EXHIBIT 10.16

 

AGREEMENT

 

THIS AGREEMENT is made and entered into as of the 21st day of October 2003, by
and between GT MERCHANDISING & LICENSING LLC, a limited liability company
organized under the laws of the State of Delaware, located and doing business at
16 East 40th Street, New York, NY 10016 (“GTM&L”) and NUTRISYSTEM INC., a
corporation organized under the laws of the State of Delaware, located and doing
business at 202 Welsh Road, Horsham, PA 19044 (“NS”).

 

RECITALS

 

WHEREAS, NS owns and/or controls all rights to manufacture, distribute and sell
various foods and meal supplement and replacement products under the NutriSystem
and NutriSystem Nourish trademarks (the “NutriSystem Products”); and

 

WHEREAS, GTM&L is engaged in the creation, development and execution of product
marketing strategies, including the promotion, marketing, sales and distribution
of consumer products by various means, including the production and broadcast of
television programs designed to promote such products and telemarketing and
retail distribution of such products.

 

NOW THEREFORE, in consideration of the mutual covenants and conditions as set
forth hereinbelow, the parties agree as follows:

 

1. OWNERSHIP AND GRANT OF RIGHTS.

 

1.1 NS has developed and owns or controls all right, title and interest in and
to the NutriSystem Products and is the owner of the trademarks and the
registrations

--------------------------------------------------------------------------------

and/or applications for registration of the trademarks set forth in Schedule A
attached hereto and made a part hereof (“Licensed Trademarks”). The NutriSystem
Products, and all formulations thereof and trade secrets therein, together with
any additions and modifications thereto (“NS Assets”) and the Licensed
Trademarks shall be and remain the sole and exclusive property of NS.

 

1.2 The “Principal Product Configuration” shall consist of a mutually
agreed-upon configuration of specific individual NutriSystem Products selected
by GTM&L, or any approved, reasonably similar variation thereto, in either case
subject to NS’s approval. NS shall have the right, at any time, to require that
GTM&L reconfigure the Principal Product Configuration to the extent NutriSystem
Products included in the Principal Product Configuration are no longer offered
by NS or cannot be obtained by NS. Such right shall not be unreasonably
exercised by NS, and NS will make commercially reasonable efforts to (a) provide
GTM&L adequate notice so that GTM&L may change its marketing and operational
practices as appropriate and (b) perform its Approved Services (as defined in
Section 2.3 hereinafter) in such a way as to minimize adverse customer impact of
any such changes to the Principal Product Configuration. To the extent any
customers desire to customize the NutriSystem Products contained in the
Principal Product Configuration (“Customization”), GTM&L shall refer such
customers to the URL: www.NutriSystem.com/TV or such other URL mutually agreed
upon by the parties, or to NS’s customer service telephone number, where such
customers will be permitted to make reasonable Customizations. For the avoidance
of doubt, customers making such Customizations shall be deemed to be Designated
Customers.

 

- 2 -

--------------------------------------------------------------------------------

1.3 If GTM&L desires to sell any Upsells (as hereinafter defined) in connection
with the Principal Product Configuration, GTM&L shall, at its sole expense and
with the prior written approval of NS, develop appropriate packaging, which
shall incorporate the Licensed Trademarks (“GTM&L Packaging”). Subject to
Section 1.9, NS grants GTM&L a non-exclusive right and license to use the
Licensed Trademarks on the GTM&L Packaging in the Territory (as defined below),
but only during the Term of the Agreement and subject to the prior written
approval of NS. As used herein, “Upsells” shall mean any additional NutriSystem
Products or configurations thereof agreed upon by the parties from time to time
for inclusion in this definition.

 

1.4 NS grants GTM&L the exclusive (except with respect to NS’s continuing right
to have QVC, Inc. (“QVC”) or another shopping network (“Shopping Network”)
promote NS Products via its 24-hour electronic shopping network (“Electronic
Shopping”)), non-assignable right to create and broadcast a television
commercial of approximately thirty minutes (“Infomercial”) in the Territory for
the promotion and sale of the Principal Product Configuration under the Licensed
Trademarks, but only for the Term of the Agreement. For the avoidance of doubt,
NS may not during the Term broadcast in the Territory a television commercial of
duration of five minutes or more for the promotion and sale of NutriSystem
Products, nor allow any party other than GTM&L to do so, except via Electronic
Shopping.

 

1.5 NS grants GTM&L (i) the exclusive right (except for (1) the right of NS
franchisees to sell within their own franchise territories, which territories do
not contain more than 3% of the U.S. population and (2) the right of QVC to sell
the NS Products pursuant to the QVC Agreement (as defined below)) to sell in the
Territory, either

 

- 3 -

--------------------------------------------------------------------------------

individually or collectively, the items constituting the Principal Product
Configuration as “As Seen on TV” retail product (“Retail Products”) via retail
outlets (“Retail Channel”) and (ii) the non-exclusive right to market,
distribute, and/or sell in the Territory, either individually or collectively,
the items constituting the Principal Product Configuration and Upsells under the
Licensed Trademarks via a website (for the purpose of accepting orders from
customers responding to marketing efforts permitted hereunder, but not for the
purpose of untargeted outbound e-marketing), in-bound and outbound
telemarketing, email to Database Customers (as defined in Section 3.3), and
direct mail (“Non-Exclusive Channels of Trade”), and such other channels as
NutriSystem may approve at its discretion. As used herein, the Principal Product
Configuration, Upsells and Retail Products shall collectively constitute the
“Products”.

 

1.6 The ownership of all Licensed Trademarks contained in the Infomercial and
the GTM&L Packaging and the advertising materials for the Principal Product
Configuration and Upsells (collectively, the “Materials”), and all rights in the
Materials, shall remain vested in NS, and GT will include in the Materials any
appropriate trademark notices requested by NS. In the event NS exercises its
option as set forth in Section 7.9 herein, GTM&L will irrevocably assign to NS
all right, title and interest in and to the Materials, together with any
associated intellectual property rights that GTM&L may have in such Materials,
and GTM&L shall execute and deliver all instruments and other documents, and
shall take such other actions as may be reasonably requested by NS, to effect
the foregoing.

 

1.7 The parties acknowledge that the Materials are being created for this
venture and will incorporate the intellectual property rights of both parties.
Therefore,

 

- 4 -

--------------------------------------------------------------------------------

after the Term of this Agreement, including any extension thereof, neither party
shall have the right to use the Materials for any purpose whatsoever (other than
NS’s rights under Section 7.9 herein), provided however that NS may continue to
use its proprietary intellectual property rights and materials which may have
otherwise been embodied in Materials and GTM&L may continue to use any GTM&L
intellectual property components embodied in Materials.

 

1.8 The rights granted to GTM&L hereunder may be exercised only throughout North
America and the territories, possessions and military installations of the
United States (“Territory”).

 

1.9 Notwithstanding anything herein to the contrary but subject to Sections 1.4
and 1.5 herein, (a) NS reserves the right to sell the Principal Product
Configuration within or outside the Territory (1) itself, subject to Section
12.2 herein, (2) through its franchisees listed on Schedule C attached hereto
and made a part hereof, and (3) through QVC pursuant to the Agreement between NS
and QVC dated as of September 6, 2001 (filed with the U.S. Securities and
Exchange Commission as Form 8-K dated as of September 6, 2001) (the “QVC
Agreement”), and (b) GTM&L may not sell the Principal Product Configuration or
Upsells to any customer providing to GTM&L a ship-to address in the exclusive
franchisee territories listed on Schedule C. For the avoidance of doubt, GTM&L
shall have no rights in connection with this Agreement or otherwise with respect
to any configurations of NutriSystem Products or individual NutriSystem
Products, except as part of the Products.

 

1.10 Any and all rights granted herein to GTM&L regarding the Licensed
Trademarks shall be subject to the following restrictions, covenants and
obligations:

 

1.10(a) GTM&L may sublicense the rights granted under this Agreement to third
parties only with NS’s approval.

 

- 5 -

--------------------------------------------------------------------------------

1.10(b) If GTM&L, in the course of exercising its rights hereunder, acquires any
goodwill or reputation in the Licensed Trademarks, all such goodwill or
reputation will automatically vest in NS when and as, on an ongoing basis, such
acquisition of goodwill or reputation occurs, as well as at the expiration or
termination of this Agreement, without any separate payment or other
consideration of any kind to GTM&L, and GTM&L agrees to take such actions with
NS’s reasonable prior review and approval, at NS’s expense, to effect such
vesting, including without limitation the transfer to NS of rights in any
filings or registrations made under Section 1.10.3. GTM&L shall not use the
Licensed Trademarks in connection with any activity intended to disparage NS or
that violates any applicable law in the Territory.

 

1.10(c) Upon NS’s request, GTM&L shall execute and deliver to NS all instruments
and other documents, and shall take such other actions as may be necessary or
reasonably requested by NS, so that NS may protect and defend its rights in and
to the Licensed Trademarks.

 

1.10(d) GTM&L agrees to comply with the high quality standards determined by NS
as set forth in Schedule B attached hereto and made a part hereof (the “NS
Quality Standards”) and/or subsequently issued by NS, in a reasonable fashion
and with appropriate notice, and to cooperate with NS in facilitating NS’s
monitoring and control of the nature and quality of the products and services
bearing the Licensed Trademarks in order to enhance the goodwill symbolized by
the Licensed Trademarks. If NS determines in good faith that GTM&L’s use of the
Licensed Trademarks is

 

- 6 -

--------------------------------------------------------------------------------

inconsistent with the NS Quality Standards and/or good United States and
Canadian trademark practices, then upon NS’s written request, GTM&L shall begin
to conform such use to the NS Quality Standards and good United States and
Canadian trademark practices as soon as reasonably practicable and in any event
within ten business days and shall complete such measures within twenty-one
calendar days (or such other time period as is mutually agreed upon by the
parties). If GTM&L fails to suspend or begin to conform such use as soon as
reasonably practicable or in any event within five business days, or fails to
conform such use within ten business days (or such other time period as is
mutually agreed upon by the parties), NS shall, in addition to any other rights
and remedies, have the right to suspend GTM&L’s use of the Licensed Trademarks,
as applicable, and such failure to conform or suspend shall be deemed a material
breach by GTM&L hereunder.

 

1.11 NS and GTML shall jointly own the list of customers that respond to the
Infomercial (the “Infomercial Customer List”). Each party may use the
Infomercial Customer List to sell products itself, in accordance with all
applicable laws and such party’s privacy policy, except that during the Term NS
may not exploit this right in such a way as to deprive GTM&L of the benefits it
might reasonably expect to enjoy pursuant to this Agreement from sales of the
Infomercial Package (whether sales of the Principal Product Configuration or
authorized customizations thereto) or Upsells. Neither party shall (a) sell the
Infomercial Customer List to any third party or (b) conduct marketing on behalf
of any third party using the Infomercial Customer List, other than GTM&L’s
marketing of Upsells in accordance with Section 1.3 (whereupon NS Compensation
or Retail Compensation, as defined in Sections 8.4 and 8.5 hereinafter, will be
due in accordance with those Sections 8.4 and 8.5 below). This Section 1.11
shall survive the expiration or termination of this Agreement.

 

- 7 -

--------------------------------------------------------------------------------

2. OBLIGATIONS OF NS.

 

2.1 NS may select and provide to GTM&L a celebrity spokesperson to appear in the
Infomercial, subject to the prior written consent of GTM&L. Should this
celebrity be engaged for the Infomercial, NS shall be fully responsible for all
fees associated with the appearance of said celebrity and shall fully reimburse
GTM&L for any and all union payments required to be made for the celebrity’s
services (such fees and payments, collectively, “Celebrity Costs”), provided
that GTM&L shall use commercially reasonable efforts to inform NS in advance of
the amount of such Celebrity Costs and to keep all such Celebrity Costs to a
minimum. For the avoidance of doubt, this Section 2.1 shall not be construed to
make NS liable for Infomercial production costs which would have been incurred
if said celebrity were not used by GTM&L.

 

2.2 NS shall use commercially reasonable efforts to manufacture and package the
Products in sufficient quantities to meet the requirements of all orders placed
on behalf of Designated Customers and by GTM&L and accepted by NS (provided that
NS shall not unreasonably decline to accept an order). NS will use commercially
reasonable efforts to fulfill all such orders on a timely basis and shall comply
with all applicable regulations and guidelines set forth by the FTC pertaining
to timely fulfillment of orders, telemarketing scripts and conduct, and other
activities performed hereunder; orders placed on behalf of GTM&L will be
fulfilled within 10 days of receipt of such orders.

 

- 8 -

--------------------------------------------------------------------------------

2.3 NS shall provide to GTM&L “Approved Services” (including manufacturing,
inventory ordering and warehousing, packaging, order taking – subject to Section
3.2 – order processing, invoicing/payment processing, shipping, returns
processing, customer counseling and other services to the extent mutually agreed
upon by the parties) in accordance with industry standards, but in no event at a
service level lower than (i) the standards required by the FTC or (ii) NS’s
standards for serving its own customers.

 

2.4 NS shall provide to GTM&L a minimum of thirty (30) NS customers who have had
successful results using the NutriSystem Products, such results to include a
minimum loss of 25 pounds, a minimum loss of 10 inches and/or a drop of 2 or
more clothing sizes. Such customers must be willing to provide testimonials,
releases, before-and-after photographs and on camera services for broadcast in
the Infomercial.

 

3. OBLIGATIONS OF GTM&L.

 

3.1 GT shall produce at its expense, subject to Section 2.1, the Infomercial
featuring the Principal Product Configuration, as more fully set forth in
Section 4 hereinbelow, and shall purchase media time and make all arrangements
for broadcast of the Infomercial. The GTM&L personnel creating the Infomercial
and having material contact with third parties interested in purchasing the
Principal Product Configuration shall have appropriate technical and
professional skills to enable them to perform their duties in a professional
manner, consistent with generally accepted industry standards.

 

3.2 GTM&L shall operate, directly or indirectly, the call centers handling (i)
the initial calls generated by the Infomercial and (ii) outbound telemarketing
to the GTM&L Customer Database (as defined below) and follow-up order
acknowledgment related to (i) and (ii)), and shall transmit order information to
NS, which will fulfill all such orders accepted by NS.

 

- 9 -

--------------------------------------------------------------------------------

3.3 GTM&L may, at its discretion, offer the Principal Product Configuration and
Upsells via Non-Exclusive Channels of Trade to its database of current and past
customers of GTM&L (“Database Customers”). Orders received as a result of such
offers will be transmitted to NS for fulfillment and be separately coded for
royalty calculation purposes.

 

3.4 GTM&L may purchase items of the Principal Product Configuration from NS for
fulfillment of orders received by GTM&L in furtherance of its sales in
Non-Exclusive Channels of Trade. Such orders shall be placed periodically on a
net 30 basis, FOB NS, at NS’s documented cost of manufacturing, packaging,
fulfillment and other actual direct costs.

 

4. THE INFOMERCIAL.

 

4.1 GTM&L intends to produce and film the Infomercial no later than the latest
of (i) two months after the receipt from NS of reasonably sufficient sample
quantities of the Principal Product Configuration product; (ii) two months after
the receipt of NS customer testimonials as set forth in Section 2.4 hereof, or
(iii) one month and two weeks after the receipt from NS of reasonably sufficient
sample quantities of the Principal Product Configuration packaging (“Production
Target Date”), for test airing not more than six weeks after said Production
Target Date (“Testing Target Date”) and rollout, if appropriate, as soon as
commercially practicable thereafter. The Infomercial may feature a celebrity
provided by NS as the product spokesperson as set forth in Section 2.1
hereinabove, and/or may feature other talent approved by NS, the on-camera
services to be arranged by GTM&L.

 

- 10 -

--------------------------------------------------------------------------------

4.2 NS shall have a right of approval with respect to the format, offer and
script for the Infomercial, and the final offline version of the Infomercial.

 

4.3 The Principal Product Configuration will be offered for sale on a
single-sale or continuity basis via the Infomercial (“Infomercial Package”).
Customers responding to the Infomercial may be offered Upsells on a single-sale
or continuity basis.

 

4.4 GTM&L may develop a “Vitamin Product” for use as an Upsell with the prior
written approval of NS, under a trademark (other than “Nourish”) to be jointly
approved by the parties. In the event such Vitamin Product is developed, it
shall be deemed an Upsell for the purposes of this Agreement, but the Vitamin
Product shall be exclusive to the Infomercial and GTM&L Non-Exclusive Channels
of Trade and shall be discontinued, and the specific trademark therefor not used
by either party, after the termination or expiration of this Agreement. It is
agreed that the Vitamin Product will not be offered for sale within or as a part
of the Infomercial, but a free sample may be featured as an incentive for
purchase of the Infomercial Package.

 

5. NON-INFOMERCIAL SALES.

 

5.1 GTM&L may, at its discretion, offer to sell (a) the Principal Product
Configuration or Upsells, but not other NutriSystem Products, in the
Non-Exclusive Channels of Trade.

 

- 11 -

--------------------------------------------------------------------------------

5.2 GTM&L shall develop and implement a marketing strategy for “As Seen on TV”
sales of the Principal Product Configuration. Items of the Principal Product
Configuration will be purchased by GTM&L from NS for fulfillment of orders
received by GTM&L in accordance with Section 2.2 hereinabove. For the avoidance
of doubt, GTM&L may not sell the Upsells via the Retail Channel.

 

5.3 GTM&L’s Non-Exclusive Channels of Trade include the right to create and
operate a website (for the purpose of accepting orders from customers responding
to marketing efforts permitted hereunder, but not for the purpose of untargeted
outbound e-marketing), under a domain name to be approved in writing by NS,
featuring the Principal Product Configuration or Upsells.

 

5.4 The Principal Product Configuration as offered in the Non-Exclusive Channels
of Trade shall include some or all of the Licensed Trademarks, subject to the
provisions of Section 1.10.

 

6. CONSULTATION AND APPROVALS.

 

6.1 The parties shall use their best efforts to provide approvals in a timely
fashion and approvals required hereunder shall not be unreasonably withheld.
Submissions shall be deemed approved within seven (7) business days of a request
for approval, unless there has been specific written disapproval. Once an item
has been approved under this paragraph, it need not again be submitted for
approval for subsequent uses. Submissions shall be made as follows:

 

George Jankovic

NutriSystem, Inc.

202 Welsh Road

Horsham, PA 19044

Telephone: (215) 706-5391

Facsimile: (215) 706-5388

 

- 12 -

--------------------------------------------------------------------------------

Lynn Hamlin

GT Merchandising & Licensing LLC

16 East 40th Street

New York, NY10016

Telephone: (212) 951-3008

Facsimile: (212) 951-2375

 

6.2 All rights of consultation provided under the terms of this Agreement shall
be exercised in a fair and reasonable manner.

 

7. DURATION, TERMINATION, EXPIRATION:

 

7.1 The rights granted herein shall commence upon execution hereof and shall
continue through December 31, 2004 (such period, the first “Contract Year”) and
any extensions pursuant hereto.

 

7.2 In the event that NS has received at least the Auto-Renewal Hurdle for the
first Contract Year (as set forth on Schedule D) from GTM&L in NS Compensation
(as defined below) or a combination of NS Compensation and Short Fall Payment
(collectively, “Payments”) during the first Contract Year, this Agreement shall
be automatically renewed for one (1) additional twelve (12) month period (second
Contract Year). In the event said Payments are not more than the Retail Hurdle
for the first Contract Year (as set forth on Schedule D), the terms of this
Agreement pertaining to Retail Sales shall be modified as indicated in Sections
7.4 and Schedule E. A “Shortfall Payment” shall be a payment made by GTM&L at
its discretion in the event that NS Compensation actually earned is less than
the amount required for automatic renewal pursuant to this Section 7.2 or
Section 7.3. For the purpose of calculating whether the Payments exceed the
Auto-Renewal and Retail Hurdles, no more than 30% of the Payments shall have
been from NS Compensation pertaining to sales to Database Customers or from a
Shortfall Payment.

 

- 13 -

--------------------------------------------------------------------------------

7.3 In the event that, by the end of the second or any subsequent Contract year,
NS has received the Auto-Renewal Hurdle for the second and subsequent Contract
Years (as set forth on Schedule D) in Payments during said Contract Year and the
immediately preceding Contract Year, combined, this Agreement shall be
automatically renewed for one (1) additional twelve (12) month period. In the
event said Payments do not exceed the Retail Hurdle for the second and
subsequent Contract Years (as set forth on Schedule D), the terms of this
Agreement pertaining to retail sales shall be modified as indicated in Sections
7.4 and Schedule E. For the purpose of calculating whether the Payments exceed
the Auto-Renewal and Retail Hurdles, no more than 30% of the Payments shall have
been from NS Compensation pertaining to sales to Database Customers or from a
Shortfall Payment.

 

7.4 The “Term” shall consist of the first and any subsequent Contract Years and,
with respect to As Seen on TV Retail Sales, an additional twelve-month period
(the “Retail Tail”), except that the Retail Tail will not be added to any
Contract Year whose Retail Hurdle was not achieved.

 

7.5 For the avoidance of doubt, the failure of GTM&L to meet the Production
Target Date or the Testing Target Date, or to have made Payments of at least
$200,000 by the date seven months after the Testing Target Date, shall be deemed
a material breach; a subsequent termination of this Agreement by NS pursuant to
Section 7.7 shall constitute “Early Termination”. In the event of such Early
Termination, all rights granted to GTM&L pursuant to this Agreement shall
immediately terminate and revert to NS, subject only to fulfillment of approved
orders of Products (and continuity shipments related thereto, if any) and a
Sell-Off Period as set forth in Section 7.8.

 

- 14 -

--------------------------------------------------------------------------------

7.6 Notwithstanding anything to the contrary contained herein, if GTM&L shall
file a petition in bankruptcy or make an assignment for the benefit of
creditors, or if any bankruptcy proceeding or assignment for benefit of
creditors shall be commenced against GTM&L and not be discharged within sixty
(60) days after the date of its commencement, then in any of such events, NS, in
addition to such other rights or remedies which it may have at law, equity or
under this Agreement, may elect to terminate this Agreement forthwith, without
prejudice to any rights or claims it may have, and all rights hereunder shall
thereupon terminate, revert to and be vested in NS.

 

7.7 Either party may terminate this Agreement for any material breach which
remains uncured thirty (30) days after receipt of written notice of said
material breach. Each party acknowledges the value of the intellectual property
of the other and that misuse thereof would cause the affected party irreparable
harm and would constitute a material breach of this Agreement.

 

7.8 Following the termination or expiration of this Agreement, GTM&L shall cease
airing the Infomercial and cease advertising the NutriSystem Products. However,
GTM&L, subject to the provisions of Section 1.10, shall be entitled to sell-off
existing inventories at retail for a period not to exceed six (6) months and NS
shall fulfill Upsells and continuity shipments of the Infomercial Package to
Designated Customers for a period of one (1) year (“Sell-Off Period”). Payments
required to be made by both parties hereunder shall continue to be paid on a
timely basis for all sales made during the Sell-Off Period.

 

- 15 -

--------------------------------------------------------------------------------

7.9 Upon termination or expiration of this Agreement, and subject to the
Sell-Off Period rights, the rights granted to GTM&L under this Agreement shall
terminate and all rights granted to GTM&L with respect to the Infomercial,
Licensed Trademarks and NS’s Assets shall revert to NS. The Infomercial shall be
destroyed and any materials proprietary to GTM&L contained therein shall never
be used by NS, unless, in the event of an Early Termination, NS, at its option,
elects to purchase the Infomercial and all elements thereof from GTM&L, at fifty
(50%) percent of GTM&L’s actual cost, in which instance NS (i) will be obligated
to enter into separate agreements with the Infomercial producer and all talent
prior to any airing by NS of the Infomercial and (ii) must delete all
Infomercial references to GTM&L. The parties shall cooperate fully with each
other in executing documents and taking all such other action as shall be
reasonably requested to accomplish and confirm the foregoing. In the event that
NS does not purchase the Infomercial, NS shall not be precluded from (i)
creating its own infomercial for any or all of the NutriSystem Products or (ii)
using in its infomercial the testimonials featured in GTM&L’s Infomercial,
provided however that NS does not use the copyrightable creative aspects of the
Infomercial.

 

7.10 If, at any time during the Term of this Agreement, GTM&L is enjoined from
the broadcast of the Infomercial or from otherwise promoting the NS Products as
permitted under this Agreement as a result of a claim of infringement based upon
a Licensed Trademark (an “Injunction”), then (1) NS shall reimburse GTM&L for
the reasonable costs incurred by GTM&L to avoid violating the Injunction; and
(2) the parties shall negotiate in good faith a pro rata reduction to the
Auto-Renewal Hurdle and Retail Hurdle for each Contract Year during any portion
of which an Injunction is in force and GTM&L has not yet had sufficient time to,
using commercially reasonable efforts, modify the Infomercial or Materials, as
applicable, to avoid violating the Injunction.

 

- 16 -

--------------------------------------------------------------------------------

8. FINANCIAL OBLIGATIONS.

 

8.1 During the Term of this Agreement all monies received by NS from Designated
Customers (as defined below), including shipping and handling, will be remitted
to GTM&L by NS, on a weekly basis, after a deduction is taken by NS for Approved
Services and for “NS Compensation” as set forth hereinafter.

 

8.2 As used herein “Designated Customers” shall include all customers responding
to the Infomercial and all Database Customers.

 

8.3 The deductions for Approved Services shall be based upon NS’s actual cost,
which costs shall be mutually determined by the parties. The costs which shall
initially apply, for the period up to and including the date one month after
rollout, are to be negotiated between the parties as soon as practicable and a
schedule of said costs will be formalized and signed by both parties. Said
schedule shall be revised periodically as appropriate, but not more than
monthly, based upon good faith negotiation, and revised rates may be applied
retroactively for up to one month at either party’s option.

 

8.4 The NS Compensation which may be retained by NS for sales to Designated
Customers is set forth on Schedule E.

 

8.5 During the Term of this Agreement, GTM&L shall pay to NS Retail Compensation
as set forth on Schedule E.

 

- 17 -

--------------------------------------------------------------------------------

8.6 Retail Compensation shall accrue upon shipments made by GTM&L, except for
sales to GTM&L’s point-of-sale retail customers, for whom the Retail
Compensation shall accrue upon actual sell-through to the ultimate consumer.
GTM&L may take a reasonable reserve for returns not to exceed (i) twenty (20%)
percent of Retained Revenues for all sales other than non point-of-sale Retail
Sales and (ii) fifty (50%) for non point-of-sale Retail Sales. Any reserve taken
hereunder shall be liquidated in the second accounting quarter thereafter.

 

8.7 A reasonable amount of the Principal Product Configuration may be used by
GTM&L as (i) samples (to be provided at NS’s expense) and (ii) for promotional
purposes (to be purchased by GTM&L from NS at NS’s actual direct cost) on a
royalty-free basis, such amount not to exceed five hundred (500) units of any
item each year.

 

8.8 Any NS Compensation earned and not already retained by NS pursuant to
Section 8.1 shall be due and payable to NS on a calendar quarterly basis, with
each payment being due within forty-five (45) days following the end of the
calendar quarter to which it pertains.

 

8.9 Each payment to a party hereunder shall be accompanied by a detailed
statement of accounting setting forth all revenues received and the source of
such revenues, all deductions taken by amount and category and other sufficient
information to substantiate the calculation of such payment, which statement
shall be deemed final two (2) years following its delivery in the absence of any
written notice of objection prior to expiration of such two (2) year period.

 

8.10 The parties shall maintain complete and accurate books of account and
records relating to costs, Net Revenues and Retained Revenues. During the Term,

 

- 18 -

--------------------------------------------------------------------------------

each party shall have the right, upon thirty (30) days written notice, to itself
or via designated representatives inspect and make copies of the accounting
records of the other party relating to this Agreement. Such inspections shall
take place during the parties’ normal business hours, but there shall not be
more than one inspection per year, nor may any audit take place during the first
three (3) weeks of any calendar quarter. Such inspections shall be performed at
the expense of the inspecting party, unless an audit reveals an error in excess
of five (5%) percent in which case the documented out-of-pocket audit costs will
be reimbursed by the inspected party.

 

9. ADDITIONAL INFOMERCIALS.

 

9.1 GTM&L shall have the right throughout the Term to update the Infomercial by
re-editing existing footage and adding new footage upon NS’s prior written
approval, (“Updated Infomercial”). In the event that GTM&L elects to update the
Infomercial, it must provide NS with written notice of such election. Any
Updated Infomercial shall be treated as an Infomercial for the purposes of this
Agreement.

 

9.2 Throughout the Term, NS grants GTM&L the right to produce, at GTM&L’s sole
option, additional television commercials of approximately thirty minutes for
the Principal Product Configuration under the same terms and conditions as set
forth herein (“Additional Infomercials”). In the event that GTM&L elects to
shoot Additional Infomercials, it must provide NS with written notice of such
election. Any Additional Infomercials shall be treated as Infomercials for the
purposes of this Agreement.

 

- 19 -

--------------------------------------------------------------------------------

10. REPRESENTATIONS AND WARRANTIES.

 

10.1 NS warrants and represents that:

 

10.1(a) it has the right to enter into this Agreement and to grant the rights as
set forth hereinabove;

 

10.1(b) the Licensed Trademarks are registered, or are the subject of pending
applications, in the United States and Canada; NS is not aware of any
conflicting claims or infringements of said trademarks; and NS believes it has
all necessary rights to use and authorize the use of the Licensed Trademarks;

 

10.1(c) there are no contractual obligations preventing its fulfillment of this
Agreement, or materially impairing or diminishing the value of the rights
granted hereunder;

 

10.1(d) neither this Agreement, nor the transactions contemplated hereby, will
cause a violation of any other agreement to which NS is a party;

 

10.1(e) all materials and information provided by NS are true and accurate, and
compliant with regulations of the FDA and other applicable regulatory
authorities;

 

10.1(f) the NutriSystem Products as formulated and packaged are safe for
consumption and their packaging complies with all governmental requirements and
fully discloses all ingredients;

 

10.1(g) its performance hereunder does not infringe upon the proprietary rights
of any third-party;

 

- 20 -

--------------------------------------------------------------------------------

10.1(h) its performance hereunder will be in accordance with and compliant with
all laws, regulations and guidelines of all relevant federal, state and local
authorities and regulatory agencies;

 

10.1(i) it has complied with Section 1(b) of the QVC Agreement, and QVC has
waived its rights under that Section 1(b) to produce and air an infomercial
offering NS Products; and

 

10.1(j) Until such time as the U.S. Patent and Trademark Office issues a
certificate of registration based upon NS’s application to register “Nourish”
alone as a trademark (as opposed to in combination with the Trademark
“NutriSystem”), NS will not use the word “Nourish” alone as a trademark except
on the back of the packaging of NS Products prior to December 31, 2004.

 

10.2 GTM&L warrants and represents that:

 

10.2(a) it has the right to enter into this Agreement and to accept the rights
as set forth hereinabove;

 

10.2(b) there are no contractual obligations preventing its fulfillment of this
Agreement, or materially impairing or diminishing the value thereof;

 

10.2(c) neither this Agreement, nor the transactions contemplated hereby, will
cause a violation of any other agreement to which GTM&L is a party;

 

10.2(d) after the termination or expiration of this Agreement and the Sell-Off
Period, it will cease to use the Licensed Trademarks, the NS Assets, and the
Infomercial;

 

10.2(e) its performance hereunder does not infringe upon the proprietary rights
of any third-party;

 

- 21 -

--------------------------------------------------------------------------------

10.2(f) its performance hereunder will be in accordance with and compliant with
all laws, regulations and guidelines of all relevant federal, state and local
authorities and regulatory agencies.

 

10.3 Sections 10.1 and 10,2 shall survive the termination or expiration of this
Agreement.

 

11. INDEMNIFICATIONS.

 

11.1 NS shall defend, indemnify and hold GTM&L and its officers, directors,
shareholders, successors and assigns and the Infomercial producer (collectively
“GTM&L Indemnitees”) harmless from and against any and all losses, costs,
damages, charges, claims, legal fees, recoveries, judgments, penalties and/or
reasonable expenses (collectively “Losses”) which may be obtained against,
imposed upon, or suffered by GTM&L Indemnitees by reason of any breach of any
representation or warranty made by NS under this Agreement, or any material
breach of any other material provision hereof by NS under this Agreement, or by
the use by NS, or GTM&L with NS’s approval, of “Nourish” alone as a trademark.
The foregoing obligation of NS to defend, indemnify, and hold Indemnitees
harmless shall survive termination or expiration of this Agreement.

 

11.2 For the duration of the Term of this Agreement, and for a period of two
years thereafter, NS shall include GTM&L and its Infomercial producer as
additional insureds on insurance policies to be maintained by NS for (i)
comprehensive general liability, with combined limits of not less than two
million ($2,000,000.00) dollars, (ii) errors and omissions, with combined limits
of not less than two million ($2,000,000.00)

 

- 22 -

--------------------------------------------------------------------------------

dollars, and (iii) product liability, with combined limits of not less than six
million ($6,000,000.00) dollars. With respect to product liability, to the
extent NS has been named as an additional insured on the insurance policies of
NS’s product manufacturers, NS will make its reasonable best effort to have
GTM&L and its Infomercial producer added as additional insureds on said
policies. NS shall provide GTM&L, upon earliest availability and thereafter upon
reasonable request, with certificates of insurance evidencing such coverage.

 

11.3 GTM&L shall defend, indemnify and hold NS and its officers, directors,
shareholders, successors and assigns (collectively, “NS Indemnitees”) harmless
from and against any and all losses, costs, damages, charges, claims, legal
fees, recoveries, judgments, penalties and/or expenses which may be obtained
against, imposed upon or suffered by NS Indemnitees by reason of (a) any breach
of any representation or warranty made by GTM&L under this Agreement or any
material breach of any other material provision hereof by GTM&L, (b) any claim
that the Materials or the services provided hereunder by GTM&L (including,
without limitation, GTM&L’s operation, directly or indirectly, of call centers)
infringes or misappropriates any copyright, trademark, trade secret, patent or
other intellectual property rights of a third party (except to the extent
arising out of the Licensed Trademarks themselves), or (c) acts or omissions of
GTM&L or its agents or employees in connection with the appearance of a
celebrity spokesperson in accordance with Section 2.1. The foregoing obligation
of GTM&L to defend, indemnify, and hold NS harmless shall survive termination or
expiration of this Agreement.

 

- 23 -

--------------------------------------------------------------------------------

11.4 For the duration of the Term of this Agreement, and for a period of two
years thereafter, GTM&L shall maintain insurance policies for errors and
omissions, with combined limits of not less than two million ($2,000,000.00)
dollars. GTM&L shall provide NS, upon earliest availability and thereafter upon
reasonable request, with certificates of insurance evidencing such coverage.

 

12. EXCLUSIVITY AND RESTRICTIONS.

 

12.1 For the duration of the Term of this Agreement, subject to Sections 1.4,
1.5 and 1.9 herein, NS shall not itself sell or license the right to sell
NutriSystem Products in the Territory (i) via an infomercial or (ii) at retail
as “As Seen on TV”.

 

12.2 NS will not offer a “Core Food Product” (three meals plus snack per day)
via a television commercial for a price per day which (i) during the periods
January – June and September – October of any Contract Year is lower than the
price per day for the Core Food Product offered via the Infomercial during that
same period or (ii) during the periods July - August and November – December of
any Contract Year is less than fifty five (55%) percent of the price per day for
the Core Food Product offered via the Infomercial during that same period. In
the event there are significant differences between the Core Food Product
offered by NS via its television commercials and GTM&L via its Infomercial,
price comparisons for the purpose of determining compliance with this Section
12.2 will be made by mutual agreement of the parties through good faith
discussion and negotiation.

 

- 24 -

--------------------------------------------------------------------------------

13. PROTECTION OF NS’S ASSETS.

 

13.1 Each party shall promptly notify the other of any information obtained
regarding infringements by third parties of any of the Licensed Trademarks
and/or the NS Assets. After NS becomes aware of any such infringement, NS shall
take such action to stop the infringement as it deems necessary and appropriate
in its sole and absolute discretion. In connection therewith, GTM&L shall
cooperate fully with NS and shall join with NS as a party to any action brought
by NS for such purpose, if so requested by NS. NS shall retain counsel of its
choice to represent it (and GTM&L, if a party to the action at the request of
NS) in connection with any such action, and shall bear all of the expenses and
costs thereof. Any amounts recovered in any such action, whether by way of
settlement, award, or judgment, after expenses have been deducted, shall be
equitably divided between the parties hereto in the event GTM&L has suffered a
material loss in revenues; otherwise, recoveries shall be retained by NS. GTM&L
shall have the right to retain counsel of its own choosing to represent it in
any such action, in which instance it shall pay all fees and costs incurred
therein for its own representation; further, in the instance that NS elects not
to initiate legal proceedings with respect to any infringement, or suspected
infringement, GTM&L shall be free to initiate and pursue legal proceedings at
its own expense and to retain as its own property any amounts recovered thereby.
Under no circumstances may GTM&L settle a dispute involving NS’s Assets without
the prior written consent of NS.

 

14. NOTICES.

 

14.1 All notices to be sent pursuant to this Agreement shall be made by hand
delivery, courier service or certified mail, return receipt requested, postage
prepaid, to the addresses set forth below, unless the parties hereinafter so
notify each other in writing of different addresses. Notice shall be effective
upon actual receipt of notice.

 

- 25 -

--------------------------------------------------------------------------------

GTM&L:

  GT Merchandising & Licensing LLC     16 East 40th Street     New York, NY
10016     Attn: David Tanzer     cc:     Gerard Love     cc:     Karen Charal
Gross, Esq.

 

NS:

  NutriSystem, Inc.     202 Welsh Road     Horsham, PA19044     Attn: George
Jankovic

 

15. MISCELLANEOUS.

 

15.1 Neither party shall be in breach of this Agreement to the extent it is
unable to perform due to any event of “force majeure”, i.e. any fire,
earthquake, epidemic, explosion, casualty, strike, war, riot, civil disturbance,
act of God, state of national law, decree or ordinance, or executive or judicial
order. If production of the Infomercial is delayed or prevented by any such
reason for an aggregate of sixty (60) days, either party may terminate this
Agreement.

 

15.2 This Agreement is not transferable and may not be sublicensed without the
prior consent of the other party which consent may not be unreasonably withheld
or delayed. Each of the parties may assign this Agreement to a parent,
subsidiary or affiliate or any entity, a majority of which is owned by its
owners and which company is controlled by its owners and provided such successor
company expressly assumes the obligations set forth herein in written form. This
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their successors and any approved transferee or assignee.

 

- 26 -

--------------------------------------------------------------------------------

15.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by the courts
located in the State of New York. In the event that any legal action is
commenced to enforce any term of this Agreement or to seek recovery for any
breach thereof, the prevailing party in such action shall be entitled to
recovery of its reasonable attorney’s fees and actual costs incurred in such
action.

 

15.4 This Agreement contains the entire agreement of the parties and supersedes
any prior agreements, understandings and memoranda relating thereto. This
Agreement may not be changed, altered or modified in any way except by a writing
signed by the parties hereto.

 

15.5 If any clause or provision of this Agreement shall be adjudged to be
invalid or unenforceable such adjudication shall not affect the validity of any
other clause or provision, which shall remain in full force and effect.

 

15.6 Nothing contained in this Agreement shall be construed to create any
partnership, joint venture, principal/agent relationship, or any other fiduciary
relationship between the parties hereto. The parties expressly disclaim the
existence of any third party beneficiaries to this Agreement.

 

15.7 The parties acknowledge that the terms and provisions of this Agreement,
any disputes arising thereunder, and the confidential information provided by
each party to the other party, are confidential in nature, and therefore agree
not to disclose the content or substance thereof to any third parties (not
affiliated by common ownership, employment, or other form of agency
relationship) other than as may be reasonably required in order to comply with
any obligations imposed by the Agreement, or to comply with any statute,
ordinance, rule, regulation, other law or court order.

 

- 27 -

--------------------------------------------------------------------------------

15.8 No modification, amendment, supplement to, or waiver of this Agreement or
any term or condition hereunder shall be binding upon the parties hereto unless
made in writing and duly signed by both parties.

 

15.9 A failure or delay of either party to this Agreement to enforce at any time
any of the provisions hereof or to require at any time performance of any of the
provisions hereto shall in no way be construed to be a waiver of such provisions
of this Agreement.

 

15.10 The paragraph headings used in this Agreement are for convenience only and
shall have no legal effect whatever.

 

THE FOREGOING IS FOR DISCUSSION PURPOSES ONLY AND SHALL NOT BE DEEMED TO BE A
BINDING AGREEMENT UNLESS AND UNTIL EXECUTED BY APPROPRIATE PARTIES.

 

GT MERCHANDISING & LICENSING LLC

  NUTRISYSTEM, INC.

    /S/ ANDREW D. GREENBERG

--------------------------------------------------------------------------------

 

    /S/ MICHAEL J. HAGAN

--------------------------------------------------------------------------------

By: Andrew D. Greenberg, Chairman and CEO

  By: Michael J. Hagan, CEO

    /S/ GERALD J. LOVE

--------------------------------------------------------------------------------

   

By: Gerald J. Love, Chief Operating Officer

   

05-0551196

  23-3012204

Tax I. D. Number

  Tax I. D. Number

 

- 28 -