UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
nutrisystem.com inc.
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(Exact name of registrant as specified in its charter)
Delaware 23-3012204
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
202 Welsh Road, Horsham, PA 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-706-5300
Securities to be registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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INDEX
Page
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Item 1. Business...................................................... 1
Item 2. Financial Information......................................... 19
Item 3. Properties.................................................... 28
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 28
Item 5. Directors and Executive Officers.............................. 30
Item 6. Executive Compensation........................................ 32
Item 7. Certain Relationships and Related Transactions................ 34
Item 8. Legal Proceedings............................................. 37
Item 9. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters............... 38
Item 10. Recent Sales of Unregistered Securities....................... 39
Item 11. Description of Registrant's Securities to be Registered....... 40
Item 12. Indemnification of Directors and Officers..................... 41
Item 13. Financial Statements and Supplementary Data................... 42
Item 14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................... 42
Item 15. Financial Statements and Exhibits............................. 43
(i)
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Item 1. Business.
(a) General Development of Business
On September 27, 1999, Ansama Corp. ("Ansama"), a Nevada corporation formed
in March 1988 with no active business operations, stockholders' equity of
approximately $72,235 at December 31, 1998 and approximately 200 stockholders of
record, merged (the "Merger") with and into nutrisystem.com inc. (the "Company")
for the purpose of reincorporating as a Delaware corporation under the name
"nutrisystem.com inc." Ansama formed the Company as a Delaware corporation for
this purpose in August 1999. As part of the Merger, each of the 2,039,337
outstanding shares of Common Stock of Ansama was converted into the right to
receive one share of the Company's Common Stock.
As a further consequence of the Merger, the Company succeeded to the rights
of Ansama under: (i) an August 16, 1999 Asset Purchase Agreement (the "Asset
Agreement") with Nutri/System L.P., a Delaware limited partnership (the
"Partnership"), whereby Ansama agreed to purchase specified assets of the
Partnership, including the right to the name "NutriSystem," and assume specified
liabilities of the Partnership, for $3,000,000 in cash and (ii) an August 16,
1999 Stock Exchange and Purchase Agreement (the "Stock Agreement") with HPF
Holdings, Inc., Brian D. Haveson, Joseph H. Boileau, Kathleen E. Simone, Deborah
A. Gallen and Frederick C. Tecce, whereby Ansama agreed to acquire all of the
beneficial interests of NutriSystem Direct, L.L.C. ("NSDirect"), a Pennsylvania
limited liability company, for $400,000 in cash and the issuance of 17,500,000
shares of Common Stock. See Item 7 hereof.
On September 30, 1999, the Company completed the sale of 4,363,985 shares
of its Common Stock at a price of $1.00 per share in a partial closing under a
private placement (the "Private Placement") for which Pennsylvania Merchant
Group acted as placement agent and, immediately thereafter, the Company and the
other parties to the Asset Agreement and the Stock Agreement consummated the
transactions contemplated by such agreements. The Company used a portion of the
proceeds of the Private Placement to satisfy its obligations under the Asset
Agreement and issued 17,500,000 shares of Common Stock pursuant to the Stock
Agreement; the remainder of such proceeds were used to pay the Company's
expenses incurred in connection with the Private Placement and for working
capital. On October 13, 1999, the Company completed the closing of the Private
Placement by the sale for $1.00 per share of an additional 3,273,415 shares of
its Common Stock, all of the proceeds which are being used for working capital.
As a result of the foregoing transactions, as of the date hereof the
Company has 27,176,737 outstanding shares of Common Stock.
As used herein, unless the context otherwise requires, the term the
"Company" refers to nutrisystem.com inc. and its subsidiaries and their
respective predecessors.
"NutriSystem(R)" and "Nutrihance(R)" are the registered trademarks of the
Company.
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(b) Financial Information About Industry Segments
The Company operates as a single industry segment within the meaning of
Statement of Financial Accounting Standards No. 131.
(c) Narrative Description of Business
Overview
By offering an interactive, Internet based solution to the $33 billion
weight loss industry, the Company has transferred its business model from weight
loss centers to homes via its Internet Web site, "www.nutrisystem.com" (the "Web
site"), providing dieters with a friendly and timesaving program. The Company
leverages the advantages of online commerce with specific focus on all aspects
of weight loss. The increasing percentage of Internet users who shop for
healthcare products online puts the Company in an optimal position for rapid and
profitable growth.
Traditional weight loss programs offered at physical retail centers are
inherently expensive, requiring up-front program fees that range from $60 to
$600. Participants attend mandatory weekly on-site meetings and are required to
purchase products and supplements. This traditional form of weight loss has lost
its luster and now represents an archaic business model. The Internet allows the
Company to be the low-cost provider in the weight loss industry, offering free
participation and products at value pricing. Without the constraints and
overhead costs of the bricks and mortar weight loss program, the Company is able
to expand its client base, offering a time-conscious and private experience,
while promoting quality and value to the consumer.
The Company's online program offers dieters a comprehensive and anonymous
approach to dieting without sacrificing any program benefits. By providing
individualized calorie plans, portion-controlled food, one-on-one counseling,
behavior modification, exercise education and maintenance plans at the
participant's convenience, the online program meets the client's every need.
Comprehensive weight related information is offered in a participatory manner,
allowing clients to customize their weight loss programs and personalize their
meal and exercise plans.
The primary tool in promoting weight loss in the nutrisystem.com program is
pre-packaged, portion-controlled food. The food is specially formulated and
prepared using a state-of-the-art heating process. It requires no refrigeration,
making storage and shipping costs negligible. With over 100 shelf-stable food
selections, the products offered by the Company are particularly suited for
e-commerce. Because orders can be placed 24 hours a day, seven days a week
through the Web site, customers find themselves having the convenience of timely
product selection and service fulfillment.
Once the Company achieves sufficient sales volume to realize economies of
scale, the Company believes that its high inventory turnover, lack of investment
in expensive retail centers and substantially lower warehousing expenses should
give it significant advantages relative to traditional weight loss centers.
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Industry Background
Traditional Weight Loss Retailing. The traditional weight loss industry is
characterized by classroom style diet firms that charge initiation fees and have
mandatory weekly meetings. The two major classroom style diet firms are Jenny
Craig Inc., with approximately 800 owned and franchised centers in North
America, Australia and New Zealand, and Weight Watchers International, which was
recently sold to a private European investment firm by H.J. Heinz Company. On
average, a client spends 10 weeks in a program and loses 1 to 2 1/2 pounds per
week. Overweight individuals typically join a weight loss program for health and
cosmetic reasons and often stop and then re-enroll in a program several times.
The weight loss industry is characterized by a broad array of products,
services and supplements as well as rapid changes in trends and the broad
availability of diet literature and philosophies. The Company believes that the
business model of the traditional weight loss industry results in high overhead
costs that are passed on to clients through program fees ranging from $60 to
$600.
Recent studies reported in the Journal of the American Medical Association
indicate that approximately 100 million Americans are overweight and spend in
excess of $33 billion per year on weight control products and services. A recent
report released by Tufts University found that 63% of men and 55% of women over
the age of 25 are obese or overweight, the highest rate ever recorded. As
result, more Americans are now at risk for diabetes, cancer and heart disease
among other conditions. These statistics contribute to the rising health care
costs to treat obesity, which are now estimated at $70 billion per year. The
Company believes its Web site provides an attractive commercial medium to reach
the weight loss industry.
e-Commerce. The Internet has become an important alternative to traditional
media, enabling millions of consumers to seek information, communicate with one
another and execute commercial transactions electronically. According to an
industry research firm, the number of World Wide Web users is expected to grow
from approximately 100 million in 1998 to approximately 320 million by 2002. The
Internet is distinct from traditional media in that it offers real-time access
to dynamic and interactive content and instantaneous communication among users.
These characteristics, combined with the fast growth of Internet users and
usage, have created a powerful, rapidly expanding direct marketing and sales
channel. Advertisers can target specific demographic groups, measure the
effectiveness of advertising campaigns and revise them in response to real-time
feedback. Similarly, the Internet offers online merchants the ability to reach a
large audience and operate with lower costs and greater economies of scale,
while offering consumers greater selection, lower prices and increased
convenience compared to conventional retailing.
Cyber Dialogue, Inc. estimates that the number of adults in the United
States searching for on-line health and medical information will grow to
approximately 30 million in the year 2000, and they will spend approximately
$150 billion for all types of health-related products and services off-line.
Accordingly, the Company believes that companies that establish a clear brand
identity as a trusted source of online consumer healthcare information and
services will
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have a significant opportunity to capitalize on multiple revenue sources,
including direct-to-consumer advertising and e-commerce.
Strategy
The Company's online marketing strategy is to attract clients through
informative up-to-date content, online counseling sessions, chat rooms and
personalized exercise programs, coupled with its NutriSystem food offerings. The
Company believes its Web site, which became operational on October 15, 1999,
attracts users who are health conscious and have the disposable income to
participate in weight loss activities but who are faced with time restrictions
from busy work and home schedules. The Web site is attractive to those who would
rather participate privately in an online weight loss program due to the
sensitivity of the subject matter or those who have a dislike for the mandatory
group session approach used by other weight loss firms. The Company plans to
capitalize on the $33 billion weight loss industry by combining the
well-established NutriSystem name and proven weight loss program with the
Internet as the medium of communications with its customers and potential
customers. The Company intends to facilitate this goal using the following
strategies:
Leverage Strong Brand Name Recognition through Strategic
Alliances. The more than 30 years of experience of the Company's
predecessors in the weight loss industry under the NutriSystem
name conveys strong brand recognition and should substantially
facilitate the Company's ability to garner valuable advertising
space and form strategic relationships. To exploit the Company's
brand name recognition and generate traffic to its online store,
the Company has focused its strategic alliances into three
categories: (i) Internet Portals: AOL.com, Lycos.com, Snap.com,
About.com, AltaVista.com, Excite.com and WebCrawler.com, (ii)
Health Content Sites: drkoop.com., HeathCentral.com and
OnHealth.com and (iii) Wedding Content Sites: TheKnot.com,
ModernBride.com and WeddingChannel.com.
Encourage Frequent Visits, Providing a Truly Interactive,
Informative Experience. The Company's Web site provides a highly
participatory and enjoyable experience. Unlike other sites which
offer read only content, the Company's Web site provides a
virtual environment in which the user calculates his/her health
status, communicates in "real time" with a personal counselor in
the state-of-the-art counseling room and even evaluates his/her
progress using the Daily Diary. The Web site also features weight
loss product information and other health related content
provided by nutritionists and health experts, as well as live
discussions and lectures that encourage the user to talk to the
experts.
Secure Customer Loyalty by Delivering a Compelling Value
Proposition. The Company offers value through the use of
innovative technology, broad product selection, high quality
content, a high level of customer service, competitive pricing
and personalized services. Dieters are offered an interactive and
anonymous approach to dieting without sacrificing the specifics
of a successful program. Each customer is provided with an
individualized weight loss program as well as one-on-one behavior
modification counseling and exercise
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program development. The Company offers over 100 food items that
require no refrigeration, with a cost to the consumer of less
than $8.00 per day before shipping and handling for breakfast,
lunch, dinner and snacks. New food items are added on a quarterly
basis to ensure variety. Orders can be placed 24 hours a day and
will be shipped within the next 24 hours. Customers make person
to person inquiries by talking live to the Company's Online Help
Consultant or by calling the Customer Support toll-free number.
Generate Incremental Revenue. In addition to the products and
services offered as part of its weight loss program, the Company
plans to derive revenue from the sale of nutritional supplements
and exercise equipment. The Company currently markets a line of
vitamins and supplements under the name "Nutrihance," and plans
to expand this line in the first quarter of 2000 to include brand
name vitamins and supplements. The Company also intends to offer
exercise equipment as well as other diet and health-related
products and accessories beginning in the third quarter of 2000.
Broaden Potential Client Base. The Internet provides the Company
with an excellent distribution channel to attract overweight men.
With over 48% of overweight men trying to lose weight at any
given time, the general program design is intended to capitalize
on the male population that is traditionally reluctant to attend
formal weight loss programs. Because of the anonymous nature and
personalized approach of the program, the Company believes it can
increase the percentage of male clients who currently participate
in structured weight loss programs from 5% to 30%.
Continue to Service Dieters Without Internet Access. Through the
Company's NutriSystem Direct Program, independent representatives
offer the Company's products and services directly to clients or
potential customers who do not have Internet access. This
approach offers these clients a convenient and cost effective
approach to the NutriSystem weight loss program.
The nutrisystem.com Web site
The Company's nutrisystem.com Web site is designed to be informative,
helpful and encouraging, allowing customers to learn easily about, discover and
purchase weight loss products and other complementary products such as exercise
and nutritional aids. Management believes the Company's program is intuitive and
convenient to use and facilitates completion of the ordering process with a
minimum of customer effort. Customers entering the Web site can, in addition to
ordering weight loss products, read a weekly newsletter on dietary trends and
other featured products, sign up for one-on-one counseling sessions, create
individual calorie and exercise plans, search a "before and after" photo library
and check order status. In contrast to the "classroom style" approach used by
traditional diet centers, the consumer can accomplish the weight loss experience
in the comfort and convenience of his or her own home or office.
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PERSONAL MEAL PLAN - The Company takes all the thinking,
calculating and measuring out of dieting. The Company's plan
offers a wide variety of convenient and appealing
portion-controlled meals specifically designed to provide the
client with the important vitamins, minerals and other nutrients
the body needs without the excess fat and calories. Each week,
the client may choose from a variety of meals that can be
delivered directly to the client's home or office.
INNOVATIVE COUNSELING - The counseling room allows a client to
meet and chat with a personal counselor over the Internet in real
time. The one-on-one counseling is a private session, where the
client can discuss his or her progress and receive support. A
client is assigned a counselor who stays with the client
throughout the program, allowing the client to work with someone
the client can learn to trust. If a client has a question between
sessions, or prefers to take a more independent approach, the
client can communicate with a counselor by e-mail and receive
personalized responses to questions and concerns.
FREE PERSONAL PROFILE - The Personal Profile takes information
provided by the client and identifies his or her overall weight
status. The profile charts the client's present weight and body
mass index. The profile also provides the client with a
recommended calorie level and meal plan based on the NutriSystem
plan and gives an estimate in chart form of how long it will take
to lose the desired weight.
WEEKLY NEWSLETTER - The Weekly Newsletter is a free distribution
that is e-mailed to clients once a week and provides the latest
information on diet aids, fads and the current exercise craze.
Experts on topics such as childhood obesity and the role of diet
in preventing disease are featured. Other topics include fashion
tips and a Dear NutriSystem column.
DISCUSSION AND LECTURE ROOM - Free lectures and discussions
provide the client with information from experts in topics
ranging from weight loss to women's and men's health as well as
other articles describing beauty and fashion issues and trends. A
client is able to listen to and participate in these monthly
sessions that are hosted by book authors, doctors and well-known
personalities. A client is able to ask the experts questions and
receive immediate answers. Clients can also read how others are
dealing with the same issues.
PERSONALIZED EXERCISE PROGRAMS - A counselor designs an exercise
program that complements the client's specific physical
condition, hobbies and lifestyle. During the weekly counseling
sessions, a client receives information on how to walk
effectively, which exercise equipment works best and how to use
everyday activities to help increase endurance. Counselors help
individuals design their own exercise programs, set realistic
goals and measure their progress.
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TESTIMONIALS - "BEFORE AND AFTER" LIBRARY - Real photos of actual
clients are displayed on the Web site with brief testimonials as
to their success using the Company's weight loss program.
TRULY INTERACTIVE SITE - The Company's Web site is participatory
in nature. For example, if clients choose to take full advantage
of the Web site, they can log in their daily food intake and
physical activity and the Web site calculates the caloric intake
and the calories burned and recommends ways to improve the
clients' progress. The Web site is user friendly and provides
motivational tools to keep a client focused and on track with his
or her program.
Strategic Relationships
The Company believes it can enhance its new customer acquisition efforts,
increase purchases by current customers and expand brand recognition through
strategic alliances with major online and traditional content and service
providers. Alliances with major Internet portal sites will build brand
recognition, increase market share and attract customers. In furtherance of this
strategy, the Company has successfully negotiated strategic alliances with
providers of leading Internet sites including AOL.com, Snap.com, Lycos.com,
Excite.com, WebCrawler.com and Netscape.com. The Company has teamed up with
TheKnot.com, one of the world's busiest content-based Web sites for wedding
planning, to be the exclusive weight loss brand advertised on its weight
management center and has an agreement with drkoop.com to be the premier sponsor
of and the exclusive weight loss program advertised on drkoop.com's Weight
Management Center.
The Internet-based alliances generally provide that the Company will be the
premier online weight loss program on the provider's Web site, with the
exclusive right to place banner advertisements and integrated links to the
nutrisystem.com Web site. These pages feature the nutrisystem.com branded link
that allows users to click through to the Company's Web site. As part of these
arrangements, the Company typically purchases the right to display its banners
and hyperlinks, often in conjunction with specified search keywords such as
"diet" and "weight loss." To direct traffic to its Web site, the Company created
a number of inbound links that connect directly to "www.nutrisystem.com" from
other sites on the Web.
The Company carefully evaluates each potential alliance in order to ensure
that the associated fees are cost effective in terms of customer acquisition,
potential revenue to be generated, level of exclusivity and brand exposure.
Advertising and Marketing
The Company believes that the use of multiple marketing channels reduces
reliance on any one source of customers, lowers customer acquisition costs and
maximizes brand awareness. The marketing strategy is to promote, advertise and
increase its brand visibility and acquire new customers through multiple
channels and through various advertising and marketing media, including: (1)
Internet Advertising, (2) Affiliate Network Programs, (3) Traditional
Advertising Media and (4) Direct Marketing.
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Internet Advertising
The following table lists the Company's Internet advertising agreements and
the number of impressions provided for under each agreement. In most instances,
the number of impressions is "guaranteed" during a specific contract term, and
the term of the agreement is generally extended until that number of impressions
is provided.
Number of
Portal/Web site Impressions
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AOL.com including Netscape.com 132,000,000
AltaVista.com 1,259,000
ModernBride.com 11,900,000
drkoop.com 15,952,000
HealthCentral.com 3,700,000
TheKnot.com 15,000,000
Excite.com 22,248,000
OnHealth.com 11,842,000
About.com 944,000
Lycos.com 24,885,000
WeddingChannel.com 2,400,000
Snap.com 2,200,000
Affiliate Network Programs
Affiliate programs provide the Company with an efficient way to market
products and services online. Under these agreements, partners agree to display
the Company's advertising for a percentage of the sales that originate on the
affiliate's site or pay-for-click. The Company currently has an affiliate
relationship with Microsoft's Link Exchange and is in negotiations with other
affiliate networks.
Traditional Advertising Media
The Company will use a combination of television, radio and print
advertising to complement the Internet campaign. The television commercials will
feature a "Before and After" campaign, a strategy that has been proven effective
throughout the weight loss industry. With the input of a leading advertising
agency, a campaign is being developed to capitalize on the highly recognized
brand name while introducing the "New" nutrisystem.com online weight loss
program. The national radio campaign will use testimonials featuring prominent
radio personalities who will participate in the NutriSystem program, lose weight
and then report via live spots regarding their success.
Direct Marketing
A direct mail campaign is being developed as a companion to the media
advertising and will include mailings to the existing database of over 1,000,000
historical customers of the Company's predecessors.
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Customer Service
The Customer Service area of the Company's Web site contains extensive
information regarding shopping, ordering and returning products. Shipping
charges, payment options and other policies are explained to the customer. Help
buttons on every page of the site take customers to the specific customer
service topic they desire. Customers can track the current status of their
orders and can obtain shipper-tracking numbers. Because the concept of Internet
retail is new to many people, the Company offers live, interactive help using
NetAgent software and offers telephone assistance by customer service agents to
answer questions about products and the shopping process.
Detailed product information is available, including descriptions and
photographs. To purchase products, customers simply click on a button to add
products to their virtual shopping baskets. Customers can add and subtract
products from their shopping baskets as they browse, prior to making a final
purchase decision, just as in a physical store. To execute orders, customers
click on the "check out" button and are prompted to supply shipping and credit
card details online. For convenience, the Company enables customers to store
information on the Company's secure server, thereby avoiding the need to
re-enter this information when making future purchases. The Company
automatically confirms each order by e-mail within minutes after the order is
placed. The Company offers a money back return policy.
Behind The Scenes
Warehousing and Fulfillment. Products are shipped from the Company's 27,000
square foot warehouse located in Horsham, Pennsylvania. Orders placed by 6:00
p.m. Eastern Time are processed and shipped via UPS or RPS the same day.
Infrastructure, Operations and Technology. The Company's technology
infrastructure provides for continuous availability of its online service. All
of the critical components of the system are redundant with locations in
Horsham, Pennsylvania and Allentown, Pennsylvania, allowing the Company to
withstand unexpected component failure and to undergo maintenance or upgrades.
The Company's operation is dependent on the ability to maintain its computer and
telecommunications systems in effective working order and to protect its systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. Systems administrators and network managers of a
third party under contract to the Company also monitor the Company's servers and
execute backups. The servers have access to auxiliary power during outages.
Systems are copied to backup tapes daily, which in turn are sent to the Company
for offsite storage. Database and Web servers are redundant and operate using
clustering technology for effective load balancing and fault tolerance.
Regular capacity planning allows for the quick upgrade of existing hardware
and integration of new hardware to react quickly to a rapidly expanding member
base and increased traffic to the Company's Web site. Key content management and
e-commerce components are designed, developed and deployed by the Company's
in-house technology group.
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Several layers of security are employed to protect data transmission and
prevent unauthorized access. All production servers are behind firewalls and do
not allow for outside access at the operating systems level. Strict password
management and physical security measures are followed.
E-commerce transactions and browser-based administration screens employ
secure sockets layer encryption to secure data transmitted between clients and
servers. Credit card information captured during e-commerce transactions is
never shared with outside parties.
Information Gathering. Internet software technology allows the Company to
gather detailed information about the purchase and the customer. For example,
the Company can track the source of each sale in order to identify those Web
sites on which the Company advertises that are generating the most business.
This information, combined with customer profile information gathered throughout
the ordering process, creates a powerful direct marketing database which is
utilized to generate repeat business.
Competition
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. The number of Web sites on the Internet
competing for consumers' attention has proliferated and the Company expects that
competition will continue to intensify. The Company competes, directly and
indirectly, for advertisements, viewers, members and content providers with the
following categories of companies:
o Traditional weight loss franchise centers including Jenny Craig and
Weight Watchers.
o Self-administered weight loss regimens and physician-monitored
programs.
o Online services or Web sites targeted to weight conscious persons and
health enthusiasts, such as eDiets.com and Cyberdiet.com.
The Company believes its products, services and Web site content compare
favorably with those of its competitors, due to the fact many of them have
committed to relatively expensive multi-site retail operations that make it
difficult for them to leverage their overhead.
Intellectual Property
The Company pursues the registration of its trademarks and service marks in
the United States. The Company also has rights to several Internet domain names,
including "nutrisystem.com."
Employees
The Company believes its success depends to a significant extent on its
ability to attract, motivate and retain highly skilled vision-oriented
management and employees. To this end,
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the Company focuses on incentive programs for its employees and fosters a
corporate culture which is challenging, rewarding and fun. As of November 30,
1999, the Company had 46 full-time employees and one part-time employee and
considers its employee relations satisfactory.
Other
Expenditures for research and development activities are not material to
the Company's business, nor has compliance with federal, state or local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, had any material effect
upon the capital expenditures, earnings or competitive position of the Company.
Financial Information About Foreign and Domestic Operations and Export Sales
The Company does not have material foreign operations, and has no export
sales.
Risk Factors
No Operating History; Anticipated Losses. The Company was incorporated in
August 1999, acquired the Partnership and NSDirect in September 1999 and
launched its Web site on October 15, 1999. Accordingly, the Company has no
operating history upon which an evaluation of the Company and its prospects can
be based. The Company anticipates that it will incur significant additional
costs to fund increased marketing initiatives, additional strategic alliances,
enhancements to the Company's Web site and technological and hardware
improvements. As a result of these costs, the Company anticipates significant
operating losses for the foreseeable future. To the extent that such costs do
not result in appropriate revenue increases, the Company's business, financial
condition, results of operations or prospects may be materially adversely
affected.
Need for Additional Financing. The capital resources required to implement
the Company's business plan are significant. The Company anticipates that it
will continue to need additional financing to accomplish its business plan.
There can be no assurance that any such financing will be available on terms
acceptable to the Company or at all.
Competition. Both the e-commerce market and the weight loss business are
highly competitive. Since the introduction of e-commerce to the Internet, the
number of e-commerce Web sites competing for customer attention has increased
rapidly. The Company expects future competition to intensify given the relative
ease with which new Web sites can be developed. The Company believes that the
primary competitive factors in e-commerce are brand recognition, site content,
ease of use, price, fulfillment speed, customer support and reliability. The
Company believes that its success will depend heavily upon its ability to
provide a compelling and satisfying weight loss experience for its customers.
The Company believes that other factors that will affect the Company's success
include the Company's ability to attract experienced marketing, technology,
operations and management talent. The nature of the Internet as an electronic
marketplace which may, among other things, facilitate competitive entry and
comparison shopping, may render it inherently more price competitive
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than traditional weight loss formats. The increase of competitiveness among
online weight loss businesses may result in reduced operating margins, loss of
market share and a diminished brand franchise.
Management of Growth. Future growth is expected to place a significant
strain on the Company's managerial, operational and technical resources. The
Company expects its operating expenses and staffing levels to increase
substantially in the future. To manage its anticipated growth, the Company must
expand its operational and technical capabilities and manage its employee base
while effectively administering multiple relationships with various third
parties. There can be no assurance that the Company will be able to manage the
expansion of its operations effectively. Any failure of the Company to implement
cohesive management and operating systems, add resources on a cost effective
basis or manage the Company's expansion could have a material adverse effect on
the Company's business, financial condition, results of operations or prospects.
Potential Fluctuations in Quarterly Results. The Company expects that it
will experience significant fluctuations in its future quarterly operating
results due to a variety of factors, many of which are outside of the Company's
control. The Company believes that factors that may adversely affect the
Company's quarterly operating results include: (i) the Company's ability to
retain existing customers, attract new customers at a steady rate and maintain
customer satisfaction; (ii) the Company's ability to acquire product and to
manage fulfillment operations; (iii) the Company's ability to maintain gross
margins in its existing business and in future product lines and markets; (iv)
the development, announcement or introduction of new Web sites, services and
products by the Company and its competitors; (v) price competition and (vi) the
Company's ability to upgrade and develop its systems and infrastructure.
Consequently, the Company believes that period-to-period comparisons of the
Company's operating results will not necessarily be meaningful and should not be
relied upon as an indication of future performance. The Company's future
quarterly operating results from time to time may not meet the expectations of
securities analysts or investors, which may have a material adverse effect on
the market price of the Common Stock.
Control by Principal Stockholders. The Company's directors and their
affiliates own beneficially approximately 63.0% the Company's outstanding
Common Stock. As a result, the Company's directors and their affiliates will,
collectively, be able to exercise control over all matters requiring stockholder
approval, including the election of all directors and the approval of
significant corporate transactions. This ownership may have the effect of
delaying or preventing a change in control of the Company.
Dependence upon Strategic Alliances. The Company relies on strategic
alliances with third-party Web sites and content providers to attract users to
its Web site. The Company has entered into various agreements with companies to
attract users from numerous other Web sites or online service providers which
are described in more detail in "Strategic Relationships." The Company believes
that such alliances will result in increased traffic to the Company's Web site.
The Company's ability to generate revenues from e-commerce may depend on the
increased traffic, purchases, advertising and sponsorships that the Company
expects to generate through such strategic alliances. There can be no assurance
that these agreements will be maintained beyond their initial terms or that
additional third-party
-12-
<PAGE>
agreements will be available to the Company on acceptable commercial terms or at
all. In addition, significant strategic alliance agreements have traditionally
been exclusive arrangements. The inability to enter into new, and to maintain
any one or more of its existing strategic alliances could have a material
adverse effect on the Company's business, financial condition, results of
operations or prospects.
Risks of the Internet as a Medium for Commerce. Consumer use of the
Internet as a medium for commerce is a recent phenomenon and is subject to a
high level of uncertainty. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as reliable network backbones, or complementary services, such as high
speed modems and security procedures for financial transactions. The viability
of the Internet or its viability for commerce may prove uncertain due to delays
in the development and adoption of new standards and protocols (for example, the
next generation Internet Protocol) to handle increased levels of Internet
activity or due to increased government regulation or taxation.
While the number of Internet users has been rising, the Internet
infrastructure may not expand fast enough to meet the increased levels of
demand. The increased use of the Internet as a medium for commerce raises
concerns regarding Internet security, reliability, pricing, accessibility and
quality of service. If use of the Internet does not continue to grow, or if the
necessary Internet infrastructure or complementary services are not developed to
support effectively growth that may occur, the Company's business, financial
condition, results of operations or prospects could be materially adversely
affected. In addition, the nature of the Internet as an electronic marketplace,
which may, among other things, facilitate competitive entry, comparison shopping
and advertising revenue supported business models, may render it inherently more
competitive than conventional retailing formats.
Rapid Technological Change. To remain competitive, the Company must
continue to enhance and improve the responsiveness, functionality and features
of its Web site. The Internet and the e-commerce industry are characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render the Company's Web site and proprietary technology and systems
obsolete. The Company's success will depend, in part, on its ability to license
leading technologies useful in its business, enhance its existing services,
develop new services and technology that address the increasingly sophisticated
and varied needs of its existing and prospective customers and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
The development of a Web site and other proprietary technology entails
significant technical, financial and business risks. Further, the adoption of
new Internet, networking or telecommunications technologies may require the
Company to devote substantial resources to modify and adapt its services. There
can be no assurance that the Company will successfully implement new
technologies or adapt its Web site, proprietary technology and
transaction-processing systems to customer requirements or emerging industry
standards. If the Company is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, such failure
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<PAGE>
could have a material adverse effect on the Company's business, financial
condition, results of operations or prospects.
Security Risks. Public concern over Internet security has been, and may
continue to be, a hindrance to mass market commercial use of the Internet.
Despite the implementation of network security measures by the Company, its
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by its customers or others. Computer viruses,
break-ins or other security problems could lead to misappropriation of
proprietary information and interruptions, delays or cessation in service to the
Company's customers. Any computer break-in could affect consumer confidence in
the security of the Company and could seriously damage its business. Moreover,
until more comprehensive security technologies are developed, the security and
privacy concerns of existing and potential customers may hinder the growth of
the Internet as a mass market medium for commerce.
Risk of System Failure or Inadequacy. The Company's operations will be
dependent on its ability to maintain its computer and telecommunications
equipment in effective working order and to protect its systems against damage
from fire, natural disaster, power loss, telecommunications failure or similar
events. In addition, the growth of the Company's customer base may strain or
exceed the capacity of its computer and telecommunications systems and lead to
degradations in performance or systems failure. From time to time, the Company
may experience capacity constraints and failure of its information systems which
could result in decreased levels of service delivery or interruptions in service
to its customers. While the Company will continually review and seek to upgrade
its technical infrastructure and provide for system redundancies and backup
power to limit the likelihood of systems overload or failure, any damage,
failure or delay that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, financial condition,
results of operations or prospects.
Risks Associated with Domain Names. The Company currently holds various
Internet domain names, including "www.nutrisystem.com." Currently, the
acquisition and maintenance of domain names is regulated by governmental
agencies and their designees. For example, in the United States, the National
Science Foundation has appointed Network Solutions, Inc. as the current
registrar for the ".com," ".net" and ".org" generic top-level domains. The
regulation of domain names in the United States and in foreign countries will
change in the near future. Such changes in the United States will include a
transition from the current system to a system which is controlled by a
non-profit corporation and the possible creation of additional top-level
domains. Requirements for holding domain names will also be affected. As a
result, there can be no assurance that the Company will be able to acquire or
maintain relevant domain names in all countries in which it conducts business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. The
Company, therefore, may be unable to prevent third parties from acquiring domain
names that are similar to, infringe upon or otherwise decrease the value of the
Company's trademarks and other proprietary rights. Any such inability could have
a material adverse effect on the Company's business, financial condition,
results of operations or prospects.
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<PAGE>
Government Regulation and Legal Uncertainties. E-commerce is new and
rapidly changing, and federal and state regulation relating to the Internet and
e-commerce is evolving. Currently, there are few laws or regulations directly
applicable to the access to the Internet or to e-commerce on the Internet. Due
to the increasing popularity of the Internet, it is possible that laws and
regulations may be enacted with respect to the Internet, covering issues such as
user privacy, pricing, taxation, content, copyrights, distribution, antitrust
and quality of products and services. In addition, the rapid growth of
e-commerce may trigger the development of more stringent consumer protection
laws. The adoption of such laws or regulations could reduce the rate of growth
of the Internet, which could potentially decrease the usage of the Company's Web
site or could otherwise have a material adverse effect on the Company's
business. In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the event of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies.
It should also be noted that several telecommunications carriers have
requested that the Federal Communications Commission ("FCC") regulate
telecommunications over the Internet. Due to the increasing use of the Internet
and the requirements it has placed on the current telecommunications
infrastructure, telephone carriers have requested that the FCC regulate Internet
service providers and online service providers and impose access fees on those
providers. If the FCC imposes access fees, the costs of using the Internet could
increase dramatically and result in the reduced use of the Internet as a medium
for commerce. A reduction in the use or availability of the Internet could have
a material adverse effect on the Company's business, financial condition,
results of operations or prospects.
Sales and Other Taxes. The Company, in accordance with current industry
practice, does not collect sales or other taxes in respect of shipments of goods
into states other than Pennsylvania. However, one or more states or foreign
countries may seek to impose sales or other tax collection obligations on
out-of-jurisdiction companies such as the Company which engage in e-commerce. A
successful assertion by one or more states or foreign countries that the Company
should collect sales or other taxes on the sale of merchandise could have a
material adverse effect on the Company's business, financial condition, results
of operations or prospects.
Recent federal legislation limits the imposition of state and local taxes
on Internet-related sales. In 1998, Congress passed the Internet Tax Freedom
Act which places a three-year moratorium on state and local taxes on
(i) Internet access, unless such tax was already imposed prior to October 1,
1998 and (ii) discriminatory taxes on electronic commerce. There can be no
assurance that Congress will renew this legislation in 2001. If Congress does
not renew this legislation, state and local governments would be free to impose
taxes on electronically purchased goods which could have a material adverse
effect on the Company's business, financial condition, results of operations or
prospects.
Risks of Possible Extreme Volatility of Market Price of Common Stock;
Limited Trading Market. The market price of the Common Stock may be extremely
volatile for many reasons, including: (i) actual or anticipated variations in
the Company's revenues and operating results;
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<PAGE>
(ii) announcements of the development of improved technology; (iii) the use of
new sales formats by the Company or its competitors; (iv) changes in the
financial forecasts by securities analysts; (v) new conditions or trends in the
Internet and e-commerce and (vi) general market conditions.
Recently, market prices for Internet-based companies have experienced
extreme price and volume fluctuations, particularly after initial public
offerings. These fluctuations are often unrelated or disproportionate to the
operating performance of those companies and may not be sustainable. Further,
market prices of the Common Stock in the future may bear no traditional
relationship to the Company's financial condition or performance.
An active trading market does not exist for the Common Stock, and there can
be no assurance that such a market will develop or how liquid that market might
become.
Anti-takeover Effects of Certificate of Incorporation, By-laws and Delaware
Law Provisions; Possible Issuance of Preferred Stock. The ownership by the
Company's directors and their affiliates of approximately 63.0% of the Company's
outstanding Common Stock gives them voting control of the Company and has the
effect of preventing a change in control of the Company without their consent.
In addition, the Company's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock without any further vote or action by the
stockholders, and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, if any, of such shares. Since the
Preferred Stock could be issued with voting, liquidation, dividend and other
rights superior to those of the Common Stock, the rights of the holders of the
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of any such Preferred Stock. The issuance of Preferred Stock could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. Further, the provisions of the
Company's Certificate of Incorporation, including provisions of Delaware law,
could have the effect of delaying or preventing a change in control of the
Company.
Year 2000 Preparation. Software failures due to calculations using Year
2000 dates are a known risk. The Company is currently evaluating and managing
the financial and operating risks associated with this problem. Problems with
Year 2000 software could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities. To date, the Company has experienced very few problems related to
Year 2000 testing and those requiring immediate modification have been fixed.
The Company does not believe that there is material exposure to the Year 2000
issue with respect to its electronic commerce transaction processing and online
activity since these systems correctly define the Year 2000.
The Company is currently conducting an analysis to determine the extent to
which others have Year 2000 issues. These include the Company's major suppliers'
systems, including the systems of credit card processors, telecommunications
providers, product distributors and companies with whom the Company does
business. The Company is currently unable to predict the extent to which the
Year 2000 issue will affect suppliers, or the extent to which the Company would
be vulnerable to its suppliers' failure to remediate any
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<PAGE>
Year 2000 issues on a timely basis. The failure of a major supplier subject to
the Year 2000 issue to convert its systems on a timely basis or a conversion
that is incompatible with the Company's systems could have a material adverse
effect on the Company. In addition, most of the purchases from the Company's
online sales are made with credit cards. As such, operations may be materially
adversely affected to the extent customers are unable to use their credit cards
due to Year 2000 issues that are not rectified by their credit card providers.
Cost of Food and Services. Because a large percentage of the Company's
revenues will be derived from sales of the Company's food products, increases in
the cost of food and food services could have a material adverse impact on the
Company.
Seasonality. The Company's revenues will be 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 the ability of the Company to penetrate new
markets. The Company's business is seasonal with revenues generally decreasing
in the quarter ending December 31 and during the summer months. The Company may
also choose to reduce prices or to increase spending in response to competition
or to pursue new market opportunities, all or any of which may materially
adversely affect the Company's results of operations.
Reliance on Certain Suppliers. The Company carries inventory and is
improving its warehouse to enhance its inventory, but the Company relies to a
large extent on rapid fulfillment from vendors. The Company has no long-term
contracts with any of its vendors that guarantee the availability of
merchandise, the continuation of particular payment terms or the extension of
credit limits. There can be no assurance that the Company's current vendors will
continue to sell merchandise to the Company on current terms or that the Company
will be able to establish new or extend current vendor relationships to ensure
acquisition of merchandise in a timely and efficient manner and on acceptable
commercial terms. If the Company were unable to develop and maintain
relationships with vendors that would allow it to obtain sufficient quantities
of merchandise on acceptable commercial terms, its business, prospects,
financial condition and results of operations would be materially adversely
affected.
Risks Associated with Entry into New Business Areas. The Company may choose
to expand its operations by developing new Web sites, promoting new or
complementary products or sales formats, expanding the breadth and depth of
products and services offered or expanding its market presence through
relationships with third parties. There can be no assurance that the Company
would be able to expand its efforts and operations in a cost-effective or timely
manner or that any such efforts would increase overall market acceptance.
Furthermore, any new business or Web site launched by the Company that is not
favorably received by consumers could damage the Company's reputation. Expansion
of the Company's operations in this manner would also require significant
additional expenses and development, operations and editorial resources, and
would strain the Company's management, financial and operational resources. The
lack of market acceptance of such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products to offset their
cost could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
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<PAGE>
Dependence on Trademarks and Proprietary Rights. The Company regards its
copyrights, service marks, trademarks, trade secrets and similar intellectual
property as critical to its success, and relies on trademark and copyright law
and trade secret protection to protect its proprietary rights. The Company
pursues the registration of its trademarks and service marks in the United
States. Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which the Company's products and
services are made available online. There can be no assurance that third parties
will not take actions that might materially adversely affect the value of the
Company's proprietary rights or reputation, which could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate or that third parties will not
infringe or misappropriate the Company's copyrights, trademarks, trade secrets
and similar proprietary rights. In addition, there can be no assurance that
other parties will not assert infringement claims against the Company.
-18-
<PAGE>
Item 2. Financial Information.
The following historical selected financial data are derived from the
Company's audited and unaudited Consolidated Financial Statements and those of
its predecessors, Nutri/System L.P. and NutriSystem Direct, L.L.C. (the
"Predecessor Businesses"). The historical selected financial data as of
September 30, 1999 and for the nine months ended September 30, 1999 and 1998
have been derived from the unaudited Consolidated Financial Statements of the
Company. In the opinion of management, the Company's unaudited financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of the Company's results of operations and
financial condition for the periods presented. The Company's results of
operations for the nine months ended September 30, 1999 and 1998 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year or for future periods. The operating data and the balance sheet data
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this document.
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
-------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues (a):
Food Sales $ 43,531 $ 44,972 $ 39,000 $ 23,698 $ 8,415 $ 6,606 $ 6,346
Other Revenues 11,829 9,948 8,030 22,173 908 745 579
Total Revenues 55,360 54,920 47,030 45,871 9,323 7,351 6,925
Cost of revenues 57,379 49,217 45,823 47,686 7,101 5,571 5,014
Other Items 1,125 8,781(e) 367(b) (1,828)(c) --- --- 8,260(d)
Other operating expenses 2,694 2,995 2,318 2,873 2,332 2,133 2,242
Operating loss (5,838) (6,073) (1,478) (2,860) (110) (353) (8,591)
Net loss $ (5,875) $ (6,095) $ (163) $ (1,598) $ (42) $ (141) $ (8,390)
Net loss per share:
Basic $ (0.36) $ (0.37) $ (0.01) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
Diluted $ (0.36) $ (0.37) $ (0.01) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
Weighted Average
Shares Outstanding:
Basic 16,282,781 16,282,781 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
Diluted 16,282,781 16,282,781 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
-------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $ 14,900 $ 10,146 $ 11,056 $ 4,826 $ 2,924 $ 3,687 $ 6,822
Long-term liabilities 314 1,045 1,678 76 53 55 44
Minority interest 8,144 2,704 2,350 878 807 661 ---
Equity 981 326 2,163 565 523 426 2,482
</TABLE>
- -------------------
(a) In 1997, the Company sold its owned weight loss centers to Complete
Wellness Weight Management, Inc. As a result, beginning in 1998, the
Company experienced a significant decrease in revenues associated with food
sales and weight loss programs. Revenues generated from Company-owned
weight loss centers in 1997 were $33,484.
(b) In 1996, the Company sold some weight loss centers at a loss of $367.
(c) In 1997, the Company sold its weight loss centers (see note (a)) at a loss
of $5,347. In addition, in 1997, the Company received proceeds from its
insurance carrier associated with products liability litigation which
generated a net gain of $7,175.
(d) A compensation charge of $8,260 was recorded in the nine months ended
September 30, 1999.
(e) In 1995, the Company disposed of its exercise weight loss centers at a loss
of $8,292.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except share data)
BACKGROUND
nutrisystem.com inc., a Delaware corporation, was formed to operate the
leading authoritative World Wide Web site for weight loss and related health
issues by providing a well-known diet program that incorporates pre-packaged
meals and a complete diet philosophy, in the convenience of one's own home.
The Company's predecessors, including Nutri/System L.P. and NutriSystem
Direct, L.L.C. (collectively, the "Predecessor Businesses") have historically
operated through company-owned and franchised weight loss centers. Independent
franchise weight loss center owners operate using the Company's trade name,
trademarks and programs for which a royalty is paid to the Company. The
Company's pre-packaged foods are sold to program participants through the
Internet, independent distribution and the franchised weight loss centers.
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<PAGE>
The Company plans to capitalize on the $33 billion weight loss industry by
combining the well-established NutriSystem name and proven weight loss program
with the Internet as the medium of communication using the following strategies:
o Leverage the strong brand name recognition through an aggressive
marketing campaign using traditional and Internet marketing channels.
On the Internet, the Company has focused its strategic alliances into
three categories: (1) Internet portals; (2) health content sites; and
(3) wedding content sites.
o Encourage frequent visits by providing a truly interactive,
informative experience.
o Offer a compelling value to the customer, including broad product
selection, excellent counseling and customer service and competitive
pricing.
o Broaden the potential customer base by attracting male clients who
traditionally are reluctant to attend formal weight loss programs.
o Generate incremental revenue through the sale of nutritional
supplements and exercise equipment.
o Servicing dieters without Internet access through the Company's
NutriSystem Direct program.
See additional discussion in Item 1 to this Form 10.
The Company has incurred significant losses and, as of September 30, 1999,
had an accumulated deficit of $11,497. For the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999, the Company generated net
losses of $1,598, $42 and $8,390, respectively. The Company intends to invest
heavily in marketing and promotion, strategic alliances, Web site development
and technology, and development of its administrative organization. In
addition, as discussed in Note 1 to the Consolidated Financial Statements, the
Company acquired the Predecessor Businesses for cash of $3,400 plus 17,500,000
shares of Common Stock. In order to fund the planned investment and the
Company's purchase of the Predecessor Businesses, the Company initiated a
private placement of Common Stock which raised proceeds of approximately $7,637
of which $964 and $3,400, respectively, were recorded in cash and receivables as
of September 30, 1999. The balance of the proceeds from the private placement
was received on October 13, 1999. Future investment is expected to be funded
through the sale of additional equity securities in private and/or public
offerings in 2000. Achieving profitability depends upon the Company's ability
to: (1) raise the necessary funds to finance the planned marketing program and
technology investment and (2) generate and sustain substantially increased
revenue levels. There can be no assurance that the Company will be able to raise
the necessary capital or generate sufficient revenues to achieve or sustain
profitability in the future.
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<PAGE>
RESULTS OF OPERATIONS
The following table illustrates for the periods indicated the historical
selected financial data, derived from the Company's audited and unaudited
Consolidated Financial Statements and those of the Predecessors Businesses, for
the periods indicated. The results of operations for the nine months ended
September 30, 1999 and 1998 are not necessarily indicative of the results of
operations to be expected for the full fiscal year or for future periods.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
------------------------------------ -----------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Food sales $ 39,000 $ 23,698 $ 8,415 $ 6,606 $ 6,346
Franchise royalty fees 2,421 1,766 633 514 346
Weight-loss programs 4,676 17,058 -- -- --
Other 933 3,349 275 231 233
--------- --------- --------- --------- ---------
47,030 45,871 9,323 7,351 6,925
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of revenues 45,823 47,686 7,101 5,571 5,067
General and administrative 1,392 1,056 2,220 2,069 2,003
Depreciation and amortization 787 1,235 79 57 54
Other 139 582 33 7 185
Disposal of weight-loss centers 367 5,347 -- -- --
Compensation expense -- -- -- -- 8,260
Net gain on insurance settlement -- (7,175) -- -- --
--------- --------- --------- --------- ---------
48,508 48,731 9,433 7,704 15,516
--------- --------- --------- --------- ---------
Operating loss (1,478) (2,860) (110) (353) (8,591)
INTEREST EXPENSE (39) (104) (7) (5) (7)
--------- --------- --------- --------- ---------
Loss before minority interest (1,517) (2,964) (117) (358) (8,598)
MINORITY INTEREST 1,354 1,366 75 217 208
--------- --------- --------- --------- ---------
Net loss $ (163) $ (1,598) $ (42) $ (141) $ (8,390)
========= ========= ========= ========= =========
BASIC LOSS PER SHARE $(0.01) $(0.08) $(0.00) $(0.01) $(0.43)
====== ====== ======= ====== ======
DILUTED LOSS PER SHARE $(0.01) $(0.08) $(0.00) $(0.01) $(0.43)
====== ====== ======= ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Sales. The Company's net sales decreased $426, or approximately 5.8%,
from $7,351 for the nine months ended September 30, 1998 to $6,925 in the
interim period ended September 30, 1999. The decrease was attributable primarily
to a decline in food sales ($260) and franchise royalty fees ($168).
Costs and Expenses. Cost of sales decreased $504 for the nine months ended
September 30, 1999 versus the comparable period in the prior year. As a
percentage of revenues, cost of sales decreased from 76% to 72% primarily due to
a shift in mix toward higher margin NutriSystem Direct sales and away from
franchise food sales. General and administrative expenses decreased $66, or
approximately 3%, to $2,003 for the nine months ended September 30, 1999. During
the nine months ended September 30, 1999, the Company recorded a
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<PAGE>
non-cash compensation expense of $8,260 associated with equity interests granted
to an executive pursuant to the merger transaction (see discussion in Note 1 to
the Consolidated Financial Statements).
Pro Forma Income Tax Expense. The Predecessor Businesses were flow-through
entities that were not subject to federal or state income taxes and,
consequently, none have been reflected in the Company's financial statements for
the historical periods prior to September 30, 1999. For purposes of pro forma
presentation, due to the recurring losses incurred by the Company and
management's assessment of realization of the related tax deduction, no pro
forma tax benefit would be recorded during the years ended December 31, 1996,
1997 or 1998 or the nine months ended September 30, 1998 or 1999. Effective with
the merger on September 30, 1999, the Company became subject to corporate level
income taxes. No income tax benefit on the excess of the tax basis of Company's
assets over the financial reporting carrying amount has been recorded based on
management's assessment that the net deferred tax asset was not realizable
through future taxable earnings.
Net Loss. The Company's net loss increased to $8,390 in the interim period
ended September 30, 1999 versus $141 in the nine months ended September 30,
1998, primarily due to the compensation expense charge of $8,260 discussed above
that was recorded in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. The Company's net sales decreased $36,548 from $45,871 during
the year ended December 31, 1997 to $9,323 for the year ended December 31, 1998.
The decrease resulted from reduction in food sales and revenues from weight loss
programs primarily attributable to the sale or disposal of all of the
Company-owned weight loss centers. Management elected to dispose of the assets
of this business because of a sharp revenue decline. The revenue decline was
triggered by adverse publicity associated with a drug combination formerly
incorporated in the weight loss program that was shown to cause health problems.
In addition, franchise royalty fees declined from $1,766 in 1997 to $633 in 1998
due to a reduction in the percentage royalty fee and a decline in the number of
franchise locations. Weight loss program fees, which amounted to $17,058 in
revenue in 1997, were eliminated before 1998 as the Company-owned centers were
disposed of. Other revenues declined from $3,349 in 1997 to $275 in 1998 as a
result of discontinued sales of the drug combination mentioned above.
Costs and Expenses. Consistent with the decline in revenues, cost of sales
decreased $40,585 from $47,686 during the year ended December 31, 1997 to $7,101
for the year ended December 31, 1998. As a percentage of revenues, cost of sales
was 76% during the year ended December 31, 1998 versus 104% in 1997. The 1997
cost of sales includes additional costs associated with opening and upgrading
various Company-owned centers. General administrative expenses increased $1,164,
or approximately 110%, from $1,056 during the year ended December 31, 1997 to
$2,220 during the year ended December 31, 1998. The increase is primarily due to
a shift in the focus of corporate support activity in 1998 away from the
Company-owned centers (record in cost of revenue) to general and administrative
activity as the Company-owned centers were closed. Depreciation and amortization
expense was $1,235 in 1997. Depreciation and amortization expense decreased to
$79 in 1998 as the Company had
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<PAGE>
written off substantially all of its property and equipment in 1997 in
connection with the sale of the weight loss centers.
Other Items. The results for the year ended December 31, 1997 include a
loss of $5,347 on the sale of the Company's weight loss centers. In addition, in
1997, the Company recorded a gain, net of legal costs of $2,325, of $7,175 on a
settlement with an insurance company for coverage associated with product
liability litigation relating to the drug combination discussed above. See
additional discussion of these items in the Notes to the Consolidated Financial
Statements.
Interest Expense. Net interest expense decreased $97 from $104 in the year
ended December 31, 1997 to $7 in the year ended December 31, 1998. This decrease
resulted from a lower average borrowings outstanding under the credit facility
compared to 1998.
Net Loss. The Company's net loss decreased from $1,598 in the year ended
December 31, 1997 to $42 in the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. The Company's net sales decreased $1,159, or approximately 2.5%,
from $47,030 during the year ended December 31, 1996 to $45,871 for the year
ended December 31, 1997. The decrease in revenues resulted from a reduction in
food sales of $15,302 to $23,698 due to a decline in the number of franchise
centers and the disposal during 1998 of the Company-owned centers. The decline
in food sales was offset in part by an increase in revenues from weight loss
programs from $4,676 in 1996 to $17,058 in 1997 due to sharply higher enrollment
fees charged to customers entering the weight loss programs. Other revenues
increased from $933 in 1996 to $3,349 in 1997 as a result of charges for the
drug combination subsequently discontinued.
Costs and Expenses. Cost of sales increased $1,863, or approximately 4.1%,
from $45,823 during the year ended December 31, 1996 to $47,686 during the year
ended December 31, 1997. As a percentage of revenues, cost of sales was 104%
during the year ended December 31, 1997 versus 97% in 1996. The increase is due
to additional costs associated with opening and upgrading various Company-owned
centers in 1997. General and administrative expenses decreased $336, or
approximately 24%, from $1,392 during the year ended December 31, 1996 to $1,056
during the year ended December 31, 1997. The decrease was primarily due to
reduced head count. Depreciation and amortization expense increased from $787 in
1996 to $1,235 in 1997 due to capital additions associated with the
establishment of the Company's weight loss centers. Other expense increased from
$139 in 1996 to $582 in 1997 primarily due to higher non-food sales.
Other Items. The results for the years ended December 31, 1997 and 1996
include losses of $5,347 and $367, respectively, on the sale of the Company's
weight loss centers. In addition, the Company recorded a gain, net of legal
costs of 2,325, of $7,175 on a settlement with an insurance company for coverage
associated with product liability litigation. See additional discussion of these
items in the Notes to the Consolidated Financial Statements.
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<PAGE>
Interest Expense. Net interest expense increased from $39 in the year ended
December 31, 1996 to $104 in the year ended December 31, 1997 due primarily to
an increase in average borrowings outstanding under the credit facility to fund
capital additions in late 1996 and 1997.
Net Loss. The Company's net loss increased from $163 in the year ended
December 31, 1996 to $1,598 in the year ended December 31, 1997. The increase
resulted in part due to the Company purchasing a portion of the minority
shareholders' interest, which resulted in a decrease in the allocation of the
losses to the minority interest in the accompanying statement of operations.
Also, see discussion of the other specific factors contributing to the increase
in the net loss discussed above.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
On September 30, 1999, the Company initiated a private placement of
7,637,400 shares of Common Stock at $1 per share. The offering raised net
proceeds of approximately $7,637, of which $964 and $3,400, respectively, were
recorded in cash and receivables as of September 30, 1999. The balance of the
proceeds from the private placement was received on October 13, 1999.
At September 30, 1999, the Company had net working capital of $1,772. Cash
and cash equivalents were $1,047. Also included in working capital is a payable
for the Company's purchase of the Predecessor Businesses. The Company's
principal source of liquidity is the cash obtained from the private placement
transaction. The Company currently has no available credit facilities to fund
operating cash flow or investment opportunities.
During 1998 and the nine months ended September 30, 1999, the Company has
generated small cash flow deficits from operations which were funded from
existing cash balances. Cash requirements in 1997 and 1996 were funded from
existing credit facilities and capital contributions. Net cash used in operating
activities was $278 and $302 for the nine month period ended September 30, 1999
and the year ended December 31, 1998, respectively, and was primarily
attributable to the net losses generated in those periods, as well as changes in
working capital balances. The net cash provided by operations in 1997 was
attributable primarily to net changes in working capital balances.
Net cash used by investing activities was $0, $180 and $2,849 for the nine
month period ended September 30, 1999 and the years ended December 31, 1998 and
1997, respectively, and consisted of capital expenditures. The 1997 additions of
$2,849 were incurred primarily in connection with the establishment of the
weight loss centers.
Net cash provided by financing activities was $964 for the nine month
period ended September 30, 1999, and consisted entirely of net proceeds from a
private placement of equity securities.
Under marketing agreements, the Company is required to pay aggregate
minimum fixed fees of $637, $4,285 and $319 during the quarter ending December
31, 1999, and the years ending December 31, 2000 and 2001, respectively. The
Company expects to fund its
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<PAGE>
1999 payment obligations under its marketing agreements, as well as other
advertising and web site development costs, from the proceeds of the completed
private placement. Future cash obligations are expected to be funded from
financing activities which may include additional private or public offerings of
equity securities. As of September 30, 1999, the Company's principal commitments
consisted of obligations under its marketing agreements and operating leases.
Although nutrisystem.com has no material commitments for capital expenditures,
it anticipates substantial increases in its capital expenditures consistent with
anticipated growth in operations, infrastructure and personnel.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. These issues are discussed more fully in the Risk
Factors section in Item 1 of this Form 10.
FINANCING AND CAPITAL STRUCTURE
Since inception in 1972, the Nutri/System businesses have operated in
various organizational and legal structures. In August 1999 Ansama, a
non-operating public shell corporation and the sole stockholder of the Company,
entered into: (1) an Asset Purchase Agreement to acquire the operating assets
and certain liabilities of Nutri/System L.P. for $3,000 and (2) a Stock Exchange
and Purchase Agreement to acquire the beneficial interest in NutriSystem Direct,
L.L.C. for $400 and 17,500,000 shares of Ansama Common Stock. Ansama was
subsequently merged into the Company. In order to fund the Company's resulting
cash obligations of $3,400 under the Asset Purchase and Stock Exchange and
Purchase Agreements and the planned marketing program and technology investment,
the Company completed a private placement of 7,637,400 shares of Common Stock in
September and October 1999, which raised $7,637. Future operating needs and
investment are expected to be funded through the sale of additional equity
securities in private and/or public offerings. There can be no assurance that
the Company will be able to raise the necessary capital or generate sufficient
revenues to achieve or sustain profitability in the future. The Company has no
credit facilities available to fund working capital or investment needs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material interest-bearing assets or liabilities, nor
does the Company have any current exposure for changes in foreign currency
exchange rates. The Company does not use derivatives or other financial
instruments. The Company's financial instruments consist of cash and
receivables. The market values of these financial instruments approximate book
value.
INFLATION
The financial statements are presented on a historical cost basis and do
not fully reflect the impact of prior years' inflation. While the U.S. inflation
rate has been modest for several years, inflation issues may impact the
Company's business in the future. The ability to pass
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<PAGE>
on inflation costs is an uncertainty due to general economic conditions and
competitive situations.
YEAR 2000 PREPARATION
Software failures due to calculations using Year 2000 dates are a known
risk. The Company is currently evaluating and managing the financial and
operating risks associated with this problem. Problems with Year 2000 software
could result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices or engage in similar normal business activities. To
date, the Company has experienced very few problems related to Year 2000 testing
and those requiring immediate modification have been fixed. The Company does not
believe that there is material exposure to the Year 2000 issue with respect to
its electronic commerce transaction processing and online activity since these
systems correctly define the Year 2000.
The Company is currently conducting an analysis to determine the extent to
which others have Year 2000 issues. These include the Company's major suppliers'
systems, including the systems of credit card processors, telecommunications
providers, product distributors and companies with whom the Company does
business. The Company is currently unable to predict the extent to which the
Year 2000 issue will affect suppliers, or the extent to which the Company would
be vulnerable to its suppliers' failure to remediate any Year 2000 issues on a
timely basis. The failure of a major supplier subject to the Year 2000 issue to
convert its systems on a timely basis or a conversion that is incompatible with
the Company's systems could have a material adverse effect on the Company. In
addition, most of the purchases from the Company's online sales are made with
credit cards. As such, operations may be materially adversely affected to the
extent customers are unable to use their credit cards due to Year 2000 issues
that are not rectified by their credit card providers.
The Company has incurred less than $25 of expense related to Year 2000
compliance to date and expects to expend less than $10 in the future to support
Year 2000 compliance initiatives.
The Company intends to actively work with its suppliers and encourage them
to minimize the risks of business disruptions resulting from Year 2000 issues
and develop contingency plans where necessary. Such plans may include, but are
not limited to, using alternative suppliers and establishing contingent supply
arrangements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements of the Company for a
discussion of recently issued accounting pronouncements.
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<PAGE>
Item 3. Properties.
The Company leases approximately 30,000 square feet of office and warehouse
space in Horsham, Pennsylvania pursuant to a lease expiring in 2004 at an annual
rate of $360,000.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of November 30, 1999, the number of
shares and percentage of the Company's Common Stock beneficially owned by (i)
each person who is known by the Company to own beneficially 5% or more of the
Company's outstanding Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
Percent of
Name of Individual Shares of Common Stock Outstanding
or Identity of Group Beneficially Owned (1)(2) Common Stock (3)
- -------------------- ------------------------- ----------------
<S> <C> <C> <C>
5% Holders:
HPF Holdings, Inc. (4)........................ 8,200,000 30.2%
Brian D. Haveson (5).......................... 8,095,000 29.8
Directors (6):
Irwin Schneidmill (7)......................... 200,000 *
Frederick C. Tecce (8)........................ 450,000 1.7
Michael E. Heisley (4)........................ 8,200,000 30.2
Executive Officers (9):
Deborah A. Gallen (10)........................ 165,000 *
James A. Brown (11)........................... --- *
Brendon Perero (12)........................... --- *
All executive officers and directors
as a group (7 persons) (13)................. 17,110,000 63.0
</TABLE>
- --------------------
* less than 1%.
(1) Information furnished by the named persons.
(2) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be the beneficial owner of securities if he has, or
shares, "voting power" which includes the power to vote, or to direct the
voting of, such securities or
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<PAGE>
"investment power" which includes the power to dispose, or to direct the
disposition, of such securities. Under these rules, more than one person
may be deemed to be the beneficial owner of the same securities. Securities
beneficially owned also include securities owned jointly, in whole or in
part, or individually by the person's spouse, minor children or other
relatives who share the same home. The information set forth in the above
table includes all shares of Common Stock over which the named individuals
individually or together share voting power or investment power, adjusted,
however, to eliminate the reporting of shares more than once in order not
to overstate the aggregate beneficial ownership of such persons and to
reflect shares as to which the named individuals disclaim beneficial
ownership.
(3) Less than 1% unless otherwise indicated.
(4) Michael E. Heisley is the principal equity owner of HPF Holdings, Inc.
(5) Excludes a total of 103,000 shares held by members of the immediate family
of Mr. Haveson as to which shares Mr. Haveson disclaims beneficial
ownership.
(6) Excludes directors listed under "5% Owners."
(7) Excludes a total of 80,000 shares held by members of the immediate family
of Mr. Schneidmill, as to which shares Mr. Schneidmill disclaims beneficial
ownership.
(8) Excludes a total of 60,000 shares held by members of the immediate family
of Mr. Tecce, as to which shares Mr. Tecce disclaims beneficial ownership.
(9) Excludes executive officers listed under "Directors."
(10) Excludes a total of 20,000 shares held by members of the immediate family
of Ms. Gallen, as to which shares Ms. Gallen disclaims beneficial
ownership.
(11) Excludes an option granted to Mr. Brown in November 1999 to purchase
200,000 shares of Common Stock at a price of $1.75 per share. The option
becomes exercisable in cumulative equal annual installments on the first,
second and third anniversaries of the date of grant.
(12) Excludes an option granted to Mr. Perero in October 1999 to purchase
200,000 shares of Common Stock at a price of $1.00 per share. This option
becomes exercisable in cumulative equal annual installments on the first,
second and third anniversaries of the date of grant.
(13) Excludes a total of 263,000 shares held by members of the immediate
families of such persons, as to which shares such persons disclaim
beneficial ownership.
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<PAGE>
Item 5. Directors and Executive Officers.
Certain information as to the directors and executive officers of the
Company is as follows:
<TABLE>
<CAPTION>
Principal Occupation
Name Age Positions with the Company for Past Five Years
---- --- -------------------------- --------------------
<S> <C> <C>
Brian D. Haveson 35 President, Chief Executive Officer President of the Part-
and a director of the Company nership from 1997 to
since August 1999 1999; Chief Financial
Officer of the Partner-
ship from 1993 to 1997;
Arthur Andersen LLP
for five years prior
thereto
Deborah A. Gallen 41 Vice President of E-Commerce Vice President of Oper-
of the Company since ations for NSDirect
September 1999 from 1995 to 1999; Di-
rector of Health Care
Services for the Partner-
ship from 1994 to 1995;
Director of Outpatient
Programs for the Mercy
Health Care System in
Philadelphia, Pennsylva-
nia for ten years prior
thereto
James D. Brown 42 Chief Financial Officer of the Chief Financial Officer
Company since December 1999 of ImageMax, Inc., a
document management
company located in
Conshohocken, Pennsyl-
vania, from 1997 to 1999;
from 1996 to 1997, Chief
Financial Officer of LMR
Holdings in Brooklyn, New
York; President, Main Line
Management in Wynnewood,
Pennsylvania during 1995;
from 1990 to 1994, Chief
Financial Officer of Lib-
erty Broadcasting Group
and Controller of Lancer
Industries, Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name Age Positions with the Company for Past Five Years
---- --- -------------------------- --------------------
<S> <C> <C>
Brendon Perero 23 Chief Information Officer of Vice President and
the Company since August 1999 Senior Programmer/De-
veloper of INetU, Inc.
from 1997 to 1999; from
1997 to 1998, Mr. Perero
was a member of the
Design Council for IBM
Net.Commerce and col-
laborated with IBM for
third party development
of e-commerce software;
student at Allentown
College of Saint Francis
DeSales from 1994 to
1998 (B.S.) and at pres-
ent (Masters candidate)
Michael E. Heisley 62 Director of the Company President and Chief
since August 1999 Executive Officer, Heico
Acquisitions; Chairman and
Chief Executive Officer,
The Heico Companies, LLC;
Chairman of the Board,
Pettibone LLC; Chairman of
the Board, Davis Wire Cor-
poration; Chairman of the
Board, Tom's Foods, Inc.;
Vice Chairman,
Robertson-Ceco Corpo-
ration
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name Age Positions with the Company for Past Five Years
---- --- -------------------------- --------------------
<S> <C> <C>
Irwin Schneidmill 46 Director of the Company President and Chief
since August 1999 Executive Officer,
America's Shopping Mall,
Inc. since June 1998; Presi-
dent and Chief Executive
Officer, Creadis Promo-
tions, Inc. since December
1998; President and Chief
Executive Officer, Re-
markable Office Products,
Inc. since October 1994;
sole stockholder, Irwin
Schneidmill, P.C. from
July 1993 to October 1994
Frederick C. Tecce 64 Director of the Company Private investor; Of
since August 1999 Counsel, Klett Leiber
Rooney & Schorling since
April 1997; Of Counsel,
Pepper Hamilton LLP from
1993 to 1997
</TABLE>
The Company's Board of Directors has an Audit Committee, consisting of
Messrs. Heisley, Schneidmill and Tecce. The Audit Committee has responsibility
for recommending to the Board of Directors the selection of independent
auditors, reviewing the scope and results of the audit and reviewing the
adequacy of the Company's accounting, financial, internal and operating
controls.
All directors hold office until their respective successors are elected, or
until death, resignation or removal. Officers serve at the discretion of the
Board of Directors. There are no family relationships between any directors or
executive officers of the Company.
Item 6. Executive Compensation.
Brian D. Haveson, President and Chief Executive Officer of the Company, is
being paid a salary at an annual rate of $250,000 and is the only executive
officer of the Company who will receive total compensation in excess of $100,000
for the Company's fiscal year ending December 31, 1999.
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<PAGE>
Equity Incentive Plan
On August 20, 1999, the Company's Board of Directors adopted and the
Company's then stockholders approved the Company's 1999 Equity Incentive Plan
(the "Incentive Plan"). The purposes of the Incentive Plan are to attract and
retain key employees and certain other persons who are in a position to make
significant contributions to the success of the Company, to reward those
employees and other persons for their contributions, to provide additional
incentive to those employees and other persons to continue making similar
contributions and to align further the interests of those employees and other
persons with those of the Company's stockholders. To achieve these purposes, the
Incentive Plan permits grants of incentive stock options ("ISOs") and options
not intended to qualify as incentive stock options ("Non-ISOs"). ISOs and
Non-ISOs are collectively referred to herein as "Awards."
The Incentive Plan permits Awards to be granted for a total of 1,000,000
shares of Common Stock. Shares issuable pursuant to Awards that terminate or
expire unexercised will be available for future Awards under the Incentive Plan.
As of November 30, 1999, the Company has granted options to purchase an
aggregate of 294,500 shares of Common Stock at a price of $1.00 per share, of
which options to purchase 200,000 shares were granted to Brendon Perero, the
Company's Chief Information Officer, and 200,000 shares of Common Stock at a
price of $1.75 per share, all of which were granted to James D. Brown, the
Company's Chief Financial Officer.
All current and future employees of the Company, and other persons who, in
the opinion of the Board of Directors, are in a position to make significant
contributions to the success of the Company, such as consultants and
non-employee directors, are eligible to receive Awards under the Incentive Plan.
The Incentive Plan is administered by the Board of Directors, which
determines, among other things and subject to certain conditions, the persons
eligible to receive Awards, the persons who actually receive Awards, the type of
each Award, the number of shares of Common Stock subject to each Award, the date
of grant, exercise schedule, vesting schedule and other terms and conditions of
each Award, whether to accelerate the exercise or vesting schedule or waive any
other terms or conditions of each Award, whether to amend or cancel an Award and
the form of any document used under the Incentive Plan. The Board of Directors
has the right to adopt rules for the administration of the Incentive Plan,
settle all controversies regarding the Incentive Plan or any Award and construe
and correct defects and omissions in the Incentive Plan or any Award. The
Incentive Plan may be amended, suspended or terminated by the Board of
Directors, subject to certain conditions, provided that stockholder approval
will be required whenever necessary for the Incentive Plan to continue to
satisfy the requirements of certain securities and tax laws, rules and
regulations.
Recipients of stock options under the Incentive Plan will have the right to
purchase shares of Common Stock at an exercise price, during a period of time
and on such other terms and conditions as are determined by the Board of
Directors. For ISOs, the recipient must be an employee, the exercise price must
be at least 100% (110% if issued to a 10% or greater stockholder of the Company)
of the fair market value of the Common Stock on the date of grant and the term
cannot exceed ten years (five years if issued to a 10% or greater
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<PAGE>
stockholder of the Company) from the date of grant. If permitted by the Board of
Directors and subject to certain conditions, an option exercise price may be
paid by delivery of shares of Common Stock that have been outstanding, a
promissory note, a broker's undertaking to deliver promptly the necessary funds
or by a combination of these methods. If permitted by the Board of Directors,
options may be settled by the Company paying to the recipient, in cash or in
shares of Common Stock valued at the then fair market value of the Common Stock,
an amount equal to such fair market value minus the exercise price of the option
shares.
Generally, upon termination of a recipient's employment or other
relationship with the Company, stock options remain exercisable for a period of
three months (one year if termination is due to death or disability) to the
extent the stock options were exercisable at the date of expiration, except as
otherwise agreed between the employee and the Company.
Item 7. Certain Relationships and Related Transactions.
Following the Merger and the consummation of the transactions contemplated
by the Asset Agreement and the Stock Agreement in September 1999, Michael E.
Heisley, the principal owner of HPF Holdings, Inc., Brian D. Haveson, Irwin
Schneidmill and Frederick C. Tecce, became directors of the Company; Brian D.
Haveson, Deborah A. Gallen, Joseph H. Boileau, Kathleen E. Simone and George
Weatherstone were executive officers of the Company at such time and HPF
Holdings, Inc. and Brian D. Haveson became owners of more than 5% of the
Company's outstanding Common Stock.
On August 16, 1999, Ansama entered into the Stock Agreement with HPF
Holdings, Inc., a Delaware corporation, Brian D. Haveson, Deborah A. Gallen,
Joseph H. Boileau, Kathleen E. Simone and Frederick C. Tecce (collectively, the
"Assignors") whereby the Assignors agreed to transfer to Ansama 100% of the
outstanding ownership interests in NSDirect in exchange for $400,000 in cash and
17,500,000 shares of Ansama's Common Stock. On the basis of unaudited financial
statements of NSDirect as of May 31, 1999, NSDirect had current assets of
$531,960, fixed assets of $105,855, current liabilities of $356,357 and members
equity of $282,058. For the five months ended May 31, 1999, NSDirect had
revenues of $1,833,282 and net income of $282,057. The Assignors acquired their
interests in NSDirect in January 1998 for an aggregate capital contribution of
$100,000.
On August 16, 1999, Ansama entered into the Asset Agreement with the
Partnership whereby Ansama agreed to purchase certain assets and assume certain
liabilities of the Partnership, as specified in the Asset Agreement, in
consideration for the payment to the Partnership of $3,000,000 in cash. The
principal assets purchased were (i) all equipment, fixtures, leasehold
improvements, furniture, computers and software of the Partnership, (ii) all of
the Partnership's rights and obligations to the lease (the "Lease") for the
Partnership's premises in Horsham, Pennsylvania, (iii) the Partnership's
telephone numbers and telephone equipment, (iv) all rental and utility deposits
of the Partnership relating to the Lease and deposits securing letters of credit
to food vendors, (v) all patents, trademarks, logos, copyrights, trade names,
trade secrets, testimonials, agreements of sale, assignments and all other
intellectual property related to the Partnership's business and goodwill
relating thereto, (vi) all financial and sales records, client and customer
lists, including all files and records
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<PAGE>
relating thereto and all other proprietary information used in connection with
the Partner ship's business, (vii) all franchise agreements, (viii) all saleable
and marketable foods, vitamins and other perishable goods and inventory relating
to the Partnership's business located at its Horsham, Pennsylvania warehouse at
the close of business on the day preceding the consummation of the asset
purchase and (ix) all cash and accounts receivable of the Partnership on the
date of consummation of the asset purchase. The assets purchased excluded all
rights, claims, causes of action, judgments, awards, settlements and other
benefits related to or arising from the purchase, sale, prescription or other
dealings with fenfluramine, phentermine or Redux or any combination thereof,
including, without limitation, (i) those against American Home Products Company
and any insurance company, (ii) rising from loss of or injury to business, bad
faith and failure to indemnify, and (iii) any and all deposits for legal fees
and services, prepayment for legal fees and services and retainers for legal
fees and services. The Asset Agreement provided that Ansama was to assume all
liabilities and obligations of the Partnership and its business operations, of
any type or nature, known or unknown, absolute, contingent or otherwise, whether
arising before or after the consummation of the asset purchase, including
without limitation all liabilities and obligations of the Partnership (i) to
employees, franchisees, customers, suppliers and others having relationships
with the Partnership, (ii) arising under contracts, leases, agreements, benefit
plans and other obligations, (iii) for personal injury from products of the
Partnership except as hereinafter specifically not assumed, (iv) arising from
any failure to comply with any law, rule or regulation, (v) for any infringement
of any third party's intellectual property and arising from any suit, claim or
proceeding, except that the Partnership agreed to remain solely responsible for
any debt or liability of the Partnership or its business arising out of or
related to any claims for personal injury, fraud, breach of contract, false
advertising or any related advertising claim arising out of or related to the
sale or prescription by the Partnership or US Medical Weight Loss Company, Inc.,
their agents or employees of fenfluramine, phentermine or Redux, including any
claims arising from specific lawsuits listed in a schedule to the Asset
Agreement and (vi) for sales taxes, franchise taxes, employment taxes, property
taxes, utilities and other amounts. Pursuant to the Asset Agreement, the
Partnership also agreed for three years to refrain from engaging in the business
in which the Partnership engaged with the assets being sold.
On the basis of unaudited financial statements of the Partnership as of May
31, 1999, the Partnership had current assets of $1,686,464, total fixed and
other assets of $313,756, total liabilities of $914,605 and total shareholders'
equity of $1,085,810. For the five months ended May 31, 1999, the Partnership
had total revenues of $2,851,105 and a net loss of $178,017. A brief discussion
of the history of the Partnership's business follows:
Nutri/System, Inc., a Pennsylvania business corporation, was incorporated
in September 1976 under the name Shape-Up Weight Control Centers of America,
Inc. The original name was changed to Weight Loss Medical Centers of America,
Inc. in June 1977, then to Nutri-System Weight Loss Medical Centers of America,
Inc. in May 1979, and to Nutri/System, Inc. in October 1980.
Nutri/System, Inc. opened its first center in 1971 under the name Shape-Up,
Inc., its predecessor. The first franchise was also sold by Nutri/System, Inc.'s
predecessor, Shape-Up, Inc. in 1972. Nutri/System, Inc. sold its first
franchise in 1976. Nutri/System, Inc. was
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<PAGE>
the franchisor of Nutri/System weight loss centers from 1976 until 1993.
Nutri/System, Inc. also did business under the trade name Nutri/System Weight
Loss Centers.
The stock of Nutri/System, Inc. was publicly traded from 1980 through
August 1986 when a senior management group including A. Donald McCulloch, Jr.,
Reef C. Ivey, II, Albert J. DiMarco and John E. Sylvester acquired Nutri/System,
Inc. through a leveraged buy-out and merger. In August 1986, the shareholders
of Nutri/System, Inc. approved the merger among Nutri/System, Inc., Diversified
Services Group, Inc. ("DSG") and Management Acquisition Group, Inc. ("MAG"). At
the time, DSG, a Pennsylvania business corporation incorporated on January 15,
1986, became the parent of Nutri/System, Inc. DSG and MAG were formed solely for
the purpose of effecting the buy-out, and neither was previously involved in any
type of franchising business.
In July 1988, Nutri/System, Inc. refinanced the debt incurred in the
leveraged buy-out and merger through a repurchase of warrants and notes (the
"Refinancing"). DSG repurchased more than 95% of the 4,500,000 warrants to
acquire Nutri/System, Inc.'s common stock, and Nutri/System, Inc. repurchased
98% of its outstanding Subordinated Debentures and 12% Senior Notes. An
aggregate of approximately $127,000,000 was required to complete the
Refinancing. Nutri/System, Inc. provided DSG approximately $67,000,000 to
finance the warrant purchase. Nutri/System, Inc. obtained $100,000,000 in loans
from lenders to accomplish the Refinancing. In June 1989, John E. Sylvester
retired from Nutri/System, Inc. for medical reasons, and his shares in
Nutri/System, Inc. were purchased by DSG. In September 1989, Albert J. DiMarco
resigned from Nutri/System, Inc. for personal reasons, and his shares in
Nutri/System, Inc. were purchased by the two remaining shareholders, A. Donald
McCulloch, Jr. and Reef C. Ivey, II.
Effective as of July 28, 1989, Nutri/System, Inc. was merged with the
following corporate subsidiaries: Nutri/System Delaware, Inc., Nutri-System
Investment Co., Inc., Nutri/System of Florida, Inc., Nutri/System of Georgia,
Inc., Nutri/System of Michigan, Inc., Nutri/System of Nevada, Inc. and Old York
Rydal Corp., and its parent company, DSG. Nutri/System, Inc. was the surviving
corporation. The mergers were effected to comply with the restructuring of
Nutri/System, Inc. to qualify as a Subchapter S corporation as defined by the
Internal Revenue Code of 1986, as amended.
In August 1989, Nutri/System, Inc. opted to localize its financial and
banking arrangements and changed from Citibank, N.A., New York, New York to a
group of six banks led by Fidelity Bank, National Association, Philadelphia,
Pennsylvania. Nutri/System, Inc., through Fidelity Bank, National Association,
paid off its loan to Citibank, N.A. and maintained a revolving line of credit of
up to $125,000,000 with the six banks led by Fidelity Bank, National Association
(collectively, the "Banks"). On April 27, 1993, the Banks swept all of
Nutri/System, Inc.'s bank accounts forcing Nutri/System, Inc. to close all 283
of its company centers as well as cease all operations for a two-week period. In
addition, there was a two-week interruption of the flow of food to franchise
owners. The Banks had perfected security interests in, or liens and/or
encumbrances on substantially all of the assets of Nutri/System, Inc. and the
capital stock of Nutri/System, Inc. pursuant to the terms of a U.S. $125,000,000
Credit Agreement dated as of August 17, 1989, as amended, and an Amended and
Restated Credit Agreement dated October 30, 1991, as amended.
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<PAGE>
Nutri/System, Inc. was served with a Summons to Debtor and Petition for
Relief under Chapter 7 of the United States Bankruptcy Code (in the United
States Bankruptcy Court for the Eastern District of Pennsylvania on May 4, 1993,
Case Number 93-12725S). The Case was converted to a Chapter 11 proceeding
effective June 4, 1993. Nutri/System, Inc. operated as a debtor in possession
through December 1993. Nutri/System, Inc. re-opened 75 of its 283 company owned
and operated weight loss centers in this period, and continued to provide
services, including food products, to its franchisees.
In addition, in July 1993, Nutri/System of Florida Associates, a Florida
general partnership ("NSF") and Nutri/System of Georgia Associates, a Florida
general partnership ("NSG") involuntarily filed for relief under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court, Eastern District
of Pennsylvania, Case Number 93-14121 and Case Number 93-14120, respectively.
All of the assets of NSF and NSG were also secured by the Banks, sold to NSI
Debt, Inc. and subsequently assigned to the Partnership. NSF and NSG together
operated 60 Nutri/System weight loss centers at the date of sale.
NSI Debt, Inc., a Nevada corporation, was formed on November 8, 1993 to
acquire the assets of Nutri/System, Inc. On December 1, 1993, NSI Debt, Inc.
purchased from the Banks all of the Banks' rights, claims and interests in and
to the Notes and Security Agreements and other documents perfecting the Banks'
interest in Nutri/System, Inc.'s assets, pursuant to the terms of an Assignment
of Nutri/System Interests (hereinafter referred to as the "Assignment
Agreement").
On December 29, 1993, NSI Debt, Inc., pursuant to a public auction which
took place in Philadelphia, Pennsylvania, bid part of its secured debt in return
for the assets of Nutri/System, Inc., and subsequently assigned all of its
rights and obligations under the Assignment Agreement to the Partnership.
Pursuant to the Assignment Agreement, the Partnership then became the owner of
the assets, properties and rights of Nutri/System, Inc., including but not
limited to, the trademarks, trade names and franchise agreements of
Nutri/System, Inc.
In December 1993, the United States Bankruptcy Court for the Eastern
District of Pennsylvania dismissed the bankruptcy action of NSG. On July 8,
1994, the United States Bankruptcy Court for the Eastern District of
Pennsylvania dismissed the bankruptcy actions for Nutri/System, Inc. and NSF.
The dismissal was appealed by several landlords of Nutri/System, Inc. and NSF.
The appeal was denied and no further appeals were taken.
From time to time, the Company purchases food from a vendor that is an
affiliate of certain partners of a Predecessor Business. Such transactions are
effected on terms no less favorable to the Company than those made available to
independent third parties.
Item 8. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
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<PAGE>
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
No established trading market exists for the Common Stock, although,
following the Merger, there has been some trading in the over-the-counter market
of the Common Stock issued to the former stockholders of Ansama. On or about the
date of the filing of this Form 10 registration statement, the Company will file
an application to have its Common Stock listed on the Nasdaq National Market
under the symbol "THIN".
The Company has not paid any dividends since its formation in August 1999
and does not intend to pay cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to reinvest its earnings, if any, in the
development and expansion of the Company's business. Any future declaration of
cash dividends will be at the discretion of the Company's Board of Directors and
will depend upon all then relevant factors, including the earnings, capital
requirements and financial position of the Company as well as general economic
conditions.
As of November 30, 1999, there were approximately 341 holders of record of
the Common Stock.
Of the 27,176,337 shares of the Company's Common Stock outstanding as of
November 30, 1999, approximately 2,039,337 shares are freely transferable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Act") unless purchased by affiliates of the Company as that term
is defined in Rule 144 under the Act. The remaining outstanding shares of Common
Stock (the "Restricted Shares") are eligible to be sold publicly pursuant to an
effective registration statement under the Act or in accordance with an
applicable exemption from the registration requirements under the Act,
including, after October 1, 2000, Rule 144, assuming that the Common Stock has
become registered under the Securities Exchange Act of 1934, as amended, not
later than April 1, 2000. The Company is unable to estimate the amount of
Restricted Shares that may be sold under Rule 144 since this amount will depend
in part on the price for the Common Stock, the personal circumstances of the
sellers and other factors. Sales of a substantial number of Restricted Shares in
the public market, or the availability of such shares, could adversely affect
the price of the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated for purposes of Rule 144) who has beneficially owned
Restricted Shares for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding or (ii) the
average weekly trading volume of the Common Stock in the over-the-counter market
during the four calendar weeks preceding the date on which notice of sale is
filed with the SEC. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. However, a person (or persons whose shares are
aggregated for purposes of Rule 144) who is deemed not to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the Restricted Shares for at least two years
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<PAGE>
at the time of sale, would be entitled to sell such shares under Rule 144(k)
without regard to the aforesaid limitations.
Item 10. Recent Sales of Unregistered Securities.
On August 17, 1999, in connection with the incorporation of the Company,
the Company issued 100 shares of Common Stock, $.001 par value (the "Common
Stock") to Ansama in exchange for $100 in cash. This issuance of Common Stock is
exempt from registration under Section 4(2) of the Act. The 100 shares of Common
Stock so issued were cancelled on September 27, 1999 when Ansama merged with and
into the Company in order to change the state of incorporation of Ansama from
Nevada to Delaware.
On September 27, 1999, Ansama merged with and into the Company pursuant to
an Agreement and Plan of Merger dated as of August 19, 1999 between Ansama and
the Company. The purpose of the Merger was to change the state of incorporation
of Ansama from Nevada to Delaware. Upon consummation of the Merger, each
outstanding share of common stock of Ansama was converted in the right to
receive one share of common stock of the Company, resulting in the issuance to
the former stockholders of Ansama of an aggregate of 2,039,337 shares of Common
Stock of the Company in exchange for 2,039,337 shares of common stock of Ansama.
No underwriters were involved in the Merger. The issuance of the 2,039,337
shares of Common Stock in the Merger was exempt from registration pursuant to
Rule 145(a)(2) of the SEC which provides that an exchange of securities pursuant
to a statutory merger the sole purpose of which is to change an issuer's
domicile solely within the United States does not constitute the offer or sale
of a security within the meaning of Section 2(3) of the Act.
On September 30, 1999, the Company completed the sale of 4,363,985 shares
of Common Stock at a price of $1.00 per share in cash in a partial closing of a
private placement effected by the Company for which Pennsylvania Merchant Group
acted as agent. On October 13, 1999, the Company sold an additional 3,273,415
shares of Common Stock at a price of $1.00 per share in the completion of this
private placement. The Company received an aggregate of $7,637,400 in cash from
this private placement and in consideration of the services of Pennsylvania
Merchant Group as placement agent, the Company issued a warrant to Pennsylvania
Merchant Group entitling it to purchase 763,740 shares of Common Stock at an
exercise price of $1.00 per share for five years from the date of issuance. In
addition, the Company reimbursed Pennsylvania Merchant Group for its
out-of-pocket expenses. The 7,637,400 shares issued in the private placement
were sold to a total of 111 individuals and institutions, each of whom was an
accredited investor. The issuance of the 7,637,400 shares of Common Stock in the
private placement was exempt from registration under Section 4(2) of the Act and
Regulation D thereunder. The Company filed a Form D with the SEC on or about
September 30, 1999 with respect to this private placement and an amended Form D
on or about October 27, 1999.
On September 30, 1999, the Company consummated the acquisition of all of
the beneficial interests in NutriSystem Direct, L.L.C., a Pennsylvania limited
liability company, pursuant to the August 16, 1999 Stock Exchange and Purchase
Agreement among HPF
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<PAGE>
Holdings, Inc., Brian D. Haveson, Joseph H. Boileau, Kathleen E. Simone,
Deborah A. Gallen, Frederick C. Tecce and Ansama, to which the Company had
succeeded pursuant to the September 27, 1999 Merger of Ansama with and into the
Company. As consideration for the acquisition of all of the beneficial interests
in NutriSystem Direct, L.L.C., the Company paid $400,000 in cash to HPF
Holdings, Inc. and issued an aggregate of 17,500,000 shares of Common Stock to
HPF Holdings, Inc. (the principal owner of which is Michael E. Heisley), Brian
D. Haveson, Joseph H. Boileau, Kathleen E. Simone, Deborah A. Gallen and
Frederick C. Tecce, each of which individuals was a director or an executive
officer of the Company. The issuance of the 17,500,000 shares of Common Stock to
such six persons is exempt from registration under Section 4(2) of the Act. No
underwriters were utilized in connection with this acquisition. Reference is
also made to Item 7 hereof.
Item 11. Description of Registrant's Securities to be Registered.
The authorized Common Stock of the Company consists of 55,000,000 shares,
par value $.001 per share, of which 27,176,337 shares were outstanding as of
November 30, 1999.
Each share of Common Stock is entitled to one vote on all matters submitted
to the stockholders of the Company. The shares of Common Stock do not have
cumulative voting rights and, therefore, the holders of more than 50% of the
voting power of the Company are able to elect all directors entitled to be
elected by the stockholders. The absence of cumulative voting, together with the
ownership of more than a majority of the Common Stock by Brian D. Haveson and
HPF Holdings, Inc. could be expected to have the effect of delaying, averting or
preventing a change in control of the Company unless Mr. Haveson and HPF
Holdings, Inc. were in favor of such a change.
Holders of Common Stock have equal rights, share for share, to receive
dividends when, as and if declared by the Board of Directors. The current policy
of the Company's Board of Directors is to retain all future earnings of the
Company, if any, and not to pay cash dividends which, under the Delaware General
Corporation Law (the "DGCL"), can only be paid from earnings. The payment of
future dividends, if any will be at the discretion of the Board of Directors and
will depend upon many factors, including the Company's earnings, financial
position, capital requirements and other factors. Therefore, there can be no
assurance as to future dividends.
In the event of any liquidation, dissolution or winding-up of the Company,
holders of Common Stock will be entitled to share ratably in the assets of the
Company available for distribution to stockholders, subject to the rights of any
Preferred Stock which may be outstanding at the time. No holder of Common Stock
has any preemptive rights.
The Company also has authorized 5,000,000 shares of Preferred Stock
issuable in series upon resolution of the Board of Directors. The Board of
Directors is authorized to establish the relative terms, rights and other
provisions of any series of Preferred Stock. No Preferred Stock is outstanding,
and the Board of Directors has no current intention of issuing any Preferred
Stock. However, unless otherwise required by law in a particular circumstance,
the Board of Directors can, without stockholder approval, issue Preferred Stock
in the future
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<PAGE>
with voting and conversion rights which could adversely affect the voting power
of the Common Stock. The issuance of Preferred Stock could be expected to, and
may have the effect of, delaying, averting or preventing a change in control of
the Company.
As permitted by the DGCL, the Company's Certificate of Incorporation
provides that directors of the Company will not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL relating to prohibited dividends,
distributions and repurchases or redemptions of stock or (iv) for any
transaction from which the director derives an improper personal benefit.
However, such limitation on liability would not generally apply to violations of
the federal securities laws, nor does it limit the availability of non-monetary
relief in any action or proceeding.
The Company intends to send to its stockholders annual reports containing
audited financial statements for each fiscal year and quarterly reports
containing unaudited financial statements for the first three quarters of each
fiscal year.
The transfer agent for the Company's Common Stock is StockTrans, Inc.,
Ardmore, Pennsylvania.
Item 12. Indemnification of Directors and Officers.
Section 145(a) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, other than an action by or in
the right of the corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no cause
to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that, despite such
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<PAGE>
adjudication of liability, such person is fairly and reasonably entitled to be
indemnified for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a Delaware corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) or (b) of Section 145
or in the defense of any claim, issue or matter therein, he shall be indemnified
against any expenses actually and reasonably incurred by him in connection
therewith; that the indemnification provided for by Section 145 shall not be
deemed exclusive of any rights to which the indemnified party may be entitled
and the corporation may purchase and maintain insurance on behalf of a director
or officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
As noted in Item 11, Section 102(b)(7) of the DGCL permits a Delaware
corporation to include a provision in its Certificate of Incorporation, and the
Company's Certificate of Incorporation contains such a provision, to the effect
that, subject to certain exceptions, a director of a Delaware corporation is not
personally liable to the corporation or its stockholders for monetary damages
for breach of his fiduciary duty as a director.
The Company's By-laws also provide that the Company shall indemnify its
directors and officers and, to the extent permitted by the Board of Directors,
the Company's employees and agents, to the full extent permitted by and in the
manner permissible under the laws of the State of Delaware. In addition, the
Company's By-laws permit the Board of Directors to authorize the Company to
purchase and maintain insurance against any liability asserted against any of
the Company's directors, officers, employees or agents arising out of their
capacity as such.
Item 13. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item 13
are listed in Item 15(a) hereof and are included elsewhere in this Form 10.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE>
Item 15. Financial Statements and Exhibits:
(a) Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1997 and 1998
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998 and 1999
(unaudited) and the Years Ended December 31, 1996,
1997 and 1998
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1999
(unaudited) and the Years Ended December 31, 1996,
1997 and 1998
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1999
(unaudited) and the Years Ended December 31, 1996,
1997 and 1998
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
(b) Exhibits:
2.1 Agreement and Plan of Merger dated August 19, 1999
between nutrisystem.com inc. and Ansama Corp.
2.2 Asset Purchase Agreement dated August 16, 1999
between Ansama Corp. and Nutri/System L.P.
2.3 Stock Exchange and Purchase Agreement dated August
16, 1999 among Ansama Corp., HPF Holdings, Inc.,
Brian D. Haveson and NutriSystem Direct, L.L.C.
management (comprised of Joseph Boileau, Kathleen
Simone, Deborah Gallen and Frederick C. Tecce)
2.4 Assignments of NutriSystem Direct, L.L.C. Membership
Interests dated September 30, 1999 to
nutrisystem.com inc. by each of HPF Holdings, Inc.,
Brian D. Haveson, Joseph Boileau, Kathleen Simone,
Deborah Gallen and Frederick C. Tecce
2.5 Operating Agreement of NutriSystem Direct, L.L.C.
dated September 30, 1999
2.6 Intellectual Property Assignment from Nutri/System
L.P. to nutrisystem.com inc. dated September 30, 1999
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<PAGE>
2.7 Assignment of Franchise Agreements from
Nutri/System L.P. to nutrisystem.com inc. dated
September 30, 1999
3.1 Certificate of Incorporation of nutrisystem.com inc.
3.2 By-laws of nutrisystem.com inc.
4.1 Form of Common Stock certificate of nutrisystem.com inc.
4.2 Form of warrant to purchase Common Stock of
nutrisystem.com inc.
10.1 Joint Defense and Indemnification Agreement dated
September 27, 1999 between Wyeth Ayerst Laboratories
Division of American Home Products Corporation and
Nutri/System L.P.
10.2 Lease, dated December 11, 1997, between Teachers
Insurance and Annuity Association and nutrisystem.com
inc. as amended by First Amendment to Lease dated
October 28, 1999
10.3 Form of Nutri/System L.P. Franchise Agreement
10.4 Form of NutriSystem Direct, L.L.C. Distributor Agreement
10.5 1999 Equity Incentive Plan of nutrisystem.com inc.
21.1 Subsidiaries of nutrisystem.com inc.
23.1 Consent of Arthur Andersen LLP
27.1 Financial data schedule
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<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited) F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 and
the Nine Months Ended September 30, 1998 and 1999 (unaudited) F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1997 and 1998 and the Nine Months Ended September
30, 1999 (unaudited) F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and
the Nine Months Ended September 30, 1998 and 1999 (unaudited) F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To nutrisystem.com inc.:
We have audited the accompanying consolidated balance sheets of nutrisystem.com
inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of nutrisystem.com inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to the financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules, and are not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
November 24, 1999
F-2
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
----------------------- September 30,
1997 1998 1999
-------- -------- -------------
ASSETS (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 843 $ 361 $ 1,047
Restricted cash 280 401 358
Trade receivables, less allowance of
$440 in 1997, $341 in
1998 and $220 in 1999 1,742 527 341
Receivable from investors -- -- 3,400
Inventories 1,031 819 700
Prepaid expenses and other current assets 646 380 222
-------- -------- --------
Total current assets 4,542 2,488 6,068
FIXED ASSETS, net 197 299 128
GOODWILL, net -- -- 527
OTHER ASSETS 87 137 99
-------- -------- --------
$ 4,826 $ 2,924 $ 6,822
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 892 $ 762 $ 277
Payable to Nutri/System L.P. -- -- 3,400
Accrued payroll and related benefits 332 46 89
Other current liabilities 2,083 733 530
-------- -------- --------
Total current liabilities 3,307 1,541 4,296
NON-CURRENT LIABILITIES 76 53 44
-------- -------- --------
Total liabilities 3,383 1,594 4,340
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST 878 807 --
-------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock (5,000,000 shares authorized, no shares
outstanding) -- -- --
Common stock, $.001 par value (55,000,000 shares authorized;
shares issued - 19,539,337 at December 31, 1997 and 1998
and 23,903,322 at September 30, 1999) 20 20 24
Additional paid-in capital 3,610 3,610 13,611
Warrants exercisable at $1 per share -- -- 344
Accumulated deficit (3,065) (3,107) (11,497)
-------- -------- --------
Total shareholders' equity 565 523 2,482
-------- -------- --------
$ 4,826 $ 2,924 $ 6,822
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31 September 30
------------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Food sales $ 39,000 $ 23,698 $ 8,415 $ 6,606 $ 6,346
Franchise royalty fees 2,421 1,766 633 514 346
Weight-loss programs 4,676 17,058 -- -- --
Other 933 3,349 275 231 233
------------ ------------ ------------ ------------ ------------
47,030 45,871 9,323 7,351 6,925
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of revenues 45,823 47,686 7,101 5,571 5,014
General and administrative 1,392 1,056 2,220 2,069 2,003
Depreciation and amortization 787 1,235 79 57 54
Other 139 582 33 7 185
Disposal of weight-loss centers 367 5,347 -- -- --
Compensation expense -- -- -- -- 8,260
Net gain on insurance settlement -- (7,175) -- -- --
------------ ------------ ------------ ------------ ------------
48,508 48,731 9,433 7,704 15,516
------------ ------------ ------------ ------------ ------------
Operating loss (1,478) (2,860) (110) (353) (8,591)
INTEREST EXPENSE (39) (104) (7) (5) (7)
------------ ------------ ------------ ------------ ------------
Loss before
minority interest (1,517) (2,964) (117) (358) (8,598)
MINORITY INTEREST 1,354 1,366 75 217 208
------------ ------------ ------------ ------------ ------------
Net loss $ (163) $ (1,598) $ (42) $ (141) $ (8,390)
============ ============ ============ ============ ============
BASIC LOSS PER SHARE $ (0.01) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
============ ============ ============ ============ ============
DILUTED LOSS PER SHARE $ (0.01) $ (0.08) $ (0.00) $ (0.01) $ (0.43)
============ ============ ============ ============ ============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 16,282,781 19,539,337 19,539,337 19,539,337 19,539,337
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Shares Stock Capital Warrants Deficit Total
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 16,282,781 $ 17 $ 1,613 $ -- $ (1,304) $ 326
Capital contributions 3,256,556 3 1,997 -- -- 2,000
Net loss -- -- -- -- (163) (163)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 19,539,337 20 3,610 -- (1,467) 2,163
Net loss -- -- -- -- (1,598) (1,598)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 19,539,337 20 3,610 -- (3,065) 565
Net loss -- -- -- -- (42) (42)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 19,539,337 20 3,610 -- (3,107) 523
Net loss (unaudited) -- -- -- -- (8,390) (8,390)
Payment to shareholder in excess of
book value (Note 1) (unaudited) -- -- (2,275) -- -- (2,275)
Capital contribution of shares
issued to executive (Note 1)
(unaudited) -- -- 8,260 -- -- 8,260
Issuance of warrants (unaudited) -- -- (344) 344 -- --
Issuance of common stock
(Note 1) (unaudited) 4,363,985 4 4,360 -- -- 4,364
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1999 (unaudited) 23,903,322 $ 24 $ 13,611 $ 344 $ (11,497) $ 2,482
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31 Ended September 30
--------------------------------------- -----------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING (unaudited)
ACTIVITIES:
Net loss $ (163) $(1,598) $ (42) $ (141) $(8,390)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities-
Compensation expense -- -- -- -- 8,260
Minority interest (1,354) (1,366) (75) (217) (208)
Depreciation and amortization 787 1,235 79 57 54
Loss on disposals 465 5,347 -- -- 115
Provisions for bad debts and
inventory obsolescence 134 403 -- 2 --
Changes in operating assets and
liabilities-
Restricted cash -- (280) (121) (251) 43
Receivables (53) 1,100 1,214 1,269 186
Inventories 429 1,073 212 (366) 120
Prepaids and other assets -- 454 217 119 196
Accounts payable (2,794) (608) (130) 1,410 (486)
Accrued payroll and related
expenses 56 (137) (286) (267) 43
Other accrued expenses 723 (2,277) (1,370) (1,926) (211)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities (1,770) 3,346 (302) (311) (278)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (1,775) (2,849) (180) (97) --
------- ------- ------- ------- -------
Net cash used in investing
activities (1,775) (2,849) (180) (97) --
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowing 1,000 -- -- -- --
Payment of bank borrowing -- (1,000) -- -- --
Contributions from partners 1,000 -- -- -- --
Issuance of common shares -- -- -- -- 964
Other (16) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 1,984 (1,000) -- -- 964
------- ------- ------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,561) (503) (482) (408) 686
CASH AND CASH EQUIVALENTS, beginning of
period 2,907 1,346 843 843 361
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS,
end of period $ 1,346 $ 843 $ 361 $ 435 $ 1,047
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share amounts)
(Information as of September 30, 1999, and for the nine months ended
September 30, 1999 and 1998 is unaudited)
1. BACKGROUND:
Nature of the Business
nutrisystem.com inc. (a Delaware corporation) together with its subsidiaries
(the "Company"), is a national provider of weight loss programs and distributor
of prepackaged foods. As discussed below, the Company was formed to offer
interactive, Internet-based weight loss solutions to the beauty, health,
wellness and personal care markets by providing well-known diet programs that
incorporate pre-packaged meals and a complete diet philosophy.
nutrisystem.com inc. and its predecessor businesses, including Nutri/System L.P.
and NutriSystem Direct, L.L.C. (collectively, the "Predecessor Businesses"),
have historically operated through company-owned and franchised weight-loss
centers. Independent franchise weight loss center owners operate using the
Company's trade name, trademarks and programs for which a royalty is paid to the
Company. The Company's pre-packaged foods are sold to program participants
through the Internet, independent distribution and through franchised weight
loss centers.
Since the inception of the Nutri/System business in 1972, the Company has
operated in various organizational and legal structures. In early 1993, the
Company was party to a bankruptcy proceeding. This case was converted to a
Chapter 11 proceeding effective June 4, 1993. The Company operated as a debtor
in possession through December 1993. Since 1993, the Company has incurred
significant losses and, as of September 30, 1999, has an accumulated deficit of
$11,497. The Company intends to invest heavily in marketing and promotion,
strategic alliances, Web site development and technology and development of its
administrative organization. As a result, the Company believes that it will
incur further operating losses for the foreseeable future. In addition, the
Company acquired the Predecessor Businesses for cash of $3.4 million plus
17,500,000 shares of common stock. In order to fund the planned investment and
the Company's purchase of the Predecessor Businesses, the Company initiated a
private placement which raised proceeds of approximately $7,637 of which $964
and $3,400, respectively, were recorded in cash and receivables as of September
30, 1999. The balance of the proceeds from the private placement was received on
October 13, 1999. Based on current cash flow projections, management believes
that existing cash and cash equivalents are sufficient to fund operating and
other needs through the second quarter of 2000. Additional funding is expected
through the sale of additional equity securities in a future private placement
F-7
<PAGE>
and/or a public offering. Achieving profitability depends upon the Company's
ability to: (1) raise the necessary capital to fund operating needs and finance
the planned marketing programs and technology investment and (2) generate and
sustain substantially increased revenue levels. There can be no assurance that
the Company will be able to obtain the necessary capital to fund operating and
investment needs or to generate sufficient revenues to achieve or sustain
profitability in the future.
Merger Transaction
In August 1999, Ansama Corp. ("Ansama"), a non-operating public shell company
with minimal assets and liabilities and the sole shareholder of nutrisystem.com
inc., entered into: (1) an Asset Purchase Agreement to acquire the operating
assets and certain liabilities of Nutri/System L.P. for $3,000 and (2) a Stock
Exchange and Purchase Agreement to acquire the stock of Nutrisystem Direct,
L.L.C. for $400 and 17,500,000 shares of Ansama common stock. The Asset Purchase
Agreement and Stock Exchange and Purchase Agreement are collectively referred to
as the Merger Agreements. The amount paid to the principal shareholder in excess
of the book value was treated as a return of capital. The consideration paid for
the acquisition of the minority interest was allocated to the Company's assets
and liabilities in accordance with APB 16.
On September 27, 1999, Ansama was merged into the Company, and the Company
completed the transactions contemplated in the Merger Agreements with proceeds
generated from the private placement. As a result of the transaction, the owners
of the Predecessor Businesses obtained controlling interest in the common stock
of the Company. In addition, the management team of the Predecessor Businesses
became the officers and management of the Company. The transaction was treated
as a recapitalization with the assets and liabilities of the Predecessor
Businesses recorded at historical cost in the accompanying financial statements.
In connection with the merger transaction, the president of the Company was
issued 8,260,000 incremental shares of common stock of the Company. This
issuance was treated as compensation expense for accounting purposes. The
compensation expense recorded was based on a fair market value of $1 per share.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation of Financial Statements
As of September 30, 1999, the Company's consolidated financial statements
include the accounts of nutrisystem.com inc. and its wholly owned subsidiaries.
The accompanying historical financial statements prior to September 30, 1999
include the combined accounts of the Predecessor Businesses. The historical
shareholders' equity presented in the accompanying financial statements has been
retroactively restated to give effect to the shares and consideration issued in
the merger (see Note 1).
All significant intercompany accounts and transactions have been eliminated.
F-8
<PAGE>
Interim Financial Statements
The financial statements as of September 30, 1999, and for the nine months ended
September 30, 1998 and 1999 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results for those interim periods. The
results of operations for the nine months ended September 30, 1998 and 1999 are
not necessarily indicative of the results to be expected for the entire year or
any other period.
Cash Flow Information
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of three months
or less as cash equivalents. The Company made no payments for income taxes
during the years ended December 31, 1996, 1997 or 1998, or the nine months ended
September 30, 1998 and 1999. Payments for interest were $39, $104, and $7 for
the years ended December 31, 1996, 1997 and 1998, respectively, and $5, and $7
for the nine months ended September 30, 1998 and 1999, respectively.
Restricted Cash
Restricted cash represents minimum cash deposited in banks required under
certain vendor arrangements.
Inventories
Inventories consist principally of packaged food at the Company's central
warehouse. Inventories are priced using the lower of cost or market for which
cost is determined using the first-in, first-out (FIFO) method.
Goodwill
Goodwill represents the excess of the consideration paid over the fair value of
net assets and was generated from the acquisition of the minority interest by
the Company. Goodwill is amortized over five years.
Advertising Costs
The Company follows the American Institute of Certified Public Accountants
Statement of Position ("SOP"), 93-7 "Reporting for Advertising Costs" to account
for its Internet site linking agreements. Under SOP 93-7, the Company amortizes
the costs associated with its linking agreements over the contract terms, with
the amortization method primarily based on the rate of delivery of a guaranteed
number of impressions to be received during the contract term. To the extent
additional payments are required to be made based on factors such as
click-throughs and new customers generated, such payments will be charged to
expense as incurred. At December 31, 1997 and 1998, and September 30, 1999, $0,
$41 and $82 of prepaid advertising was included in prepaid expenses. Advertising
expense
F-9
<PAGE>
was $3,174, $5,655 and $65 during 1996, 1997 and 1998, respectively, and was $43
and $72 for the nine month periods ended September 30, 1998 and 1999,
respectively.
Internet Site Development Costs
Internet site development costs are expensed as incurred. Expenses related to
Internet site development began in 1999 and totaled $132 for the nine months
ended September 30, 1999.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
which are generally three to seven years. Leasehold improvements are amortized
on a straight-line basis over the related lease terms.
Other Assets
Other assets represent security deposits on leased facilities and equipment.
Revenue Recognition
Revenues from food sales are recognized when the related products are shipped.
Other revenues represent primarily the sale of vitamins and other supplements to
consumers, and the sales of print materials to franchises.
Until December 1997, franchise royalty fees were calculated at percentages
ranging from 3.4% to 7.0% of the franchisees' monthly net sales. The percentage
applied to the franchisees' revenue is contractual and based on factors such as
territory population size and annual revenue amounts. Beginning in December
1997, royalty income was fixed at 4% of franchisees' total net sales for all
franchises.
Minority Interest
Minority interest represents the minority shareholders' share of the equity and
results of operations of the Company based on their proportionate share of
capital contributions.
Income Taxes
The Predecessor Businesses were flow-through entities which were not subject to
federal or state income taxes and, consequently, none have been reflected in the
accompanying consolidated financial statements. The owners of the Predecessor
Business were required to include their respective share of the profits or
losses in their tax returns (see Note 3).
nutrisystem.com inc. is a "C" corporation which is subject to corporate level
income taxes. As a result of the merger transaction discussed in Note 1, the
Company will be subject to corporate income taxes and will provide for income
taxes in the accompanying financial statements beginning on September 30, 1999
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax liabilities and assets for the expected future tax
F-10
<PAGE>
consequences of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities.
As a result of the transaction discussed in Note 1, the tax basis of the assets
acquired from the Predecessor Businesses exceeded the financial statement
carrying amount by $1,975, resulting in a net deferred tax asset of $790 as of
September 30, 1999. A valuation allowance of $790 was recorded based on
management's current assessment that the net deferred tax asset will not be
realized through future taxable income. To the extent that the existing deferred
tax asset is realized in the future, the related tax benefit will be credited to
equity.
Stock Options
The Company accounts for stock option plans under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" (See Note 11).
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments approximate their
fair values.
Net Loss Per Common Share
The Company has presented net loss per common share pursuant to SFAS No. 128,
"Earnings per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic loss per common share was computed by dividing
net loss applicable to common shareholders by the weighted average number of
shares of Common Stock outstanding. The impact of common stock equivalents has
not been included in the weighted average shares for diluted loss per share
purposes since its effect would be anti-dilutive.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and disclosure of
comprehensive income. Also in June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement outlines standards for determining and disclosing information with
regards to operating segments. These pronouncements, which were required to be
adopted in 1998, had no impact as the Company has no other comprehensive income
items to report and is operated as a single segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The Company is required to adopt this statement beginning in 2001. Currently
management believes that SFAS 133 will have no impact on the Company's
consolidated financial statements.
F-11
<PAGE>
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Adoption of SOP 98-1
will have no effect on the Company's consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and operating expenses
during the reporting period. Actual results could differ from these estimates.
3. PRO FORMA INFORMATION (UNAUDITED):
As discussed in Note 2, on September 27, 1999, the Company became subject to
federal and state income taxes. SEC disclosure rules require companies, for
informational purposes, to display a pro forma adjustment for the income taxes
which would have been recorded if the Company had not been a flow-through entity
during the periods presented in the accompanying statements of operations. Due
to the recurring losses incurred by the Company, and management's assessment of
realization of the related tax deduction, no pro forma tax benefit would be
recorded during the years ended December 31, 1996, 1997 or 1998 or the nine
months ended September 30, 1998 or 1999.
Also on September 27, 1999, the Company's principal shareholder group purchased
the remaining interest of the minority shareholder, which resulted in goodwill
of $527. The effect of goodwill amortization on results of operations would have
been to increase expenses by $105 for each of the years presented, and by $79
for each of the nine-month periods presented had the transaction taken place as
of the beginning of the periods.
4. DISPOSITION OF COMPANY-OWNED WEIGHT LOSS CENTERS:
During 1997, the Company disposed of its 155 Company-owned centers. The assets
and certain liabilities of 53 of its centers were sold, and the remaining
centers were closed. Proceeds from the sale were $150. A loss on the disposition
reflected in the statement of operations of $5,347 has been recorded for closing
the centers, which includes primarily losses on fixed asset disposals of $3,064
and reserves for lease obligations, inventory obsolescence and other liabilities
of $2,283. Also in 1996, the Company recorded a charge of $367 in connection
with the disposal of certain exercise weight loss centers.
F-12
<PAGE>
5. FIXED ASSETS:
Fixed assets consist of the following:
December 31
------------------- September 30,
1997 1998 1999
----- ----- -------------
(unaudited)
Furniture and fixtures $ 158 $ 150 $ 160
Equipment 331 360 167
----- ----- -----
489 510 327
Accumulated depreciation (292) (211) (199)
----- ----- -----
$ 197 $ 299 $ 128
===== ===== =====
6. RELATED-PARTY TRANSACTIONS:
During 1996, 1997 and 1998, the Company purchased $657, $424 and $172,
respectively, of food from a vendor that is an affiliate of the partners of one
of the Predecessor Businesses. Food purchases from that vendor totaled $135 and
$102 for the nine months ended September 30, 1998 and 1999.
For the years ended December 31, 1996, 1997 and 1998, the Company paid retainers
and professional fees of $282, $618, and $0, respectively, to a law firm whose
partner serves as a member of the Board of Directors of the Predecessor
Businesses. No amounts were paid to this firm during the nine months ended
September 30, 1998 and 1999.
For the years ended December 31, 1996, 1997, and 1998, and the nine months ended
September 30, 1998 and 1999, the Company purchased vitamins and supplements of
$0, $355, $51, $49, and $14, respectively, from a vendor that is owned by a
shareholder.
At September 30, 1999, the Company had payables of $47 to related parties.
F-13
<PAGE>
7. COMMITMENTS AND CONTINGENCIES:
The Company leases its warehouse, corporate headquarters and certain equipment.
These leases generally have initial terms of three to five years. Certain of the
leases also contain escalation clauses based upon increases in costs related to
the properties. Lease obligations, with initial or remaining terms of one year
or more, consist of the following at December 31, 1998:
1999 $ 180
2000 307
2001 335
2002 350
2003 365
--------
$ 1,537
========
Total rent expense for the years ended December 31, 1996, 1997 and 1998 was
$5,820, $4,762 and $200, respectively, and was $149 in each of the nine month
periods ended September 30, 1998 and 1999.
The Company has committed to banner advertising and integrated Internet site
linking agreements with various Internet companies. These arrangements extend
through October 2001 with a total commitment of $6,335 payable in installments
over the related contract periods.
In September 1997, Nutri/System L.P., one of the Predecessor Businesses, removed
a drug combination from its weight loss program after it was shown to cause
health problems. Numerous suits were subsequently filed against the Nutri/System
L.P. Also, in 1997, the Company obtained a settlement from its insurance carrier
for coverage associated with this matter. Consequently, the Company recorded a
gain of $7,175, net of related legal costs of $2,325, in the accompanying 1997
statement of operations associated with this settlement. In September 1999, the
supplier of the drug combination agreed to indemnify Nutri/System LP with
respect to any further liability with respect to this matter. In the opinion of
management, the Company has no liability with respect to this matter.
The Company is also involved with certain other claims and litigation matters.
In the opinion of management, after consultation with legal counsel, the outcome
of such matters will not have a material adverse effect on the Company's
financial position or results of operations.
8. EMPLOYEE BENEFIT PLAN:
During 1996, the Company adopted a qualified defined contribution retirement
plan (the "Plan"). Under the provisions of the Plan, substantially all employees
meeting minimum age and service requirements are entitled to defer a certain
percentage of their compensation. The Company matches 100% of an employee
contribution, up to a maximum
F-14
<PAGE>
Company match of 3% of the employee annual salary. Employees vest immediately in
their contributions and vest in the Company contribution over a three-year
period of service. The Company's expense for the years ended December 31, 1996,
1997 and 1998 was $44, $60 and $13, respectively, and for the nine months ended
September 30, 1998 and 1999 was $8 and $17, respectively.
9. CAPITAL STOCK:
Common Stock
The Company's certificate of incorporation includes authorization to issue up to
55 million shares of common stock with a $.001 par value per share. As of
September 30, 1999, 23,903,322 shares were issued and outstanding.
Preferred Stock
The Company has also authorized 5,000,000 shares of preferred stock issuable in
series upon resolution of the Board of Directors. Unless otherwise required by
law, the Board of Directors can, without shareholder approval, issue preferred
stock in the future with voting and conversion rights that could adversely
affect the voting power of the common stock. The issuance of preferred stock
could be expected to, and may have the effect of, delaying, averting, or
preventing a change in control of the Company.
10. INCOME TAXES:
On September 30, 1999, the Company became subject to federal and state income
taxes. At this time, the Company recorded deferred income taxes which represent
the tax effect of the cumulative differences between the financial reporting and
income tax bases of assets and liabilities.
The significant items comprising the Company's deferred income tax assets and
liabilities as of September 30, 1999 are as follows:
Deferred tax asset-
Inventory allowance $ 16
Goodwill 778
Valuation Allowance (790)
-----------
4
Deferred tax liability-
Property and equipment (4)
-----------
$ --
===========
F-15
<PAGE>
The valuation allowance was established based on management's current assessment
that the net deferred tax asset will not be realized through future taxable
income.
11. STOCK OPTIONS AND WARRANTS:
Stock Option Plan
In August 1999, the Company adopted the 1999 Equity Incentive Plan (the "Plan"),
under which options to purchase shares of the Company's common stock could be
granted to key employees. A maximum of 1,000,000 shares of common stock may be
issued pursuant to the Plan. These options could be either incentive stock
options or nonqualified stock options. The Board of Directors determines the
term of each option, but no option can be exercisable more than ten years from
the date the option was granted. The Board also determines the option exercise
price per share and vesting provisions. On October 7, 1999, the Board granted
options to buy 294,500 shares at $1 that vest over a three-year period and
expire ten years from the grant date.
As permitted under SFAS No. 123, the Company has elected to continue to account
for compensation cost using the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123 does require the Company to disclose
pro forma net income and pro forma earnings per share amounts as if compensation
expense were recognized for options granted.
For disclosure purposes, the fair value of stock options granted is estimated on
the date of the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: no dividend yield; expected volatility
of 0.1%; risk-free interest rate of 6.04%; and expected life of 10 years. The
Black-Scholes option-pricing model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of subjective
assumptions, including the expected stock price volatility.
The fair value of the options granted was $133; however, no pro forma
compensation expense would have been recognized had the Company adopted the
provisions of SFAS No. 123 for financial reporting purposes since the options
were not issued during the periods presented.
Common Stock Warrants
In return for services in connection with the private placement, the placement
agent received warrants to purchase 763,740 common shares at $1.00 per share.
The fair value of the warrants of $344 was recorded as a reduction of the
proceeds from the offering. Fair value was computed using the Black-Scholes
option-pricing model as described above.
F-16
<PAGE>
SCHEDULE II
NUTRISYSTEM.COM INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance At
Beginning of Charged to End of
Period Write-offs Income Deductions Period
------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $ 440 $ (99) $ -- $ -- $ 341
Year ended December 31, 1997:
Allowance for doubtful accounts 209 (116) 347 -- 440
Year ended December 31, 1996:
Allowance for doubtful accounts 190 (33) 52 -- 209
</TABLE>
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
nutrisystem.com inc.
By: /s/ Brian D. Haveson
-----------------------------
Brian D. Haveson, President
and Chief Executive Officer
Date: December 17, 1999
-45-
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description of Exhibit
- ---------- ---------------------------------------------------------
2.1 Agreement and Plan of Merger dated August 19, 1999
between nutrisystem.com inc. and Ansama Corp.
2.2 Asset Purchase Agreement dated August 16, 1999
between Ansama Corp. and Nutri/System L.P.
2.3 Stock Exchange and Purchase Agreement dated
August 16, 1999 among Ansama Corp., HPF Holdings,
Inc., Brian D. Haveson and NutriSystem Direct, L.L.C.
management (comprised of Joseph Boileau, Kathleen
Simone, Deborah Gallen and Frederick C. Tecce)
2.4 Assignments of NutriSystem Direct, L.L.C. Membership
Interests dated September 30, 1999 to nutrisystem.com,
inc. by each of HPF Holdings, Inc., Brian D. Haveson,
Joseph Boileau, Kathleen Simone, Deborah Gallen and
Frederick C. Tecce
2.5 Operating Agreement of NutriSystem Direct, L.L.C.
dated September 30, 1999
2.6 Intellectual Property Assignment from Nutri/System L.P.
to nutrisystem.com inc. dated September 30, 1999
2.7 Assignment of Franchise Agreements from Nutri/System
L.P. to nutrisystem.com inc. dated September 30, 1999
3.1 Certificate of Incorporation of nutrisystem.com inc.
3.2 By-laws of nutrisystem.com inc.
4.1 Form of Common Stock certificate of nutrisystem.com
inc.
4.2 Form of warrant to purchase Common Stock of
nutrisystem.com inc.
-46-
<PAGE>
10.1 Joint Defense and Indemnification Agreement dated
September 27, 1999 between Wyeth Ayerst Laboratories
Division of American Home Products Corporation and
Nutri/System, L.P.
10.2 Lease, dated December 11, 1997, between Teachers
Insurance and Annuity Association and nutrisystem.com inc.
as amended by First Amendment to Lease dated October 28, 1999
10.3 Form of Nutri/System L.P. Franchise Agreement
10.4 Form of NutriSystem Direct, L.L.C. Distributor Agreement
10.5 1999 Equity Incentive Plan of nutrisystem.com inc.
21.1 Subsidiaries of nutrisystem.com inc.
23.1 Consent of Arthur Andersen LLP
27.1 Financial data schedule
-47-
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 19,
1999, is by and between ANSAMA CORP., a Nevada corporation with a business
address at 382 Route 59, Suite 310, Monsey, New York 10952 ("Ansama"), and
NUTRISYSTEM.COM INC., a Delaware corporation and wholly-owned subsidiary of
Ansama, with a business address at 202 Welsh Road, Horsham, Pennsylvania 19044
("Nutri").
BACKGROUND
Ansama owns 100 shares of the Common Stock of Nutri, constituting 100% of
the issued and outstanding shares of Nutri's capital stock.
The respective Boards of Directors and stockholders of Ansama and Nutri
deem it desirable and in the best interest of Ansama and Nutri that Ansama be
merged with and into Nutri upon the terms and conditions hereinafter set forth,
all in accordance with the applicable provisions of the laws of the State of
Nevada and the General Corporation Law of Delaware (the "DEGCL").
The respective Boards of Directors and stockholders of each of Ansama and
Nutri have approved the merger of Ansama with and into Nutri upon the terms and
conditions hereinafter set forth, in accordance with the requirements of Nev.
Rev. Stat. Ann. sec. 92A.120 and the DEGCL.
NOW THEREFORE, in consideration of the foregoing, and in further
consideration of the promises and mutual covenants and agreements herein set
forth, the parties, intending to be legally bound, covenant and agree as
follows:
1. The Merger.
(a) On the terms and subject to the conditions set forth in this Plan,
at the Effective Time (as hereinafter defined), Ansama shall be merged with and
into Nutri (the "Merger"), and Nutri shall survive the Merger.
(b) At the Effective Time, the separate corporate existence of Ansama
shall cease and all of the property, real, personal and mixed, and all of the
rights, privileges, immunities, powers and franchises of Ansama, and all of
debts, liabilities and obligations of Ansama shall be deemed to be transferred
to and vested in Nutri without further action.
<PAGE>
(c) Promptly following the Effective Time, Ansama and Nutri shall cause
(i) a Certificate of Merger to be filed with the Secretary of State of Delaware
as required by Section 252 of the DEGCL, and (ii) Articles of Merger to be filed
with the Secretary of State of Nevada as required by Nev. Rev. Stat. Ann.
'92A.200.
2. Effective Time. The Merger shall be effective as of the date a
Certificate of Merger and Articles of Merger with respect to the Merger are
filed in the offices of the Secretary of State of the States of Delaware and
Nevada, respectively (the "Effective Time").
3. Consideration; Cancellation of Nutri Common Stock. At the Effective
Time, (i) each outstanding share of Common Stock of Ansama shall automatically
be cancelled and converted into the right to receive one share of Nutri Common
Stock and (ii) each share of Nutri Common Stock that is outstanding immediately
prior to the Effective Time shall be canceled and no payment shall be made with
respect thereto.
4. Certificate of Incorporation and By-laws; Officers and Directors. The
Certificate of Incorporation and By-laws of Nutri as in effect immediately prior
to the Effective Time shall continue in full force and effect after the
Effective Time, and the officers and directors of Nutri immediately prior to the
Effective Time shall be the officers and directors of Nutri after the Effective
Time, in each case as the same may subsequently be changed in accordance with
the Certificate of Incorporation and By-laws of Nutri and the DEGCL.
5. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of which,
taken together, shall constitute one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties, pursuant to the approval and authority
duly given by resolutions adopted by their respective Boards of Directors and
stockholders, have caused this Agreement to be executed by their respective duly
authorized officers as of the day and year first above written.
Attest: ANSAMA CORP.
By: /s/ Dennis McNany By: /s/ Irwin Schneidmill
-------------------------- -----------------------------
Dennis McNany Irwin Schneidmill
Secretary President
Attest: NUTRISYSTEM.COM INC.
By: /s/ Frederick W. Dreher By: /s/ Brian D. Haveson
-------------------------- -----------------------------
Frederick W. Dreher Brian D. Haveson
Secretary President
-3-
Exhibit 2.2
ASSET PURCHASE AGREEMENT
This Agreement is made as of this 16th day of August, 1999, by and between
ANSAMA Corp., a Nevada corporation, located at 382 Route 59, Section 310,
Moncey, New York 10952 (hereinafter referred to as the "Buyer") and Nutri/System
L.P., a Delaware limited partnership with its principal place of business
located at 202 Welsh Road, Horsham, Pennsylvania 19044 (hereinafter referred to
as "Seller").
W I T N E S S E T H:
WHEREAS, Seller is the franchisor of Nutri/System(R) Weight Loss Centers
and sells Nutri/System franchises and prepackaged low calorie food and related
products (hereinafter referred to as the "Business"); and
WHEREAS, Buyer is a publicly owned company being advised by Brian Haveson,
the President of Seller and the person most familiar with the Business and its
operation;
WHEREAS, Seller desires to sell to Buyer and Buyer wishes to purchase
substantially all of the assets of the business including, without limiting the
foregoing, Seller's inventory of food products, Seller's patents, trademarks and
other intellectual property rights, leasehold interests, franchise agreements,
and all additional assets set forth below, except those assets specifically
excluded below, and assumes all liabilities and obligations of the Business,
except those liabilities specifically excluded below.
NOW THEREFORE, in consideration of the premises set forth hereinabove and
the mutual promises and covenants herein contained, the parties, intending to be
legally bound, agree as follows:
1. Assets to be Conveyed.
On the Closing Date (as hereinafter defined), Seller will assign, convey,
transfer and deliver
<PAGE>
to Buyer, by instruments of conveyance in form and substance reasonably
acceptable to both parties, the following assets owned by Seller (hereinafter
sometimes referred to as the "Assets"):
(a) All equipment, fixtures, leasehold improvements, furniture, computers,
and software located at or used in the Business located at Seller's headquarters
or elsewhere, to include, as a minimum, all of the furniture, fixtures and
equipment described in Exhibit "A" attached hereto and incorporated herein;
(b) All of Seller's rights and obligations under the lease agreement for
Seller's headquarters, as amended (the "Lease Agreement"), and attached hereto
as Exhibit "B";
(c) Seller's telephone numbers and telephone equipment for the Business, to
the extent assignable;
(d) All rental and utility deposits under the Lease Agreement, or on
deposit with any supplier or utility company or other company, or deposits
securing letters of credit to food vendors;
(e) All patents, trademarks, logos, copyrights, trade names, trade secrets,
testimonials, agreements of sale, assignments, and leases and licenses thereof
and all other intellectual property related to the Business and all goodwill
related thereto;
(f) All financial and sales records, client and customer lists, including
all files and records relating thereto, and all other proprietary information
used in connection with the operation of the Business;
(g) All franchise agreements;
(h) The saleable and marketable inventory, including food, vitamins and
other perishable goods and inventory pertaining to the Business operations
located at Seller's warehouse at the close of business on the day prior to the
Closing Date; and
(i) All cash and accounts receivable on Seller's books as of the Closing
Date;
<PAGE>
provided, however, Seller and Buyer hereby agree that no
statement or warranty is made concerning the value of the accounts receivable or
to what extent they are or are not collectible.
1.1 Assets Excluded from Sale.
Notwithstanding anything herein to the contrary the Assets do not include,
and Buyer shall not receive and Seller retains all right title and interest in,
to and arising directly or indirectly from any and all rights, claims, causes of
action, judgments, awards, settlements and other benefits related to or arising
from the purchase, sale, prescription or other dealings with fenfluramine,
phentermine or Redux or any combination thereof, including without limitation
(i) those against any insurance company (including Chubb Insurance Company, and
its affiliates) and American Home Products and (ii) arising from loss of or
injury to business, bad faith and failure to indemnify.
2. Closing.
The closing shall take place on or before , 1999, (the "Closing
Date") and shall take place at such place and time as the parties may agree.
3. Assumption of Liabilities.
It is expressly agreed and understood that upon closing Buyer will be
assuming all liabilities and obligations of Seller, the Business and its
operations of any type or nature, known or unknown, absolute, contingent or
otherwise, whether arising before or after Closing, including without limitation
any and all liabilities and obligations (i) to employees, franchisees,
customers, suppliers and others having relations with Seller or the Business,
(ii) arising under contracts, leases, agreements, benefit plans and other
obligations, (iii) for sales taxes, franchise taxes, employment taxes, property
taxes, utilities and other amounts, (iv) for personal injury from products of
the Business, except those excluded below, (v) arising from any failure to
comply with any law, rule or regulation, (vi) for any infringement of any third
party's intellectual property, and arising from any
<PAGE>
suit, claim or proceeding, except that Seller shall be solely responsible
for, and there shall be no assumption of liability by Buyer of, any debt or
liability of Seller or the Business, arising out of or related to any claims for
personal injury, fraud, breach of contract, false advertising or any related
advertising claim, arising out of or related to the sale or prescription by
Seller or US Medical Weight Loss Company, Inc., their agents or employees of
fenfluramine and/or phentermine and/or Redux, including, without limitation, any
claims raised or which could be raised in the list of lawsuits attached hereto
as Exhibit C (the "Phen-Fen litigation") in which Seller is a party and for
which Seller will continue to be liable, and further there shall be no
assumption of any and all legal fees due to Sperling, Slater & Spitz or arising
out of the Chubb Custom Insurance Company v. Nutri/System L.P. or Federal
Insurance Company v. Nutri/System L.P. litigation (the "Excluded Liabilities").
4. Consideration for Sale and Transfer.
4.1 Purchase Price.
The purchase price to be paid by Buyer to Seller shall be Three Million
Dollars ($3,000,000.00).
4.2 Method of Payment.
Buyer shall pay the purchase price to Seller at Closing by wire transfer to
Seller's bank account in the amount of Three Million Dollars ($3,000,000.00).
4.3 Allocation of Purchase Price.
The parties hereto agree that the purchase price for the assets of Seller
sold pursuant to this Agreement shall be allocated pursuant to a separate
written agreement of the parties. Each party agrees to report this transaction
for state and federal income taxes in a manner consistent with this written
allocation.
<PAGE>
5. Operation Pending Closing.
Subject to Article 3, operation of the Business, and income and expenses
attributable thereto, prior to the Closing Date shall be maintained in the
ordinary course and be for the account of Seller and, on and after the Closing
Date for the account of Buyer. Expenses which have been paid in advance for any
period extending beyond the Closing Date, including, but not limited to, such
items as electricity, water and other utility charges, rent, real and personal
property taxes, shall be for the benefit of Buyer as of the Closing Date. Seller
shall notify the companies providing the telephone, water, electric and other
utility services of the transfer of such services to Buyer and shall advise such
companies to effect the transfer of the services and billing therefor on the
Closing Date.
6. Seller's Representations and Warranties.
Seller represents and warrants to Buyer as follows:
6.1 Seller is a limited partnership, duly organized and validly existing
and in good standing under the laws of the State of Delaware and has full power
and authority to enter into this transaction, to carry on its business, and to
transfer the Assets and other interests specified in this Agreement free and
clear of all liens and encumbrances.
6.2 Seller has full partnership power and authority to perform its
obligations hereunder. The execution and delivery of this Agreement and
performance by Seller of its obligations hereunder have been duly authorized by
all necessary partnership action in order to constitute this Agreement as a
binding and enforceable obligation of Seller. The execution and delivery of this
Agreement and the performance by Seller of its obligations hereunder do not and
will not violate any provision of Seller's Partnership Agreement or any other
agreement to which it is a party or any judgment, order, decree, law or
regulation. This Agreement is a legal, valid and binding agreement,
<PAGE>
enforceable against the Seller in accordance with its terms. There are no
consents required to enable Seller to execute and deliver this Agreement that
have not been obtained.
6.3 The Assets are being purchased in an "as is" condition. SELLER MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE ASSETS OR IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY OTHER THAN THOSE SET FORTH
IN THIS SECTION 6 AND OTHER DOCUMENTS DELIVERED OR TO BE DELIVERED HEREWITH AND
ALL OTHER WARRANTIES EXPRESS OR IMPLIED ARE HEREBY DISCLAIMED, INCLUDING ALL
WARRANTIES OF MERCHANTIBILITY, SUITABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.4 To the best of Seller's knowledge, after due inquiry, the performance
by Seller of, and its compliance with the terms, provisions and conditions of
this Agreement does not violate any applicable statute, regulation, order or
judgment applicable to it and does not constitute a default under, and is not in
any respect in conflict with, the provisions of any bylaw, indenture, or other
agreement or any judgment to which Seller is a party or by which it may be bound
or affected, including but not limited to any obligation of Seller to its
creditors.
7. Covenants of Seller.
From and after the date of this Agreement and up to the Closing Date,
except as otherwise specifically agreed to in writing by Buyer, Seller agrees
not to sell, assign, lease or otherwise transfer or dispose of any of the Assets
of the Business except in the ordinary course of business.
8. Conditions to Obligations of Buyer.
The obligations of Buyer under this Agreement are additionally subject to
the satisfaction of or written waiver by Buyer of each of the following
conditions on or before the Closing Date, any of which may be waived by Buyer in
writing and each of which shall be considered properly
<PAGE>
performed if no notice to the contrary has been provided to Seller in
writing by the close of any contingency time set forth in this section:
(a) that the representations and warranties of Seller contained herein
shall be true on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date;
(b) that Seller shall have performed all of its obligations and agreements
and complied with all covenants and undertakings required by this Agreement
between the date hereof and the Closing Date;
(c) that Buyer has received funding from Buyer's investors in an amount
sufficient to complete this transaction. If Buyer has not received a firm
commitment from its investors at least ten (10) days prior to the scheduled
Closing Date, then Buyer must give written notice to Seller whether Buyer elects
to cancel this Agreement or proceed to Closing without the financing. However,
if no written notice is received then this Agreement is terminated and neither
party has any continuing obligation to the other; and
(d) Prior to the Closing Date, Buyer shall be entitled, through its
employees and representatives, to satisfactorily complete such investigations of
the property and such examination of the books, records and financial condition
of Seller and the Business as Buyer may reasonably request. In order that Buyer
may have the full opportunity to do so, Seller shall furnish Buyer and its
representatives during such period with all such information concerning the
affairs of Seller and the Business as Buyer or such representatives may
reasonably request and cause Seller's officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with Buyer or such representatives
in connection with such review and examination and to make full disclosure of
all information and documents requested by Buyer and/or such representatives.
Any such
<PAGE>
investigations and examinations shall be conducted at reasonable times and
under reasonable circumstances.
9. Conditions to Obligations of Seller.
Obligations of Seller under this Agreement are additionally subject to the
satisfaction of or written waiver by Seller of the following conditions on or
before the Closing Date, any one of which may be waived by Seller in writing and
each of which shall be considered properly performed if no notice to the
contrary has been provided to Buyer in writing by the close of any contingency
time set forth:
(a) that Buyer shall have performed or complied with all of the terms and
conditions of this Agreement on its part to be performed or complied with;
(b) that all actions, proceedings, instruments and documents required to be
delivered by Buyer hereunder or incident to the performance hereof, and all
other related matters shall have been delivered by Buyer to Seller;
(c) that Buyer has made payment of the purchase price as set forth in
Section 4 hereof;
(d) delivery of a secretary's certificate certifying Buyer's corporate
resolution authorizing Buyer to enter into and consummate this transaction.
10. Seller's Performance at Closing.
On the Closing Date, Seller shall execute and deliver or cause to be
delivered to Buyer:
10.1 One or more Bills of Sale in the form attached hereto as Exhibit D
conveying to the Buyer all of the Assets to be acquired by the Buyer hereunder.
10.2 Assignment and consent of landlord of the Lease Agreement in the form
attached hereto as Exhibit E.
10.3 Secretary's Certificate certifying the resolutions of the General
Partner of Seller
<PAGE>
approving this transaction.
10.4 Assignment of any and all trademarks, patents and copyrights for the
name "Nutri/System" and all related names and marks all of which are more fully
set forth on Exhibit F attached hereto. Copies of the assignments shall be in
the form attached hereto as Exhibit G.
10.5 As of the Closing Date Seller shall cease to use the name
"Nutri/System" and will change its name to some other name of its choosing that
is in no way similar to "Nutri/System".
11. Covenants of Buyer.
From and after the date of this Agreement and up to the Closing Date,
except as otherwise specifically agreed to in writing by Seller, Buyer agrees
to:
11.1 Take any and all actions necessary for the approval and performance of
this Agreement and the consummation of the transactions contemplated hereby.
11.2 Cooperate fully with Seller and its counsel in preparation and
prosecution of the assignment of the Lease Agreement.
12. Buyer's Representations and Warranties.
12.1 Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Buyer has all requisite
corporate power and authority to execute and deliver this Agreement and to carry
out the transactions contemplated hereby.
12.2 Buyer has full power and authority to assume and perform its
obligations hereunder. The execution and delivery of this Agreement and
performance by Buyer of its obligations hereunder have been duly authorized by
all necessary corporate action in order to constitute this Agreement as a
binding and enforceable obligation of Buyer.
12.3 To the best of Buyer's knowledge, after due inquiry, the performance
by Buyer of, and its compliance with the terms, provisions and conditions of
this Agreement does not violate any
<PAGE>
applicable statute, regulation, order or judgment applicable to it and does
not constitute a default under, and is not in any respect in conflict with, the
provisions of any bylaw, indenture, or other agreement or any judgment to which
Buyer is a party or by which it may be bound or affected, including but not
limited to any obligation of Buyer to its creditors.
12.4 There are no actions, suits or proceedings pending or threatened
against Buyer with respect to this Agreement which might prevent the performance
of the transactions contemplated hereby.
13. Buyer's Performance at Closing.
On the Closing Date Buyer shall pay to Seller, by wire transfer of funds,
the monies payable on the Closing Date as set forth in Section 4 hereof and
execute the Assignment of Lease.
14. Leasehold Premises.
Seller will assign to Buyer all of its rights, title and interests,
including any security deposit, in the Lease Agreement for the Business, without
representation or warranty of any kind. Buyer shall, at its sole expense, after
Closing use its best efforts to obtain the consent of landlord to the assignment
of the Lease Agreement. Buyer shall indemnify, defend and hold harmless Seller
against any liability arising from the failure to obtain such consent.
15. Restrictive Covenant.
Seller will not, for a period of three (3) years from the date of execution
of this Agreement, in the United States of America, engage in the Business the
operating assets of which are being purchased by Buyer hereby, or have an
interest, as a proprietor, partner, employee, agent, or consultant in any
enterprise which shall be so engaged.
15.1 The terms and conditions of this Restrictive Covenant have been
established by the mutual agreement of the parties, and in reliance on the
validity of this Agreement, Seller will cease
<PAGE>
engaging in the Business as of the Closing Date. Further, if any court
shall determine that the duration, geographical limits or any other provisions
of the restrictions contained in this Agreement are unenforceable, Seller agrees
that this Agreement shall be deemed amended so as to render such Agreement valid
and enforceable, with all other provisions of the Agreement to remain in full
force and effect.
16. Cross Indemnification.
(a) Indemnification by Seller. Seller shall defend, indemnify and hold
harmless Buyer from and against all claims, demands, causes of action, suits,
judgments, debts, liabilities and expenses, including attorneys fees, known or
unknown (i) resulting from any misrepresentations or nonfulfillment of any
condition or obligation on the part of Seller under this Agreement or (ii) which
result from the Excluded Liabilities. Seller hereby agrees to defend, indemnify
and hold harmless the Buyer from the lawsuits identified on Exhibit C hereto.
(b) Indemnification by Buyer. Buyer shall defend, indemnify and hold
harmless Seller from and against all claims, demands, causes of action, suits,
judgments, debts, liabilities and expenses, known or unknown (i) resulting from
any misrepresentations or non-fulfillment of any condition or obligation on the
part of Buyer under this Agreement; or (ii) which result from the operation of
the Business by Buyer on or after the Closing Date; or (iii) which result from
the operation of the Business by Seller prior to Closing, only so long as such
Closing occurs, except claims, demands, causes of action, suits, judgments,
debts, liabilities and expenses related to the Excluded Liabilities.
17. Assignment.
This Agreement and any and all rights or benefits hereunder shall not be
assignable by either party without the prior written consent of all other
parties.
<PAGE>
(a) This Agreement shall be binding upon and shall inure to the exclusive
benefit of the respective heirs, administrators, legal representatives,
successors or permitted assigns of the parties. This Agreement is not intended
to, nor shall it create any rights for the benefit of any other party.
(b) Any provision of this Agreement found to be unenforceable or prohibited
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such unenforceability or prohibition without invalidating the remaining
provisions hereof.
18. Counterparts.
This Agreement may be executed in two or more counterparts, which shall
each be considered one and the same Agreement.
19. Further Assurance.
From time to time after the Closing Date and without further consideration,
the parties will execute and deliver, or arrange for the execution and delivery
of, such other instruments of conveyance and transfer and take such action or
arrange for such other actions as may reasonably be requested to more
effectively complete any of the transactions provided for in this Agreement or
any document annexed hereto.
20. Termination or Abandonment.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may be terminated and abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Buyer and Seller;
(b) by Buyer or Seller if any court of competent jurisdiction or
governmental body, authority or agency having jurisdiction shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
<PAGE>
nonappealable;
(c) by Buyer if one or more of the conditions to the obligations of
Buyer as set forth in Article 8 hereof has not been fulfilled by the
Closing Date;
(d) by Seller if one or more of the conditions to the obligations of
Seller as set forth in Article 9 hereof has not been fulfilled by the
Closing Date; or
(e) by Seller if Closing hereunder has not taken place within 45
calendar days after the date of execution hereof. Neither Buyer nor Seller
shall be liable to the other for any termination of this Agreement pursuant to
this Article 20.
21. Survival.
Each party shall be entitled to rely on the representations and warranties
of the other set forth herein and on any Exhibit or other document delivered
pursuant to this Agreement to the extent the party does not have or receive
actual notice that the representation or warranty is untrue or has been breached
by the party making the representation or warranty. The representations,
warranties, covenants and obligations of the parties made herein shall survive
the Closing.
22. Governing Law.
This Agreement shall be construed under and in accordance with the laws of
the Commonwealth of Pennsylvania.
23. Notices.
Any notices or other communications required or permitted hereunder shall
be properly delivered if mailed, postage prepaid, by registered or certified
mail, return receipt requested, addressed as follows:
To Seller: Mr. Michael Heisley, Chairman
C/o Heico Acquisitions, Inc.
70 West Madison, Suite 5600
Chicago, IL 60602
<PAGE>
With a copy to: Stanley Meadows, Esq.
McDermott, Will & Emery
227 West Monroe, Suite 3100
Chicago, IL 60606-5096
To Buyer: Mr. Irwin Schniedmill, President
ANSAMA Corp.
382 Route 59
Section 310
Moncey, NY 10952
With a copy to: Christopher Lange, Esq.
Emmet, Marvin & Martin
120 Broadway
New York, NY 10271
or such other address as may be furnished in writing by any party hereto.
24. Merger.
This Agreement represents the entire agreement of the parties and may not
be modified or changed except in a writing signed by both parties. No party
hereto has relied on any representation, oral or written other than those
contained herein in connection with the execution and delivery of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the corporate parties hereto have caused this Asset
Purchase Agreement to be executed by their duly authorized officers and their
respective corporate seals to be affixed hereto and the individual parties
hereto have hereunto set their hands and seal, the day and year first above
written.
BUYER: SELLER:
ANSAMA CORP. NUTRI/SYSTEM L.P.
By: /s/ Irwin Schneidmill By: /s/ Stanley H. Meadows
------------------------------- ----------------------------------
Title: President & CEO Title: Assistant Secretary
--------------------------- ------------------------------
<PAGE>
[EXHIBITS OMITTED]
Exhibit 2.3
STOCK EXCHANGE AND PURCHASE AGREEMENT
This Stock Exchange and Purchase Agreement (the "Agreement") is dated as of
this 16th day of August, 1999, by and between HPF Holdings, Inc., a Delaware
corporation, with a principal place of business located at 2075 Foxfield Road,
St. Charles, IL 60174 ("HPF"), Brian Haveson, an individual, residing at 1704
Scott Drive, Newtown, PA 18940 ("Haveson"); ANSAMA Corp., a Nevada corporation,
with a principal place of business located at 382 Route 59, Section 310, Moncey,
NY 10952 (the "Company"); Nutri/System Direct, L.L.C. management (comprised of
Joe Boileau, Kathleen Simone, and Deborah Gallen and hereinafter collectively
referred to as "Management"); and Fred Tecce, an individual residing at 1025
Sentry Lane, Gladwynne, PA 19035 ("Tecce").
WHEREAS, the Company is interested in acquiring all outstanding ownership
interests of the direct marketing company, Nutri/System Direct, L.L.C.
("NSDirect"); and
WHEREAS, the Interest Holders of NSDirect are willing to sell and/or
exchange all of their ownership interests in NSDirect for cash and/or shares of
the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
SALE AND EXCHANGE
1.1 On the Closing Date (as hereinafter defined) HPF shall assign, transfer
and convey to Company its ownership interest of NSDirect representing eighty-one
and one half percent (81.5%) of all outstanding ownership interests in NSDirect.
In exchange for its interest in NSDirect, HPF shall receive a payment of Four
Hundred Thousand Dollars ($400,000.00). The Company shall make payment to HPF at
Closing by wire transfer to HPF's bank account in the amount of Four Hundred
Thousand Dollars ($400,000.00).
1.2 On the Closing Date (as hereinafter defined) HPF shall assign, transfer
and convey to Company the remainder of its ownership interest in NSDirect
representing seven and one half percent (7.5%) of all outstanding ownership
interests in NSDirect. In exchange for its ownership interest in NSDirect, HPF
shall receive 8,200,000 shares of the Company's common stock, representing 40.9%
of all outstanding shares of the Company on a fully diluted basis as of the
Closing Date.
1.3 On the Closing Date, Haveson shall assign, transfer and convey to
Company his ownership interest in NSDirect representing seven and one half
percent (7.5%) of all outstanding ownership interests in NSDirect. In exchange
for its ownership interest of NSDirect, Haveson shall receive 8,200,000 shares
of the Company's common stock, representing 40.9% of all outstanding shares of
the Company on a fully diluted basis as of the Closing Date.
1.4 On the Closing Date, Management shall assign, transfer and convey to
<PAGE>
Company their ownership interests in NSDirect representing three percent (3%) of
all outstanding ownership interests in NSDirect. In exchange for its ownership
interest in NSDirect, Management shall receive 600,000 shares of the Company's
common stock, representing 2.99% of all outstanding shares of the Company on a
fully diluted basis as of the Closing Date.
1.5 On the Closing Date, Tecce shall assign, transfer and convey to Company
his ownership interest in NSDirect representing one half of one percent (2.5%)
of all outstanding ownership interests in NSDirect. In exchange for his
ownership interest in NSDirect, Tecce shall receive 500,000 shares of the
Company's common stock, representing 2.5% of all outstanding shares of the
Company on a fully diluted basis as of the Closing Date.
1.6 As a result of the transactions contemplated herein, the existing
shareholders of record of the Company who hold shares at the date and time of
the Closing of this transaction (the "Existing Shareholders") shall retain
2,039,337 shares of the Company's common stock, representing 10.2% of all
outstanding shares of the Company on a fully diluted basis as of the Closing
Date.
1.7 500,000 shares of the Company's common stock will be set aside as
option shares for new and existing employees, representing 2.5% of all
outstanding shares of the Company on a fully diluted basis as of the Closing
Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. Company hereby
represents and warrants to HPF, Haveson and Management (the "NSDirect Interest
Holders") and Tecce as follows:
(a) Incorporation. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. The Company
has all requisite corporate power and authority to execute and deliver this
Agreement and to carry out the transactions contemplated hereby.
(b) Capitalization. The authorized capital stock of the Company
consists of 55,000,000 shares of common stock, $.01 par value per share, of
which 2,039,337 shares are issued and outstanding to Existing Shareholders. All
of the Company's issued and outstanding shares of capital stock have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
by Existing Shareholders. Accurate and complete copies of the Company's charter
and bylaws are attached hereto. As of the Closing, the Company shall not have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock containing any profit participation features, nor shall it
have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans. As of
the Closing, the Company shall not be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its
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<PAGE>
capital stock, except pursuant to the Certificate of Incorporation. All
outstanding securities of the Company were issued in compliance with state and
federal securities laws.
(c) Execution, Delivery, Binding Effect. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Company. The Board of
Directors of the Company is not required to submit this Agreement for approval
by its stockholders and the stockholders are not required to approve this
Agreement. This Agreement is a valid and binding obligation of the Company
enforceable against it in accordance with its terms, except as may be limited by
applicable bankruptcy and similar laws and general principals of equity.
(d) Transfer Free and Clear. The shares of the Company are being
transferred to the parties hereto free and clear of all liens, pledges, security
interests, restrictions, claims, charges and other encumbrances, and at the time
of issuance, will be duly authorized, validly issued, fully paid and
non-assessable.
(e) Reports with the Securities and Exchange Commission. The Company is
a non-reporting Company. The Company last filed a Form 10Q with the Securities
and Exchange Commission for the quarter ending September 30, 1992. Subsequent to
this date, the Company filed Form 15 with the Securities and Exchange Commission
and became a non-reporting Company. The Company's Form 15 filing is attached
hereto as Exhibit "A".
(f) Conduct of Business; Liabilities. The Company does not currently
conduct any business, has no material debts, obligations or liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether or not known
to the Company and whether due or to become due) and has not entered into any
contracts or agreements. Prior to Closing, the Company has not violated and will
not violate any laws or governmental rules or regulations.
(g) Financial Statements. Attached hereto as Exhibit "B" are the
following financial statements:
(i) the audited balance sheets of the Company as of December 31,
1998 and December 31, 1997, and the related statements of income and cash flows
(or the equivalent) for the respective twelve-month periods then ended; and
(ii) the unaudited balance sheet of the Company as of June 30,
1999, and the related statements of income and cash flows (or the equivalent)
for the six month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principals, consistently applied,
subject in the case of the unaudited financial statements to the lack
3
<PAGE>
of footnote disclosure and changes resulting from normal year-end adjustments
(none of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations, or business
prospects of the Company taken as a whole). All of the books, records and
accounts of the Company are in all material respects accurate and complete and
have been prepared in accordance with good business practice and all laws,
regulations and rules applicable to the Company and accurately present and
reflect in all material respects all of the transactions described therein.
2.2 Representations and Warranties of and the NSDirect Interest Holders.
Except as otherwise provided, each NSDirect Interest Holder, singularly and not
on behalf of any other NSDirect Interest Holder, hereby represents and warrants
to the Company as follows:
(a) Interest Ownership. The NSDirect Interest Holder is the beneficial
and record owner of its ownership interest of NSDirect and there are no
outstanding agreements or rights to subscribe for or purchase its ownership
interest. Additionally Haveson and Management, but not HPF represent and warrant
that there are no outstanding agreements or rights to subscribe for or purchase
any additional ownership interests in NSDirect.
(b) Enforceability. This Agreement is a valid and binding obligation of
the NSDirect Interest Holder in accordance with its terms, except as may be
limited by applicable bankruptcy and similar laws and general principals of
equity.
(c) NSDirect Ownership Interests. The NSDirect ownership interests are,
and at the time of Closing will be, free and clear of all liens, pledges,
security interests, restrictions, claims, charges and other encumbrances.
(d) The NSDirect ownership interests are being purchased in an "as is"
condition. THE NSDIRECT INTEREST HOLDERS MAKE NO REPRESENTATION OR WARRANTY OF
ANY KIND WITH RESPECT TO THE OWNERSHIP INTERESTS OR IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY OTHER THAN THOSE SET FORTH IN THIS SECTION 2.2
AND OTHER DOCUMENTS DELIVERED OR TO BE DELIVERED HEREWITH.
(e) Organization. NSDirect is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. NSDirect has all requisite limited liability company power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby.
(f) Financial Statements. Attached hereto as Exhibit "C" are the
following financial statements:
(i) the unaudited balance sheets of NSDirect as of December 31,
1998 and December 31, 1997, and the related statements of income and cash flows
(or the equivalent) for the respective twelve-month periods then ended; and
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<PAGE>
(ii) the unaudited balance sheet of NSDirect as of June 30, 1999,
and the related statements of income and cash flows (or the equivalent) for the
six-month period then ended.
With respect to the attached financial statements Haveson and Management, but
not HPF or NSDirect, represent and warrant that each of the foregoing financial
statements (including in all cases the notes thereto, if any) is accurate and
complete in all material respects, is consistent with the books and records of
NSDirect (which, in turn, are accurate and complete in all material respects)
and has been prepared in accordance with generally accepted accounting
principals, consistently applied, subject in the case of the unaudited financial
statements to the lack of footnote disclosure and changes resulting from normal
year-end adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations, or business prospects of NSDirect taken as a whole). All of the
books, records and accounts of NSDirect are in all material respects accurate
and complete and have been prepared in accordance with good business practice
and all laws, regulations and rules applicable to NSDirect and accurately
present and reflect in all material respects all of the transactions described
therein.
(g) Execution, Delivery, Binding Effect. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by NSDirect. No consents are required for the execution of
this Agreement and it does not violate or conflict with any applicable statute,
regulation, order or judgment applicable to NSDirect and does not constitute a
default under, and does not conflict with, the provisions of any operating
agreement or other agreement or any judgment to which NSDirect is a party or by
which it may be bound or affected including but not limited to any obligation of
NSDirect to its creditors.
ARTICLE III
CLOSING; OTHER MATTERS
3.1 Closing. The Closing shall take place on or before _____________, 1999,
(the "Closing Date") and shall take place at such place and time as the parties
may agree. At the Closing of the transactions contemplated herein, the NSDirect
Interest Holders shall deliver to the Company documents representing all of
their ownership interests in NSDirect, duly endorsed for transfer. Concurrently
therewith the Company shall deliver to the NSDirect Interest Holders and Tecce
certificates of the Company's stock in the amounts set forth above for each
NSDirect Interest Holder and Tecce, properly registered and issued in the
respective names of the NSDirect Interest Holders and Tecce.
3.2 Additional Investment. It is anticipated that on or about the Closing
Date the Company will raise an additional five million dollars ($5,000,000.00)
at not less than one dollar ($1.00) per share in a private placement of equity
based on this Agreement and related agreements. The Company will issue an
additional five million (5,000,000) shares of common stock as part of this
contemplated transaction. The parties hereto acknowledge that the Company will
be making this additional offering and agree to cooperate with the Company in
the furtherance of this offering. The parties hereto
5
<PAGE>
further acknowledge that their percentage of ownership in the Company will be
diluted, as set forth in Exhibit "D" attached hereto, by the proposed offering.
3.3 Conditions to Obligations of the Company. The obligations of the
Company under this Agreement are additionally subject to the satisfaction of or
written waiver by the Company of each of the following conditions on or before
the Closing Date, any of which may be waived by the Company in writing and each
of which shall be considered properly performed if no notice to the contrary has
been provided to the NSDirect Interest Holders and Tecce in writing by the close
of any contingency time set forth in this section:
(a) the Company shall have received funding from the Company's
investors in an amount sufficient to complete this transaction. If the Company
has not received a firm commitment from its investors at least ten (10) days
prior to the scheduled Closing Date, then the Company must give written notice
to the NSDirect Interest Holders and Tecce whether the Company elects to cancel
this Agreement or proceed to Closing without the financing. However, if no
written notice is received then this Agreement is terminated and none of the
parties hereto has any continuing obligation to any other party hereto;
(b) there shall have been no material change in the Business of
NSDirect between the date hereof and the Closing Date;
(c) prior to the Closing of this transaction, Nutri/System L.P. shall
have executed and delivered an Asset Purchase Agreement to Company, a copy of
which is attached hereto as Exhibit "E" (the "Asset Purchase Agreement"), and
there shall be no remaining conditions to Company's obligation to Close under
the Asset Purchase Agreement;
(d) prior to the Closing Date, the Company shall be entitled, through
its employees and representatives, to satisfactorily complete such
investigations of the property and such examination of the books, records and
financial condition of NSDirect as the Company may reasonably request. In order
that the Company may have the full opportunity to do so, NSDirect and the
NSDirect Interest Holders shall furnish the Company and its representatives
during such period with all such information concerning the affairs of NSDirect
as the Company or such representatives may reasonably request and cause
NSDirect's officers, employees, consultants, agents, accountants and attorneys
to cooperate fully with the Company or such representatives in connection with
such review and examination and to make full disclosure of all information and
documents requested by the Company and/or such representatives. Any such
investigations and examinations shall be conducted at reasonable times and under
reasonable circumstances.
(e) All covenants, agreements and conditions contained in this
Agreement to be performed or complied with by NSDirect and NSDirect Interest
Holders at or prior to the Closing shall have been performed or complied with in
all material respects.
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<PAGE>
3.4 Conditions to Obligations of NSDirect Interest Holders and Tecce. The
obligations of the NSDirect Interest Holders and Tecce under this Agreement are
additionally subject to the satisfaction of each of the following conditions on
or before the Closing Date, unless waived by each NSDirect Interest Holder and
Tecce in writing:
(a) The representations and warranties made by the Company in Section
2.1 shall be true and correct when made, and shall be true and correct as of
Closing as if made at Closing;
(b) All covenants, agreements and conditions contained in this
Agreement to be performed or complied with by the Company at or prior to the
Closing shall have been performed or complied with in all material respects; and
(c) At or prior to Closing, the Company shall have entered into the
Asset Purchase Agreement and that concurrently with the Closing hereunder, the
Company and Nutri/System L.P. shall have closed pursuant to the terms of the
Asset Purchase Agreement.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by the Company. The Company will indemnify the NSDirect
Interest Holders and Tecce for any loss, liability, claims, damages and
expenses, including reasonable attorneys fees, suffered by the NSDirect Interest
Holders and/or Tecce, or any of them, as a result of any breach by the Company
of its representations and warranties or covenants hereunder.
4.2 Indemnification by NSDirect Interest Holders and Tecce. Each NSDirect
Interest Holder and Tecce, singularly, and not on behalf of any other NSDirect
Interest Holder or Tecce, as the case may be, will indemnify the Company for any
loss, liability, claims, damages and expenses, including reasonable attorneys
fees, suffered by the Company, as a result of any breach by the NSDirect
Interest Holders and/or Tecce of its representations and warranties or covenants
hereunder.
4.3 Indemnification Procedures. Any party claiming indemnification
hereunder shall give written notice thereof to the party or parties against whom
indemnification is sought. If the claim involves a third party claim, notice
shall be given timely in order to allow the indemnifying party the opportunity
to participate in the defense of the claim, to the extent the party wishes;
provided, however, that no failure of an indemnified party to give notice timely
shall relieve the indemnifying party of any obligation hereunder except to the
extent, if any, that the failure materially prejudices the ability of the
indemnifying party to defend the third-party claim.
ARTICLE V
MISCELLANEOUS MATTERS
5.1 Notices. All notices, requests, demands, payments and other
communications under this Agreement shall be in writing and shall be duly given
if delivered personally to the person to whom it is authorized to be given, or
it is sent by mail, telegraph, overnight
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<PAGE>
courier service, or transmission by telecopy or similar service at the person's
address set forth below, or at such other address as the person may from time to
time specify by written notice pursuant to this section 5.1. Any notice shall be
deemed to be given as of the date so delivered, if delivered personally, or upon
confirmation of the telecopy, or as of the date the same was deposited in the
United States Mail, or delivered to an overnight courier service, in each case
with all applicable charges prepaid, addressed as set forth below:
If to Company: Irwin Schniedmill
382 Route 59
Section 310
Moncey, NY 10952
If to HPF: 2075 Foxfield Road
St. Charles, IL 60174
Att'n: Michael Heisley
If to Haveson: 1704 Scott Drive
Newtown, PA 18940
If to Tecce: 1025 Sentry Lane
Gladwynne, PA 19035
If to Boileau: 87 Wooden Bridge Road
Holland, PA 18966
If to Simone: 3439 Manor Road
Huntingdon Valley, PA 19006
If to Gallen: 14 Glenwood Circle
Aldan, PA 19018
5.2 Binding Agreement. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their successors, assigns, heirs and
personal representatives.
5.3 Entire Agreement. This Agreement and the agreements contemplated herein
constitute the entire agreement between the parties with respect to the subject
matter hereof; there are no other terms other than those contained herein and
therein and this Agreement may not be modified or amended except in a writing
signed by the parties hereto.
5.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to principles of conflicts of law thereof.
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5.5 Counterparts. This Agreement may be executed in counterparts and by
each party hereto on separate counterparts, each of which shall be deemed an
original, but which together shall constitute one and the same agreement.
5.6 Termination or Abandonment.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may be terminated and abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of the parties hereto;
(b) by Company or the NSDirect Interest Holders holding a majority of
the NSDirect interests if any court of competent jurisdiction or governmental
body, authority or agency having jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) by Company if one or more of the conditions to the obligations of
Company as set forth in Section 3.3 hereof has not been fulfilled by the Closing
Date;
(d) by the NSDirect Interest Holders holding a majority of the NSDirect
interests if one or more of the conditions to the obligations of the NSDirect
Interest Holders as set forth in Section 3.4 hereof has not been fulfilled by
the Closing Date; or
(e) by NSDirect Interest Holders holding a majority of the NSDirect
interests if Closing hereunder has not taken place within 45 calendar days after
the date of execution hereof.
Neither Buyer nor Seller shall be liable to the other for any termination of
this Agreement pursuant to this Section 5.6.
5.7 Each party shall be entitled to rely on the representations and
warranties of the other set forth herein and on any Exhibit or other document
delivered pursuant to this Agreement to the extent the party does not have or
receive actual notice that the representation or warranty is untrue or has been
breached by the party making the representation or warranty. The
representations, warranties, covenants and obligations of the parties made
herein shall survive the Closing.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
HPF HOLDINGS, INC. ANSAMA CORP.
BY: /s/ Stanley H. Meadows BY: /s/ Irwin Schniedmill
------------------------- ---------------------------
Assistant Secretary President and CEO
/s/ Brian Haveson /s/ Fred Tecce
- ----------------------------- ------------------------------
BRIAN HAVESON FRED TECCE
/s/ Joe Boileau /s/ Kathleen Simone
- ----------------------------- ------------------------------
JOE BOILEAU KATHLEEN SIMONE
/s/ Deborah Gallen
- -----------------------------
DEBORAH GALLEN
10
Exhibit 2.4
ASSIGNMENT OF MEMBERSHIP INTEREST
HPF Holdings, Inc. ("Assignor"), a Delaware corporation, for good and
valuable consideration, receipt of which is hereby acknowledged, intending to be
legally bound, hereby assigns, transfers and delivers to nutrisystem.com inc.
("Assignee"), a Delaware corporation, all of Assignor's right, title, claim and
interest in and to its eighty-nine percent (89%) membership interest in
NutriSystem Direct, L.L.C., a Pennsylvania limited liability company, in
accordance with the provisions of the Stock Exchange and Purchase Agreement
dated as of August 16, 1999, among Assignee, HPF Holdings, Inc., Brian Haveson,
Joseph Boileau, Kathleen Simone, Deborah Gallen and Frederick C. Tecce.
IN WITNESS WHEREOF, the undersigned does hereby execute this Assignment of
Membership Interest as of the 30th day of September, 1999.
HPF HOLDINGS, INC.
By: /s/ Stanley H. Meadows
--------------------------
Stanley H. Meadows
Assistant Secretary
<PAGE>
ASSIGNMENT OF MEMBERSHIP INTEREST
Brian D. Haveson ("Assignor"), an individual, for good and valuable
consideration, receipt of which is hereby acknowledged, intending to be legally
bound, hereby assigns, transfers and delivers to nutrisystem.com inc.
("Assignee"), a Delaware corporation, all of Assignor's right, title, claim and
interest in and to his seven and one-half percent (7.5%) membership interest in
NutriSystem Direct, L.L.C., a Pennsylvania limited liability company, in
accordance with the provisions of the Stock Exchange and Purchase Agreement
dated as of August 16, 1999, among Assignee, HPF Holdings, Inc., Brian Haveson,
Joseph Boileau, Kathleen Simone, Deborah Gallen and Frederick C. Tecce.
IN WITNESS WHEREOF, the undersigned does hereby execute this Assignment of
Membership Interest as of the 30th day of September, 1999.
/s/ Brian D. Haveson
---------------------------
Brian D. Haveson
<PAGE>
ASSIGNMENT OF MEMBERSHIP INTEREST
Joseph Boileau ("Assignor"), an individual, for good and valuable
consideration, receipt of which is hereby acknowledged, intending to be legally
bound, hereby assigns, transfers and delivers to nutrisystem.com inc.
("Assignee"), a Delaware corporation, all of Assignor's right, title, claim and
interest in and to his one percent (1.0%) membership interest in NutriSystem
Direct, L.L.C., a Pennsylvania limited liability company, in accordance with the
provisions of the Stock Exchange and Purchase Agreement dated as of August 16,
1999, among Assignee, HPF Holdings, Inc., Brian Haveson, Joseph Boileau,
Kathleen Simone, Deborah Gallen and Frederick C. Tecce.
IN WITNESS WHEREOF, the undersigned does hereby execute this Assignment of
Membership Interest as of the 30th day of September, 1999.
/s/ Joseph Boileau
-------------------------
Joseph Boileau
<PAGE>
ASSIGNMENT OF MEMBERSHIP INTEREST
Kathleen Simone ("Assignor"), an individual, for good and valuable
consideration, receipt of which is hereby acknowledged, intending to be legally
bound, hereby assigns, transfers and delivers to nutrisystem.com inc.
("Assignee"), a Delaware corporation, all of Assignor's right, title, claim and
interest in and to her one percent (1.0%) membership interest in NutriSystem
Direct, L.L.C., a Pennsylvania limited liability company, in accordance with the
provisions of the Stock Exchange and Purchase Agreement dated as of August 16,
1999, among Assignee, HPF Holdings, Inc., Brian Haveson, Joseph Boileau,
Kathleen Simone, Deborah Gallen and Frederick C. Tecce.
IN WITNESS WHEREOF, the undersigned does hereby execute this Assignment of
Membership Interest as of the 30th day of September, 1999.
/s/ Kathleen Simone
-------------------------
Kathleen Simone
<PAGE>
ASSIGNMENT OF MEMBERSHIP INTEREST
Deborah Gallen ("Assignor"), an individual, for good and valuable
consideration, receipt of which is hereby acknowledged, intending to be legally
bound, hereby assigns, transfers and delivers to nutrisystem.com inc.
("Assignee"), a Delaware corporation, all of Assignor's right, title, claim and
interest in and to her one percent (1.0%) membership interest in NutriSystem
Direct, L.L.C., a Pennsylvania limited liability company, in accordance with the
provisions of the Stock Exchange and Purchase Agreement dated as of August 16,
1999, among Assignee, HPF Holdings, Inc., Brian Haveson, Joseph Boileau,
Kathleen Simone, Deborah Gallen and Frederick C. Tecce.
IN WITNESS WHEREOF, the undersigned does hereby execute this Assignment of
Membership Interest as of the 30th day of September, 1999.
/s/ Deborah Gallen
------------------------
Deborah Gallen
<PAGE>
ASSIGNMENT OF MEMBERSHIP INTEREST
Frederick C. Tecce ("Assignor"), an individual, for good and valuable
consideration, receipt of which is hereby acknowledged, intending to be legally
bound, hereby assigns, transfers and delivers to nutrisystem.com inc.
("Assignee"), a Delaware corporation, all of Assignor's right, title, claim and
interest in and to his two and one-half percent (2.5%) membership interest in
NutriSystem Direct, L.L.C., a Pennsylvania limited liability company, in
accordance with the provisions of the Stock Exchange and Purchase Agreement
dated as of August 16, 1999, among Assignee, HPF Holdings, Inc., Brian Haveson,
Joseph Boileau, Kathleen Simone, Deborah Gallen and Frederick C. Tecce.
IN WITNESS WHEREOF, the undersigned does hereby execute this Assignment of
Membership Interest as of the 30th day of September, 1999.
/s/ Frederick C. Tecce
---------------------------
Frederick C. Tecce
Exhibit 2.5
NUTRISYSTEM DIRECT, L.L.C.
OPERATING AGREEMENT
This Operating Agreement (this "Agreement") is made as of September 30,
1999, by nutrisystem.com inc., a Delaware corporation with its principal place
of business at 202 Welsh Road, Horsham, Pennsylvania 19044 (the "Member").
RECITALS:
WHEREAS, NutriSystem Direct, L.L.C. (the "Company") was formed as a limited
liability company on February 6, 1998 under the Pennsylvania Limited Liability
Company Law of 1994; and
WHEREAS, the initial members of the Company (the "Former Members")
consisted of HPF Holdings, Inc., Brian D. Haveson, Joseph Boileau, Kathleen
Simone, Deborah Gallen and Frederick C. Tecce; and
WHEREAS, pursuant to a Stock Exchange and Purchase Agreement dated August
16, 1999 among the Former Members and the Member (as successor to Ansama Corp.,
a Nevada corporation), the Former Members have assigned to the Member 100% of
the Interests in the Company; and
WHEREAS, the Member is now the sole member of the Company; and
WHEREAS, the Member wishes, by this Agreement, to provide for the
administration of the business and affairs of the Company and the rights and
obligations of the Member with respect thereto;
NOW, THEREFORE, in consideration of the premises and covenants herein
contained and intending to be legally bound hereby, the Member hereby agrees as
follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the following definitions:
"Act" means the Pennsylvania Limited Liability Company Law of 1994, 15
P.S. '8901, et seq.
"Capital" means the sum of all of the money and other property
contributed to the Company by the Member and the Former Members as Capital
Contributions from time to time.
<PAGE>
"Capital Contribution" means each initial and subsequent contribution
to the Capital of the Company.
"Certificate" means the Certificate of Organization of the Company
filed with the Department of State of the Commonwealth of Pennsylvania, as
amended from time to time.
"Distributable Cash" means, for any fiscal year, the total cash gross
receipts of the Company from all sources during such year less (i) any
reserves established by action of the Member, (ii) payments of interest and
principal on any liabilities of the Company and (iii) the expenditures
incurred by the Company during such year other than those paid out of
reserves previously established pursuant to clause (i) hereof.
"Interest in the Company" means the Member's percentage ownership
interest in the Company.
"Transfer" means any and all types of transfers including, but not
limited to, any sale, conveyance, assignment, disposition, distribution,
encumbrance, pledge, mortgage, hypothecation or gift.
2. Name. The name of the Company shall be "NutriSystem Direct, L.L.C." and
all business of the Company shall be conducted under that name or such
fictitious names as may be designated by the Member from time to time.
3. Registered Office. The registered office and the principal place of
business of the Company shall be maintained at 202 Welsh Road, Horsham,
Pennsylvania 19044. The Company may from time to time change such registered
office and principal place of business with the consent of the Member. The
Member agrees to execute and deliver all necessary documents in connection with
the registration of the Company in all jurisdictions requiring such
registration.
4. Purposes. The purposes of the Company are to engage in the provision of
weight loss services and products and all other lawful activities incidental or
related thereto.
5. Term; Fiscal Year. The Company shall continue until terminated in
accordance with this Agreement. The fiscal year of the Company shall end on
December 31.
6. Member and its Interest.
-2-
<PAGE>
(a) Member. The Member is the sole member of the Company and owns a
100% Interest in the Company.
(b) Capital Contribution. Based upon Capital Contributions made to the
Company by the Former Members, which have been assigned to the Member, the
aggregate Capital Contribution of the Member as of the date of this Agreement is
$100,000. The Member shall not be entitled to receive any interest on any
Capital Contribution. The Member shall not be obligated to make any additional
Capital Contribution to the Company; provided, however, that this Agreement
shall be amended from time to time to reflect any additional Capital
Contributions made by the Member to the Company.
7. Allocation of Profits and Losses and Cash Distributions.
(a) Profits and Losses. All income, expenses, deductions, profits and
losses of the Company for both book and tax purposes shall be allocated to the
Member.
(b) Cash Distributions. Distributable Cash shall be distributed to the
Member annually based upon actual amounts available, unless waived by the Member
in whole or in part.
8. Management of the Company.
(a) General Management. Management and control of the operations of
the Company and all decisions with respect to the Company's affairs shall rest
exclusively with the Member.
(b) Conduct of Company Affairs by the Member. The Member shall have
the right to act for and on behalf of the Company. Without limiting the
generality of any of the foregoing provisions of this Section 8(b), the Member
shall have the authority to perform the following acts:
(i) monitor, supervise, manage and control the business
activities of the Company and its employees;
(ii) open, maintain and close bank accounts and draw checks,
drafts or orders for the payment of money;
(iii) receive, dispose of and deal in all checks, money and other
personal property of the Company;
-3-
<PAGE>
(iv) employ or retain employees, engineers, consultants,
attorneys, accountants and agents and terminate such employment;
(v) maintain one or more offices and, in connection therewith,
rent or acquire office space and do such other acts as may be necessary or
appropriate in connection with the maintenance of such offices;
(vi) expend the capital and revenues of the Company in
furtherance of the Company's business;
(vii) enter into agreements and contracts with third parties,
terminate such agreements, and institute, defend and settle litigation arising
therefrom, and give receipts, releases and discharges with respect to all of the
foregoing and any matters incident or related thereto;
(viii) borrow money and issue guaranties and evidences of
indebtedness;
(ix) purchase, lease or otherwise acquire all or substantially
all of the properties, assets, stock or other equity interests of another
entity;
(x) maintain at the expense of the Company such insurance
coverage as the Member shall determine for workers' compensation, comprehensive
general liability, product liability, property liability and professional
liability, if available, and any and all other insurance necessary or
appropriate to the business of the Company;
(xi) acquire by purchase, lease or otherwise any real or personal
property that may be necessary, convenient or incidental to the accomplishment
of the purposes of the Company;
(xii) determine the accounting methods and conventions to be used
in the preparation of the Company's financial statements and tax returns and
make any and all elections under the tax laws of the United States, the several
states and other relevant jurisdictions as to the treatment of the Company's
income, expenses, deductions, profits and losses and any other method or
procedure relating to the preparation of the Company's financial statements and
tax returns; and
(xiii) engage in any kind of activity and perform and carry out
contracts of any kind necessary to, or in connection with, or incidental to the
accomplishment of the purposes of the Company.
-4-
<PAGE>
(c) Indemnification of the Member. The Company shall indemnify and
hold harmless the Member from all liabilities, losses, costs, expenses and
damages including, without limitation, reasonable attorneys' fees, and for
judgments and amounts paid in settlement of any action, suit or proceeding or
arising from any threatened, pending, settled or completed action, suit or
proceeding in which the Member is or was a party or threatened to be made a
party arising from or relating to the Company; provided that the Member's act or
omission was not the result of willful misconduct or recklessness on the part of
the Member. The foregoing right of indemnification shall be in addition to any
other rights to which the Member may otherwise be entitled and shall inure to
the benefit of the successors and assigns of the Member.
(d) Dealings with the Member and its Affiliates. The Company may
employ, appoint, contract or otherwise deal with the Member and any person or
entity affiliated with or related to the Member without restriction and without
any effect on the validity of such dealings.
9. Liabilities and Rights of Member. Notwithstanding anything to the
contrary contained herein, the liability of the Member for the debts,
obligations and expenses of the Company shall in no event exceed the aggregate
amount of its Capital Contributions to the Company, except as otherwise required
by law.
10. Banking; Books and Records.
(a) Banking. All funds of the Company shall be deposited and kept in
its name in such Company bank account or accounts as shall be designated by the
Member. All withdrawals therefrom shall be made upon checks or drafts signed by
the Member or employees of the Company duly authorized by the Member pursuant to
Section 8(b) hereof.
(b) Books and Records. The Member shall be responsible for overseeing
the maintenance of the Company's books and records. The Company's books and
records shall at all times be maintained in the principal office or such other
office as the Member shall designate for such purpose, and shall be open to the
inspection and examination at reasonable times by the Member or its duly
authorized representatives.
11. Transfer of Interests.
(a) Transfers by the Member. The Member may transfer all, or any
portion of, its Interest in the Company or rights in its Interest in the Company
to one or more successors.
-5-
<PAGE>
(b) Admission of Members. Additional Members may be admitted to the
Company upon the approval of the Member. No prospective Member may be admitted
to the Company until such prospective Member shall execute a joinder to this
Agreement in form and substance satisfactory to the Company, whereby the
additional Member agrees to be bound by all of the terms and conditions of this
Agreement then in effect. Upon the admission of each additional Member, the
Interest in the Company of such additional Member shall be as specified at the
time such new Member shall be admitted, the Interests in the Company of all
other Members of the Company shall be proportionately reduced and this Agreement
shall be amended to reflect the Capital Contributions and respective Interests
in the Company of the Members as so changed.
12. Termination and Liquidation.
(a) Termination. The existence of the Company shall terminate upon the
occurrence of any of the following: (i) the written consent of the Member to
dissolve the Company and the filing of a certificate of dissolution pursuant to
the Act; (ii) the sale of all or substantially all of the assets owned by the
Company and the collection of all of the net proceeds therefrom or (iii) the
entry of a decree of judicial dissolution pursuant to the Act.
(b) Liquidation. In the event of the termination of the Company, the
Member shall within a reasonable period of time prepare, or cause to be
prepared, a full and accurate statement of the Company's assets and liabilities
and results of operations since the last previous statement, convert the
Company's assets to cash, collect all amounts due the Company, including amounts
owed by the Member, discharge the debts of the Company and then cause all
remaining funds to be distributed to the Member.
13. Miscellaneous.
(a) Amendments. Amendments to this Agreement shall become effective
only upon the execution of a written instrument describing such amendments
signed by the Member.
(b) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
(c) Headings. The headings herein have been included for convenience
of reference only and shall not be considered in interpreting this Agreement.
-6-
<PAGE>
(d) Integration. This Agreement constitutes the entire agreement of
the Member with respect to the subject matter hereof and shall supersede all
oral agreements and prior writings with respect to the subject matter hereof.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Member and its successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, the Member has executed this Agreement as of the day
and year first above written.
NUTRISYSTEM.COM INC.
By: /s/ Brian D. Haveson
-------------------------
Brian D. Haveson
President
-8-
Exhibit 2.6
QUITCLAIM ASSIGNMENT
For good and valuable consideration, receipt of which is hereby
acknowledged, Nutri/System L.P. ("Assignor"), a Delaware limited partnership
with its principal place of business located at 202 Welsh Road, Horsham,
Pennsylvania 19044, hereby sells, assigns, transfers and conveys to
nutrisystem.com inc. ("Assignee"), a Delaware corporation and successor by
merger to Ansama Corp., a Nevada corporation, with its principal place of
business located at 202 Welsh Road, Horsham, Pennsylvania 19044, whatever
rights, title and interest Assignor may now have or has ever had in the
trademarks and service marks (hereinafter collectively referred to as "the
Trademarks") identified and listed in the attached Exhibit A, and any goodwill
of Assignor's business symbolized by the Trademarks together with all claims for
damages by reason of infringement of the Trademarks, with the right to sue for
and collect the same for its own use and enjoyment, and for the use and
enjoyment of its successors, assigns or other legal representatives. ASSIGNOR
MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER TO ASSIGNEE AS TO
THE RIGHTS, TITLE AND INTEREST HELD BY ASSIGNOR IN THE TRADEMARKS NOR ANY
REPRESENTATION OR WARRANTY OF ANY KIND IN CONNECTION WITH THE TRANSACTION
CONTEMPLATED HEREIN. ADDITIONALLY, ALL WARRANTIES EXPRESS OR IMPLIED ARE HEREBY
DISCLAIMED, INCLUDING ALL WARRANTIES OF MERCHANTABILITY, SUITABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
ASSIGNOR:
NUTRI/SYSTEM L.P.
Dated: September 30, 1999 By: /s/ Brian D. Haveson
--------------------------
Brian D. Haveson
President
COMMONWEALTH OF PENNSYLVANIA
CITY OF PHILADELPHIA
On this 30th day of September, 1999, before me appeared Brian D. Haveson, the
person who signed this instrument, and who acknowledged that he has the
authority to sign said instrument on behalf of Nutri/System L.P., a Delaware
limited partnership.
/s/ Ann Marie Bruski
--------------------------
Notary Public
My Commission Expires Nov. 13, 2000
-------------
<PAGE>
[EXHIBITS OMITTED]
Exhibit 2.7
ASSIGNMENT OF FRANCHISE AGREEMENTS
ASSIGNMENT made as of this 30th day of September, 1999 between Nutri/System
L.P., a Delaware limited partnership (hereinafter referred to as "Assignor"),
and nutrisystem.com inc., a Delaware corporation and successor by merger to
Ansama Corp., a Nevada corporation (hereinafter referred to as "Assignee").
WHEREAS, Assignor is the Franchisor pursuant to Exclusive Franchise
Agreements with its franchisees, a representative copy of which is attached
hereto as Exhibit A and a list of all existing franchise agreements is attached
hereto and incorporated herein as Exhibit B (the "Franchise Agreements"); and
WHEREAS, pursuant to an Asset Purchase Agreement between Assignor and
Assignee dated as of August 16, 1999 ("Purchase Agreement"), Assignor is
required to assign its interest in the aforesaid Franchise Agreements to
Assignee and Assignee is required to assume the obligations thereunder.
NOW, THEREFORE, in consideration of the Purchase Agreement and of the
mutual covenants therein and herein set forth, it is hereby agreed as follows:
1. Assignor does hereby sell, assign, and transfer to Assignee any and all
of Assignor's right, title and interest in and to the aforesaid Franchise
Agreements and any and all rights, duties and obligations thereunder.
2. Assignee hereby accepts the foregoing assignment and promises and agrees
to assume and faithfully perform all covenants, stipulations, agreements and
obligations under the Franchise Agreements accruing on or after the Closing
Date, or otherwise attributable to the period commencing on the Closing Date and
continuing thereafter.
3. Assignee shall indemnify and save Assignor harmless from any and all
claims, demands, actions, causes of action, suits, proceedings, damages,
liabilities and costs and expenses of every nature, whatsoever and relating to
the Franchise Agreements accruing on or after the Closing Date.
4. This Assignment shall be binding upon the successors and assigns of the
parties. The parties shall execute and deliver such future additional agreements
and documents as may be necessary to carry out the provisions of this
Assignment.
5. Anything to the contrary contained herein notwithstanding, if the
Purchase Agreement shall fail of performance or become null and void, this
Assignment shall become null and void and of no effect whatsoever.
<PAGE>
6. All capitalized terms used herein but not otherwise defined herein shall
have the same meaning as in the Purchase Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands effective as
of the day and year first above written.
ASSIGNEE: NUTRISYSTEM.COM INC. (successor
by merger to Ansama Corp.)
By: /s/ Brian D. Haveson
-------------------------
Brian D. Haveson
President
ASSIGNOR: NUTRI/SYSTEM L.P.
By: /s/ Brian D. Haveson
-------------------------
Brian D. Haveson
President
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<PAGE>
[EXHIBITS OMITTED]
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
NUTRISYSTEM.COM INC.
FIRST. The name of the corporation is nutrisystem.com inc. (the
"Corporation").
SECOND. The registered office of the Corporation in the State of Delaware
is to be located at 314 South State Street, Dover, Delaware 19901, in the County
of Kent. The registered agent at such address is be Capitol Corporate Services,
Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "DGCL").
FOURTH. The aggregate number of shares of stock which the Corporation shall
have the authority to issue is 60,000,000 shares, consisting of (i) 55,000,000
shares of Common Stock (the "Common Stock"), par value $.001 per share, and (ii)
5,000,000 shares of Series Preferred Stock (the "Preferred Stock"), par value
$.001 per share.
(a) Each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held. Each share of Common Stock shall have identical
powers, preferences, qualifications, limitations, restrictions and other rights.
(b) The Preferred Stock may be issued from time to time by the Board of
Directors of the Corporation as herein provided in one or more series. The
designations, relative rights (including voting rights), preferences,
limitations and restrictions of the Preferred Stock, and particularly of the
shares of each series thereof, may, to the extent permitted by law, be similar
or may differ from those of any other series. The Board of Directors of the
Corporation is hereby expressly granted authority, subject to the provisions of
this Article Fourth, to issue from time to time Preferred Stock in one or more
series and to fix from time to time before issuance thereof, by filing a
certificate of designations pursuant to the DGCL, the number of shares in each
such series and all
<PAGE>
designations, relative rights (including the right, to the extent permitted by
law, to convert into shares of any class or into shares of any series of any
class), preferences, limitations and restrictions of the shares in each such
series. Notwithstanding anything to the contrary set forth hereinabove, the
powers, preferences and rights, and the qualifications, limitations and
restrictions, of the Preferred Stock shall be subject to the following:
(i) The number of authorized shares of the Preferred Stock may be
increased or decreased, but not below the number of shares then outstanding, by
the affirmative vote of the holders of a majority of the voting powers of the
stock of the Corporation entitled to vote irrespective of any other voting
requirements set forth in Section 242(b)(2) of the DGCL, but subject in all
events to compliance with the requirements of this Article FOURTH.
(ii) All shares of Preferred Stock of the same series shall be
identical in all respects, except that shares of one series issued at different
times may differ as to the dates, if any, from which dividends thereon, if any,
may accumulate. All shares of Preferred Stock of all series shall be of equal
rank and shall be identical in all respects, except that, to the extent not
otherwise limited in this Article FOURTH, any series may differ from any other
series with respect to any one or more of the designations, relative rights,
preferences, limitations and restrictions set forth in a certificate of
designations filed under the DGCL with respect to any series.
(iii) Except as otherwise specifically provided in the certificate of
designations filed pursuant to the DGCL with respect to any series of Preferred
Stock or as otherwise provided by law, the Preferred Stock shall not have any
right to vote for the election of directors or for any other purpose and the
Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes. In all instances in which voting rights
are granted to the Preferred Stock or any series thereof, such Preferred Stock
or series thereof shall vote with the Common Stock as a single class, except as
otherwise provided in the certificate of designations filed pursuant to the DGCL
with respect to any series of Preferred Stock or as otherwise provided by law.
(c) In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, each series of Preferred Stock
shall have preference and priority over the Common Stock for payment of the
amount to which each outstanding
-2-
<PAGE>
series of Preferred Stock shall be entitled in accordance with the provisions
thereof and each holder of Preferred Stock shall be entitled to be paid in full
such amount, or have a sum sufficient for the payment in full set aside, before
any payments shall be made to the holders of the Common Stock. After the holders
of the Preferred Stock of each series shall have been paid in full the amounts
to which they respectively shall be entitled, or a sum sufficient for the
payment in full set aside, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests, to the exclusion of the holders of Preferred
Stock. A consolidation or merger of the Corporation with or into another
corporation or corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of the
Corporation, shall not be deemed or construed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this Article FOURTH.
FIFTH. The name and mailing address of the incorporator is Donna Juhrden,
c/o Duane, Morris & Heckscher LLP, 314 S. State Street, Dover, Delaware 18901.
The powers of the incorporator shall terminate upon the election of directors.
SIXTH. A director of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability to the extent provided by applicable law
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL of the State of Delaware; or (iv) for any transaction from which the
director derived an improper personal benefit. In discharging the duties of
their respective positions, the Board of Directors, committees of the Board of
Directors, individual directors and individual officers may, in considering the
best interests of the Corporation, consider the effects of any action upon
employees, suppliers and customers of the Corporation, communities in which
offices or other establishments of the Corporation are located and all other
pertinent factors.
SEVENTH. The directors of the Corporation shall have the power to make and
to alter or amend the By-laws of the Corporation; to fix the amount to be
reserved as working capital and to authorize and cause to be executed, mortgages
and liens, without limit as to the amount, upon the property and franchises of
the Corporation. The By-laws
-3-
<PAGE>
of the Corporation shall determine whether and to what extent the accounts and
books of the Corporation, or any of them, shall be open to the inspection of the
stockholders. No stockholder of the Corporation shall have any right of
inspecting any account, book or document of the Corporation, except as conferred
by law, the By-laws of the Corporation or by resolution of the stockholders.
EIGHTH. The Corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he or she is or was or has agreed to be a director of the
Corporation or while a director is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of any
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, against expenses (including
attorneys' fees and expenses), judgments, fines, penalties and amounts paid in
settlement incurred in connection with the investigation, preparation to defend
or defense of such action, suit, proceeding or claim; provided, however, that
the foregoing shall not require the Corporation to indemnify or advance expenses
to any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such indemnification
shall not be exclusive of other indemnification rights arising under any By-law,
agreement, vote of directors or stockholders or otherwise and shall inure to the
benefit of the heirs and legal representatives of such person. Any person
seeking indemnification under this Article Ninth shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. Any repeal or modification of the foregoing provisions of this
Article Ninth shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such repeal or
modification.
NINTH. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, the number of members of which
shall be set forth in the By-laws of the Corporation. The election of directors
need not be by ballot unless the By-laws shall so require.
-4-
<PAGE>
TENTH. The stockholders and directors shall have the power to hold meetings
and keep the books, documents and papers of the Corporation outside the State of
Delaware, at such places as may be from time to time designated by the By-laws
of the Corporation or by resolution of the directors, except as otherwise
required by the laws of the State of Delaware.
ELEVENTH. The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereinafter prescribed by the laws of the State of Delaware. All rights herein
conferred are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, does make, file and record
this Certificate of Incorporation, and does certify that the facts herein stated
are true and, accordingly, does set forth her hand.
Dated: August 17, 1999 /s/ Donna Juhrden (SEAL)
---------------------------
Donna Juhrden
-5-
Exhibit 3.2
BY-LAWS
OF
NUTRISYSTEM.COM INC.
ARTICLE 1 OFFICES
Section 1.1 The Corporation shall have and maintain in the State of
Delaware a registered office which may, but need not be, the same as its place
of business.
Section 1.2 The Corporation may also have offices at such other places as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE 2 STOCKHOLDERS
Section 2.1 All meetings of the stockholders shall be held at such place,
either within or without the State of Delaware, and at such date and time, as
may be designated by the Board of Directors and as shall be specified in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 An annual meeting of the stockholders, for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting, shall be held at such place, date and time as the
Board of Directors may designate and as shall be specified in the notice of the
meeting or in a duly executed waiver of notice thereof. In the absence of such a
designation by the Board of Directors, the Annual Meeting of Stockholders shall
be held during the month of May each year on a date to be determined from year
to year by the Board of Directors.
Section 2.3 Special meetings of the stockholders, for any purpose or
purposes, may be called by the Board of Directors or the President and shall be
called by the President or the Secretary at the request in writing of a majority
of the members of the Board of Directors then in office. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
all special meetings shall be confined to the objects stated in the notice
thereof.
Section 2.4 Written notice of any annual or special meeting of
stockholders shall be mailed to each stockholder entitled to vote thereat at his
address as it appears on the records of the Corporation, not fewer than ten nor
more than sixty days before the date of such meeting. Such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to each stockholder at his address as it last appears on the records of
the Corporation. Such notice shall state the place, date and hour of the
meeting,
<PAGE>
and, in the case of a special meeting, shall state the purpose or purposes for
which the meeting is called.
Section 2.5 At any meeting of the stockholders, the holders of a majority
of all of the issued and outstanding shares of stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, except to the extent that the presence of a larger number of
stockholders may be required by law, by the Certificate of Incorporation of the
Corporation or by these By-laws. If a quorum shall fail to be present or
represented at any meeting, the chairman of the meeting or the holders of a
majority of the shares of the stock entitled to vote who are present, in person
or by proxy, may adjourn the meeting to another place, date or time. When a
meeting is so adjourned, written notice need not be given of the adjourned
meeting if the place, date and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the date of any
adjourned meeting is more than thirty days after the date for which the meeting
was originally noticed, or if a new record date is fixed for the adjourned
meeting, written notice of the place, date, and time of the adjourned meeting
shall be given in conformity herewith. At any adjourned meeting, any business
may be transacted that might have been transacted at the original meeting.
Section 2.6 At any meeting of the stockholders, every stockholder entitled
to vote may vote in person or by proxy authorized by an instrument in writing or
any complete and reliable copy, facsimile telecommunication or other
reproduction of the writing executed by such stockholder or by an authorized
officer, director, employee or agent of such stockholder, to the extent
permitted by law, and submitted to the Secretary at or before such meeting, but
no proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. Each stockholder shall have one vote for
each share of stock entitled to vote that is registered in his name on the
record date for the meeting, except as otherwise provided herein or required by
law. All elections of directors by the stockholders shall be by written ballot
and shall be determined by a plurality of the votes cast. All other voting need
not be by written ballot, except upon demand therefor by the Board of Directors
or the officer of the Corporation presiding at the meeting of stockholders where
the vote is to be taken. When a quorum exists at any meeting, the vote of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one for which, by express provision of law or of the Certificate of
Incorporation of the Corporation or of these By-laws, a different vote is
required.
Section 2.7 At least ten days before every meeting of the stockholders,
the officer who has charge of the stock ledger of the Corporation shall prepare
a complete list of the stockholders entitled to vote at such meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which
-2-
<PAGE>
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof and
may be inspected by any stockholder of the Corporation who is present. The stock
ledger of the Corporation shall be the only evidence as to the identities of the
stockholders entitled to examine the list of stockholders required by this
Section 2.7 or to vote in person or by proxy at any meeting of stockholders.
Section 2.8 The Board of Directors shall appoint either one or three
inspectors of election, in advance of any meeting of stockholders, to act at
such meeting of the stockholders or any adjournment thereof. Inspectors of
election need not be stockholders, and no person who is a candidate for
corporate office shall act as an inspector of election. If three inspectors of
election are appointed, such inspectors of election shall act by majority vote.
Each inspector of election shall sign an oath faithfully to execute the duties
of inspector with strict impartiality and to the best of the inspector's ability
and shall do all acts as are necessary and proper to conduct the election or
vote and all such other acts as may be prescribed by law with fairness to all
stockholders. Such inspectors of election shall make a written report of any
matter determined by them and shall execute a certificate as to any fact found
by them.
Section 2.9 The chairman of any meeting of the stockholders shall
determine the order of business and the procedure to be followed at such
meeting, including such regulation of the manner of voting and the conduct of
discussion as he shall deem to be fair and equitable.
Section 2.10 The stockholders may participate in any meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear one another, and such
participation shall constitute presence in person at such meeting.
Section 2.11 Unless otherwise required by the Certificate of Incorporation
of the Corporation, any action required or permitted to be taken at any meeting
of the stockholders may be taken without a meeting, without prior notice and
without a vote, if a written consent setting forth the action so taken shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any corporate action without a meeting by less
than unanimous written consent shall be given in conformity herewith to those
stockholders who have not consented thereto in writing.
ARTICLE 3 BOARD OF DIRECTORS
Section 3.1 The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors. In addition to the powers
expressly conferred
-3-
<PAGE>
upon the Board of Directors by these By-laws, the Board of Directors may
exercise all powers of the Corporation and perform all lawful acts as are not
required to be exercised or performed by the stockholders pursuant to law, the
Certificate of Incorporation of the Corporation or these By-laws.
Section 3.2 Directors shall be natural persons who need not be
stockholders of the Corporation. The specific number of directors shall be
designated from time to time exclusively by the Board of Directors. In the
absence of any such designation, the Board of Directors shall be composed of
five directors. Each director shall be elected for a term of one year and until
his successor is duly elected, subject, however, to such director's prior death,
resignation, retirement, disqualification or removal from office. Whenever the
authorized number of directors is increased between annual meetings of the
stockholders, a majority of the directors then in office shall have the power to
elect such new directors who shall serve until the next annual meeting of
stockholders and until their successors are duly elected and qualified. Any
decrease in the authorized number of directors shall not become effective until
the expiration of the term of the directors then in office unless, at the time
of such decrease, there shall be vacancies on the Board of Directors that are
being eliminated by such decrease.
Section 3.3 Any vacancy on the Board of Directors occurring by reason of
death, resignation, retirement, disqualification, removal or other cause may be
filled by a majority of the directors then in office, although less than a
quorum, and each director elected to fill a vacancy shall serve for the
unexpired term of his predecessor and until his successor is duly elected.
Section 3.4 The organizational meeting of each newly elected Board of
Directors may be held immediately following the stockholders' meeting at which
such directors were duly elected without the necessity of notice to such
directors or at such time and place as may be fixed by notice or a duly executed
waiver of notice thereof.
Section 3.5 Regular meetings of the Board of Directors shall be held
without call or notice at such time and place as shall from time to time be
fixed by the Board of Directors.
Section 3.6 Special meetings of the Board of Directors may be called by
the Chairman of the Board, by the President or by the Secretary upon his own
initiative or upon the written request of a majority of directors then in
office. Notice of the place, time and date of each such special meeting shall be
given to each director by whom it is not waived by mailing written notice to
each director not less than two days before the meeting or by giving notice in
person or by telephone, telegram or facsimile transmission not less than
twenty-four hours before the meeting. Notice of special meetings of the Board of
Directors need not state the purpose thereof, except as otherwise expressly
provided by law, by the Certificate of Incorporation of the Corporation, or by
these By-laws. Any and all business may be transacted at a special meeting,
unless otherwise indicated in the notice thereof or provided by law, by the
Certificate of Incorporation of the Corporation or by these By-laws.
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Section 3.7 Members of the Board of Directors or any committee thereof may
participate in any meeting of the Board of Directors or such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
one another, and such participation shall constitute presence in person at such
meeting.
Section 3.8 At any meeting of the Board of Directors, the presence of a
majority of the total number of directors shall constitute a quorum for the
transaction of business, and the vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors, unless otherwise provided by law, by the Certificate of Incorporation
of the Corporation or by these By-laws. If a quorum shall not be present at any
meeting of the Board of Directors, a majority of the directors present may
adjourn the meeting to any place, date or time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 3.9 Unless otherwise provided by law, by the Certificate of
Incorporation of the Corporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing and
such consent is filed with the minutes of proceedings of the Board of Directors
or committee thereof.
Section 3.10 Directors, in addition to expenses of attendance, shall be
allowed such compensation for their services as directors, including, without
limitation, their services as members of committees of the Board of Directors,
as may be fixed from time to time by the Board of Directors; provided, that
nothing contained in these By-laws shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
Section 3.11 A member of the Board of Directors or of any committee
thereof shall, in the performance of his duties, be fully protected in relying
in good faith upon the books of account or reports made to the Corporation by
any of its officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by any
committee thereof, or in relying in good faith upon other records of the
Corporation.
ARTICLE 4 COMMITTEES
Section 4.1 The Board of Directors, by a vote of a majority of the whole
Board of Directors, may from time to time designate committees of the Board of
Directors, with such lawfully delegable powers and duties as it thereby confers,
to serve at the pleasure of the Board of Directors and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as a member or members and designate, if it desires,
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<PAGE>
one or more directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend or to authorize the issuance of stock if the resolution that designates
the committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee and
any alternate member in his place, the member or members of the committee
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The Board of Directors may, from time to time, suspend, alter, continue
or terminate any committee or the powers and functions thereof.
Section 4.2 The Board of Directors may appoint committees consisting of
officers or other persons, with chairmanships, vice chairmanships and
secretaryships and such duties and powers as the Board of Directors may from
time to time designate and prescribe. The Board of Directors may from time to
time suspend, alter, continue or terminate any of such committees or the powers
and functions thereof.
Section 4.3 One-third of the members of any committee shall constitute a
quorum unless the committee shall consist of one or two members, in which case
one member shall constitute a quorum. All matters properly brought before any
committee shall be determined by a majority vote of the members present.
Section 4.4 Any action that may be taken by a committee at a meeting may
be taken without a meeting if all members thereof consent thereto in writing and
such writing is filed with the minutes of the proceedings of such committee.
Section 4.5 Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith, except as
otherwise provided by law, by the Certificate of Incorporation of the
Corporation or by these By-laws. Adequate provision shall be made for notice to
all members of any committee of all meetings of that committee.
ARTICLE 5 OFFICERS
Section 5.1 The officers of the Corporation shall consist of a Chairman
of the Board, a President, one or more Vice Presidents, a Secretary and a
Treasurer. Officers shall be appointed from time to time by the Board of
Directors. No officer except the Chairman of the Board need be a member of the
Board of Directors. Any number of offices may be held by the same person.
Section 5.2 The Board of Directors may appoint such other officers,
including assistant officers, and agents as it shall deem necessary, who shall
hold their offices for such
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terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 5.3 Each officer shall hold office until his successor is duly
elected or until his earlier death, resignation, retirement or removal. Any
officer appointed by the Board of Directors may be removed at any time by the
Board of Directors without prejudice to his contract rights. If the office of
any officer becomes vacant for any reason, such vacancy shall be filled by the
Board of Directors. Any officer appointed to fill such a vacancy shall hold
office until his successor is duly elected or until his earlier death,
resignation, retirement or removal.
Section 5.4 The Board of Directors may from time to time delegate the
powers or duties of any officer to any other officers or agents, notwithstanding
any provision of these By-laws.
Section 5.5 The Chairman of the Board shall be a director of the
Corporation. The Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors and shall perform such duties and
have such powers as may from time to time be assigned to him by the Board of
Directors.
Section 5.6 The President shall be the chief executive officer of the
Corporation and, subject to the provisions of these By-laws and to the direction
of the Board of Directors, shall have responsibility for the general management
and control of the business and affairs of the Corporation. Unless otherwise
directed by the Board of Directors from time to time, the President shall have
the power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders or members of or with respect to any
action of stockholders or members of any other corporation or limited liability
company in which the Corporation may hold securities or membership interests and
otherwise to exercise any and all rights and powers which the Corporation may
possess by reason of its ownership of securities or membership interests in such
other corporation or limited liability company. The President shall perform the
duties and exercise the powers of the Chairman of the Board in the absence or
disability of the Chairman.
Section 5.7 Each Vice President shall have such powers and perform such
duties as may be delegated to him by the Board of Directors or by the President.
In the absence or disability of the Chairman of the Board and the President, any
Vice President who is also a director of the Corporation may preside at meetings
of the stockholders and the Board of Directors to the extent and in the manner
authorized by a resolution of the Board of Directors.
Section 5.8 The Secretary shall attend all meetings of the Board of
Directors and of the stockholders and shall record all votes and the minutes of
all proceedings at such meetings in a book to be kept for that purpose and shall
perform such other duties as the Board of Directors may from time to time
prescribe. The Secretary shall perform the
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<PAGE>
preceding duties for any committee of the Board of Directors upon the request of
the Board of Directors or such committee. The Secretary shall give or cause to
be given notice of all meetings of the stockholders and the Board of Directors.
The Secretary shall have charge of the seal of the Corporation and, where
required, shall have the authority to affix such seal to any instrument. In the
absence or disability of the Secretary, any Assistant Secretary shall perform
the duties and exercise the powers of the Secretary.
Section 5.9 The Treasurer shall have the custody of the Corporation's
funds and securities and shall deposit all monies and other valuable effects in
the name and to the credit of the Corporation, in such depositories as may be
designated by the Board of Directors. The Treasurer shall make such
disbursements of the Corporation's funds as are authorized by the Board of
Directors or by the President, taking proper vouchers for such disbursements,
and shall render to the Board of Directors an account of all such transactions
and of the financial condition of the Corporation, at such times as the Board of
Directors may require. The Treasurer shall also perform such other duties as the
Board of Directors may from time to time prescribe. In the absence or disability
of the Treasurer, any Assistant Treasurer shall perform the duties and exercise
the powers of the Treasurer.
ARTICLE 6 INDEMNIFICATION
Section 6.1 Subject to Section 6.3 hereof, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, manager or employee of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner that he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 6.2 Subject to Section 6.3 hereof, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer or employee of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, manager
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<PAGE>
or employee of another corporation, partnership, limited liability company,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 6.3 Any indemnification under this Article 6 (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer or employee
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 6.1 or Section 6.2 of this Article 6, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who are not parties to such
action, suit or proceeding, (ii) if such a quorum is not attainable, or, even if
attainable, if a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (iii) by the
stockholders. To the extent, however, that a director, officer or employee of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case. Notwithstanding anything to
the contrary set forth in this Article 6, the Corporation shall not be obligated
to indemnify or advance expenses to any person in connection with any action,
suit, proceeding, claim or counterclaim initiated by or on behalf of such
person.
Section 6.4 For purposes of any determination under Section 6.3 of this
Article 6, a person shall be deemed to have acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Corporation or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on the records or books of account of the Corporation or another enterprise
(provided that such records or books of account have in each case been prepared
by persons whom the person relying thereon reasonably believes to be
professionally or expertly competent to prepare such records or books of
account), or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 6.4 shall mean any other corporation or any
partnership, limited
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<PAGE>
liability company, joint venture, trust or other entity of which such person is
or was serving at the request of the Corporation as a director, officer, manager
or employee. The provisions of this Section 6.4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Section 6.1
or Section 6.2 of this Article 6, as the case may be.
Section 6.5 Notwithstanding any contrary determination in the specific
case under Section 6.3 of this Article 6, and notwithstanding the absence of any
determination thereunder, any director, officer or employee may apply to any
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Section 6.1 and Section 6.2 of this
Article 6. The basis of such indemnification by a court shall be a determination
by such court that indemnification of the director, officer or employee is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Section 6.1 or Section 6.2 of this Article 6, as the case
may be. Notice of any application for indemnification pursuant to this Section
6.5 shall be given to the Corporation promptly upon the filing of such
application.
Section 6.6 Expenses incurred in defending or investigating a threatened
or pending action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
Board of Directors upon receipt of an undertaking by or on behalf of the
director, officer or employee to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article 6.
Section 6.7 The indemnification and advancement of expenses provided by,
or granted pursuant to, the other sections of this Article 6 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, contract,
vote of stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of, and advancement of expenses to, the persons specified in Section 6.1 and
Section 6.2 of this Article 6 shall be made to the fullest extent permitted by
law. To this end, the provisions of this Article 6 shall be deemed to have been
amended for the benefit of such persons effective immediately upon any
modification of the General Corporation Law of the State of Delaware which
expands or enlarges the power or obligation of corporations organized under such
law to indemnify, or advance expenses to, such persons. The provisions of this
Article 6 shall not be deemed to preclude the indemnification of, or advancement
of expenses to, any person who is not specified in Section 6.1 or Section 6.2 of
this Article 6 but whom the Corporation has the power or obligation to
indemnify, or to advance expenses for, under the provisions of the General
Corporation Law of the State of Delaware or otherwise. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article 6
shall, unless otherwise provided when authorized or
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<PAGE>
ratified, continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 6.8 The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer or employee of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
manager or employee of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article 6.
Section 6.9 For purposes of this Article 6, references to the
"Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had the power and authority to indemnify its directors, officers and
employees, so that any person who is or was a director, officer or employee of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, manager or employee of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article 6 with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE 7 STOCK
Section 7.1 The certificates representing shares of stock of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. Each stockholder shall be entitled to a
certificate exhibiting such stockholder's name and the number of shares held by
such stockholder, which certificate shall be signed by the Chairman of the Board
or the President or any Vice President, and by the Treasurer or the Secretary or
any Assistant Secretary. Any or all of the signatures on such certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 7.2 Transfers of stock shall be made only upon the transfer books
of the Corporation maintained in an office of the Corporation or by transfer
agents designated to transfer shares of the stock of the Corporation, and only
by the person named in the certificate or by his attorney, lawfully constituted
in writing, and upon surrender of the certificate therefor.
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Section 7.3 In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting nor more than sixty days prior to any other action. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 7.4 The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
Section 7.5 The Board of Directors may authorize the issuance of a new
certificate representing shares of stock in place of any certificate previously
issued by the Corporation and alleged to have been lost, stolen or destroyed,
pursuant to such regulations as the Board of Directors may establish concerning
proof or advertisement of such alleged loss, theft or destruction and concerning
the giving of a satisfactory bond or bonds sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate.
Section 7.6 The issue, transfer, conversion and registration of
certificates of stock of the Corporation shall be governed by such other
regulations as the Board of Directors may from time to time establish.
ARTICLE 8 NOTICES
Section 8.1 Whenever notice is required to be given to any director,
committee member, officer, stockholder, employee or agent, whether pursuant to
law, the Certificate of Incorporation of the Corporation or these By-laws, it
shall not be construed to mean personal notice, but such notice may be given, in
the case of stockholders, in writing, by depositing the same in the mail,
postage prepaid, or by overnight carrier addressed to such stockholder at his
last known address as the same appears on the books of the Corporation, and, in
the case of directors, committee members, officers, employees and agents, by
telephone, or by mail, postage prepaid, or by prepaid telegram at his last known
address as the same appears on the books of the Corporation. All notices shall
be deemed to be given when mailed, telegraphed or telephoned.
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Section 8.2 Whenever notice is required to be given to any stockholder,
director, committee member, officer, employee or agent, whether pursuant to law,
the Certificate of Incorporation of the Corporation or these By-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
as otherwise provided by law. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation of the Corporation
or by these By-laws.
ARTICLE 9 MISCELLANEOUS
Section 9.1 Any officer of the Corporation shall, if required by the Board
of Directors, give the Corporation a bond for the faithful performance of the
duties of his office, and for the restoration to the Corporation of all
corporate books, papers, vouchers, money and property of whatever kind in his
possession or under his control. Such bond shall be for a sum and with such
surety or sureties as the Board of Directors may require.
Section 9.2 The corporate seal shall be in the charge of the Secretary
and shall have inscribed thereon the name of the Corporation and the words
"Incorporated 1999 Delaware." If and when so directed by the Board of Directors
or a committee thereof, the Secretary may have duplicates of such seal made and
deposited for use with other officers of the Corporation. It shall not be
necessary to the validity of any instrument executed by any authorized officer
or officers of the Corporation that the execution of such instrument be
evidenced by the corporate seal.
Section 9.3 The fiscal year of the Corporation shall be as determined by
the Board of Directors.
Section 9.4 All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers as the Board of Directors may from
time to time designate.
Section 9.5 The Board of Directors shall determine from time to time
whether, when and under what conditions and regulations, the books and records
of the Corporation (except such as may by statute be specifically open to
inspection) shall be open to the inspection of the stockholders, and the
stockholders' rights in this respect are and shall be restricted and limited
accordingly.
Section 9.6 Facsimile signatures of any officer of the Corporation may be
used at such time and in such manner as authorized by the Board of Directors or
a committee thereof.
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ARTICLE 10 AMENDMENT
Section 10.1 These By-laws may be amended, suspended or repealed and new
By-laws may be adopted in a manner consistent with law: (a) if authorized by the
Certificate of Incorporation of the Corporation, by the affirmative vote of a
majority of the Directors then in office, at any meeting of the Board of
Directors, or (b) by the affirmative vote of the stockholders at any
stockholders' meeting called and maintained in accordance with Article 2 of
these By-laws; provided, however, that a brief description of such proposed
amendment, suspension or repeal and/or adoption of new By-laws is contained in
the notice of such meeting of the Board of Directors or of such annual or
special stockholders' meeting.
Adopted as of August 17, 1999.
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Exhibit 4.1
SPECIMEN
NOT NEGOTIABLE
NUMBER SHARES
NS nutrisystem.com(R)
NUTRISYSTEM.COM INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
COMMON STOCK CUSIP 670617 10 9
THIS CERTIFIES THAT:
is owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
============================= NUTRISYSTEM.COM INC. =============================
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and By-laws of the Corporation, as now
or hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
COUNTERSIGNED
DATED: STOCKTRANS, INC.
7 EAST LANCASTER AVE., ARDMORE, PA 19003
TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
NUTRISYSTEM.COM INC.
CORPORATE
SEAL
1999
DELAWARE
/s/ Frederick W. Dreher /s/ Brian D. Haveson
------------------------ -----------------------
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ----------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform
in common Gifts to Minors
Act
-----------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------
---------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO
FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD
TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH
REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT
NAMED ON THIS CERTIFICATE.
- --------------------------------------------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
- --------------------------------------------------------------------------------
STOCK MARKET INFORMATION
www.pbssexchange.com
COLUMBIA FINANCIAL PRINTING CO., P.O. BOX 219, BETHPAGE, NY 11714
Exhibit 4.2
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") WILL BE ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR HYPOTHECATED
UNTIL SUCH SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
OTHER APPLICABLE SECURITIES LAWS, OR IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH OR EXEMPT THEREFROM.
WARRANT
For the Purchase of
_________ Shares of Common Stock, $.001 Par Value,
of
nutrisystem.com inc.
1. Issuance and Exercise of Warrant.
(a) Issuance of Warrant. For value received, __________________________
(the "Holder") is entitled to purchase from nutrisystem.com inc., a Delaware
corporation (the "Company"), _______ shares (the "Shares") of Common Stock, par
value $.001 per share (the "Common Stock"), of the Company upon surrender of
this Warrant to the Company and upon payment of the Exercise Price (as
hereinafter defined), subject to the terms and conditions set forth herein.
(b) Exercise of Warrant; Expiration.
(i) Exercisability. This Warrant is exercisable in whole or in part
commencing on and after its date of issuance and shall expire at 5:00
p.m., Philadelphia Time, on September 30, 2004 (the "Expiration Date").
(ii) Exercise Price. The price for which the Shares may be purchased
upon the exercise of this Warrant shall be $1.00 per share (the
"Exercise Price"), subject to adjustment as hereafter provided.
(c) No Registration of the Shares or this Warrant. The Holder
understands that: (i) this Warrant and the Shares issuable pursuant hereto are
being issued under certain exemptions from the registration provisions of the
Securities Act of 1933 (the "Securities Act"); (ii) the Holder is acquiring this
Warrant and the Shares issuable pursuant hereto without being furnished any
offering literature or prospectus other than publicly disseminated information
regarding the Company and (iii) the issuance of this Warrant and the Shares
issuable pursuant thereto has not been examined by the Securities and Exchange
Commission (the "SEC") or by any agency charged with the administration of the
securities laws of any state or other jurisdiction. The Holder represents and
warrants that it has such knowledge and experience in financial and business
matters that it is
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<PAGE>
capable of evaluating the merits and risks of an investment in this Warrant and
the Shares issuable pursuant hereto and of making an informed investment
decision with respect thereto. The Holder further represents that it is familiar
with the Company's business and operations. The Holder understands that the
Company is relying on the truth and accuracy of the representations,
declarations and warranties made herein by the Holder in issuing this Warrant
and the Shares issuable pursuant hereto without having first registered this
Warrant or such Shares under the Securities Act or under the securities laws of
any state or other jurisdiction.
(d) Investment Intent. The Holder confirms that: (i) it understands that
there are substantial restrictions on the transferability of this Warrant and
the Shares issuable pursuant hereto and, accordingly, it may not be possible for
the Holder to liquidate its investment in this Warrant and the Shares issuable
pursuant hereto in case of emergency and (ii) the Holder is able to bear the
economic risk of its investment in this Warrant and the Shares issuable pursuant
hereto, to hold this Warrant and the Shares issuable pursuant hereto for an
indefinite period of time and currently to afford a complete loss of its
investment. This Warrant and the Shares issuable pursuant hereto are being
acquired in good faith solely for the Holder's own personal account, for
investment purposes only and are not being purchased with a view to or for the
resale, distribution, subdivision or fractionalization thereof. The Holder has
no contract, undertaking, understanding, agreement or arrangement, formal or
informal, with any person to sell, transfer or pledge to any person this Warrant
and the Shares issuable pursuant hereto, or any part thereof, nor any current
plan to enter into any such contract, undertaking, agreement or arrangement. The
Holder understands that the legal consequences of the foregoing representations
and warranties are that the Holder must bear the economic risk of this Warrant
and the Shares issuable pursuant hereto for an indefinite period of time because
this Warrant and the Shares issuable pursuant hereto have not been registered
under the Securities Act.
(e) Permitted Transfers. The Holder understands and agrees that this
Warrant and the Shares issuable pursuant hereto may be transferred by it only
pursuant to (i) a public offering thereof registered under the Securities Act,
(ii) Rule 144 of the SEC or any similar rule in force at the time of such
transfer if such rule is available and (iii) any other legally available means
of transfer.
(f) Restrictive Legend. This Warrant and the Shares issuable pursuant
hereto, and any shares of capital stock received in respect thereof, whether by
reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
-3-
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS.
2. Adjustments; Anti-Dilution Provisions. If the Company, at any time while
this Warrant is outstanding, shall split, subdivide or combine its Common Stock
(by reclassification, by payment of a dividend in shares of Common Stock or
otherwise), an appropriate and equitable adjustment shall be made as of the
effective date of such action in the number of Shares as to which this Warrant,
or portion thereof then unexercised, shall be exercisable and in the Exercise
Price of such Shares in order to reflect such stock split, subdivision,
combination or reclassification.
The Company shall promptly furnish or cause to be furnished to the Holder a
certificate setting forth each such adjustment.
3. No Fractional Shares. No fractional Shares shall be issued in connection
with any exercise hereof, and if the total number of Shares that remain
unexercised would result in a fraction, such number of Shares shall be rounded
to the nearest whole Share.
4. No Stockholder Rights. This Warrant shall not entitle the Holder to any
of the rights of a stockholder of the Company.
5. Reservation of Shares. The Company covenants that the Shares issuable
upon the exercise of this Warrant have been duly authorized and reserved and,
when issued and paid for, will be validly issued, fully paid and non-assessable.
The issuance of this Warrant shall constitute full authority to those officers
of the Company who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for Shares upon the exercise of
this Warrant.
6. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part at any time, or
from time to time, on or after the date hereof, but not later than the
Expiration Date, or if the Expiration Date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the
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<PAGE>
Notice of Exercise attached hereto as Annex A duly executed and accompanied by
payment of the Exercise Price for the number of shares specified in such form,
together with all federal and state taxes applicable upon such exercise. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the shares purchasable hereunder.
Upon receipt by the Company of this Warrant at the office or agency of the
Company, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
(b) Notwithstanding the provisions set forth in Section 6(a) hereof, the
Holder may, at its election, exercise this Warrant on or after the date hereof,
but not later than the Expiration Date, or if the Expiration Date is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, with
the Notice of Exercise attached hereto as Annex A duly executed, indicating
thereon its election to receive Shares equal to the value (as determined below)
of this Warrant, in which event the Company shall issue to the Holder a number
of Shares computed using the following formula:
X = Y(A-B)
--------
A
Where: X = the number of Shares to be issued to the Holder
Y = the total number of Shares purchasable under this Warrant
A = the current fair market value of one Share
B = the Exercise Price per Share
If the Common Stock shall be publicly traded at the time of calculation of
fair market value, current fair market value shall mean the average of the
closing prices of shares of such class sold on all securities exchanges on which
such class may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such class is
not so listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 p.m., Philadelphia Time, or, if on any day such
class is not quoted in the Nasdaq System, the average of the highest bid and
lowest asked price on such day on the Nasdaq Bulletin Board or in the domestic
over-the-counter
-5-
<PAGE>
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period of 21
days consisting of the day as of which the current fair market value of such
class is being determined and the 20 consecutive business days prior to such
day. If at any time such class is not listed on any securities exchange or
quoted in the Nasdaq System or the over-the-counter market, the current fair
market value of a share of such class shall be the highest price per share that
the Company could obtain from a willing buyer (not a current employee, officer
or director of the Company) for shares of such class sold by the Company, for
authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless the Holder shall purchase such shares in
conjunction with an underwritten public offering of such class pursuant to a
registration statement filed under the Securities Act, in which case the fair
market value shall be the price per share at which the shares of such class are
sold to the public in such offering.
7. Registration Rights. The Holder of this Warrant is entitled to demand
and piggyback registration rights as follows:
(a) Piggyback Registration.
(i) As used in this Section 7, the following terms shall have the
following respective meanings:
(A) "Registration Stock" shall mean: (1) any shares of Common
Stock and the shares of Common Stock purchasable upon exercise of this Warrant
or other securities issued or issuable upon exercise or conversion in whole or
in part of the Shares or this Warrant and (2) any shares of Common Stock or
other securities issued in respect of any such securities upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event;
provided, however, that Registration Stock shall not include any such shares
disposed of pursuant to one or more registration statements under the Securities
Act or pursuant to Rule 144 under the Securities Act. For purposes of this
Section 7(a)(i)(A), any record holder of securities convertible into or
exercisable for the purchase of Registration Stock or exercisable for securities
which are convertible into Registration Stock shall be deemed to be the holder
of the Registration Stock issuable upon such exercise or conversion.
(B) "Additional Registration Stock" shall mean any shares of
Common Stock of the Company which have been issued or shall be issued in the
future and which have rights given in writing to be included in Company
registrations under the Securities Act.
(ii) If the Company shall seek to register under the Securities Act
or qualify any of the securities holdings of the Company or any of its
stockholders except
-6-
<PAGE>
in connection with any stock option plan, stock purchase plan, savings or
similar plan or an acquisition, merger or exchange of stock and if the form of
registration statement proposed to be used may be used for the registration of
the Registration Stock, then, on each such occasion, the Company shall furnish
the Holder with at least 30 days prior written notice thereof. At the written
request of the Holder, given within 20 days after the receipt of such notice,
the Company will cause all of the Registration Stock for which registration
shall have been requested by such Holder to be included in such registration
statement. In the event that the Company offers any of its securities in an
offering exempt from registration under the Securities Act pursuant to
Regulation A thereunder, the Company will provide to the Holder rights
comparable to those provided herein. If any registration pursuant to this
Section 7(a)(ii) shall be, in whole or in part, an underwritten public offering
of Common Stock, then the number of shares of Registration Stock to be included
in such an underwriting may be reduced by the Company and the managing
underwriter thereof if and to the extent that the Company and such underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold by the Company therein.
(b) Demand Registration.
(i) If at any time after the Company shall have a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended, the Company shall be requested in writing by the holders of not less
than 50% of the Registration Stock to effect the registration under the
Securities Act of any of the Registration Stock, the Company shall promptly give
written notice of such proposed registration to all record holders of
Registration Stock. Such holders shall have the right, by giving written notice
to the Company within 30 days from receipt of the Company's notice, to elect to
have included in such registration such of their Registration Stock as such
holders may request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration, on a
form of general use under the Securities Act, of all shares of Registration
Stock which the Company has been requested to register. The Company shall only
be obligated to cause to become effective one registration statement pursuant to
which Registration Stock is sold under this Section 7(b). The holders of not
less than 50% of the Registration Stock may also require the Company to effect
one other registration under the Securities Act of the Registration Stock as
described above, in which the participants therein shall pay the costs of such
offering pro rata.
(ii) In addition to and not in limitation of the rights set forth in
Sections 7(a)(ii) and 7(b) hereof, at such time as the Company shall have
qualified for the use of Form S-2 or Form S-3 in an offering solely for the
accounts of persons other than the Company (or any similar form or forms
promulgated by the SEC), the holders of Registration Stock shall have the right
to request an unlimited number of registrations on Form S-2
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<PAGE>
or Form S-3 or other similar forms. Such holders shall have the right, by giving
written notice to the Company within 20 days from receipt of the Company's
notice, to elect to have included in such registration such of their
Registration Stock as such holders may request in such notice of election.
Thereupon, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration on Form S-2 or Form S-3 of all shares of Registration
Stock which the Company has been requested to register. Registrations effected
on Form S-2 or Form S-3 shall not be considered to be demand registrations
pursuant to Section 7(b)(i) hereof.
(iii) The Company may include in a registration requested under this
Section 7(b) any additional authorized shares of the Common Stock of the
Company, whether or not issued, for sale by the Company or for sale by others;
provided, however, that such shares shall not be included to the extent that the
holders of a majority of the shares of Registration Stock included therein
determine in good faith that the inclusion of such shares will interfere with
the successful marketing of the shares of Registration Stock to be included
therein; and, provided, further, that, if the number of shares to be so included
exceeds the number of shares of Registration Stock included therein by the
holders of Registration Stock, such registration shall be deemed to be a
registration pursuant to Section 7(a)(ii) hereof.
(iv) The underwriter for any registration pursuant to this Section
7(b) shall be mutually acceptable to the Company and the holders of not less
than 50% of the Registration Stock included therein.
(c) Further Obligations of the Company. Whenever the Company is required
to register any of the Registration Stock pursuant to any of the provisions of
this Section 7, the Company shall also be obligated to do the following:
(i) Prepare for filing with the SEC such amendments and supplements
to said registration statement and the prospectus used in connection therewith
as may be necessary to keep said registration statement effective and to comply
with the provisions of the Securities Act with respect to the sale of securities
covered by said registration statement for the period necessary, but in no event
more than nine months, to complete the proposed public offering;
(ii) Furnish to each selling holder such copies of preliminary and
final prospectuses and such other documents as said holder may reasonably
request to facilitate the public offering of such holder's Registration Stock;
(iii) Use its best efforts to register or qualify the Registration
Stock covered by said registration statement under the securities or Blue Sky
laws of such
-8-
<PAGE>
jurisdictions as not less than 50% of the holders of Registration Stock may
reasonably request;
(iv) Furnish to the selling holders, and any underwriters or
broker-dealers through whom the Registration Stock may be sold, an opinion or
opinions of counsel for the Company and a letter or letters of the independent
certified public accountants for the Company, in form and substance customary
for similar offerings;
(v) Permit each selling holder or his counsel or other
representatives, at the selling holder's expense, to inspect and copy such
corporate documents and records as may reasonably be requested by them; and
(vi) Furnish to each selling holder a copy of all documents filed
and all correspondence to or from the SEC in connection with any such offering.
(d) Expenses, etc. All expenses in connection with the preparation and
filing of any registration statement under this Section 7, any registration or
qualification under the securities or Blue Sky laws of states in which the
offering will be made under such registration statement and any filing fee of
the National Association of Securities Dealers, Inc. relating to such offering,
shall be borne in full by the Company, except for any underwriters' or brokers'
commissions, fees required to be paid by a selling stockholder rather than the
Company in order to comply with applicable Blue Sky or state securities laws,
fees or expenses expressly applicable to securities being sold by the holders of
securities and fees or expenses of their counsel.
(e) Indemnification. The Company shall indemnify the selling holders of
Registration Stock, and, to the extent required in any agreement with any
underwriter or broker-dealer through whom the Registration Stock may be sold,
any such underwriter or broker-dealer and each person, if any, who controls any
such underwriter or broker-dealer (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities, expenses or actions in respect
thereof (under the Securities Act or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registration Stock was registered under
the Securities Act, any preliminary or final prospectus contained therein, or
any amendment or supplement thereto, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse the
selling holders of Registration Stock for any legal or other out-of-pocket
expenses reasonably incurred by such selling holders in connection with
investigating or defending against such loss, claim, damage, liability or
action; except insofar as such losses, claims, damages, liabilities, expenses or
actions are caused by any untrue statement or omission contained in information
furnished in writing to the Company by such selling holders expressly for use
therein. In connection with any
-9-
<PAGE>
such registration statement, the selling holders of Registration Stock will
furnish the Company in writing such information as may reasonably be requested
by the Company for use in any such registration statement or prospectus and will
indemnify the Company, its directors and officers, and, to the extent required
in any agreement with any underwriter or broker-dealer, each such underwriter or
broker-dealer and each person, if any, who controls the Company or any
underwriter or broker-dealer (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities, expenses and actions in respect
thereof (under the Securities Act or common law or otherwise) resulting from any
untrue statement or alleged untrue statement of a material fact required to be
stated in such registration statement or prospectus or resulting from any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading and
necessary to make the statements therein not misleading; and will reimburse the
Company for any legal or other out-of-pocket expenses reasonably incurred by it
in connection with investigating or defending against such loss, claim, damage,
liability or action; but only to the extent that such untrue statement or
omission was contained in information so furnished in writing by the selling
holders of Registration Stock expressly for use therein, and only to the extent
of proceeds received by the selling holders of Registration Stock in the
offering. The Company further agrees that, in connection with any underwritten
public offering, it also will enter into customary contribution arrangements
with the selling holders of Registration Stock and the underwriters or
broker-dealers through whom the Registration Stock may be sold, with respect to
situations in which indemnification is potentially unavailable.
(f) Withdrawal. If a public offering is not completed within nine months
after the effective date of any registration statement filed pursuant to Section
7(a)(ii) hereof, the Company reserves the right, at its option, to withdraw from
registration any securities offered by the Company which have not been sold
during such period, provided that no securities offered by any holder of
Registration Stock shall be withdrawn without the consent of the holders of not
less than 50% of the Registration Stock.
8. Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder hereof to
purchase in the aggregate the same number of shares of Common Stock purchasable
hereunder. This Warrant may be sold, transferred, assigned or hypothecated by
the Holder at any time subject to compliance with the Securities Act and
applicable state securities law. Any such assignment shall be made by surrender
of this Warrant to the Company or at the office of its stock transfer agent, if
any, with the Assignment Form attached hereto as Annex B duly executed and funds
sufficient to pay any transfer tax; whereupon the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be canceled. This
Warrant may be divided
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<PAGE>
or combined with other Warrants which carry the same rights upon presentation
hereof at the office of the Company or at the office of its stock transfer
agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants issued in
substitution for or replacement of this Warrant, or into which this Warrant may
be divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and, in the
case of loss, theft or destruction, of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
9. Miscellaneous. This Warrant shall be governed by the internal laws, but
not the law of conflicts, of the State of Delaware. The headings in this Warrant
are for purposes of convenience and reference only and shall not be deemed to
constitute a part hereof. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the Company and the registered Holder. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
10. Notice Generally. Any notice, demand or delivery pursuant to the
provisions hereof shall be sufficiently given or made if sent by registered or
certified mail, postage prepaid, or overnight delivery service, addressed to the
Holder at such Holder's last known address appearing on the books of the
Company, or, except as herein otherwise expressly provided, to the Company at
nutrisystem.com inc., 202 Welsh Road, Horsham, PA 19044, Attention: Brian D.
Haveson, President, or such other address as shall have been furnished to the
party giving or making such notice, demand or delivery.
ISSUED THIS 30th day of September, 1999.
Attest: NUTRISYSTEM.COM INC.
By: By:
---------------------------------- ------------------------------
Frederick W. Dreher, Secretary Brian D. Haveson, President
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<PAGE>
ANNEX A
NOTICE OF EXERCISE
(To be Executed by
the Registered Holder
in Order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
from nutrisystem.com inc. (the "Company") Shares covered by the Warrant dated
September 30, 1999 and issued to ____________________________ according to the
conditions thereof, as follows:
Check one:
____ Exercise by payment of exercise price in cash. The undersigned
hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing ____________________ Shares and hereby makes
payment of $_______________ in payment of the actual exercise price
thereof.
____ Cashless exercise by surrender of the Warrant. The undersigned
hereby irrevocably elects to receive Shares equal to the value of
the Warrant determined in accordance with the provisions of Section
6(b) of the Warrant.
The undersigned understands that the Shares being issued hereunder have not
been registered under the Securities Act of 1933 (the "Securities Act") or any
state securities laws and that such Shares may not be sold, transferred, or
assigned except: (i) pursuant to an effective registration thereof under the
Securities Act; or (ii) if in the opinion of counsel for the registered owner
thereof, which opinion is reasonably satisfactory to the Company, the proposed
sale, transfer or assignment may be effected without such registration under the
Securities Act and will not be in violation of applicable state securities laws.
Printed Name
of Registered
Dated: Holder:
-------------- -----------------------------------
Signature:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
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<PAGE>
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED,
-----------------------------------------
hereby sells, assigns and transfers unto
Name
------------------------------------------------
(Please typewrite or print in block letters)
Address
---------------------------------------------
the right to purchase Common Stock of nutrisystem.com inc. represented by this
Warrant to the extent of _______________ shares as to which such right is
exercisable and does hereby irrevocably constitute and appoint
______________________________ attorney, to transfer the same on the books of
nutrisystem.com inc. with full power of substitution in the premises.
Signature
-------------------------------
Dated:
------------------
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Exhibit 10.1
JOINT DEFENSE, AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into between Wyeth Ayerst Laboratories Division
of American Home Products Corporation ("AHP") and NutriSystem L.P.
("NutriSystem").
WHEREAS NutriSystem has been sued in numerous lawsuits alleging injury
arising from the promotion, advertising, sale, prescription, use, recommended
use or ingestion of Pondimin and/or Redux ("the Products"), either alone or in
combination with phentermine; and
WHEREAS AHP manufactured the Products and has a longstanding policy to
defend and indemnify retailers that are sued as a result of dispensing AHP
products; and
WHEREAS NutriSystem has requested defense and indemnification for itself
and the NutriSystem parties (i.e., NutriSystem's present and former affiliates,
subsidiaries, officers, directors, general partners, limited partners,
attorneys, agents, servants, employees, successors and assigns), pursuant to
AHP's policy and state law; and
WHEREAS AHP and NutriSystem desires to enter into this Agreement for their
joint defense and the indemnification of NutriSystem and the NutriSystem
parties against claims arising from the use or ingestion of the Products;
NOW THEREFORE, it is agreed as follows:
1. This Agreement is entered into between AHP and NutriSystem as a joint
defense and indemnification agreement.
2. This Agreement shall apply to all claims arising from ingestion of the
Products (including claims arising from the ingestion of phentermines in
combination with the Products) ("Claims") that have been or may he asserted
against NutriSystem and
<PAGE>
the NutriSystem parties as a result of the promotion, advertising, sale, use,
recommended use or ingestion of the Products.
3. AHP agrees to defend, indemnify and hold harmless NutriSystem and the
NutriSystem parties from or against all Claims; except that if a court/jury
apportions fault and determines that a pharmaceutical product other than the
Products was a proximate/producing cause of the injuries giving rise to
liability, then AHP shall indemnify only that portion of the judgment against
NutriSystem equal to that portion of liability assigned to the Products as
compared to the total liability assigned to the Products and to the other
pharmaceutical product (such that, for example, if a court/jury determines that
the Products are responsible for 50 percent of the harm, that a phentermine
product is responsible for 40 percent of the harm, and that NutriSystem is
responsible for 10 percent of the harm, then ATOP shall be obligated to
indemnify NutriSystem to the extent of 50/90 of its liability). As to Claims
where both AHP and phentermine manufacturer(s) are defendants and where the
court/jury will not apportion liability between the claims subject to this
paragraph and covered Claims, AHP and NutriSystem shall confer in good faith to
determine an appropriate apportionment of liability based on the evidence in the
case. If AHP and NutriSystem are unable is reach agreement on an appropriate
apportionment, the dispute shall be submitted to arbitration pursuant to the
arbitration agreement attached as Exhibit D.
4. NutriSystem shall promptly communicate to AHP all demands for settlement
or settlement proposals.
5. If NutriSystem receives a separate demand or proposal for settlement
from plaintiff, NutriSystem and AHP shall consult in good faith to determine
whether AHP
<PAGE>
will negotiate and/or settle on behalf of NutriSystern only. In the event AHP
determines not to settle on behalf of NutriSystem only, NutriSystem shall have
the right to negotiate and settle on its own behalf. In the event that
NutriSystem settles a claim under this paragraph after AHP has determined not to
do so:
(a) NutriSystem shall pay the first $5,000.00 of such settlement;
(b) AHP and NutriSystern will immediately negotiate in good faith to
attempt to agree upon the percentage of said settlement above the amount of
$5,000.00 that will be paid by AHP;
(c) If the parties cannot agree on an appropriate apportionment of the
settlement amount, then AHP and NutriSystem shall each pay 50 percent of the
settlement amount above $5,000; provided that AHP shall not be required to pay
more than $25,000 pursuant to this paragraph.
6. AHP may settle any Claims against NutriSystem by paying the amount of
such settlement to the plaintiff/claimant; provided that;
(a) Such settlement be conditioned on dismissal with prejudice of all
Claims by the plaintiff/claimant against NutriSystem, including any claims
arising from the dispensing of phentermines in combination with the Products;
(b) AHP gives notice of the proposed settlement and obtains the approval of
NutriSystem with respect to any admissions or acknowledgment of liability on the
part of NutriSystem.
7. If AHP settles any claim against itself in any case in which there are
also Claims against NutriSystem, AHP shall make all reasonable efforts also to
settle such Claims, subject to paragraph 5, above.
<PAGE>
8. Counsel for NutriSystem ("Counsel") shall be selected by AHP after
consultation with NutriSystem, provided that:
(a) Counsel shall not also represent Wyeth and/or AHP in any case involving
the Products, but may represent pharmacies who have been sued as a result of
dispensing the Products;
(b) Counsel shall agree, as a condition of their retention, that their sole
recourse regarding any dispute over the payment of fees shall be against AHP.
(c) The reasonable legal fees and expenses of Counsel shall be payable
directly by AHP;
(d) Counsel shall have an attorney-client relationship with NutriSystem,
but not AHP. Counsel shall not share the attorney-client confidences or
confidential information of NutriSystem with pharmacy defendants or AHP without
written consent, and such confidences and information shall be shared only to
the extent explicitly authorized.
(e) Nothing in this Agreement shall be construed to prohibit NutriSystem
from retaining counsel in addition to Counsel ("additional counsel") at their
expense, which additional counsel shall be subject to the obligations of
paragraph 10 below; except that AHP shall reimburse NutriSystem for such
work of additional counsel as may be agreed upon in a particular case (possibly
including, for example, preparation of NutriSystem officers and employees for
deposition and trial testimony; production of company documents; preparation of
responses to generic interrogatories; preparation of responses to generic
requests for admissions; selection of experts; consultation on generic legal
issues).
<PAGE>
9. Nothing in this Agreement shall be construed to limit the duty of
loyalty owed to NutriSystem by Counsel. Consistent with that duty, it is the
expectation of the parties that Counsel will take all reasonable steps to limit
attorneys' fees and costs. As a general rule, absent prior consultation and
agreement with AHP, which agreement will not be unreasonably withheld, Counsel
will not (i) attend depositions other than those of the plaintiff, the
prescribing physician, NutriSystem employees, and experts designated to render
opinions about NutriSystem's conduct, (ii) prepare and file memoranda in
response to motions other than those directed against NutriSystem, or (iii)
retain more than one expert in each state. Nothing herein shall he construed to
limit the ability of Counsel to follow instructions from, and to defend
effectively, NutriSystem.
10. AHP and NutriSystem shall claim, urge, assert and defend the joint
defense privilege and all other privileges for confidential communication among
the parties or for the joint development of information relevant to defense of
the Claims.
11. AHP, NutriSystem and Counsel shall cooperate fully in the investigation
and defense of the Claims. Such cooperation will include, but not be limited to:
(a) making available to AHP NutriSystem's records as to any plaintiff/claimant
and providing NutriSystem witnesses for interview or to present testimony at
trial or any proceeding upon request; (b) making available to Counsel a summary
of all materials reasonably necessary to defend NutriSystem in a particular
case, including but not limited to deposition transcripts and medical records
and other summaries. AHP shall have the right to control the joint defense,
including settlement, of the Claims.
12. NutriSystem shall file in each case in which a phentermine
manufacturer(s) is a defendant(s) a cross-claim against the phentermine
manufacturer(s)
<PAGE>
and/or its insurer(s), seeking recovery of amounts due and owing NutriSystem in
connection with the Claims. It is further agreed that:
(a) the cross-claims against the phentermine manufacturers and/or their
insurers shall be coordinated by and between AHP and NutriSystem;
(b) with respect to their claims for indemnification of legal fees and
expenses incurred in the underlying litigation, NutriSystem shall pay any
recovery to AHP as reimbursement for legal fees and expenses paid pursuant to
this Agreement;
(c) with respect to their claims for indemnification of liability
judgments, where the court/jury has apportioned fault, NutriSystem shall be
entitled to retain that portion of the recovery;
(d) with respect to their claims for indemnification of liability
judgments, where the court/jury has not apportioned fault, NutriSystem shall pay
any recovery to AHP as reimbursement for the indemnification paid pursuant to
paragraph 3;
(e) this Paragraph 12 shall not apply to any Claim where AHP withdraws its
defense and indemnity of NutriSystem under Paragraph 13 of this Agreement;
(f) NutriSystem may only settle the cross-claims against the phentermine
manufacturers after consultation with AHP.
13. Notwithstanding the provisions of paragraphs 8 and 8(b), AHP will not
indemnify NutriSystem for Claims that it dispensed or recommended the use of the
Products despite clear indication in its records that use by the
plaintiff/claimant was contraindicated per the contraindications section of the
Prescribing Information for the Products (as reproduced at Exhibit B);
formulated and dispensed a compounded product; provided warranties not
authorized by AHP; or provided warnings other than those
<PAGE>
attached as Exhibit C. AHP shall notify NutriSystem of any claim to which this
paragraph applies and for which it declines to provide indemnification under
this Agreement; provided that:
(a) Such notice shall be provided not less than 30 days before the close of
discovery, or 120 days after provision to AHP of NutriSystem's records per
paragraph 11(a), whichever date is first;
(b) AHP shall support a request by NutriSystem for severance and/or an
extension of the discovery cut-off or deadline for amending pleadings.
14. Should NutriSystem receive a demand for, or be subject to a cross-claim
or third-party claim for, indemnification by a physician retained as an
independent contractor by NutriSystem in connection with Claims, AHP will
promptly evaluate the physician pursuant to AHP's program of indemnification for
physicians.
15. AHP and NutriSystem shall not during the term of this Agreement sue or
assert any cross-claim, third party claim or other claim against the other or
against any parent, subsidiary or affiliate of the other with respect to any
Claim. If such claims have been filed already, the parties shall withdraw them
forthwith. NutriSystem shall execute an unconditional release of all claims that
it may have against AHP for alleged injury to its business as a result of
prescribing and/or dispensing the Products,
16. A party may terminate this Agreement only for material breach. AHP may
not terminate this Agreement by reason of the bankruptcy of NutriSystem. In the
event of such termination;
(a) The parties waive any right they may have to disqualify Counsel or
counsel for AHP by reason of participation in the joint defense.
<PAGE>
(b) The parties will have all rights to contribution or indemnification,
and any claim which it had against the other, which it may have had prior to
this Agreement, with respect to Claims that have not at the time of termination
been the subject of judgment, other final court action or settlement;
(c) The Agreement shall govern Claims that have been the subject of
judgment, other final court action or settlement.
17. Without waiving any pre-existing rights with regard to NutriSystem's or
the NutriSystem parties' insurers, including Federal Insurance Company
("Federal") and Chubb Custom Insurance Company ("Chubb"), Federal and Chubb
shall be deemed to be NutriSystem parties with respect to any Claim premised
upon the conduct of NutriSystem or a NutriSystem party for which Federal or
Chubb are sued directly, and for no other purpose. 1n addition, AHP shall not
seek reimbursement from NutriSystem's or the NutriSystem parties' insurers of
any monies paid pursuant to this Agreement.
18. This Agreement constitutes the entire agreement of AHP and NutriSystem
with respect to the subject matter thereof. No modification of this Agreement
shall be effective unless contained in a writing executed by each of the
parties.
19. Notices with respect to this Agreement shall be provided by facsimile
with confirming copy by mail or courier, addressed as follows:
For NutriSystem, L.P. For American Home Products
Brian Haveson, President Corporation
NutriSystem, L.P. Louis L. Hoynes, Jr., Esq.
202 Welsh Road Senior Vice-President and
Horsham, PA 19044 General Counsel
Five Giralda Farms
Madison, NJ 07940
(973) 660-6040
<PAGE>
The parties may change address and/or facsimile number by giving 15 days prior
written notice of such change.
20. The signatures below constitute the representation by each
representative that s/he is duly authorized to enter into the Agreement on
behalf of AHP and NutriSystem, respectively.
21. This Agreement shall be governed by the laws of the State of New
Jersey, provided that if application of federal law would result in upholding a
claim of attorney-client privilege, work production protection, trade secret
privilege or other applicable privilege or protective doctrine that would not be
recognized under New Jersey law, then federal law shall govern this Agreement
insofar as such privilege or protection is concerned.
22. This Agreement may be executed in one or more counterparts each of
which shall be deemed an original.
AGREED AS TO SUBSTANCE AND FORM:
BY: /s/ Brian Haveson
------------------------------
Brian Haveson Date: Sept. 27, 1999
President, Nutri/System, L.P. --------------
BY: [Signature appears here]
------------------------------
AHP's authorized representative Date: Sept. 27, 1999
--------------
<PAGE>
Exhibit D
ARBITRATION AGREEMENT
THIS AGREEMENT is entered into between Wyeth Ayerst Laboratories Division
of American Home Products Corporation ("AHP") and NutriSystem L.P.
("NutriSystem").
WHEREAS the parties have agreed to confer in good faith to determine an
appropriate apportionment of liability between AHP and NutriSystem as to Claims
where both AHP and NutriSystem. are defendants and where the court/jury will not
apportion liability between the claims subject to paragraph 3 of the Joint
Defense and Indemnification Agreement and covered Claims; and
WHEREAS the parties have further agreed, if they are unable to reach
agreement on an appropriate apportionment, to submit the dispute to arbitration;
NOW, THEREFORE, it is agreed as follows: according to the following
guidelines, which guidelines may be amended or supplemented by further agreement
of the parties:
1. The parties will submit the question of how liability should be
apportioned to a former federal judge, who shall be selected by mutual agreement
of the parties.
2. The proceedings shall be governed by the Federal Rules of Civil
Procedure and Federal Rules of Evidence as far as practicable.
3. Fact discovery shall be permitted, but the number of witnesses and the
number of hours of deposition discovery per side shall be limited.
<PAGE>
If the parties cannot agree on these issues, the arbitrator will establish the
limits.
4. Expert disclosures shall be made in accordance with Rule 26 of the
Federal Rules of Civil Procedure; each side shall be limited to the same number
of experts pursuant to the direction of the arbitrator; and the deposition of
each expert shall not exceed one day.
5. There shall not be a separate Daubert hearing, but Daubert challenges,
if any, shall be heard and considered as part of a single hearing to adjudicate
an appropriate apportionment of liability.
6. At the close of discovery, the parties shall confer to determine an
appropriate limit on the number of hours each side shall have to present its
case at the hearing. If parties cannot reach agreement, the issue shall be
submitted to the judge, who shall establish an equal limit for each side.
7. Evidence presented for the first time at the hearing shall be given no
greater or lesser weight than evidence presented by the parties at trial and
offered at the hearing.
8. The judge shall render a decision within 30 days of the completion of
the hearing.
9. The judge shall determine an apportionment of liability between AHP (for
fenfluramine or dexfenfluramine) and NutriSystem (for phentermine).
Exhibit 10.2
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "Amendment") is entered into this 28th
day of October, 1999, between TEACHERS INSURANCE AND ANNUITY ASSOCIATION
("Landlord"), and NUTRI/SYSTEM LP ("Tenant").
Background
Landlord and Tenant are parties to a Lease dated December 11, 1997 (the
"Lease"), between Landlord's predecessor-in-interest, Teachers Pennsylvania
Realty, Inc. ("TPR"), and Tenant, pursuant to which Landlord agreed to lease to
Tenant and Tenant agreed to lease from Landlord premises described in the Lease
(the "Existing Space") located in that certain building known as 202 Welsh Road,
Horsham, Pennsylvania (the "Building"), as more particularly described in the
Lease, upon the terms and conditions set forth in the Lease. Landlord has
succeeded to the interests of TPR as landlord under the Lease.
Landlord and Tenant desire to extend the term of the Lease and for Tenant
to lease from Landlord additional space located in the Building in accordance
with the terms and conditions of the Lease and this Amendment.
Agreement
In consideration of the foregoing and of the mutual promises contained in
this Amendment, and for other good and valuable consideration the receipt and
sufficiency of which is acknowledged by Landlord and Tenant, and intending to be
legally bound hereby, Landlord and Tenant agree as follows:
l. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
in addition to the Existing Space currently leased by Tenant under the Lease,
the portion of the Building shown by cross-hatching on the Building floor plan
attached to this Amendment as Exhibit A (the "Expansion Space"), in accordance
with the terms and conditions of this Amendment. The Expansion Space shall be
deemed to consist of 15,855 square feet of rentable floor area.
<PAGE>
2. Tenant is fully familiar with the Expansion Space, and shall accept
possession of the Expansion Space under this Amendment as of the date of
execution of this Amendment by Landlord and Tenant in their then-current "as is"
condition. Notwithstanding the foregoing, promptly after the execution of this
Amendment by Landlord and Tenant, Landlord shall, at Landlord's sole cost and
expense, perform all work necessary to cause the electricity (including but not
limited to the electricity used to power the heating, ventilation and air
conditioning equipment ("HVAC") serving the Expansion Space) and gas consumed
in the Expansion Space separately metered. In performing such work, Landlord
shall make reasonable efforts not to cause undue interference with Tenant's
business operations in the Expansion Space. Except for the work described in
this Section 2, Landlord shall not be required to make any improvements in the
Expansion Space.
3. The term of the Lease (currently scheduled to expire under the Lease on
December 31, 2000), is hereby extended so as to run through the last day of the
month in which the fifth (5th) anniversary of the date of execution of this
Amendment by Landlord and Tenant occurs. All references in the Lease to the
"Original Term" shall be deemed to be references to the term of the Lease as
extended pursuant to the immediately preceding sentence.
4. As of the date of execution of this Amendment by Landlord and Tenant
(the "Expansion Commencement Date"), the Expansion Space shall be deemed to be a
part of the Demised Premises under the Lease, and all provisions of the Lease
relating to the Demised Premises generally (but not any provisions of the Lease
applicable specifically to the Existing Space or any portion thereof), except as
modified by this Amendment (and except with respect to Landlord's obligation to
perform or pay for any alterations or improvements in the Demised Premises,
other than as provided under this Amendment), shall thereafter be applicable to
the Existing Space and the Expansion Space. As of the Expansion Commencement
Date, the Demised Premises (i.e., the Existing Space and the Expansion Space)
shall be deemed to consist of 48,555 square feet of rentable floor area.
5. Effective as of the Expansion Commencement Date, Tenant shall pay to
Landlord during the remainder of the term of the Lease (as amended by this
Amendment) Annual Base Rent (as defined in the Lease) for the Demised Premises
(i.e., the Existing Space and, as of the Expansion Commencement Date, the
Expansion Space) in the following amounts for the following Lease Years (as
defined in the Lease):
(i) for the period from the Expansion Commencement Date through the
day immediately preceding the first (1st) anniversary of the Expansion
Commencement Date, Annual Base Rent shall equal $305,947.56 per annum
payable in monthly installments of $25,495.63;
-2-
<PAGE>
(ii) for the period from the first (1st) anniversary of the Expansion
Commencement Date through December 31, 2000, Annual Base Rent shall equal
$313,875.00 per annum payable in monthly installments of $26,156.25;
(iii) for the period from January 1, 2001, through the day immediately
preceding the second (2nd) anniversary of the Expansion Commencement Date,
Annual Base Rent shall equal $333,495.00 per annum payable in monthly
installments of $27,791.25;
(iv) for the period from second (2nd) anniversary of the Expansion
Commencement Date through December 31, 2001, Annual Base Rent shall equal
$341,422.56 per annum payable in monthly installments of $28,451.88;
(v) for the period from January 1, 2002, through the day immediately
preceding the third (3rd) anniversary of the Expansion Commencement Date,
Annual Base Rent shall equal $348,289.56 per annum payable in monthly
installments of $29,024.13;
(vi) for the period from the third (3rd) anniversary of the Expansion
Commencement Date through December 31, 2002, Annual Base Rent shall equal
$356,217.00 per annum payable in monthly installments of $29,684.75;
(vii) for the period from January 1, 2003, through the day immediately
preceding the fourth (4th) anniversary of the Expansion Commencement Date,
Annual Base Rent shall equal $364,065.00 per annum payable in monthly
installments of $30,338.75; and
(viii) for the period from the fourth (4th) anniversary of the
Expansion Commencement Date through the last day of the term, as extended
by this Amendment, Annual Base Rent shall equal $371,992.56 per annum
payable in monthly installments of $30,999.38.
6. Effective as of the Expansion Commencement Date, Lessee's Pro Rata
Share, as referred to in the Lease, for all periods from and after the Expansion
Commencement Date, shall equal 31.5292%.
7. The Security Deposit (as defined in the Lease) is hereby increased to
$50,991.26. Upon the execution of this Amendment, Tenant shall deliver to
Landlord funds in the amount of $25,103.76 to increase the Security Deposit to
such amount.
8. Section 1 of Article XXV of the Lease is deleted in its entirety.
-3-
<PAGE>
9. Tenant represents and warrants to Landlord that Tenant has not dealt
with any party to whom a commission might be owing in connection with this
Amendment, except for The Flynn Company ("Broker"), and shall indemnify, defend
and hold harmless Landlord from and against the claim of any party other than
Broker claiming a commission owing due to its dealings with Tenant in connection
with this Amendment. Landlord shall pay any commission payable to Broker in
connection with this Amendment under a separate agreement or agreements.
10. If there is any conflict between the terms and provisions of the Lease
and the terms and provisions of this Amendment, the terms and provisions of this
Amendment shall prevail. Landlord and Tenant ratify and affirm the Lease as
modified by this Amendment. Except as modified by this Amendment, the Lease
shall remain unmodified, in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment on the
day and year first above written.
WITNESS/ATTEST: TEACHERS INSURANCE AND ANNUITY ASSOCIATION
/s/ Ronette A. Blissett BY: /s/ Arend W. Taal
- --------------------------------- ---------------------------------
RONETTE A. BLISSETT AREND W. TAAL
ITS: ASSOCIATE DIRECTOR
---------------------------------
NUTRI/SYSTEM LP
/s/ Barbara D. Hart BY: /s/ Brian D. Haveson
- ---------------------------------- ---------------------------------
ITS: PRESIDENT
---------------------------------
-4-
<PAGE>
EXHIBIT A
[GRAPHIC]
In the printed version of the document a floor plan appears.
<PAGE>
LEASE SUMMARY
This summary shall not be construed as a part of the subject Lease, but
rather is intended as a guide to essential terms of the subject Lease for the
convenience and reference of Lessor and Lessee.
1. BUILDING AND LOCATION:
202 Welsh Road
Horsham, PA
2. LESSOR:
Teachers Pennsylvania Realty, Inc.
730 Third Avenue
New York, New York 10017
3. LESSEE:
Nutri/System LP
4. USE OF PREMISES: QUIET ENJOYMENT:
The premises may only be used for offices, and for the warehousing,
distribution and storage of non-hazardous and nonflammable materials.
Lessee shall procure any government licenses and permits from time to time
required for such permitted uses, and Lessor, at no expense to itself,
shall cooperate in procuring such licenses or permits. Without limiting the
generality of the foregoing, it is agreed that Lessee, and not Lessor,
shall be responsible for ascertaining whether Lessee's proposed use of the
Premises complies with the local zoning ordinance. The Premises may not be
used for any use that would cause the Demised Premises to be deemed a
"place of public accommodation" under the Americans with Disabilities Act
(ADA) of 1990.
5. LEASED AREA: 32,700 s.f.
6. LEASE TERM: 3 years
7. OPTIONS: One, 2 year option at a renewal rate of $5.35 s.f. triple net or
annual rent of $174,945.00 Year 1 of option period and a rental rate of
$5.56 s.f. triple net or an annual rent of $181,812.00 year 2 of option
period.
8. NO. OF. DAYS' NOTICE REQUIRED TO EXERCISE OPTION(S):
180 days
9. ANTICIPATED LEASE COMMENCEMENT DATE: January 1, 1998
<PAGE>
10. ANTICIPATED LEASE EXPIRATION DATE: December 31, 2000
11. ANTICIPATED RENT COMMENCEMENT DATE: January 1, 1998
12. RENT STRUCTURE:
Rate/S.F. Annual Monthly
Period Per Year Base Rent Base Rent
-------- --------- ----------- ----------
Year 1-3 $4.75 NNN $155,325.00 $12,943.75
13. FREE RENT: None
14. LESSEE'S PRO RATA SHARE OF BUILDING AREA: 22% - 32,700 s.f. premises in a
150,000 s.f. building.
15. LESSEE'S INITIAL MONTHLY ESTIMATED PAYMENT TOWARDS REAL ESTATE TAXES,
OPERATING EXPENSES, AND INSURANCE ("ADDITIONAL RENT"):
Real Estate Taxes: $1,771.25
Operating Expenses: $1,607.75
Insurance: $ 218.00
Total: $3,597.00
16. LESSEE'S CONTRIBUTION TO COST OF IMPROVEMENTS: Lessee is taking space "as
is". Any improvements to the space are at Lessee's sole cost and
responsibility including the certificate of occupancy.
17. LESSEE'S RIGHT OF TERMINATION: None.
18. RIGHT OF FIRST REFUSAL: None.
19. SECURITY DEPOSIT: $25,887.50 (Two months rent).
20. ADDITIONAL PROVISIONS: None.
21. SEWERAGE (MUNICIPAL SEWER, SEPTIC, MDC INDUSTRIAL USER PERMIT):
Building is on public water and sewer.
22. AUTHORIZED BROKER(S): The Flynn Company and Lotz Realty.
23. LESSEE'S REPRESENTATIVE TO BE CONTACTED IN AN
EMERGENCY (NAME, ADDRESS, TELEPHONE NUMBER):
Joseph Boileau (215) 752-9111
<PAGE>
STANDARD FORM INDUSTRIAL LEASE
Lease made this day of December, 1997 by and between Teachers Pennsylvania
Realty, Inc., 730 Third Avenue, New York, New York 10017 (hereinafter with their
successors and assigns called the "Lessor") and Nutri/System LP (hereinafter
with its successors and permitted assigns called the "Lessee").
WITNESSETH:
Article I
Basic Lease Provisions
Section 1. The following sets forth basic data for this Lease. Each reference in
this Lease to any of the following subjects shall be construed to incorporate
the data stated for that subject in this Section:
Lessor: Teachers Pennsylvania Realty, Inc.
730 Third Avenue
New York, NY 10017
Lessee: Nutri/System LP, 202 Welsh Road, Horsham, PA
Lessee's Address:
Demised Premises: Approximately 32,700 square feet of floor area on the first
floor of the building (the "Building") thereon erected and situated at 202 Welsh
Road in the Town of Horsham, Pennsylvania on the parcel of land (the "Land")
described in Exhibit A attached hereto.
Original Term: Three (3) years from the "Commencement Date" of this Lease, as
defined in Article II, Section 5 hereof; provided, however, if the Commencement
Date is other than the first day of a calendar month then the Original Term
shall expire three (3) years after the last day of the calendar month in which
the term hereof commences.
Original Annual Base Rent:
YIELDING AND PAYING an Annual Base Rent during the Original Term hereof in the
amount of: $155,325.00 payable in advance in equal monthly installments of
$12,943.75.
All rates are triple net.
<PAGE>
Anticipated Lease Commencement Date: January 1, 1998
Anticipated Rent Commencement Date: January 1, 1998
Anticipated Lease Expiration Date: December 31, 2000
Use of Premises: Quiet Enjoyment: The Premises will be used for general offices.
Lessor shall procure any government licenses and permits from time to time
required for such permitted uses, and Lessor, at no expense to itself, shall
cooperate in procuring such licenses or permits. Without limiting the generality
of the foregoing, it is agreed that Lessee, and not Lessor, shall be responsible
for ascertaining whether Lessee's proposed use of the Premises complies with the
local zoning ordinance. The Premises may not be used for any use that would
cause the Demised Premises to be deemed a "place of public accommodation" under
the Americans with Disabilities Act (ADA) of 1990.
Lessee's Pro Rata Share: 22%, based on 32,700 square feet of floor area in the
Demised Premises and 150,000 square feet of total leasable area in the building.
Authorized Broker: The Flynn Company and Lotz Realty
Security Deposit: $25,887.50 (two months rent)
Section 2. The Exhibits listed below are incorporated this Lease by reference
and are to be construed as part of this Lease:
Exhibit A - Description of the Land
B - Intentionally omitted
C - Floor Plan of the Demised Premises
D - Lessor's Initial Estimate of Lessee's Monthly
Pro Rata Share of Real Estate Taxes, Operating
Expenses and Insurance
E - HVAC Maintenance Schedule
F - Signage Standards
G - Subordination Agreement
H - Approved Hazardous Substances
Article II
Demised Premises; Term and Commencement
2
<PAGE>
Section 1. In consideration of the rents and covenants herein contained on the
part of the Lessee to be paid, performed and observed, the Lessor hereby leases
to the Lessee and the Lessee hereby leases from the Lessor, subject to the terms
and provisions hereinafter set forth, the Demised Premises; together with the
nonexclusive right to use, in common with others lawfully entitled thereto, the
common areas of the Building, the parking areas on the Land as same may exist
from time to time, for parking purposes only, and the driveways and walkways on
the Land, as same may exist from time to time, for roadway and walkway purposes
only. The Demised Premises shall be constructed substantially in accordance with
the outline specification attached hereto as Exhibit B and the floor plan
attached hereto as Exhibit C.
Section 2. The Demised Premises are leased subject to the reservation to the
Lessor of the roof and exterior walls of the Demised Premises and of the
Building, and subject to the Lessor's reservation of the right (without thereby
assuming the obligation) to install, maintain, use, repair and replace (in such
manner as to reduce to a minimum to the extent reasonably practicable the
interference with Lessee's use of the Demised Premises) all pipes, ducts, wires,
meters, utility lines and the like which are in the judgment of the Lessor,
required to be in the Demised Premises. The Lessor reserves the right to alter,
reduce, increase and relocate such parking areas, driveways and walkways from
time to time and any common facilities within the Building. The Lessor reserves
the right to make additions to the Building, to erect additional buildings and
structures on the Land, and to continue to do construction work on the Building
and the Land following delivery of the Demised Premises to Lessee.
Section 3. TO HAVE AND TO HOLD the Demised Premises for the original term unless
sooner terminated as herein provided.
Section 4. Lessor shall engage an architect or engineer to prepare a detailed
plan of improvements (the "Engineered Plan", which term shall also be deemed to
include the improvements specified in Exhibits B and C to this Lease) to be made
to prepare the Demised Premises for Lessee's occupancy. Lessor shall submit the
Engineered Plan for Lessee's approval and Lessee shall respond within five (5)
business days. Upon Lessee's written approval of the Engineered Plan, Lessor
shall promptly commence and shall use diligent efforts to complete all work
("Lessor's Work") specified in the Engineered Plan by the Lessor's Work
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Completion Date provided in Article I, Section 1 of this Lease.
Section 5. The term "Commencement Date" as used in this Lease shall be deemed to
refer to the earlier to occur of (i) the date on which Lessor has completed
Lessor's work (except for punch-list items), or (ii) the date on which the
demised premises or any portion thereof are first used for the conduct of
Lessee's business. Lessor shall complete all punch-list items as soon as
conditions permit and Lessee shall afford Lessor reasonable access to the
Demised Premises for such purposes. "Punch-list" items shall mean minor items of
work (and, if applicable, adjustment of equipment and fixtures) which can be
completed after Lessee has taken occupancy of the Demised Premises without
causing undue interference with Lessee's use of the Demised Premises. At any
time after the Commencement Date is determined as aforesaid, Lessee agrees upon
demand of Lessor to execute, acknowledge and deliver a written statement in
recordable form satisfactory to Lessor stating the Commencement Date hereunder.
Section 6. Lessor shall have no obligation to change the Engineered Plan of the
Demised Premises as approved by Lessee, but shall use good faith efforts to
accommodate any requests by Lessee for modifications thereof ("Changes"),
provided (i) each such Change shall be described in a written Change Order
signed by Lessor and Lessee and any additional cost shall be payable by Lessee
in full upon the execution of such Change Order, and (ii) there shall be no
delay or extension of the Commencement Date on account of Lessor's failure to
complete any work described in a Change Order, although Lessor shall use
diligent efforts to complete such work as soon as practicable.
Article III
Rent
Section 1. YIELDING AND PAYING an annual base rent during the Original Term
hereof in the amount of the Original Annual Base Rent. All such rent shall be
payable in advance on the first day of each calendar month during the term
hereof commencing on the Rent Commencement Date. If the Rent Commencement Date
is other than the first day of a calendar month, base rent for the first
incomplete month, prorated at the rate set forth above, shall be paid on the
Rent Commencement Date.
Section 2. The Original Annual Base Rent shall, during the Original Term, be
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Section 3. The Lessee shall pay, as additional rent hereunder, during the
Original Term hereof and any extension hereof, Lessee's Pro Rata Share of any
and all real estate taxes and betterments and other assessments (ordinary and
extraordinary), water rents, sewer and other charges which shall be imposed,
assessed or levied upon the Building and the Land. In addition, the Lessee shall
pay 100% of real estate taxes, betterments and other assessments due to any
alterations or improvements made by the Lessee to the Demised Premises. If any
betterment assessment is payable in installments, Lessee shall only be obligated
to pay its Pro Rata Share of the installments (including interest) which are
allocable to the term of this Lease or any extension of the term hereof. If this
Lease shall commence on a date other than the first day of a tax year, or
terminate on a date other than the last day of a tax year, the Lessee for that
tax year shall pay to the Lessor only such portion of such additional rent for
the whole tax year as shall be proportionate to the portion of the tax year
contained within the term of this Lease.
Section 4. The term "real estate taxes" shall mean all taxes and special
assessments of every kind and nature assessed by a governmental authority on the
Land or the Building which the Lessor shall become obligated to pay because of
or in connection with the ownership, leasing and operation of the Land or
Building. The foregoing provisions are predicated upon the present system of
taxation in the Commonwealth of Pennsylvania. If taxes upon rentals or otherwise
pertaining to the Demised Premises shall be substituted, in whole or in part,
for the present ad valorem real estate taxes or assessed in addition thereto,
then Lessee's obligation to pay such taxes shall be based upon such substituted
taxes, to the extent to which the same shall be a substitute for present ad
valorem real estate taxes, together with such additional taxes, and such
substitute or additional taxes shall be deemed to be included within the term
"real estate taxes." Except as hereinabove provided, nothing herein contained
shall otherwise require or be construed to require Lessee to reimburse Lessor
for any inheritance, estate, succession, transfer, gift, franchise, income or
earnings, profit, excess profit tax, capital stock, capital levy or corporate or
other similar tax which is or may be imposed upon Lessor or upon Lessor's
business.
Section 5. During the Original Term and any extensions or renewals thereof,
Lessee shall pay to Lessor, as additional rent, Lessee's Pro Rata Share of the
costs paid or incurred
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by Lessor in managing, operating, maintaining and repairing the Building, and
any additions to the Building (except only for structural repairs set forth in
Article VI, Section 2) and in maintaining and repairing the Land, including,
without limitation, parking areas, driveways, walkways, and landscaping thereon.
Such costs shall include, without limitation: (1) all costs of providing
utilities, (including, without limitation, where applicable, heat, cooling, and
light), for maintaining and repairing the common areas of the Building, the
parking areas, driveways and walkways on the Land (including, without
limitation, resurfacing, striping and sweeping) and removing snow and ice from
the parking areas, driveways and walkways on the Land and from the roof of the
Building; (2) all costs of maintaining and repairing all drainage, sewage and/or
septic systems and utility facilities and equipment on the Land whether above or
underground; (3) all costs of operating, maintaining and repairing the Building
and any additions thereto (structural repairs set forth in Article VI, Section 2
excepted), including without limitation, security and traffic control,
maintenance and repair of all fixtures and equipment and utility facilities,
including sewer and/or septic systems not serving exclusively the Demised
Premises nor serving exclusively any other tenant; (4) reasonable management,
legal, accounting and other professional fees (including management fees)
incurred in connection with the operation, maintenance and management of the
Building and the Land. The Tenant's cost of legal, accounting, or professional
fees shall not exceed five cents ($.05) per square foot in any given year.
Section 6. During the Original Term and any extensions or renewals thereof,
Lessee shall pay Lessor, as additional rent hereunder, Lessee's Pro Rata Share
of Lessor's cost of the following insurance on the Building and the Land: fire,
extended coverage, flood, earthquake, boiler and machinery, and such other
insurance covering all hazards included within customary "all risks" coverage,
including without limitation insurance covering fire, lightning, vandalism,
malicious mischief, and sprinkler leakage, said insurance to be on a full value,
repair, or replacement basis as determined by Lessor; loss of rents insurance;
and such other insurance as may be requested by Lessor's mortgagee. In addition,
notwithstanding the foregoing, Lessee shall pay as additional rent, 100% of
Lessor's cost of any insurance with respect to the Building or the Land which is
attributable solely to Lessee's particular use of the Demised Premises.
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Section 7. During the original term and any extensions or renewals thereof,
Lessee shall pay Lessor, as additional rent hereunder, Lessee's Pro Rata Share
of Lessor's cost for comprehensive liability insurance indemnifying the Lessor
against all claims and demands for any injury to persons or property which may
be claimed to have occurred in or upon the Building or the Land in such amounts
as Lessor shall from time to time determine.
Section 8. Lessee's Pro Rata Share of Lessor's costs relating to real estate
taxes, operating expenses and insurance, referred to in Sections 3 through 7 of
this Article III, shall be paid in advance in 12 equal monthly estimated
installments (based on an amount estimated by Lessor) due and payable on the
same dates as the monthly installments of annual base rent payable hereunder.
Lessee's obligation to pay its Pro Rata Share of Lessor's costs relating to real
estate taxes, operating expenses, and insurance (and ail other charges in the
nature of additional rent provided in this Lease) shall begin as of the
Commencement Date of this Lease and shall not be affected by any "free rent" or
other concessions relating to Lessee's obligation to pay the Original Annual
Base Rent provided in Section 1 of this Article III. As of the end of each
fiscal year of Lessor (meaning the twelve-month period used by the Lessor
preparing its annual financial statements), Lessor shall furnish to Lessee a
statement in reasonable detail setting forth the computation of such costs;
thereupon Lessee shall pay any deficiency, and any overpayment shall be refunded
to Lessee. If the Lease shall commence on a date other than the first day of
Lessor's fiscal year, or terminate on a date other than the last day of Lessor's
fiscal year, the Lessee for that respective fiscal year shall pay to the Lessor
only a proportionate share of Lessor's costs for the whole fiscal year as shall
be proportionate to the portion of the fiscal year contained within the term (as
extended or renewed) of this Lease. Lessor's initial estimate of the monthly
installments payable by Lessee hereunder is attached hereto as Exhibit D.
Section 9. This is, and is intended to be, a NET LEASE, and accordingly, except
as expressly otherwise provided for herein, all charges, assessments and
impositions made upon the Land and the Building and all costs, expenses and
other obligations paid or incurred by Lessor of any kind or nature whatsoever in
insuring, maintaining and/or repairing the Demised Premises or the Building or
the Land or any additions to the Building, (other than costs of maintaining or
repairing the interior of space leased to others or available for lease to
others and other than structural
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repairs set forth in Article VI, Section 2 hereof) shall be included in
determining Lessor's costs of which Lessee is obligated to pay a pro rata share
or the entirety, as the case may be, as provided hereinabove.
Section 10. All payments of base rent and additional rent hereunder shall be
mailed or delivered to the Lessor, when due as set forth herein without offset
or deduction and without previous demand therefore and if other than cash be
made payable to the order of Teachers Pennsylvania Realty, Inc. (Lessor), c/o
The Flynn Company (Rental Agent for Lessor) at 1621 Wood Street, Philadelphia,
PA 19103, or otherwise as Lessor may notify Lessee from time to time.
Article IV
Covenants
Lessee covenants and agrees as follows:
(a) To pay when due the said base rent and additional rent at the times and in
the manner set forth herein.
(b) To procure any and all licenses and permits required for any use to be made
of the Demised Premises by Lessee, to keep the Demised Premises equipped
with all safety appliances required by law or ordinance because of any use
of the Demised Premises by Lessee and to make any alterations or changes
which may be necessary to meet the obligations and standards promulgated
under the Occupational Safety and Health Act of 1970 which are related to
Lessee's use and occupation of the Demised Premises.
(c) To pay promptly when due the entire cost of any work to the Demised
Premises undertaken by Lessee so that said premises shall at all times be
free of liens for labor and materials; to procure all necessary permits
before undertaking such work; to do all of such work in a good and
workmanlike manner, employing new materials of good quality and complying
with all governmental and insurance requirements; and to save Lessor
harmless and indemnified from all injury, loss, claims or damage to any
person or property occasioned by or growing out of such work including,
without limitation, reasonable attorneys' fees. If so requested by Lessor,
Lessee shall take over Lessor's defense in any action related to work
undertaken by Lessee on the Demised Premises.
(d) To permit Lessor and anyone claiming under Lessor at reasonable times to
enter into and examine the Demised
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Premises and to show the Demised Premises to prospective purchasers or
tenants, provided that Lessor shall not thereby unreasonably interfere with
the conduct of Lessee's business; to permit Lessor to enter said premises
to make such repairs, improvements, alterations or additions thereto as may
be required in order to comply with the requirements of any public
authority having jurisdiction of the Demised Premises, or as may be
required of Lessor under the terms of this Lease, provided that such entry
shall not unreasonably interfere with the conduct of Lessee's business; and
to permit the affixing to any suitable part of the Demised Premises
reasonable notice for letting or selling the Demised Premises or the
Building; to permit Lessor to enter the Demised Premises at any time to
make emergency repairs.
(e) To pay when due any and all State, Federal or local taxes based upon
Lessee's personal property or resulting from any permitted alteration,
additions or improvements made by Lessee to the Demised Premises.
(f) To conform to and comply with all laws, orders and regulations of any
governmental authorities and any public body or officer having jurisdiction
over the Demised Premises.
(g) To comply with any rules, regulations or recommendations of the National
Board of Fire Underwriters, any rating bureau, or any similar association
performing such function, and any insurance company insuring the Demised
Premises with respect to the Demised Premises and/or Lessee's use and
occupation thereof, so long as Lessee shall not be required to make
structural changes unless required by Lessee's particular use of the
premises.
(h) To keep the Demised Premises adequately heated for the protection of the
plumbing herein.
(i) To permit no waste with respect to the Demised Premises.
(j) To permit no storage of materials outside of the Demised Premises except
for such temporary storage as may be required for reasonable periods of
time due to unforeseen circumstances or emergencies.
(k) To comply with such reasonable rules and regulations now or hereafter made
by Lessor for and with respect to
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the care and use of the Building, the Land and their facilities and
approaches, it being understood that Lessor shall not be liable to Lessee
for the failure of any other tenants of the Building to conform to such
rules and regulations.
(1) Not to do, or suffer to be done, or to keep, or suffer to be kept, or omit
to do anything in, upon or about the Demised Premises which may prevent the
obtaining of any insurance on the Building or the Demised Premises or which
may make void or voidable any insurance on the Building or the Demised
Premises.
Article V
Use of Demised Premises
Section 1. The Lessee shall have the right to use the Demised Premises only for
Permitted Uses and for no other purpose whatsoever, but in no event shall Lessee
conduct at the Demised Premises any use or do anything which is offensive,
constitutes a nuisance or violates any provisions of any zoning, building or
other applicable laws, ordinances or regulations.
Section 2. Lessee further agrees to conform to the following provisions during
the entire term of this Lease or any extension thereof;
(a) Lessee shall always conduct its operations in the Demised Premises under its
present trade name or any future trade name which is not offensive or in
violation of law, unless Lessor shall otherwise consent in writing, which
consent shall not be unreasonably withheld;
(b) Lessee shall not permit any auction, fire, going-out-of-business, or
bankruptcy sales or any retail sales whatsoever to be conducted within the
Demised Premises, without the prior written consent of the Lessor;
(c) Lessee shall not use the sidewalks, parking areas or other outside areas for
advertising or business purposes or otherwise obstruct the same;
(d) Lessee shall, at its own cost and expense, be responsible for the prompt
regular removal of all trash, refuse, and the like, from the Demised Premises
and shall insure that same be kept in covered containers at all times;
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(e) All curtains and other window treatments visible from the exterior of the
Demised Premises shall be white in color;
(f) Lessee shall take whatever measures are necessary to insure that floor load
limitations are not exceeded in the Demised Premises; and
(g) Lessee shall not cause any offensive odors or loud noise (including, but
without limitation, the use of loudspeakers), nor take nor permit any action
which constitutes a nuisance or menace to any other occupant of other premises
in the Building, and in no event shall any loud noises or offensive odors be
emitted from the Demised Premises.
Article VI
Repairs and Alterations
Section l. The Lessee shall keep the Demised Premises in a neat, clean, sanitary
condition and in good order and repair and in good working condition, including
all electrical, plumbing, gas, sprinkler, and equipment within or serving the
Demised Premises (including without limitation the maintenance, repair and/or
replacement of the HVAC system serving the Demised Premises), and all fixtures
and interior walls, floors, ceilings, signs (including exterior signs where
permitted) and all interior building appliances and similar equipment and the
exterior and the interior portions of all windows, window frames, doors, door
frames, and all other glass or plateglass thereon. In connection therewith, and
without limiting Lessee's obligations hereunder, Lessee shall perform the
maintenance as set forth on the HVAC maintenance schedule attached hereto as
Exhibit E and made a part hereof. Lessor shall use reasonable efforts to assign
to Lessee or to enforce on Lessee's behalf any written warranties from
contractors or manufacturers applicable to repairs and replacements to be
performed by Lessee.
Section 2. The Lessor shall, at its own expense, promptly after receipt of
written notice from the Lessee, make any necessary repairs to the roof,
foundations, beams, girders, mullions and exterior walls of the Demised Premises
only (exclusive of glass, window frames, windows, doors, door frames, and signs,
which repairs shall be made by the Lessee) except where such repairs are
required by reason of any act or negligence of the Lessee, its employees,
agents, licensees, suppliers, contractors, or guests ("structural repairs"). The
Lessor shall commence repairs to be made by it as promptly as practicable after
the receipt of such
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notice; provided, however, that the Lessor (without limiting Section 15 of
Article XXII hereof) shall not be liable for a delay in commencement of the
making of such repairs or for a delay or failure to complete such repairs where
such delay or failure is attributable to strikes or other labor conditions,
inability or difficulty in obtaining materials or services, wars, delays due to
the weather, or other cause beyond the reasonable control of the Lessor.
Section 3. Lessor shall be responsible for the maintenance of the grass and
shrubs located on the Land and shall be responsible for maintaining, repairing
and lighting of common areas of the Building and maintaining, repairing,
lighting and removing snow from the parking areas, driveways and walkways on the
Land, except where the necessity thereof is due to the willful or negligent acts
of Lessee or its agents, employees, licensees, suppliers, contractors or guests.
Section 4. All costs paid or incurred by Lessor in performing any of its
obligations under this Article VI (except for structural repairs set forth in
Section 2 hereof) shall be included in Lessor's costs of maintaining and
repairing as set forth in Article III, Section 5.
Section 5. The Lessee shall at the expiration or earlier termination of this
Lease remove its goods and effects and peaceably yield up the Demised Premises,
clean and in the same order, repair and condition as at the Commencement Date of
the term hereof, or as the same may be put in during the term hereof, reasonable
wear and tear excepted (provided good maintenance practices are employed),
except for repairs which the Lessor agrees to make as herein provided, and
except for damage by fire or insured casualty, and Lessee shall promptly repair
any injury done to the Demised Premises, the Building or the Land by the
installation or removal of the Lessee's fixtures or other property.
Section 6. The Lessee shall have the right at its expense to make alterations,
improvements or additions to the interior of the Demised Premises, provided
that;
(a) No such alteration, addition or improvement shall lessen the fair market
value of the Demised Premises or the Building, and any such alteration, addition
or improvement shall be done in accordance with all applicable laws, in a good
and workmanlike manner with good quality material, and shall not impair the
safety of the structure of the Building.
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(b) Any such alteration, addition, or improvement shall be made in accordance
with previously prepared plans and specifications, and such plans and
specifications must have the written approval of the Lessor before any work
thereon shall be commenced, such approval with respect to non-structural
alterations, not to be unreasonably withheld. With respect to structural
alterations, improvements or additions, Lessor shall have absolute discretion to
withhold or grant its consent.
(c) Prior to the commencement of work on any such alteration, addition, or
improvement, the plans and specifications covering the same shall have been
submitted to and approved by:
1. All municipal or other governmental departments or agencies having
jurisdiction over the subject matter thereof, and
2. Any mortgagee having an interest in or lien upon the Building or the Land, if
required by the terms of the mortgage, it being understood that the Lessor will
join in any application to any such mortgagee to obtain such approval with
respect to any alteration, addition, or improvement which the Lessor shall have
approved under subparagraph b above.
(d) The Lessee shall pay the increased premium, if any, for the insurance
coverage of the Demised Premises or the Building resulting from any additional
risk during the course of construction or installation of any such alteration,
addition, or improvement or resulting from such alteration, addition or
improvement.
All additions, improvements and fixtures (other than the usual trade fixtures,
furniture and equipment installed by the Lessee which may be removed from the
Demised Premises without injury thereto) which may be made or installed by
either the Lessor or the Lessee and which are attached to a floor, wall or
ceiling, including any linoleum or other floor covering of similar character,
shall remain upon the Demised Premises, and at the expiration or earlier
termination of this Lease shall be surrendered with the Demised Premises as a
part thereof. However, the Lessor upon termination of this Lease may require the
Lessee at Lessee's expense to restore the Demised Premises to their condition at
the commencement of this Lease in whole or in part.
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Any trade fixtures, furniture and equipment owned by the Lessee which may be
removed from the Demised Premises without injury thereto shall remain the
property of the Lessee and shall be removed by the Lessee from the Demised
Premises without injury thereto prior to the expiration or earlier termination
of this Lease. In the event Lessee fails to remove said fixtures, furniture
and/or equipment prior to the expiration or earlier termination of this Lease
they shall be deemed abandoned and may be disposed of by Lessor in any way it
sees fit, and Lessor shall not be liable to Lessee for any such disposal.
Section 7. Without limiting Lessee's obligations in this Lease or elsewhere,
Lessee shall promptly, after notice from the Lessor, repair at its own expense
any damage to the exterior of the Demised Premises, the Building or to the
utilities serving the Demised Premises (including the HVAC system), or to the
Land (including without limitation the parking areas, driveways, walkways, and
grass and shrubs located on the Land) caused by any act or negligence of the
Lessee, its agents, employees, licensees, suppliers, contractors, or guests.
Section 8. It is understood that Lessor's obligations under this Article VI are
subject to the provisions and limitations set forth in Article XV and XVI.
Article VII
Utilities
The Lessee shall pay when due all charges for utility services provided to the
Demised Premises including, without limitation, electricity, gas, water,
telephone, and the cost of fuel to heat or air condition the Demised Premises.
If water consumed by the Demised Premises is not metered separately from water
consumed by the remainder of the Building, Lessee shall pay to Lessor, in
accordance with the provisions of Section 8 of Article III, Lessee's Pro Rata
Share of the aforesaid. The aforementioned share is based on the assumption that
water in the Demised Premises will be used only for ordinary drinking and
lavatory purposes. If water is consumed in the Demised Premises for other
purposes or in excessive quantities or if Lessee's heating and/or cooling
requirements are materially greater than that of other tenants or prospective
tenants, then Lessee shall pay to Lessor, on demand from time to time, charges
for said additional water as reasonably estimated by Lessor. Lessor reserves the
right to install a water meter to measure water consumption in the Demised
Premises if not installed at the
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Commencement Date. The Lessor shall not be liable for any interruption of
electricity, gas water, telephone, sewage and/or septic system or other utility
service supplied to the Demised Premises, when in Lessor's judgment it is deemed
necessary by reason of accident, emergency, repair work, or otherwise. No such
interruption or stoppage of utility service shall be deemed to be an eviction of
the Lessee or relieve Lessee from any of the Lessee's obligations under this
Lease.
Article VIII
Indemnity and Public Liability Insurance
Section 1. The Lessee shall assume exclusive control of the Demised Premises,
and all tort liabilities with respect to the control or occupancy thereof and
shall save the Lessor harmless and indemnified from all injury, loss, claims or
damage of whatever nature to any person or property in or about the Demised
Premises, the Building and/or the Land, arising from any act, omission or
negligence of the Lessee or Lessee's subtenants or concessionaires or the
employees, agents, contractors, suppliers, licensees, invites, or customers of
any of the foregoing or otherwise resulting from Lessee's use, maintenance and
occupancy of the Demised Premises or any thing or facility kept or used thereon.
Upon request of Lessor, the Lessee shall take over the Lessor's defense in any
action related to such matter for which Lessee has agreed to indemnify Lessor.
Section 2. Lessee agrees to maintain in full force during the term hereof, and
any extensions thereof, a policy of public liability and property damage
insurance under which the Lessor (and such other persons as are in privity of
estate with Lessor as may be set out in notice from the Lessor from time to
time) and Lessee are named as insureds, and under which the insurer agrees to
indemnify and hold Lessor and those in privity of estate with Lessor harmless
from and against all cost, expense and/or liability arising out of or based upon
any and all claims, accidents, injuries, and damages mentioned in Section 1 of
This Article VIII. Each such policy shall be non-cancellable with respect to the
Lessor and Lessor's said designees without ten (10) days' prior written notice
to Lessor, and a duplicate original or certificate thereof shall be delivered to
Lessor upon execution of this Lease. The minimum limits of liability of such
insurance shall be One Million Dollars ($1,000,000) for injury (or death) to any
one person, and Two Million Dollars ($2,000,000) for injury (or death) to
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more than one person, and Five Hundred Thousand Dollars ($500,000) with respect
to damage to property.
Section 3. Neither the Lessor nor any agent or employee of the Lessor shall be
liable for any loss or damage to the person or property of the Lessee, or of any
subtenant, or concessionaire, or of any employee, customer, licensee, invitee,
contractor or supplier, or guest of any of the foregoing, except where such
damage is attributable solely to the negligence of the Lessor its agents or
employees. Without in any way limiting the generality of the foregoing, Lessor,
its agents or employees shall not be liable, in any event, for any such damage
resulting;
(a) from the interruption to business resulting from theft, fire, explosion,
falling plaster, steam, gas, electricity, water, rain or snow or leaks from any
part of said Demised Premises, or from the pipes, appliances or plumbing or from
dampness or any other cause;
(b) from any hidden defect in, under or upon the Demised Premises, the Building
or the Land; and/or
(c) from acts or omissions or persons occupying adjacent premises or otherwise
entitled to use the Building and/or Land.
Section 4. Lessor shall not be liable to Lessee for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from power losses or shortages or from the necessity of
Lessor's entering the Demised Premises for any of the purposes in this Lease
authorized, or for repairing the Demised Premises or any portions of the
Building or Land in accordance herewith, nor shall any such entry, interruption
or similar event give rise to a claim in Lessee's favor that such event
constitutes actual or constructive, total or partial, eviction from the Demised
Premises.
Article IX
Fire and Extended Coverage Insurance
Section 1. The Lessor shall obtain the insurance for which Lessee makes required
payments to Lessor under Article III, Section 6.
Section 2. The Lessee shall not acquire, by being named, at the election of
Lessor, as insured under any fire or extended coverage insurance on the Demised
Premises or the Building, any right to participate in the adjustment of loss or
to receive insurance proceeds and agrees upon request
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promptly to endorse any checks or other instruments in payment of loss in which
the Lessee is named as payee.
Section 3. The Lessee shall, at its own expense, maintain fire and comprehensive
casualty insurance of adequate amounts with respect to its own fixtures,
merchandise, equipment and other property contained in the Demised Premises, it
being understood that all merchandise, furniture, fixtures, effects and property
of every kind of the Lessee which may be in the Demised Premises, or the
Building or on the Land shall be at the sole risk and hazard of the Lessee.
Article X
Signs
The Lessee shall submit to the Lessor, for Lessor's prior approval, the design
and specifications for any signs to be installed by Lessee. All Lessee's signs
shall conform to Lessor's signage standards attached hereto as Exhibit F and to
any applicable municipal or other law, rules, ordinance or code. If a building
permit is required to install Lessee's sign, Lessee shall furnish Lessor with a
copy of such permit prior to installation. Lessee shall maintain and keep in
good repair any signs erected by it. Lessee shall be responsible for any repairs
to the Demised Premises or the Building related to the erection of said signs.
Lessee shall remove all of its signs upon expiration of the term or earlier
termination of this Lease and shall promptly repair any damage related to the
erection or removal of said signs.
Article XI
Assignment or Subletting
A. Lessee shall not have the right to assign or pledge this Lease or to sublet
the whole or any part of the Premises, whether voluntarily or by operation
of law, or permit the use or occupancy of the Premises by anyone other than
Lessee, or assign this Lease for security purposes, without the prior
written consent of Lessor, and such restrictions shall be binding upon any
assignee or sublessee to which Lessor has consented. In the event Lessee
desires to sublet the Premises, or any portion thereof, or assign this
Lease, Lessee shall give written notice thereof to Lessor at least 90 days
but no more than 180 days prior to the proposed commencement date of such
subletting or assignment, which notice shall set forth the name of the
proposed sublessee or assignee, the relevant terms
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of any sublease, and copies of financial reports and other financial
information of the proposed sublessee or assignee. Notwithstanding any
permitted assignment or subletting, Lessee shall at all times remain
directly and primarily responsible and liable for the payment of the rent
herein specified and for compliance with all of its other obligations under
this Lease. Upon the occurrence of an "event of default" (as hereinafter
defined), if the Premises or any part thereof are then sublet,
Lessor, in addition to any other remedies provided herein or by law, may
collect directly from such sublessee all rents due and becoming due to
Lessee under such sublease and apply such rent against any sums due to
Lessor from Lessee hereunder. No such collection directly from an assignee
or sublessee shall be construed to constitute a novation or a release of
Lessee from the further performance or Lessee's obligations hereunder.
B. In addition to Lessor's right to approve any sublessee or assignee, Lessor
shall have the option, in its sole discretion, in the event of any proposed
subletting or assignment, to terminate this Lease, or in the case of a
proposed subletting of less than the entire Premises, to recapture the
portion of the Premises to be sublet, as of the date the subletting or
assignment is to be effective. The option shall be exercised by Lessor's
giving Lessee written notice thereof within sixty (60) days following
Lessor's receipt of Lessee's written notice as required above. If this
Lease shall be terminated with respect to the entire Premises the Term
shall end on the date stated in Lessee's notice as the effective date of
the sublease or assignment as if that date had been originally fixed in
this Lease for the expiration of the Term. If Lessor recaptures only a
portion of the Premises, the rent during the unexpired Term shall abate,
proportionately, based on the rent as of the date immediately prior to
such recapture. Lessee shall, at Lessee's own cost and expense, discharge
in full any outstanding commission obligation or the part of Lessor with
respect to this Lease, and any commissions which may be due and owing as a
result of any proposed assignment or subletting, whether or not the
Premises are captured pursuant hereto and rented by Lessor to the proposed
lessee or any other lessee.
C. Consent by Lessor to any assignment or subletting shall not include consent
to the assignment or
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transferring of any lease renewal option rights or space option rights of
the Premises, special privileges or extra services granted to Lessee by
this Lease, or addendum or amendment thereto of letter or agreement (and
such options, rights, privileges or services shall terminate upon such
assignment), unless Lessor specifically grants in writing such options,
rights, privileges or services to assignee or sublessee. Any sale,
assignment, mortgage, transfer of this Lease or subletting which does not
comply with the provisions or this Article shall be void.
D. In the event that Lessee sells, sublets, assigns or transfers this Lease
and at any time receives periodic rent and/or other consideration which
exceeds that which Lessee would at that time be obligated to pay to Lessor,
Lessee shall pay to Lessor 100% of the gross increase in such rent as such
rent is received by Lessee and 100% of any other consideration received by
Lessee from such sublessee in connection with such sublease, or in the
case of an assignment of this Lease by Lessee, Lessor shall receive 100% of
any consideration paid to Lessee by such assignee in connection with such
assignment.
E. Should Lessor agree to authorize and execute an assignment or sublease
agreement, Lessee will pay to Lessor on demand a sum equal to all of
Lessor's costs, including attorneys' fees, incurred in connection with such
assignment or transfer.
F. The nature of the occupancy, the use and the manner of use of the Premises
by the proposed subtenant or assignee shall not impose on Lessor any
requirements of the Americans with Disabilities Act (ADA) of 1990 in excess
of those requirements imposed on Lessor in the absence of such proposed
subtenant or assignee or such occupancy, use or manner of use, unless such
proposed subtenant or assignee shall have agreed to comply with each of
such excess requirements and, at Lessor's option, shall have furnished
Lessor with such security as Lessor may require to assure that such
subtenant or assignee shall so comply.
Article XII
Subordination
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Section 1. The Lessee shall from time to time, within ten (10) days after
written demand of Lessor, either (as demanded by Lessor) subordinate this Lease
or make this Lease superior to any existing and/or future Mortgage heretofore or
hereafter placed upon the Land and to any renewal, modification, replacement or
extension of such Mortgage, and to any and all advances made to or to be made
thereunder, provided that said Mortgagee enter into an agreement with Lessee by
the terms of which the Mortgagee under said Mortgage will agree that in the
event of foreclosure thereof, said Mortgagee will not disturb the possession of
the Lessee under the Lease so long as the Lessee is not in default hereunder and
the Lessee will agree to recognize the holder of such Mortgage as the Lessor in
such event, which agreement shall be made expressly binding upon the successors
and assigns of the Lessee, and the Mortgagee and upon anyone purchasing said
Demised Premises or Building at any foreclosure sale. Notwithstanding the
foregoing if requested by Lessor or a Mortgagee of the Demised Premises, Lessee
agrees to promptly execute a Subordination and Attornment Agreement
substantially in the form attached hereto as Exhibit G, or in the mortgagee's
standard form containing its usual terms and conditions, and failure to execute
such an agreement promptly upon request shall be a default under this Lease. The
Lessee and the Lessor agree to execute and deliver any instruments necessary to
carry out the agreements contained in this Section. Any such Mortgage to which
this Lease shall be subordinated or be made superior may contain such other
terms, provisions and conditions as the Mortgagee deems usual or customary. The
Lessee hereby irrevocably appoints the Lessor and any successor or assigns its
attorney-in-fact (which appointment is coupled with an interest) to execute and
deliver any such instrument of subordination for and on behalf of the Lessee and
its successors and assigns.
Section 2. If any Mortgagee elects by written notice given to the Lessee, to
have this Lease and the interest of the Lessee hereunder superior to any such
Mortgage then this Lease and the interest of the Lessee hereunder shall be
deemed superior to any such Mortgage, whether this Lease was executed before or
after such Mortgage.
Section 3. Lessee will, upon request by Lessor or any Mortgagee, from time to
time, execute and deliver to such party (a) an "estoppel Letter", so called, in
form satisfactory to such party and/or (b) a copy of every notice of default
delivered by Lessee to Lessor at the same time
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and in the same manner as to Lessor and/or (c) an agreement consenting to an
assignment of this Lease to such party and acknowledging such assignment.
Section 4. For purposes hereof, the term "Mortgage" shall mean any real estate
mortgages, ground leases, deeds of trust, security agreements or indentures
affecting the Land or the Building; the term "Mortgagee" shall include the
holder of any such real estate mortgage, any ground lessor or any trustees or
holders of any such security agreements or indentures.
Article XIII
Self-Help
If the Lessee shall default in the performance or observance of any agreement or
condition in this Lease contained on its part to be performed or observed, and
shall not cure such default within thirty (30) days after notice from Lessor
specifying the default (or, if said default cannot reasonably be expected to be
cured within such thirty-day period, shall not within said period commence to
cure such default and thereafter prosecute the curing of such default to
completion with due diligence) Lessor may, at its option, without waiving any
claim for breach of agreement, at any time thereafter cure such default for the
account of Lessee, and make all necessary payments in connection therewith,
including but not limiting the same to reasonable counsel fees, costs or charges
of or in connection with any legal action which may have been brought, and any
amount paid by Lessor in so doing shall be deemed paid for the account of Lessee
and Lessee agrees to reimburse Lessor therefore with interest thereon at 18% per
annum, such sums payable by Lessee to Lessor to be deemed additional rent;
provided that Lessor may cure any such default as aforesaid prior to the
expiration of any waiting or cure period but after Lessor has exerted best
efforts to give actual notice (by telephone or otherwise), if the curing of such
default prior to the expiration of said waiting or cure period is reasonably
necessary to protect the real estate or Lessor's interest therein, or to prevent
injury or damage to persons or property.
Article XIV
Waiver of Subrogation
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Lessor and Lessee each hereby releases the other from any and all liability or
responsibility to the other (or anyone claiming through or under them by way of
subrogation or otherwise) for any loss or damage to the Demised Premises or
property thereon against which the waiving party is protected by insurance, even
if such loss or damage shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible; provided,
however, that this release shall be applicable and in force and effect only with
respect to loss or damage occurring during such time as the releasors policies
shall contain a clause or endorsement to the effect that any such release shall
not adverselv affect or impair said policies or prejudice the right of the
releasor to recover thereunder. Lessor and Lessee each hereby agree that it
shall cause such clause or endorsement to be included in its insurance policies
with respect to the Demised Premises, if available, and, if necessary, pay any
additional premium, that may be charged therefore.
Article XV
Damage by Fire, Etc.
Section 1. If the Demised Premises or the Building shall be damaged or destroyed
by fire, windstorm or any other insured casualty, the Lessee shall immediately
give notice thereof to the Lessor and unless this Lease is terminated as
hereinafter provided, the Lessor at his own expense shall repair or rebuild the
same so as to restore the Demised Premises (but not any leasable improvements,
alterations, additions or improvements made by or for Lessee) to substantially
the same condition they were in immediately prior to such damage or destruction,
subject, however, to zoning and building laws then in existence, provided that
the Lessor shall not be responsible for any delay in such repair or
reconstruction which may result from any cause beyond its reasonable control,
and provided further that Lessor shall not be required to expend more than the
net amount of insurance proceeds, if any, received by Lessor for such purposes,
it being understood that the application of insurance proceeds is subject to the
right of any first mortgagee of the Demised Premises.
Section 2. If either the Demised Premises or the Building shall be damaged or
destroyed to the extent of twenty-five percent (25%) or more on a square footage
basis by any cause (whether insured against by the Lessor or not), the Lessor
may elect by written notice to the Lessee either to
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terminate this Lease or to repair or rebuild on the conditions set forth in
Section 1.
Section 3. If the Demised Premises or the Building shall, within the last year
of the Original term of this Lease or the last year of any extended term hereof,
be damaged or destroyed by any cause to such extent that the same cannot be
reasonably expected to be restored to substantially the same condition as prior
to such damage or destruction within ninety (90) days from the time that such
repair or restoration work would be commenced, then the Lessor shall have the
right to terminate this Lease by notice to the Lessee given within sixty (60)
days after the occurrence of such damage or destruction.
Section 4. In the event that the Demised Premises or the Building are damaged or
destroyed by any cause, then, unless this Lease is terminated as above provided,
the Lessee, at its own expense and proceeding with all reasonable dispatch,
shall repair or replace suitably all trade fixtures, equipment, signs or other
property installed by or belonging to the Lessee which shall be damaged or
destroyed.
Section 5. If this Lease is not terminated as above provided, then from and
after such damage which is material and until the Demised Premises are restored
as above provided, the rent reserved herein shall abate, either wholly or
proportionately, according to the nature and extent of the injury.
Article XVI
Eminent Domain
Section 1. If as a result of any taking by eminent domain which shall be deemed
to include a voluntary conveyance in lieu of a taking, the total floor area
remaining in the Demised Premises shall be reduced to less than fifty (50%)
percent of the total floor area in the Demised Premises at the commencement of
the term hereof, then at the election of the Lessor, exercisable by written
notice given to the Lessee within ninety (90) days after the date of the filing
of the notice of such taking, this Lease may be terminated as of the date when
the Lessee is required to vacate the Demised Premises or the portion thereof so
taken, notwithstanding that the entire interest of the Lessor may have been
divested by such taking, and if following any such taking the Lessor does not
terminate this Lease, then the Lessor at the Lessor's expense, but only to the
extent of the award actually received by the Lessor for any such taking,
(subject to the rights of any first mortgagee of the
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Demised Premises) and proceeding with all reasonable dispatch shall do such
work as may be required to put what may remain of the Demised Premises in proper
condition for the conduct of the Lessee's business, and the Lessee, at the
Lessee's expense and proceeding with all reasonable dispatch, shall make such
alterations, repairs and replacements of the trade fixtures, equipment, signs or
other property installed by or belonging to the Lessee as may be necessary to
put the remainder of the Demised Premises in proper condition for the Lessee's
business. From and after the date on which the Lessee is required to vacate the
portion of the Demised Premises so taken, a just proportion of the rent reserved
herein according to the nature and extent of the taking of the Demised Premises,
shall be abated until the Demised Premises are restored to such condition that
the Lessee can commence business therein, and from and after the date on which
the Lessor shall restore the Demised Premises in the manner above provided the
rent shall be reduced in the proportion that the floor area of the portion of
the Demised Premises so taken bears to the floor area of the Demised Premises at
commencement of the term hereof.
Section 2. In the event of a taking, as defined herein, of 25% or more of the
Land or the Building and even though such taking leaves at least fifty (50%)
percent or more of the floor area of the Demised Premises remaining, the Lessor
shall nonetheless have the right to terminate this Lease by notifying the Lessee
of the Lessor's election to terminate within ninety (90) days after the final
determination of the amount of the award, or to restore any part of the Demised
Premises so remaining and in the case of such restoration, the rent shall be
abated to the extent provided above.
Section 3. The Lessor reserves and excepts all rights to damages to the Land,
the Building, the Demised Premises and the leasehold hereby created, or awards
with respect thereto, then or thereafter accruing, by reason of any taking by
eminent domain or by reason of anything lawfully done or required by any public
authority, and the Lessee grants to the Lessor all the Lessee's rights, if any,
to such damages except with respect to the value of its personal property and
its relocation expenses, which may be compensable by a separate award and shall
execute and deliver to the Lessor such further instruments of assignment thereof
as the Lessor may from time to time request.
Article XVII
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Default
Section 1. This Lease is made on the condition that if the Lessee shall
fail to perform any obligation hereunder in payment of base rent, additional
rent, or in payment of any other sums due under this Lease, and such failure
shall continue for ten (10) days after receipt of written notice from Lessor, or
for thirty (30) days after receipt of written notice of default in the case of
any other obligation (or, if said default cannot reasonably be expected to be
cured within such thirty-day period, Lessee shall not within such thirty-day
period promptly commence to cure such default and thereafter prosecute the
curing of such default to completion with due diligence), or if the estate
hereby created shall be taken on execution or other process of law, or if the
Lessee shall be declared bankrupt or insolvent according to law, or if the
Lessee shall make or offer to make, in or out of bankruptcy, a composition with
the Lessee's creditors, or if the Lessee shall make an assignment for the
benefit of its creditors, or if the Lessee shall commit any act of bankruptcy,
or if a receiver, trustee or other officer shall be appointed to take charge of
all or any substantial part of the Lessee's property by a court, or if a
petition shall be filed by or against the Lessee for the reorganization of the
Lessee or for an "arrangement" under the Bankruptcy Code or under any other
provisions of the Bankruptcy Code or any successor or similar State or Federal
statute or regulation now or hereafter in effect, and the same, if filed against
but not by Lessee, shall not be dismissed within thirty (30) days after the date
on which it is filed, then and in any of the said cases, notwithstanding any
prior waivers or consent the Lessor lawfully may, in addition to and not in
derogation of any remedies for any preceding breach of covenant, immediately or
at any time thereafter and without prior demand or prior notice (1) terminate
this Lease by notice in writing forthwith, or on a date stated in said notice,
(2) with or without process of law (forcibly, if necessary) enter into and upon
the Demised Premises or any part thereof in the name of the whole and repossess
the same as of the Lessor's former estate, and (3) expel the Lessee and those
claiming through or under the Lessee and remove its and their effects (forcibly,
if necessary without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might otherwise be used for arrears of rent or
preceding breach of covenant, and upon entry as aforesaid this Lease shall
terminate, the Lessee hereby waiving all statutory rights; and in case of such
termination, or termination by reason of default on the part
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of the Lessee, the Lessee shall at the election of the Lessor, which election
may be changed at any time:
(a) pay to the Lessor in equal monthly installments, in advance, sums
equal to the aggregate rent herein provided for or, if the Demised
Premises have been relet, sums equal to the excess of the aggregate
rent herein provided for over the sums actually received by the Lessor
from such reletting, as well as any reasonable expenses incurred by
the Lessor as a consequence of such default or in such reletting,
including but not 1imited to, attorneys' fees, brokers' fees and
expenses of repairing and putting the Demised Premises in good order
and condition, and repairing the same for re-rental, such sums being
payable, as liquidated damages for the unexpired term hereof; or
(b) pay to the Lessor as damages a sum which, at the time of such
termination or at the time to which installments of liquidated damages
shall have been paid represents the amount by which the then rental
value of the Demised Premises is less than the aggregate rent herein
provided for the residue of the term and pay from time to time to the
Lessor upon demand such additional sums as are equal to the excess, if
any, of the aforesaid rental value of the Demised Premises over the
rent actually received by Lessor for the Demised Premises for the
period from such termination, or from the time to which installments
of liquidated damages shall have been paid, or from the time to which
these additional sums may have been paid by Lessee under this
paragraph, whichever the case may be, to the time for which the Lessor
may specify in its demand hereunder (but in no event to the time later
than the expiration of the term hereof), plus, in any case, reasonable
expenses of the Lessor by way of attorneys' fees, or otherwise, in
connection with such default; or
(c) indemnify the Lessor against loss of the aggregate rent herein
provided for from the time of such termination or from the time to
which installments of liquidated damages shall have been paid to the
expiration of the term hereof as above set forth, plus, in any case,
reasonable expenses of the Lessor by way of attorneys' fees, or
otherwise, in connection with such default.
For the purposes of this Article, the phrase "aggregate rent" as used herein,
shall include the annual base rent as adjusted from time to time, and all
additional rent payable hereunder.
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In the event of a default by the Lessee as above provided, if the Lessor shall
elect not to terminate this Lease, it may relet the Demised Premises or any part
or parts thereof in the name of either the Lessor or the Lessee, for a term or
terms which may, at the Lessor's option, extend beyond the balance of the term
of this Lease and may remove and store the Lessee's effects at the Lessee's
expense, and the Lessee agrees that in the event of such reletting the
Lessee shall pay Lessor any deficiency between the aggregate rent to be paid
hereunder and the net amount of the rents collected during such reletting, as
well as any expenses reasonably incurred by the Lessor as a consequence of such
default or in such reletting, including but not limited to, attorneys' fees,
brokers' fees and expenses of repairing and putting the Demised Premises in good
order and preparing the same for re-rental. Such deficiency shall be paid in
monthly installments upon statements rendered by the Lessor to the Lessee.
Section 2. All rights and remedies which the Lessor may have under this Lease
shall be cumulative and shall not be deemed inconsistent with each other, and
any two or more of such rights and remedies may be exercised at the same time
insofar as permitted by law.
Section 3. The Lessor shall not be deemed to be in default hereunder unless its
default shall continue for thirty (30) days or such additional time as is
reasonably required to correct its default, after written notice thereof has
been given by the Lessee to the Lessor specifying the nature of the alleged
default. In no event shall Lessor be liable for consequential or incidental
damages, nor shall damages exceed the reasonable costs of performing the
obligations of Lessor hereunder.
Article XVIII
Notices
Any notice, request, demand or other communication required or permitted by this
Lease shall, until either party notifies the other in writing of a different
address in accordance herewith, be deemed to be duly given if in writing and
sent by registered or certified first class mail, postage prepaid, return
receipt requested, addressed as follows: If to Lessor: addressed to the Lessor
c/o The Flynn Company, 1621 Wood Street, Philadelphia, PA 19103. If to the
Lessee, at Lessee's Address, as stated in Article I, Section 1 of this Lease.
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Article XIX
Brokerage
Lessor and Lessee each warrants and represents to the other that it has not
dealt with any broker in connection with this Lease or the Demised Premises,
except the Authorized Broker named in Article I, Section 1 hereof, and each
agrees to defend, indemnify and hold the other harmless from and against any and
all claims for brokerage fees and commissions (except with respect to the
Authorized Broker) by any broker claiming to have dealt with it in connection
with this Lease.
Article XX
Term "Lessee's Pro Rata Share"
As used in this Lease the term "Lessee's Pro Rata Share" shall mean the
percentage stated in Article I, Section 1 of this Lease, so long as there are no
additions to the Building. If any additions are made to the Building, then such
term shall mean a fraction of the respective item, the numerator of which
fraction shall be the then total leasable square footage of the Demised Premises
and the denominator or which shall be the then total leasable square footage of
floor area of the Building.
Article XXI
Security Deposit
At the time of the execution hereof, Lessee shall pay to Lessor a Security
Deposit in the amount provided in Article I, Section 1 of this Lease, to be held
by Lessor without interest during the term hereof, and any extensions, and for
so long thereafter as Lessee is in possession of the Demised Premises or has
unsatisfied obligations hereunder to Lessor, which deposit the Lessor may apply
from time to time against outstanding obligations of Lessee hereunder. Each time
that the monthly installment of annual base rent shall increase Lessee shall
promptly pay Lessor as additional Security Deposit the amount of any increase in
the same monthly installment of annual base rent, said additional sums to be
added to the Security Deposit held hereunder. Lessee shall have no right to
require the Lessor to so apply said Security Deposit, nor shall Lessee be
entitled to credit the same against rents or other sums payable hereunder. If
and to the extent that Lessor makes such use of the Security Deposit, or any
part thereof, the sum so applied by Lessor shall be restored to the Security
Deposit by Lessee upon notice from Lessor, and failure to pay to Lessor the
amount to be so restored (within the grace period applicable to
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rents hereunder) shall be a default hereunder giving rise to all of the Lessor's
rights and remedies applicable to a default in the payment of rent. Any portion
of said Security Deposit which has not been applied as aforesaid by Lessor shall
be repaid by Lessor to Lessee at the end of the term and any extensions hereof,
or as soon thereafter as all obligations of Lessee hereunder have been performed
in full. Upon any conveyance by Lessor of its interest under this Lease the
Security Deposit may be turned over by the Lessor to Lessor's grantee or
transferee, and upon any such delivery of the deposit, Lessee hereby releases
Lessor herein named of any and all liability with respect to the Security
Deposit, its application and return, and Lessee agrees to look solely to such
grantee or transferee, and it is further understood that this provision shall
also apply to subsequent grantees and transferees.
Article XXII
Miscellaneous Provisions
Section 1. No consent or waiver, express or implied, by the Lessor to or of any
breach in the performance by the Lessee of its agreements hereunder shall be
construed as a consent or waiver to or of any other breach in the performance by
the Lessee of the same or any other covenant or agreement. No acceptance by the
Lessor of any rent or other payment hereunder, even with the knowledge of any
such breach, shall be deemed a waiver thereof nor shall any acceptance of rent
or other such payment in a lesser amount than is herein required to be paid by
the Lessee, regardless of any endorsement or any check or any statement in any
letter accompanying the payment of the same, be construed as an accord and
satisfaction or in any manner other than as a payment on account by the Lessee.
No reference in this Lease to any sublessee, licensee or concessionaire, or
acceptance by the Lessor from other than the Lessee of any payment due hereunder
shall be construed a consent by the Lessor to any assignment or subletting by
the Lessee, or give the Lessee any right to permit another to occupy any portion
of the Demised Premises except as herein expressly provided. No waiver by the
Lessor in respect of any one tenant shall constitute a waiver with respect to
any other tenant. Failure on the part of the Lessor to complain of any action or
non-action on the part of the Lessee or to declare the Lessee in default, no
matter how long such failure may continue shall not be deemed to be a waiver by
the Lessor of any of its rights hereunder.
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Section 2. In no case shall mention of specific instances under a more general
provision be construed to limit the generality of said provisions.
Section 3. The delivery of keys to Lessor or any employees of Lessor or the
Lessor's agent or any employee thereof shall not operate as a termination of
this Lease or surrender of the Demised Premises.
Section 4. If any installment of rent, base or additional, is paid more than 10
days after the due date thereof, at Lessor's election, it shall bear interest at
18% per annum from such due date of payment, which interest shall be immediately
due and payable as additional rent.
Section 5. If the Lessee continues to occupy the Demised Premises after the
termination hereof, it shall have no more rights than a tenant by sufferance,
but shall be liable for 150% of the aggregate rental as above determined during
such occupancy, and shall be liable for any loss or expense due to such holding
over. Nothing in this section shall be construed to permit such holding over.
Suction 6. If any provision of this Lease or the application thereof to any
person of circumstances shall be to any extent invalid or unenforceable the
remainder of this Lease and the application to persons or circumstances other
than those as to which it is invalid or unenforceable shall not be affected
thereby and each term and provision of this Lease shall be valid and be enforced
to the fullest extent permitted by law.
Section 7. Lessor agrees that upon Lessee's paying rent and performing and
observing the agreements, conditions and other provisions on its part to be
performed and observed, Lessee shall and may peaceably and quietly have, hold
and enjoy the Demised Premises during the term of this Lease and any extension
thereof without any manner of hindrance or molestation from Lessor or anyone
claiming under Lessor, subject, however, to rights of holders of present and
future Mortgages and to the terms and provisions of this Lease.
Section 8. The conditions and agreements in this Lease contained to be kept and
performed by the parties hereto shall be binding upon and inure to the benefit
of said respective parties, their legal representatives, successors and assigns,
and the same shall be construed as covenants running with the land. Wherever in
this Lease reference is made to either of the parties, it shall be held to
include
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and apply to the successors and assigns of such party as if in each case so
expressed, unless the context requires otherwise and regardless of the number or
gender of such party; provided, however, that the term "Lessor" as used in this
Lease means only the owner for the time being of the Land, so that in the event
of any sale or sales of the Land and Demised premises or of this Lease the
Lessor shall be and hereby is entirely released of all covenants and obligations
of the Lessor hereunder.
Section 9. This Lease shall constitute the only agreement between the parties
relative to the Demised Premises and no oral statements and no prior written
matter not specifically incorporated herein shall be of any force or effect. In
entering into this Lease, the Lessee relies solely upon the representations and
agreements contained herein. This agreement shall not be modified except by
writing executed by both parties.
Section 10. The section and article headings throughout this instrument are for
convenience and reference only and shall in no way be held to limit, define or
describe the scope or intent of this Lease or in any way affect this Lease.
Section 11. If the Lessor shall at any time be an individual, joint venture,
tenancy in common, joint regency, firm or partnership (general or limited), or a
trust or trustee of a trust, it is specifically understood and agreed that there
shall be no personal liability of any individual or any joint endure, tenant,
partner (general or limited), trustee, shareholder, beneficiary or holder of a
beneficial interest under any of the provisions hereof or arising out of the use
or occupation of the Demised Premises by Lessee. The obligations of Lessor shall
in all events be binding upon Lessor's equity in the Building and Land only, all
in accordance herewith. It is further understood and agreed that the liability
of any party who is a Lessor (whether the original Lessor or any successor
Lessor) shall be limited to defaults occurring or arising during the period for
which such party shall have been a Lessor, and such party shall not be liable
for defaults occurring or arising at any time before such party obtained its
interest as Lessor or after such party disposed of its interest as Lessor.
Section 12. In the event that prior to the Commencement Date any actual or
proposed holder of a first mortgage on the Building or Land shall demand that
this Lease be modified or amended in any respect (other than those
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provisions relating to rental, term, size, or location of the Demised Premises)
and if Lessee shall fail to so modify or amend this Lease within fifteen (15)
days after such demand, Lessee shall be deemed in default under this Lease.
Lessee agrees to give within ten (10) days of written request such reasonable
statements and certificates as may be requested by Lessor in connection with a
mortgage closing or the sale of the Building or Land, or any portion thereof.
Section 13. This Lease shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
Section 14. In any case where either party hereto is required to do any act,
delays caused by or resulting from Acts of God, war, civil commotion, fire,
flood or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations, unusually severe weather, or other causes
beyond such party's reasonable control shall not be counted in determining the
time during which work shall be completed, whether such time be designated by a
fixed date, a fixed time, "promptly" or "a reasonable time", and such time shall
be deemed to be extended by the period of such delay. For the purpose hereof,
inability to pay normal charges incurred in connection with performance of an
obligation hereunder (including, without limitation, payment of base rent or
additional rent hereunder) does not constitute a cause beyond such party's
reasonable control.
Section 15. Lessee shall provide Lessor with annual certified financial
statements within ninety (90) days after the close of Lessee's fiscal year.
Section 16. Lessee shall not record this Lease, but upon request of either
party, both parties shall execute and deliver a notice of lease, in form
satisfactory to Lessor and appropriate for recording; the costs of such notice
shall be borne by the requesting party.
Section 17. Lessee shall not do, and shall not permit Persons Within Lessee's
Control to do, any act or thing in or upon the Premises or the Building which
will invalidate or be in conflict with the Certificate of Occupancy for the
Premises or the Building or violate any Requirements. Lessee shall, at Lessee's
sole cost and expense, take all action, including any required Alterations
necessary to comply with all Requirements (including, but not limited to,
applicable terms of Local Laws No. 5 of 1973, No. 16 of 1984, No. 76 of 1985,
No. 58 of 1987, and the Americans with
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<PAGE>
Disabilities Act of 1990 (the "ADA"), each as modified and supplemented from
time to time) which shall with respect to the Premises or with respect to any
abatement of nuisance, impose any violation, order or duty upon Lessor or Lessee
arising from, or in connection with, the Premises, Lessee's occupancy, use or
manner of use of the Premises (including, without limitation, any occupancy, use
or manner of use that constitutes a "place of public accommodation" under the
ADA, or any installations in the Premises, or required by reason of a breach of
any of Lessee's covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or issued, and whether
or not any work required shall be ordinary or extraordinary or foreseen or
unforeseen at the date hereof. Notwithstanding the preceding sentence, Lessee
shall not be obligated to perform any Alterations necessary to comply with any
Requirements, unless compliance shall be required by reason of (i) any cause or
condition arising out of any Alterations or installations in the Premises
(whether made by Lessee or by Lessor on behalf of Lessee), (ii) Lessee's
particular use, manner of use or occupancy of the Premises (as opposed to mere
use as executive, general and administrative offices, (iii) any breach of any of
Lessee's covenants or agreements under this Lease, or (iv) any wrongful act or
omission by Lessee or Persons Within Lessee's Control, or (v) Lessee's use or
manner of use or occupancy of the Premises as a "place of public accommodation"
within the meaning of the ADA.
Article XXIII
Prohibition of Lessee Abandonment
Lessee shall not vacate the Demised Premises or abandon part or all of the
Demised Premises during the Original Term, and any extension thereof. At all
times during the Original Term, and any extension thereof, Lessee agrees (i) to
keep the Demised Premises adequately heated to the extent necessary to prevent
the pipes from freezing and to prevent deterioration of the Demised Premises,
(ii) to keep the Demised Premises adequately secure so as to prevent the entry
of unauthorized persons, and (iii) to fully and completely occupy the Demised
Premises.
Article XXIV
Hazardous Waste; Hazardous Material; Oil
Section 1. As used herein, the terms "Hazardous Material" shall mean material or
waste, in whatever form, which because of its quantity, concentration, physical,
chemical,
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corrosive, flammable, reactive, toxic, infectious or radioactive
characteristics, either separately or in combination with any substance or
substances, constitutes a present or potential threat to human health, safety,
welfare, or to the environment or any other substance that is defined or listed
as hazardous, toxic, or dangerous under any present or future environmental law
or regulation or which is otherwise regulated, prohibited, or subject to
investigation under any present or future environmental law or regulation
including, without limitation, those substances which are included under 42 USC
Section 9601 (14), and insoluable or partially soluable oils of any kind or
origin or in any form (including, without limitation, crude or fuel oils, lube
oil or sludge, asphalt, insoluable or partially insoluable derivatives of
mineral, animal or vegetable oils).
Section 2. Except as provided in Section 5 hereof, Lessee shall not use,
maintain, generate or bring on the Demised Premises, the Building or the Land or
transport or dispose of or from the Demised Premises, the Building or the Land
(whether through the sewer or septic system or into the ground or by removal
off-site or otherwise) any Hazardous Material and shall not voilate the
provisions of any environmental law or regulation; and Lessee shall prevent any
agent, servant, employee, contractor, supplier, guest, visitor, customer or
invitee of Lessee, and of such parties, and any other party claiming under
Lessee, from using, maintaining, generating or bringing on the Demised Premises,
the Building or the Land or transporting or disposing of on or from the Demised
Premises, the Building or the Land (whether through the sewer or septic system
or into the ground or by removal off-site or otherwise) any Hazardous Material
or from violating the provisions of any environmental law or regulation.
Section 3. Lessee shall deliver to Lessor, within ten (10) days after Lessee
receives same, copies of all letters, inquiries, summons, subpoenas,
complaints, restraining orders and any other written communication received by
Lessee, and written notice of any oral communication received by Lessee, which
written or oral communication relates to Lessee's compliance or noncompliance,
the compliance or noncompliance of any activities being conducted on or from the
Demised Premises, with any laws, orders, regulations and the like of any
governmental authorities or any public body relating to Hazardous Materials or
which writen or oral communication otherwise relates to the use, maintenance,
generation, storage,
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treatment, transport or disposal of Hazardous Material on, from, or to the
Demised Premises, the Building or the Land.
Section 4. Lessee shall be solely responsible for becoming informed of any new
environmental laws and regulations and of any amendments made from time to time
to existing environmental laws and regulations; the Lessor shall not be
obligated to notify Lessee of any said amendments. In addition, Lessee shall
execute affidavits, representations and the like from time to time at Lessor's
request concerning Lessee's best knowledge and belief regarding the presence of
Hazardous Materials on the property.
Section 5. In accordance with Exhibit H of the Lease, Lessee may engage in the
activities described in Section 2 hereof provided (a) such activities are
performed in a manner consistent with the highest standards of the industry, (b)
such activities are performed in strict compliance with applicable statues,
ordinances and regulations, including without limitation any applicable
statutes, ordinances and regulations of the State where the building is located
dealing with Hazardous Materials and (c) and except for those items listed on
Exhibit H which Lessor has pre-approved as a condition of this Lease, Lessor
gives its prior written consent to any such activities. Any request for Lessor's
consent shall be in writing and shall include a list of particular Hazardous
Materials to be used and a description of their purpose and intended
applications and any other information that Lessor requests. Lessor shall not
unreasonably withhold its consent provided that Lessee demonstrates strict
compliance with requirements (a) and (b) above and provided further that in
Lessor's reasonable judgment, Lessee's proposed use wi11 not pose a present or
potential hazard to the health, safety or welfare of the occupants of the
Demised Premises, the Building or Land or any other persons or a substantial
present or potential risk or damage to the Demised Premises, the Building or the
Land or any other property or pose a risk of potential liability on Lessor. As a
condition of its consent, Lessor may require such alterations to the Demised
Premises, the Building or the Land as may be reasonably necessary or appropriate
to mitigate hazards associated with Lessee's proposed use. Any such alterations
shall be at Lessee's sole expense upon Lessor's prior approval of the plans for
such alterations. In consideration of Lessee's use of the Premises and Lessee's
use of the pre-approved Hazardous Materials and substances as outlined in
Exhibit H, Lessor agrees that no such alterations are required of Lessee as of
the Lease Commencement Date.
35
<PAGE>
Section 6.
a. (a) Lessee shall, at Lessee's sole expense, indemnify, defend and hold Lessor
and Lessor's officers, trustees, employees, and agents harmless from any and all
claims, judgments, damages, penalties, fines, costs, 1iabilities, obligations,
defenses, 1iens or losses (including without limitation, diminution in value of
the Property, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Property, damages arising from any adverse impact
on marketing of space in the Building, and sums paid in settlement of claims,
actual attorneys' fees, consultation fees and expert fees) which arise during or
after the Lease Term as a result of any of the activities by Lessee its
employees, agents, contractors, or licensees or sublessees described in Section
2 hereof or as a result of any violation of the provisions of this Article HM by
Lessee its employees, agents, contractors, or licensees or sublessees. This
indemnification of Lessor by Lessee includes, without limitation, costs incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work, damages for personal injury and property
damage, and claims for damages or rent offset by other tenants. The indemnity
and hold harmless obligations of Lessee under this Article shall survive any
termination of this Lease. Without limiting the foregoing, if the presence of
any Hazardous Material on the Property caused or permitted by Lessee results in
any contamination of the Property, Lessee shall promptly take all actions at its
sole expense as are necessary to return the Property to the condition existing
prior to the introduction of any such Hazardous Material to the Property;
provided that Lessor's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions, in Lessor's
sole and absolute discretion, would not potentially have any material adverse
long-term or short-term effect on the Property. If Lessee fails to take such
actions, Lessor may take such actions, and Lessee shall reimburse Lessor, for
Lessor's expense in taking such actions no later than ten (10) days after each
request for such reimbursement.
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b. It shall not be unreasonable for Lessor to withhold its consent to any
proposed Assignment or Sublease if (i) the proposed Assignee's or
Sublessee's anticipated use of the Premises involves the generation,
storage, use, treatment, maintenance or disposal of Hazardous Material
or any other activities described in Section 2 hereof; (ii) the
proposed Assignee or Sublessee has been required by any prior
landlord, lender or governmental authority to take remedial action in
connection with Hazardous Material contaminating a property if the
contamination resulted from such Assignee's or Sublessee's actions or
use of the property in question; or (iii) the proposed Assignee is
subject to an enforcement order issued by any governmental authority
in connection with the use, disposal or storage of a Hazardous
Material.
c. Any increase in the premiums for necessary insurance on the Property
which arises from Lessee's use and/or storage of Hazardous Materials
shall be solely at Lessee's expense. Lessee shall procure and maintain
at its sole expense such additional insurance as may be necessary to
comply with any requirement of any Federal, State or local
governmental agency with jurisdiction.
Section 7. In all events, Lessee shall indemnify Lessor in the manner
provided elsewhere from any release of hazardous materials on the Premises
occurring while Lessee is in possession, or elsewhere if caused by Lessee or
persons acting under Lessee. The within covenants of this Article XXIV shall
survive the expiration or earlier termination of the lease term.
Section 8. Any breach of the provisions of this Article XXIV shall be
deemed to be a breach and default of a material obligation of Lessee under this
Lease; and Lessor shall have with respect thereto all remedies provided in this
Lease for defaults of Lessee.
Article XXV
Additional Provisions
Section 1.
The Lessee shall have the option to extend the term of this Lease for an
additional period of two (2) years (the "Extended Term") provided that Lessee is
not in default and
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<PAGE>
has given Lessor written notice of its election to extend the term no later than
one hundred eighty (180) days prior to the expiration of the Original Term of
this Lease. In the event that Lessee shall extend the term as aforesaid, such
extension shall be upon the same terms and conditions as set forth herein,
except that no further right to extend shall be deemed to be included, and
except for the rental which shal1 be $5.35 s.f. triple net or an annual rent of
$174,945.00 in year one of the option period and $5.56 s.f. triple net or an
annual rent of $181,812.00 in year two of the option period.
Section 2. LESSOR'S MANAGEMENT AND INCOME TAX PROVISIONS
A. Any services which Lessor is required to furnish pursuant to the provisions
of this Lease may at Lessor's option be furnished from time to time, in
whole or in part, by employees of Lessor or by the Managing Agent of the
Building and Land or by one or more third persons, and Lessor further
reserves the right to require Lessee to enter into reasonable agreements
with such persons in form and content approved by Lessor for the
furnishing of such services.
B. Lessor shall have the right, at any time and from time to time, to
unilaterally amend the provisions of the Lease if Lessor is advised by its
Counsel that all or any portion or the monies paid by Lessee to Lessor
hereunder are, or may be deemed to be, unrelated business income within the
meaning of the United States Internal Revenue Code, regulation issues
thereunder, and Lessee agrees that it will execute all documents or
instruments necessary to effect such amendment or amendments, provided that
no such amendment shall result in Lessee having to pay in the aggregate
more money on account of its occupancy of the Demised Premises under the
terms of this Lease as so amended, and provided further that no such
amendment or amendments shall result in Lessee having less rights than it
has prior to any such amendments or receiving under the provisions of this
Lease less services than it is entitled to receive, nor services of a
lesser quality, and provided further that Lessee's taxes do not increase as
a result of such amendment or amendments.
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EXECUTED under seal on the date first above written.
LESSEE: Nutri/System LP
By: /s/ Brian D. Haveson
-------------------------
Title: President
----------------------
Dated: 12/11/97
----------------------
Lessee's Signature Witnessed By: [SIGNATURE APPEARS HERE]
---------------------------
LESSOR: Teachers Pennsylvania Realty, Inc.
730 Third Avenue
New York, New York 10017
By: [SIGNATURE APPEARS HERE]
-----------------------------------------
Nicholas E. Stolatis
Assistant Secretary
Title:
Dated:
------------------------------------------------------
Lessor's Signature Witnessed By: [SIGNATURE APPEARS HERE]
----------------------------
39
<PAGE>
Exhibit A
[GRAPHIC]
In the printed version of the document a floor plan appears.
<PAGE>
Exhibit D
Lessor's Initial Estimate of Lessee's Monthly Pro-Rata Share of Real
Estate Taxes, Operating Expenses and Insurance.
Real Estate Taxes: $1,771.25
Operating Expenses: $1,607.75
Insurance: $ 218.00
---------
Total: $3,597.00
=========
<PAGE>
Exhibit E
HVAC Maintenance Schedule
PERIODIC MAINTENANCE:
Perform the following inspections and service routine at the beginning of each
cooling season:
1. Clean the condenser coil by hosing with cold water. Do not use hot water
which can cause excessive pressure within the coil.
2. Remove any accumulation of dust and dirt from the casing of the unit.
3. Clean or replace the air filters.
4. Inspect the condensate drain pan and piping to make sure they are clear and
will carry away all water.
At the beginning of the heating season, perform the following inspection and
service routine:
1. Add a few drops of SAE. No. 10 non-detergent oil to the combustion blower
motor. WARNING: The use of a heavier grade oil may cause operating difficulties
during cold weather.
2. Clean or replace the air filters.
3. Inspect the control panel wiring and the heating controls to make sure
connections are tight and wiring insulation is intact.
4. Check the operation of the gas ignition system and the spark electrode, and
the setting of the limit control; make sure the evaporator-furnace fan is cycled
at the correct cut-in and cut-out points.
MONTHLY INSPECTIONS:
It is recommended that, once a month, the following inspections be performed:
1. Clean or replace air filters.
2. Inspect and clean, if necessary, the condensate drain piping during the
cooling season.
<PAGE>
3. Inspect the control panel wiring and the heating controls to make sure
connections are tight and wiring insulation is intact.
4. Check the operation of the gas ignition system and the spark electrode, and
the setting of the limit control; make sure the evaporator-furnace fan is cycled
at the correct cut-in and cut-out points.
<PAGE>
Exhibit F
Signage Standards
Tenant's proposed signage must first be submitted to Landlord for approval.
Such approval shall not be unreasonably withheld. Any proposed signs must
conform with those that presently exist at the building.
<PAGE>
Exhibit G
Subordination and Attornment Agreement
THIS AGREEMENT made as of the ______ day of _______, 19___, by and between
Teachers Pennsylvania Realty, Inc. with a principal place of business c/o The
Flynn Company, 1521 Wood Street, Philadelphia, PA 19103 (hereinafter "Lessor"),
and _____________ with a place of business at _____________ (hereinafter
"Lessee"), and ___________________, with a place of business at
____________________________ (hereinafter "Mortgagee").
W I T N E S S E T H:
WHEREAS, Mortgagee is committed to lend certain sums to Lessor which sums shall
be secured by a Mortgage Deed (hereinafter referred to as the "Mortgage) on
certain property (hereinafter referred to as the "Property") in _______________
more particularly described therein and which shall be recorded in the County
Registry of Deeds, ________________ concurrently with the recording of his
agreement; and
WHEREAS, Lessee has entered into a Lease (hereinafter referred to as "said
Lease" which term shall mean and include all amendments and modifications
thereto through the date hereof or which have been approved by Mortgagee with
Lessor dated the _______ day of _______, 19___, covering a part of the premises
subject to said Mortgage as therein more particularly described; and
WHEREAS, in order to induce the Mortgagee to make the loan as evidenced by the
Mortgage, Lessor and Lessee have offered to enter into this Agreement in order
to, inter alia, establish the prior right, claim and lien of the Mortgagee with
respect to all matters concerning condemnation and casualty as set forth in said
Lease.
NOW, THEREFORE, for and in consideration of One Dollar ($1.00) and other good
and valuable consideration, the receipt whereof the parties hereto hereby
acknowledge, and to induce the Mortgagee to make the loan evidenced by said
Mortgage, the parties hereto covenant and agree as follows:
1. The said Mortgage and the lien thereof, shall be, and the same is hereby
made, SUBJECT AND SUBORDINATE to the said Lease with the same force and effect
if said Lease had been executed, delivered and recorded prior to execution,
delivery and recording of the said Mortgage, EXCEPT HOWEVER that the Lease and
the rights of Lessor and Lessee thereunder shall be expressly subject and
subordinate in all respects to:
<PAGE>
(a) The right, claim and lien of said Mortgage in, to and upon any award or
other compensation heretofore or hereafter to be made for any taking by eminent
domain of any part of the said Property, and to the right of disposition thereof
in accordance with the provisions of said Mortgage,
(b) The right, claim and lien of said Mortgage in, to and upon any proceeds
payable under all policies of fire, casualty and rent insurance upon the said
Property and as to the right of disposition thereof in accordance with the terms
of said Mortgage,
(c) Any lien, right, power or interest, if any, which may have arisen or
intervened between the date of execution of said Lease, the date of recording of
the Mortgage, or any lien or judgment which may arise at any time, under the
terms of such Lease, it being expressly further understood and agreed that with
respect to the matters referred to in subsections 1(a) through and including
1(c), the Mortgage and the lien thereof shall be, and the same is hereby made,
prior in right to the said Lease and the rights of Lessor and Lessee thereunder
with the same force and effects as if said Mortgage had been executed, delivered
and recorded prior to the execution, delivery and recording of the Lease.
2. Lessee agrees that it shall not alter, modify, amend, change, surrender or
cancel the Lease, nor pay the rent due thereunder in advance for more than
thirty (30) days except as may be required by said Lease, without the prior
written consent of the mortgagee, and will not seek to be made an adverse or
defendant party in any action or proceeding brought to enforce or foreclose the
Mortgage. Lessee further agrees that it shall not subordinate its interest in
the Lease to the lien of any mortgage, security agreement or lease affecting the
Premises demised under the Lease.
3. In the event of a default by Lessor under the terms of the Lease which is of
such a nature as to give Lessee the right to terminate the Lease or reduce the
rent payable thereunder by credit, offset or otherwise, then, and in any such
event, Lessee agrees that concurrently with giving notice of default to Lessor,
Lessee shall deliver a copy thereof to Mortgagee. Lessee further agrees that if
Lessor does not cure the default specified in such notice of default within
thirty (30) calendar days after notice thereof, then Lessee shall give further
notice of that fact to Mortgagee and Mortgagee shall thereupon, if it shall so
elect, have the right, but not the obligation, to cure the default of Lessor
within twenty (20) calendar days after the giving of such further notice by
Lessee, and in case of a default which cannot, with due diligence, be cured
within said twenty (20) days, then the twenty (20) days shall be extended for
such period as my be necessary to complete the curing of the same with all due
diligence and continuity.
2
<PAGE>
4. In the event of entry to foreclose the Mortgage and/or foreclosure thereof,
or a conveyance in lieu of, or subsequent to, foreclosure and if the Lease shall
not have been terminated under the provisions hereof or of the Lease:
A. The Mortgagee will not interfere with or disturb Lessee's possession of the
Premises demised under the Lease, so long as Lessee pays the rent stipulated in
the Lease and performs all other terms and conditions thereof;
B. The Lease will remain in full force and effect, as modified hereby, and the
Lessee will attorn to and be bound after the Lease to the Mortgagee and its
successors and assigns including any purchaser of the Property in foreclosure or
any grantee under a conveyance in lieu of or subsequent to foreclosure, and
Lessee will perform and observe all of its obligations thereunder to the same
effect as through the Lease had been executed prior to the execution and
delivery of the Mortgage, and Lessee agrees to execute and deliver, upon the
request of the mortgagee or other owner of the Demised Premises, any instrument
which may be necessary or appropriate to evidence such attornment.
PROVIDED, HOWEVER, that the Mortgagee shall not be:
(i) Liable for any act or omission of the Lessor; or
(ii) subject to any off-sets or defenses which the Lessee might have
against Lessor; or
(iii) bound by any rent or additional rent which Lessee might have paid for
more than the current rental period of the Lease; or
(iv) bound by an amendment or modification of the Lease made without its
written consent.
5. All notices, demands or other communications which any party hereto is
required or may desire to give to another party hereto may be delivered in
person or shall be mailed by certified or registered mail, postage prepaid,
return receipt requested, addressed to the other party at the address first set
forth hereinabove or at such other addresses as any party hereto may hereafter
specify by notice in writing to the others. Any such notice or demand shall be
deemed given and received seventy-two (72) hours after deposit in the United
States mail as aforesaid.
6. Lessor hereby authorizes Lessee to rely on any written notice of demand
received from Mortgagee to make rent and other payments, to which Lessor may be
entitled, to Mortgagee instead of Lessor whenever so demanded by Mortgagee,
whether or not the Mortgage shall have been foreclosed.
3
<PAGE>
7. Lessee agrees that in the event Mortgage shall succeed to the rights of
Lessor as Lessor under the Lease, then Lessee shall look solely to Mortgagee's
interest in the Property in the enforcement of any claims against Mortgagee. The
provisions hereof shall expressly inure to the benefit of any successors and
assigns of Mortgagee.
8. The provisions of this Agreement shall be deemed to be covenants running with
the land, shall be binding upon and shall inure to the benefit of the parties
hereto, their respective successors and assigns, and shall specifically be
binding upon any purchaser of said Property at a sale foreclosing the said
Mortgage.
9. This Agreement may be executed in three or more counterparts by one or more
of the parties hereto and each such counterpart shall be deemed to be an
original and shall have the same force and effect as an original, and all such
counterparts in the aggregate shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals,
as of the day and year first above written.___________________________________
as Trustee of ____________________ REALTY TRUST UNDER Declaration of Trust dated
__________________ and recorded in the ____________________ County, __________
Registry of deeds in Book _________________ at Page ____.
- ----------------------------
as Trustee, for self and not
individually
4
Exhibit 10.3
AMENDMENT TO FRANCHISE AGREEMENT
This Amendment is made as of the 29th day of April, 1996, between
NUTRI/SYSTEM L.P. ("Franchisor" or "we"), a Delaware limited partnership, with
its principal place of business located at 410 Horsham Road, Horsham, PA
19044-2014, and __________ ("Franchisee" or "you"), a ___________________
__________, whose principal address is ________________________________________.
1. NutriRx Program. Franchisor has developed a new comprehensive,
multidiscipline weight loss program involving appetite suppressant medication,
nutritionally balanced menu plans, wellness and exercise information and other
products and services (hereinafter the "NutriRx Program" or the "Program"). The
Program contemplates that a duly licensed physician be present at the premises
of Nutri/System Centers, prescribing and monitoring the use of prescription
medications. We may improve or otherwise change the Program from time to time.
2. Your Acknowledgements. You have read this Amendment. You understand the
terms of this Amendment and accept them as being reasonably necessary to
maintain the uniformity of our high quality standards at all Nutri/System
Centers in order to protect the goodwill of the Marks and the integrity of the
System. You have conducted an independent investigation of the NutriRx Program
and recognize that the NutriRx Program may involve customer liability risks and
includes experimental weight loss therapy. You recognize that the NutriRx
Program involves business risks, that the success of the venture is largely
dependent on your own business abilities, efforts and financial resources and
that the nature of the Program may change over time. You have not received or
relied on any guaranty or assurance, express or implied, as to the revenues,
profits or success of the NutriRx Program. As we further develop the NutriRx
Program, we will provide you with information and guidance regarding any changes
and improvements. This Amendment modifies the Franchise Agreement to grant you a
limited right to offer the NutriRx Program at your Center(s) and to amend
certain other provisions of the Franchise Agreement.
3. Definitions.
(a) "Operations Manual" - Our confidential operations manual, as amended
from time to time, which may consist of one or more manuals, containing our
mandatory and suggested standards, specifications and operating procedures
relating to the development and operation of Nutri/System Centers and other
information relating to your obligations under this agreement. The term
"Operations Manual" also includes alternative or supplemental means of
communicating such information to you, including bulletins, e-mails, videotapes,
audio tapes, compact discs and computer diskettes. All such alternative or
supplemental communications will be clearly identified as additions to the
Operations Manual.
(b) "Owner" - Each person or entity that has a 10% or more direct or
indirect legal or beneficial ownership interest in you, if you are a business
corporation, partnership, limited liability company or other legal entity.
(c) "Competitive Business" - Any weight loss, wellness or fitness business
or any other business that is the same as or similar to the Nutri/System Center
concept, as it
<PAGE>
evolves or changes over time. Restrictions in this Agreement on competitive
activities do not apply to: (a) the ownership or operation of other Nutri/System
Centers that are licensed or franchised by us; or (b) the ownership of shares of
a class of securities that are listed on a stock exchange or traded on the
over-the-counter market and that represent less than five percent (5%) of that
class of securities.
(d) "Confidential Information" - Our proprietary and confidential
information relating to the development and operation of Nutri/System Centers,
including: (1) technical information and expertise relating to the treatment of
obesity, including preparation of dietary food and beverage products; (2) site
selection criteria for Nutri/System Centers and plans and specifications for the
development of Nutri/System Centers, (3) knowledge of operating results and
financial performance of Nutri/System Centers, other than your Center and other
Nutri/System Centers you own; (4) methods of food product handling, training and
management relating to Nutri/System Centers; and (5) computer systems and
software programs. Confidential Information includes information that is a trade
secret owned by Company, or confidential and proprietary information owned by
Company, but does not include: (i) information that is generally known in the
industry, (ii) information that becomes public through means other than the
violation of this Amendment by Franchisee, or (iii) information that Franchisee
can demonstrate that Franchisee acquired from third parties who did not obtain
the information in violation of the rights of Company.
(e) "The Franchise Agreement" - The Agreement dated November 16, 1987, by
and between you and the Franchisor, for the territory described as Angelina
County, Texas. This Amendment shall be part of the Franchise Agreement (and
reference to the Franchise Agreement shall include this Amendment).
4. Grant of Rights. We grant you the right, and you assume the obligation,
to offer and sell the NutriRx Program at your Center(s) during the term of the
Franchise Agreement strictly in accordance with its terms and conditions. All
fees and other revenues you receive in connection with the NutriRx Program are
part of your net receipts and subject to the royalty fee and advertising
provisions of the Franchise Agreement.
5. Development of the Premises. You are responsible for developing and/or
converting your Center and for all expenses associated with it. We will furnish
you prototype plans for a Nutri/System Center that offers the NutriRx Program.
You may modify the prototype plans only to the extent that the plans and
specifications pursuant to which you develop the Center comply with all
applicable ordinances, building codes and permit requirements and any lease
requirements and restrictions. You must submit such plans and specifications to
us for our approval, not to be unreasonably withheld, before starting to develop
the Premises. At our request, you must submit all revised or "as built" plans
and specifications. All development must be in accordance with the plans and
specifications we have approved and must comply with all applicable laws,
ordinances and local rules and regulations. We will furnish such guidance to you
in developing the Premises as we deem appropriate. We may periodically inspect
the Premises during its development. We do not, by approving your plans and
specifications or by inspecting the Premises, assume any liability or
responsibility to you or to any third parties with respect to the soundness of
construction of the Premises or otherwise. All copies of prototype plans and
plans and specifications provided by us for your Center are our sole and
exclusive property, and you
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may claim no interest therein.
Within 30 days after you have signed this Amendment you must start
renovation of your Center or lease, sublease or acquire new Premises. You must
complete renovation of your Center within 90 days after the date hereof. Any
extension of time is subject to our approval, which we may withhold at our
discretion, except in cases of delays occasioned by causes beyond the reasonable
control of the Franchisee, but in no event shall renovations be completed later
than 180 days after the date hereof. The requirement to complete renovations of
your Center includes obtaining all required construction and occupancy licenses
and permits, installing all required fixtures, furnishings, equipment and signs,
and doing all other things as may be required pursuant to this agreement or by
practical necessity. Your Center may not begin to offer the NutriRx Program
until we have notified you that your Center meets these requirements.
6. Equipment, Furniture and Fixtures. You agree to purchase or lease all
required medical and other equipment, furnishings and fixtures for your Center.
You agree to purchase or lease only such types, brands and models of fixtures,
furniture, medical and other equipment which we approve for your Centers and the
NutriRx Program as meeting our standards and specifications. You may purchase or
lease approved types, brands or models of fixtures, furniture and equipment only
from suppliers (including us and any of our Affiliates) we approve, approval not
to be unreasonably withheld. We may modify the list of approved types, brands,
models and/or suppliers, and you may not, after receipt of notice of such
modification, reorder any type, brand or model, or from any supplier, which is
no longer approved.
If you propose to purchase or lease any fixtures, furniture or equipment of
a type, brand or model, or from a supplier, that we have not previously
approved, you must notify us and submit to us such information as we may
request. We may impose reasonable inspection and supervision fees on suppliers
not previously approved. Franchisor will not arbitrarily discriminate against
any proposed supplier.
7. Introduction of Program. You agree to conduct an introductory
advertising and promotion program for the NutriRx Program within 30 days after
you begin offering the Program. You are required to spend at least 20% of your
average monthly net receipts (for the trailing twelve (12) months) or the
equivalent of 100 target rating points on the program and to use any combination
of one or more of the following types of advertising media: television, radio,
newspaper, magazine, yellow pages, direct mail, flyers, billboards and
telemarketing (only actual out-of-pocket telemarketing expenses will qualify,
and salaries or benefits for employees who are not solely dedicated to
telemarketing do not qualify). The program must last four weeks and is subject
to our approval, not to be unreasonably withheld.
8. Operations Manual/Physician's Manual. We will loan to each of your
Center(s) and to each signatory to the Franchise Agreement 1 copy each of the
Operations Manual, Physician's Manual and other Operating Manuals. You agree to
comply with all mandatory standards, specifications and operating procedures and
other obligations contained in the Manuals. We may modify the Operations Manual
and other Manuals to reflect changes in standards, specifications and operating
procedures, provided no addition
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or modification may alter your fundamental status and rights under this
Amendment or the Franchise Agreement. Mandatory specifications, standards and
operating procedures and other obligations we prescribe from time to time in the
Operations Manual, or otherwise communicate to you in writing, constitute
provisions of this Franchise Agreement as if fully set forth therein. All
references to the Franchise Agreement include all such mandatory specifications,
standards and operating procedures and other obligations. You must keep your
copy of the Operations Manual current. If a dispute develops relating to the
contents of the Operations Manual, our master copy will be controlling. The
Operations Manual contains Confidential Information, and you agree not to copy
any part of the Operations Manual.
9. NutriRx Program. You agree to offer and sell our multi-disciplinary
weight loss program strictly in accordance with our standards, specifications
and requirements, as we may establish and modify them from time to time. If and
to the extent permitted by applicable law, you must engage (or retain as an
independent contractor) at least one duly licensed physician to examine clients
at your Center to prescribe and monitor the use of appetite suppressant
medications as he or she deems appropriate in his or her independent
professional judgment. If you are not permitted by applicable law to so employ
or retain one or more licensed physicians, you agree to establish an appropriate
lawful relationship with one or more physicians to provide the medical treatment
elements of the NutriRx program. You must require such physicians, at all times
that they perform such services, to maintain such medical malpractice insurance
coverage as we may reasonably specify from time to time. Nothing contained
herein nor in any of our specifications, standards or requirements shall be
deemed to directly or indirectly interfere with or control the independent
professional judgment of any such physician. Furthermore, no payment required
under the Franchise Agreement will permit us directly or indirectly to interfere
with or control the independent professional judgment of a licensed physician.
The right to receive any payment shall not permit us to have access to any
confidential information relating to any clients. No payment under the Franchise
Agreement will be made, directly or indirectly, as an inducement for the
referral of clients and we shall not solicit or refer patients to the Center's
physician. We reserve the right to review the qualifications of any physician
you engage or enter into a relationship with.
10. Compliance With Laws. You must maintain in force in your name all
required licenses, permits and certificates relating to the operation of your
Center. You must operate your Center in full compliance with all applicable
laws, ordinances and regulations. You must notify us in writing within 5 days
after: (a) the commencement of any legal or administrative action, or the
issuance of any order of any court, agency or other governmental
instrumentality, which may adversely affect the development, occupancy or
operation of your Center of your financial condition; or (b) the delivery of any
notice of violation or alleged violation of any law, ordinance or regulation,
including those relating to health or sanitation at your Center. In all dealings
with us, as well as your customers, suppliers, lessors and the public, you must
adhere to the highest standards of honest, integrity, fair dealing and ethical
conduct.
11. Insurance. Paragraph 9 of the Franchise Agreement is hereby deleted in
its entirety and the following inserted in its place: You must maintain in
force: (a) comprehensive, general, professional, product, and automobile
liability insurance; (b)
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general casualty insurance, including fire and extended coverage, vandalism and
malicious mischief insurance, for the replacement value of your Center and its
contents; (c) medical malpractice insurance; and (d) such other insurance
policies, such as business interruption and unemployment insurance, as we may
determine from time to time. All insurance policies must be issued by carriers
approved by us, must contain such types and reasonable minimum amounts of
coverage, exclusions and maximum deductibles as we prescribe from time to time,
must name us and our Affiliates as additional insureds, must provide for 30
days' prior written notice to us of any material modification, cancellation or
expiration of such policy and must include such other provisions as we may
require.
At our request, you must furnish us with such evidence of insurance
coverage and payment of premiums as we require. If you fail or refuse to
maintain any required insurance coverage, or to furnish satisfactory evidence
thereof, we, at our option and in addition to our other rights and remedies
hereunder, may obtain such insurance coverage on your behalf and you must pay us
any costs and premiums we incur.
12. Training and Guidance. You or your designated representative must
attend and successfully complete an initial program on the operation of the
NutriRx Program at such time(s) and place(s) as we designate. We may require you
or your Center Manager(s) to attend and successfully complete periodic or
additional training programs. We will not charge any fees for attendance at any
such training program. You will be responsible for all compensation and expenses
(including travel, meals and lodging) incurred by you and your personnel in
attending any training programs.
13. Inspection. We may periodically inspect your Center(s) to determine
whether the NutriRx Program is being properly implemented. We have the right at
any time during business hours to (1) inspect your Center; (2) observe,
photograph, audiotape and/or video tape your Center's operation; (3) remove
samples of any dietary food and beverage products, materials or supplies for
testing and analysis and (4) interview personnel and/or customers of your
Center. You agree to cooperate fully with such activities. We will respect
client privacy and the confidentiality of client medical records during any
inspection.
14. Termination of NutriRx Program. If at any time during the first twelve
months after the date of this Amendment, Franchisee fails to implement and/or
operate the NutriRx Program in accordance with the Company's standards
established in the Operations Manual or other manuals or written communications
or if we in good faith determine to terminate, limit or otherwise restrict the
NutriRx Program, then we may terminate your right to offer the NutriRx Program
or any other or related weight loss program that uses prescription medication
effective upon notice to you. You agree to take all action we request to
discontinue offering, selling and using the Program.
If we determine to restrict, limit or terminate the NutriRx Program, we
agree not to act arbitrarily in any distinctions we make between you and other
franchisees and if we determine to continue the NutriRx Program only in
corporate centers, we agree to make such decision in good faith, for example, we
may decide that it is more difficult or costly to ensure proper implementation
of the NutriRx Program in franchised centers, but we may not do so for the sole
purpose of providing a competitive edge for corporate centers that compete
directly with you.
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You acknowledge and agree that a termination of your rights to the NutriRx
Program does not constitute a termination (or constructive termination) of your
franchise under this Agreement or applicable law.
15. Effect of Failure to Voluntarily Discontinue the NutriRx Program. Any
franchisee who fails to comply with paragraph 14 above and does not voluntarily
discontinue the sale and servicing of the NutriRx Program (or any other medical
weight loss program approved by the Company) after notice from the Company, may
have its franchise immediately terminated and shall thereafter:
(a) Within 30 days after the effective date of termination or expiration
(without renewal) of this Agreement, you must pay us and our Affiliates all
royalties, Advertising Fund contributions, amounts owed for purchases from us or
our Affiliates, interest due on any of the foregoing and all other amounts owed
to us or our Affiliates which are then unpaid.
(b) not directly or indirectly at any time or in any manner use any Mark,
any colorable imitation of any Mark or any other indicia of a Nutri/System
Center.
(c) take such action as may be required to cancel all fictitious or assumed
name registrations relating to your use of any Mark;
(d) notify the telephone company and all telephone directory publishers of
the termination or expiration of any rights you may have to use any telephone
number and any regular, classified or other telephone directory listings
associated with any Mark and to authorize transfer of the number to us or at our
direction. You must immediately execute such instruments and take such steps as
we deem necessary or appropriate to transfer and assign each such telephone
number. You irrevocably appoint the then president of Franchisor or its
successor as your duly authorized agent and attorney-in-fact to execute all
instruments and take all steps to transfer and assign each such telephone
number;
(e) promptly remove from the Premises, and discontinue using for any
purpose, all signs, fixtures, furniture, decor items, advertising materials,
forms and other materials and supplies which display any of the Marks or any
distinctive features, images, or design associated with Nutri/System Centers
and, at your expense, make such alterations as may be necessary to distinguish
the Premises so clearly from its former appearance as a Nutri/System Center and
from other Nutri/System Centers as to prevent any possibility of confusion by
the public;
(f) if we ask you to sell us all unadulterated and saleable dietary food
and beverage products located at the Center and purchased in accordance with
this Agreement, you must promptly do so and discard any remaining dietary food
and beverage products not so purchased. If we choose to purchase such dietary
food and beverage products, we will do so at your cost, less 10% for shipping
and handling;
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(g) immediately cease to use all Confidential Information and return to us
all copies of the Operations Manual and any other confidential materials which
have been loaned to you; and
(h) within 30 days after the effective date of termination or expiration,
furnish us evidence satisfactory to us of your compliance with the foregoing
obligations.
16. Covenants Not To Compete. Paragraph 2 of the Franchise Agreement is
hereby deleted in its entirety and replaced with the following: During the term
of the Franchise Agreement, neither you nor any of your Owners may, without our
prior written consent, directly or indirectly own any legal or beneficial
interest in, or render services or give advice to any Competitive Business
located anywhere or any business enterprise located anywhere which grants
franchises or licenses to operate any Competitive Business. In addition, for a
additional period of 2 years, starting on the effective date of termination or
expiration (without renewal) of this agreement, neither you nor any of your
Owners may directly or indirectly (such as through your or their Immediate
Families) own a legal or beneficial interest in, or render services or give
advice to: (a) any Competitive Business operating in a radius of 10 miles of
your Center; (b) any Competitive Business operating within a radius of 10 miles
of any Nutri/System Center in operation or under construction on the effective
date of termination or expiration; or (c) any entity which grants franchises,
licenses or other interests to others to operate any Competitive Business.
You and each of your Owners expressly acknowledge the possession of skills
and abilities of a general nature and the opportunity for exploiting such skills
in other ways, so that enforcement of the covenants made in this Section will
not deprive any of you of your personal goodwill or ability to earn a living. If
you or any of your Owners fail or refuse to abide by any of the foregoing
covenants, and we obtain judicial enforcement thereof, the obligations under the
breached covenant will continue in effect for a period of time ending 2 years
after the date such person commences compliance with the order enforcing the
covenant.
17. Continuing Obligations. All obligations under this Agreement which
expressly or by their nature survive the expiration or termination of this
Agreement shall continue in full force and effect until they are satisfied in
full or by their nature expire.
18. Exclusive Jurisdiction. You and each of your Owners agree that the U.S.
District Court for the Eastern District of Pennsylvania, or if such court lacks
jurisdiction, the Court of Common Pleas (or its successor) for Montgomery
County, Pennsylvania shall be the venue and exclusive forum in which to
adjudicate any case or controversy arising from or relating to this Amendment.
You and each of your Owners irrevocably submit to the jurisdiction of such
courts and waive any objections to either the jurisdiction of or venue in such
courts.
19. Conflict of Provisions. If there is any conflict between the provisions
of this Amendment and the Franchise Agreement the provisions of this Amendment
prevail. All
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of the remaining terms, conditions, covenants and obligations of the Franchise
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first written above.
NUTRI/SYSTEM L.P. FRANCHISEE:
by: NSI Management, Inc.,
its managing general partner by:
By: By:
-------------------------------- -------------------------------
Philip Voluck, President , President
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1995 SETTLEMENT AND RELEASE AGREEMENT
This Agreement is entered into as of April __, 1995, by and between
Nutri/System L.P. ("Franchisor") and ______________________ ("Franchisee").
WHEREAS, Franchisee is a party to one or more Franchise Agreements, as
previously amended, with Franchisor which are listed and described more fully on
Exhibit 1 hereto (the "Franchise Agreements");
WHEREAS, Franchisee entered into a "1994 Settlement and Release Agreement"
with an effective date of January 1, 1994, with Franchisor and Michael E.
Heisley (the "1994 Agreement");
WHEREAS, Franchisee has alleged directly, or through a party purporting to
act as a representative of a class of all franchisees, that it has or may have
claims against Franchisor and Michael E. Heisley arising out of the Franchise
Agreements and/or 1994 Agreement;
WHEREAS, Franchisor and Michael E. Heisley deny that Franchisee has any
claim against either of them; and
WHEREAS, Franchisor and Franchisee now wish to settle and resolve all of
their differences and amend the 1994 Agreement.
NOW, THEREFORE, in consideration of the premises and promises set forth
herein and intending to be legally bound hereby, the parties agree to the
following:
1. For the period from March 1, 1995 through February 28, 1997, Franchisor
hereby agrees to reduce Franchisee's royalty due and owing under the Franchise
Agreements by 42.9% (i.e., from 7% to 4% or from 6% to 3.4%, depending on the
royalty currently due thereunder).
2. Paragraph 2 of the 1994 Agreement is deleted in its entirety and
Franchisor agrees to waive payment of all accounts receivable (but not the
balance due on promissory notes) attributable to Franchisee which arose on or
before the date of the filing of bankruptcy of Nutri/System, Inc., May 4, 1993.
However, same shall only be applicable as long as Franchisee's centers do not
compete with existing Franchisor centers for a period of two years, provided
this non-competition requirement does not apply to existing Franchisee centers
in Franchisor markets.
3. Franchisee acknowledges that Franchisor has complied with the
advertising requirements for 1994 set forth in paragraph 3 of the 1994
Agreement. Furthermore,
<PAGE>
Franchisee hereby waives and releases Franchisor from any obligation to do
franchisee dedicated advertising in 1995 or 1996 as set forth in paragraph 3 of
the 1994 Agreement.
4. Franchisor hereby waives Franchisee's obligations to comply with the
provisions of paragraphs 3, 4 and 5 of that certain Amendment to Franchise
Agreement, dated effective December 31, 1991 ("PCA Amendment"), for the calendar
years 1994 and 1995. Beginning January 1, 1996, and thereafter, Franchisee must
comply with all provisions of the PCA Amendment in order to receive the benefits
of a free renewal period, except that Franchisee's obligation in paragraph 4
thereof to advertise at ten percent (10%) of its net receipts is reduced to six
percent (6%).
5. Franchisee hereby irrevocably and unconditionally releases the
Franchisor and Michael E. Heisley from any and all claims of every kind and
nature which Franchisee has or may have up to the date of this Release (i)
arising out of or in connection with: (a) the Franchise Agreements or (b) the
1994 Agreement, including, without limitation, their respective terms and
conditions and Franchisor's performance thereunder; and (ii) any claims that
were raised or could have been raised by the parties regarding subparagraph (a)
and/or (b) above or, had the action been certified as a class action, by the
class representative in Cross Road Professionals, Inc. and Park Avenue
Professionals, Inc. v. Nutri/System L.P. and Michael Heisley, Case No.
94-CV-5266, in the United States District Court for the Eastern District of
Pennsylvania (the "Civil Action"). Franchisee hereby also agrees that should
Franchisee file any action against Franchisor subsequent to the date of this
Agreement that alleges a cause or causes of action to which this Release is
deemed a bar, then Franchisee shall be liable to Franchisor for its attorneys
fees and costs in defending any such cause of action, provided Franchisor
prevails.
6. This Agreement shall be null and void and of no effect unless all
Nutri/System franchisees who signed the 1994 Agreement execute agreements
identical in substance to this Agreement on or before April 15, 1995.
7. Counsel for the franchisee plaintiffs in the Civil Action will take
those steps necessary to dismiss with prejudice the Civil Action on or before
April 15, 1995. Franchisee hereby consents to the entry of the aforesaid
dismissal order, subject to the provisions of this Agreement.
8. Any terms, covenants or conditions in Franchisee's Franchise Agreements
or any amendments thereto or in the 1994 Agreement that are inconsistent with
any of the provisions of this Agreement are superseded by the terms of this
Agreement.
9. This Agreement shall be binding upon the parties, their heirs, legal
representatives, successors and assigns.
10. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania. The parties hereto agree that the United States District Court for
the Eastern District of Pennsylvania or the Court of Common Pleas for Montgomery
County,
<PAGE>
PENNSYLVANIA SHALL have jurisdiction over any dispute arising out of the terms
of this Agreement.
11. If any provision of this Agreement or the application of it shall be
determined to be invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provisions shall not be affected and shall
be enforced to the greatest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
(FRANCHISEE) NUTRI/SYSTEM L.P.
By: NSI MANAGEMENT, INC.,
its General Partner
By: By:
-------------------------- ---------------------------
Philip Voluck
<PAGE>
[EXHIBITS OMITTED]
<PAGE>
1994 AMENDMENT TO FRANCHISE AGREEMENT
This Amendment is entered into as of January 1, 1994, by and between NSI
Acquisition Limited Partnership ("Company") and ________________________
("Franchisee").
WHEREAS, an exclusive Franchise Agreement, issued under date of November
16, 1987 as amended ("Franchise Agreement"), was entered into by and between
Nutri/System, Inc. ("NSI") and Franchisee whereby Franchisee agreed to own and
operate Nutri/System Weight Loss Centers in the territory designated therein
______________________ ("Territory"); and
WHEREAS, the Company, a partnership having two general partners, one of
which is a corporation controlled by Michael E. Heisley and responsible for the
management of the Company has acquired the Franchise Agreement; and
WHEREAS, Franchisee and the Company wish to reaffirm the commitment of
Franchisee and Company to the Nutri/System Weight Loss Program and amend the
terms of the Franchise Agreement.
NOW, THEREFORE, in consideration of the premises and promises set forth
herein and intending to be legally bound hereby, the parties agree to modify the
Franchise Agreement as follows:
1. Paragraph 7 of the Franchise Agreement shall be deleted in its entirety
and be replaced for purposes of this Amendment with the following language: "In
addition to the franchise fee previously paid for the Territory, the Franchisee
will pay to the Company a monthly royalty on a per center basis beginning with
March 15, 1994, in accordance with the following schedule:
With respect to net receipts from the sale of the Company's products and
services ("Net Receipts") during each month during the following period:
- --------------------------------------------------------------------------------
February 1, 1994 through December 31, 1994 (the "Period")
A royalty in an amount equal to a percentage of the Net Receipts, as set forth
below, payable on or before the fifteenth (15th) day of the following month:
- --------------------------------------------------------------------------------
5% of Net Receipts on a per center basis, until such time as aggregate Net
Receipts for a center during the Period equal $100,000 then 7% on all other Net
Receipts for such center during the Period
<PAGE>
January 1, 1995 through December 31, 7% of Net Receipts
1995 and each calendar year thereafter
2. Paragraph 1(B) of Exhibit C to the Franchise Agreement (the 1984 Release
Agreement) shall be deleted in its entirety and replaced for purposes of this
Amendment with the following language: 'Thirty-three percent (33%) of the net
cost amount from subparagraph (A) above, which includes all cost of distribution
except as set forth in paragraph 4 below, until such time that year-to-date
system wide retail revenue (i.e., total Company and franchisee retail revenue
from the sale of all services and products, less sales tax and refunds) equals
three hundred and fifty million dollars ($350,000,000). Above $350,000,000 of
year-to-date system wide retail revenue the 33% markup declines one hundred
(100) basis points for each incremental fifty million dollars ($50,000,000) of
system wide retail revenue to a floor of twenty-three percent (23%) as outlined
below:
Year-to-Date
System Wide Retail Revenue Food Mark-Up
-------------------------- ------------
zero to $350 million 33%
$350 million to $400 million 32%
$400 million to $450 million 31%
$450 million to $500 million 30%
$500 million to $550 million 29%
$550 million to $600 million 28%
$600 million to $650 million 27%
$650 million to $700 million 26%
$700 million to $750 million 25%
$750 million to $800 million 24%
$800 million and above 23%
plus,"
3. Paragraph 13(1) of Exhibit C to the Franchise Agreement (1984 Release
Agreement) is amended to delete the words "make suggestions for" and substitute
therefore the word "approve".
4. Paragraph 7(C)(2) of Exhibit C to the Franchise Agreement (1984 Release
Agreement) shall be deleted in its entirety.
<PAGE>
5. All the remaining terms, conditions, covenants and obligations of the
Franchise Agreement shall remain unchanged and in full force and effect. To the
extent that Franchisee owes a renewal fee, any renewal fee schedule attached to
the Franchise Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment,
effective as of the date first written above.
NSI ACQUISITION, LIMITED PARTNERSHIP FRANCHISEE
By NSI Management, Inc., Its General Partner
By: By:
---------------------------- ----------------------------
<PAGE>
1994 SETTLEMENT AND RELEASE AGREEMENT
This Agreement is entered into as of January 1, 1994, by and between NSI
Acquisition Limited Partnership ("Franchisor"), Michael E. Heisley ("Heisley")
and ___________________ ("Franchisee")
WHEREAS, Franchisee is a party to one or more franchise agreements, as
previously amended, with Nutri/System, Inc. ("NSI") which are listed and
described more fully on Exhibit 1 hereto ("the Franchise Agreements"); and
WHEREAS, on May 4, 1993 an involuntary petition was filed against NSI
("Petition") under Chapter 7 of Title 11 of the United States Code, 11 U.S.C.
ss.101 et seq. (the "Bankruptcy Code"). On June 3, 1993, the Petition was
amended to seek relief under Chapter 11 of the Bankruptcy Code and NSI consented
to an order for relief, which was entered by the Court on June 4, 1993, In re
Nutri/System. Inc., E.D. Pa., Cpt. 11, No. 93-12725S ("NSI Bankruptcy"); and
WHEREAS, Franchisee has alleged that it has or may have claims against NSI
arising out of actions taken by NSI; and
WHEREAS, NSI has alleged that it holds food and print related receivables
for obligations incurred by Franchisee prior to the filing of the Petition
("Prepetition Accounts Receivable"); and
WHEREAS, on December 29, 1993, Franchisor, a partnership having two general
partners, one of which is a corporation controlled by Heisley and responsible
for the management of Franchisor, acquired the Franchise Agreements, the
"Nutri/System" trade name and trademarks, the Franchise pre-Petition trade
accounts receivable, including Franchisee food and print related receivables,
non-food receivables and renewal fees receivables, and a significant portion of
other assets of NSI which were used in the operation of NSI's franchise system
as of that date ("NSI Franchise Assets"), from NSI Debt, Inc. which had acquired
the NSI Franchise Assets through foreclosure and public sale pursuant to state
law; and
WHEREAS, Franchisor and Franchisee now wish to settle and resolve all of
their differences and reaffirm the franchise relationship and Franchise
Agreements;
NOW, THEREFORE, in consideration of the premises and promises set forth
herein and intending to be legally bound hereby, the parties agree to the
following:
1. Franchisor hereby waives all royalties due and owing under the Franchise
Agreements from April 1, 1993 through and including January 31, 1994.
<PAGE>
2. Franchisee agrees to pay to Franchisor Prepetition Accounts Receivables
in six equal monthly payments commencing October 1, 1994. Payments received on
such Prepetition Accounts Receivables will be placed into a trust account, under
the exclusive control of the advertising committee, to be used to pay: (i) for
advertising supplemental to that required by paragraph 3 below and (ii) $161,000
from pre-Petition food and print related accounts receivables to be collected
from all franchisees system wide to be paid directly to NSF Corp. ("NSF") for
its general expenses on March 15, 1995. Commencing on March 15,1994, provided
Franchisee has made and continues to make all payments required hereunder and
under the terms of the Franchise Agreements, as amended per Exhibit 2, the
Franchisor will reestablish fourteen (14) day credit terms, including normal
delivery time, in accordance with paragraph 7 of the June 1984 Release
Agreement, attached as Exhibit C to the Franchise Agreements.
3. Franchisor will begin to create and distribute advertising materials
for/to the franchisees immediately. This obligation, the creation and
distribution of advertising materials, is an ongoing obligation of Franchisor.
Franchisor has indicated that in 1994, it will spend at least three million
dollars ($3,000,000) on the creation of advertising materials. Franchisor will
begin national advertising on January 1, 1994. In addition to this obligation,
Franchisor is obligated to spend, on an annual basis in 1994, 1995 and 1996, and
subject to Advertising Committee approval the lesser of nine million dollars
($9,000,000) increased annually by four percent (4%) for inflation or
seventy-one point four percent (71.4%) of the royalty (i.e., five percent (5%)
of franchisee revenue) collected by the Franchisor on franchisee dedicated
advertising (including national advertising which would benefit Company centers
indirectly). Advertising programs for years after 1996 will be developed in the
future. Franchisor has indicated that in 1994, it will spend a total of eighteen
million dollars ($18,000,000) on advertising; nine million dollars ($9,000,000)
on franchisee dedicated advertising (including national advertising which would
benefit Company centers indirectly), six million dollars ($6,000,000) on local
advertising in the Company markets, and three million dollars ($3,000,000) on
the creation of advertising materials.
4. Franchisor will reimburse NSF for $500,000 of its NSI Bankruptcy related
expenses following receipt of appropriate documentation supporting these
expenses. Franchisor will pay this sum by February 12,1994; provided that at
least 400 of the franchise centers sign this Agreement and the attached
Amendment to Franchise Agreement (Exhibit 2) by January 15, 1994.
5. Franchisor will make reasonable efforts to purchase insurance coverage,
including products and professional liability insurance, for Franchisor. In
addition, Franchisor will purchase insurance for its Company centers from a
financially sound third party insurance company (i.e., the captive insurance
subsidiary of NSI will not be used to provide this insurance) and will cooperate
with the franchisees in developing an overall insurance program.
6. As of December 29, 1993, Franchisor was capitalized with at least
fifteen million dollars ($15,000,000) of equity.
<PAGE>
7.(a) Franchisee hereby irrevocably and unconditionally releases Heisley,
any company or entity controlled by Heisley, and Franchisor from any and all
claims of every kind and nature which Franchisee has or may have arising out of
or in connection with: (i) the operation of Franchisee's Nutri/System franchise
or the performance of NSI or Franchisor under the Franchise Agreements or any
other franchise agreement Franchisee now has or may have had with NSI or
Franchisor, (ii) the operations or management of NSI or the NSI Bankruptcy
proceedings, (iii) the transfer or disposal of any assets of NSI or the
effecting of any payment to the "Banks" (as hereinafter defined). Franchisee
acknowledges that as of the effective date hereof, no non-waived defaults or
violations by Heisley, any company or entity controlled by Heisley, or
Franchisor exist.
(b) Franchisee hereby irrevocably and unconditionally releases First
Fidelity Bank, National Association, Pennsylvania, PNC Bank, National
Association, Mellon Bank, N.A., CIBC, Inc., Maryland National Bank, Continental
Bank, N.A. and Credit Du Nord (the "Banks"), and any and all successor holders
of the NSI debt owed to the Banks from any claims that Franchisee may have
against the Banks that could require repayment by any of the Banks of any amount
paid, set-off or applied against obligations of NSI to any of the Banks on or
after April 27, 1993 and prior to or as of December 1, 1993 ("NSI Payments").
The parties intend that said release does not preclude Franchisee from bringing,
and said release shall not apply to, any and all other claims of every kind and
nature Franchisee may have against the Banks which could not require repayment
of any portion of the NSI Payments (e.g. tortious interference claims by
Franchisee for damages such as lost profits, additional costs and diminution in
value regarding its business and punitive damages).
(c) Notwithstanding any contrary provision herein, it is the intention of
the parties to this Agreement that the foregoing release of the Banks be limited
to and effect a release of only those claims that could require Heisley, any
company or entity controlled by Heisley, or Franchisor to pay or otherwise
reimburse, to any of the Banks all or any portion of NSI Payments repaid by the
Banks as described in (b) above.
8. Heisley, any company or entity controlled by Heisley, and Franchisor
hereby irrevocably and unconditionally release Franchisee from any and all
claims of every kind and nature which Heisley, any company or entity controlled
by Heisley, or Franchisor may have arising out of or in connection with the
operation of Franchisee's Nutri/System franchise or Franchisee's performance
under the Franchise Agreements or any other franchise agreement Franchisee now
has or may have had with NSI or Franchisor other than with respect to
Prepetition Accounts Receivable, any non-food receivables (excluding royalties
to the extent required by paragraph 1 above) and any renewal fees, if any, now
due under the Franchise Agreements. Heisley, any company or entity controlled by
Heisley, and Franchisor acknowledge that as of the effective date hereof, no
non-waived defaults or violations by Franchisee exist, other than with respect
to Prepetition Accounts Receivable, any non-food receivables (excluding
royalties to the extent required by paragraph 1 above) and renewal fees, if any,
now due. Heisley, any company or entity controlled by Heisley, and Franchisor
further acknowledge that Franchisee reserves any and all claims of every kind
and nature and the right and ability to assert such claims, not released in
paragraph 7 above.
<PAGE>
9. Franchisor hereby waives Franchisee's obligation to comply with the
provisions of paragraphs 3, 4, and 5 of that certain Amendment to Franchise
Agreement, dated effective December 31,1991 ("December 31,1991 Amendment"), for
the calendar year 1993. Beginning January 1, 1994, and thereafter, Franchisee
must comply with all provisions of the December 31, 1991 Amendment in order to
receive the benefits of a free renewal period.
10. Franchisee and Franchisor hereby reaffirm the terms of the Franchise
Agreements, acknowledge that the Franchise Agreements are valid and binding
contracts, and agree to execute an Amendment to Franchise Agreement, in the form
attached hereto as Exhibit 2, for each Franchise Agreement listed on Exhibit 1.
11. Franchisee hereby consents to an assignment of the Franchise Agreements
to Franchisor and agrees to execute any additional agreement which is necessary
to effectuate the assignment and which is consistent with this Agreement and the
Franchise Agreements.
12. Any terms, covenants or conditions in Franchisee's Franchise Agreements
that are inconsistent with any of the provisions of this Agreement are
superseded by the terms of this Agreement.
13. This Agreement shall be binding upon the parties, their heirs, legal
representatives, successors and assigns.
14. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania. If any provision of this Agreement or the application of it shall
be determined to be invalid or unenforceable to any extent, the remainder of
this Agreement and the application of such provisions shall not be affected and
the remainder shall be enforced to the greatest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
(FRANCHISEE) NSI ACQUISITION LIMITED PARTNERSHIP
BY NSI MANAGEMENT, INC., ITS GENERAL PARTNER
By: By:
--------------------------- --------------------------------
MICHAEL E. HEISLEY, individually
and on behalf of any company or entity
controlled by him
By:
--------------------------------
<PAGE>
[EXHIBIT OMITTED]
<PAGE>
AMENDMENT TO FRANCHISE AGREEMENT
Amendment made effective this 31st day of December, 1991 by and between
Nutri/System, Inc. ("Company") and __________________ ("Franchisee").
WHEREAS, an exclusive Franchise Agreement, issued under date of November
16, 1987 ("Franchise Agreement") was entered into by and between the Company and
Franchisee whereby franchisee agreed to own and operate Nutri/System Weight Loss
Centers in the territory designated as __________________ ("Territory").
WHEREAS, both the Company and Franchisee recognize the importance of
marketing the Franchisee's business throughout the territory.
WHEREAS, pursuant to Exhibit B to the Franchise Agreement and the Letter of
Intent to Participate, dated August 1987, referred to therein, Franchisee
received a deferral and opportunity to reduce the franchise renewal fee ("PCC
Payment") payable during a period, commencing January 1, 1988 and ending January
1, 1993, for an extended term of the Franchise Agreement ("PCC Term").
WHEREAS, Franchisee and the Company wish to reaffirm Franchisee's
commitment to marketing the Nutri/System name and weight loss program in the
Territory through media advertising and amend the terms of the Franchise
Agreement.
NOW, THEREFORE, In consideration of the premises set forth herein and
intending to be legally bound hereby, the parties agree to modify the Franchise
Agreement as follows:
1. The second sentence of paragraph three of the Franchise Agreement is
deleted in its entirety.
<PAGE>
percent (10%) of net receipts or a $.50 PCA on local advertising does not affect
Franchisee's obligations to participate in a cooperative advertising program, in
accordance with the terms and conditions set forth above."
4. For the purposes of this Amendment, the determination of whether
Franchisee is in compliance with the above provision, i.e., whether Franchisee's
advertising expenditures are equal to either 10% of its net receipts or $.50
PCA, Franchisee's compliance will be measured annually on a calendar year basis
using the net receipts or population of the Territory or, if Franchisee has two
or more Franchise Agreements describing territories within the same ADI,
Franchisee may choose to have its compliance measured by the Territory combined
with all other territories owned by Franchisee within the same ADI. The
population data source for the Territory will be the Company's "center based
tracking system", with the population determined by the most current federal
census report, as updated. Under no circumstances will the Company update or
change the population figure for the Territory more than once every two years.
5. The Franchisee will complete and file with the Home Office a monthly
form reporting Franchisee's monthly advertising expenditures. The Company will
be entitled to audit on a semi-annual basis, at Company expense and after
reasonable written note to Franchisee, Franchisee's advertising expenditure
receipts and Franchisee is obligated to maintain current records and past
records for the most recent two full calendar years.
6. If Franchisee now has or at any time in the future adds a satellite not
included in the existing Territory (for which an annual renewal fee is paid),
said satellite(s) are excluded from this renewal program; that is, neither the
advertising expenditures for such satellite nor the net receipts attributable
thereto shall be used to determine Franchisee's
<PAGE>
compliance with either the 10% of net receipts or $.50 PCA obligations.
7. Should Franchisee fail to comply with its obligation to spend at least
10% of net receipts or $.50 PCA in advertising dollars during any calendar year,
Franchisee shall be allowed to cure any deficiency during the first quarter of
the following calendar year. Any additional advertising expenditures designated
by Franchisee to cure the prior year's deficiency in advertising expenditures
will be credited to the prior year so designated and will not be counted towards
Franchisee's advertising obligations for the current year.
8. The Company will use its best efforts, at Franchisee's request, to
assist Franchisee in developing and managing plans for the efficient and
productive expenditures of its marketing funds.
9. The Company hereby agrees to waive any additional PCC Payments due as of
January 1, 1992 and going forward thereafter under the terms of Franchise
Agreement. All payments, if any, made prior to January 1, 1992 by Franchisee
shall be retained by the Company except that if Franchisee met its PCC goal
established by Exhibit B to the Franchise Agreement for the annual adjusted base
year beginning May 1, 1990 and ending April 30, 1991, Franchisee will be
entitled to a refund of all PCC payments made prior to January 1, 1992.
Franchisee and the Company agree that the refund due under this paragraph will
be made to Franchisee through food credits available beginning April 1, 1992.
Provided Franchisee is in compliance with this Amendment agreement, Franchisee
will have no further obligation for PCC Payments pursuant to the Franchise
Agreement.
10. Should Franchisee default under its obligations to incur local
advertising expenditures equal to 10% of net receipts or $.50 PCA in any
calendar year during the term set forth in paragraph three of the Franchise
Agreement, and Franchisee fails to cure said
<PAGE>
default within the time frame set forth in paragraph 7 above, then Franchisee
forfeits the waiver of the PCC Payments set forth in paragraph 9 above, forfeits
the additional renewal term at no renewal fee set forth in paragraph 2 above,
and Franchisee's obligations revert back to those set forth in the Franchise
Agreement and Exhibit B thereto, as if this Amendment never existed and this
Amendment shall be null and void and Franchisee shall be obligated to pay any
PCC Payments or renewal payments due and owing pursuant to the Franchise
Agreement.
11. All the remaining terms, conditions, covenants and obligations of the
Franchise Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
31st day of March, 1992.
Attest: NUTRI/SYSTEM, INC.
<TABLE>
<S> <C>
By: By:
----------------------------------------- --------------------------------------
_____________, Asst. Corporate Secretary Ricardo D. Arevalo, Vice President-
Franchise Operations
(Seal)
</TABLE>
By:
-----------------------------------------
Authorized Signer
<PAGE>
NUTRI/SYSTEM, INC.
Exclusive Franchise Agreement
Issued under date of
Nutri/System, Inc., a corporation organized under the laws of the State of
Pennsylvania with general offices in Willow Grove, PA (herein called the
"Company"), hereby grants to
Name
Address
(herein called the "Franchisee"), an exclusive Franchise to own and operate a
weight control or weight loss center(s) (herein called the "Center"), under the
Nutri/System, Inc. copyrights, patents, and trademarks for designs, trade names,
signs, insignias, symbols, or slogans (herein collectively called the
"Trademarks"), in the following described territory (herein referred to as the
"Territory"), and shown more fully on the attached map called "Exhibit A", and
nowhere else, bounded as follows:
This Franchise Agreement being upon the following terms and conditions:
1) That the Franchisee will operate a thoroughly clean, appropriately laid out,
and decorated center at:
or other locations as agreed upon in writing.
2) That the Franchisee will not operate or sell, directly or indirectly, any
other competing weight control or weight loss business, or any other business
which could be confused with the Center either during the term of this Agreement
or for two (2) years thereafter in a ten (10) mile radius of any center.
3) That the term of this Agreement shall commence
(Issue Date) and expire . Provided Franchisee is in
substantial compliance with this Agreement, this Agreement shall be renewable
for an additional
<PAGE>
ten (10) years at the option of the Franchisee, on economic terms and conditions
presenting the Franchisee a reasonable opportunity to earn renewal fee
reductions and/or a "zero" renewal fee.
4) That the Franchisee will use reasonable efforts to have sufficient
penetration of Centers in the Territory approved by the Company to enable the
Franchisee to meet fully his obligations under this Agreement. It is recognized
that under the foregoing it may be necessary from time to time for the
Franchisee to increase the penetration of Centers in the Territory. The
Franchisee will comply with any and all local, city, county, State and Federal
laws and regulations now in effect or which may hereafter be enacted pertaining
to the operation of weight loss or reduction Centers. The Center will be
maintained at all times in good condition and appearance, subject to the
Company's operational manual (herein referred to as "Operations Manual"), which
manual shall neither be inconsistent with any of the terms or conditions of this
Agreement, nor contain minimum business requirements not set forth in this
Agreement. The Franchisee will not operate or permit the Center to be operated
in any way not in compliance with the Company's reasonable requirements or
standards.
5) That the Franchisee will make no representation as to the program, diet,
food, or Center not previously authorized by the Company in writing, such
authorization not to be unreasonably withheld. Failure of the Company to act
within fourteen (14) days of request for authorization shall be deemed
authorization. The business shall be operated under the Company's Trademarks and
on its own merits, and not compared with any other weight loss or reduction
business without the Company's consent.
6) That the Franchisee will market the business throughout the entire Territory.
Without in any way limiting the Franchisee's obligation under this Paragraph 6,
the Franchisee must use reasonable efforts to meet and increase the demand for
the business throughout the Territory and to secure penetration for the
population in the Territory; and must reasonably cooperate in and support the
Company's marketing, advertising, and sales promotion programs and campaigns for
the Territory. If other franchisees or Company centers share an Area of Dominant
Influence ("ADI") with Franchisee, then if Company directs and two-thirds (2/3)
of the franchise centers of the affected franchisees agree, Franchisee shall
participate with the other franchisees and Company in a cooperative advertising
program. In the event no payment sharing agreement is reached, Franchisee shall
pay a proportionate share of the expenses of such cooperative advertising
program based upon penetration of the advertising medium within the Territory
provided however, Franchisee's proportionate share shall not exceed three and
one-half percent (3 1/2%) of Franchisee's monthly gross receipts from centers
located in that part of the Territory penetrated by such advertising medium. In
addition, the Franchisee will advertise in all reasonable media and engage in
reasonable sales promotion of the business throughout the Territory at his own
cost and expense. All advertising, marketing, promotional, and media copy shall
be subject to the Company's approval, such approval not to be unreasonably
withheld. Failure of the Company to act within fourteen (14) days of request for
approval shall be deemed approval.
7) That in addition to paying a fee of
for the Territory, the Franchisee will pay to the Company by the
fifteenth (15) day of the following month a royalty fee of seven percent (7%) on
all net receipts from the previous month's sale of the Company's products and
services.
8) That the Franchisee will at all times cooperate and comply with quality
control programs reasonably required by the Company, including Center layout and
design specifications, and procedures set forth in the Operations Manual. The
Franchisee will at all times cooperate with the company's field, territorial,
and other representatives. The Franchisee will permit the Company's agents to
conduct checks in the Center and Territory and to enter the Franchisee's Center
upon reasonable notice during working hours and inspect the facilities,
equipment and materials used. Without notice during working hours, Company shall
have that access to Center which is available to the general public. The
Company or its agents will be allowed to check
<PAGE>
methods of operations. The Franchisee will furnish information reasonably
requested by the Company concerning his Center and business and will furnish
same in the form so requested. Franchisees without prior written approval may
not alter any program, or diet, or sell products by mail, or relinquish control
over the management of the exclusive franchise to an independent third party, or
publish written materials copyrighted by Company.
9) That the Franchisee will carry all insurance and renewals on his operation in
such amounts as reasonably required by the Company.
10) That upon the happening of any one or more of the following events, in
addition to all other rights and remedies, including the Company's right to
damages sustained, if any, the Company shall have the right to cancel or
terminate this Agreement by written notice to the Franchisee:
a) The failure of the Franchisee to substantially perform or comply with
any one or more of the material terms or conditions of this Agreement, and
correction of such failure is not made within sixty (60) days after receipt
by Franchisee of written notice from Company that such failure exists,
provided however, if such failure constitutes an imminent danger of public
health, then such cure period may be shortened as reasonably necessary to
protect the public health; or the failure of the Franchisee to obtain prior
written approval from the Company for any deviations from this agreement,
such approval not to be unreasonably withheld. Failure of the Company to
act within thirty (30) days of request for approval shall be deemed
approval.
b) Any sale, transfer or other disposition, without the prior written
consent of the Company (such consent not to be unreasonably withheld.
Failure of the Company to act within thirty (30) days of request for
consent shall be deemed consent) including any such transfer by operation
of law:
i) Of all or part of the business effecting the Franchise; or
ii) Of more than ten percent (10%) of the stock of the Franchisee, if
the Franchisee be a corporation, or of any of its stock if sold in a
public offering; or
iii) Of any interest in a partnership or the withdrawal of a partner
if the Franchisee be a partnership; or
iv) The merger or consolidation of the Franchisee with any other
company, or the dissolution of the Franchisee.
c) The discontinuance by the Franchisee, for any reason, of the business
for a period of thirty (30) days, except as provided in Paragraph 17
hereof; or
d) The insolvency of the Franchisee as that term is defined in either the
bankruptcy or equity sense, or an assignment by the Franchisee for the
benefit of creditors, or the filing of a voluntary petition under any
Chapter of the Bankruptcy Act, as now enacted or as may hereafter be
amended, or the failure of the Franchisee to vacate an involuntary
bankruptcy or reorganization petition filed against him within sixty (60)
days from the date of such filing, or the failure of the Franchisee to
vacate the appointment of a receiver or a trustee for the Franchisee, or
any part or interest of his business effecting the franchise, within sixty
(60) days from the date of such appointment.
e) If Franchisee defaults in the reporting or the payment of royalties,
franchise fee, cooperative advertising costs, or any other indebtedness to
Company, where such payments are not made 1) after receipt by the
Franchisee of written notice that such payments are overdue and 2) within
fourteen (14) days after Franchisee receipt of such written notice which
period shall occur prior to cancellation or termination.
Upon the happening of any one or more of the foregoing events the Company shall
also have the right to discontinue supplying the Franchisee with Food and/or
other
<PAGE>
materials, for such length of time as the Company may reasonably deem necessary.
without thereby cancelling or terminating this Agreement and without thereby
prejudicing the Company's other rights and remedies including the right to
terminate this Agreement for the same cause or for any one or more other causes.
11) In the event that the Company gives written consent to a sale or transfer as
in paragraph 1Ob. above, the Franchisee will pay the Company its reasonable
expenses of such transfer, at a rate schedule published by Company, which shall
not exceed thirty-five hundred dollars ($3500.00) prior to any transfer being
completed.
12) That, in addition to and not in limitation of the foregoing, if, in the
reasonable opinion of the Company, the Franchisee should fail to promote the
business or fail to secure reasonable penetration thereof in the Territory so
defined geographically, the Company may call the Franchisee's attention to such
failure by written notice to the Franchisee, specifying the segment of the
Territory involved, and suggest remedial steps therefore. If Franchisee fails to
use reasonable effort to substantially correct the failures identified in
Company's written notice within three (3) months after the giving of such
written notice, the Company shall thereupon have the right, upon written notice
to the Franchisee to that effect, to remove such segment from the Territory
covered by this Agreement and deal with it as the Company sees fit, without
thereby cancelling or terminating this Agreement and without thereby prejudicing
the Company's other rights and remedies hereunder. If the Company exercises such
right to remove such segment from the Territory, the Company shall refund to
Franchisee that portion of the franchise fee paid and attributable to such
Territory segment.
13) That the Franchisee will pay and discharge, at his own expense, any and all
expenses, charges, fees and taxes arising out of, or incidental to, the carrying
on of his business, including, without limiting, the generality of the
foregoing, all workers' compensation, unemployment insurance, and social
security taxes levied or assessed with respect to the employees of the
Franchisee, and the Franchisee will indemnify and hold harmless the Company,
against any and all claims for such expenses, charges, fees and taxes.
14) That the Company or one of its subsidiaries is the owner of the various
Trademarks used in the business, and will defend and protect same and indemnify
and hold harmless the Franchisee in the authorized use of same. Nothing herein
contained shall be construed as conferring upon the Franchisee any right or
interest in said Trademarks or copyrights, and patents, used in connection with
the business.
15) Company shall use best efforts to provide Franchisee with training programs
for Franchisee and staff, operations and management guidance, marketing programs
and advertising for the purpose of marketing the business throughout the entire
Territory and securing penetration for the population in the Territory.
16) That the Franchisee shall not have the right to use the Trademarks as part
of a trade name or the name of a partnership or corporation.
17) That immediately upon the cancellation or termination of this Agreement,
however caused, the Franchisee will eliminate the Trademarks from his business,
if they are in use, and will cease using, in any manner whatsoever, the
Trademarks or copyrights, and patents used in connection with the business.
18) That neither party to the Agreement shall be held liable for failure to
comply with any of the terms and conditions of this Agreement when such failure
has been caused solely by fire, labor dispute, strike, war, insurrection,
government restrictions, force majeure or act of God beyond the control and
without fault on the part of the party involved, provided such party uses due
diligence to remedy such default.
19) That this Agreement is personal. It cannot be transferred, assigned,
pledged, mortgaged, or otherwise disposed of by the Franchisee in whole or in
part without the Company's prior written consent, such consent not to be
unreasonably withheld.
<PAGE>
Failure of the Company to act within thirty (30) days of request for consent
shall be deemed consent.
20) That this Agreement expresses fully the understanding, and that all prior
understandings are hereby cancelled, and no future changes in the terms of this
Agreement shall be valid, except when and if reduced in writing and signed by
both the Franchisee and the Company, by legally authorized officials.
21) That this Agreement is subject to and controlled by all the terms and
conditions of the Settlement/Release Agreement between the Company and the
Nutri/System franchisees arising out of Civil Action No. 83-C-0601 (E.D. Wis.)
and attached hereto and made a part hereof as Exhibit C. In the event of any
inconsistencies between the terms and conditions of this Agreement and the terms
and conditions of said Settlement/Release Agreement, the Settlement/Release
Agreement shall control.
22) That the failure by the Company or the Franchisee to enforce at any time or
for any period of time any one or more of the terms and conditions of the
Agreement, shall not be a waiver of such terms or conditions or of such party's
right thereafter to enforce each and every term and condition of this Agreement.
23) That this Agreement and all its terms and conditions shall be governed by
and interpreted under the laws of the State of Pennsylvania.
NUTRI/SYSTEM, INC.
By
Title
This Agreement accepted and agreed to:
Exhibit 10.4
Independent Distributor [LOGO]
Application and Agreement
================================================================================
202 Welsh Road, Horsham, PA 19044
Fax: (215) 706-5367, Customer Order Number: 1-800-892-0276
- ----------------------------------------- -------------------------------------
Applicant Information Sponsor Information
- ----------------------------------------- -------------------------------------
Name: Name:
- ----------------------------------------- -------------------------------------
Social Security or Federal Tax ID: ID Number:
- ----------------------------------------- -------------------------------------
Address: Address:
- ----------------------------------------- -------------------------------------
City, State, and Zip Code: City, State, and Zip Code:
- ----------------------------------------- -------------------------------------
Phone (Daytime) Phone: Fax:
- ----------------------------------------- -------------------------------------
Phone (Evening): Sponsor's Signature:
- ----------------------------------------- -------------------------------------
Fax:
- ----------------------------------------- -------------------------------------
TERMS AND CONDITIONS
Executive Right Away Program
I want to become an Independent Distributor and become an Executive Initials
right away. I authorize NutriSystem Direct to charge my credit card
listed below, my checking account, or I have enclosed a check for -------
$299 for the Distibutor Kit, the Executive Development Kit and | |
an assortment of Nutri-System(R) products. I authorize NutriSystem | |
Direct to enroll me in the optional $100 AutoShip program. I | |
have attached an AutoShip form with my order. -------
Independent Distributor
I want to become an Independent NutriSystem Direct(TM) Initials
Distributor. I authorize NutriSystem Direct to charge my credit
card listed below, my checking account or I have enclosed a check --------
in the amount of $49 for the Distributor Kit. I understand this is | |
the only requirement to become a NutriSystem Direct(TM) | |
Distributor. | |
--------
[ ] LOGO [ ] LOGO [ ] LOGO [ ] LOGO
- ------------------------ -------------------------- ----------------------
Name on Card Card Number Expiration Date
[ ] Yes, I have read the terms and conditions listed on the reverse side of this
form and the NutriSystem Direct(TM) Compensation Plan. I understand all of my
options and I agree to comply by the company's policies and procedures stated
in this agreement and in the NutriSystem Direct(TM) Policy and Procedures
Manual.
- -------------------------------------------- ---------------------
Signature Date
Call in Application: 800-892-0276 Fax: 215-706-5367
- --------------------------------------------------------------------------------
775400 7/99 NutriSystem(R) (C)1999 Printed in U.S.A.
<PAGE>
NUTRISYSTEM DIRECT DISTRIBUTOR AGREEMENT TERMS OF ENROLLMENT
As a NutriSystem Direct Independent Distributor, I acknowledge that I am an
independent contractor and not an agent or employee of NutriSystem Direct. I
understand that I will not be treated as an employee for federal or state
tax purposes.
As a NutriSystem Direct Independent Distributor, I will make no statements,
disclosures, or representations to sell NutriSystem Direct products or
services, or in recuiting other prospective Distributors other than those
contained in approved NutriSystem Direct Literature.
I understand that no purchase other than a Distributor Kit is necessary to
become a NutriSystem Direct Distributor. I understand that I may terminate my
Distributorship at any time. I further understand that I am under no
obligation to make any financial investment to become a NutriSystem Direct
Independent Distributor. I also understand that any successful retail business
will incur business expenses beyond the purchase of product.
When I choose to become an Executive by accumulation, I must generate a monthly
personal sales volume of at least $100 SV to maintain may Executive status
and stay in the 4x7 Executive Organization. If I fail to meet this minimum
two months in a row, I will simply return to my sponsor's Personal Group. If
I choose to become an Executive right away, I must generate a monthly
personal Sales Volume of at least $100 SV and be enrolled in the autoship
program. If I fail to meet the Sales Volume minimum for two months in a row,
I will simply return to my sponsor's Personal Group.
I understand that if no personal sales volume is generated for 12 consecutive
months, this Agreement shall automatically terminate and any Distributorship
will be cancelled and any future Bonuses will be forfeited. I understand that
I may re-enroll after 12 months of not generating any sales volume by submitting
a new Distributor Agreement and purchasing a new Distributor Kit.
I understand that in order to maintain a viable marketing system and to comply
with changes in applicable law, NutriSystem Direct reserves the right to
change prices, company policies, company literature and/or the compensation
plan, without prior notice.
I understand that should I wish to terminate my distributorship. I must notify
NutriSystem Direct. Any that time any salable products may be returned for a
refund equal to 90% of the original purchase price less any commissions or
bonuses paid. In any state in which specific buy back requirements has been
enacted which may vary from the foregoing, NutriSystem Direct shall repurchase
products in accordance with the applicable statute.
NutriSystem Direct Check By Phone/Fax Terms and Conditions
You may use Check-By-Phone for product purchases or monthly services available
from NutriSystem Direct. To activite the Check-By-Phone option, please attach
a voided check to this Agreement. (No deposit slips or temporary checks will
be accepted.)
I hereby authorize NutriSystem Direct, its authorized agent in accordance with
this Agreement to initiate debit/credit entries to may checking account. I agree
that NutriSystem Direct shall be fully protected in honoring such a draft, and
if any funds are dishonored, whether intentionally or inadverently, NutriSystem
Direct shall be under no liability whatsoever even though such dishonor
results in the forfeiture of product, bonuses, or privileges I may have been
entitled to as an active distribuor.
Additional Terms and Conditions
I understand that in order to be successful in this program I must purchase
and sell NutriSystem Direct Products and retail them myself. I understand
that I can sponsor other distributors to do the same; and in order for them
to be successful they must purchase and sell products at retail and recruit
other people to do the same. I understand that in order to qualify for
commissions, I must retail or use in business building, 70% of the product
I purchase before I purchase more products.
Exhibit 10.5
NUTRISYSTEM.COM INC.
1999 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the nutrisystem.com inc. 1999 Equity Incentive
Plan (the "Plan") is to further the growth, development and financial success of
nutrisystem.com inc. (the "Company") by providing additional incentives to those
officers and key employees who are responsible for the management of the
Company's business, which incentives will enable them to participate directly in
the growth of the value of the capital stock of the Company. To accomplish these
purposes, the Plan provides a means whereby key employees and officers may
receive stock options ("Options") to purchase the Company's Common Stock, $.001
par value (the "Common Stock").
2. Administration.
(a) Composition of the Committee. The Plan shall be administered by a
committee (the "Committee") which shall be appointed by and serve at the
pleasure of the Company's Board of Directors (the "Board") or by the Board in
the absence of the appointment of the Committee. The Committee shall be
comprised of two or more members of the Board, each of whom shall be (i) a
"non-employee director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and (ii) an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to the foregoing, from time to time the
Board may increase or decrease the size of the Committee, appoint additional
members thereof, remove members with or without cause, appoint new members in
substitution therefor, fill vacancies or remove all members of the Committee and
thereafter directly administer the Plan.
(b) Authority of the Committee. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of the Plan and
to decide all questions of fact arising in its application; to determine the
officers and other key employees to whom awards shall be made and the type,
amount, size and terms of each such award; to determine the time when awards
shall be granted and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee shall have the authority to adopt,
amend and rescind such rules, regulations and procedures as, in its opinion, may
be advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures that: (i) deal with satisfaction of an
optionee's tax withholding obligations pursuant to Section 13 hereof, (ii)
include arrangements to facilitate an optionee's ability to borrow funds for the
payment of the exercise price of an Option, if applicable, from securities
brokers and dealers and (iii) include arrangements that provide for the payment
of some or all of an
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Option's exercise price by delivery of previously owned shares of Common Stock
or other property and/or by withholding some of the shares of Common Stock being
acquired upon exercise of an Option. All decisions, determinations and
interpretations of the Committee shall be final and binding on all optionees and
all other holders of Options granted under the Plan.
(c) Authority of the Board. Notwithstanding anything to the contrary set
forth in the Plan, all authority granted hereunder to the Committee may be
exercised at any time and from time to time by the Board. All decisions,
determinations and interpretations of the Board shall be final and binding on
all optionees and all other holders of Options granted under the Plan.
3. Stock Subject to the Plan. Subject to Section 16 hereof, the shares that
may be issued under the Plan shall not exceed in the aggregate 1,000,000 shares
of Common Stock. Such shares may be authorized and unissued shares or shares
issued and subsequently reacquired by the Company. Except as otherwise provided
herein, any shares subject to an Option that for any reason expires or is
terminated unexercised as to such shares shall again be available under the
Plan.
4. Eligibility To Receive Options. Persons eligible to receive Options
under the Plan shall be limited to those officers and other key employees of the
Company and any subsidiary (as defined in Section 424 of the Code or any
amendment or substitute thereto) who are in positions in which their decisions,
actions and counsel significantly impact upon the profitability and success of
the Company or a subsidiary of the Company; provided, however, that directors of
the Company who are not also officers or employees of the Company shall not be
eligible to participate in the Plan.
5. Types of Options. Grants may be made at any time and from time to time
by the Committee in the form of stock options to purchase shares of Common
Stock. Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").
6. Option Agreements. Each Option for the purchase of Common Stock shall be
evidenced by a written option agreement in such form not inconsistent with the
Plan as the Committee or the Board shall approve from time to time. The Options
granted hereunder may be evidenced by a single agreement or by multiple
agreements, as determined by the Committee in its sole discretion. Each option
agreement shall contain in substance the following terms and conditions:
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(a) Type of Option. Each option agreement shall identify the Options
represented thereby either as Incentive Stock Options or Nonqualified Stock
Options, as the case may be.
(b) Option Price. Each option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the
purchase price of the Common Stock subject to an Incentive Stock Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined by the Committee or the Board, but in no event less
than the par value of such stock. The purchase price of the Common Stock subject
to a Nonqualified Stock Option shall be not less than 85% of the fair market
value of such stock on the date the Option is granted, as determined by the
Committee or the Board. For this purpose, fair market value on any date shall
mean the closing price of the Common Stock, as reported in The Wall Street
Journal, or if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), or if
the Common Stock is not reported by Nasdaq, the fair market value shall be as
determined by the Committee or the Board pursuant to Section 422 of the Code.
(c) Exercise Term. Each option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
as determined by the Committee or the Board, provided that no Option shall be
exercisable after ten years from the date of grant thereof. The Committee shall
have the power to permit an acceleration of previously established exercise
terms, subject to the requirements set forth herein, upon such circumstances and
subject to such terms and conditions as the Committee deems appropriate.
(d) Incentive Stock Options. In the case of an Incentive Stock Option,
each option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify the
Option granted thereunder as a tax-favored Option (within the meaning of Section
422 of the Code or any amendment or substitute thereto or regulation thereunder)
including without limitation, each of the following, except that any of these
provisions may be omitted or modified if it is no longer required in order to
have an Option qualify as a tax-favored Option within the meaning of Section 422
of the Code or any amendment or substitute therefor:
(i) The aggregate fair market value, determined as of the date the
Option is granted, of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year under all
plans of the Company shall not exceed $100,000.
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(ii) No Incentive Stock Options shall be granted to any employee if
at the time the Option is granted such employee owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
its subsidiaries unless at the time such Option is granted the Option price is
at least 110% of the fair market value of the stock subject to the Option and,
by its terms, the Option is not exercisable after the expiration of five years
from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more than
three months, or one year in the case of an employee who dies or becomes
disabled within the meaning of Section 72(m)(7) of the Code or any substitute
therefor, after termination of employment with the Company.
(e) Substitution of Options. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become, and who do concurrently with the grant of
such options become, employees of the Company or a subsidiary of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or a subsidiary of the Company, or the acquisition by the Company or a
subsidiary of the Company of the assets of the employing corporation or the
acquisition by the Company or a subsidiary of the Company of stock of the
employing corporation. The terms and conditions of the substitute Options so
granted may vary from the terms and conditions set forth in this Section 6 to
such extent as the Committee at the time of grant may deem appropriate to
conform, in whole or in part, to the provisions of the stock options in
substitution for which they are granted.
7. Date of Grant. The date on which an Option shall be deemed to have been
granted under the Plan shall be the date of the Committee's authorization of the
Option or such later date as may be determined by the Committee at the time the
Option is authorized. Notice of the determination shall be given to each
individual to whom an Option is so granted within a reasonable time after the
date of such grant.
8. Exercise and Payment for Shares. Options may be exercised in whole or in
part, from time to time, by giving written notice of exercise to the President
of the Company, specifying the number of shares to be purchased. The purchase
price of the shares with respect to which an Option is exercised shall be
payable in full with the notice of exercise in cash, Common Stock at fair market
value or a combination thereof, as the Committee may determine from time to time
and subject to such terms and conditions as may be prescribed by the Committee
for such purpose. The Committee may also, in its discretion and subject to prior
notification to the Company by an optionee, permit an optionee to enter into an
agreement with the Company's transfer agent or a brokerage firm of national
standing whereby the optionee will
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simultaneously exercise the Option and sell the shares acquired thereby through
the Company's transfer agent or such a brokerage firm and either the Company's
transfer agent or the brokerage firm executing the sale will remit to the
Company from the proceeds of sale the exercise price of the shares as to which
the Option has been exercised.
9. Rights upon Termination of Service. In the event that an optionee ceases
to be an employee of the Company or any subsidiary of the Company for any reason
other than death, retirement (as hereinafter defined) or disability (within the
meaning of Section 72(m)(7) of the Code or any substitute therefor), the
optionee shall have the right to exercise the Option during its term within a
period of three months after such termination to the extent that the Option was
exercisable at the time of termination or within such other period and subject
to such terms and conditions as may be specified by the Committee. In the event
that an optionee dies, retires or becomes disabled prior to the expiration of
his Option and without having fully exercised his Option, the optionee or his
successor shall have the right to exercise the Option during its term within a
period of one year after termination of employment due to death, retirement or
disability to the extent that the Option was exercisable at the time of
termination or within such other period and subject to such terms and
conditions, as may be specified by the Committee. As used in this Section 9,
"retirement" means a termination of employment by reason of an optionee's
retirement at or after his earliest permissible retirement date pursuant to and
in accordance with his employer's regular retirement plan or personnel
practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, if the
term of an Incentive Stock Option continues for more than three months after
termination of employment due to retirement or more than one year after
termination of employment due to death or disability, such Option shall
thereupon lose its status as an Incentive Stock Option and shall be treated as a
Nonqualified Stock Option.
10. General Restrictions. Each Option granted under the Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, (ii) the consent or approval of any government regulatory body,
(iii) the satisfaction of any tax payment or withholding obligation or (iv) an
agreement by the recipient of an Option with respect to the disposition of
shares of Common Stock is necessary or desirable as a condition of or in
connection with the granting of such Option or the issuance or purchase of
shares of Common Stock thereunder, such Option shall not be consummated in whole
or in part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee or the Board.
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11. Rights of a Stockholder. The recipient of any Option under the Plan,
unless otherwise provided by the Plan, shall have no rights as a stockholder
unless and until a certificate for shares of Common Stock is issued and
delivered to him.
12. Right to Terminate Employment. Nothing contained in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any optionee the
right to continue in the employment of the Company or any subsidiary of the
Company or affect any right that the Company or any subsidiary of the Company
may have to terminate the employment of such optionee.
13. Withholding. Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company shall have the right
to require the recipient to remit to the Company an amount sufficient to satisfy
any federal, state or local withholding tax requirements prior to the delivery
of any certificate or certificates for such shares. If and to the extent
authorized by the Committee, in its sole discretion, an optionee may make an
election, by means of a form of election to be prescribed by the Committee, to
have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to termination by
the Committee or the Board at any time. Any securities so withheld or tendered
will be valued by the Committee or the Board as of the date of exercise.
14. Non-Assignability. No Option under the Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee or the Board may
approve. During the life of the recipient, such Option shall be exercisable only
by such person or by such person's guardian or legal representative.
15. Non-Uniform Determinations. The Committee's determinations under the
Plan, including, without limitation, determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options and the agreements evidencing same, need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under the Plan whether or not such persons are similarly situated.
16. Adjustments.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each
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outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee or the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, all outstanding Options will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Committee or the Board. The Committee or the Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Committee or the Board and give each Option
holder the right to exercise his Option as to all or any part of the shares of
Common Stock covered by the Option, including shares as to which the Option
would not otherwise be exercisable.
(c) Sale or Merger. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee or the Board, in the exercise of
its sole discretion, may take such action as it deems desirable, including, but
not limited to: (i) causing an Option to be assumed or an equivalent option to
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that an Option holder shall have the right
to exercise his Option as to all of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable or (iii) declaring that an Option shall terminate at a date fixed by
the Committee or the Board provided that the Option holder is given notice and
opportunity prior to such date to exercise that portion of his Option that is
currently exercisable.
17. Amendment. The Committee or the Board may terminate or amend the Plan
at any time with respect to shares as to which Options have not been granted,
subject to any required stockholder approval or any stockholder approval that
the
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Committee or the Board may deem to be advisable for any reason, such as for the
purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. Neither the Board nor the Committee may, without the
consent of the holder of an Option, alter or impair any Option previously
granted under the Plan, except as specifically authorized herein.
18. Conditions upon Issuance of Shares.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder and the requirements of any stock exchange upon which the Common
Stock may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the shares of Common Stock are
being purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such
representation is required by any of the aforementioned relevant provisions of
law.
19. Reservation of Shares. The Company, during the term of the Plan, will
at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained.
20. Effect on Other Plans. Participation in the Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive plan of
the Company or any subsidiary of the Company. Any Options granted pursuant to
the Plan shall not be used in determining the benefits provided under any other
plan of the Company or any subsidiary of the Company unless specifically
provided.
21. Duration of the Plan. The Plan shall remain in effect until all Options
granted under the Plan have been satisfied by the issuance of shares, but no
Option
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shall be granted more than ten years after the earlier of the date the
Plan is adopted by the Board or is approved by the Company's stockholders.
22. Forfeiture for Dishonesty. Notwithstanding anything to the contrary in
the Plan, if the Committee or the Board finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary of the Company that damaged the
Company or any subsidiary of the Company or that the optionee has disclosed
trade secrets of the Company or any subsidiary of the Company, the optionee
shall forfeit all unexercised Options and all exercised Options with respect to
which the Company has not yet delivered the certificates. The decision of the
Committee or the Board in interpreting and applying the provisions of this
Section 22 shall be final. No decision of the Committee or the Board shall
affect the finality of the discharge or termination of such optionee by the
Company or any subsidiary of the Company in any manner.
23. No Prohibition on Corporate Action. No provision of the Plan shall be
construed to prevent the Company or any officer or director thereof from taking
any corporate action deemed by the Company or such officer or director to be
appropriate or in the Company's best interest, whether or not such action could
have an adverse effect on the Plan or any Options granted hereunder, and no
optionee or optionee's estate, personal representative or beneficiary shall have
any claim against the Company or any officer or director thereof as a result of
the taking of such action.
24. Indemnification. With respect to the administration of the Plan, the
Company shall indemnify each present and future member of the Committee and the
Board against, and each member of the Committee and the Board shall be entitled
without further action on his part to indemnity from the Company for, all
expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
or the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth
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herein shall be available to or enforceable by any such member of the Committee
or the Board unless, within 60 days after institution of any such action, suit
or proceeding, he shall have offered the Company in writing the opportunity to
handle and defend such action at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors and
administrators of each such member of the Committee and the Board and shall be
in addition to all other rights to which such member may be entitled as a matter
of law, contract or otherwise.
25. Miscellaneous Provisions.
(a) Compliance with Plan Provisions. No optionee or other person shall
have any right with respect to the Plan, the Common Stock reserved for issuance
under the Plan or any Option until a written option agreement shall have been
executed by the Company and the optionee and all the terms, conditions and
provisions of the Plan and the Option applicable to such optionee and each
person claiming under or through him have been met.
(b) Approval of Counsel. In the discretion of the Committee and the
Board, no shares of Common Stock, other securities or property of the Company or
other forms of payment shall be issued hereunder with respect to any Option
unless counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign legal, securities
exchange and other applicable requirements.
(c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the
Exchange Act applies to Options granted under the Plan, it is the intention of
the Company that the Plan comply in all respects with the requirements of Rule
16b-3, that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that, if the Plan shall not so
comply, whether on the date of adoption or by reason of any later amendment to
or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to
be automatically amended so as to bring them into full compliance with such
rule.
(d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets under the Plan.
(e) Effects of Acceptance of Option. By accepting any Option or other
benefit under the Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan by the Company,
the Board or the Committee or its delegates.
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(f) Construction. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
26. Stockholder Approval. The Company shall submit the Plan to the
stockholders entitled to vote hereon for approval within twelve months after the
date of adoption by the Board in order to meet the requirements of Section 422
of the Code and the regulations thereunder. The exercise of any Option granted
under the Plan shall be subject to the approval of the Plan by the affirmative
vote of the holders of a majority of the outstanding shares of the Common Stock
present, or represented, and entitled to vote at a duly convened meeting of
stockholders.
Date of adoption by the Board of Directors: August 20, 1999
Date of approval by the stockholders: August 20, 1999
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Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
State of Incorporation
Name of Subsidiary or Organization
------------------ ----------------------
NutriSystem Franchise, Inc. Delaware
NutriSystem Direct, L.L.C. Pennsylvania
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To nutrisystem.com inc.:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
December 17, 1999
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<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 SEP-30-1998 SEP-30-1999
<CASH> 0 1,123 762 0 1,405
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 2,182 868 0 3,961
<ALLOWANCES> 0 440 341 0 220
<INVENTORY> 0 1,031 819 0 700
<CURRENT-ASSETS> 0 4,542 2,488 0 6,068
<PP&E> 0 489 510 0 327
<DEPRECIATION> 0 (292) (211) 0 (199)
<TOTAL-ASSETS> 0 4,826 2,924 0 6,822
<CURRENT-LIABILITIES> 0 3,307 1,541 0 4,296
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 20 20 0 24
<OTHER-SE> 0 545 503 0 2,458
<TOTAL-LIABILITY-AND-EQUITY> 0 4,826 2,924 0 6,822
<SALES> 47,030 45,871 9,323 7,351 6,925
<TOTAL-REVENUES> 47,030 45,871 9,323 7,351 6,925
<CGS> 45,823 47,686 7,101 5,571 5,014
<TOTAL-COSTS> 45,823 47,686 7,101 5,571 5,014
<OTHER-EXPENSES> 2,318 2,873 2,332 2,133 2,242
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 39 104 7 5 7
<INCOME-PRETAX> (1,517) (2,964) (117) (358) (8,598)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> (163) (1,598) (42) (141) (8,390)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (163) (1,598) (42) (141) (8,390)
<EPS-BASIC> (0.01) (0.08) (0.00) (0.01) (0.43)
<EPS-DILUTED> (0.01) (0.08) (0.00) (0.01) (0.43)
</TABLE>
