, however, increased from 52.2% for the fiscal
year ended April 25, 1998 to 55.8% for the fiscal year ended April 24, 1999.
This increase in gross margin was due to various factors, including an increase
in attendance per meeting, an increase in the ratio of third-party locations to
total locations, and a change in product mix with a focus on higher margin core
products.
Marketing expenses were $93.1 million for the fiscal year ended April 24,
1999, an increase of 7.9% from $86.3 million for the fiscal year ended
April 25, 1998. This increase in marketing expenses was the result of an
increase in advertising and an increase in promotional allowances as a result of
increased attendance.
Selling, general and administrative expenses were $48.9 million for the
fiscal year ended April 24, 1999, an increase of 10.9% from $44.1 million for
the fiscal year ended April 25, 1998. As a percentage of total revenues, these
costs were 12.1% for fiscal 1999 compared to 13.2% for fiscal 1998. This
percentage decrease was due to the continued benefit of our restructuring and
reorganization program, which allowed us to eliminate certain costs that were
not directly associated with our core business, classroom operations and related
products.
As a result of the above, operating income was $83.9 million for the year
ended April 24, 1999, an increase of 90.7% from operating income of
$43.9 million for the year ended April 25, 1998.
COMPARISON OF FISCAL YEAR ENDED APRIL 25, 1998 TO FISCAL YEAR ENDED APRIL 26,
1997.
Total revenues were $334.3 million for the fiscal year ended April 25, 1998,
an increase of $1.6 million from $332.7 million for the fiscal year ended
April 26, 1997. Our results reflected strong growth in our core business offset
by a revenue decline of $33.3 million as a result of the elimination of
prepackaged meals sales in 1997.
Domestic company-owned classroom meeting fee revenues were $113.2 million
for the fiscal year ended April 25, 1998, an increase of 7.6% from $105.2
million for the fiscal year ended April 26, 1997. This increase in domestic
company-owned classroom meeting fee revenues was the result of the introduction
of 1-2-3 SUCCESS in the United States mid-year in fiscal 1998. Foreign
company-owned classroom meeting fee revenues were $146.6 million for the fiscal
year ended April 25, 1998, an increase of 8.8% from revenues of $134.8 million
for the fiscal year ended April 26, 1997. This increase in foreign company-owned
classroom meeting fee revenues was the result of a 26.7% increase in attendance
in continental Europe and a 13.9% increase in the United Kingdom.
Domestic franchise revenues were $14.4 million for the fiscal year ended
April 25, 1998, an increase of 34.6% from $10.7 million for the fiscal year
ended April 26, 1997. This increase in domestic franchise revenues was the
result of the introduction of 1-2-3 SUCCESS during mid-year fiscal 1998. Foreign
franchise revenues were $3.5 million for the fiscal year ended April 25, 1998,
an increase of 9.4% from $3.2 million for the fiscal year ended April 26, 1997.
The increase in foreign franchise revenues was the result of the introduction of
1-2-3 SUCCESS to certain foreign franchises during fiscal 1998.
Product revenues were $46.1 million for the fiscal year ended April 25,
1998, an increase of 53.7% from $30.0 million for the fiscal year ended
April 26, 1997. This increase in product revenues reflects the positive impact
of our restructuring and reorganization program, which allowed us to focus on
42
selling certain core products in the United States by discontinuing prepackaged
meals sales and reformulating and repackaging core products in the United
Kingdom and continental Europe.
Royalties from licensing, publications and other were $9.0 million for the
fiscal year ended April 25, 1998, a decrease of 36.2% from $14.1 million for the
fiscal year ended April 26, 1997. This decrease in royalty revenues was the
result of a decrease in publishing royalties of $1.0 million, Brazilian meeting
fee royalties of $1.0 million and the sale of a minority interest in Finland. In
addition, during fiscal 1997, we sold two franchise areas and granted a food
license in Brazil, which resulted in additional revenues of $2.6 million, which
did not recur in fiscal 1998.
Cost of revenues was $160.0 million for the fiscal year ended April 25,
1998, a decrease of 30.6% from $230.4 million for the fiscal year ended
April 26, 1997. Cost of revenues for fiscal 1997 included a restructuring charge
of $49.7 million. This charge included certain non-recurring restructuring
costs, relating to the discontinuation of the prepackaged meals program and the
elimination of related fixed costs, rationalization of certain product lines and
termination and severance costs relating to the reorganization of classroom
operations. This initiative generated $18.0 million in operational cost savings
in fiscal year 1998. Gross profit margin increased from 30.8% for the fiscal
year ended April 26, 1997 to 52.2% for the fiscal year ended April 25, 1998.
Marketing expenses were $86.3 million for the fiscal year ended April 25,
1998, a decrease of 2.8% from $88.8 million for the fiscal year ended April 26,
1997. This decrease in marketing expenses was primarily the result of a 7%
decrease in promotional allowances given to members.
Selling, general and administrative expenses were $44.1 million for the
fiscal year ended April 25, 1998, a decrease of 3.2% from $45.5 million,
including a restructuring charge of $2.0 million, for the fiscal year ended
April 26, 1997. As a percentage of total revenues, these costs were 13.2% for
the fiscal year ended April 25, 1998 compared to 13.7% for the fiscal year ended
April 26, 1997. This decrease reflects the benefit of our restructuring and
reorganization program which began in fiscal 1997.
As a result of the above, operating income increased from a loss of $32.0
million for the fiscal year ended April 26, 1997 to $43.9 million for the fiscal
year ended April 25, 1998. Before the restructuring charge of $51.7 million, our
operating income grew by $24.4 million.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1999, our primary source of funds to meet working capital
needs was cash from operations. Cash and cash equivalents increased $7.7 million
during the fiscal year ended April 24, 1999. Cash flows provided by operating
activities of $59.2 million were in excess of cash flows used in investing
activities of $3.0 million and cash flows used in financing activities of $48.9
million. Cash flows used for investing activities were principally related to
capital expenditures. Cash flows used in financing activities were principally
related to the payment of dividends and other transfers to Heinz.
The total cash we required to effect the Transactions was $496.0 million. We
funded these costs from available cash, the proceeds of the notes and $237.0
million in borrowings under the New Credit Facilities.
Capital spending has averaged $2.9 million annually over the last three
years and has consisted primarily of leasehold improvements for meeting
locations and administrative offices, computer equipment for field staff and
call centers and Year 2000 upgrades. We expect to make capital expenditures of
$3.5 million in fiscal year 2000.
We are significantly leveraged. As of October 23, 1999, we had outstanding
$496.0 million in aggregate indebtedness, with $30.0 million of additional
borrowing capacity available under the revolving credit facility, and total
stockholders' deficit of $251.2 million. After giving pro forma effect
43
to the Transactions, our ratio of earnings to fixed charges for the fiscal year
ended April 24, 1999 would have been 1.5 to 1 and the ratio for the six months
ended October 23, 1999 was 1.6 to 1. As a result of the Transactions, our
liquidity requirements are significantly increased, primarily due to increased
debt service obligations.
We believe that cash flow from operating activities, together with
borrowings available under the revolving credit facility, will be sufficient to
fund our currently anticipated capital investment requirements, debt service
requirements and working capital requirements. Any future acquisitions, joint
ventures or other similar transaction will likely require additional capital and
we cannot assure you that any such capital will be available to us on acceptable
terms or at all.
The New Credit Facilities provide senior secured financing of up to
$267.0 million, consisting of the $75.0 million term loan A facility with a
maturity of six years, the $75.0 million term loan B facility with a maturity of
seven years, the $87.0 million TLC facility with a maturity of seven years and a
$30.0 million revolving credit facility. We drew the full amount of the term
loan A facility, the term loan B facility and the TLC facility upon closing of
the Transactions. The revolving credit facility commitment will terminate six
years from the date of the closing of the New Credit Facilities.
The term loan A facility, the term loan B facility, the TLC facility and the
revolving credit facility will initially bear interest, subject to performance
based stepdowns applicable to the term loan A facility and the revolving credit
facility, at a rate equal to (a) in the case of the term loan A facility and the
revolving credit facility, LIBOR plus 3.25% or, at our option, the alternate
base rate (as defined in the New Credit Facilities) plus 2.25% or (b) in the
case of the term loan B facility and the TLC facility, LIBOR plus 4.00% or, at
our option, the alternate base rate plus 3.00%.
In addition to paying interest on outstanding principal under the New Credit
Facilities, we are required to pay a commitment fee to the lenders under the
revolving credit facility in respect of the unused commitments at a rate equal
to 0.50% per year.
The term loan A facility, the term loan B facility and the TLC facility will
amortize each year in equal quarterly amounts in the following approximate
aggregate principal amounts for each year set forth below:
[Download Table]
TERM TERM
LOAN A LOAN B TLC
YEAR FACILITY FACILITY FACILITY
---- -------- -------- --------
(IN MILLIONS)
1................................................ $ 9.38 $ 0.56 $ 0.65
2................................................ 12.50 0.75 0.87
3................................................ 12.50 0.75 0.87
4................................................ 12.50 0.75 0.87
5................................................ 12.50 0.75 0.87
6................................................ 15.62 0.75 0.87
7................................................ -- 70.69 82.00
------ ------ ------
Total............................................ $75.00 $75.00 $87.00
====== ====== ======
Amounts outstanding under the revolving credit facility are due and payable in
full at maturity, six years from the date of the closing of the New Credit
Facilities.
The New Credit Facilities contain a number of covenants that, among other
things, restrict our ability to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay other indebtedness, make
certain restricted payments and dividends, create liens on assets, make
investments, loans or advances, make certain acquisitions, engage in mergers or
consolidations, make capital expenditures, enter into sale and leaseback
transactions, or engage in certain transactions with affiliates and otherwise
restrict our corporate activities. In addition, under the New Credit Facilities,
we are required to comply with specified financial ratios and tests, including
minimum fixed charge coverage
44
and interest coverage ratios and maximum leverage ratios. The New Credit
Facilities also contain certain customary events of default.
The notes will mature in 2009. Our obligations under the notes are
subordinate and junior in right of payment to all of our existing and future
senior indebtedness, including all indebtedness under the New Credit Facilities.
The indentures restrict, among other things, our ability to incur additional
indebtedness, issue shares of disqualified stock and preferred stock, pay
dividends or make certain other restricted payments and enter into certain
transactions with affiliates, and prohibit certain restrictions on the ability
of our subsidiaries to pay dividends or make certain payments to us, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our assets.
In addition, we have 1.0 million shares of Series A Preferred Stock issued
and outstanding. Holders of our Series A Preferred Stock are entitled to receive
dividends at an annual rate of 6% payable annually in arrears.
We have agreed to loan to Weight Watchers UK Holdings Ltd an aggregate
principal amount of $94.0 million. To ensure cash flows to us from Weight
Watchers UK Holdings Ltd to service the New Credit Facilities and the notes, we
will loan this amount on substantially the same terms and conditions as the New
Credit Facilities and the notes. This loan is consistent with our strategy of
financing our more significant foreign subsidiary operations with a portion of
our overall debt, which can then be supported by those subsidiaries' local
operations.
Our ability to fund our capital investment requirements, interest, principal
and dividend payment obligations and working capital requirements and to comply
with all of the financial covenants under our debt agreements depends on our
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 our control.
MARKET RISK
We are exposed to foreign currency fluctuations and interest rate changes.
Our 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.
We have historically managed interest rates through the use of, and our
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 our fixed rate borrowings at
April 24, 1999 and at October 23, 1999, on a pro forma basis, a 10 percent
change in market interest rates would have less than an 8 percent impact on the
fair value of our long-term debt. Based on variable rate debt levels at
April 24, 1999 and at October 23, 1999, on a pro forma basis, a 10 percent
change in market interest rates would have less than a 3 percent impact on our
interest expense, net.
Other than intercompany transactions between our domestic and foreign
entities and the portion of the notes which are denominated in euro dollars, we
generally do 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 our stockholders'
equity. The assets and liabilities of our non-U.S. subsidiaries are translated
into U.S. dollars at the exchange rates in effect at the balance sheet date.
Revenues and expenses are translated into U.S. dollars at the weighted average
exchange rate for the year. The resulting translation adjustments are recorded
in stockholders' equity as accumulated other comprehensive income/loss. In
addition, fluctuations in the value of the euro will cause the U.S. dollar
translated amounts to change in comparison to prior periods and may impact
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interest expense. Furthermore, we will revalue the outstanding euro notes at the
end of each period, and the resulting change in value will be reflected in the
income statement of the corresponding period.
Each of our 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.
Foreign exchange gains and losses are included in our consolidated
statements of income and historically have not been significant. We generally do
not engage in hedging activities.
YEAR 2000 RISK
The Year 2000 issue is the result of computer programs that were written
using only two digits, rather than four, to represent a year. Date-sensitive
software or hardware may not have been able to distinguish between the years
1900 and 2000 and programs that perform arithmetic operations, comparisons or
sorting of date fields may have yielded incorrect results. This could
potentially have caused a system failure or miscalculations that could have
disrupted operations.
Commencing in early 1997, we addressed the Year 2000 issue through a program
of modification and replacement. We completed this program before the end of
1999. The transition to the Year 2000 was completed successfully with no
significant problems or disruption of business. The total cost of the project
was approximately $1.35 million and was funded through cash flows from
operations. Approximately $0.6 million of these costs related to hardware and
software purchases and have been capitalized and the remainder was incurred as
expenses.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of Statement 133," which
postponed the adoption date of SFAS No. 133. As such, we are not required to
adopt the statement until fiscal 2002. We do not believe this standard will have
a material impact on our financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognition in Financial Statements". This bulletin summarizes
some of the staff's interpretations of the application of generally accepted
accounting principles to revenue recognition. We are not required to apply the
accounting and disclosure requirements until fiscal 2001. We do not believe this
bulletin will have a material impact on our financial statements.
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INDUSTRY
OVERVIEW
The number of overweight and obese people in the United States and other
developed countries has increased greatly over the past four decades due to
improving living standards, the aging of the population (as people tend to gain
weight with age) and increasingly sedentary lifestyles. The National Institute
of Health ("NIH") recently issued a report indicating that approximately 55% of
American adults are overweight or obese. A 1997 World Health Organization
("WHO") publication titled, "Obesity: Preventing and Managing the Global
Epidemic," reported that the world's population is becoming overweight at a
rapid pace and that there exists an urgent need to deal with this problem. In
addition, the health risks associated with being overweight are becoming
increasingly recognized. The WHO stated: "The prevalence of overweight and
obesity is escalating rapidly worldwide" and that "obesity should be regarded as
today's principal neglected public health problem." Obesity is considered a
chronic disease by the medical community.
According to a 1998 Gallup survey, the reasons people diet have been
shifting towards health rather than appearance over the last several years.
While "fitting into clothes" is still an important reason stated for starting to
diet, the desire to use weight loss to feel better physically and improve
general health is increasing.
Demand for non-drug based weight control programs is also growing as a
result of:
- greater awareness that achieving/maintaining a healthy weight will reduce
the risk of serious medical problems and significantly improve the quality
of life;
- the recognition that drugs are not an effective stand-alone remedy and may
have undesirable side effects; and
- an increasing willingness of employers and insurers to promote and
contribute towards the cost of weight loss programs.
WEIGHT AND HEALTH CORRELATION
Being overweight or obese raises risks associated with numerous diseases,
including heart disease, high blood pressure and type II diabetes. According to
the WHO, there is strong evidence that weight loss reduces the risk of
developing many of these diseases and benefits patients already diagnosed with
the conditions.
The prevalence of disease, particularly cardiovascular disease, among the
overweight clearly increases with age. According to the WHO, obesity is a major
predictor of impaired mobility in older adults. The number of people over the
age of 50 is expected to increase 25% in the United States from 1997 to 2005.
Weight control problems are affecting more children as well and a large increase
in the number of overweight youths has occurred over the past 20 years.
Currently almost 11% of American children and adolescents are classified as
overweight and an additional 14% are considered at risk of becoming overweight.
INCREASING SUPPORT FROM EMPLOYERS AND INSURERS
As the costs of health insurance and medical treatments increase, employers
and insurers are trying to find ways to decrease expenses. By encouraging
enrollment in a weight reduction program, employers and insurers may reduce
their healthcare expenses.
Many companies have included preventative weight loss as an integral part of
their preventative healthcare programs. For example, Independence Blue Cross,
located in Wilmington, Delaware, which has approximately 74,000 employees
reimburses employees for 50% of their weekly meeting fees upon
47
reaching goal weight and the remaining 50% of their weekly meeting fees if they
maintain the weight for six months. In addition, large companies, such as IBM
and Disney, share the cost of meetings with their employees.
Attendance in our AT WORK program, where meetings are at the place of
business, has grown from 450,000 in fiscal 1997 to 1.1 million in fiscal 1999.
COMPETITION
The overall U.S. market for products and services directed at weight control
generated more than $16.5 billion in revenues in 1998 according to Marketdata
Enterprises. This market includes commercial weight loss programs, self-help
weight loss products, weight loss services administered by doctors,
nutritionists and dieticians and weight loss drugs. Competition among commercial
weight loss programs is largely based on the effectiveness of the program and
price.
Our most significant direct competitor in the United Kingdom is Slimming
World. Our estimated 42% market share of the U.K. commercial weight control
market, however, greatly exceeds Slimming World's estimated 26% market share. We
have few direct competitors in the rest of Europe. In Australia/New Zealand we
are more than twice as large as our closest competitor, Jenny Craig, despite
Jenny Craig having been founded in Australia. In the United States, we compete
in the commercial weight control segment, along with other companies such as
Jenny Craig, The Diet Workshop, Nutri/ System and Diet Center, although we
believe our business platforms are not comparable. For example, many of our
competitors' businesses are based on the sale of prepackaged meals and meal
replacements, whereas our program uses group support, education and behavior
modification to help members change their eating habits without prepackaged
foods. During the 1980's, the U.S. commercial weight loss industry grew
significantly with many competitors focusing their programs on meal replacement
and prepackaged food products. We believe that weight control is a lifelong
challenge and that quick results offered by these products are not sustainable
and may have side-effects. In fact, diets offered by some of our competitors
proved to be ineffective or to cause side-effects, leading the U.S. government
to increase its scrutiny of claims made by the industry. Some competitors were
forced into bankruptcy, such as Nutri/System, or to drastically reduce
advertising and scale back the size of their operations, such as Jenny Craig.
When the diet drugs Phen/Fen and Redux became popular in 1996, many of these
weakened competitors turned to prescription drug sales as a way to boost sagging
profitability. In September 1997, the United States Food and Drug Administration
requested the withdrawal of fenfluramine (one of the pharmaceuticals used in
"Phen/Fen") and dexfenfluramine ("Redux"), from the U.S. market citing potential
health risks. The manufacturer and distributor of these pharmaceuticals agreed
to an immediate recall of these drugs. The resultant negative publicity and
lawsuits over these drugs further weakened these competitors.
While our U.S. operations suffered from the introduction of our prepackaged
meals program, we remained consistent in our core behavior modification
philosophy and never promoted diet drugs. As a result, we maintained a
reputation for safety and scientific support. Since we eliminated our
prepackaged meals program in NACO and refocused our operations on our core
programs, NACO and our U.S. franchises have resumed their growth pattern.
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BUSINESS
COMPANY OVERVIEW
We are the largest provider of weight control programs in the world. We
operate in 29 countries through a network of company-owned and franchise
operations. At the core of our business are our weekly meetings, in which we
present our scientifically designed program, incorporating group support and
education about healthy eating patterns, behavior modification and physical
activity. In our fiscal year ended April 24, 1999, we estimate we held an
average of approximately thirty-three thousand meetings worldwide each week and
our average weekly attendance exceeded one million members. An estimated 9,000
classroom leaders, all of whom have lost weight on and are specially trained to
teach our program, run our meetings. We have developed the WEIGHT WATCHERS
program through continuous improvement over our 36 year history and we believe
our brand name is recognized globally today as the standard for healthy, safe
and drug free weight control. Careful management of our brand identity and
reputation is a fundamental element of our long-term success. According to a
Gallup study conducted in 1998, more than 84% of adults and 94% of dieting
adults in the United States recognize our brand. In an independent survey of
U.S. doctors in 1998, among those doctors who had recommended weight loss
programs in the preceeding year, 65% recommended WEIGHT WATCHERS. The next most
frequently recommended program received recommendations from less than 13% of
those doctors. We believe that the combination of our brand recognition,
extensive global network and our 9,000 classroom leaders provides us with a
significant competitive advantage.
For the twelve month period ended October 23, 1999, we generated pro forma
revenue of $406.0 million and adjusted EBITDA of $102.8 million. Set forth below
is a diagram showing the percentage of pro forma revenue for the twelve months
ended October 23, 1999, represented by the sources of our revenue.
PRO FORMA REVENUE FOR THE TWELVE MONTHS ENDED OCTOBER 23, 1999 = $406.0 MILLION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[Download Table]
U.S. MEETING FEES 35%
International Meeting Fees 40%
Franchise Commisions 6%
Product Sales 16%
Other 3%
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[LOGO]
CORE PROGRAM APPROACH
Throughout our history, we have based our program on four core elements:
group support, behavior modification, diet and exercise. The group support
system remains the cornerstone method of presenting our program. Group support
assists members in dealing with issues such as depression-eating and habitual
eating behaviors. We offer this support through meetings that are interactive
and encourage learning through group activities and discussions. Members learn
strategies from leaders who have learned how to lose weight and maintain their
weight loss on our program. These leaders are trained to respond to member needs
by using our techniques and actively modeling our principles. The group support
system continues throughout the maintenance period of the program when members
learn how to stay within their appropriate weight range.
Behavior modification and education on eating habits have also always been
key elements of our program. We use motivation, education and support to help
members manage their weight and to change their habits. Members are taught how
to meet and overcome these challenges. Discussions on topics such as staying
motivated, overeating and managing stress offer valuable insight and provide the
reassurance that no one must diet alone. U.S. members currently also learn
"Tools for Living," eight fundamental goal-setting and motivational principles.
In addition, U.S. members currently receive a booklet titled "Managing Your
Weight From the Inside Out" that teaches members how to develop a positive
mind-set about weight control, new approaches to problem solving, and specific
ideas for handling some of the most common weight management issues.
International members learn similar principles and receive similar publications.
50
Exercise is an important component of weight management and our overall
program to lose weight. U.S. members currently receive THE WEIGHT WATCHERS
ACTIVITY GUIDE which is designed to promote exercise and activity outside of the
classroom. It is consistent with the recommendations for physical activity
outlined by both the Center for Disease Control and Prevention and the American
College of Sports Medicine. International members receive similar publications.
The final key element of our program is diet which we describe in detail
below. Our diets are based on healthy food selection rather than prepackaged
meals. This allows members to tailor and modify their diet to their personal
tastes.
DIETS
In order to keep our diets at the forefront of weight loss science, each of
our diets is designed in consultation with doctors and other scientific
advisors. We continually strive to improve our diets by periodically testing,
then introducing, new features. We currently have two diets: 1-2-3 SUCCESS and
SUCCESS SIGNALS.
1-2-3 SUCCESS
In 1996, our United Kingdom subsidiary developed and introduced 1-2-3
SUCCESS, a state-of-the-art diet management system that helps participants
manage their calorie intake through a simple and flexible POINTS system. Unlike
some competing diets, 1-2-3 SUCCESS allows participants to eat regular meals
instead of prepackaged servings, allowing our members freedom to choose what
they eat. In 1997, the 1-2-3 SUCCESS diet was successfully rolled out to select
international operations, North American franchises and NACO operations. 1-2-3
SUCCESS features the POINTS food system, which is based on a formula involving
calories, fat and fiber. The formula for POINTS differs from country to country
in order to suit local tastes, as well as package labeling differences between
countries.
In the 1-2-3 SUCCESS diet, members have the freedom to participate in
special occasions and eat out, because no food is forbidden. Our POINTS Guide
helps members stay within program guidelines when eating outside the home.
Members are given a daily POINTS goal to spend on whatever combination of food
they prefer as long as the total does not exceed the goal.
In January 1999, we enhanced 1-2-3 SUCCESS in the United States by adding
the DAILY COACH. This addition to the regular written materials consists of a
series of booklets containing tips, inspirational stories and proven weight-loss
strategies. Our U.K. operations also recently updated all of their program
material and repackaged the program as 1-2-3 SUCCESS 2000.
We believe 1-2-3 SUCCESS encourages members to eat a wide variety of foods
in amounts that promote healthy weight loss. The formula helps members choose a
diet low in fat, high in complex carbohydrates and moderate in protein.
Members can calculate POINTS on our free POINTS finder or they may purchase
our electronic POINTS calculator.
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POINTS CALCULATORS
[LOGO]
[LOGO]
SUCCESS SIGNALS
In 1996, our local management in Europe also successfully developed a diet
called SUCCESS SIGNALS based on a green-yellow-red food selection system.
SUCCESS SIGNALS helps guide dieters to low fat foods (green) instead of high fat
foods (red). This system is similar to 1-2-3 SUCCESS in that it does not require
weighing of portions. It is now used in nine Continental European countries and
Brazil. We believe a POINTS based plan can be introduced in these markets as a
program innovation.
SCIENTIFIC SUPPORT
We work closely with doctors, scientists and nutritionists, to ground our
program in scientific and medically sound principles of weight control. As part
of our program we are sponsoring a two-year scientific study to quantify the
health benefits of our program as compared to self-help dieting. We believe that
the publication of this study will serve to encourage a greater number of
employers and health insurance companies to partner with us to cover or
reimburse the cost of joining the WEIGHT WATCHERS program.
DELIVERY METHODS
CLASSROOM MEETINGS
At the core of our business is the classroom meeting, which members attend
to learn the key weight loss techniques, to celebrate their success with other
dieters, and to receive motivation and group support.
Our estimated 9,000 classroom leaders run our meetings and educate members
on the process of successful and sustained weight loss. Field management and
current leaders constantly identify new leaders as members with strong
inter-personal skills, personality and communication skills. Leaders are
part-time employees and earn an hourly wage and commissions based on sales.
52
We present our program in a series of weekly classes which average one hour
in duration. Classes are conveniently scheduled throughout the day. We hold
classes in either leased locations, such as space at shopping malls, or in
meeting rooms typically rented from civic or religious organizations.
We designed our AT WORK program to address the weight loss needs of people
in the workforce by operating on-site in their place of employment. This program
represents a significant amount of total revenue for NACO operations and is
expanding in other countries. Employees can attend the AT WORK program meetings
that are held either before work, during lunch hours, or after work. AT WORK is
particularly popular in the United States as employees, and increasingly
employers, are receptive to our classes in the work place. In many cases
employers subsidize employee participation and typically provide meeting space
without charge.
We designed our COMMUNITY MEETINGS program to meet the needs of people in
rural areas that would otherwise be unable to support traditional meetings.
Members in COMMUNITY MEETINGS prepay for a series of meetings to ensure adequate
enrollment.
Typically our classes begin with registration and a weigh-in where the
weight change of attendees since their last session is noted in their attendance
book which serves as a permanent record of the participants' progress. Leaders
are trained to engage the members at the weigh-in to talk about their weight
control efforts during the previous week and provide encouragement and advice,
making them feel at ease.
After the weigh-in, the leader introduces the class. Part of the class is
educational, where the leader uses personal anecdotes, games or open questions
to demonstrate some of the core aspects of weight loss, such as self-belief and
discipline. During another part of the class, the leader focuses on a variety of
topics selected by us, such as achievements people have made in the prior week
and celebrating and applauding successes. Participants who have reached their
weight goal are singled out for their accomplishment. Discussions can range from
dealing with a holiday office party to making time to exercise. The leader
encourages substantial class participation and promotes supporting products and
materials as appropriate. At the end of the class, new members are given special
tutoring in the 1-2-3 SUCCESS plan.
Generally, group leaders help set a member's weight goal within a healthy
range by using a body mass index. When members reach their weight goal and
maintain it for six weeks, they achieve lifetime member status. This gives them
the privilege to attend our meetings free of charge as long as they maintain
their weight within a certain range. Successful members also become eligible to
apply for class leader positions.
NONCLASSROOM DELIVERY METHODS
We provide additional programs designed for people who, either through
circumstance or personal preference, do not wish to attend our traditional
classes. For example, we have developed an AT HOME self-help program that
provides guidance and support needed to lose weight without having to attend
classes. In January 1999, an AT HOME CD-ROM version of the successful 1-2-3
SUCCESS program was launched in the United Kingdom with promising initial
results. The program, in a user-friendly manner, helps set an appropriate goal
weight by calculating the user's body mass index, calculates POINTS for selected
foods, assists in meal planning, tracks daily POINTS usage and charts the
dieter's progress. The CD-ROM is appealing to men and younger dieters because of
its technological nature and the privacy, flexibility and convenience it offers.
We believe the roll out of an AT HOME CD-ROM in the United States could provide
revenue enhancement opportunities.
In Australia we are testing the GUT BUSTER mail-order program which has been
scientifically designed for male weight control. Customers who order this
program receive audio cassettes and literature. In France, we also have our
ONE-ON-ONE program which offers our members supplemental private tutoring.
53
MARKETING AND PROMOTION
PRICING STRUCTURE AND PROMOTIONS
Our most popular payment structure is a "pay-as-you-go" arrangement without
contracts, although we also offer discounted pre-pay options. A new member pays
an initial registration fee and then a weekly fee for each class attended,
although free registration is often offered as a promotion.
In 1996 a new pricing structure, called LIBERTY/LOYALTY, was developed in
France. LIBERTY/LOYALTY provides members the option of committing to consecutive
weekly attendance and paying a lower weekly fee with penalties for missed
classes, or paying a higher weekly fee without the missed meeting penalties.
Following the successful introduction in France, we rolled out the
LIBERTY/LOYALTy pricing plan to most of the rest of Europe and, following a
successful test marketing, we rolled it out to our NACO operations in April/May
1999. Based on the results from our international and North American markets
where the program has been in place, we believe that LIBERTY/LOYALTY will result
in higher revenues, through increased enrollments, higher product sales and
longer average attendance per enrollment, partially offset by a reduced average
fee per attendance.
MEDIA ADVERTISING
Our advertising supports the three key enrollment-generating seasons of the
year--winter, spring and fall. In addition to enhancing our brand image and
awareness, our advertising is designed to motivate both former members and
potential members to take immediate action and join. Media investments are
allocated on a market-by-market basis, as well as by media vehicle (television,
radio, magazines and newspaper), taking into account such characteristics as
penetration, market vitality, media efficiencies and effectiveness.
DIRECT MAIL
Direct mail is a critical element of our marketing mix because it targets
former members who account for the majority of our attendance. During fiscal
year 1999, for example, NACO mailed 11.3 million pieces of seasonal (winter,
spring and fall) direct mail.
PUBLIC RELATIONS/CELEBRITY ENDORSEMENTS
The focus of our public relations efforts is at the grass roots level.
Leaders and successful members engage in local promotions, information
presentations and charity events to promote WEIGHT WATCHERS and demonstrate the
program's efficacy. Public relations programs are specifically designed to
facilitate this type of promotion.
For many years we have also used celebrities to promote and endorse the
program. Since 1997, we have retained Sarah Ferguson, the Duchess of York to
promote and endorse the program in North America. Her contract with us, which
runs through 2000, requires her to devote approximately 20 days per year on
activities such as appearances at major events and filming television
advertisements. The Duchess will continue to make appearances throughout the
upcoming year to keep us in the press and maintain the strong momentum of the
program. Prior to the Duchess, we used Kathleen Sullivan and Lynn Redgrave as
our celebrity spokespersons. In Brazil, we have used a Brazilian television star
as our celebrity spokesperson.
MEMBER REFERRALS
An important source of new members is through referrals from existing or
prior members. In fiscal year 1999, approximately 4.8 million people enrolled in
our classes worldwide. Given our 36-year operating history, we have created a
powerful referral network. We have incentive programs for member referrals, such
as our bring a friend promotions.
54
AT WORK CORPORATE SALES
In the United States, the AT WORK plan has become an important component of
our business. Many corporations, including IBM, Time Warner, Hallmark Cards,
Disney, and Readers Digest, hold AT WORK meetings throughout the country. Since
fiscal year 1997, our company-owned AT WORK operations have more than doubled in
size. Attendance in our AT WORK program, where meetings are at the place of
business, has grown from 450,000 in fiscal 1997 to 1.1 million in fiscal 1999.
Many franchise operations in the United States also have significant AT WORK
programs.
CLASSROOM PRODUCT SALES
We offer a range of ancillary products which complement our core program
such as calendars, books, healthy snack bars and CD-ROMS. These products are
regularly updated to maintain their appeal. Franchisees can buy these products
from us or from licensed manufacturers at wholesale prices to sell to their
members. We introduced our JUST 2 POINTS healthy snack bar in March, 1999 in
NACO that plays to the strength of the POINTS diet system. Additionally, in
Europe we sell such products as cooking aids, cereal bars and diet candies.
LICENSING
PUBLISHING LICENSES
Under an agreement between Weight Watchers International, Inc. and a
third-party publisher, we granted the publisher the exclusive right to use our
trademarks in developing, publishing, licensing, selling and distributing books,
audio products, video products, calendars, recipe cards and other products for
sale at meetings, book clubs and retail stores. The publisher holds this
exclusive license through October 2001. In return for this license, the
publisher agreed to pay to us a non-returnable fee of $7.0 million and certain
ongoing royalties. Nearly 4 million copies of recipe collections have been sold
since 1994. The most recent launch was the Duchess of York's recipe collection,
"Dieting with the Duchess," which sold 125,000 copies in the first 3 months
after publication in January 1999.
WEIGHT WATCHERS MAGAZINE, with a U.S. circulation of 1.1 million and
readership of 4.1 million, was published in North America and the United Kingdom
by Southern Progress and by us in Australia. We reacquired all rights to publish
the Magazine, including in North America and the United Kingdom, by agreement
dated February 18, 2000. We did not receive a royalty from Southern Progress.
Southern Progress also has the exclusive right to publish WEIGHT WATCHERS books
through direct response marketing.
The Learning Company, under a license agreement, has produced a CD-ROM
compilation of cookbook recipes. This product provides an interactive recipe
guide and has sold more than 75,000 copies since its introduction in 1997.
FOOD LICENSING
We believe there are significant opportunities for the licensing of food
products. In connection with the Transactions, we have entered into an ongoing
partnership with Heinz to develop and market the WEIGHT WATCHERS brand for food
products. Under our agreement, we retain all food licenses except that Heinz
retains an exclusive, royalty-free global license to use the brand for certain
food categories including frozen foods, soups, condiments, canned fish and
canned pasta. Heinz will also receive royalty payments from an existing
portfolio of third-party licenses for various food products through 2004. After
2004, Heinz will assign those licenses to us. Management estimates that for our
fiscal year ended April 24, 1999, this portfolio generated royalty revenue of
approximately $5 million.
55
OTHER LICENSING
A component of our strategy is to selectively license our brand in other
categories. For example, in January 1999, we entered into a licensing agreement
with Warnaco, an established clothing/shapewear manufacturer, to produce a broad
range of WEIGHT WATCHERS branded shapewear in the United States and Canada. The
product line was launched in North America in June, 1999 and is exceeding
initial expectations. Under this agreement, we will receive minimum average
royalty payments of $2.1 million per year. Warnaco's exclusive license runs
through July 31, 2004, and is renewable at Warnaco's option for an additional
five years.
REVIEW OF OPERATIONS BY REGION
We run our domestic and international operations through a combination of
owned and franchise operated locations. During the past 36 years, we have
developed a strong group of franchisees throughout the world. We estimate that,
in fiscal 1999, 40% of our U.S. attendance and 75% of our international
attendance were at company-operated classes with the balance of members
attending our franchise locations. Franchisees typically pay a fee to us equal
to 10% of their gross revenues. For the fiscal year ended April 24, 1999,
franchise revenues were $23.2 million.
Set forth below is information on enrollment, attendance, number of weekly
meetings, average class size and retention. U.S. information includes North
American franchisees and franchisee information reflects our estimates.
MEMBERSHIP STATISTICS--FISCAL YEAR 1999
[Enlarge/Download Table]
CONTINENTAL AUSTRALIA/ INTERNATIONAL
U.S. U.K. EUROPE NEW ZEALAND FRANCHISEES TOTAL
-------- -------- ----------- ----------- ------------- ---------------
Enrollment (thousands)............. 2,634 909 520 255 568 4,886
Attendance (millions).............. 27.5 9.8 5.7 3.4 6.2 52.6
Number of weekly meetings.......... 19,000 5,100 3,400 1,880 3,900 33,280
Average class size................. 28 37 32 34 31 30
Retention (ratio of attendance to
enrollments)..................... 10.4 10.8 11.0 13.3 10.9 10.8
COMPANY OWNED OPERATIONS
Our NACO operations consist of approximately 1,300 meeting locations, that
for the fiscal year ended April 24, 1999 attracted 10.9 million attendances and
generated $159.9 million in revenue including product sales. We have revitalized
our NACO operations following the elimination in 1997 of prepackaged meals sales
through our NACO network. In 1997, we restructured our NACO operations by
eliminating the prepackaged meals program, improving customer service, restoring
employee morale and introducing 1-2-3 SUCCESS and LIBERTY/LOYALTY programs. In
connection with the elimination of our prepackaged meals program, we eliminated
over $18.0 million in costs. As a result of all these efforts, we have grown
NACO attendance by 40% from 7.8 million in fiscal year 1997 to 10.9 million in
fiscal year 1999. Our near-term objective is to surpass the NACO attendance
level of 12.9 million experienced prior to the introduction of our prepackaged
meals.
Our international company-owned operations consist of approximately 6,825
meeting locations in 13 countries outside of the United States. In the fiscal
year ended April 24, 1999, these operations attracted 18.9 million attendances
and generated meeting fee revenue of $161.0 million.
In our international operations, we did not introduce the Heinz prepackaged
meals program into our classrooms and our attendance remained stable. Management
believes the contrast between our international performance and NACO is largely
a result of the prepackaged meals program, the
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entrepreneurial management style outside of North America and the autonomy of
the international management teams.
In fiscal year 1999, in the United Kingdom there were on average 5,100
weekly meetings in 3,600 different locations, with approximately 97% in
third-party locations, such as meeting rooms rented from civil organizations and
church halls. In the rest of Europe there were on average 3,400 weekly meetings
in 2,200 different locations, with approximately 95% in third-party locations.
In Australia/New Zealand there were on average 1,880 weekly meetings in 1,025
different locations, with approximately 97% in third-party locations.
The following chart illustrates NACO and international attendance for our
owned operations from fiscal year 1987 to fiscal year 1999.
[CHART]
FRANCHISE OPERATIONS
We run our domestic and international operations through a combination of
owned and franchise operations. Over the last 36 years, we have developed a
strong group of franchisees throughout the world. We have franchise operations
in 16 countries, including the United States. We estimate that in the fiscal
year ended April 24, 1999, these franchised operations attracted attendance of
22.8 million and generated revenue of $23.2 million, including product sales.
Our franchisees are responsible for running operations in their territory
using the program we have developed. Franchisees are obliged to adhere strictly
to the program content guidelines, with the freedom to control pricing,
locations, operational structure and local promotions. Franchisees have the
option to buy approved merchandise from us or from other vendors to sell to
members. Franchisees are required to keep accurate attendance records that we
audit on a periodic basis. Most franchise agreements are in perpetuity and can
only be terminated upon a material breach or bankruptcy of the franchisee.
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We have enjoyed a mutually beneficial relationship with our franchisees over
many years. The recent successful launch of the 1-2-3 SUCCESS diet across North
America has served to enhance that relationship. We provide a central support
system for the program and the brand. We also produce and sell program and
marketing materials to the franchisees. Franchisees provide local operational
expertise, advertising and public relations. The franchise owners are typically
close to the business and participate actively in all aspects of the business.
During the period in which NACO emphasized the sale of prepackaged meals in
the early and mid-1990s, although the franchisees did not participate in the
prepackaged meals program, their operations were negatively impacted by NACO's
advertising campaign which focused on its prepackaged meals sales and the lack
of program innovation. Since NACO eliminated prepackaged meals sales and
introduced program innovations in 1997 our U.S. franchisees experienced
significant growth in enrollment and attendance levels.
We have not offered a franchise location (or territory) for sale since 1997.
However, from time to time we do repurchase territories, the last repurchase
being in 1992.
COMPETITIVE STRENGTHS
GLOBAL BRAND AND NETWORK
WEIGHT WATCHERS is the largest provider of weight control programs in the
world. We attract, on average, more than 1.0 million members per week and
conduct more than 1.5 million meetings per year, significantly more than any
other commercial weight control operator. According to a Gallup study conducted
in 1998, more than 84% of adults and 94% of dieting adults in the United States
recognized our brand. In an independent survey of U.S. doctors in 1998, among
those doctors who had recommended weight loss programs in the preceding year,
65% recommended WEIGHT WATCHERS. Management believes the combination of our
strong global brand, our large membership and our approximately 9,000 trained
classroom leaders creates significant scale advantages and a foundation for
future growth which is unique in the weight loss industry.
MEMBER BEHAVIOR
Members have demonstrated strong loyalty towards our program, a program
characterized by a high predictable pattern of repeat consumer behavior. We
believe the quality and flexibility of our program helps attract and retain new
members and contributes to significant repeat enrollments. In calendar year
1999, U.S. members enrolled for an average of 8 weeks.
Approximately 75% of our returning members will re-enroll one or more times.
Our returning members' re-enrollment behavior has been consistent through
different economic cycles, irrespective of the number of times members
previously enrolled.
ENTREPRENEURIAL MANAGEMENT
We run our international and franchise operations in a decentralized and
entrepreneurial manner that has allowed our local managers to compete
effectively, to consistently grow attendance, market share and profitability and
to develop successful program features and innovations. This structure allows us
to develop and test new ideas on a local basis, implementing only the most
successful ideas across our network. Local country managers are responsible for
the profitability of their territory and for adopting and implementing the best
practices from other regions. Our local international management teams have
created successful innovations of our diet. For example, local management in the
United Kingdom developed our 1-2-3 SUCCESS diet. Our country managers have also
designed customized pricing strategies such as the LIBERTY/LOYALTY plan which
was first introduced in France. The LIBERTY/LOYALTY pricing structure provides
members the option of committing to consecutive weekly
58
attendance and paying a lower weekly fee with penalties for missed classes
(Loyalty) or paying a higher weekly fee without the missed meeting penalties
(Liberty). Management plans to further facilitate the adoption of the best
practices and programs throughout our global system, while also developing a
more entrepreneurial and decentralized management culture at our NACO
operations.
VARIABLE COST STRUCTURE WITH HIGH RETURN ON INVESTED CAPITAL
Our business model is unique, requiring limited capital investments while
producing high cash flows. We pay our classroom leaders and receptionists on a
per meeting basis and we typically lease or rent meeting space on a short-term
basis. This enables us to increase or decrease the number of meetings we hold
quickly based on demand. On average, over the last three fiscal years we spent
approximately $2.9 million in annual capital expenditures. Our working capital
requirements are also low as members typically pay meeting fees in cash at each
meeting. We believe that our low capital requirements will enable us to grow
rapidly while at the same time generating strong cash flow for debt repayments.
GROWTH STRATEGY
INCREASE ATTENDANCE THROUGH EXISTING CLASSROOM NETWORK
We believe the demand for weight control programs is large and growing,
providing significant opportunities to increase attendance through our existing
classroom network. Our brand recognition, proven program, reputation with the
medical community and high level of member referrals position us to benefit from
the growth in the weight loss industry. We believe that the relatively low
penetration of commercial weight loss programs in some of our major markets,
such as the United States and Germany, can be increased to the significantly
higher levels achieved in some of our other major markets, such as the United
Kingdom and Sweden. We expect to continue to grow attendance as demand for
weight control programs increases and through the completion of the roll-out of
1-2-3 SUCCESS, ongoing program development, more effective marketing and
improvements in related products and services.
EXPAND CUSTOMER BASE
We believe there are significant opportunities to expand our customer base
by developing programs designed to meet the needs of different audiences. In
fiscal 1998, 96% of our NACO members were women. We are currently implementing
new programs designed to better serve the male market segment. For example, in
January 1999, we introduced the AT HOME program on CD-ROM in the United Kingdom,
targeting self-help dieters, men and those who prefer a nonclassroom approach
because of the privacy, flexibility and convenience it offers. Additionally, to
further address the largely untapped male customer segment, we are testing in
Australia the GUT BUSTER mail-order program which has been scientifically
designed for male weight control.
In the United States, we will continue developing our AT WORK program that
involves employers and insurers supporting our program by providing meeting
space, allowing employees time to participate in meetings and sometimes paying a
portion of their membership fees. We believe employers and insurers are
increasingly willing to support our programs because of their recognition of the
link between health care costs and the weight of their employees and because of
our widely recognized brand, high quality reputation, long history, convenience
of proximity, low cost and drug-free platform. NACO AT WORK attendance has grown
from 450,000 in fiscal year 1997 to 1.1 million in fiscal year 1999.
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GROW PRODUCT SALES AND LICENSING ROYALTIES
Through our classroom operations, we currently sell books, CD-ROMs, 1-2-3
SUCCESS POINTS calculators, healthy snack bars and other items. We believe we
can grow our classroom sales by selectively introducing products that complement
our program. Classroom product sales for the six months ended October 23, 1999
were $30.8 million, a 28.3% increase from classroom product sales for the six
months ended October 24, 1998.
We believe significant opportunities exist globally for additional product
sales and licensing of our brands outside of our classroom channel. For example,
we recently entered into a five year agreement with Warnaco to license the
WEIGHT WATCHERS brand for women's undergarments. Under this agreement, we will
receive minimum average royalty payments of $2.1 million per year. We also
license our brand for cookbooks, weighing scales, exercise videos and other
products.
We believe we can capitalize on the popularity of our brand by licensing
food products. In connection with the Transactions, we entered into an ongoing
partnership with Heinz to develop and market the WEIGHT WATCHERS brand for food
products. Under our agreement, we retain all food licensing rights to the WEIGHT
WATCHERS name except that Heinz retains an exclusive, royalty-free global
license to use the brand for certain food categories, including frozen foods,
soups, condiments, canned fish and canned pasta. Heinz will also receive royalty
payments from an existing portfolio of third-party licenses for various food
products through 2004. After 2004, Heinz will assign these licenses to us.
Management estimates that for our fiscal year ended April 24, 1999, this
portfolio generated royalty revenue of approximately $5 million.
EXPAND GEOGRAPHIC PRESENCE
The WEIGHT WATCHERS brand is recognized worldwide and our program has proven
to be adaptable to different geographies and cultures. While the details of the
program's delivery, such as language, locations and local food preferences, can
be customized for each geographic setting, we believe the core concepts are
effective worldwide. We believe significant geographic expansion opportunities
exist. We plan to focus in the near term on growing in Europe by expanding into
new markets such as Spain and Denmark.
PARTICIPATE IN INTERNET GROWTH
The WEIGHT WATCHERS web site at www.weightwatchers.com provides users access
to a broad array of information organized by country, including: (1) nearest
meeting locations, directions and times, (2) low-calorie recipes, (3) current
and past weight loss news articles and (4) support forums. Since January 1998,
the web site has averaged over 100,000 hits per day and was rated in the top 5%
of web sites by the search engine Lycos. The average viewer reads more than 20
pages per visit.
The WEIGHT WATCHERS web site currently serves many functions, and we believe
it has potential to grow our business if it is fully developed. Full development
of the website will expand the breadth of products and services offered.
Because this development is expected to require significant investment and
result in significant losses, an affiliate of ours, in which we expect to have a
19.8% ownership interest and the right to acquire an additional 20.2% interest,
has an exclusive right to develop the WEIGHT WATCHERS internet business. We will
receive income-based royalties from this company.
REGULATION AND LITIGATION
A number of laws and regulations govern our advertising, franchise
operations and relations with consumers. The Federal Trade Commission and
certain states regulate advertising, disclosures to consumers and franchisees,
and other consumer matters. Our customers may file actions on their own
60
behalf, as a class or otherwise, and may file complaints with the FTC or state
or local consumer affairs offices and these agencies may take action on their
own initiative or on a referral from consumers or others.
We and the FTC have entered into a Consent Order settling all contested
issues raised in a complaint filed against us alleging that we violated the
Federal Trade Commission Act by the use and content of certain advertisements
for our weight loss program featuring testimonials, claims for the program's
success and safety, and statements as to the program's costs to participants.
The Consent Order does not admit any issue of fact or law or any violation by us
of any law or regulation, and does not involve payment by us of any civil money
penalty, damages, or other financial relief. The Consent Order requires certain
procedures and disclosures in connection with our advertisements of products and
services. The FTC accepted the Consent Order, and it became effective as of
December 24, 1997. We do not believe that compliance with the Consent Order will
have a material adverse effect on our consolidated financial position or results
of operations or our current advertising and marketing practices.
Future legislation or regulations including, without limitation, legislation
or regulations affecting our marketing and advertising practices, relations with
consumers or franchisees or our food products, could have a material adverse
impact on us.
Our foreign operations and franchises are also generally subject to
regulations of the applicable country regarding the offer and sale of
franchises, the content of advertising and promotion of diet products and
programs.
We are involved in legal proceedings incidental to our business. Although
the outcome of these matters cannot be predicted with certainty, management
believes that none of these matters will have a material adverse effect on our
financial condition, results of operations or cash flows.
PERSONNEL
As of October 23, 1999, we had approximately 22,386 service providers and
employees, of which 6,581 were located in the United States or Canada, 8,373
were located in the United Kingdom, 2,609 were located in Continental Europe and
4,823 were located in Australia or New Zealand. 119 of our employees work
full-time as management and support personnel at our Woodbury, New York offices,
172 of our employees work full-time as management and support personnel at the
regional offices of our three NACO regions, and 221 of our employees work
full-time as management and support personnel in the head offices of the other
countries in which we operate worldwide. Approximately 6,911 of our service
providers work part-time as leaders and approximately 14,864 work part-time as
receptionists worldwide. None of our service providers or employees are
represented by a labor union. We consider our employee relations to be good.
FACILITIES
We are headquartered in Woodbury, New York in a 35,000 square-foot leased
office. Each of our three NACO regions has a small regional office. The Woodbury
lease expires in 2005 and the Paramus, New Jersey call center lease expires in
2007. The remaining North American office leases are short-term. Each country
operation also has one head office.
We hold our classes either in retail centers (typically leased spaces in
strip malls for short-terms, generally less than five years) or third-party
locations (typically meeting rooms in well-located civic or religious
organizations). In fiscal year 1999, there were approximately 1,300 NACO meeting
locations in North America, including approximately 300 retail centers and 1,000
third-party locations. In the United Kingdom there are approximately 3,600
meeting locations, with approximately 97% in traveling locations. In Continental
Europe there are approximately 2,200 locations, with approximately 95% in
traveling locations.
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SUBSIDIARIES
We have the following subsidiaries:
[Download Table]
NAME OF SUBSIDIARY PERCENTAGE OWNERSHIP
------------------ --------------------
W.W. Inventory Service Corp. ............................... 100%
W.W. Weight Reduction Services, Inc. ....................... 100%
W/W Twentyfirst Corporation................................. 100%
Weight Watchers Direct, Inc. ............................... 100%
W.W.I. European Services, Ltd. ............................. 100%
Weight Watchers North America, Inc. ........................ 100%
Weight Watchers (U.K.) Limited.............................. 100%
Weight Watchers France SARL................................. 100%
Weight Watchers Sweden Vikt-Vaktarna Akiebolag.............. 90%
Il Salvalinea, S.R.L. ...................................... 100%
Weight Watchers Belgium, N.V. .............................. 100%
Weight Watchers Deutschland GmbH............................ 100%
Weight Watchers Eesti Aktsiaselts........................... 100%
Weight Watchers Suomi Oy.................................... 90%
Gutbusters Pty Ltd.......................................... 100%
Fortuity Pty Ltd............................................ 100%
Weight Watchers (Switzerland) S.A. ......................... 100%
Weight Watchers Polska Sp. z.o.o. ......................... 100%
Weight Watchers Latvia...................................... 100%
Weight Watchers Nederlands, B.V. ........................... 100%
Weight Watchers International Pty Limited................... 100%
Weight Watchers (Accessories & Publications) Ltd............ 100%
Weight Watchers (Exercise) Ltd. ............................ 100%
Weight Watchers (Food Products) Limited..................... 100%
Waist Watchers, Inc. ....................................... 100%
Weight Watchers UK Holdings Ltd............................. 100%
Weight Watchers International Holdings Ltd.................. 100%
Weight Watchers New Zealand Limited......................... 100%
Weight Watchers Funding, Inc. .............................. 100%
58 WW Food Corp. ........................................... 100%
Weight Watchers Camps, Inc. ................................ 100%
W.W. Camps and Spas, Inc. .................................. 100%
WW Foods, LLC .............................................. 50%
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of our
executive officers and directors. All officers serve at the pleasure of the
Board of Directors.
[Download Table]
NAME AGE POSITION
---- -------- --------
Linda Huett............................ 55 President and Director
Clive Brothers......................... 46 Vice President, Continental Europe
John Dennis............................ 43 General Manager, United Kingdom
Bob Mallow............................. 42 Vice President, NACO Operations
Scott Penn............................. 28 Vice President, Australasia
Raymond Debbane........................ 44 Chairman of the Board
Jonas M. Fajgenbaum.................... 27 Director
Kent Q. Kreh........................... 64 Director
Sacha Lainovic......................... 43 Director
Richard Penn........................... 54 Director
Christopher J. Sobecki................. 41 Director
LINDA HUETT. Ms. Huett became the President and a Director upon completion
of the Transactions. Ms. Huett joined us in 1984 as a classroom leader.
Ms. Huett was promoted to U.K. Training Manager in 1986. In 1990, Ms. Huett was
appointed Director of our United Kingdom operation and in 1993 was appointed
Vice President of Weight Watchers U.K. Ms. Huett graduated from Gustavas
Adolphus College and received her Masters in Theater from Yale University.
CLIVE BROTHERS. Mr. Brothers is our Vice President Continental Europe.
Mr. Brothers was appointed to this position in 1993. Mr. Brothers joined us in
1985 as Marketing Manager, U.K. In 1990, Mr. Brothers was appointed General
Manager, France. Mr. Brothers received a B.A. from Leeds Polytechnic in England
and a Diploma in Marketing from the Chartered Institute of Marketing.
JOHN DENNIS. Mr. Dennis is General Manager, Weight Watchers (U.K.) Limited.
Mr. Dennis was appointed to this position in 1999. He joined Weight Watchers
(U.K.) Limited in 1992 as Head of Finance, having previously worked for Nabisco
Brands Ltd. and Grand Metropolitan Foods Ltd. Mr Dennis qualified as a member of
the Chartered Institute of Management Accountants in 1984.
BOB MALLOW. Mr. Mallow is Vice President, NACO Operations. He joined Weight
Watchers International, Inc. in 1983 as Northeastern Regional Manager, Franchise
Department. In January 1986, Mr. Mallow was promoted to National Franchise
Manager, Weight Watchers International Inc. In April 1987, he became Vice
President, General Manager Business Operations, Weight Watchers of Syracuse,
Inc. In November 1991, Mr. Mallow was promoted to Regional Field Director,
Weight Watchers North America, Inc. In September, 1996 Mr. Mallow was appointed
to his present position. Mr. Mallow received a B.A. in Economics from State
University of New York at Cortland and an M.B.A. from State University of New
York at Binghamton.
SCOTT PENN. Mr. Penn is our Vice President, Australasia operations.
Mr. Penn joined us in 1994 as a Marketing Services Manager in Australia. In 1996
Mr. Penn was promoted in Australia to Group
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Marketing Manager and in 1997 he was promoted to General Manager-Marketing &
Finance. In 1999, Mr. Penn was promoted to his present position. Scott Penn is
the son of Richard Penn.
RAYMOND DEBBANE. Mr. Debbane became Chairman of the Board upon completion
of the Transactions. Mr. Debbane is a co-founder and President of Invus. Prior
to forming Invus in 1985, Mr. Debbane was a manager and consultant for The
Boston Consulting Group in Paris, France. He holds an M.B.A. from Stanford
Graduate School of Business, an M.S. in Food Science and Technology from the
University of California, Davis and a B.S. in Agricultural Sciences and
Agricultural Engineering from American University of Beirut. Mr. Debbane is
director of Artal Group S.A., Ceres Inc., Financial Technologies International
Inc., Nellson Neutraceuticals, Inc. and the Advisory Board of Oxford BioScience
Partners and also served as a director of Keebler Foods Company from 1996 to
1999.
JONAS M. FAJGENBAUM. Mr. Fajgenbaum became a Director upon completion of
the Transactions. Mr. Fajgenbaum is a director at Invus. He joined the firm in
1996. Prior to joining Invus, Mr. Fajgenbaum was a consultant for McKinsey &
Company in New York from 1994 to 1996. He graduated with a B.S. from the Wharton
School of Business and a B.A. in Economics from the University of Pennsylvania
in 1994.
KENT Q. KREH. Mr. Kreh, a Director since 1997, served as President and
Chief Executive Officer of Weight Watchers International, Inc. from 1997 to
1999. He joined Weight Watchers in 1972 as Marketing Director and was named
Executive Vice President and Publisher of WEIGHT WATCHERS publications in 1983.
Prior to joining, he was employed by General Mills, Bristol Myers and Ford Motor
Company. Mr. Kreh received his B.A. from the University of Missouri, Columbia.
Mr. Kreh is a board member of the Public Health Research Institute, New York
City, the American Obesity Association, Washington D.C. and the American Heart
Association, New York City.
SACHA LAINOVIC. Mr. Lainovic became a Director upon completion of the
Transactions. Mr. Lainovic is a co-founder and Executive Vice President of
Invus. Prior to forming Invus in 1985, Mr. Lainovic was a manager and consultant
for The Boston Consulting Group in Paris, France. He holds an M.B.A. from
Stanford Graduate School of Business and an M.S. in Engineering from Insa de
Lyon in Lyon, France. Mr. Lainovic is a director of Financial Technologies
International Inc., Nellson Nutraceuticals, Inc., and Delta Radio, and also
served as a director of Keebler Foods Company from 1996 to 1999.
RICHARD PENN. Mr. Penn became a Director upon completion of the
Transactions. From 1984 to 1999, Mr. Penn was Managing Director of Weight
Watchers Australia. Mr. Penn began his career with McCann Erickson in
advertising and joined the Coca-Cola Company (Australia) in 1968. Mr. Penn
served as the first President of the International Weight Watchers Franchise
Association from 1993 to 1995. Richard Penn is the father of Scott Penn.
CHRISTOPHER J. SOBECKI. Mr. Sobecki became a Director upon completion of
the Transactions. Mr. Sobecki, a Managing Director of Invus, joined the firm in
1989. He received an M.B.A. from Harvard Business School. He also holds a B.S.
in Industrial Engineering from Purdue University. Mr. Sobecki is a director of
Nellson Neutraceuticals, Inc., Financial Technologies International Inc. and
Caring Technologies, Inc. He also served as a director of Keebler Foods Company
from 1996 to 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors does not have any committees.
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following information sets forth, for the fiscal year end April 24,
1999, the compensation paid to our Chief Executive Officer and to each of the
next four most highly compensated executive officers whose total annual salary
and bonus was in excess of $100,000 for fiscal year 1999.
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LONG-TERM
COMPENSATION
----------------
ANNUAL AWARDS (2)
COMPENSATION ----------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (1) (NO. AWARDED)(3) ($) (4)
-------------------------------- -------- -------- ---------- ------------ ---------------- ------------
Kent Q. Kreh(5)
President and Chief Executive
Officer ...................... 1999 231,048 651,511 13,837 90,000 140,552
Carmen Dubroc(5)
Executive Vice President ..... 1999 247,145 463,307 21,618 41,500 57,791
Linda Huett
Vice President U.K. .......... 1999 138,574 219,435 -- 40,000 --
Clive Brothers
Vice President
Continental Europe ........... 1999 138,574 219,435 -- 40,000 --
Bob Mallow
Vice President
Weight Watchers North America 1999 124,380 213,547 -- 35,000 27,218
------------------------
(1) Includes for Mr. Kreh $3,850 for personal financial counseling and $9,987
for automobile expenses. Includes for Ms. Dubroc $8,981 for personal
planning and $12,637 for automobile expenses.
(2) No awards of restricted stock were made to the named executives during the
covered period.
(3) Options to acquire shares of Heinz common stock granted under Heinz's 1996
Stock Option Plan.
(4) Includes amounts we contributed under the Heinz Employee Retirement and
Savings Plan of $117,697 for Mr. Kreh, $57,791 for Ms. Dubroc and $27,218
for Mr. Mallow. Includes for Mr. Kreh $22,855 attributable to "split dollar"
life insurance provided by us.
(5) Upon completion of the Transactions, Mr. Kreh and Ms. Dubroc resigned from
their positions.
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The following table sets forth certain information regarding Heinz options
granted during fiscal 1999 to the named executive officers:
OPTION GRANTS IN FISCAL YEAR 1999
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INDIVIDUAL GRANTS
------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED IN FISCAL YEAR(3) ($/SHARE) DATE ($)(4)
---------------------------- --------------------- ----------------- ----------- ---------- -------------
Kent Q. Kreh................ 40,000(1) 0.45% 54.625 6/9/08 467,200
50,000(2) 0.56% 49.6875 4/20/09 634,000
Carmen Dubroc............... 16,500(1) 0.18% 54.625 6/9/08 192,720
25,000(2) 0.28% 49.6875 4/20/09 317,000
Linda Huett................. 15,000(1) 0.17% 54.625 6/9/08 175,200
25,000(2) 0.28% 49.6875 4/20/09 317,000
Clive Brothers.............. 15,000(1) 0.17% 54.625 6/9/08 175,200
25,000(2) 0.28% 49.6875 4/20/09 317,000
Bob Mallow.................. 10,000(1) 0.11% 54.625 6/9/08 116,800
25,000(2) 0.28% 49.6875 4/20/09 317,000
------------------------
(1) Options were granted on June 10, 1998 pursuant to the terms of Heinz's 1996
Stock Option Plan. The fair value of the stock was $54.625 on the date of
grant. Options to purchase 40% of the shares granted vested on June 10, 1999
and the remaining options became exercisable upon closing of the
Transactions.
(2) Options were granted on April 21, 1999 pursuant to the terms of Heinz's 1996
Stock Option Plan and these options vested upon closing of the Transactions.
(3) Percentages of total options granted are based on total grants made to all
Heinz employees.
(4) The estimated grant date present value is determined using the Black-Scholes
model. The material assumptions and adjustments incorporated in the
Black-Scholes model in estimating the value of the option grants referred to
in Note (1) include the following: (a) exercise price of the options equal
to the fair market value of the underlying stock on the date of grant;
(b) option term of 10 years; (c) dividend yield of 2.15%; (d) a risk-free
interest rate of 5.8%; and (e) volatility of 22.8%. The material assumptions
and adjustments with respect to the options grants referred to in Note (2)
include the following: (a) exercise price of the options equal to the fair
market value of the underlying stock on the date of grant; (b) option term
of 10 years; (c) dividend yield of 2.6%; (d) a risk-free interest rate of
5.18%; and (e) volatility of 27.1%. The ultimate values of the options will
depend on the future market price of Heinz's stock, which cannot be
forecast. The actual value, if any, an optionee will realize upon exercise
of an option will depend on the excess of the market value of Heinz's common
stock over the exercise price on the date the option is exercised.
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The following table sets forth certain information with respect to options
held at the end of fiscal 1999 by each of the named executive officers:
AGGREGATED OPTIONS/SAR EXERCISES IN 1999 FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE
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NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------- ----------- -------------- ----------- ------------- ----------- -------------
Kent Q. Kreh................. 1,000 28,500 42,167 145,333 1,041,329 92,327
Carmen Dubroc................ 0 N/A 0 81,500 N/A 237,500
Linda Huett.................. 1,000 31,313 8,500 84,000 175,594 229,563
Clive Brothers............... 0 N/A 14,000 84,000 311,000 229,563
Bob Mallow................... 3,500 122,427 1,667 43,333 28,860 111,140
------------------------
(1) The "Value Realized" is equal to the fair market value on the date of
exercise, less the exercise price, times the number of shares acquired. No
stock appreciation rights were exercised during the last fiscal year.
(2) The "Value of Unexercised In-the-Money Options at Fiscal Year-End" is equal
to $49.4375, the fair market value of each share underlying the options at
April 23, 1999, (the last trading day during the fiscal year) less the
exercise price, times the number of options.
Prior to the consummation of the Transactions, the foregoing individuals
participated in certain employee benefit plans of Heinz under which, after
consummation of the Transactions, the individuals ceased to continue to accrue
benefits. These benefit plans included the Heinz Retirement System (to the
extent that any of the foregoing individuals were hired before January 1, 1993),
which is a defined benefit pension plan. The foregoing individuals also
participated in the Heinz Employees Retirement and Saving Plan, a qualified
defined contribution plan (the "Savings Plan"), and the Heinz Employees
Retirement and Savings Excess Plan, a nonqualified excess benefit pension plan
(the "Excess Plan"). The Savings Plan provides for employer contributions,
including a stock component, into a contribution account set aside for each plan
participant and the Excess Plan compensates participants for reductions in
benefits under the Savings Plan due to limitations imposed by the Internal
Revenue Code of 1986, as amended.
Heinz also provided certain of the foregoing individuals with additional
retirement benefits under a Supplemental Executive Retirement Plan (the "SERP"),
which compensates participants for reductions in benefits under qualified
pension plans due to limitations imposed by the Internal Revenue Code of 1986,
as amended. The SERP benefits are a lump sum payment equal to a multiple of the
individual's final average eligible compensation during any five of the last ten
years prior to retirement.
DIRECTOR COMPENSATION
Kent G. Kreh receives $25,000 per year for his services as director. Our
other directors do not receive compensation, except in their capacity as
officers or employees.
EMPLOYMENT AGREEMENTS AND SEVERANCE POLICIES
As of August 30, 1996, Weight Watchers entered into an employment agreement
with Bob Mallow, Vice President of NACO Operations. Mr. Mallow's employment
agreement provides for a base salary, subject to increases, and for
participation in an annual incentive bonus scheme. Under the letter
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agreement, in the event of a termination of Mr. Mallow's employment by us for
just cause (which term is not defined in the agreement), Mr. Mallow is eligible
for salary continuation for a period of one year from the date of termination.
We are in the process of establishing a severance policy to cover all
full-time salaried employees. It is intended that the severance policy will
provide continuation of base salary for employees for some period of time after
an individual's employment is terminated under specified circumstances. We are
still in the process of establishing the guidelines for this policy.
SAVINGS PLANS
We sponsor the Weight Watchers Savings Plan for our salaried and hourly
employees, a defined contribution plan which provides for employer matching
contributions up to 100% of the first 3% of an employee's eligible compensation.
The Savings Plan also permits employees to contribute between 1% and 13% of
eligible compensation on a pre-tax basis.
We also sponsor the Weight Watchers Profit Sharing Plan for all full-time
salaried employees who are eligible to participate in the Savings Plan (except
for some key management personnel), which provides for a guaranteed monthly
employer contribution on behalf of each participant based on the participant's
age and a percentage of the participant's eligible compensation. The Profit
Sharing Plan also has a discretionary employer contribution component, based on
our achievement of certain annual performance targets, which may be determined
annually by our board of directors. We also reserve the right to make additional
discretionary contributions to the Profit Sharing Plan.
We are in the process of establishing a nonqualified profit sharing plan for
key management personnel who are not eligible to participate in the Weight
Watchers Profit Sharing Plan. This nonqualified profit sharing plan is intended
to have the same or similar features as the Weight Watchers Profit Sharing Plan.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock by (1) all persons known by us to own beneficially
more than 5% of our common stock, (2) each director who is a stockholder, (3)
the President and each of the named executive officers and (4) all directors and
executive officers as a group.
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SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS
------------------------------------ ---------- ----------------
Artal Luxembourg S.A. (1)(2)(3)............................. 21,083,200 88.6%
105 Grand-Rue
Luxembourg City, Luxembourg L-1661
H.J. Heinz Company.......................................... 1,428,000 6.0%
600 Grant Street
Pittsburgh, Pennsylvania 15219
Linda Huett (3)............................................. 20,000 *
Clive Brothers (3).......................................... 20,000 *
John Dennis (3)............................................. 5,000 *
Bob Mallow (3).............................................. 20,000 *
Scott Penn (3).............................................. 30,000 *
Raymond Debbane............................................. -- --
Jonas M. Fajgenbaum......................................... -- --
Kent Q. Kreh................................................ -- --
Sacha Lainovic.............................................. -- --
Richard Penn (2)(3)......................................... 250,000 1.1%
Christopher J. Sobecki...................................... -- --
All directors and executive officers
as a group (11 persons) (4)............................... 345,000 1.5%
--------------------------
* Less than 1.0%.
(1) The parent entity of Artal Luxembourg S.A. is Artal Group S.A. ("Artal
Group"). The address of Artal Group is the same as the address of Artal
Luxembourg.
(2) On September 30, 1999, Artal Luxembourg S.A. sold an aggregate of 970,000
shares of our common stock, approximately 4.1% of all outstanding shares, to
the following five investors:
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SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS
------------------------------------ -------- ----------------
Envoy Partners........................................... 200,000 0.8%
c/o Blair Effron
28 E. 73rd Street, Apt. 11F
New York, New York 10021
Logo Incorporated Pty. Ltd. ............................. 230,000 1.0%
Greencliffe
502/1 Kirribilli Avenue
Kirribilli, N.S.W. 2061
Australia
Longisland International Limited......................... 140,000 0.6%
c/o Ansbacher (Monaco) S.A.M
14, Avenue de Grande-Bretagne
MO 98000 Monaco
Merchant Capital, Inc. .................................. 200,000 0.8%
c/o Credit Suisse First Boston
Eleven Madison Avenue
New York, New York 10010-3629
Attention: Malcolm Price
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[Download Table]
SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS
------------------------------------ -------- ----------------
Scotiabanc, Inc. ........................................ 200,000 0.8%
600 Peachtree Street, NE
Atlanta, Georgia 30308
Attention: William Brown
Logo Incorporated Pty. Ltd. subsequently sold its 230,000 shares to Richard
Penn.
(3) On December 17, 1999, Artal Luxembourg S.A. sold an aggregate of
318,800 shares of our common stock, approximately 1.3% of all outstanding
shares, to 43 members of our management group.
(4) Our directors and officers may be contacted c/o Weight Watchers
International, Inc., 175 Crossways Park West, Woodbury, New York 11797.
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DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of our common stock and our
preferred stock is not complete. You should read our certificate of
incorporation and by-laws as well as the provisions of applicable law for all
the information.
COMMON STOCK
Except as provided by applicable law, the holders of our common stock are
entitled to one vote per share on all matters to be voted on by our
stockholders.
All shares of common stock are entitled to share equally in dividends
declared by our board of directors. The New Credit Facilities and the indentures
impose certain restrictions on our ability to declare dividends with respect to
the common stock. Upon our liquidation or dissolution, whether voluntary or
involuntary, all shares of our common stock are entitled to share equally in the
assets available for distribution to our shareholders after payment of all our
prior obligations, including the preferred stock.
The holders of our common stock have no preemptive rights. All outstanding
shares of our common stock are fully paid and non-assessable.
REDEEMABLE PREFERRED STOCK
We have 1.0 million shares of Series A Preferred Stock issued and
outstanding. Holders of our Series A Preferred Stock are entitled to receive
dividends at an annual rate of 6% payable annually in arrears. The liquidation
preference of the Series A Preferred Stock is $25 per share. If there is a
liquidation, dissolution or winding up, the holders of shares of Series A
Preferred Stock are entitled to be paid out of our assets available for
distribution to our shareholders an amount in cash equal to the $25 liquidation
preference per share plus all accrued and unpaid dividends prior to the
distribution of any assets to holders of shares of common stock.
Except as required by law, the holders of the preferred stock have no voting
rights with respect to their shares of preferred stock, except that (1) the
approval of holders of a majority of the outstanding shares of preferred stock,
voting as a class, is required to amend, repeal or change any of the provisions
of our certificate of incorporation in any manner that would alter or change the
powers, preferences or special rights of the shares of preferred stock in a way
that would affect them adversely and (2) the consent of each holder of Series A
Preferred Stock is required for any amendment that reduces the dividend payable
on or the liquidation value of the Series A Preferred Stock.
We may redeem the Series A Preferred Stock, in whole or in part, at any time
or from time to time, at our option at a price per share equal to 100% of its
liquidation value plus all accrued and unpaid dividends.
In addition, the Series A Preferred Stock is redeemable at the option of its
holders upon the occurrence of a change of control or upon a sale of our common
stock by Artal in a registered public offering. If that occurs, the redemption
price will be equal to 100% of the liquidation value plus accrued and unpaid
dividends.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The summaries of the agreements described below are not complete. You should
read the agreements in their entirety, copies of which are available upon
request from us.
STOCKHOLDERS' AGREEMENT
Simultaneously with the closing of our recapitalization, we entered into a
stockholders' agreement with Artal and Heinz governing the relationship between
and among ourself and these holders of our common stock. Subsequent transferees
of Artal and Heinz must, subject to certain limited exceptions, agree to be
bound by the terms and provisions of the agreement.
The stockholders' agreement imposes on Heinz certain restrictions on the
transfer of our common stock until the earlier to occur of (1) the fifth
anniversary of the recapitalization and (2) our initial public offering of
common stock under the Securities Act, subject to certain exceptions. Heinz will
have the right to participate pro rata in certain transfers of our common stock
by Artal, and Artal will have the right to force Heinz to participate on a pro
rata basis in certain transfers of our common stock by Artal.
REGISTRATION RIGHTS AGREEMENT
Simultaneously with the closing of our recapitalization, we entered into a
registration rights agreement with Artal and Heinz. The registration rights
agreement grants Artal certain demand rights and grants Artal and Heinz certain
incidental registration rights to register their shares of our common stock for
public sale under the Securities Act.
PREFERRED STOCKHOLDERS' AGREEMENT
Simultaneously with the closing of our recapitalization, we entered into a
preferred stockholders' agreement with Heinz governing the relationship between
and among ourself and the holders of our Series A Preferred Stock. Subsequent
transferees of Heinz, subject to certain limited exceptions, must agree to be
bound by the terms and provisions of this agreement.
The preferred stockholders' agreement imposes on Heinz certain restrictions
on transfer of our Series A Preferred Stock until the second anniversary of the
recapitalization. In addition, at any time after the second anniversary but
prior to the fifth anniversary of the recapitalization, we, Artal and our
respective designees will have a right of first refusal with respect to
transfers of our preferred stock by Heinz.
LIMITED LIABILITY COMPANY AGREEMENT
Simultaneously with the closing of our recapitalization, we contributed
$2,500 in exchange for a 50% membership interest in WW Foods, LLC (the "LLC"), a
Delaware limited liability company. Heinz owns the remaining 50% interest. The
purpose of the LLC is to own, maintain and preserve certain food and beverage
trademarks to be contributed to the LLC by Heinz. The LLC serves as the vehicle
for licensing certain rights in those food and beverage trademarks to us and to
Heinz, and for the licensing of program information by us to Heinz.
LICENSING AGREEMENTS
The licensing agreements govern the ownership and rights to use WEIGHT
WATCHERS and other trademarks, service marks and related rights among us, Heinz
and the LLC. As described below, the licensing agreements and the
recapitalization and stock purchase agreement address the parties' respective
ownership and rights to use food and beverage trademarks, service marks, program
standards, program information, program information trademarks and third party
licenses. Heinz is also
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a party to the operating agreement, which will help preserve and enhance these
trademarks, service marks and related rights and will facilitate their orderly
use by each party.
FOOD AND BEVERAGE TRADEMARKS. Under the licensing agreements and
recapitalization and stock purchase agreement, we distributed to Heinz and Heinz
contributed to the LLC all WEIGHT WATCHERS trademarks and certain other
trademarks we owned relating to food and beverage products ("Food & Beverage
Trademarks"), except for certain trademarks previously used by Heinz in
connection with the Food & Beverage Trademarks that do not include the WEIGHT
WATCHERS name (including, for example, SMART ONES), which we distributed to
Heinz and Heinz retained (the "Heinz Retained Trademarks"). At the closing of
our recapitalization, the LLC granted an exclusive, worldwide, royalty-free
license to use the Food & Beverage Trademarks (1) to Heinz, for worldwide use on
food products in certain defined product categories (including frozen dinners,
frozen breakfasts, frozen desserts (excluding ice cream), frozen pizza and pizza
snacks, frozen potatoes, frozen rice products, ketchup, tomato sauce, gravy,
canned tuna or salmon products, soup, noodles (excluding pasta), and canned
beans and pasta products), and for use only in Australia and New Zealand in
certain additional food product categories (including mayonnaise, frozen
vegetables, canned fruits and canned vegetables) (the "Heinz Licensed
Products"); and (2) to us, for use on all other food and beverage products (the
"Weight Watchers Licensed Products"). We may promote, endorse and sell both
Heinz Licensed Products and Weight Watchers Licensed Products through our
classroom business and related activities, subject to certain non-competition
provisions with Heinz. Additionally, we may continue to sell any food and
beverage product (or comparable product) sold by us in a particular country
within the year preceding the closing of our recapitalization, even if that
product is a Heinz Licensed Product, but may do so only within that country and
by using the same channels of distribution through which the product was sold
during that one-year period.
Certain Food & Beverage Trademarks and trademark applications were not
distributed to Heinz for contribution to the LLC. These trademarks and trademark
applications include (1) trademarks consisting of registrations in multiple
trademark classes, where such classes include both food and beverage product
classes and classes relating to other types of products or services
("Multi-Class Registrations"); (2) pending applications that could not be
transferred until a registration is granted; (3) trademark registrations and
applications in countries that do not recognize ownership of trademarks by an
entity such as the LLC; (4) trademark registrations and applications in
countries where the local law imposes restrictions or limitations on the
ownership or registration of similar trademarks by unrelated parties; and
(5) the Program Information Trademarks (as defined below). We retained legal
ownership of the Food & Beverage Trademarks identified in clauses (1) through
(4) above (the "Custodial Trademarks") which are held in custody for the benefit
of the LLC.
At the closing of our recapitalization, we granted to Heinz an exclusive,
worldwide, royalty-free license to use the Custodial Trademarks (or any portion
covering food and beverage products) in connection with Heinz Licensed Products.
We have undertaken to contribute any of the Custodial Trademarks (or any portion
covering food and beverage products) to the LLC if the LLC determines that the
transfer may be achieved under local law. If local law does not permit an
existing Multi-Class Registration to be severed so as to reflect separate
ownership of registrations in food and beverage product classes from
registrations in classes covering other types of products or services, (1) the
LLC will apply for new registrations to cover the food and beverage products,
(2) we will cancel the portion of the Multi-Class Registration covering food and
beverage products upon issuance of the new registrations and (3) we will retain
ownership of all remaining portions of the Multi-Class Registration. Heinz will
pay us an annual fee of $1.2 million for five years in exchange for our serving
as the custodian of the Custodial Trademarks.
OTHER MARKS. The licensing agreements provide that we retain exclusive
ownership of all service marks and trademarks other than food and beverage
trademarks and, except for the rights granted to
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the LLC and to Heinz, we have the exclusive right to use all these marks for any
purpose, including their use as trademarks for all products other than food and
beverage products.
PROGRAM STANDARDS. The licensing agreements and operating agreement provide
that we have exclusive control of the dietary principles (the "Standards") to be
followed in any eating or lifestyle regimen to facilitate weight loss or weight
control employed by the classroom business (a "Program"), such as 1-2-3 SUCCESS.
Except for certain limitations concerning products currently sold and extensions
of existing product lines, Heinz will use the Food & Beverage Trademarks and
Custodial Trademarks only on Heinz Licensed Products that have been specially
formulated to be compatible with the then-current Program Standards. We will
have exclusive responsibility for enforcing compliance with the Standards.
PROGRAM INFORMATION AND PROGRAM INFORMATION TRADEMARKS. The licensing
agreements and the recapitalization and stock purchase agreement provide that we
retain exclusive ownership of all Program Information, consisting of (1) all
information and know-how relating to any Program, (2) all terminology and
(3) all trademarks or service marks used to identify the programs or terminology
("Program Information Trademarks"). We granted an exclusive, worldwide,
royalty-free license to the LLC (for sublicense to Heinz) to use the terminology
and Program Information Trademarks on Heinz Licensed Products, and we provided
the LLC (and through the LLC, Heinz) with access to and a right to use this
information as may be reasonably necessary to develop, manufacture or market
food and beverage products in accordance with the Standards. Heinz granted a
worldwide, royalty-free license to the LLC to use certain improvements that
Heinz may develop in the course of its use of Program Information, which the LLC
sublicensed in turn to us.
THIRD PARTY LICENSES. Under the licensing agreements we assigned to Heinz
all licenses that we previously granted to third parties, and Heinz retained all
existing sublicenses granted by it to third parties under a license previously
granted to Heinz, that relate to the manufacture, distribution or sale of food
and beverage products ("Third Party Licenses"). Heinz assumed our obligations
under the Third Party Licenses, and has the right to collect and keep all
proceeds from the Third Party Licenses for a period of five years. Ownership of
the Third Party Licenses, to the extent they pertain to Weight Watchers Licensed
Products, will be transitioned to us over the five-year period. All proceeds
from any Third Party License that cannot be transitioned to us by the end of
that five-year period will thereafter be collected by Heinz and paid over to us.
Any sublicense granted after the closing date of the Transactions by Heinz or us
relating to use of the Food & Beverage Trademarks must conform to the terms of
the licenses granted to each of Heinz and us by the LLC.
JOINT PROMOTIONAL AGREEMENT
We expect to enter into a Joint Promotional Agreement with Heinz with
respect to cross-promotional activities between ourself and Heinz and its
affiliates.
MANAGEMENT AGREEMENT
Simultaneously with the closing of our recapitalization, we entered into a
management agreement with Invus pursuant to which Invus renders to us
management, consulting and certain other services in exchange for an annual fee
equal to the greater of $1.0 million and 1.0% of our EBITDA (as defined in the
indentures) and any related out-of-pocket expenses.
TRANSITION SERVICES
The recapitalization and stock purchase agreement provides that Heinz will
continue to provide administrative services to us for approximately one year.
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WEIGHTWATCHERS.COM SUBSCRIPTION AGREEMENT
We entered into a subscription agreement with WeightWatchers.com, Artal and
Heinz under which Artal, Heinz and we purchased common stock of
WeightWatchers.com for a nominal amount. We own approximately 19.8% of
WeightWatchers.com's common stock while Artal and Heinz own 75.4% and 4.8% of
WeightWatchers.com's common stock.
WEIGHTWATCHERS.COM NOTE
We have agreed to loan to WeightWatchers.com up to an aggregate principal
amount of $10.0 million at any time or from time to time prior to October 31,
2000. The unpaid principal amount under the note will bear interest at a rate of
11% per year. All principal and interest outstanding under the note will be
repayable on December 30 , 2000. The note may be prepaid at any time and from
time to time, in whole or in part, without premium or penalty.
WeightWatchers.com currently has no outstanding borrowings under the note.
WEIGHTWATCHERS.COM WARRANT AGREEMENT
Under a warrant agreement entered into between WeightWatchers.com and us, we
have received warrants to purchase an additional 20.2% of WeightWatchers.com's
common stock in connection with the loans that we have made to
WeightWatchers.com under the WeightWatchers.com note described above. These
warrants will expire on November 24, 2009 and may be exercised at a price of
$500.00 per share of WeightWatchers.com's common stock until then. The exercise
price and the number of shares of WeightWatchers.com's common stock available
for purchase upon exercise of the warrants may be adjusted from time to time
upon the occurrence of certain events.
WEIGHTWATCHERS.COM INTERNET LICENSE AGREEMENT
WeightWatchers.com will develop a web site on the Internet that uses the
WEIGHTWATCHERS brand name and other proprietary information for "e-commerce" and
related purposes. Prior to the closing of our recapitalization, and except for
some existing agreements, we granted WeightWatchers.com an exclusive license to
use all of our trademarks, copyrights and domain names on the Internet and any
other similar or related forms of electronic delivery or digital transmission
(other than broadband technology) that now exist or may be developed later. In
exchange for these rights, WeightWatchers.com will pay us 10% of its annual net
profit related to its Internet activities. We and WeightWatchers.com are
currently renegotiating the provisions of the license agreement.
WEIGHTWATCHERS.COM STOCKHOLDERS' AGREEMENT
We entered into a stockholders' agreement with WeightWatchers.com, Artal and
Heinz governing the relationship between and among WeightWatchers.com and Artal,
Heinz and us as holders of common stock of WeightWatchers.com. Subsequent
transferees of Artal, Heinz and us must, except for some limited exceptions,
agree to be bound by the terms and provisions of the agreement.
The stockholders' agreement imposes on Heinz and us certain restrictions on
the transfer of common stock of WeightWatchers.com until the earlier to occur of
(1) the fifth anniversary of the recapitalization and (2) WeightWatchers.com's
initial public offering of common stock under the Securities Act, except for
certain exceptions. Heinz and we have the right to participate pro rata in
certain transfers of common stock of WeightWatchers.com by Artal, and Artal has
the right to force Heinz and us to participate on a pro rata basis in certain
transfers of WeightWatchers.com's common stock by Artal.
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WEIGHTWATCHERS.COM REGISTRATION RIGHTS AGREEMENT
We entered into a registration rights agreement with WeightWatchers.com,
Artal and Heinz with respect to our shares in WeightWatchers.com. The
registration rights agreement grants Artal certain demand rights and grants
Artal, Heinz and us certain incidental registration rights to register shares of
WeightWatchers.com's common stock for public sale under the Securities Act.
NELLSON CO-PACK AGREEMENT
On November 30, 1999, we entered into an agreement with Nellson
Neutraceutical, Inc., a wholly-owned subsidiary of Artal, to purchase nutrition
bar products manufactured by Nellson for sale at our meetings. Under the
agreement, Nellson agrees to produce sufficient nutrition bar products to fill
our purchase orders within 30 days of Nellson's receipt of these purchase
orders, and we are not bound to purchase a minimum quantity of nutrition bar
products. The term of the agreement is two years, and we may renew the agreement
for successive one-year periods by providing written notice to Nellson. This
agreement was negotiated on an arm's-length basis and is unrelated to the
recapitalization transactions.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a registration rights agreement with the initial
purchasers of the old notes in which we agreed, under certain circumstances, to
file a registration statement relating to an offer to exchange the old notes for
exchange notes. We also agreed to use our best efforts to cause the offer to be
consummated within 220 days following the original issue of the old notes. The
exchange notes will have terms substantially identical to the old notes except
that the exchange notes will not contain terms with respect to transfer
restrictions, registration rights and liquidated damages for failure to observe
certain obligations in the exchange and registration rights agreement. The old
notes were issued on September 29, 1999.
Under the circumstances set forth below, we will use our best efforts to
cause the SEC to declare effective a shelf registration statement with respect
to the resale of the old notes and keep the statement effective for up to two
years after the effective date of the shelf registration statement. These
circumstances include:
- if pursuant to any changes in law, SEC rules or regulations or applicable
interpretations of these rules and regulations by the staff of the SEC do
not permit us to effect the exchange offer as contemplated by the exchange
and registration rights agreement;
- if for any other reason we do not consummate the exchange offer within 220
days after the original issue of the old notes;
- if either initial purchaser of the old notes so requests (but only with
respect to any old notes not eligible to be exchanged for exchange notes
in the exchange offer); or
- if any holder of the old notes notifies us that it is not permitted to
participate in the exchange offer or would not receive fully tradable
exchange notes pursuant to the exchange offer and so requests.
If we fail to comply with certain obligations under the exchange and
registration rights agreement, we will be required to pay liquidated damages to
holders of the old notes.
Each holder of old notes that wishes to exchange such old notes for
transferable exchange notes in the exchange offer will be required to make the
following representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- the holder has no arrangement with any person to participate in the
distribution of the exchange notes;
- the holder is not an "affiliate," as defined in Rule 405 of the Securities
Act, of ours or if it is an affiliate, that it will comply with applicable
registration and prospectus delivery requirements of the Securities Act;
- if the holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of the exchange notes; and
- if the holder is a broker-dealer, that it will receive exchange notes for
its own account in exchange for old notes that were acquired as a result
of market-making activities or other trading activities and that it will
be required to acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes.
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for old notes may
77
be offered for resale, resold and otherwise transferred by any exchange note
holder without compliance with the registration and prospectus delivery
provisions of the Securities Act, if:
- such holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;
- such exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the SEC enunciated in "Exxon
Capital Holdings Corporation" or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
old notes as a result of market-making activities or other trading activities
may participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Please read the section
captioned "Plan of Distribution" for more details regarding the transfer of
exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
old notes properly tendered and not withdrawn prior to the expiration date. We
will issue $1,000 or [EURO]1,000, as the case may be, principal amount of
exchange notes in exchange for each $1,000 or [EURO]1,000, as the case may be,
principal amount of old notes surrendered under the exchange offer. Old notes
may be tendered only in integral multiples of $1,000 or [EURO]1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the old notes except the exchange notes will be registered
under the Securities Act, will not bear legends restricting their transfer and
will not provide for any liquidated damages upon our failure to fulfill our
obligations under the exchange and registration rights agreement to file, and
cause to be effective, a registration statement. The exchange notes will
evidence the same debt as the old notes. The exchange notes will be issued under
and entitled to the benefits of the same indentures that authorized the issuance
of the old notes.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $150.0 million and [EURO]100.0 million
aggregate principal amount of the old notes are outstanding. This prospectus and
a letter of transmittal are being sent to all registered holders of old notes.
There will be no fixed record date for determining registered holders of old
notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the registration rights agreement, the applicable requirements of the Securities
Act and the Securities Exchange Act of 1934 and the rules and regulations of the
SEC. Old notes that are not tendered for exchange in the exchange offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits the holders have under the indentures relating to the old
notes, except for any rights
78
under the registration rights agreement that by their terms terminate upon the
consummation of the exchange offer.
We will be deemed to have accepted for exchange properly tendered old notes
when we have given oral or written notice of the acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purposes of receiving the exchange notes from us and delivering exchange notes
to the holders. Under the terms of the registration rights agreement, we reserve
the right to amend or terminate the exchange offer, and not to accept for
exchange any old notes not previously accepted for exchange, upon the occurrence
of any of the conditions specified below under the caption "--Certain Conditions
to the Exchange Offer."
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes. We
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the exchange offer. It is important that you read the
section labeled "--Fees and Expenses" below for more details regarding fees and
expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
March 31, 2000, unless in our sole discretion we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
old notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
- under the terms of the registration rights agreement, to amend the terms
of the exchange offer in any manner.
Any delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of old notes. If we amend the exchange offer in a manner that we
determine constitutes a material change, we will promptly disclose the amendment
in a manner reasonably calculated to inform the holder of old notes of the
amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any old notes, and we
may terminate the exchange offer as provided in this prospectus before accepting
any old notes for exchange if in our reasonable judgment:
- the exchange notes to be received will not be tradable by the holder,
without restriction under the Securities Act, the Securities Exchange Act
of 1934 and without material restrictions under the blue sky or securities
laws of substantially all of the states of the United States;
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- the exchange offer, or the making of any exchange by a holder of old
notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
that, in our judgment, would reasonably be expected to impair our ability
to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made to us:
- the representations described under "--Purpose and Effect of the Exchange
Offer," "--Procedures for Tendering" and "Plan of Distribution"; and
- such other representations as may be reasonably necessary under applicable
SEC rules, regulations or interpretations to make available to it an
appropriate form for registration of the exchange notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any old notes by giving oral or written notice of the
extension to their holders. During any such extensions, all notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any old notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any old notes not previously accepted for exchange, upon
the occurrence of any of the conditions of the exchange offer specified above.
We will give oral or written notice of any extension, amendment, non-acceptance
or termination to the holders of the old notes as promptly as practicable. In
the case of any extension, a notice will be issued no later than 9:00 a.m., New
York City time, on the business day after the previously scheduled expiration
date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of this right. Each right will be deemed an ongoing right that we may
assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered, and
will not issue exchange notes in exchange for any old notes, if at the time any
stop order will be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indentures under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender the old notes in the exchange offer.
To tender in the exchange offer, a holder must:
- complete, sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on the letter
of transmittal guaranteed if the letter of transmittal so requires; and
mail or deliver the letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive the old notes along with the accompanying
letter of transmittal; or
80
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of the old notes into the exchange
agent's account at DTC according to the procedures for book-entry transfer
described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of a letter of transmittal and other required documents at the address
set forth below under "--Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the holder's election and risk.
Rather than mail these items, we recommend that holders use an overnight or hand
delivery service. In all cases, holders should allow sufficient time to assure
delivery to the exchange agent before the expiration date. Holders should not
send the letter of transmittal or old notes to us. Holders may request their
respective brokers, dealers, commercial banks, trust companies or other nominees
to effect the above transactions for them.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owners' behalf. If the beneficial owner wishes to tender on its own behalf, it
must, prior to completing and executing the accompanying letter of transmittal
and delivering its old notes either:
- make appropriate arrangements to register ownership of the old notes in
such owner's name; or
- obtain a properly completed bond power from the registered holder of old
notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Exchange Act, unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
accompanying letter of transmittal; or
- for the account of an eligible institution.
If the accompanying letter of transmittal is signed by a person other than
the registered holder of any old notes listed on the old notes, the old notes
must be endorsed or accompanied by a properly completed bond power. The bond
power must be signed by the registered holder as the registered holder's name
appears on the old notes and an eligible institution must guarantee the
signature on the bond power.
If the accompanying letter of transmittal or any old notes or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the accompanying letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
program to tender. Participants in the program
81
may, instead of physically completing and signing the accompanying letter of
transmittal and delivering it to the exchange agent, transmit their acceptance
of the exchange offer electronically. They may do so by causing DTC to transfer
the old notes to the exchange agent in accordance with its procedures for
transfer. DTC will then send an agent's message to the exchange agent. The term
"agent's message" means a message transmitted by DTC, received by the exchange
agent and forming part of the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering old notes that are the
subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
accompanying letter of transmittal (or, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery); and
- the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered old notes
and withdrawal of tendered old notes. Our determination will be final and
binding. We reserve the absolute right to reject any old notes not properly
tendered or any old notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the accompanying letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within such time as we shall
determine. Although we intend to notify holders of defects or irregularities
with respect to tenders of old notes, neither we, the exchange agent nor any
other person will incur any liability for failure to give such notification.
Tenders of old notes will not be deemed made until any defects or irregularities
have been cured or waived. Any old notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, we will issue exchange notes for old notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- old notes or a timely book-entry confirmation of the old notes into the
exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message.
By signing the accompanying letter of transmittal, each tendering holder of
old notes will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that is not engaged in and does not
intend to engage in the distribution of the exchange notes;
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for old notes that were acquired as a result of
market-making activities, that it will deliver a prospectus, as required
by law, in connection with any resale of any exchange notes; and
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- the holder is not an "affiliate," as defined in Rule 405 of the Securities
Act, of ours or, if the holder is an affiliate, it will comply with any
applicable registration and prospectus delivery requirements of the
Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus; and any financial institution participating in DTC's
system may make book-entry delivery of old notes by causing DTC to transfer the
old notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of old notes who are unable to deliver
confirmation of the book-entry tender of their old notes into the exchange
agent's account at DTC or all other documents required by the letter of
transmittal to the exchange agent on or prior to the expiration date must tender
their old notes according to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the accompanying
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's Automated Tender Offer Program
prior to the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
- setting forth the name and address of the holder, the registered
number(s) of the old notes and the principal amount of old notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the accompanying letter of transmittal, or
facsimile thereof, together with the old notes or a book-entry
confirmation, and any other documents required by the accompanying
letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered old notes in
proper form for transfer or a book-entry confirmation, and all other
documents required by the accompanying letter of transmittal, within three
New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one of
the addresses set forth below under "--Exchange Agent", or
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- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be withdrawn;
- identify the old notes to be withdrawn (including the principal amount of
the old notes); and
- where certificates for old notes have been transmitted, specify the name
in which the old notes were registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, prior to the release of the certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of the notices, and our determination will be final and binding on all parties.
We will deem any old notes so withdrawn not to have validly tendered for
exchange for purposes of the exchange offer. Any old notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to their holder without cost to the holder (or, in the case of old notes
tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, the old notes will be credited to
an account maintained with DTC for old notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" above at any time on or prior to
the expiration date.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as exchange
agent for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies
84
of this prospectus or of the letter of transmittal and requests for the notice
of guaranteed delivery to the exchange agent addressed as follows:
[Download Table]
FOR DELIVERY BY REGISTERED OR CERTIFIED MAIL: FOR OVERNIGHT DELIVERY ONLY:
Norwest Bank Minnesota, Norwest Bank Minnesota,
National Association National Association
Sixth Street and Marquette Avenue 608 Second Avenue South
MAC N9303-121 Northstar East Building, 12th Floor
Minneapolis, MN 55479-0069 MAC N9303-121
Attention: Corporate Trust Department Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
BY HAND: BY FACSIMILE TRANSACTION
Norwest Bank Minnesota, (FOR ELIGIBLE INSTITUTIONS ONLY):
National Association (612) 667-4927
608 Second Avenue South CONFIRM FACSIMILE BY TELEPHONE ONLY:
Northstar East Building, 12th Floor (612) 667-9764
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitations by
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptance of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer. The expenses are estimated in the aggregate to be approximately $425,000.
They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of old notes
tendered;
- tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal; or
85
- a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of the taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed to that
tendering holder.
Holders who tender their old notes for exchange will not be required to pay
any transfer taxes. However, holders who instruct us to register exchange notes
in the name of, or request that old notes not tendered or not accepted in the
exchange offer be returned to, a person other than the registered tendering
holder will be required to pay any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for exchange notes
under the exchange offer will remain subject to the restrictions on transfer of
the old notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the old notes under the exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws; and
- otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the old notes.
In general, you may not offer or sell the old notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the old notes under the Securities Act. Based on
interpretations of the SEC staff, exchange notes issued under the exchange offer
may be offered for resale, resold or otherwise transferred by their holders
(other than any holder that is our "affiliate" within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holders
acquired the exchange notes in the ordinary course of the holders' business and
the holders have no arrangement or understanding with respect to the
distribution of the exchange notes to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange notes:
- cannot rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the old notes, which is the aggregate principal amount, as
reflected in our accounting records on the date of exchange. Accordingly, we
will not recognize any gain or loss for accounting purposes in connection with
the exchange offer. We will record the expenses of the exchange offer as
incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
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DESCRIPTION OF NOTES
Weight Watchers International, Inc. issued the dollar Notes under an
indenture (the "Dollar Notes Indenture") between itself and Norwest Bank
Minnesota, National Association, as trustee (the "Dollar Notes Trustee"). Weight
Watchers International, Inc. issued the euro Notes under an indenture (the "Euro
Notes Indenture" and, together with the Dollar Notes Indenture, the
"Indentures") between itself and Norwest Bank Minnesota, National Association,
as trustee (the "Euro Notes Trustee" and, together with the Dollar Notes
Trustee, the "Trustee"). The terms of the Notes include those stated in the
Indentures and those made part of the Indentures by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
Certain terms used in this description are defined under the subheading
"--Certain Definitions". In this description, the word "Company" refers only to
Weight Watchers International, Inc. and not to any of its subsidiaries.
We urge you to read the Indentures, and the Registration Rights Agreement
because they, not this description, define your rights as holders of these
Notes. You may request copies of these agreements at our address set forth under
the heading "Where You Can Find More Information".
BRIEF DESCRIPTION OF THE NOTES
These Notes:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- are subject to registration with the SEC pursuant to the Registration
Rights Agreement.
PRINCIPAL, MATURITY AND INTEREST
We issued the Notes initially with a maximum aggregate principal amount of
$150.0 million, in the case of the dollar Notes and [EURO]100.0 million, in the
case of the euro Notes. We issued the dollar Notes in denominations of $1,000
and any integral multiple of $1,000 and euro Notes in denominations of
[EURO]1,000 and any integral multiples of [EURO]1,000. The Notes will mature at
par on October 1, 2009. Subject to our compliance with the covenant described
under the subheading "--Certain Covenants--Limitation on Indebtedness", we are
permitted to issue more Notes under the Indentures in an unlimited principal
amount (the "Additional Notes"). Any such Additional Notes that are actually
issued will be treated as issued and outstanding Notes (and as the same class as
the initial dollar Notes or euro Notes, as the case may be) for all purposes of
the applicable Indenture and this "Description of Notes" unless the context
indicates otherwise.
Interest on the dollar and euro Notes accrues at the rate of 13% per year.
The Notes are payable semiannually in arrears on April 1 and October 1,
commencing on April 1, 2000. We will make each interest payment to the holders
of record of these Notes on the immediately preceding March 15 and
September 15.
Interest on these Notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement. In all circumstances, we will
ensure that (1) a payment agent is maintained within The City and State of New
York (which, until otherwise designated by us, will be the Corporate Trust
Office of the Trustee in the City and State of New York), (2) for so long as the
euro Notes are listed
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on the Luxembourg Stock Exchange and the rules of this stock exchange so
require, a payment agent is maintained in Luxembourg with respect to the euro
Notes and (3) if and so long as the Notes are listed on any other securities
exchange, any requirement or rule of that securities exchange as to paying
agents is satisfied.
OPTIONAL REDEMPTION
Except as set forth below, we are not entitled to redeem the Notes at our
option prior to October 1, 2004.
On and after October 1, 2004, we are entitled at our option to redeem all or
a portion of these Notes upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed in percentages of principal amount on the
redemption date), plus accrued interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing on October 1 of the years set forth below:
[Download Table]
REDEMPTION
PERIOD PRICE
------ ----------
2004........................................................ 106.500%
2005........................................................ 104.333
2006........................................................ 102.167
2007 and thereafter......................................... 100.000
In addition, before October 1, 2002, we may at our option on one or more
occasions redeem Notes (which includes Additional Notes, if any) in an aggregate
principal amount not to exceed 35% of the aggregate principal amount of the
dollar Notes or 35% of the aggregate principal amount of the euro Notes (which
includes, in each case, Additional Notes, if any) originally issued at a
redemption price (expressed as a percentage of principal amount) of 113%, in the
case of the dollar Notes, and 113% in the case of the euro Notes, plus accrued
and unpaid interest, if any, to the redemption date, with the net cash proceeds
from one or more Equity Offerings; PROVIDED that
(1) at least 65% of such aggregate principal amount of both of the dollar
Notes and euro Notes (which includes Additional Notes, if any) remains
outstanding immediately after the occurrence of each such redemption; and
(2) each such redemption occurs within 90 days after the date of the related
Equity Offering.
In addition, at any time prior to October 1, 2004, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control (as defined), upon not less than 30 nor more than 60 days, notice
(but in no event more than 90 days after the occurrence of such Change of
Control), at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium at the time plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
"Applicable Premium" means, with respect to a Note at any time, the greater
of:
(1) 1.0% of the principal amount of such Note and
(2) the excess of
(a) the present value at such time of
(i) the redemption price of such Note on October 1, 2004 plus
(ii) all required interest payments due on such Note through
October 1, 2004, computed using a discount rate equal to,
with respect to the dollar Notes, the
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Treasury Rate plus 50 basis points and, with respect to the
euro Notes, the Bund Rate plus 50 basis points, over
(b) the principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two Business Days prior
to the date fixed for repayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the period from the redemption date to October 1, 2004; PROVIDED,
HOWEVER, that if the period from the redemption date to October 1, 2004 is not
equal to the constant maturity of a United States Treasury security for which a
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that, if the period from the redemption date to October 1, 2004 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Bund Rate" means the five day average of the daily fixing on the Frankfurt
Stock Exchange of the rate for German Bund securities having a constant maturity
most nearly equal to the period from the redemption date to October 1, 2004;
PROVIDED, HOWEVER, that if the period from the redemption date to October 1,
2004 is not equal to the constant maturity of a German Bund security for which a
weekly average yield is given, the Bund Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of German Bund securities for which such yields are given, except
that if the period from the redemption date to October 1, 2004 is less than one
year, the weekly average yield on actually traded German Bund securities
adjusted to a constant maturity of one year shall be used.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem dollar Notes of $1,000 or less and euro Notes of [EURO]1,000
or less in whole and not in part. We will cause notices of redemption to be
mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in principal amount equal to the
unredeemed portion of the original Note in the name of the holder thereof upon
cancelation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances, we may
be required to offer to purchase the Notes as described under the captions
"--Change of Control" and "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock". We may at any time and from time to time purchase Notes
in the open market or otherwise.
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GUARANTEES
We will cause each Subsidiary Guarantor to jointly and severally guarantee,
on a senior subordinated, unsecured basis, our obligations under these Notes on
or before the later of
- the date such Subsidiary Guarantor became a guarantor under the Credit
Agreement and
- July 29, 2000.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will
be limited as necessary to ensure enforceability and to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors--U.S. bankruptcy or fraudulent conveyance law may interfere with
the payment of the notes and the subsidiary guarantees."
As of the date of this prospectus, the following subsidiaries were
Subsidiary Guarantors: 58 WW Food Corp.; Waist Watchers, Inc.; Weight Watchers
Camps, Inc.; W.W. Camps and Spas, Inc.; Weight Watchers Direct, Inc.; W/W
Twentyfirst Corporation; W.W. Weight Reduction Services, Inc.; W.W.I. European
Services, Ltd.; W.W. Inventory Service Corp.; Weight Watchers North America,
Inc.; Weight Watchers UK Holdings Ltd; Weight Watchers International Holdings
Ltd; Weight Watchers (U.K.) Limited; Weight Watchers (Accessories &
Publications) Ltd; Weight Watchers (Food Products) Limited; Weight Watchers New
Zealand Limited; Weight Watchers International Pty Limited; Fortuity Pty Ltd;
and Gutbusters Pty Ltd.
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guarantee will be entitled to a contribution from each other Subsidiary
Guarantor in an amount equal to such other Subsidiary Guarantor's PRO RATA
portion of such payment based on the respective net assets of all the Subsidiary
Guarantors at the time of such payment determined in accordance with GAAP.
If a Subsidiary Guarantee were rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guarantee could be reduced to zero. See "Risk Factors-- The notes and
subsidiary guarantees are contractually junior in right of payment to our senior
debt".
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of consolidation or
merger) of a Subsidiary Guarantor; or
(2) upon the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor;
in each case other than to the Company or an Affiliate of the Company and as
permitted by the Indentures. The Subsidiary Guarantee of a Subsidiary Guarantor
will also be released at such time as such Subsidiary Guarantor ceases for any
reason to be a guarantor of the Credit Agreement.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the Notes
and the payment of any Subsidiary Guarantee will be subordinate in right of
payment to the prior payment in full of all Senior Indebtedness of the Company
or the relevant Subsidiary Guarantor, including the Bank Indebtedness of the
Company and such Subsidiary Guarantor under the Credit Agreement and related
Loan Documents (as defined therein).
As of October 23, 1999, the Company's Senior Indebtedness was approximately
$237.0 million.
Although the Indentures contain limitations on the amount of additional
Indebtedness that we may incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any
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case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness".
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
A substantial portion of our operations are conducted through our
subsidiaries. Claims of creditors of our non-guarantor subsidiaries, including
trade creditors and creditors holding indebtedness or guarantees issued by such
subsidiaries, and claims of preferred stockholders of such subsidiaries
generally will have priority with respect to the assets and earnings of such
subsidiaries over the claims of our creditors, including holders of the Notes.
Accordingly, the Notes and each Subsidiary Guarantee will be effectively
subordinated to creditors (including trade creditors) and preferred
stockholders, if any, of such non-guarantor subsidiaries.
At October 23, 1999, the total indebtedness of our subsidiaries was
approximately $237.0 million. Our subsidiaries also have other liabilities,
including trade payables. Although the Indentures limit the incurrence of
Indebtedness and preferred stock of certain of our subsidiaries, such limitation
is subject to a number of significant qualifications. Moreover, the Indentures
do not impose any limitation on the incurrence by such subsidiaries of
liabilities that are not considered Indebtedness under the Indentures. See
"--Certain Covenants--Limitation on Indebtedness".
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guarantee
in accordance with the provisions of the Indentures. The Notes and each
Subsidiary Guarantee will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of the Company and the relevant subsidiary Guarantor,
respectively. As of October 23, 1999, we and the Subsidiary Guarantors had no
Senior Subordinated Indebtedness (other than the Notes and Subsidiary
Guarantees) outstanding.
We and the Subsidiary Guarantors have agreed in the Indentures that we and
they will not Incur, directly or indirectly, any Indebtedness that is
contractually subordinate or junior in right of payment to our Senior
Indebtedness or the Senior Indebtedness of such Subsidiary Guarantor, unless
such Indebtedness is Senior Subordinated Indebtedness of the applicable Person
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such Person. The Indentures do not treat unsecured Indebtedness
as subordinated or junior to Secured Indebtedness merely because it is
unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on
the Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not purchase, redeem or otherwise retire any Notes
whether pursuant to the terms of the Notes or otherwise (collectively, "pay the
Notes") if either of the following occurs (a "Payment Default"):
(1) any Designated Senior Indebtedness of the Company is not paid in full in
cash or Temporary Cash Investments when due; or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms;
unless, in either case, the Payment Default has been cured or waived and any
such acceleration has been rescinded or such Designated Senior Indebtedness has
been paid in full in cash or Temporary Cash Investments. Regardless of the
foregoing, we are permitted to pay the Notes if we and the Trustee receive
written notice approving such payment from the Representatives of all Designated
Senior Indebtedness with respect to which the Payment Default has occurred and
is continuing.
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During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, we are not permitted to pay the Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to us) of
written notice (a "Blockage Notice") of such default from the Representative of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. The Payment Blockage Period will
end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons who
gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured, waived
or otherwise no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or
repaid in full in cash or Temporary Cash Investments.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such Designated Senior
Indebtedness have accelerated the maturity of such Designated Senior
Indebtedness, we are permitted to resume paying the Notes after the end of such
Payment Blockage Period. The Notes shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled to
receive payment in full in cash or Temporary Cash Investments of such
Senior Indebtedness before the holders of the Notes are entitled to
receive any payment or distribution of cash, securities or other
property, except that holders of Notes may receive and retain
(a) Permitted Junior Securities and (b) payments made from a trust as
described under "--Defeasance" so long as, on the date or dates the
respective amounts were paid into the trust, such payments were made with
respect to the Notes without violating the subordination provisions
described herein;
(2) until the Senior Indebtedness of the Company is paid in full in cash or
Temporary Cash Investments, any payment or distribution to which holders
of the Notes would be entitled but for the subordination provisions of
the Indentures will be made to holders of such Senior Indebtedness as
their interests may appear, except that holders of Notes may receive and
retain (a) Permitted Junior Securities and (b) payments made from a trust
as described under "--Defeasance" so long as, on the date or dates the
respective amounts were paid into the trust, such payments were made with
respect to the Notes without violating the subordination provisions
described herein; and
(3) if a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, such holders
of the Notes are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests
may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
A Subsidiary Guarantor's obligations under its Subsidiary Guarantee are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guarantee will be
subordinated in right of payment to the rights of holders of Senior
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Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee.
By reason of the subordination provisions contained in the Indentures, in
the event of a liquidation or insolvency proceeding, creditors of the Company or
a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or
a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
holders of the Notes, and creditors of ours who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance".
BOOK-ENTRY, DELIVERY AND FORM
The summary is not complete and is subject to all the provisions of the
Indentures, copies of which are available from the Company upon request.
The dollar Notes are represented by a dollar global Note and the euro Notes
are represented by a euro global Note. Each of the global Notes will be issued
in registered form without coupons and the global Notes in aggregate represent
the aggregate principal amount of the outstanding Notes. The global notes will
be deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of DTC or its nominee.
The Company expects that pursuant to procedures established by DTC, upon the
deposit of the global Notes with DTC, DTC will credit on its book-entry
registration and transfer system, the principal amount of the Notes represented
by such global Notes to the accounts of the participants. Book-entry Interests
are recorded in denominations of $1,000 or [EURO]1,000, as the case may be, and
integral multiples thereof. Ownership of book-entry interests is limited to
persons that have accounts with DTC ("participants") or persons that hold
interests in the book-entry interests through participants ("indirect
participants"), including Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System ("Euroclear"), Clearstream Banking,
societe anonyme ("Clearstream, Luxembourg"), banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with DTC,
either directly or indirectly. Indirect participants also include persons that
hold through such indirect participants. The book-entry interests will not be
held in definitive form. Ownership of book-entry interests will be shown on, and
the transfer of book-entry interests or interests will occur only through
records maintained by DTC (with respect to interests of its participants) and on
the records of participants or indirect participants (with respect to interests
of indirect participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Book-entry limitations may impair your ability to own, transfer or pledge
interests.
The holder of the global Notes will be considered the sole legal owner of
the global Notes for all purposes under the Indentures. Except as set forth
below, participants and indirect participants will not be entitled to have notes
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form and will not be considered the legal owners
or the holders under the Indentures. Accordingly, each person holding a
book-entry interest must rely on the procedures of DTC, and indirect
participants must rely on the procedures of the participants or indirect
participants through which they own their interest. If any definitive Notes are
issued, they will only be issued in registered form.
Transfer of all or any portion of the book-entry interests may be made only
through the book-entry system maintained by DTC, and unless and until book-entry
interests are exchanged for definitive
93
notes, the global notes held by DTC may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC
or by DTC or any such nominee to a successor of DTC or a nominee of such
successor.
Although DTC, Euroclear and Clearstream, Luxembourg have agreed to certain
procedures to facilitate transfers of book-entry interests in the global notes
among participants of DTC and account holders of Euroclear and Clearstream,
Luxembourg, they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Trustee or any of their respective agents will have any
responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg
or their respective participants or account holders of their respective
obligations under the rules and procedures governing their operations.
Payment of principal and interest on, and any other amount due in respect
of, the global Notes will be made to the paying agents. Norwest Bank Minnesota,
National Association is initially acting as principal paying agent for the
dollar Notes and Citibank, N.A. is initially acting as principal paying agent
for the euro Notes. All such amounts will be payable in U.S. dollars in respect
of the global Notes representing the dollar Notes and in euro in respect of the
global Notes representing the euro Notes (except as otherwise provided below).
The Company will maintain a paying agent in Luxembourg with respect to the euro
Notes as long as the euro Notes are listed on the Luxembourg Stock Exchange.
Upon receipt of any payment, the principal paying agent will distribute such
payments to Cede & Co., as nominee of DTC. Payments will be made in such amounts
and at such times as provided in the Indentures. DTC, upon receipt of any
payment from the principal paying agent, will promptly credit participants'
accounts with payments in amounts proportionate to their respective ownership of
book-entry interests, as shown on the records of DTC. The Company expects that
payments by participants to owners of book-entry interests held through such
participants or indirect participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names," and will be the
responsibility of such participants or indirect participants.
CURRENCY CONVERSIONS FOR HOLDERS OF BOOK-ENTRY INTERESTS IN EURO GLOBAL NOTES
Notwithstanding the payment provisions described above, participants who
hold book-entry interests in the euro global Note will be paid in U.S. dollars
converted from payments in euro by the paying agent following the receipt of
such payments, unless Cede & Co., as nominee of DTC, on behalf of any
participant holding such book-entry interests, elects, following a direction
from the participant to DTC, to receive payment in euro. All costs of
conversion, if any, will be borne by participants holding book-entry interests
in the euro global Note receiving U.S. dollar payments by deduction from such
payments. The U.S. dollar amount of any payment of principal or interest or
other distributions, as the case may be, to be received by such a participant
not electing to receive payments in euro will be based on the paying agent's bid
quotation, at or prior to 11:00 a.m., New York time, on the second New York
business day preceding the applicable payment date, for the purchase of U.S.
dollars with euro for settlement on such payment date. If such bid quotation is
not available, all such payments will be made in euro. As long as euro Notes
continue to be represented by the euro global Note, euro converted into U.S.
dollars will be paid to Cede & Co. for payment to participants in DTC in
accordance with customary procedures established from time to time by DTC.
An investor holding book-entry interests in the euro global Note may receive
payment in respect of principal of or interest on the euro Notes in euro by
notifying the DTC participant through which its book-entry interest in the euro
global Note is held on or prior to the record date of (1) such investor's
election to receive payment in euro and (2) wire transfer instructions to an
account entitled to receive the relevant payment. Such DTC participant must
notify DTC of such election and wire transfer instructions on or prior to the
third Business Day after the record date for any payment of interest and
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on or prior to the twelfth Business Day prior to the payment of principal. DTC
will notify the paying agent of such election and wire transfer instructions on
or prior to the fifth Business Day after the record date for any payment of
interest and on or prior to the tenth Business Day prior to the payment of
principal. If complete instructions are received by the DTC participant and
forwarded by the DTC participant to DTC and by DTC to the paying agent on or
prior to such dates, such investor will receive payment in euro, otherwise only
U.S. dollar payments will be made by the paying agent. All costs of such payment
by wire transfer will be borne by holders of book-entry interests receiving such
payments by deduction from such payments.
Euroclear and Clearstream, Luxembourg, acting on behalf of their respective
participants, are expected, prior to each payment date, to elect to receive
payments of principal and interest and any other amounts owing thereunder in
euro. In the event that Euroclear and Clearstream, Luxembourg become unwilling
or unable to make such an election on behalf of their participants, each
individual holder of a beneficial interest in the euro global Note will be
required to make its own currency election (in accordance with the procedures
set forth above) in order to avoid payment in U.S. dollars.
CERTIFICATED NOTES
Subject to certain conditions, the Notes represented by a global Note are
exchangeable for certificated Notes in definitive form if:
(1) the book-entry depositary notifies us that it is unwilling or unable to
continue as depository for the global Notes or the book-entry depositary ceases
to be a clearing agency registered under the Exchange Act and, in either case,
we are unable to locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the Notes
represented by the global Notes; or
(3) a default entitling the holders of the Notes to accelerate the maturity
thereof has occurred and is continuing.
Any Note that is exchangeable as described above is exchangeable for
certificated Notes issuable in authorized denominations and registered in such
names as the book-entry depositary shall direct. Subject to the foregoing, the
global Notes are not exchangeable, except for a global Note of the same
aggregate denomination to be registered in the name of the book-entry depositary
or its nominee.
The holder of a definitive note may transfer such note by surrendering it at
the office or agency maintained by us for such purpose in the Borough of
Manhattan, The City of New York, which initially will be the office of the
Trustee or, so long as the notes are listed on the Luxembourg Stock Exchange,
the Luxembourg transfer agent.
SAME-DAY PAYMENT
The Indentures require us to make payments in respect of Notes (including
principal, premium and interest) by wire transfer of immediately available funds
to accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We have agreed pursuant to the Registration Rights Agreement that we will,
subject to certain exceptions,
(1) within 90 days after the Issue Date, file a registration statement (the
"Exchange Offer Registration Statement") with the SEC with respect to a
registered offer (the "Registered Exchange Offer") to exchange the Notes
for new notes of the Company (the "Exchange Notes") having terms
substantially identical in all material respects to the Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions);
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(2) use our best efforts to cause the Exchange Offer Registration Statement
to be declared effective under the Securities Act within 180 days after
the Issue Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), offer the Exchange
Notes in exchange for surrender of the Notes; and
(4) keep the Registered Exchange Offer open for not less than 30 days (or
longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the holders of the Notes.
For each Note tendered to us pursuant to the Registered Exchange Offer, we
will issue to the holder of such Note an Exchange Note having a principal amount
equal to that of the surrendered Note. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the
Note surrendered in exchange therefor, or, if no interest has been paid on such
Note, from the date of its original issue.
Under existing SEC interpretations, the Exchange Notes will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents to us in the Registered Exchange Offer that it is
acquiring the Exchange Notes in the ordinary course of its business, that it has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the SEC; PROVIDED, HOWEVER, that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes for
180 days following the effective date of such Exchange Offer Registration
Statement (or such shorter period during which Participating Broker-Dealers are
required by law to deliver such prospectus).
A Holder of Notes (other than certain specified holders) who wishes to
exchange such Notes for Exchange Notes in the Registered Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
In the event that:
(1) applicable interpretations of the staff of the SEC do not permit us to
effect such a Registered Exchange Offer; or
(2) for any other reason we do not consummate the Registered Exchange Offer
within 220 days of the Issue Date; or
(3) an Initial Purchaser shall notify us following consummation of the
Registered Exchange Offer that Notes held by it are not eligible to be
exchanged for Exchange Notes in the Registered Exchange Offer; or
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(4) certain holders are prohibited by law or SEC policy from participating
in the Registered Exchange Offer or may not resell the Exchange Notes
acquired by them in the Registered Exchange Offer to the public without
delivering a prospectus,
then, we will, subject to certain exceptions,
(1) promptly file a shelf registration statement (the "Shelf Registration
Statement") covering resales of the Notes or the Exchange Notes, as the
case may be;
(2) use our best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act; and
(3) keep the Shelf Registration Statement effective, subject to certain
exceptions, until the earliest of (A) the time when the Notes covered by
the Shelf Registration Statement can be sold pursuant to Rule 144 without
any limitations under clauses (c), (e), (f) and (h) of Rule 144, (B) two
years from the effective date and (C) the date on which all Notes
registered thereunder are disposed of in accordance therewith.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes or the Exchange Notes, as the case may be. A
holder selling such Notes or Exchange Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification obligations).
We will pay additional cash interest on the applicable Notes and Exchange
Notes, subject to certain exceptions,
(1) if the Company fails to file an Exchange Offer Registration Statement
with the SEC on or prior to the 90th day after the Issue Date,
(2) if the Exchange Offer Registration Statement is not declared effective
by the SEC on or prior to the 180th day after the Issue Date,
(3) if the Exchange Offer is not consummated on or before the 40th day after
the Exchange Offer Registration Statement is declared effective,
(4) if obligated to file the Shelf Registration Statement, the Company fails
to file the Shelf Registration Statement with the SEC on or prior to the
60th day after such filing obligation arises,
(5) if obligated to file a Shelf Registration Statement, the Shelf
Registration Statement is not declared effective on or prior to the 180th
day after the obligation to file a Shelf Registration Statement arises,
or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective, such
Registration Statement thereafter ceases to be effective or usable
(subject to certain exceptions) (each such event referred to in the
preceding clauses (1) through (6) a "Registration Default");
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
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The rate of the additional interest will be 0.50% per annum for the first
90-day period immediately following the occurrence of a Registration Default,
and such rate will increase by an additional 0.50% per annum with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum additional interest rate of 2.0% per annum. We will pay such
additional interest on regular interest payment dates. Such additional interest
will be in addition to any other interest payable from time to time with respect
to the Notes and the Exchange Notes.
All references in the Indentures, in any context, to any interest or other
amount payable on or with respect to the Notes shall be deemed to include any
additional interest pursuant to the Registration Rights Agreement.
If we effect the Registered Exchange Offer, we will be entitled to close the
Registered Exchange Offer 30 days after the commencement thereof provided that
we have accepted all Notes theretofore validly tendered in accordance with the
terms of the Registered Exchange Offer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) prior to the first public offering of common stock of the Company, the
Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of
a majority in the aggregate of the total voting power of the Voting Stock
of the Company, whether as a result of issuance of securities of the
Company, any merger, consolidation, liquidation or dissolution of the
Company, any direct or indirect transfer of securities by the Permitted
Holders or otherwise (for purposes of this clause (1) and clause (2)
below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of a Person (the "specified person") held by any other
Person (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the
parent entity);
(2) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (1) above, except that for
purposes of this clause (2) such person shall be deemed 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), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER,
that the Permitted Holders beneficially own (as defined in clause (1)
above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors (for the purposes of this clause (2), such other person shall
be deemed to beneficially own any Voting Stock of a specified person held
by a parent entity, if such other person is the beneficial owner (as
defined in this clause (2)), directly or indirectly, of more than 35% of
the voting power of the Voting Stock of such parent entity and the
Permitted Holders beneficially own (as defined in clause (1) above),
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent entity and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such
parent entity);
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(3) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors on the Issue Date or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office;
(4) the adoption of a plan relating to the liquidation or dissolution of the
Company; or
(5) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of
all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person (other than, in all such cases, a
Person that is controlled by the Permitted Holders), other than a
transaction following which (A) in the case of a merger or consolidation
transaction, securities that represented 100% of the Voting Stock of the
Company immediately prior to such transaction (or other securities into
which such securities are converted as part of such merger or
consolidation transaction) constitute at least a majority of the voting
power of the Voting Stock of the surviving Person in such merger or
consolidation transaction, and (B) in the case of a sale of assets
transaction, the transferee Person becomes the obligor in respect of the
Notes and a Subsidiary of the transferor of such assets.
Within 30 days following any Change of Control, unless we have exercised our
option to redeem the Notes as described under "--Optional Redemption", we will
mail a notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require us to purchase such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control);
(3) the purchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
We will not be required to make a Change of Control Offer following a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indentures applicable to a Change of Control Offer made by us and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer or
if the Company exercises its option to purchase the Notes.
We will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes as a result of a Change of Control.
To the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent
99
management. The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchasers. We have no present intention to
engage in a transaction involving a Change of Control, although it is possible
that we could decide to do so in the future. Subject to the limitations
discussed below, we could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of indebtedness outstanding at such time or otherwise affect our capital
structure or credit ratings. Restrictions on our ability to Incur additional
Indebtedness are contained in the covenant described under "--Certain
Covenants--Limitation on Indebtedness". Such restrictions can only be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenant,
however, which limitations will terminate if the Company achieves Investment
Grade Status, the Indentures will not contain any covenants or provisions that
may afford holders of the Notes protection in the event of a highly leveraged
transaction.
The Credit Agreement prohibits us from purchasing any Notes and also
provides that the occurrence of certain change of control events with respect to
the Company would constitute a default thereunder. In the event a Change of
Control occurs at a time when we are prohibited from purchasing Notes, we may
seek the consent of our lenders to the purchase of Notes or may attempt to
refinance the borrowings that contain such prohibition. If we do not obtain such
a consent or repay such borrowings, we will remain prohibited from purchasing
Notes. In such case, our failure to offer to purchase Notes would constitute a
Default under the Indentures, which would, in turn, constitute a default under
the Credit Agreement.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. Finally,
our ability to pay cash to the holders of Notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
The provisions under the Indentures relating to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale of "all or substantially all" the assets of the Company
(determined on a consolidated basis). Although there is a limited body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase such Notes as a result of a
sale of less than all the assets of the Company (determined on a consolidated
basis) to another Person may be uncertain.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indentures. Following
the first day that (1) the Company has achieved Investment Grade Status and (2)
no Default has occurred and is continuing under the Indenture (and
notwithstanding that the Company may later cease to have an Investment Grade
Rating from either or both of the Rating Agencies or default under the
Indentures), the Company and its Restricted Subsidiaries will not be subject to
the provisions of the Indentures described below under "Limitation on
Indebtedness", "Limitation on Restricted Payments", "Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries", "Limitation on
Restrictions on
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Distributions from Restricted Subsidiaries", "Limitation on Sales of Assets and
Subsidiary Stock", "Limitation on Affiliate Transactions", and clause (3) under
"Merger and Consolidation".
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the
Company and its Restricted Subsidiaries will be entitled to Incur Indebtedness
if, on the date of such Incurrence and after giving effect thereto on a PRO
FORMA basis, the Consolidated Coverage Ratio exceeds 2.0 to 1 if such
Indebtedness is Incurred prior to October 1, 2002 or 2.25 to 1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries will be entitled to Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; PROVIDED,
HOWEVER, that, after giving effect to any such Incurrence, the aggregate
principal amount of such Indebtedness then outstanding does not exceed
$292 million less the sum of all principal payments with respect to such
Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock";
(2) Indebtedness owed to and held by the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the obligor thereon and (B) if the Company is the obligor
on such Indebtedness (other than Credit Agreement Intercompany
Indebtedness), such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(3) the Notes, the Subsidiary Guarantees and the Exchange Notes (other than
any Additional Notes);
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company
(other than Indebtedness Incurred in connection with, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); PROVIDED,
HOWEVER, that on the date of such acquisition and after giving pro forma
effect thereto, the Company would have been able to Incur at least $1.00
of additional Indebtedness pursuant to paragraph (a) of this covenant;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (3), (4) or (5) or this clause (6);
PROVIDED, HOWEVER, that to the extent such Refinancing Indebtedness
directly or indirectly Refinances Indebtedness of a Subsidiary Incurred
pursuant to clause (5), such Refinancing Indebtedness shall be Incurred
only by such Subsidiary;
(7) Hedging Obligations consisting of (A) Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or a
Restricted Subsidiary pursuant to the Indentures or (B) Currency
Agreements entered into in respect of Credit Agreement Intercompany
Indebtedness or in the ordinary course of business and not for the
purpose of speculation;
101
(8) Indebtedness (including Capital Lease Obligations) Incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when taken
together with the principal amount of all other Indebtedness then
outstanding and Incurred pursuant to this clause (8), does not exceed
5.0% of Total Assets at the time of Incurrence;
(9) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, Incurred in connection with the
disposition of any business, assets or a Subsidiary of the Company in
accordance with the terms of the Indentures, other than guarantees of
Indebtedness Incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition;
(10) obligations in respect of performance, bid and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(11) any guarantee by the Company or a Restricted Subsidiary of Indebtedness
or other obligations of the Company or any of its Restricted Subsidiaries
so long as the Incurrence of such Indebtedness by the Company or such
Restricted Subsidiary is permitted under the terms of the Indentures;
(12) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided that such
Indebtedness is extinguished within two Business Days of its Incurrence;
and
(13) Indebtedness of the Company or any Restricted Subsidiaries in an
aggregate principal amount which, when taken together with all other
Indebtedness of the Company or any Restricted Subsidiaries outstanding on
the date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (12) above or paragraph (a)) does not exceed $25 million.
(c) Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary will Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company or any Restricted Subsidiary unless such
Indebtedness shall be subordinated to the Notes or the applicable Restricted
Subsidiary to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, (1) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness at the time of Incurrence and only be
required to include the amount and type of such Indebtedness in one of the above
clauses (provided that any Indebtedness classified as Incurred pursuant to
clause (b)(13) above may later be reclassified as having been Incurred pursuant
to paragraph (a) above to the extent that such reclassified Indebtedness could
be Incurred pursuant to paragraph (a) above at the time of such
reclassification) and (2) the Company will be entitled to divide and classify an
item of Indebtedness in more than one of the types of Indebtedness described
above.
(e) Notwithstanding paragraphs (a) and (b) above, neither the Company nor
any Subsidiary Guarantor will Incur (1) any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness of
such Person, unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
of such Person or (2) any Secured Indebtedness that is not Senior Indebtedness
of such Person unless contemporaneously therewith such Person makes effective
provision to secure the Notes
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equally and ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
(f) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount of such Indebtedness will be the
U.S. Dollar Equivalent determined on the date of the Incurrence of such
Indebtedness; PROVIDED, HOWEVER, that if any such Indebtedness denominated in a
different currency is subject to a Currency Agreement with respect to U.S.
dollars covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
provided in such Currency Agreement. The principal amount of any Refinancing
Indebtedness Incurred in the same currency as the Indebtedness being Refinanced
will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the
extent that (1) such U.S. Dollar Equivalent was determined based on a Currency
Agreement, in which case the Refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (2) the principal amount of the
Refinancing Indebtedness exceeds the principal amount of the Indebtedness being
Refinanced, in which case the U.S. Dollar Equivalent of such excess will be
determined on the date such Refinancing Indebtedness is Incurred.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation
on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Issue Date
occurs to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); PLUS
(B) 100% of the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale
to a Subsidiary of the Company and other than an issuance or sale to
an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their
employees) and 100% of any cash contribution subsequent to the Issue
Date; PLUS
(C) the amount by which Indebtedness of the Company or any of its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the
Company or any of its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or
exchange); PLUS
(D) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person
103
resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of such
Investment, proceeds representing the return of capital (excluding
dividends and distributions) and from repayments of loans or advances
which constituted Restricted Payments, in each case received by the
Company or any Restricted Subsidiary, and (y) to the extent such
Person is an Unrestricted Subsidiary, the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market
value of the net assets of such Unrestricted Subsidiary at the time
such Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the
case of any such Person or Unrestricted Subsidiary, the amount of
Investments (excluding Permitted Investments) previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock
of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) or a substantially
concurrent capital contribution; PROVIDED, HOWEVER, that (A) such
Restricted Payment shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale or such
capital contribution (to the extent so used for such Restricted Payment)
shall be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness
which is permitted to be Incurred pursuant to the covenant described
under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount
of Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock"; PROVIDED,
HOWEVER, that such purchase or redemption shall be excluded in subsequent
calculations of the amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; PROVIDED, HOWEVER, that such dividend shall be included in the
calculation of the amount of Restricted Payments;
(5) so long as no Default has occurred and is continuing, the repurchase or
other acquisition of shares of Capital Stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell or are granted
the option to purchase or sell, shares of such Capital Stock; PROVIDED,
HOWEVER, that the aggregate amount of such repurchases and other
acquisitions shall not exceed $2 million in any calendar year (with
unused amounts in any calendar year being permitted to be carried over
for the two succeeding calendar years); PROVIDED, FURTHER, HOWEVER, that
such amount may be increased by an amount not to exceed (a) the cash
proceeds from sales of Capital Stock of the Company (other than
Disqualified Stock) to members of management or directors or consultants
of the Company and its Subsidiaries that occur after
104
the Issue Date plus (b) the cash proceeds of key man life insurance
policies received by the Company and its Restricted Subsidiaries after
the Issue Date (PROVIDED, HOWEVER, that to the extent such amount is
increased by the receipt of any such cash proceeds, such cash proceeds
shall be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above and the calculation of Consolidated Net Income); and
PROVIDED FURTHER, HOWEVER, that such repurchases and other acquisitions
shall be excluded in the calculation of the amount of Restricted
Payments;
(6) the declaration and payment of dividends or distributions to holders of
any class or series of Disqualified Stock (other than the Seller
Preferred Stock) of the Company or any of its Restricted Subsidiaries
issued or Incurred in accordance with the covenant described under
"--Limitation on Indebtedness"; PROVIDED, HOWEVER, that, to the extent
included in the calculation of Consolidated Interest Expense, such
dividends or distributions shall be excluded in the calculation of the
amount of Restricted Payments;
(7) Investments in Unrestricted Subsidiaries in an aggregate amount which,
when taken together with all other Investments made pursuant to this
clause (7), do not exceed $10 million; PROVIDED, HOWEVER, that such
Investments shall be excluded in the calculation of the amount of
Restricted Payments;
(8) the payment of annual management, consulting, monitoring and advisory
fees to The Invus Group, Ltd. in an amount in any fiscal year not to
exceed the greater of $1 million and 1.0% of EBITDA and any related
out-of-pocket expenses; PROVIDED, HOWEVER, that such payments shall be
excluded in the calculation of the amount of Restricted Payments;
(9) the payment of dividends on the Company's common stock following the
first public offering of common stock of the Company, after the Issue
Date, of up to 6% per annum of the net proceeds received by the Company
from such public offering; PROVIDED, HOWEVER, that (1) the aggregate
amount of all such dividends shall not exceed the aggregate amount of net
proceeds received by the Company from such public offering, (2) at the
time of, and after giving effect to, any payment permitted under this
clause (9), no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and (3) any such
payment shall be included in subsequent calculations of the amount of
Restricted Payments;
(10) other Restricted Payments (other than dividends in respect of the
Seller Preferred Stock) in an aggregate amount not to exceed $5 million;
PROVIDED, HOWEVER, that such Restricted Payments shall be excluded in the
calculation of the amount of Restricted Payments;
(11) so long as no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, the declaration and
payment of dividends to holders of any class or series of Designated
Preferred Stock issued after the Issue Date; PROVIDED, HOWEVER, that for
the most recently ended four full fiscal quarters ending at least
45 days prior to the date of such determination for which financial
statements are available immediately preceding the declaration of any
such dividend or distribution after giving effect to such dividend or
distribution on a pro forma basis, the Company would have had a
Consolidated Coverage Ratio of at least 2.0 to 1; PROVIDED, HOWEVER, that
such dividends shall be included in the calculation of the amount of
Restricted Payments;
(12) Investments that are made with Excluded Contributions; PROVIDED,
HOWEVER, that such Investments shall be excluded in the calculation of
the amount of Restricted Payments; and
(13) repurchases of Capital Stock deemed to occur upon exercise of stock
options if such Capital Stock represents a portion of the exercise price
of such options; PROVIDED, HOWEVER, that such repurchases shall be
excluded in the calculation of the amount of Restricted Payments.
105
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to
(a) pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to applicable law or any
applicable rule, regulation or order or an agreement in effect at or
entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred
as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); PROVIDED, HOWEVER, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(4) any such encumbrance or restriction consisting of customary non
assignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
(5) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(7) any restriction on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(8) encumbrances and restrictions contained in the agreements evidencing
other Indebtedness of Restricted Subsidiaries permitted to be Incurred
subsequent to the Issue Date pursuant to the provisions of the covenant
described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that
the encumbrances or restrictions apply only in the event of and during
the continuance of a default contained in such Indebtedness or agreement;
and
(9) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
106
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined
in good faith by the Company, of the shares and assets subject to such
Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents;
PROVIDED that the amount of (A) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the Notes), that
are assumed by the transferee of any such assets (PROVIDED that the
Company or such Restricted Subsidiary is released from all liability with
respect thereto), (B) any notes, other obligations or securities received
by the Company or such Restricted Subsidiary from such transferee that
are converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received) within 180 days following the closing of
such Asset Disposition and (C) any Designated Noncash Consideration
received by the Company or any of its Restricted Subsidiaries in such
Asset Disposition having an aggregate fair market value, when taken
together with all other Designated Noncash Consideration received
pursuant to this clause (C) that is at that time outstanding, not to
exceed $5 million at time of receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated
Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value), shall be deemed to be cash
for purposes of this provision and for no other purpose; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) to the extent the Company elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness or Indebtedness (other than any Disqualified Stock) of a
Restricted Subsidiary (in each case other than Indebtedness owed to
the Company or an Affiliate of the Company) within one year from the
later of the date of such Asset Disposition or the receipt of such
Net Available Cash;
(B) to the extent the Company elects, to acquire Additional Assets within
one year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash;
(C) to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer
to the holders of the Notes (and to holders of other Senior
Subordinated Indebtedness designated by the Company) to purchase
Notes (and such other Senior Subordinated Indebtedness) pursuant to
and subject to the conditions contained in the Indentures; and
(D) to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for any
general corporate purpose permitted pursuant to the terms of the
Indentures;
PROVIDED, HOWEVER, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or
such Restricted Subsidiary shall permanently retire such Indebtedness and
shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
107
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $15 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C)
above, the Company will purchase Notes tendered pursuant to an offer by the
Company for the Notes (and such other Senior Subordinated Indebtedness) at a
purchase price of 100% of their principal amount (or, in the event such other
Senior Subordinated Indebtedness was issued with significant original issue
discount, 100% of the accreted value thereof), without premium, plus accrued but
unpaid interest (or, in respect of such other Senior Subordinated Indebtedness,
such lesser price, if any, as may be provided for by the terms of such Senior
Subordinated Indebtedness) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indentures. If the
aggregate purchase price of the securities tendered exceeds the Net Available
Cash allotted to their purchase, the Company will select the securities to be
purchased on a pro rata basis but in round denominations, which in the case of
the Notes will be denominations of $1,000 principal amount or multiples thereof.
The Company shall not be required to make such an offer to purchase Notes (and
other Senior Subordinated Indebtedness) pursuant to this covenant if the Net
Available Cash available therefor is less than $15 million (which lesser amount
shall be carried forward for purposes of determining whether such an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this clause by virtue of its compliance with
such securities laws or regulations.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase,
sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with, or for the benefit
of, any Affiliate of the Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are not materially less favorable
to the Company or such Restricted Subsidiary than those that could be
obtained at the time of the Affiliate Transaction in arm's-length
dealings with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of
$5 million, the terms of the Affiliate Transaction are set forth in
writing and a majority of directors of the Company have determined in
good faith that the criteria set forth in clause (1) are satisfied and
have approved the relevant Affiliate Transaction as evidenced by a Board
Resolution; and
(3) if such Affiliate Transaction involves an amount in excess of
$25 million, the Board of Directors shall also have received a written
opinion from an investment banking, accounting or appraisal firm of
national prominence that is not an Affiliate of the Company to the effect
that such Affiliate Transaction is fair, from a financial standpoint, to
the Company and its Restricted Subsidiaries.
108
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment or other Restricted Payment, in each case permitted to be
made pursuant to the covenant described under "--Limitation on Restricted
Payments";
(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 or consultants in the ordinary course of
business of the Company or its Restricted Subsidiaries, but in any event
not to exceed $3 million in the aggregate outstanding at any one time;
(4) the payment of reasonable fees to officers, employees, consultants or
directors of the Company or its Restricted Subsidiaries and indemnity
provided on behalf of officers, employees, consultants or directors of
the Company or its Restricted Subsidiaries;
(5) any transaction with a Restricted Subsidiary or joint venture or similar
entity which would constitute an Affiliate Transaction solely because the
Company or a Restricted Subsidiary owns an equity interest in or
otherwise controls such Restricted Subsidiary, joint venture or similar
entity;
(6) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company;
(7) the payment of annual management, consulting, monitoring and advisory
fees to The Invus Group, Ltd. in an amount in any fiscal year not to
exceed the greater of $1 million and 1.0% of EBITDA and any related
out-of-pocket expenses;
(8) the payment by the Company or any of its Restricted Subsidiaries of fees
to The Invus Group, Ltd. and its Affiliates in connection with any
acquisition or divestiture transaction entered into by the Company or any
Restricted Subsidiary; PROVIDED, HOWEVER, that the aggregate amount of
fees paid to The Invus Group, Ltd. and its Affiliates in respect of any
acquisition or divestiture transaction shall not exceed 1% of the total
amount of such transaction;
(9) any agreement as in effect on the Issue Date and described in the
Offering Circular or any renewals, extensions or amendments of any such
agreement (so long as such renewals, extensions or amendments are not
less favorable to the Company or the Restricted Subsidiaries) and the
transactions evidenced thereby;
(10) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the
Issue Date and any similar agreements which it may enter into thereafter;
PROVIDED, HOWEVER, that the existence of, or the performance by the
Company or any of its Restricted Subsidiaries of obligations under any
future amendment to any such existing agreement or under any similar
agreement entered into after the Issue Date shall only be permitted by
this clause (10) to the extent that the terms of any such amendment or
new agreement are not otherwise disadvantageous to the Holders of the
Notes in any material respect; and
(11) transactions with customers, clients, suppliers or purchasers or
sellers of goods or services in each case in the ordinary course of
business and otherwise in compliance with the terms of the applicable
Indenture which are fair to the Company or its Restricted Subsidiaries,
in the reasonable determination of the Board of Directors of the Company
or the senior management thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an unaffiliated
party.
109
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company
(1) will not, and will not permit any Restricted Subsidiary to, sell, lease,
transfer or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than the Company or a Wholly Owned
Subsidiary), and
(2) will not permit any Restricted Subsidiary to issue any of its Capital
Stock (other than, if necessary, shares of its Capital Stock constituting
directors' or other legally required qualifying shares) to any Person
(other than to the Company or a Wholly Owned Subsidiary), unless
(A) immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary;
(B) immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made
under the covenant described under "--Limitation on Restricted
Payments" if made on the date of such issuance, sale or other
disposition; or
(C) such issuance or sale is made pursuant to a Local Management Plan
and, immediately after giving effect to such issuance or sale, the
Company or a Wholly Owned Subsidiary owns at least 85% of the Capital
Stock of such Restricted Subsidiary.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indentures;
(2) immediately after giving pro forma 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 such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture (if any) comply with the
Indentures;
PROVIDED, HOWEVER, that clauses (3) and (4) will not be applicable to (A) a
Restricted Subsidiary consolidating with, merging into or transferring all or
part of its properties and assets to the Company or to another Restricted
Subsidiary or (B) the Company merging with an Affiliate of the Company solely
for the purpose and with the sole effect of reincorporating the Company in
another jurisdiction or changing the form of organization of the Company.
110
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) except in the case of a Subsidiary Guarantor that has been disposed of
in its entirety to another Person (other than to the Company or an
Affiliate of the Company), whether through a merger, consolidation or
sale of Capital Stock or assets, if in connection therewith the Company
provides an Officers' Certificate to the Trustee to the effect that the
Company will comply with its obligations under the convenant described
under "--Limitation on Sales of Assets and Subsidiary Stock" in respect
of such disposition, the resulting, surviving or transferee Person (if
not such Subsidiary) shall be a Person organized and existing under the
laws of the jurisdiction under which such Subsidiary was organized or
under the laws of the United States of America, or any State thereof or
the District of Columbia, and such Person shall expressly assume, by a
Guaranty Agreement, in a form satisfactory to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary Guarantee;
(2) immediately after giving effect to such transaction or transactions on a
pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result
of such transaction as having been issued by such Person at the time of
such transaction ), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement, if any, complies with the
applicable Indenture.
The Successor Company will be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indentures, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
FUTURE GUARANTORS
The Company will cause each Subsidiary Guarantor to execute and deliver to
the Trustee a Guarantee Agreement pursuant to which such Subsidiary Guarantor
will Guarantee payment of the Notes on the same terms and conditions as those
set forth in the Indentures on or before the later of
(1) the date such Subsidiary Guarantor became a guarantor under the Credit
Agreement and
(2) July 29, 2000.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC and provide the Trustee and Holders and prospective Holders (upon
request in the case of prospective Holders) within 15 days after it files them
with the SEC, copies of its annual report and the information, documents and
other reports that are specified in Sections 13 and 15(d) of the Exchange Act;
PROVIDED, HOWEVER, that the Company shall not be so obligated to file such
reports with the SEC if the SEC does not permit such filing, in which event the
Company will make available such information to the Trustee, Holders and
prospective investors (upon request in the case of prospective investors) within
15 days after the time the Company would be required to file such information
with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act.
Notwithstanding the foregoing, such requirements shall be deemed satisfied prior
to the commencement of the exchange offer or the effectiveness of the Shelf
Registration Statement by the filing with the SEC of the Exchange Offer
Registration Statement and/or Shelf Registration Statement,
111
and any amendments thereto, with such financial information that satisfies
Regulation S-X of the Securities Act. The Company also will comply with the
other provisions of Section 314(a) of the TIA.
In addition, the Company shall furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Notes when due, continued
for 30 days;
(2) a default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required purchase, upon
declaration or otherwise;
(3) the failure by the Company to comply with its obligations under
"--Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with any
of its obligations in the covenants described above under "--Change of
Control" (other than a failure to purchase Notes) or under "--Certain
Covenants" under "--Limitation on Indebtedness", "--Limitation on
Restricted Payments", "--Limitation on Restrictions on Distributions from
Restricted Subsidiaries", "--Limitation on Sales of Assets and Subsidiary
Stock" (other than a failure to purchase Notes), "--Limitation on
Affiliate Transactions", "--Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries," "--Future Guarantors" or "--SEC
Reports";
(5) the failure by the Company or a Subsidiary Guarantor to comply for
60 days after notice with its other agreements contained in the
applicable Indenture;
(6) Indebtedness of the Company or any Significant Subsidiary 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 exceeds $10 million (the "cross
acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money (other than judgments
which are covered by enforceable insurance policies issued by solvent
carriers) in excess of $10 million is entered against the Company or a
Significant Subsidiary, remains outstanding for a period of 60
consecutive days following such judgment and is not discharged, waived or
stayed within 10 days after notice (the "judgment default provision"); or
(9) a Subsidiary Guarantee ceases to be in full force and effect (other than
in accordance with the terms of such Subsidiary Guarantee) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guarantee.
However, a default under clauses (4), (5), (6) and (8) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the applicable outstanding Notes notify the Company of the default and the
Company does not cure such default within the time specified after receipt of
such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the applicable outstanding Notes may
declare the principal of and accrued but
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unpaid interest on all the Notes to be due and payable; PROVIDED, HOWEVER, that
so long as any Bank Indebtedness remains outstanding, no such acceleration shall
be effective until the earlier of (1) five business days after the giving of
written notice to the Company and the administrative agent (or similar agent if
there is no administrative agent) under the Credit Agreement and (2) the day on
which any Bank Indebtedness is accelerated. Upon such a declaration, such
principal and interest shall be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and interest on all
the Notes will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the Notes.
Under certain circumstances, the holders of a majority in principal amount of
the applicable outstanding Notes may rescind any such acceleration with respect
to the applicable Notes and its consequences.
Subject to the provisions of the Indentures relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indentures at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indentures or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the applicable
outstanding Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the applicable outstanding
Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the applicable outstanding Notes are given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indentures or that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Note or that would involve the Trustee in
personal liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the applicable Notes notice of the Default within
90 days after it occurs. Except in the case of a Default in the payment of
principal of or interest on any Note, the Trustee may withhold notice if and so
long as a committee of its trust officers determines that withholding notice is
not opposed to the interest of the holders of the Notes. In addition, we are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. We are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indentures may be amended with the
consent of the holders of a majority in principal amount of the applicable Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange for the Notes) and any past default or compliance with any
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provisions may also be waived with the consent of the holders of a majority in
principal amount of the applicable Notes then outstanding. However, without the
consent of each holder of an outstanding Note affected thereby, an amendment may
not, among other things:
(1) reduce the amount of Notes whose holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "--Optional
Redemption" above;
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such holder's Notes;
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders; or
(9) make any change in any Subsidiary Guarantee that would adversely affect
the Noteholders.
Notwithstanding the preceding, without the consent of any holder of the
applicable Notes, the Company and Trustee may amend the applicable Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a Successor Company of the obligations
of the Company under the applicable Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in
Section 163(f)(2)(B) of the Code);
(4) to add guarantees with respect to the Notes or to secure the Notes;
(5) to add to the covenants of the Company for the benefit of the holders of
the Notes or to surrender any right or power conferred upon the Company;
(6) to make any change that does not adversely affect the rights of any
holder of the Notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the applicable Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
applicable Indenture that adversely affects the rights of any holder of Senior
Indebtedness of the Company then outstanding unless the holders of such Senior
Indebtedness (or their Representative) consent to such change.
The consent of the holders of the Notes is not necessary under the
Indentures to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indentures becomes effective, we are required
to mail to holders of the Notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
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TRANSFER
The Notes are issued in registered form and are transferable only upon the
surrender of the Notes being transferred for registration of transfer. We may
require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
DEFEASANCE
At any time, we may terminate all our obligations under the Notes and the
Indentures ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes.
In addition, at any time we may terminate our obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clause (3) under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries) or (8) under "--Defaults" above or because of the failure of the
Company to comply with clause (3) of the covenant described under "--Certain
Covenants--Merger and Consolidation" above. If we exercise our legal defeasance
option or our covenant defeasance option, each Subsidiary Guarantor will be
released from all of its obligations with respect to its Subsidiary Guarantee.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
Indentures. We have appointed Norwest Bank Minnesota, National Association as
Registrar with regard to the Notes.
The Indentures contain certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; PROVIDED, HOWEVER, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the applicable outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy
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available to the Trustee, subject to certain exceptions. If an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indentures at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the applicable Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
will have any liability for any obligations of the Company under the Notes or
the Indentures or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver and release may not be
effective to waive liabilities under the U.S. federal securities laws, and it is
the view of the SEC that such a waiver is against public policy.
GOVERNING LAW
The Indentures and the Notes are governed by, and construed in accordance
with, the laws of the State of New York.
NOTICES
As long as the notes are listed on the Luxembourg Stock Exchange and the
rules of that exchange so require, notices to the Noteholders will be valid if
published in a leading newspaper having general circulation in Luxembourg, which
is expected to be the Luxembourg Wort.
CERTAIN DEFINITIONS
"ADDITIONAL ASSETS" means any:
(1) property, plant, equipment or intellectual property used in a Related
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses
(2) or (3) above is primarily engaged in a Related Business.
"AFFILIATE" of any specified Person means:
(1) any other Person, directly or indirectly, controlling or controlled by;
or
(2) 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. For purposes of the covenants described
under "--Certain Covenants--Limitation on Restricted Payments", "--Certain
Covenants--Limitation on Affiliate Transactions" and "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate"
shall also mean any beneficial owner of Capital Stock representing 10% or more
of the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to
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purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"ASSET DISPOSITION" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "DISPOSITION"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted
Subsidiary
other than, in the case of clauses (1), (2) and (3)
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary;
(B) any sale of Capital Stock in, or indebtedness or other securities of,
an Unrestricted Subsidiary;
(C) a disposition of Temporary Cash Investments;
(D) the disposition of all or substantially all the assets of the Company
in a manner permitted pursuant to the covenant described above under
"--Certain Covenants--Merger and Consolidation" or any disposition
that constitutes a Change of Control;
(E) sales of assets received by the Company upon the foreclosure on a
Lien;
(F) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Restricted Payment permitted by the
covenant described under "--Certain Covenants--Limitation on
Restricted Payments" or a Permitted Investment; and
(G) a disposition of assets with a fair market value of less than
$1 million.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, 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).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
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"BANK INDEBTEDNESS" means any and all Indebtedness and other amounts payable
under or in respect of the Credit Agreement or Hedging Obligations related to
the Credit Agreement, including principal, premium (if any), interest (including
interest accruing at the contract rate specified in the Credit Agreement
(including any rate applicable on default) on or after the filing of any
petition in bankruptcy or the commencement of any similar state, Federal or
foreign reorganization or liquidation proceeding relating to the Company and
interest that would accrue but for the commencement of such proceeding whether
or not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means an obligation that is required to be
classified and accounted for as a capital 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 prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (y) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness
as if such Indebtedness had been Incurred on the first day of such
period;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period
shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the
EBITDA (if negative), directly attributable thereto for such period and
Consolidated Interest Expense for
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such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company
or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to
the Indebtedness of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition, including any acquisition occurring in
connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an operating
unit of a business or shall have implemented a cost-reduction program
resulting in a permanent reduction in cash operating costs, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment, acquisition or cost-reduction
program occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, any Investment or acquisition that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during such period, or shall have
implemented a cost-reduction program resulting in a permanent reduction
in cash operating costs, EBITDA and Consolidated Interest Expense for
such such shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment, acquisition or cost-reduction program
occurred on the first day of such period.
For purposes of this definition, whenever PRO FORMA effect is to be given to an
acquisition or cost-reduction program, the amount of income, earnings or cost
savings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company. Any such pro forma calculations may include
operating expense reductions for such period resulting from the acquisition or
cost-reduction program which is being given pro forma effect, including, but not
limited to, the execution or termination of any contracts, the termination of
any personnel or the closing (or approval by the Board of Directors of any
closing) of any facility, as applicable, PROVIDED THAT, in either case, such
adjustments are set forth in an Officers' Certificate signed by the Company's
chief financial officer and another Officer which states (a) the amount of such
adjustment or adjustments, (b) that such adjustment or adjustments are based on
the reasonable good faith belief of the Officers executing such Officers'
Certificate at the time of such execution and (c) that any related Incurrence of
Indebtedness is permitted pursuant to the Indenture. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest of
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to Capital Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
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(2) capitalized interest;
(3) non-cash interest expenses;
(4) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(5) net payments pursuant to Hedging Obligations;
(6) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Restricted Subsidiary (other than the
Seller Preferred Stock and other than dividends payable solely in Capital
Stock (other than Disqualified Stock) of the issuer of such Preferred
Stock);
(7) interest incurred in connection with Investments in discontinued
operations;
(8) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary; and
(9) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust.
"CONSOLIDATED NET INCOME" means, for any period, the sum of (1) the net
income of the Company and its consolidated Subsidiaries and (2) to the extent
not otherwise included in the calculation of the net income of the Company and
its consolidated Subsidiaries, amounts received by the Company from Warnaco Inc.
in respect of the license agreement, dated as of January 8, 1999, between the
Company and Warnaco Inc. and (3) to the extent deducted in calculating net
income of the Company and its consolidated Subsidiaries, (A) any non-recurring
fees, expenses or charges related to the Transactions and (B) any non-recurring
charges related to one-time severance or lease termination costs incurred in
connection with the Transactions; PROVIDED, HOWEVER, that there shall not be
included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the Company's
equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person (other than a
Person the Company's interest in which is accounted for pursuant to
the equity method of accounting) for such period shall be included in
determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the Company's
equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary
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as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); PROVIDED, HOWEVER, that
such net income shall not be excluded in calculating Consolidated Net
Income as a component of EBITDA for purposes of calculating the
Consolidated Coverage Ratio; and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated
Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of any
assets of the Company, its consolidated Subsidiaries or any other Person
(including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and any
gain (or loss) realized upon the sale or other disposition of any Capital
Stock of any Person;
(5) extraordinary gains or losses;
(6) any increase in amortization or depreciation resulting from purchase
accounting in relation to any acquisition that is consummated after the
Issue Date, net of taxes; and
(7) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of the Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"CREDIT AGREEMENT" means the Credit Agreement entered into by and among the
Company, certain of its Subsidiaries, the lenders referred to therein, The Bank
of Nova Scotia, as Administrative Agent, and Credit Suisse First Boston, New
York branch, as Syndication Agent, together with the related documents thereto
(including, without limitation, the deed poll and transferable loan certificates
issued in connection therewith, the term loans and revolving loans thereunder,
any notes, instruments, guarantees, pledge agreements and security documents),
in each case as amended, extended, waived, replaced, restructured, repaid,
refunded, refinanced, renewed, restated, supplemented or otherwise modified (in
whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions) from time to time, and any agreement (and
related document) governing Indebtedness incurred to Refinance, in whole or in
part, the borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or a successor Credit Agreement, whether
by the same or any other lender or group of lenders and agents. Without limiting
the generality of the foregoing, the term "Credit Agreement" shall include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to the Credit Agreement and all refundings,
restructurings, renewals, refinancing and replacements of any facility provided
for in the Credit Agreement, including any agreement or agreements
(a) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (b) adding or deleting borrowers or guarantors thereunder
or (c) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder to the extent permitted under the Indenture.
"CREDIT AGREEMENT INTERCOMPANY INDEBTEDNESS" means Indebtedness of the
Company or a Restricted Subsidiary (the "obligor") owing to a Restricted
Subsidiary of the Company (the "obligee") that is a borrower under the Credit
Agreement in respect of an advance to the obligor by the obligee of funds
borrowed by the obligee under the Credit Agreement; PROVIDED, HOWEVER, that the
amount of such Indebtedness constituting Credit Agreement Intercompany
Indebtedness shall be limited to the amount
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actually owed by the obligee in respect of the funds advanced to the obligor
under the Credit Agreement.
"CURRENCY AGREEMENT" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate setting forth the basis of
such valuation, less the amount of Temporary Cash Investments received in
connection with a subsequent sale of such Designated Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means Preferred Stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to the Company, a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries) and is so designated as
Designated Preferred Stock, pursuant to an Officers' Certificate, on the
issuance date thereof, the cash proceeds of which are excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) of the covenant
described under "--Certain Covenants--Limitation on Restricted Payments."
"DESIGNATED SENIOR INDEBTEDNESS with respect to a Person" means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $20 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the
Indenture.
"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 at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of
the Notes; PROVIDED, HOWEVER, that if such Capital Stock is issued to any
employee or to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy obligations as a result of such
employee's death or disability; and PROVIDED FURTHER, HOWEVER, that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to purchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the Notes
shall not constitute Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock
than the terms applicable to the Notes
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and described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" and "--Certain Covenants--Change of Control"; and
(2) any such requirement only becomes operative after compliance with such
terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto;
and, PROVIDED FURTHER, HOWEVER, that the Seller Preferred Stock shall constitute
Disqualified Stock.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash
in a prior period);
(4) any non-recurring fees, expenses or charges related to any Equity
Offering, Permitted Investment, acquisition or Indebtedness permitted to
be Incurred by the Indentures (in each case, whether or not successful)
deducted (and not subsequently added back) in such period in computing
Consolidated Net Income;
(5) any non-recurring charges related to one-time severance or lease
termination costs incurred in connection with acquisitions consummated
after the Issue Date deducted (and not subsequently added back) in such
period in computing Consolidated Net Income; and
(6) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"EQUITY OFFERING" means any primary offering of common stock or Preferred
Stock of the Company (other than Disqualified Stock) to Persons who are not
Affiliates of the Company other than (1) public offerings with respect to the
Company's common stock registered or Form S-8 and (2) issuances upon exercise of
options by employees of the Company or any of its Restricted Subsidiaries.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE NOTES" means the debt securities of the Company issued pursuant to
the Indentures in exchange for, and in an aggregate principal amount at maturity
equal to, the Notes, in compliance with the terms of the Registration Rights
Agreement.
"EXCLUDED CONTRIBUTIONS" means the net cash proceeds received by the Company
after the Issue Date from (1) contributions to its common equity capital and
(2) the sale (other than to a Subsidiary of the Company or to any management
equity plan or stock option plan of the Company or a Restricted Subsidiary or
any other management or employee benefit plan or agreement of the Company or a
Restricted Subsidiary) of Capital Stock (other than Disqualified Stock and
Designated Preferred Stock) of the Company, in each case designated as Excluded
Contributions pursuant to an Officers'
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Certificate, the cash proceeds of which are excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) of the "--Certain
Covenants--Limitation on Restricted Payments" covenant.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entity as approved by a significant
segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including PRO FORMA financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
SEC.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the obligee
of such Indebtedness 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. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"GUARANTEE AGREEMENT" means a guarantee agreement, in substantially the form
provided in the Indentures, pursuant to which a Subsidiary Guarantor guarantees
the Company's obligations with respect to the Notes on the terms provided for in
the Indentures.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is registered
on the Registrar's books.
"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 Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. The accretion
of principal of a non-interest bearing or other discount security shall not be
deemed the Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the
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payment of which such Person is responsible or liable, including, in each
case, any premium on such indebtedness to the extent such premium has
become due and payable; PROVIDED, HOWEVER, that unpaid dividends in
respect of the Seller Preferred Stock shall not constitute Indebtedness;
(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/ Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through
(3) above) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the twentieth
Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of
such Person or, with respect to any Preferred Stock of any Subsidiary of
such Person, the principal amount of such Preferred Stock to be
determined in accordance with the Indentures (but excluding, in each
case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such
property or assets and the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"INTEREST RATE AGREEMENT" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"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 the lender) or other extensions
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.
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For purposes of the definition of "Unrestricted Subsidiary", the definition
of "Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to
(A) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (B) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Company.
"INVESTMENT GRADE RATING" means a rating equal to or higher than Baa3 (or
the equivalent) and BBB- (or the equivalent) by Moody's and S&P, respectively.
"INVESTMENT GRADE STATUS" shall be deemed to have been reached on the date
the Notes have an Investment Grade Rating from both S&P and Moody's.
"ISSUE DATE" means the date on which the Notes were originally issued.
"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).
"LOCAL MANAGEMENT PLAN" means an equity plan or program for the sale or
issuance of Capital Stock to local management or a plan or program for the
issuance or sale of Capital Stock to local strategic investors in respect of
Subsidiaries of the Company whose principal business is conducted outside of the
United States.
"MOODY'S" means Moody's Investor Services, Inc. or any successor to the
rating agency business thereof.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
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), in each case net of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset
Disposition;
(2) 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 or other security agreement of any kind with respect to 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;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such
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Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"NOTES" means the $150.0 million aggregate principal amount and
[EURO]100.0 million aggregate principal amount of 13% senior subordinated notes
of the Company due 2009.
"OBLIGATIONS" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness; PROVIDED, HOWEVER that Obligations with respect to the Notes shall
not include fees or indemnification in favor of the Trustee and other third
parties other than the holders of the Notes.
"PERMITTED HOLDERS" means Artal Luxembourg S.A., H.J. Heinz Company and each
of their respective Affiliates.
"PERMITTED INVESTMENT" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another 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 Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms
as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(6) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted
Subsidiary;
(7) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash portion
of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock";
(9) any Investment existing on the Issue Date;
(10) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (10),
not to exceed $15 million at the time of such Investment (with the fair
market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value);
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(11) Investments the payment for which consists of Capital Stock of the
Company (other than Disqualified Stock);
(12) any Guarantee Incurred in connection with a "synthetic lease" or
similar financing of an acquisition or construction of property used in a
Related Business by the Company or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Guarantee and any other Indebtedness Incurred in
connection with such transaction is permitted to be Incurred pursuant to
the provisions of the covenant described under "--Certain
Covenants--Limitation on Indebtedness";
(13) any Investment acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization
or recapitalization of the issuer of such other Investment or accounts
receivable or (b) as a result of a foreclosure by the Company or any of
its Restricted Subsidiaries with respect to any secured Investment or
other transfer of title with respect to any secured Investment in
default; and
(14) Investments of up to $10 million in WeightWatchers.com, our Internet
affiliate.
"PERSON" means any individual, corporation, 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 Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"PERMITTED JUNIOR SECURITIES" shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Company at least to the same extent
that the Notes are subordinated to the payment of all Senior Indebtedness of the
Company on the Issue Date, so long as to the extent that any Senior Indebtedness
of the Company outstanding on the date of consummation of any such plan of
reorganization or readjustment is not paid in full in cash or Temporary Cash
Investments on such date, the holders of any such Senior Indebtedness not so
paid in full in cash have consented to the terms of such plan of reorganization
or readjustment.
"PRINCIPAL" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"REFINANCE" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indentures, including Indebtedness that
Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
128
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding
or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include
(A) Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Company or (B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary; and provided further that
clauses (1) and (2) of this clause will not apply to any refunding or
refinancing of any Senior Indebtedness.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated September 22, 1999, among the Company, Credit Suisse First Boston
Corporation and Scotia Capital Markets.
"RELATED BUSINESS" means any business in which the Company was engaged on
the Issue Date and any business related, ancillary or complementary to any
business of the Company in which the Company was engaged on the Issue Date.
"REPRESENTATIVE" means with respect to a Person any trustee, agent or
representative (if any) for an issue of Senior Indebtedness of such Person.
"RESTRICTED PAYMENT" with respect to any Person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or
similar payment to the direct or indirect holders of its Capital Stock
(other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital
Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of
the Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations of such
Person (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of such purchase, repurchase or
other acquisition or Indebtedness Incurred pursuant to clause (2) of
paragraph (b) of the covenant described under "--Certain Covenants--
Limitation on Indebtedness" and not subsequently transferred to a Person
other than the Company or its Restricted Subsidiaries); or
(4) the making of any Investment (other than a Permitted Investment) in any
Person.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property owned
by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted
129
Subsidiary whereby the Company or a Restricted Subsidiary transfers such
property to a Person and the Company or a Restricted Subsidiary leases it from
such Person.
"SEC" means the Securities and Exchange Commission.
"SECURED INDEBTEDNESS" means any Indebtedness of the Company secured by a
Lien.
"SELLER PREFERRED STOCK" means the 6% preferred stock issued to H.J. Heinz
Company on the Issue Date.
"SENIOR INDEBTEDNESS" with respect to a Person means, without duplication:
(1) Bank Indebtedness;
(2) Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred; and
(3) accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to
such Person to the extent post-filing interest is allowed in such
proceeding) and premium (if any) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable
unless, in the case of clauses (1), (2) and (3), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes or the
Subsidiary Guarantees, as the case may be; PROVIDED, HOWEVER, that Senior
Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary (other than Credit
Agreement Intercompany Indebtedness);
(2) any liability for Federal, state, local or other taxes owed or owing by
such Person;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any
other Indebtedness or other obligation of such Person; or
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indentures; PROVIDED, HOWEVER, that such
Indebtedness shall be deemed not to have been Incurred in violation of
the Indentures for purposes of this clause (5) if (x) the holders of such
Indebtedness or their representative or the Company shall have furnished
to the Trustee an opinion of recognized independent legal counsel,
unqualified in all material respects, addressed to the Trustee (which
legal counsel may, as to matters of fact, rely upon an Officers'
Certificate) to the effect that the Incurrence of such Indebtedness does
not violate the provisions of the Indentures or (y) such Indebtedness
consists of Bank Indebtedness, and the holders of such Indebtedness or
their agent or representative (1) had no actual knowledge at the time of
the Incurrence that the Incurrence of such Indebtedness violated the
Indentures and (2) shall have received an Officers' Certificate to the
effect that the Incurrence of such Indebtedness does not violate the
provisions of the Indentures.
"SENIOR SUBORDINATED INDEBTEDNESS" means with respect to a Person, the Notes
(in the case of the Company), a Subsidiary Guarantee (in the case of a
Subsidiary Guarantor) and any other Indebtedness of such Person that
specifically provides that such Indebtedness is to rank PARI PASSU with the
Notes or such Subsidiary Guarantee, as the case may be, in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of such Person which is not Senior Indebtedness of such Person.
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"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"S&P" means Standard & Poor's Rating Group (or any successor to the rating
agency business thereof).
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the final 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 unless such contingency has occurred).
"SUBORDINATED OBLIGATION" means with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or a Subsidiary
Guarantee of such Person as the case may be, pursuant to a written agreement to
that effect.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"SUBSIDIARY GUARANTOR" means any Subsidiary that provides a Guarantee under
the Credit Agreement (other than certain special purpose vehicles used to lend
cash to guarantors of the Credit Facility.)
"SUBSIDIARY GUARANTEE" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes pursuant to a Guarantee
Agreement.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) 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;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year 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, any state thereof or any foreign
country recognized by the United States, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which 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) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
(3) repurchase obligations with a term of not more than 90 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than one year 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 or "A-1" (or higher)
according to S&P; and
131
(5) 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 S&P or
"A" by Moody's.
"TOTAL ASSETS" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"TRANSACTIONS" means the transactions contemplated by the Recapitalization
and Stock Purchase Agreement, dated as of July 22, 1999, among Weight Watchers
International, Inc., H.J. Heinz Company and Artal International S.A. and any
financings related thereto.
"UNRESTRICTED SUBSIDIARY" means:
(1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments".
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. DOLLAR EQUIVALENT" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in THE WALL STREET
JOURNAL in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
Except as described under "--Certain Covenants--Limitation on Indebtedness",
whenever it is necessary to determine whether the Company has complied with any
covenant in the Indentures or a Default has occurred and an amount is expressed
in a currency other than U.S. dollars, such amount will be treated as the U.S.
Dollar Equivalent determined as of the date such amount is initially determined
in such currency.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
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DESCRIPTION OF NEW CREDIT FACILITIES
The New Credit Facilities are provided by a syndicate of banks and other
financial institutions led by The Bank of Nova Scotia, as administrative agent,
letter of credit issuer, co-lead arranger and co-book manager, and Credit Suisse
First Boston, New York branch as syndication agent, co-lead arranger and co-book
manager. We and one of our subsidiaries are the borrowers under the New Credit
Facilities. The New Credit Facilities provide senior secured financing of up to
$267.0 million, consisting of the $75.0 million term loan A facility with a
maturity of six years, the $75.0 million term loan B facility with a maturity of
seven years, the $87.0 million TLC facility with a maturity of seven years and a
$30.0 million revolving credit facility. The revolving credit facility
commitment will terminate six years from the date of the closing of the New
Credit Facilities.
The term loan A facility, the term loan B facility, the TLC facility and the
revolving credit facility initially bear interest (subject to performance based
stepdowns applicable to the term loan A facility and the revolving credit
facility) at a rate equal to LIBOR plus (a) in the case of the term loan A
facility and the revolving credit facility, 3.25% or, at our option, the
alternate base rate (as defined in the New Credit Facilities) plus 2.25% or
(b) in the case of the term loan B facility and the TLC facility, 4.00% or, at
our option, the alternate base rate plus 3.00%.
In addition to paying interest on outstanding principal under the New Credit
Facilities, we are required to pay a commitment fee to the lenders under the
revolving credit facility in respect of the unutilized commitments thereunder at
a rate equal to 0.50% per annum.
The New Credit Facilities are subject to a mandatory prepayment with, in
general
- 100% of the proceeds of asset sales
- 75% of our excess cash flow (as defined in the New Credit Facilities) and
- 50% of the proceeds of equity offerings.
We may voluntarily repay outstanding loans under the New Credit Facilities
without penalty.
The obligations under the New Credit Facilities and the related documents
are secured by a first priority lien upon substantially all of the real and
personal property, and a pledge of substantially all of the common stock, of
Weight Watchers International, Inc. and our subsidiaries, including certain
significant foreign subsidiaries. Our obligations under the New Credit
Facilities are guaranteed by substantially all of our subsidiaries, including
certain significant foreign subsidiaries to the extent guarantees would not
result in material increases in taxes or liabilities to us.
The term loan A facility, the term loan B facility and the TLC facility will
amortize each year in equal quarterly amounts in the following approximate
aggregate principal amounts for each year set forth below:
[Download Table]
TERM TERM
LOAN A LOAN B TLC
YEAR FACILITY FACILITY FACILITY
---- -------- -------- --------
(DOLLARS IN MILLIONS)
1............................................... $ 9.38 $ 0.56 $ 0.65
2............................................... 12.50 0.75 0.87
3............................................... 12.50 0.75 0.87
4............................................... 12.50 0.75 0.87
5............................................... 12.50 0.75 0.87
6............................................... 15.62 0.75 0.87
7............................................... -- 70.69 82.00
------- ------- ------
Total........................................... $ 75.00 $ 75.00 $87.00
======= ======= ======
133
Principal amounts outstanding under the revolving credit facility will be due
and payable in full at maturity, six years from the date of the closing of the
New Credit Facilities.
The New Credit Facilities contain a number of covenants that, among other
things, restrict our ability to:
- dispose of assets,
- incur additional indebtedness,
- incur guarantee obligations,
- repay other indebtedness,
- make certain restricted payments and dividends,
- create liens on assets,
- make investments, loans or advances,
- make certain acquisitions,
- engage in mergers or consolidations,
- make capital expenditures,
- enter into sale and leaseback transactions, or
- engage in certain transactions with affiliates and otherwise restrict
corporate activities.
In addition, under the New Credit Facilities, we are required to comply with
specified financial ratios and tests, including minimum fixed charge coverage
and interest coverage ratios and maximum leverage ratios. The New Credit
Facilities also contain certain customary events of default.
134
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
TAX CONSIDERATIONS OF THE EXCHANGE OFFER
The following summarizes some U.S. federal income tax considerations of the
exchange offer. The discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial
decisions as of the date of this prospectus.
The exchange of old notes for exchange notes will not constitute a
recognition event for U.S. federal income tax purposes. Consequently, no gain or
loss will be recognized by holders upon receipt of the exchange notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
exchange notes, a holder's basis in exchange notes will be the same as the
holder's basis in the old notes exchanged. Holders will be considered to have
held the exchange notes from the time of their original acquisition of the old
notes. PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY OTHER FOREIGN, STATE OR LOCAL TAXING JURISDICTION.
TAX CONSIDERATIONS OF THE OWNERSHIP OF NOTES
The following summary describes the material U.S. federal income tax
consequences of the ownership of notes as of the date of this prospectus. It
deals only with notes held as capital assets and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, tax-exempt entities, life insurance companies, persons holding
notes as a part of a hedging, integrated, conversion or constructive sale
transaction or a straddle, holders of notes whose "functional currency" is not
the U.S. dollar, controlled foreign corporations, passive foreign investment
companies, foreign personal holding companies and corporations that accumulate
earnings to avoid U.S. federal income taxes. Furthermore, the summary is based
upon the current provisions of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations, rulings and judicial decisions pertaining to the
Code. We can not assure you that a change in the law will not alter
significantly the tax considerations that we describe in this summary. YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE NOTES, AS WELL AS THE CONSEQUENCES
TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used in this section, a "U.S. person" means;
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source or
- a trust that is subject to the supervision of a court within the United
States and the control of one or more U.S. persons as described in section
7701(a)(30) of the Code or that has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person.
A "non-U.S. person" means a person that is not a U.S. person.
U.S. PERSONS
PAYMENTS OF INTEREST
It is anticipated that the notes will not be issued with more than a DE
MINIMIS amount of original issue discount for U.S. federal income tax purposes.
In this case, interest on a note will generally be taxable to a U.S. person as
ordinary income at the time it is paid or accrued in accordance with the U.S.
person's method of accounting for tax purposes.
135
In the case of notes denominated in euros, U.S. persons on the cash method
of accounting are required to include in income the U.S. dollar value of the
amount received, based on the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars. No
exchange gain or loss is recognized with respect to the receipt of such payment.
U.S. persons on the accrual method of accounting may determine the amount of
income recognized with respect to an interest payment in euros in accordance
with either of two methods. Under the first method, the U.S. person will be
required to include in income for each taxable year the U.S. dollar value of the
interest that has accrued during the taxable year, determined by translating the
interest at the average rate of exchange for the period or periods during which
the interest accrued. Under the second method, the U.S. person may elect to
translate interest income at a spot rate on the last day of the accrual period
(or last day of the taxable year in the case of an accrual period that straddles
the U.S. person's taxable year) or on the date the interest payment is received
if the date is within five business days of the end of the accrual period. Upon
receipt of an interest payment on the note, a U.S. person will recognize
ordinary income or loss in an amount equal to the difference between the U.S.
dollar value of the payment of euros (determined by translating the euros
received at the "spot rate" for the euros on the date received) and the U.S.
dollar value of the interest income that the U.S. person has previously included
in income with respect to the payment.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. person's tax basis in a note will, in general, be the U.S. person's
cost (in the case of notes denominated in euros, the U.S. dollar value of the
euros paid for the note determined at the time of purchase). Upon the sale,
exchange, retirement or other disposition of a note, a U.S. person will
recognize gain or loss equal to the difference between the U.S. dollar value of
the amount realized determined at the time of the sale, exchange, retirement or
other disposition (less any accrued qualified stated interest, which will be
taxable interest) and the adjusted tax basis of the note. The gain or loss will
generally be capital gain or loss. However, in the case of notes denominated in
euros, the gain or loss on the sale, exchange, retirement or other disposition
of the euro notes will be ordinary income or loss to the extent attributable to
the movement in exchange rates between the time of purchase and the time of
disposition of the notes. Capital gains of individuals derived in respect of
capital assets held for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
EXCHANGE GAIN OR LOSS WITH RESPECT TO EUROS
A U.S. person's tax basis in euros received as interest on notes denominated
in euros, or received on the sale, exchange, retirement or other disposition of
notes denominated in euros will be the U.S. dollar value of the payment at the
spot rate at the time the U.S. person receives the euros. Any gain or loss
recognized by a U.S. person on a sale, exchange, retirement, or other
disposition of euros will be ordinary income or loss and will not be treated as
interest income or expense, except to the extent set forth in Treasury
regulations or administrative pronouncements of the Internal Revenue Service.
NON-U.S. PERSONS
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest on a note to a non-U.S. person provided that:
- the non-U.S. person does not actually (or constructively) own 10% or more
of the total combined voting power of all classes of our voting stock
within the meaning of the Code and the U.S. Treasury regulations;
- the non-U.S. person is not a controlled foreign corporation that is
related to us through stock ownership;
136
- the non-U.S. person is not a bank whose receipt of interest on the notes
is described in section 881(c)(3)(A) of the Code; and
- (a) the non-U.S. person provides its name and address on an Internal
Revenue Service Form W-8 or W-8BEN (or successor from), and certifies,
under penalty of perjury, that the non-U.S. person is not a U.S. person or
(b) a financial institution holds the notes on a non-U.S. person's behalf
and certifies, under penalty of perjury, that it has received an Internal
Revenue Service Form W-8 or W-8BEN (or successor form) from the beneficial
owner and provides us with a copy.
If the non-U.S. person cannot satisfy the requirements described above,
payments of interest will be subject to the 30% U.S. federal withholding tax,
unless the non-U.S. person provides us with a properly executed (1) Internal
Revenue Service Form 1001 or W-8BEN (or successor form) claiming an exemption
from or reduction in withholding under the benefit of a tax treaty or
(2) Internal Revenue Service Form 4224 or W-8ECI (or successor form) stating
that interest paid on the note is not subject to withholding tax because it is
effectively connected with the non-U.S. person's conduct of a trade or business
in the United States.
The 30% U.S. federal withholding tax will not apply to any gain that a
non-U.S. person realizes on the sale, exchange, retirement or other disposition
of the note.
U.S. FEDERAL ESTATE TAX
The estate of an individual non-U.S. person will not be subject to U.S.
federal estate tax on a note beneficially owned by the individual at the time of
his death, provided that (1) such individual did not own 10% or more of the
total combined voting power of all classes of our voting stock (within the
meaning of the Code and the U.S. Treasury regulations) and (2) interest on the
note would not have been, if received at the time of the individual's death,
effectively connected with his conduct of a trade or business in the United
States.
U.S. FEDERAL INCOME TAX
If a non-U.S. person is engaged in a trade or business in the United States
and interest on the notes is effectively connected with the conduct of that
trade or business, the non-U.S. person will be subject to U.S. federal income
tax on that interest on a net income basis (although exempt from the 30%
withholding tax) in the same manner as if the non-U.S. person were a U.S.
person. In addition, if the non-U.S. person is a foreign corporation, it may be
subject to a branch profit tax equal to 30% (or lower applicable treaty rate) of
its effectively connected earnings and profits for the taxable year (within the
meaning of the Code), subject to adjustments. For this purpose, interest on the
notes will be included in earnings and profits.
Any gain realized on the disposition of a note generally will not be subject
to U.S. federal income tax unless (1) that gain is effectively connected with
the conduct by the non-U.S. person of a trade or business in the United States
or (2) the non-U.S. person is an individual who is present in the United States
for 183 days or more in the taxable year of that disposition, and certain other
conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to some payments
of principal or interest paid on the notes and to the proceeds of sale of the
notes made to U.S. persons other than some exempt recipients (such as
corporations). A 31% backup withholding tax will apply to payments of principal
or interest paid on the notes if the U.S. person fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
137
In general, a non-U.S. person will not be subject to backup withholding and
information reporting with respect to payments that we make provided that we
have received from the non-U.S. person the statement described above under
"--U.S. Federal Withholding Tax."
In addition, a non-U.S. person will generally not be subject to backup
withholding or information reporting with respect to the proceeds of the sale of
a note within the United States or conducted through some U.S.-related financial
intermediaries, provided that the payor receives the statement described above
under "--U.S. Federal Income Tax" or the non-U.S. person otherwise established
an exemption.
U.S. Treasury regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to some payments
made after December 31, 2000. In general, the new U.S. Treasury regulations
would not significantly alter the present rules discussed above, except in some
special situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
138
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for old notes
where the old notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days after
the date on which the exchange offer is consummated, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until June 1, 2000, all dealers
effecting transactions in the exchange notes may be required to deliver a
prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of these methods
of resale, at prevailing market prices at the time of resale, at prices related
to prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
the purchasers of any exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of exchange
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act, and any profit on any resale of exchange notes and any commissions or
concessions received by any persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the date on which the exchange offer is
consummated, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
these documents in the letter of transmittal. We have agreed to pay all expenses
relating to the exchange offer, including the expenses of one counsel for the
holders of old notes, other than commissions and concessions of any
broker-dealers and will indemnify the holders of old notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
139
LUXEMBOURG LISTING INFORMATION
(1) The listing of the old euro notes on the Luxembourg Stock Exchange became
effective on November 5, 1999. Application has also been made to list the
exchange notes on the Luxembourg Stock Exchange. Our certificate of
incorporation and a legal notice relating to the issue of the notes were
deposited prior to listing with the Chief Registrar of the District Court of
Luxembourg (GREFFIER EN CHEF DU TRIBUNAL D'ARRONDISSEMENT DE ET A
LUXEMBOURG) where copies may be obtained on request. Notice of any optional
redemption, change of control or any change in the rate of interest payable
on the euro notes will be published in a Luxembourg newspaper of general
circulation. The Luxembourg Stock Exchange will be informed and a notice
will be published in a Luxembourg newspaper in the event of any accrual of
additional interest (no later than the commencement of the accrual). In
connection with the exchange offer, (a) notice was given to the Luxembourg
Stock Exchange and published in a Luxembourg newspaper announcing the
beginning of the registered exchange offer and, following completion of the
offer, the results of the offer will be published, (b) we appointed Banque
Generale de Luxembourg S.A. as the Luxembourg exchange agent, through which
all relevant documents with respect to the registered exchange offer will be
made available, and (c) Banque Generale de Luxembourg S.A. will be able to
perform all agency functions to be performed by any exchange agent,
including providing a letter of transmittal and other relevant documents to
holders, and accepting these documents on our behalf. The exchange notes
will be accepted for clearance through DTC and notice will be given to the
Luxembourg Stock Exchange and published in a Luxembourg newspaper announcing
the relevant CUSIP numbers and International Securities Identification
Numbers (ISIN). In addition, copies of this prospectus are available at the
Luxembourg Stock Exchange where copies may be obtained on request.
(2) Throughout the term of the notes, copies of our certificate of
incorporation, the indentures (incorporating forms of the global notes) and
the Registration Rights Agreement, dated as of September 22, 1999, among
Weight Watchers International, Inc., Credit Suisse First Boston Corporation
and Scotia Capital Markets (USA) Inc. and our most recent quarterly and
annual financial statements may be obtained free of charge at the office of
Banque Generale de Luxembourg S.A., the paying agent in Luxembourg.
(3) The indentures have been approved and notes will be issued pursuant to
authority granted by our board of directors on September 21, 1999.
(4) Except as disclosed in this prospectus, there has been no material adverse
change in our consolidated financial position since October 23, 1999. No
interim financial information is available since October 23, 1999.
Non-consolidated financial statements for Weight Watchers International,
Inc. are not publicly available.
(5) Except as disclosed in this prospectus, we are not involved in, and we have
no knowledge of a threat of, any litigation, administrative proceedings or
arbitration which is or may be material in the context of the issue or
exchange of notes.
(6) The dollar exchange notes have been accepted for clearance through DTC with
CUSIP and ISIN numbers as follows: The dollar exchange note has a CUSIP
number of 948628AB8 and an ISIN number of US948628AB82. The euro exchange
notes have been accepted for clearance through DTC with CUSIP and ISIN
numbers as follows: The euro exchange note has a CUSIP number of 948628AD4
and an ISIN number of US948628AD49. The dollar exchange notes have a Common
Code number of 10583128, and the euro exchange notes have a Common Code
number of 10886759.
(7) We have made all reasonable inquiries, and confirm that this prospectus
contains all information with regard to us and the notes which is material
in the context of the exchange of the notes, that the information contained
in this prospectus is true and accurate in all material respects and is not
misleading, that the opinions and intentions expressed herein are honestly
held and there are no other facts, the omission of which would make this
prospectus materially misleading. We accept responsibility for the
information contained in this prospectus.
140
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
exchange notes. This prospectus, which is a part of that registration statement,
does not contain all of the information set forth in the registration statement.
For further information about us and the exchange notes, you should refer to the
registration statement. This prospectus summarizes material provisions of
contracts and other documents to which we refer you. Since this prospectus may
not contain all of the information that you may find important, you should
review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
We are not currently subject to the information requirements of the
Securities Exchange Act of 1934. As a result of this offering, we will become
subject to the information requirements of the Exchange Act. Accordingly, we
will file reports and other information with the SEC unless and until we obtain
an exemption from the requirement to do so. Our registration statement and other
SEC filings can be inspected and copied at the Public Reference Section of the
SEC located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C. 20549 and at regional public reference facilities maintained by the SEC
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. You may obtain information about the operation of the Public Reference
Room by calling the SEC at 1-800-732-0330. Copies of these materials can be
obtained from the Public Reference Section of the SEC at prescribed rates. The
materials may also be accessed electronically by means of the SEC's home page on
the Internet at http://www.sec.gov.
For so long as any exchange notes remain outstanding, we will furnish to you
the information that would be required to be furnished by us under Section 13 of
the Exchange Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes are being passed
upon on our behalf by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The Weight Watchers Classroom Business' financial statements as of
April 24, 1999 and April 25, 1998 and for each of the three years in the period
ended April 24, 1999 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in auditing and accounting.
141
INDEX TO COMBINED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[Download Table]
PAGE
----------------
Report of Independent Accountants........................... F-2
Combined Financial Statements:
Combined Balance Sheets as of April 25, 1998, April 24, 1999
and October 23, 1999 (unaudited).......................... F-3
Combined Statements of Income, Comprehensive Income and
Parent Company's Investment for the fiscal years ended
April 26, 1997,
April 25, 1998, and April 24, 1999 and the six months
ended October 24, 1998 (unaudited) and October 23, 1999
(unaudited)............................................... F-4
Combined Statements of Cash Flows for the fiscal years ended
April 26, 1997,
April 25, 1998, and April 24, 1999 and the six months
ended October 24, 1998 (unaudited) and October 23, 1999
(unaudited)............................................... F-5
Notes to Combined Financial Statements...................... F-6-F-34
Report of Independent Accountants on Financial Statement
Schedule.................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
H.J. Heinz Company:
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, comprehensive income and parent company's
investment and of cash flows present fairly, in all material respects, the
financial position of the Weight Watchers Classroom Business (the Company) at
April 25, 1998 and April 24, 1999 and the results of their operations and their
cash flows for each of the three years in the period ended April 24, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
[LOGO]
Melville, New York
July 23, 1999, except for Note 17,
for which the date is September 29, 1999
F-2
WEIGHT WATCHERS CLASSROOM BUSINESS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
[Enlarge/Download Table]
APRIL 25, APRIL 24, OCTOBER 23,
1998 1999 1999
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,829 $ 19,515 $ 33,434
Receivables (net of allowances: 1998--$876; 1999--$994)... 11,647 11,403 8,043
Notes receivable, current................................. 2,246 3,266 1,070
Inventories............................................... 7,652 7,580 9,065
Prepaid expenses and other current assets................. 6,139 7,598 7,215
Deferred income taxes..................................... 5,741 3,609 --
Due from related parties.................................. 137,478 133,783 --
-------- -------- ---------
Total current assets.................................. 182,732 186,754 58,827
Property and equipment, net................................. 10,006 8,725 7,721
Notes and other receivables, noncurrent..................... 12,767 19,165 7,528
Goodwill (net of accumulated amortization: 1998--$44,722;
1999--$49,888)............................................ 148,942 143,714 155,906
Trademarks and other intangible assets (net of accumulated
amortization: 1998--$21,576; 1999--$18,982)............... 8,355 8,113 8,459
Deferred income taxes....................................... 7,130 4,133 75,639
Deferred financing costs.................................... -- -- 15,538
Other noncurrent assets..................................... 867 830 14
-------- -------- ---------
Total assets.......................................... $370,799 $371,434 $ 329,632
======== ======== =========
LIABILITIES, PARENT COMPANY'S INVESTMENT AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings and line of credit.................. $ 7,097 $ 6,690 $ --
Short-term borrowings due to related party................ 16,250 16,250 2,055
Portion of long-term debt due within one year............. 1,081 1,164 10,590
Accounts payable.......................................... 8,375 12,710 14,438
Salaries and wages........................................ 8,569 11,285 6,588
Accrued restructuring costs............................... 11,645 7,690 6,199
Foreign currency contract payable......................... 34,995 7,169 --
Other accrued liabilities................................. 18,681 18,220 20,037
Income taxes.............................................. 3,117 7,962 5,629
Deferred revenue.......................................... 7,130 6,414 2,810
-------- -------- ---------
Total current liabilities............................. 116,940 95,554 68,346
Long-term debt.............................................. 16,664 15,500 483,330
Deferred income taxes....................................... 5,252 8,228 3,516
Other....................................................... 2,854 3,204 653
-------- -------- ---------
Total long-term debt and other liabilities............ 24,770 26,932 487,499
Redeemable preferred stock.................................. -- -- 25,000
Parent company's investment and stockholders' deficit....... 229,089 248,948 (251,213)
-------- -------- ---------
Total liabilities, parent company's investment and
stockholders' deficit............................. $370,799 $371,434 $ 329,632
======== ======== =========
The accompanying notes are an integral part of the combined financial
statements.
F-3
WEIGHT WATCHERS CLASSROOM BUSINESS
COMBINED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND PARENT COMPANY'S
INVESTMENT
(IN THOUSANDS)
[Enlarge/Download Table]
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------- -------------------------
APRIL 26, APRIL 25, APRIL 24, OCTOBER 24, OCTOBER 23,
1997 1998 1999 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED)
Revenue:
Fees--company operated classes:
Domestic............................. $105,185 $113,247 $145,336 $ 67,146 $ 63,122
Foreign.............................. 134,774 146,595 161,038 74,000 76,625
Franchise commissions:
Domestic............................. 10,720 14,403 19,135 9,527 10,087
Foreign.............................. 3,223 3,521 4,060 1,979 2,157
Products and aids...................... 30,012 46,088 56,551 24,020 30,781
Food sales............................. 34,736 1,465 762 229 456
Royalties--licensing, publications and
other................................ 14,089 8,994 17,960 3,562 3,370
-------- -------- -------- -------- ---------
TOTAL REVENUE...................... 332,739 334,313 404,842 180,463 186,598
Cost of revenues:
Products and aids...................... 17,004 23,089 26,631 12,610 11,931
Food................................... 13,787 678 427 125 248
Classroom operating expenses........... 199,649 136,194 151,867 71,940 74,477
-------- -------- -------- -------- ---------
TOTAL COSTS........................ 230,440 159,961 178,925 84,675 86,656
-------- -------- -------- -------- ---------
GROSS PROFIT....................... 102,299 174,352 225,917 95,788 99,942
Marketing expenses....................... 88,843 86,295 93,090 35,786 30,668
Selling, general and administrative...... 45,515 44,067 48,912 23,009 22,218
Transaction costs........................ -- -- -- -- 8,345
Interest income.......................... 12,806 13,452 16,027 7,413 4,575
Interest expense......................... 13,849 8,576 8,859 4,395 6,474
Other expenses, net...................... 3,346 4,281 5,248 2,527 4,261
-------- -------- -------- -------- ---------
Income (loss) before income taxes and
minority interest...................... (36,448) 44,585 85,835 37,484 32,551
Provision for (benefit from) income
taxes.................................. (12,997) 19,969 36,360 15,874 12,625
-------- -------- -------- -------- ---------
Income (loss) before minority interest... (23,451) 24,616 49,475 21,610 19,926
Minority interest........................ 638 845 1,493 675 592
-------- -------- -------- -------- ---------
NET INCOME (LOSS)........................ (24,089) 23,771 47,982 20,935 19,334
Other comprehensive income (loss):
Foreign currency translation
adjustments.......................... (14,598) (10,212) 19,660 44,033 12,465
-------- -------- -------- -------- ---------
COMPREHENSIVE INCOME (LOSS).............. $(38,687) $ 13,559 $ 67,642 $ 64,968 $ 31,799
======== ======== ======== ======== =========
Parent company's investment, beginning of
year................................... $231,748 $188,936 $229,089
Net income (loss)........................ (24,089) 23,771 47,982
Dividends paid........................... (9,260) (8,470) (10,368)
Other comprehensive income (loss)........ (14,598) (10,212) 19,660
Net parent (settlements) advances........ 5,135 35,064 (37,415)
-------- -------- --------
PARENT COMPANY'S INVESTMENT, END OF
YEAR*.................................. $188,936 $229,089 $248,948
======== ======== ========
* Includes cumulative translation adjustment of $(22,212), $(32,424) and
$(12,764) at April 26, 1997, April 25, 1998 and April 24, 1999,
respectively.
The accompanying notes are an integral part of the combined financial
statements.
F-4
WEIGHT WATCHERS CLASSROOM BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------- -------------------------
APRIL 26, APRIL 25, APRIL 24, OCTOBER 24, OCTOBER 23,
1997 1998 1999 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED)
Operating activities:
Net income (loss)............................. $(24,089) $ 23,771 $ 47,982 $ 20,935 $ 19,334
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization............... 14,189 8,775 9,586 4,505 4,743
Deferred tax provision (benefit)............ (13,385) 15,563 9,279 2,876 (512)
Provision for restructuring................. 51,694 -- -- -- --
Other items, net............................ (368) 415 38 193 (2,347)
Increase (decrease) in cash due to changes
in:
Receivables............................... 1,784 (2,491) (7,159) (5,091) 17,192
Inventories............................... (1,290) (2,825) 74 (786) (1,486)
Prepaid expenses and other current
assets.................................. (997) 1,913 (1,454) (5,717) 380
Due from related parties.................. (6,336) (8,610) 3,693 4,306 (14,195)
Accounts payable.......................... (6,132) (2,383) 4,346 (3,370) 1,697
Accrued liabilities and deferred
revenue................................. (1,305) 1,458 (10,792) 1,612 (5,419)
Income taxes.............................. (4,109) 647 3,571 2,040 (2,324)
-------- -------- -------- -------- ---------
Cash provided by operating activities... 9,656 36,233 59,164 21,503 17,063
-------- -------- -------- -------- ---------
Investing activities:
Capital expenditures.......................... (2,709) (3,389) (2,474) (1,108) (999)
Acquisitions, net of cash acquired............ (681) (1,412) -- -- --
Acquisitions of minority interest............. (15,900)
Proceeds from divestitures.................... 2,700 -- -- -- 1,033
Other items, net.............................. (726) (121) (565) (381) 147
-------- -------- -------- -------- ---------
Cash used for investing activities...... (1,416) (4,922) (3,039) (1,489) (15,719)
-------- -------- -------- -------- ---------
Financing activities:
Net increase (decrease) in short-term
borrowings.................................. 1,176 (2,041) (407) 1,973 (6,656)
Proceeds from borrowings...................... -- -- -- -- 491,452
Repurchase of common stock.................... -- -- -- -- (324,476)
Payment of dividends.......................... (9,260) (8,470) (10,368) (2,884) (2,047)
Payments on long-term debt.................... (1,337) (1,368) (1,081) (555) --
Deferred financing cost....................... -- -- -- -- (15,696)
Net parent (settlements) advances............. 5,067 (18,630) (37,076) (18,222) (131,014)
-------- -------- -------- -------- ---------
Cash (used for) provided by financing
activities............................ (4,354) (30,509) (48,932) (19,688) 11,563
-------- -------- -------- -------- ---------
Effect of exchange rate changes on cash and cash
equivalents................................... 61 (44) 493 (441) 1,012
Net increase (decrease) in cash and cash
equivalents................................... 3,947 758 7,686 (115) 13,919
Cash and cash equivalents, beginning of
period........................................ 7,124 11,071 11,829 11,829 19,515
-------- -------- -------- -------- ---------
Cash and cash equivalents, end of period........ $ 11,071 $ 11,829 $ 19,515 $ 11,714 $ 33,434
Recapitalization transaction:
Deferred tax asset recorded as a component of
stockholders' deficit, in 1999, in
conjunction with the recapitalization of the
Company..................................... $ 72,100
Redeemable preferred stock, issued to H.J.
Heinz....................................... 25,000
The accompanying notes are an integral part of the combined financial
statements.
F-5
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS:
The accompanying combined financial statements include the accounts of
Weight Watchers International, Inc. and its subsidiaries (WWI), and are combined
with the accounts of Fortuity Australia (Weight Watchers Australia) and Fortuity
New Zealand Ltd. (Weight Watchers New Zealand). WWI, Fortuity Australia and
Fortuity New Zealand Ltd. are collectively referred to as ("the Company"). All
intercompany accounts and transactions between WWI, Fortuity Australia and
Fortuity New Zealand Ltd. have been eliminated. The Company is an affiliate of
H.J. Heinz Company (Heinz).
The Company operates and franchises territories offering weight loss and
control programs through the operation of classroom type meetings to the general
public in the United States, Canada, Mexico, the United Kingdom, Continental
Europe, Australia, New Zealand, South Africa, Latin America and South America.
All of the assets are directly or indirectly wholly-owned by Heinz except for
(i) classroom operations in Finland and Sweden which are each owned 90% and
(ii) classroom operations in Australia and New Zealand which are owned 90% and
75%, respectively.
INTERIM FINANCIAL INFORMATION:
The consolidated financial statements of WWI as of October 23, 1999 and for
the six months ended October 24, 1998 and October 23, 1999 are unaudited.
Adjustments, consisting of normal recurring adjustments (except for the
leveraged recapitalization transaction as described below) and adjustments
necessary to present the consolidated results of operations and financial
position of WWI have been made which in the opinion of management are necessary
for a fair presentation. Results of operations for the six months ended
October 24, 1998 and October 23, 1999 are not necessarily indicative of the
results that may be expected for the full year or for any future period.
The following disclosures are applicable only as of and for the six month
period ended October 23, 1999.
RECAPITALIZATION
On September 29, 1999, the Company effected a recapitalization and stock
purchase agreement ("Agreement") 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 Agreement 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 recapitalization, the Company incurred approximately $8.3
million in transaction costs and $15.7 million in deferred financing costs. For
U.S. Federal and State tax purposes, the recapitalization is being treated as a
taxable sale under Section 338(h)(10) of the Internal Revenue Code of 1986 as
amended. As a result, for tax purposes, the Company will record a step-up in the
tax basis of net assets. For financial statement purposes, a valuation allowance
of approximately $72.1 million has been established against
F-6
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS: (CONTINUED)
the corresponding deferred tax asset as management has concluded it is more
likely than not that this amount will not be utilized to reduce future tax
payments.
REDEEMABLE PREFERRED STOCK
The Company issued 1.0 million shares of Series A Preferred Stock in
conjunction with the recapitalization transaction. Holders of the Series A
Preferred Stock are entitled to receive dividends at an annual rate of 6%
payable annually in arrears. The Company has recorded a $125,000 dividend which
is included in accrued expenses at October 23, 1999. The liquidation preference
of the Series A Preferred Stock is $25 per share. If there is a liquidation,
dissolution or winding up, the holders of shares of Series A Preferred Stock are
entitled to be paid out of our assets available for distribution to our
shareholders an amount in cash equal to the $25 liquidation preference per share
plus all accrued and unpaid dividends prior to the distribution of any assets to
holders of shares of common stock.
LONG-TERM DEBT
In connection with the recapitalization, 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 million term loan A
facility ("Term Loan A"), (ii) a $75 million term loan B facility ("Term Loan
B"), (iii) an $87 million transferable loan certificate ("TLC") and (iv) a
revolving credit facility with borrowings up to $30 million ("Revolving Credit
Facility"). Borrowings under the Credit Facility are paid quarterly and
initially bear interest at a rate equal to LIBOR plus (a) in the case of Term
Loan A and the Revolving Credit Facility, 3.25% or, at the Company's option, the
alternative base rate, as defined, plus 2.25% or (b) in the case of Term Loan B
and the TLC, 4.00% or, at the Company's option, the alternate base rate plus
3.00%. At October 23, 1999, the interest rates were 8.6675% for Term Loan A and
9.4175% for Term B and the TLC. Borrowings under Term Loan A and the Revolving
Credit Facility mature in six years and Term Loan B and the TLC matures in seven
years. Assets of the Company collateralize the Credit Facility. In addition, the
Company issued $255 million principal amount of 13% Senior Subordinated Notes
due 2009 (the "Notes") to qualified institutional buyers under a private
placement offering pursuant to Rule 144A. The Notes are denominated in U.S.
dollars and euros. At October 23, 1999, the Notes consisted of $150.0 million in
U.S. dollars and approximately $106.9 million in euros (as translated). 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 Notes are unsecured senior subordinated obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company, including the Credit
F-7
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS: (CONTINUED)
Facility. Each of the aforementioned debt facilities contains restrictive
covenants and requires the Company to maintain certain financial ratios, as
defined.
The aggregate amounts of existing long-term debt maturing in each of the
next five years as of October 23, 1999 are as follows:
[Download Table]
(IN THOUSANDS)
--------------
2000........................................................ $ 10,590
2001........................................................ 14,120
2002........................................................ 14,120
2003........................................................ 14,120
2004 and thereafter......................................... 440,970
--------
$493,920
--------
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognition in Financial Statements". This bulletin
summarizes some of the staff's interpretations of the application of generally
accepted accounting principles to revenue recognition. We are not required to
apply the accounting and disclosure requirements until fiscal 2001. We do not
believe this bulletin will have a material impact on our financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR:
The Company operates on a 52- or 53-week fiscal year. However, certain
foreign subsidiaries have earlier closing dates to facilitate timely reporting.
Fiscal years for the financial statements included herein ended April 26, 1997,
April 25, 1998, and April 24, 1999.
USE OF ESTIMATES:
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
TRANSLATION OF FOREIGN CURRENCIES:
For all foreign operations, the functional currency is the local currency.
Assets and liabilities of these operations are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included as a component of parent company's investment. Gains and losses from
foreign currency transactions are included in net income for the period.
F-8
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH EQUIVALENTS:
Cash equivalents are defined as highly liquid investments with original
maturities of 90 days or less.
INVENTORIES:
Inventories, which consist of finished goods, are stated at the lower of
cost or market on a first-in, first-out basis, net of reserves.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. For financial reporting
purposes, depreciation is provided on the straight-line method over the
estimated useful lives of the assets (5-10 years for equipment and the duration
of the lease for leasehold improvements). Accelerated depreciation methods are
generally used for income tax purposes. Expenditures for new facilities and
improvements that substantially extend the useful life of an asset are
capitalized. Ordinary repairs and maintenance are expensed as incurred. When
assets are retired or otherwise disposed of, the cost and related depreciation
are removed from the accounts and any related gains or losses are included in
income.
INTANGIBLES:
Goodwill, trademarks and other intangibles arising from acquisitions,
including the acquisition of previously franchised areas, are being amortized on
a straight-line basis over periods ranging from three to 40 years. The Company
regularly reviews the individual components of the balances by evaluating the
future cash flows of the businesses to determine the recoverability of the
assets and recognizes, on a current basis, any diminution in value.
PARENT COMPANY'S INVESTMENT:
Heinz's investment includes the stockholders equity of the Company. The
equity of the Company represents the original investment by Heinz plus
accumulated comprehensive net income, less dividends, certain intercompany
accounts and current domestic federal income taxes payable.
REVENUE RECOGNITION:
The Company earns revenue by conducting meetings and selling products and
aids in its own facilities, by collecting commissions from franchisees operating
under the Weight Watchers name and by collecting royalties related to licensing
agreements. Revenue is recognized when services are rendered, products are sold
and commissions and royalties are earned. Deferred revenue consisting of prepaid
lecture income is amortized into income over the period earned.
MARKETING EXPENSES:
Marketing expenses are comprised of promotion and advertising costs.
Promotion costs mainly relate to registration fee discounts. Advertising costs
include national and local direct mail, television
F-9
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
and print advertisements. Advertising costs are generally expensed in the year
in which the advertising first takes place.
INCOME TAXES:
Domestic affiliates of the Company join with Heinz in the filing of a
consolidated U.S. income tax return and certain state income tax returns. Tax
expense for all years includes the effect of certain tax sharing agreements the
Company has with Heinz regarding these consolidated filings. Specifically, Heinz
charges (refunds) the Company at the U.S. statutory rate for its actual domestic
taxable income (loss), less any foreign tax credits it generates. In addition,
Heinz charges the Company for its share of consolidated state tax expense based
on the Company's share of the state allocation factors. In foreign
jurisdictions, subsidiaries file separate tax returns in their respective
country.
Deferred income taxes result primarily from temporary differences between
financial and tax reporting. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized.
The Company has not provided for possible U.S. taxes on the undistributed
earnings of foreign subsidiaries that are considered to be reinvested
indefinitely. Calculation of the unrecognized deferred tax liability for
temporary differences related to these earnings is not practicable.
FOREIGN CURRENCY CONTRACTS:
The Company enters into forward and swap contracts to hedge transactions
denominated in foreign currencies in order to reduce the currency risk
associated with fluctuating exchange rates. Such contracts are used primarily to
hedge certain intercompany cash flows and for payments arising from certain
foreign currency denominated obligations. Realized and unrealized gains and
losses from instruments qualifying as hedges are deferred as part of the cost
basis of the underlying transaction.
COMPREHENSIVE INCOME:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting comprehensive income in the
financial statements. Comprehensive income includes all changes in parent
company's investment during a period except those resulting from investments by
or distribution to shareholders. For the Company, comprehensive income for all
periods presented consisted of net income (loss) and foreign currency
translation adjustments.
BUSINESS SEGMENT INFORMATION:
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes new standards for
reporting and disclosures relating to segments and geographic areas.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments.
F-10
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The statement requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of Statement 133," which postponed the adoption date of SFAS
No. 133. As such, the Company is not required to adopt the statement until
fiscal 2002. The Company does not believe this standard will have a material
impact on its financial statements.
In April 1998, the American Institute of CPAS issued a Statement of Position
(SOP) entitled "Reporting on the Costs of Start-Up Activities." This SOP
requires that costs incurred to open a new facility, introduce a new product,
commence a new operation or other similar activities be expensed as incurred.
The Company will adopt this SOP in fiscal 2000 and does not believe it will have
a material impact on its financial statements.
3. ACQUISITIONS:
The Company has acquired, from time to time, franchise territorial rights
previously owned by franchisees. In addition, in January 1998, Heinz Watties
acquired a 75% interest in the Weight Watchers operation in New Zealand which is
included in the combined financial statements of the Company. The excess of the
purchase price over the fair value of the net tangible assets acquired has been
recorded as goodwill by the Company.
4. RESTRUCTURING CHARGES:
During the fourth quarter of fiscal 1997, the Company announced a
reorganization and restructuring program. The reorganization plan was designed
to strengthen the Company's classroom business and improve profitability and
global growth.
Charges related to the restructuring, were recognized to reflect the exit
from the Personal Cuisine Food Option in United States Company-owned locations,
the relocation of classes from certain fixed retail outlets to traveling
locations, and other initiatives involving the exit of certain under-performing
businesses and product lines.
Restructuring and related costs recorded in fiscal 1997 totaled $51,694
pretax. Pretax charges of $49,694 were classified as classroom operating
expenses and $2,000 as selling, general and
F-11
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. RESTRUCTURING CHARGES: (CONTINUED)
administrative expenses. The major components of the fiscal 1997 charges and the
remaining accrual balances as of April 26, 1997, April 25, 1998, and April 24,
1999 were as follows:
[Enlarge/Download Table]
EMPLOYEE EXIT COSTS
TERMINATION -------------------------
NON-CASH AND ACCRUED
ASSET SEVERANCE EXIT IMPLEMENTATION
WRITE-DOWNS COSTS COSTS COSTS TOTAL
----------- ----------- -------- -------------- --------
Initial charge--1997.................. $ 27,402 $ 4,723 $19,569 -- $ 51,694
Amounts utilized--1997................ (27,402) (339) (46) -- (27,787)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 26,
1997................................ -- 4,384 19,523 -- 23,907
Implementation costs--1998............ -- -- -- $ 999 999
Amounts utilized--1998................ -- (3,709) (8,553) (999) (13,261)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 25,
1998................................ -- 675 10,970 -- 11,645
Implementation costs--1999............ -- -- -- 32 32
Amounts utilized--1999................ -- (186) (3,769) (32) (3,987)
-------- ------- ------- ----- --------
Accrued restructuring costs--April 24,
1999................................ -- $ 489 $ 7,201 -- $ 7,690
======== ======= ======= ===== ========
Asset write-downs consisted primarily of fixed assets and other long-term
asset impairments that were recorded as a direct result of the Company's
decision to exit businesses or facilities ($16,931). Such assets were written
down based on management's estimate of fair value. Write-downs were also
recognized for estimated losses from disposals of classroom inventories,
packaging materials and other assets related to product line rationalizations
and process changes as a direct result of the Company's decision to exit
businesses or facilities ($10,471).
Severance costs include charges related to both voluntary terminations and
involuntary terminations. As part of the voluntary termination agreements,
enhanced retirement benefits were offered to the affected employees. These
amounts were included in the Employee Termination and Severance Costs component
of the restructuring charge.
Exit costs consist primarily of contract and lease termination costs
associated with the Company's decision to exit the activities described above.
The remaining accrued exit costs will be utilized through fiscal year 2002.
The results for fiscal 1998 included costs related to the implementation of
the restructuring program of $999 pretax, which were classified as selling,
general and administrative expenses. These costs consist primarily of center
relocation and training. The results for fiscal 1999 included costs related to
the implementation of the restructuring program of $32 pretax, which was
classified as selling, general and administrative expenses. These costs consist
primarily of relocation and training costs.
F-12
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
5. PROPERTY AND EQUIPMENT:
The classification of property and equipment at April 25, 1998 and
April 24, 1999 was:
[Download Table]
1998 1999
-------- --------
Leasehold improvements.................................... $21,059 $18,343
Equipment................................................. 38,966 36,559
------- -------
60,025 54,902
Less: accumulated depreciation and amortization........... 50,210 46,428
------- -------
9,815 8,474
Construction in progress.................................. 191 251
------- -------
$10,006 $ 8,725
======= =======
6. RELATED PARTY TRANSACTIONS:
Certain of Heinz' general and administrative expenses are allocated to the
Company. Total costs allocated include charges for salaries of corporate
officers and staff and other Heinz corporate overhead. Total costs charged to
the Company for these services were $1,757, $1,769 and $2,156 for fiscal years
1997, 1998 and 1999, respectively, based on a percent of revenue which Heinz
believes represents a reasonable allocation of Heinz's corporate overhead. These
costs are recorded in other expense, net in the accompanying combined statement
of income.
Heinz charges the Company for its share of group health insurance costs for
eligible company employees based upon location specific costs, overall insurance
costs and loss experience incurred during a calendar year. In addition, various
other insurance coverages are also provided to the Company through Heinz'
consolidated programs. Workers compensation, auto, property, product liability
and other insurance coverages are charged directly based on the Company's loss
experience. Amounts charged to the Company for insurance costs were $4,976,
$4,154 and $4,339 for fiscal years 1997, 1998 and 1999, respectively, and are
recorded in selling, general and administrative expenses in the accompanying
combined statement of income.
Total costs charged to the Company by Heinz for other miscellaneous services
were $956, $579 and $520 for fiscal years 1997, 1998 and 1999, respectively, and
are recorded in selling, general and administrative expenses in the accompanying
combined statement of income.
The Company maintains a cash management arrangement with Heinz. On a daily
basis, all available domestic cash is deposited and disbursements are withdrawn.
Heinz charges (credits) the company interest on the average daily balance
maintained in the resulting intercompany account. Net interest (income) expense
related to this arrangement, included in the combined statement of income was
$758, ($965) and $(3,081) in fiscal years 1997, 1998 and 1999, respectively. The
interest rate charged to or received by the Company was 7.5% in fiscal 1997 and
6.25% in fiscal year 1998 and 1999.
Substantially all of the due from related parties of $137,478 and $133,783
at April 25, 1998 and April 24, 1999, respectively, represents a note receivable
from an affiliate of Heinz which was repaid in June 1999. Interest income
reflected in the combined statement of income related to this note
F-13
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
receivable was $8,215, $9,637 and $10,062, in 1997, 1998 and 1999, respectively.
The interest rate charged by the Company was LIBOR plus 25 basis points in all
three years.
Short-term borrowings due to an affiliate of Heinz of $16,250 at April 25,
1998 and April 24, 1999 represent a note payable due April 28, 1999. Interest
expense of $1,306, $1,016 and $1,013 is recorded in the combined statement of
income related to the note payable in fiscal years 1997, 1998 and 1999,
respectively. The interest rate on the note payable was 7.5% in 1997 and 6.25%
in 1998 and 1999.
Long-term borrowings of $52,500 due to a related party were converted to
capital during fiscal year 1998. Interest expense of $5,487 and $961 is recorded
in the combined statement of income in fiscal years 1997 and 1998, respectively
related to these long-term borrowings. The interest rate on the long-term
borrowings was 10.5%.
Pension costs and postretirement costs are also charged to the Company based
upon eligible employees participating in the Plans. See note 14.
7. LONG-TERM STOCK INCENTIVE PLAN:
Certain qualifying employees of the Company are granted options to purchase
Heinz common stock under Heinz's stock option plans (the Plan). Options under
the Plan have been granted at not less than market prices on the date of grant.
Stock options granted have a maximum term of ten years. Vesting occurs from one
to three years after the date of grant. Beginning in fiscal 1998, in order to
place greater emphasis on creation of shareholder value,
performance--accelerated stock options were granted to certain key executives.
These options vest eight years after the grant date, subject to acceleration if
predetermined share price goals are achieved.
Heinz accounts for stock based compensation arrangements under the
provisions of APB opinion No. 25, and is not required to recognize compensation
expense. Accordingly, the Company does not recognize compensation expense. If
compensation expense had been recognized by Heinz for options granted in 1999,
1998 and 1997 under the provisions of Statement of Financial Accounting
Standards No. 123, the Company's net income would have been reduced by their
allocable portion of such expense resulting in the pro forma amounts shown
below.
[Download Table]
1997 1998 1999
-------- -------- --------
Net Income:
As reported................................... $(24,089) $23,771 $47,982
Pro forma..................................... (24,152) 23,485 47,621
F-14
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
7. LONG-TERM STOCK INCENTIVE PLAN: (CONTINUED)
The weighted average fair value of options granted was $7.20 per share in
1997, $11.21 per share in 1998 and $10.98 per share in 1999. The fair value of
each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weight-average assumptions:
[Enlarge/Download Table]
1997 1998 1999
-------- -------- --------
Dividend yield............................................ 3.3% 2.5% 2.5%
Volatility................................................ 17.5 20.0 22.0
Risk-free interest rate................................... 6.0 6.2 5.1
Expected term (years)..................................... 5.5 5.5 5.0
8. INCOME TAXES:
The following table summarizes the provision (benefit) for U.S. federal,
state and foreign taxes on income:
[Download Table]
1997 1998 1999
-------- -------- --------
Current:
U.S. federal.................................. $ (4,932) $(4,798) $11,997
State......................................... (291) 346 3,247
Foreign....................................... 5,611 8,858 11,837
-------- ------- -------
388 4,406 27,081
-------- ------- -------
Deferred:
U.S. federal.................................. (14,616) 10,493 6,368
State......................................... (1,136) 502 312
Foreign....................................... 2,367 4,568 2,599
-------- ------- -------
(13,385) 15,563 9,279
-------- ------- -------
Total tax provision (benefit)................... $(12,997) $19,969 $36,360
======== ======= =======
The components of income (loss) before income taxes consist of the
following:
[Download Table]
1997 1998 1999
-------- -------- --------
Domestic........................................ $(59,310) $13,143 $48,199
Foreign......................................... 22,224 30,597 36,143
-------- ------- -------
$(37,086) $43,740 $84,342
======== ======= =======
F-15
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
8. INCOME TAXES: (CONTINUED)
The difference between the U.S. federal statutory tax rate and the Company's
consolidated effective tax rate are as follows:
[Enlarge/Download Table]
1997 1998 1999
-------- -------- --------
U.S. federal statutory tax rate........................... 35.0% 35.0% 35.0%
Tax on income of foreign subsidiaries..................... (2.5) 7.3 1.6
State income taxes (net of federal benefit)............... 3.6 1.7 2.9
Goodwill amortization..................................... (2.4) 1.8 .9
Earnings repatriation..................................... (1.3) 1.6 1.7
Effect of foreign loss.................................... 2.1 (1.1) .5
Other..................................................... .5 (.6) .5
---- ---- ----
Effective tax rate........................................ 35.0% 45.7% 43.1%
==== ==== ====
The deferred tax (assets) and deferred tax liabilities recorded on the
balance sheet as of April 25, 1998 and April 24, 1999 are as follows:
[Download Table]
1998 1999
-------- --------
Depreciation/amortization............................... $ 8,258 $ 9,620
Deferred income......................................... 969 3,767
Other................................................... 2,720 2,063
-------- --------
11,947 15,450
-------- --------
Provision for estimated expenses........................ (5,649) (3,288)
Operating loss carryforwards............................ (7,473) (4,430)
Benefit plans........................................... (5,416) (5,878)
Other................................................... (1,371) (1,998)
-------- --------
(19,909) (15,594)
-------- --------
Valuation allowance..................................... 343 630
-------- --------
Net deferred tax liabilities (assets)................... $ (7,619) $ 486
======== ========
At the end of 1999, net operating loss carryforwards totaled $9.2 million.
Of that amount, $1.6 million expire through 2004; the other $7.6 million do not
expire.
The U.S. income tax returns of Heinz have been audited by the Internal
Revenue Service for all years through 1994.
Undistributed earnings of foreign subsidiaries considered to be reinvested
permanently amounted to $22.2 million at April 24, 1999. The 1999 net change in
valuation allowance for deferred tax assets is due to additional net operating
losses in certain foreign entities.
F-16
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
9. CASH FLOW INFORMATION:
Net cash paid during the year for:
[Download Table]
1997 1998 1999
-------- -------- --------
Interest expense................................. $3,572 $ 5,818 $2,748
====== ======= ======
Income taxes..................................... $2,033 $ 4,706 $5,380
====== ======= ======
Noncash investing and financing activities:
Conversion of related party debt to capital........ -- $52,500 --
====== ======= ======
10. THIRD PARTY DEBT:
[Download Table]
1998 1999
-------- --------
Lines of credit............................................. $7,097 $6,690
====== ======
The weighted-average interest rate on short-term debt during 1998 and at
April 25, 1998 was 5.2% and 4.9%, respectively. Total lines of credit had a
weighted-average interest rate during 1999 and at April 24, 1999 of 5.3% and
4.7%, respectively. Effective with the Agreement these lines of credit were no
longer available to the Company.
The Company has available for borrowing, under various lines of credit,
amounts approximating $5,000 and $7,300 at April 25, 1998 and April 24, 1999,
respectively.
[Enlarge/Download Table]
MATURITY
RANGE OF (FISCAL
INTEREST YEAR) 1998 1999
-------- --------- -------- --------
Long-term:
Promissory notes.................................... 7-10% 2001-2005 $17,745 $16,664
Less portion due within one year...................... (1,081) (1,164)
------- -------
$16,664 $15,500
======= =======
The Promissory notes represent amounts due various former franchisees as a
result of the Company acquiring certain Weight Watchers franchised operations.
The amount of long-term debt that matures in each of the four years succeeding
2000 is: $6,603 in 2001, $6,094 in 2002, $1,206 in 2003, and $266 in 2004.
The Company has guaranteed Term Loans and Letters of Credit of franchisees
that originated as part of a franchisees' acquisition of certain Weight Watchers
franchised areas. The balance of the guaranteed indebtedness totals $8,413 at
April 25, 1998 and $24,463 at April 24, 1999.
11. MANAGEMENT INCENTIVE PLANS:
The Company's management incentive plan covers officers and other key
employees. Participants may elect to be paid on a current or deferred basis. The
aggregate amount of all awards may not exceed certain limits in any year.
Compensation under the management incentive plan was
F-17
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
11. MANAGEMENT INCENTIVE PLANS: (CONTINUED)
approximately $615 in 1997, $3,127 in 1998 and $3,387 in 1999. In addition, the
Company maintains various other bonus plans that cover other employees of the
Company.
12. COMMITMENTS AND CONTINGENCIES:
Because of the nature of its activities, the Company is, at times, subject
to pending and threatened legal actions which arise out of the normal course of
business. In the opinion of management, based in part upon advice of legal
counsel, the disposition of all such matters will not have a material effect on
the combined financial statements.
LEASE COMMITMENTS:
Operating lease rentals for office and classroom facilities amounted to
$19,603 in 1997, $12,275 in 1998, and $11,001 in 1999. At April 24, 1999, future
lease commitments under noncancelable operating leases, were as follows:
2000-$14,621, 2001--$11,339, 2002--$7,117, 2003--$3,182, 2004--$2,151 and
thereafter--$4,916.
REPURCHASE AGREEMENTS:
The Company is a party to repurchase agreements related to the 10% minority
interests in the classroom operations in Finland and Sweden. Pursuant to the
agreements, the Company may elect or be required to repurchase the minority
shareholders' interests in these operations. If the Company repurchases the
minority interests within five years of the original sale, the repurchase price
is based on the original sales price times the increase in the consumer price
index since the date of the sale. If the Company repurchases the minority
interest after five years from the original sale, the repurchase price is based
on a multiple of the average operating income during the last three years.
13. FRANCHISE PROFIT SHARING FUND:
The Company's franchise agreement with its North American franchisees
provides for an annual franchise profit sharing distribution based upon
specified formulas. The formulas include revenue from Canadian food royalties,
Weight Watchers Gourmet Food royalties and book royalties. Profit sharing
expense under this arrangement for the years ended April 26, 1997, April 25,
1998 and April 24, 1999 was $878, $683 and $757, respectively. Unpaid amounts
are included in accrued liabilities as of such dates.
14. EMPLOYEE RETIREMENT BENEFITS:
Domestic employees participate in certain defined benefit pension plans, a
defined contribution 401(k) savings plan and, for employees affected by certain
IRS limits, a section 415 Excess Plan, all of which are sponsored by Heinz. The
Company also provides post-retirement health care and life insurance benefits
for employees who meet the eligibility requirements of the Heinz plans. Retirees
share in the cost of these benefits based on age and years of service.
Heinz allocates costs for the defined benefit plans to the Company as
determined by actuarial valuations. Company contributions to the savings plan
amount to a qualified age-related contribution and a matching of employee's
contributions up to a specified amount.
F-18
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
14. EMPLOYEE RETIREMENT BENEFITS: (CONTINUED)
The following amounts were included in the Company's result of operations:
[Download Table]
1997 1998 1999
-------- -------- --------
Defined Benefit Pension Plans....................... $ 553 $ 726 $1,456
Defined Benefit Postretirement Medical.............. $ 468 $ 261 $ 577
Savings Plan........................................ $1,836 $1,668 $2,170
In addition, foreign employees participate in certain Company sponsored
pension plans and such charges, which are included in the results of operations,
are not material.
15. SEGMENT AND GEOGRAPHIC DATA:
The Company is engaged principally in one line of business--weight
control--which represents more than 90% of consolidated sales. The following
table presents information about the Company by geographic area. There were no
material amounts of sales or transfers among geographic areas and no material
amounts of United States export sales.
[Enlarge/Download Table]
EXTERNAL SALES LONG-LIVED ASSETS
------------------------------ ------------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- -------- -------- --------
United States.......................... $179,149 $163,255 $212,399 $160,454 $155,360 $149,054
United Kingdom......................... 71,233 85,218 87,471 1,130 1,272 1,198
Continental Europe..................... 60,171 60,356 70,992 2,027 2,463 2,422
Australia and New Zealand.............. 22,186 25,484 33,980 8,270 8,208 7,878
-------- -------- -------- -------- -------- --------
$332,739 $334,313 $404,842 $171,881 $167,303 $160,552
======== ======== ======== ======== ======== ========
16. FINANCIAL INSTRUMENTS:
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's significant financial instruments include cash and cash
equivalents, short-and-long-term debt, current and noncurrent notes receivable,
currency exchange agreements and guarantees.
In evaluating the fair value of significant financial instruments, the
Company generally uses quoted market prices of the same or similar instruments
or calculates an estimated fair value on a discounted cash flow basis using the
rates available for instruments with the same remaining maturities. As of
April 25, 1998 and April 24, 1999, the fair value of financial instruments held
by the Company approximated the recorded value.
FOREIGN CURRENCY CONTRACTS:
As of April 25, 1998, the Company held currency swap contracts to purchase
certain foreign currencies totaling $98,525. The Company also held separate swap
contracts to sell foreign currencies of $133,520. As of April 24, 1999, the
Company held contracts to purchase certain foreign currencies totaling
approximately $127,246. The Company also held separate contracts to sell foreign
currencies of
F-19
WEIGHT WATCHERS CLASSROOM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
16. FINANCIAL INSTRUMENTS: (CONTINUED)
approximately $134,415. These contracts were settled in June 1999. Net
unrealized gains and losses associated with the Company's foreign currency
contracts as of April 25, 1998 and April 24, 1999 were not material.
17. GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Senior Subordinated Notes will
be fully and unconditionally guaranteed on a joint and several basis by the
following wholly-owned subsidiaries: 58 WW Food Corp.; Waist Watchers, Inc.;
Weight Watchers Camps, Inc.; W.W. Camps and Spas, Inc.; Weight Watchers Direct,
Inc.; W/W Twentyfirst Corporation; W.W. Weight Reduction Services, Inc.; W.W.I.
European Services Ltd.; W.W. Inventory Service Corp.; Weight Watchers North
America, Inc.; Weight Watchers UK Holdings Ltd.; Weight Watchers International
Holdings Ltd.; Weight Watchers (U.K.) Limited; Weight Watchers (Accessories &
Publications) Ltd.; Weight Watchers (Food Products) Limited; Weight Watchers New
Zealand Limited; Weight Watchers International Pty Limited; Fortuity Pty Ltd;
and Gutbusters Pty Ltd. (collectively, the "Guarantor Subsidiaries"). The
obligations of each Guarantor Subsidiary under its guarantee of the Notes are
subordinated to such subsidiary's obligations under its guarantee of the new
senior credit facility.
Presented below is condensed consolidating financial information for Weight
Watchers International, Inc. ("Parent Company"), the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries (primarily companies incorporated in European
countries other than The United Kingdom). In the Company's opinion, separate
financial statements and other disclosures concerning each of the Guarantor
Subsidiaries would not provide additional information that is material to
investors. Therefore, the Guarantor Subsidiaries are combined in the
presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in subsidiaries' accounts. The elimination
entries eliminate investments in subsidiaries and intercompany balances and
transactions.
F-20
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF APRIL 25, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ ----------
ASSETS
Current assets:
Cash and cash equivalents................ $ (104) $ 5,800 $ 6,133 $ 11,829
Receivables.............................. 5,249 5,697 701 11,647
Notes receivable, current................ 2,246 2,246
Inventories.............................. 5,825 1,827 7,652
Prepaid expenses and other current
assets................................. 836 3,442 1,861 6,139
Deferred income taxes.................... 1,013 (2,402) 7,130 5,741
Due from related parties................. 857 325 136,296 137,478
Intercompany receivables (payables) 142,082 (142,847) 765 --
-------- -------- -------- --------- --------
Total current assets................. 152,179 (124,160) 154,713 182,732
Investment in subsidiaries................. 98,723 $ (98,723) --
Property and equipment, net................ 2,247 6,214 1,545 10,006
Notes and other receivables, noncurrent.... 3,897 8,870 12,767
Goodwill................................... 28,675 119,367 900 148,942
Trademarks and other intangible assets..... 2,436 5,906 13 8,355
Deferred income taxes...................... 2 7,128 7,130
Other noncurrent assets.................... 199 487 181 867
-------- -------- -------- --------- --------
Total assets......................... $288,358 $ 14,942 $166,222 $ (98,723) $370,799
======== ======== ======== ========= ========
LIABILITIES AND PARENT COMPANY'S INVESTMENT
Current liabilities:
Short-term borrowings and line of
credit................................. $ 1 $ 7,096 $ 7,097
Short-term borrowings due to related
party.................................. $ 16,402 (152) 16,250
Portion of long-term debt due within one
year................................... 1,081 1,081
Accounts payable......................... 919 4,242 3,214 8,375
Salaries and wages....................... 3,008 5,564 (3) 8,569
Accrued restructuring costs.............. 297 11,540 (192) 11,645
Foreign currency contract payable........ 34,995 34,995
Other accrued liabilities................ 4,085 6,856 7,740 18,681
Income taxes............................. 25,225 (22,517) 409 3,117
Deferred revenue......................... 7,130 7,130
-------- -------- -------- --------- --------
Total current liabilities............ 51,017 12,664 53,259 -- 116,940
Long term debt............................. 16,664 16,664
Deferred income taxes...................... (4,822) 9,687 387 5,252
Other...................................... 2,161 693 2,854
-------- -------- -------- --------- --------
Total long-term debt and other
liabilities........................ 11,842 11,848 1,080 24,770
Parent company's investments............... 225,499 (9,570) 111,883 $ (98,723) 229,089
-------- -------- -------- --------- --------
Total liabilities and Parent company's
investment............................... $288,358 $ 14,942 $166,222 $ (98,723) $370,799
======== ======== ======== ========= ========
The accompanying notes are an integral part of the combined financial
statements.
F-21
SUPPLEMENTAL COMBINING BALANCE SHEET
AS OF APRIL 24, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ ----------
ASSETS
Current assets:
Cash and cash equivalents.................. $ (74) $ 12,376 $ 7,213 $ 19,515
Receivables................................ 5,134 4,364 1,905 11,403
Notes receivable, current.................. 3,266 3,266
Inventories................................ 5,775 1,805 7,580
Prepaid expenses and other current
assets................................... 856 4,588 2,154 7,598
Deferred income taxes...................... 1,758 (1,949) 3,800 3,609
Due from related parties................... 1,034 242 132,507 133,783
Intercompany receivables (payables)........ 103,588 (107,373) 3,785 --
-------- -------- -------- --------- --------
Total current assets..................... 115,562 (81,977) 153,169 -- 186,754
Investment in subsidiaries................... 117,732 $(117,732)
Property and equipment, net.................. 1,981 5,231 1,513 8,725
Notes and other receivables, noncurrent...... 10,295 8,870 19,165
Goodwill..................................... 27,254 115,568 892 143,714
Trademarks and other intangible assets....... 2,355 5,745 13 8,113
Deferred income taxes........................ (22) 4,155 4,133
Other noncurrent assets...................... 138 510 182 830
-------- -------- -------- --------- --------
Total assets............................. $275,295 $ 49,232 $164,639 $(117,732) $371,434
======== ======== ======== ========= ========
LIABILITIES AND PARENT COMPANY'S INVESTMENT
Current liabilities:
Short-term borrowings and line of credit... $ 6,690 $ 6,690
Short-term borrowings due to related
party.................................... $ 16,638 $ (388) 16,250
Portion of long-term debt due within one
year..................................... 1,164 1,164
Accounts payable........................... 631 9,192 2,887 12,710
Salaries and wages......................... 4,189 7,096 11,285
Accrued restructuring costs................ 8 7,929 (247) 7,690
Foreign currency contract payable.......... 7,169 7,169
Other accrued liabilities.................. 3,959 6,659 7,602 18,220
Income taxes............................... (11,168) 17,118 2,012 7,962
Deferred revenue........................... 5,680 734 6,414
-------- -------- -------- --------- --------
Total current liabilities................ 15,421 53,286 26,847 -- 95,554
Long-term debt............................... 15,500 15,500
Deferred income taxes........................ (2,366) 10,338 256 8,228
Other........................................ 2,659 545 3,204
-------- -------- -------- --------- --------
Total long-term debt and other
liabilities............................ 13,134 12,997 801 -- 26,932
Parent company's investment.................. 246,740 (17,051) 136,991 $(117,732) 248,948
-------- -------- -------- --------- --------
Total liabilities and Parent company's
investment........................... $275,295 $ 49,232 $164,639 $(117,732) $371,434
======== ======== ======== ========= ========
The accompanying notes are in integral part of the combined financial
statements.
F-22
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 23, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents................. $ 11,247 $ 13,750 $ 8,437 $ 33,434
Receivables............................... 3,897 2,773 1,373 8,043
Notes receivable, current................. 1,070 1,070
Inventories............................... 7,160 1,905 9,065
Prepaid expenses and other current
assets.................................. (1,331) 6,725 1,821 7,215
Deferred income taxes..................... 2,846 (2,846)
Due from related parties..................
Intercompany receivables/(payables)....... (91,374) 89,428 1,946
--------- -------- ------- --------- ---------
Total current assets................ (73,645) 116,990 15,482 -- 58,827
Investment in subsidiaries.................. 154,283 $(154,283)
Property and equipment, net................. 1,913 4,395 1,413 7,721
Notes and other receivables, noncurrent..... 7,528 7,528
Goodwill.................................... 26,543 128,527 836 155,906
Trademarks and other intangible assets...... 2,105 6,152 202 8,459
Deferred income taxes....................... 72,100 3,539 75,639
Deferred financing costs.................... 15,538 15,538
Other noncurrent assets..................... 14 14
--------- -------- ------- --------- ---------
Total assets........................ $ 206,379 $259,603 $17,933 $(154,283) $ 329,632
========= ======== ======= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings due to related
party................................... $ 2,055 $ 2,055
Portion of long-term debt due within one
year.................................... 9,938 $ 652 10,590
Accounts payable.......................... 680 12,328 $ 1,430 14,438
Salaries and wages........................ 355 3,474 2,759 6,588
Accrued restructuring costs............... 2,870 3,082 247 6,199
Other accrued liabilities................. 15,894 1,250 2,893 20,037
Income taxes.............................. 1,915 2,187 1,527 5,629
Deferred revenue.......................... 1,803 1,007 2,810
--------- -------- ------- --------- ---------
Total current liabilities............. 33,707 24,776 9,863 -- 68,346
Long-term debt.............................. 396,983 86,347 483,330
Deferred income taxes....................... 1,903 227 1,386 3,516
Other....................................... 368 285 653
--------- -------- ------- --------- ---------
Total long-term debt and other
liabilities....................... 398,886 86,942 1,671 -- 487,499
Redeemable preferred stock.................. 25,000 25,000
Stockholders' deficit....................... (251,214) 147,885 6,399 (154,283) (251,213)
--------- -------- ------- --------- ---------
Total liabilities, redeemable
preferred stock, and stockholders'
deficit........................... $ 206,379 $259,603 $17,933 $(154,283) $ 329,632
========= ======== ======= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-23
SUPPLEMENTAL COMBINING STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ ----------
Revenue:
Fees--company operated classes:
Domestic......................... $105,185 $105,185
Foreign.......................... 83,727 $ 51,047 134,774
Franchise commissions:
Domestic......................... $ 10,720 10,720
Foreign.......................... 3,223 3,223
Products and aids.................. 338 21,300 8,374 30,012
Food sales......................... 33,985 751 34,736
Royalties--licensing, publications
and others....................... 12,060 2,029 14,089
-------- -------- -------- -------- --------
Total revenue.................. 26,341 246,226 60,172 -- $332,739
Cost of revenues:
Products and aids.................. 1,375 11,226 4,403 17,004
Food............................... 13,381 406 13,787
Classroom operating expenses....... 2,869 167,911 28,869 199,649
-------- -------- -------- -------- --------
Total costs.................... 4,244 192,518 33,678 -- 230,440
-------- -------- -------- -------- --------
Gross profit................... 22,097 53,708 26,494 102,299
Marketing expenses................... 7,832 64,032 16,979 88,843
Selling, general and
administrative..................... 21,658 17,722 6,135 45,515
Interest income...................... 696 3,156 8,954 12,806
Interest expense..................... 9,964 1,973 1,912 13,849
Other expenses, net.................. 1,943 762 641 3,346
Equity in income (loss) of
consolidated subsidiaries.......... (17,912) $ 17,912 --
Franchise commission (income) loss... (5,817) 4,853 964 --
-------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest.................. (30,699) (32,478) 8,817 17,912 (36,448)
Provision for (benefit from) income
taxes.............................. (1,581) (15,042) 3,626 (12,997)
-------- -------- -------- -------- --------
Income (loss) before minority
interest........................... (29,118) (17,436) 5,191 17,912 (23,451)
Minority interest.................... 404 234 638
-------- -------- -------- -------- --------
Net income (loss).................... $(29,118) $(17,840) $ 4,957 $ 17,912 $(24,089)
======== ======== ======== ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-24
SUPPLEMENTAL COMBINING STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 25, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ --------
Revenue:
Fees--company operated classes:
Domestic.................................. $113,247 $113,247
Foreign................................... 97,589 $49,006 146,595
Franchise commissions:
Domestic.................................. $14,403 14,403
Foreign................................... 3,521 3,521
Products and aids........................... 1,547 33,840 10,701 46,088
Food sales.................................. 815 650 1,465
Royalties--licensing, publications and
other..................................... 8,994 8,994
------- -------- ------- -------- --------
Total revenue........................... 28,465 245,491 60,357 -- 334,313
Cost of revenues:
Products and aids........................... 1,389 16,851 4,849 23,089
Food........................................ 336 342 678
Classroom operating expenses................ 1,875 104,961 29,358 136,194
------- -------- ------- -------- --------
Total costs............................. 3,264 122,148 34,549 -- 159,961
------- -------- ------- -------- --------
Gross profit............................ 25,201 123,343 25,808 174,352
Marketing expenses............................ 7,916 65,061 13,318 86,295
Selling, general and administrative........... 21,154 16,578 6,335 44,067
Interest income............................... 831 2,297 10,641 $ (317) 13,452
Interest expense.............................. 4,033 607 4,253 (317) 8,576
Other expenses, net........................... 1,695 2,494 92 4,281
Equity in income of consolidated
subsidiaries................................ 16,837 (16,837) --
Franchise commission (income) loss............ (8,038) 5,984 2,054 --
------- -------- ------- -------- --------
Income before income taxes and minority
interest.................................... 16,109 34,916 10,397 (16,837) 44,585
Provision for (benefit from) income taxes..... (1,979) 16,355 5,593 19,969
------- -------- ------- -------- --------
Income before minority interest............... 18,088 18,561 4,804 (16,837) 24,616
Minority interest............................. 629 216 845
------- -------- ------- -------- --------
Net income.................................... $18,088 $ 17,932 $ 4,588 $(16,837) $ 23,771
======= ======== ======= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-25
SUPPLEMENTAL COMBINING STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ --------
Revenue:
Fees--company operated classes:
Domestic............................ $145,336 $145,336
Foreign............................. 103,532 $57,506 161,038
Franchise commissions:
Domestic............................ $19,135 19,135
Foreign............................. 4,060 4,060
Products and aids..................... 1,133 42,694 12,724 56,551
Food sales............................ 762 762
Royalties--licensing, publications and
other............................... 17,960 17,960
------- -------- ------- -------- --------
Total revenue................... 42,288 291,562 70,992 -- 404,842
Cost of revenues:
Products and aids..................... 1,425 19,850 5,356 26,631
Food.................................. 427 427
Classroom operating expenses.......... 2,260 115,245 34,362 151,867
------- -------- ------- -------- --------
Total costs..................... 3,685 135,095 40,145 -- 178,925
------- -------- ------- -------- --------
Gross profit.................... 38,603 156,467 30,847 225,917
Marketing expenses...................... 8,815 69,741 14,534 93,090
Selling, general and administrative..... 23,715 17,794 7,403 48,912
Interest income......................... 615 5,096 10,938 $ (622) 16,027
Interest expense........................ 3,537 357 5,587 (622) 8,859
Other expenses, net..................... 1,930 3,361 (43) 5,248
Equity in income of consolidated
subsidiaries.......................... 37,310 (37,310) --
Franchise commission (income) loss...... (8,697) 6,072 2,625 --
------- -------- ------- -------- --------
Income before income taxes and minority
interest.............................. 47,228 64,238 11,679 (37,310) 85,835
Provision for (benefit from) income
taxes................................. 7,944 22,860 5,556 36,360
------- -------- ------- -------- --------
Income before minority interest......... 39,284 41,378 6,123 (37,310) 49,475
Minority interest....................... 1,108 385 1,493
------- -------- ------- -------- --------
Net income.............................. $39,284 $ 40,270 $ 5,738 $(37,310) $ 47,982
======= ======== ======= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-26
SUPPLEMENTAL COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 24, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ --------
Revenue:
Fees--company operated classes:
Domestic............................ $ 67,146 $ 67,146
Foreign............................. 49,730 $24,270 74,000
Franchise commissions:
Domestics........................... $ 9,527 9,527
Foreign............................. 1,979 1,979
Products and aids..................... 369 18,476 5,175 24,020
Food sales............................ 229 229
Royalties--housing, publications and
other................................. 3,562 3,562
------- -------- ------- -------- --------
Total revenue................... 15,437 135,352 29,674 180,463
------- -------- ------- -------- --------
Cost of revenues:
Products and aids..................... 414 10,030 2,166 12,610
Food.................................. 125 125
Classroom operating expenses.......... 886 56,474 14,580 71,940
------- -------- ------- -------- --------
Total costs..................... 1,300 66,504 16,871 -- 84,675
------- -------- ------- -------- --------
Gross profit.................... 14,137 68,848 12,803 95,788
Marketing expense....................... 3,027 27,055 5,704 35,786
Selling, general and administrative..... 10,768 8,953 3,288 23,009
Interest Income......................... 297 1,682 5,434 7,413
Interest expense........................ 1,625 90 2,680 4,395
Other expenses, net..................... 857 1,698 (28) 2,527
Equity in income of consolidated
subsidiaries.......................... 15,421 $(15,421) --
Franchise commission (income) loss...... (3,227) 2,425 802 --
------- -------- ------- -------- --------
Income before income taxes and minority
interest.............................. 16,805 30,309 5,791 (15,421) 37,484
Provision for (benefit from) income
taxes................................. (270) 14,015 2,129 15,874
------- -------- ------- -------- --------
Income before minority interest......... 17,075 16,294 3,662 (15,421) 21,610
Minority interest....................... 506 169 675
------- -------- ------- -------- --------
Net income.............................. $17,075 $ 15,788 $ 3,493 $(15,421) $ 20,935
======= ======== ======= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-27
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 23, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Revenue:
Fees--company operated classes:
Domestic............................... $63,122 $ 63,122
Foreign................................ 51,670 $24,955 76,625
Franchise commissions:
Domestic............................... $10,087 10,087
Foreign................................ 2,157 2,157
Products and aids........................ 224 25,096 5,461 30,781
Food sales............................... 456 456
Royalties--licensing, publications and
other.................................. 3,370 3,370
------- ------- ------- -------- --------
Total revenue........................ 15,838 139,888 30,872 -- 186,598
------- ------- ------- -------- --------
Cost of revenues:
Products and aids........................ 173 9,469 2,289 11,931
Food..................................... 248 248
Classroom operating expenses............. 956 58,276 15,245 74,477
------- ------- ------- -------- --------
Total costs.......................... 1,129 67,745 17,782 -- 86,656
------- ------- ------- -------- --------
Gross profit......................... 14,709 72,143 13,090 99,942
Marketing expenses......................... 3,292 21,247 6,129 30,668
Selling, general and administrative........ 7,837 11,070 3,311 22,218
Transaction costs.......................... 8,345 8,345
Interest income............................ 911 1,527 2,137 4,575
Interest expense........................... 4,628 616 1,230 6,474
Other expenses, net........................ 4,084 110 67 4,261
Equity in income of consolidated
subsidiaries............................. $31,264 $(31,264) --
Franchise commission (income) loss......... (3,752) 2,607 1,145 --
------- ------- ------- -------- --------
Income before income taxes and minority
interest................................. 22,450 38,020 3,345 (31,264) 32,551
Provision for income taxes................. 3,116 8,780 729 12,625
------- ------- ------- -------- --------
Income before minority interest............ 19,334 29,240 2,616 (31,264) 19,926
Minority interest.......................... 446 146 592
------- ------- ------- -------- --------
Net income................................. $19,334 $28,794 $ 2,470 $(31,264) $ 19,334
======= ======= ======= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-28
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ --------
Operating activities:
Net income (loss).................... $(29,118) $(17,840) $ 4,957 $ 17,912 $(24,089)
Adjustments to reconcile net income
(loss) to cash provided by (used
for) operating activities:
Depreciation and amortization...... 2,951 10,556 682 14,189
Deferred tax provision (benefit)... (6,498) (8,704) 1,817 (13,385)
Provision for restructuring........ 51,694 51,694
Other items, net................... 700 (1,218) 150 (368)
Increase (decrease) in cash due to
changes in:
Receivables...................... 1,087 (953) 1,650 1,784
Inventories...................... (1,744) 454 (1,290)
Prepaid expenses and other
current assets................. (891) (154) 48 (997)
Due from related parties......... 15,288 (10,568) (11,056) (6,336)
Accounts payable................. 756 (7,402) 514 (6,132)
Accrued liabilities and deferred
revenue........................ 345 (7,583) 5,933 (1,305)
Income taxes..................... (5,830) 809 912 (4,109)
-------- -------- -------- -------- --------
Cash provided by (used for)
operating activities......... (21,210) 6,893 6,061 17,912 9,656
-------- -------- -------- -------- --------
Investing activities:
Capital expenditures................. (300) (1,886) (523) (2,709)
Acquisitions, net of cash acquired... (681) (681)
Proceeds from divestitures........... 2,700 2,700
Other items, net..................... (509) (197) (20) (726)
-------- -------- -------- -------- --------
Cash used for investing
activities................... (809) (64) (543) -- (1,416)
-------- -------- -------- -------- --------
Financing activities:
Net increase in short-term
borrowings......................... 442 734 1,176
Payments on long-term debt........... (1,337) (1,337)
Payment of dividends................. (3,353) (10,365) (825) 5,283 (9,260)
Net parent (settlements) advances.... 27,177 5,370 (4,326) (23,154) 5,067
-------- -------- -------- -------- --------
Cash provided by (used for)
financing activities......... 22,487 (4,553) (4,417) (17,871) (4,354)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents................. 53 (51) 100 (41) 61
Net increase in cash and
cash equivalents..................... 521 2,225 1,201 3,947
Cash and cash equivalents, beginning of
year................................. (965) 3,493 4,596 7,124
-------- -------- -------- -------- --------
Cash and cash equivalents, end of
year................................. $ (444) $ 5,718 $ 5,797 $ -- $ 11,071
======== ======== ======== ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-29
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED APRIL 25, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ ----------
Operating activities:
Net income............................... $ 18,088 $ 17,932 $ 4,588 $(16,837) $ 23,771
Adjustments to reconcile net income to
cash provided by operating
activities:
Depreciation and amortization.......... 2,390 5,764 621 8,775
Deferred tax provision................. 1,628 10,463 3,472 15,563
Other items, net....................... (120) 139 396 415
Increase (decrease) in cash due to
changes in:
Receivables.......................... 446 (3,278) 341 (2,491)
Inventories.......................... (2,507) (318) (2,825)
Prepaid expenses and other current
assets............................. (298) 2,091 120 1,913
Due from related parties............. (5,092) 1,546 (5,064) (8,610)
Accounts payable..................... (45) (3,157) 819 (2,383)
Accrued liabilities and deferred
revenue............................ (1,311) (3,977) 6,746 1,458
Income taxes......................... 12,315 (10,428) (1,240) 647
-------- -------- ------- -------- --------
Cash provided by operating
activities....................... 28,001 14,588 10,481 (16,837) 36,233
Investing activities:
Capital expenditures..................... (170) (2,539) (680) (3,389)
Acquisitions, net of cash acquired....... (1,007) (405) (1,412)
Other items, net......................... (627) 521 (15) (121)
-------- -------- ------- -------- --------
Cash used for investing
activities....................... (797) (3,025) (1,100) -- (4,922)
-------- -------- ------- -------- --------
Financing activities:
Net decrease in short-term borrowings.... (1,250) (791) (2,041)
Payments on long-term debt............... 2,382 (3,750) (1,368)
Payment of dividends..................... (5,949) (8,378) (1,145) 7,002 (8,470)
Net parent (settlements) advances........ (21,818) (42) (6,373) 9,603 (18,630)
-------- -------- ------- -------- --------
Cash used for financing
activities....................... (26,635) (12,170) (8,309) 16,605 (30,509)
-------- -------- ------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents......................... (229) 689 (736) 232 (44)
Net increase in cash and cash
equivalents.............................. 340 82 336 758
Cash and cash equivalents, beginning of
year..................................... (444) 5,718 5,797 11,071
-------- -------- ------- -------- --------
Cash and cash equivalents, end of year..... $ (104) $ 5,800 $ 6,133 $ -- $ 11,829
======== ======== ======= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-30
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ --------
Operating activities:
Net income................................. $ 39,284 $ 40,270 $ 5,738 $(37,310) $ 47,982
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization.............. 2,378 6,609 599 9,586
Deferred tax provision..................... 1,735 4,345 3,199 9,279
Other items, net........................... 153 (115) 38
Increase (decrease) in cash due to changes
in:
Receivables.............................. (7,303) 1,348 (1,204) (7,159)
Inventories.............................. 52 22 74
Prepaid expenses and other current
assets................................. (20) (1,141) (293) (1,454)
Due from related parties................. 38,317 (35,394) 770 3,693
Accounts payable......................... (288) 4,961 (327) 4,346
Accrued liabilities and deferred
revenue................................ 1,003 (4,022) (7,773) (10,792)
Income taxes............................. (36,393) 38,362 1,602 3,571
-------- -------- ------- -------- --------
Cash provided by operating
activities........................... 38,713 55,543 2,218 (37,310) 59,164
-------- -------- ------- -------- --------
Investing activities:
Captial expenditures....................... (271) (1,612) (591) (2,474)
Other items, net........................... (278) (286) (1) (565)
-------- -------- ------- -------- --------
Cash used for investing activities..... (549) (1,898) (592) -- (3,039)
-------- -------- ------- -------- --------
Financing activities:
Net decrease in short term borrowings...... (1) (406) (407)
Payments on long-term debt................. (1,081) (1,081)
Payment of dividends....................... (5,435) (14,446) (3,670) 13,183 (10,368)
Net parent (settlements) advances.......... (31,483) (32,903) 3,316 23,994 (37,076)
-------- -------- ------- -------- --------
Cash used for financing activities..... (37,999) (47,350) (760) 37,177 (48,932)
-------- -------- ------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents........................... (135) 281 214 133 493
Net increase in cash and cash equivalents.... 30 6,576 1,080 7,686
Cash and cash equivalents, beginning of
year....................................... (104) 5,800 6,133 11,829
-------- -------- ------- -------- --------
Cash and cash equivalents, end of year....... $ (74) $ 12,376 $ 7,213 $ -- $ 19,515
======== ======== ======= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-31
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE FISCAL SIX MONTHS ENDED OCTOBER 24, 1998
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
-------- ------------ ------------ ------------ --------
Operating activities:
Net income........................... $ 17,076 $ 15,787 $ 3,493 $(15,421) $ 20,935
Adjustments to reconcile net income
to cash provided by (used for)
operating activities:
Depreciation and amortization...... 1,197 3,129 179 4,505
Deferred tax provision............. (3,486) 3,406 2,956 2,876
Other items, net................... 6 187 193
Increase (decrease) in cash due to
changes in:
Receivables...................... 418 146,295 (151,804) (5,091)
Inventories...................... 98 (884) (786)
Prepaid expenses and other
current assets................. (1,093) (4,388) (236) (5,717)
Due from related parties......... (7,534) 10,864 976 4,306
Accounts payable................. (594) (1,906) (870) (3,370)
Accrued liabilities and deferred
revenue........................ (1,975) (142,140) 145,727 1,612
Income taxes..................... (11,761) 13,598 203 2,040
-------- --------- --------- -------- --------
Cash provided by (used for)
operating activities......... (7,752) 44,749 (73) (15,421) 21,503
-------- --------- --------- -------- --------
Investing activities:
Capital expenditures................. (131) (671) (306) (1,108)
Other items, net..................... (168) (211) (2) (381)
-------- --------- --------- -------- --------
Cash used for investing
activities................... (299) (882) (308) -- (1,489)
-------- --------- --------- -------- --------
Financing activities:
Net decrease in short-term
borrowings......................... 1,091 172 710 1,973
Payment on long-term debt............ (555) (555)
Payment of dividends................. (2,884) (3,022) (994) 4,016 (2,884)
Net parent (settlements) advances.... 10,633 (41,904) 1,777 11,272 (18,222)
-------- --------- --------- -------- --------
Cash provided by (used for)
financing activities......... 8,285 (44,754) 1,493 15,288 (19,688)
-------- --------- --------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents................. (130) (399) (45) 133 (441)
Net increase (decrease) in cash and
cash equivalents..................... 104 (1,286) 1,067 -- (115)
Cash and cash equivalents, beginning of
period............................... (104) 5,800 6,133 -- 11,829
-------- --------- --------- -------- --------
Cash and cash equivalents, end of
period............................... $ -- $ 4,514 $ 7,200 $ -- $ 11,714
======== ========= ========= ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-32
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
H.J. Heinz Company;
Our audits of the combined financial statements referred to in our report dated
July 23, 1999, except for Note 17, for which the date is September 29, 1999,
which is included in this Registration Statement on Form S-4 also included an
audit of the financial statement schedule listed in Item 21(b) of this Form S-4.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related combined financial statements.
[LOGO]
Melville, New York
July 23, 1999, except for Note 17,
for which the date is September 29, 1999.
S-1
WEIGHT WATCHERS INTERNATIONAL, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
[Enlarge/Download Table]
COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- -------- --------
COLUMN A ADDITIONS
-------- ---------
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) PERIOD
----------- ---------- --------- ------------- ----------
YEAR ENDED APRIL 24, 1999
Allowance for doubtful accounts............... $ 876 $ 118 $ 994
Inventory reserves............................ 3,961 3,910 $(6,435) 1,436
YEAR ENDED APRIL 25, 1998
Allowance for doubtful accounts............... $ 733 $ 143 $ 876
Inventory reserves............................ 472 4,505 $(1,016) 3,961
YEAR ENDED APRIL 26, 1997
Allowance for doubtful accounts............... $ 931 $ (198) $ 733
Inventory reserves............................ 1,571 $ 760 (1,859) 472
------------------------
(1) Primarily represents the utilization of established reserves, net of
recoveries
S-2
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 23, 1999
(IN THOUSANDS)
[Enlarge/Download Table]
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
Operating activities:
Net income.............................. $ 19,334 $ 28,794 $ 2,470 $(31,264) $ 19,344
Adjustments to reconcile net income to
cash provided by (used for)
operating activities:
Depreciation and amortization......... 1,326 3,146 350 (79) 4,743
Deferred tax provision (benefit)...... 3,159 (8,601) 4,930 (512)
Other items, net...................... (2,158) (189) (2,347)
Increase (decrease) in cash due to
changes in:
Receivables......................... 6,200 1,590 9,402 17,192
Inventories......................... (1,386) (100) (1,486)
Prepaid expenses and other current
assets............................ 2,187 (2,140) 333 380
Due from related parties............ (14,583) 388 (14,195)
Accounts payable.................... 50 3,138 (1,491) 1,697
Accrued liabilities and deferred
revenue........................... 10,963 (17,926) 1,544 (5,419)
Income taxes........................ 13,083 (14,922) (485) (2,324)
--------- -------- -------- -------- ---------
Cash provided by (used for)
operating activities............ 41,719 (10,077) 16,764 (31,343) 17,063
--------- -------- -------- -------- ---------
Investing activities:
Acquisition, net of cash acquired....... -- (15,900) -- (15,900)
Other items, net........................ (16) 446 (328) 79 181
--------- -------- -------- -------- ---------
Cash used for investing
activities...................... (16) (15,454) (328) 79 (15,719)
--------- -------- -------- -------- ---------
Financing activities:
Proceeds from borrowings................ 404,260 87,192 491,452
Repurchase of common stock.............. (324,476) (324,476)
Deferred financing costs................ (15,696) (15,696)
Parent settlements, net................. (93,085) (57,424) (4,998) 24,493 (131,014)
Other items, net........................ (2,048) (3,123) (10,880) 7,348 (8,703)
--------- -------- -------- -------- ---------
Cash provided by (used for)
financing activities............ (31,045) 26,645 (15,878) 31,841 11,563
--------- -------- -------- -------- ---------
Effect of exchange rate changes on cash
and cash equivalents.................... 662 261 666 (577) 1,012
Net increase in cash and cash
equivalents............................. 11,320 1,375 1,224 -- 13,919
Cash and cash equivalents, beginning of
period.................................. (74) 12,376 7,213 -- 19,515
--------- -------- -------- -------- ---------
Cash and cash equivalents, end of
period.................................. $ 11,246 $ 13,751 $ 8,437 $ -- $ 33,434
========= ======== ======== ======== =========
The accompanying notes are an integral part of the combined financial
statements.
F-33
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
Weight Watchers International, Inc.
175 Crossways Park West
Woodbury, NY 11797
TRUSTEE, REGISTRAR, PRINCIPAL PAYING AGENT AND EXCHANGE AGENT
Norwest Bank Minnesota, National Association
Norwest Center
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479
LEGAL ADVISORS
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT AUDITORS FOR THE COMPANY
PricewaterhouseCoopers LLP
401 Broad Hollow Road
Melville, New York 11747
EURO NOTE PAYING AGENT
Citibank, N.A.
5 Carmalite Street
London, England EC4Y OPA
LISTING AGENT, LUXEMBOURG PAYING AGENT, TRANSFER AGENT
AND LUXEMBOURG EXCHANGE AGENT
Banque Generale de Luxembourg S.A.
50, avenue J.F. Kennedy
L-2951 Luxembourg
[LOGO]
$150,000,000
[EURO]100,000,000
WEIGHT WATCHERS INTERNATIONAL, INC.
Offer to Exchange all Outstanding 13% Senior Subordinated Notes due 2009 for 13%
Senior Subordinated Notes due 2009, which have been registered under the
Securities Act of 1933
Until June 1, 2000, all dealers effecting transactions in the exchange
notes, whether or not participating in this distribution, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation provide for the indemnification of our
directors and officers in a variety of circumstances, which may include
indemnification for liabilities under the Securities Act of 1933. Under sections
13.1-697 and 13.1-702 of the Virginia Stock Corporation Act, a Virginia
corporation generally is authorized to indemnify its directors and officers in
civil and criminal actions if they acted in good faith and believed their
conduct to be in the best interests of the corporation and, in the case of
criminal actions, had no reasonable cause to believe that the conduct was
unlawful. Our articles of incorporation require indemnification of directors and
officers with respect to certain liabilities and expenses imposed upon them by
reason of having been a director or officer, except in the case of willful
misconduct or a knowing violation of criminal law. Weight Watchers also carries
insurance on behalf of its directors, officers, employees or agents that may
cover liabilities under the Securities Act of 1933. In addition, the Virginia
Stock Corporation Act and our articles of incorporation eliminate the liability
for monetary damages of a director or officer in a shareholder or derivative
proceeding. This elimination of liability will not apply in the event of willful
misconduct or a knowing violation of criminal law or any federal or state
securities law. Sections 13.1-692.1 through 704 of the Virginia Stock
Corporation Act are incorporated into this paragraph by reference.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits
[Enlarge/Download Table]
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
**1 -- Purchase Agreement, dated September 22, 1999, among Weight
Watchers International, Inc., Credit Suisse First Boston
Corporation and Scotia Capital Markets (USA) Inc.
**2 -- Recapitalization and Stock Purchase Agreement, dated July
22, 1999, among Weight Watchers International, Inc., H.J.
Heinz Company and Artal International S.A.
**3.1 -- Amended and Restated Articles of Incorporation of Weight
Watchers International, Inc.
**3.2 -- Amended and Restated By-laws of Weight Watchers
International, Inc.
**3.3 -- Certificate of Incorporation of 58 WW Food Corp.
**3.4 -- By-laws of 58 WW Food Corp.
**3.5 -- Certificate of Incorporation of Waist Watchers, Inc.
**3.6 -- By-laws of Waist Watchers, Inc.
**3.7 -- Certificate of Incorporation of Weight Watchers Camps, Inc.
**3.8 -- By-laws of Weight Watchers Camps, Inc.
**3.9 -- Certificate of Incorporation of W.W. Camps and Spas, Inc.
**3.10 -- By-laws of W.W. Camps and Spas, Inc.
**3.11 -- Certificate of Incorporation of Weight Watchers Direct, Inc.
**3.12 -- By-laws of Weight Watchers Direct, Inc.
**3.13 -- Certificate of Incorporation of W/W Twentyfirst Corporation
**3.14 -- By-laws of W/W Twentyfirst Corporation
**3.15 -- Certificate of Incorporation of W.W. Weight Reduction
Services, Inc.
**3.16 -- By-laws of W.W. Weight Reduction Services, Inc.
**3.17 -- Certificate of Incorporation of W.W.I. European Services,
Ltd.
**3.18 -- By-laws of W.W.I. European Services, Ltd.
**3.19 -- Certificate of Incorporation of W.W. Inventory Service Corp.
**3.20 -- By-laws of W.W. Inventory Service Corp.
**3.21 -- Certificate of Incorporation of Weight Watchers North
America, Inc.
II-1
[Enlarge/Download Table]
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
**3.22 -- By-laws of Weight Watchers North America, Inc.
**3.23 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers UK Holdings Ltd
**3.24 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers International Holdings Ltd
**3.25 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers (U.K.) Limited
**3.26 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers (Accessories & Publications)
Ltd
**3.27 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers (Food Products) Limited
**3.28 -- Certificate of Incorporation and Constitution of Weight
Watchers New Zealand Limited
**3.29 -- Certificate of Registration and Memorandum and Articles of
Association of Weight Watchers International Pty Limited
**3.30 -- Certificate of Registration and Memorandum and Articles of
Association of Fortuity Pty Ltd
**3.31 -- Certificate of Registration and Memorandum and Articles of
Association of Gutbusters Pty Ltd
**4.1 -- Dollar Securities Indenture, dated as of September 29, 1999,
between Weight Watchers International, Inc. and Norwest Bank
Minnesota, National Association
*4.2 -- Guarantee Agreement, dated as of March 3, 2000, given by 58
WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps,
Inc. W.W. Camps and Spas, Inc., Weight Watchers Direct,
Inc., W/W Twentyfirst Corporation, W.W. Weight Reduction
Services, Inc., W.W.I. European Services, Ltd., W.W.
Inventory Service Corp., Weight Watchers North America,
Inc., Weight Watchers UK Holdings Ltd, Weight Watchers
International Holdings Ltd, Weight Watchers U.K. Limited,
Weight Watchers (Accessories & Publications) Ltd, Weight
Watchers (Food Products) Limited, Weight Watchers New
Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd and Gutbusters Pty Ltd.
**4.3 -- Euro Securities Indenture, dated as of September 29, 1999,
between Weight Watchers International Inc. and Norwest Bank
Minnesota, National Association
*4.4 -- Guarantee Agreement, dated as of March 3, 2000, given by 58
WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps,
Inc. W.W. Camps and Spas, Inc., Weight Watchers Direct,
Inc., W/W Twentyfirst Corporation, W.W. Weight Reduction
Services, Inc., W.W.I. European Services, Ltd., W.W.
Inventory Service Corp., Weight Watchers North America,
Inc., Weight Watchers UK Holdings Ltd, Weight Watchers
International Holdings Ltd, Weight Watchers U.K. Limited,
Weight Watchers (Accessories & Publications) Ltd, Weight
Watchers (Food Products) Limited, Weight Watchers New
Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd and Gutbusters Pty Ltd.
**4.5 -- Registration Rights Agreement, dated as of September 22,
1999, among Weight Watchers International, Inc., Credit
Suisse First Boston Corporation and Scotia Capital Markets
(USA) Inc.
**5 -- Opinion of Simpson Thacher & Bartlett
**10.1 -- Credit Agreement, dated as of September 29, 1999, among
Weight Watchers International, Inc., WW Funding Corp.,
Credit Suisse First Boston, BHF (USA) Capital Corporation,
The Bank of Nova Scotia and various financial institutions
**10.2 -- Preferred Stock Stockholders' Agreement, dated as of
September 29, 1999, among Weight Watchers International,
Inc., Artal Luxembourg S.A. and H.J. Heinz Company
II-2
[Enlarge/Download Table]
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
**10.3 -- Stockholders' Agreement, dated as of September 29, 1999,
among Weight Watchers International, Inc., Artal Luxembourg
S.A. and H.J. Heinz Company
**10.4 -- License Agreement, dated as of September 29, 1999, between
WW Foods, LLC and Weight Watchers International, Inc.
**10.5 -- License Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and H.J. Heinz Company
**10.6 -- License Agreement, dated as of September 29, 1999, between
WW Foods, LLC and H.J. Heinz Company
**10.7 -- LLC Agreement, dated as of September 29, 1999, between
H.J. Heinz Company and Weight Watchers International, Inc.
**10.8 -- Operating Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and H.J. Heinz Company.
**10.9 -- Subscription Agreement, dated as of September 29, 1999,
among WeightWatchers.com, Inc., Weight Watchers
International, Inc., Artal Luxembourg S.A. and H.J. Heinz
Company
**10.10 -- Registration Rights Agreement, dated September 29, 1999,
among WeightWatchers.com, Weight Watchers International,
Inc., H.J. Heinz Company and Artal Luxembourg S.A.
**10.11 -- Stockholders' Agreement, dated September 29, 1999, among
WeightWatchers.com, Weight Watchers International, Inc.,
Artal Luxembourg S.A., H.J. Heinz Company
**10.12 -- Letter Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and The Invus Group,
Ltd.
**10.13 -- Agreement of Lease, dated as of August 1, 1995, between
Industrial & Research Associates Co. and Weight Watchers
International, Inc.
**10.14 -- Lease Agreement, dated as of April 1, 1997, between Junto
Investments and Weight Watchers North America, Inc.
**10.15 -- Lease Agreement, dated as of August 31, 1995, between 89
State Line Limited Partnership and Weight Watchers North
America, Inc.
**10.16 -- Employment Agreement, dated as of August 30, 1996, between
Weight Watchers International, Inc. and Robert Mallow
*12.1 -- Computation of Ratio of Earnings to Fixed Charges
*12.2 -- Computation of Pro Forma Ratio of Earnings to Fixed Charges
**21 -- Subsidiaries of Weight Watchers International, Inc.
**23.1 -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5)
*23.2 -- Consent of PricewaterhouseCoopers LLP
**24 -- Powers of Attorney (included in signature pages hereto)
**25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Norwest Bank Minnesota, National Association,
as trustee
**27.1 -- Financial Data Schedules
**27.2 -- Financial Data Schedules
*27.3 -- Financial Data Schedules
**99.1 -- Form of Letter of Transmittal (dollar notes)
**99.2 -- Form of Letter of Transmittal (euro notes)
**99.3 -- Form of Notice of Guaranteed Delivery (dollar notes)
**99.4 -- Form of Notice of Guaranteed Delivery (euro notes)
------------------------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedule
II-3
Schedule II--Valuation and Qualifying Accounts and Reserves included on
pages S-1 and S-2 of this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" Table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other
II-4
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS INTERNATIONAL, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Chairman of the Board of Directors March 2, 2000
Raymond Debbane
*
-------------------------------------- Director March 2, 2000
Jonas M. Fajgenbaum
*
-------------------------------------- Director March 2, 2000
Kent Q. Kreh
*
-------------------------------------- Director March 2, 2000
Sacha Lainovic
*
-------------------------------------- Director March 2, 2000
Richard Penn
*
-------------------------------------- Director March 2, 2000
Christopher J. Sobecki
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
58 WW FOOD CORP.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2 , 1999.
[Download Table]
WAIST WATCHERS, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2 , 2000.
[Download Table]
WEIGHT WATCHERS CAMPS, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
W.W. CAMPS AND SPAS, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS DIRECT, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
W/W TWENTYFIRST CORPORATION
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
W.W. WEIGHT REDUCTION SERVICES, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
W.W.I. EUROPEAN SERVICES, LTD.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
*
-------------------------------------- Director March 2, 2000
Clive A. Brothers
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
W.W. INVENTORY SERVICE CORP.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial March 2, 2000
Dennis Sweeney and Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS NORTH AMERICA, INC.
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial March 2, 2000
Dennis Sweeney and Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS UK HOLDINGS LTD
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial March 2, 2000
Dennis Sweeney and Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS INTERNATIONAL HOLDINGS LTD
By: /s/ LINDA HUETT
--------------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial March 2, 2000
Dennis Sweeney and Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS (U.K.) LIMITED
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial March 2, 2000
Dennis Sweeney and Accounting Officer)
*
-------------------------------------- Director March 2, 2000
John Dennis
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS (ACCESSORIES & PUBLICATIONS)
LTD
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
John Dennis
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS (FOOD PRODUCTS) LIMITED
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
John Dennis
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS NEW ZEALAND LIMITED
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Robert W. Hollweg
*
-------------------------------------- Director March 2, 2000
Scott Penn
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
WEIGHT WATCHERS INTERNATIONAL PTY LIMITED
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Christopher J. Sobecki
*
-------------------------------------- Director March 2, 2000
Sacha Lainovic
*
-------------------------------------- Director March 2, 2000
Scott Penn
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
FORTUITY PTY LTD
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Christopher J. Sobecki
*
-------------------------------------- Director March 2, 2000
Sacha Lainovic
*
-------------------------------------- Director March 2, 2000
Scott Penn
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 2, 2000.
[Download Table]
GUTBUSTERS PTY LTD
By: /s/ LINDA HUETT
-----------------------------------------
Linda Huett
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LINDA HUETT
-------------------------------------- President and Director (Principal March 2, 2000
Linda Huett Executive Officer)
*
-------------------------------------- Controller (Principal Financial and March 2, 2000
Dennis Sweeney Accounting Officer)
*
-------------------------------------- Director March 2, 2000
Christopher J. Sobecki
*
-------------------------------------- Director March 2, 2000
Sacha Lainovic
*
-------------------------------------- Director March 2, 2000
Scott Penn
[Download Table]
*By /s/ LINDA HUETT
----------------------------------
Linda Huett
ATTORNEY-IN-FACT
II-25
EXHIBIT INDEX
[Enlarge/Download Table]
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
**1 -- Purchase Agreement, dated September 22, 1999, among Weight
Watchers International, Inc., Credit Suisse First Boston
Corporation and Scotia Capital Markets (USA) Inc.
**2 -- Recapitalization and Stock Purchase Agreement, dated July
22, 1999, among Weight Watchers International, Inc., H.J.
Heinz Company and Artal International S.A.
**3.1 -- Amended and Restated Articles of Incorporation of Weight
Watchers International, Inc.
**3.2 -- Amended and Restated By-laws of Weight Watchers
International, Inc.
**3.3 -- Certificate of Incorporation of 58 WW Food Corp.
**3.4 -- By-laws of 58 WW Food Corp.
**3.5 -- Certificate of Incorporation of Waist Watchers, Inc.
**3.6 -- By-laws of Waist Watchers, Inc.
**3.7 -- Certificate of Incorporation of Weight Watchers Camps, Inc.
**3.8 -- By-laws of Weight Watchers Camps, Inc.
**3.9 -- Certificate of Incorporation of W.W. Camps and Spas, Inc.
**3.10 -- By-laws of W.W. Camps and Spas, Inc.
**3.11 -- Certificate of Incorporation of Weight Watchers Direct, Inc.
**3.12 -- By-laws of Weight Watchers Direct, Inc.
**3.13 -- Certificate of Incorporation of W/W Twentyfirst Corporation
**3.14 -- By-laws of W/W Twentyfirst Corporation
**3.15 -- Certificate of Incorporation of W.W. Weight Reduction
Services, Inc.
**3.16 -- By-laws of W.W. Weight Reduction Services, Inc.
**3.17 -- Certificate of Incorporation of W.W.I. European Services,
Ltd.
**3.18 -- By-laws of W.W.I. European Services, Ltd.
**3.19 -- Certificate of Incorporation of W.W. Inventory Service Corp.
**3.20 -- By-laws of W.W. Inventory Service Corp.
**3.21 -- Certificate of Incorporation of Weight Watchers North
America, Inc.
**3.22 -- By-laws of Weight Watchers North America, Inc.
**3.23 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers UK Holdings Ltd
**3.24 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers International Holdings Ltd
**3.25 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers (U.K.) Limited
**3.26 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers (Accessories & Publications)
Ltd
**3.27 -- Certificate of Incorporation and Memorandum and Articles of
Association of Weight Watchers (Food Products) Limited
**3.28 -- Certificate of Incorporation and Constitution of Weight
Watchers New Zealand Limited
**3.29 -- Certificate of Registration and Memorandum and Articles of
Association of Weight Watchers International Pty Limited
**3.30 -- Certificate of Registration and Memorandum and Articles of
Association of Fortuity Pty Ltd
**3.31 -- Certificate of Registration and Memorandum and Articles of
Association of Gutbusters Pty Ltd
**4.1 -- Dollar Securities Indenture, dated as of September 29, 1999,
between Weight Watchers International, Inc. and Norwest Bank
Minnesota, National Association
[Enlarge/Download Table]
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
*4.2 -- Guarantee Agreement, dated as of March 3, 2000, given by 58
WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps,
Inc. W.W. Camps and Spas, Inc., Weight Watchers Direct,
Inc., W/W Twentyfirst Corporation, W.W. Weight Reduction
Services, Inc., W.W.I. European Services, Ltd., W.W.
Inventory Service Corp., Weight Watchers North America,
Inc., Weight Watchers UK Holdings Ltd, Weight Watchers
International Holdings Ltd, Weight Watchers U.K. Limited,
Weight Watchers (Accessories & Publications) Ltd, Weight
Watchers (Food Products) Limited, Weight Watchers New
Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd and Gutbusters Pty Ltd.
**4.3 -- Euro Securities Indenture, dated as of September 29, 1999,
between Weight Watchers International Inc. and Norwest Bank
Minnesota, National Association
*4.4 -- Guarantee Agreement, dated as of March 3, 2000, given by 58
WW Food Corp., Waist Watchers, Inc., Weight Watchers Camps,
Inc. W.W. Camps and Spas, Inc., Weight Watchers Direct,
Inc., W/W Twentyfirst Corporation, W.W. Weight Reduction
Services, Inc., W.W.I. European Services, Ltd., W.W.
Inventory Service Corp., Weight Watchers North America,
Inc., Weight Watchers UK Holdings Ltd, Weight Watchers
International Holdings Ltd, Weight Watchers U.K. Limited,
Weight Watchers (Accessories & Publications) Ltd, Weight
Watchers (Food Products) Limited, Weight Watchers New
Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd and Gutbusters Pty Ltd.
**4.5 -- Registration Rights Agreement, dated as of September 22,
1999, among Weight Watchers International, Inc., Credit
Suisse First Boston Corporation and Scotia Capital Markets
(USA) Inc.
**5 -- Opinion of Simpson Thacher & Bartlett
**10.1 -- Credit Agreement, dated as of September 29, 1999, among
Weight Watchers International, Inc., WW Funding Corp.,
Credit Suisse First Boston, BHF (USA) Capital Corporation,
The Bank of Nova Scotia and various financial institutions
**10.2 -- Preferred Stock Stockholders' Agreement, dated as of
September 29, 1999, among Weight Watchers International,
Inc., Artal Luxembourg S.A. and H.J. Heinz Company
**10.3 -- Stockholders' Agreement, dated as of September 29, 1999,
among Weight Watchers International, Inc., Artal Luxembourg
S.A. and H.J. Heinz Company
**10.4 -- License Agreement, dated as of September 29, 1999, between
WW Foods, LLC and Weight Watchers International, Inc.
**10.5 -- License Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and H.J. Heinz Company
**10.6 -- License Agreement, dated as of September 29, 1999, between
WW Foods, LLC and H.J. Heinz Company
**10.7 -- LLC Agreement, dated as of September 29, 1999, between
H.J. Heinz Company and Weight Watchers International, Inc.
**10.8 -- Operating Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and H.J. Heinz Company.
**10.9 -- Subscription Agreement, dated as of September 29, 1999,
among WeightWatchers.com, Inc., Weight Watchers
International, Inc., Artal Luxembourg S.A. and H.J. Heinz
Company
**10.10 -- Registration Rights Agreement, dated September 29, 1999,
among WeightWatchers.com, Weight Watchers International,
Inc., H.J. Heinz Company and Artal Luxembourg S.A.
**10.11 -- Stockholders' Agreement, dated September 29, 1999, among
WeightWatchers.com, Weight Watchers International, Inc.,
Artal Luxembourg S.A., H.J. Heinz Company
**10.12 -- Letter Agreement, dated as of September 29, 1999, between
Weight Watchers International, Inc. and The Invus Group,
Ltd.
[Enlarge/Download Table]
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
**10.13 -- Agreement of Lease, dated as of August 1, 1995, between
Industrial & Research Associates Co. and Weight Watchers
International, Inc.
**10.14 -- Lease Agreement, dated as of April 1, 1997, between Junto
Investments and Weight Watchers North America, Inc.
**10.15 -- Lease Agreement, dated as of August 31, 1995, between 89
State Line Limited Partnership and Weight Watchers North
America, Inc.
**10.16 -- Employment Agreement, dated as of August 30, 1996, between
Weight Watchers International, Inc. and Robert Mallow
*12.1 -- Computation of Ratio of Earnings to Fixed Charges
*12.2 -- Computation of Pro Forma Ratio of Earnings to Fixed Charges
**21 -- Subsidiaries of Weight Watchers International, Inc.
**23.1 -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5)
*23.2 -- Consent of PricewaterhouseCoopers LLP
**24 -- Powers of Attorney (included in signature pages hereto)
**25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Norwest Bank Minnesota, National Association,
as trustee
**27.1 -- Financial Data Schedules
**27.2 -- Financial Data Schedules
*27.3 -- Financial Data Schedules
**99.1 -- Form of Letter of Transmittal (dollar notes)
**99.2 -- Form of Letter of Transmittal (euro notes)
**99.3 -- Form of Notice of Guaranteed Delivery (dollar notes)
**99.4 -- Form of Notice of Guaranteed Delivery (euro notes)
------------------------
* Filed herewith.
** Previously filed.
Dates Referenced Herein and Documents Incorporated by Reference
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